Motley Fool Hidden Gems Investing - Oil Pulls the Market Lower Again

Starting point is 00:00:00 Oil is up and stocks are down and 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 got to start with the topic of the day, which is the market is down. Oil is up about 5% as we're recording early on Wednesday. So Rachel, this does seem to be a bit of a trend, at least over the past couple of weeks. NASDAQ is down about 5 percent, the NASDAQ 100. We're starting to see a little bit of a pullback there. Maybe that's valuation based. Maybe that's a little bit of, you know, we're waiting for earnings season to begin. But now we have this oil thing going on. So what are the headlines that people need to keep in mind as

Starting point is 00:00:50 they're looking at their investments today? Yeah, I mean, there's a few factors at play. Obviously, oil and inflation are two big ones. You know, the U.S. just canceled its sanctions waiver on Iranian oil as the ceasefire has been declared over. That basically means less oil is likely to be moving around the world. We've seen Brent crude prices go up. Tech stocks are obviously taking a big hit because U.S. inflation is already quite warm at 4.2 percent.

Starting point is 00:01:13 The worry about some of these spikes is that the Fed will keep interest rates higher for longer. And, you know, when interest rates stay high, investors are less willing than they might be in other periods to pay those premium prices for the tech companies that move the market and that, you know, promise huge profits down the road. I mean, you could look at the chip sector this week, right? You know, had Samsung reported a massive 19-fold jump in profits with a huge AI demand, but the stock still fell. I think a lot of what we see is this kind of Wall Street being trapped in a short-term 90-day game. A lot of the daily market volume is driven by quantitative

Starting point is 00:01:46 of computer algorithms and when scary headlines hit the tape those models often trigger those sell orders so i think that's also something we're seeing at play right now lou computers have been really running the market for for quite a while but it does seem yeah it does seem like we're in a period where the reactions oil something we talked about like six months ago and it hasn't turned out to be a huge deal. Is this a huge deal or is this just kind of the day-to-day volatility that we always see in the market? So oil has spiked to levels that are still below June 24th prices, just to give some perspective here. A lot of this is headline writing and a lot of this is ignore the noise. I mean, and I don't think we should overread

Starting point is 00:02:32 in anything like, you know, with all respect, I would be shocked if investors were really worried that oil will change the Fed's interest rate. Well, a couple of drops in the stock market and it seems like the policy decisions turn pretty quickly. Right. Well, I mean, I think what's probably going on is uncertainty, plus that, yes,

Starting point is 00:02:52 if Iran is back on, then the already fragile consumer could become further stressed, which is a much bigger deal than interest rates. So there is like thought processes here. But look, we're up 9% for the year. NASDAQ is up more than that. We are doing just fine. This is normal. We're coming into earnings season. I think, you know, look, there's a real risk that the market will be green by the time anyone hears this podcast.

Starting point is 00:03:20 You know, it's so important not to just overthink any one day. I had in the early days of Twitter, I made a little bot that just said every day the market is either up or down. and it just pulled the top headline on Yahoo Entertainment as the reason why. So every day it said stocks crawl or fall on Taylor Swift releasing new album. And that to me made more sense than most of the headlines I see explaining why stocks move on any given day. Lou, I wanted to get your thoughts on a dynamic that I think I see in the market that may or may not be confirmed. We'll know this in hindsight, but it seems like, you know, when I started investing in the nineties, you can go back to the, the, all the way back to the great depression and things were relatively correlated, right? I learned about this in business school. You

Starting point is 00:04:10 maybe want to have some uncorrelated stocks, but a lot of stocks were correlated. And so you would have the market is up. So almost everything is up. And over time, your, your winners would be the ones that are up a little bit more than your losers. But there wasn't this massive segment of the market that was inversely correlated, as we would say, with the market. Now we get to this time where in 2022, when a lot of stocks crashed, when a lot of tech stocks crashed, if you were in industrials or energy, you may not have even noticed. And so some segments of the market were feeling a ton of pain and some weren't feeling anything. Now we get to this year, if you were invested in software stocks, some of the best software companies over the past 10,

Starting point is 00:04:54 20 years, you were just getting crushed early in 2026. But if you were invested in neoclouds and memory, you're crushing the market. I mean, you know, 50%, 100% gains aren't out of the ordinary there. Now we get to this moment where just in the past couple of weeks, I was looking at Micron and Sandisk, two of the hottest stocks. If you're invested in those stocks, they're down 21% and 31% respectively from their highs. So that can be really painful. It despite the fact that a lot of stocks are up. Are we in a world where the small segments of the market are going to move in really big ways as kind of these themes or momentum kind of goes in and out? So is that a new dynamic that we're going to see going forward? Or is this just sort of where we are in 2026

Starting point is 00:05:43 until we get some bigger move that would be caused by massive growth or recession or something like that? I think that what has changed is your ability to monitor these things. There's just so many better tools. I think that what you just described is a normal functioning market. Usually some things are up, some things are down. There's always leaders and laggards. It's really only in a true recession or a true downturn. And 2022 was not a true downturn. But if you go back to 2008 or something like that, everything was down. It was just, you know, the proportion of how much it was down. And look, to this point, would it surprise you to hear that only two sectors of the market are actually in the red this year, consumer discretionary and communications.

Starting point is 00:06:29 And in fact, tech is the second highest performing sector so far this year. Again, double digits, gains, energy, tech, industrials, real estate, materials, consumer staples. We have so many more tools to monitor these things. We look at these things. And again, we are so focused on the short term. Yes, it is technically true that Micron is in a bear market because it's down more than 20% from its highs. It's also up 200% year to date. Yes. I want all of my bear markets to involve 200% gains. That's after the 20% fall. Again, the lesson I think is, is again, we are somewhat overwhelmed by data. There are just things that we couldn't notice in 1984 that we can notice now. And also we are so fixated on today.

Starting point is 00:07:14 Yeah, Rachel, is that the way that you see things? Is this actually partly what we're doing? We're looking at individual stocks and going, hey, this is where the deals are, not just, you know, by the market or, you know, by the NASDAQ 100. But where are those individual opportunities? And that maybe brings a little bit of this volatility. Yeah, I definitely think that's part of it. I think it's also important to remember that, you know, the type of stocks that were moving the market, you know, 20 years ago, it's a very different market today. And so a lot of those biggest stocks are the ones with, you know, extreme valuation multiples. Doesn't mean there aren't quality underlying businesses there. Doesn't mean there aren't real, you know, earnings and cash generation power there.

Starting point is 00:07:52 But these tend to be extremely volatile businesses that are driving some of the intraday movements in the market. Doesn't mean that they can't be great additions to a long-term portfolio. But these are not the blue chip stocks of yesteryear that used to drive those day-to-day market movements. And so I think it's important to understand where that volatility is coming from. And then, of course, assess individually the stocks that you own, the stocks that you want to buy. A company may be down day-to-day, still up significantly like Micron over the next year. Up to you to decide whether that's a good addition to your portfolio. But as always, I think there are quality businesses that remain amidst the volatility. And understanding where that value adds to your portfolio, I think, is really key to kind of look beyond the day-to-day red and green and see what drives you closer to your long-term financial goals.

Starting point is 00:08:41 And a lot of these things are why we're long-term investors. Keeping your head on straight is often the hardest thing that we do as investors. And just being able to focus on three, five, 10 years from now, what is going to be a value buying and just hang on for dear life is often the best thing to do. When we come back, we're going to talk about some new cheap EVs coming to the market. You're listening to Motley Fool Hidden Gems Investing. welcome back to motley fool hidden gems investing one of the topics that i think has been fascinating over the past couple of years is what's going on with the ev market and we have seen over the past few weeks maybe a month or two a couple of lower cost electric vehicles coming to the market

Starting point is 00:09:22 this week we had fiat introduce the toppolino if i'm saying i'm probably saying that in american I'm sure it sounds top of the lane, though. You're right. Yes. A fourteen thousand dollar forty six mile range vehicle. Lou, one of my favorite things about this is the image that they have at the top of their page doesn't have a door. It has a rope holding you in the car. I'm sure my kids would love that.

Starting point is 00:09:50 But is this the kind of vehicle that may actually prove that there is a lower end for these EVs? Because some of the more expensive ones are doing OK. Do we have a market for a $14,000, $15,000 electric vehicle? Do we have a market? Let's get that question first and we'll get to the top. Because fortunes have been lost betting that Americans will make practical, sane choices when it comes to purchasing vehicles.

Starting point is 00:10:16 This won't be different. There's a reason why this market doesn't exist. It's because no one was buying the options they had. All right. In the case of Fiat, this is a golf cart. This is not a vehicle. It is. It's fine to have a rope instead of a door when you are capped out at 19 miles per hour.

Starting point is 00:10:34 It isn't even road legal. It will come. You can get a kit that makes it road legal and get you up to 25 miles per hour. But it is you're you're spending 14, 15. So then why is Fiat making this? And Fiat, by the way, owned by Stellantis. So this is a pretty big automaker. Marketing.

Starting point is 00:10:50 Marketing. There is, I will tell you, I don't know how it is up there, but down here, I mean, there is almost a golf cart per driveway. So I really think that they are chasing the country club, take the kids to the pool market here. I really believe that. Maybe, maybe you can squint and see a business for Slate, the truck. But even then, look, even Honda abandoned the fit. And why did they do that? Maybe it's one thing to say, oh, Detroit's just stupid, but Honda's not stupid. They abandoned the fit because Americans weren't buying it. The Slate looks intriguing, but you can get an entry-level Ford Maverick for $28,145. Slate says they're going to be $25,000. Maverick actually has features, and it's actually in production, so we know the cost to build. There is a very, very narrow market for Slate to succeed, if any. And it feels like the easiest way to go here would be Ford can just, I don't know, knock a few thousand off the Maverick if they see Slate actually generating profits.

Starting point is 00:11:57 The interesting thing here is I would love for this to be a practical vehicle in a market that, you know, exists. But I live in the suburbs. We have kids. This vehicle fits two people. It's completely unfractical. Going 25 miles an hour? Yeah, it is. It's like by us buying a moped, you know, that the kids can't even ride on. Rachel, do you have any different view of this? Is there some sort of market for some of these

Starting point is 00:12:22 less expensive vehicles in a world where, Lou's right, General Motors, Ford, all these big companies, they're making lots of money, but they're not making money on small vehicles. They're making money selling giant trucks and SUVs. And guess what? That's what I see driving around, even if there's just one person in them? Yeah, I think that there is a place in the market for a low-cost EV. I just don't think it looks like either of these offerings that we're discussing today. I don't think that the practical utility is there in what we are seeing being brought to market. But I do think that there are consumers that would gravitate towards a practical, accessible, low-cost EV. It doesn't mean a cheaper version of a Tesla. I think it would

Starting point is 00:13:01 be kind of a rewritten definition of what a lot of these vehicles are. And, you know, we saw how Detroit, early EV companies kind of abandoned the entry-level buyers. They moved up market to chase a lot of the higher profit margins. Some might say that there is a benefit to that. Obviously, the vacuum grew wider with the elimination of the federal EV tax credit. So it's interesting. Fiat's Topolino, it targets micromobility, like Lou was talking about. It's very much built for short city trips, gated communities. Maybe you're going to visit your neighbor on one side of the community to the other. Definitely not built for the highway. Now, Slate, backed by Amazon, their $25,000 electric truck, it has this kind of bare-bones simplicity.

Starting point is 00:13:42 They've swapped out the dashboard screens for a simple phone mount, the manual roll-down windows. What's kind of interesting about Slate's model is they claim the base truck will make a profit on day one. I think that remains to be seen. But they are basically selling this bare-bones frame. And then they have upsells that customers can access through something like almost 200 customizable modular accessories. That's the point. It's a blank slate. It's basically a blank slate. So no pun intended. So I think if and when we see mass adoption of average consumers buying electric vehicles, I don't think it's going to be won by adding more luxury technology. I don't think it's going to be won by little gadget centric cars. I think there needs to be basic affordable transportation that the mass market can access. And I don't think we're seeing that yet. just for uh disclosure here it is jeff bezos who is invested in slate amazon does not have a stake

Starting point is 00:14:35 in slate so that is a personal investment that that bezos has made but he's he's done amazon invested in rivian so they they all kind of uh tie together luke what one thing here and it's kind of the bugaboo is is there is a huge engineering challenge batteries are really really heavy and take a lot of space which is why it is hard i mean we've seen it done in some ways but normally these are the cars with very, very little range. It's just, again, it's really hard to get Americans to compromise when they buy vehicles. And even 25 grand is a lot of money. So if you're going to spend 25 grand, hey, you're not spending 40, but you probably want something that checks all the boxes. So it's just a really, really hard problem to solve.

Starting point is 00:15:17 For all my joking, I'm going to make a bold prediction right now. The Topolino will outsell the slate. I genuinely believe that. For one, a new Yamaha golf cart will run you back 20 grand, so it's not bad. And for two, if you've ever been to the villages outside of Orlando or a place like that, everybody has a pimped out golf cart. They have like Rolls Royce fronts on it. This would fit. Yes, this would fit that category well. This is the market. It has nothing to do with electric vehicle revolutions and stuff like that, but there is actually, I think, a bigger market for this than I would like to admit. So I think it will outsell the slate, but I don't think either of them is going to solve the U.S. mobility issues.

Starting point is 00:15:57 I will say it will outsell the slate if we see 16-year-olds with a rope holding them in driving around town. That's how you know it's popular. I don't know. I think it would be fun when I was younger, but we'll see how this goes. When we come back, we are going to get to a listener question. You're listening to Motley Fool Hidden Gems Investing. welcome back to motley fool hidden gems investing we want you to be involved in the conversation so you can send your questions to us at podcasts at fool.com one of the questions that we got is

Starting point is 00:16:30 from bruce in daytona beach florida wants to know about american tower ticker symbol is amt a couple of concerns is the debt manageable rachel i want you to tackle that and then I want to talk about this satellite technology. Is that going to erode or disrupt the traditional land-based tower business? But what do you think about the debt, Rachel? Yeah, in terms of the debt, the short answer is yes, I think it's manageable. And part of that's because of the unique real estate model here. So American Tower, their global cell tower, real estate investment trust, or REIT, as

Starting point is 00:17:02 of the end of Q1, they carried about $45 billion in debt. That might sound a bit terrifying on paper, but the debt is backed by very sticky multi-year leasing contracts with the telecom giants. Think Verizon, AT&T, T-Mobile, there's others. These are not carriers that are going to pack up and leave these partnerships. It does give American Tower a very predictable high margin cash flows and profits that quite easily cover their interest payments. So that hopefully sheds a little bit of light on how that model works. Yeah, the other thing they've been adding is data centers. So closer to customers, these like mini little data centers that just kind of sit at the bottom of the tower. So, you know, as you look at artificial intelligence, where that goes in the future, that could be another growth avenue for them. Lou, let's talk a little bit about satellites. We've been hearing a lot about satellites, all these use cases. One of the biggest use cases today is telecommunications. Is this going to disrupt American Tower's business? And by that, I mean, is it going to disrupt the Verizons and the AT&Ts and the T-Mobiles of the world? So real quick on the debt, one thing to note is it doesn't, it's manageable, but in a hire for longer, because they roll so much over as an investor, it could impact returns and profitability

Starting point is 00:18:12 because they are probably paying more interest than they thought. It's not going to capsize them, but yeah. So can satellites capsize? That's the real question. Look, if American Tower didn't exist today, I think I could make an argument that you wouldn't need to spend all that money own infrastructure because of satellites. I don't know if I'd win that argument. I still don't have physics on my side. But look, there's a lot of costs with building a terrestrial network. The thing is, that cost is done and we have that and it works. Look, as far as replacing terrestrial with satellite, latency is always going to get in the way. You just the signal has to travel longer. There's going to be delays. All right. You can kind of do things with technology. But for when

Starting point is 00:18:54 there is a tower nearby, this is never a good option. It is always going to be a supplement to that. Here's where it could play in again. Maybe there isn't as much growth. Maybe there isn't a need to put towers in all the areas where it doesn't feel like we're going to ever put towers anyway, because, you know, these rural areas. But any hope that the bull case is we're going to have a tower on every acre, on the top of every mountain in Colorado or something, that goes away. So kind of the growth story goes away. But same thing for the Verizon's T-Mobiles. This is a good partner. This is not a replacement. It's just the physics doesn't work. It's a harder technology to get right. Yeah. The other thing to understand is the economics of some of these

Starting point is 00:19:37 satellite deals. Like if you look at AST SpaceMobile, they have revenue share deals with the partners that actually own the spectrum. So Verizon owns the spectrum to reach your Verizon phone, AST can't just come in and replace them. They've got to license that spectrum from them. Yeah. And these satellites are built in a way that you do when you need hundreds and hundreds of them. They have a life of maybe three, five years tops. So the CapEx cycle is going to be unending for them. Any thought, and we're with American Tower, you don't really see that, right? You see some maintenance. So any thought that over time the cost can come down, I just don't see it. Yeah, great question, though. One of those businesses that I think

Starting point is 00:20:22 is important to understand, and we'll see how disruptive satellites can be. I think this is one of those areas where I could see connecting my watch to a satellite in the future or, you know, a vehicle. Maybe that makes more sense, but not necessarily your phone, at least on a day-to-day basis. 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 The Motley Fool's editorial standards. It's not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure,

Starting point is 00:20:57 please check out our show notes. For Lou Whiteman, Rachel Warren, and Dan Boyd behind the glass, I'm Travis William. Thanks for listening. We'll see you here tomorrow.

Motley Fool Hidden Gems Investing - Oil Pulls the Market Lower Again

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.