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- [00:02]
A
Is it time to start looking outside the US this is Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. I'm John Quast. I'm joined today by fool contributors Rachel Warren and Matt Frankel. This is Memorial Day, if you're listening to this, but we're taping a couple of days early and for that reason we're not going with the news of the day or something like that. We're, we are diving into our mailbag here today in all three segments and let's just get right into it. We have a question here from one of our listeners who just goes by S, but it says dear Fools, the S&P 500 in a broad based foreign index for investment portfolios is often considered good rules of thumbs for many investors. The S and P, however, has become increasingly concentrated in the Magnificent Seven. For investors looking to diversify and add more individual countries to their portfolios, such as Japan or India, for example, how should investors approach investing in more concentrated foreign investments? Now, before we get into this first question here, I want to point out that the way it's worded makes it sound like there are two opposing approaches. You can either invest in the Magnificent Seven or you can invest internationally. As in, you can do one or, or both, but you can't do both at the same time. And that's not necessarily true. Right, Rachel? You can invest. This dichotomy doesn't necessarily exist.
- [01:28]
B
Yeah, that's absolutely the case. I mean, that's very much been my personal approach as an investor. So my portfolio is quite heavily weighted in the US Mega cap tech companies. And actually because of that, there is really a built in international diversification there. I mean, the mag7 function essentially as global economic conduits. They're not just domestic enterprises and actually they generate a lot of their revenue outside. So just to put some numbers to that, Meta and Apple derive about 62% and 57% of their respective revenues from foreign markets, which might surprise some people. Alphabet pulls in about 51% of its revenue from international markets. So, you know, not everyone has to take that approach, of course, but for me personally, when I'm picking stocks, I've held these companies for many years. I plan to do so for many years to come. I view it as very much participating in their international expansion. You know, you're capturing a lot of the tailwinds from AI, from cloud computing rollouts and other really exciting tech sector events just by investing in these major businesses.
- [02:35]
A
Yeah, I think it's so easy to overlook the Fact that a large part of US stock market performance has been driven by the fact that these US based companies have gone global. Matt, how about you? Do you own any USA companies that generate substantial revenue from overseas?
- [02:52]
C
A few. I am not as Mag7 heavy as Rachel is. My Mag7 investments are Alphabet, which technically is owned through my wife's portfolio, but one big pot and Amazon, which I would probably consider to be the least international of the MAG7 in terms of revenue. The majority of their revenue is domestic. Some of my large investments, my largest investments like General Motors, like Berkshire Hathaway Realty Income, they're mostly domestic. MercadoLibre is a top three investment for me. That's one exception. But it's not a Mag 7 company and I have a few other of my top 10 investments have substantial international exposure. Digital Realty Trust is a global data center operator. Pinterest, over 80% of its users are international. Disney is a surprisingly international company. I'm a little more underweight international in terms of individual stocks.
- [03:41]
A
All right, well thank you both for that. And let's go ahead now and kind of dive more into the meat of the question here regarding international diversification, specifically mentioning Japan and India in their question. Rachel, there are simple ways to diversify into those markets.
- [03:58]
B
Yeah, I mean there's a few different ways to do this. So for example, if you're looking at specific foreign markets like Japan or India, you can look at Exchange traded funds, ETFs that focus on specific regions or countries. So you can really access a whole basket of foreign companies without the operational hurdles of investing in international stocks. Or maybe you don't want to just invest in individual stocks. You want to go for the basket of approach. So just to give a couple examples, you know, there's funds that track that premier localized benchmarks like Japan's Nikai 225 that's a actually a price weighted index of 225 blue chip giants like Toyota and Sony that are listed on the Tokyo Stock Exchange. There's also India's Nifty50. There's ETFs that follow that. India's Nifty50 is a market cap weighted index attracts the 50 largest, most well capitalized companies on their national stock exchange. But there's Also, you know, BlackRock for example, ETFs that offer targeted vehicles. There's their iShares MSCI Japan ETF that's Ticker E WJ and then there's Ticker Indy which is the iShares India 50 ETF that actually tracks the Nifty 50 that I was talking about. One other one I'll name. There's the Vanguard Total International Stock etf. That's vxus. These all provide some general baseline foreign exposure. I'm not saying to go run out and buy shares, but if you're interested in looking into these markets, you want to take that basket approach. Maybe take a look at those and see if they make sense for your portfolio.
- [05:28]
A
Yeah, I'll agree with that. You definitely want to be investing in something that you know. And sometimes in international markets, it's a little bit harder to pick individual stocks. Maybe that etf, that basket approach is kind of the way to go. But, Matt, any. Any more ETFs that we should know about?
- [05:45]
C
Yeah, no. Rachel named some good ones. Because most of my larger investments, like I mentioned, are mainly domestic in nature, I've been actively diversifying my portfolio through ETFs. One in particular I've been using is the Vanguard international high yield ETF Vymi. It owns over 1500 companies. It has an excellent dividend yield, and overall, the stocks it owns are cheaper than their US counterparts in both a price to earnings and price to book basis. It's a really attractive ETF right now. And. And don't think that just because it's an international ETF that it's full of a bunch of companies you've never heard of. Top holdings include Toyota, like Rachel mentioned with the Nikkei 225 Nestle. Some of the major pharmaceutical companies are based overseas. It's a lot of companies that you've probably heard of before. So that's one that I would take a look at.
- [06:33]
A
Well, thank you both and thank you s for the question. Hope we spoke to it. Well, after the break, we're going to go back into the mailbag talking about stocks that are losing steam. You're listening to Motley Fool. Hidden gems investing.
- [06:50]
D
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- [07:50]
A
Explore further@range rover.com welcome back to Motley Fool. Hidden Gems Investing we're going into our second mailbag question here in this episode and here's what it says. Is it a good approach to invest in companies that have lost momentum, that are very unlikely to beat the market in the next few quarters, but companies that have great growth potential? Is this the best way to get into good growth stock at attractive valuations before institutions start buying them? Would you say companies like Sentinel One, MercadoLibre, SoFi, and even Meta platforms qualify for such companies? Thank you. And Rachel, I want to start here by addressing another assumption that's kind of baked into the question. A drop in stock price doesn't necessarily mean it's a good value stock, right?
- [08:41]
B
That is absolutely right. The actual price of any given stock doesn't necessarily tell you much in and of itself other than what the market values that business at at that point in time. So you see a stock drop, maybe there's a value opportunity there. But when you're looking at companies that have lost momentum, the biggest mistake we can make as investors is just focusing on the stock chart. So let's say you see 20, 30, 40, 50% drop. That doesn't automatically mean value. Sometimes a falling price is actually a justified correction for a business where the thesis is becoming bent or even broken. So the real question when you're looking at a business that has seen a compression in valuation is do they possess a durable competitive moat? And also, does that business actually fit your specific portfolio structure and risk tolerance?
- [09:27]
A
Yeah, I think that there are a whole lot of investors out there who simply look at the chart of the last year, right? And there's one group of investors that if it's hitting the 52 week lows, then they think it's a good buy. Other investors actually would do the opposite. They look at the 52 week high stocks and they're like, well, this one seems like it's going up. I want to ride this one higher and higher. But Matt, what about you? Do you, do you to buy stocks that have momentum or stocks that have lost momentum, or does that even factor into your process?
- [09:58]
C
Well, both. I mean, I look at the fundamentals and growth story first before I consider what the momentum or not lack of momentum is I love buying companies on sale. I'm definitely the value investor of this group. But it's important to ask why companies have lost momentum. So just for example, some of my financial and real estate stocks that I own have lost momentum simply because interest rates and inflation are going up and not because of anything to do with their underlying businesses. On the other hand, there are some stocks, like in retail, for example, that have lost momentum because inflation is causing customers to lower their spending. So it's a fundamental change and that's more of a reason to stay away from me. So it really depends on the situation.
- [10:36]
A
Let's go ahead and now start talking about the specific stocks that this listener asked about. We're not going to speak to all of them. I'll go ahead and set those expectations. But let's start with the first one here. Rachel. Let's start with Mercado Libre and just to the point of momentum. Mercado Libre stock is down more than 30% this year and down 37% from its high. What is the market afraid of here?
- [11:05]
B
Yeah, I'll say this is not a stock I own, but it is a business I follow pretty closely. It's one that I actually really personally like. So the underlying business is actually growing at a pretty hyper growth rate. But we've seen, as you noted, the stock experience pretty sharp pullbacks. So just to kind of put some numbers to that, the company recently posted a 50% surge in revenue that was just shy of $9 billion. Items sold also climbed by about 50% year over year. Stock was sold off because net income fell. That totaled about $417 million in the recent quarter. And the reason for that, just to put it really simply, is they are aggressively funneling cash into their logistics network, you know, both regional logistics and otherwise. FinTech customer acquisition. And so what they're focusing on right now is they are investing in their growth story. That is meaning that they're sacrificing some short term earnings. And the goal is to build this really unassailable logistics network across Latin America, which is their core market and one in which they retain a dominant footprint. But there's still a lot of underpenetrated markets for them to expand in. So, you know, only shareholders can determine whether that is a smart move or not. But that is what we're seeing. I don't think it breaks the thesis for the business personally, but there is certainly pressure on earnings that is transl into at least a depressed investor appetite towards the stock.
- [12:25]
A
Okay, so lost Momentum, but in your opinion, maybe still a stock that is worth buying here before it starts to rebound.
- [12:34]
B
I think it's a quality business. I think you have to understand kind of some of the risk elements of their freight work. Take a look at the losses they've been seeing in their credit portfolio. But I fundamentally think that the business provides a really great value proposition to invest in one of the fastest growing markets for fintech and E commerce today, which is Latin America.
- [12:54]
A
Love it. Okay, Matt, your turn here. Let's actually talk to one that I know that you follow very closely. I believe it's one that you own, but it's SoFi. And SoFi is actually down 15% over the last five years. Not over the last year, over the last five years. If you start the clock five years ago, down 15% from that, down 50% from its high. Are there merits to buying SoFi stock right now, today after it's seemingly lost incredible momentum?
- [13:21]
C
Well, so I love it that you frame it like that to be fair. Exactly 5 years ago. Sofi was a recent SPAC IPO during the height of the SPAC boom. So that's not the best time frame to look at. But you're right, it has pulled back from its recent highs significantly. It was really riding high toward the end of 2025. There are a few reasons for this. So just in the first quarter numbers, the tech platform reported a sharp decline in revenue. That's the Galileo business, the all the third party infrastructure they do, they've lost one big customer. That's what caused it. But it's still, you know, that's a red flag. Management issued a dilutive equity raise. They raised $1.5 billion earlier this year. No one really knew why. I didn't really know why. That management's answer wasn't that great. So that really kind of scared people. And most of SoFi's loan book is made of personal loans. It's a vulnerable type of credit compared to say mortgages or auto loans. So every time you see news like consumer confidence is at an all time. That makes people scared to invest in a company that primarily owns personal loans in their loan book. They're an unsecured form of borrowing. So on the other hand, sofi never added more members to its platform than it did in the first quarter. Kind of like Mercado Libre. There's a lot of parallels here between their results. The company, it's growing rapidly, it's highly profitable, it's been a rule of 40 company, which is a very widely followed profitability metric for several years. Its latest score was a 72. There aren't that many companies that have that. More importantly, SoFi is doing a much better job of cross selling its products to its existing members. So 43% of new products opened in the first quarter came from their existing membership base. A product is something like a brokerage account or a credit card. This has steadily climbed from 36% a year ago. That's a very bullish sign that SoFi is finally accomplishing its goal and merely becoming the bank of choice for more of its customers. Not just kind of an add on where you'd get a high yield savings account. They're truly becoming like the bank for some of their customers.
- [15:22]
A
Okay, so same question here that I asked Rachel. It's lost momentum, but it sounds like from your perspective, in your opinion, the long term investing thesis is pretty much on track.
- [15:32]
C
I will answer by saying I bought more SoFi last week when I could finally shut up about it for a couple of days. I really like what Anthony Noto is doing with this business, their CEO. I think it's on the right track, but it's economically sensitive. So there's a chance that if we get a recession it could go down even further. But I'm a buyer at these levels.
- [15:53]
A
Skin in the game, the answer doesn't get any better than that. Thank you. After the break, we're going to go back to the Mailbag one last time and we're going to talk about some cybersecurity stuff. You're listening to Motley Fool. Hidden Gems Investing.
- [16:10]
D
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- [17:38]
A
Welcome back to Motley Fool Hidden Gems Investing and this is a mailbag centric episode. And if you want to get one of your questions on a future mailbag segment, you can email us@podcastool.com and what we ask is that you keep the question shortish foolish. You can email us@podcastool.com podcastool.com and here's the final one. It says Dear Motley fool team, Hope all is well. Thank you. In one of your episodes, you had recommended Sentinel One as a potential investment to be added in one stock portfolio. The stock has been falling since. Do you see the fundamentals of the company changing since your stock recommendation, especially given the recent launch of Anthropic's Mythos model? Would Anthropic's Mythos models be a boon or bane for cybersecurity companies such as Sentinel 1? Kind regards, Avanusar okay, I am Captain Clarification here today. I feel like I need to clarify this one once again on the podcast. We are not a stock picking podcast and so it could have been that on a previous episode, one of our guests on the podcast felt like in their opinion, Sentinel One was a stock worth buying. That doesn't necessarily reflect the entire team here on the podcast. That's just one person's opinion. In fact, I personally have a different opinion on Sentinel 1, but that's neither here nor there. So I just wanted to clarify that that we don't give out personalized investing advice. The essential question here is regarding Mythos. Now this is a model that Anthropic AI company Anthropic created and then didn't release because there was cybersecurity concerns regarding how good the model was. Now, Anthropic has enlisted the help of many companies to tackle this issue, including Amazon, Nvidia, CrowdStrike, and Palo Alto Networks. They're all part of this project. Glasswing that it is spearheading to address these cybersecurity concerns with AI. But, Matt, what do you think about Mythos and Sentinel One's vulnerability in particular?
- [19:48]
C
So I'm generally of the opinion that AI is more of an opportunity than a threat to cybersecurity. I know that's not the most popular opinion right now, especially with things like Mythos and all these other models coming out that could make things more vulnerable, but I named several companies in the cybersecurity space as what I would call my top tier beneficiaries of the opportunity. That includes CrowdStrike, Zscaler, Palo Alto Networks, maybe a few others. Those three in particular have Mythos preview access. They've had an advantage when it comes to using it to help harden their defenses. Sentinel 1 isn't on the list, at least not yet. Like I said, I have a different opinion of Sentinel 1. Having said all that, AI models create a more dangerous threat landscape in general, there's a solid argument to be made that because of this, enterprise cybersecurity spending is going to trend higher across the board, at least over the next few years. And that's just kind of my broad take on it.
- [20:42]
A
It's interesting that SentinelOne isn't part of this group yet, considering it is considered one of the more AI native platforms. But Rachel, I want to get your thoughts here as well. What do you think about Mythos as as far in particularly as it regards Sentinel One?
- [20:56]
B
I think what I want to also comment on is just that broader implication for the cybersecurity space as well. I actually personally have some concerns about Sentinel 1 just as a broader business. Not enough time to go into that on today's episode, but I will say some of the market panic that we've seen around Anthropic's Mythos model, I do think it's more of a boon, actually, than a bane for these advanced cybersecurity providers. And I'll explain why. So this Mythos model has kind of sent shockwaves through the tech world because it's very uncannily capable of scanning software code to identify and autonomously write exploits for various vulnerabilities. And so that ability to change vulnerability, discovery and exploitation together at machine speed obviously caused a lot of cybersecurity stocks to nosedive, because that created a lot of fear in the market that some of these legacy security tools would be rendered obsolete. But the point I want to make is that finding flaws is not the same as fixing them. So, yes, Mythos can identify thousands of new vulnerabilities, but organizations can't manually keep up with a massive surge in software patches. They must rely on active runtime behavioral defense to shield their unpatched systems. And I also think what we're seeing is sort of this mandatory transition to machine speed warfare. So Mythos actually lowers the barrier to entry for complex automated cyber attacks, which means that threat volumes could scale exponentially. And that means that those legacy human led security operations centers, in my view, are in need of dynamic software and services like these cybersecurity providers lend. And so I actually think, if anything, Mythos is more of a marketing campaign for the necessity of autonomous, if not AI driven, cyber defense. So I have concerns, as I noted, about Sentinel One's competitive positioning against some of these other legacy giants. But I very much think there is still a significant opportunity for some of these businesses moving forward. And I actually think that there are some tailwinds that have been introduced by these vulnerabilities that Mythos has unlocked.
- [22:56]
A
Yeah, it's so interesting how many of these tech companies are noting that their engineers are becoming more productive thanks to agentic AI. That would probably be the case with bad actors as well, being more productive in attacking with a cybersecurity threat because of AI. So that does create, to Matt's point, a more heightened security environment. But to both of your points here, that does also create opportunity for the companies that can meet this threat head on and prevent attacks. We'll have to keep an eye on that in the coming months and quarters years ahead. I'm sure it's only going to get more interesting as we go, but that's all that we have time for today on the show. As always, people on the program may have interest in the stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks to our producer, Dan Boyd and the rest of the Motley fool team For Matt, Rachel and myself, we thank you so much for listening to our show today and we will see you again soon.