C (3:01)

So, Jason, I know this is a small footprint model by which I mean the size of the individual stores themselves. But for a chain that has 3,000 stores and in a business with notoriously low margins still running at break even, just like how should investors think about when this really scales and leverages and just how big it can get? Is there a US Equivalent for this kind of chain?

B (3:30)

Not exactly. Not that it's a publicly traded company that's easy to look at, but other stores you can think about that are somewhat similar. It's a little bit similar like the Aldi business model in a way. Smaller footprints, really low prices that are really compelling and drive people in. Here's how these businesses win. You don't have to have giant margins to be profitable. As Bezos is famous for saying, your margin is my opportunity. The way that these business models work is by turning their inventory multiple multiple times. And that way you, even though you get those really small operating margins, those operating profit margins, you know, 2 or 3%, if you're constantly turning your inventory, you can still build a really high return, profitable business in terms of scale, again, tiny footprint here. This is a business that can easily 5x potentially even. They've talked about maybe 30,000 locations. Over the long term, there's a tremendous opportunity. You have the tailwind of growth, economic growth in Mexico that's so important. And there's a lot of distributors, small retail businesses you can think about in the U.S. actually, I think an interesting comp like the autozones of the world where you don't necessarily get super high margins. O'Reilly is another example. But you're just really good at what you do. You turn your inventory and you have a somewhat countercyclical business and investors can get wonderful, wonderful returns over the long term.

C (4:51)

This may be kind of a hot take as summer finally starts to cool down. But Thinking about an uncertain economy and some of the pressures that we might be feeling. I'm looking at a part of the economy that is maybe a little less sensitive to economic activity and also happens to be pretty depressed right now. And I'm going to go with United Healthcare. This is certainly a company that's had one problem after the next. It recently hit a five year lows. The problems include a criminal investigation by the doj. There's been a lot of management turnover and certainly not unrelated to those first two things. They've had some really poor forecasting and management around their Medicare Advantage program, which is, you know, a pretty big part of the business. And it just has a very, very poor public perception right now. And all of which is to say that, that, you know, things could get worse at the company. But there is a reason that Warren Buffett has been buying the stock to the tune of something like 1.6 billion in the second quarter. Michael Burry of Big Short fame has been buying and there are some other big names that are kind of getting behind this. And the fact is that this has become a pretty cheap stock. I mean, it's trading at a little under 19 times the current year's earnings projection, which might not sound super cheap, but that's already a very depressed number that's probably likely to come up again pretty quickly as we move into 2026. And they continue to pay a dividend at the same time. You know, this just remains a really powerful company at the center of the healthcare system. Their $400 billion in annual revenue, actually more than that. That's bigger than the GDP of many countries. It insures about one in six people in the U.S. it's not going anywhere. And while the DOJ investigation is serious, you know, past cases of Medicare advant investigations like this have always been resolved civilly rather than criminally. Which is not to say that there couldn't be some really large fines in the future. But you know, I don't think it's an existential threat to the company in any way. So, you know, bottom line, there's a lot of reasons for UnitedHealthcare to be volatile, but they are really more specific to the company. And I think a lot of shoes have kind of already dropped. So while, you know, the, the economy as we move into the later part of the year could get a little more uncertain, I think United Healthcare gets buffeted a lot less by that than many other companies would.

A (7:27)

Yeah, Carl. But sometimes, like an Imelda Marcos shoe closet, there are more shoes to Drop. Sometimes cheap stocks get even cheaper. Is that a concern?

C (7:35)

I mean, absolutely, I mean there's, there's certainly things that could happen. I, I would say, you know, the biggest unknown is probably around some of the investigations. Not that it is all, you know, I think of the, the, the, the Medicare fraud investigations around tenant health care from years and years ago that, that, you know, ended up being this long term disruption. I don't think that's the case here. I think this looks a little different. A lot of Medicare Advantage stuff in the past, the courts have just said, look, these rules are very, very vague. So, you know, have given more benefit of the doubt to, to insurers and how they approach them. So I'm not worried about that on an existential basis. And I, I think while, you know, cheap stock can always get cheaper, I like the position here.

A (8:26)

Like it. All right, so I'm going with Trex now. There are some pretty good reasons to steer clear of the country's leader in wood alternative decking. Net sales have declined 3% through the first half of this year. Adjusted net income is down 19%. There's also the seasonality of the business. I know that's still hot out there in a lot of parts of the country, but fall and winter are coming and folks aren't paying a premium to upgrade their outdoor living space as temperatures start to drop. This is something that homeowners do earlier in the year before the weather starts to heat up.65% of Trex's business last year happened in the first half of the year. Now let's consider what might happen in September. The Fed is comfortable with making it cheaper to finance big ticket purchases. I'm not just talking about taking on a new Trex project. The real spigot here is the lack of secondhand homes on the market. U.S. sales for existing homes have fallen sharply since peaking three years ago. Folks don't want to sell their homes locked into lower mortgage rates. It's not a coincidence that mortgage rates were a lot lower three years ago. It's also not a coincidence that TREX posted 10 consecutive years of top line growth of 9% or better until that happened. Trex already sees net sales rebounding in the second half of this year, but that is largely off of big declines in the second half of last year. It's not much of a tariff concern because just 5% of its cost of goods sold, mostly the aluminum and steel that goes into its railings and its fasteners are at risk. What if the strong possibility of Fed Easing in September kicks off a new decade of strong growth. I'm going with Trex.

B (9:46)

Yeah, Rick, this honestly, this was my number two pick for this segment, so I'm glad you brought it to the table. Their big Arkansas expansion, that doubling of capacity is exciting. But here's the thing that I'm thinking about. We just saw Azek, which owns the TimberTech brand that's probably the second largest competitor to Trex, was acquired by James Hardy. It's one of the giants in building materials, largely for exteriors. There's three things that I kind of see as being likely here. Which of these three do you think is the most likely? Does this raise the competitive bar for tracks? Does it create an opportunity for Trex to take more share if that corporate parent takes the eye off of the decking ball? Or does it signify a higher probability that the standalone pure play like Trex is a legitimate takeout target by a bigger building products company?

A (10:34)

Yeah. So TimberTech, they're going to have more financial resources on its side, but it doesn't often play out that way. Sometimes with great financial power comes great financial irresponsibility. I'm going with your second scenario here and I hope Trex doesn't get bought out. And it goes without saying that all three of us are long term investors. Hopefully you are too. Sometimes the market offers some short term buying opportunities. Coming up next, GLP won. More like GLP lost. Why are so many of the stocks working on next gen solutions for weight management taking a hit to the gut? We'll dig in when we come back.

D (11:07)

Hey guys, have you heard of Goldbelly? It's this amazing site where they ship the most iconic famous foods from restaurants across the country, anywhere nationwide. I've never found a more perfect gift than food. Gold Belly Ship, Chicago Deep dish pizza, New York bagels, Maine lobster rolls and even Ina Garden's famous cakes. So if you're looking for a gift for the food lover in your life, head to goldbelly.com and get 20% off your first order with promo code GIFT. That's goldbelly.com promo code GIFT.

A (11:38)

Weight loss. Weight loss? Don't tell me. Shares of Viking Therapeutics fell 35% last week on disappointing clinical trial results for a potentially promising oral weight loss drug. However, even the two companies with viable and by most account successful weekly injectables on the market aren't panning out as investment. Eli Lilly has surrendered a quarter of its value over the past year. Novo Door Disc has been cut by more than half Patients are losing pounds, investors are losing pounds, Euros and dollars. What's going on, Carl?

C (12:05)

A lot of this is just a classic case of expectations getting ahead of reality. I'm going to say two kind of contradictory things about the drugs that are already on the market. You know them as Ozempic and Manjaro and a couple other brands. One is that they're pretty great drugs already and they might be hard to improve upon. And the second is that they don't work for a lot of over the long haul. After about two years, as many as 75% of people are off these drugs, often due to the just the grind of side effects. Nevertheless, this is a duopoly that it's expected to be a $70 billion market this year. So there is a mania to come up with something better or get in the game. If you're a newcomer, one obvious advantage would be to offer a pill instead of what are now weekly subcutaneous injections. And that's what you've been hearing about recently. And that's to a significant extent what's been a drag on many of these stocks. It's why people were disappointed in what Viking had to say. Even though they had great efficacy results, they simply had more side effects and discontinuations than investors expected. I think that there is too much focus on these oral drugs right now. Subcutaneous injection is very easy and painless once you know how to do it and you only have to do it once a week. Yes, there are people who have needle phobias who will just never do it. And yes, people will say that they prefer a pill, but most studies show that people who are on injections are actually pretty content to stay there. And the expectation has continued to be that people will start on injectables and then maybe move to orals for maintenance. You might not find that people are certainly willing to take on more side effects to move to an oral drug. The last point I'll make about this is that it's often forgotten. There is already an oral semaglutide on the market that is an oral version of Ozempic Wegovy. It's Novo Nordisk's Rybelsis and is not a very popular drug because it's kind of difficult to take and it has slightly more side effects than injected semaglutide. So I think that's a warning to companies about how they need to approach this. They need to be looking for drugs with the best adverse event profile, not just oral, at all costs or maximum weight. Loss in, in minimum time. So far, all the orals, Viking, Novo others have been marked by higher side effects than the injectables. You know, people keep plugging away at it, but I think the next generation needs to really focus on side effects. With all that said, I think Viking and its results have been interpreted a little too pessimistically. I think there's a lot of things they can do with how they ramp dosing, etc to maybe make have this turn out to actually be better than the other orals that are coming out to market. There are some other people working in the area that could still improve, but bottom line, it's, it's kind of back to what I said at the beginning. We already have great drugs. They're a little hard to improve on and for some people that's just not good enough. Unfortunately, that's kind of how it is in the pharmaceutical industry.

B (15:13)

Carl, One of the things that stands out to me is that first of all, when we see disruptors, it's weird how like the financial profile works out for investors. And let's be clear, yeah, Novo and Lily shares are down a lot now, especially Novo Nordisk. But if we go back to like the beginning of 2019, because it's before both of those were approved for treating weight loss, but they were being prescribed off label. Right. So there was a period where investors knew that it was coming. Right. And they would be officially be able to be prescribed for that. So you go back to 2019, no, Novo shares are up about 153%. Lilly shares are up there. A six bagger since then. Right. So investors have made money. But it got me thinking about one of the hardest things about investing in big trends. And that's finding ones that are both durable, which we're starting to see right now. What's the durability of this one and can generate meaningful value on a per share basis for investors and for the companies involved, here's a couple of trends that stand out right now. Drones are huge, right? It's expected the Dr. Market is going to be like a $95 billion industry in less than a decade. So even bigger than the GLPs are right now. But so far, every dime earned by any investor on drones has been on speculation, not the financial results of the business. Another example, we go about 3D printing, for example. Go back 15 years ago, you remember that was going to be the next biggest thing. Everybody's going to have a 3D printer in their home. All these industrial uses for 3D printing, all that kind of stuff man, a lot of people lost money. 3D systems I think is like the gold standard of like bad investments in that space. Revenue peaked in a decade ago at over 650 million. Revenue has fallen substantially for that. The stock at that peak was $90 a share. Kind of in that exuberant phase. It's about two bucks a share today. We look at the EV space, there's Tesla and then nobody else essentially. And even Tesla stock has been a tough volatile investment over the past five years because none of the other disruptive bets have have happened yet. So I think the point is I'm not even going to talk about solar. That's just that makes me hurt a little bit to think about. But the point is as investors like the hard work of analyzing opportunities is tied to not just assuming that a big multi billion dollar trend is going to pad shareholders pockets.

A (17:29)

Yeah, so I guess you can't spell trends without ends. So when we get back from the break we'll have some surprising takes on September 2035. Stay with us. It won't take long.

C (17:40)

How many times have you wished you could be in two places at once? With wix you practically can. Wix's website builder is packed with powerful AI tools to make running your business online easier. Build a full site just by talking with AI, get an AI agent to manage your sales and marketing or work like a 10 person team even if it's just you. So you don't need superpowers to get everything done, you just need Wix. Try it out for yourself@wix.com Disruptors can.

A (18:09)

Be disrupted and sometimes the disrupted becomes disruptors. Jason's comments in the last segment has me thinking that sometimes the next wave of wealth altering disruption comes from either an unexpected industry or an unexpected company. Let's look out 10 years from now. What's an unlikely company that you think has a potential to be a disruptor in 2035?

C (18:28)

Carl, I'm going to go with one that's only at seed stage right now and it's really, it's a placeholder company for a concept I don't know know nearly enough about this company to have any confidence that it is going to be a winner or even around in 10 years. But I'm going to say Familiar Machines in Magic which was recently founded by Colin Angle who was the previous leader of iRobot. And the reason I just think it's interesting is because he's an interesting guy who has a very pragmatic view towards robots and I think this is an area where actually going back to what Jason was saying, this is an area that could become very, very big and yet not prod real winnings for investors because it spreads out in unexpected ways. I think that they might be anticipating one of the expected ways, which is just not don't try to do a robot that does everything. Try to do, you know, more simple robots and leverage the things that we already do. Well, specifically what they have said they're doing and they're in stealth mode. Specifically, they've said that they're trying to make a home health robot that is sort of a companion that's kind of leveraging AI capabilities we already have around chatbots and kind of robotic capabilities that we already have. And I just kind of like that approach. And I would add that this robot is going to do specific things. It's not just going to be a cute companion that sort of rolls around on a tabletop. I think there is disruption waiting to happen here and I think it might not come from do everything robots.

A (20:05)

All right, I'm going to go with Disney and I get it. The stock has been a market laggard over the past few years. It's posted organic double digit revenue growth just once over the past 20 fiscal years. It's had some recent misfires at the multiplex with high profile movies. A lot of investors will dismiss it as a Mickey Mouse company in more ways than one. That being said, Disney has never shied away from burning its own boats. It was one of the first major studios to make its content available on digital platforms, and last year it became one of the few to do so profitably. When the pandemic hit, Disney turned many of its planned theatrical releases into a way to boost Disney. It consistently raises the bar with theme park technology, rewriting its own playbook for gated attractions. And last week's launch of ESPN as an over the top platform is disruptive to its legacy networks. But it's the courage it needs to make sure it doesn't become time's capsule fodder. How will Disney Disrupt in 10 years? Content is king, and Disney is the Lion King of content. Right now, AI is seen by some boobirds as a threat to content creators, but in the future, it will be a way to amplify strong IP and storytellers. The Disney I grew up with leaned on theatrical releases and then spacing out home video releases from its vault. Today, there are more revenue streams to paddle if AI opens even more possibilities to cash in on strong franchises. Who's the leader of the band M I C K E Y M O.

B (21:19)

U S C Rick I might be putting good money after bad here, going full circle here and bringing 3D printer, 3D printing back in. But I want to stick with the theme of big trends not always working out how we expect. In this case, Lennar, which is one of America's biggest homebuilders. Lennar sold about 70,000 homes last year. Essentially 100% of those were stick built traditional lumber assembled into walls and ceilings and roofs and then covered with plywood and siding and drywall and shingles done by skilled laborers. But right now, they're doing something different. Back in 2023, they built a 100 home community in partnered with a company called Icon and 3D printed the houses. They're working on a 200 home community next. The homes require significantly less labor, like like a dozen less laborers to build. This labor is an ongoing challenge for this industry. And they're far more energy efficient too. The materials costs are higher. A decade from now, I think it's going to be the big players like the Lennars that are leveraging disruptive technologies like the 3D printing to improve their own business models to meet demand. You can think of it like companies like Apple and Microsoft that learned you have to disrupt your own legacy. Big winning products if you're going to remain relevant for the long term. And I think this is one of the areas we might see 3D printing with the big home builders like Lennar that adopt that technology. Yeah.

A (22:48)

So I'm circling August 25, 2035 on the calendar to see if any of us, or maybe even all of us were right. Carl, Jason, thank you for making this Monday mischief managed 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, as it's not approved by advertisers. Advertisements and sponsored content are provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Carl Thiel, Jason hall, and the entire Motley fool money team, I'm Rick Nars. May your days be funny and your life Motley fool money.