Motley Fool Money - The Future of Food, EVs in the Spotlight, and 3 Trends To Watch in 2022

Episode Date: January 5, 2022

KFC launches a Beyond Meat version of its fried chicken in 4,000 restaurants across America. Nikola shares rise on an announced deal to sell 10 trucks (with the possibility of 90 more) to a logistics business.  Emily Flippen analyzes those stories, and weighs in on Sony rolling out an electric SUV as it aspires to becoming an automaker. Then Jason Moser discusses three trends for investors to watch this year: - How Shopify, Etsy, Wayfair, and Lowe’s are approaching their own investments in “the last mile” - Semiconductors being at the center of global supply chain issues and how businesses like AMD and Marvell Technology are reacting - Tech behemoths like Apple, Alphabet, and Meta Platforms are preparing for the metaverse, but so are smaller companies like Unity Software   Stocks: BYND, YUM, NKLA, TSLA, SNE, AAPL, SHOP, ETSY, W, LOW, AMD, MRVL, META, GOOG, GOOGL, U   For more information on investing in semiconductor stocks: https://www.fool.com/investing/stock-market/market-sectors/information-technology/semiconductor-stocks/   Host: Chris Hill Guests: Emily Flippen, Jason Moser Producer: Ricky Mulvey Engineers: Dan Boyd, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, I'm Charlie Cox. Join us on Disney Plus as we talk with the cast and crew of Marvel Television's Daredevil Born Again. What haven't you gotten to do as Daredevil? Being the Avengers. Charlie and Vincent came to play. I get emotional when I think about it. One of the great finale of any episode we've ever done. We are going to play Truth or Daredevil.

What? Oh, boy. Fantastic. You guys go hard. Daredevil Born Again official podcast Tuesdays, and stream Season 2 of Marvel Television's Daredevil Born Again on Disney Plus. Today on Motley Fool Money, we've got a closer look at some of the retailers investing in the last mile and some of the tech companies investing in the Metaverse.

All that and more coming up right now. I'm Chris Hill, joined by Motley Fool's senior analyst, Emily Flippen. Thanks for being here. Thanks for having me, Chris. We've also got surprising automotive news from the first day of CES, but we're going to begin with the future of food. This morning, KFC announced it will roll out a beyond meat version of its fried chicken. Nationwide, starting next Monday, shares of both Beyond Meat and KFC's parent company,

Young Brands, up slightly on this news. Emily, they started testing this in the summer of 2019. They've been working on this for a while, so you have to believe they're confident in this national launch. I actually think they're not confident, Chris. And the reason why I say that is because when I reflect on the last quarter for BeyondMeats and the way that management talked about their food service sales. That's the sales of their products and places like restaurants versus grocery stores. Their feeling was actually really

tepid. And this was coming out at a time when they already had the partnership with Yum China's KFC in China, as well as with chains like Panda Express. So I actually think the presser is on for Beyond Meat right now because consumers and investors are looking at the partnerships they've made in the past, in particular that with Dunkin' Donuts. And they're looking and asking themselves, okay, well, is this going to be a thing that actually sticks around or is this going to be another Duncan? As many investors will remember, Beyond Meat had a launch a couple years ago with Duncan, really publicized, had Snoop Dog in it, and it saw the Duncan Beyond sausage sandwiches rolled out nationwide. And earlier this year, those were actually pulled back. So they need this

KFC launch to be really successful, and they need that partnership to last longer than nine to 12 months, right? They need that partnership to last for five, 10 years into the future. I remember trying that Dunkin Breakfast sandwich. I liked it, and my problem with the sandwich was not the Beyond Meat sausage. It was actually the Duncan part of it. But anyway, let's go back to the partnerships for a second, because that's one of the questions I have about this business. You look at the stock. It is basically where it was on the first day it went public. It's been cut in half over the past year. What is going to drive this stock higher? Is it partnerships like this sticking around? Or is it the retail presence and really becoming more of

a daily habit in everyday consumer lives? In my opinion, and as a shareholder of Beyond Meat, I think it's the partnerships with the food service, so the restaurant and fast casual staff. that is going to be the thing that will set beyond meat apart. If you actually look at fast food supply chains, relationships between the suppliers and the chains themselves have tended to be really sticky. There's a lot of work that goes into bringing a new product into a food service location. It's not done very quickly. You can actually look at the way that McDonald's started its partnership with Coke as an example. They had this initial agreement decades ago, but its consent continued in

this slock step motion. And to this day, you know, You can still only find Coke in McDonald's. You'll never go to McDonald and get a Pepsi. So once those relationships are formed, they tend to be pretty lasting. Now, this hasn't been the case for Beyond Meat thus far, again, pointing to that Duncan partnership. But if they can get that type of decades-long lasting relationship with food service establishments, that's going to create really sticky, long-lasting partnerships that should result in some decent shareholder returns from this point out.

The big question right now is, okay. well, are food service establishments really going to be buying into not just the non-meat alternatives, but beyond meat's non-meat alternatives? I'm really fascinated to see how this plays out now, because I'm thinking about what you said right at the top. Your belief that beyond meat is maybe not as confident in this launch. I mean, this is a nationwide launch. This is something that KFC tested in a couple of localities in the southeast part of the United States, they've got 4,000 restaurants across the U.S. Doesn't KFC at least have to be confident in this launch?

Typically, when you have a food service establishment that is looking at a trend, you can look at the chicken sandwiches as an example. They want to act quickly. Being the last person to act means that you've already lost the momentum behind the trend. And the fact that it's taken so many years for Yum in the United States to really get behind beyond meat here and get behind this chicken part. product says to me one of two things. They're nervous about the staying power of this trend, or they're nervous about the quality of the product. Now, that doesn't mean that this launch

can't be successful. Again, as a shareholder, I really hope that it is, but the time that it has taken from initiation to creation is a little bit worrying to me. Shares of Nicola up 7% this morning. The EV company struck a deal with USA Truck, a logistics business. USA Truck will buy 10 of Nicola's business. electric trucks. Seems like a nice little deal, but what does it say about Nicola that the stock is up 7% on a deal for just 10 trucks? Well, it says a lot about the history of what it means to be the company that is Nicola. So let's take a step back. For people who are not familiar with this carmaker, it was a business

that went public in 2020, had the goal of creating hydrogen fuel cell trucks and other electric vehicles for commercial sale. And shortly after, After its IPO, the founder and CEO, Trevor Milton, was actually indicted for criminal insecurities fraud, reportedly lying about nearly all aspects of the business. So when you see the stock up on such a, what would normally be safe for a business like Tesla, a small amount of news, it really just goes to show the very low amount of expectations that investors have for this business. Nicola is still trying to come out of this controversy as a real carmaker.

They're making some headway here. They delivered their first pilot truck. at the end of last year. That was the first step in the business to reach production and sales. So the buy-in here, even in the only amount of around 10 cars, still says, hey, maybe there's some opportunity for production to ramp up in this business. You mentioned Tesla, and I know that Tesla is the obvious comparison for any EV maker. But when I read this news, I actually thought about Ford Motor, because the F-150 Lightning electric truck is coming out this spring. And the bad news for Nikola is they're not just

competing against the likes of Tesla. They're now about to be in direct competition with Ford Motor. And based on everything we've read, we'll see when it actually launches. But based on everything we've read so far, it seems like there's a lot of reasons to be optimistic about the new EV version of the F-150. There are a lot of reasons to be optimistic about electric vehicles in general. We're seeing that tipping come in terms of adoption here. But these are still electric trucks that they're selling. And as you mentioned, everyone in their dogs right now are making electric cars, electric

trucks. So what was supposed to be the aspect that set Nicola apart was the fact that they were going to be making hydrogen fuel cell trucks. That was what was promised when they IPOed in 2020. They did pivot back towards electric vehicles because it was easier for them to get out and scale without needing the logistics and the infrastructure for hydrogen fuel across the United States, they still want those hydrogen fuel cell trucks to be launched in 2023. And I imagine that a lot of people who are still holding onto shares of Nicola are owning these

shares not under the premise that they're going to be the next Tesla or the next Ford in terms of their electric vehicle production, but in the belief that hydrogen and hydrogen fuel cell trucks can be the new long way range that we use to transport. machines and other items across the country. They haven't created that yet, so it's still very much in the air. Last thing before we move on, in terms of Nicola, you look at this stock. It's down about 65% off of its recent highs. I understand the enthusiasm for at least some investors out there who think, okay, this is a stock that's been beaten down. This is a nice deal they've struck here.

maybe this paves the way for more like this. Is it worth looking at this stock? Or are there enough question marks with the underlying business of Nicola that you just think to yourself, you know what? If you want to invest in EVs, there are better places for your investing dollars. I tend to agree with the latter, Chris, which is if you're interested in this space, there are companies that have proven out a bit stronger than Nicola has. That being said, if you are a purist in the world of hydrogen and you really believe that that's the future, then maybe you take a look at this company under the understanding that that concept and that technology has not been proven out yet, and that that is going to be a very long-term investment

as you wait for the technology to catch up to the ideas here. The important caveat I will add before moving on is that when you talk about this story, again, that letter of intent from USA truck for 10 battery powered electric vehicles with an option to purchase 90 more over the next two years, it's vital to remember that there's a difference between a purchase order and a letter of intent. And Nicola has done a great job in getting a lot of these letters of intent. And it's wonderful, but it's not the same thing as that purchase order. It's more of an agreement that two parties want the same thing to happen. So I want Nicola to do well, right? But whether or not those purchase orders come in, whether or not those deliveries

happen, especially as they apply to the hydrogen business, I think is still very much in the air. All right. Let's stick with Automotive. Today is the first day of CES, largest consumer electronic show in the world, thousands of exhibitors in Las Vegas. And one of the trends we've seen over the past five to 10 years is the increasing presence of automakers at CES. So, automotive news coming out of CES is not surprising. What is surprising is that today the automotive news out of CES is not from an automaker. It's from Sony, the consumer electronics company. Sony rolled out the Vision S electric SUV. as apparently a direct challenge to Tesla.

So there are a couple things I want to get to here. But first, what was your reaction to this story? Because mine was just utter surprise. Well, my first reaction was kind of forgetting that Sony was even still a publicly traded company that was apparently innovating on the back end here. So the fact that Sony was even at CES to me was my immediate kind of, oh, I guess they're still around. And I'll tell you what, Chris.

and prepping for today's show, I did take a look at that stock performance over the last couple of years, and it's actually been pretty phenomenal. Now, whether or not Sony mobility, which is their separate division within Sony that will focus solely on those electric vehicles, ends up being the thing that propels that stock price even higher over the next five years. I think I'm still not quite sold on the concept, but I was impressed by the fact that they were still apparently trucking, even though I had no idea what was happening on the back end. I got to say, I do like the fact that they are being very upfront about their ambition with respect to getting into the automotive space.

So often, executive teams are trying to obfuscate in some way. They're being pretty direct about what their goal is. That said, this is a challenge that they're going to face. And by the way, Apple will face this too if they ever actually produce the much-rumored Apple car, which is, why should I trust you with my safety? And I think that's the challenge for any non-automaker. Just because I like your phone doesn't mean I'm going to trust you to build a car that I feel safe driving around.

I'm actually interested in the fact that you came away from this story with a feeling that they weren't obfuscating their perspectives on what they were going to do, because only four months ago, Sony was saying, oh, we're not interested in launching a commercial car. So from September 2021 to today in January 2022, something changed behind the scenes. And that actually points to some of the issues I think that exist behind their capital allocation strategy, which is they just kind of throw money at the wall and they see what sticks. And this idea that they've been piloting for the past year was supposed to be focusing on the Sony sensors.

And instead, they've turned it into this entire vehicle division. To me, it just begs the question of, well, why don't you use what your competitive advantage is? When I'm looking at Sony, they could be innovative in creating an appliance or a plugin that improves that customer experience of smart devices or electric vehicles. But I think they took kind of a cop-out approach here by just taking their sensors, sticking them on an electric vehicle and saying, look, we're a car company now. So I wish I had seen a bit more innovation, a bit more creativity on the back end, something that would say, look, Sony is going to to be the competitor here in this specific niche.

Because when I look at the potential for Apple to get into the space, obviously, Tesla being a big player, we just talked about Nicola and all these other businesses that are going to be competitors, I can't help but think I don't see Sony coming out as a winner. I'm glad you mentioned capital allocation, because that was another thought I had. Again, as you mentioned, the last couple of years, the stock performance for Sony has been pretty strong. And one of my thoughts this morning was, really, this is what you're going to put your money towards? Why don't you sort of stick to your knitting in terms of consumer electronics, in terms of gaming, that sort of thing? Moving away from Sony, because capital

allocation is so important. The skill that any given executive team has with respect to capital allocation is one of those things that never shows up on the balance sheet directly, but It's such an important skill. If you and I are of the like mind, and I think we are, that Sony could be better at capital allocation than they are at the moment. What's a company or two that you look at and you think that's a company that's doing it right in terms of the way that they invest their money, whether it's reinvesting in the business, paying a dividend, buying back shares? There are a lot of ways to allocate capital. What's a company or two you think that's doing it right?

Well, we talked about Sony taking a cop-out approach here. I'm probably going to be taking a cop-out approach with my answer, but I think probably one of the best capital allocators we could look at today is actually Amazon. And I love the point that you make about capital allocation skills not showing up on the balance sheet, because you know where they also don't show up on the income statement? And Amazon got a lot of flack for decades about the fact that they weren't producing bottom line earnings. And a lot of that was because they were taking capital and reinvesting it pretty aggressively into their business. Now, the good thing is, is that the management team at Amazon had a pretty clear vision

for what they imagined the company to be. Now, that doesn't mean that all the initiatives and the projects they put money behind succeeded. Clearly, they didn't. At the same time, the ones that did succeed were accretive to creating Amazon as a platform. So when I look at Sony and I look at where they've allocated capital, they've created numerous products, right? They're almost this conglomerate of interesting things that range from gaming to media and movies to discs to memory sticks, but none of them point to Sony as a platform.

Sony as a company, Sony as a brand, they all just exist independently. So I think when you look at the difference of the way that capital is allocated across these two businesses, you have one that was done in a way to build up the Amazon brand, build up the Amazon experience, whereas Sony was just trying to grow their top line with no reflection upon whether or not that capital is really going to be paying dividends, for lack of a better words, over the next few decades. Senior analyst, Emily Flippin. Thanks so much for being here. Thanks for having me, Chris.

Wouldn't be the start of a new year for investors if we didn't get the mother of all predictions from the financial media. Here with some thoughts on that, as well as some trends to watch is Motley Fool senior analyst Jason Moser. Thanks for being here. Hey, thanks for having me. Now, in fairness, we made predictions for 2022. on last Friday's episode of Motley Fool Money. But the one that gets the most headlines is the question, will the stock market go up in 2022? And I get it. It's natural to ask that question. It's natural to wonder that if you're an investor. But if you're focused on the long term,

one year kind of doesn't matter. Yeah, I agree with you. I mean, it reminds me, something I was thinking of earlier that in the near term, stock price is not really a very good indicator. It's not a reliable indicator of how a given business may be performing. Whatever, however you want to coin it, it's almost like the psychological state of the market at any given point in time. But as you noted, it's a fun question to deliberate. It's when we get every year. It's one we ask every year. And so it is, I think, fun to start the conversation. Everybody's hitting reset at the new year and wanting to think about what the market may do. I mean, it's obviously the market coming off of a very strong performance here in 2021. I think,

up better than 28% with dividends and everything included. So it's going to be difficult to match that performance. It's worth remembering for investors that on average, the market has a down year, one of every three years, and the last down year was 2018. So one could argue that maybe we're due for a down year. And I said on Motley full money even that I wouldn't be surprised if we did have a down year. We've got a lot of things coming into play here this year in regard to inflation and interest rates and sort of getting off of the stimulus from the last couple of years. Maybe that presents

some headwinds. We'll have to wait and see, of course. But yeah, your point, I think, is spot on there. One year in the frame of how we invests just really, I don't want to say it doesn't matter, but it honestly kind of doesn't matter. Well, let's get to a few trends that investors might want to keep their eyes on this year. We'll start with something that is a concept we've talked about for years on this show, the idea of the last mile with more and more companies delivering. This is something Amazon has invested in over the past decade. Now some people are starting to wonder about a business like Shopify, which has steadily grown over the last few years.

Shopify hasn't really gotten into sort of that last mile of delivering stuff to people's homes, but I'm curious how you're thinking about the last mile in the year ahead. And as a shareholder of Shopify, if you would be applauding Shopify really investing in that last mile? Well, I do think that Shopify is going to continue investing in that last mile. They're just doing it very slowly. I mean, they acquired a little while back, six river systems. That's something to help in their fulfillment aspirations.

They're targeting investing over $1 billion here over the next several years. But the bottom line is, they're taking it very slow. This is a conscious decision on their part. They wanted to be done right. They wanted to be done in accordance with what their merchant customers actually need. So I absolutely appreciate that they're doing it. I think it makes a lot of sense for them. But it's also interesting to see how different businesses are approaching this problem in different ways.

I mean, you look at Etsy, which is taking a little bit of a different tack there. They have essentially a peer-to-peer fulfillment design. They basically put the onus on the merchant to get the shipping done. That's why you don't see these two-day guarantees. often when it comes to Etsy because Etsy doesn't really control that. They want to let their best merchants rise to the top there. You look at a company like Wayfair. Wayfair continues to invest big money in its fulfillment infrastructure there. The Castlegate warehouses, they obviously getting furniture from point A to point B is a difficult value proposition.

And so they've needed to invest in that fulfillment infrastructure to be able to whittle down that time and distance. And then another company we've talked about recently to Lowe's. Lowe's is building out this market delivery model, which essentially just the big and bulky products will flow directly from the supply chain to the customers' homes without ever flowing through the store. So you see different companies attacking this from different angles. But generally speaking, I think it's going to be something that consumers will only care more and more about, right? I mean, I think e-commerce and shipments, fulfillment, that's only going to become more and more important for businesses as time goes on.

Over the past 12 months, the phrase global supply chain has been on. uttered more times than anyone can possibly count. It's something that's going to continue to be a challenge, at least in the first half of 2022. And semiconductors were really at the center of that. How are you thinking about semiconductors this year and what should investors expect? Yeah, I look at semiconductors as increasingly a more, more attractive opportunity. I think a lot of that really just boils down to the evolution of technology, the rollout of

5G, the subsequent Gs to come, right? It doesn't end with 5G. We're going to see six and seven and so on as time goes on. So that cyclicality window, I think, for semiconductors is really shrinking as everything becomes more and more connected, playing in that Internet of Things idea, things like artificial intelligence, machine learning. Everything is just relying more and more in technology. So I think we're going to see that cyclicality window continue to shrink.

And we're going to see, I think, a lot of businesses, the biggest and the best really rise to the top in regard to. to this supply chain crunch. It's something that certainly is going to be at the forefront of the conversation for the first half of this year. I wouldn't be surprised to see it sort of bleed into the back half of the year, but we see companies talking about the biggest and the best being Marvell, for example, in their most recent earnings called the word supply was used 35 times. On AMD, it was used 30 times. Remember, AMD is bringing Xilinx into the fold this year. That closing has been delayed slightly due to Chinese regulators, actually giving

the deal a little bit of a close. or look, but it is still scheduled to close. I think we're going to see some more consolidation in the space. It's definitely something these chip makers are talking a lot about. But I think it really, this I think gives investors a lot of opportunity in this space. Look for the biggest and the best in the space. They're going to be able to cope with this better than others. And as time goes on, it just looks like an increasingly attractive space because of the the connected nature of everything. Real quick, before we wrap up, let's talk about the Metaverse.

For all the jokes that were made about Facebook changing its name to Meta Platforms, when you get past the humor and you look at what they are attempting and the opportunity, not just for meta platforms, but for so many different businesses, and we can talk about a couple of them, how are you thinking about investing opportunities in the Metaverse? Yeah, I think that for now, I think the Metaverse. really is going to, it's going to boil down to really big tech and their aspirations in the near term. This is really still a fairly new concept, but we're going to talk more and more about it as time goes on. It's already a thing in many ways, but it'll continue to morph

and develop. I think the bigger challenge right now is perhaps the physical interface, getting something that can take us into this metaverse without just being bulky and uncomfortable, someplace we could stay for long periods of time for those who want to do that. That I think It's going to still take a little while. We've got a lot of companies out there really working towards that goal, I mean, from Qualcomm to Apple and everywhere in between. But then I think also you see these just so many other businesses out there, they're going to be part of creating this Metaverse, right?

I mean, I think Unity Software's GM of Unity Creators, his name is Mark Witton, said it best, the Metaverse is going to be built by millions of content creators and Unity Software is on a mission to give them the tools to be able to build their visions, bring those visions. to life. So I think that there are going to be a lot of opportunities. It's not going to be a meta wins the Metaverse or Alphabet wins the Metaverse. I think the 3D Internet really sums it up well. And I think from that perspective, we're going to see a lot of winners. But it's a space that's going to take some time to develop, I think. I'm glad you mentioned Alphabet because it's hard to imagine a business that big with pockets

that deep isn't going to be dabbling in this space along with another behemoth like Apple. Indeed. Jason Moser, thanks so much for being here. Thank you. That's all for today. But coming up tomorrow, Dylan Lewis will be here with a preview of some of the most highly anticipated IPOs of 2022, including one business he calls the most fantastic private company you've never heard of. You won't want to miss it. 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 ourselves stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.