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- [00:05]
Travis Hoyam
The memes of the market were back in control this week. Molly fool money starts now. Everybody needs money. That's why they call it money. But you can give them to the.
- [00:35]
Lou Whiteman
Birds and be From Fool Global headquarters, this is Motley Fool Money.
- [00:40]
Travis Hoyam
I'm Travis Hoyam joined by longtime fools Lou the Legend Whiteman. And she only has to survive the next hour. With us, Emily Flippin. Today we're going to talk about the latest in AI, the opening of hedge funds to more investors. And we're going to draft our favorite stocks on the market. But we're going to start with meme stack mania. In early 2021, GameStop became kind of the first meme stock that really went viral. The idea of an individual stock going crazy isn't new, but this is really retail acting differently to squeeze the market, if you will, in a bunch of different ways. And it looks like we're back. This week we saw Open Door, GoPro, Krispy Kreme and even Kohl's jump on, in some cases over 100%. Emily, is this another Memstop craze?
- [01:26]
Emily Flippin
Undoubtedly another meme stock craze. I mean, when you think about these frenzy, they're really just bouts of coordinated crowd behavior. And these traders will pile into names with really heavy short interest, not because they love the business, although of course I do love a Krispy Kreme doughnut, but really just to punish the hedge funds that are betting against it. And the targets especially you can look in this case usually deserve those shorts, right? Like Open Door, GoPro, Kohl's, they've all had really clear operating issues and just face really big headwinds. But prices can still skyrocket once that craze begins and those shorts start to get squeezed. But interestingly, as much as we like to blame Reddit and Robinhood hype for why retail investors do this, what's really going on and what's really driving this is actually the way the market just fundamentally works in these day and age like multi manager hedge funds, they're called pod shops. They largely force each sector manager who operates within that hedge fund to be long one name and short another so that their overall book stays market neutral.
- [02:20]
Travis Hoyam
And that would be the hedge in hedge funds, right?
- [02:23]
Emily Flippin
Exactly, exactly. So you have to like manage a certain level of volatility for these types of businesses. And the issue comes in when you look at how much pod shops are driving the market. I mean, they're responsible for upwards of a third of all U.S. equity volume. So you can understand how retail traders look at this dynamic and they think that's kind of bs. I want to do something about that. Right? And this, this exaggeration can occur around earning season, especially when you start to have all of these volumes flooding in, selling the bad companies, buy the good companies. And with that quarter of volume of US equity markets that are driven by retail traders, it's really easy to see this dislodging of fundamental value as a result.
- [03:03]
Lou Whiteman
It's weird, isn't it? And I have to be honest, it isn't anything I want to be a part of. My favorite part of investing is you don't have to play in every game, you don't have to buy every stock. And I can't predict human behavior. Fortunately, I don't have to. So as a long term investor, I, I kind of just am watching this and all. I mean my tendency is to look for places that others are ignoring. I think you can find good value with stocks that really like aren't bad, they're just not getting attention. And so in a way, I love this because you know, in the middle of a frenzy like this, when all of the attention is going on, just a couple of stocks, I'm looking at areas like transports like financials that have been beaten down and I see signs of life and just kind of, I say, hey, no one's paying attention. But two things you got to remember if you are caught up in meme stocks. First, it works until it doesn't, right? And there's no signposts at the top, as they say. The sad final chapter of the 2020 meme craze is the gains didn't hold. And a lot of people that felt rich for a bit ended up kind of back where they started. The problem with time in the market is you have to get it right twice and that is really hard. Second, related, your friend or co worker, whoever is only telling you about their wins. In moments like this, it's easy for FOMO to set in like everyone's getting rich but you. But look, there are two sides of every trade. You're only hearing half of the story at most. So just be careful as that FOMO comes in.
- [04:27]
Emily Flippin
I actually love that, Lou, because when you look at this for long term buy and hold investors, which I hope everybody who is listening to us right now associates himself with a long term buy and hold investing, which as we know benefits over the long term better than trying to day trade or staying uninvested in the first place. What your point about the fact that you only hear about the good things, not the bad things is incredibly poignant because to be a long term investor, you don't have to buy every single company. Of course, you can buy an index fund and that's to some effect doing the same thing. But you don't have to get every single opportunity right, you just have to have a systematic and reasonable approach to managing your investments. And this is exactly the opposite of that. So it's important not to get caught up with it because as we know, this is the best and easiest way to lose your shirt.
- [05:11]
Travis Hoyam
Emily, I want to ask you about how you would maybe take advantage of this and then we can get loose take. But one of the things that we always talk about long term investing and if you are a long term investor and you found an opportunity In, I mean, GameStop originally was a value stock that was a company that there are fools who built positions in that when it was trading for single digit earnings. And that was kind of where the whole thing started. But if a stock that you own, that you have a long term thesis on, goes through one of these meme crazes, is that an opportunity to sell or how do you think of it? If it's sort of a tailwind for you to, you're not necessarily a buyer at the top, but do you want to kind of get out or how do you think about that?
- [05:52]
Emily Flippin
That's a great question. Because the benefit, as we talked about to something like this meme stock craze, or even the hedge fund involvement, which longing and shorting certain companies can lead to dislodge of long term value, right? Where the perception of value for a company is different than the price of the market. And as investors, that's always what we're looking for. So there can be instances where somebody is a shareholder of a business that otherwise undergoes a meme craze and they didn't buy it with the intention of the Stock going up 100% overnight, but they wake up in the morning, they find themselves in that position, which is why it's so important to have a fundamental thesis for why you're buying a company in the first place. And the case of a business like GameStop, of which many fools did own positions prior to it going crazy just a few years ago, you have to ask yourself, okay, when I bought this investment, what was my perception of value? What was my thesis? And how is today's value different than what I perceive their value to be during the thesis? And sometimes that may be, hey, sure, maybe it's gone up 50%. But I think this is a stock that is worth 200% more today. Right. And it doesn't matter to me what the retail investors are. I have my thesis. But I think in the most cases with businesses that have been struggling like these Meme stocks have been, chances are when they go up 100 plus percent, that is a great opportunity to sell because that has that relative value that you saw when initially purchasing. That dislodge no longer exists.
- [07:09]
Lou Whiteman
Amen. Don't, don't get too greedy. If I bought something at 10, believing it could go to 20 and suddenly it's at 50, I think I should say thank you very much.
- [07:18]
Travis Hoyam
Probably a good way to look at it, at least take a little bit off the table. Retail investors, in other words, you and me are driving the Meme stock rally. And that may show how some investors are using the market as a casino rather than a long term investing mechanism. So why not up the stakes? This week, the House passed a bill that would expand the definition of accredited investors. Emily, I always get confused about these rules. So what exactly is an accredited investor?
- [07:45]
Emily Flippin
Well, for some people, being an accredited investor can just mean that they have a certain career in financial management, right? They work for a hedge fund or they pass a series of tests to manage assets and work in that professionally. But for the vast majority of investors, people listening to us talk right now, to be an accredited investor, you need to have more than $200,000 in earned income as a single person, more than $300,000 in earned income as a married person, or have a net worth north of $1 million excluding your primary residence.
- [08:15]
Travis Hoyam
So until now, that criteria was really only financial. And this bill would add, quote, certain licenses, education or job experience to the criteria to qualify as an accredited investor. There's a long history of these rules changing, and sometimes they're for the better, sometimes for the worse. Lou, what's good here and what's bad?
- [08:35]
Lou Whiteman
So in theory, choice is good, right? More options is better than fewer options. So the good news is more people will have more options available to them. But let's be honest. This is an industry with a long history of inventing products designed to get the industry rich, not the customer rich. And while I do believe it is very possible for an individual to outperform the market, it is also worth noting that the no choice option people who spend their entire working career buying a total market fund and nothing else should be just fine. So there's a lot of noise, there's a lot of selling here. So kind of the Bad news. My maybe over cynical take is I do worry that some of what will be sold to these newly minted accredited investors will be not worth buying. I definitely not trying to play Chicken Little and say it'll all be bad. I mean, there will probably be opportunities. But the downside of having more choices is inevitably some of those choices are the wrong ones or the bad ones.
- [09:36]
Emily Flippin
Yeah, that's a great point, Lou. And I have to say I do think the devil's going to be in the details here. Of course, the bill that the House approved this week just doesn't really give us a lot of details. They give suggestions for what this could look like, but what it actually means to be taking a test and being able to be a accredited regardless of net worth, that is ultimately going to probably drive how much of this is protecting individual investors versus just throwing them to the wool, so to speak. But I do think that conceptually this is heading in the right direction. I like to broaden and expand my viewpoint here and think about how it felt when the Internet started to come around and people were able to make trades on the Internet as opposed to having to call up their broker. And I could have made a very similar argument in that day and age that it was bad for investors and individual investors in particular. And certainly we did see a huge rise in penny stocks, right? Everybody was sudden to get individual investors to buy into these really defunct companies and a lot of people lost their shirts. But here we are decades later and I think we can all say that the market is more efficient, we're all better off as a result of the ability to place free, easy access trades over the Internet. And I wonder if this has to be the same thing. We're seeing companies come to public markets much later in their life cycle than we have in the past. That's diluting overall equity returns. A lot of great investment opportunities do exist on private markets for which a lot of people do not have access to today. And as important as I think it is to have strong, strong regulations that protect people from, you know, effectively being robbed, right, they're being scammed by private investments that don't have great regulatory oversight. I also think it's really important that we open up access to the average person, otherwise they could potentially be left behind.
- [11:09]
Travis Hoyam
Yeah, it's interesting the historical context you went through some of that, Emily. I'm reading the Power law right now, which goes through some of the history of Silicon Valley. And it's just fascinating how the, the VC infrastructure that has helped build companies Like Google, Amazon, Microsoft, Nvidia, Tesla, it just didn't exist 50 or 60 years ago. And the funds that are driving that wouldn't have been possible or legal. And you know, as the rules are currently written, it would be extremely difficult to start a small fund without hundreds of thousands of dollars in capital just to pay for regulatory fees. So sometimes there is a purpose and sometimes this is, you know, regulations are saving themselves from us. But Lou, what's the big takeaway here?
- [11:52]
Lou Whiteman
The big takeaway is be excited, but be careful. Like I say, there is going to be good opportunities. And Emily's right. There are a lot of things I'd love to invest in, but there are also always read the fine print, always think of expenses, always figure out if you're being sold because there's just a lot out there and not all of it is going to be a good choice. Even if it is a choice you have.
- [12:14]
Travis Hoyam
Next up, we're going to discuss the ups and downs of big tech. Today you're listening to Motley Fool Money. This episode is brought to you by Indeed.
- [12:24]
Lou Whiteman
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- [12:27]
Travis Hoyam
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- [12:29]
Lou Whiteman
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- [12:41]
Travis Hoyam
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- [12:48]
Lou Whiteman
Terms and conditions apply.
- [12:54]
Travis Hoyam
Artificial intelligence has obviously driven the market over the past three years. Nvidia is now the most valuable company in the world. But Alphabet was the talk of the market this week with its AI progress. They doubled tokens processed over just the last two months. Gemini now has 450 million monthly active users. Then they up their capex by $10 billion to $85 billion this year. Lou Microsoft planned $80 billion in capex and they'll report next week. So we'll find out if they're going to also up the ante. But did Alphit just throw down the gauntlet with going all in on winning this AI race?
- [13:32]
Lou Whiteman
Yeah, you know, it's funny. It'll be interesting to evaluate the Alphabet number in a week or two when we see what their rivals did. But I don't know if this is all in considering they have all the money in the world. Here's what I think with Alphabet. Ever since Ruth Porridge stepped in and CFO back in 2015, the company in my eyes, has been extremely disciplined about allocating cash. They're not conservative. They still do a lot of other bets, but they're very smart about it. Porad isn't CFO anymore, but she's still in leadership. I trust the company more than Most of the Mag 7 that when it comes to capital allocation, if they say they are investing based on what they see as concrete returns they can get from it, I think I believe them.
- [14:16]
Emily Flippin
Yeah, I mean my. I'm a little more skeptical here. I will say I think there could be a misperception that like money equals success when it comes to artificial intelligence. And if that were the case, then I should be a sommelier with how much money I spend on wine. But the truth is I can't tell a difference between most of what I drink. And so in this case, I really do think that the winners of AI are going to be the people and the companies that can derive the most value from it, not the ones who can throw the most money or value at it. And right now, large tech companies keep talking about their capex as if they're getting this great return on investment from it and we simply have not seen that ROI come to fruition yet. Now, big emphasis on yet because their backs in a lot of cases are against the wall. What are they supposed to do? Just pretend like this big, you know, sea change isn't happening to them? No, of course not. But I will say when I see big numbers like this, I have to wonder where is the value accruing to? Is it going to mainly accrue to the companies that are spending tens of billions of dollars on capex and AI? Or is it going to be the companies that actually partner with the companies spending $10 billion in AI who actually get to use the end results in this product? Think there's a dislodge of value between these large companies and the smaller small caps that are likely to partner with them, put up less capital and still get a lot of value?
- [15:25]
Travis Hoyam
One person that may disagree that money is all it takes is Mark Zuckerberg. He has been firing 8, 9 figure job offers out of a T shirt candidate. AI engineers like Alphabet Meta has more cash than it knows what to do with. So is this a sign that they're worried about something? Is this Mark Zuckerberg saying, you know what, the balance sheet and the cash is all that matters? I'm interested in your take, Emily, but I want to start with Lou because Zuckerberg seems to be taking a strategy of we've got to be in this game. And he might be right.
- [16:01]
Lou Whiteman
Zuckerberg I think is being Zuckerberg. Right. His nature is to be overly aggressive. It's worked at times, like buying Instagram instead of competing with it. It has not worked as well in other times when went all in on the Metaverse. Obviously this time, unlike the Metaverse, they're not rushing in alone. So I think the market is giving them more of a pass here. It is, as you say, I think it's a cost of business and not a Hail Mary pass, but kind of to Emily's point. And the interesting thing to me, with Zuckerberg kind of shifting the focus to hiring, are we getting to a point where we are approaching we have enough capacity, enough chips, and the investment starts shifting to how we use that capacity? I mean, I don't think this is all or nothing. I'm not like calling gloom and doom for Nvidia, but I do wonder if we'll look back at what Zuckerberg's doing here and some of these investments in companies and say, okay, that was the beginning of the shift from exponential growth in chip demand to just a plateau and the money started allocating elsewhere.
- [17:00]
Emily Flippin
Yeah, I agree with Lou here and I will say, you know, expanding larger for Meta, which I, by the way, I think is an incredible company, has been an amazing investment and I'm happy I have exposure to it via all the index funds that I own. But I will say this, tell me the one thing Meta has done since like buying Instagram that has actually helped cash flows here. They don't like take apart their, their balance sheet, their income statement on a per segment basis, except for when it applies to Reality Labs. And I will say we see with Reality Labs, despite all the capital thrown on it has just not generated the returns they expected for the Metaverse ambitions, which they renamed their company for Reality Labs, acts as a percentage of sale, has shrunk over the last couple of years and it's the same as it was in 2020. So it really hasn't been a massive driver of value for Meta. And I will say just I think this is throwing money at the wall and seeing what sticks in the case for, for Meta, which is to say that, you know, they have a lot of capital, they don't get a lot of shareholder pressure here because their other businesses are so cash generative. And I think they need to be a little bit more focused on a per project basis of what's driving return on investment because right now it seems like they're just doing the most, and I don't mean that as a compliment.
- [18:04]
Travis Hoyam
One company that's not driving a lot of return on investment today is Intel. They announced massive layoffs and this is not the first time that they've announced big layoffs. But this week they said that 24,000 people are going to potentially lose their jobs, about 15% of the staff. Lou, what is going on here? Is this something that's going to be a bigger problem for the tech industry broadly?
- [18:26]
Lou Whiteman
This was CEO Lip Bhutan's first quarter as CEO and if nothing else, I think what we're seeing here is he was brought in to shake things up, make the company more efficient, question everything and you know, cost cuts would be expected to me. And to relate this back to AI, the most interesting thing about intel was their commentary on Foundry. Foundry was supposed to be their way to compete with Taiwan semi and get some of this business that, you know, the Nvidia chips and all that kind of the third party. Up until March when Tom took over, the conventional wisdom inside intel was Foundry is the future. All all emphasis was on Foundry. Now the commentary is basically Foundry's got to prove itself for better or for worse. I think Ton is beginning to question everything in Intel. Fair to say the company needs a reboot. The hard part isn't the flush, it's figuring out what direction to go from here. So we'll see. But I think it's a first, a good first step.
- [19:23]
Travis Hoyam
Next up, it is almost fantasy football season and we're going to come back and draft our favorite stocks. You're listening to Motley Fulman.
- [19:30]
Lou Whiteman
Yeah, take the job and shove it.
- [19:33]
Travis Hoyam
I ain't shove in here no more. Take the job and shove it.
- [19:41]
Emily Flippin
Ryan Reynolds here from Mint Mobile.
- [19:43]
Travis Hoyam
With the price of just about everything.
- [19:44]
Lou Whiteman
Going up, we thought we'd bring our prices down.
- [19:47]
Travis Hoyam
So to help us, we brought in a reverse auctioneer, which is apparently a thing. Mint Mobile unlimited premium wireless Everybody to get 30, 30. Better get 30. Get 20, 20, 20. Get 20, 20. Better to get 15, 15, 15, 15. Just 15 bucks a month.
- [20:00]
Lou Whiteman
So give it a try.
- [20:01]
Travis Hoyam
@Mintmobile.Com Switch upfront payment of 45 for.
- [20:05]
Emily Flippin
3 month plan equivalent to 15 per month required new customer offer for first 3 months only. Speed slow after 35 gigabytes of networks busy. Taxes and fees extra. See mintmobile.com.
- [20:17]
Travis Hoyam
NFL training camp started this week and that means it's time to start preparing for fantasy football. So we thought it'd be fun to do a investing draft, something of a fantasy investing team. Here's the rules. We're going to pick four stocks. This is going to be cumulative scores. We're going to try to beat the market by as much as we can. Can only pick stocks in the S&P 500 and we're going to have a snake order with Emily starting first and Lou going second. Emily, what are you starting with?
- [20:42]
Emily Flippin
Well, I just want to say I want the record to show that I resent this ask just a little bit because I am limited to the S&P 500 stocks and some of my favorite companies are small caps or businesses that otherwise don't qualify to added to the S&P 500. Now I will say I understand the ask, but I, I do think when I look at the performance of an index like the S and P, I have to look at the Mag 7 and I have to kind of benchmark against those businesses because they have been the behemoths that have driven overall index returns. So I will say I will mix it up a little bit here. But my first one of course has to be Apple. Out of all the Mag 7 stocks, this is the one that I think has some of the lowest expectations baked into it that when I expand performance out for a full year, I think it's more likely to surprise investors.
- [21:27]
Lou Whiteman
So this is fun because I'm going to take the other side of this trade. My gut is over the next year the Mag 7 isn't going to be what leads the market. The one year is really hard though because it really is. My brain goes to situations. My first pick is GXO Logistics. Might get to it more in a little bit. But this is. I'm going to favor things like transportation that have really been beaten down by tariffs, by supply chain concerns. I think that there is a near term catalyst for these sorts of companies to outperform over the next year.
- [22:00]
Travis Hoyam
So I have two picks here and you guys left the easy one on the table. That is Alphabet. We talked about it already. They are just crushing it in artificial intelligence. Their cloud business grew 32% last quarter. They have enough money to just bludgeon the competition in artificial intelligence and trading for less than 20 times forward earnings. That's even before analysts start adjusting their estimates for the next year or two. I think that's just the easiest pick and you get a pretty good value. Speaking of value, my second pick in the first to the second round is going to be look, I think the market overall is pretty overvalued. So given that I want to look for some value stocks. General Motors continues to despite everything, despite potentially weakening consumer spending, despite tariffs, they're still going to make a ton of money this year and they're buying back 15 to 20% of their shares outstanding every year. If the stock doesn't go anywhere over the next year, you could just own 20% more of GM than you did a year ago. I think eventually that will pay off and maybe it'll be this year. Lou, you're up next.
- [23:03]
Lou Whiteman
I'm staying with my transports. UPS has basically been cut in half in the last few years. It's still a good business. They did have headwinds, but I do think I'm ready to call a bottom little nervous if it will recover in 12 months versus 18. But I'm going with UPS on a recovery in transports markets and I'm sticking.
- [23:21]
Emily Flippin
With my good old consumers and that is Chipotle. We had earnings out from Chipotle this week that really disappointed the market. In fact, I think the past year has seen a lot of the enthusiasm for Chipotle and its relative perception of value fall. And as a result, I actually think that this is one of those businesses that can pleasantly surprise investors. It's an affordable luxury in a tighter economic environment. And I think they're likely to see more resiliency as it applies to their core customer than a lot of investors are giving them credit for right now.
- [23:49]
Travis Hoyam
You get two picks here. So what's the, what's the second one? First pick of the third round.
- [23:53]
Emily Flippin
Oh, you know, let's go with another consumer company here, Travis, and that's Lululemon. Now I hear everybody smacking their heads as they listen to me say that because this has been such a dog over the course of this year. Obviously they sell very expensive, you know, Athleisure apparel and there's a lot of competition in the space and a lot of skepticism over their business. But again, this all comes back down to expectations. Lululemon has not been this cheap since the Great Recession and their brand is just as resilient today as it has been during any in the past. So I think this is also one that's likely over the course of the next 12 months to surprise investors to the upside.
- [24:26]
Lou Whiteman
I'm going to switch gears a little. Accenture acn. This is not a climate where every anybody wants to commit to big expensive consulting projects. But we talked about AI. Everyone's scared of AI and what it's going to be. Not everyone can invest what Google and Meta is investing, so they need outside help. I think as some of the hopefully clouds clear on tariffs and where the economy is going, I think we're going to see an uptick in businesses focusing on how they can use AI. Hiring Accenture. I think this stock can, can have a good year.
- [25:00]
Travis Hoyam
Accenture is kind of like the easy button for companies in artificial intelligence it seems.
- [25:04]
Lou Whiteman
I like easy buttons.
- [25:07]
Travis Hoyam
I have two picks here. I'm going to go with the value trend once again. A company that I think the market is just overlooking another buyback. Stock buying about 15% of their shares outstanding each year. MGM Resorts. This is a company that owns about half of the Las Vegas strip. They have two casinos in Macau which is actually the biggest market in the world. And oh by the way, they're building what could be one of the most profitable buildings in the world in Japan that won't open until 2030. So the market doesn't tend to care about that sort of outlook five years from now quite yet. But if you believe management's estimates, you just pull out some of their China business, their Macau business and their online gaming partnership with Entane. Their core business trades for about four times the cash that it's generating. So that I think is a phenomenal value. And the Las Vegas strip isn't going anywhere. They're not building a lot of new casinos and I think, you know, 10, 20, 30 years from now, the Bellagio is still going to be at that core. So I like the value there in the S&P 500. The final pick for me is going to be one that I think has just been overlooked for years. That's Garmin. If you are a Garmin watch wearer, you know that this is just one of those companies that can command phenomenally high prices. They have all the information. They have a fascinating 10 years coming ahead because as we move to more wearables, companies like Meta get into glasses and things like that. Here's this device that's just sitting here waiting to be utilized. More people are paying a thousand dollars plus for a lot of these watches. I don't know, am I going to be able to use artificial intelligence? Am I going to be able to plug this into my healthcare app? There's a lot opportunities for them. Not the cheapest stock at about 30 times earnings, but I just love where they're going and the vision for the company. The founder led company has been phenomenal over the last few years. Lou, you're up.
- [26:56]
Lou Whiteman
So one of the areas the market really hasn't liked was mid sized banks, regional banks and a bank that the market really hasn't liked is Truist Financial tfc. Truist was the product of a merger. They didn't do a great job on the merger integration. So some of that. That lack of love is justified. But I think the integration is behind them. They have about $45 billion worth of loans that roll off in the second half. Most of those are rolling off from kind of zero rate periods. So it should be an opportunity to reprice. I like a near term catalyst. I like a good bank trading at below book value. I think it can outperform from here.
- [27:34]
Emily Flippin
And for my last stock, I had half a mind to go with another Mag 7. But the truth is I really love some underappreciated constituents of the S and P, of which Tyler Technologies is one and will make up my last pick. You know, Travis and Lou, have either of you ever heard about or looked at this company before?
- [27:51]
Travis Hoyam
Yeah, this is the first time I've heard of it, but yeah, this seems like up Lou's alley.
- [27:56]
Emily Flippin
Well, I'm impressed because this is a company that not a lot of people are familiar with, but they provide software services and payment processing to small local and regional companies, or, excuse me, small local and regional public sectors. So like your local government or your state governments, they made an acquisition of eGov a number of years back, which got them some federal exposure. And they're operating in an industry that's just really massively underserved. And as a result means that they don't have to have this incredible product because the thing they're replacing is really just pens and papers and they're incredibly sticky. So this is my pick to kind of lower the overall volatility of this portfolio.
- [28:31]
Travis Hoyam
Let's put you both on the spot and try to find a coach for our teams. I think I thought it's always fun to think about a CEO running any company. Lou, who would you have as the CEO running this company of your four stocks?
- [28:45]
Lou Whiteman
So maybe it's recency bias, because I was just looking at Kinsale Capital's results, but Michael Kehoe at Kinsale is just. He's a founder with a vision and executed for a long time. Now that's front of mind. I'll take him as the coach.
- [29:00]
Emily Flippin
I will say, Travis, you didn't tell us that the CEO had to be a CEO of an S&P 500 company.
- [29:05]
Travis Hoyam
I didn't. No.
- [29:06]
Emily Flippin
So I went outside the box here and I actually, I'm running with Bombsook Kim, who is the founder and CEO of a company called Coupang. Coupang is a. A Korean e commerce company sometimes referred to as like the Amazon of South Korea. And the reason why I love him so much as a leader is because he has a very high level of operational expertise and I love the way he talks about driving shareholder value. And most importantly, I think the best thing that a leader needs is the ability to recognize when mistakes have been made and to change course, to be flexible and open minded. And when Coupang attempted to expand into Japan, that initiative within a first year or two to failed pretty spectacularly. And Bombsuit Kim was not afraid to come out and say okay, that didn't work. We're stopping wasting our money by attempting to make this expansion there and focusing on back on our core competencies as opposed to dumbling down just to save face. So I'm running with Bombsuit Kim here.
- [29:59]
Travis Hoyam
I've got a lot of sort of value companies so I went with an execution person. I think what Mary Bar has done at GM has just been phenomenal. Obviously it's one of the stocks that's in my my, in my group here. But she's just been in a very, very difficult market, continues to generate cash, continues to have really good products coming out. The market doesn't really seem to care. But I think if you're looking for a company to run companies that where operations are going to be the focus, she has done a phenomenal job. Let's put some time on the calendar next July to check in and see who won and we will maybe put this up on the Motley Fool Twitter page as well. You can let us know what they're what you have picked. But in the meantime Dan behind the glass is going to be Jud has been judging our picks. Dan, what do you think of our teams and who has the best team here?
- [30:47]
D
Okay, so I'm not a stock analyst. Let's just keep that in mind. I think all of you did a fantastic job so I'm just going to split a few hairs here. Emily, I liked all your picks except Lululemon. I don't know, I don't think it has legs.
- [31:04]
Travis Hoyam
Hey.
- [31:04]
D
Oh. So I'm going to give you an A min. Lou, I liked all your picks except for Truist because I don't like the name so I'm going to give you an A minus. And Travis, I liked all your picks. I don't gamble so except for MGM Resorts. So I'm going to give you, you guessed it, an A minus.
- [31:23]
Lou Whiteman
You're not wrong on the name.
- [31:25]
Travis Hoyam
You're not and is clearly grading on a curve here. Next up we are going to give you 60 second takes on some earnings this week and stocks on our radar. You're listening to Motley Fool Money. I'm coming home. Times gone by it seems to be you could have been a better friend to me. Mama, I'm coming home. You took me in and you drove me out. Yeah, you had me hypnotizing lost and found and turned around by the fire in your eyes. You made me cry.
- [32:22]
Emily Flippin
Summer's here, and Nordstrom has everything you need for your best dress season ever, from beach days and weddings to weekend getaways in your everyday wardrobe, discover stylish options under $100 from tons of your favorite brands like Mango Skims, Princess Polly and Madewell. It's easy, too, with free shipping and free returns in store order pickup and more. Shop today in stores online@nordstrom.com or download the Nordstrom app.
- [32:59]
Travis Hoyam
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 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 and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. We're in the heart of earnings season, so I want to put the three of us on the clock with some takeaways from earnings this week. Emily, in 60 seconds, what is one earnings report you think has a big takeaway for investors?
- [33:35]
Emily Flippin
I have to think about Boston Beer here, and this was actually a strong quarter for them. Stocks up a bit after they reported sales growth of one and a half percent. And a lot of that comes down to how they're managing costs. Their gross margins actually expanded year over year because of efficiency derived from their product mix, and that production has actually helped absorb the cost of tariffs. So there's a nice combo of like low expectations for Boston Beer in a mild beat, but they're still facing tariff headwinds. I think there could be headwinds of up to 100 basis points over the course of the next year. They won't be able to probably pass along to consumers because they're already raising prices so much. So this is a business that otherwise seems strong. I mean, they're continuing to buy back shares, generate a lot of cash flow. But fundamentally, this is like a fine business operating in a bad industry right now. And you have to think that that just kind of makes a bad business. It's not just beer consumption that is down. I mean, Alcohol consumption across the board is on a decline. And while I'm really impressed what this company has done, given the premiumization of their alcoholic tea and the Sun Cruiser brand, these like one offs aren't going to fix their company. And I pray that at some point management just like sees the light here. They keep talking about what it means when their industry will improve. I mean that is an exact quote from their earnings call. They expect the industry to improve and quarter after quarter alcohol consumption and beer consumption declines. The industry is not improving but you know what people are going to want towards cannabis and others and they're taking like hundreds of millions of dollars and buying back their own shares instead of actually investing in something that is a growing industry. So I really wish that this company would take a broader look and think how do I make sure that Boston Beer is relevant a decade from now as opposed to just accepting their business as it exists today.
- [35:17]
Lou Whiteman
Speaking of companies in bad industries, Enphase makes microinverters that convert energy from solar panels to AC current we use in our house. It has been a toug stock to love down 70% over the past year and look not without reason. Arguably the current political climate in the US is not favorable towards solar. A lot of the tax incentives that were supposed to fuel residential solar growth, they're disappearing as part of the big beautiful bill. And yeah, shares were down another 10% on an earnings release where Enphase said the US residential market is going to shrink by 20% in the next year. But looking at these earnings, they actually topped quarterly expectations for both earnings in revenue. Some of this could be a pull forward, people trying to get systems installed ahead of those tax credits running out. But I also think it's a sign that there is just kind of expectations aligned with reality and we can stop with the maybe quarter to quarter drama. Company's doing what it can. European sales are up. Enphase is pushing new products that don't require big tech subsidies like Balcony solar systems to be used in an emergency. As a shareholder I walk away from this quarter both with little reason to get excited in the near term and surprisingly not concerned given how much the holding is down over the last year. If solar ends up being a big part of the long term answer here and I still think that's likely. There is nothing to suggest and phase won't have a big part to play in that transition. It's just going to take a lot of time.
- [36:46]
Travis Hoyam
That Balcony Solar product is going to be really interesting to see. The one that I think that we need to pay a little bit more attention to if you're interested in autonomous driving. Mobileye beat their estimates for the quarter, increase their guidance and then they also said that they're going to be launching in 2026 some autonomous vehicles here in the US they have been testing those for quite a while. So keep an eye on mobileye if you're interested in autonomous driving. Now we like to end the show with stocks on our radar. Emily, I'm going to start with you. What are you watching this week?
- [37:19]
Emily Flippin
I'm looking at a company called Chalky Holdings. The ticker is Cha. This is relatively new to public market so probably a new one for a lot of listeners. But this is a rapidly growing collection of like upscale tea houses and bar largely in China, although they are expanding across Southeast Asia and even the United States as well. This is run by a founder led management team who's still relatively young and they have massively expanding business. Now there are some red flags here. This is a franchise model and same store sales growth is declining as a lot of cannibalization happens across their massive expansion. But it is sitting at that, you know, 5 billion-ish sweet spot when it comes to the market cap of some of these fast casual chains and we've seen the success in the number of stores that can be held up by a large market in China. They have a higher price point which has improved profitability and this is an incredibly profitable cash generative company growing really rapidly. Definitely one to keep on your radar.
- [38:11]
Travis Hoyam
Dan, what do you think there?
- [38:13]
D
Yeah Emily, I another reason for the listeners to dislike me but I'm a big tea drinker so this is exciting to me. Do you have a favorite type of tea you like to drink?
- [38:24]
Emily Flippin
I'm actually a loyal coffee enthusiast but I will say the majority of what Chaghi sells are actually tea lattes like milk based tees. So really not what you would imagine when you think about a classic Te.
- [38:35]
Travis Hoyam
Lou, what are you looking at this week?
- [38:37]
Lou Whiteman
I mentioned it before in the draft but GXO Logistics it's a backdoor way to play the kind of continued growth in E commerce and omnichannel commerce without having to pick winners among and losers among retailers. Company runs warehouses, supply chains and handles returns for Apple, Nike, Whirlpool. Apple built a million dollar warehouse and just threw the keys at GXO and say it's your problem. The stock has underperformed in part because it has a major European exposure and Europe hasn't done as well as the US over the last few years. It was also waiting in a trust approval for a big deal. Europe is picking up. The deal is finally closed. They report in early August. I'm really curious if these headwinds turn to tailwinds and we start to see some. Some life in the stock.
- [39:21]
Travis Hoyam
Dan, is a logistics an area of the market that you have any interest in playing?
- [39:26]
D
I mean, you have to say yes to that, don't you? Because companies like GXO are kind of behind everything that we consume and everything that we do around here. So, yeah, I'm interested in logistics, but my question is for Lou. Lou, do you have any warehouse experience in your job history?
- [39:45]
Lou Whiteman
No, I visited them. Does that count? I got to see a cool robots demonstration if that counts.
- [39:52]
D
I think that does count. Everybody likes cool robots.
- [39:55]
Travis Hoyam
All right, Dan, which of these stocks are you going to put on your watch list?
- [39:59]
D
Well, as much as I like cool robots and logistics, I'm actually going to go with Shaggy. Because you know what? I'm a little thirsty and I think I'm thinking about my next cup of tea here. Travis.
- [40:10]
Travis Hoyam
For Lou Whiteman, Emily Flippin, Dan Boyd behind the glass, and the entire Motley fool team, I am Travis Hoyam. Thanks for listening to Motley Fool Money. We'll see you here tomorrow, Sam.