Motley Fool Money - It’s a Small World After All

Starting point is 00:00:00 It's a small world after all. I promise this will make sense soon because Motleyful Money starts now. I'm Rick Minars, and today I'm joined by fellow analyst Nick Seiple and John Kost. We're going to take a look at some potential bounceback candidates for 26 and a look at Disney predictions heading into the new year. But first, Venezuela. The big news over the weekend was the U.S. capturing Venezuelan President Nicolas Maduro and his wife, detaining them in the U.S. to face charges of narco-terrorism, drug trafficking. trafficking and conspiracy. Nick, you are covering this story. We will obviously not be digging too deep

Starting point is 00:00:46 into the political ramifications. That's not really what we do here. But what are the biggest implications of this news for investors? Certainly huge news geopolitically. I would argue this is the biggest U.S. military commando operation, really going back to the bin Laden raid more than a decade ago for investors, for the business community. The big takeaway is what's going to happen with Venezuela's energy production. Venezuela has more proven results. reserves in Saudi Arabia yet produces less than 1% of global supply today. And that's really a trend of kind of withering infrastructure that's been going on for the past couple decades, first under the Hugo Chavez administration and then under

Starting point is 00:01:25 former president now Maduro. As I mentioned, Venezuela has over 300 billion barrels of proven reserves, about 17% of the global total. But production today, just 1% of global supply. In the late 1990s, Venezuela was producing 3.5 million. barrels of oil per day today, now under $1 million day. That's a 70% decline under the Chavez-Maduro administrations. And if you look at disclosures from the National Oil Company of Venezuela, its pipelines haven't been updated in, by some accounts, 50 years would need over $58 billion to rebuild those pipelines. And by the reports of the administration, the U.S. administration, part of what's going to happen after this regime change is an investment in that energy infrastructure,

Starting point is 00:02:11 what becomes of Venezuela's oil production going forward. Can new investment return that trend to the growth that we saw in the late 90s? Yeah. So speaking of that growth and potential, who are the potential winners and losers from a comeback in Venezuelan energy production? Right. So the big winners, you know, did really jump off off the bat, are the U.S. oil major. Chevron, the big one. They're the only U.S. major currently operating in Venezuela. produces about 150,000 barrels a day, about 70% of Venezuela's overall output. Those other oil companies formerly operated in Venezuela.

Starting point is 00:02:46 However, in the nationalization push over a decade ago, lost some of their production, have some claims against the Venezuelan government to try to get some of those back. So those big U.S. oil companies, particularly Chevron, have the relationships, the infrastructure, the head start to get underway in Venezuela. However, these are companies that were burned in the past under nationalization. They're going to want stability before they line up to spend big money on the investment needed to get production back in line. Any realistic timeline, we're looking three to five years before really meaningful production increases take place. That's really a long-term thesis.

Starting point is 00:03:23 That said, to the extent that production can get back online, the losers here would be potentially Canadian oil producers. Venezuelan's crude oil is very similar in grade to the oil that comes out of Canada's oil. sand, that same heavy sour grade of oil that are used to produce things, things like diesel fuel in U.S. Gulf Coast refineries. With that decline in Venezuelan oil production that I talked about earlier, Canadian producers have come in to fill that gap. Canada went from producing 2.7 million barrels a day exported to the U.S. in 2013, up to 4.4 million barrels back in 2024. Obviously, if those Venezuelan barrels come back online, that is direct competition. for those Canadian oil producers and could put downward pressure on that production.

Starting point is 00:04:12 But again, as I said, we would need several years of investment to get that production back online. And again, these are on all one-for-one substitutions. A lot of this Canadian heavy oil gets piped directly to Midwestern refineries. So the competition would be really more for oil that goes to supply refineries on the Gulf Coast. But if investment can get Venezuelan oil production back online, that would be direct competition for Canadian producers. That's why you've seen, you know, the same way big U.S. oil companies have moved up today on the news of what's going on in Venezuela, you've seen some real downward pressure on the Canadian producers. Yeah, so speaking of the market, the initial market reaction, so the market tends to weaken

Starting point is 00:04:53 when there's geopolitical crossfire, and that definitely happened over the weekend. The U.S. markets initially moved higher on Monday. Why do you think that's the case beyond just the energy companies, general buoyant market? Yeah, I mean, I think the market was relieved to see there doesn't appear to be further kind of, you mentioned crossfire. And your question, there really wasn't any crossfire, right? There was only kind of fire going one direction for the most part when you look at the casualties and the success of the operation.

Starting point is 00:05:19 So I think the market was relieved to see it appears this is the end of conflicts here. Now, that is obviously far from certain. But I think that's what the market is saying here is that this is a one and done operation. that moving forward, we should see more stability and perhaps more investment in Venezuela, which would be good for the global economy. So I was surprised to see key Latin American stocks moving higher on the news, since they made potential targets if things keep escalating. Long-time rule breaker recommendation, Macaulah Liwere, was up 10%, just two hours before the close today.

Starting point is 00:05:51 Does that make sense to you? Potentially, again, if Venezuela's economy can get back on track, really huge opportunity for Mercado Libre and other e-commerce players, in the industry. So, I mean, currently Venezuela, less than 5% of Mercado Libre's revenue, but there's more than 30 million people in Venezuela, and this has been bordering on a failed state for the better part of a decade. No e-commerce infrastructure. I mean, you follow Ricardo Libre more than me, but it's been a recurring thing on the earnings calls of, if you back out Venezuela, we're doing pretty good. Well, can you imagine if Venezuela turns from

Starting point is 00:06:24 a headwind to a tailwind for Mercado Libre? This is a company that, you know, you saw what happened when Argentina got back on track under a new administration. That became a tailwind for the business. So I think folks are optimistic about Venezuela going from being a real laggard in the South American economy to being something that can be a tailwind for further growth. And if that's the case, then Mercado Libre won't be the only company, but if any, from that. Excellent. John, let's bring you into the mix. As an investor, what's your takeaway from the situation? Yeah. As everything that Nick just said, the arrow is pointing in a positive direct. for various perspectives, especially when going back to Mercado Libre, right? One of the big reasons

Starting point is 00:07:04 it has struggled in Venezuela is because of currency to basement. That currency just keeps going down and down. It's hard to do business in that environment. So pointing towards stabilization, that is good long term. And I think it's a little bit premature to say that we're already there, that Mercado Libre and others are already going to enjoy that benefit. It's going to take a long time to play out if it ever does. I think that probably the market is going to get a little bit impatient, right? Because it does tend to overreact both positively and negatively. I wouldn't be surprised if we saw that. But I definitely understand what it's seeing and why it's having a positive outlook. And I think it's right. Yeah, if we see

Starting point is 00:07:45 stabilization in Venezuela, that's a good thing for some of these businesses. Yeah, so thank you, John. And Nick, thank you for your expertise on this. Ultimately, a big story to kick off the new year. The world and its investors will be watching. Coming up next, Can some of last year's losers be big winners? Let's see if two out of favor stocks can have monster makeovers in 2026. The old adage goes, it isn't what you say, it's how you say it, because to truly make an impact, you need to set an example and take the lead. You have to adapt to whatever comes your way.

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Starting point is 00:08:50 With seven terrain modes to choose from, terrain response two fine-tuned your vehicle for the roads ahead. Ed. The Range Rover event is on now. Explore Enhance Offers at Rangerover.com. Last year was a good one for investors, but not for all investors. John and I took a look at two rule breakers that fell hard last year. We think they can bounce back this year. I went with Lulu Lemon, but you went with Duolingo, John. What's going on with Duolingo? Yeah, so Duolingo, ticker symbol D-U-O-L. The stock was down 46% in 2025, Rick, and down 67% from its highs in 2025. So losing two-thirds, of its value. And some variety of factors going on, but one of the big headline grabbing

Starting point is 00:09:30 things was when ChatGPT did a demonstration where essentially a different, a homegrown version of Duolingo could be just created with some prompts in the app. And I think that that caused investors to say, does this company have a durable competitive advantage? Or am I just going to learn a new language from something that I create on my own in a chatbot with you that generative AI. And so we see the stock price pulling way, way back. The CEO of this company, Luis von On, he would say take the long view, and I think that that's right. And so there's many reasons why I think that this can bounce back in 2026. Yeah, and especially, I mean, it's been just such a big winner before this year, this past year, 2025. And then clearly a stock that

Starting point is 00:10:17 had a lot of momentum, the business that's still growing. So I'm with you on Duolingo. But I went with Lulu Lemon. So Lulu Lemon has had a very very... rough, downward facing dog kind of year in 2025. It started, basically, all you have to do is follow the sales. Sales, this company in the athlete's market and the upscale yoga wear market was doing so well for a long time and then just basically stumbled. And over the past couple quarters, comps in the Americas, in the U.S., had been negative. A company that's been traditionally growing, while it's doing well internationally and in other markets like Canada in the U.S., is sort of struggling, which is still its largest market. But I do like it here.

Starting point is 00:10:55 I was at Fool Fest 25 a few months ago, wearing Lulu Lemon pants that I'd gotten from my American Express Platinum card because they are now having like a free $75 credit you can use every quarter. And I did it to mock Lulu Lemon. At the time, I was sort of bearish when I was making that presentation. I'm saying, look at this 50-something old guy wearing Lulu Lemon's pants on camera. I'm probably hurting the brand by doing this. But in the process, I had a very comfortable pair of pants on that evening. And since you and I use my December credit, I have some friends that are Lulu Lemon fans and didn't know about the credit. Now they're using it. So, my mind has sort of done a full 180 on this where I thought, you know, I thought, oh, when the Bank of, I'm sorry, when American Express, when their platinum card has a credit, like $50 Sacks credit every six months, you can expect bad news. As you see, Sax is now almost struggling financially right now. But in this case, even though it may seem desperate for Lula Lemon to reach for something like this, for this kind of big discount being offered, I think it could help. I am with Lula Lemon, and there's activism is happening, but I think organically it'll be able to

Starting point is 00:11:56 fix itself in 2026, very attractively priced after the markdown. So yes, stock that I think will bounce back. And Rick, I love the point that you're making here, because I think that with a brand like Lululemon, the argument is against it that maybe it's losing its brand power, maybe it's losing its luster, but you look at the numbers. Revenue is still at an all-time high, and it's operating margin at 22%. To me, this is not indicative of a business that is losing that brand power in a material way, at least not right now. It hasn't manifested yet. So I think that it is overblown the concerns that it has. Yes, a slowdown, yes, it's a headwind here and there. But I think you're right. I think this is a stock that is poised to bounce back in the coming year.

Starting point is 00:12:41 Yeah, and doing really well internationally. I keep thinking to like Crocs, which has been a disappointing stock lately. But at the time when the U.S., everyone just figured out Crocs are done. internationally started to take off and then celebrities started to hop on Crocs and then it happens. It bounced back for a while. But that's it for that. Coming up next, it's a small world after all. Let's take a look at some predictions for Disney in 2026. These days, I'm all about quality over quantity, especially in my closet. If it's not well made and versatile, it's just not worth it. That's honestly why I love Quince. The fabrics feel elevated. The cuts are thoughtful and the pricing actually makes sense. Quince makes high-quality wardrobe staples using premium fabrics like 100% European linen, silk, and organic cotton poplin.

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Starting point is 00:14:00 Don't keep settling for clothes that don't last. Go to QINCE.com slash motley for free shipping and 365-day returns. Quince.com slash motley. So Disney World did not have a very good year last year. The stock was up 3% losing to the market in 2025. It's had a few rough years. I was covering the company earlier this week. Well, I know it's Monday, but earlier over the weekend and published earlier on Monday. And I had four Disney predictions. And John, I know you and I, we follow these Florida companies, so we know Disney. And Nick, if you have some thoughts, go ahead and share them. But I want to quickly go over these four predictions that I have. And you guys tell me if you think yes or no, if you think it'll happen. So the first is Disney will announce an internal CEO this year. And my argument for the that is that this is a company that Bob Eiger has said he's going to step down at the end of this year. The board has already said they're going to announce the next successor early in 2026 to avoid what happened back in 2020 during the Bob Chepec handoff. But I do think that Disney will

Starting point is 00:14:57 announce an internal CEO, even though the stock has failed to beat the market in four of the last five years, because the company's still doing well. It's a company very complicated company with a lot of moving parts. So I think they will hire internally. I don't know who it'll be, but I don't think they're going to seek an outside CEO. Any thoughts? Yeah, I mean, the rumors are that the head of the Parks Division, it seems to be in pole position to win, you know, win that job. Obviously, there's been three names kicked around. You know, the parks really are a, you know, trophy asset. You mentioned the Parks had a tough year in 2025. Still was able to take up price in the fall. And it's, and it's an example of a company that really has almost infinite pricing power. I mean, if you told folks, folks five years ago, that Disney World prices would be where they are today and that the lines would still be out the door to get in. This is an example of a company that can just take up price whenever they want to, and their willingness to do so, I think, reflects that they know

Starting point is 00:15:56 that their asset is one that is globally. People are willing to pay whatever it takes to be a part of that park. Thank you, Nick. So my second prediction for John Nick, anyone who has thoughts, it will stay out on the media buying frenzy. So it did that in 2025. We saw Paramount get bought up in the summer. Obviously, the year ended with Warner Brothers Discovery in a bidding war, eventually go to Netflix. I think they're just going to continue. They were not an active bidder, at least not a prominent bidder in any of these things. I think they're going to continue to stay out of buying assets. They already have enough stuff in their arsenal. Thoughts on that. Yeah, I couldn't agree more with you, Rick, because what more does Disney really need?

Starting point is 00:16:34 I mean, the intellectual property library that it has at its disposal, there's so many options that it has just because of how vast it already is. So plus, at its size, what are you going to acquire that's going to materially move the needle? It's going to be a lot of money. I don't think that that's a path that Disney wants to go. Definitely, it's in the mode of let's do a lot with what we already have. I think that the Mandalorian is a great example of what it can do with a franchise when it has a really good story to tell. And so I think it's going to run that playbook.

Starting point is 00:17:07 Yeah, if anything, I would expect Disney to be a seller of assets. We were talking about before we hopped on the call. Would not be surprised to see ESPN spun out of Disney, whether it's next year or a few years down the road. The head of ESPN, Jimmy Pitaro was one of the names kicked around as potential Disney CEO. While again, we haven't had the final CEO announced. Looks like he's not going to be going to be the choice. They have been expanding their assets back in this fall when they took over NFL network. There's been all this conversation of what's next for ESPN, and I think what could be next for ESPN is a life as an independent company.

Starting point is 00:17:43 My third prediction was Disney will have this year's biggest movie. And this is almost cheating, but it really wasn't when I look back. So Disney had the three highest grossing movies worldwide in 2024. It had three of four in 2025. The other one was a Chinese movie. So out of the U.S. studios, there's only been six movies that have grossed more than a billion dollars in tickets in 2024 and 25. Disney put out all of them. So I'm basically saying, as any Marvel fan knows, Avengers Doomsday comes out in December of this year. And I think it's pretty much a lot, just like Avatar this year in 2025. I think it's pretty much a lot to be the biggest movie. I don't know if you guys have any thoughts on that. If not, we can move on to the fourth prediction.

Starting point is 00:18:21 I mean, there weren't many movies that came up on the slate that even could give it a run for its money, really. I mean, Christopher Nolan is going to have the Odyssey coming out later this year. But you know what? The trailer wasn't great. I don't see a lot of buzz for it. So the Hunger Games come out, Dune, but really, I don't see anything that can, those are the only ones I see that could potentially challenge the crown, but I don't think that they will succeed. I think you're right. Disney gets it. Yeah, my fourth one is Disney will beat the market in 2026. Again, this is a stock that has

Starting point is 00:18:51 actually lost to the market in four of the last five years. Very disappointing, three percent gain last year in a year when media stocks were soaring on takeover news. But I do think the stock is attractively priced, a forward earnings multiple in the mid-teens. It is projected to grow its earnings at a double-digit pace. All since its streaming business turned profitable in fiscal 2021. Revenue growth is still slow, but I think just the more efficient Disney that we're going to be seeing in the next few years is enough to get investors excited in the company again. Thoughts on that. It's not unprecedented, Rick. That's for sure. You can have a low-growth company

Starting point is 00:19:23 that turns it around on the margin profile and does well as a stock. And one example I'll give from 2025 is Dollar General. It does. didn't put up much topline growth, but it had the profit margin improvement and was a solid, solid performing stock in 2025. Now, I'm personally pretty lukewarm when it comes to Disney Stock Outlook, but I see your point that it doesn't have to put up a ton of top line growth in order to be a good stock for the coming year and beyond. Yes. Beyond. Well, Toy Story 5 is coming out. So to infinity and beyond. We'll close on that, John. Well done. John and Nick, thank you for indulging me today. As always, people on the program may have

Starting point is 00:20:00 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 Full editorial standards and is not approved by advertisers. Advertisants are sponsored content and provided for informational purposes only. See our full advertising disclosures. Please check our show notes. For John Kras, Nick Seiple, and the entire Motley Full Money team, I'm Rick Minars. May your days be sunny and your life, Motley Full Money.

Motley Fool Money - It’s a Small World After All

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