Chit Chat Stocks - Value Play vs. Value Trap; Bezos on AI Bubble; OpenAI's Wild Ambitions; Brett's New Stock Buy

Episode Date: October 10, 2025

The Investing Power Hour is live-streamed every Thursday on the Chit Chat Stocks Podcast YouTube channel at 5:00 PM EST. This week we discussed: (00:00) Introduction (02:14) Bezos and AI bubbles (10:20) The AI Infrastructure Boom: Opportunities and Risks (18:28) Value Plays vs. Value Traps (36:58) Argentina update (40:55) Pepsi's Earnings (45:55) Delta Airlines (48:47) Brett's new stock (53:57) Rapid Fire Stock Analysis (01:01:53) Underappreciated Sectors in the Market ***************************************************** JOIN OUR NEWSLETTER AND CHAT COMMUNITY: https://chitchatstocks.substack.com/  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* Fiscal.ai is building the future of financial data. With custom charts, AI-generated research reports, and endless analytical tools, you can get up to speed on any stock around the globe. All for a reasonable price.  Use our LINK and get 15% off any premium plan: ⁠https://fiscal.ai/chitchat  ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Stocks, the podcast that helps you discover your next great investment. I am one of your hosts, Ryan Henderson, and I am joined as always by the one and only Brett Schaefer. This is our weekly Power Hour episode where we talk all things financial markets. We've got a few interesting topics for listeners today. We're talking value play versus value trap. We've got a couple of names that we've both written down that we think are value traps to avoid.

so we'll talk about those. We have Jeff Bezos making a public appearance for the first time in quite a while with some wonderful quotes. And then we also have a couple earnings updates as well as, well, we have to talk about it, AI infrastructure bubble slash boom. We aren't sure we're going to talk through it. And then Brett is buying a stock as well. He's going to talk through why he's buying that. But before we move on, if you're listening to this show for the Apple, or wherever you get your podcasts so you never miss an episode. And if you enjoy these episodes, please, please, please go ahead and give us a review. It helps the show grow.

Without further ado, Brett, where do you want to start? Well, Ryan, should we start AI infrastructure or should we not put you through that pain until halfway through the episode? I know you were probably so happy that Sam Altman decided to make billions, tens of billions, well, even $100 billion partnerships that have what some may describe as insane gigawatt plans for these data centers, 20% of the United States current capacity, actually, in the deal with NVIDIA. But I'm excited to talk about it. I think it's getting to the point where it's hard to argue it's not a bubble. But I think first, why don't we talk Bezos? He doesn't make many public

appearances. We'll get a little, as the guys at Value After Hours say, vegetables out of the way first. And we'll try to learn something from an entrepreneur, a founder that went through the dot-com bubble and came out clean on the other side. Yeah, let's eat our veggies, so to speak. And this actually is a good precursor to some of the bubble talk that we're going to discuss later in the episode. But Jeff Bezos, who I would say is probably on my Mount Rushmore of favorite CEOs of all time, he might be number one, gave a talk last week at the Italian Tech Week conference, I guess. I had never heard of this. And he rarely does public appearances since he's been retired, and especially business-related ones. I can't remember the last time I saw him kind of holding court, so to speak. But I thought it was honestly one of the best explanations of the current AI environment in a long time. And he gave some really thoughtful quotes and I'll go through some of those, but I'll just say, I recommend to anyone eventually go listen to this. You can find it online on Google and YouTube and other places. But basically he was asked a couple of questions around the same questions we ask ourselves.

are we in an AI bubble? Are we in an AI infrastructure bubble? And he gave some really good quotes. So here's one. He says, Benjamin Graham, the great investor, is famous for saying, in the short term, the stock market is a voting machine. In the long term, it's a weighing machine. And so as founders and entrepreneurs and business people, our job is to build a heavy company. We want to build a company that when it is weighed, it is a very heavy company. We do not want to focus on the stock price. So that will be misleading because it can be disconnected from the fundamentals and when bubbles happen that's one thing that happens sort of ironically he says the quote you want to build a heavy company i think if you weighed the

physical property and equipment of all the companies in the world amazon may literally be the heaviest which i think is just kind of ironic yeah commodities might beg to differ but i think amazon's probably up there literally heaviest uh or if you did a capital intensive as heavy they might be number one yeah and that wasn't at all what he meant but i just thought it was funny but then he said he's asked more directly about the ai discussion he says ai is real and it is going to change every industry in fact it's a very unusual technology in that regard and that it's a horizontal enabling layer. Today, we talk about AI first companies

like OpenAI and Anthropic and Mistral and so on and so on and so on. There are so many startups that are kind of AI companies of various kinds and that's normal for this phase, but that is not the biggest impact that AI is going to have. The biggest impact that AI is going to have

is it is going to affect every company in the world. It is going to make their quality go up, their productivity go up. I mean, by every company, I literally mean every company, every manufacturing company every hotel every consumer products company etc etc and so that is what about chit chat stocks the ccm media group are we getting affected by ai actually maybe in our editing software tool we record with this right now probably already saves me

hour a week of work yeah something like that so yeah honestly we are it's i it makes sense that he could be right on this and then the part that got a lot of discussion is he basically said that there are two types of bubbles there are industrial bubbles and financial bubbles he says the bubbles that are industrial are not nearly as bad it can even be good because when the dust settles and you see who are the winners societies benefit from those inventions that is what is going to happen here too this is real the benefits to society from ar ai are going to be gigantic i think that's a very important distinction because you look at the dot-com bubble all the companies that laid uh fiber you even look at amazon obviously they got crushed coming out of

the dot-com bubble but they wouldn't have become the company they are today if it weren't for the dot-com bubble. We've talked about that before. They were able to raise money, I think, in 1999 that helped them stave off bankruptcy. And I would argue that consumers are unquestionably better off because of the company that Amazon is today. And they are one of those beneficiaries, one of those winners of that dot-com industrial bubble, so to speak. Whereas I think you'd be hard-pressed to find anyone other than michael burry who was a beneficiary of like the great financial crisis like the financial bubbles don't provide a whole lot of tangible benefit to humans florida real estate agents that didn't over lever and just it just put their money in some treasury

bonds maybe maybe that maybe those are the beneficiaries but i get your point but you mention financial bubbles, and I'm going to share this chart here, Ryan, that is pretty incomprehensible, very, very difficult to understand, and looks maybe different than the financial, or excuse me, the industrial build-out that Bezos is mentioning. And these are the AI deals going across the industry right now. For listeners right here, we have a chart from Bloomberg. I look up if you want to see what this chart looks like. It was floating around Twitter, but essentially it's gray bubbles with all the different companies in the AI infrastructure boom, including NVIDIA at the center, OpenAI,

Microsoft, Coralweave, Oracle, AMD, XAI, and others. And it shows the cross revenue and cross partnerships for spending that is going along here, the financialization of these deals. we aren't going to go through the specifics of all these deals because I don't think that this makes good podcast. It's not good audio. But what I will say is you can kind of look at some of these directional arrows of where money is flowing. For example, NVIDIA agrees to invest up to $100 billion in OpenAI, who is then going to return that and buy NVIDIA chips. And there's actually some here that are three ways where nvidia is investing in uh investments and services in core weave so they're spending money on core weave and core weave is going to turn around and then buy

hardware and software tools from nvidia this is a lot more financialized than what bezos is referring to and could overlap these two bubbles and i think could what you're mentioning as the danger there is this is maybe the next step that turns it from the dot-com telecom boom into a hybrid with the mortgage-backed securities boom. Although I'm not saying it's guaranteed to be like that, but this is what a lot of people said that industry looked like, what 2005, 2006, 2007 of that market looked like. You look at what OpenAI is doing with, for example, AMD, where they get these warrants on the stock at like one cent. And then if the stock price booms, and it's, I think, three, four, five times from now, or maybe it's a market cap level,

well, then they get a bunch, a large ownership in AMD. But if they just keep doing these type of deals, it's just going to lead to more revenue for AMD, and it becomes extremely circular. And at the end of the day, maybe I should stop sharing the screen here. At the end of the day, we are taking, for example, let's just hypothetically, we're taking the capital expenditures, the invested capital of the return on invested capital equation, and we're 100x-ing it.

So the denominator is going up by 100x, which means to maintain return on invested capital for these big tech companies, we need to increase the return, a.k.a. the profit, by 100x. So here's where I – okay. I think, yes, that is signs of a bubble. But where at the very bottom of it, there is advancements going on that are actually like tangible benefits, right? So whatever it is, we're building advanced GPUs. We're automating processes that used to be done manually. There are obviously clear product market fit for AI, clear end markets benefiting.

So yes, it is a bubble, but I would argue that it's not a financial bubble. I think that's the point Bezos is trying to make here. A bubble is a bubble. And the same thing happened in the dot-com though, right? they are building a financialized bubble with these deals that's just a part of the industrial but like it's not just an industrial boom he's saying it's an industrial bubble yes here's another quote let me let me read another quote now what the stock market does which is when we think of bubbles we think of valuations and market caps and things like this and how many billions of

dollars are being invested in these six people like for example he calls out this one case where it says investors don't usually give a team of six people a couple billions of dollars apparently that recently happened where they have no product pre-revenue ai startups yeah and he he relates it to like the biotech bubble where they are people are wasting money and a whole bunch of money gets sent out the door that will never generate a good return but the biotech bubble of the 90s ultimately saved a bunch of lives because the few drugs that did work we're lifesavers so i think what he's saying is yes it is unquestionably a bubble but when like he says when the dust settles there will be benefits to oh sure but what i am saying is that

his definition between industrial versus financialization we're making the transition to financialization because we look at some of here's there's another tweet i don't think i linked it in here. It was a very comprehensive tweet, almost like a Bill Ackman post going through some of these deals. If we look at what OpenAI is financing here, they are committed to spending a trillion dollars. Now, if we look at just Project Stargate, the total funding needed is $114 billion. Then if this guy, I think it was anonymous account, maybe this Korean, Alamos. Apologies. I would tell everyone to go follow him if I forgot to, but I forgot to get his handle. For the funding for Project Stargate, you need 75% external capital dependency, 17%

from internal revenue contributions based on OpenAI's revenue estimates, and then 8% vendor financing. And he sums it up pretty well. And he says, in short, OpenAI's own cash flow is far from sufficient. Its future hinges entirely on continued inflows of massive external capital. This colossal AI infrastructure empire cannot be sustained without liquidity from financial markets. This is turning into the financialization, which can, even if, again, the benefits are there industrially or from a consumer standpoint, this can ruin companies. If things go poorly, you have an oracle of the world that is levering up their balance sheet to do this with basically slim gross margin deals on all of this sure that people are still going to use chat gpt

but what happens if the equity goes to zero that company doesn't benefit but there will be some winners and so okay i think that's what he's when i think of a pure financial bubble there's nothing going on under the hood that's benefiting like when it happened i think you could argue the gfc was a pure financial bubble now do you think there will we're betting on a lot of best homes homes were built maybe something called industrial bubble you can benefit as a what an investor in homes in 2012 aaron edelheid moved to santa barbara yeah yeah maybe i mean One doesn't have any tangible benefit. I think at the end, it's – valuations do get stretched even when it's a quote-unquote industrial bubble.

The valuations get stretched and money gets wasted and companies fail. OpenAI seems like sort of the most talked about one, but – They are aggressive. They are aggressive. Yeah. I mean, they're talking about spending $100 billion and building 10 gigawatts of data centers, specifically with NVIDIA. Do you know what the current entire data center gigawatt capacity is in the United States? I do not.

54 gigawatts. So they're going to create 20% of the current data center, AWS, Azure, IBM, Oracle, Google Cloud, any internal systems, any non-cloud. Here's my prediction. Open AI is just good at press releases. that's they're good at press releases and what's going to happen is that whatever the deadline is on these is going to be like 10 years early so maybe they do end up spending little amount but it ends up coming in 2040 or whatever by the time they've actually spent it because i just i mean there are literal constraints like obviously energy general

contractors specialty contractors like they probably they probably cannot literally build these if even if they tried in that speed or at that time so but that is unless you have anything else i want to end we have comment here that says uh crypto bubble and tulip mania neither of those bubbles built anything also the uh 4 000 year bubble in gold i just congrats to anyone that holds a lot of gold you've had a great run but that technically is not a non-productive asset You could also say quantum stocks, which could lead into another topic here, although we could save the bubble watch for later in this episode. Those ones are maybe purely unproductive. The last thing I'll say is there was an article, and Tyler mentions this in the chat, from the publication The Information on Oracle.

I don't have access to the payable, but the only thing I noticed is that they are signing deals here with really, really low unit economics, which I think if you are an Amazon investor or a Microsoft investor, that should make you sleep better at night because the reason Oracle probably won this large deal is they're going about it uneconomically. AWS wants that. Well, they're renting GPUs. What? They're renting GPUs.

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trap and i think there will be some on my list that we actually disagree on so you want to go first one that you own too so really i'll be curious okay why don't you start first one united health care now this is not one i thought you would known i don't think either of us has ever ever owned this people are bullish berkshire is clearly bullish because of the there was a downturn this year in the whole aca market the obamacare market we talked about this at depth in our Oscar Health episode. And now it's recovering because apparently in 2026, we'll get a repricing of the ACA market

and the subsidies might come back. But the thing I look at is players such as Oscar Health and others are taking market share within the ACA space. And if you look at UnitedHealthcare, they have all of these investigations into their not only morals with processing claims, I'm not going to claim to be an expert here on the healthcare space but the legality of some of their practices and i think you could be walking

into a value trap here by saying oh buffett bought it probably not even him berkshire bought it it's cheap the healthcare industry is going to just be entrenched forever and ever and ever and i think you could be walking into picking up some pennies in front of the steamroller so maybe we should ask this first how do you find a value trap yeah stock looks cheap but it's not like not like that the price looks cheap the earnings ratio looks cheap but it's not that's how i define it yeah it's basically the same way i've got it it's when a stock looks octave optically cheap based on their trailing numbers but growth in the future will be much slower than growth in the past or the biggest value traps of all are probably the ones where they just don't grow anymore and

typically i i would say the biggest value traps are when you've got a company that's going against a massive like shift in the industry so for example blockbuster going maybe it looked cheap at some point i wasn't really investing then but obviously streaming was taking over and i think there's actually a lot of examples like that so i'll go with one so you can answer value player value trap i'll give my take western union i think it's a value trap and i think it's very similar to kind of like a like a blockbuster in a way where western union has an 11.7 dividend yield That sounds great, but remittances every day, more and more people are choosing to download an app and send money because it's lower cost. It's more convenient. You don't have to go anywhere to ship money physically, and the functionality for it to be received in physical cash on the other end has been built out. So it's – more and more people every day are sending remittances digitally.

Western Union has – it's not like they were oblivious to this. They've tried to build it out, but they are just innovator's dilemma. They aren't as digital native, and they're struggling to build out the same sort of consumer experience or erode their current unit economics the way someone like a Remitly or a Wise can come in and do. So even though it's – I agree. It's why Remitly is one of my largest holdings. So yeah. 11.7% dividend yield.

Don't reach for yield. Don't fall for the value trap. That's my number one Western Union. Only reach for yield in tobacco, right? Well, I've got a value trap here in a second that we can talk about. Yeah. Hey, I might agree with you on that one, but we'll make sure to check on that total return over the last 10 years. All right.

I have one that I think this is the one you own. And it's not that I think it's a value trap, but I worry it's a value trap. And I've heard your worries on this company as well. Ally Financial, deposit growth is stagnated, stock looks cheap, but we see the sofas of the world gaining market share on them and kind of disrupting the original disruptor in online banking. I feel like they could be a value trap. I agree with you.

I sold it. That's for that exact reason. There we go. They could double their earnings per share over the next four or five years. which would make me kind of look dumb, I imagine. But I'm not worried. Like, I didn't sell it because of the net interest margins. I sold it because I think their advantage as the disruptor is going away.

And it's so much more competitive today. We're not saying these are 100% value traps. This is something we'd be worried about being a value trap. And if you're right that it's not a value trap, the stock is going to do phenomenally well. But that doesn't mean you should own it in the first place just because the outcome is in your favor i'd rather own something i'm not worried about as a value trap or is the one you know taking the value a la remitley versus western union

okay here's a controversial one paypal where do you stand that's the next one on my list the numbers keep looking better though and they keep the venmo uh notifies me every day that i need to sign up for their debit card. It's about 10 years late. We all got debit cards. You should have been doing that whenever one was 17, 18, 19 years old, adopting Venmo, which we all did 10 years ago for people our age. But I would like to look at PayPal's earnings per share growth. I mean, we can probably pull that up on Fiscal.ai pretty quickly here because we've called it a value trap for the last three years. And the stock hasn't gone anywhere, but i feel like all of their financials just keep getting better yeah i'm pulling it up on fiscal

ai right now i remember so i initially when i wrote this one down i thought for sure i was going to be saying this is a value trap like that was the take i was ready to have but the more i looked at the numbers it is not as bad as i would have thought so my when i think of paypal i think of branded checkout and i think that's still probably the cash cow for their business maybe it's a little more opaque the way they report it now if i'm not mistaken but basically that really was the cash cow and that is basically the button when you think of like going to check out somewhere you see the paypal button the margins on that are really good same with they used to have make a lot of money from remittances but i imagine that's kind of

disappeared as well the branded checkout i think is at complete risk of disruption from the mobile wallets and that's probably why paypal gets the multiple that it does is the pressure on that business specifically but when we look at like total payment volume across all their apps keeps growing it keeps growing and you can say oh well that's coming from brain tree that's lower margin revenue is still growing too analysts inflation protected yeah analysts are expecting about five to six percent annual revenue growth right now paypal trades at ev to free cash flow 12 times what about pe i think they have some net interest stuff so cash flow might get wonky let me check real quick shout out to our friends this is a test

fiscal ai testing fiscal ai's new updates and the speed of the platform right 16 times all right that's quick we can do that load it up during the live stream that's that's the fastest test because he does slow down when we're live streaming in uh hd to youtube i have yeah earnings per share growth 2014 uh 2013 excuse me to the last 12 months 0.8 cents a share to four dollars and seventy cents seventeen percent compound annual growth rate just at an all-time high hey could work i think i may have convinced myself that this is more more on the side of value play than value trap all right here's my last one match group you might have had it on your list well it was a value trap and i was wrong about it and i think it still could be a value trap

yeah it could but so we thought it was a value play when this was sort of and you see this a lot with value like companies that end up getting really terrible multiples it's like good company bad company situation where you've got tinder which is losing users and you've got hinge which has better economics better spend per user and users are surging but i don't think i appreciated how much earnings would be impacted by the demise of tinder yeah because hinge it just wasn't big enough and even though they've now i think they're on pace for almost like a billion or they said their projections are 2026 for a billion in revenue for Hinge. Now it can start to make up a decent portion of the earnings line.

So I still don't want to own it because I don't trust management. I think it's a poorly run company. But it would be right in the middle for me between ValuePlay and ValueTrap. whereas i think if you asked me a year ago i'd say it's more value trap so you'd rather own it than paypal i'd rather own paypal i'd rather run neither but they're cheap they look cheap and if they stabilize and they buy back a lot of stock shareholders will do fine do you have any others yeah give me your gut take on this one altria what's the share price because if the share price is low enough and they have that buyback it's

fine but we share price is 66 pe of 13 i mean six percent dividend yield six percent six and a half when the pe was seven to eight versus 13 that's a whole different question i think you could be very comfortable with large volume declines and still make money and come out of it i think now they i don't even know if i define them as a value trap because the stocks have 31 in the last year 62 in the last five and that's just nominal um but i agree people maybe today if they were overrating volume declines when the stock was at 40 in january of 2024 i think they may be underrating them right now because they have nothing in next generation products yeah this is 100 a value trap for me the and it's weird to say

that for the company i guess you could have asked like is this a value player value trap for the last 20 years for ultra maybe even longer and they are technically if i'm not mistaken the best performing stock of the last 150 years if you held like the old philip morris company till today and and got it when it split but you cigarettes dominated for a century and now it's i do think there's like a complete industry shift going on and they're being left by the wayside as people move to illicit vaping and other forms of nicotine yeah i think that's showing up in the volume numbers because at first it was like oh it's just like cycle sometimes they have worse volume declines in the cigarette portfolio than normal but now we've seen pretty

much three years in a row of 10 volume declines annually which is way worse than they were seen seven eight years ago so i i would lean towards value trap here plus the stock's up a lot so it It kind of helps me there. Yeah, there's a difference between 10% dividend yield and 6.5%. I kind of think they eke out earnings per share growth and dividend yield of 6.5%. You do fine. But you're not going to crush it.

Like the last two to three years total return level, if you reinvested dividends, very, very good for Altria. The next five years, I would think, is i'm not buying yeah no way i'm buying that here okay one more and i think we'll be on the exact same side of the fence here i'll i'll read off some multiples for you first okay ev to free cash flow 16 times dividend yield of almost four percent the company which i know not not not that cheap the company is serious xm oh yeah value is a dying company hate to say it's insane that it's true it's not even a value trap it's just a short honestly this is this is gonna be your

first short ever it is so and it helps that i hate the business like yeah a huge part of their model is making their plans uncancellable like they you know you got to go through the gauntlet with the customer service in order to cancel your plans but the the headline numbers if you look out 20 years pretty good 15 annual revenue growth since like 2004 but now with audio streaming moving completely to mobile total subscribers and arpu are they just decline every single quarter for like the last i think like 10 quarters it's been bad so yeah you gotta worry about people worrying about spotify you gotta worry about spotify getting disrupted by the youtube bundle like this this isn't even a question no one is debating on what if to use serious xm

because of their exclusive podcast strategy yeah i agree with you completely value trap And there's a couple businesses that are like this where it's not like you're going to see instant churn where customers just automatically leave. There's probably SiriusXM customers who have had it in their car for whatever, 30 years, and they're 60 years old. They'll be around for 10 more years, sure. Right. But it's just a melting ice cube because the younger generation is nowhere near signing up for those products. It's the same with Western Union. And I assume people that have just stuck with Western Union might continue to do so, same with SiriusXM.

But ultimately, as the population ages out, they're going to have probably half the customers in 10, 20 years. So yeah, those are the ones I don't think you want to end up, as you said, picking up pennies in front of the steamroller because they just have to fight a terrible headwind. All right, here are my last two, Argentina and China. Oh, no, that's too tough. China, I have no clue. Truly, I have no clue because I actually don't track that many Chinese stocks. I know Alibaba is up a lot this year, but that's like it in terms of who I follow. uh argentina we just did a whole episode on george soros and it gave me a lot more confidence that i have no clue what i'm doing when it comes to currency bets or country like risk well that's a good segue to this next topic because argentina is running out of pesos apparently. There was a good long form thread that I found from Brad Setzer. I think he's an

economist. And I guess the too long don't read for the podcast, Argentina, excuse me, they're running out of dollars to sell in their foreign currency reserves to defend the peso peg to the USD exchange rate. There was actually a tweet just today from Treasury Secretary Scott Besant, which is sent, it was very long, but they're trying to create confidence here. For example, he says we had intensive meetings, blah, blah, blah. We talked with their, I'm assuming that's their treasury secretary equivalent. We discussed Argentina's strong economic fundamentals, including structural changes already underway. Argentina faces a moment of acute illiquidity and we need to act swiftly and act swiftly. We will to that end. We have directly purchased

Argentine pesos. Additionally, we have financed, excuse me, finalized a $20 billion currency swap framework with Argentina's central bank. For anyone that hears news that we gave Argentina $20 billion, that's technically not true. We're swapping it for pesos. If the peso depreciates by 90%, then we lost a lot of that money, but it's not- Then we gave them $20 billion. What?

Then we gave them $20 billion. Yeah, yeah, kind of, yeah. Yeah, but we still technically didn't give them. It's a swap. This is good though. I mean if you're – I think this would be reassuring if you're – Yeah, to get 20 million people out of poverty, I think it's worth it if that's what happens. And just to have Scott Besson as sort of an ally in this situation, I think they're in a good spot. I agree. Now, the question is do you buy CAP, the Argentine Airport Company? well i'm a shareholder your shareholder of like a tiny tiny starter position because i was worried

exactly about this was like what's going to happen when there's some big currency or country risk how will i respond and i realized pretty quickly like i feel uncomfortable with it but i'm trying to get our latin american correspondent ian bezek back on the podcast to reassure you right because he's an expert on all this stuff i need to borrow hopefully we'll have that sometime in the near future it uh it would certainly reassure me and and feel make me feel more confident in buying shares of any argentine companies that i like and yeah i actually think that quote from bess and i'm glad you said it because maybe i will add to my uh corporacion american airports position which is just the main airport operator down there in uh argentina what else eight times

ebit yep yeah that's a good asset do we want to talk about pepsi earnings let's do it pepsi uh then we can do delta and then we can do the stock that i bought yeah so pepsi reported earnings this morning as of recording will have been october 9th it depends on when you're listening so could be a little outdated but organic revenue grew 1.3 percent and the story here is pretty simple they have reported 13 quarters in a row of volume declines and that includes so that literally means like year over year growth in volume has been negative for 13 quarters and you're worried about altria this is the cpg um staring you staring you right in the face yeah well i'm not um it might be a value

trap as well the every single quarter though for the last honestly maybe for like the last two decades they have raised prices and so far they've been able to raise prices enough to offset the volume declines that they still get positive revenue growth they said part of the reason for this dynamic i think you might like this quote the company has been oh no no it says they are shifting to smaller packaging sizing to appeal to price conscious consumers tricking your customers to appeal the price conscious consumers aka giving them like whatever two doritos in their bag of chips it's yeah that to me like you shouldn't say that publicly and the other part the worst performing division for them is the actually the pepsi foods so frito-lay business

which is doritos quaker trying to think of some of the other big ones in there uh i think those are the two biggest brands because doritos is a lot of fritos yeah within there fritos is kind of the whole chip category but here's a quote from an article i read it says the company has been investing in more permissible snack offerings like stacy's pita chips and quaker rice cakes it has more chips that's going to save the company stacy come on stacy wait for this it has more snack options on the way like doritos protein which aims to cash in on a consumer shift towards protein rich foods are you going to be buying doritos protein chips i don't think so that sounds like this actually sounds like a horrible idea yeah don't it's you're going

completely against your brand and it's not that okay protein chips has been like a growing category you see them a lot in the grocery store god it's so dumb though whatever but it's it's hard for the bad brand to pivot like that i think to to be the like you have to be a separate company like quest is one of the big ones for for that category right and they're kind of like a protein brand where it's mostly protein bars but they like moved into the chips i can't read those munchies so i guess my question to you how much of this do you think comes down to like wagovi and all the other weight loss drugs just putting a dent in their consumer base i think that's most of it that's what my gut instinct says it correlates very strongly with

the adoption of these drugs and they're going to grow again they're going to grow volumes again you're going to need to see GLP-1 drug usage stabilize. All right, folks, before we move on, we need to tell you where we get our financial data. Fiscal.ai. Fiscal.ai is the complete stock research platform for fundamental investors. I use the platform pretty much every single day.

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Again, that is fiscal.ai slash chitchat. The link will be in the show notes. That's Elliot Management invested in Pepsi. Did you see this? I did. I don't know what their plan is here, but do you think they're going to be able to get some value out of this? Create value?

Probably. Stock was fairly cheap. Even if volume declines are there because what you're looking at pricing growth here, still solid. i guess during that inflationary period they took a lot of pricing which probably impacted their volume growth i mean you have this fantastic chart here from fiscal ai that has pricing versus volume and you can see that the volume decline started when they took a ton of price but now it's normalized and they're still seeing these volume declines i think that is definitely

these weight loss drugs have to be i mean you see that survey data where they go i never ate chips again like half of the people that's that's gotta impact your market yeah i i agree and it's the timing seems about right as well what are they trading at let's go check our friends at fiscal ai here pepsi price is 144 a share which makes their market cap or their ev to ebit come on here let's load EV to EBITDA of 13. Maybe that's a fine proxy. They're not that capital intensive, so I don't think.

4% dividend yield. So here's, would you rather own them or SiriusXM? Oh, I mean Pepsi, but would I rather own them or TLT? 4.5% yield. I think I might take Pepsi there. Over TLT? Mm-hmm. long-term treasuries i mean not not really but like in theory like i'm not actually gonna i don't

have any interest in buying pepsi for my personal portfolio but if i were betting which one had better returns from here i would probably take pepsi the only i use tlt as like just waiting like so it's so i know i'm getting a positive return until i get a better until i see a better opportunity with my other stocks that's basically how i use it yeah and it's a good hedge for it should do well during a downturn um unless it's super high inflation let's uh do you want to talk delta earnings or the stock you are buying let's talk delta quickly because i think and they they report first always for quarterly earnings and given the fact that a lot of the macroeconomic data is tough to decipher. There's estimates. People argue all over the time what

CPI is, what GDP growth is, and what the inputs and outputs are supposed to be with all that stuff. With their spending, I think they are a fantastic proxy for the health of the economy, especially consumer discretionary stuff as one of the largest airlines in the country with a huge partnership with American Express. So you also get broader consumer spending on consumer discretionary stuff. And the quarter looks solid. You have 10% operating margin, premium corporate and loyalty led the quarter. And importantly for consumer health, American Express, I can never say this correctly, remuneration grew 12% year over year. That's the revenue from their card partnership. So just think growth in card spending and card fees that are spent or sent back to them

you know with that revenue sharing there 12 year over year growth driven by double digit co-brand spend growth economy is not dead yet at least the american express cardholders are not dead yet i think in play may it doesn't talk to the bottom 25 of spenders but it talks to the top 25 which drive 75 percent of spending it has been just in like the companies i read their earnings reports for it it seems like more so than during other periods lower income consumers are struggling more than the higher income consumers i know that seems to like always be the case but when you look at like dollar store comp sales the the fast food comp sales it's really been weaker when they're targeting the lower income and you even see like that sort of management commentary as well from

like mcdonald's ceo stuff like that but yeah i think the good the high income earners are just fine a little anecdotal evidence for you you have a delta i do have a delta american express card But I went to a festival, music festival here in Austin, and there was like an American Express. You're doing the full-on yuppie stuff, huh? Yep. There was an American Express exclusive lounge. They were a big sponsor for the event. The longest line I've ever seen, which I don't know whether or not to think that's good or it's going to hurt the brand.

Come on, that's good. it's so crowded no one goes here and i'm still gonna do this i know but okay that is like a funny oxymoron of it's so crowded no one goes but it does genuinely ruin like the allure of an exclusive lounge if anyone could go right well you have to have a card i know but the barriers to entry are non-existent for that i think it's a nice business they uh people were complaining that the platinum card fee hike was not large enough because people aren't going to get rid of it and therefore the loungers won't be. I see. Yeah. I guess if anything, that just means there's more pricing power. All right. Let's talk the stock you're buying. And then I want to do some

quick hitters, rapid fire on a couple of stocks in big drawdowns. And then we've got an audience question as well. Yeah. There are a lot of stocks in big drawdowns and this is one of them actually They don't have the exact numbers here. It's a company here that we've talked about. And I'm breaking one of my rules on investing in apparel. I am buying Crocs. And I listed in the Substack chat. I just wrote out a little.

I didn't do a full newsletter. I think I'm going to do one here shortly on the company and why I'm buying. I don't know the exact allocation. Again, I'll do that in the newsletter. If you want to talk about stuff I'm buying or selling, do that. I do that in the chat and the newsletter, which the link will be directly in the show notes. I just have a couple of lists of what made me want to buy a little bit of an invest versus then investigate scenario where I've followed the company for many years, but I don't have like my full on model and write up and thoughts fleshed out. So first up, investors I trust are long and stuck, such as Tidefall Capital, Trevor Scott, plus others.

I think he's great. Follows similar strategy that we do. do not mind tailing what looks like his ideas. Second, low expectations. Crocs trades an EV to sales of 1.4, EV to gross profit 2.4, EV to EBIT of 5.8. Third is the brand revitalization and smart ambassador program. Look, people joke all they want. They're partnering with Sidney Sweeney. They're partnering with Millie Bobby Brown, who's a famous actress. They have a partnership with a Bollywood actress in India. I checked. She has 50 million Instagram followers. These, I think, are very, very smart things to do in order to drive sales for young customers.

Fourth, Crocs has great capital allocation. Their buyback yield is greater than 10% right now, while they're also retiring debt and management is taking out stock while it is cheap. that's about it i feel like it's a good risk reward here not a never sell position but one i think has the chance to do similar to and i saw this analogy from someone i believe it was trevor scott on twitter similar to the lilu timberland investment where if things go right we can get a five to seven x return in a year or two maybe more maybe a little longer things go wrong it's not going to be the end of the world yeah they i remember reading the last either earnings call or conference uh or earnings report or earnings call and management was talking a lot

about the tariff worries and that seemed to catch on all the headlines but you're right i mean it does seem like sort of a heads i win tails i can't lose too much situation because evi to ebit of 5.8 and if i'm not mistaken the balance sheet is just fine let me check it's okay it's okay and terrible they're looking to sell the hey dude brand aren't they uh again this was an invest in that investigate i have to go in and see if that's the activist talking people doing news articles or the company actually saying it question here in the comments what do you think will cause crocs revenue to accelerate again i think in the u.s it's a bit of a toss-up sydney swinging possibly i think the momentum they have internationally is a lot

more bankable their stuff is way more affordable than lululemon nike adidas what have you and can play better in emerging market economies like india and they're already doing quite well in china so i think that gives them a leg up especially because those markets have knockoffs across the board i like it i it kind of intrigues me i might look into it myself but i remember reading one of the worst responses i've ever seen to criticism from shareholders from its ceo or maybe it's former ceo now i'm not sure uh they asked why did you buy the hate the the ceo blamed shareholders for him buying hey dude that's why the stocks at six times probably is he was like well shareholders wanted us to diversify i kept saying no but

you know had to had to buy hey dude it's like oh yeah you're the victim here sure uh anyways but But, no, the brand is still strong, and I could see this totally working out. Get a little multiple expansion. Come on. That buyback is going to work eventually. It's a high-risk, high-reward position. I don't have the calculation in front of me, but I'd make it probably max 3% at cost. And if it goes – like this is one where if it goes up by 3x, I'm just going to sell.

it's not one of my never sell positions where i'm comfortable holding at a premium valuation that's how i'm looking at it going in because i would always be uncertain about future growth with crocs i no matter how well they do for the next 10 years i would still in 10 years be worried about future growth i think that's just kind of the nature of apparel honestly all right rapid fire stocks for you let's just go first impressions i'm going to actually pull the drawdown numbers up first one old flame of ours should have been never sell sprouts farmers market down 42 percent from all-time highs i pulled up some numbers for this one because i am tracking it ev to ebit 18 10 percent comp store sales growth last quarter although i kind of read into their

drawdowns on how the stock is going as a proxy for the third party data people have on comp store sales. So I'm probably expecting a slowdown this quarter. I wrote basically a question myself, when is it a buy? I'd probably be interested at an EV to EBIT at 15 or below. I'd have to compare to some other stuff. And I would really be interested to buy after a flush, the stock price flush after a very bad quote-unquote bad quarter where comp store sales was three percent and people were expecting four yeah it's certainly one that i could feel comfortable getting back into this is definitely some anchoring bias for me because when we bought this it was trading at like seven times free cash flow and the price was fifteen dollars when i first bought it yeah

it's painful to see it at this price today and it just feels uncomfortable to buy it at 18 times ebit or whatever so i'm with you i think i'd wait for kind of a bad reaction from investors and maybe sentiment to worsen from here all right second stock for you shift four payments down 36 from all-time highs ev to ebit i believe like the forward ev to ebit if i can pull this up fast enough is 11.6 thoughts complicated to analyze them since the acquisition strategy ceo sharp was going to be the nasa administrator i think isaacman who's that is back could be could be good i could see this one working out really well the payments and stuff but they do well i think some of the valuation numbers people are maybe some of the numbers i've seen people float around are

off but i think isaacman is sharp they it's kind of been like the opposite of the add-in strategy where adding is build everything from the ground up so you don't have to have this patchwork of payment systems whereas shift 4 is more than willing to acquire but i don't have to buy it at 35 times earnings yep and even on a per share basis they've grown really quickly maybe i can make a little custom metric here and process look up uh total processing volume per share but i would guess it's grown at 30 or 40 percent and a good way to use fiscal all right third one here hot stock of the day because it dropped it had its largest single day drawdown ever today it's like 10 yeah ferrari i'm pulling up the earnings ratios

right now on fiscal because it's going to disappoint you i think p.e yeah what do you want to use p uh sure p 40 yeah it doesn't surprise me the here's the thing is they have they gave out guidance today out to 2030 they had like a capital markets day where they were basically forecasting i think it was like five percent annual revenue growth Which when you're at a 40 PE and sort of like minimal operating margin expansion, when you're at a PE of 40, you have to give out the most aggressive guidance on a capital markets day to not have this kind of stock reaction. And then you hamstring yourself and you make yourself have to be more aggressive on certain operational decisions because you gave out all these aggressive targets. There's a type of comedy that doesn't need a capital markets day. seriously yeah they're better capital markets day no they they don't need to say anything

let the mystery and the yeah that's part of the branding yeah it is like making them feel elusive management is elusive so is the brand yeah that'd be great no it's the last 10 years have been great for ferrari but i think they're running into a sort of an awkward situation where they have grown shipment volume like grown the number of cars that they're delivering by a good pace i'm going to double check the exact numbers right now uh okay total shipments have grown by five percent a year keep in mind this is a company that very much intentionally limits supply because the average car costs more than four hundred thousand dollars for a new ferrari deliveries has increased by five percent a

year and so has price average price per vehicle has grown at about five percent a year for the last decade it's you can't keep up both i don't think i don't think ferrari is going to be able to keep up both there are not enough billionaires in the world to keep up that that maybe they can keep the pricing growth but i don't think they can keep the volume growth yeah russian sanctions are finally hitting well now let's do the last one dutch bros i just pulled up the price to gross profit which they had this weird um ownership structure so sometimes it's very difficult to get the true numbers and for this company specifically i don't know if they cleaned it up but maybe go look at the sec filings to look at those llc units and the three different share class structures but

price to gross profit 16 really yeah is this primarily franchise revenue doesn't look uh wrong question to ask you're asking the wrong person i don't follow closely enough eevee to ebitda 30 eevee to ebit 54 i i shout out to fiscal ai again i know we've been using them a lot today company operated stores revenue 1.1 billion franchising revenue 100 million so the main mainly store now yeah right yeah i'm not interested i love the concept well not really that much as a customer but they do a good job and there seems to be good like i'm in texas here which is an expansion market for them and the brand affinity seems to be pretty

strong the stores i see seem to be pretty busy so they're like the opposite of the pioneers they're moving they're moving east yeah yeah that's true all right that is four companies rapid fire if there's one that stood out to you the most to be interested in which would it be from those yeah gotta say sprouts it's the most close to buying and i'm very confident that they are astute capital allocators if sinclair and his team are still there i think i'd probably go to shift four but obviously with sprouts it wouldn't take a whole bunch of research to get back involved uh true it's a very clean story yeah clean food clean story okay last question we can hit this really quick because i know we're running out of time listener question one of our listeners asked

what sectors are underappreciated at the moment do you have any that are top of mind for you stuff that looks cheap to me right now it's hard to say any specific sector because i'm seeing a lot of opportunities internationally as well as just random situations of companies that are facing what i believe are temporary headwinds but i'd look at consumer goods consumer discretionary because you're seeing stuff and i know you can't buy everything and i say never invest in apparel but there's companies like and not just apparel crocs lululemon and others that could be good opportunities if you're confident in the moat management team what have you what do you think consumer yeah i agree

and especially because you've actually seen sort of a material slowdown in the numbers for some of the brands like pepsi like mcdonald's actually i think mcdonald's has been all right but some of the other fast casual and fast food restaurant chains so maybe they're underappreciated but i think the valuations last i checked i'm not that enticed one of the ones that seems to be neglected and you kind of have to be choosy here is legacy bucks no i would say older software businesses anyone i mean salesforce adobe a lot of these monday.com the valuations are still a little stretched but relative to history they've come in because they all i mean monday.com dropped a ton because open ai launched some marketing thing are we

gonna are we really gonna do this whole thing again where every press release open ai has it affects some publicly traded company i guarantee you monday.com's customers don't care so it's those are ones where i think there's a people are underrating the customer lock-in and everyone's just saying ai disruption here it comes for adobe and salesforce and you know work operating system type businesses it takes so long to switch those systems out and most people just don't do it so i would be and they're definitely not going to do it for like the new ai solution and risk their job by buying the terrible software that everyone then has to use so i think some of those are worth a look yeah you're not going to be able to go claude

kill adobe for me all right write me write me perfect creator software code make no mistakes yep exactly all right that's going to do it everyone thank you for listening these go live most Thursdays, 5 p.m. Eastern time. You can join on the YouTube page or you can watch the replay on YouTube. Listen to the replay out Friday mornings on Apple Podcasts, Spotify, wherever you get your podcast. Give us a review, preferably five stars if you want to support the episode that can, or excuse me, the show. That's the best way to help us grow. We are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan and I are any podcast guests. May hold securities discussed in this podcast. May have held them in the past and may

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