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- [00:02]
A
What can history teach us about the market today? Motley Fool Hidden Gems Investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoyam, joined today by Lou Whiteman and Andy Cross. So we are kind of in this doldrum phase of the market. Second quarter earnings season has not started yet. We're in the middle of summer. So I thought this was a good opportunity. Take a little bit of a step back, guys. We've got this big technology change that's coming that is absolutely driving the market. That's artificial intelligence. If you have not been paying attention for the last three or four years. But what does this mean historically? And what can we learn from at least the technology changes that have happened in probably our lifetimes? I'm thinking about the PC, the Internet and mobile. So, Andy, I want to start with you. And just a little bit, if we go all the way back to the PC, what can we sort of learn about those early days? Because that's the first time that I remember things really changing. And, you know, you have my grandpa who had no interest in understanding what was going on. And then you had my dad who was, you know, intrigued, and he thought it was cool when we got a computer and we got Prodigy, and then I was living in the computer lab in second grade. So it's like, it kind of seems like we're in that same area today where there's something there, but it isn't quite fully formed yet.
- [01:27]
B
Yeah. When you, when you say all the way back, Travis, I think you're dating me because you, I think most people may be listening to this, think 80s and 90s. They picture like, you know, big shoulder pads, maybe dial up modems, Alan Green span spray spans, eyebrows, you know. But if you look at what happened during the 80s and 90s, they were incredible time for investors. And for, for a host of different reasons. We came into the 80s with higher interest rates than we've had over the last couple years. Even Paul Volcker came in slammed.
- [01:56]
C
Yeah.
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A
Short term rates were almost 20%.
- [01:57]
B
Right, exactly. So they were exceptionally high. And then the Fed came in, put the hammer to those, pushed them back down. That was painful in the short term, but exceptionally good for investors across almost all asset classes. Really, if you. In the 80s. But what was really, I think as you kind of teed us up, Travis, was this technological evolution. I mean, the PCs were just really starting to get going. And if you think about some of the data, in 1984, only about 8% of U.S. households owned a personal computer. But by 1990, that had doubled to more than 15%. And by 97, you know, kind of when you start to. Before you start to get into the really crazy days, that was up to nearly more than a third of households owned. Owned businesses.
- [02:45]
A
But just think about that. 1997, only a third of households had a computer. I mean, if, if you're under, you know, 30 years old at this point, that seems crazy that this, this technology that is kind of everywhere, a PC, a mobile phone was still had, still had relatively low penetration even at that point.
- [03:05]
B
Yeah, it just, it goes to show you that some of this penetration, this is actually why I think what we've seen with so many of, whether it's OpenAI or anthropic or Gemini, the explosion in the use of these AI tools. But technological ev, they're more ev. I mean, even when the iPhone, you know, kind of came out in 2007 or so, it took some time for it all to get kind of going. And it really wasn't until the App Store kind of got going that it really started to take off in that ecosystem. So, you know, that technological progress takes some time to build out. And I think what we're seeing right now, the parallel with what I'm seeing is you're seeing the foundationals being laid. Some of it, some of it is going to be, be exceptionally capital well spent and some of it will be wasted. But you're seeing this capital being spent being laid for the foundation of our transition. It was the PCs, it was the Internet, it was cloud computing, mobile, a little bit in there and now we're seeing it with AI.
- [04:01]
C
Yeah. The real takeaway is that we need to build the virtuous cycle. We need more than just the infrastructure. Because my household was one of the households that had a PC prior to 97. You know, what we did with it, it was basically a typewriter with a screen. It was a typewriter where it was easier to delete because there just wasn't that uses for it. We had a Commodore 64 way back when. I used to type in and play like program games and do that. But it was kind of a novelty. It wasn't a productivity tool the way it was. Once again, this virtuous cycle of whether it's the Internet where it's all these, the early days of Windows and Office where, wait, we can do things with those. So it's not enough to just invent the technology, it's not enough to just invent the software. It has to be this point where everything's coming together where this is affordable, it's useful, and that's when to a lesser extent, I mean, enterprises will kind of force it through, but definitely on the consumer side. But even on an enterprise, you need just all of these things working together for something to take off. And until that point, it all looks to a cynic to be just wasteful spending. It is hard to imagine once everything comes together. So as you're living in that pre area, it's just like, oh, this is a gimmick. And the downside is some of these things end up being a gimmick. So you're not always wrong, but when they get it right, it's just sudden snap. It all comes together and it's really valuable at that point.
- [05:27]
A
Yeah, I wanted to get to that. You talked about enterprises adopting PCs first. And I think this is one of the things. If you look back to the 1980s or early 1990s, it was not people buying PCs and then companies being forced to use them the way it was with iPhones. But I mean, iPhones were not supported in most big corporations until relatively recently, to be honest. I mean, in the last decade that was the consumer forcing that piece of technology on the enterprise. In the 80s and 90s it was the other way around. I mean, the Mac arguably had a better user experience and it was more popular among actual users. But businesses who wanted to do productive things wanted to use Excel and Word and they pushed the PC driven by Microsoft, intel and IBM, I think would be the big three players there. So how does Andy, how does that dynamic look similar and maybe even diff. Maybe different in other ways to what we're doing today? Because I think what we've seen over the past six months is that at least on the economic side, enterprises are driving AI anthropic success is not you and I paying 20 bucks a month for their subscription. It is companies paying hundreds of millions of dollars for tokens that are being used for coding and things like that.
- [06:47]
B
Well, certainly driving the revenue and the top line and probably the profitability too. If you just look at the explosion from Anthropic and OpenAI and their revenue run rates tripling, you know, year over year or so. But as I mentioned before, you know, you. It was the fastest adoption. Both OpenAI and Gemini, when they got rolling, they were behind the curve. Got rolling from, from, from Alphabet. You know, you did see this massive adoption from individuals. So you have an individual that is probably a loss leader, most of them free, maybe paying 20 bucks or 22 bucks a month, you know, for an OpenAI subscription. But as you mentioned, Travis, the bulk of it is really coming from the AI adoption that is getting, that is getting pushed into the enterprise level. And that's been the big success with the likes of Anthropic. But you gotta to be able to make those investments into that business, right? You got it's massive amounts of capital to be able to grow that business out, to be able to make the investments not just in the model, but the salesforce, be able to build it out, all those kinds of things. And so that takes huge capital. We saw the parallel a little bit, but much more on the infrastructure side in the 1990s with the telecom act and the massive amounts of fiber that got laid. And you know that that was short term, very good in the markets and it was very bad in the markets. But that laid the foundation for what eventually became the Internet and supported the AI infrastructure and AI usage boom. Now so certainly the power of the Wintel, the Windows and intel combination with IBM in the 90s driving that and the near monopoly they had, and you're not seeing that necessarily on the AI side, but it's really around the effectiveness side, the effectiveness that companies are starting to see more and more, not just to save money, but to drive revenue from using these AI tools like anthropics like Claude and Gemini and OpenAI.
- [08:38]
C
Yeah, I think Andy's right. I'll give you one, I think similarity and one difference I see between now and back then, the similarity is that it is really hard. Most of us as consumers don't measure roi, so we have to really be snip knacked across the face and say, wow, this makes life better. Like with a business you can say, all right, well if we invest a million dollars in this and we can save X amount, it's worth it. So I do think that with AI and with back then just technology in the 80s there was more of just a look by businesses and again consumers. To change consumer inertia, you really need to either wow them or save them a ton of money. Because inertia's much stronger in the consumer side than the business side. Where I think it is different is quite frankly, I don't think Microsoft built Office for the consumer. I think we later learned why did anyone need a spreadsheet? I mean later on we had the spreadsheet and we figured out, oh, you can do home budgeting with it or something like that, but the tools were designed for the enterprise back there. These days it does feel like that There is a real effort to engage both the consumer and the enterprise. That feels different to me and maybe it will drive things faster. But again, back to that first point. I know a million people who love using AI as just in their daily lives as consumers. Andy, we're told this beforehand. I don't know how many of those people would pay 20 bucks for it. So, you know, you know, like that is, I think that's both sides of it. I think consumers are being courted more than they were in the early days of Wintel when it was basically enterprise tools for the enterprise. But I don't know if we're going to see the ROI until it really hits us.
- [10:29]
B
But you know, the parallel though, with the 80s, the focus on companies and because most of us use personal computers for fun graphics games, like you said, as a, as a word processor, essentially, it wasn't until later that we started to see more and more of the benefits. So the, the, the, the benefit really the ROI really was accruing to the corporations. Lou, you're right there.
- [10:50]
A
I want to bring this into a little bit more modern times when we come back and talk about how the consumer drove things in the 2000s and 2010s. You're listening to Motley Fool Hidden Gems Investing.
- [10:59]
D
As a podcaster, my voice is heard by thousands. And now with Vanguard Investor Choice, I can be heard by the companies that I invest in too. Vanguard Investor Choice makes it easy to set your proxy voting preference for your Vanguard index funds. In just a few clicks, you can make your voice heard on important shareholder topics like executive pay and director elections. Visit vanguard.com investorchoice to learn more. Vanguard investors own shares of Vanguard index funds, and those funds own shares of the companies they invest in. Available for Vanguard index funds that participate in investor Choice. Vanguard Marketing Corporation Distributor welcome back to
- [11:36]
A
Motley Fool Hidden Gems Investing. All right, we talked a little bit about the 80s and 90s. We didn't really talk about the bubble, but I think the takeaway from those two decades was really that the enterprise drove a lot in the PC build out. That's why Wintel won. It's why IBM was such a big company. The bubble and all of that was it made a lot of sense to build out a lot of these telecom assets. You know, building some of the apps that they were building in those days maybe didn't make as much sense, but there was a ton of VC money involved. But let's take it to the 2000s and 2010s, because I think in modern times, this is where the companies that really define the market today were either created or kind of grew up. So Alphabet would be an example of that. Meta was started, Facebook was started in 2004. You have Shopify, which basically just rode Facebook's coattails, you know, allowed for a completely new way to do business, ultimately disrupted some of the retail companies. So, Andy, I want to start with you. When you look back on that era, that was sort of the maturation of the bubble that happened in the late 1990s, early 2000s, and sort of shaking it out, figuring it out. We talked before the show about, hey, everybody's really valued now, highly valued now, because everybody's really profitable, everything's growing. But long term, that's not usually the way that it works out. You find certain areas that are extracting most of the value, and then everything else kind of gets commoditized or modularized. Is that the way that what we should take away from this is eventually there will be something new, completely new and disruptive built on top of what we're building today?
- [13:14]
B
Well, there might, yeah, I think there will be absolutely what we're. What the AI foundation they're laying today will, will set up. Whether it's robotics or other innovations, the seeds they're planting will become the oaks of that eventually. But like we saw in the 2000s, Travis, you know, we, we, we the between 2000, 2010, we basically had these two massive crashes where the market lost well, more than 50% of its of a drawdown and shook out a ton of investors. Meanwhile, as you mentioned, you know, 2004, we had Alphabet go public. I think Alphabet's market cap that day went public was something around 20 billion compared to where it is today. Right. So you saw these massive success stories of these companies, as you said, maturing and building up on the technologies that were laid the decades before. I think we will see that on the AI side. We undoubtedly will see some big winners over the next 10 years from companies that are not even created right now. They're just a dream in some, you know, somebody's head. So we'll see those innovations. I do think because of the capital required to build out this infrastructure, make these investments in the large language models, yes, it is possible to do it more cheaply, but it is on the backs of these Nvidia chips. We saw what happened with, with Grok announcements this week when their effectiveness that they are seeing now with their new model on top of the Nvidia chips. So it just takes so much capital that I do think the big players will continue to be the winners. They may not be the massive growth Companies that drive 20% annualized returns for an investor's portfolio. Some of those, some upstarts will come along and that will do very well because they are solving that price demand equation that we talked about earlier, where they're fulfilling a need. And the, the consumers of that need, whether they're people, companies, governments, are willing to pay and pay higher prices for that need. They're going to solve that. And those will be the future winners. And they undoubtedly are. Some of them, at least, are not even created yet in the markets.
- [15:11]
A
Lou One of the things that I think is fascinating, looking back at those days, was how it changed distribution. And I had a paper route in the 1990s. That was how I paid for my first stocks and mutual funds that I was buying back in those days. But what ultimately changed about the Internet, and this is not necessarily what the 80s and 90s was completely about, but it was the fact that you went from these local monopolies with newspapers, with retail, to being able to reach the entire world. And that's what fundamentally changed the value in the market. What can we learn from that, or what sort of parallels do you see in this new technology paradigm that seems like it's going to shake things up, but we're not fully clear on exactly where it's going?
- [16:00]
C
Yeah, I'm a logistics guy at heart, so of course I see everything as distribution. But that is the story of the 2000s was just the Internet changed the cost of moving information. We didn't know who Sergey brin was in 1990. We didn't know who Mark Zuckerberg was. We didn't know what would be created with this. But just the bet was the right bet, was is that with this lowering cost, amazing things were going to happen. The real interesting thing about that era was, is that it changed human behavior too. When Andy and I were kids, if you wanted almost anything from information to food to consumer junk, you had to go to the library, you had to leave your house to do it. And one of the things I think the Internet ushered in was, is just this expectation of, no, the world comes to me, which. Which has played off in all sorts of ways. Look, there is a scary, scary scenario here because we all know what happened. Tons of money were spent to build those rails. The companies that did that kind of went bankrupt, and then we still benefited from it. I that's not a prediction, but it is sort of the jumping point for a thought experiment. Are we at an inflection point. All right, is it possible that the hyperscalers, the ones spending all these money and have these models that they are almost going to transform into the utilities and it's going to be the companies that make stuff with these models or deploy the models or figure out how to kind of use this technology, which I'm not sure the hyperscalers are really the best at that right now of actually turning it into productivity. A lot of this has to play out. But there's a world where like Andy says that these hyperscales remain hugely valued, but their kind of growth story isn't what it used to be. And there is just going to be a ton of new companies taking advantage of these rails and just building amazing things that will be where value is created from here.
- [17:53]
A
All right, very quickly, I want both of your answer on what is sustainable about this current technology evolution? Andy?
- [18:01]
B
Convenience. Travis. I'm lazy and I this right. I think many of us are lazy and we wanted things to be as convenient, as quick and fast and great as possible. And I think that's what we're seeing with the AI revolution. Yeah.
- [18:13]
C
And at worst, even if everything just goes terrible, we will figure out a way to use all this compute power we're building. That's the, that's the silver lining. And I don't know how. I don't think AI goes to nothing. I do wonder about commoditization. I do wonder. Like I say, I, I, I. My guess is the way we interact with AI even two years from now, we'll look so much different than today. And we just, just like we didn't understand in 1999 how we would use the Internet. We don't understand. And all this projections just kind of. But yeah, Andy's right. There's a there there. It's convenience. It's just a ton of compute and smart people are going to create value with it over time.
- [18:52]
A
When we come back, we're going to talk about the unknowns, about the future of the market. You're listening to Motley Fool. Hidden Gems Investing
- [19:01]
D
support for the show comes from Fundrise. For the past 70 years, there's been a room in finance most people couldn't enter. A room where you could have invested in some of the biggest names in tech companies like Airbnb and Uber before their multi billion dollar IPOs. I'm talking about venture capital. But unless you had millions of dollars and the right connections, the door to the venture capital room was closed. You were stuck waiting in line with everyone else. But recently, fundrise took a sledgehammer to that door when they launched their venture capital product and made it available to anyone with a minimum investment of just $10. Fundrise says their mission is to give everyone the chance to invest in the best tech and AI companies before they go public. Visit fundrise.com fool to check out Fundrise's venture portfolio and start investing in minutes. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. This is a paid advertisement.
- [19:57]
A
Welcome back to Motley Fool. Hidden Gems Investing. Let's enter the world of the unknown. Investing what's known is often priced into a stock or what. At least the market thinks that we know at that given moment. What's not priced in is the things that we don't know or can't know. Those are the unknown unknowns or known unknowns, as Donald Rumsfeld would say. And that's ultimately what drives a lot of the value in the market. If you look at Nvidia five years ago, you weren't buying it because it was the big player in artificial intelligence. If you were, congratulations, you were ahead of the game. Same thing with micron 12 to 18 months ago. I mean, even Apple, even Tim Cook apparently couldn't predict that memory prices were going to skyrocket. So what are those unknowns that you're thinking about? And this can be either positive or negative with some of the biggest companies in the market, some of the most talked about companies in the market. Lou, I want to start with you with Nvidia. When you look at that stock and how valuable that company has become, what are either the positive or negative unknowns that you're thinking about?
- [20:59]
C
I mean, the known unknown is I think we're sleeping on robotics and what a role Nvidia would have. I do think we're moving towards Nvidia's best days with AI are over. There's more and more custom chips. There's just more competition, like you say, not that it's going to fall off.
- [21:15]
A
Do you think robotics can replace hyperscale spending?
- [21:18]
C
Yes, I really do, because I think robotic. And it's not going to be the dancing robots that clean your house. It's going to be all of the everywhere and just making lives easier. This trend isn't new, but I think just the ability to apply tech to it with smart tech. That is the next big thing for Nvidia. And I don't think, I think we're starting to worry about the negativity around AI with competition. But I don't think we fully appreciate the upside with robotics.
- [21:48]
A
What comes to.
- [21:49]
B
Yeah, Trav. I mean, if robotics is the key, I mean, Jensen's talked about this. If you just think about what goes in to driving a robot, whether it's a humanoid robot or anywhere, it's, it's, it's the brain power that uses most of the energy. And Nvidia is that, that's, they're the lead dog in that. And so I'll take a little bit of the other, other side. From what Lou said, I think the better days for Nvidia are not necessarily over. Nvidia has been able, they've done masterful job. Jensen Huang's been done masterfully being able to navigate the different parts of the market across AI or GPUs or gaming, whatever it might be. And so I think robotics is the next big push for Nvidia. And I think it's exceptionally ill defined. There's a big unknown about what that market looks like. But if robotics is going to take off, Nvidia is going to be the lead dog in that.
- [22:38]
A
That does seem like an area too where the customers are not going to have the same ability or incentive to create their own chips. I think that's always been something that's made me a little bit uncomfortable. This AI build out is you're concentrated among four or five customers, 60, 60% of your revenue or so even for a company the size of Nvidia. And all of those customers are trying to get out from underneath you by creating their own custom chips. So that's definitely not going to be the case, at least for now in robotics. All right, what about Apple, Andy? When you look at Apple as a company, as a stock, what are the things that either excite you or keep you up at night?
- [23:13]
B
Well, they need to find something next from the iPhone. They have.
- [23:17]
A
Watch there needs another, a new. The next thing from.
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B
I mean, if you just think about when the iPhone came out in 2007, I mentioned that earlier, you know, it took some time for it to really kind of take off. It was tied to, you know, AT&T and all those kinds of challenges that we had. But it really wasn't until the App Store came along that they started to really build up, build out that ecosystem and that allow them to tie into the services. So that, that's been the big growth driver. I mean, the iPhone's been revolutionary. Probably the greatest invention of the last, you know, at least 50 years. I would say meaningful when you think about the, the impact wider so what is next for them? And then how does AI play into that? Whatever next is? That's the big question I have for Apple and the new leadership team there.
- [24:02]
C
It's really dangerous to be the Luddite, but I'm going to be the Luddite here and take the other side. I think that the known unknown is there just isn't a next big thing. I don't think, I mean, if you look at how most of us use our phones today, I don't think glasses or any of these other alternatives are really, really a good altern. I, I, I don't see people playing games. I mean, you know, maybe, but, you know, I, I really think that the story here is is that them using AI and using things to just continue to make the phone better. Look, the downside is maybe there isn't a next big thing, at least on the consumer side, or maybe it's a long way off. But the good news is, is that they are a very profitable company and it's a great franchise and thanks to AI, there are ways to eventually drive upgrades and stuff. So I, I do think we have to. But it's not the Apple TV anymore, it's not the Apple car, it's not this.
- [24:58]
A
Yeah, we've lost a lot of those narratives.
- [25:00]
C
Yeah, we've lost the narratives. And I think kind of the known unknown, but underappreciated is it's a daggone good business if it just continues to iterate on its own. I just have been underwhelmed by the replacements. That doesn't mean there isn't somewhere, there's a lab right now that's about to really knock my socks off. But it's been long enough with these phones that I'm going to believe it
- [25:22]
B
when I see and trav, I do think John Turner is the new incoming CEO at Apple, is in a pretty good sweet spot. The experience he's bringing in across the Apple system I think gives him, I do think he's the right person for that job and I'm glad to see him take over the CEO role.
- [25:40]
A
The other thing, to just look back historically with technology, typically the company that dominates a certain era does not dominate the next era or the next paradigm. So Microsoft did not dominate mobile because they couldn't see mobile through the lens with which they were looking at it. Whether it was because they were selling mostly into enterprises or that was their kind of key market, or because they were running an operating system and they had to completely rethink the operating system. So Historically, whatever that next form factor is, whether it's a pin or a watch or glasses or whatever, Apple may not be the company that sees it because they are so ingrained in the current paradigm. All right, let's go to a key supplier to both of these companies. That's tsmc. What is exciting or makes you nervous, Andy?
- [26:25]
B
Well, gosh, I guess it's the customers, right? That's the big, that's the big question. If the customers start pulling back, that's just obviously going to be the big, the big question for ts. So is that going to be a
- [26:35]
A
macro problem for them or is that going to be, you know, let's say Tesla and SpaceX building their own fabs or what's the concern there?
- [26:44]
B
Yeah, it's going to, it's going to be replaced. It's going to be others doing, trying to replace, to take over the great leadership position TSMC has. This is minus in China, you know, really ruffling feathers and doing anything really dangerous, which is that the biggest, I think big macro concern there. But other than that, I think it is, it's customers starting to look elsewhere away from tsms MC to be able to do what they do in the same way, the same quality and the same price. Now that's, that's a big ask for the, for, for customers to do that. But if they can do that and they're willing to put the capital to work and they can finance that. I think that's the big question I have with tsmc.
- [27:22]
C
Yeah, I think that's right. I, I don't have a better one that. The one thing I'd add to it though is that you have the United States and I think soon to be Europe and other. When you have governments actually leaning on the scales, TMC is doing their best or TSM is doing its best to be part of that. Answer with these. But you know, we all love our national champions. Everything Andy said is right. And then adding to it the fact that it's governments are actually putting their capital to work to compete against the Taiwan fabs. That is at least worth watching.
- [27:53]
A
All right, I want to go to a little bit smaller company to end things in this segment. That's Intuit. Intuit is one of these companies that I keep looking at. Is this going to be a disruption story? There's a lot of unknowns in the future for Intuit. So Andy, you had a reaction there. What are you thinking about with Intuit?
- [28:09]
B
Yeah, the Stock is down 60% or 50% or so over the last and it looks cheap.
- [28:14]
A
But is that a value or a value chat?
- [28:15]
B
Well I would be careful because I in the marketplace this is where I think my little bit more revised thinking around some of the efficient market. I think the market gets more of those right than than wrong. So I'm a little bit cautious like double down on stocks that fall down like that. Obviously the risk over something like a Claude model being able to handle all my taxes and LinkedIn all my very easily gather all my information that I can do. I can download my taxes from TurboTax or if I run QuickBooks and just import it into Claude. That's the, that the kind of existential risk risk my bigger. That's a big concern. But the thing on Intuit that I worry about as well as some of these other companies that are kind to this space is when they start taking capital and they start making these big acquisitions and Intuit has done this whether it's mailchimp or whether it's Mint or whatever it might be. They make these acquisitions that to kind of go after their growth market. And I just worry that they start to stretch outside their core market because their core market's under threat. They make these stretches, they add goodwill to the balance sheet. They can't get the returns on the capital of those investments and ultimately just continues to hammer the stock because the, the profitable earnings growth that would come from that revenue jump from adding those companies is not there. And investors sniff that out.
- [29:30]
C
Yeah, it's funny, you know I, I maybe, maybe I'm underestimating it because I don't want to right now upload my taxes to.
- [29:38]
A
I know that worries me too especially this new policy where they can use your content as they right.
- [29:45]
C
On the consumer side, my biggest known unknown is that I think if the government Intuit to its credit does a lot of good lobbying but I think a lot of the consumer business should probably go away. The IRS gets all of our data, they process our data. It would be so easy for them to just send us a slip and say is this right? And move on there. I think one day we're going to get there. I'll tell you the AI threat is the other side of the business to me. If you look at how Intuit describes their business to business, what they provide, they provide financial marketing and management software that helps small to mid size businesses run their operations. Automating, accounting, managing payroll and payments processing payments driving automated email marketing. All of that sounds very, very replaceable with AI. A lot of that is automating it's just fancy way of saying we do automated tasks. And I think, you know, that, that, that core business to business. Business is what I think gets disrupted first. And I think it's a real threat for them.
- [30:54]
B
I'd be a little scared of having too much of the government influencing and doing my taxes for me, if that. I mean, we definitely have to fact
- [31:02]
C
check it, but they're doing it anyway. They audit you if they think you're wrong.
- [31:05]
B
I know, I know. But then I have, at least I have Intuit or someone else to be able to like go back to and say, hey, listen, this is what, what, this is what you, we, we said and this is what the government said.
- [31:14]
A
Yeah, this is one of these things. One of the reasons that I wanted to talk about this is these, these big trends, getting the big trends, the strategies, the, the technology shifts.
- [31:23]
C
Right.
- [31:23]
A
Is really where you hit the huge gains for investors into its stock between their IPO in the early 90s. 1993 is, is what I have data back to, to its peak. This was actually last year, 2018. 8,000%.
- [31:39]
B
Yeah.
- [31:39]
A
So there was a long time, there was decades where you could have ridden the gains that you have with a company like that. Andy and Lou might be right that this, that the best days are past it, but there was a lot of gains to be had in the meantime for investors.
- [31:53]
B
And Travis, I think that's one of the secrets to Hidden Gems kind of investing is trying to identify those markets and the trends and the companies that are going to benefit from that early on and being able to look past some of the noise to be able to invest for the next few years. I think that's, that's something that Tom and the Hidden Gems team has done pretty well over the years.
- [32:12]
A
When we come back, we're going to get to some of our hidden gems ideas. You're listening to Motley Fool. Hidden Gems Investing.
- [32:22]
C
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- [32:54]
A
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 the Motley Fool's 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 Andy I wanted to ask some questions about in today's market, where are you seeing hidden gems kind of opportunities as an investor and what are the what are the kind of factors that you're looking for
- [33:27]
B
for yeah well they the hidden gems style. I've been doing this with Tom for a long time and benefited from so much of his thinking. But that hidden part Travis and that can mean a lot of different things. It could mean under it's basically underappreciated or undervalued assets from what the market sees asset strength and brands exceptional leadership, financial power, intangible assets and growth opportunities those are and, and, and it's a mixture of both. But I think about that combination was the market really not seen and I think think one interesting spot is something like a retailer that really doesn't quite get the attention that other retailers might in the US and that's a company like Aritzia which had earnings this week. They were outstanding. Think about the growth profile. It's a Canadian women's retailer that does this very accessible medium to high fashion retail and it's just doing things in a different way with that leadership team. But it was Canadian based and now they're moving more aggressively into the U.S. very profitably into the U.S. and so that kind of story when you think about getting into an early growth story like that, that's the kind of hidden gems that I really love to find and love to invest in. I look about our history of the same thing with a company like Buffalo Wild Wings which was very early on in trying to grow out chicken wings. Buffalo wings in a way that really wasn't done at scale or a company like Chipotle and Starbucks many many years ago ago. So those growth opportunities and then you have a company that's taking advantage of those. So I think still a company like Aritia and retailer I see some in the biopharma space whether it's a company like Vertex or Crystal Crystal biotech symbol K R Y S that is doing some really cool things when it comes to treating butterfly skin disease and they have a very proprietary pro process and platform and that's what I'm trying to find and that are not really quite, quite appreciated by the market that is constantly talking about large cap tech stocks.
- [35:22]
C
Yeah. Kind of echoing what Andy said I am a big believer. The reason I do this, the reason this is fun to me is I think there's always something to buy out there because we do, we focus on one thing and it's crazy but there are just good companies that kind of just get not forgotten about but just fall out of favor. For me right now it's the financials. I had a radar stock and it's financial last week. So I've been talking about this a lot but there isn't a lot of growth right now. Now but you're giving getting dividend Yields north of 4%. Well north of that. And I think that this is a business that grows over time. So you. I don't like the dividend yields with REITs because I don't know how much growth you see in REITs but with financials I really like that. Also physical goods. Transdigm is a company I keep talking about but it is just a huge market winner over time. It's near a 52 week low. I like looking at value there because there's so much of attraction record.
- [36:15]
A
I love when Andy brings up a stock that is headquartered just a couple of miles from where I live in the Minneapolis area. We should do a show about how many companies are based in in the Twin Cities. Just incredible how many huge companies that you didn't realize are based right here. Cargill, another one. Not even public, but one of the biggest companies in the world.
- [36:33]
C
Mr. Chamber of Commerce.
- [36:35]
A
Yes, exactly. Got to get my local shout out here. All right, let's get to the stocks on our radar and bring in Dan Boyd for his thoughts. Andy, what do you got the this week guys?
- [36:43]
B
I'm looking at Primo Brands. Dan, this is symbol P R M B a market cap of 8 and a half billion dollars. Primo Brands provides bottled water hydration solutions through a huge network. 200,000 plus retail outlets. Some of their brands. Dan, you might know Poland Spring, Deer Park, Saratoga, Pure Life, Mountain Valley as a combination of a, let's call it water as a service. So subscription business that delivers the house the big jugs, the three five gallon jugs. But then also you can buy these products products in the, in your grocer and in your retail outlets. It owns 80 natural spring sources, runs this direct delivery that reaches a network that reaches 90% of the US population and 80% of the Canadian population. What's interesting about it, it was a combination recently of a. Of a big merger. So it's working through that. The valuation is attractive. It's not One of those high growth companies. But when I look at the hidden assets behind it, I think good things ahead for Primo Brands. And I probably think probably in the, you know, not super high growth but maybe 10 to 12% kind of annualized returns kinds of business.
- [37:47]
A
Dan, what do you think about water as a service? I think water as a service is something that most municipalities already offer. But here's the thing. I want to denigrate this stock, I really do because I generally refuse to buy bottled water because it's a scam. But like water isn't going anywhere. People need water. And if these companies are allowed to own water sources and stuff, it's going to be profitable. I do like a good bit of Dan pushback on these stocks. But yeah, if you come up positive, maybe it's worth the watch list. All right, Lou, what do you got this week?
- [38:23]
C
Definitely lots of liquidity. Right? So anyway, I'll see myself out. Dan, we always talk about big banks kicking off earnings season. For me it all starts with Delta Airlines Ticker D A L. They are out this morning with a solid earnings beat. 156 compared to 151. Consensus part of this was that fuel was a little less bad than feared with everything going on in the Middle East. But most of it was strong, diverse revenue flows. Delta is just finding a lot of ways to win. Premium upgrades, corporate travel, cargo, even doing maintenance on everybody else's planes. Premium up 17%. Cargo up 40%. Maintenance up 32% year over year. If there was a disappointment, it was that overall passenger revenue was somewhat below expectations. What's the takeaway here? I think good things for United, maybe not good things for other airlines, but overall this is a good barometer to the economy and the economy at least those who can spend are holding up. Delta is and continues to be the best airline operator in the US and another strong report from them. Just a really well run company.
- [39:30]
A
Dan, what do you think about Delta charging extra so that I can sit with my kids on an airplane? I hate it. As somebody who has kids and has to travel sometimes it stinks.
- [39:41]
C
Let's go. Let's go.
- [39:42]
A
Primo Brands. I don't want to do it. I don't want to do it. But we're going to go Primo Brands this week. All right. Congratulations to Andy Cross. That's all the time we have for today. Thanks to Andy and Lou and Dan behind the glass. We'll see you here next time.