Motley Fool Hidden Gems Investing - Investors Get Cold Feet in a Hot Stock Market

Starting point is 00:00:00 Stocks are near all-time highs, but investors are shaking like a leaf. Motley Fool Money starts now. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. I'm Jon Quast, joined by fellow Fool contributor Lou Whiteman, as well as by Motley Fool analyst Emily Flippen. Thank you both for being here. We're going to talk Warren Buffett and Elon Musk in a moment. But first, let's talk about fear. So there's a

Starting point is 00:00:56 thing called the Fear and Greed Index, and it tracks investor sentiment. And today, Friday, November 7th, is the 21st consecutive day that it's measured fear or extreme fear. And it's actually measuring extreme fear today. Now, the market goes up 10% annually on average. It's up 14% year to date. So these are above average times. And yet, investors say, hey, I'm scared right now. I want to acknowledge that fear. And I want to ask both you, Lou, and Emily, what exactly are investors afraid of? Emily, we'll start with you. I mean, this is day 38 of the government shutdown. Is anything contributing to fear from that? That's the understatement of a century, John. I mean, you know, one of my favorite movies is this movie

Starting point is 00:01:42 called Everything, Everywhere, All at Once. And I think that basically sums up what investors are afraid of. Everything, everywhere, all at once. I mean, headlines, to your point, are driving the narrative. And that means we're waking up every day with new news of tariffs, shutdowns, concerns over the divide between the middle class and the K-shaped recovery, layoffs. And then I think what most of our listeners and every investor is probably afraid of, like, what's going on with my retirement funds as a result of all of this? But the fact that this has measured fear or extreme fear for nearly a month now is absolutely crazy when you look at and you compare it to the actual market performance itself. Because if you had blindly entered this story, John, I'd say,

Starting point is 00:02:20 well, the market is in greed mode. That's certainly how it's acting. And that just goes to show that there is a divide between how people are feeling and what they're actually experiencing. But in my opinion, there's always a reason to be afraid. There's never going to be a realistic world to relive in where an investor sits down and says, there is nothing to be afraid of, whether that's terrible economic situations or if that's literally just the fear of missing out because the market is so hot. But in my opinion, the fear is what drives the narrative. And when that happens, that presents opportunities for diligent long-term investors. You mentioned layoffs, and I did want to acknowledge that. So October layoffs, around 153,000 jobs cut,

Starting point is 00:02:59 that's the highest for October since 2003. And if you look at year-to-date, the highest since 2020. Lou, is there anything to be concerned with, with the regular working person? Yes, I think there is. And it's, it's funny, you know, right now I get the fear and I kind of feel the fear too, but I'm, if anything, guys, I'm more bullish about wall street than I am main street. It's main street. I think it's really taking it hard right now. Uh, wall street, there's this weird world where there are still enough people working. We've talked about like a K shape recovery where the haves and the have-nots, the haves are still buying, coupled with all of these layoffs are going to help profitability, I guess, and everything going on with lowering rates.

Starting point is 00:03:44 There's a world where earnings can continue to go up, even if things get worse and worse on Wall Street. It only goes on for so long. But I think the fear is going to hit Main Street before it hits Wall Street. And so if anything, to Emily's point, it's been a great run for stocks. The question is, looking into 2026, I guess, how long can that last? This past weekend, it came out that Warren Buffett, in charge of Berkshire Hathaway, Berkshire Hathaway is actually sitting on a record pile of cash at $382 billion. From a perspective, that's more money than what 95% of S&P 500 companies are worth. I think we call that a lot. Is this Warren Buffett saying, hey, I'm actually scared too, and I'm hanging on to my cash. What do you think, Lou?

Starting point is 00:04:31 I don't know what to think of it. I keep a ton of money out on the market, and I do that not because it's an investment strategy, but because I do like to just, I sleep better knowing I have cash. But that doesn't really work for Berkshire Hathaway. They have all the money in the world, $381 billion. That's more than they are ever going to be able to deploy, even if we do have another 2008. So the whole idea of keeping dry powder for this, it feels like we've gone over the top there. I just don't think anything that Buffett wants to buy looks reasonably valued, and so I don't think he knows what to do with it. I will say, if this wasn't Berkshire Hathaway, I wonder what we would think about them just holding onto all of this cash and just letting

Starting point is 00:05:15 the pile get higher and higher. I know they've earned the benefit of the doubt, but it's still It's a weird thing to me. Well, it really makes you wonder about what that transition plan looks like at Berkshire Hathaway and if the cash isn't part of that decision. And to be honest, I think if you're an average person, of which I imagine everybody listening to this podcast, unless you're Warren Buffett, is an average person, probably shouldn't be looking to Berkshire Hathaway for portfolio management advice. The amount of cash that Berkshire Hathaway has sitting isn't really an investment. They're not trying to make some sort of macro call by holding it. I honestly think, to your point, Lou, there's a lot of different dynamics that are going on behind the scenes,

Starting point is 00:05:51 the transition of leadership at Berkshire Hathaway, investment opportunities, of course, but also just the sheer size of the cash that they're holding is, in my opinion, not representative of the challenge that the average investor seeks. And while you're right that I never put money into the market that I need for the foreseeable future, my emergency fund over the next three years, I also do not keep a conscious cash position for my investment accounts. In my opinion, investors, depending on your risk tolerance, probably shouldn't. It doesn't make mathematical sense. Stocks generally go up. So every penny that I intend to hold for the long-term, I like to keep that invested regardless of what Berkshire Hathaway or the market is doing at the

Starting point is 00:06:27 time. Far be it for me to expect Warren Buffett to take my advice, but a dividend, come on. We just have to see a dividend. You can pay out a huge dividend and still have plenty of cash sitting around. I feel like we can walk and chew gum at this point with almost a half a trillion dollars in cash on the books. Come on, just do it, Warren, please. So as crazy as this might sound, $382 billion isn't actually the biggest number that we have to talk about today. Tesla announced that its 2025 performance award for CEO Elon Musk has been approved. And if this thing fully vest, Musk's wealth is going to make Berkshire's cash look like chump change. It's a trillion-dollar pay package put all together. I wanted to point out that there are milestones

Starting point is 00:07:18 here with this performance award, and there are both, let's say, stock milestones, but I want to focus in on the operational milestones that the company has laid out. Essentially, it's looking to deliver 10 million Tesla vehicles cumulatively, 5 million active full self-driving subscriptions. Optimus robots are in there. Robo taxis are in there. What do you guys think about this? Well, far be it for me to be the person to defend Tesla here as somebody who has been a skeptic of the stock for a while. But I actually really like this pay package. And we've seen other pay packages that have been similar. I think about Axon when they set market cap goals for compensation for their founder, CEO, and achieved them. It can be one of those win-wins for shareholders.

Starting point is 00:08:05 But I will say the milestones that you laid out, John, in my opinion, are somewhat contradictory to the expansion and market cap for Tesla, because we're talking about expanding the number of vehicle deliveries, robots, robo-taxis. These could be initiatives that are actually margin-reducing for Tesla. Trying to deliver more vehicles means cutting the cost. We've already seen Tesla's margins start to erode in previous quarters. There's still not an optimist robot that's available for purchase. So if we're aggressively going after these milestones, if I'm Elon Musk and I want to get my pay package, right, and I have to achieve these milestones, you're going through all of these steps to aggressively achieve them, even if it is at

Starting point is 00:08:41 the expense of something like free cashflow. And free cashflow has been the silver lining for Tesla shareholders for so long now. So I worry a little bit that these operational metrics are in direct contrast to what has made Tesla such an incredible business to this point. Spot on, spot on. And I can't believe that I'm defending a trillion-dollar payback, especially from Tesla. But I think it sounds different if you say it's a package that would give him 12% of the stock if he hits milestones. That seems much more reasonable. And remember, if it is an $8.5 trillion company, he will have arguably done just fine for shareholders even with his trillion. But Emily's right. There are a lot of really, really wild goals here. If they can achieve them,

Starting point is 00:09:23 great. But I think that a lot of these, Google or Alphabet would call other bets and know they might never pay off. If he is incented to heck or high water, just make sure all of this happens, that might not turn out well for shareholders. And there's also this element of, can these goals be fudged? For instance, the 5 million active full self-driving subscriptions, it's not clear whether or not those are paid or if they can be given out for free, for instance. So there's also, I think, a lack of clarity about how these goals could be delivered upon. And in my opinion, I think the operational goals are actually worse for Tesla than just doing pure market cap-based goals. We saw that work for companies in the past. I wish that's what it was, but I actually,

Starting point is 00:10:07 I'm so excited to see how this plays out for Musk and Tesla. Are you predicting that SpaceX is going to buy 500,000 Optimus robots? Oh, there's no doubt in my mind that we're going to be sending robots to space any day now. Yeah. I've gone on record saying I'm not eager to have an optimist robot in my house. But that said, the goal here is 500,000 optimists. I think that there are potentially 500,000 people out there interested in it. So that's a really interesting one for me. When we come back, why doesn't anyone want to own pizza anymore? This is Motley Fool Money. Welcome back to Motley Fool Money. So restaurant stocks are not having a great year this year. The advisor shares restaurant ETF is currently down about 10% over the past year compared to

Starting point is 00:10:59 a 16% gain for the S&P 500. And so there's kind of a lot to talk about here in the restaurant space. Interestingly enough, pizza is having a, let's just say, interesting time. So Yum! Brands, If you look at the top three pizza chains out there, if you will, no disrespect to Little Caesars, but the big three, you have Domino's, you have Pizza Hut, and you have Papa John's. Yum Brands owns Pizza Hut, and it's looking at strategic options right now, which may even include a spinoff. And then you have Papa John's, a private equity firm, Apollo Global, had put in a $2.1 billion bid to acquire the pizza chain, but it actually withdrew that bid earlier this week.

Starting point is 00:11:45 Why doesn't anyone want to own pizza anymore, Lou? Yeah, I mean, it's pizza and then there's pizza, right? I mean, there's a lot of pizza out there. You know, look, this is fine pizza. I talked before about the idea of a K-shaped recovery. I do think that there is sort of a world where these companies are more impacted by the economy than some maybe higher-end restaurants, so maybe it's that. But this does seem to be like, I don't know, I can't imagine pizzas falling out of favor. But for Yum, Yum's other brands, KFC and Taco Bell, they're doing great. Together, they generated 90% of global operating profit. So maybe it is a pizza hot thing. Maybe we just, Emily, are we just not interested in pizza or we found somewhere else

Starting point is 00:12:30 to get it. Oh, you are so off base, Luna. I mean, you're right in the sense that, yeah, pizza sales for these companies are declining, but people want pizza. People demand the pizza, but they just want it from a gas station. And I think this is what everybody is sleeping on. I mean, I look at a business like Casey's General Store, the ticker C-A-S-Y. They are the fifth largest pizza retailer in the United States, and they are a convenience store based in the Midwest. Their inside sales, so sales made inside their locations, are driving massive comp growth in large part due to their prepared foods, and pizza is by far their most popular option. And this is true across the board, even with private chains, right? Sheets, Buc-ee's,

Starting point is 00:13:08 Wawa just introduced pizzas. These gas stations are aware of the fact that people want cost and convenience. And I think when you look at that difference, yeah, there are some elements of the K-shape recovery with people in the middle class being squeezed especially. But I think in this case, when you're looking at Chipotle and Kava and all these other brands that are saying they're losing share, they're losing share to convenience stores. Yeah, that's such an interesting thing to point out there, Emily. I want to stick with you, Emily, on this one. I know that you have some thoughts when it comes to China. And we do have some news here in the restaurant space, coffee giant Starbucks. This coffee chain has been struggling in recent years trying to

Starting point is 00:13:46 get back to Starbucks with new CEO Brian Nicol. But it's finally making a move in China. It's been trying to figure out what to do with its business there. And it just announced that it is entering a joint venture with Boya Capital. It's going to sell up to 60% of its China business to that private equity firm to continue on with business there. Emily, I want to know, is this the right move and can it help investors? Yeah, you're right, John. I do have thoughts for better or worse. And I think my answer is a little complicated. I think this is the right move for this management team. But I think this is the wrong move for Starbucks and its shareholders. I mean, look, this is Starbucks' new leadership just saying, hey, we're no longer the best owners

Starting point is 00:14:28 of our business in China. That's the truth, right? They're exchanging being the leader that could be in Chinese coffee and instead trading that for like cash, lower risk, less assets. And, you know, on a quantitative basis, this is really only a good move if their Chinese business continues to underperform. But I actually think that's pretty unlikely. And I think if they had just taken the time to like find the right leaders and skillset for that side of the business, there was a lot that they could save in this initiative. And look, I mean, Starbucks, their second largest market, I believe is China or maybe their largest market. It's one of their top two. And they're facing intense competition there, of course, but why do you face competition in big markets? Because the

Starting point is 00:15:05 opportunity is that large and they're just throwing up their hands and saying, Hey, we're going to let somebody else drive the bus. Yeah. They're retaining 40% and some royalty, but that's all less than 100%. Starbucks should always be getting 100%. I think you're right. And I think this is more about execution than it is lack of an opportunity. But what I'm curious about is, I mean, how bad are things in North America? And how hard is it going to be to recover in North America? Because I think the best case for this is that management is saying, we don't have the bandwidth to do both, so we need to let someone else handle China. i i love starbucks i think starbucks will be around forever i don't know how they get the

Starting point is 00:15:47 mojo back i don't i don't think it's going to be as easy as we hope it is and so i do wonder if this just kind of points out to management saying is man we have a full-time job just getting north america back and running the way we wanted to and so we need to just find help or find someone else to take on China. Yeah, definitely. It's hard to be overly excited about a turnaround story, right, guys? But I will say that sometimes the best turnaround stories are the ones that have the brands, right? The brand recognition, the consumer mind space. And I would say that Starbucks definitely has that. Still a ways to go in the North America market, to be sure, but certainly not a lost cause either. It's not been great for shareholders over the past several

Starting point is 00:16:34 years, but hopefully that turns around in the near future. And maybe this joint venture in China will help it focus on North America market. One final topic we have here for the restaurant space. This one surprised me. So private equity firm Triartisan Capital Advisors has agreed to buy dining chain Denny's for a deal with an enterprise value of $620 million. So now just for some perspective, Denny's flat, same store sales over the recent quarters, net closures when it comes to restaurants and a very high net debt position. So that's why this was a surprising one for me. I've got to ask, Lou, if you woke up in charge of Triartisan tomorrow. Would you be excited to go through with this deal, or would you have your eye on

Starting point is 00:17:27 something else in the restaurant space? I only know Denny's from the ads, so I am not the one to tell you about Denny's and their quality, but no, this would not be my topic. Living in the South, if I was shopping in this pool, it would be Waffle House. Not for the food, again, but they are everywhere around here. There's always people there. I have a feeling wouldn't be the same turnaround play. I'm not sure how far my $620 million would get me, but Denny's just feels to me like a chain. That snap test, if it disappeared, I don't know if we would notice it the way if Waffle House disappeared all over the South. Yeah, look, this would be canceled the moment it goes across my desk. At a $600 million plus valuation, I mean, that's more

Starting point is 00:18:09 than Sweetgreen. And I understand Sweetgreen's been struggling, but in my opinion, one is clearly the better pick over another. Lou is speaking my love language by pointing out Waffle House. And now I am hungry for that chain. I think that that food is good. And I would also concur that that would be the one that I'm going for here. Next up, we've got some random calendar events and that has our team here hugging bears. You're listening to Motley Fool Money. Not much of a girlfriend I never seem to get along Take a jumbo across the water

Starting point is 00:18:54 Like you see America I see the girls in California I'm hoping it's going to come true But there's not a lot I can do look for the bare necessities the simple bare necessities forget about your worries and your strife welcome back to motley fool money on the friday show we like to have a little bit of fun and you know we have a big holiday coming up which is thanksgiving that's my favorite you can't beat gratitude family football and pie in my opinion but there are infinity of other holidays

Starting point is 00:19:36 on the calendar that we hardly ever talk about. And it turns out that today, November 7th, is Hug a Bear Day. And I think for safety reasons, I'm obligated to point out, we're talking about hugging teddy bears, not real bears. But we thought this would be an opportunity to have a little bit of fun. There's a lot of fear in the market right now. There are things that investors are betting against. And so we're optimists here at The Motley Fool. And so we wanted to go through some stocks where bear sentiment is running high. And I want to ask both Lou and Emily, are these stocks that are beating down bears that we want to hug or should we avoid them? Let's start with DoorDash. So DoorDash reported third quarter results on November 5th.

Starting point is 00:20:24 The stock plunged 17%. It has ongoing investments to integrate its acquisition of Deliveroo. it's now down 30% from its all-time high. So bearish territory. Is this a bear to hug or a bear to run from? Lou, let's take you first. So I'm really big on who owns the customer with these businesses because I feel like a lot of these services are going to be commoditized. I like DoorDash's customer list. I'm going to hug that customer list. I think they can be a winner here despite the stock's fall. Emily, how about you? I have to take the opposite side here. I I mean, DoorDash, I think, while the leader in its space does see really intense competition from Uber Eats, especially globally, I think the acquisition they made of Deliveroo was

Starting point is 00:21:07 an expensive one. It's going to be hard for them to integrate. And I think right now the market is pricing DoorDash shares as if the business is going to continue 20% plus revenue growth and have margins north of 10% to 15% on the bottom line. I think given their cost structure and given the cost of this acquisition, that's pretty unrealistic. All right. Next up on our list, we have Axon Enterprise. This is the law enforcement

Starting point is 00:21:31 technology company. And don't cry foul here. I know that Axon stock is actually beating the market over the last 12 months, but it's down more than 30% from its all-time high after it reported third quarter results. They were a beat and raise quarter, but it acquired a company called Carbine for $625 million to modernize the 911 system. It didn't seem like investors were too enthused about that. I don't know. Is this a bear to hug or a bear to run from, Emily? Yeah, it's ironic because I'm sitting here raking DoorDash over the cold for their expensive acquisition. But I actually think that I hug Axon in this situation. And yes, I understand the market's reaction to this acquisition. It's an expensive one, again, north of $600 million.

Starting point is 00:22:15 dollars and we've already established that's basically the cost of a Denny's and more than a sweet green. But I actually think in this case, the market opportunity for Axon doesn't really matter whether or not this acquisition goes to plan or ends up costing more because their under-penetrated market opportunities for this company are just so vast that I think Axon combined with their management team, which as we talked about a little bit earlier, is very incentivized to grow this company. It's a type of business that when it draws back like this, gives shareholders or investors buying opportunities. So, John, you mentioned Thanksgiving at the top. And for me, this is one that I'm just going to kind of sit there with that answer. You don't want to hug.

Starting point is 00:22:50 And I'm going to try and be in the room, but not have to hug. I love Axon as a long-term holder. I'm going to hold it for long-term. But I think near-term between the acquisition and the fact that they are so reliant on local governments, local governments are going to take the brunt of what is going on in Washington as far as funding. I do think there's a world where this highly valued company where it's almost priced for perfection going in, finds it hard to get the full mojo back anytime soon with their customers. I think it all works out in the long run. I love their products, but I do worry if this is going to be a lull and it might impact the valuation over the next few quarters. Next up, we have athletic apparel company

Starting point is 00:23:29 Lululemon. This is surprising. It's actually the second worst performer in the NASDAQ 100 so far in 2025. It's down 57% year to date, down 68% from its all-time highs. Sales are struggling in the U.S. China hasn't quite delivered as much growth as the company had hoped for. Is this a bear to hug, or should we run from this bear, Lou? I'm running for this one. I appreciate the quality of the clothes, but the clothes are very expensive. And I think what has happened is that there are good knockoffs up there. So how are they going to get that premium back? That's a hard thing to do. I mean, they sued Costco basically saying, wow, Costco makes a great product, which anytime you do that,

Starting point is 00:24:12 I don't know, you can Google something called the Streisand effect is going here where they basically told the world that Costco made a really good product. I love the product. I just don't know how you get that momentum back. And I don't know how you get people to pay that much anymore. So I'm going to run away from this. Gosh, I've been hugging this bear for the past year, all the way as the stock has just continued to fall and fall much further than I ever thought possible. So maybe take my opinion with a grain of salt here. I agree, Lou. Look, I was banging my head against the wall when I saw that they were suing Costco, as if the person who was buying Lululemon pants sees Costco as a legitimate alternative. All they're doing is admitting

Starting point is 00:24:51 the fact that they might not have as much brand recognition as they want. That being said, shares of Lululemon are so incredibly cheap, priced absolute rock bottom expectations that I think in my mind, and I should knock on wood, there's no doubt that this is an outperformer over the next five years. I think leadership has a lot of runway in front of them. New product launches. I love the fact that they're not discounting their clothes still. People are paying for the logo. People are paying for the brand. So there are knockoffs out there, but for the most loyal customers, Lululemon's brand still means something. And then keep that in case they need to keep the higher price point. So short-term pain for hope of some long-term gain

Starting point is 00:25:27 here. Consulting firm Gartner has been a long-term market beater, ticker symbol IT, but the stock has been cut in half so far in 2025. The company has lowered its guidance more than once, and investors are worried that AI is essentially disrupting this entire space. Lou, are you going to hug the spare? I am. And I get the AI concerns, but I look at the world out there today and I think about just how quickly things are changing from tariffs to everything. I get why companies are not engaging in long-term thinking, long-term projects for now. I am willing to write off what Gartner and Dava, with so many consulting firms, have seen as macro and temporary and that there still will be a need. If nothing else, I'm hugging this because at the end of the day,

Starting point is 00:26:19 even if I'm a CEO, even if AI can do the job for me, I have to take the blame if it goes wrong. By hiring a consulting firm, I guarantee that there's someone else to blame if it doesn't go wrong. I think there's value there, and that's my bull case for consultants. I disagree. I'm running from this bear. I think we're all perfectly fine just blaming AI. I can blame AI instead of blame Gartner if I have to. I appreciate the fact that there's legitimate threats against this business and all consulting businesses from AI. In the case of Gartner, I actually don't think it has... My concerns have less to do with AI. And the reason I'm running from it is actually more of how management has positioned their business here. They're very

Starting point is 00:26:58 cyclical. A lot of their revenue comes from these big events. And those are the first things that get cut whenever there are downturns. So it's not necessarily something where they have it set up like a nice subscription-style revenue for a good portion of their sales. And I don't love the way that management's managing their capital. They just keep issuing tons and tons of share buybacks and that's been good over the short term. But I actually don't know if management is doing valuation on their stock so much as they are putting their hands up and saying, we don't know where else to spend this capital. So we're just going to try to return it to shareholders in the interim. And to me, that shows a lack of long-term vision, which when you are experiencing potentially

Starting point is 00:27:33 an existential threat from AI, it's like, okay, well maybe stop sitting on your hands and do something about it. Next up, we have Supermicrocomputer. This stock is actually up in 2025, up about 30%. But I wanted to bring this one to the table for the hug-a-bear segment here because about 19% of its shares are sold short. In other words, investors will make money if this stock goes down. That's actually a very high percentage of short interest for a stock that is a constituent of the S&P 500. And so I thought this would be a good one here to talk about. What do you think about Supermicrocomputer, Lou? So this isn't investing advice because I get the bull case, but I'm running from this one just because I don't know what to make of this company.

Starting point is 00:28:22 Management has a history of over-promising and under-delivering. We've had some weird earnings, margins, pricing power, I question that, the reliance on NVIDIA. This is just one that I'd literally rather run away from than I have to invest in. I really appreciate that. And you have me second guessing myself, Lou, because you're right. There's a lot of uncertainty with this business. The reason I think I'm maybe more willing to hug this bear here is because there is a fair bit of visibility into AI spend, which in data center spend, which is ultimately what's driving super microcomputer over the course of the next year or so. And they did massively miss revenue guidance last quarter. I think they came in around 5 billion versus prior guidance,

Starting point is 00:29:00 six to seven billion, all because of, for the most part, delivery delays. But they still have a pretty big runway of 12 billion north of secured business that's coming into the market over the next couple of quarters. Unless leadership is actively lying to us, which to your point, Lou, maybe that's what's happening. I mean, that's virtually contracted sales there. So there's a lot of visibility into at least over the next 12 months or so for this company that make me think that any pessimism, short interest is maybe a bit overblown. so i'm about to say some words that have rarely been said on this show chipotle mexican grill stock is down 50 year to date and right now it's trading at about 27 times its earnings

Starting point is 00:29:42 that is actually the cheapest it has been in a decade and so emily i want to know is this a bear that you hug at a once in a decade valuation i am hugging this bear now granted like i said previously, I was hugging the Lululemon bear all through the course of the past year. And every single month, week, quarter, whatever time frame you chose, you could say the same thing about Lululemon, which was it was a once in a decade plus valuation getting cheaper and cheaper and cheaper. Now it's once in a lifetime valuation. It's entirely possible that Chipotle continues to fall from here. So don't take the short-term pullback in Chipotle and assume that just because it's fallen 50%, that it can't fall another 50%. We have seen that happen in the past with great

Starting point is 00:30:24 businesses. But the reason why I have high conviction for Chipotle is because I think there is a dynamic that is, like we talked about earlier, impacting the entire restaurant space right now that has made it particularly hard for Chipotle, who had years of great comps, to put up the same numbers. And I think leadership has somewhat lost touch with what their customers want in the value proposition. Their new leadership team at Chipotle is actually talking about not raising costs, not keeping up with tariffs, keeping prices low, and eating it in the short term in terms of their bottom line progress just to rebuild loyalty with their consumer. And I think that is the right decision for this company long term. I love the fact that management seems

Starting point is 00:30:59 to be focused on the right things, and I think they can turn the ship around. Yeah, I believe in this turnaround. I just don't believe the stock is ever going back to where it used to be. So I'm avoiding probably running from this. First of all, maybe it's just around me, but I know people I talk to too. I don't feel like the quality is the same as it was years ago. Maybe that's the centralized distribution. Maybe that was the unicorn there, but I do feel like some of the special is gone. Also, I think for fast casual, that didn't even exist when I was growing up. We created the category. It's there, but I feel like it's very saturated now. I love a lot of these restaurants. I don't invest in any of them because I just don't know if

Starting point is 00:31:41 there's going to be enough share to grab from here for anyone to really be a standout stock. Okay. Lou and Emily, we have done six stocks so far. You both have taken the opposite side of it each time. We're about to get into our seventh here with Duolingo, and you surprisingly take the same side. But Duolingo reported third quarter results on November 5th. The stock plunged 25% in a day. It's now down 64% from its all-time high earlier this year. And I have to know, Is this a bear that you're hugging, Lou? I'm running from it. Honestly, it's not so much the financials. I know my kid's school tried it and gave up on it. I know I tried it and gave up on it. There's a there there, but I don't think it works in the way we hope it did.

Starting point is 00:32:31 I love all of the machine learning. Who knows? Maybe they'll four-square this and then one day it'll be something totally different will come out of this and it'll be a huge value creation. but I just don't know, again, like looking at the stock, I don't know where value creation comes from here. I actually agree with you 100% Lou. And I was, I've been a bull on Duolingo ever since the company went public and that it's, you know, got up a lot, it's gone down a lot. It's been very volatile, but the reason why I've been bearish actually has nothing to do with the underlying fundamentals. In fact, Tim Byers, who's a big fan of Duolingo will always sit me down and try to explain them to me. And he's like, you don't understand the amazing return on investment

Starting point is 00:33:07 they're getting for every marketing dollar spent for the customers that do come and stay on the platform. But in my opinion, we have seen this story play out so many times in the past. People generally do not stick around with learning languages. And I understand Duolingo is trying to expand their platform, but we've seen so many educational platforms try to gamify the experience, keep people around, keep them paying. But when push comes to shove, learning, especially languages, but in general, it's not particularly fun for most people. You get motivated in the interim, you buy a subscription and you lose motivation. It's like the same thing as like dieting or working out. And as a result, I don't think the long-term value proposition for these types of

Starting point is 00:33:45 businesses are particularly interesting. That being said, the economics as they exist right now don't support my argument. I have to say that I am shocked that you're both saying run from this bear because of the seven that we talked about during the segment. This is the one that I actually am most intrigued in and the most interested in investing in today is Duolingo. I've been on the other side before, but if you look at their ability to engage people on a daily basis and convert them into paying subscribers over time, I've just been blown away by this company. I think it has a lot of optionality in the future as it moves into other learning verticals. And so listeners, they are taking the one side and I will just help out a little bit

Starting point is 00:34:32 by saying this is a bear that I'm hugging. Next up, we will get to stocks on our radar. You're listening to Motley Fool Money. comes this way again. 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. All personal finance content follows Motley Fool 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. We'd like to end our show with each analyst providing a stock

Starting point is 00:35:38 on their radar, along with a comment or question from Dan Boyd behind the glass. And so, Lou, let's start with you. What is on your radar today? So, Dan, it's been a year of drama at Trade Desk, ticker TTD. Twice this year, the cloud-based advertising platform stock has lost about half its value post-earnings. Earnings this week, I was a little encouraged when it was fine and pretty much drama-free. The stock is down some, but look, the company reported a slight top and bottom line beat. Customer attention remains over 95%. Adjusted EBITDA is up 23% year-over-year. The trade just posted a solid margin of 40%. It's trading at 2.3% free cash flow yield right now. Expectations have changed. I don't know if we're getting back to the highs

Starting point is 00:36:26 that we had going into this year, but I still see a really strong company leaning into the future of advertising. At worst, I think the Trade Desk will be one of the big players here. I look forward to seeing where things go from here, and I appreciate just not a 50% job for a change after earnings. Dan, any questions for Lou about the Trade Desk? Yeah, Lou, it looks like this stock has, I mean, it wiped out $90 in value this year, which is not great, but it looks like it's pretty flat over the last five years. Are you thinking like a value play here? Are you thinking the stock might be a little cheap? Dan, we are forward-looking. And I think, honestly, we, myself, we had it wrong a few

Starting point is 00:37:07 years ago because we kind of overestimated their ability to take in the entire market. Amazon has come in. But no, I think this is a growth stock from here. It's just not going to be growth like a trillion dollars taking all the market. Emily, what's on your radar this week? A company called Stantec, S-T-N is the ticker. That is on my radar this week. This is actually a Canadian consulting business. And before you start rolling your eyes and explain, I just made the argument against Gartner and why you shouldn't like consulting businesses. Stantec is doing something special. They are niche. They serve industrial build-outs, buildings, water, energy, these sorts of projects that actually need specialized knowledge. And they do that through

Starting point is 00:37:48 a fee-for-service consulting for a lot of these engineering and architectural projects. Their strategy, and this is a company that's been around since the 1950s, has been to always acquire and roll up these smaller engineering firms across the world. And they track ROI really diligently as part of that process. And it's led to great results for shareholders so far. okay dan you have to have questions about this one i mean i have lots of questions about this one gang but emily would you say that this is more of like a picks and shovels consulting play no no dan come on get it together now they will subcontract okay the subcontractors call them the picks and shovels okay all right all right the trade desk stantec dan which one is going

Starting point is 00:38:31 on your radar i'm curious about stantec i know nothing about the company so i think emily's brought us something interesting today. Awesome. Good job, Emily. For Lou Whiteman and Emily Flippen, as well as our production leader, Dan Boyd, and the entire Motley Fool Money team, I'm Jon Quast. Thank you so much for listening to Motley Fool Money. We'll see you tomorrow.

Motley Fool Hidden Gems Investing - Investors Get Cold Feet in a Hot Stock Market

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