Motley Fool Hidden Gems Investing - Is Elon Musk Coming for Verizon?

Episode Date: October 12, 2026

Could SpaceX and Starlink disrupt the wireless industry, or are investors overreacting to Elon Musk’s ambitions? Travis Hoium, Lou Whiteman, and Dan Caplinger discuss the challenges facing traditional telecom companies, PepsiCo’s shrinking margins, and the limits of consumer pricing power. They also look back at the 2022 market bottom, the stocks left behind in the recovery, and how AI could reshape future returns. Travis Hoium, Lou Whiteman, and Dan Caplinger discuss: - SpaceX’s Wireless Ambitions - Telecom’s Competitive Threats - PepsiCo’s Pricing Problems - Consumer Spending Pressures - Lessons From 2022 - AI’s Uneven Impact Companies discussed: Verizon (VZ), AT&T (T), T-Mobile (TMUS), Rocket Lab (RKLB), Iridium Communications (IRDM), AST SpaceMobile (ASTS), PepsiCo (PEP), Walmart (WMT) Host: Travis Hoium Guests: Lou Whiteman, Dan Caplinger Engineer: Dan Boyd Disclosure: 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

Is Elon Musk going to disrupt wireless. Monly, Full Hidden Gems, Investing, starts now. Welcome to Monly, Full Hidden Gems Investing. I'm joined today by Lou Whiteman and Dan Kaplinger, new crew from Monday. We'll see how this goes. We're all getting up a little earlier that we normally do for the podcast. But, guys, we have not had a chance to talk about the latest from SpaceX. Disrupting at least the stock market in the telecom industry late last week.

Stocks like Verizon down about 10% out. after Elon Musk announced that they had acquired some spectrum or there's an agreement to acquire some spectrum. And now they're getting into wireless. Lou, the story for this for quite a while has been like, eventually we're all just going to be signed up for SpaceX. Doesn't this seem like we're pushing this a little bit too far from a disruption perspective?

Because I tested what my service is here. It was about eight times faster than the offering for $55 from SpaceX. Not sure I'm willing to give up the slower speeds, the slower ping time just to get my connection from a satellite. Yeah, and I don't think anybody is going to take slower for a satellite. The idea is that one day it might be better. But I'm very skeptical here. There's a lot of physics that you have to solve for, latency, distance, all of these things.

What this is, what this spectrum purchase signals, though, is that Starlink, to some extent or the other, is interested in at least trying this. And I'll tell you why, because this spectrum is very good. for terrestrial cellular. It's not as great for satellites. This is spectrum that will go through walls, which we all like to use our cell phones inside. But look, this is SpaceX saying that they will build out a terrestrial network to go with the satellites. That's going to cost $10 billion or more. So we are not going to be around the corner. This is not a today thing. This is not a cheap thing, but I think it does signal some intent. Whether to work, I don't know. Be careful what you wish.

for Elon because we know how to value mobile businesses. We value them at less than two times sales. So, I mean, I think, and we can get into it. I think there is more going on here than that. But on the surface, it's kind of, it's a weird place to go. Yeah, Dan, that's what struck me. You know, I have been an investor in Verizon over, over, you know, a long period of time. The best thing that's really come out of that is you get a really nice dividend, but you

don't necessarily get a lot of growth. You find out that you're fighting for customers. based on price, you're subsidizing cell phones. These are all things that are huge headwinds for the telecom industry, which just has been a kind of a bad business. Is there a case to be made that somehow SpaceX can make this into a good business? Or is this just, I don't know, one of those things where we get really excited and then five years later look back and go,

it didn't kind of work out as plan. Yeah, I kind of wonder if SpaceX is really trying to diversify its business for one reason or another. I mean, you've got the satellite business. I did a lot of traveling this summer in northern Canada and in Alaska. And the use case for Starlink up there is obvious. There's no land-based wireless. You go hundreds of miles without being able to get signal.

And these folks with the SpaceX minis, they attach them with their camper or something like that. And they're in business. And because it's low-density use up there, plenty of bandwidth to handle all of their needs. The challenge comes in when you get Starlink into more populated, areas where the use of the bandwidth is going to be denser and you have some of these issues. And so I think what Lou says about, you know, does this mean a pivot to ground-based wireless?

That's kind of an answer to that. Now, did SpaceX really have to do this yet? Maybe, maybe not. You know, the late version satellites that SpaceX is putting up estimates give each satellite enough bandwidth for about 40,000 users. It's roughly 11,000 satellites. in orbit right now. That is not all the latest generation. Some of them are older ones that have lower bandwidth. But theoretically, a constellation that size, you're talking about hundreds of

millions of users. And so SpaceX has plenty of growth room for Starlink under those capacity areas. But the question is speed and also the question's capital expenditure because these satellites, you can't just drive a repair truck up and fix the satellite like you can with a ground-based installation. Yeah. Those satellites fail after five to seven years. You've got to spend another million bucks or so to launch another one. And so huge amounts of CAPEX, but not necessarily that much huger than what you're talking about

with land-based stuff. The big benefit of space is you don't have to pay anybody to put something into space the same way that you have to pay a landowner to get a tower up or to bring the trucks in to do the repairs and stuff like that. Yeah. And that's part of a funny thing here, Dan, is that if we were all starting from scratch today, you might be able to make an economic case for why satellite plus a little terrestrial where SpaceX could do better.

But the point is, as you say, we have already spent the billions we needed for towers for these incumbents. So, you know, you're fighting the entrenched base, not from scratch. So the question for me is then what is SpaceX to it? Because we know this, what, you know, they must know this too. I think the answer is AT&T, T Mobile Verizon combined to generate over $300 billion in revenue last year. As Travis says, they pay pretty good dividends. They are free cash flow positive.

If I'm SpaceX and I have just massive CAPEX needs down the line, I am looking at this as not as the business I want to be in, not as the end goal, but this is, and I mean it sounds derogatory and I don't mean it that way, but this is revenue hunting. This is positioning assets that you have in a way to generate as much cash as possible that you can then use to fund the business. In that way, it's not too dissimilar from the Rocket Lab deal for Eritium. That is also on some level about gaining cash flow to invest in the business.

I think that's what's going on here. They see sort of mobile is not the end, but a means to fund a lot of their goals. And I do think they're serious. about pursuing. Yeah, it's going to be interesting to see how this plays out. The other company to mention here is ASD, Space Mobile. They have deals with some of these other companies. I know that I think Verizon and AT&T both invested in them. I'm going to be using them as kind of a service provider using their spectrum. So it'll be interesting to see how all this plays out. Because as we find out in telecom, having more than one competitor always brings a little bit of pricing and

margin pressure. When we come back, we're going to talk about Pepsi's latest results. You're listening to Maltlypool Hidden Gems Investing. For 50 years, Canadians have wondered what the names of IKEA furniture mean. Like Natopa, the guardrail for children's beds. Natopa means giving your favorite person room to grow. It means their safety and your piece of... No. In Swedish, Natapa means night monkey.

Mom, he's back. IKEA, 50 years of Swedishness at home. Look, he's wearing. little pajamas. So cute. Welcome back to the show. Pepsi reported earnings late last week and said that revenue grew about as expected. Nothing earth shattering from a company like Pepsi, but margins are going to be down. Their guidance was a little bit weaker on the bottom line than expected. We're seeing commodity prices rise across the board. And it doesn't seem like they're able to pass these on. So what did we learn, Dan? Boy, I sure hope that they can't pass any more of them on,

because they've already done a great job of passing them on so far. I pulled up stats from the Federal Reserve's economic data database. The average one pound bag of potato chips costs $4.50 in 2020, where it's $6.50 now up almost 50%. Average price of a 12-ounce can of a soft drink up even greater, 35 cents, six years ago, now 60 cents. Those rates of inflation far, far higher than the 30% increase in the overall CPI. And they reflect the passing through of whole bunch of costs, including everything from the actual ingredient costs of making the product to the distribution network costs of transporting it to stores and things like that. But you can tell that the companies, even with those price increases, that the companies

are kind of quiblin over every penny that they can't. There was a Federal Trade Commission lawsuit late last year that alleged collusion between PepsiCo and Walmart, which, allegedly gave Walmart preferential supplier pricing over the smaller retailers that Pepsi serves. And I think, you know, regardless of the merits of the suit, in which way it's going to end up, you know, what kind of settlement it might result in, it just highlights the pressure that PepsiCo and the retail community are seeing to keep those consumer price increases under control. You've seen a lot of consumers resort to store brands, but let's face it.

You know, some store brands are just perfectly fine, but others, It's just a real, it's a real sacrifice to have to deal with that. And so Pepsi's trying to keep people in the premium brands without running too far afoul of this growing sense of an affordability crisis across the economy. Lou, it seems like Pepsi's running into a number of different challenges, you know, that we could peel apart and spend an entire show on, but you have the supply dynamics where suddenly these smaller brands are available. So that gives you a little less pricing power.

One of the things that I've noticed, just shopping, and we saw this towards the end of the pandemic, those price increases are really noticeable when you're going and buying something that you kind of identify with what the price of the product is. 50 cents for a can of soda when you went to the vending machine when I was a kid. That doesn't exist anymore.

That only carried quarters, right? Right, that's why we carried quarters. But there's this price ingrained in you, you know, Doritos was the thing that I always bought as a kid. The size of the family size of Dorito bag today is smaller than the normal Dorito bag when I was a kid. So it's just, it is one of those things. It seems like even over decades, they just have a really hard time raising prices, unless the bags keep getting smaller. The bags apparently do keep getting smaller. That's, yeah. So this full disclosure, I'm not,

I am not the target audience for either soda or Doritos, I guess, because I don't really follow this company closely as a consumer. Yeah, yeah, I don't know. I'm just, you know, I don't know, sun chips. Eat your sun chips. They're at least a little better for you. We have those too. But here's the deal of guys. And, you know, I mean, I'm going to have to hold my nose and do this, and I'm not there yet. But Dan, I agree with everything you say about all of the issues they're facing and all of that. And I also kind of believe in these brands. We're down to about 15 times expected earnings. We got a dividend yield hovering near 4.7% and going up. I look, near term, I don't know what they do, but long term, if we're investors, if we're investors,

this is beginning to look more appetizing than maybe a lot of their products to me because at some point I think they are a survivor and long term winner here. And a lot of the negativity seems to be priced in at this point. And I guess I need. to be interested in that. Even if I don't want to take a bite. I don't know. What am I doing here? Too many puns here, Lou.

Yeah, it is going to be interesting to see how this plays out because they've had a lot of these companies that used to have massive brands in the 80s and 90s. They've had a struggle over the past 20 years. It doesn't seem like that pricing power is coming back anytime soon. When we come back, we're going to look back four years on the market bottom. We'll get back in a moment. Welcome back to the show. four years ago was the market bottom from the pandemic highs to then the pandemic lows.

What did we learn, guys, over the last four years? Because Lou, it seems like that was 100 years ago while also being almost the blink of an eye. And everything has changed in that four years. What did we learn? That's such a fascinating question because we were talking about this offline. It's like, I hardly recall the 2022 bottom, if I'm honest. I, if you talk about like Lou, like recent crashes, I'm going to go to COVID and I'm going to sort of skip right over that. And part of it was the nature of it.

It was just a slow and it wasn't even really a song. It wasn't as long. It wasn't down every day. We kind of kind of went down, went up a bit. But look, at the lows in October 22, we were basically where we were at December 2021. I think the what we learned or my kind of takeaway and I hate to be like. like half empty here or negative here. I doubt we learned much. That wasn't really a market crash. It was just a market downdraft. And there was a lot of hype coming out of the market at that point. I mean,

that was when crypto really crashed to the related companies, you know, the SPAC companies completely fell apart. And here's my concern here is there are a lot of investors in the market who believe they have weathered a crash and they know what to do and they can take it. And I hope so because we tend the collective we tend to make some of our worst decisions in the panic of a crash. But it kind of scares me that I think that there is a good percentage of people who are investors today who haven't been through a 2008 or, you know, a more severe crash. And I think all we can do is point that out and try and steal people towards just, just be ready. It can get worse and make sure you don't make panic decisions then because I don't think surviving 2022 really gives you

your combat stripes. I share the same concerns, but at the same time, I do think that investors who managed to stay the course and not panic sell in the drop that we saw in late 2021 that just persisted and continued to slog downward in 2022. The folks who stuck around through that in the S&P 500 amply rewarded. Four-year average annual return 21.6%. That's more than a double in four years, which is really good even by recent standards for the stock market. And so kudos if you manage to survive that behavioral pressure and stay in the market. Now that said, one thing that I paid attention to is kind of participation. This has been a theme that we've seen over and over again in recent years where it seems like so many of the gains in the stock market have come from an increasingly

small number of stocks. If you go back those three to five years, but go back five years because as Lou says, bottom at 2022 was basically where we were December of 21. Out of the current S&P 500, nearly 150 stocks are still down over the past five years, not just trailing the market, but actually down. That's 30% of the current S&P 500. That doesn't even include the stocks that were down that have gotten kicked out of the S&P 500 over that interim time. And so the question I'm looking at going forward is that we've seen AI-related stocks do really well. We've seen some stocks that aren't really directly tied to AI not do as well. The question, how many of these sectors that have not yet benefited from AI,

are they going to benefit from AI type innovation in the years to come? Is that going to help them catch up? Because that's one possible outcome is all these laggards catch up. If that doesn't happen as much as people expect, then it's a different story. But I think it highlights the importance of really looking at individual companies and particular industries and trying to figure out, okay, yeah, is this going to benefit from these favorable trends?

Is this going to get left behind? Maybe it makes stock picking that much more important for folks that have up until now really focused more on just index investing and trying to buy the market. Well, and what disruption story is real and what's not? Because that's one of the things that I keep seeing over and over, some of the companies that I own and I go, hey, wait a second, I look at the numbers. We're compounding year over year.

Margins are getting better. But there's a story behind it that, well, AI is coming for. this company or this industry and you're going to be toast eventually. Sometimes that's going to be real and sometimes it's not and that's the values that we're ultimately looking for. As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have four more recommendations for or against, so don't buy our 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 Whitman, Dan Kaplanier and Dan Boyd behind the glass, I'm Travis Hoym. Thanks for listening. We'll see you here tomorrow.