First Half Lookback

Summary

Motley Fool Money – “First Half Lookback” Summary

Release Date: July 4, 2025
Hosts: Dylan Lewis, Ricky Mulvey, and Mary Long
Guests: Bill Mann (Chief Investment Strategist, Motley Fool Asset Management) and Anthony Chavon (Senior Analyst, Motley Fool)

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1. Introduction and Market Overview

[00:40] Ricky Mulvey opens the episode by setting the stage for a retrospective analysis of the first half of 2025. Highlighting the seemingly paradoxical market conditions, Ricky notes the positive investor sentiment towards American equities despite potential economic headwinds such as a looming trade war and softer jobs data.

Ricky Mulvey:
"As you look back on the first half of the year, any broad reflections on stocks and the market reaching record highs?"
[01:26]

2. Asset Class Concentration and Market Performance

[01:26] Bill Mann delves into the unprecedented convergence of yields across major U.S. asset classes, all hovering below 1%. He underscores this rarity by stating,
"This has not happened before. And it really speaks to the fact that all of the asset classes in the US seem to be focusing on what is going to happen with the statecraft in this country."
[02:38]

Bill highlights that despite the market's significant rebound from April's lows, the U.S. stock market has underperformed compared to global counterparts in the first half of the year.

3. Embracing Investment Uncertainty

[02:51] Anthony Chavon reflects on the optimistic market returns, contrasting them with his initial bearish predictions based on elevated S&P 500 valuations and geopolitical tensions. He emphasizes the unpredictability of market directions, advising investors to recognize and accept the limits of their knowledge.

Anthony Chavon:
"I think the key takeaway for investors is to embrace the limits of your knowledge and to be comfortable knowing what you don't know."
[03:45]

4. Dollar General: A Value Play Triumph

[03:45] Ricky Mulvey shifts the discussion to notable stock performances, spotlighting Dollar General as the best performer since February, appreciating its 50% surge despite long-term holders facing losses.

Anthony Chavon:
"Dollar General was hated by the market... It's a bit of a counter-cyclical business where middle and higher income consumers tend to trade down during challenging market environments."
[04:29]

Anthony explains Dollar General's resilience during economic downturns, drawing parallels to its performance during the 2008 financial crisis. The company's recent earnings call revealed optimism, with the CEO noting an increase in trade-down customers and raised guidance, attributing the stock's resurgence to its solid fundamentals and undervalued status.

5. The Diminishing Dominance of Big Tech (Mag 7)

[05:44] Ricky Mulvey references a Wall Street Journal article noting that Big Tech, historically the market's primary return driver, has diminished in influence this year.

Bill Mann:
"When you have situations like this, things that can't go on forever won't go on forever. The Mag 7 is now... each one of them is well over a trillion dollars."
[06:09]

Bill discusses the exorbitant price-to-earnings (P/E) ratios of major tech giants like Tesla, Netflix, and Nvidia, contrasting them with the broader S&P 500 average. He warns of the risks associated with the disproportionate weight of these mega-cap companies in the market, suggesting a natural reversion towards more diversified valuations.

[07:55] Ricky Mulvey adds that the concentration of Mag 7 now comprising over one-third of the S&P 500 market cap—a significant increase from a decade ago—poses potential risks, especially if any of these giants falter.

6. Legislative Impact: EV Tax Credits and National Deficit

[08:56] Ricky Mulvey addresses a pivotal legislative development: the U.S. Senate's narrow passage of a substantial bill affecting electric vehicle (EV) tax credits.

He reflects on the personal impact of the bill, which eliminates the $7,500 tax credit for new EVs and approximately $4,000 for used ones, questioning its implications for the EV industry.

Anthony Chavon:
"If the bill passes, it would eliminate the $7,500 tax credit for purchasing or leasing a new EV. So, EVs look like they're going to be even more expensive compared to the gas-powered cars."
[09:45]

Anthony outlines the adverse effects on EV manufacturers, pointing out the potential surge in EV costs and the likely benefit to legacy automakers like GM and Ford.

[10:45] Ricky Mulvey further explores the macroeconomic consequences, highlighting the shift from austerity to potential deficit expansion. He cites Congressional Budget Office (CBO) estimates predicting the bill could add up to $3 trillion to the national deficit.

Bill Mann:
"A government deficit is something that the country that has the reserve currency should be able to handle. Now we are at about $37 trillion in accumulated government deficit... a trillion or two on top of 37 trillion? At some point it will start to matter."
[11:13]

Bill emphasizes the long-term concerns of escalating deficits, advocating for investment strategies that focus on assets like gold or inflation-resistant companies with pricing power.

7. Host’s Farewell and Reflections

In a heartfelt segment, Ricky Mulvey announces his departure from Motley Fool Money, sharing his journey from applying as an associate producer to hosting the show. He expresses gratitude towards mentors and colleagues, highlighting the supportive and growth-oriented environment at Motley Fool.

Ricky Mulvey:
"I'm not done podcasting. I'm not done making things. So if you want to keep in touch, I'll invite you to connect with me on LinkedIn."
[14:11]

Bill Mann and Anthony Chavon offer warm farewells, commending Ricky's curiosity and contributions to the show.

8. Economic Storylines for the Second Half of the Year

[17:16] Ricky Mulvey transitions to forward-looking discussions, inviting Bill and Anthony to share key economic narratives for the remaining year.

Bill Mann:
"Housing prices across the country are down and no place more so than Cape Coral, Florida, which has seen a decline in average housing price of 11%. Ever since COVID started, Florida has been the obvious winner... maybe now we may be seeing the beginning of recognition of the things that make the Florida market special and maybe not in a great way."
[17:40]

Bill highlights the cooling housing market in Florida, suggesting potential shifts in previously robust housing dynamics.

Anthony Chavon:
"Small caps are the only asset class with a negative return... I'm looking for a bounce back in the second half of the year."
[18:47]

Anthony focuses on small-cap stocks, noting their underperformance compared to large caps over the past four years and their continued decline in the first half of 2025. He anticipates a possible recovery, presenting an investment opportunity for the second half.

9. Spotlight on Lesser-Known Stocks with Jim Gillies

[19:26] Ricky Mulvey introduces Motley Fool Canada's Jim Gillies, who discusses undervalued stocks poised for growth. He reflects on his positive experience working with Jim and appreciates the exposure to diverse investment ideas.

Jim Gillies recommends five stocks within the Growth at a Reasonable Price (GARP) category:

1. Medpace Holdings (MEDP):
   A contract research organization with a strong balance sheet, despite recent stock price increases.

2. Lululemon (LULU):
   Noteworthy for strategic moves like selling a division to Costco and maintaining robust cash flows.

3. Simply Good Foods (SMPL):
   Owner of Atkins and Quest brands, potentially primed for acquisition due to steady business growth despite stock declines.

4. Atelman Global Education (ATGE):
   Focused on medical education with solid cash flows and strategic leadership.

5. Contour Brands (CTB):
   Parent company of Wrangler and Lee Jeans, enhancing its portfolio through strategic acquisitions and debt repayment.

10. Radar Stocks Segment

In the concluding segment, Bill Mann and Anthony Chavon identify key stocks to monitor:

• Bill Mann:
  Alphabet (GOOGL) – Concerns over generative AI impacting Google's search revenue and overall business model sustainability.
  Quote:
  "If this is where Google makes most of its money, then how is this not something that is a massive risk to Google as well?"
  [38:46]

• Anthony Chavon:
  Target (TGT) – Despite significant stock drawdowns, Target's strong dividend growth and strategic shift towards e-commerce present a potential long-term investment opportunity.
  Quote:
  "I think this might be a cyclical decline and potentially a good investment opportunity for the long term."
  [40:30]

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Conclusion

The "First Half Lookback" episode of Motley Fool Money provides a comprehensive analysis of the U.S. stock market's performance, highlighting the emergence of value plays like Dollar General, the shifting influence of Big Tech, and the implications of significant legislative changes on the EV market and national deficit. Ricky Mulvey's heartfelt farewell adds a personal touch, while expert insights from Bill Mann, Anthony Chavon, and Jim Gillies offer listeners actionable investment perspectives for the second half of 2025. The episode concludes with a strategic look at radar stocks, encouraging investors to stay informed and thoughtful in their investment choices.

Transcript

[Ricky Mulvey]

The market keeps roaring and you're listening to Motley Fool Money.

[Chris Hill]

Everybody needs money.

[Bill Mann]

That's why they call it money. From Fool Global headquarters, this is Motley Fool Money.

[Ricky Mulvey]

It's the Motley Fool Money radio show. I'm Ricky Mulvey, joined today by Motley fool senior analysts Bill Mann and Anthony Chavone. Fools. Good to have you both here.

[Bill Mann]

Ricky, how you doing, man?

[Anthony Chavon]

How you doing, Ricky?

[Ricky Mulvey]

Doing pretty well. We are airing this show on July 4th and we're recording a few days early. So we're going to look back on the first part of the year. Bill, I can give you plenty of reasons to be negative about the economy. Maybe a trade war coming up. We had some softer jobs data, but it really seems like investors want to buy American equities. How about that? American exceptionalism. We have some of the best companies in the world located on our shores. As you look back on the first half of the year, any broad reflections on stocks and the market reaching record highs?

[Bill Mann]

Ricky, I would say that one of the most interesting things that's happened in 2025 is that all of the asset classes within the, you know, the biggest asset classes in the US have, have sort of congregated. I saw something really interesting the other day that showed that the highest and lowest Yield amongst the five major U.S. asset classes is now less than 1%. You know, so U.S. corporates are yielding about 5.2%, all the way down to three month treasury bills that are about 4.3%. I don't want to, I don't want to dwell too much on things that have never happened before, but this has not happened before. And it really speaks to the fact that all of the asset classes in the US seem to be focusing on what is going to happen with the statecraft in this, in this country, that they are staying at a single point and wondering what's going to happen. So yeah, the market is up a little bit. It's up a lot from where it was in the lowest points of April. And yet the US Stock market has underperformed most stock markets around the world for the first half of 2025.

[Ricky Mulvey]

So you're not saying that this time is different, but merely that this has never happened before. Really clean way of couching that there, Bill. Anthony, how about you, anything you want to add broad reflections on the market in the first half of the year?

[Anthony Chavon]

Yeah, for me, coming into this year, we knew that the S&P 500 returned roughly 25% each of the last two years and that the S&P 500 was valued at roughly 23 times forward earnings coming into the year, which is well above its long term average about 17 times now at the beginning of the year. If I told you that during the first six months of 2025 we'd have global trade policy that would change dramatically. Geopolitical tensions would increase. The S&P 500 would experience a roughly 20% drawdown in and gold will be up more than 20%. I don't think he would have predicted that the market would have returned roughly 6% in the first half of the year. So I think the key takeaway for investors is to embrace the limits of your knowledge and to be comfortable knowing what you don't know. Because even with a perfect understanding of future events, the direction of the market is still going to be unpredictable.

[Ricky Mulvey]

How about embracing this for the limits of your knowledge? Wall Street Journal has an article about the best performing stocks. What's driving the market specifically from the previous high in February of this year. So take a second and think of what that stock could be. The best performer since February of this year. Maybe you're thinking of a big tech company or how about Palantir, which has a frothy valuation right now, but it is not and it's Dollar general up by 50%. And to be clear, long term holders of this stock are still down quite a bit. But those who've picked shares on this value play have done quite well this year. Dollar stores, these are the opposite of a growth story. But why are investors warming up to them? What's going on here?

[Anthony Chavon]

Yeah, I mean this is probably one of the rare times in the last few years that so called value is outperforming growth. So coming into the year, Dollar General was hated by the market. I think shares are down more than 70% off their all time high earlier this year. And I think investors started warming up the Dollar General earlier this year when there were growing concerns about the health of the consumer and the economy. And Dollar General is a bit of a counter cyclical business where middle and higher income consumers tend to trade down during challenging market environments. If we go back to 2008 to the great financial crisis, Dollar General actually grew their same store sales by 9% which is a large number during one of the biggest financial catastrophes we've ever seen. And then you factor that in and you think about on a recent earnings call, Dollar General CEO said that they're actually seeing the highest percentage of trade down customers they've seen in the last four years. And that Dollar General has been an outlier in the retail space because they actually raised their guidance in the first quarter at a time when many of their competitors and other companies were pooling guidance. So I think the combination of a beaten down valuation and then improving business fundamentals is why Dollar General is suddenly loved again by the market.

[Ricky Mulvey]

So don't pay attention to the bond market, pay attention to the dollar stores. That's exactly what you just said, Anthony. Just, just kidding. You can pay attention to the bond market as well. Bill Mann the Mag 7 this year really hasn't done a whole lot. This is from James McIntosh in the Wall Street Journal and this is a sentence I did not think I would say. This year Big Tech isn't dominating the market's returns like it used to be. Whoa. Big Tech used to dominate the market's returns. What's going on here?

[Bill Mann]

That's all we ever talked about for several years. I mean when you look at the mag 7 just looking at their price to earnings ratio, which is not a perfect way of measuring how expensive a stock is or what the expectations are, but it's good enough. Tesla's about 180 times earnings and Netflix and Nvidia are 60 and 48. Microsoft is at 38. These are still far beyond the price to earnings ratio of the S&P 500 in general, which is about 28 times. When you have situations like this, things that can't go on forever won't go on forever. The Mag 7 is now, I mean they're, each one of them is well over a trillion dollars. I think Tesla actually has, has, has fallen back below that level. The fact is that these have become massive amounts of the percentage of the overall valuation of the stock market and huge as comparison to the size of both the US economy and the global economy. It is natural to see some reversion to the main.

[Ricky Mulvey]

Not only are these valuations loftier than the market average, higher valuations can make sense for exceptional companies. One can think of Amazon and why an investor would pay a higher price to earnings multiple for Amazon than. Let's say. I'm going to make fun of Target Target for a moment, then Target. However, the other piece of this story, Bill, is concentration and the Mag 7, while it hasn't been driving returns, it still makes up more than 1/3 of the S&P 500 market cap. A decade ago it was closer to 12%. I know that's a boring story, market concentration, but is that something investors should be paying attention to?

[Bill Mann]

It is definitely a risk factor. It's A risk factor that comes with a nice shine on it because these companies have absolutely fantastic, fantastic business models. These are cash flow generating machines of the likes we have never seen in our lifetimes and probably will not see again the companies outside of this group. So yes, it is very much the case that having such a large overall percentage of the S&P 500, which is in some ways the overall stock market of the us It's a risk factor for sure, because if anything happens to these companies, for example, some of them are actually in some ways being upended by AI and that's something that would cause the market to take a look at these companies and if they fall, I don't know, just a little bit, being that large of a percentage of the overall market, it has an outsized impact on the market itself.

[Ricky Mulvey]

The other big macro story I want to hit is that the United States Senate has narrowly passed the big beautiful bill with a vote of 51 to 50. And to my constituents, I would like to tell them I did not read the entire bill, but one thing I did notice is that this bill takes away the EV tax credits. I think it was 7,500 for a new car and then about 4,000 for used vehicles. I should have put that in my show notes. Anyway, this tax credit is a direct attack on my lease where I was able to get a brand new EV for 1,500 down and 100amonth for 24 months. This was at the taxpayer's expense, but it was a great deal for me. Besides my personal feelings on this, what does this removal of the tax credit mean for the electric vehicle industry?

[Anthony Chavon]

Yeah, well, Ricky, I don't think it's a great development for the EV industry as a whole. I mean, if the bill passes, it would eliminate the $7,500 tax credit for purchasing or leasing a new EV. And that's problematic because according to Kelley blue book, new EVs cost roughly $10,000 more than new combustible engine cars before subsidies. So, you know, at a time when consumer budgets are already stretched, you know, now EVs look like they're going to be even more expensive compared to the gas powered cars within the next few months. So that's probably not a good development for EV manufacturers, but might be a good development for, for some of the legacy automakers like, like GM and Ford. But I'm really having trouble seeing how this could be positive for the EV makers at least, you know, in the long term. Maybe they get some pull forward over the next few months for people looking to purchase EVs ahead of that tax credit expiration. But yeah, definitely not a good sign for the EV makers.

[Ricky Mulvey]

It's difficult to tell what's impacting Tesla on any given day, whether it's President Donald Trump threatening to deport Elon Musk or the removal of the EV tax credit. Actually, it's the removal of the EV tax credit that means more for the business anyway. Bill Mann, the bigger story here is that we have moved from the austerity of Doge to adding potentially $3 trillion to the deficit, according to to CBO estimates. What is that deficit spending for people like me? And is that important for investors to pay attention to?

[Bill Mann]

It's been important for investors to pay attention to for the last 30 years and yet we really haven't because ultimately a government deficit is something that the country that has the reserve currency should be able to handle. Now we are at about $37 trillion in in accumulated government deficit in the United States of America. And according to the scoring, the big beautiful bill will add 3 trillion to that deficit. What's a trillion or two on top of 37 trillion? At some point it will start to matter. It has to start to matter. It is a massive burden. It's a claw forward. It does perhaps lead towards a reasonable argument that you should hold stores of value like gold. It also speaks to holding companies that have the capacity to withstand inflationary pressures, companies that have pricing power. It's kind of the same thing. So that's actually where I would be more focused.

[Ricky Mulvey]

After the break, we're taking a look at the biggest economic storylines for the second half of the year. Stay right here. You're listening to Motley Fool Money. Today's show is brought to you by the Range Rover Sport. The old 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 and adapt to whatever comes your way. And when you're that driven, you drive an equally determined vehicle, the Range Rover Sport. Blending power, poise and performance. Like you, it was designed to make an impact. The assertive stance of the Range Rover Sport hints at its equally refined driving performance. With seven terrain modes to choose from. Terrain response, two fine tunes. The vehicle to take on challenging roads ahead. Free from unnecessary details. Raw power and agility shine in the Range Rover Sport. A force inside and out. The Range Rover Sport was created with a choice of powerful engines, including a plug in hybrid with an estimated range of 53 miles. The vehicle combines dynamic sporting personality and elegance to deliver a truly instinctive drive. Build your Range Rover Sport@range Rover.com USSport.

[Chris Hill]

Foreign.

[Ricky Mulvey]

Welcome back to Motley Fool Money. I'm Ricky Mulvey, joined again by Motley Fool Asset Management's Bill Mann and Motley fool senior analyst Anthony Chavon. Before we get back into the show, we do have two pieces of housekeeping and first, Bill, you've got a new disclosure you got to read.

[Bill Mann]

I do. I serve as chief investment strategist at Motley Fool Asset Management, an affiliate of the Motley Fool. While affiliated, Motley Fool Asset Management is a separate and independently regulated entity. None of the investment decisions made at Motley Fool Asset Management involve individuals from the Motley Fool's media or business operations. As you know, Ricky, all of Motley Fool Asset Management operates independently in this way.

[Ricky Mulvey]

Thank you, Bill. For those who may not have listened to the show last week, this is my final time hosting Motley Fool Money and wanted to tell the listeners about four years ago I applied for a job as an associate producer at an Internet company I had kind of heard of and discovered the Fool, a place that would become an important and good part of my life. Chris Hill and Dylan Lewis. They took a chance on me, and few places would allow someone in their mid-20s to host a top investing podcast. But the Motley fool lets people learn by doing and gives employees the chance to do work that other places reserve for much more senior people. I'm lucky that I got the chance to work with Chris and Dylan and luckier that I can call them mentors today. For those who don't know, Chris is laser focused on valuing listeners time, and Dylan's keen editorial sense made the show better for you. Both of them are managers who care deeply for the people around them. Their good work ripples through today's program. I'm optimistic about the future and the difficult part is saying goodbye to the hard working kind people. Mary Long, Dan Boyd, Rick Engdahl and Tim Sparks, to name a few. The analysts you hear every day, and a special shout out to the Denver Fools who showed up from time to time in person. It made it a better place. The good, decent people here are what made my choice to leave the organization difficult and for you. Listening. Thank you for spending time with the show. I don't take that time for granted. What comes next? It's a little unclear, to be honest. I'm still figuring out what the paths could be, having coffees, posting more on the Internet. But I'm Pretty sure about one thing. I'm not done podcasting. I'm not done making things. So if you want to keep in touch, I'll invite you to connect with me on LinkedIn, where I'll be posting from time to time. And now back to the show. It's good working with you, Bill and Anthony, glad to have you on my final episode of Motley Fool Money.

[Bill Mann]

Ricky, it's been a pleasure working with you as well. And one thing I would say, although you are going to be very much missed, you are someone who brings curiosity every day into everything that you do. And so I can speak for Chris and for Dylan in saying very, very strongly, taking a chance on you was not the risk that you think it was. We knew from the outset that you were going to be a star and that is something that, that you have been. So I thank you as well for having the opportunity to work with you.

[Anthony Chavon]

I'll just echo what Bill said. It's been a pleasure working with you the last three or four years. I have learned a ton from you, listening to you on the show and yeah, just wishing you nothing but the best on your next adventure.

[Ricky Mulvey]

All right, we don't have a ton of time left in this segment. For the first half of the show, we looked back on the storylines that drove the market to all time highs. Let's look forward to, to the biggest economic storylines that y' all are paying attention to. Bill, we'll start with you. What is a business economic storyline that you're watching as we as we end the year or not end the year? We still have six months going in the second half of the year.

[Bill Mann]

It's over. There's a really interesting story in the Wall Street Journal about the housing market in the US and when we say housing market in the United States, it's really important to make the point that there are thousands of little housing markets that only kind of barely interact with each other. Housing prices across the country are down and no place more so than Cape Coral, Florida, which has seen a decline in average housing price of 11%. This is really interesting because ever since COVID started, Florida has been the obvious winner. It's had a huge amount of population influx. And I think maybe now we may be seeing the beginning. I don't know if I would call it buyer's remorse, but we are beginning to see a recognition of the things that make the Florida market special and maybe not in a great way special.

[Ricky Mulvey]

Because it's really hard to buy homeowners insurance there, Bill. And I'll ask you very quickly one thing in 15 seconds that you're going to be watching in the second half.

[Anthony Chavon]

Of the year from a market perspective. I'm looking at small caps. They've underperformed large caps each of the last four calendar years, and that's according to JP Morgan's most recent guide to the markets report they put out every quarter. What I found interesting is that the first half of this year, small caps are the only asset class with a negative return. Every other asset class JP Morgan lists has a positive return. I'm looking for a bounce back in the second year. Maybe they could turn positive. Obviously they struggled a lot over the past four years. But be interesting to see if that tide eventually turns later this year.

[Ricky Mulvey]

I really hope so. I own some small cap index funds and previously on the show. I had a lot of fun talking about small cap companies with Mr. Bill Mann. All right. Up next, Motley Fool Canada's Jim Gillies joins me to shine a light on some less discussed stocks that you may want to know. Stay right here. You're listening to Motley Fool Money.

[Chris Hill]

Today we sweated out on the streets of a runaway American dream At night we ride to mansions of glory and suicide machines Sprung from cages on Highway 9 from wheel fuming, checking and stepping out over the line oh, maybe this town rips the bones from your back It's a death trap It's a suicide rap we gotta get out while we're young.

[Jim Gillies]

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[Ricky Mulvey]

Welcome back to Motley Fool Money. I'm Ricky Mulvey. More people are excited about investing right now, so what's that mean for You. Earlier this week I checked in with Motley Fool Canada's Jim Gillies to talk about speculation in the market and get some stock ideas that may represent growth at a reasonable price. So Jim, I'm starting to get some feelings like it's 2021 again. And while we're celebrating all time highs for the market, I feel that there's some easy money coming back in and wild returns happening. You like throwing cold water on people having a good time because you're a realist, not a curmudgeon. Don't say you're a curmudgeon. But I wanted to ask you, do you think speculative mania is back in the market?

[Chris Hill]

I'm a fan of people having a good time, so I'll put that out there. I think speculative mania is always in some form in a market. It's just how broad is it? You know, in 1999 it's pretty broad. 2001, hard to find. Early 2020, very hard to find. 2021, quite easy to find. So I do think after a couple of really good years in the market, 2023, 2024, of course 2022 was kind of the pain that a lot of investors had to endure for the pleasure of 2021. But after a couple of really good years in the market in 2023, 2024, yeah, I think there' a little frothy out there. Doesn't mean I think there's an imminent correction or crash or anything. Just more of a be thoughtful of where you're going, be thoughtful of, of what you're purchasing, be thoughtful of the position size. You know, there's nothing wrong with like a, a lottery type pick or two, you know, but if you make them 10% of your investable capital, that might not be terribly smart. But yeah, I think, I think that the longer we go and the, the rebound from the tariff schmozel earlier this year, you know, I think a lot of people are very excited about investing right now and I somewhat counterintuitively kind of pare back a little bit when I see that.

[Ricky Mulvey]

My concern is precisely that my lottery ticket positions are the ones that are doing really well. And I'm like, oh no, this seems to be a time to get a little less excited about those. We're also seeing sort of can't miss stocks coming back. I don't remember seeing these in late 2022, early 2023, but one of them right now is hims and hers and we were talking about that before the recording. Why should investors beware when they see a sort of can't miss opportunity like that.

[Chris Hill]

Well, I'm certainly not calling it can't miss. And I do believe in the principle. If something is denoted as can't miss, you should probably be quite wary of it. You should probably step away slowly so as to not disturb it. Most Canadians. I have to do this, Ricky, for nostalgia's sake. Most Canadians remember our biggest example of can't miss. That would be Nortel Networks in the great tech bubble, it went to zero. But it was for a time in the late 90s considered the most can't miss stock in certainly the Canadian market. There's inherently nothing wrong with the idea of a stock that could be can't miss. I'm going to call that kind of a growth stock because we tend to really. No one gets terribly excited about, and they should, but they don't about stocks that are say growing at 1% to 3% a year, but are improving their operations by say 5% a year. And they're run by good people who are excellent capital allocators who are buying back 5 to 10% of the stock per year and they're also increasing the dividends. People don't get terribly excited about that. But something with the promise of 2030, 50% annualized growth, people get real excited about that. And when they work Amazon from the late 90s, Shopify from the mid 2000 teens, for example, when they work MercadoLibre for the past 15 years, Chipotle since about 2007. When they work, they're beautiful things. You just got to make sure you size them appropriately. You got to go into one thing I really like and that I think the speculative excess kind of misses is everyone claims to be a long term investor all the time. Okay. It's kind of remarkable to me that in 2022, what happened in 2022, a lot of people in 2021 were claiming they were long term investors about everything they ever bought. Kind of got real silent in 2022. And I'm just here to point that out. Okay. And so when you are moving into a stock and you want to be that long term holder, make sure you're buying companies that are worthy of a long term hold and make sure you're being brutal and honest with yourself as you assess things because it's your money. No one cares about it more than you do. Okay? Don't worry about what other people think. Kind of go through your own process and assess do I think this is reasonable? So you talked a little Bit about hims and hers. That's an interesting one. It's certainly one that's in the market right now. Go and look at it. Ask yourself, why do I own this? What do I expect out of it? How are they making money? What do I think is going to happen? Growth wise, One tool that I love because I am a valuation guy and I like to say all, all valuations are wrong at all times. Right. Every DCF that's ever been done has been wrong because you do not have perfect foresight. You don't know what's actually going to happen. A tool that I like is what's called the reverse discounted cash flow or reverse dcf. And that kind of done reasonably well should give you an estimate of what growth a company needs to generate to justify today's price. And then you ask yourself, well, is this reasonable? Do I think this is reasonable? So I actually did a quick little reverse DCF of hims and hers. If you'd like me to opine on.

[Ricky Mulvey]

That, I got time.

[Chris Hill]

Brilliant. Okay, so you know, and again, all DCFs are wrong. It's more a question of are my assumptions reasonable? Okay, so for this real brief, like it took me five minutes. This is just a sample. It's not, you know, you would do a lot more work, I would hope. But as I looked at him's and hers and Ken, I don't really know anything about the company. But you know, I know I've seen them in the news a lot recently and I know they're tied to the GPT or the GPT.

[Ricky Mulvey]

GLP1 gym.

[Chris Hill]

I was going to say all these acronyms. Yeah, you know, I know, I see. This is again, I'm the guy over in the corner who's looking at other things. Yeah, okay, you're right. Exactly. It's tied to, you know, I think a pretty good, reasonably long tailed, broad societal trend. Okay. I think that that's, and that is.

[Ricky Mulvey]

Personalized health care and also the ability to get medical treatment on your computer versus going into a doctor's office. Please continue.

[Chris Hill]

Exactly. Yeah. So, okay, so I, I, I think that's reasonable. And you know, and I, I went through and I looked at the, well, how much cash is this company generated? Because when you look at a company like, you know, we talk about, you know, doing discounted cash flow analysis, which we, of course we have to then estimate what the cash flows are. The important thing is what they do with it. By the way, it's nice to estimate it, but if it all gets frittered away on new jet. For the CEO, that's maybe not the greatest use of capital. So this capital allocation story. But I look at hims, I'm like, okay, I estimated the free cash flow they've done in the past year, last four quarters, looked at their balance sheet. They got a bunch of cash, they got no debt. And I went through, I said, okay, I think an 11%. Most of my DCFS, I use an 11% discount rate. I don't go through all of the corporate finance stuff and beta and whatever and capm because it's just like, you know what if I could get 11% in the market? That's kind of my opportunity cost, kind of what the S&P 500 has given us for 80 plus years. So I kind of like to use my opportunity cost, my perceived opportunity cost, 11% as my discount rate. And I said, you know what, it's going to grow at whatever rate for the next decade and then tail off a to about a 3% growth rate in what's called a terminal period. It's 10 years out. From a discounted cash flow perspective, it doesn't really matter. Add the cash, deduct the debt, there's no debt. That's fine. At today's valuation, HIMSS and hers has to grow at about 20% annualized for the next decade. I don't actually find that terribly unreasonable given the broad trend we talk about, however. So I'm like, yeah, now, okay, that employs a few assumptions, both good and bad. Again, the likelihood of it going from 20% annualized growth to 3% annualized growth and precisely in 10 years, the likelihood of that is zero. It's just a mental construct or a model construct and they've got a lot of dilution, a lot of options, a lot of equity cookies. I haven't taken any of that into account because again, this was a five minute dcf. But you would probably want to get an understanding of how much of this company is going to be hosed out to insiders in the future because shares in their name dilutes your holding. So it probably would be more than zero, which is what I have it. But you can work through this and go, okay, 20% for 10 years annualized. It's probably not that unreasonable. But I can tell you, Ricky, if I were to look at a few other story stocks out there right now, or I'll even go back to the story stocks of the recent past, I looked at a couple. Well, okay. We are currently conducting this interview via Zoom. Zoom was a darling in 2021. Okay. And I think it nearly topped out at $700 a share and today it's about below 100. And what happened? Well, because at that time, and I remember saying this on various other foolish shows and probably being ignored by most, the growth was rapidly slowing what they were delivering. And so as people piled into this stock that was down 10, 20, 30% from its all time high because, oh well, people were looking in the rear view and investing is about looking in the forward view. And it's like their growth is rolling over. I'm not sure how much more they're going to have. So even if they have a great business and they're run by a great founder with a meaningful stake in the company, the growth is rolling over and people were buying it with implicit growth rates for the next decade of 40, 50, 60%. That's not going to happen, guys. And in fact it didn't happen and a lot of people got whacked on that. So it's about being mindful, it's about being thoughtful about what assumptions are based on the stocks that you own. And again, you can own lottery ticket type stocks. I own a bunch myself. But just understand what goes into it and understand what the actual payoff for most lottery ticket type stocks is. Most lottery tickets go to zero. So we're not going to say we're not going to speculate him is going to zero. But you might not get the easy money you think you're getting it.

[Ricky Mulvey]

So one of the great pleasures of doing this show for a few years Jim has been getting to talk to you and look at companies I would not have otherwise looked at. Thinking of Winmark, Academy, Sports and Outdoors, Aritzia, even TKO holdings, which I was like, oh, this looks expensive. And now it's a position I have. So for my last show, just real quick, can you give me a stock or two that I should be looking at as I go into the great beyond?

[Chris Hill]

I believe as we were talking about beforehand, we were talking very specifically about kind of in the Garp bucket, growth at a reasonable price. I'm going to give you five if that's okay real quick.

[Ricky Mulvey]

Sure.

[Chris Hill]

Well, because you know, I care, Ricky, and I've really enjoyed doing this show with you and so, you know, and I wish you all the best going forward. And so I would say, well, my first one would be medpace holdings, which we've talked about many times. It's a particular favorite company of mine, recommended multiple times. It's a small contract research organization run by a very foolish leader trading at a very reasonable price right now, although it's gone up the last couple days. So maybe we're getting a little bit less reasonable because the market is assuming that recent bad news will continue into the forever future and it won't. So medpace really like them. Lululemon is interesting to me at this point point. I really enjoyed the story from our record date came out yesterday that Lululemon is selling Costco for for knockoff yoga pants. It's it's always tough to see your children fighting. I will say that I do of course like Costco a lot. But Lululemon is now trading they make a lot of cash. Great looking balance sheet. I've said before in multiple venues. They make clothing that makes people feel good about themselves. Do not dismiss that easily. Trading at a decade low multiple. That's interesting to me. Simply Good Foods. It's a company I have been steadily wrong about. It's SMPL is their ticker. They are the company that owns the Atkins diet brand as well as Quest and recently purchased something called Only what yout need, which is a plant based protein shake style company company. It's run by really good industry veterans who I think might be setting the company up to put it out for sale too in the near future. But they made the acquisition of only what you need less than a year ago. All their numbers are going up, all their business numbers are going up and the stock has been going down. Like I said, I have some evidence that suggests they might be priming it for a sale. And the people running it have a history of selling companies. The fourth one is Atelman Global Education. It's a for profit education space. ATGE is their ticker. You may know them and may be disdainful of them. Their prior name was DeVry University or they were the company that owned DeVry University. That's long gone. It's been hived off. Run by good leadership make a lot of cash. They focus on medical education. So doctors, nurses, nurse practitioners and veterinarians. As my vet friend says, real doctors treat more than one species and it's good price, good valuation, run by smart people. And the last one is one we've talked about before. Contour Brands, the parent company of Wrangler and Lee Jeans and now of Helly Hansen, run by smart people. Make a lot of cash. They're currently the Helly Hansen deal was done with all debt which they've said hey, we're going to pay that off super fast. And that's actually my favorite kind of acquisition because as they pay off all that debt, the cash flows, the revenue, the earnings, the cash flows that came with Helly Hansen into the greater contour empire that goes across all of the pre existing shareholders once the debt's gone again, it's kind of the opposite of when companies are doing dilutive actions that kind of take away from you. This is a good thing. So I hope those five find a way into your portfolio and it's been.

[Ricky Mulvey]

A great pleasure, sir, as always, appreciate your time and your insight.

[Chris Hill]

Jim thank you.

[Ricky Mulvey]

As always. People on the program may have interests in the stocks they talk about and the Motley fool may have formal recommendations for or against don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and are not approved by advertisers, advertisements or sponsored content provided for informational purposes only. See our full advertising disclosure. Please check out our show notes. Up next, Radar Stocks Stay right here. You're listening to Motley Fool Money. I'm broke, but I'm happy. I'm poor, but I'm kind of. I'm short, but I'm healthy. I'm high, but I'm grounded. I'm sane, but I'm overwhelmed. I'm lost, but I'm hopeful.

[Jim Gillies]

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[Ricky Mulvey]

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[Dan Boyd]

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[Ricky Mulvey]

Welcome back to Motley Fool Money. I'm Ricky Mulvey, joined again by Motley Fool Asset Management's Bill Mann and Motley Fool Senior Analyst Anthony Chavon. Each week we close out the show with a couple of radar stocks that our guests are keeping an eye on. And our man behind the glass, Dan Boyd, will throw them a question, concern or backhanded compliment? Bill Mann, what you looking at?

[Bill Mann]

This week my company is Alphabet and there was a really interesting article that came out a few weeks ago in the Wall Street Journal and it was talking about how generative AI is taking the place of Internet search, particular those affiliate links and the things that make Google Search way less clean than it used to be. It's having a huge effect on the companies that use search engine optimization. But my question then became, well, if this is where Google makes most of its money, then how is this not something that is a massive risk to Google as well? Now, the Google folks are very smart and they are attempting to change their business fundamentally, but it is a fundamental change that they are going to have to try and stay ahead of. So for that reason, Alphabet is the.

[Ricky Mulvey]

Stock that I'm watching as a reminder radar stocks. It's not always a good reason that our guests are keeping a close eye on those stocks. Dan Boyd, a question about Alphabet, the letters or the company? Are we sure that Alphabet knows what they're doing? Because search in the past six months.

[Chris Hill]

Has really gone to the dogs, Bill.

[Bill Mann]

I love that question simply because it belies the thing that people are so annoyed about when it comes to Google search. You get these clickbait glurge, you get search engine optimization links that have nothing to do with what you have gone after that you were looking for to start with. I actually think that they are in a little bit of trouble here.

[Ricky Mulvey]

Anthony Chavan, what's the stock on your radar?

[Anthony Chavon]

Yeah, I'm taking a look at Target, ticker symbol tgt. Everybody knows Target, one of the largest retailers in the US but they're currently in one of their largest stock price drawdowns in their history. Ricky, you know, I like dividends and Target pays out a more than 4% dividend and they've grown that dividend for more than 50 consecutive years. And I think the key question that I'm asking myself is, is Target in a cyclical or secular decline? To me, considering Target has done a good job of shifting towards E Commerce, which is the biggest threat facing many retailers. I think this might be a cyclical decline and potentially a good investment opportunity for the long term. I also wonder if Target isn't right for maybe an activist investor to come on board at some point, which could be a catalyst for the stock.

[Ricky Mulvey]

There's a lot going on there. Dan Boyd, which stock are you going to be putting on your watch list for this week? Well, I can't say I like going to Target, Ricky, but I do like a nice dividend.

[Chris Hill]

So let's go Target.

[Ricky Mulvey]

That's it for this week's Motley Fool Money radio show. I'm Ricky Mulvey. Thank you to Dan Boyd and thank you to our guests Bill Mann and Anthony Chavon for one final time. Thanks for joining us and the show will be back next time.