Motley Fool Hidden Gems Investing - Americans Take Weight-Loss Drugs, Eat Salty Snacks

Episode Date: February 6, 2025

Two things can be true. (00:14) Bill Barker and Ricky Mulvey discuss: - Legislation to ban DeepSeek on US government devices. - Hershey’s quarter, and what it reveals about American eating habits. - Eli Lilly’s blockbuster weight-loss drugs, and questions about its valuation. Then, (18:26) Ricky continues his conversation with writer Jordan Harper about the challenges of making TV and movies in the streaming era. Companies discussed: NVDA, HSY, LLY Host: Ricky Mulvey Guests: Bill Barker, Jordan Harper Producer: Mary Long Engineer: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

Don't you wish you could just hit skip on the worst parts of your life? You know, the same way you can skip an ad? I get it. I'm Siaya and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out. Somehow things usually get worse before they get better. Apparently, that's how I roll.

So bundle up and come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem. Remember that deep-seek crash? You're listening to Motley Fool Money. I'm Ricky Mulvey, joined today by Bill Barker. Bill, good to see you. Thanks for being here. Thanks for having me. So I want to get back to this deep-seek story because this $1 trillion market crash seems to be not really talked about anymore. Fewer than two weeks ago, the market panicked when this large language model that was released by a Chinese hedge fund went into the open world.

The company claims that it has trained its model for less than $6 million. And this revelation created basically a $1 trillion market wipeout, hitting companies like Taiwan Semiconductor and NVIDIA. Now we're a little under two weeks away. I think it's time to do a retrospective and look back on this. Bill, was this an overreaction, an underreaction, or did we find the porridge just right on this reaction? Well, I think it was a large reaction fueled by not enough information and too many people trading as if they understood the story in the moment, which was impossible given the parts of the story that were left out and the inadequacy and unpreparedness for most people to take in the details of what is going on in AI models.

So I think that there are parts of the story which entirely deserved a large and significant stock reaction and parts which did not and were two weeks away. And those things have sorted each other out far better than they did in the moment. But I don't think that we're exactly finished with this story. Yeah, I think one of my favorite reactions was from OpenAI, who was upset that possibly DeepSeek used some of its technology to train its model, and they didn't do it with OpenAI's permission. They were very upset about that. But the news today is that lawmakers are looking to ban DeepSeek on government devices under the appropriately titled No DeepSeek on Government Devices Act. You're also seeing corporations, not just the United States,

but across the world, concerned about having this application on their employees' phones. One cybersecurity firm, Armis, said that roughly 70%, 7-0% of its corporate clients requested blocks. I think what we're going to see is, A, the technology seems to be catching up and the costs seem to be going down. But as you mentioned, this story is developing really rapidly and investors seem to be reacting as if they know when they don't have all the information. So taking all of this into consideration, how do you think investors can prepare for what I would describe a more volatile, a more violent market with stories that seem to be quickly moved on from? Well, you can always be better prepared from the risk of volatility by being more disciplined in having holdings across many sectors and being more diversified. so if everything you own is AI or proximate to it, then you're going to enjoy increased volatility going forward. But I think that the story that there was potential massive

improvements on OpenAI's work through just tweaking some of the algorithms, or not tweaking, a lot of work goes into these things, and that there are efficiencies out there that were not in any way being pursued, and now they will be pursued, is a big part of the story that DeepSeek used OpenAI's work, it seems to be the most obvious thing possible to start with looking into. And I also think that the government and corporate reaction to, we don't need DeepSeek immediately today, there are any number of AI programs from non-Chinese entities that we can use on our computers, on our phones, why don't we do that until we know more? And I think that the reaction is, in part, fueled by how impossible it is

to do things later, as exemplified by TikTok, which has too many passionate users to effectively shut down without massive disruptions to many voters, really. And so, if DeepSeek were allowed to be as entrenched in people's lives as TikTok, when perhaps it doesn't need in the short term to be, why not just act out of abundance of caution, both as a government and as a corporate entity, and keep it off the systems today? And when it's proven that it's safe, come back to it. nip it in the bud early. Let's get into some earnings coverage. Hershey reported this morning, big headlines, Bill. Americans still like chocolate and salty snacks. Hershey reported that sales are up 9% on a constant currency basis, net income more than doubled. This was a little

bit of a surprise for me because, Bill, I thought healthier eating and weight loss drugs were going to sink demand for Hershey. What's happening here? Welcome to America, I suppose. I don't think that healthy eating is going to be something that ever in our lifetimes replaces eating for taste and enjoyment. It may supplement it, it may make some inroads, and GLP-1 drugs have certainly impacted what the future of this company looks to be. But at the moment, people are eating about the same amount of chocolate as last year. A little bit better, had some acquisitions that fueled some of that 9% top-line increase that you're talking about on the revenue side. Also, a little bit of inflation, you subtract those things,

the growth is pretty modest, as one would expect it to be with a mature company like this that really has very little inroads in the international markets. Hershey's is almost entirely an American story, Europeans turn their noses up at Hershey's chocolate. And really impacted going forward by the costs of cocoa and sugar, which are extremely impactful, as one might imagine, to chocolate. The new information was the popularity of salty snacks, things like Dots pretzels. This is actually one where, not even tongue-in-cheek, I would have expected a larger pullback given the interest in healthier eating and weight loss drugs. Chocolate's more of the treat. These are the hyper-palatable foods that a lot of these weight

lost drugs are alleviating the cravings for. And yet, Hershey grew sales of North American salty snacks by more than a third, 36%. I was wrong. What did Hershey get right here? A little bit of market share. These are some companies that Hershey acquired, not major brands in the salty snack space. And Hershey's distribution has improved sales there. So it's good diversification acquisition for Hershey's. Also, is the owner now of the Pirate Snacks, Pirate Booty, if you've got kids that love that stuff. So, it's not all chocolate, despite the name. And Salty Snacks had a better year and their availability to grow market share, given Hershey's many, many distribution channels. But still, as you can see from the guidance for next

year, it's going to be the cocoa and sugar chocolate is going to be the biggest driver of the bottom line for this company. I know you also like to talk about Hershey's unique ownership structure because it's unlike a lot of other companies. So how is the ownership structure of Hershey set up? Why is it interesting to you? Well, it's a great story. Milton Hershey he passed away about 100 years ago, didn't have children and gave his fortune, really, to establish a school, the Milton Hershey School. At the time, it was for orphaned boys, I think, and over the years, it's expanded beyond that. But this is, basically, they've held onto the stock for 100 years, and as you can imagine, the compounding on that's

pretty good. And the endowment for this school, 2,000 students out in Central Pennsylvania around Hershey, has got an endowment that I think $14 billion or $15 billion would place it in terms of U.S. universities in or near the top 10, I think right between University of Michigan and Duke. And so, it's got more money than Duke, which for those that don't like Duke probably comes as good news. But other than that, it points to the ownership, and that's the majority of the voting stock is controlled by the school. And it just has very different priorities than maximizing profits. It's got the legacy of Milton Hershey to look through. And in terms of, for instance, it's turning down the offer for Mondelez at the end of last year.

maybe the concept of Hershey being owned by somebody other than the entities in and around Hershey PA just don't jibe with the trust's understanding of its ownership responsibilities. But I definitely think that if you're investing alongside the Milton Hershey School, the Milton Hershey Trust, whichever sees this, you're investing alongside a voting entity which has priorities which are not strictly capitalism. That's the long-term look. Anything else from the quarter, the failed Mondelez deal, junk food trends you want to hit with Hershey before we move on? I think it's not a stock that's going to have major moves in my estimation unless it opens itself up to being acquired, but it'll continue to pay a great dividend. The school will benefit

from what Milton Hershey did 100 years ago, but it's not terribly exciting as an investment beyond that. Let's talk about a company that was founded in 1876 that, Bill, is looking a lot like a growth stock. Eli Lilly reported this morning. I want to talk about their revenue growth number. and I'm going to put it in some context of some younger growth stocks. So these are the yearly revenue growth numbers of a few companies. Toast, which does the payment platform for restaurants that you've seen when you get a few questions when you pick up a cup of coffee. It's 26% year-over-year revenue growth. The hottest band in the world was Kiss. The hottest stock on the market is Palantir. 36% year-over-year revenue growth, up by more than a third. That's

good. AI is catching on. Eli Lilly with the weight loss drugs, revenue growth up 45% year over year. And then the one that's beating it is my beloved Rocket Lab at about 55%. Bill, when you see this company, this 19th century pharmaceutical company in the context of these younger, hungrier growth companies, what do you think when you see lights out numbers like that. I see a number of things. One is that it's been a phenomenal year for Lilly and that the growth that you're pointing to is very much being enjoyed in the moment. 2024, a couple of expansions of the GLP-1 drugs into the market, phenomenal. You go back the previous couple of years and Lilly was not growing at the pace that it grew in 2024, and 2025 is looking

to be a very good year or two, you can, sort of, make pretty good educated guesses about drug sales based on what's in the market and when the patents roll off and all that. So, it's a great moment for Lilly and the moment was created by decades of work. so I don't want to imply that it's short-term in some way. But I don't think that this year's revenue growth is the only number that you should look at to identify what the longer-term growth is likely to be. It's getting more profitable. Net income is up more than 100%. What are the numbers I should be looking at then, Bill? Well, as I say, you want to look at the trailing couple of years and the fact that, for instance,

net income doubled this year. Total net income, I think, came in around $11.7 billion, up from $5.7 billion in 2023. That's great. The income was above $7 billion in 2020, 2021, 2022. So, 2023 was an off year for the total net income. This year, it's sort of incorporating all of that built-up R&D that came out on the market, that is going to flow into next year as well. I just would caution against thinking this is, despite the fact that it's trading at a PE of 90, 95 right now, something like that, and that implies the sort of growth that the company has enjoyed this year and is slated to next year, that given the nature of blockbuster drugs, which don't come on a regular cadence every year to just keep that part in mind.

I appreciate it. I appreciate you zooming out. And the blockbuster drugs that investors are excited for, one is a weight loss pill, not an injection, in a mid-stage trial, helped patients lose about 15% of their weight. And they also have a next-gen weight loss drug that has helped patients lose more than 24% of their weight. These are mid-stage trials, not approved by the FDA. But I'm looking at these blockbuster drugs. I think they're going to be massive. I think the more people see people they know getting dramatic results on weight loss drugs, the more that people are going to take them. I own some Eli Lilly. It's not a big position because this is not well within my circle of competence, but you've mentioned caution. Bill,

what could wreck my thesis in this as I look to the years ahead? Of course, somebody else doing the same thing other than Eli Lilly. It would be, if not a wreck of the thesis, it would be impacting on it dramatically. Nordisk is pursuing the same weight loss pill and that will be, I agree, a big, big chunk of money for somebody and probably more than one company. There will probably be some competing versions that have slightly different side-effect characteristics in slightly different efficacies. And you can look at those, too, as being the most likely to hit that jackpot. Some of that jackpot is being priced into Lilly today, and it'll either get as much or more of that jackpot as is being priced in, or less of it. So,

you know, it could just be as simple as that, as simple as the failure of the next stage of the clinical trial to be successful, regulatory, slow down. There are a lot of things. For a company that is doing great work and reaping the benefits of it and is trading at a P.E. of 90, there are a lot of things. It could be trading, why not, at 60. That's still a big reward for a drug company. And if it were trading at 60, you wouldn't say, well, market just doesn't believe in this company. You know, it believes in it a whole lot today and with good reason. But it doesn't take a lot to take, you know, 20% off of that level of optimism. We'll see if we can tie it together. A few themes from this discussion today is that junk food

continues to be popular. Interest in weight loss drugs continues to soar. We thought these would come at the expense of each other. A lot on Wall Street did. But any broader investing lessons from this as we look at the earnings from both Hershey and Eli Lilly? Well, certainly if chocolate, solid snacks, and the drug companies could all get together in a room and come up with the way where you can just take the drugs and maintain a huge appetite for snacks, certainly the snack companies would be all in on that. And the problem for them with GLP-1 is their reduction of the appetite for those snacks rather than the ability to just eat whatever you want and keep the weight off. So, whoever comes up with that drug, I think is going to be celebrated by Hershey and

Mondelez and others and may or may not be the big winner. I think you've got a biotech business brewing. Bill Barker, appreciate you being here. Thanks for your time and your insight. Thanks for having me. with the Coffee Plus range, infused with functional benefits. Choose the coffee you love with added B vitamins, like Coffee Plus B12 to help support immune function and Coffee Plus B6 to keep your day moving. Or go with the flow and choose Ginseng Delight,

our new double espresso with ginseng extract. Whatever lies ahead, don't change your morning. Let your morning change you. Discover Coffee Plus on Nespresso.com. all right up next what it's like getting stuff made in hollywood right now you may have heard jordan harper on the show yesterday discussing black bag public relations and how it impacts the news you read and watch but he's also worked in hollywood for years producing and writing for shows including gotham and the mentalist harper has had a front row seat to the transition from

broadcast television to streaming and he joined me to talk about what streaming executives really want in new shows, how it impacts what you watch, and why it's fundamentally different from commercial TV. For a lot of viewers right now, television viewers, it doesn't seem like things have changed that much from, you know, a few years ago. I'm watching stuff on streaming. There's still new television shows coming out. There's still movies coming out.

You hear about a dip, but it's not immediately apparent, I think, for a lot of just regular consumers and viewers of television. You've been on the inside for a while. For the viewing audience at home, those who aren't in Hollywood, what have you noticed about what's different trying to get TV made in 2025 versus, you know, 2018, 2019? Well, you know, I think we're seeing the kind of endgame of trends that started a little earlier than that. Streaming is not a friendly medium for art. And that's what we're learning. And everybody's going to immediately come up with with counterexamples to that, and there are counterexamples to that, but the actual golden age of television that we refer to actually died around the same time that streaming was born.

Shows like, you know, The Sopranos and Mad Men and Breaking Bad all kind of went off the air right as Netflix started making television. So they kind of rode the wave of being connected to these shows that they had no real relationship to. But what's changing is it's just, you know, the contradictions are heightening. The emphasis that has always existed on making IP, intellectual property, you know, stuff based on movies, based on books, that is growing. You know, these episodes are getting shorter. The episode orders are getting shorter. It takes longer to make. And so we're kind of reaching this strange place where in very essential ways, television is not being made to be watched any longer. And I'll explain that because the whole gig started with

television with commercials. And so it was in the interest of the people who made money off television to make people actually watch it because we tracked that they watched it and ad sales were based on that. We now live in a subscription world where if you sign up for a subscription and never watch the channel once, or you watch it in the background while you're cleaning your toes or whatever you do, they make the same amount of money. I've been explicitly told this by an executive at a streamer who told me in what I would say is a very dispiriting meeting that he said, I don't make TV shows, I make posters. He said, don't come to me with a pitch. Come to me with a poster. Because what I need is a, you know, a placard that we can put

on the person's TV screen that has a photo of a famous person and a TV show idea that they can grasp by looking at it. He specifically used Denzel as an example. He said, you know, if we've got Denzel in the show. Maybe it's as good as Training Day. Maybe it's as bad as Virtuosity, but it doesn't matter because they already signed up and they paid the $10 a month. And I said, well, but if they don't watch it, won't they unsubscribe? And he's like, do you? And that's the world that we're living in. And it is an incredibly unfriendly environment for people who are trying to make good art that is also entertaining. It's incredibly unfriendly. And that unfriendliness is more visible now than it was before.

They're kind of anti-art stance. And again, art doesn't have to stand in opposition to entertainment. You know, there has been amazing TV that has been made all the way from The Twilight Zone through Twin Peaks, through NYPD Blue, you know, through The Sopranos and The Shield and all of those great shows. And there have been great shows on streaming as well. But it's not the same. I think it is frankly ultra-processed, if I can do a callback. And our position from coming out

of the strike as writers is that we're in an environment that feels frankly antagonistic. I was watching one of your episodes of The Mentalist last night to prepare for this conversation. And one of the things I noticed from network TV is I'm sure there was an ask of writers to sort of like reset the audience, right? Like if you have a character relationship, they need to know if this is someone's dad, if this is someone's boss, like where do these characters stand in relation to each other? And in some ways they are explaining their position, right? And you also see writers criticizing Netflix for saying Netflix executives want characters to explain what they're doing. What's different about now versus what was

asked of network television in that. Well, you know, I think that's a pretty valid point. And I would say that, yes, you know, The Mentalist, which I'm very grateful to for teaching me a lot about storytelling, was a network procedural that was kind of aimed in a lowest common denominator way. And so we would get those notes. Can we lay into the dialogue how long this couple's been married? Can we lay into the dialogue that this is that? And those notes could be frustrating for us as well. And I think that what I would say is those notes were put there oftentimes because of commercial breaks, which are involuntary gaps in the show that are put there by the network in order to make money. But what is being described now is literally you have to prep

your audience for them to not consume the product at all, to kind of encourage not taking a break during a commercial break, but to encourage actively doing something else while watching the TV show. And that's a very hard note to take. And, you know, I'll also say just to close out that we did complain about those notes. I think that I had a trick on The Mentalist where if an executive asked me to do something like that, I would very often write it in the script in Jane, that's Simon Baker's character, the main character, because I knew Simon didn't like to deliver that kind of pointless dialogue and oftentimes would ask if we could cut the line. So I would, I would kind of build in a way to cut as much of that dialogue as I could, just to kind of escape those

notes. But I do think there is something different and darker about these notes today. And I wasn't trying to be clear, I wasn't trying to be gotcha with it. I watched, you know, I was grateful for the note as someone who hadn't, maybe not grateful for the note, I appreciated it as someone who was watching like a random episode in season two, season three, and not someone who had watched the series in its entirety. There's an immense amount of cynicism. You do have a movie that's getting made right now in She Rides Shotgun based off your book. I guess generally, how are you trying to sell stuff in Hollywood right now then given this sort of cynical and antagonistic landscape? Well, I mean, if you notice several times at the beginning of this conversation,

I refer to my Hollywood career as being in the past. It is not, but I am kind of looking at other paths. I find that features are a better place. Movies are more creative. They always have been, but there was a brief time when we thought the TV could rise up to what film can do. I think we're learning that that's really not the case. There's great TV, but film is a more exciting art form, I think.

And it's more wide open. There are independent films still being made. She Writes Shotgun is an independent feature. And so I'm exploring that. I actually just sold a movie pitch. I'm going to start writing a screenplay soon. And then I'm working on my books because I do think that, you know, my friends who are just authors complain about the, you know, the corporate structures of publishing. And I try and tell them, you have no idea. Like, this is the promised land. And so I do try to remove myself from television if I can, but it's what I've done for 15 years. So I'm sure, you know, when the mortgage comes calling, I will definitely come back at some point, but I'm trying to remove myself. Jordan Harper, thank you so much for your time, your insight, and your wonderful books. I've had a great time reading them. I can already recommend The Last King of California. I'm 50 pages into it. I've been ripping through it.

Thanks for coming on Motley Fool Money. I really appreciate it. Hey, thanks for having me. I appreciate it. as always people on the program may have interests in the stocks they talk about and the motley fool may have formal recommendations for or against so don't buy or sell stocks based solely on what you hear all personal finance content follows motley fool editorial standards and are not approved by advertisers the motley fool only picks products that it would personally recommend to friends like you i'm ricky mulvey thanks for listening we'll be back tomorrow We'll be right back.