In short
The episode covers two main themes: macro interest-rate/debt dynamics and “drama” around data centers, plus major stock/market picks.
Guests
Travis Hoium (host) and Lou Whiteman (co-host). Jim Gillies (Canada-based guest) joins for the macro and healthcare discussion. Bart (StockSignor segment) adds stock picks.
Key claims
- Interest rates matter because “interest money” lubricates the economy; today’s rate panic is overdone versus the 70s–90s.
- Government debt management (issuing more short-term debt to buy down long-term) may be a temporary tamping of the curve, but the bond market ultimately signals risk.
- Cancer vaccine news could be transformative but remains early.
Notable examples
- Moderna + Merck phase 3 cancer vaccine results; Moderna stock up ~140% in the week.
- Data centers: backlash/political risk; AI messaging described as arrogant and unconvincing (“fancy search” for many consumers).
- Stock picks: Peloton turnaround (free cash flow ~+$378M; trading <7x trailing FCF; refinancing expected); Union Pacific seeking Norfolk Southern (timeline to ~end of 2027).
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VOImpact of Interest Rates on Economy
0:46 to 2:49
Discussion on the significance of interest rates for investors and the economy.
“lou why do interest rates matter particularly for investors in the economy wow big question Travis.”
Interest as a Lifetime Expense
2:50 to 7:18
Exploration of how interest expenses affect personal finances and investment decisions.
“you're running the Fed, you would maybe want lower interest rates to help the economy.”
Debt Market Dynamics
7:19 to 12:45
Analysis of the current state of the debt market and implications for investors.
“the curve as we were saying, so 30-year bonds.”
Debt Market Dynamics
12:46 to 14:27
Analysis of the current state of the debt market and implications for investors.
“is interesting news and we can talk about it.”
Breakthroughs in Cancer Vaccines
14:59 to 20:41
Discussion on the recent phase three trial results for a cancer vaccine.
“Welcome back to Motley Fool and Jim's Investing.”
Market Speculations and Valuations
22:24 to 28:00
Analysis of Anthropic's IPO and market interest in stocks like Disney.
“a game that I like to call Take My Money.”
Disney's Challenges and Bob Iger's Leadership
28:00 to 32:20
Discussion on Disney's asset management issues and Bob Iger's impact.
“But Disney, I don't think, I just don't think the collection of assets as stated works the way they hoped it would.”
Evaluating Tesla's Market Position
32:20 to 35:39
Exploration of Tesla's stock valuation and market challenges.
“Price earnings multiple on a forward basis to be the most generous is$190.”
Evaluating Tesla's Market Position
35:45 to 35:57
Exploration of Tesla's stock valuation and market challenges.
“That's quince.com slash motley for free shipping and 365-day returns.”
Data Center Controversies and AI's Future
36:48 to 42:00
Discussion on the public perception of data centers and their political implications.
“all right lou i wanted to get to some of the drama around data centers that we've seen really take off over the last week or so, but there's been some new polling about how unpopular data centers are.”
Show all 11 chapters
Stock Insights: Peloton and Union Pacific
42:00 to 42:58
Explore insights on Peloton's potential and Union Pacific's strategic moves.
“for less than seven times trailing free cash flow.”
Transcript
Automatic transcript. May contain errors.0:01Travis Hoium:This week, data centers became the enemy. 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 all the way from Canada, which ironically is, he's south of me, so we can have a geography discussion if you want, but Jim Gillies. Jim, welcome to the show. Thank you. It's been a while, Travis. uh we've got we've got a lot to talk about there's there's a lot going on in the market we do want to get to the news on data centers but this is sort of a quiet time for earnings so it's an opportunity to kind of take some bigger picture looks and one of the interesting things this week was what's going on with interest rates and i want to start before we get into kind of some of the drama lou why do interest rates matter particularly for investors in the economy wow big question
0:54Lou Whiteman:Travis. Is that the only one?
0:56Travis Hoium:I'll just lob that one over to you.
0:58Lou Whiteman:So why do interest rates matter or why do the current, you know, the heights interest rates matter? Because look, interest money is the lubricant of the economy and what you pay for money at the end of the day determines what you can, how much you can do with the money. So that's why we follow this stuff. Look, right now there's a lot being made about interest rates being higher than they were. they are higher than they have been yes for a while but look they're still way below where they were in the 70s the 80s and 90s and somehow companies and consumers and when found a way i think some of the current panic about current rates is overdone because money should cost
1:36Travis Hoium:something money shouldn't be free and as you mean the 2010s and early 2020s was not normal well and
1:43Lou Whiteman:as an investor i think we i i found out or we collectively found out the problems of what happens when money is free, a lot of bad ideas get going. So in a way, you know, a nice four or 5 % rate does provide you some sort of, um, I don't want to say BS filter, but I think I just did. But, um, look right now, everything's going on. There's kind of an audience of one here that would like to, that, that needs to see everybody trying to bring rates down. And so we're kind of going through, through serious things that we should discuss like what all this means. But a lot of it is just panicking over a line and not not zooming the line out enough, I think.
2:22Travis Hoium:Yeah, Jim, it seems like interest rates are like an easy topic to talk about, but they do flow down into the economy in a very real way. You get a mortgage. It is tied to interest rates, typically the 10 year when companies raise money. They have to pay interest on that debt if they're taking out debt. Stocks are valued, at least in part, based on what those interest rates are, the risk-free rate if you're doing modeling. So there is a reason if you are the president or if you're running the Fed, you would maybe want lower interest rates to help the economy. So how do you think about that as an investor?
3:00Travis Hoium:I mean, is that something that plays into your modeling or is this just sort of noise in the ecosystem? Oh boy, can't open worms everywhere. um so a couple of things first off people who have seen my prior work we've probably heard a very version of this uh what i'm about to say but i'll say it again because you know just hit the hit play the hits right um most people ask most people what your largest lifetime cumulative expenses okay i what i've when i've done little talks in public or i've occasionally talk at high schools or universities or even on Fool Live, Fool 24, sorry, ask that question.
3:39Most people say, well, house or education or kids. And I'm like, no, most people's largest lifetime cumulative expense is actually interest. Interest on your house, interest on your student loans, on your car loans, on your credit cards, pay off your credit cards, kids, and so on and so forth. And when you realize that, you can start doing things differently because it's within your can to not pay high interest. You can buy a smaller house, you pay your mortgage down, you could buy a used car, blah, blah, blah. Okay. So, you know, this is a way you can avoid paying interest in your personal life.
4:15That's number one. And I would encourage most people to do that because I don't like throwing money away. The idea of where interest is going though, is because, you know, as Lou mentioned, it's a lot cheaper. But as I understand what's going on from this move, and I, by the way, may very well not understand fully, okay? I want that out there. The U.S. Treasury, and again, Canadian here, so I'm, you know, not my country, not our fiscal policy or monetary policy, I should say, but, you know, we are keen observers. They are upping the sales of short-term debt using the extra proceeds to buy down the long-term debt and tamp down rates at the longer end of the curve.
5:05Doesn't that suggest a little bit of risky behavior? If the whole game, which I've been told by multiple smart fools and people not employed by us, has been to, hey, look, government debt's large. Federal government debt in the U.S. just passed the$40 trillion mark. Sounds like a lot. Interest on that debt is already sucking up about 20 cents of every federal tax dollar coming in. Sounds bad. And now we're going to issue more short term debt, which comes with a lower coupon. Like, isn't that maybe going to require more refinancing fairly near term? What guarantee is it that that works? And, you know, far be it from me to suggest that the bond market might be able to see through that collectively and go, hmm, tariffs are inflationary.
5:57debts elevated and growing and the present government is kind of, and this is not an America quote, I mean, I could point you to a few other governments not living within their means, including my own but sometimes eventually things break and so here in Canada, as I call it, the land of the frozen chosen, or as Travis as you pointed out, I am a little south of you actually which is kind of fun fact, don't look this up fools how many U.S. states have territory above the most other most point of Canada. The answer will surprise you. The answer will surprise you. But, you know, like Canada in the mid-90s got up to like almost like 80 % debt to GDP and they kind of went austerity.
6:44You know, they cut a bunch of services, they offloaded a bunch of services to the provinces, you know, and today I think we're running at about 60, 65. And I'm just going to point that the U.S. is kind of running at, you know, 120, I think. So, I mean, now you guys have something we don't have, which is, you know, the global reserve currency. Yeah, that feels important. For now.
7:06Travis Hoium:So what is the market trying to say about that debt, though? Because what I think is so interesting with this is, so the short term, what has happened this week is the Treasury is buying back some long-term debt because they want to reduce those interest rates on the long end of the curve as we were saying, so 30-year bonds. But the Treasury does not, or even the Federal Reserve, does not set interest rates. The market does. No, the bond market does. That's why I say the bond market's going to see through this. Right. So the bond market is, the way I always think about it is they're communicating with you.
7:39Travis Hoium:If you're a company and you're going to look for debt, of course, you would love to have a lower cost debt. But the market is communicating to you know, I want a 10 % interest rate to take that risk. I want a 12 % interest rate. And then you have to adjust to that and adapt to that. And so what is the communication that's happening from the bond market, which by the way, is 10 times the size of the equity market. So the bond market really runs the world. Yeah, the bond market doesn't like the state of debt, I think in general, in terms of like the rates will go up as they start to perceive that there's a bad situation.
8:14And I'm not smart enough to know if there's a bad situation in the U.S. or Canada or anywhere else right now. I just, you know, can say, well, on a relative basis, this is getting worse in terms of the amount of debt, in terms of the ratio of debt to GDP. Can it be reversed? Of course it could be reversed. But right now, the bond market's going, eh, we're not really sure about this.
8:38Lou Whiteman:The other thing that's going on, and this is just true of every market is, is that all prices are just a simple measure of supply and demand. And there is just a lot of supply of debt right now. We've talked about the hyperscalers and everything they're doing. This is hardly a U.S. thing, too. As Jim said, there's a lot of countries, Germany, all over the world, we are running budget deficits. So there is just a lot of paper out there. You have to make yours pretty and you do that with rates. So, you know, I mean, that's just kind of how rates work. To Jim's point, and I said, I think it's for an audience one, but buying back 4 billion in bonds when your deficit is$2 trillion is like switching to low fat milk and saying, okay, I can still eat 8 ,000 calories a day.
9:21Travis Hoium:I saw a video of somebody using a squirt gun to try to put out a house fire. I think that is another analogy.
9:28Lou Whiteman:Yeah, it's just not going to work. But I think someone was told to do something. And so they wanted to show they're doing something. That said, look, this is a lot more sustainable than we like to admit. At some point, the government is going to have to do something about it. But we do print our own money. We are, at least for now, we might be doing our best to try to ruin that. But we are the reserve currency. There is a stable market. This makes everything harder and it sticks future generations with the bill. So I am not saying it's a good thing. Every dollar the government has to spend on interest is a dollar that could be going.
10:04Lou Whiteman:The obvious one says sell defense stocks because, I mean, they'll afford that. But think about everywhere the government invests from healthcare to infrastructure to just all over the world. Every dollar for interest is a dollar they can't spend there. This is a serious problem, but it is a long-term problem as an investor. I don't worry about everything going flipsy now, but it does make just everything harder as an investor. And just as an investor, because this was, I don't like talking macroeconomics because I'm dumb and going to be wrong, right? Okay. That's the general, like, you know, I'm not an economist.
10:40But as an investor, Travis, you talked earlier about, you know, investment models may be based off of the interest rate, usually the 10 year, the so-called risk-free rate. and the higher that goes, it should impact. The basic way you do a discount rate for a model is the risk-free rate plus some sort of a risk premium, 5 % or 6%. And historically, or more recently, if you follow any kind of evaluation gurus out there, Aswath the Motor and a few others we could name, you're seeing discount rates in the 8%, 9 % range in some of the models. and I personally have never agreed with that. I've never agreed with, you know, kind of like take your cue from there.
11:23My whole thing is always when I build a model, my default assumption is, look, I know historically the stock market has returned with dividends included about 11 % annualized, okay? So that's my opportunity cost, if you will. I can go out and buy an S &P 500 index traded ETF, index ETF, and over the long term, assuming that the future looks a lot like the past, I'm going to make about 11 % annualized. So I had the lazy insight that, well, if that's my opportunity cost, I want to discount the cash flows of any company I'm looking at at my opportunity cost. I don't particularly care if the capital asset pricing model tells me I should be using 8.25%, which is what Demodaran valued the recent SpaceX IPO at.
12:14I think that's insane, frankly, but he's Athwath-de-Motor and I'm not. And so I just run with 11%. And then in my modeling, if an 11 % model when, say, interest rates and finance theory should tell me, oh, you should be closer to nine. If I still think it's a bargain at 11%, at 11 % discount rate, then you're going to be a winner. Yeah, because if you don't know, the higher the discount rate, the lower the present valuation will be. And so, yeah, so that's how, that's one reason I get around this and why, you know, this is interesting news and we can talk about it. But to your point or your question earlier, Travis, does it really impact my process?
12:53Because I have my process and I understand why I have my process.
12:56Travis Hoium:Well, this is something that's going to get a lot of headlines in it. I think at the end of the day, the companies that are taking out debt are going to have to think about this the most, because if interest rates do continue to go up, those debt costs are going to continue to go up. When we come back, we are going to talk about maybe the most exciting healthcare news in the last couple of decades. You're listening to Motley Fool Hidden Gems Investor.
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14:59Travis Hoium:Welcome back to Motley Fool and Jim's Investing. We do have to touch on maybe the most important news of the week, maybe of the year. Moderna and Merck released results of a phase three trial for a cancer vaccine. This is something, Lou, I don't think I'd ever thought that I would say a vaccine for cancer. But the market had a phenomenal reaction. Moderna stocks up about 140 % this week. I just looked. My returns on Moderna is now about 13%. to show you how much I was holding in the bag. That's total. That's total. But this seems like, and we're not doctors or pharmacists, but this seems like one of those announcements that could be really, really big news over the course of the next decade or two.
15:48Travis Hoium:Right. Exactly.
15:49Lou Whiteman:And we don't know, and I'm glad you said could, because headlines of medicine never work out, but potentially this isn't just great news for Moderna shareholders. This is great news for humanity. It is early though. As you say, I'm not inclined to rush in here. I wish I would have bought at 30 or whatever, but I do think it's kind of quote unquote priced in. This is just an amazing stock guys. I mean, look, if you bought on, I think it was what May 24th, 2024, you're still underwater here. And by the way, if you bought during COVID, you're still way underwater. Jim, We talk about biotech being hard and we talk about just it's a crazy market, but this doesn't even like this is just its special own case.
16:29Lou Whiteman:It lingered for years of potential, got an amazing boost because it was able to end a plague, lost momentum when investors realized that hopefully new plagues don't come around every so often, ended up a political target, like a political whipping boy, which where it got honestly really, really stupid cheap in hindsight. and now here we are. This is just, they don't make them like this. Forget biotech. This is just different. Yeah. I mean, uh, I like to say I'm, uh, biotech is hard as, as we've hit a couple of times. Uh, and I am certainly not smart enough to call winners and losers in this space.
17:04Well, actually I am smart enough to call losers. Uh, as in every time I've played in this space, I've ended up with a loser. Um, you know, and, but yeah, I want to, I want to go in on what you're talking about with Moderna itself. The problem with biotech, whether you call it Moderna, I'm going to stay away with the politics stuff because again, Canadian, what do I know? If you bought with the hype, this is a hype story during COVID, because it's going to, as you say, end the plague, or at least that was the marketing. It was hype,
17:34Travis Hoium:but there was, to be clear, there was real revenue and profit there for a short period of time. Yes, absolutely. But the problem is, if you bought Moderna during the last big hype cycle, Even after the big run-up this week, you're still down probably 50 % to 70%. You don't even get Travis's 13 % over how many years. Meanwhile, over the last five years, I'm just going to pull up the five-year chart on the screen here. Last five years, Moderna is down 60%. The market is up 73 % before dividends. If you are inclined to play in the biotech space, the advice I receive, the advice I will pass along is that maybe seek out a broad sector ETF focused on biotech.
18:25And I'm just going to pick one randomly here. The State Street Spider S &P Biotech ETF. There's a bunch of these out there. You can go look at them up pools. But this one, State Street Spider S &P Biotech. it is up 36.5 % over that same five years. So you didn't match the market. And if you want to play in biotech, maybe it's best to spread your bets around because you don't know when a good news story, like, I mean, like, like we can all agree a cancer vaccine is amazing. If this works, it's still time to come to market. If this works, I mean, it's, it's, it's a net positive for humanity, obviously, but you, by the time you can't predict unless you're a biotech expert, and I am certainly not.
19:06You really can't predict which companies and which molecules are going to strike, and you really can't predict when they're going to strike. And so spread your bets around, and we live in an era when you can spread your bets around by just simply buying an exchange traded ETF that focuses on that sector. So anyway.
19:25Travis Hoium:Lou, really quick, do you think that we're entering with AI, with data, with all these sort of advancements, are we entering a new era in healthcare where these kind of huge, seemingly huge things are coming more regularly than they did in the last hundred years.
19:40Lou Whiteman:I wish. I don't think so. I think we're always improving, but AI knows English. AI doesn't know biology. That's going to take some time. So I think we're just to be grateful for what we get and hope it continues.
19:51Travis Hoium:Yeah. This will be fascinating to watch and hopefully it works well for investors and for humanity like we talked about. We'll be back in a moment. You're listening to Motley Fool, Hidden Gems, Investing.
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22:24Travis Hoium:a game that I like to call Take My Money. So if you've seen the meme, at what price does a stock or a company need to be where you go, take my money, this is so cheap, I have got to get as much as I can. We're going to start with the Anthropic IPO. The Anthropic, the date keeps moving up. I've now heard that they may release some of their documents this month, so in the next week and a half, they seem to be rushing towards public markets. At what market cap would Anthropic be incredibly compelling to you as an investor?
22:56Lou Whiteman:Yeah. Did you blame them for rushing to the markets, by the way? I mean, look.
23:00Travis Hoium:You can get$2 trillion. Yeah. Hard to say no.
23:03Lou Whiteman:The best time for them to have done it was probably six months ago. So look, I honestly don't know, but I want sub trillion definitely. Maybe, maybe with hype,$600,$700 billion market cap, I might at least have to give it a look. But here's the thing. They're winning right now. We're too early to know. I mean, a year and a half ago, it was OpenAI was just going to rule the world. I think the lesson is we don't really know which one of these businesses is sustainable long term. So I would be very gun shy almost at any valuation, if I'm honest.
23:37Travis Hoium:Jim, any valuation that is compelling for you for Anthropic? I'm tempted to just say two votes and point to what Lou said. I'm going to give a standard answer for what I do in any valuation situation. When the sum of future cash flows discount back to the present at an appropriate rate, when that is higher than the then current market cap, the calculated value of the company. And I also, I have this weird habit where I insist on valuing things like options and restricted stock and warrants and all these things that, you know, sees value leak out to insiders. I was told that's not real money. Yeah.
24:15Travis Hoium:Uh, you know, uh, yeah. Um, well, they're just wrong, but I respect their right to be wrong. Um, which is my favorite line when my wife and I are having elevated discussions. I respect your right to be wrong. Um, but, uh, yeah, I, you know, when, when it makes sense from a, from a value of valuation perspective, conservatively calculated. So assuming they're losing money and there is no, I think the hard thing with some of these companies is there is no necessarily projected time that they're going to turn profitable. But if they turn profitable and they become Google or they become even an Uber, there is value there somewhere.
24:53Travis Hoium:Sure. But Google came out wildly profitable. Right. Right. They did. But they were nowhere near who they are to. Yeah, an anthropic and open AI, I guess. I mean, they're not going to. And even Uber had to go through the wilderness, frankly, before they could put all the taxi companies effectively out of business and steal their share. And also too, just the general warning with IPOs is there's a lot of hype, obviously. People get very, very excited. And the academic literature, the academic finance literature is pretty unequivocal on this thing that most IPOs underperformed for the first couple of years of going public.
25:30I realize that's a very state and boring answer. You probably want to avoid playing an IPO space until there is cash flows and there is profitability and the hype goes away.
25:41Travis Hoium:Well, I'm going to assume your answer is the same with OpenAI. Correct. Lou, do you have a similar number with OpenAI? I was hoping Jim was going
25:48Lou Whiteman:to go first and I was going to do the price is right thing and say$1. Honestly, guys, I don't know if they'll i mean i i'm guessing they will because they have to but i i am not 100 convinced there will ever be an opening i ipo at this point would you be more interested in anthropic or open
26:06Travis Hoium:ai at the same price at the same price right now anthropic okay yeah that's probably my answer too actually all right let's go to the hottest asset on the market jim i'm gonna start with you any price that you're interested in bitcoin no lou look i'd probably take a flyer at lower just
26:28Lou Whiteman:because i wouldn't put much strength into it my problem with bitcoin is is that it doesn't do anything my the bull case for bitcoin is they we've played whack-a-mole with the use case for a decade now and they're still coming up with sums which does speak to its pliability so maybe one of these hits so it's probably a price but it's may it's it's a quarter if not more of uh you know maybe maybe in the 15s or so i'd probably just throw money how much money laundering do you
26:59Travis Hoium:want to do well that's that's a use case yeah yeah i i think i'd probably be compelled at that point too okay this is where things get a little more interesting disney stock disney has been has gone nowhere for what a decade 15 years at this point but there is a business there there is a there there people do pay real money to go to the parks lou at what price or what price earnings multiple it would maybe be another way to put it are you interested in disney stock i and
27:28Lou Whiteman:its current form i don't know if i can be talked to that i am i am convinced myself that they need to just spin out the parks and the experiences all of that the cruise ships as an independent company, sign a perpetual license forever to keep the IP, but just get all of the media off the books. I love my idea of like just merge with Netflix, but I don't think this business works. Guys, I was actually kicking the tires on Comcast, not because I like it better, but just because at least it was cheaper. And then they had to go do that split and made it too. But Disney, I don't think, I just don't think the collection of assets as stated works the way they hoped it would.
28:10Lou Whiteman:And I don't think spinning off the legacy things will work for what will save them any more than it saved Comcast.
28:17Travis Hoium:Jim, 14 and a half times forward earnings. Is there a price? Bob Iger's gone. By the way, I brought this up because Jim has strong opinions on Disney and Bob Iger and is a Star Wars super fan. Uh, so maybe not. You can't tell with some of the stuff behind me here. Maybe not the biggest fan of the way the company has handled the last decade or so, but is there a price where it becomes compelling? Sure, there's a price where every asset becomes compelling. I'm not sure it's now. I mean, Disney, yeah, Travis is right. I'm a known Bob Iger skeptic because Disney has been used as a Bob Iger enrichment scheme for much of the last two decades.
28:55And I do not have a high opinion of Mr. Iger or his management style, but we'll leave it at that. Um, the problem with Disney as I see it is cut something of a, what more worlds to conquer problem. You know, they already own childhood. Okay. Pixar, Star Wars, Marvel, Marvel's on the, the, the, the lag. If you ever look up at, uh, uh, you know, you can find this stuff. It's out there. The inflation, the, the, the pace at which going to Disney parks has outpaced the rate of inflation by about 10 percentage points for something like three decades. There is a what more worlds to conquer problem here.
29:36And so where can they go with that? I'm not sure 14 times earnings, forward earnings really matters all that much to me. In the most recent fiscal year, they did about$10 billion in free cash flow. But they spent about$6 billion of that on buybacks in dividends. So that's money that's lost. It's not money that's not going to go back into the company. Over the past 12 trailing months, they're actually at about$9 billion in free cash flow. Most of that's gone to accelerated buybacks. Generally, I like buybacks if they're done at a decent enough price. I'm not sure Disney's there. I floated, I think I first wrote this about 12 or 13 years ago.
30:20I think it was the Washington Post asked the Motley Fool, bunch of analysts to, you know, come up with a wacky acquisition prediction and a bunch of us had little write-ups. And my write-up was that I think Apple should buy Disney because it's content for their army of devices that people are increasingly staring at, you know, rather than interacting with their fellow humans. And I thought that would be a pretty great thing. And then you could, you know, to Lou's point, you could off-gas the parks to something else and just take content. But yeah, I mean, again, it's going to be the same. I know I'm not playing the game right, I know, but at a valuation where it makes sense, probably not at this level.
30:56I think it's what, 30 times, 25 times free cash flow. That seems a little excessive to me today.
31:04Travis Hoium:I've got to say, as the one here who has young kids in the house, we went to Disney last year. It is incredible how institutionalized Disney is as a brand for parents. And we went to the the universal theme parks as well. And they're just not the same. They're just not, they're not done as well. They're not nearly as busy. The Harry Potter land would argue that point. Well, my kids aren't quite that old. So we go to the Harry Potter. But Nintendo was well done, but even that was, you know, that's a couple hours. That's not an entire day.
31:39Lou Whiteman:Trev, the thing about that is that's been true for a long time. And you already mentioned the stock price over the last 15 years. So like two things can be true. The brands are great. And it's just it hasn't worked for a long time i will remind investors too that disney goes through
31:54Travis Hoium:these decade-long cycles of being in the abyss in the early early 80s and then having a massive comeback and then another abyss in the late 90s and then a massive comeback and now we've had an abyss maybe we're ready for a comeback but that's probably a topic for another show all right quickly I wanted to get a quick idea if there is a price, Jim, that you are interested in Tesla stock. We currently have a$1.4 trillion market cap. Price earnings multiple on a forward basis to be the most generous is$190. Is there a price that you would buy? There is a price for any asset. I really do believe that.
32:34The price that I would pay for Tesla, and most people don't know this. I am a former Tesla shareholder, and I'm probably one of the larger bears of Tesla at the Motley Fool. I'm a former shareholder, made money on it, didn't make enough money on it apparently. But yeah, with Tesla, the growth is gone. Elon is distracted by some other company. He's just recently taken public. The operating margins, the profitability margins have cratered. They've gone from 19 % a couple years ago to I think the most recent quarter is 1.4. Most auto companies with margins at that level trade for seven to ten times earnings not 300 um my price where i would buy tesla because i think it offers a an above market return going forward uh the the price probably starts with a three or a four and there's only two digits in it lou quickly what's your answer here so i'm
33:27Lou Whiteman:going to be the bull here just for fun and we'll still get letters okay i am going to say that Tesla is so much more than General Motors. And so there's serves, let's say a 6x premium on valuation of General Motors. General Motors trades for about 0.4 times sales. So we'll give then 2.6 times sales. And my market cap is at 275 billion would be my fair value. I don't know if I really mean that, but it's a way to say lower than here. I will also offer the clarification. I have a, I'm a big index fund guy as well. And about half of our personal money in my family is index funds and the other half is individual stocks.
34:09I own a lot of the S &P 500. So on a look-through basis, I actually ironically own a lot of Tesla.
34:13Travis Hoium:I will also note that they shut down their solar roof, which was one of the big reasons that they bought SolarCity. Shocking. It made me crazy more than a decade ago. But when we come back, we are going to get to the stocks on our radar. You're listening to Motley Fool, Hidden Gems Investor.
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36:27Travis 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 advertising disclosure please check out our show notes all right lou i wanted to get to some of the drama around data centers that we've seen really take off over the last week or so, but there's been some new polling about how unpopular data centers are.
37:00Travis Hoium:The reason that this is so important is I could make the argument that the AI build-out is both holding up the market and the economy at this point. So has the tech world just gone too far with this build-out and just wanting to build anything anywhere? Is this a political problem. Where does your head go with the risk factors with this becoming now a political football?
37:23Lou Whiteman:Yeah, this is a bipartisan, just nobody likes this, right? I think there's a ton of things going on here and none of it's really great for AI. I do think, you know, look, there's been a lot of promises on economic development, that Foxconn Apple plant that never got built. There's just a lot of like recent examples. And these are ugly, big, just humming centers. They're not pretty, but look, there's two big things I think that the AI industry has to confront. arrogance and a lack of just usefulness right now for their products. On arrogance, this is a big one. The messaging has been far too dismissive of complaints.
37:57Lou Whiteman:Maybe they are water neutral, but to laugh at someone who's asking the question and say, you must be an imbecile. That's not a way to win hearts and minds on the local level, okay? Big tech has a messaging problem. It's basically the message on this is, if you're too stupid to understand we're saving the world, that shouldn't keep me back. you should do better. Okay. Somewhat related though. If the Apple plant was coming near me, I could say, Ooh, I like iPhones and same with an auto plan or whatever. For now, for most of us normals living in flyover country, AI is just fancy search. And if you want, you know, for all the back padding in Silicon Valley, AI has done a terrible job of convincing consumers.
38:39Lou Whiteman:This is something that's necessary, interesting, world changing, whatever it is. I think it's just a simple problem of why me and yeah it's most of it's just arrogance and messaging is there a
38:51Travis Hoium:solution here is paying you know i've heard about replacing property taxes with revenue that comes from the data center is there sort of like a bribe that is going to work for some of these or is this just is this just so unpopular that it's going to become nuclear put them in space yeah there you go jim i can't say it better maybe maybe that is solution the solution maybe elon musk is ahead of the game already. As always. It is fascinating because it does seem like one of those times where the conversation on Twitter, the conversation in Silicon Valley is very different than the conversation that we have.
39:23Travis Hoium:I'm living in the Midwest in that flyover country. And, you know, we don't talk about AI. It just, it doesn't come up. So something that I think Silicon Valley needs to get their head around. Okay. Let's get to the StockSignor radar and bring in Bart for his thoughts from behind the glass. Jim, you're up first. What are you looking at this week? I'm going to go to a COVID era darling throwback. It's a stock that's down 95 % from its COVID area time. Most people assume it's a dead business and why would you ever want to go here? And they have completely missed what's going on under the hood. And I am talking about Peloton.
39:57Travis Hoium:Yes. Okay. So Peloton, it's a razor and blade model, right? It's like we're going to sell you an expensive treadmill or expensive bike with an iPad strapped to it. It's a little more involved in that, of course, but that was always the dismissal. And during COVID, the very, very smart people running it said, hey, it's a razor and blade model. The razor is the equipment and the blade is the subscription. And if you know anything about razor and blade models, you sell the razor for as cheap as possible because you're going to get that sweet, sweet stream of blades always sold on top of it. They said, but what if we focused on the razor instead and spent$3 billion on inventory and blowing ourselves up because we're geniuses and everyone's going to flock to us?
40:41Spoiler, it didn't happen. They paid with their jobs. Stock nearly, the business nearly went bankrupt. They had to save the company via a really expensive financing they had a few years ago, replace the executive suite, and a funny thing happened along the way. the ceo came over from apple and ford where he'd worked on subscription businesses before the new ceo peter stern they turned from a cash furnace into a cash gushing like does anyone know that peloton in their most recent fiscal year produced 378 million dollars in free cash flow which was on top of the 324 million they did the year before those two years peter stern's been there for about I think 18 months.
41:24And all they've done is they piled that cash up on the balance sheet. They paid a little bit of debt off, but as of the most recent quarter, they have$1.2 billion and change billion in cash and$1.3 billion in debt. They have screamed from the pulpit, we are going to do a mass refinancing probably in September because no investment banker wants to work in August. They're almost debt neutral guys, and it's going to go away. They're promising at quote unquote, quote, at least$350 million in cash flow this year. You're going to see a refinancing probably within the next month or two. And the stock today is trading for less than seven times trailing free cash flow.
42:04You don't need a lot of growth at seven times free cash flow, and it's about to clean up their balance sheet for good. So Peloton is my horse. All right, we got to jump to Lou. Lou, what do you got this week?
42:15Lou Whiteman:Bart, real quick, I'm looking at Union Pacific. UNP is the ticker, best known as one half of the U.S. West Coast duopoly. It's also the train set I had as a kid, but Union Pacific is trying to buy Norfolk Southern, establish the first U.S. coast to coast. This week, the Surface Transportation Board kind of kicked off the clock. The good news here for Union Pacific is it means it probably could get done by the end of 2027. For political reasons, that's good. The bad news is that's a long ways away. Done right, this deal could really change the economics. I'm on the sidelines here, but I'm watching close.
42:48Travis Hoium:All right, Bart, you have stationary bikes that act as clothes hangers or model trains. Which stock's going on here? Watch this this week.
42:56Lou Whiteman:Trains, I know not. I think Peloton is still an innovative company. And I think there's a lot of room for growth, but I can't help but think their board meetings always center around, guys, if we could just hang on till the next pandemic, we'll be good. All right.
43:13Travis Hoium:I like it. That's all the time we have for today. Thanks for listening. We'll see you here tomorrow.
From the publisher
The market is fixated on interest rates and data centers this week. Rates continue to rise along with the U.S. debt, which may ultimately put pressure on companies across the market. Data centers have had their own drama with public pushback against the AI buildout at a high. We discuss this and more this week.
Travis Hoium, Lou Whiteman, and Jim Gillies discuss:
- Why Interest Rates Matter- The Bond Market Wins- Moderna’s Big Week- Take My Money!- Data Center PR Problem- Stocks On Our Radar
Companies discussed: NVIDIA (NVDA), Peloton (PTON), Moderna (MRNA), Union Pacific (UNP), Apple (AAPL).
Host: Travis HoiumGuests: Lou Whiteman, Jim GilliesEngineer: Bart Shannon
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