Apple Folds & Meta Muses

18:35Travis Hoium:Jason, the other thing I wanted to bring up is the developer side of things. One of the notes that I heard coming out, and this phone's not going to be out for about another month, but the beta is not even something that developers can test yet. And apparently this is not just a, you know, take your iPhone, your iPad app and just like stick it on the new phone. It's a new app. So developers are going to have to do work at the same time. they want to launch this new updated Siri, which developers also have to do more work on. Are we going to get to this point where people get these new devices and they just kind of don't work as advertised?

19:05Travis Hoium:And I remember that happening in the past with Apple and it was kind of a black eye on the company for a little while. Yeah, because that's something that historically Apple has done, even though they're not always the first mover, they're never the first mover. They're almost always have been out of the box, seamless and great to use. And the experience for the user has always been fantastic. That has not been the case, as you said, a couple of times more recently. And that is a potential risk, especially for this, which is going to be, I mean, this is like a cornerstone product. This is going to be the highest end of its high-end products.

19:39And the fact that you do have really three screens. So apps have to be built differently to be able to operate depending on which mode you're using the phone in. I think what I'm trying to get at is that because the form factor is so different here, there is going to be a learning curve here. But I do think that the people that are buying these are probably diehard Apple users that want this. And they're going to be willing to kind of go through a little bit of struggle just to get this phone in their hands.

20:03Travis Hoium:The fact that they got Netflix on board, I think is a good sign. It will be interesting. I'm happy to see that we have innovation happening in the space, whether it's the Muse app or the new foldable phones. It's exciting to follow tech again. When we come back, we're going to go in our time machine. You're listening to Motley Fool Hidden Gems Investor.

20:25Lou Whiteman:Propel Fitness Water with Gatorade electrolytes, zero sugar, and vitamins. Propel hydrates better than water to help you get the most out of your workout and get back to your best self. What propels you? Propel with Gatorade electrolytes. This episode is brought to you by Palmolive. Family time isn't just the big moments. It's weeknight dinners, sitting around the table, everyone talking all at once. So when the plates are empty and the sink is full, use Palmolive Ultra. Palmolive's most powerful formula removes up to 99.9 % of grease, leaving your dishes sparkling clean. And the new convenient pump makes cleaning even easier, so you can spend less time tackling dishes and more time together.

21:08Shop now at palmolive.com.

21:11Travis Hoium:Welcome back to Motley Fool, Hidden Gems Investing. We like to have a little fun and maybe test Lou and Jason's memory of the market in this segment. I'm going to call this the time machine. I want you guys to tell me what these companies were doing 10 years ago. And part of the context here is with all the things that are changing, we're really worried about month to month, week to week, quarter to quarter. But sometimes we forget as long-term investors that we should really be thinking about 5, 10 years from now. Sometimes those compounding growth that some of these companies have kind of sneaks up when we look back.

21:43Travis Hoium:So we had a few questions for you. Jason, I have you go first here. Uber Technologies, been around for a while. It's now become kind of the Kleenex name in ride sharing. Over the past year, they have done 14.8 billion rides. In 2017, they have not been public super long. So that was the last of complete data that we had. 2017 how many rides did they complete so 14.8 billion over the past year what were they doing a decade ago a few million maybe maybe i mean this this feels i mean it was tiny compared to what it is more than a thousand x ten thousand x i don't know what do you think this is annual

22:29Lou Whiteman:this is annual rise um i'm okay annual yeah yeah yeah i'm gonna go with billions maybe about i'm gonna go with a billion maybe four billion lou you are almost exactly right four billion the

22:43Travis Hoium:interesting thing you look at this chart they had consistent growth 2017 through 2019 2022 it drops down and then you go basically back to the exact same growth rate that we had in 2017 so So it's like 2018 mirrors 2020, which then 2019 mirrors 2021. It's just, it's fascinating how the pandemic really kind of set this entire industry back and the adoption rate back in almost a straight line. So, but again, 14.8 billion rides. I think we often forget how ubiquitous that company became as quickly as it did because it started, you know, I think it was 2009 the company was founded. All right. Disney is known for its movies, but it makes its money in its parks.

23:30Travis Hoium:Lou, operating income for Disney's parks over the past year is$10.8 billion. A decade ago, what was that number? 10 billion now? $10.8 billion over the past year, yes.

23:47Lou Whiteman:And now, and I mean, two-thirds of that is just the markup on the lunch, I know. um look it it worked last time so i'm just going to say four billion four billion three three

24:01Travis Hoium:billion you guys are you guys split the hair uh it's basically tripled in the past uh in the in the past i get a little a little more than tripled 3.3 billion and the fascinating thing with disney's business is the movies the streaming service gets so much attention espn but it's really the parks that drive the business and that has been a consistent grower outside of that blip that we talked about in 2020 and 2021, but the consistently throwing off cashflow. And Jason, I think this is, you look at a company like this, like Disney, this is, it's not going to end anytime soon. Yeah. Well, and it was about a decade ago, they had their first new opened, uh, theme part.

24:40It was Shanghai, uh, about, about that time. So over the next decade, it's probably another one going to open somewhere, but there've been so many expansions of other things they've added. and that's not even talking about how much they've expanded the ticket prices. They run that business like they use pricing power to control the experience. They do an extraordinary job with that. So there's not too many people in the park. So they raise the prices to throttle back, you know, demand and it generates incredible operating income when it works.

25:09Travis Hoium:Yeah, they really have that mastered. I was there earlier this year and the difference between them and Universal, you could just see that they've been doing this for, what is it, 75 years at this point. All right, let's go to a little bit bigger growth number. This is going to throw off people who have not been following this industry for a while. But NVIDIA, their data center revenue. Jason, I think this is going to be up your alley. Over the past year,$278 billion. Okay. In 2016, how much data center revenue was NVIDIA generating? so 278 billion used to be what i mean it was a few billion because they were selling gpus for for the cloud like that was a thing i'm gonna say a few billion and that might be too big

26:00Lou Whiteman:one dollar no i what was their total it's their total revenue was a few billion in 2016 i'm gonna with um 999 million 2016 their total revenue to lose point i'm going fiscal 2016 was five billion

26:19Travis Hoium:dollars like yeah i was gonna say it was like four or five billion the data center revenue was 338 million dollars okay the compound annual growth rate this is where compound annual growth rates are just crazy to me looking back at some of these 84 percent compound annual growth rate that That leads to a total change percentage wise of 82 ,000%. Yeah. Just crazy how much that business has grown. Yeah. I thought it was a little bigger than that by then, but I guess that was still pretty early in like GPUs for the cloud. They did not pass a billion dollars until 2018, fiscal 2018. So that was mostly calendar 2017.

26:56Travis Hoium:And yeah. And then it, you know, kind of incrementally went up and it was actually flat 2019 to 2020. It wasn't until 2021 that things really started to pick up there. So just interesting how quickly that business has grown. All right, let's go to Tesla. Over the past year, they have sold 1.75 million vehicles. Lou, how many vehicles did they sell in 2016?

27:24Lou Whiteman:Under 99 ,999. Jason. the model s was the best-selling luxury sedan in the world back then uh like just bar nine are we

27:38Travis Hoium:really are we really playing that this is a luxury vehicle game like no that was the category it was in the model s was that was that was the category that it was in right it was outselling mercedes and bmw similar sticker price cars but i mean it's like a few thousand a month it wasn't like I'm going to go one less than lose answer. Jason, you win. It was 76 ,230. They did cross 100 ,000 in 2017. The interesting thing looking back on them, I think people forget this because the stock has moved so much in so many different directions over the past decade. But their growth really happened after the pandemic began.

28:22Travis Hoium:And you can almost go back and see, this is why Elon Musk was like, no, no, no, we're going to keep making cars because they almost doubled production in 2021. They were up about 30 or 40 % in 2022. And again, you know, similar percentage in 2023. That was actually when they peaked was 2023. But that growth really took off with the Model 3 and Model Y, but it wasn't until a few years after 2016. Well, that was the key when the price point came down. And the funny thing is that those cars that you can buy today for$40 ,000 or$50 ,000 are better, have better range, they're more reliable, they're faster than the cars that cost$100 ,000,$120 ,000 a decade before.

29:01Travis Hoium:I will continue to contend that Teslas are not luxury vehicles, but I may not win that battle with the market. Okay, final question for you guys in this segment. Costco, phenomenal stock, phenomenal returns over almost any timeframe that you want to look at. But Jason, they have 81 million paid members today. How many paid members did they have in 2016?

29:3150 million low how much now 81 million today 81 40.5

29:41Travis Hoium:jason is a little bit closer this is fascinating to look at costco's results their compound in your growth rate only six percent in the number of members not a phenomenal member growth is 47.6 million members in 2016. But yet over that decade, over the past decade, their stock has returned almost 500%. So it's a little bit of growth from members. It's a little bit of price increases because they have expanded those margins in their stores. I think they picked up their member fee just a little bit in the past couple of years, but a lot of multiple expansion too. That's played a big role. The stock now trades for 45 times trailing earnings.

30:23Travis Hoium:So one of the slower growth companies that we've talked about here, but there's lots of different ways to make money in the market. I have nothing to add. Charlie Munger said that and he was on the board of Costco for a long time. Wise thing to say. When we come back, we're going to talk about inflation and where interest rates may go from here. You're listening to Motley Fool Hidden Gems Investing.

30:52Lou Whiteman:Propel Fitness Water. With Gatorade electrolytes, zero sugar, and vitamins, Propel hydrates better than water to help you get the most out of your workout and get back to your best self. What propels you? Propel with Gatorade electrolytes. This episode is brought to you by Palmolive. Family time isn't just the big moments. It's weeknight dinners, sitting around the table, everyone talking all at once. So when the plates are empty and the sink is full, use Palmolive Ultra. Palmolive's most powerful formula removes up to 99.9 % of grease, leaving your dishes sparkling clean. And the new convenient pump makes cleaning even easier, so you can spend less time tackling dishes and more time together.

31:34Shop now at palmolive.com.

31:38Travis Hoium: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 the Motley Fool's editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertisement disclosure, please check out our show notes. The other big new piece of news that the market is focused on is interest rates. We have a Fed meeting coming up next week.

32:05Travis Hoium:Mortgage rates are up. The 30 year is a higher rate than it's been in almost two decades. Lou, we got some inflation data that didn't seem great. Didn't seem like the kind of data that's going to get the Fed to cut rates. The big one that came out this morning is CPI, the consumer price indexed up 3.4%. Is this a big deal? Is this not a big deal? How do you think about interest rates and inflation today?

32:30Lou Whiteman:It's definitely worth watching. It's not a reason to change your investing, but I want to separate out rates and inflation because inflation is basically holding steady. That's not great. And there is a lot of pain out there, but we have seen that the economy can hold up at rates, at inflation at this level. So I don't think it's any reason to panic. It's just we're watching to make sure it doesn't go higher. Rates, on the other hand, I do think are separate. I mean, for all the talk about oil, for all the talk about tariffs, I don't think the rates are moving on inflation. They're moving on the fact that you have less demand for bonds than you do the supply of bonds.

33:10Lou Whiteman:Basically, this is an AI build-out story. We just have a crowding out of treasuries and other government bonds, and that is causing them to have to pay more. 25%, 25 basis points, 50 basis points, nothing the Fed does will wipe out hyperscaler demand for capital. They will pay the higher rates. So the Fed really can't control, and the Treasury can't either, but they're finding that out the hard way. You can't really control what the rates are. That's just going to be what it is. The market is telling us, the companies are telling us they can handle that. So we don't have to worry about that as investors.

33:45Lou Whiteman:We just need to watch to see if inflation spikes and so far so good there. But if that does happen, that could impact the consumer, which causes trouble down the line.

33:55Travis Hoium:Jason, you and I have been talking about energy stocks for a long time. And one of the reasons that I keep an eye on interest rates in particular is because we've seen what happens with energy, solar and wind, I think is a great example. But when these interest rates go up, cost of capital goes up, it makes it harder to even build out the data center. Lou's right. The data center buildup is really driving the economy and GDP growth right now. But if that capital gets more expensive and it's, you know, the hyperscalers are in a different category. They have cash and they can find cash if they need to.

34:24Travis Hoium:But the neoclouds, you know, some of the less capitalized companies are going to maybe run into some real problems if suddenly debt costs are 12, 13, 14, 15%. That's when you start to get worried. So how do you think about those interest rates and in investing because it seems like certain companies we shouldn't care about and others we should care a lot yeah i mean that's the way it always is though uh the companies that are on the margins are always going to have marginal pressures that that affect them and is an investor you know i really don't worry about inflation very much at least not like as an isolated thing it has to be within the context of all the things that we've talked about i think too we're we are at a point where you know 30 years at some of the highest levels we've seen in a couple of decades.

35:06But if you zoom out and look at the interest rate chart over the long term, that's because the last two decades have been extraordinarily cheap money. And money still is historically relatively cheap broadly for companies and for individuals that have good credit and are viewed as safe borrowers. Money is still very, very accessible. But I think as an investor, what I really try to look for in these sorts of periods where we have high inflation and we have something giant where the money's going to keep flowing to it, like AI infrastructure, that's making things expensive for consumers because it's driving up energy costs.

35:41And it's making things like your smartphone more expensive because of the run on memory, for example. Those things are affecting regular consumers. And it's putting a pinch, a macro pinch on the companies that sell to them. So I try to look for opportunities in companies that are being like really good companies that are kind of getting the macro pinch, but the underlying thesis is still really good for the long term. And that's as an investor, my take is look for opportunities in these situations to buy greatness for the long term and not try to pivot and be too nimble in ways that as individual investors, we have no edge to be able to be more nimble than the big fast money can be.

36:24Travis Hoium:Lou, I do think about what you said about how historically these are not really that high interest rates, but it has been a very long time. And you have to be our age in your 40s, probably, you know, in investing for a very long time to remember when interest rates were higher than they are today. So this is one of the things that I, it seems like we're going to eventually run into this where, you know, the market goes, wait a second, we're going to have six, seven, eight percent interest rates. I can't, I can't buy stocks at 30, 40, 50 times earnings and expect them to beat the market. Is that something that you worry about that we're just kind of overplayed our hands because it has been low interest rates for so long?

37:07Lou Whiteman:Wouldn't that have already played out though? I mean, we haven't been on zero for a while. I think there was a flushing when we came off zero. I don't know if an incremental 100 basis points higher from here. The businesses that can't support actually paying for money are basically already in the past, like WeWork and some of those things. So I think the worst of that is done.

37:29Travis Hoium:We like to end the show with the stocks on our radar. Jason, you're up first this week. What are you looking at? TJX companies, TJX. So the last segment we were talking about that I'm looking for companies that the macro factors aren't great for some of their customers. And it's kind of spooked the market a little bit. The stock's down a ton and it just reported really, really good results. Comps were up 4%. Net income was up 24 % in the second quarter. The market freaked out a little bit because traffic was basically flat. And if you look at it against like the context of most of the industry they're in, traffic was down like three and a half percent across the industry, according to the data that we have access to.

38:11So you have a company that's outperforming its sector, that's dealing with some temporary macro things. They could last multiple quarters or even multiple years, but long-term we've seen TJX operate through these environments and be a huge winner. Trades for 24 times earnings. That's as cheap as I've seen it in a very long time. Bart, I think this should be your winner. I used to love the company. And then I was a frequent shopper of TJ Maxx and of Marshalls. And I saw the quality decline and also saw a slight increase in prices because of the tariffs and no decrease when they got their $330 million refund.

38:47I'm not the biggest supporter at the moment.

38:51Travis Hoium:tough tough crowd here but it does seem like you're right that jason to put some numbers to it the drawdown currently in the stock just over the past like week or two is about 25 26 percent and that's a pretty big hit for a company that does seem like to be it's performing pretty well and there's been a lot of pressure across the entire consumer space everybody seems to be facing these kind of pressures yeah i think there was just a lot of price based on continuing to outperform in ways that are maybe were unreasonable. And it's just repriced based on not being a perfect business. Lou, what are you looking at this week?

39:23Lou Whiteman:Yeah. TGMS is funny. It's like shopping at a flea market. You may find the treasure, but there's, what's the opposite of treasure? Anyway, how about this, Bart? I want to give you something to look at too. I'm looking at Helmet Aerospace, ticker HWM. They make the metal parts that go into jet turbines and gas turbines for data centers and all sorts of other complex machines. Shares are down more than 10 % this week after one of their big customers, GE Aerospace, announced plans to buy CPP, which is one of Halmet's rivals. I get why the market's concerned here. This is vertical integration for GE.

39:57Lou Whiteman:And over time, it could cause GE to take some of that business they're currently doing with Halmet and bringing it in-house. But that will take a lot of time, years, if not decades. And I think for every dollar in business Halmet potentially loses to GE, They have the opportunity to take new business from GE's competitors like Pratt and Whitney, who are currently giving that money to CPP and might not want to give it to what is now GE. I think this weakness is a buying opportunity in a great company, and I'm watching closely.

40:27Travis Hoium:Bart, what do you think about airplane parts? Very sexy. Always sexy. But I have to say, this is how I met Halmet. This is the first time I've heard of the company. So I'm going to be looking into it. All right. HowMet or TJX Companies? Which one's going on your watch list, Bart? HowMet, all the way. For Jason Hall, Lou Whiteman, and Bart Shannon behind the glass, I'm Travis William. Thanks for listening. We'll see you here tomorrow.