Chapter 1: Is the stock market experiencing a downturn or an opportunity?
Stocks are falling, but is this an opportunity or are we going lower? Motley Fool Money starts now.
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From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. I'm Travis Hoi. I'm joined by John Quast and Emily Flippen. There's a lot going on in the market right now. The stock market, S&P 500 down about 6% since its high in late October. I want to get a pulse on what is going on and ask the big question, is the top for 2025 already behind us?
Look, there's a lot of data coming in. We've been talking about artificial intelligence all year, tariffs. But restaurants are weak. Consumer spending is struggling. We're hearing more and more about layoffs. Housing isn't necessarily affordable. Emily, have we seen the top for 2025? Is there not going to be this Santa rally that we talk about?
How should investors be thinking about this moment right now?
For so many investors, it probably feels like reality is catching up to the market because there's been this difference between how investors and consumers have been feeling versus what the market has been experiencing. It does feel like, to me, with so few trading days left in the year, that it's unlikely that the market
could go higher from here, given all the headwinds that you just mentioned. One of the companies that I follow pretty closely is a business called Paycom. They manage payroll processing. They reported earnings earlier this week. But one of the things that Paycom noted is, obviously, as a payroll processing company, they depend pretty heavily on
how many times companies are processing their payroll. So if companies are going through stuff like layoffs, that has a tangible impact on their business. And they're seeing that firsthand as companies go through these late layoffs into this part of the year. We talked about it last week on the show.
But employers typically don't like to lay people off this late into the year because it's a bad look to do so during the holidays. But this year tends to be or seems to be the exception. And even Paycon themselves are going through the process of laying people off. And it seems like AI is this broad excuse for why people are doing that. It's kind of like, oh, well, we're automating.
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Chapter 2: What signs are the bond markets showing about economic risks?
So I'm going to kind of cut as much as I can. It almost seems like investors have been doing that at least over the past couple of weeks. We don't want to panic over a few percentage point move. But if this does become a snowball, not only in the markets, but also for companies, that's where things could get kind of tough pretty quickly.
Yeah, there is a great section of author Morgan Housel's book, The Psychology of Money. He talks about if an alien was to come down to Earth and look at the economy right before the Great Recession and then come down again during the Great Recession, what would that alien actually see that was different with the economy?
So many things were actually pretty much the same, but what had changed was our feelings about those things. things. And that does happen in business where you are not feeling great about what you're seeing. And so then you start adjusting your business accordingly. I think that that is very possible.
All right, Emily, I want to start with you on how investors should be acting today. What's the actionable insight? Let's say that we have hit a top for 2025, and we actually go through a big drop. The market falls 30%. We hit almost 20% in April. Let's say we fall a total of 30% from the high. How are you preparing for that possibility? Are you raising cash? Are you shorting anything?
Are you planning to add stocks? Are you in panic mode? What is your mindset going into this moment?
Yeah, that's a great question. And let me start off by saying, I acknowledge that my first thoughts when talking to you earlier, Travis, was, of course, I don't think there's going to be a rally towards the back half of the year. But I want to also acknowledge there could be. And that's part of the reason why my answer to your question is, I'm not actually doing anything differently.
And that's part of the reason why, regardless of what my personal feelings may be about the short-term implications for the market, the reality is that no one Nobody knows how the market is going to perform in the short term. If you had asked me the same question at this point last year, I would have said the market's gotten away from the fundamentals.
I think the next year is probably going to be a weak year of performance. And if I had changed my investing strategy as a result, I would have potentially missed out on an incredible year of market gains, at least as the S&P 500 has performed. So I don't mean to sound dismissive in my response. In fact, it's actually the opposite. But I'm actually not doing anything differently.
The truth is that even if we do experience a drop of say 30% over the course of the next month, that doesn't actually change anything for me or long-term investors. I don't have any money in the market that I'll need for the next three to five years. I don't personally recommend that anybody has any money in the market that they need for the next three to five years.
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Chapter 3: How is the streaming industry evolving in the current market?
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Welcome back to Motley Fool Money. Let's be honest, the bond market is boring, but the bond market is also 10 times the size of the equity market and investors think about risk when they look at bonds, not just upside, which is something we talk about a lot. One of the things that caught my eye this week is that Oracle's two-month-old 30-year bonds fell 8%.
Now, that doesn't necessarily sound like a lot if you're a stock investor, but if you're a bond investor, that is a huge, huge move. The yield increased two percentage points to 6.7%. This is something that has been getting a little bit more attention is that maybe this AI trade that is now being more fueled by debt is maybe a little bit riskier than we thought it was a few months ago.
So Emily, is this something, how should we take note of this? I guess maybe is the right way to look at this. Is Oracle a one-off or are we sort of seeing the bond market flash some warning signs that there's more risk out there than we thought?
Yeah, maybe you guys can tell me if I'm being too blase about this. But my first interpretation is that this has a lot more to do with Oracle in particular than it does with the bond market. And this could have broader effects on the tolerance for lenders and AI ambitions. But look, Oracle is laying a ton of debt to fund this AI ambition.
It maybe doesn't have the best track record when it comes with capital allocation in the past. So I think lenders are just catching on to the level of risk associated with the deals and with Oracle in particular. I mean, we're talking about tens of billions in new bonds and project finance loans with Oracle.
So I mean, the good thing about being on the equity side of Oracle is that you have theoretically all of the upside of those investments actually pay out. And yes, of course, all the downside if they don't. But bond investors really only get that principal and interest back. So in my opinion, it makes sense that they're demanding just a
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Chapter 4: What investment strategies should be considered during a market drop?
I would challenge the perception that cash is actually free. As an equity investor myself, I actually think that there's a massive opportunity cost that exists with these big, large organizations, tech companies that are using all of their cash and reinvesting into artificial intelligence. I, as an investor, like to see more than 10%.
What else could they be doing? Let's say Mark Zuckerberg, for example. What could he be doing besides building data centers and spending money on VR headsets?
Mark Zuckerberg is probably the worst example because Meta has, in my opinion, performed well despite his capital allocation skills. Zuckerberg has spent tens of billions of dollars investing into the Metaverse that has effectively gone nowhere. But the Microsofts of the world
the Amazons, these businesses that actually get a really good return on investment by reinvesting either into their core business, but also potentially returning shareholder dollars through dividends, share buybacks, other CapEx expenses that are a bit more known versus data centers. There's a million and one ways that businesses could be spending capital.
that have a more clear return on investment probability versus artificial intelligence. Now, I will say, more clear does not necessarily mean more profitable. And the leaders of these organizations see the risk and reward proposition that is building out data centers and say, I would rather potentially be wrong about artificial intelligence and invest the capital here because the risk of
of being right or being wrong in this case outweighs it. And if they don't invest in artificial intelligence and they're wrong and artificial intelligence ends up being the future of whatever industry they're operating in and they don't make those investments and they could potentially just obliterate the relevance of their company in 10 years.
Yeah, they are really thinking about disruption maybe in a way that we weren't thinking about it 30 years ago. John, quickly, how does depreciation play into this? Because this is something that ends up on income statements, but maybe we don't talk about it a lot.
Yeah, I mean, this is such a lively conversation on bonds. Why don't we make it even more exciting by talking depreciation? But no, this is a question. You spend a lot of money for GPUs, and how long do those GPUs last you? And people say, well, you don't need to worry about depreciation because it's a non-cash thing on the chart.
But hey, the thing is, once those GPUs are depreciated, you have to replace them. So it does come into play. And so how long can we use what we've already spent money on? That's a big question.
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Chapter 5: How should investors interpret the recent layoffs in various sectors?
This is a business that I think has plenty of room to run. So in terms of taking a long call here on Spotify, that one is an obvious winner to me. In terms of a business that I would have to By puts on, I think Zillow is one that I still remain a bit skeptical of. I purchased Zillow back when it was in the iBuying pandemic-driven craze.
It's just a legacy position.
It's a legacy position that never quite panned out. In fact, I think in the portfolios where we had recommended Zillow, we had since recommended a sale. Obviously, I never got around to selling it in my own portfolio. I probably should have. Axon, always concerned about its valuation. I'll just let that one run.
John, what do you think about Axon, Zillow, and Spotify?
I should preface this by saying I wouldn't want to bet against any of these three, but if I'm taking a long-dated call position, I'm doing that on Axon Enterprise. I think that this is a company that's proved itself time and again. The market opportunity remains very large, and it has visionary leadership that really wants to expand into so many different things.
I think that that's one that I would like to have my money riding on, even at today's present valuation. If I'm putting a put on something, I'd say it's on Zillow. And the reason why is I think that the real estate market is still just ripe for disruption. Is Zillow the disruptor at this point? I'm not sure. So if I had to take a put on one of these three, I'd take Zillow and then Spotify.
I'm a little bit more neutral on that.
Let's go to consumers. This round is called, Are Consumers Alright? The stocks here, I'll start with you, John, are Celsius, Monster Beverage, and Dollar General. Maybe some valuation concerns here, but also, are people going to be buying energy drinks and going to dollar stores? These have been pretty volatile stocks over the past year or two.
Yeah, indeed, they have. This one is somewhat easy for me. I'm just going to go based on how I'm investing my own money right now. If I'm taking a call, I'm doing that on Celsius. I really like Celsius as far as It's going to be growing its brand presence. It just acquired Alani New. Alani New hasn't entered the Pepsi distribution system yet, but it does here in December.
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Chapter 6: What are the implications of AI investments on company valuations?
This is the challenge.
Yeah, this is the challenges. This is supposed to be hard. All right, round three. How are these not better businesses? And I have questions about all of these. I like the idea of the business, but then I have questions about valuation and why aren't they more profitable? Unity, Roku, and Airbnb. Emily, I'm putting you on the spot first.
This is actually pretty easy for me. I think Roku is easy call. I think this is an incredible business. It's not my fault the market doesn't understand it well enough. People just fundamentally do not understand the business of Roku. They over-focus on the hardware.
In my opinion, Roku is like Spotify three years ago, where people don't understand the potential ramp up that could happen in free cash flow generation. That is happening actively right now with free cash flow generation. There's been a couple of missteps by management. I'm not going to defend Anthony Wood and his push into home security systems. Sometimes our founder CEOs are a little nutty.
That was a bit of a nutty move.
That's the risk reward you get there.
Yes, but I will say, if you doubt Roku, just look at their performance in the ad market over the course of the past couple of years, especially during election years. 2026 is probably going to shape up to be a decent advertising year for them with midterm elections coming up. So I really like Roku, especially over the long term, but even over the short term.
Airbnb is probably the one I'm calling puts on. Strong business, plenty of cash flow. I feel like management has just been too slow to innovate. There's a lot they could have done with their platform, but I think they were too tepid and they gave up a lot of space when they probably could have been in land.
The services business that they launched, I was just traveling internationally and I looked at it and it just seems a little goofy. I wanted to think that there was something there for me, but I don't know, just having a person take me around a city seemed a little bit odd.
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Chapter 7: How are consumer spending patterns impacting stock performance?
Because they're gaining a lot of international viewers. They monetize at a lower rate. Even still.
This one, we should do a whole show on Roku. Because I think I would fall on John's side. But maybe, you know, Emily obviously has strong opinions here. I think it's interesting where you both disagreed. And that is kind of the consumer side of things. And you both dislike Zillow. You know, such a huge market, if they can get it right. And maybe...
With a long-dated Michael Burry-type bet, I guess either puts or calls is probably right. It's probably going to go up exponentially or down to much lower levels. So I do want to get to our next topic after the break. That is going to be the streaming wars. They're continuing, and I think Emily has thoughts here. You're listening to Motley Fool Monthly.
Tried to take me upstairs
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Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. One of the big topics of the week that I wanted to get your thoughts on was Warner Brothers Discovery has essentially put it up for sale. That's what the reporting says.
Paramount, Comcast, and Netflix are all reportedly interested in their assets. Disney, actually on their conference call, said, we're going to back out of this one after their Fox acquisition. Maybe they're a little bit more leery of taking on debt to add these kinds of assets. Emily, who needs Warner Brothers Discovery the most and why?
I think there's a reason why Paramount Skydance was the one to kick off this conversation for Warner Brothers.
They really want to buy the company. Maybe the other players are being a little bit more defensive.
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Chapter 8: What stocks are currently on the radar of the hosts?
And but I think that, you know, we're finding more and more that we have all these services. They're trying to make us bundle this bundle that I think essentially we're heading towards a streaming cable in the future. And so maybe it's not so, so important to be the number three streaming individual service because you're going to wind up in the bundle, the cable package.
It will be interesting to see how this plays out. We're considering getting rid of YouTube TV, which has been a go-to, but now you can get almost all of that content elsewhere on streaming providers. As always, we end the show with stocks on our radar. We're going to bring in Dan Boyd behind the glass to get his thoughts.
Emily, I'm going to have you go first, because this is a stock I wanted to talk more about. We ran out of time today. What is on your radar?
Disney is actually on my radar. The ticker is DIS, of course. The reason Disney is on my radar is because, similarly to Roku, I feel like this is a misunderstood business. They reported earnings earlier this week, and a lot of the headlines over-focused on both their linear TV business as well as streaming. That seems to be the narrative driving the story around Disney right now.
But the reality is that the vast majority of operating income for Disney are driven by parks, experiences, cruises, and actually stuff like ESPN and sports. Those segments of Disney's business continue to just kill it.
While the narrative is all around Disney Plus and streaming, which by the way, Disney Plus is dramatically improving in terms of profitability, I actually think quietly under the water, Disney is just steadily improving its profitability picture in terms of its highest margin segments. While they can't continue to raise prices forever, I
Disney World, Disneyland, they're getting very expensive for the average family. Obviously, that will suffer if we enter into any recessionary environment. But Disney itself, in terms of its relative average valuation, I think is going underappreciated here today.
Dan, are you a fan of a company run by Bob Iger? I'm actually a Disney shareholder, so you could say that. But Emily, what's your favorite Disney movie and why is it The Little Mermaid?
I have to say it's The Little Mermaid, Dan. And the reason is, is because I don't watch Disney movies. And I think I'll get your vote if I say The Little Mermaid.
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