Motley Fool Hidden Gems Investing - Top Stocks to Buy Right Now (April 1 Edition)

Episode Date: April 1, 2024

With the market hitting new highs, which stocks can go the distance? (00:21) Jason Moser and Deidre Woollard discuss: - Another big stumble for AT&T. - Why 3M’s spin-off might be worth watching. - What’s driving gold prices. (17:01) Asit Sharma and Ricky Mulvey discuss stocks that can beef up your portfolio, in a special April 1st themed conversation. Companies discussed: T, SOLV, MMM, UPS, PATH, AMD Host: Deidre Woollard Guests: Jason Moser, Ricky Mulvey, Asit Sharma, Erin Karney Producer: Ricky Mulvey Engineer: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

We're talking top stocks, including a new entry into the market. Motley Fool Money starts now. Welcome to Motley Fool Money. I'm Deidre Willard here with Motley Fool analyst Jason Moser. Jason, how's your Monday going? Hey, Deidre, just fine. How about yours? Pretty good.

it's a little bit don't listen to the news day, but we're making it through. I actually want to cover something that happened over the weekend. I'm an old PR person, and I know when a company announces news on a Friday, probably not great. On a Saturday, it's even worse. So AT&T told us on Saturday that what they say are AT&T data-specific fields leaked to the dark web about two weeks ago. This is pretty huge. It's 7.6 million current users, over 65 million past users. It's older data, but it's got birthdates, it's got social security numbers, it's got a bunch of other stuff. The company says it doesn't have a material impact on the business, but this isn't good. No, no, it's not. It's one of those things where,

I say it often, and I really do believe this, if it's man-made, it's hackable or breachable. When you look at something like this, you have to assume it's a matter of when, not if. This isn't something that has only happened to AT&T. We read about these types of security breaches everywhere. But when you consider them in the context of these types of companies, AT&T, Verizon, T-Mobile, It hits a little bit closer to home because these networks are pretty much the lifeblood of everything that we do, whether we're in home, in office, or mobile. We're using these networks and we're sharing just a ton of information.

When you see this type of news, it's absolutely deflating on the consumer side, particularly when you consider the fact that, what's the option? What do you as a consumer do other than say, well, I guess that's just something that's going to happen, and hopefully the company responds to it in kind with some type of service amendment or maybe, we see them offering credit monitoring for a year or whatever, that's good. But most consumers aren't going to just step forward and say, OK, this is going to make me switch networks. I'm moving from AT&T to Verizon because this would never happen to Verizon. Well, spoiler alert, yes, it does, and it will again.

And I think that's really the biggest hurdle for consumers to get over, because I think, as you noted, this concern about a loss of public trust, yeah, there is a loss of trust. And the bigger problem really is, there's just not much we can do about it, unfortunately. Yeah, and I think, to some extent, we're getting used to it. It's hard to say. I mean, certainly that's a reason we've got cybersecurity, but cybersecurity doesn't catch everything. And one of the things we keep learning is it's, it's human error a lot of times.

But the other thing I'm wondering here too, it's, this has not been a great few weeks for AT&T. You know, they had some, they had some outages and now they've got this, you know, when you've got a company that's going through this sort of thing, you know, you, you want that clear communication. I don't know that I want to see a little something more from them, uh, than just like here, we're going to offer you a free thing, or here's $5, or whatever they're, you know, what they try to do to make it right. Yeah, I don't disagree there. And I think it oftentimes depends on the company.

I think leadership with companies like AT&T, for example, and we're just using them as an example because they're in the middle of it, but I mean, we could look at something like Boeing as well. They probably believe that they're in a little bit of a protected position. Again, going back to, what's the consumer really going to do here? Yeah, you might have some folks that want to switch networks on the margin, but it's not going to be something that ultimately befalls the business. It definitely depends on the type of business, the size of the company. I'm with you. I think that leadership in these cases is always better served really getting out in front of this. Communication is key with these things, particularly when you see

it start to snowball. It's one unforced error after another to just get back there and say, OK, well, we're going to give you $5 off of your monthly bill. OK, BFD, who cares? We're going to give you a free month of credit monitoring, a free year of credit monitoring. That's fine. I appreciate that. Probably a lot of us have that already. I think it's really another good example of how we as consumers have to be vigilant about this stuff. And it kind of goes back to that whole argument of data. Who owns your data? And I think in most consumers' cases, they want more control over the data.

But we also have to understand there is a limit there, and there's just not a lot we can do about it. Yeah, and I think the other issue here is switching costs. Most people don't switch their provider too often. It's sort of like switching banks. It's a pain. I thought the same example there. This isn't great, but oh well. That was the first thing that came to mind was with banks. You see this happen with banks all the time. Breaches, consumers, there's an uproar. But what are you going to do? It's just way more work. I think it's probably way more work to switch your banking relationship. But it's no picnic trying to

switch your mobile or your internet provider, either. Well, we've got a new company on the New York Stock Exchange today. It's new and yet not new. 3M has officially spun off its healthcare business into Solventum. That's ticker S-O-L-V. Got some opinions on that name. 3M shareholders get one share of Solventum for every four shares of 3M. Pretty big business, over $8 billion business in 2023 just on its own. Fascinating group of products. They're used in about 75% of hospitals. You've got dental procedures, wound care, dialysis, a bunch of different things. This actually seems like a pretty interesting company.

I do agree. I think, it's funny, the name. When I read the name or when I hear the name, I think chemicals, right? It seems like some sort of chemical. I read up a little bit on the idea behind the name, and they say it ultimately is a combination of two words, solving and momentum. I can appreciate that. I guess they feel like there's plenty of momentum in the healthcare space, and they're trying to solve problems. That's great. But I do think, in many cases, these spinoffs can be good things. You see some examples out there throughout history that have done well. PayPal is one when it spun off from eBay. Obviously, going through plenty of challenges today, but that doesn't mean it can't be a good investment or hasn't been

a good investment for some. Zoetis spinning off from Pfizer, giving them the opportunity to really focus on animal medicine, I think was a really good one. I'll say, I think most folks know that. I own shares of Zoetis, been a very happy shareholder for a long time there. So, I think it boils down to, with these types of businesses, what's the core market the spinoff is focused on? And was it something that perhaps wasn't realizing its full potential as part of that greater business. I think, in this case, with Solventum, it didn't seem necessary. It was like, one of these things is not like the others. I think spinning it off from 3M makes sense in giving it the opportunity to really focus on that specific healthcare market

because it, of course, is a very large one. You've also got a little bit of protection from the Forever Chemicals lawsuits and other things that are happening with the core 3M business. So it reminds me a little bit of like what happened with Johnson & Johnson and Kenview and all of the things that they're doing on that side.

Yeah. You know, I like the focus on healthcare here. I'm sort of building a larger thesis because I'm thinking about aging demographics and the growing need for healthcare. We are all going to live longer. That means more healthcare. You know, I was thinking about Johnson & Johnson,

the core business now that's the consumer part is Canview. So the core business is more serving hospitals. You've got GE Healthcare doing MRI machines and things like that. You and I chatted last week about Mossimo spinning off their consumer and to focus more on healthcare. You know, I think a lot of times when we talk about medical, we're looking at the high growth biotechs. We're looking at, you know, the ozempics of the world. We're looking at things that are skyrocketing. It seems to me like there's a lot of goodness to be found in some of these picks and shovels plays in the medical space. Yeah, I think you're right. When you look at healthcare in general, healthcare spending in 2022 grew 4.1% here in the U.S. It was $4.5

trillion. That breaks out to just about $13,500 per person. As a share of our gross domestic product. Now, healthcare spending accounted for 17.3%. It's a huge market, and it's a huge opportunity, but there are a lot of different components that make up that overall space. And I think, when you look at the medical device space, for example, that's obviously a key part, not only to Solventum, but many companies, Johnson & Johnson included. But I think it's encouraging, at least with Solventum, expanding into other markets. You mentioned things like oral care, health information systems. That does diversify it. It gives it a number of different ways it can make money.

When it comes to healthcare, that's a good thing. That can combine nicely with your more specific pure play type ideas. When you're looking at a biotech company or a specific medical device company that's pursuing a particular market, those are great to own. They're a little bit higher risk because they are very pegged to one particular opportunity. Whereas, it sounds like Solventum is something that is not necessarily going to be pegged just to that one specific opportunity. Early days, we don't know a lot yet about how the company is run and ultimately how it'll do. But it does sound like it could potentially be a nice way to look at that healthcare opportunity

from a bigger picture perspective. I'm going to wrap us up with something a little different. We're going to talk a little bit about gold. I know, weird. But we had a record first quarter for the S&P 500, but gold is having its own moment. I mean, it's up over, it was like about $2,245 last time I looked. I mean, it's interesting because it's telling us something, I think, about market fear. We always hear that, that people become gold bugs when they get a little bit scared about the market. It's certainly, we're in an interesting market cycle. I don't know. What do you make of the high price of gold? Well, it seems to fit with the narrative today in the way the market is performed.

As you noted, valuation is starting to really creep up there. Valuation is as much art as it is science, and we have to remember that. Then there's investor psychology that comes into play, as well, is how the market functions. It's very difficult, I think, at least in the near term, to make those types of predictions. I was reading an interesting piece on CNBC this morning regarding a Citigroup stock market sentiment model that they call the Levkovich Index. It's named after a former employee there, I believe. But this index has reached what they call euphoria levels, which is telling us that

maybe a fall in equities isn't too far off the horizon. In Citi's case, this index suggests that equities could fall 9% over the next 12 months. Now, that could prove to be correct, or not. I don't know. They're literally predicting the future, which really is difficult to do, particularly in the near term. This brought to mind something that one of our founders, Eric Rideholm, said at our company's recent annual meeting, which I thought was just spot-on. It's always a good reminder. In his thinking, you want to be directionally correct. Don't try to necessarily nail down that tight of a window on something like what the stock market might do in the next six months or the next year.

We want to be directionally correct in understanding, well, we know that the general direction of equity markets, history tells us it's up and to the right, so we want to be a part of that. That ultimately took me back to something another one of our co-founders likes to say a lot. Whatever your holding period is, double it. That is going to improve your returns, taking that longer view. I think both pieces of advice are absolutely spot-on there. Be directionally correct. As an equity investor, whatever you think your holding period is, go ahead and double it. Set those expectations upfront. We're not really trying to nail down this tight of a window. We want to be more directionally correct. So, I think in this case,

this is maybe a sign that perhaps there's this notion that valuations are getting a little frothy. That may be, and we certainly see more hedging come into play when that happens. But I wouldn't let it deter investors like us, Foolish investors, I wouldn't let it deter us from, again, still wanting to participate in that longer-term opportunity. I'm not out there buying gold bars. I'm not either. Not that there's anything wrong with that, but it's just not my speed. Not my thing either. What's one sort of risky stock you're watching and one that helps you sleep better at night? On the risky side, UiPath is a company that I recently added to the official

watch list in our 5G and connectivity service. UiPath builds and manages automations and computer vision technology. They benefit from all of these tailwinds and things like AI, automation, 5G, etc. But the problem is, it's still an unprofitable business. There's no real cash flow to speak of yet. You have to account for the stock-based compensation. Speaking of valuations, this is one that's close to 10X sales without any really meaningful profits yet. Given the state of the market today, that seems like one where I've got my eye on it. I'd love to see that valuation pull back for whatever reason. Fundamentally, it seems like the company is doing good things and making progress. But yeah, I think the

valuation really is probably the biggest risk to a company like this today for investors. One that I'm watching, but I'm still keeping on the sidelines. One that helps me sleep at night is one that I own personally, UPS. I'll likely own this one well into retirement, whenever that may be, hopefully many, many years from now. But UPS has gone through some tough stretches here over the past several years, but it's hard to argue against the tailwinds in logistics. Of course, UPS is one of the key players in moving stuff around all over the world. Recent negotiations with their employees, I think, are going to put them in a good position for years to come. The dividend yield, which is

really the main reason why I own it at 4.4% now. It's just one that makes more sense the longer you own it. Then there was an interesting headline today, I thought, in that the U.S. Postal Service has actually tapped UPS as its primary partner for moving cargo by air. The really interesting part of that story is that UPS is replacing FedEx, which had provided that service for more than 20 years. Clearly, USPS feels like one company is doing something better than the other. In this case, it seems like it's coming up roses for EPS. Yeah, it certainly sounds like it. Thanks for your time today, Jason. Thank you.

No matter what market you're in, Top Dog market-leading stocks can help you make a lot of money. Up next, Asit Sharma shares three top stocks he's buying hand over fist with my colleague, Ricky Moult. So Asit, you actually, you messaged me a few days ago on Slack that you had, you know, three stocks that we hadn't really talked about a lot on Motley Fool Money, but in your opinion, were just absolute screaming buys, which you're not one for hyperbole. So just, I mean, what's going on here, Asit? Ricky, first, I want to make clear that these aren't my stock picks. These are three top stock recommendations from the entire investing team at The Motley Fool. These are three life-changing, life-affirming businesses that

every investor who's future-oriented should own. And they're not household names. Okay, Ricky, would I tell you to back up the truck and bet the farm on these three names? Of course not. That's not foolish. But would I tell you to include these in a list of 25 world-changing businesses to hold for at least five years? Abso-freaking-lutely. Ricky, you know I try to stay pretty even-keeled and balanced about businesses that I invest in, but I already have just a super strong conviction in these companies. You mentioned to me an AI play that nobody's even thinking about, a consumer goods company that's in the middle of a turnaround and the media's not even paying attention to it. So, where are the ideas coming from?

That's such a great question. A couple of weeks ago, the entire investing team met up at Motley Fool headquarters. The company flew in all non-local investors like myself, the financial planners, and the quantitative analysts. We call them quants. The team got together. We chose three under-the-radar stocks that we believe have the ability to trounce the market over the next five years. You sort of clued us in a little bit on the three companies. You know, we actually had five ideas, Ricky, but they got narrowed down to three in the Quantitron. Yeah. And I think that's something to really highlight there, which is that these aren't just market leading ideas or market beating ideas. These are market trouncing ideas. These are companies that can, you know,

secure retirement. When you look back 20 years from now, you're putting a pool in your house. It might be, I got to be careful with my words, Asit, but it might be thanks to these companies. Totally. And how we got to that in this amazing place called the Quantitron, let me just take a minute to describe this. So the Quantitron is a secure room at Motley Fool headquarters where our quants do their magic. Ricky, it's filled with these amazing servers that are crammed full of NVIDIA H100 AI GPUs. And there's a giant screen on the wall, which displays the real-time evaluations of analyst stock picks, as these neural networks sift through SEC filings, all the available data on a company, and then look forward with probabilistic calculations.

Now, I know you're out in Colorado. You're going to be there soon over at Alexandria at the headquarters, so you'll be able to see this new room yourself. Now, I've got to say this. Of course, there's also pizza boxes thrown everywhere, because the quants are these brainy guys who always seem to be working through the night. Anyway, these three stocks scored an average of 9.1 on the quant regression-progression valuation matrix, which are the highest scores to ever be recorded in our models. That's incredible. Before we get to the specific names, because I know you want the name, but before we get there, I think we want to separate what makes a quality stock from these

top stocks that you're talking about. To do that, we're going to welcome on Aaron. Erin, in your opinion, what separates quality stock from a top stock? Yeah, thanks for that. And thanks. Great question. Because in my opinion, you know, when I talk about think about stocks, it's livestock and it's really thinking about what produces great cattle as well as, you know, meat that that meet the plate.

And so, I think we can have this discussion all day, but it's really what produces the best steak on the plate. That's a good point. And it's a way of thinking about stocks as well, is how do you get steak on the plate? I realized, Asit, we've not properly introduced Aaron. Joining us now is Aaron Carney, the Executive Vice President of the Colorado Cattlemen's Association. It represents Colorado's cattle industry and public policy concerns. Honestly, Aaron, you have a way more interesting job than either of us. So, we're going to get to some of your background and career in a sec, but we did promise listeners, you know, top stocks. So I'm hoping that's what you can deliver. Asit did the setup. So,

so do you have any top stocks that you want to share with listeners? Maybe three. Yeah. You know, when I think about the three, the only one that come top one that comes to mind is cattle. And I think that's the best livestock and I might be biased, uh, but my family for four generations has been raising Angus crossbreed cattle. And I think we have perfected the genetics and the look of those cattle. And so I think narrowing down the top three to top one would be the Angus crossbreed cattle. I think that's a good point. There's a reason to keep it simple. And Austin, I'm going to get to your stocks in a moment, but honestly, this is more interesting. What's it take to get to that place where you're like, we have the genetics down,

what are you producing with the Angus crossbreed cattle that is a grocery shopper that I don't know. I'm just going to the store and buying a steak. And then that's sort of my limited interaction with the meat that I purchase. Absolutely. And when we think about the cattle industry, it's really segmented and it's really complicated. So when we think about bringing that steak to your plate, that's almost two years of investment from the calf being born all the way to that process and so it all starts on the ranch or with a cow-calf pair and and you know that's where all my family is invested in is you know what what's that next calf crop going to look like and then as you go down you go into you know the stalker phase where

it's kind of like teenage cattle that are weaned off their mom and you know either put on corn stalks or wheat pasture and then they go into the feedlot phase where they kind of um you know get the the good cover and they eat um the best it's kind of like a hotel for for cat cattle and then ultimately they they go to the harvest facility and so you know um my focus really is on the ranch in on the cow-calf pairs and really investing in the future of the cattle herd and really what we foresee in the next two years that consumers are really going to demand on their plate. And, you know, at those four generations, it really takes a lot of knowledge, inherent knowledge, as well as knowledge from, you know, a lot of universities have animal science programs,

so that you can really perfect your skills on selecting and raising cattle. What's a challenge that our listeners might not even be thinking about when you're raising these teenage herds of cattle? I mean, I'm sure there's some interesting social dynamics, things you got to deal with that many of our listeners, they work at a desk job or maybe they work from home and not something they deal with or even think about when they go to a grocery store absolutely and you know we always say we're we're passionate about the cattle but we're more grass farmers or natural resource uh you know stewards and so it's really when you think about those open spaces a lot of the ranchers are managing those natural resources open spaces

and so it's all everything that comes with those open spaces whether it be urban pressure whether it be species introduction, whether it be the lack of water, you know, in Colorado, where I'm based, we're facing a number of these issues. And a lot of, by, by producers that I represent are, are, you know, facing a number of these issues, natural resource concerns, water shortages, as well as one of the top topics in Colorado, of course, wolf introduction. Yeah, actually, Austin, that's, that's a key topic. Do you mind if I get to you a little bit later. I'll sit. Yeah, sure. Sure. Go ahead. This is interesting. Let's do it. Yeah. So the wolf reintroduction in Colorado is, is particularly interesting. They started, um, was the state of

Colorado basically had the bright idea. Let's, let's bring in some of these natural predators and they started reintroducing wolves. I believe, uh, this past winter we're now in April and a lot of cattle ranchers were against this because in many cases, the state would only tell the cattle ranchers that the wolves were reintroduced after they had already been released, or maybe there was just a couple of hours before. And like you said, you're managing an open space. That's incredibly difficult when you have a new apex predator reintroduced. So how has that been for the past few months from the ranchers that you represent and have been communicating with? You know, the ballot initiative was passed in 2020. So this has been about a four-year process

of going through the wolf introduction process but they were ultimately introduced in December of 2023 and I think the culmination of the entire process you know there's a lot of emotions on both sides and ultimately CPW didn't notify any of the area producers or area you know county officials or anything like that and so there was really a big breakdown in communication which ended up a big breakdown in trust for the agency and for a lot of what's going on in Colorado. And so right now where we are, there's 10 introduced wolves in the state, as well as a couple others that have migrated down from Wyoming. And we're still working through the process. Right now is the height of calving throughout Western Colorado. There's a lot of snow on the ground. Ranchers are

doing daytime, nighttime checks to check on their cattle. But when we think about where wolves are, it's not, you know, this where you can see for miles and miles and you can see them just roaming through. This is really tough terrain. It's mountainous. And so it's just going to be tough. And I think that's where our producers are just trying to illustrate how hard it is to manage their cattle with this added introduction of an apex predator yeah there's there's environmental reasons and then there's uh the work reasons as well where you have a very difficult job with with an additional challenge that can be detrimental to someone's livelihood and um it's it's it's tough i i also want to talk about sort of the price of beef we've talked about the

this concept of rolling inflation on the show which is um inflation is higher and i think it was Lizanne Saunders first, first brought it up, but this idea that certain goods get much more expensive at one time. And one of those I've noticed really is beef at the grocery store where I, to me, I've seen these prime grade steaks become as expensive as like wild caught sushi grade tuna, which is, which is incredible to me. What's going on behind the scenes with that, that me as a regular consumer may not know? You know, the beef industry is really interesting because we always say we're price takers rather than price makers. And so we have to deal with a number of market issues as well as weather, mother nature. And so a number of things behind

what you're seeing at the grocery store is there has been widespread drought through a lot of cattle country, which has caused a number of ranchers to liquidate their herds. And so when we're thinking about that and cattle supply, it's actually the lowest it's been in over 55 years. So we're at the lowest cattle herd that we've seen nationwide in 25 years. The census just came out and we're about 15% lower than we were in 2017 numbers. And so when you think about that and just supply and demand, our supply is really, really low, which is causing prices to go high. And that's all the way through cow-calf producers, all the way through the supply chain is is just at a low interestingly enough though is with the lowest cattle herd in since the 1970s

we're actually producing about the same amount of beef we're not growing but we're staying the same and so that efficiency in the last 50 years has grown that much um and and we're just uh that much more efficient so it's a good story to tell but um it's awful for consumers that are you know trying to be buy beef at the grocery store as they're seeing that, that really high price, but that's just some factors that are going on behind the scenes. No, I appreciate you, you letting me know. And it, it, I feel a little more knowledgeable the next, the next time I walk into the, to the grocery store, Aaron, thank you so much for, for the fascinating discussion. I know we started as an April fool's joke, but I really learned

quite a bit. Asit, I am so sorry, but we are out of time. We do not have any more space in the show for you to get to your top three stocks. What? That's it. Sorry. Maybe next April 1st. Next time. Thank you so much. 2025. Thanks, Erin. Thank you. 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. I'm Deidre Willard. Thanks for listening. We'll see you tomorrow. All right, Asit, I don't know if anybody's still listening, but just between you and me, do you have a stock you've bought recently? Serious this time.

Yeah, serious this time. Well, yes, I do. I recently bought shares of Advanced Micro Devices, symbol AMD. This is, of course, a competitor to NVIDIA in the AI-infused GPU market. I think they're a formidable competitor. NVIDIA has the monster share in this market, and they will continue to have the monster share in this market. But AMD is going to take a little bit of a slice off of that. Even if it's a few percentage points, it'll be good for the company. They also sell a lot of chips used in all types of applications from computers to laptops to industrial devices. And increasingly, we're going to see AMD put AI applications straight onto these chips, from their basic chips that go into computers to things like FPGAs,

field programmable gate arrays. Don't ask me really what that is. But you've got a company here that's going to compete in this space and I think should be a very sound investment for a five-year holding period. Nice. Thank you for your time and your insight.