Recent Stock Crashes: What the 🤯 Just Happened

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1:58Go to liquidiv.com and get 20 % off your first purchase with code investing at checkout. That's 20 % off your first purchase with code investing at liquidiv.com. I guess I would be a little more cautious just because I got burned by PayPal. and I would want to see evidence that what the new CEO is trying to do is going to take effect. And you should start to see that sooner than later, you know, in the next few quarters. You should start to see things start to turn around or improve. I love this podcast because it crushes your dreams of getting rich quick. They actually got me into reading stats for anything.

2:45You're tuned in to the Investing for Beginners podcast. Led by Andrew Sather and Dave Ahern. Step-by-step premium investing guidance for beginners. Your path to financial freedom starts now. Starts now. All right, folks. Welcome to Investing for Beginners podcast. Today, Andrew and I are going to talk about why are stocks crashing all over the place today? In the markets over the last couple of weeks, we have seen quite a few companies tank after earnings releases. And in some cases, legitimate. In some cases, maybe not. And so we thought we would pick out some of the companies that have been exposed, shall we say, and talk about why we think some of those reasons are happening and maybe how you as an investor can kind of think about it and react to these positive or negative news that you're seeing on CNBC, for example.

3:44So with that, maybe we should start with a company. Why don't we start with one that I'm familiar with that most people probably have never heard of, and that would be Fiserv. So what do you know about Fiserv? Well, because you've presented to me multiple times talking about the company, I know it's in payments and I know it's part of that chain where you don't necessarily see it when you swipe your Visa card, but it is playing a big role behind the scenes. I mean, the stock was like crashing is almost an understatement. This was a big drop for a company of that size, right? Huge, huge drop. So those of you, which is probably most of you, are unfamiliar with Fiserv.

4:31The ticker for the company is FI. It trades on the New York Stock Exchange. And so it recently dropped around 40%, maybe greater than 40 % a couple days ago. And yeah, huge, huge drop. The company, as Andrew said, is in payments. They have two, I guess, segments, if you will. They have a core banking segment, which is more of their legacy product. And this has been around for a very long time. And what that does is they operate the behind-the-scenes banking tech stack for the big banks. So a company like J.P. Morgan, I'm not sure. I can't confirm that Fiserv is a J.P. Morgan client. But for a very big bank, what they do is they handle all the tech infrastructure.

5:19So when you go online to check your balances, that's what Fiserv is doing. When you go to see if you've made your payment on your loan, Fiserv is doing that. If you want to have online banking or an app through JP Morgan, then Fiserv would handle all of that. So that's really what they do. It's kind of the plumbing of banking. Very boring, but very necessary. Been around for a long time. The other part of it is they have a payments processor called Clover. And they have some other smaller parts and pieces of that. But Clover competes directly against companies like Block, Toast, Agen, Stripe. So they handle a lot of payments for merchants, generally small to medium-sized businesses.

6:01And this is a segment that they bought in 2017, I believe. And up until recently, it was doing very, very well. Now the company is tanking because I'm going to take some numbers here from fiscal.ai. They have an AI summary that you can get on their earnings calls, and this could be very helpful. So for their quarter three adjusted revenue, they grew a blistering 1%. Their organic revenue for quarter three was, again, a blistering 1%. Their merchant solutions, which is the clover part of it, was a whopping 5%. and their financial solutions was negative 3%. So that combined with the fact that the company is going through a transition and they gave really, really soft guidance for the rest of the year.

6:54Now, keep in mind, this company generally grows in the 8 % to 10 % range. It's very stable, steady, decent grower, but not a fast grower. And because it's dropped so much over the last, well, at least the last quarter, then the market reacted very violently to the bad news. And then because the market tends to be forward looking and they're coming out saying that we're not going to do very well for the rest of the year and into 2026, not great news for Fiserv. Do you know off the top of your head that mix between the core banking and the payments? Are we talking 50-50? Is it kind of like 60-40?

7:38It's probably closer to 60-40 now with the merchant being bigger than the core bank payments. And that has been growing over the last few years. One of the things that management said in the earnings call is that they had been banking on organic growth from places like Argentina, for example. And Argentina, it's a very volatile place to operate. And so when that country struggles, then Fiserv is going to struggle, especially if they're banking on, no pun intended, If they're banking on that being a big part of their organic growth story, then they're going to struggle. And the turnaround is kind of, they have a new CEO.

8:27And so the old CEO was kind of like trying to put the company everywhere all the time. and the new guy is coming in. He's trying to kind of focus operations and cutting costs, trying to reduce where they're operating and try to focus more on the banking and the merchant solutions as opposed to trying to be everything for everyone. And they've also laid off people and they're doing a lot of things that you normally do when you air quote or trying to turn around the business. And so the market just doesn't like any of that stuff. None of it was good news. It was probably necessary, but it wasn't good news at all.

9:08What can investors glean from that? Is that a familiar story of a company tries to do too much and then fails at it and then needs a refocus? For sure. this is definitely something that you see when, I guess you could probably call it empire building, where they're so focused on trying to build out the company that they forget why they were successful in the first place. And the company that immediately springs to mind and is going through the same kind of painful struggle as PayPal. A few years ago, PayPal was trying to be everything for everyone everywhere you know the the all-in-one app that the ceo the then ceo really wanted aspired to get the company to uh they really got away from what they were good at which was the branded checkout and the paypal button which is what they're known for they got away from that and once that really started to take effect then the company started hitting the skids and they're still i mean the new guy is the new ceo is i think is doing a pretty good job and is trying to turn the Titanic around, so to speak.

10:26But it's going to be an uphill slog. And I fear that this will be the same impact that Fiserv will have. So when you start to see companies start to build beyond what their core competency is or starting to try to become everything for everyone, I think that's a time where you probably got to... I think in a lot of cases, you got to be nervous about that. I would be anyway. Yeah, me too. Do you know of good ways to try to avoid situations like that? Avoid buying these stocks where the businesses kind of lead up to this kind of a situation? I think the way I would look at at least the payments business, I think there's a couple of things you could probably start to look at.

11:16Number one is if the company starts to expand beyond, if you start to see other segments sprout up and the company stops talking about their core product or what it is that they really do, if they start moving away from that, then that could be a sign that, hey, maybe the management is moving away from what got them here. You know, this is the dance that brought them. Now all of a sudden, you know, now all of a sudden they want to be a three-point shooting team when they're all about defense and rebounding. You know, it's not, you start seeing them do that. That would be a concern. I think if you want to look at the numbers, I think there are probably three things you could probably look at that could start to give you some signs.

12:01If you see revenue starting to get sluggish or turn in the other direction consistently, if you start to see margins go the other way, that these new business lines that you're trying to go into are not as profitable. The other thing to look at would be the return on invested capital. If you start seeing that go the other way, some companies, when they go into the whole empire building idea, they start buying a lot of other businesses and that generally pushes ROIC down. And so if you don't start seeing returns on those investments, then that could be a sign that maybe not great things are coming.

12:43And I think when you think about, those are probably the three things that we've to mind. Is there anything that you could think of that would be helpful? No, I did want to talk about the ROIC because it makes me wonder, you talked about how they acquired Clover. And so is this the market reacting to maybe an overpay of Clover, even though it was so long ago? Or do you think it's something else?

13:17my my you know my outsiders um thought would be that i think they're far enough removed from the the acquisition of clover that i think that's not really the issue i think more of the issue is is that they were spreading themselves too thin and they were trying to they were trying to put their you know stake their flag in too many things all at once and and and they were also doing they were also doing some small acquisitions and they were they were more focused on short-term goals to try to boost earnings and boost revenue and in the long run that's not great for the business it's also not great for the shareholders and when things you know it's a fine line right it's like you want to do things to make your company improve but sometimes you have to take the short-term pain for the long-term gain.

14:11And if you're constantly trying to do the short-term gains to keep the company moving, so it looks good, i.e. Jack Welsh and GE all those years ago, beating every quarter, beating by a penny kind of thing. So manipulating the business and the financials so that it always looked good. Eventually, that's going to catch up to you. And I think that's more what happened with Fiserv than the market reacting to an acquisition they made seven, eight years ago. Yeah. Yeah, that's totally fair. I'm curious, is it the core banking? Is it the payments? Is it just both? I mean, you mentioned 1 % revenue growth for the entire company.

14:57So it sounds like both of their big pillars are failing at the same time, which is really strange because payments is growing fine across the rest of the industry. Yeah, absolutely. Absolutely. I think some of it is, we were talking before we came on the air, I think some of it is, especially in the merchant solution side, I think they're, I wouldn't say that these companies are eating their lunch, but they're probably certainly having an impact on their business. And that would be companies like Agen, Stripe, Toast, PayPal. uh shift for payments you know toast and shift for are very big in restaurants especially smaller size restaurants like small to medium sized businesses you could say and that's definitely where clover is trying to play and so that is probably having an impact on them for sure because those companies are growing much faster than viserve and clover have been so i i I don't have any doubt in my mind that those companies are taking a bite of their pie, for sure.

16:06It makes me wonder just like the broader restaurant industry in general, which we're going to talk about, so spoiler alert. But just, you know, if you have, and I'm not saying that this is the case for McDonald's or Taco Bell or anything like that, but just to use them as examples. if you have the McDonald's and Taco Bells of the world as your clients, if Fiserv were to be the preferred vendor for Taco Bell and McDonald's, and then those vendors end up being disrupted by newer concepts like food trucks or fill in the blank, does that contribute to a business like Fiserv falling to? Maybe hard to answer because we don't.

16:51companies aren't always forefront with all of that information, but it just makes you wonder like, is it, is it some, is there other, are there other factors outside of all of this that we can't see? That's also just putting, you know, fuel to the fire of this dumpster fire kind of thing. I'm excited to share our friends over at the Plink app, release a major upgrade featuring a sleek new look, real-time insights, smoother trades and tools that help you feel more confident with every move. Here's the bonus. I think you'll love. They also released the Dividend Match, where they'll match 25 % of all the dividends you earn up to$250 a year.

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19:25Absolutely. I think that's a very astute assessment is that as other restaurants take share from other restaurants, depending, I mean, it's just logical. if you know if uh taco john's which is what you know there was a chain called taco john's i grew up with in in the midwest if they're taking share from taco bell then it would make sense if taco john's is under a different processor than taco bell then you know then toast is taking part of fisher's share just because that restaurant is now doing more business you know kava is doing more business maybe than chipotle and so if they're have a different processor then it would make sense that that that would tangentially that processor would suffer too so what do you tell the value investor in you that sees five serve down 40 and price start earnings below 10 like is is it a potential opportunity i mean you know the deep value investor people are probably like you know rubbing their hands together and like you know look in their lips because they're like uh i i guess i would be a little more cautious just because i got burned by paypal and i would want to see i would want to see uh i want to see evidence that what what the new ceo is trying to do is going to take effect and you should start to see that sooner than later you know in the next few quarters, you should start to see things start to turn around or improve.

21:08And it would also take me a few quarters to watch, to see what, because the bottom line is where the business is now and where it's going, I wouldn't want to buy it. I own a share of Fiserv and, you know, in all, you know, transparency, you know, my one whole share went from a hundred and some dollars to what,$62. So, boo-hoo. But I have zero plans to add more to this company. I think there's better opportunities in the payment space than Fiserv. And I want to see what the new CEO is going to do before I would consider buying it again. At least that's my opinion. So maybe to try to oversimplify the risk of completely butchering all this fine discussion we've had, sir, buying a value opportunity, but it's a loser in a good industry, maybe not a great value opportunity.

22:13sometimes you know i think we've we've probably talked about this before but sometimes the market is right and you know they see a bad they see something going wrong and they punish the company justifiably and this may be that case and based on the not you know the information that we have today, I think that's probably the case. But time will tell whether that's true or not. And that's part of the fun of investing, right? It's like some people out there could listen, Dave's wrong. And they could take a big swipe and do awesome. All right. More power to you. Great. I'll be happy for you and clap and move along.

22:59But I think, yeah, I guess that's kind of how I think about it. Yeah. Yeah. I think that's well said all right so you mentioned the whole restaurant business thing maybe we could segue into that you want to talk a little bit about chipotle yeah um i didn't follow it super closely do you know do you remember how much it was down actually after earnings i think it was around 20 25 it definitely took a haircut yeah i believe that's what it was as well yeah and it seemed a drop like Fiservs and seeing a drop like Chipotle kind of prompted this discussion we're having because, yeah, I mean, it's common for stocks to crash during earnings releases, but the scale and scope of it seems to be intensifying, at least from an outsider view.

23:51You know, we're long-term investors. We try to not get too involved in the daily as much as we can because that can make you make emotional decisions. But at the same time, 20-25 % drop in a day after earnings is significant. So in the case of Chipotle, pulling them up on fiscal and looking at the transcript for Q3, one of the big concerns was the low to middle income guests, which is household income below $100 ,000 a year, represents about 40 % of their sales. that demographic plus the 25 to 35 year old age group are both dining out less often. And they are shifting their spend according to the company on groceries and food at home rather than competitors.

24:47So that's management's way of saying like, hey, maybe these are outside forces. It's not that the Chipotle brand is bad. It's that we have a different economic environment. So you can kind of choose whether to believe them on that or not. And the other comment that was made is there are headwinds like unemployment, student loan repayments, and slower real wage growth. So real wage being inflation-adjusted wage growth. All of those things. And then Wall Street did not like to hear that. Some of the numbers based off of that, I mean, revenue was up 7.5%, but comp sales were only up 0.3%, and the guidance was low.

25:36Low single-digit range for the rest of the year. I'm sorry. They guided for a decline in the low single-digit range for the rest of the year, And they're also talking about higher labor costs and that contributing to lower profits. So you do have these short-term profit pinches that's happening on top of the fact that their core demographic is not spending like they usually do. So if you had to, I mean, none of that is great news, right? Yeah. So here's, I guess, here's my question. If you look across the restaurant industry, I guess the pushback that I would have on what some of the things they're saying is I don't necessarily, are we seeing that in other restaurants?

26:38Are you seeing this same kind of impact at a McDonald's? Are you seeing this same kind of impact at a Texas Roadhouse? Now, granted, those are not apples-to-apples categories of restaurants, but is Cava. Now, Cava is what you could say is a direct competitor. Are they seeing the same impacts that Chipotle is? And that would be the first question that I would ask myself. I'm not saying you know the answer, but that is certainly a question that I would ask myself. yeah for McDonald's comp sales up 3.5 % global comp sales and then their guidance it looks like they didn't have to revise guidance so they expected a little bit of acceleration in Q4 of comparable sales so they're not knocking it out of the park but they're not seeing the same decline that Chipotle is that's just for mcdonald's i couldn't tell you about some of the other ones but i i think mcdonald's is a decent company to compare to yeah yeah yeah so that would be so that would be my first i like if i was thinking about chipotle and what happened to them why you know they're they're listing off a lot of reasons which sound to me like they're deflecting like this isn't us.

28:04It's not us and it's not our fault, but they're blaming it on outside forces. And one of the ones that I talked to some of the guys in our pitch teams, Tyler and the gang, and I brought up this point about beef prices. When these type of restaurants aren't buying at market prices today, they usually have long-term contracts with their vendors to because poultry, meat, fish, vegetables, a lot of that stuff can be so volatile that they will work out longer term contracts to stabilize the prices. So they'll buy beef at this price, they'll buy ground beef at this price, they'll buy chicken at this price, and it's set for a period of time.

28:56And the reason why they do that is the vendor, the people making the chicken, they want to know that they can get a good price if the price drops. And likewise, they'll eat the loss on the profit knowing that they made the gain on the other end. And the restaurant knows that they have a steady price so that when they go to price their menu, they know how much they're going to charge for that. And so when Chipotle says that our profits are being impinged by the prices of beef, I kind of call BS on that because that to me is, I feel like that's kind of a lame excuse because it, I'm going to be harsh here for a second, but it feels like a lame excuse because there's no way in heck that Chipotle is buying beef on today's prices.

29:48They're buying it at six months ago prices. Will they have to negotiate higher prices in the future? Probably. But when they do that, then they can set their menu according to those prices at that time. And so especially a big protein item like that, that's something they're going to know what the price is on that. And they're going to set their menu prices accordingly from there because they're not changing the menu prices daily. And so to me, that's kind of a lame excuse. yeah I have no comment on that that makes sense to me for sure I wish we could look at Chick-fil-A's financials because this is very Andrew specific but if I think of like who would be the closest restaurant that would take away a normal Chipotle order for somebody like me like Chipotle and everybody probably goes to Chipotle for a different reason but I'm kind of like a super fan so I like to go because you get a lot of protein at a cheap price.

30:53And you get it quick. Chick-fil-A is really the only fast food that has something comparable to that. However, Chick-fil-A is not public, so we can't see how their Q3 was. So I just wish we could see it. But yeah, too bad. Too bad. Do you think there's been some chatter about the portion sizes? probably since the company first came out, but it seems like it's gotten louder more recently. Do you think any of this is pushing back on the narrative around Chipotle? Maybe not necessarily. I think it would definitely show up in the numbers, but do you feel like maybe just generally that people are like, yeah, I'll go to Chipotle, but maybe they're choosing to go somewhere else because they feel like they're not getting the same value that they would normally?

31:48I think it's entirely possible. I also think it's a thing of opinion. So where would you go instead? Where would you get more chicken? Right. Yeah, I don't have an answer for that. For sure. I don't either. Yeah. I know that there was an analyst from Wells Fargo that went to like, what, 100 restaurants and measured the portion sizes of all the bowls, like just weighed them ordered the exact same thing and weighed them and there was just there was it was all across the board so i know that one of the things that the new ceo is trying to work on is the operations of the business to make sure that that is more consistent across the brand i think that will certainly help but yeah i so maybe we could talk a little bit about the the the the core customer and what they're talking about with the decline in sales because people are opting like this is one of the things that always makes it hard for me to think about like the whole economic question because you hear you hear commentary from chipotle about the this customer is is struggling but then you see other information from visa and mastercard where you see that more people are using their cards and they're spending more on their cards.

33:13And so it's like conflicting information. So you don't know which one is right. And so I guess, how do you think about that? And maybe how should investors think about that? I think it's a great question and something you probably have to constantly try to evaluate. And that's what makes investing hard. And that's why people get paid the big bucks to do it full time. One thing I will throw out there, because I saw it today as a headline, this was reported by Reuters, and it said, this was today, November 6th, which is when we're recording. It said, U.S. layoffs for October surged to a two-decade high.