Chit Chat Stocks - Why Is Apple Stock Falling? (AAPL)

Starting point is 00:00:00 Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. all right welcome in we're starting the live stream so it's always a bit awkward for the first couple of seconds here this is chit chat stocks my name is brett schaefer and as always i am joined by ryan henderson we're going live for the 100th and one, 101 Power Hour. It's going to be much harder to talk. Maybe we should just call it

Starting point is 00:01:01 season two at this point, episode one. But after we get to episode 100, it's very hard, at least for me, to explain it. We're talking all things financial markets, investing, business, everything. But the most important topic this week, Ryan, did you see the Ray Dalio, Taylor Swift tweet? Because I know you've been busy this morning at work. yeah sorry i've got a siren going by my place here the uh i didn't see it and he is who we thought he was i guess like he seems kind of intoxicated in this picture it is i can't believe he posted it um he's an incredible guy and i love his tweets for various reasons and that's what we're going to talk about today but first ryan why don't you talk about one of our advertisers

Starting point is 00:01:50 good old public.com, which has a very urgent, not urgent, but very enticing message for the listeners. Sure. So chitchat listeners, you know, public.com, but you're probably familiar with them as kind of the all-in-one investing platform. They also recently launched options trading. And if you activate them by March 31st, you can earn a lifetime rebate of 18 cents on every contract traded. That can add up to hundreds, even thousands of dollars in savings. Plus, unlike other investing platforms, public doesn't charge commissions or per contract fees. So that's no commissions, no per contract fees, and a rebate of 18 cents on every contract traded. Discover the most cost-effective way to trade options and start getting something back on every

Starting point is 00:02:38 contract, every trade. It only takes a couple of minutes to sign up at public.com. This is paid for by public investing. You must activate options account by March 31st for revenue share. options are not suitable for all investors and carry significant risk. Full disclosures are in the podcast description, US members only. With that said, the week of finance, anything exciting, anything stand out to you, Brett? Well, I wanted to see if you had any more thoughts on this Dalio tweet. I think I have the link in the show notes there if you want to pull them up. What exactly did our $100 billion man tweet out? One sec. It's going to take me a second to pull up here. Well, it was a photo of him at a Taylor Swift concert. For those of you that

Starting point is 00:03:30 are wondering why we're so fascinated with Ray Dalio, I recommend listening to the episode we did recently because there's a lot more going on behind the scenes, I think, in Ray Dalio's world than what a lot of people realize. Bridgewater Associates is known for just being an enormous hedge fund, but it sounds... There was a recent book that was written. I can't remember the author's name, but I recommend going and checking it out. I'm going to try to pull up the picture here do you have the picture handy um i i don't care yeah you can describe it but you can share the screen right yeah i'm just pulling it up one second okay it's under his replies yeah and for any of the listeners that you should know that ryan has the noisiest

Starting point is 00:04:24 apple computer they've ever made for those keyboards but yeah it's uh it's been bugging him for what how many years now like five years it's like the the bane of your existence you keep having me pull stuff up so it's okay i've got a picture here yeah crazy having to pull stuff up on the podcast yeah all right screen share i know this is fantastic audio can you see that right i can't see if you're saying yes or no but uh one sec i was typing something in let's see loading loading yeah i can see it here is ray dalio this is uh him at a taylor swift concert in singapore he says taylor swift for president exclamation mark i just saw her at her concert in singapore realized that she could bring together americans and people in most countries

Starting point is 00:05:25 much better than either of the candidates and that bringing people together is the most important thing if i were at a taylor swift concert and i saw how do i stop presenting there we go if i were at a taylor swift concert and i saw ray dalio behind me just clearly intoxicated i would uh My mind would be blown. I did not expect him to be a Taylor Swift, a Swifty, as they say, but I guess everyone is apparently. Yeah, I guess her music knows no, you know, it's for everyone. The 70-year-old fund manager, I actually don't know his age, but the older fund manager from Connecticut worth $20 billion to, you know, just the gen z millennial person i guess yeah he's appreciating greatness but clearly i mean

Starting point is 00:06:25 the picture is what what is he doing what what who is with him he's enjoying his life all right yeah if you're a billionaire well i don't know if i'd be going to taylor swift concerts in singapore but But I would be doing whatever I wanted the same way he is, and he seems to be enjoying it. But do we have any serious finance topics for the week? Anything in the news that you thought was noteworthy? Well, we don't really have too much in earnings, but I have some various tweets. I have one from you about finding new ideas.

Starting point is 00:07:08 I have one about Alphabet. I have one about revenue growth and technology decelerating, but the earnings ratio is going up. So I want to talk about that from a good quant investor. I have something on Costco. And then I have something from my own tweets, and I forget actually what the heck it even is. But yeah, plenty of stuff. And then we can get right into it. First though, I'd say for anyone that's listening to the show, oh yeah, I have something on something on iac which i think will be fun for both of us to talk about uh but before we get into it i would say anyone that's listening to the show anyone that's followed us you know for a long time if you haven't given us a review on apple or spotify that is the best way to support the show

Starting point is 00:07:53 if you've even just listened to one of our podcasts and thought they were good the best way to help us grow is to give one of those reviews also you can listen to these on YouTube or watch, I guess, as well on the Chit Chat Stocks YouTube channel. So go follow us there. That's where we do these live every Thursday at around 1230 Eastern time. And then also subscribe to the Chit Chat Stocks newsletter. So Ryan, what one of these do you want to hit first? I'm up for anything. Let's do this Costco topic. I liked this from Ian, our friend Ian Bezek down in South America where he does, he runs a wonderful blog down there. It's primarily focused on South American equities, but there's other stuff as well. It's called Ian's Insider

Starting point is 00:08:43 Corner. This really wasn't about that. This is more just about a, well, probably one of the highest quality businesses of all time, you could say. I think we've put it in our top five moat list if i'm not mistaken we've both done that before um but ian says when costco stock is down 40 from here there will be a flood of think pieces about how the company lost its way it's slipping internal culture blah blah whereas in fact the problem was simply that folks were paying 50 times earnings for a retailer i think that's really well we'll see if it drops 40 but that is so true that price drives narratives and in this case it would that would totally be the rationale that this is not the costco of old and the thing that's kind of interesting is if you

Starting point is 00:09:35 if the stock shot 40 from here you'd still have to believe in the culture because it's trading at 25 times earnings for a brick and mortar retailer which is not necessarily cheap so not even 25, 30 times earnings for a retailer. Is he trading at 50 times now? Oh, man. Is it? Yeah, 50 times earnings for Costco. This will forever be one of those companies, I think,

Starting point is 00:10:05 unless the stock really got cheap, that I support from the sidelines, that I support the culture, love the philosophy, love the management team. They need your support over there, Ryan. But I get what you mean. you're a fan of the culture I'm a fan of the business

Starting point is 00:10:20 I'm an active customer and everyone loves the business they run it the right way and I'll probably never own shares yeah look it's not going to make your returns aren't going to be

Starting point is 00:10:37 that good from here it's a fact unless what are they going to do 15% comp sales for the next decade every year doubtful i think you're betting here if you're buying shares today you're making a bet that not only will the business quality which is already so high it'll maintain that high quality but you're also betting that the multiple is going to stay at somewhere near 35 40 45 times

Starting point is 00:11:10 earnings and sure maybe it deserves to trade there but look it doesn't make any sense to buy shares at these prices it simply doesn't they're limited on their growth so well you're clearly not factoring in the future multiple expansion yeah and i think some people make an argument that yeah that's true yeah they could trade at 75 times earnings i guess that's true So there was a time when, and I think I read this from, I believe it was Todd Wenning that posted this, and I'm going to botch it. But basically, the gist of it was you could have paid 30 times earnings for Costco at any time after like 2000, and you still would have beaten the market. But that was 30 times earnings. This is 50 times earnings.

Starting point is 00:12:05 So we're talking about a 40% drawdown to get back to that multiple. it's really hard to earn a good return from here, which, you know what? Maybe that's fair. Maybe it deserves a, and I don't even know if it would get this high, but maybe it deserves a bond-like return. That's what people argue.

Starting point is 00:12:28 Whenever you hear someone talk about a company turning in, yeah, like whenever you hear someone talking about a bond-like return from a stock and how it deserves to trade up that, I think that's when the red flags go off in my head about, okay, look, this thing is a little bit dangerous, a little bit risky. There's really no pushback against the company or against the stock, not the company, but strictly the stock price. One argument I hear is that they could double their membership prices or the subscription fee you pay every year. You're a payer or maybe a

Starting point is 00:13:04 user i don't know if you're sharing one uh and what is it like 120 bucks i don't know i'm a i'm a moocher i'm a membership moocher i mean yeah they could probably double their membership price right yeah probably but they're not going to for a long time and yes there is embedded pricing power here but yeah that's where you know maybe i'd get attracted to buying something at 25, 30 times earnings. But I think people get really lost in the difference between when something hits way above the market average of an earnings ratio, especially for something that's earning normalized earnings. They get to 35, 40, 45, 50, and you're like, okay, what's the big difference between 35 times and 50 times? It's both a premium valuation and in the short

Starting point is 00:13:56 run, it might not matter. But I mean, it's huge in the long run. That's a giant percent gain from multiple expansion yeah all right pull up another topic here real quick i have to go uh silence a uh an appliance in my kitchen here so it doesn't ruin the audio okay all right so let me run one second uh yep all right the next one we have here for all the listeners and for anyone i will remind you you can join and ask questions we have a few people joining the live stream each week you can ask questions and if you have something you want us to discuss you'd like us to discuss, join live. All right. The next one I have here is a tweet from their dad cap. I believe the name is Dan Rasmussen. Sorry if I'm mispronouncing that. Great quant manager,

Starting point is 00:14:44 always posting fun data. The Twitter account or X account is at the E-R-D-A-D-C-A-P. So at their dad cap has a nice screenshots. Like I said, always posting good data of comparing it sector revenue growth and nasdaq 100 total return so what they're looking at here and i'll be curious what brian thinks this is a chart crime um is you have it sector revenue growth going back to january 2020 so say the start of 2020 and yeah there was a little covet downturn everyone had revenue declines during that. But if we come out from 2020, 2021, 2022, we saw a huge acceleration in the IT sector, which I'm assuming is just tech stocks generally. And we saw revenue growth accelerate up to 16% at its peak, which is just phenomenal. And then now it's actually declined to

Starting point is 00:15:45 about zero percent but at the same time nasdaq 100 total return is you know we're approaching all-time highs here and during you know 2020 2021 2022 the returns kind of track revenue growth but now it's kind of separated and i'm curious what your thoughts are here actually let me even check if Ryan's joining us again. Are you back? Yeah, I'm here. I'm here. Okay, okay.

Starting point is 00:16:14 So this actually kind of plays into my post I had this week, which is I feel like I'm running a little dry on ideas. And I think this is part of why. And maybe I'm anchoring to kind of last year's multiples, but it feels like we're kind of in no man's land right now with the market where the valuations feel stretched the outlook doesn't feel that good for a lot of these businesses growth is not what it once was and people are willing to pay more the time horizons seem to be extending again and there seems to be this consensus view that interest

Starting point is 00:16:57 rates are going to come down again which maybe they will but i don't know i i feel like i'm running in the idea well i'm running a little dry right now do you think this is a chart crime or does it make sense to you no this makes sense to me i was a little why do you think it'd be a chart crime yeah and i had a tweet that i guess doesn't make sense because i thought i was doing evaluation um like nasdaq 100 pe which i guess would kind of correlate with the chart because I thought, you know, people just continue to underestimate Amazon's impact once they go from 0% margins to over 10%. I would say that people don't price in the past, I guess, or they're, you know what I

Starting point is 00:17:52 mean? Like, yeah, this is saying there's a lot of optimism about what growth can come from in the IT sector from these new AI tools. i'd also look at perhaps the impact apple has on here and if you could make this chart x apple what does it look like because apple's revenue growth has been quite weak recently so those would be my two things i don't think it's a chart crime a lot of people are saying chart crime but yeah and i yeah i think it doesn't really feel like a chart crime to me no yes it's not i think maybe it's indicative of what people are expecting in general from the tech

Starting point is 00:18:33 sector like i said one the acceleration and growth from ai but two i'd say i think there's a lot of optimism and i'm not sure if it's warranted or not we'll see about efficiency gains from ai and how that can help margins and whether we can see margin expansion we've seen some companies throw out examples of how it'll help i'm not sure what the net cost will be but we'll see but margins have contracted it's kind of the funny thing right margins across the s&p have gone kind of mean reverted a bit relative to their highs of 2020 2021 so that would have been true i'm not not sure about the tech sector we'll see i'd say exclude amazon from that because again that can really throw a wrench into the the things but i think it's forward looking though

Starting point is 00:19:20 They're saying margins, if we can – I'm not trying to say this as just a money-hungry person. They could replace a lot of jobs, right, with these AI tools. I think that's what people are expecting, but as you mentioned, it hasn't shown up yet. So it's got to show up over the next few years. Maybe. And, yeah, but people are saying it because of AI. but the automation has been replacing jobs forever i don't think it's really that different now if you're talking about oh well we have a chat bot for our customer support instead of actual

Starting point is 00:20:06 customer support so boom we're saving money it's like okay yeah you also have a horrible customer support experience and it probably leads to a trickle away of customers so So I don't know if I buy all the AI will replace significant operating expenses narrative. Yeah. Well, I think the key for any investor is that this is getting priced in to the indices, right? So whether or not you're a believer or not, it's already priced in. So even if you expect those gains to show up, it seems priced in at this point. Do you think that's really what's driving it?

Starting point is 00:20:47 i think it's part of the narrative what's the ai narrative has turned into a bit of i don't call it a bubble yet but perhaps a bubble we'll see in the future it's turned to a bit of you know the the metaverse type game the covid winners type game where it's just like it's all narrative and i think the narrative is that yeah like there's just going to be a A lot of job replacement, a lot of efficiency, a lot of just growth from this AI stuff. And there's some good questions that I've seen from investors I follow, and it's how expensive all this stuff is. Which one, I guess the tech sector will benefit because it'll probably flow through to the three cloud providers. So maybe that's part of it.

Starting point is 00:21:39 but when you have such an expensive undertaking where they're going to spend $100 billion across the board on all these things, what's the return going to be? It's a high bar, that's all I'll say. CapEx will rise for the rest of, what is it, the NASDAQ 100, and the cloud margins will expand for the most heavily weighted in the NASDAQ 100. everything flows great equalizer the everything flows through to the cloud speaking of big tech

Starting point is 00:22:14 though have a question from someone says thoughts on why apple has declined 11 month to date i'm gonna lie this is my psychological short has been working it's uh it's 11 month to date i think it's month to date maybe year to date whatever it is since the over the last three months it's trailed like it's diverged from the index uh whatever one you even want to use where the index has kept soaring and apple has gone down which is a big change in how things usually work or have worked since covid and i think it's because one they're not going to benefit from ai or they're not seen as an ai winner yet especially because they don't have a cloud service to china risk continue to materialize and we're seeing that um i think there was a

Starting point is 00:23:09 number that's iphone it was some sort of apple number in china was down like 20 percent uh year to start 2024 so that's materializing i would also say the vision pro being a flop is right probably hurting them it's not going to be material and then fourth we're seeing the fine from the european union and stuff finally arising on app store anti-competitive behavior which could potentially lead to earnings reduction and as well we're seeing some things that could lead to the elimination of the $20 billion payment from Google, which added all together, I mean, could be a big earnings hit. Yeah, I think there's a couple of reasons aside from just the multiple getting kind

Starting point is 00:24:03 of more stretched than it's ever been. But there's a number of factors that have come in that don't necessarily bode well. i'd be surprised if the vision pro really had a whole lot to do with it just because i don't think people were banking on that in their valuation beforehand like that probably wasn't factored into and i don't even know if this is just index flows or what but i don't think people were baking it into their analysis that the vision pro is going to be worth another whatever what's 11 of apple's market cap probably 500 billion dollars in market value maybe a little less um less maybe say a couple hundred billion just to don't have to do that

Starting point is 00:24:51 probably doesn't seem like that was involved the uh i don't know i don't think apple i still think apple is a wonderful business but it's really a long ways away from me ever wanting to own it There's also been, I don't know if you mentioned this part, but the European ruling this week around the App Store. Yeah, I mentioned it, but just briefly. So if you want to go into any details. I guess I don't know what all happened that well. But it's just been a lot of negative news around Apple.

Starting point is 00:25:31 And frankly, the growth rates have slowed down. The revenue growth has certainly slowed. Maybe this is a good time for me to pull up a chart on Apple's revenue growth rate. Is there any world where you see yourself buying Apple? Where would I buy Apple? Yeah. I think it could fit in my portfolio, given that they're a buyback king. But I just don't know.

Starting point is 00:25:58 So maybe I'm over-optimistic on what return rates I want in my portfolio, but my hurdle rate would be something like i i aim for 15 maybe i'll not reach that but if i look at apple 10 or 10 earnings yield i know they'll buy back and return most of that so i can get 10 each year from that and i don't know how confident i would be in them growing so yeah maybe i could reach that 15 return hurdle maybe they can expand margins But yeah, I think that's what my expectations are. And yeah, it probably deserves to trade a little bit higher. So maybe I'd also be pricing in some multiple expansion, but not sure.

Starting point is 00:26:43 But yeah, if we're going to hit our little ad here, Ryan, where are you getting these high quality charts? I'm getting these high quality charts from FinChat.io, the complete equity research terminal for fundamental investors. So I'm looking at Apple here, and I've pulled up the total revenues dating back to 2014 through the last 12 months, and it's still compounded at 8%, a little over 8% annually. But over the last four years – What number is that? Sorry. The compound annual growth rate? Yeah, what is it? Revenue or – Yeah, sorry. Revenue here has – this is total revenue – has compounded at 8% annually over the last 10 years.

Starting point is 00:27:33 But over the last four, it's – since September 2021 to the last 12 months, it's hardly up at all. And part of that might be weakness in some of the hardware. But this is also at a time when the – what's it called? – services revenue has exploded, and that's the highest margin part of their business. So maybe the – it's a higher margin mix shift, but we can also pull up here, and this is a new update improvement from literally this morning, actually. It was launched. If I pull up the three-year estimates – let me switch this out real quick. Sorry for all the clicking around. it's expected to grow 1% next year.

Starting point is 00:28:27 It's expected to grow 6% the year after and 5% the year after that, top line. So that's the revenue. I don't see why you'd want to pay, what's the valuation on this? 25 times earnings for a business that's growing the top line, maybe mid single digits.

Starting point is 00:28:45 Once again, this is one where you say, well maybe it deserves a bond like return but if you ever catch yourself saying it deserves a bond like return just buy bonds yeah especially because my savings account right now is at four and a half percent and if you really want to buy the bonds it can be five percent perhaps higher so yeah um and if you lock in 10-year yield 10-year it's like four percent right i guess i haven't checked recently but either way my savings account could be 4.6 percent you can lock in four percent on the 10 year uh yeah and that's very interesting that you get that that just got added you know stuff estimates every day yeah the estimate that's

Starting point is 00:29:26 quite helpful that's actually something that i was hoping that the team over there would add recently and if you want to get a 25 discount you can go to finchat.io slash chitchat link will be in the show notes uh dms if you want the direct link to figure it out you get 25 off any premium plan that can save you a good chunk of change as we know all the value investors types we're all frugal over here so you want to save money come save money and help us out along with us okay and i'll say we've had apple or good we've had a number of people use the code so if you've used it let us know how you're enjoying it right now by the way if you sign up you just get two weeks of FinChat Pro for free. So you can trial it and see if you enjoy it. And then when you're like,

Starting point is 00:30:16 oh yeah, let's do it. Go ahead. Use our link. Helps us. Helps you. You get 25% off. So it's finchat.io slash chitchat. I'll leave it there. Any other topics? Yeah. I'll say thank you to everyone who's used the link. It does help us out. So one more thing on Apple, we have a comment here from xmarks97. This version of the Vision Pro sucks due to the size slash comfort of it. However, people who I've talked to have said it is extremely cool. Like all first-gen products, they will iterate on it. I think that's this thing that people keep saying about it is it has cool features. But the one thing I would like to know about any sort of VR product is when people use it consistently without getting sick or red eyes or having all these downsides or discomfort.

Starting point is 00:30:59 So if they can be the one company to finally solve that issue, sure, I'll be optimistic on VR. But it seems like if you read every review, they say these things are interesting. However, it's just now after a month is sitting on my wherever it is. So there's a lot of progress to make here. And it's just not going to move the needle at this size of a company. But we had another question on Alphabet, and it was actually going to be our next topic anyway. So it says, what is your view on Alphabet? Is it a longer term hold? I would say as a full disclosure, neither of us own it, but we have owned it in the past. And one of the reasons it seems, I don't know, one of the reasons that I am not very attracted to Apple is because you can see someone like Alphabet at a much cheaper price. So we have, and maybe you can pull up quickly the earnings ratio, but had an interesting, this is perhaps one that was put out a bit as a hot take to drive, you know, people, drive some engagement. And it's from great account on the old X machine compound 248.

Starting point is 00:32:16 I'll just read it off here. And just interested to hear your reaction. so they say in addition to search the greatest business in history alphabet also owns its own aws nvidia square open ai fiber internet service provider microsoft office the trade desk ios app store sequoia capital netflix instagram tiktok and self-driving tech stack probably not a zero now So do you – what is your reaction to reading that? Is that an exaggeration? Do you agree with Compound here?

Starting point is 00:32:54 Is this sneakily – yeah. Well, it's kind of funny because we look at it and I constantly find myself saying, why would I own this over Google? But I don't own Google. And so it's like, the one thing I can't get around, obviously it's not a zero. It's not valued like a zero. It still trades at 21, 20 times EBIT. And it has a market cap of $1.6 trillion. So it's not a zero. So very valuable business. Search is still the toll road on the world's information and probably the widest moat of any digital business in the world. I still worry about just the corporation as a whole, the business as a whole, the unwillingness to grow margins. we talked about it last week

Starting point is 00:34:00 they will never pull a meta they could but they won't I hope you're drinking them for the economy, for the market sake can you pull up their margins, see what it looks like I know you can do that real quick there sure

Starting point is 00:34:15 let's go operating margins yeah and just so it's expanded a bit but it's expanded by a little over two percentage points over the last seven years, which, I mean, search is probably what, 70% operating margins? In all honesty, it could be so profitable. This is very much a choice. And I think my big concern here is that it doesn't

Starting point is 00:34:51 really feel like Sundar Pichai and the management team have that much control over the business. I think they're afraid to make big changes. They don't want to do the big layoffs. They don't want to be seen as kind of the tyrant.

Starting point is 00:35:11 And what kind of influence do Sergey and Larry still have? I'd be curious about that because I saw them giving a talk in

Starting point is 00:35:23 I think it was Sergey Brin giving a giving a talk to Google about Gemini in just like the most bro

Starting point is 00:35:31 tech bro outfit I've ever seen and I was just like I did not realize they are still around like making changes at this business

Starting point is 00:35:39 on a day-to-day basis yeah well Brin and the page I don't think is there but Brin just came back recently for the AI stuff

Starting point is 00:35:47 which I think is it's good um I would fade that. I think they're going to outperform. And they've made, what would you call it, 30,000-person layoff. Is that? Yeah, but, okay, let me, I can check the employee count.

Starting point is 00:36:06 Right, I mean, they're investing a lot. You can still expand your workforce. So I'd look at, okay, I think margins can, if they want to, margins can expand. because right now cloud probably youtube waymo which gets a lot of investment and the ai tools are holding back margins and i think those headwinds will likely not get worse over the next couple years and in fact they'll probably be a benefit to margins expansion Yeah, you're probably right. There's a lot of reasons to hate Google, but I think ultimately you've got a wonderful business and the margins will expand slowly over time. Here's a testament to how impressive the core business is. in 2018 they had 98 000 employees in 2022 they had 190 000 employees

Starting point is 00:37:11 and margins expanded they have come down a bit you were right employees are down by probably about five percent yeah but it could be so much more efficient which is just i think that's why people get complaining especially the stock is not going the right direction because there's 10 20 30 billion dollars in savings and it's not like you're it's not like you're like these workers are going to be totally fine because they're you're getting paid so much uh i don't know it's it's yeah can you guess google's over the last 10 years what alphabet has generated total return

Starting point is 00:38:01 and on the annual basis anyway just do yeah compound annual growth rate 10 years so starting in 2014 say 14 no 16 16 16 pretty good pretty good and the finishing multiple is quite low So what I think attracts me a lot to Alphabet as something I could buy and never sell is that if it gets down to 15, 14, 13 times earnings, which is a little far away, but not too far away from here, they're consistently repurchasing stock with an unlevered balance sheet. And it's just, you can get such a good return, even if the multiple doesn't go up once you get to that point where they can take down the share count by four or five percent a year which just adds so much to returns over the long haul so why don't you own

Starting point is 00:38:55 it oh because it's not it i'd say it's not at 15 times yet yeah it's the cheapest of big tech probably but i would say we gotta remember and this is what's gotten us in trouble before it gets a lot of people in trouble is relative valuation is dangerous on its whole i don't think it's that cheap i think it's i still don't think 22 23 times earnings it's not that expensive it's not expensive but i wouldn't call it dirt cheap god it's a good business the here's the other thing that frustrates me i already have too many companies where i listen to the conference calls and i feel inclined to turn them off halfway through because i just every every time they report the quarterly earnings it just irks me

Starting point is 00:39:42 and it frustrates me. Google's another one of those. They might as well not have conference calls because they give zero clarity about the business, pretty much zero color. And then they'll give you one random anecdote to give you hope for a certain business. And then they never bring it up again. Yeah. They should just post because they, and then they'll just read off 30 or 40 minutes of what could be a letter. They should just send out a five to 10 page letters slash kind of slideshow thing that goes through all the KPIs they want to talk about. And if you're not going to give any other insights to the analysts asking questions and just treat them terribly, just don't do a call. You don't have to. A lot of companies don't.

Starting point is 00:40:24 Here's a question. If you could buy... This is from the chat. I also have a question about Nelnet earnings. We're doing a full episode on that, so watch out for that. It'll be the next one to drop in your feed on wednesday but here's the question from zach if you could buy only one company and hold forever what would it be google might be the one for me well it always depends on price at this moment google's not a it's not i don't think it's bad bet does a hold forever really depend on price yeah 50 if you're holding for 50 years yeah i don't think you're at I don't think your entry point matters that much. You're probably going to get – you're going to get whatever the returns on capital were.

Starting point is 00:41:16 Nah, at a point – It's 50 years. Yeah, people have run the math on this. Munger was kind of a little bit of an exaggerator when it came to that. It's a good philosophy, but when people run the math, you can have a difference between like a 6% return versus a 12%, which is absolutely huge. so yeah i think if i'm i think i mean if it's like extremes yes but if you're like for google for example if you're holding it forever i don't think the returns will be that different paying today's multiple versus paying 15 times earnings it might yeah it's going to be better

Starting point is 00:41:58 obviously could be a little better but it's not going to be that steep over 50 years well what do we got what's the because what are you at like four and a half times yield versus a 6.6 percent yield yeah i know it's growing but in 10 years they could be doing a trillion dollars in operating income 20 years or whatever yeah and you laugh now it's very possible that in 20 years they're doing a trillion dollars in operating income yeah someone says matt h welcome back uh we're back to holding forever stage of the market yeah this uh you mentioned you had a tweet uh and i always use the tweets that do well is basically okay people want to hear us talk about on the show you said feel like i'm running a little dry on ideas what's a stock i should look

Starting point is 00:42:47 into i'm open to anything i didn't look at all the replies but i'm curious what were some things that interest you the bummer here is that a lot of people just replied with the ticker and i was hoping for a little more context would it's usually appreciated so there was a couple in there that were kind of interesting one person brought up boston omaha which is a business i know but just haven't looked at a lot or haven't looked at or revisited in a while they've gotten a lot cheaper the other part the one that i uh what was it oh one of them showed up in my screener last week that was like a high quality small cap and it's called simulation plus that one actually interested me yeah nice revenue growth 20 20 kegger since 2014 not bad i saw

Starting point is 00:43:46 someone said evolution um i've been nervous about it we looked at them a while ago but i've been nervous about evolution for a long time just because if it's a gamble I think gambling online gambling could turn into a real scandal real quick why do you think that

Starting point is 00:44:05 because it's so easy to lose money it's like crypto style like wild west just they're just it's dangerous that's all i'll say and they put it like there's there seems to be minimal regulations

Starting point is 00:44:28 i don't know if you're older maybe you know in 40 50 60 range um you might not be appreciating this but younger guys especially during the pandemic were all over these things and it just and sports gambling too the same thing like it feels a bit maybe i don't know tobacco is a good business you know all that good stuff but that part feels risky to me uh clearly evolution is fantastic unit economics though so i don't know seems interesting i'd say the thing that worries me more about evolution is that i just don't really understand the competitive landscape who else can replicate what they're doing do big casinos do this in-house what are the relationships look like with those casinos i just don't understand those relationships

Starting point is 00:45:20 maybe that just takes time to learn and i could probably dig in a little deeper but i don't know there were a lot of attractive looking companies from the replies so i'll have to dig through them this weekend the i want it's a new bank or something's a new bank Oh, and you? Holdings, like the South American bank? Yeah, yeah. The only – yeah, okay. This is maybe lazy thinking, but it feels like every few years, a new South American fintech is like the big thing. And then there's some scandal and returns are poor. And I just feel like I've seen too many people get burnt by South American fintechs that I don't really trust it. Yeah, I'm not opposed to international investing. And I don't even know anything about it.

Starting point is 00:46:10 Yeah, I'm not opposed to international investing. I'm not opposed to investing in emerging markets that are a little sketchier from a business perspective. But financials and fintech is a lot tougher, I would say. Let's revisit this Zach question. If you could only buy one company and hold it forever, what would it be? that's a great i'm gonna go qualifications you're looking for well i'm looking for a management team that i think will be there a long time that i trust so like one that i know or not know but i have high confidence in will probably be around in 15 to 20 years

Starting point is 00:46:55 at least that or they're setting up a culture of success i'm looking for not an extreme valuation and i'm looking for something i think is doesn't have major downside and i honestly i think no that is the one for me kind of our baby berkshire all right and we're gonna be talking about them next week so for anyone that wants to know more about them there you go what's yours what's what do you got anything come to mind i don't mind my answer is boring but that's what it would be i'd say maybe visa or mastercard the only concern with me there is that it's more susceptible to change those industries as opposed to something that big physical assets there's also i'd be a little reluctant to do any banks but

Starting point is 00:47:50 a company like jp morgan has certainly withstood the test of time and they're pretty i think critical to america so as long as you believe america is going to be around in this forever holding period i think jp morgan will be there too but it's a good one yeah big banks can fail so yeah thanks banks can turn fast that's the only problem that is true that is true Nintendo's a good one, too, I think. I like the IP, but I don't know if that'd be my hold forever. I don't think you'd get that good of returns. I'm going to be honest.

Starting point is 00:48:34 We'll see. Unless the Switch is forever. If the Switch is forever, maybe. Yeah, they can never come up with another good thing to sell. Well, I'm just saying, if you're losing capital or if you're losing money for three or four years and then they have a hit, that's a problem. You got to believe – if this Nintendo investment is going to work from here, you got to believe that some iteration of the Switch is going to be popular in five years, right? Well, never sell. I don't know.

Starting point is 00:49:08 Let's see. What's the market count today? Let me pull it up quick. probably like 60 billion 65 wow no it's a little more expensive okay so enterprise value is about 50 how many how much cash do i think they're going to generate over the next 40 years you know what let me swap my 300 billion i don't know a lot i think they're going to generate a lot i'm changing no matter if they have a couple bad years home depot my final finite final answer punch it in. I think Home Depot, I see no reason why they won't be around in 10 or 20 years.

Starting point is 00:49:48 They've got economies of scale. The industry, unlike an O'Reilly or an AutoZone, is less likely to get disrupted potentially. And it's well run. So I think I'm okay with that. Lowe's maybe even. The only problem is Lowe's is a little more heavily levered, if I'm not mistaken. Yeah, Home Depot is probably a good one to not lose money, right? Probably a good bet to say that there will be positive returns. Or Amazon. Maybe not. I mean, have you seen where the stock is lately?

Starting point is 00:50:32 It's up like 100% in the last 12 months. amazon would have been my choice a year ago that's for sure we had someone else tell you pot stocks as a good idea i think that's interesting no one talks about those anymore sectors totally bombed out could be interesting but yeah something keeps me away there's a lot of uncertainties with those stocks yeah for sure alright other topic let's see do we have any questions

Starting point is 00:51:09 oh yeah okay let's see a lot of stuff on Nintendo yeah someone said will anyone be reinventing their house in the metaverse good jokes everyone my topic or the next one

Starting point is 00:51:24 was I did a thread on IAC stock seems pretty cheap to me here I don't know i know when we look at this one i'm always more optimistic than you are but i'm curious your thoughts if you x out say tur say excuse me both mgm and angie are trading at fair value where mgm has a decent earnings multiple but seems to be a high quality business angie trades at like nothing because well it's done quite terribly evie's about a billion dollars

Starting point is 00:52:04 and a little more a little more than a billion and i kind of think this like there's gonna start don't tell me don't say the words they're gonna don't say the sum of the parts is worth more than the valuation yeah i mean i think that's pretty obvious but they're going to start generating a good amount of cash here and you think yeah really yeah i mean what the um well the search one that's the declining business but that generates a good amount of cash and then dot dash meredith it's going to generate a good amount of cash this year has it turned the corner yet yeah i honestly don't get closely at it yeah so the site visits are up and i mean it's as advertising's going well yeah i mean they use adjusted ebitda so you

Starting point is 00:53:07 gotta kind of make your own numbers in your head but these aren't asset these aren't capital intensive businesses so it's not the end of the world but yeah i think that just starts generating a lot of cash and you know turo won't ipo but we'll see i should say full disclosure i do own shares and would you rather see huddle ipo or turo huddle because turo i already know generally what it's worth i'd like to see huddles financials i'm looking at the earnings right here for iac so yeah that doesn't yeah yeah they're they're one that's it's a tough screen kind of go through everything yourself i just don't have that much belief in dot dash meredith and maybe it doesn't matter at this price but

Starting point is 00:53:58 i don't think that collection of it's all websites now right they got rid of a lot of the print i just don't think they're that valuable you don't think investopedia is one of the best businesses in the world yeah that's a fair point what's but i mean they've been around i mean it might be the biggest one but uh the other ones like the no investopedia wouldn't be the biggest although they probably get good ad rates on it since it's investing they have you know people all recipes better homes and garden the spruce travel and leisure food and wine martha stewart websites southern living it kind of makes sense where i honestly think that they'll do

Starting point is 00:54:42 fine in an ai world if people are worried about authenticity with websites and auto-generated content because if you go to these brands you know that a person tested these products a person is writing this person reviewed this a real person is writing all this stuff maybe with the help of ai but they're the ones testing these products and they're almost perfect advertisements for e-commerce product placement and all that good stuff. How much of this attention do you think has been lost to YouTube and TikTok? No, that's a good point.

Starting point is 00:55:13 But, yeah. I think about some of those niche services, and it feels like a lot of the people trying to build businesses like that today, you do it on these big distribution platforms like a YouTube and a TikTok. or fully electric there's a volvo for everyone learn more at volvocars.ca you're talking about reviews type stuff keeping up with the industry yeah or video is replacing the search results yeah yeah that's i mean they bought meredith for i believe like three billion and or maybe it was two and a half and clearly that probably could be significantly less if

Starting point is 00:56:28 they did it today so it was a bad bet but it's if you're gonna go through their big bets over the last four to five years you got care.com turo mgm and then meredith they're three out of four of creating value so i guess care is not the best business but definitely got it at a at a cheap price yeah matt age says next year i hope you aren't saying you get their mgm steak and everything else for free yeah i do that has when i first heard that i was that kind of thesis where it's It's like if you value this and this at whatever, you get everything else for free. But now that is like my quickest turnoff to a new investment because it's – I just don't love the sum of the parts. I don't mind.

Starting point is 00:57:32 I like the sum of the parts if it can turn into operating earnings. like if the combined business is generating good operating income but if it's just a collection of different investments and some spotty assets i am a little reluctant yeah and that could be why iac has done quite poorly recently as the earnings were negative for a while and i think 2024 they turned positive but yeah we'll see tbd tbd question from someone and that's a good time to do a tease says curious if you all are more or less interested in coupon after your interview with the synopsis or otherwise known as speedwell research i'd say that came out wednesday um of last week go check youtube spotify apple and you can listen to that fantastic interview i'd say i'm

Starting point is 00:58:29 some it's a company i already knew fairly well it's one that i own so say it came out about the same where I came up more confident in the management team and how they've created a good value proposition, but it gave way better insight into the big competitive threats that are out there in the East Asian e-commerce landscape. Yeah, I'd say I probably came away more bullish or optimistic about the business. It really feels like they have the most unique position in e-commerce there because no one can really replicate that logistics footprint

Starting point is 00:59:09 that they built out, which I think we've seen it with Amazon. Everything comes back to that advantage when you're an e-commerce player. Being able to fulfill those orders quicker than everyone else, it's such an advantage.

Starting point is 00:59:26 So I like it. Although the stock is up a lot since we prior to the episode prior to the earnings i think the stock's probably up 15 or 20 so kind of a bummer but yeah that's not too bad i mean still bombed out pretty pretty badly from the ipo i have a question for you here okay i moved money over from my bank account to my roth ira nice got a thousand dollars available in cash i bought a little bit of uh uh maybe it's not going to disclose it yet because it was recent i bought a little bit of something and now i'm looking what to do with a thousand dollars i kind of want it to be a

Starting point is 01:00:12 something that isn't already in my portfolio yeah and full disclosure everyone yeah i would say we follow the same guidelines that the motley fool gives out which is if you're going to buy something it has to be either two days before or two days after you talk about it publicly so we follow those rules we don't want to be seen as any sort of like you know the scammy pumper and dumpers that's not what we try to do especially if we're going to talk bullish on something we'll make sure we never buy it right before something releases for sure but what should you do with a thousand People are going to groan, and that's why I think it's an opportunity. MTCH Match Group, unless it's up a lot today for some reason.

Starting point is 01:00:58 It seems to just go down and never go up. We're at $34 a share. And market cap's about $9, Bill. They can retire 10% of their shares outstanding. Going forward at this price, yeah they get a little bit of debt what cash flow would be well over a billion

Starting point is 01:01:22 this year from their guide from their guide yeah but they can't but SPC is like you can retire 900 million dollars and still have that SPC like net you know yeah

Starting point is 01:01:37 but they're not going to do all of it they're not going to use all of their net income to retire shares because it's going to be They've got debt. Well, I guess the debt will have been paid, but they even said they're aiming for half, right? Oh, that's their minimum. But if there's no more else, yeah.

Starting point is 01:02:01 Match group, I don't know. I want something outside the portfolio. I already own it. Okay, okay. Let's look at my watch list. I had some people reach out about Sprouts at Shorts, and it made me look at the stock, and it's done quite well. i know you don't like take two um and i kind of soured on them what about i am seeing british american tobacco at a price of 29 and 50 cents dividend yield definitely above probably 10 now

Starting point is 01:02:30 what are your thoughts there that might be the one or that could be the one i own philip morris already so probably not that but a dividend yield over 10 percent yeah as long as that difference is still going to be there i'll take it yeah that is true yeah i mean i i feel like right now hide in tobacco until the boom bubble whatever happens goes away that could not be the worst strategy tobacco forever yeah and it seems like uh all trail never go is it just trades at 40 dollars phil morris just trades at 90 and british american tobacco now just trades at 30 and it's never going to change but even if that happens you know you'll get a 10 bond each year from from a good old bti all right

Starting point is 01:03:26 Plus, if you ever get – if you're not a fan of cigarettes, like personally, this is a great sort of emotional hedge because you say, hey, at least they're paying me money. I know. I feel like the biggest haters of cigarettes, which there are a lot out there, not a fan of them too. My grandma died of lung cancer. you should be the ones buying these stocks because then you can take the profits and do what you want with them because you're the ones harvesting the profits you should be the one to do that like hey at least they're my customers yeah i don't understand the esg narrative around that where it's like i don't want to buy this stock and it's like great this is like you can

Starting point is 01:04:14 feel that but there's two pieces you know the the two pieces of paper mean like there's a world where you don't buy cigarettes in the world cigarette stocks in the world that there is it changes nothing about the like the actual physical reality yeah these aren't they're not issuing new shares you're not actually giving money to the company yeah it's just you're just taking receipt of ownership from someone else who's probably not affiliated with the company whatsoever yeah the only one i would feel icky about is if i was a venture capitalist in jewel or those uh disposables those one they're they're scheming all right well we went a couple minutes long there i think that's a great way to end it thank you to everyone for

Starting point is 01:04:59 listening we had a comment here in the live chat that said the coupon discussion was great so appreciate that a lot of people have been listening and if you haven't listened it's a very interesting overview from a great research team over at Speedwell Research. Let's hit the disclosure. We are not financial advisors. Anything we say on Chit Chat Stocks is not formal advice or recommendation. Ryan, I, or any podcast guests may hold securities discussed in this podcast, may have held them in the past, and may buy, sell, or hold them in the future. thank you everyone for tuning in these go live 12 30 p.m eastern time on thursdays every week and we'll see you next time

Chit Chat Stocks - Why Is Apple Stock Falling? (AAPL)

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.