ADBE

Thinking Slow: 3 Research Blind Spots That Changed the Investment World

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Dear members: — Daniel Kahneman in his text Thinking, Fast and Slow (1) divided the human psyche into two systems. The first system is instinctive and emotional, often set on autopilot, while the second system is slower and more logical, requiring a calculating conscious. Many of the maxims the investment world takes for granted today suffer from conclusions that are made rapidly, almost without thinking, driven by our first system, creating what I call research blind spots. — In World War II, Allied bombing raids were suffering from very high casualty rates. It was estimated that for those pilots that were flying at the beginning of the war, only about 10% survived, a terrible loss rate. Bombing was crucial to the Allied … Read more

Adobe Raises Guidance Due to AI Strength

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Image: Adobe’s stock has been choppy the past few years. By Brian Nelson, CFA Adobe Inc. (ADBE) recently reported strong second quarter fiscal 2025 results. The company posted record revenue of $5.87 billion in the fiscal second quarter, representing 11% year-over-year growth in reported and in constant currency and better than the consensus forecast of $5.8 billion. Non-GAAP operating income was $2.67 billion, up from $2.44 billion in last year’s quarter, while non-GAAP net income was $2.17 billion, up from $2.02 billion in the same period a year ago. On a non-GAAP basis, diluted earnings per share was $5.06 versus $4.48 per share in last year’s period and better than the consensus forecast of $4.97 per share. Management had the … Read more

3 Undervalued Stocks to Consider Buying Now

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Dear readers:   With the markets retracing most of their recent drawdown, we’re taking a victory lap as we didn’t panic, nor should have you. We highlighted our wait-and-see approach amidst the worst of the pullback, and we expect the Magnificent 7 (large cap growth and big cap tech) to continue to propel the markets higher, as they have done.   We’ve been busy rolling valuation models as we finetune our assumptions for a great number of companies under coverage. While doing so, we came across three undervalued stocks that are also included in the simulated newsletter portfolios. We think they’re prime for highlight.   The three stocks are UnitedHealth Group (UNH), Nvidia (NVDA) and Alphabet (GOOG). We spend a lot of time on discounted cash-flow valuation, … Read more

Magnificent 7 Earnings Reports Not Bad Thus Far

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By Brian Nelson, CFA   Shortly after Trump’s Liberation Day, where the President unveiled lofty tariffs on numerous countries, we released our wait-and-see outlook for the equity markets, which thus far has proven to be the right move, with the markets largely recovering from the depths reached in April. The S&P 500 (SPY), for example, is down just 3.3% year-to-date, excluding dividends.   A lot has happened since Liberation Day, including easing of tariffs to a 10% baseline for most, if not all, countries, with the key exception of China, where tariffs remain extremely elevated and prohibitive. Many countries are now reportedly negotiating trade agreements with the White House, and we expect China to be added to that list soon, even if … Read more

Trump Tariffs Higher than Expected; What We’re Doing

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By Brian Nelson, CFA The Trump tariff increases came in larger than what we were expecting, and it remains to be seen how they will flow through the global economy, as we monitor potential retaliatory tariffs from other countries. As it relates to the equity markets, we’re taking a wait and see approach at the moment as we monitor new policy changes related to trade, immigration, fiscal (tax), and regulations. In short, we’re not overreacting to the sell off as we won’t have a great handle on the tariff impact to companies for a few quarters when they report results post-tariff increases. That said, we’re expecting continued market volatility, with meaningful risk to the downside, before trade uncertainty alleviates in … Read more

Adobe’s Outlook Falls Short of Expectations

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Image Source: TradingView By Brian Nelson, CFA On March 12, Adobe (ADBE) reported better than expected first quarter fiscal 2025 results with both revenue and non-GAAP earnings per share coming in ahead of expectations. The company achieved record revenue in the fiscal first quarter, showcasing 10% year-over-year growth (11% in constant currency). Non-GAAP operating income and non-GAAP net income came in at $2.72 billion and $2.22 billion, respectively. In the quarter, the company reported record operating cash flows of $2.48 billion. Adobe repurchased approximately 7.0 million shares in the quarter. Management had the following to say about the quarter: Adobe’s success over the next decade will be driven by customer-focused innovation and new offerings for creators, marketing professionals, business professionals … Read more

Adobe Issues Cautious Fiscal 2025 Guidance

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Image Source: Adobe By Brian Nelson, CFA Adobe (ADBE) reported better than expected fiscal fourth quarter 2024 results on December 11 that showed outperformance with respect to revenue and non-GAAP earnings per share. Revenue increased 11% in the quarter, while diluted earnings per share came in at $3.79 on a GAAP basis and $4.81 on a non-GAAP basis, exceeding the consensus forecast by $0.14. The company put up record fiscal fourth quarter operating cash flow of $2.92 billion, while it exited the quarter with remaining performance obligations of $19.96 billion. Free cash flow was $2.87 billion for the three months ended November 29. Management was upbeat in the press release: Adobe delivered record FY24 revenue, demonstrating strong demand and the … Read more

Oracle’s Remaining Performance Obligations (RPO) Growth Speaks to Accelerated Expansion

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Image Source: Oracle By Brian Nelson, CFA On December 9, Oracle (ORCL) reported lower than expected second quarter fiscal 2025 results with revenue and non-GAAP earnings per share coming in lower than the consensus forecasts. Total revenue was up 9% year-over-year in both USD and constant currency, while GAAP earnings per share increased 24% and non-GAAP earnings per share advanced 10%, to $1.47. Cloud services and license support revenues increased 12% year-over-year in both USD and constant currency, while cloud license and on-premise license revenue nudged up 1% in USD and 3% in constant currency. Management’s commentary was upbeat in the press release: Record level AI demand drove Oracle Cloud Infrastructure revenue up 52% in Q2, a much higher growth … Read more

Brain Teaser – Reflexive versus Reflective

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Dear members: — Jason Zweig of the Wall Street Journal, wrote in his pioneering text, Your Money and Your Brain, a few fun examples of how sometimes the psychological process of anchoring and adjustment can trip us up. — In one notable example, Zweig wrote about how two psychologists Amos Tversky and Daniel Kahneman had asked volunteers to spin a wheel of fortune numbered from 0 to 100. The contestants didn’t know that the wheel was rigged to produce either a 10 or a 65 for the experiment. — After spinning the wheel, the contestants were then asked whether the percentage of total United Nations membership made up of countries in Africa was higher or lower than the number that came up. … Read more

Adobe’s Fiscal Fourth Quarter Outlook Comes Up Short of Expectations

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Image: Adobe’s shares traded down on a weaker than expected fiscal fourth quarter outlook. By Brian Nelson, CFA Adobe (ADBE) reported better than expected fiscal third quarter 2024 results on September 12, but the company’s outlook left something to be desired. In the quarter, Adobe grew revenue 11%, while non-GAAP earnings per share came in at $4.65, both above the consensus forecast. Non-GAAP operating income was $2.52 billion, while non-GAAP net income reached $2.08 billion. Operating cash flow was $2.02 billion, up from $1.87 billion in the year-ago quarter, while it exited the period with remaining performance obligations (“RPO”) of $18.14 billion. During the quarter, Adobe bought back 5.2 million shares. Free cash flow in the quarter was $1.96 billion. … Read more