It’s SpaceX IPO Day!

19:11Travis Hoium:Definitely some questions, but the valuation is very compelling. So one I'm going to be digging more into. When we come back, I'm going to get some thoughts on some valuations and which stocks John and Lou like. You're listening to Motley Fool Hidden Gems Investing.

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20:54Travis Hoium:Welcome back to Motley Fool, Hidden Gems Investing. In this segment, we like to have a little bit of fun with stocks that we follow. So I wanted to play either or neither. And I'm going to give John and Lou two stocks. I'm going to say, which one do you like better? But I do give you the option to say, you know what? I don't like either of these. So we've talked about SpaceX. But let's talk about the other Elon Musk company. Crazy that somebody is going to be the CEO of two multi-trillion, two trillion dollar companies. I guess now multi-trillion and potentially be a trillionaire himself. Lou, Tesla or SpaceX stock or neither?

21:29Lou Whiteman:Which one do you like here? You know, I mean, I want to be that guy here and say, I mean, in six months, they're going to be one company. So you don't have to choose. But no, I'd probably I do think they'll merge. I don't think it's that soon. I would probably go with SpaceX just because I do think it's the newer, fresher story without dents. My honest answer is neither, though. I mean, valuation, I can't really get my head around either. John? I think I would take Tesla and mostly because I see multiple ways for it to win. You just have to have a very long time horizon when it comes to Tesla, because one thing is for sure, whatever it's saying it's going to do, it will not be on time.

22:10So, you know, just take that with a grain of salt. But I mean, battery technology, I think that that is an increasing potential avenue for, I mean, I just think it's a huge area of growth in our world, battery technology. You do look at the robotics that it's working on. Yeah, not on schedule, but very interesting work that's happening. And you do look at the robo-taxi efforts. I mean, definitely the rollout was supposed to be a billion times bigger by now, but I think it is going to happen. And I do think that that is accretive to the business. So I see many ways for Tesla to win. SpaceX, on the other hand, I'm uncertain with how much capital expenditures it's pledging into AI.

22:53The economics -

22:54Travis Hoium:You're not worried about Tesla's increasing. I think the 25 billion that they're putting into AI compute, that one doesn't worry you as much? Well, I think it's even higher with SpaceX. And then on top of that, you have rockets that you need to build that are also expensive. So yeah, I see better economics for Tesla. All right, let's get to the other company that we talked about, Adobe. Another one that I'm looking at that sort of falls into this business of value or a value trap, Intuit. John, you're up first. Do you like either of those or neither? Well, my honest answer would be neither. I wouldn't be investing in either of these companies right now on a personal level.

23:29However, if you did make me choose, I think I would choose Adobe over Intuit. And the reason why is that Intuit does more of its business. It does have a large enterprise customer base, but the consumer base is much larger of a percentage of the business. And that kind of worries me. I think that consumers are curious about other tools right now. Adobe, I think there is a little bit more stickiness with its enterprise revenue base. I do think that that is a little bit more sticky. I think that enterprises in particular are looking for a company such as Adobe to come in and help me do AI, not how do we replace Adobe with AI.

24:05So I think that Adobe has a little bit more staying power.

24:08Travis Hoium:Lou, I'm going to give you a couple of numbers here. Forward price earnings multiple for Adobe is eight. We talked about that earlier. For Intuit, it's 16. But is John right that the potential for disruption of just, I don't know, sticking your tax information in ChatGPT, is that the disruption? I've never thought of paying$100 or$200 to TurboTax to do my taxes for me, essentially, is all that big a deal. So like that's a pretty valuable service.

24:36Lou Whiteman:I don't think the consumer tax side of it is the part that we're really worried about here. There's a lot of just, you know, back end small business number flows that maybe I think that's a bigger risk. And I do think that sort of application where it's just, you know, kind of zero creativity, zero judgment, shall we say, is more ripe for disruption. I mean, I've already told you my bias. I own one of these. It's Adobe. Part of it is I just don't like Intuit. it i i think it do it is done you know that they've they've played games with the tax code to kind of that's definitely true so so so that's just a personal bias here but i do think of the two if either is disrupted it's going to be the one that is basically just a spreadsheet jockey and not not not a creative or a human judgment type of business all right i kind of buy that

25:27Travis Hoium:argument guys you're talking me out of into it let's get to the home improvement side home depot shares trade for 23 times trailing earnings, not growing all that much, just 3 % a year over the past three years. Lowe's trading for 19 times earnings, actually down in terms of revenue over the past three years. Lou, do you like either of these or neither?

25:50Lou Whiteman:So Home Depot has always been the stock to own. It's always been the better of the two really good companies, not for growth, but because they generate cash and they use that cash to buy back shares. So it is a total return story. They, and to a lesser extent, Lowe's, have changed focus of late. They're spending a lot of money on acquisitions, trying to build other sides of the business. That is going to slow, at least in the near term, returns to shareholders because they have a lot of debt to pay off. I actually think if I had to buy one of these today, I would buy Lowe's. And I think it's the first time in my investing career I felt that way.

26:24Lou Whiteman:I just think they are operating a little better, a little more focused, and you do get a little bit of a better deal. Look, the real striking thing to me about this is that everybody knows these are great businesses for that reason. They have not fallen as much as home builders in some of these other areas with interest rates up and with the home builder. I don't know where you even start on the home issues. I think those, you're not getting as good of a sale. So maybe I'm less inclined to jump in right now, but these are quality businesses. There have been times in the past where I felt like Lowe's was clearly the better value and clearly had opportunities to improve its business.

27:05I totally agree. Yes. To have that relative outperformance. And I wouldn't say that right now. I feel like they're kind of both in the same place right now, same outlook, more or less in that scenario. And with a higher dividend yield, I would take the historically stronger business and that's Home Depot. and nearly a 3 % dividend yield. That's pretty good compared to Lowe's just too. But I don't think you go wrong with either company here if it's just a set and forget it kind of investment.

27:36Travis Hoium:It's one of those businesses that I think is a really good learning lesson if you just look back through their history because Home Depot has been the outperformer. And I don't know what the magic sauce is there because I go to Lowe's stores. I actually like the stores better. I don't know if the lighting's a little bit brighter or something, but there's never anybody there. Maybe that's a regional thing where we are here, but you kind of see it in the numbers too. They just don't do the same volume that Home Depot does. Home Depot is just always busy. There's people there buying stuff and that's what the business is all about.

28:07Travis Hoium:All right, let's go back to big tech. Microsoft trading for 23 times trailing earnings, about 20 times forward earnings estimates. Alphabet trading for 27 times trailing earnings. A year ago, this was completely backwards, but Alphabet has been on absolute tear and 27 times forward estimates. John, do you like either of these stocks or neither? Yeah, I love Alphabet. I think that this is just a great business all around. I mean, yeah, I wish I would have bought it a year ago but I don't think it's a bad investment today. Are you worried about the money that they're putting into AI and potentially diluted, you know, 2 % dilution with their $80 billion raise?

28:48Travis Hoium:You know, uncertain if there's going to be ROI on that. And I think that's what the market's starting to think about. I mean, fair point. But of all the companies out there doing it, I think that Alphabet is the one that is going to get the ROI. If other companies aren't going to, Alphabet will. And that is because of how Alphabet can monetize it throughout its entire ecosystem. And so I think that's a really important distinguisher.

29:12Lou Whiteman:Yeah, if anyone's going to win, they just have so many ways to win here. That's the important thing. I mean, look, just just to play the game, I will say Microsoft because it is a slightly better deal right now. But the truth is, is that investors aren't playing a game. You can buy both. And in this case, you're fine by these are two excellent companies. Both have I mean, even among the mag seven, these are the two companies that just have the most ways to win the most irons and different fires, the most different customer bases to deal with. these are the cream of the crop and you really shouldn't choose one or the other.

29:49Travis Hoium:All right, let's end on this. The retail battle that I think is fascinating for investors. Walmart currently trading for over 40 times earnings. So you can get Microsoft for about half of the price to earnings multiple as Walmart. Just kind of wild where we are with the market today. Against Target now, even after a really nice run, still only trading for 18 times trailing earnings, 16 times forward earnings. Lou, if you've got to pick one of those, which one do you like or is it neither?

30:22Lou Whiteman:So I own Walmart here, so I guess I can't say neither. I will say it really depends on timeframe right now. If you're talking short term, I think Target will outperform Walmart over the next six, 12, maybe 18 months. A lot of that is regression to the mean in both ways. Target was really beaten down and they are actually showing signs that they have a pulse and they're not going the way of JCPenney's, that's good. And that is causing a value re-rate there. Walmart, on the other hand, has been on an incredible run and not a sustainable run the way they're going. And so the stock is coming down to earth a little.

30:56Lou Whiteman:I think that's probably going to continue. Longer term, I love the way Walmart is positioned. I still don't know what Target wants to be when they grow up. I don't know what like urgent need they fill that you can't do elsewhere, which is a tough place to be in retail. I think they have to answer that question for me. So long term, I'm sticking with Walmart, but near term, I would expect Target will outperform. Chuck? Yeah. I mean, you look at both of these businesses, I don't think the growth outlook is anything to write home about for either company right now. And that is important when it comes to investing.

31:29How much can this business grow? That said, you know, when you don't have the growth, you do look at, OK, what is the margin opportunity here and hats off to Walmart. It's doing really well on the profit margin front right now. And that is part of the reason why investors have been so excited about it. Does that keep getting better? Oh, man, it's already pretty good. Target, on the other hand, has opportunities to turn around and to lose point. They show that they have a pulse. They are starting to show that maybe a little bit of this opportunity that we have to do our business better is starting to pay off.

32:02But that still has a long way to go if it is indeed the early stages of a turnaround. So I would take target here of the two.

32:10Travis Hoium:Interesting thoughts on companies across the market. We see that the valuations are just wildly different depending on where you're looking at stocks today. We'll see how this plays out long term. When we come back, I want Lou and John's thoughts on the latest from Apple. You're listening to Motley Fool, Hidden Gems Investing.

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33:02Travis 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. Guys, I wanted to touch on WWDC. This used to be one of those huge events from Apple. They had a couple events every year that in the late aughts, early 2010s, these were some of the biggest moves for the market because this is when new products came out, when new software came out.

33:42Travis Hoium:But WWC was, I would say, a little bit of a dud this year. Just not a lot happening. There's a lot of under the surface things that are going on. Siri is apparently what they promised a couple of years ago. and they talked a lot about parental controls. If you're a parent, maybe this is going to be really helpful. I'm kind of excited about some of those features. But Lou, when you look at something like WWDC, is Apple just kind of moving out of the spotlight? They're not spending a bunch of money on AI. You know, there's not really a huge AI story, but maybe from an investor standpoint, that means they're not burning a bunch of cash and maybe that's okay.

34:18Lou Whiteman:Yeah, I think they're fine on AI. We've talked about this, but using someone else's stuff and getting it out over your massive customer base, That's the way to go. That's a lot better than reinventing the wheel. But look, Apple has replaced Microsoft as the most boring big tech company. Whoever thought this company could be so boring? And I mean that as a compliment. The good news is this is a well-protected franchise that makes money and should be able to do that well into the foreseeable future. This is a massive profitable business. The bad news is there's no sign that the next big thing will ever arrive.

34:50Lou Whiteman:Maybe that'll change with new management. They got a product guy coming in. but it is just the expectations game is now slowly turning in Apple's favor. We are just all accepting like, all right, this is what it is. And fortunately, what it is, is a fantastic generator of revenue and profits. Yeah. I mean, you point out the parental controls there, Travis. I mean, that is not innovation. That's just a business doing business. And that's what WWDC was.

35:15Travis Hoium:It was just a lot of the things that they introduced. I thought they had that we had the capability of doing as parents, to be honest. and that's exactly right there is no big thing here and i think it's okay and actually as i've if i look at where we are now i i don't think this was true of every company but the way that apple played this entire ai super cycle i think it played it perfectly because to lose point it's having other people do all the expensive stuff in creating the ai models and it's like okay, I'll pay for that and use that. Now I'll integrate that into what I offer. But I'll just focus in on the hardware.

35:53And that's actually been where the money has been right now. And I think that's where the money could continue to be for Apple. There's a trend that's going to emerge. I'm calling it now. It's called local AI. This is basically, I'm going to start moving some of my AI compute to where I am. And actually, Apple devices are incredibly proficient at handling that because of how they're made. They're more energy efficient because of the ARM-based architecture. They are the high bandwidth memory. They can get a lot done. So I think that Apple's going to lean into the hardware angle and that could be where the more money is made.

36:30Yeah.

36:31Travis Hoium:To that point, they did not introduce a new Mac Studio. That's the product. I'm actually waiting to get the next generation Mac Studio because their chips were a little bit goofy in the last generation. But that has been delayed theoretically into the fall because of the massive demand that they have for chips. And this AI shortage for chips is now starting to hit Apple in that way. So it is interesting where they sit. I think you're right, John. They have a very strong position with their products. The downside is they're now behind companies like NVIDIA when you go to TSMC. Who gets their chips first?

37:04Travis Hoium:Apple's no longer running the show over there. So that's starting to impact products like that. But it definitely seems like if we do more on-device compute, they're sitting in a pretty good spot. We like to end the show with stocks on our radar and we bring in Dan Boyd from behind the glass for his thoughts. Lou, you're up first. What's on your radar?

37:23Lou Whiteman:So Dan, this week I am going to Casey's General Stores, ticker C-A-S-Y. This is one of the biggest gas station chains in the Midwest, but also oh so much more, Dan. Would it surprise you to hear that Casey's is also the fifth largest pizza chain in the U.S.? And unlike a lot of other fast casual restaurants that have taken on a gen of late, Casey's is thriving. The company beat on the top and bottom line thanks to strong gas sales and, yes, pizza. Inside same store sales, so excluding gas, were up 5.5 percent. Margins increased 120 120 basis points. They have all sorts of pricing power with their pizza either.

38:03Lou Whiteman:Casey's is forecasting 8 to 10 percent full year EBITDA growth next year, likely to open more than 100 new locations. It also just raised its dividend by 14 percent. A lot to like here, not just a pizza. Dan, what do you think about gas and pizza?

38:18Travis Hoium:Well, I mean, what are we doing here, gang? pizza from the gas station. Come on. We can do better Midwest. We can do better Southern United States.

38:30Lou Whiteman:Let's do a road trip. Let's go eat the pizza. I'm dying to try it.

38:33Travis Hoium:I think we should do that. We can do a show from the road. The other thing John made this point before the show, but in a lot of places, Casey's is kind of the local place to grab a pizza if you want. If you're driving through, you know, I live in Minnesota. If you're driving through a small town in Minnesota, Casey's is the only place to stop. All right, John, what's on your list this week? Yeah, this week I'm highlighting a company called Form Factor that is ticker symbol FORM, about a$10 billion company. So let me set this up. Nearly every AI chip in the world passes through a probe card before it ships out.

39:05So basically a chip can have problems and you don't want to package up broken ones. And so the probe cards basically check the chips for electrical problems. Most people have never heard of Form Factor, but it's actually one of the world's leading companies in making these probe cards, doing over$800 million in trailing 12-month revenue. Here's what's really interesting to me. Its largest customer is South Korean memory giant SK Hynix at nearly 30 % of revenue. Now, last week, NVIDIA and SK Hynix signed a multi-year partnership to create more memory products. And so more memory means more probe cards.

39:41That should also mean more business for Form Factor. And I I should also mention that NVIDIA itself is a 10 % customer for this company as well. So there are risks. Trades at over 25 times, 20, 30 earnings targets, according to management. So it's not cheap. But this isn't a bet on which model will win. This is a bet on that there will be more chips and that they will need to get more complex. And so that's more business for form factor.

40:04Travis Hoium:Dan, what do you think of form factor? Brother, I've barely understood a single word he said in any of that. But you know what I do understand, even though I was poo-pooing it just a moment ago, is gas stations and delicious pizza. So I think I'm going to go with Casey's this time around. Props to John. I brought him with pizza. Props to John for bringing a new stock to my attention. So I appreciate that. But yes, I appreciate Casey's business maybe a little bit more. That's all the time we have for today. Thanks to Lou and John and Dan behind the glass. I'm Travis William. We'll see you here tomorrow.