Value Pick of the Week

No pick this week. We’re going to sit tight the next two weeks due to earnings reports coming out from Alphabet (GOOG) and Tesla (TSLA) on Wednesday, July 22nd, followed by Microsoft (MSFT) and Meta Platforms (META) on July 29th, then Amazon (AMZN) and Apple (AAPL) on July 31st. These six companies account for 24.8% of the S&P 500 and will set the tone for the next three months, if not the rest of 2026. Fun fact: these six companies have a combined value of roughly $17 trillion — a number larger than the GDP of every country on earth except the United States and China.

Market Summary

The S&P 500 fell 1.6% last week — a week with mostly bad news.

  • IBM and Netflix (NFLX) were the headline disappointments — IBM had its worst single day in its 115-year history, and Netflix missed expected earnings. More on IBM below.
  • Taiwan Semiconductor (TSM) beat Q2 expectations but fell 2.6% — guidance that AI infrastructure costs would increase ~14.8% due to inflation dragged down other AI-connected companies, including past picks LRCX, ASML, NVDA, GOOG, ON, META, ORCL, DELL, and WDC.
  • The week’s only bright spot was Tuesday’s CPI report — inflation came in below expectations, the catalyst for the only positive session of the week.
  • The CPI relief was short-lived — on Thursday, Dallas Federal Reserve President Lorie Logan issued a statement that inflation wasn’t down to a point that would allow for a rate reduction, and the S&P fell a full 1% on Friday.

How Our Picks Fared

The losers outweighed the winners for the week and we lost 1.9% versus the S&P 500, with five picks falling more than 10%.

📉 International Business Machines (IBM) fell 26.0%

  • CEO Arvind Krishna issued an unscheduled public letter on Tuesday disclosing preliminary Q2 results eight days before the scheduled July 22nd conference call — the act of pre-announcing itself was alarming, signaling the miss was too large to wait.
  • Revenue came in at $17.2 billion versus the $17.86 billion consensus — only a 3.7% miss — and adjusted EPS of $2.93 missed by just $0.08, yet shares fell 25.21% to $217.07, erasing ~$68.8 billion in market cap in a single session.
  • Krishna blamed three causes: a sudden late-June shift by enterprise clients redirecting capital from IBM software toward servers, storage, and memory to lock in supply ahead of expected price increases; industry-wide cybersecurity distractions disrupting client decision-making; and a Z mainframe performance shortfall.
  • The outsized market reaction reflected a valuation problem: IBM had been trading at ~23x forward earnings on expectations of sustained double-digit software growth, and a 1% revenue growth quarter caused the market to reprice the entire forward earnings stream — compressing the multiple from 23x toward 17x in a single session.
  • The full Q2 earnings release and investor conference call remain scheduled for July 22nd, leaving the full-year guidance picture unresolved and adding ongoing uncertainty.
  • I believe IBM will weather this storm, particularly long-term with its quantum computing position, and is currently a bargain at a 15.7% discount from its recommended price on May 24, 2026.

📉 Western Digital (WDC) fell 18.1%

  • WDC’s weekly loss was a multi-day cascade rather than a single event, building on the prior week’s weakness with a ~5% drop Monday as a global chip selloff hit.
  • On Wednesday WDC fell 9.1% as reduced data center demand fears, flash memory oversupply concerns, and strategic restructuring uncertainties resumed their grip.
  • Thursday saw WDC drop another 10.8% — bringing the week’s cumulative loss to approximately 20% before recovering 2.2% on Friday.
  • The analyst community remained sharply divided: Citi maintained an $800 price target the same week UBS kept a Neutral rating with a $560 target — the aggregate price target across 26 analysts is $606, implying 27.0% upside over the coming year.
  • Similar to IBM, WDC is now selling for 15.2% below the recommendation price.

📉 Lam Research (LRCX) fell 10.6%

  • Lam’s weekly loss was entirely sector-driven — a pure semiconductor equipment contagion story without company-specific aggravating factors.
  • The losses began over the weekend, opening 4.4% below Friday’s close, and continued through the week with only one positive session — with each down session driven by the same macro chip selling that hit WDC.
  • The IBM pre-announcement on Tuesday created a direct negative read-through: if enterprise clients are shifting budgets from software toward hardware to lock in supply, the cycle may be pulling forward demand that will create a subsequent air pocket — precisely the risk that semiconductor equipment companies like Lam face.
  • Despite the week’s losses, analysts remained constructive, describing Lam’s 17.5% monthly decline as excessive relative to the fundamental outlook given expected strong demand in AI and semiconductor manufacturing.
  • LRCX remains one of our rock stars — up 572.7% since the first recommendation, and 303.3% since the second.

📉 Elevance Health (ELV) fell 10.4%

  • Elevance’s drop was a classic “beat and punish” earnings reaction driven entirely by margin concerns — Q2 2026 results beat on almost every headline number (EPS, revenue, and guidance) yet the stock fell because investors focused entirely on operating margin slipping to 3.5% from 4.9% a year ago.
  • Wall Street analysts noted that the guidance raise of $0.25 per share was smaller than the magnitude of the quarterly earnings beat — a signal that management is absorbing excess costs faster than it is passing them through to guidance.
  • Medical membership totaled approximately 44.9 million as of June 30, down 469,000 from the prior quarter, reflecting planned transitions and expected attrition — declining membership alongside rising costs is the most bearish combination possible for an insurer.
  • ELV, along with our other two recommendations in the Healthcare Providers & Services industry — CVS Health (CVS) and UnitedHealth Group (UNH) — have been poor recommendations, losing an average of 3.2% and trailing the S&P 500 by an average of 81.8%. All three are being evaluated for potential sell recommendations.

📉 Oracle (ORCL) fell 10.1%

  • S&P Global Ratings downgraded Oracle’s credit rating to BBB- from BBB — one notch above junk status — citing the company’s massive debt burden of approximately $130 billion and negative free cash flow of nearly $24 billion in the latest fiscal year.
  • The Apple-OpenAI lawsuit added indirect pressure: Apple sued OpenAI alleging trade secret theft, adding to OpenAI’s legal and reputational overhang at the same moment Oracle’s $300 billion partnership with OpenAI is already a central investor concern — if OpenAI’s credibility or financial position deteriorates, Oracle’s massive backlog concentration becomes a risk rather than an asset.
  • The IBM pre-announcement on Tuesday created a specific read-through for Oracle: if enterprise clients are shifting budgets from software to hardware, Oracle’s $638 billion backlog — impressive as it is — may include contracts that are longer-dated and less certain than the headline figure implies.
  • Year-to-date Oracle is now down approximately 35%, trading at $124 against a consensus Wall Street price target of ~$252 — a 103% implied upside gap that Guggenheim’s John DiFucci called “unprecedented,” but which reflects deep market skepticism about Oracle’s ability to convert its massive backlog into profitable cash flow given the scale of its capital commitments.

View the complete Value Picks Tracker →