Motley Fool Hidden Gems Investing - "All of this has happened before."

Episode Date: September 28, 2022

If what's happening today with Apple seems familiar, it should. (0:21) Jim Gillies discusses: - Reports that lower demand for the iPhone 14 is causing Apple to tell their suppliers there's no need to ramp up production - How history is an excellent guide on what today's short-term drop in Apple's stock means for long-term investors - Why now is the time to invest (even if it doesn't feel great) (10:00) Ricky Mulvey talks with best-selling author Blake Crouch about gene modification, and a future that may be closer than most people imagine.  Got questions about stocks? Call the Motley Fool Money Hotline at 703-254-1445! Stocks discussed: AAPL Host: Chris Hill Guests: Jim Gillies, Blake Crouch Producer: Ricky Mulvey Engineers: Rick Engdahl, Tim Sparks Learn more about your ad choices. Visit megaphone.fm/adchoices

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Motley Fool Money starts now. I'm Chris Hill. Joining me today, Motley Fool Senior Analyst, Jim Gillies. Thanks for being here. Thanks for inviting me. Apple has reportedly told suppliers to scrap pre-existing plans to increase production of the iPhone 14. According to a report in Bloomberg, demand for the new iPhones is not as high as previously anticipated. And on a day when the overall market is up, Jim, shares of Apple are down more than 3% on this report. And I think you and I had the same reaction to this news which was uh it made us both smile it did um i i will fully admit my

reaction to apple being down three four percent this morning on a production cut is oh no oh no how terrible um i'm being a little bit facetious of course but uh um the line from battlestar galactica the reimagined series is all of this has happened before all of this will happen again and i kind of look at it a little bit like that like i we we have seen um production shortfalls on prior apple iphone models uh or maybe the ipad wasn't selling as well as they thought it would at one point i remember a couple of quarters where where they blamed ipad uh for for a sales below what some analysts wanted uh and and the stock gets smacked around, and then you take a longer term, say, 15-year look at the, go look at the 15-year

stock chart, because the iPhone was introduced in 2007, so that's about 15 years, you're going to get one of the prettiest up and to the rights you're ever going to see. and uh i have uh very fond i have very fond memories of the fourth quarter of 2018 uh you may not remember off the top of your head chris but i i wrote a column about this in the last week of 2018 and i called it the column the 2018 the year no one made money because i went through and basically um interest rates had gone up so bond prices had gone down i know interest rates, not to the extent we're currently living through. Bonds went down, stocks went down, gold went down, silver went down, crypto went down. And of course, here in Canada,

the big news of 2018 was the legalization of marijuana. And in 2018, pot stocks went down for Canadians. So, in one of them were the bigger buy the rumor, sell the news style of investing events. And yet in that quarter, in the final quarter of 2018, where Apple suffered a profit warning, a slowdown, a production warning, much like this, I just smiled, like you said, because you were staring at here is the preeminent cash generating story of our generation. And it was trading at 10, 11 times cash flow. Now, we are not trading, fools, we are not trading 10, 11 times cash flow today. We are, in fact, trading at about 21 times free cash flow, which is decent, yet also probably not a multi-bagger in short order as it was in 2018.

At 10 times cash flow, even today's price of Apple, even today's price is still well more than a triple if you were a buyer at the end of 2018, early January 2019, which is not bad for the largest publicly traded company in the world to have done in just over three years. But yes, the 14, it sounds like they are going to have less uptake than they perhaps thought they work. Okay. I'm still willing to bet, and I'm doing so with my own money, I'm willing to bet that five years from now, the number of iPhones they're selling is higher. Five years from now, the amount of cash they're generating from it is higher. And five years from now, the number of shares outstanding will be lower and the dividend will be higher.

So, you know, and the farther it falls, I'm all flat-out stated, I hope Apple, 4% is nothing, Chris, I want 24%, knock Apple, you know, let's go. They're still aiming to produce 90 million phones, which is in line with what they produced last year. And, you know, not that I've seen a lot of this type of commentary this morning, but these are the situations where you will get some commentary in the financial media about the ripple effect for Apple's suppliers. And whenever I hear that, I just think, and who do you think is in charge of this relationship? Do you think it's the suppliers or do you think it's the largest company in the world by market cap? Because I think it's Apple.

Yeah. Go back to your, what is it, the Porter's Five Forces, a competitive analysis from business school. Yeah, the bargaining power here is not in, Apple has it firmly under lock and key. So, there might be some ripple effects, but again, I think this is a case of what is your investing mindset. And boy, right now, everything is really negative, almost crushingly so. Historically, again, the end of 2018, Q4, again, I write an article in 2018, the year no one made money, Apple is a quadruple from the price you were paying then. And again, it was a better relative valuation, not saying otherwise, but it is during times

when the world sucks, investing-wise, that you will make your best investment, historically speaking. Now, look, have the rest of your financial life ideally together. If you're running around with 50K in credit card debt, stay out of the investing world. If you're looking to buy a house, please keep that money nice and safe. Look, there are some things, Putin's going a little squirrelly with his stuff. I don't have a meteorite plan, I don't have a specific plan for if something truly negative happens. I'm going to deal with that on that day, because I don't care what your emergency fund or how much cash you have set how you have your financial life set up. If Putin launches a broader war in Europe,

we will deal with that when it comes. But assuming that the crazy volatile world of the stock market is as it ever has been with alternating periods of despair and euphoria, we are in one of the former right now. We are certainly, the markets are not happy. And I'm just going to say, if you've got cash on the sidelines at a time when the markets are not happy, when the news is almost overwhelmingly pessimistic, that is a great time to start adding to your investments. Even if you're just an index fund investor, you know, especially if you've got a free trading account, dribble some money into index funds, find some companies that you know and you like, you're willing to hold for five years. I am an Apple shareholder, I have added to Apple many times over the years.

We'll see where I am in terms of how far this goes down and if I have a window that I'm allowed to trade, maybe I'll add. But these are the times you want to be an investor, even though it doesn't feel like it. David Gardner Jim Gillies, always great talking to you. Thanks for being here. Jim Gillies Thank you. Chris Hill When we want to talk about the future, we like to check in with industry analysts, but sometimes we like to mix it up and talk with a science fiction writer. That's where the Motley part of our show comes in. Ricky Mulvey caught

up with Blake Crouch, author of Upgrade, a sci-fi thriller about gene modification that's set in the near future. And while he writes about science fiction, Crouch believes this story is about a future that is actually very, very close. So writing a book takes years. I mean, you've been involved in dark matter in some capacity, I believe, since 2014. So why take the dive into genetic engineering CRISPR or in your book Scythe? Well, what I've been kind of doing lately with my work, kind of realized recently, is taking sort of well-worn sci-fi tropes and putting my spin on them.

There's been no scarcity of multiverse stories since sci-fi started getting written or time travel stories, which recursion basically is. And the big next one for me seemed to be genetic engineering. like that's the what else is more relevant to the times that we're living in what it means to be human uh so that's what i'm looking for when i start thinking about what my next book might be it's like what is this big a something that the genre may have done you know thinks it's done well and b what is the emerging tech that is relevant to our lives in our world right now and nothing seems more relevant to me than the gene modification potential that CRISPR affords us.

I mean, in my mind, it is a phase change for humanity in line with the atom bomb in the internet. Do you see it in a similar way? Is that why it's more relevant to you than most other topics? Not similar. I mean, unless we end up destroying ourselves with nuclear weapons, which is entirely possible. CRISPR genetic modification, maybe not in our lifetime, but maybe in our lifetime, is the greatest invention of humanity, period. There's literally nothing. What's bigger? It's wizardry. It's rewriting our own DNA. It's magic. You've mentioned in other podcasts that you see two paths for genetic engineering, and your book touches on it what do you think those two paths are and how do you how do you

think we avoid the darker one uh we avoid the darker one by talking about it by making the public aware of it when this book really started when i was doing some press for dark matter and i was on science friday and ira flato said he had he knew what my next book should be he was like have you heard of CRISPR? I'd heard of it, but I really didn't have a full awareness of what it was. And this would have been back in 2016. I definitely, definitely didn't have enough of an awareness to try to just, you know, wing it on sidebar. And I think that a lot of people still don't really know what it is. I think your average person like, Oh yeah, it's like gene modification. it's like what they do in the movies sometimes it's like limitless and i think it is like a

real responsibility of scientists of of tastemakers of entertainers to help educate the public about about this stuff because there's such a distrust from the masses i think right now with regards to scientists i think some of that is the hangover from the way that covid was rolled out i understand why it was rolled out that way i don't think it was a conspiracy i think it was an evolving situation people had no idea what was happening and they were reacting in real time but the public wants like science to be exact and accurate and i think there's a little bit of a distrust there and i think that the public needs to be made aware that this technology exists that right now we can edit um it's technically illegal embryos can be edited right now it's

highly illegal but that it can happen this exists it's already happened a scientist in china i believe edited embryos to um essentially be less susceptible to to getting hiv exactly and i i think that's i successfully and it also weirdly lowers the the uh longevity people aren't sure why. But that's the thing. You get an added benefit, but there's a takeaway. And what these are, we don't know. And it's not one-to-one. It's so unbelievably complicated. You research genetic engineering quite a bit, and there is a heaviness with talking about it that makes it intimidating. You worked with a scientist named Michael Wiles. From my understanding, he really pushed you to even go further with what CRISPR could do. How did he do that? What

were your conversations with him like? I've had subject matter experts on all my books but i've never needed one so much and so involved as with this one because the science isn't like you punch in and out of it it's on every page i would send him a red line or sorry i would send him a manuscript he would redline it and what i would basically say is hey this is sort of what i want to happen because here's the thing when you're like a writer and you want professional scientists to weigh in your stuff typically what they do is they try to like pull you back because a lot of they want it to be accurate they don't want it you know like break the test tubes. But the stuff with CRISPR is so potential-laden. I found the complete opposite

was the case here. Dr. Wiles was always like, oh, let's go bigger here. Oh, no, it could actually do this, this, this. The things I didn't even realize we were doing, we're already doing. So it was the complete opposite of almost every other experience I've had. You know, there's possibilities where we have tiny pink gorillas. We can change our bone density possibly with CRISPR. You can even edit genes to have, or essentially to replace painkillers, to edit the sense of pain we feel. That one I'm particularly, that's the one where I see the second order effects being particularly optimistic and dangerous. What are some of the possibilities right now from CRISPR that we're kind of close to that you're excited about or that you're mixed on?

That might be a better way of putting it. Well, I'm really excited about the cancer treatments. I think that's hugely exciting. It's obviously a horrific disease. And if that could be targeted not through chemo, which often kills the subjects as much as what we're trying to eradicate, that could be a massive win. And it could also be a win that gives the public a comfort level with this technology. There's still a huge backlash against GMOs. There's a real hurdle to overcome. We can't all even agree to eradicate polio still, apparently. And you're going to sell the public on rewriting

their DNA? You can imagine the conspiracy memes that are going to emerge out of this. So I think knocking down cancer would be a huge win. you know for me it would be it would be through epigenetics is my understanding but you can affect the way that one experiences pain so the the clinical application of that would be you know hey let's just let's say you had a surgery we're going to make a temporary change to your genome so so you don't feel pain and then that way we don't have to prescribe you you painkillers that's right the the optimistic river of that is that okay great fewer opioids but there's also this the pessimistic part of my my mind is is that now you have a way of

making it so people don't feel pain. And I think there might be second order effects to that that we don't know. And what we don't know is what scares me about that. So when you hear about a lot of these applications, I was wondering if there was one that was sticking in your mind where you felt extraordinarily mixed on. I mean, I'm mixed on all of it because the human genome is such a miracle of complexity i mean it is it's literally adapted over billions of years to combat external stimuli to survive and to work as a system and it would be like us going into an incredibly be like us going into i don't know like the source code of something like call of duty and just like changing a few of those uh ones and zeros i mean it's not like

it's not actually ones and zeros but for the for the metaphor go with it and the whole thing just crashes because it's so interconnected and gene systems are not one-to-one there's not like a pain gene that we can just up or down regulate it's like 40 or 50 or 800 different gene genes and gene networks all working together to regulate how we experience it it's the thing that's really holding i think us back at this point from truly like mastering genome manipulation is really processing power because you need a computer like at the same time we like have a computer that's powerful enough to really game out our genome and and sort of to map genotype to the way it expresses i mean at that point you'll also have the computing power probably

to solve all sorts of other things and probably invent super intelligence um it's going to be like a threshold moment well it's i think it's not just processing power it's also stakes in the case of a lot of crispr treatments you're making a permanent change to one's genome and so it's it's not like you get a you get a do-over i think if if you screw up that's right well there's a couple layers of of editing and the one that's like really off limits is like embryonic it's like editing you know human zygotes but that's where like the changes are much easier to make and much more long-lasting to do somatic changes to adults so like adult specimens it is really difficult we're already like well on down the path yes some things can be changed but i never read like

terrible sci-fi we're like oh we're using gene modification to change the way our face looks i'm like that's actually not the way it the way it works and a lot of times when these experimental like gene therapies are attempted at the somatic level there are millions of unintended consequences Again, just complexity, complexity, complexity. We are far more complex than the most advanced quantum annealing processor that exists out there. We're a biological machine, and we definitely don't have the expertise or the understanding to know how each gene system truly expresses in what we see when we're walking around looking at our fellow human beings. You and John Scalzi have something in common when you write about fake meat in the future, and that's that it's never going to taste as good as the real thing. Is that artistic

license on your part? Or do you not imagine a future where, let's say, a lab-grown steak passes the meat-turing test? The meat-turing test. I love that. I don't know. I think it'll all... Look, maybe it will be Ruth wrong, but I think it's like the uncanny valley of taste you know i just it's it's not gonna taste exactly the same i just feel like it wants uh i don't feel like it's gonna be like the matrix where nia is sitting there and uh oh not neo but the the guy who turns and he's like i just can't tell i know it's different but i know it's not real but it just tastes real i just don't think that's going to happen but who knows blake crouch his day job he writes philosophical thrillers his latest book is upgrade thank you

for coming on Motley Fool Money. Thanks so much for having me. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.