Motley Fool Money - Episode "ONON Fire" Summary

Release Date: May 13, 2025
Hosts: Dylan Lewis, Ricky Mulvey, and Mary Long
Guests: David Meyer

Introduction

In the "ONON Fire" episode of Motley Fool Money, hosts Ricky Mulvey and David Meyer delve into significant market-moving topics including pharmaceutical regulation, robust earnings from a leading apparel company, and the valuation challenges facing tech giant Alphabet. The discussion offers investors valuable insights into navigating these complex sectors amidst evolving market dynamics.

Executive Order on Prescription Drug Pricing

[00:35]
Ricky Mulvey opens the discussion by addressing the recent executive order signed by President Trump, mandating that prescription drugs sold in the U.S. must adhere to a "most favored nation" pricing model. This policy aims to align U.S. drug prices with those of other developed nations, potentially impacting the profitability of major pharmaceutical companies.

[01:00]
Meyer shares his initial skepticism:

"When I saw this, my first reaction was sweet. And you know what? I bet the big drug makers, stocks are going to dive on this."

[01:47]
Meyer explains why pharmaceutical stocks haven't reacted negatively:

"The reason they didn't flinch is because the market doesn't believe that those profits are going away."

He elaborates that the U.S. market remains robust due to its open pricing mechanisms, contrasting with countries where governments negotiate drug prices more aggressively. Additionally, Meyer notes that the executive order requires the Health and Human Services (HHS) secretary to devise a pricing plan within 30 days, introducing a period of uncertainty and potential negotiations.

[03:14]
Mulvey highlights concerns from the pharmaceutical lobby, citing Bloomberg's report that the PhRMA anticipates the new pricing regulations could cost the industry $1 trillion over a decade. He questions whether investors should reassess their positions in pharmaceutical stocks, especially those involved in high-margin segments like weight loss drugs.

[04:16]
Meyer advises caution rather than panic:

"Should you panic? I don't think so. But you should go back."

He emphasizes the importance of understanding the regulatory landscape and the potential balancing act between maintaining affordable prices and sustaining innovation through reinvested profits.

On Holding's Stellar Earnings Performance

[06:41]
The conversation shifts to On Holding, a leading manufacturer of comfortable and technologically advanced footwear. The company reported a remarkable 40% year-over-year sales increase, amounting to $860 million for the quarter.

[07:23]
Meyer attributes this success to strong product demand and effective global market penetration:

"They have the product that people want."

He commends On Holding's investment in technology, supply chain management, and direct-to-consumer sales channels, which have collectively driven substantial growth despite potential tariff-related challenges.

[10:08]
Mulvey probes into On Holding's operating margins, noting their efficiency is comparable to industry giant Nike. He finds this particularly impressive given On Holding's younger brand status and relatively lower marketing expenditures.

[10:46]
Meyer responds by highlighting On Holding's strategic sponsorships and efficient operations:

"They have done a good job of balancing all the things that they need to balance in terms of creating a good long term business."

He contrasts On Holding's operational prowess with past examples like Under Armour, which struggled due to operational inefficiencies despite strong branding.

[13:42]
Mulvey playfully references On Holding's creative marketing strategies, such as featuring Elmo in commercials alongside Roger Federer, showcasing the brand's unique approach to advertising.

Alphabet's Valuation and Analyst Perspectives

[13:53]
The focus shifts to Alphabet (Google), where a Wall Street analyst, Gil Lurie, has proposed a potential breakup of the conglomerate to unlock shareholder value. Lurie argues that Alphabet's diverse business segments deserve higher valuation multiples than the company currently receives.

[14:40]
Meyer breaks down the complexity of valuing Alphabet as a unified entity versus its individual segments:

"The challenge in my opinion is in breaking this up is where do these companies get their capital from?"

He draws parallels to General Electric's breakup, noting the difficulties in capital allocation and operational independence that newly formed companies might face.

[16:45]
Mulvey poses a critical question to Meyer regarding Alphabet's underperformance:

"It's trading at a much lower multiple, similar to a mature grocery store business. Should investors seize the opportunity or consider it a 'falling knife'?"

[18:18]
Meyer cautiously supports the idea that Alphabet's shares may be undervalued but underscores the associated risks:

"They're probably under a little undervalued for a reason and that's because there's a lot of risk and uncertainty."

He emphasizes Alphabet's robust cash flow generation and multiple growth avenues, suggesting that while the current valuation reflects short-term uncertainties, the company's long-term prospects remain strong.

Conclusion

The "ONON Fire" episode provides a comprehensive analysis of pivotal market sectors affecting investors today. From the implications of new pharmaceutical pricing regulations to the impressive performance of On Holding and the nuanced valuation debates surrounding Alphabet, Ricky Mulvey and David Meyer offer actionable insights for both seasoned and novice investors. The discussion underscores the importance of balancing optimism with cautious evaluation in a rapidly evolving financial landscape.

Notable Quotes:

• David Meyer [01:00]: "The market doesn't believe that those profits are going away."

• David Meyer [04:16]: "Should you panic? I don't think so. But you should go back."

• David Meyer [10:46]: "They have done a good job of balancing all the things that they need to balance in terms of creating a good long term business."

• David Meyer [18:18]: "They're probably under a little undervalued for a reason and that's because there's a lot of risk and uncertainty."

This summary encapsulates the key discussions, insights, and conclusions from the "ONON Fire" episode of Motley Fool Money, providing a clear and informative overview for those who haven't listened to the full episode.