Jon Quast

A lot of people are starting to look at their calendars, but is that where long-term investors should be focused?

This is Motley Fool Money.

Welcome to Motley Fool Money.

My name is Jon Quast.

I'm joined today just by Matt Frankel, my colleague and contributor, longtime Fool contributor.

And we are looking at several things today.

We're looking at some stocks on our radar.

We're going to talk some Tesla earnings.

But first up, we're going to start hearing some of these calendar terms in investing in coming weeks and months.

And Matt and I just want to start to cut through some of the noise that you may start to hear.

investment decisions based on the calendar.

And we'll talk more about that in just a moment.

But we want to start off here by talking about some terms.

And so one of the terms you may start hearing is tax loss harvesting.

We're entering into tax loss harvesting season.

Matt, what is tax loss harvesting?

And why do people start talking about it right now?

Yeah, I think that's such a great point to make, Matt, because one of the things that we understand about stock market investing is if you're invested in an individual stock, what can happen in a single year is it can be quite volatile.

You can be up profoundly or you can be down very despairingly.

And we really don't want to judge an investment success or failure based on just a few months.

So it can be tempting sometimes to buy into a stock we believe in for the long term.

be tempted to sell it after just a couple of months of poor performance to get that tax loss, you're saying maybe not the best strategy there.

But if you're ready to move on from something.

Well, thank you for that.

And before we move on, there's so many other calendar related things that we can hit.

Tax loss harvesting right now, people are thinking about taxes at the end of the year, but there are so many other things we could talk about.

We could talk about the January effect, the October

But I just picked out one more here.

The Santa Claus rally and the January barometer.

These are some terms that people might start hearing in the next six weeks or so.

These are other calendar effects.

Yeah, that's pretty incredible.

I mean, Santa Claus rally, 79% accuracy, January barometer, 85% accuracy.

And so I think that if you're looking at this, maybe you're new to investing and you're starting to think, oh, I want to know when is a good time to buy.

You start looking at some of these calendar effects and you start thinking, maybe I can use this to my advantage.

But you and I both still believe that the best way to build wealth over the long term is to buy at least 25 high-quality businesses, buy their stocks, and hold on to them for at least five years.

And when you think about a five-year holding period, okay, what are we talking about when we're talking about the Santa Claus rally?

Okay, yes, it usually happens.

But we're talking about a 1% gain, a 1.3% gain on average.

The same thing with the January barometer.

I mean, these are small, yes, usually up, but it's a small gain usually.

And we're looking at five years.

We're hoping to have invested in something that's multi-bagging opportunities, right?

And so when you're thinking about a difference of a percent or two, maybe really not all that consequential over the long term.

And it can be detrimental, right, to base things solely on this because think about 2021, for example.

January, the stocks were down 5%.

Now, if you're using this as a thing to guide your investing, you would say, I'm not investing in 2021 because the January barometer says not to.

In 2021, stocks were up 27% for the year, one of the greatest returns ever.

And so you wouldn't want to have missed that.

So

Matt, I guess my question is, is there any way we can use things like this, tax loss harvesting season, Santa Claus rally?

Is there any way that long-term investors, can we use this foolishly?

Yeah, I love that.

Basically, what we're saying here is the historical takeaway is that stocks go up most of the time.

So don't worry about the market condition so much as identifying those high quality businesses that you can buy and hold for the long term.

I love it.

Thank you, Matt.

That's going to end that segment.

And coming up, we're going to talk about some Tesla financial results.

You're listening to Motley Fool Money.

Okay, so Tesla just reported yesterday evening.

We're taping this on Thursday, October 23rd.

Yesterday, the Tesla numbers came out.

And Matt, I just want to ask you just simply, what stood out to you?

Yeah, I want to circle back to something that you just said there regarding the profit margins.

And so Tesla's operating margin has dropped in 10 of the last 11 quarters.

I think that that's a noteworthy trend at this point.

And when you think about, okay, why would profit margins be going down?

There is one thing that stood out here on the income statement.

Through the first three quarters of the year, R&D spending is up 42% year over year for Tesla.

And so that is one expense that's rising.

And in the call, they attributed at least some of it, it had to have been a significant portion of this R&D spend to the people who are working on AI.

And so Tesla is trying to be a leader in artificial intelligence.

And it makes sense.

It really does need it for the full self-driving.

It needs it for the optimist robot plans.

So it definitely wants to be a leader in AI.

So that spending is up.

But also these regulatory credit revenue, right?

This stream is coming down.

It was down 44% year over year in the third quarter.

And looking through the financial report, it says it only expects $877 million in the regulatory credits over the next 12 months.

Now, just for perspective, over the last three full years, it's generated...

credit revenue of 2.8 billion, 1.8 billion, and 1.8 billion in 2024, 2023, 2022, respectively.

So expecting less than a billion over the next 12 months, that's actually quite a significant downtrend, and it's going to continue on.

I believe it's 2027, they expect no regulatory credit revenue.

And this is basically pure profit.

So it's consequential to the business.

Yeah, I think that's a really good thing for our listeners to be watching for.

How does that business hold up now as the whole credit scene is changing?

And that really does change some of the dynamics of electric vehicles.

But also, hey, keep an eye on what the company is doing with its newer initiatives, because it's definitely ramping up the spending on the R&D to have those payoffs.

So we'll see how that plays out in coming quarters.

After the break, we're going to talk stocks on our radar with a little bit of a twist.

Okay, so it's Thursday, the Thursday podcast, and we usually hit some stocks on our radar.

And I thought, Matt, this would be fun just to do it a little bit differently.

I saw a report that showed that counterintuitively, stocks that were dropped from the S&P 500...

actually wind up outperforming the S&P 500 over the next five years.

And you wouldn't expect that.

You would think that a stock that was dropped is on its way down in a decline.

But showing that maybe after all the indexes have rebalanced and all that selling pressure is done, these companies actually wind up doing kind of well.

And so I thought it'd be fun, you and I would pick one stock that's been dropped in the last 18 months and say, hey, this is our pick that's going to outperform over the next five years.

And I'll go first here.

I think Etsy.

So Etsy was dropped in 2024.

I'll tell you what I don't like.

I don't like that the buyer growth peaked a few years ago.

I don't like that revenue is barely climbing right now.

But this is a business that still generates over $600 million in free cash flow.

It trades at just 14 times its free cash flow.

And because it's generating cash and it's cheap, it's actually reduced its share count with stock buybacks by about 20% or by over 20% in the last few years.

So this is kind of interesting.

Shares are already up 40% in 2025.

So I think it's already bottomed out.

And, you know, the company just integrated with ChatGPT.

I think that this may be a way that Etsy can actually start finding some new user growth again by...

by having that integration with a huge user base at ChatGPT.

And so if this is something that can help accelerate the growth, the revenue growth of the company on top of it already being cheap and already buying back shares, this is something that I think can boost the stock price in coming years.

Love it.

Etsy, Enphase Energy, some good thoughts here for beating the market over the next five years.

But that's all the time that we have for today.

You'll want to tune in tomorrow for Travis Hoyum, Lou Whiteman, and Jason Hall.

They'll be talking about the recent cloud outages, Apple's iPhone growth, among some other things.

But let's go ahead and hit the disclosure before we close out.

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 Motley Fool editorial standards and is not approved by advertisers.

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To see our full advertising disclosure, please check out our show notes.

Thanks to our producer today, Bart Shannon, for keeping us on schedule.

For Matt Frankel and myself, thank you so much for listening.

And until next time, Fool on!

Yeah.

As Matt points out here, the investment banking market right now is just red hot.

Accounting firm Ernst & Young just released a report that showed that merger and acquisition deal values in September up over 110% year over year.

Those were some big deals in there.

Volume was a little bit lower, but even still, the activity in September was up 41%.

That capped off a third quarter here, where value for M&A was up 239% from the third quarter of 2024, and volume was up 164%, nearly tripling.

Things are clearly heating up in this space.

That was reflected in the banking numbers that Matt was just talking about.

And just to drill down into these things a little bit further, JPMorgan CFO Jeremy Barnum said that there have been some IPO deals sitting in the pipes ready to go, and they've just been waiting for better valuation and lower volatility, and the third quarter delivered on that.

The same applies to merger and acquisition activity.

You also look at some of the comments from Bank of America CFO Alistair Borthwick.

He said that the fourth quarter is shaping up nicely.

Then Morgan Stanley comes out and says they're actually building their business with expectations that the next three to five years are going to show positive trends in this investment banking market.

All this is really positive.

Yeah.

I would say that the investment banking commentary says that the economy is really in a healthy place, or at least it's on the right track.

My question is, what changes that and how secure is that?

Investing has a lot to do with risk management.

If I was to rewind the clock, go back to 2019, I just remember that economy feeling like a freight train in late 2019, and just asking, what would possibly change that?

Well, a once-in-a-century pandemic.

But this time, it doesn't quite feel like a freight train to me.

It does feel a little bit more fragile.

Maybe that's reflected in some of the comments you just brought out from Jamie Dimon.

It feels like we're just a social media post away from changing some investor sentiment dramatically.

I'm just looking at this, I'm saying, okay, the numbers are saying that the economy is very healthy, or at least going in the right direction.

What would it take to change that?

Personally, I'm a big fan of fewer regulations from Uncle Sam.

On principle, I like the idea of being able to add private assets to my retirement account.

There are some companies that I would have loved to in recent years.

One that comes to mind is Neuralink from Elon Musk.

That's just a fascinating company to me.

I would love to be able to invest in it in my retirement account.

I find it extremely interesting.

That said, as I look about this from a broad perspective, opportunity without education is like giving a small child a box of matches.

They can get hurt and they can break things.

I think there's a smart way to open this up, and I think that there's a bad way to open this up.

Hopefully, we do it the smart way and not the way that creates a lot of problems, especially financially for people just getting involved in something that they don't really understand.

Yeah.

On my radar this week is a company called TripAdvisor, symbol TRIP.

At Hidden Gems, we value misunderstood companies, something that has something that the market's not appreciating.

TripAdvisor certainly has that, in my opinion.

It's not just the TripAdvisor brand that you get here.

You also get another brand, which is called Viator.

Now,

I want to just talk about Viator because I believe that the real value here, and this goes along with our discussion regarding investment banking, I think that TripAdvisor has something more valuable in Viator than what TripAdvisor is itself, and spinning it out or IPOing it in some way may unlock that value.

So, you just look at Viator by itself for a moment.

It's

generated $882 million in trailing 12-month revenue.

It's growing at 11%, which is double-digits.

High gross margin.

It is profitable on a standalone basis.

You look at something like Airbnb, a price-to-sales ratio of 7.

Let's give Viator half that valuation at 3.5 times sales.

Viator would have a $3 billion market cap on a standalone basis.

You look at TripAdvisor right now, it has a $1.8 billion market cap.

Potentially more value in Viator as a standalone business than what it is right now under TripAdvisor.

I think this is an underappreciated thing and why it's on my radar.

Yeah, I agree with Matt here.

I don't think it's quite worth what the market says it is, even still after the pullback.

That's nothing against Ferrari, and that's nothing against people who really like this business.

I think there is a lot to like with Ferrari's business.

But any stock at the wrong price can be a bad investment.

I think we can just zoom out and think a little bit about how is shareholder value created.

And I think that one of the main ways that often happens is with business growth.

But then you look at Ferrari and it's only expecting a 5% compound annual growth rate through 2030.

That's not a huge growth rate there.

Profit margin expansion is another way that shareholder value is created.

It is expecting some Ferrari, but not a ton necessarily going from a 39% adjusted EBITDA margin to a 40% one.

And then, you think about capital return to shareholders.

Now, Ferrari expects to return €7 billion to shareholders cumulatively by 2030.

That's around 10% of its current market cap.

Of course, that's spread out over the next several years.

So, that's not a ton on a per-annual basis.

So, yeah, it's not enough juice to justify the current valuation, in my opinion.

I don't think it's necessarily the latter.

I don't think it's necessarily a pullback broadly in consumer spending.

You look at Ferrari specifically, it always has more demand than it intends to supply.

It always intends to make less cars than what the market wants.

That's just how the business works.

For example, Ferrari's growth rate over the next five years, you're looking at what they're projecting.

I think that investors simply just wanted a little bit more.

It's hard to know how big is its potential customer base.

There are some data points out there.

You look at the world's billionaire list, it increased by 8% in 2024, and Ferrari is only expecting 5%.

annual growth from here.

Maybe you would expect it to go up at least by the amount of billionaires that are going up in the world.

I don't know.

I don't think that it's a broad thing that we're looking at here, not necessarily a data point for that.

I think that you're just looking at Ferrari's results and Ferrari saying, we don't think that we're going to have as much demand in 2030 as what some investors might have hoped.

I think that people hear things like, last time it was close to the top and then there was a market crash.

If I've learned anything over my years as an investor, I can't predict when a market crash is about to happen.

I can't predict when a market is about to bottom out and a bull run is about to start.

I think that the launch of the meme ETF, it's not necessarily a predictor, a precursor of, oh, man, the stock market's about to crash.

I would say it is indicative of what you said, Tyler, a lot of euphoria in the market.

There's perhaps a lot of stocks that have gone up by an astronomical amount relative to the business results.

I think it's good, though, to keep in mind, this isn't necessarily predicting that the stock market is reaching a top and it's about to fall.

I think that this is why a lot of Fools, capital F Fools, use the Always Be Investing framework.

We can't time the best entry, the best exits in our stocks based on market conditions.

There is normally something that we can find right now that's attractive that we can buy and hold for the long term.

I'm glad that you let me pick first, Tyler, because I couldn't make a business case for all of the stocks in the ETF.

SoundHound AI, ticker S-O-U-N.

I can make a business case here.

This is a 3.4% allocation in the ETF.

I think there is a real business here.

It's a first mover when it comes to AI speech slash conversation.

It's used by many of the top

auto companies for its tech, for voice controls in the car.

Many top restaurants use it for ordering at the drive-thru, for example.

The thing is, it has nearly 200 patents, which does give it something from a competitive standpoint.

It's also growing like crazy.

It expects to generate at least $160 million in revenue this year.

That would be up roughly 100% from what it generated last year.

Look, the stock valuation is something that I question.

There are ongoing losses here.

That's an issue.

But there is a real business here.

Thanks, Tyler.

For my radar stock today, I have Floor & Decor, ticker FND.

I've highlighted this before as my radar stock, but I recently added to my position.

This is a money where my mouth is stock, so I wanted to highlight it again.

Floor & Decor is a home improvement retailer with a focus on flooring.

One of the things that I do like about this company is its management team, specifically CEO Tom Taylor.

He was previously at Home Depot, so he's been around a successful home improvement business before.

He knows what it takes.

He particularly knows what it takes to win with pro customers.

I think Floor & Decor is doing an increasingly good job at winning over pro business.

The primary strategy of growth here is opening new stores.

Theoretically, they could essentially double in size in coming years just from the new store build-outs.

Profits right now aren't as good as they've been in the past, but I'm optimistic that eventually home remodeling, that whole

spending industry will pick up, and that will provide a boom once again for Floor & Decor's profit margins.

Right now, it trades at just 1.6X its sales.

That is far cheaper than the Home Depot stock.

That's the same valuation as Lowe's, but I think Floor & Decor has the most long-term upside, and especially that valuation, I like it.