Behind The Most Exciting Stock Pop In Years!

0:01Travis Hoium:Target's hot streak continues. Motley Fool Hidden Gems Investing starts now.

0:10Travis Hoium:Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoium joined today by Lou Whiteman and Rachel Warren. Guys, we're going to start with retail. The big earnings report this morning was from Target. The company reported 5.3 % increase in sales, 3.8 % jump in same store sales. This is where they really struggled over the past few years. So Rachel, what'd you take away from this report? There were some interesting updates here. I mean, probably the one that caught most investors' attention was the 100 % jump in earnings per share. That really catches your eye, but you got to look closely at the details.

0:40A large portion of that growth on the bottom line came from a one time$994 million tariff refund that actually added$1.65 per share to those earnings figures. But even if you strip away that, Target actually grew its fundamental earnings by 20 % year over year, you know, they're really leaning into this differentiated retail approach. They've lowered prices on more than 10 ,000 items to try to attract more budget conscious shoppers. But kind of the broader story here is Target is really trying to expand more into the digital and service-based revenue channels. So their traditional in-store sales grew by 2.7 percent.

1:14Digital sales grew by 8.7 percent. There's also a 25 percent increase in same-day deliveries and 20 percent growth in non-merchandise revenue. And the thing that I think is important to note for anyone that's followed this business for a while, they've been struggling a lot compared to, you know, competitors like Walmart. Target really relies significantly on sales of more discretionary items compared to the competition. So apparel, home decor, seasonal goods to drive traffic and protect its margins. And so when you've got shoppers cutting back on non-essential spending, that leads to lower foot traffic, excess inventory.

1:48You know, we have the newer CEO, Michael Fidelke, he stepped into the role earlier this year. They're implementing a multi-billion dollar turnaround strategy, slashing prices. They're investing billions into story models. This isn't a stock I'm running out to buy right now, but I will certainly say this was a quarter that I think showed some much needed improvement, particularly under new leadership.

2:08Travis Hoium:Yeah, Lou, I don't know if now's the time to buy because target stocks almost up 60 % year to date. It seems like a lot of the turnaround may have actually been priced in already. Right.

2:18Lou Whiteman:The Patient has a pulse and congratulations for that because we didn't know that for a while. It was a beat. As Rachel said, it was an ugly beat, but at least things are not going down, which has been the problem for a while. As you said, the stock's up big. The market is yawning at this. I think that is right. What Target did was Target held surf. Target delivered as expected. Can they accelerate though? I mean, under 4 % comp sales gains won't sustain the stock forever. And what are they going to be? They were cheap, chic or whatever, you know, like, and that's hard to do. They're trying to bring that back.

2:53Lou Whiteman:They mentioned protein, heavy potato chips as a big seller at a big driver and floral pattern phone.

2:59Travis Hoium:I gotta say, I do love all the minute details in these earnings calls too.

3:04Lou Whiteman:Right, right. But look, that sounds to me a lot like whack-a-mole. That doesn't sound like a sustainable strategy. Rachel mentioned they're going to differentiate themselves by lowering prices. Walmart called, you know, they've been trying that for a long time. target. This is the dangerous thing about retail. Nobody has just a God-given right to exist. We see retailers fall out of favor and never recover all the time. That's why it is really good news that they seem to have stopped the slide. But is it a good investment from here? I think they still have a lot of work to do to explain, like kind of the way Best Buy has explained and Dix has explained, we are here because we provide blank.

3:47Lou Whiteman:I still don't think we have the answer to that question for Target. I don't think floral pattern phone cases are the long-term answer there.

3:54Travis Hoium:When you think about a stock like Target, so 15.6 times earnings as we're recording right now, it does have a dividend yield of about 3%. Is that enough to be a value for investors or is the bigger challenge, what do they fundamentally become? Because the disruption story is still a bigger story. I think the digital pieces is the one that I have the hardest time wrapping my head around. It sort of makes sense, right? That you could order your groceries. We get our groceries, non-perishable things. We usually get fruits and vegetables from the grocery store, but you need a box of cereal. It's cheaper to come from Target and it'll come right to your door.

4:30Travis Hoium:That seems compelling to me, but at the same time, Amazon's trying to do the same thing. So it almost seems like they're in this strange middle spot.

4:37Lou Whiteman:They are fighting everybody everywhere. And that's sort of a different way of putting the thing of like, what reason do you have to exist? What are you special at? The dividend, look, it's down under three now. And I'll note, I can get a six-month treasury today for 4.0, and I'm not going to get any growth there either. So you've got to explain to me where the growth will come from. We talk about this with REIT stocks all the time. I love dividends on REIT stocks, but if it's a REIT stock that goes nowhere for a decade but pays you three four percent you're not beating the market target needs to explain growth i love it a good total return story that dividend can be part of the answer here but you got to grow better than four or five percent consistently for that dividend to matter in terms

5:21Travis Hoium:of an investment decision for me if they really want to grow this digital business i just want them to integrate shift they still operate shift as kind of a separate thing and then ask for a tip So I'm paying to be a subscriber to this Target Plus or whatever it's called. And I have to tip the driver. I don't have to tip my Amazon driver. That whole thing, that whole integration just seems a little bit like it needs to be rethought a little bit. But at least they're heading in the right direction. So we'll see where things go. More retail earnings tomorrow when Walmart reports. So another thing we'll probably cover here on the show in the next couple of days.

5:53Travis Hoium:When we come back, we are going to talk about Moderna stock, which is up 135 % as we're recording.

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7:46Travis Hoium:Welcome back to the show. Moderna is the big mover for today. Rachel, this is your area of expertise. Shares are up depending on the minute that we're looking at things right now. Between 140, 160 percent. This is a crazy response. But what was the big news for today? We had major trial results come out from the phase three trial for their mRNA based personalized cancer vaccine. This is a major milestone for a few reasons. For one, this represents the first randomized phase three clinical trial to show that an mRNA based personalized cancer vaccine can actually prevent high-risk skin cancer from returning.

8:25This is a made-to-order vaccine. It's manufactured by analyzing the unique mutations of an individual patient's tumor. So doctors first take a sample of the patient's tumor. They sequence the tumor's DNA. They compare it to the patient's healthy DNA to identify the mutations unique to that cancer. They select the most prominent mutations that they write that custom mRNA genetic blueprint targeted only at those specific tumor fingerprints. So then when the patient receives the shot, it trains their immune system to recognize and attack those mutated cells. So this study involved over 1 ,100 advanced melanoma patients whose tumors had been surgically removed, and it combines this customized mRNA shot that I just described with Mark's established immunotherapy drug, Keytruda.

9:10This is a longtime blockbuster drug, and it very successfully prolonged the time patients live without their cancer occurring. This regimen, the combination of the vaccine and Merck's Keytruda, also met a key secondary endpoint. It reduced the risk of cancer spreading to other parts of the body. And this is really key. You know, we're at a time where Moderna has been for years now working to diversify its revenue streams post-pandemic. Merck is facing the eventual patent expiration of Keytruda in 2028. Now, we're still waiting for the full detailed information from this trial. One thing I wanted to note that was really interesting.

9:45So clinical trials use what are known as independent data monitoring committees to review data at scheduled intervals to protect patient safety. This interim review actually showed that the patients that were on this vaccine combo were significantly outperforming the control group in stopping the cancer from returning and spreading. And they actually hit such a high efficacy threshold in terms of the ability to save lives or prevent the disease that standard medical ethics actually require you to then stop or modify the trial so that patients in the control group can access the treatment. And that's what they did in this trial's case, which is why we're seeing the results earlier than expected, why we're seeing all this data.

10:24Now, one final thing, each vaccine is custom coded to a patient's specific tumor fingerprint, if you will. So it takes about a month to manufacture from the time of the biopsy. So even if this gets accelerated FDA approval, the next real debate is going to be the scaling, the pricing. But this is great news for Moderna. It's great news for the patients that could benefit from these treatments.

10:44Travis Hoium:Lou, I understood a lot of the words Rachel just said, but if I can sum it up, this seems pretty cool.

10:50Lou Whiteman:And I think that's it. And I don't want to be the wet blanket here, but as an investor, I think here is just the word of caution. This is a wonderful proof of concept. It's an important thing. Moderna is closing in on a huge, huge leap for them. They are going from being a vaccine company with that vaccine kind of out of favor in the market right now to potentially being an oncology company, which would greatly increase its total addressable market. That's what the stock is reacting to. And it's very good news. OK, I think some context is needed on this jump, though. Yes, they are up 100 and 150 percent today.

11:28Lou Whiteman:Even with today's jump, they are still slightly below where they were in May 2024. 2024 it's about half the price it was in early 2023 and down by you know what 25 percent or so from its COVID era highs this was a company that not left for dead but that investors had largely and wrongly given up on and now we're seeing almost like what I said about Target we're seeing them off the mat or starting over this fills me with hope but there is still a long way to go We didn't have the full details in the announcement. They're going to give all of the full details that other peers are going to have to review at a conference later this year.

12:07Lou Whiteman:They're looking at the next year at earliest before approval. And there are still huge questions about cost and feasibility at scale. Rachel, I saw up to like six weeks before it's ready from when a biopsy happens at scale. And again, hopefully as these things prove out, and this was actually, they went after melanoma because in a way it was advantageous, but in a way it was harder. The dream here is that now that we've proven this, we can attack a lot of cancers and the infrastructure will be built. And over time, that will solve those six weeks questions, the scale questions, the cost questions.

12:43Lou Whiteman:There is a path here, but I think as investors, it's important to realize that a lot of this, we have to put the words over time at scale, eventually. The big thing is, and this kind of fits in with the cancer patient as well, there's reason for hope. And hope is a great thing, but you know, just clear-eyed as an investor, just be careful jumping in now after that jump, because there is still a long path here.

13:07Travis Hoium:Yeah, to put a little more perspective on where the stock has gone, it peaked almost exactly five years ago in August of 2021, down 69.5 % since then, but the bottom was down 95%. So just a crazy volatile decade for Moderna. But this is one of those that I'm going to be keeping an eye on. I think the trend that I keep needing to learn more about is the personalization of medicine, because it seems like this is one of those huge personalizations, but this is something that we're probably going towards more over the next decade or two.

13:40Lou Whiteman:You could have bought the stock in the low 20s last September. And I think that would have been a great time to buy in. I'm less sure today in terms of the near term, long term. Let's

13:50Travis Hoium:just hope it works for a lot of reasons. Yeah, exactly. Great to have some good news coming from the companies that we follow. When we come back, we're going to get the latest on OpenAI and Anthropics growth.

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15:26Travis Hoium:The other big news in the market today is OpenAI and Empropic. We've gotten some news about their growth in the second quarter. Lou, this has gotten a lot of discussion from investors, but 18 % growth quarter over quarter for OpenAI. And that was disappointing. Usually companies that are growing that quickly, investors are really excited, but this is not the triple digit growth that we're maybe expecting.

15:49Lou Whiteman:A lot of this is what stage of life as a company in. 18 % isn't great when you're supposed to be in hyper growth mode. Here's the real thing though. 18 % growth is even worse when your operating loss grew by 30 % in the same period. that's trending in the wrong direction put it together and open ai is deeply unprofitable and growing more unprofitable by the quarter what's not and by the way just yesterday or the

16:13Travis Hoium:day before they lowered prices on their api so it seems like they're trying to get market share by winning a price war let me tell you the charitable explanation here and i do think that we have to

16:24Lou Whiteman:give because i would love to spike the football on sam altman right here i am here for it but here is, I think, the charitable explanation. They are investing for future growth. They should be spending more than they're bringing in. So I'm being a little snitty when I point out the expenses are growing faster than the revenue. We can't rule out that it's going to work. I know a lot of AI, very, very AI embedded people in the last month or so saying they're getting increasingly frustrated with Claude and they're really impressed with ChatGPT. I'm not calling a swing here, but it's important to remember just how new, how early we are in the game.