Party Like it’s 2027

0:04Jason Hall:Why does the shortest month of the year sometimes feel like the longest? You don't have to wake me up when February ends, because Motley Fool Money starts now.

0:20Jason Hall:I'm Rick Munarriz, and today I'm joined by fellow analysts Jason Hall and Travis Hoium. we're going to take a look at the potential bidding war of PayPal and a new wrinkle in the Warner Brothers Discovery buyout battle. But first, we all have a type. We all have the kind of stock that we gravitate to as an investing style or an industry. Sometimes we find ourselves falling for an unlikely, if not outright surprising, investment. Maybe it's a stock that isn't actively followed by most of our fellow fools. It's okay to venture out of your comfort zone of your radar. This is a safe space, so it's time to fess up.

0:53Jason Hall:What are you willing to give up your Fool card for? Jason, let's start with you.

0:58Rick Munarriz:I will admit that over my 15 years as an investor and as a Fool, I've certainly become more Tom than David. That means that I might not have to give up my Fool card for this one, but the stock that I'm going to talk about is one that Tom actually sold out of almost all of his services in 2024, and that's Live Oak Bank shares.

1:21Jason Hall:What do you like about Live Oak?

1:23Rick Munarriz:So it's a combination of specialization, but it's also extremely high quality origination. This is a bank and it's a little bit anachronistic because they count on the people that give them capital, the depositors, to be a different group than they're lending to. Their depositors are basically online savers. They pay high yield in their online savings and CDs, but they lend to small businesses. But it's the combination of specialization and extremely high quality origination that I really like. Lenders make mistakes by either going into markets they truly don't understand or just staying at the table or staying on the dance floor while the music's playing and then making bad loans as a result.

2:07Rick Munarriz:LiveOaks founder and CEO Chip Mahan, he's one of the OGs in online banking, but it wasn't just building the tech and the platforms and moving banking out from behind the teller desk and moving it to the internet, it was also building lenders that don't make bad loans. For Live Oak, it lends you to small businesses, but it just focuses on specific verticals. And it actually builds out a team of in-house experts on those verticals before it starts to ramp up its lending. As a result, not only does it lend responsibly, but it has another benefit, especially against community bankers and also against a lot of large bankers that don't really do the same thing.

2:50Rick Munarriz:Let's say you're a vet and you own a couple of vet clinics and you want to borrow some money to improve your technology. There's a very good chance that your Live Oak banker has helped a dozen other vets do the same thing. That's a very important resource. That's a value add that you get. It's also one of the largest small business administration lenders. That's big value. It gives it an edge against a lot of small banks that just don't know the process the same way. And it's also great for investors because the SBA loans are backstopped, and that reduces the risk.

3:28Jason Hall:Great. So what makes it different from the other stocks you've gone out with before?

3:32Rick Munarriz:It's interesting because this is a big bank. It's a multi-billion dollar valuation company, and they've got billions of dollars in assets under management. But I've never really had a lot of exposure to small businesses. And the combination of tariffs and trade pressures and inflation over the past year, we've seen that that impacts small businesses in far outsized ways compared to enterprises. So that exposure is something that I haven't gone through before. But here's the funny thing that's happened over the past year. Mahan and his team have shown their chops. Shares are up almost 20 % over the past year.

4:04Rick Munarriz:That's handily beating the market. And if we look at from the tariff tantrum lows, it's basically double the S &P 500. So it's a business that's really delivering well in the tough environment.

4:17Travis Hoium:What about you, Rick? What are you willing to risk your Fool card for?

4:21Jason Hall:Yeah, so I was initially brought into the Fool. Tom Gardner brought me in a little more than about 30 and a half years ago. But then I eventually gravitated to David's Rule Breakers newsletter service. So I've been a growth investor all along. So, contrary to what I'm usually looking for, I like Upbound. That's UPBD. It's a company that you all know better as Rent-A-Center because they have more than 1 ,700 rent-a-centers around the country. And that is their main business. But they have a couple of other cool things about them, too. All right. So, what's so attractive about Upbound? Yeah. So, five years ago, they bought this company called Asima.

4:59Jason Hall:And this is a platform that they're letting others. So, obviously, their business is rent-to-own. You go, there's a rental community that isn't going anywhere. A lot of people don't have the high credit scores. You need to be able to buy furniture at traditional furniture stores and appliances. They provide that. But a neat acquisition five years ago, they bought a SEMA. And with that, they're able to provide this platform that they use to other businesses. So they're able to use a strength of theirs and actually help a lot of smaller indie business come along. And a year ago, it acquired a company called Bridget, B-R-I-G-I-T, which is actually a very popular app with millions of users that helps people budget.

5:35Jason Hall:So it's a great ecosystem where they have a proven model. Now they're able to help other people do what it does, almost a Shopify S situation. And now they have this app to help people improve their credit scores and become better budget-minded people. So it's just a quality company all around. All right. So why is it worth giving up your Fool card for? Yeah. Here's the thing. This is a company that right now, again, I'm a growth investor, but you can buy Upbound for five times their forecast for forward earnings. Just five times earnings has a dividend yield north of 7%. The stock's taken a beating over the past year, making it this attractive stock.

6:16Jason Hall:No, it's not this dynamic growth stock, but revenue has been in the high single digits for about two years now and accelerated to 11 % in the quarter reported last week. So yeah, I think it has a lot of cool things, but definitely a value stock in every sense from me, a growth investor.

6:32Rick Munarriz:All right, Travis, you're not getting off the hook here. What's your stock?

6:36Travis Hoium:So one area that I usually stay away from is medicine and healthcare. For a number of reasons, it's not necessarily my expertise. I don't like, you know, pharmaceutical companies, let's be honest, they're gouging most of their customers in what they're buying. You I hate paying those doctor bills when you're in there for 15 minutes and suddenly you're spending$400 for something. But there's a disruption story in healthcare. It's volatile. It's controversial. It is him's and hers.

7:05Rick Munarriz:Yeah, and it's very controversial. This is one that I've very much struggled to get behind myself. I know you're a bull on it. So the floor is yours. What do you like about the stock?

7:15Travis Hoium:Well, to be clear, this is very much falls in the rule breaker category or what I like to call as asymmetric opportunities. And all that means is, look, if you buy$100 worth of stock, all you can ever lose is$100. But it could become NVIDIA, where you're looking at a, what is it, 75, 200x return over the next 20 years. So that's the upside potential for these rule breaker kind of companies. And I think Hems and Hers has that in spades. They are doing things completely differently than the status quo in healthcare. So they're taking those expensive and time-consuming doctor visits, the trip to the pharmacy.

7:53Travis Hoium:Jason, you've got a little kid. You know that you don't just walk into a pharmacy, get your stuff, and walk out. There's always some sort of pain in that process. So they're going direct to consumer. They fall under this telehealth category. I don't really like that terminology. But you're going directly into the app. You're answering questions. I got my labs done by them last year, so I know more about my health than I would, in some ways, then go into a traditional doctor. Now, they've been known as an ED company in the past. They're now known as a GLP-1 company. That's gotten them in hot water.

8:24Travis Hoium:They recently got into a lawsuit with Novo Nordisk. That is really what's been the attention of the market over the past couple of months. But the long-term story is, if we look at where this company is going over the next 10 or 20 years, is that they're doing things in a much more consumer-friendly way than anyone else in healthcare and their incentives are lined up with increasing access and lowering costs. No one else in the healthcare industry can say that. Well, I guess it's all out there now.

8:54Jason Hall:Coming up next, it's time to board a time machine that goes only 365 days into the future.

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10:07Jason Hall:A couple of stories are breaking this week, but that's this year's news. It's time to party like it's 2027. I'm going to bring up some timely topics and I want your takes on how you think the situation plays itself out on February 24th, 2027. Let's start with PayPal. The fintech pioneer moved nicely higher on Monday in an otherwise down market following a Bloomberg report that it's been approached by other companies looking to either buy it out entirely or pay for one of its businesses. Where are we a year from now on this, Travis?

10:37Travis Hoium:They should probably be bought out. This is not a business that the market particularly likes. And you look at the stock, price earnings multiple, price of free cash flow between seven and eight. Cheap stock, somebody, PE, another company would want to buy them. But who actually buys them? It's a profitable business. It's not an exciting business. But strategically, they should be on their own because they want to serve as many companies as possible. So maybe it makes sense in big tech, but can big tech actually pull that off? I don't think so. I bet there's still a solo company and this is still just kind of a ho-hum stock.

11:11Travis Hoium:Jason?

11:12Rick Munarriz:I think there's going to be interest for buyers. And I do think maybe to a certain extent, PayPal's board is looking for a buyer, but that buyer is going to be PayPal. Alex Chris was not shown the door as CEO because his strategy wasn't working quickly enough, right? That's why he was pushed out. But the decision to replace him with Enrique Loras, I don't think this is about innovation. They've brought in a CEO from a commodity hardware business, a price taker business at HP. And if there's a part of PayPal's business that's at risk, it's not really the innovative part of it. It's more like the cutthroat price-taking the non-branded payments business.

11:54Rick Munarriz:And that's more like what Loras ran. So I think if we really look at what Loras brings to the table, it's that focus on efficiency and also being a buyback machine. During his tenure as CEO at HP, they brought back like 37 % of shares. PayPal is a buyback monster already. They bought back about 20 % of shares over that same period, but a lot less. Here's where I disagree with Travis while also agreeing with Travis. I think we are going to see accelerated share buybacks. But I'm not sure it's going to be with debt. The company already has$12 billion in debt on the books, but it has over$10 billion in cash.

12:31Rick Munarriz:With a market cap of about$39 billion, there's a lot of needle-moving capacity that's already on the balance sheet without having to take on more debt to do it.

12:40Jason Hall:Also reporting this week, claims that Paramount Skydance is ready to raise its bid for Warner Bros. Discovery above its previous offer for$30 a share in cash. Netflix still wears the engagement ring. Where do you see this love triangle a year from now? Jason, let's start with you.

12:55Rick Munarriz:Well, my hope is if we continue to see Skydance raise the bar and raise the bar and raise the bar, Netflix Management Board forces Warner Brothers Discovery to make a decision. We don't want Netflix to walk away because as shareholders, there's the cost of breaking the deal. But if Warner Brothers Discovery breaks the deal, there's some financial implications for them that's doing it. I also think there's more downside risk to Netflix than investors realize, because as much as there's value by adding all of this content, it doesn't fix the real problems. The thing that's stealing eyeballs from Netflix right now is not people watching movies on other platforms, and it's not not having HBO.

13:36Rick Munarriz:It's all of the short form content on Instagram and TikTok and YouTube shorts that's continuing to grow. So my hope is that they kind of draw the line at some point. And I do think they end up still winning the deal, but hopefully they show some discipline on the financial side along the way.

13:54Travis Hoium:Yeah, I think there's a lot of noise here, but Netflix ends up pulling this off. And it really comes down to, it's not just about the price, it's about, are you actually gonna be able to close the deal? When you go in and you buy a house, if you say, hey, I offer you a million dollars and don't worry, I'm good for it. that buyer should be very skeptical of your offer unless you actually come with a note from the bank that says, hey, Rick's actually good for this money. So that's the real question is, is Paramount actually good for the money? Because Paramount itself does not have the funds to do that.

14:25Travis Hoium:And guess what? Larry Ellison, who is really the backstopper of this, his stock is down 50%, I think it is right now. He may not want to write$100 billion check to buy all of Warner Brothers Discovery. So if you're Netflix, you've got to say, hey, look, we have not only a really good offer, but it's not worth going after an extra couple of bucks a share on a deal that may not close. Because if you get two years down the road and the deal doesn't close, that's a really, really bad deal for Warner Brothers Discovery. They're in a really tough spot then.

14:59Jason Hall:Coming up next, one final ride to 2027.

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16:06Jason Hall:We began the show talking about three unlikely stocks that each of us finds attractive right now. It's time to make it interesting. Outside of the stock that you brought to the table, which of the other two stocks do you think will deliver a healthier total return a year from now? Jason?