The market continues to seesaw, as investors are weighing the weakening of the pandemic and strong corporate earnings against high inflation and geopolitical tensions, notes Mark Skousen, editor of Home Run Trader.
How will this scenario turn out? The greatest investors — men like Warren Buffett, Peter Lynch and John Templeton — didn’t try to be forecasters or geopolitical strategists.
Their aim was much simpler: to identify businesses trading for a lot less than they were worth. With this in mind, let’s take a closer look at Netflix (NFLX).
Netflix, of course, is one of the world’s leading providers of entertainment, with more than 220 paid subscribers in over 190 countries enjoying feature films, documentaries and TV series.
Members can watch as much content as they want, anytime, anywhere, on any internet-connected screen, without commercials or commitments.
Last year, the company achieved several milestones. It had the biggest TV show of the year (Squid Game). It had its two biggest film releases of all time (Don’t Look Up and Red Notice). And it was the most Oscar-winning and nominated movie studio of 2021.
Full-year revenue grew 19% to $30 billion. Meanwhile, operating income of $6.2 billion rose 35% over 2020.
With the release of fourth-quarter and full-year results, founder and CEO Reed Hastings said, “Even in a world of uncertainty and increased competition, we’re optimistic about our long-term growth prospects as streaming supplants linear entertainment around the world.”
Yet, traders expected better results and didn’t like the fact that Netflix downplayed its forward guidance. The stock — which traded above $700 a share a few months ago — plunged to less than $400 a share. This was, in my view, an overreaction.
Netflix has high recurring revenues and enormous future growth potential. It has a best-in-class management team and a unique high-performance culture.
It has economies of scale and superb quality in its industry-leading content. It has an improving free cash flow profile that will enable continued expansion, as well as the return of cash to shareholders.
No wonder Hastings used the sell-off to make a seven-figure insider purchase himself. (He now owns more than 5.1 million shares.)
Netflix is likely to dominate the streaming industry for years to come. The stock is a bargain at current levels. So, pick up Netflix at market today, and place a sell stop at $320 for protection.
