Loading summary
Transcript29 lines
- [00:00]
A
Foreign.
- [00:06]
B
These three losers become winners in 2026. You're listening, Motley Fool Money. Welcome, fools. I'm your host, Tim Byers. With me are two of my fool colleagues, Travis Hoyam, Tom King. Travis, I'm, I'm emphasizing you because you haven't been on with. With me. Usually it's you hosting.
- [00:33]
C
Yeah, I'm sitting in a new seat here. I like putting the pressure on you.
- [00:37]
B
I appreciate that. Friends, we're here to review some. Some big losers from 2025. So super microcomputer ticker SMCI, Lululemon ticker Lulu, and Nike ticker NKE. They were on decaf this year. Friends inflicting dreadful returns on those who've held. Today, we're going to talk through each of these companies and then make a prediction about whether they can turn it around in the new year, and if so, what will winning look like. So if you are ready to dive in, Tom, we're going to start with Super Microcomputer. So for those who do not know, Super Microcomputer is like a reseller. They make servers, and those servers are customized by Supermicro. They have big relationships with Nvidia, they have relationships with amd. And so they kind of build the chips and then they build the motherboards, and they customize these things for big customers, particularly big data center customers. They have really close relationships with these suppliers, particularly with the chipset suppliers. And that had been really good business, Tom. But in 2025, the big boogeyman was Ernst and Young. And you may have seen this. This was late 2024, early 2025. Ernst and Young said, and I'm quoting here, this is Gemini pulled this from some of their accounting statements, unwilling to be associated with the financial statements prepared by management for Super Micro. I'm going to say that's not good. It's not really good, Tom. So if we, if we look at this, margins were compressed. There was, you know, some real hits to free cash flow. Lot of, you know, notable pressure from competitors like Dell and, and Hewlett Packard Enterprise. So when you look at this company, what do you think? Do you see a company that is primed for a turnaround or one that has been, you know, whacked so badly that it's gonna take them a while to get off their knees?
- [02:53]
A
I would go on the side of caution with this one. In 2026, I would say it's probably gonna be an underperformer, or at least the risk of a significant meltdown is high. And the reason I Say that is because until the end of 2023, this was a pretty conservatively run business, their inventory. So as you mentioned, they mostly acquire, build inventory and sell it to big data center clients. They were acquiring that inventory through their regular profits that they had earned through operations. But at the beginning of 2024, they started taking on a significant amount of debt. Since then, they've borrowed $4.4 billion, which is a significant amount of money for them, and they've increased their inventory. They've used that money to build and buy inventory. They increased it by 3.3 billion. So this is a strategy that could work out well if they manage to sell that inventory at a decent price. But if there's a problem, if this AI boom slows down, they can't sell that inventory. It could become a significant problem for them.
- [04:03]
C
Yeah, Tim, look, I'm in my 30th year now investing, and one of the things that I have learned is that if the accountants don't believe the numbers, we shouldn't necessarily believe the numbers or management in general. So that is just a good reason to stay out of the stock. And the other thing is, you know, this was an AI play before a lot of these other companies went crazy. You look at the ChatGPT moment, it was actually Super Micro went nuts before Nvidia did.
- [04:31]
A
Yeah.
- [04:31]
C
So things have really kind of gone south from them, from there. From an operating perspective, their, their revenue is trending in the wrong direction. Exactly. At the time when you think it should be rising, something just doesn't smell right here. Maybe it's me being a little bit ignorant about, you know, the, the business and, and the ins and outs of. Exactly, you know, where they have an advantage and where they don't. I just think there's easier ways to play artificial intelligence. Something as simple as Alphabet. Just, just buy the leader at a reasonable multiple. You don't have to bet on these comeback stories because I just, I just don't think 2026 is going to be the year for Super Micro.
- [05:08]
B
Well, if we're wrong, and I like that you both went thumbs down on this because we're getting some early consensus here. But if we're wrong, I'll just mention this for the listeners here. There is the potential of an Nvidia tailwind here. Super Micro has said that they have a backlog of $36 billion in, in revenue booked for, well, maybe not booked, but what they expect for fiscal 2026. And that is supported by 13 billion just for the Nvidia Blackwell Ultra systems. So if they execute this, there might be some deep value opportunity here. But yeah, when the. I. I like the way you put this, Travis. When the auditors say no, maybe you want to pay attention. All right, up next, we're going to talk about yoga pants. Lululemon. You're listening to Motley fool money.
- [06:00]
D
AG1 is the daily health drink that combines your multivitamin pre and probiotics, superfoods and antioxidants into one simple scoop. It's one of the easiest things you can do to support your body every day heading into the holidays. We all know how hard it is to maintain a healthy routine, but you, between travel and family gatherings, my diet gets thrown off every single year. And that's why I use AG1. It gives me peace of mind knowing I'm supporting my gut health and immune system proactively. And it's a simple microhabit that actually works. A great way to finish 2025 and start off 2026 with some great healthy habits. AG1 has their best offer ever. If you head to drinkag1.com fool, you'll get the welcome kit, a morning person hat, a bottle of vitamin D3 plus K2, a AG1 flavor sampler, and you'll get to try their new sleep supplement AGZ for free, which has been a game changer for my nightly routine. That's drinkag1.com fool for $126 in free gifts for new subscribers.
- [07:05]
B
All right, Fools, another of the big losers from 2025 was Lululemon. And if I give you some data here, Travis, So Lululemon underperformed the market. This is as of our recording today, we're Pre recording on December 17th for our December 29th show. So we're trying to get a little bit ahead for, you know, respect everybody's holiday breaks. But as of today, Travis, Lululemon stocks is trailing the market by about 60% year. To date, it has been a difficult 2025. So it does look like a couple of things are at work here. Inventory issues, you know, maybe the inventory has been a little bit stale. 5% decline in America's comps. So that same store sales down in Q3 of 2025. The breeze through products have not worked very well and there may be some market share pressure here. So when you think about Lululemon, Travis, where are you at? Do you think this is maybe a blip and you want to back this for 2026 or do you think there's maybe some deeper issues here?
- [08:16]
C
I hate to be the Negative Nelly because it looks like a value. If you look at their price earnings multiple on a trailing basis, 14 forward basis, 17, that's. That looks pretty good. Especially they're continuing to grow. They've had some tailwinds in Asia. The problem with fashion and brands like this is it's really hard to stay on top. You've got companies like Nike. We'll talk about them in a bit. They stayed on top for what, 30, 40 years? Ye, that is not typically the way that things work. And what I worry about with Lululemon is they rode this yoga wave for 20 years or so. Now you're looking at where is the momentum. It's more with brands like Hoka and on. And that's where the growth is. And if you look at where the excitement is, not only with athletes, it's not necessarily about going to yoga class. It's about going to a workout. It's going for a run. So it isn't just about the fashion, it isn't just about yoga. It's about what are people doing. The things that are popular, even from a workout perspective, don't stay popular forever. You know, if there was a pickleball brand, maybe that would be the hottest brand in the market that I would want to buy. But right now, I think, you know, stocks like on, like Deckers Outdoor, which owns Hoka, are a little more attractive and Lululemon. I just, I just worry that this is going to be a value trap for a long time for investors.
- [09:36]
B
I mean, that's an interesting point. I mean, Tom, I'm curious to know where you land on this. You know, Travis says not likely to be market beater in, in 2026 here. And I'll tee you up with this. Maybe CEO Calvin McDonald has his own doubts because he's going to be gone at, at the end of January. He has announced that, that he's on his way. I wonder maybe if some of the tariffs and macro pressures here are weighing on him in a little bit. Where do you see things going for. For Lululemon, particularly with respect to things like guidance cuts? I mean, it hasn't been great.
- [10:12]
A
Yeah, I think people will enjoy this because I disagree with Travis, who got an opposite view on this.
- [10:19]
B
Like it. Go for it.
- [10:22]
A
The last apparel company that melted down was Under Armour. And it melted down from my view for two reasons. The first was an accounting scandal. It had gone from 20% growth every quarter for around about five, six, seven years or something. And then an accounting scandal revealed that they had been encouraging retailers to order early so that Under Armour could book the sales and keep up that 20% streak. When that was revealed, it really set off a chain of events for Under Armour. Also on the operational side in terms of selling their gear, they started selling it in off price channels just to try and get their inventory out the door. And I think that really damaged the bl. The brand. None of the. Neither of those two things has happened with Lululemon. The cycle has turned against them. People are stretched in the United States. They can't justify spending 130 bucks on yoga pants. I think that eventually that will change. I think that Lululemon hasn't lost its brand. I know that people's tastes change and over time, I don't know what the future looks like in that respect. But I think it's a company that has that brand. It has maintained its strategy. It's made a few mistakes. The CEO is leaving. I don't know if that may have just been due to pressure from the old. The founder and there's a man who owns 7% of the company. He could have encouraged him to leave and said, look, we need some fresh perspective and ideas in this company. So maybe something like that. It's hard to speculate, but, you know, I don't know if 2026 will be the year that Lululemon comes back, but I definitely have faith in it as a good investment over, let's say, three to five years.
- [12:13]
B
All right, a plus one for the rule breaker in Lululemon. So we've got Tom saying yes, it's a market beater. Travis saying no. Up next, we're staying in the fashion lane. We're going to talk about Nike. You're listening to Motley Fool Money.
- [12:30]
E
The adage goes, it isn't what you say, it's how you say it. Because to truly make an impact, you need to set an example. You need to take the lead. You need to adapt to whatever comes your way. And when you're that driven, you drive an equally determined vehicle. You drive the Range Rover Sport, blending power, poise and performance. Like you, it was designed to make an impact. This is a design that is distinctly British and capable of taking on roads anywhere. The vehicle combines dynamic sporting personality, elegance and agility to deliver a truly instinctive drive. Step inside and experience true modern luxury. Features like the cabin air purification system and active noise cancellation create an entirely new level of quality and comfort. And with seven terrain modes to choose from. Terrain response, two fine tunes, the vehicle to handle any challenge the road throws at you. The assertive stance of the Range Rover Sport hints at its equally refined driving performance. Free from unnecessary details, the raw power and agility truly shine. Choose from a range of powerful engines, including a plug in hybrid with an estimated electric range of 53 miles. Build your Range Rover Sport at range rover.com ussport all right, fool.
- [13:41]
B
As we close our segment on the three big losers of 2025, can Nike be the winner? And Tom, I'm going to come to you on this. So we have a new CEO. We talked about outgoing CEO Calvin McDonald at Lululemon. We have an inbound CEO, really a returning executive at Nike in Elliot Hill. And he has inherited, I think it's fair to say, a bit of a mess here. We've seen some revenue declines. We've seen lower market share. We talked a little bit about the pressure on Lululemon. I think there's a lot of pressure on. You've seen a lot of high performance from on from Hoka. The king of the running shoe maybe is no longer the, the king of the running shoe. I mean, Tom, talk to me about Nike and what you see here. For a company that underperformed the market by about 25% year to date, are they on track to be an outperformer in 2026?
- [14:46]
A
I think that Nike is a little bit lost right now. And the reason I say this is because around about three, four, five years ago, they began a strategy of withdrawing from their wholesale customers. So they were no longer selling to big shoe retailers like Footlocker and so on. Designer Shoe Warehouse. They said that what they wanted to do was basically to copy the Lululemon model and control their brand better. So they just wanted to sell it through their own websites or through Nike dedicated stores or through Nike dedicated sections within certain types of shoe stores. And that strategy hasn't worked out that well for them. And now they're trying to reverse it and go back to those big retailers again. But in the meantime, these upstart brands like Hoka and on have kind of taken that shelf space. And I think that, that Nike is now coming back to these retailers sort of cap in hand and saying, hey, can we please have some shelf space back? So until they figure that out, until they figure out how they're going to sell their shoes, you know, I, I would, I would avoid Nike. And I don't think it's a winner in 2026.
- [15:57]
B
I mean, Travis, does begging work? You know, can we have our shelf space back? I mean, it is kind of an interesting point. I mean, and to be fair, you know, Elliot Hill did say, I mean he's been honest with investors, I think on balance saying that the turnaround will take a while, even though the strategy is, and I'm quoting here, to win now. What does winning now look like here, Travis? I mean where are you at with Nike?
- [16:26]
C
Any sort of growth would be a win I think at this point. But the challenge for Nike is you want to have companies that are playing from a position of strength and they're playing from a position of weakness right now. And I want to just go back and just give the way that I look at these companies strategically, you know, Tom Thomas talked about it a little bit with these newer brands coming in. But the big picture is that Nike grew up in a world where supply owned the market, right? They could sign a huge deal with Michael Jordan, with Tiger woods, they could put him on tv, put them in magazines and that was how you got attention to brands. And then you walked into a store like a dick's, like a Foot locker and you went, oh, I've seen those Nike shoes, I've seen those Jordan brand shoes before. That's how the market worked. In the world where Hoka and on are growing up, the market works very differently. You advertise on Instagram, you have Google Ads so you are more direct to consumer. That's what Nike saw as, oh, you know what, we want to, we want a piece of that too. And so they gave up their, their golden goose. The problem is the companies that have grown up Internet native and being able to advertise in this new environment have grown in that space and now they're starting to take Nike's space. I think Nike, their future looks a lot more like under armour than it does like an on holding. And that's, that's, you know, really a damning thing to say. But you know, the stock isn't even all that attractive right now. 35 times earnings, even on a forward based basis, 35 times earnings Enterprise value to sales, you know, which doesn't account for profitability and margins and things like that. But that's 2.2. You can buy on holdings which is growing 40% over the past three years for 4.3 times sales. So less than double the price on a price to sales multiple. They're not focused on profitability quite yet, but they have 60% margins. Nike is much lower than that. Again, this really comes back to they are in a tough position because they grew up in a world where supply owned the shelf space and that was what mattered we have seen companies like Budweiser, like, you know, Procter and Gamble, when you lose that power position, when the market changes, you are just fundamentally not structured to adapt. That's what I worry about with Nike.
- [18:41]
B
So quick question for both of you and we'll end on this. Give me a yes or no. Tom, you first. If there's tariff relief because Nike, like a lot of other consumer brands, has been hit by the tariffs. If there is significant tariff relief, does your opinion change, yes or no?
- [18:58]
A
Tom? No, I don't think the tariff relief will be enough.
- [19:02]
B
Travis.
- [19:03]
C
No.
- [19:04]
B
All right, there you have it. Two thumbs down for Nike. Fools this is part of this has been part of our series of year end looking back to look forward to 2026. Thank you for for tuning in with us. Tom Travis, thanks for being here. Really appreciate it. Fools, as always, people on the program may have interest in the stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and is not approved by advertisers. Advertisements are sponsored content provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Fools, we're so glad you're here. We hope you're having a wonderful holiday season. Our engineer, as always, is Dan Boyd and our producer is Anand Chakabaloo. Thanks to Tom King and Travis Hoyam for being here with me. I am your host, Tim Byers. We will see you again in 2026.
- [20:10]
A
Fools.
- [20:11]
B
Thank you for tuning in. Fool on.