Investor Sarat Sethi is finding buying opportunities in cheap stocks that just reported earnings


Corporations are in the thick of earnings season this week and, while reports are mixed, there are good opportunities in some of them for investors, according to Sarat Sethi, portfolio manager at Douglas C. Lane & Associates. Boeing and AT & T are among the big names that posted their numbers Wednesday, following Microsoft, which reported late Tuesday. Going by profit numbers alone, Boeing posted the bleakest report of the three, including a loss for the fourth quarter as labor and supply strains overshadowed an increase in jet demand. “They’ve been supply constrained for a while so I do think it’s an interesting story and the stock is getting punished a little bit, but their demand going forward for travel is getting pretty big,” Sethi said of Boeing on CNBC’s “Squawk Box” Wednesday morning. “The cheaper it gets, for us, the better we like the story.” Sethi, who doesn’t currently own Boeing, also noted the airplane builder was cash flow positive for the first time “in a long time” and he’s eager to see if it can meet its demand and push operating margins higher. Elsewhere, AT & T’s report showed an increase in subscribers, but the company forecasted annual profit below analyst expectations, according to Refinitiv. Still, the investors are looking for companies that, like AT & T, are cheap and will grow cash flow and income, Sethi said. “AT & T is a cheap stock, so is Verizon. … The market is looking to see who has the proper valuation at this point, given where we are with the discount rate,” he said. “That’s going to be really important for our earnings going forward.” “One of the things that we need to watch for now is – companies cannot grow by acquisition, the government is now allowing it,” he added. “That is really tough for companies especially [with] interest rates going up. You have to focus on your customer base, organic growth and what you have given valuation metrics people have.” Those may be better opportunities than a stock like Microsoft, which reported mixed results Tuesday after the bell. The company also said it expects could revenue growth to further slow down. Sethi didn’t say whether he’d sell his shares but that he’s “looking at it very carefully.” “There are going to be other opportunities there,” he said. “I don’t know I would own it in the size that it is in the market. I like the company, there are a lot of attributes – cashflow positive, a lot of recurring revenue. But I think you can look for other opportunities, especially if it’s a sizable position.”

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