Stock Stories, Vol. 11: Silicon, Supply Chains & Spicy Wings

0:00When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs. Some people love superhero stories Enough to spend a billion, a billion dollars at the box office in a single weekend Others prefer tearjerkers We all have a favorite bedtime story Humans are a storytelling species From prehistoric campfires to billion dollar industries Celeb gossip, sports, the nightly news All stories that shape how we see the world You know, investing is stories, too.

1:00Every stock has a mission, a tagline, a rollercoaster arc. Look across your portfolio and you'll see tales of innovation, resilience and wealth creation stories. Well, for the 11th time, we gather around the campfire this week for Stock Stories. Four Motley Fool guests join me with tales anew, freshly told to make you smarter, happier and richer. Only on this week's Rule Breaker Investing. It's the Rule Breaker Investing Podcast with Motley Fool co-founder David Gardner.

1:41Welcome back to Rule Breaker Investing. You know, we tell a lot of stories on this podcast and over the years, I can't even imagine how many stories we have shared. But one thing's for sure, we have done stock stories as an episodic series for 11 times counting this week. If you're a new listener, welcome. There's a campfire. Oh my gosh, listen to it. Yeah, and I'm going to be joined to the campfire by four special fools, each of whom will have a story to tell. And then I think they'll all kind of leave me alone at the end, and I'll tell one last one as the lights go out. The campfire burns down, and I hope we leave the campfire site better than we found it, but you will be the judge, dear listeners.

2:23So I'm excited to get ready to welcome Four Fools. Before we do that, I'll just mention next week's podcast. I have Robert Brokamp joining me for our annual Halloween tradition. And that would be financial horror stories. So Robert, bringing back true stories from investing, business, and finance. True stories that are scary. And we're going to have more stories. We may not even have a campfire. It may just be in the dark next week. So financial horror stories coming to you next week. But without further ado, let's get started and let's settle in. A lot of us can get back in touch. I don't know if you like to burn your marshmallows or just leave them, you know, gooey, or not even put them over the fire.

3:05Just pop them in your mouth one at a time and chew them down. Well, all are welcome to this campfire. And I want to start by welcoming my friend, Sanmeet Deo. Sanmeet, a delight to have you. Welcome to our Foolish Campfire. Hey, David. Thanks for having me on. It's a delight to have you on. And it reminds me, Sanmeet, you joined me. It wasn't even eight months ago for our last episode. You told a story about crocs. And anybody who wants to hear Sanmeet and me talk about crocs, well, it's right there. Just Google Rule Breaker Investing Stock Stories Volume 10. Sanmeet, I really enjoyed that story.

3:38This time, well, before your story, could you just remind us in a sentence or two what you're doing around Fulden these days? Well, the biggest thing I'm doing nowadays is supernova, which I know you're very well aware of. I'm super excited to be on the Supernova team on the Odyssey mission and we're scouring the Rule Raker universe for picks and it's exciting and we're having a whole lot of fun and I'm really delighted that we've relaunched Supernova and I'm delighted, Sanmeet, that you're on that team there are a few different portfolios in the new Supernova service at The Motley Fool one of them we call the Odyssey portfolio the Odyssey mission kind of like Odysseus we're on a long adventure, right?

4:16we're all playing the long game And Sanmi, you are there in the boat with us, and I'm delighted that you are. Before we go to your story, I guess I'm just staring into the fire trying to think, what's a good water cooler question? Here's what I'm going to go with. I'm flying later today, so I think I have this on the mic. Sanmi, mobile boarding pass or printed, just in case? Well, I think I might age myself here, but I need a printed boarding pass. Even when I have a mobile, I need the printed one. something about the paper and having it feel like i'm actually on a on a trip and it's needed i understand i don't even know how to answer that question myself because i think i've gone both the different points but you always feel a little bit anxious if you're just going with the electronic i think it's like what if your cell phone dies what if the wi-fi goes out who knows yeah it's like tapping with credit cards these days i'm always a little apprehensive trying to figure out where i'm supposed to hit on the machine but anyway let's get to your stock story so i mean what stock are you going to be featuring this time around?

5:16Yeah. So I am going to be talking about Wingstop, which is ticker W-I-N-G. And I titled it From a Basket of Wings to a Billion Dollar Flywheel. So once upon a time, back in 1994, two guys in Garland, Texas decided America needed better wings. Not more wings, not cheaper wings, just better ones. You know, they didn't invent the chicken wing. They reinvented it. And they made it kind of the star of the menu. instead of being an afterthought buried between like burgers and fries. So that's kind of how Wingstop was born. One small store, big fryer, and a whole lot of ambition. You know, you kind of fast forward to 2015, the Wingstop goes public at$19 a share, humble little IPO that would quietly hatch one of like the greatest restaurant success stories of the past decade.

6:01Now you jump ahead to January 29th, 2021, nothing in their history, but I actually bought the stock around$1.51 a share. It was during COVID that you bought the stock? Yeah, yeah. I think maybe it's because we were ordering a lot. You know, it's like you're sitting at home ordering food and you kind of, they're very good with digital. And while I'll be talking about that as well, it's right. They have a fantastic app. So I just love the focus. It is a franchisor. You know, the flavors are very unique and bold. And it's a small, efficient, scalable business. You know, kind of the one that, you know, Peter Lynch would have been waiting in line for a takeout.

6:38Not long after I bought it, things got kind of spicy. So in 2022, chicken wing prices just went through the roof. Franchisees were probably scared. Stock plunged below$100. Analysts were like, game over. They sell wings. Wings are expensive. How is this going to survive? Story gets good, though. Wings stopped in panic. They kind of pivoted. They launched kind of a pseudo brand called Thigh Stop, essentially where they're using the whole part of the chicken thighs and other parts that were more reasonable where wings were going flapping upwards i guess you could say um and it was quick they they adapted they were able to make it a success kind of switched around their supply chains a little bit and did good stock soared to 425 wow that range in mid 2024 and since my purchase i've kind of watched it rise and fall throughout.

7:30You know, today it's around in the 250s range. I'm up about 68%. So not bad for kind of a basket of wings. The real story, though, isn't the stock price is the business. You know, when I bought it, system wide sales were around one and a half billion. Today, they're around 3 billion digital sales, which you know, very popular during COVID were up about 40%. Now there's 65 % of their revenues store count 1500 to 2400. And they have a goal of 7 ,000. All this on a model is 98 % franchise. Capital light, high ROI. Every new store is kind of a royalty machine. So it's a flywheel effect where great flavors, people order digitally, franchisees make money, they attract more franchisees, system kind of runs.

8:15And the great thing about them is they're not trying to be a McDonald's or Chipotle. They have one simple concept, one simple idea, very basic menu, wings and fries, sodas. That's about it. So the lesson here, what is the lesson? Great businesses often look boring until they start breaking rules. They prove you don't need to invent something new or be this AI driven company. You could just make one simple thing much, much better, more efficient, easy to get, and you'll be successful. And they're doing a great job and holding on tight to the stock. And I think I think it has a lot of room for runway in the future.

8:54And it feels like the football time of year, people are ordering out a little bit more frequently. So I don't know whether the fourth quarter calendar is always their best quarter, but it feels like probably a good one coming up. Market cap saw me at about seven billion dollars today. I really like your point that it's such a simple approach and a simple concept. And you'd think there's no room for it. Chick-fil-A, Kentucky Fried Chicken. and yet I think the world is often bigger than we suppose. Yeah, they're also in the chicken sandwich business, which if you've heard, there's a raging chicken war going on with beef prices up.

9:30Every restaurant is starting to make chicken sandwiches. Very hot and heavy competition. You know, they have it as an offering. It's not a big staple of their business, but it's a good compliment to what they're providing. Well, there you have it. From basket of wings to a billion dollar flywheel. Samide, could you remind us? Lesson in a line to close. Great businesses often look boring until they start breaking rules. Thank you very much, Sami. You are welcome to hang around the fire. There might be music coming sometime soon, but you're also welcome to go back and, I don't know, go order chicken somewhere and go about your life.

10:04Thank you for hanging out with us here on Stock Stories Volume 11. All right. Thank you. And, oh my gosh, there's a second sound that's starting to creep into the night air. And speaking of, no, he's not a creep. He's a friend. Asit Sharma, that's not a good transition. Asit Sharma, a delight to welcome you back to Rule Breaker Investing. Great to be here, David. I almost wanted to say I'm a creeping friend, but that didn't sound so complimentary either. And I want to note that you've brought a piece of equipment along with you. Yes, I have my solar-powered Warm Glow Camp Light that we use when we camp every summer for this episode, and I feel so campfiry at the moment.

10:49And this makes me wish we were more of a video podcast. I mean, we could transition over to a video. We just have stuck with the old school audio so no one else can see the warm orange glow. Bathing your face. Asa, what stock are we talking about? David, we are talking about Advanced Micro Devices, ticker symbol AMD. And we're going to get there in a sec, but before we do, Asa, what are you doing around Fulden these days? Well, I am working on Stock Advisor as I have for a long time. I'm also exploring some new technologies. I love the semiconductor industry and I will use the Q word here. I'm also interested in quantum computing.

11:24So that's what I'm researching these days. That's exciting. And I look forward to learning from you because I'm now at a stage where I'm not picking stocks every week or month anymore. I'm waiting for people like Sanmeet and Asit to help me identify new things going on. And man, if there's not a lot of new technology coming. Asif, before we get started, I have to ask you, it's seasonal. My icebreaker question for you, pumpkin spice, pro or pass? David, I hope this is an idiosyncratic answer. I hope I am the lone person among the masses to say this. And please don't send me letters, but pumpkin spice is so passed in my world.

12:02Now, having said that, yes, do I love the ambiance of a warm beverage with some type of spice in it this time of year. The leaves turn color. I do. But for me, it's not pumpkin spice. All right. Well, that actually makes two of us around the campfire. Without further ado, let's go more toward Lisa Su, whose just name was at Forbes or Fortune CEO of the year. But I'm not trying to spoiler alert. Asit's story. Asit, what is your title? David, my story is the amazing Lisa Su turning AMD around in the deceptively simplest of ways. Once upon a time, there was a giant company in the semiconductor industry.

12:38It was one of the most valuable companies on Earth, and it held a market share of nearly 90%. But this isn't the story of Intel in the late 1990s and early 2000s. It's the story of a scrappy company named Advanced Micro Devices that challenged Intel, and then, David, fell so hard from Grace. Now, some back history here. Intel dominated the market for the PC-based computer chips everyone used to use. Some people listening today will remember the Pentium processor, a name that was famous back in the day. AMD challenged Intel for dominance with cheaper chips, and this culminated in a breakthrough processor in 1999, which was called the Athlon.

13:23Now, this chip was not only less expensive than Intel's variants, it was also faster. And just before the dot-com crash, David, AMD's shares hit$44 per share. Now, AMD was able to ride the success of their PC chips for several years. Like a lot of companies, they went with the flow. But, you know, along the way, they started to use their profits to extend their manufacturing capabilities or fabs. They placed overaggressive bets on lots of ill-timed extensions into lateral markets. And by 2006, big bad Intel fought back with its most powerful chip yet. Just as AMD began to stagnate, it was spread too thin and it was losing its innovation edge.

14:06So enter Lisa Su in the fall of 2014. AMD was unprofitable. They had a stretched balance sheet and bankruptcy was on the table. Lisa Su was the company's chief operating officer and the board took a risk on her. They appointed her CEO in October of 2014. Now, David, what about that stock? It was trading at$2.67 a share the day before Lisa Su took over the reins at AMD. That's a drop of approximately 95 % from its all-time high, which was actually$48 a share. And that is a really tough way to spend about a dozen years as a shareholder for those who did. for those who may have bought at the top.

14:51And wow, Asad, I'd forgotten,$2 a share. And David, I wonder how many shareholders just took the sell out of sheer emotional exhaustion at that point. Now, Lisa Su holds a doctorate in electrical engineering from MIT. In fact, she holds bachelor's and her master's degree from MIT. She turned AMD around with a simple but masterful strategy. I'm going to just read you a few of these bullet points of what she did. The company pulled out of markets that weren't central to its business. It focused on its core strengths, which at the time and today were CPUs and GPUs. She encouraged the company to return to what it loved.

15:30And she told the engineers, look, go out there, create great competitive products. And then she went to key customers and told them, look, it's going to be three years before we can show you something that's truly transformative and new, but bet on us. And so AMD introduced an award-winning chip called the Ryzen, and in 2017, it was solidly back in the black. Now, David, I want to pause here and ask you, does what she did sound vaguely familiar, this strategy? It clearly should, because that is a leading question, Asit. And yet, I'm trying to think what comparison you're making. This is a great example of a comeback story.

16:08It's sort of an insider, somebody who, as a female CEO, she's in a minority right there. And as a chief operating officer appointed CEO, that usually doesn't happen either. But I think you're probably speaking more about just the idea of. But I'm not guessing. Tell me. You're so close. And actually, it's a pattern. So I hope I didn't lead you down trying to think of a company, but it's a pattern that we all have seen before. I think it's best expressed by Jim Collins in his wonderful book, Good to Great. She used the hedgehog strategy so simple. So basically, if you don't know about this hedgehog strategy, it goes like this.

16:50You focus on three areas that intersect. What your company can be the best in the world at, what drives your economic engine, and what you're deeply passionate about. So Lisa Su did all three. Today, David, AMD shares trade at around$225 a share. The stock is on its way to being a hundred bagger for those who might have bought on the news that the cerebral chief operating officer was going to take over AMD way back in the fall of 2014. What a remarkable story. And thank you for breaking it down. At no point have I ever recommended or own any shares of AMD, which for a while made me feel pretty good about myself.

17:29And over the last decade or so, I don't feel as good about myself, although having bought and held NVIDIA, we've all benefited. The entire industry, Asit, as you know, is so relevant today, and it's not just about those companies. Intel, even taking an investment now from NVIDIA, kind of reminds me of when Microsoft invested in Apple during a hard time for Apple. Anyway, ASML, there are so many interesting companies here, Asa, but maybe this is the most interesting CEO because what an underdog. I agree. And one that doesn't fit your mold of the typical executive who's going to take over a major semiconductor company.

18:09She happens to be cousins with Jensen Huang. I think many members listening already know that. But going back to your point about winners winning, NVIDIA has been such a great company to own. And AMD had its stumbles, but also I think they're on their way to winning. And I would count out Intel either. There is a lot at stake here, both geopolitically and just in order to improve our lives with artificial intelligence. And these companies play such a central role in that. Wonderful, Asit Sharma. Well, thank you for the amazing Lisa Su turning a company around in the most surprising of ways. What is the lesson in a line takeaway you want to leave us and the campfire with, Asit?

18:48the takeaway line is it's okay to be a hedgehog. You can win, even if you're down and out. It's okay to stick with what you know, what you love, what you can be the best in the world at. Thank you for that. And as we begin to transition, oh my gosh, our third guest is nearing the camp hour. But as we make a transition, I'm going to make an admission to Asit and everybody else. I've actually never read From Good to Great. I know it's one of the most praised business books out there. I know it's by Jim Collins, who I have interviewed before. I've just never literally read good to great. I can't read them all.

19:23Hassett, I know the Hedgehog Strategy is a framework, though. I probably could have gotten a better grade in your good question. Well, to your point, David, there's so much to read out there. There's so many books and so little time. And I will say there's a great cheat sheet. If you go look for summaries of the book, it can be distilled as many good business books can into a few principles. And this is something that Morgan Housel had mentioned to me at one point in time. You know, a lot of the business books that we have out there, they could be a lot shorter. Did you know three out of four U.S.

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21:31All right, and who is our third? Oh my gosh, our third visitor is David Meyer. Dave, welcome to the campfire. Thank you for having me. What a delight it is, and I can hear some new sounds that you've brought with you, Dave, to the Stock Stories Campfire. This is volume 11. and you have appeared on our podcast before, Dave. But remind the folks, I'm not going to say at home, because they're out in the forest. Remind the folks in the forest what you do around Fooldom. So I am a senior analyst at The Motley Fool. I've just celebrated my 20th anniversary at The Fool. I'm so proud of that. And I'm now a co-captain of the Supernova Odyssey portfolio, which is incredibly exciting.

22:14And I'm so excited to have you there. and San Mead, who visited with us earlier and still might be lurking out there somewhere amidst the crickets. He is one of your teammates, and we're, of course, excited about the Motley Fool Supernova launch. Dave, I'm excited to have you on the Odyssey mission. Yeah, it's incredible and very, very happy to have San Mead on board as well. Are you going to be talking about a rule-breakery stock, Dave, or what stock and ticker symbol do you have in mind this time? Oh, yes. And it is a fan favorite. Mercado Libre. The ticker symbol is M-E-L-I. Excellent. And before I ask you the title of your story and to get us started, Dave, my icebreaker question for you around the campfire.

22:54I'm going to go with your approach to being active. Dave Meyer, morning walk, evening run, or is the commute itself the workout? And don't. I don't. It's tough to go downstairs, but it is not an evening run. It is an evening walk behind the push cart of my golf clubs. And it just about happens every day. Oh, that is pretty fantastic. Well, love thinking of you somewhere in South Carolina playing golf on nearly a daily basis and loving investing and business as you have now in your 20th year at The Motley Fool. Dave Meyer, what is the title of your story? The title of my story is, You Haven't Missed a Thing.

23:42And once upon a time, and when I was working on MDP, that is Million Dollar Portfolio, a newsletter of ours from the past, we passed, we decided not to invest in MercadoLibre in 2010. If you know anything about that stock chart, it is way up into the right. Now, why would I do something like that? Well, we actually, the team had what we called a bull bear debate. The bulls got in a room and the bears got in the room and we had a back and forth. And the bears were so convincing that we decided now wasn't the time to make an investment in Mercado Libre. But Dave, did I just, did I just hear a bear in the forest?

24:32You did. There were, in fact, there were a number of bears in the forest that day. OMG, please continue. I say somewhat quakingly. So that, that stuck with me for quite a while. It was like, man, this is, this is a great company. Like, and, and the, and the stock price is going up and the business is growing. like how could I have missed this and then I thought you know okay let me let me start talking with it with some other fools and I thought wow it's still a great business a few years later but I've missed it right I haven't made the investment so I like I can't invest now I had such a better price back then I had you know I had more growth opportunities back then and that that thinking is just completely wrong.

25:19Because when you find a great business like this, one that has incredible potential, one that has great management teams, one that has the backing of a lot of good investment professionals, I don't know, one that has a lot of the six traits of a rule breaker, let's say, you actually have time to invest at any point in time. I really appreciate you, David Gardner, imparting that on me. That's one of the things that I have taken away from you. As someone who was a value investor before, where I was like, I need to get this price, or I'm not going to make the investment. It was more, hey, I need to find this great business.

26:06and I'll have multiple opportunities to invest in it. That is the thing that I didn't make that mistake twice. Even though I had lots of people saying, oh, it's too expensive now or it's nowhere near, it doesn't have as much growth potential, that's all been wrong. What did it for me was changing my focus to really saying, what is this business doing now? What is it investing for in the future? And what other options might it have to grow that people aren't even thinking about. I'm already sensing the didactic lesson we're learning here, Dave. And it is one of my favorite lessons and I really appreciate it.

26:43I'm going to let you give that in a bit, but can you share with us then when you did hop aboard the Mercado Libre wagon? So I actually hopped aboard it multiple times over the next about 10 years of my investing career at The Motley Fool. There was some in 2014. There was some in 2016. There was some in 2017. And these were all at different price points. But again, the thing that we focused on most was this was a business that was getting better, getting stronger. The thing that people don't, I don't think people fully appreciate, and I know I didn't at the time, was that this is essentially a platform of networks.

27:26There are networks upon networks that are just creating an advantage that no business can replicate what Mercado Libre is doing down in South America. And again, we've had so many opportunities to make investments that have earned outsized returns, market beating returns, every year since it's been a publicly traded company. And again, that's not how I started my investing career. But the lesson is, hey, you may have think you've missed an opportunity, but if you find a truly great business, one that has all those six traits of a rule breaker, you haven't missed it. There will be multiple opportunities to make market beating returns on your investment.