Motley Fool Hidden Gems Investing - Is Amazon the Best Prime Day Deal?

Starting point is 00:00:00 What are you buying today? Motley Fool money starts now. I'm Manan Chakravallu and I'm joined by two of my favorite fools, Matt Frankel and Jason Hall. Today we're talking Amazon's Prime Day. It's more like a prime week at this point, the latest on Tesla and Elon Musk, and we'll make some bold predictions. But first, let's update ourselves on tariffs. What's going on there, Matt? Well, the tariff news seems to be changing

Starting point is 00:00:42 so quickly. We're only recording this a few hours before it's being published, and I'm kind of worried, if I'm being honest. So, the President announced a whole new round of tariffs yesterday, set to begin on August 1st for 14 countries, and that includes Japan and South Korea, which are our No. 4 and 6 trading partners, actually. Those both got 25% tariff rates. Some of the announced rates were as high as 40%. The President also said that the August 1st date is not set in stone. He said it's, quote, firm, but not 100% firm. And I really think this is more noise than news at this point. I mean, remember the initial Liberation Day tariff rates with the thing that looked like the Cheesecake Factory menu, and then the pause that was

Starting point is 00:01:22 announced until July 9th. I mean, this might be an effective negotiation tactic to get better trade deals. And to be fair, it looks like it might be. But until anything actually goes into effect and is actually finalized and signed by both parties, it's kind of noise. But in other tariff news, there is a good possibility that we're going to see a European Union trade deal soon. And each of those, the countries in the union are kind of small trading partners. But collectively, they actually would make up our No. 1 trading partner in terms of both imports and the trade deficit we have. So, it's definitely worth watching. From an investing perspective, maybe the taco trade's real and still alive? I don't know.

Starting point is 00:02:02 We've got another extension, another delay here. So, there is a group that are going to say it's another chicken-out moment. But I don't know if that's really investable for most of us. But thinking about the broad economic impact, I do think that for our trading partners, they're in a tough position. There's the tension between continuing to delay and avoid substantial tariffs, because it seems like they keep getting kicked down the curve. But also, all of their industry and government spending, they still have to plan, too. So all of the uncertainty kind of weighs in there. But I mean, if you look at the markets, it seems like the markets are just shrugging this off as what's become business as usual. Maybe it's this fall before we really find out if litigation

Starting point is 00:02:48 continues to play out. And eventually this ends up at the Supreme Court. It might've been a whole lot of work for the Supreme Court to say, hey, Congress, you guys need to do something. The president can't do this. So we'll see. We'll be back with Prime Day after this break. You've got to try breakfast at A&W. You've got to try breakfast at A&W. And what better way than with a delicious Pret organic coffee, starting at just $1 all day, every day, now until December 31st. You've got to try breakfast at A&W.

Starting point is 00:03:33 At participating A&W locations in Ontario. Jason, today's Amazon's Prime Day. We all know the deal. This is Amazon's once-brilliant move to juice sales during the summer doldrums, maybe pull forward some of that back-to-school shopping, taking a little market share. It's grown to four days long now. It's doubled from last year. Any takeaways for investors? And you know what? Is Amazon stock priced as a prime deal at this point? You're not including the early days, the pre-Prime Days deals that they do for people that can't hold off and wait for the four whole days. My wife may or may not have changed my Amazon password as an Amazon shopper. I'll tell you, there are some things that I'm looking at

Starting point is 00:04:18 for sure, but there's not much of an investing takeaway from that. It has become an event. It's become a retail event. But if we start looking at the business, the e-commerce business has really bounced back. There was some much-needed restructuring a couple of years ago of expenses after the massive expansion during the pandemic. But that added scale, it's really, really paying off. Its e-commerce revenue since 2019, so clean before the pandemic, is up 77%. They've added $110 billion in e-commerce sales on a trailing 12-month basis. Here's another interesting data point, third-party services revenue, that's also up by over $100 billion. Amazon's role as a giant in fulfillment has also exploded along with its own sales. But on end, AWS is still the big

Starting point is 00:05:13 profit driver. It generates more than half of operating income, but only off of 17% of revenue over the past four quarters. Now, the stock, is it a prime day deal? Maybe. It trades for less than 21X operating cash flow. If you look back over the past decade, that's cheap. Here's the problem. They put about 85% of that operating cash flow right back into the business. But they need to right now, especially building up the tech infrastructure and R&D spending. But only time is going to tell if it can start converting those investments into free cash flow. AWS is definitely the biggest profit driver for now. You also didn't mention the advertising that they're building out. That's one of the faster growing parts of their revenue, which is technically

Starting point is 00:05:59 reported under the e-commerce platform, but it's a higher margin type of revenue than it gets elsewhere. Amazon certainly is not as cheap as it was just a few months ago, but it still looks very attractively valued considering the recent progress with both efficiency and profitability of the business and all that growth you mentioned. Well, you know, you got to raise the price right before you do the discount. It's just a little stock trick. Speaking of those deals, any top Prime deals for your households, Jason? I have to admit, I'm eyeing a robot lawnmower, but I'm not convinced just yet. But since it's not Prime Day, it's Prime Week, like you said, I got a little time to think about it. In the past few years, we've bought the kids

Starting point is 00:06:41 the new Fire tablets because they're so cheap on Prime Day. I haven't looked yet, but I'm sure my wife has and has a plan. I like it when she does the shopping because then when, you know, a bunch of packages show up and it's like Christmas. We've been waiting on, we've got a kid who never brushes his teeth and has destroyed his previous electric toothbrush, but we still waited like a week to see if there are any deals. Spoiler alert, no deals on the specific toothbrush we wanted. We also looked at Walmart and Target who do kind of similar kind of remora to the Amazon shark sales. Um, but we'll see, I'm sure we'll be buying a bunch of stuff. Well, Anand, do you know what you call a kid that won't brush their teeth? What? A kid. Exactly. But this is where he's,

Starting point is 00:07:27 he's beyond the, uh, normal distribution. I was going to say you have one too. Right, right, right. At least versus his brother and all of his cousins. Let's move on to the boy who may have cried wolf on focusing less on politics and more on Tesla. What's up with Elon Musk today, Matt? Oh, I assume you're talking about the new political party that he's starting, the American party, because there's a lot that's up with Elon Musk, right? Between Tesla, between SpaceX, between XAI, between all those other things, there's a lot that's up with Elon Musk. And he wanted to add one more thing to his plate by creating his own political party. And to be fair, he ran a poll on X, formerly Twitter, asking who would want a

Starting point is 00:08:19 third party. And overwhelmingly, from millions of votes, and not just his own followers, through millions of votes, 80% or so said yes. One of the party's stated goals is to get Republicans out of office who voted for Trump's bill. We all saw the big public fallout between him and the president. That's really what led to this. He describes the party as a tech-centric, budget-conscious, pro-energy, and centrist party with the goal of drawing both disaffected Democrats and Republicans. Now, this is easier said than done. This is not the first attempt to create a third party. There are actually like four or five of them already in existence that just don't of any traction. It's very difficult to gain any traction as a third party. You would essentially

Starting point is 00:09:03 have to set up a political party in all 50 states, because all the local rules and things like that, it's all different. And you need a lot of money, which fortunately he has. How much he wants to spend on this is another issue. But he has the resources to do it if he wants to. Yeah, I think the investing take, if we circle back around to Tesla, and as honored as you joked there at the beginning, the boy who cried wolf. Clearly, Tesla shareholders, as much as from a political perspective, I'm sure there's a lot of people, no matter your political affiliation, that are so frustrated with the environment that support the idea of this. Tesla needs to figure out how to start selling more Teslas. And they need the resources from

Starting point is 00:09:53 selling more Teslas to pay for so many things. The company is at a major inflection point right now. Dan Ives talked about this, with where they stand with trying to start bringing robotics to commercial use in the next few years. We've seen what's going on in Austin with autonomous driving. That's such a massive future part of the business. You have to start selling more Teslas and generate the cash flow to fund these things. There's even more headwinds now with some things in the spending bill that was passed that are going to gut a pretty important part of Tesla's profitability with the emissions credits. There's a lot of reasons for investors to certainly be concerned about this wherever you stand as an engaged

Starting point is 00:10:43 citizen. Elon Musk is famous for his bold predictions. After this break, we'll have some of our own. You've got to try breakfast at A&W. You've got to try breakfast at A&W. And what better way than with a delicious Pret organic coffee, starting at just $1 all day, every day, now until December 31st. You've got to try breakfast at A&W. At participating A&W locations in Ontario. Time for a segment we call Bold Predictions. Jason, start us off. What's your bold prediction?

Starting point is 00:11:26 All right. I'm going to stick with the theme from the show today, Anand, and talk about Tesla. I think Tesla's stock in the near term is probably going to rebound. But those robotics ambitions, the autonomous driving ambitions, I think they might be about as successful as the solar roof has been so far. And that's to say, not very. At least not within the next five years' time. And now, a couple of reasons why. Number one, I think we've seen some very ambitious, you talked about Musk's predictions about things. And they've accomplished a lot of great things, but always years and years later. I think that's going to continue to play out. But I think the concern that I have, and this is really at the heart of the prediction, is that while the stock

Starting point is 00:12:14 might rebound in the near term. I think the next few years are going to be really, really tough for Tesla and probably tough for Tesla shareholders because there's so much of those future prospects that are baked into today's price. And I think as the realization comes out that those things are going to take longer and longer to monetize, and they might be harder to monetize if Tesla can't start selling more Teslas instead of less Teslas, then shareholders may be really in for a tough time in the next five years or so. I'll make a very bold prediction. I'm going to say that the Fed is going to surprise the market and cut rates this month when they meet at the end of July. The market's only pricing in about a 10% chance of that happening right now.

Starting point is 00:12:57 But based on what the Fed governors have said, other than Jerome Powell, it's more likely than that to happen. I think there's a lot of economic data between now and then, a lot of trade deals that can be settled between now and then to calm the Fed's nerves. I think it's going to happen earlier than people think. That would be positive for Tesla. True. Here at The Motley Fool, we live on feedback and Amazon gift cards. To be part of that feedback or to ask a question, email us at podcasts at fool.com.

Starting point is 00:13:26 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. Don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards 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. Jason Hall, Matt Frankel, and the entire Motley Fool Money team, I'm on in chocolate blue. My bold prediction is that we'll see you tomorrow.

Motley Fool Hidden Gems Investing - Is Amazon the Best Prime Day Deal?

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