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Buy Netflix on the dip -advisor

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As shares of Netflix get slammed on news of weak subscriber growth, Summit Place Financial Advisors' Liz Miller tells Reuters' Fred Katayama that the video streaming stock historically bounces back after disappointing investors.

Video Transcript

FRED KATAYAMA: Stocks on Wall Street bouncing back Wednesday afternoon following two straight sessions of losses. Let's get a check of the markets with Liz Miller. She's President of Summit Place Financial Advisors. Good afternoon, Liz, and welcome back.

LIZ MILLER: Good afternoon.

FRED KATAYAMA: Good afternoon to you. So investors punishing Netflix after the company reported subscriber growth was much weaker than Wall Street had expected. Are there any implications of this for other stay-at-home stocks?

LIZ MILLER: I think the implication here is really just telling investors how difficult it is going to be to predict. Netflix clearly caught off guard, and even more caught off guard by the response. You know, by SEC rules now, if you are going to have a significant miss in those results, you have to disclose it. The reason they didn't is the earnings and the revenue came in beyond expectations. I think they didn't even realize that this was going to be viewed as dramatically as it has been.

So subscriber growth, less than half what was predicted. But a really difficult call. And I think what we see here is how, as you say, the stay-at-home stocks that so benefited last year, you know, Netflix had 15 million new subscribers in the quarter last year, numbers we couldn't even get our head around back then. And as we come up on a year, as the economy may or may not be opening up, I think these companies are going to have a very difficult time predicting how their businesses are going to flow in the short-term.

So I think in the long-term, there's still great reason to be positive about Netflix. Clearly, the other thing they reported out was productions they would have done that new subscribers might have wanted have had to be delayed. That plays into it too. It's this weird limbo right now that's going to be hard to think about.

FRED KATAYAMA: So Liz, with the unpredictability of earnings, as you point out, would you advise investors to stay away from stay-at-home stocks for now in the short-term?

LIZ MILLER: I would be looking through this. In fact, Netflix in particular, historically when the stock has gotten a hit like this, it's been an excellent buying opportunity. There's been a number of times when the stock disappointed. Personally at our firm, that's when we picked it up about two years ago in the fall when same thing happened, a feeling that subscriber growth was going to be slowing, that there wasn't a clear vision for the future. It was an amazing buying opportunity. So I think for all of these stocks, the trick is actually to look through the short-term and decide, are these stocks companies that are going to continue to do well in a recovering economy, which is really the driving force.

FRED KATAYAMA: On the technical view, Netflix is below now its 50- and 200-day moving average as well. But you'd say to those who don't own it, it's time to pick up?

LIZ MILLER: Certainly, watch it for that buying opportunity. I don't know if today or yesterday is kind of the day, but I think this is a better buy than a sell at this point.

FRED KATAYAMA: And Netflix didn't seem to have an impact on the overall markets. Are you optimistic about the prospects for the markets amidst this earnings season?

LIZ MILLER: I am. I think what we're seeing in the market right now is this overall reassessment. I think investors are really struggling with still coming off of that incredible 2020, a little bit of follow through the beginning of this year, and now these crosswinds that are just confusing. Is inflation going to be a longer-term problem or just a 2021 problem because of the bounceback, as we say? Are we going to see amazing June earnings because the comparisons are so easy or are we going to see disappointments in the companies that did well last year?

I think investors are struggling with that. And when we see the discretionary stocks and the technology stocks being the ones that, in some ways, are the real bellwethers each day, are they getting hit or are they doing well like they do today? I think that reflects this internal reassessment among investors, trying to decide how tilted to be to the industrial cyclical names and how committed they can continue to these long-term good strong growth names.

FRED KATAYAMA: So play a barbell strategy then?

LIZ MILLER: Probably. Barbell is the best. That's what we've been doing at the firm. We've maintained our exposure to those areas that do well in the start of a recovery, which are technology, discretionary spending, consumer related areas. And we have balanced that with the cyclicals, the industrials, the value oriented that also tends to do well when we see that pickup and when we see a little inflation.

FRED KATAYAMA: OK, thank you, Liz.


FRED KATAYAMA: Our thanks to Liz Miller of Summit Place Financial. I'm Fred Katayama in New York. This is Reuters.