Motley Fool Hidden Gems Investing - Sometimes Second Acts Work Out

Episode Date: November 30, 2023

When disruption strikes, what a company does next is crucial. (00:21) Bill Barker and Deidre Woollard discuss: - If we are already in a Santa Claus rally. - The challenges facing big automakers. - If cybersecurity’s challenges will fade. (20:48) Mary Long and David Meier discuss the “second acts” of BlackBerry and Garmin, and take a look at 3 other stocks in the midst of a turnaround today. Companies discussed: BB, GRMN, ZIP, EVBG, TDOC, CRM, GM, F, TSLA, OKTA Claim your Stock Advisor discount here: www.fool.com/mfmdiscount Host: Deidre Woollard Guests: Bill Barker, Mary Long, David Meier Producer: Mary Long Engineers: Dan Boyd, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

From morning hockey with a cup of coffee, to Timbits and road trips, Tim's and Canadian Tire have always gone together. Now it's official. You can now earn Canadian Tire money at Tim's. Link your Triangle Rewards and Tim's Rewards accounts to earn twice with every Tim's run. Terms and conditions apply. Visit timhordens.ca slash triangle for details. Who says there's no such thing as second acts? Motley Fool Money starts now. Welcome to Motley Fool Money! I'm Deidre Willard, here with Motley Fool analyst Bill Barker.

Bill, how's it going? Bill Barker. It's well, thanks! Good! Well, I know you like to keep an eye on the macro like I do. I heard you talk on The Morning Show the other day about the revised GDP. Today, we've got the PCE, the Personal Consumer Expenditures Index, came out today right in line with expectations around 0.2%. This is, they call it, the Fed's favorite indicator. Seems pretty good. Are we out of the woods? Can we just heave a sigh of relief? Hikes are over, it's done? I could complicate the answer. I'm just going to go with yes today. Wait, I want the complicated answer! Why not?

Well, you never know. It's a complex world. Infinite possibilities exist out there in the multiverse. If you go to your favorite inflation nowcast site, which is probably the Cleveland Fed, the numbers for November and for the fourth quarter, whether you're talking about CPI-Core, CPI-PCE, Core-PCE, they start with twos or threes, and it's becoming more twos than threes now. We all know the magic number is two. 2.00, 2%, 2.9, not good enough. Powell has been very clear on that. And I think there's some discussion from some intelligent people about, all right, we have to get to two to establish credibility, but maybe in the future we can

talk about three. Let's not make two this holy grail that we always have to chase if there's nothing particularly meaningful about two and three, and the damage that you might do to pursue two is greater than the benefits. Anyway, this is all, as I said, the complicated, boring answer that should have just been yes. Inflation is at an acceptable level today, but for the declaration that it must be, too. That's pretty good news. The interest rate is now expected in the betting markets to not go up and to go down starting in the spring sometime. I'm a little less clear that that's going to happen. I definitely think that we're probably at the end of the rate hikes, but I don't know

how fast we're going to start with the cuts. But overall, we're at the end of November. It's been great. It's been a really good month for stocks. And we always hear about the Santa Claus rally. Do you have an opinion on the Santa Claus rally and that whole, you know, is that just something that we sort of attach to? I mean, I'm not sure that the data fully bears that one out.

No, it's one of those things that's just got a name, so people keep bringing it up. We just like to talk about Santa. It's fine. I don't know. Did we start the Santa Claus rally? Is this part of it? Have we already anticipated it? The Dow's hitting a 2023 high today. I would say that whatever rally you're hoping for has already been delivered by Santa, and you shouldn't ask for so many presents this year. You already got tons of them. That's what I would say. That sounds a little Grinch, but I'm reminding people of how much Santa and or whoever else works with him has brought already. Well, we do start Black Friday earlier, so let's just start the Santa Claus rally earlier, too.

Speaking of other things that seem semi-mythical, today is supposedly the first real delivery for Tesla's Cybertruck. The media's just going nuts about this. The actual event itself takes place, I believe, at 3 o'clock on whatever we're calling Twitter now, X. I don't know. I'm not so excited about the Cybertruck. Will we be surprised? Will there be something amazing that Musk is going to pull out of his hat? You wish that I were cool enough to have driven enough trucks to have an informed opinion about what this model would do. Are you such a cool person? Drive a lot of trucks? I don't drive a lot of trucks. Just a couple? The one? Whatever? I tend to be a very small car person.

I used to have a smart car. I'm the opposite of a truck person. A smart car? Yeah. So, the kind of thing that trucks eat? Yes. Got it. Yeah, it's a very futuristic-looking item. It's an interesting bet on traditional truck purchasers buying something that looks nothing like what they like and use. I can't handicap whether that's going to work out. Now, Tesla's got a certain embedded clientele, early adopters. They've got lots of orders ahead of time. Only, you need to have thrown down $100 to have a reservation on this. So, whether those end up getting filled or not,

I don't know. I think that it's not something that the business is going to live or die based on the success of this. So, I think it's an additional potential upside. There's a huge market there. Whether Tesla is addressing it in the right way is something for cooler truck-driving people to opine upon. Yeah, it doesn't seem like it solves any problems that any truck drivers might have, other than it looks kind of cool and may be impervious to corrosion and things like that. But maybe not. We saw how it worked out with the glass thing. Who knows? Yeah, who knows? I think it's a great media event. Musk hasn't been in the spotlight for several minutes now.

Actually, he's never out of the spotlight. It just follows him around? Yes. That's where part of the Musk spotlight will be shining for part of today. He probably needs a little distraction. Well, let's keep it on cars and trucks. GM released their updated guidance yesterday. They announced $10 billion in stock buybacks, which means they think the price right now is too low. You discussed that on our morning show for Motley Fool members yesterday. They're also scaling back their robo-taxi ambitions with Cruise after an unfortunate accident, and the CEO recently left. How should we be feeling about the robo-taxi thing in general?

Are we getting close to that not working out? I feel like they're not giving up on it fully, but they're definitely pulling energy and money away from it. They certainly are. They're scaling back their timetables. It's not really entirely up to them. Unlike some companies and their products, this has a lot of regulatory hurdles to clear and to keep having to clear. Every single accident that happens, and there will be more, and there have been some, gets an amount of attention that is disproportionate to auto accidents that don't involve robot driving, automated driving. I think that the regulatory hurdles are very high. It's worth pursuing, but not pursuing

at great cost. I think the costs are being scaled way back at this point. Yeah, it's interesting. Ford released their updated guidance today. Both these companies, they had to pause their guidance because of the strikes. The other thing that I'm taking away from this is, they're digesting that disruption, but they're also changing their EV strategies a bit. But it's really confusing, because they're trying to play both sides. They're scaling back some of the factories, but they're still saying, this is the future, we're building toward it. This just seems like such a tough spot. If you're Tesla, you're only in one direction. But if you're Ford or GM, you're doing gas-powered, you're doing hybrid,

you're doing EV. It seems like a lot to straddle. Yeah. I would imagine that if you could track the enthusiasm of their discussion about EV adoption on their own platforms, that it probably would have peaked somewhere around the time that oil peaked. Oil at $76 or whatever it is, the second compared to $123 last summer, summer 2022, I think. That's just a different equation in terms of what the demand for EV is going to be. There's a price at which it becomes much more interesting to car owners, and there's a price at which the upfront cost for the vehicle is not that interesting, depending on their usage and the cost of gas. That is part of it. The demand increases slower than some have predicted and hoped. That's also

a function of the price of oil, in part. Also, in terms of government incentives. Right now, not all those tailwinds are behind EV. They were, and they will be again at some point. I'm sure that oil will be higher at some points in the future than it is right now. Yeah, definitely. We know where things are going. It's just a question of when we get there. I think the other thing is, the charging problem still has not been solved. The range anxiety thing is real. A coworker of ours went up to Boston over Thanksgiving, and an eight-hour, nine-hour drive actually took him 12 hours, partly because he had to stop and try to find a charging station. I feel like until we solve that problem,

it's not going to be full steam ahead. There's still a lot of concern, I think, about that for potential buyers. Certainly. Americans are used to long distances compared to many other countries in terms of how far apart families live and the willingness of Americans to relocate to different parts of the country and have friends in different parts. I think the drive distances are greater here on the average holiday trip and for other trips. Yeah, I think the range, if they all could make up whatever number you want, 700 miles. I just made that one up. Now it's your turn. Make up a different number. I think most people would be happy with 500.

500, OK. Yes. When they can reliably give you 500 miles under all conditions, that will help. That will help a lot. That's enough to cover all the driving you're probably going to want to do in most days. Yeah, no doubt. I'm going to switch just talking a little bit about tech. Neither of us are an expert on that. But there's something you said about the EV and the hype cycle. I feel like right now we're in a little bit of the cybersecurity and AI combo hype cycle of, we have to go in this direction, companies have to spend on it, they've got no choice. I don't know. I've been through so many booms and busts that I'm very cynical. One of the things I think about is that you don't ever

know when the cycle is going to end. I'm thinking about cybersecurity. At some point, don't these companies catch up with this, and we're escalating, like, there's a hack, and then we fix it, and then there's another hack. Does that eventually stop? No. Does it get any better? Please tell me it gets better. Let's just dream it gets better. I would think, you're taking two concepts that have relation and mixing them together makes for particularly potent potential trouble. Cybersecurity and AI. You throw AI at creating more security issues, it'll be used by good and bad. You can throw more AI to find more

ways to penetrate cybersecurity, and then you could throw AI at more ways to prevent that happening. That just keeps escalating, I think. It's a good field, I would say. I can't imagine, from the exquisitely little I know about cybersecurity, that it can be cured. I don't think it can be cured, but I do think that the current expansion of these businesses won't last forever. It just can't. There's only so far you can grow. But I think it's an interesting time to watch these businesses. The one that I'm concerned about, not because of their numbers, but because of their security breach, is Okta. This breach they announced happened in October.

We found out yesterday it's way worse than they thought. How do you deal with that moment in a business when there's this loss of faith and you don't know how big it's going to be? Preferably, you're honest about what you know. I'm not sure that Okta delivered the information in September in a way that is going to increase trust, given what appears to be the scope of the problem here. That is a big problem for a security company. It's reflected in the stock. It's no higher today than it was five years ago. Business has increased in the last five years dramatically, but not Okta's price. That is on them, I think. It doesn't appear to be a particularly impenetrable

cybersecurity program that they offer. Not at this point. They've got work to do. In the second half of the show, we've got a conversation between Mary Long and David Meyer about businesses with second acts. Salesforce kind of feels like one of those to me right now. Because, of course, it started off as a CRM database company. Its ticker is CRM. Kind of lost their way a little bit with so many acquisitions, including Slack, which they still sort of haven't fully harnessed, in my opinion. Then they kind of got religion, gained financial focus.

At the same time, the AI trend kind of hit and really sort of gassed everything for them. And they were able to capitalize on that with their Einstein and with their data cloud. Stock is up about 70% of the year. I don't know if this is luck or skill. Does it even matter which one it is? Well, certainly, the skill would be the one you would want to choose in terms of increasing your business over time. The 70% is a function of at least as much luck as skill. That being the bad luck of last year's returns creating stock prices going into January 1st of this year that were ones that the entire industry has benefited from. I think with

Nasdaq up maybe 36% as of sometime today, from the beginning of the year, Salesforce at 70% has both outperformed and probably underperformed last year. I don't have the number in front of me on what they did in terms of the stock, but I think that was part of it. So, that's part of the cycle that you get into with any investment in the market. But, if they stay away from the kinds of acquisitions, major acquisitions at premium prices, which Slack seems to be an example of, that was not something that the market wanted to see more of. They seem to have heard that and adjusted toward what is something relatively new, which is to focus on profitability rather than growth. It's nice when you have the levers

that they have, the size that they have, to say, well, let's just get better at margins and to see dramatically improved profitability from pursuing something today that you haven't been pursuing previously. Yeah. I think they were able to move really quickly into the AI space because they were well-prepared, which was helpful. With Slack, it's interesting to me because they just went through another CEO switch. Their previous CEO wasn't there even a full year, I think, before she went on to Bumble. So, I love Slack as a tool. We use it here at The Fool. I want to see it integrated into things. I'm not sure that they've fully figured it out yet. What do you think?

I am one of those people that doesn't see Slack as all that much more valuable than the things which preceded it, including email. A little bit more valuable, and I could probably be better in my usage of it. It's here for us, but $28 billion for it seems bizarrely high to me. I think that was a function of the prices back at that point in time. And as you say, it doesn't seem to have been integrated in a way that makes it indispensable at all. I'm not sure if it's indispensable. Certainly, the idea of it is indispensable. Whether Slack itself is, who knows? Well, I think that there are competitors that do things which are probably very competitive.

I don't know what the moat really is here. There are some switching costs, but they don't seem all that great to me. If we just used a different system, people would have to create The channels that are created now and some of the conversations, historic, would be lost in the process. But it doesn't seem, because of the ease of use of both it and its competitors, that the switching costs are enough to justify, as I say, the price. Look, it's certainly worth something. I don't think it's worth the price they paid. We will always find a way to communicate. Thanks for breaking it down with me today, Bill.

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two stock recommendations per month, and access to Stock Advisor's full scorecard of companies, visit www.fool.com slash MFM discount. Once upon a time, BlackBerry and Garmin were at the top of the world. Then came the iPhone. Mary Long and David Meyer talk about two very different turnaround stories

and lessons learned from each that investors can apply to stock hunting today. David, I've been thinking a lot about the early 2000s. Back then, when I heard cell phone, I thought BlackBerry or Motorola Razr, but that's a different story. When I heard GPS, I thought Garmin, and I have very vivid memories from the backseat of my parents' car to prove it. Today, both of those companies, BlackBerry and Garmin, technically live on, but in, I'd argue, very different ways than they once did. I want to talk about that transition, that second act of each company. So first let's hop in the time machine. Let's go back to the early two thousands

and, and talk a bit about that first act of each company way back when, what made each company so great. So a lot was happening in the 2000, early two thousands, a whole heck of a lot in terms of technology. And BlackBerry was at the forefront of secure mobile communications. Basically, their claim to fame at the time was, you as a business executive and all your employees could communicate back and forth securely. No one was going to interrupt your message. No one was going to steal anything from you, only if you used a BlackBerry. And they made a huge name for themselves in that. But if you go over to Garmin, Garmin has a little bit of a, we'll call it a less sexy beginning. They wanted to help planes navigate through the air better. And so,

they were at the forefront of GPS-enabled devices. They started with airplanes. They started with boats. Their first customer was actually the military. They have come to very different places in their life, as we'll get to. Maybe our best move is to get the bad news out of the way first, because as you said, both these companies ended up in pretty different spots. So we'll start with BlackBerry. In 2007, 2008, they had a market cap of $83.2 billion. Today, that's $2 billion. Does not take a pro to understand that that is a bad, bad slump. They're also no longer a mobile phone maker. Instead, they specialize in enterprise mobility management suites. Can you translate, A, what that means, and then talk a bit about why and

how this pivot happened? Yes. So, that is a fancy way of saying cybersecurity with an emphasis on what is called endpoint security. And if we think about it, it's actually not a bad pivot for them because, again, what they became successful at was securing mobile devices. You know, there were tons of phones out there and they made sure that no one could get into them and no one could steal data from. That's exactly what endpoint security is. The problem is, that pivot happened way too late. That's a mature part of cybersecurity. There's plenty of competition within there. And as you and I have talked about before, when you get a one-stop shop like a Palo Alto who says, by the way, we'll throw in endpoint security as a part of the package, it's difficult for them to

take what they've been successful at and re-transfer that into a different market. And essentially, that's the issue. They have not been able to actually pivot into something new or pivot successfully into an extension of their technology. As of the most recent quarter, 59% of BlackBerry's revenue, so $79 million out of $132 million total, came from this cybersecurity portfolio. Is there a world, they've been talking about this turnaround for forever, but is there a world in which this company comes back from the dead by becoming a more legitimate or a more serious player in the cybersecurity market? So, I won't go so far as to give it a 100% no. There's no chance that this is going to happen.

But again, it's very difficult. They're late to the game. They're coming at it without the benefit of having proper sales force, proper marketing. The current that they're swimming against upstream is just so fast that I just don't see it happening. Okay, so now we'll go to a happier story. Garmin leaned into what it knew well and has become, I would say, a premier company for GPS-enabled navigation communication devices. They make fitness wearables, chest strap heart monitors, fish finders and sonar applications, aviation navigation tools, auto infotainment systems. The list goes on. It's pretty extensive. In 2008, right around the same time that smartphones and the ubiquity of Google Maps

were starting to take place, Garmin was effectively declared dead in the water. All of those trends did not paint a pretty picture for its future. November 2008, Garmin's trading for about $17 a share. Today, it's about $120, so up just over 7x. Much prettier story, happier story than what happened with BlackBerry. How did this turnaround happened? So this is a really interesting question because one, this turnaround took a long time and two, it was not glamorous at all. So let me, let me, let me give some context about what was going on. You're exactly right. Garmin known for GPS was really seeing tremendous sales growth during that time. And then more and more people got into the GPS business. And that had an impact

on Garmin, as one would expect. We have to remember, Garmin wasn't in the business of selling a smartphone or selling a smartwatch as we know it today. They had their devices. They had the backing of their GPS location-based technology, the software that they had developed, the mapping technology of how to use that. They were figuring out other things that they could do as an extension of their brand. They were just getting into wearables. But they had the base of the aircraft market, GPS location, as well as marine boats and things like that. And quite frankly, the biggest thing that management did was not do something stupid. So, what do I mean by that? The company let their sales actually shrink. And some of it

was market forces. But what they did was they made sure that their company was generating cash. And all throughout that time, they were paying a dividend and they were raising their dividend. So let's think about that for a sec. Here's a technology company that did not go out and make a whole bunch of acquisitions with the capital that it had. It started returning capital to shareholders. And then started thinking about, okay, let's try this. Let's try this product. Let's try that product. Let's see what catches on. Where else can we extend our technology base into? And slowly, by slowly, I mean like over a decade, they just kept at it, kept going and going and going. And whatever money they didn't need, they returned to shareholders. This is the

most, again, this is the most unglamorous turnaround you have ever seen, but it worked and the way it worked because the business stayed healthy. Are there any, this pivots away from BlackBerry and Garmin. Are there any companies you're looking at today that are in the middle of a turnaround and that could kind of go the way of either of these companies? Oh yes. So, uh, there's, I got, I have, I have three that I've been looking at, uh, for, for a little while and they're in different stages. And I look forward to talking a little bit more about them. So the first one is ZipRecruiter. This company has been tele communicating with its shareholders, like, look, job listings are down. Companies are pulling their job listings. That's hurting our

business. The stock has, the business has suffered. The stock has suffered. I'm looking at that as one potential turnaround. Another turnaround, a company that I've been very familiar with is called Everbridge. What they do is they put out emergency communications. They have software that allows businesses and municipalities and things like that to say, hey, there's an issue. You all need to know about it, and here's what you need to do about it. Their CEO abruptly left and basically forced the company into a panic. They've also had some follow-on issues with that, but that's a little bit of a different turnaround. Teladoc is another one that I'm looking at. This is a company that basically started pioneering telemedicine. They started making

a whole bunch of acquisitions. We're going to get big. We're going to cover all the healthcare verticals. And that just stopped working. Now, I still believe in telehealth. I think it is part of the future. But the question is, what has to happen in order for Teladoc to turn its business around and be successful? So those are three types of turnarounds. And I think you're probably going to ask me, what's the difference between the three? What am I looking for? Yeah, exactly. We've been talking about BlackBerry and Garmin. It's one thing to look back after 10 plus years and say, oh, this is why one succeeded and the other just couldn't make it happen. Yes. When you're in the middle of it, what are you looking for?

Yes. Let me quickly walk through what I'm thinking for each. I think with the ZipRecruiter turnaround, that's probably one that's most straightforward. We'll get labor market data. We'll get communications from management that say, hey, job listings have started to return. right? That's a very simple way of looking at, is ZipRecruiter turning around? I don't think this business is damaged. There's no one in there who's disrupting ZipRecruiter at the time. We just need the macro data that influences ZipRecruiter's revenue to get better. So we can see that. We can see that one happen. So we're just waiting for the data to get better. Or since We're confident that's what it is. We're waiting for the price to get super cheap.

I'm willing to take a risk and wait six months for the data to get better, or 12 months, or whatever. But it's probably not a 10-year venture. Everbridge, oh, my goodness. So, what did they have to do? They had to get an interim CEO. Then they had to find a new CEO. Then they had to figure out, has my business been damaged in any way because maybe some potential customers decided not to do some deals with us because we didn't have a regular CEO at the time? This one's a little more difficult. I have to figure out, has this company's business, its business model, has it been damaged to the point where people are saying, no, we'll look for different alternatives, or can they get their magic back,

if you will, and really start growing? We're talking here maybe a two- to three-year time frame. ZipRecruiter, six to 12 months. EverBridge, maybe two to three years. Teladoc, is telemedicine, has that been commoditized? Is there basically the answer or what you can infer from a question like that is, will Teladoc ever get its mojo back? I don't know. This could take a very long time, and the stock could really do nothing or even decline further if there's difficulties along the way. So, real quick to bring this to a framework, it depends on the situation. Is there an immediate near-term catalyst that I can see? You have to ask, how badly has a company's business model been damaged by a situation? That's the Everbridge.

And then with Teladoc, is this going from a disruptor, basically, into a business that's been commoditized, at which point the thesis is broken. There's no amount of time that I'm going to wait. I'm just going to move on to the next step. As always, people on the program may have interests 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. I'm Deidre Willard. Thanks for listening. We'll see you tomorrow. you