Motley Fool Hidden Gems Investing - Behind The Most Exciting Stock Pop In Years!

Episode Date: August 20, 2026

Target reported solid earnings this morning, which is a great sign for the consumer, but the big news today was from Moderna. The company’s clinical trial results for a cancer vaccine were so encouraging it was fast tracked through the trial and, while there are questions, this could change how we look at cancer in the future. We discuss why the stock is up over 100%. Plus, we end the show with the latest from OpenAI and Anthropic. Travis Hoium, Lou Whiteman, and Rachel Warren discuss: - Target Earnings- Is Target Stock a Buy?- Moderna’s HUGE News- Scaling Qs- Is AI Growth Slowing?- Speed Running to an IPO Companies discussed: Target (TGT), Moderna (MRNA), Merck (MRK). Host: Travis HoiumGuests: Lou Whiteman, Rachel WarrenEngineer: Kristi Waterworth Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode. Learn more about your ad choices. Visit ⁠⁠⁠⁠⁠⁠megaphone.fm/adchoices⁠ Learn more about your ad choices. Visit megaphone.fm/adchoices

Targets Hot Street continues. Motley Fool Hidden Gems Investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoy. I'm joined today by Lou Whiteman and Rachel Warren. Guys, we're going to start with retail. The big earnings report this morning was from Target. The company reported 5.3% increase in sales, 3.8% jump in same-store sales. This is where they really struggled over the past few years. So, Rachel, what did you take away from this report? There were some interesting updates here. I mean, probably the one that caught most investors' attention was the 100% jump in earnings per share. That really catches your eye, but you got to look closely at the details. A large portion of that growth on the bottom line

came from a one-time $994 million tariff refund that actually added $1.65 per share to those earnings figures. But even if you strip away that, Target actually grew its fundamental earnings by 20% year over year. They're really leaning into this differentiated retail approach. They've lowered prices on more than 10,000 items to try to attract more budget-conscious shoppers. But kind of the broader story here is Target is really trying to expand more into the digital and service-based revenue channels. So their traditional in-store sales grew by 2.7%. Digital sales grew by 8.7%. There's also a 25% increase in same-day deliveries and 20% growth in non-merchandise revenue. And the thing that I think is important to note for anyone that's

followed this business for a while, they've been struggling a lot compared to competitors like Walmart. Target really relies significantly on sales of more discretionary items compared to the competition. So apparel, home decor, seasonal goods to drive traffic and protect its margins. And so when you've got shoppers cutting back on non-essential spending, that leads to lower foot traffic, excess inventory. We have the newer CEO, Michael Fidelke. He stepped into the role earlier this year. They're implementing a multi-billion dollar turnaround strategy, slashing prices. They're investing billions into story models. This isn't a stock I'm running out to buy right now, but I will certainly say this was a quarter that I think showed some much needed

improvement, particularly under new leadership. Yeah, Lou, I don't know if now's the time to buy because Target stock's almost up 60% year to date. It seems like a lot of the turnaround may have actually been priced in already. Right. The patient has a pulse and congratulations for that because we didn't know that for a while. It was a beat. As Rachel said, it was an ugly beat, but at least things are not going down, which has been the problem for a while. As you said, the stock's up big. The market is yawning at this. I think that is right. What Target did was Target held serve. Target delivered as expected. Can they accelerate though? I mean, under 4% comp sales gains won't sustain the stock forever. And what are they going to be? They were

cheap chic or whatever you know like and that's hard to do they're trying to bring that back they mentioned protein heavy potato chips as a big seller at a big driver and floral pattern phone i gotta say i i do love all the minute details in these earnings calls too right right but look that sounds to me a lot like whack-a-mole that doesn't sound like a sustainable strategy rachel mentioned they're going to differentiate themselves by lowering prices walmart called you know they've been trying that for a long time. Target, this is the dangerous thing about retail. Nobody has just a God-given right to exist. We see retailers fall out of favor and never recover all the time. That's why it is really good news that they seem to have stopped the slide. But is it a good

investment from here? I think they still have a lot of work to do to explain, like kind of the way Best Buy has explained and Dix has explained, we are here because we provide blank. I still don't think we have the answer to that question for Target. I don't think floral pattern phone cases are the long-term answer there. When you think about a stock like Target, so 15.6 times earnings as we're recording right now, it does have a dividend yield of about 3%. Is that enough to be a value for investors or is the bigger challenge, what are they fundamentally become because the disruption story is still a bigger story. I think the digital piece is the one that I have the hardest time wrapping my head around. It sort of makes sense that you

could order your groceries. We get our groceries, non-perishable things. We usually get fruits and vegetables from the grocery store, but you need a box of cereal. It's cheaper to come from Target and it'll come right to your door. That seems compelling to me. But at the same time, Amazon's trying to do the same thing. So it almost seems like they're in this strange middle spot. They are fighting everybody everywhere. And that's sort of a different way of putting the thing of like, what reason do you have to exist? What are you special at?

The dividend, look, it's down under three now. And I'll note, I can get a six month treasury today for 4.0 and I'm not going to get any growth there either. So you've got to explain to me where the growth will come from. We talk about this with REIT stocks all the time. I love dividends on REIT stocks, but if it's a REIT stock that goes nowhere for a decade, but pays you three, 4%, you're not beating the market. Target needs to explain growth. I love it. A good total return story. That dividend can be part of the answer here, but you got to grow better than four or 5% consistently for that dividend to matter in terms of an investment decision for me.

If they really want to grow this digital business, I just want them to integrate Shipt. They still operate Shipt as kind of a separate thing. And then ask for a tip. So I'm paying to be a subscriber to this Target Plus or whatever it's called. And I have to tip the driver. I don't have to tip my Amazon driver. That whole thing, that whole integration just seems a little bit like it needs to be rethought a little bit. But at least they're heading in the right direction.

So we'll see where things go. More retail earnings tomorrow when Walmart reports. So another thing we'll probably cover here on the show in the next couple of days. When we come back, we are going to talk about Moderna stock, which is up 135% as we're recording. 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.

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Shares are up depending on the minute that we're looking at things right now, between 140, 160%. This is a crazy response, but what was the big news for today? We had major trial results come out from the phase three trial for their mRNA-based personalized cancer vaccine. This is a major milestone for a few reasons. For one, this represents the first randomized phase three clinical trial to show that an mRNA-based personalized cancer vaccine can actually prevent high-risk skin cancer from returning. This is a made-to-order vaccine. It's manufactured by analyzing the unique mutations of an individual patient's tumor. So doctors first take a sample of the patient's tumor. They sequence the tumor's DNA. They compare it to

the patient's healthy DNA to identify the mutations unique to that cancer. They select the most prominent mutations that they write that custom mRNA genetic blueprint targeted only at those specific tumor fingerprints. So then when the patient receives the shot, it trains their immune system to recognize and attack those mutated cells. So this study involved over 1,100 advanced melanoma patients whose tumors had been surgically removed, and it combines this customized mRNA shot that I just described with Merck's established immunotherapy drug Keytruda. This is a longtime blockbuster drug, and it very successfully prolonged the time patients live without their cancer recurring. This regimen, the combination of the vaccine and Merck's Keytruda,

also met a key secondary endpoint. It reduced the risk of cancer spreading to other parts of the body. And this is really key. You know, we're at a time where Moderna has been for years now working to diversify its revenue streams post-pandemic. Merck is facing the eventual patent expiration of Keytruda in 2028. Now we're still waiting for the full detailed information from this trial. One thing I wanted to note that was really interesting. So clinical trials use what are known as independent data monitoring committees to review data at scheduled intervals to protect patient safety. This interim review actually showed that the patients that were on this vaccine combo were significantly outperforming the control group in stopping

the cancer from returning and spreading. And they actually hit such a high efficacy threshold in terms of the ability to save lives or prevent the disease that standard medical ethics actually require you to then stop or modify the trial so that patients in the control group can access the treatment. And that's what they did in this trial's case, which is why we're seeing the results earlier than expected, why we're seeing all this data. Now, one final thing, each vaccine is custom coded to a patient's specific tumor fingerprint, if you will. So it takes about a month to manufacture from the time of the biopsy. So even if this gets accelerated FDA approval, the next real debate is going to be the scaling, the pricing. But this is great news for Moderna.

It's great news for the patients that could benefit from these treatments. Lou, I understood a lot of the words Rachel just said, but if I can sum it up, This seems pretty cool. And I think that's it. And I don't want to be the wet blanket here, but as an investor, I think here is just the word of caution. This is a wonderful proof of concept. It's an important thing. Moderna is closing in on a huge, huge leap for them. They are going from being a vaccine company with that vaccine kind of out of favor in the market right now to potentially being an oncology company, which would greatly increase its total addressable market. that's what the stock is reacting to and it's very good news okay i think some context is needed on this jump though yes they are up 100 and 150 percent today even with today's jump they are still slightly below where they were in may 2024 it's about half the price it was in early 2023 and down by you know what 25 or so from its covet era highs this was a company that not left for

dead, but that investors had largely and wrongly given up on. And now we're seeing, almost like what I said about Target, we're seeing them off the mat or starting over. This fills me with hope, but there is still a long way to go. We didn't have the full details in the announcement. They're going to give all of the full details that other peers are going to have to review at a conference later this year. They're looking at the next year at earliest before approval. And there are still huge questions about cost and feasibility at scale. Rachel mentioned, I saw up to like six weeks before it's ready from when a biopsy happens at scale. And again, hopefully as these things prove out, and this was actually, they went after melanoma because in a way it was advantageous,

but in a way it was harder. The dream here is that now that we've proven this, we can attack a lot of cancers and the infrastructure will be built. And over time that will solve those six week's questions, the scale questions, the cost questions. There is a path here. But I think as investors, it's important to realize that a lot of this, we have to put the words, over time, at scale, eventually. The big thing is, and this kind of fits in with the cancer patient as well, there's reason for hope. And hope is a great thing. But just clear-eyed as an investor, just be careful jumping in now after that jump, because there is still a long path here. Yeah, to put a little more perspective on where the stock has gone, it peaked almost exactly five

years ago in August of 2021, down 69.5% since then, but the bottom was down 95%. So just a crazy volatile decade for Moderna. But this is one of those that I'm going to be keeping an eye on. I think the trend that I keep needing to learn more about is the personalization of medicine, because it seems like this is one of those huge personalizations, but this is something that we're probably going towards more over the next decade or two. You could have bought the stock in the low 20s last September. And I think that would have been a great time to buy in. I'm less sure today in terms of the near term.

Long term, let's just hope it works for a lot of reasons. Yeah, exactly. Great to have some good news coming from the companies that we follow. When we come back, we're going to get the latest on OpenAI and Anthropix growth. New from Nespresso. Blend wellness into your coffee routine with the Coffee Plus range. infused with functional benefits. Choose the coffee you love with added B vitamins,

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you need every competitive advantage you can get. Like an AI solution that works for you, not against you, SAP Grow is built with AI embedded at its core, working across every system. And it's ready to go from day one, so you can hit the ground running. Bring it with SAP Grow, AI cloud ERP for any size business. The other big news in the market today is OpenAI and Anthropic. We've gotten some news about their growth in the second quarter. Lou, this has gotten a lot of discussion from investors, but 18% growth quarter over quarter for OpenAI. And that was disappointing. Usually companies that are growing that quickly, investors are really excited, but this is not the triple digit growth

that we're maybe expecting. A lot of this is what stage of life is a company in. 18% isn't great when you're supposed to be in hyper growth mode. Here's the real thing though. 18% growth is even worse when your operating loss grew by 30% in the same period. That's trending in the wrong direction. Put it together and OpenAI is deeply unprofitable and growing more unprofitable by the quarter. What's not the law? And by the way, just yesterday or the day before, they lowered prices on their API. So it seems like they're trying to get market share by winning a price war.

Let me tell you the charitable explanation here. And I do think that we have to give, because I would love to spike the football on Sam Altman right here. I am here for it. But here is, I think, the charitable explanation. They are investing for future growth. They should be spending more than they're bringing in. So I'm being a little snitty when I point out the expenses are growing faster than the

revenue. We can't rule out that it's going to work. I know a lot of AI, very, very AI embedded people in the last month or so saying they're getting increasingly frustrated with Claude and they're really impressed with ChatGPT. I'm not calling a swing here but it's important to remember just how new, how early we are in the game I keep saying this but two years ago ChatGCP

is all we ever heard of and then we didn't even know what Claude was nothing is finalized if they are doing these investments and there is a huge revenue burst later then this all will have worked out fine but clearly what we know

is things are not going to the script that Sam Altman would like and we'll see what happens. I think the most honest answer is we don't know who the winner here is yet. It's too early. So we just have to take these businesses for what they are and watch closely.

Rachel, the reason that this is so important is so much of the market today is tied to the growth of Anthropic and OpenAI. Those two companies alone account for a vast majority of the backlog for a lot of these hyperscalers from the NeoClouds, which then flows its way down to semiconductor companies and equipment companies.

and these are all the companies that are driving the market right now. And the other tie here is they're both racing to the public markets to IPO, potentially, I saw Anthropic looking at maybe in the next few weeks. So with all of that backdrop, how do you think about this battle between these two companies to grow at all costs and then what the actual numbers are? It's an interesting dynamic. And I don't think it's a winner takes all scenario. I do really think that these are both companies within their respective niches that can continue to grow and thrive. But the race to the IPO isn't just about prestige. I think it's also very much kind of a scramble to secure that permanent public liquidity before maybe we see some broader AI investment cycle

spending rationalization. For Anthropic, I think it's about striking while the iron is hot. They can capitalize on their revenue run rate, which just surpassed $65 billion. That could anchor a public valuation of up to $2 trillion, based on some of the recent numbers we've seen. we will see what this looks like in practice. For OpenAI, I think the motivation is a bit different. They are obviously looking at increasing operational losses. They've got this fast-paced rival. I don't think they can afford to let Anthropic monopolize public institutional capital. So I think that's key as well. OpenAI's growth rate in this recent quarter, that would be a strong result for a mature software company, not so much for a fast-moving AI

business. Obviously, their losses have deepened. Anthropic more than doubled its revenue in this quarter. But it's also important to understand that they're kind of operating in some adjacent sandboxes. You know, OpenAI is the market leader in total consumer user scale. We're looking at Anthropic, obviously benefiting from the broad enterprise adoption, high value corporate contracts for tools like Cloud Code. I think that that's also playing into some of the profitability dynamics that we're seeing. I think there's a lot for investors to watch in the coming months if we see these two companies go public within a short period of each other. I am excited to get the S1s, which is the initial filing where they actually tell all the numbers and all that kind of stuff

for both of these companies, because that will tell us a lot about not only what their revenue looks like, but what their costs look like and what their obligations for future spending looks like. So more to come on those two companies. As always, people in the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows The Motley Fool's editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Lou Whiteman, Rachel Warren,

and Christy Waterworth, Behind the Glass, I'm Travis William. Thanks for listening. We'll see you here tomorrow.