Motley Fool Hidden Gems Investing - The Great Rule Breakers Healthcare Debate: Progyny or Hims & Hers?

Starting point is 00:00:00 which is the better health care breaker progeny or hims and hers welcome to motley fool money good morning i am your host tim byers with me are two of my favorite fools san miteo and Alicia Alfieri from the Rule Breakers team. We're going to do a small debate here. And the way this is going to work, fools, is that I am going to ask you to make your case first for progeny, then for hims and hers. I'm going to ask you a follow-up question, each of you, and then I'm going to make a call on which one is going on my watch list. So the audience is your audience, but also I am your audience. So you got to convince me. So Alicia, make the case. Why do I want to be invested in progeny? Okay. So progeny is essentially a health benefit

Starting point is 00:01:08 that employers provide as part of their overall benefits package. Think of it like a super customer-focused health benefit, including drug coverage for fertility and family building. So infertility is a migraine-level problem that roughly one in six people of reproductive age experience. It's also an expensive problem. So, depending on where you live, a single round of IVF can cost $10,000 to $20,000 or more, and that might not even include medication. Prior to companies like Progeny, if fertility services were covered by insurance, it could be restrictive with lifetime dollar maximums and things like mandated step therapy, which was expensive, wasted time, and wasn't a personalized approach. So, of the six signs of a Rule Breaker,

Starting point is 00:01:54 Progeny has about, we'll say, three and a half. The most important part, I think, is their sustainable advantage. They have a strong brand power and an excellent network with great clinical outcomes. They have a strong brand in their core market. They're expanding into services like pregnancy support and menopause care. It also has an impressive network of fertility specialists across the U.S. that really deliver impressive results by harnessing expertise and data. So, for example, within Progeny's network, there's a 21% lower miscarriage rate, a 23% higher live birth rate, and it takes 1.5 fewer retrievals per live birth. So, better results, more efficient, and as a result, less costly. So, this is a much better

Starting point is 00:02:44 suite of services for those who are dealing with infertility. Essentially, the argument for progeny is if you just go for in vitro fertilization without the aid of progeny, your outcomes might not be as good. Single follow-up question for you here. They work with providers, and they don't necessarily work with insurers here. They work with companies that provide this benefit. They do have some customer concentration, Alicia, and they've lost some customers, some big customers. How can this company grow sustainably despite how good the outcomes are based on their data? This is an excellent question. They did lose one major customer last year. It did impact the company's revenue something like 12% to 13%.

Starting point is 00:03:42 Now, they do have over 500 clients, so they can continue to grow by continuing to grow the number of clients that they serve and the number of covered lives or the people that are covered under their services. They can also do more optionality. So, I mentioned they expanded into menopause care and pregnancy services, so they can continue to grow in their optionality for different women's care services. All right, Sam Mead. So, ticker for progeny, PGNY. PGNY, that's progeny. We are moving over to Hims and Hers, ticker HIMS. All right, give it to me. Why do I want this one? All right. So, Hims and Hers is really exactly the kind of rule-breaking platform company I look for personally. It's delivering

Starting point is 00:04:33 rapid growth, recurring revenue, improving margins, and has a relentless expansion into huge new markets. So they're not just riding a trend, they're building a modern healthcare brand for the next generation with technology and customer experience at the core. So there's several factors here. First is their breakneck growth. They've been growing 40% year over year in a healthcare sector, which is quite fast. And all of it's being driven by customer acquisition and high retention rates. They have recurring revenue because the customers that they get are paying subscriptions for the products and services that they get. Another appealing aspect is they have a strong consumer appeal brand and user experience. They're attracting

Starting point is 00:05:12 a lot of the millennials and Gen Z who don't want to go into doctor's office, especially for stigma type conditions. So they're meeting those customers online, on phones, so they can get treatments for things like mental health hair loss weight management and now they're expanding into even things like hormonal health care don't forget the hers brand which also does a lot of will also be doing some menopause treatments in the future so i think also hymns has a massive addressable market opportunity i mean and optionality i mean they're they're they're in already multiple areas that could develop into you know billion dollar brands when it comes to some of the things that I talked about before, but they've also been scaling. They just launched

Starting point is 00:06:00 into men's hormones. They're looking into female menopause, also looking at longevity. And those are all on their radar to expand into. And finally, the biggest thing is technology and profitability. They're bringing technology into healthcare where it's severely lacked. And it's difficult. It's not easy by any means, but they've created a platform that has been easy to use and now they're they're just at that inflection point of profitability they they're they're um earnings profitable um in the past fiscal year and they're looking to expand on that i mean you you mentioned the the technology piece of this um a lot of this interaction with the hims and hers brand is via mobile app which is i mean it's not like that we are seeing this

Starting point is 00:06:49 in other places. So, it's not like that's completely novel, but I do concede that that is interesting. But you mentioned something about, I mean, Samit, you say, we're getting into the hormone business. That sounds like the FDA might have something to say about that. So, can we talk about regulatory risk here? What's going on here? How do they deal with regulators? I mean, absolutely. Regulatory risk is probably one of the biggest risk factors in this company. And you don't want to wake up the next morning holding your hemstock and see some big thing come down from the government. But they're doing the things that they need to do to kind of keep that manageable. They have a robust compliance team.

Starting point is 00:07:34 They've hired former regulators on their team to kind of keep them in compliance with some regulators' laws. And, um, they're, they've been from what I've seen also very quick to make changes and adjustments to their platform, to their, to their, to their, um, products when it seems like, you know, the, the, the, um, federal government or the FDA is kind of clamping down on them and they bought facilities that are, you know, you know, within, you know, within compliance and also, you know, um, they're doing the things that they need to do to can stay, stay in, in the good graces. I mean, it's interesting. So, Fools, we want to hear from you. Which of these two do you want on

Starting point is 00:08:17 your watch list? I'm going to tell you right now that my choice for this is progeny. And the reason why, Sam Mead, is because that regulatory risk feels pretty existential to me. And we have an activist federal government right now. Without making this political in any way, this government has decided to make big sweeping moves faster than anybody anticipated and that for hims and hers that could be significant in ways that i can't predict but i like both of these and i think you both have made a compelling argument for why they are potential breakers in the making but fools we want to know what you think get your comments in let us know what you want and if you have a strong case for hims and hers let's hear it you know back them up just because i back progeny doesn't

Starting point is 00:09:15 mean i'm right so let's let's hear about it all right up next intel and nvidia get cuddly how should investors respond to this deal between these two you're listening to motley fool money All right, fools, let's talk about Intel and NVIDIA. NVIDIA is investing $5 billion in Intel stock at $23.28 a share. This is a private placement. The difference between investing on the open market and a private placement is that Intel is selling stock directly to NVIDIA, and thus they are getting the $5 billion to put on their balance sheet and deploy as capital for growing their business. It's a real interesting one.

Starting point is 00:09:59 The deal between the two will include work on both data center and personal computing products. I have a take on this, but I would like to go to you first here, Sandmeet. Just at the highest level, hearing that Intel and NVIDIA are going to work both in the data center and on personal computing products, what is your reaction? I mean, I think it's great. I think they're both, you know, really helping each other out.

Starting point is 00:10:26 You know, Intel has a lot of the infrastructure and the facilities to create the chips that go into, you know, CPUs. That's not something NVIDIA is an expert in. They're experts in the GPU sets. So, being able to co-design products when it comes to data center and the PCs is going to be helpful for both of them. So, they're kind of helping each other out. I mean, Alicia, where do you stand on this? because i mean sammy's right nvidia doesn't necessarily have expertise making and we could talk a little bit more about this i'll explain the details but central processing units which

Starting point is 00:11:01 are kind of like you know if if the g in in the picture of of an orchestra if the gpu is the mass is the great sound system you know the cpu is the conductor at the front of the of the orchestra that makes all the sound come together, and then the sound system amplifies that. I mean, how do you feel about this deal? Yeah, well, I'm going to say I think that NVIDIA actually benefits more. So, certainly, the cash infusion and the product partnerships help Intel, but NVIDIA is the one with all of the power in this relationship, and now they get a stake in a partner as well. Also, I think for me to really call this in favor of Intel, I think I would need it to

Starting point is 00:11:45 really benefit their foundry business that's just my take but but what do you think no i think that's fair i mean and for those who don't know so intel is competing with taiwan semiconductor to take other people's designs and manufacture those chips and they have really not done a great job of scaling that business taiwan semi is far and away the dominant provider in this part of the business. So that's a real question. Does that $5 billion go into building out the foundry business so we actually manufacture more chips on American shores? We know that's something this administration wants. But for me, I look at this and see what Sam Mead said about NVIDIA getting into the CPU business through the back door is pretty interesting because NVIDIA

Starting point is 00:12:40 does want to sell whole systems particularly at data center scale and in order to sell whole systems you do have to have i again no such thing as an orchestra if you don't have an orchestrator if you don't have a conductor and you need that cpu so i do think that is meaningful for for nvidia but i also think you're right about this you know like who has the power in this relationship I think we know. It's the one with the big checkbook. We know who has the power in this relationship. So for me, I do think it's a bigger deal for Intel in terms of potential value creation. But in terms of strategic fit, there's a lot to like about this from NVIDIA's perspective. But if I'm going to make a buy call just based solely on this deal, this does not make me want

Starting point is 00:13:33 to buy NVIDIA more, but it might make me want to at least move Intel onto the watch list. And that is, in some ways, a reflection of the valuation delta between the two. All right. Up next, a bit of reflections on Rule Breaker Investing and David Gardner's new book. All right, fools. If you haven't seen it yet, last week, David Gardner, our co-founder at The Motley Fool, our chief rule breaker, released a new book, which he is calling Rule Breaker Investing. You may have seen the iconic green cover already. It looks great. And it is a reflection of the principles of rule breaker investing along three different areas, the habits of a rule breaker investor, the six traits of a rule breaking stock, and then the elements

Starting point is 00:14:30 of Rule-Breaking Portfolio Management. It's a very comprehensive book. It includes all the learnings that David has had over 30 years plus of investing at The Motley Fool and even before that and actually building out his Rule Breakers philosophy. We're each going to give a little bit of a story about how that philosophy has impacted us. I think, Alicia, I wouldn't mind starting with you, how do you think about Rule Breakers investing, the philosophy, and what David's captured in this book? Yeah. I think for me, the part of our ethos that I've really keyed in on over the last few years, I did start during the height of the pandemic bubble. Yeah, I remember.

Starting point is 00:15:25 Right. And so, I think the part that I've really keyed on as a result is the overvalued by financial media part. And it's important to realize that it's more than just picking a company that's priced to perfection or priced beyond perfection and thinking, hey, you only live once. it's about finding compelling companies and those that have a price dislocation. And so what I mean by that is a company that might be misunderstood by the market has some kind of optionality that is coming in the future that maybe the market is missing or is not giving ample credit to, or has a short-term challenge, also known as dark clouds that we can see through. And I think for me, that's really been where the beauty is in working through Rule Breakers.

Starting point is 00:16:20 I like it. Sammeet, how about yourself? Yeah, you know, so I think the Rule Breakers, I've worked on Wall Street, and so I've been exposed to value investing and growth investing. You know, as you start investing and learning on your own, you kind of fall into the strategy that works best for your own personality. And Rule Breaker seems to really fit my personality and my style because a couple of the signs is consumer appeal and overvalued because the kinds of companies that I really like and enjoy researching, picking, tend to fall into those two brackets. I mean, when you have a Netflix and a Chipotle and all these companies that have such strong consumer appeal, you see them every day.

Starting point is 00:17:05 I find Rule Breaker investing to be observational investing. You're looking around in the world, seeing what's happening, and seeing if that's an investment opportunity. But these stocks don't tend to be very cheaply valued for a reason. So, this strategy kind of says, hey, it's okay to buy overvalued stocks. Why are they overvalued? Because they're winning. And you want to buy more of these winners as they grow and as they continue to make an impact in the world. So, that's one of the most appealing parts about Rule Breaker Investing that I've adopted. I like it. Well, I'll just close this out here and say I've spent the last 20-plus years

Starting point is 00:17:45 learning to become a better investor as a member of the Rule Breakers team. I started on the Rule Breakers team in April 2005. Rule Breakers started in October of 2004. So, we are about to hit 21 years. I mean, it's bonkers. I can barely believe it. Working with David, Rick, Carl, you, Alicia, Tom, so many others, it's been the greatest privilege of my professional life, to be sure. And as I've grown in the role, David has helped me to see how my own expertise and insights could be honed through the lens of making my portfolio reflect my best vision for the world, which to this day remains one of the most important principles of Rule Breaker investing. It's something David talks about extensively in the book, and it certainly led

Starting point is 00:18:40 me to focusing on the most painful problems I could find. I'm a tech investor, so I tend to look for painful tech problems and then investing in the ones that are providing relief. I have to tell you, the life-changing returns I've achieved as a result of that are a gift that I will never be able to fully repay to David. I'm very grateful for this book. It's been a great ride. Two decades on, I'm still getting smarter, happier, and richer. Not every day. Maybe two out of three most days. I'm not getting richer every single day. That is not true. The market does not cooperate in that in that way but it's been a great ride and i'm very grateful for david i'm very grateful for the book i'm grateful for tom and david starting the motley fool i've learned

Starting point is 00:19:27 a lot i mean one of these days we're gonna do a tribute to tom gardner too and it's gonna be just as eloquent because he's been just as important to the growth and and development of the motley fool i mean the two of them together have just been unstoppable and it's been great so enough enough with heaping on the praise for our bosses, but we do love them because they have been really great to us. And Rule Breaker Investing really has been a gift to us here, who are employees of The Motley Fool, who have worked closely with both Tom and David. And now David's released his book, Into the World. And so it can be something that benefits you. So we hope you give it a read, Pick it up. Give it a read. I think it's worth your time. But that's it for today's show. Thank

Starting point is 00:20:17 you for tuning in to Motley Fool Money. 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. For Alicia Alfieri, Sam McDeo. For our engineer, Dan Boyd.

Starting point is 00:20:53 And our producer, Anand Chakrabarty. I'm Tim Byers. Thank you for tuning in, Fools. We will see you again tomorrow when Emily is going to be talking some small caps. And you're going to want to pay attention to that. So stay tuned. We'll see you again, fools. Move on.

Motley Fool Hidden Gems Investing - The Great Rule Breakers Healthcare Debate: Progyny or Hims & Hers?

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