Wall Street's Biggest Blind Spots — 4 Stocks to Exploit Them

Going against the grain against Wall Street is a great way to beat the market. And today we have four stocks that Wall Street hates that we love that think are really high potential long-term. Bringing in Lou Whiteman with the first stock of the day. Tell me about Symbotic. >> Yeah, ticker S YM here. And what they are, they are a warehouse automation company. Okay, neat backstory here. Founded by CEO Rick Cohen about 20some years ago. He was running a grocery retailer business. basically saw the need for the product and went out and started the company to make the product still owns and controls about 90% or or so maybe a little less than that but uh this is just see opportunity take opportunity and Travis I like this in part because I think we are sort of automation in the warehouse has been around for a long time this isn't new but we are at an inflection point here it used to be that you could get machines to do the same thing over and over again and automate it that way but AI all these NVIDIA chips, the magic is multipleuse machines. Is machines actually taking a more proactive role instead of just building things. This is the next big opportunity in automated warehouses. We're just at the beginning. We can get into some of the details about this company. There's ups and downs. There's reasons Wall Street might be a little turned off by it, but I just I love this opportunity. It's founder, like we say. Um major major customer. Walmart is almost 80% or 85% of revenue. That's good and bad. >> Yeah, that that is a risk for the business. But I just want to give a couple of these metrics for those of you who have who have not heard of this company. Uh 89% compound annual growth rate over the past 5 years. That's that's not a flash in the pan. So, you know, that's a that's a really solid number, but it is fairly expensive at almost 10 times sales. Uh forward price earnings multiple is also 73. So, a lot of growth still priced into the stock. And yeah, that risk with Walmart being your not not only number one customer but almost your only customer at this point definitely raises a red flag for me. >> Well, so so yeah. So yes, it's still not the cheapest stock. It is down. It's been cut in half since late last year. So it's cheaper than it was. Walmart 85% of revenue. They are actually a small holder of the equity, too. So they are a partner. This partnership seems stable. Walmart just sold a lot of its robotics assets that it's been working on in-house to Symbotic, which is a good sign. But look, at the end of the day, even with the equity, if Walmart didn't like what was going on here, it's a pretty easy to cut cord. I will say that there there's a $22 billion backlog. If I could change anything, they will tell you that backlog, they don't break it down as much. That is also majority Walmart. I would like this that that's where you're going to see a change. They are working with Target. They are working with Albertson's. They are working with a lot of other customers. Where this works is is when that significant portion of the backlog is no longer Walmart. If we can get out of trials with these other customers, I think there's a real I I I they're really in the sweet spot. They're not the only ones that can do this, but they are really in the sweet spot of where retailers and warehouse operators want to be. >> Well, and it almost seems like a place where they're being forced into it, too, right? if you're competing with Amazon and then Walmart I would, you know, is probably behind Amazon when you're talking about automation of the warehouse. But if those two players continue to grow, continue to do as well as they are and you're Target or you're even Costco or you know a third party for example, you have to catch up in some way and outsourcing that to a modular company like this seems like an appealing solution. >> Yeah. One more thing too is and I hate the acronym but they have a WAS argu offering uh warehousing as a service uh it's with SoftBank. SoftBank is a majority partner. So again deep pockets this is again too just trying to find ways to meet the customer. I think that's sort of a reaction to their inability to to scale the customer list is is they are trying to find new ways to meet the customer to answer their demand. Again, I don't know how long this takes, but I really like their positioning and what I think is going to be a massive market. I want to take just a quick second to tell you about Miley Fool's epic services. It's got everything you need to build a powerhouse portfolio minus the Wall Street stiffness. Premium stock picks, elite research tools, and battles tested strategies. If you want access to Montley Epic, go to full.com/epic-50. That's fool.com/epic-50. First one I wanted to bring to the table today is Dualingo. This is one of those companies that has gotten absolutely destroyed because of the theory of artificial intelligence eating their business. And then they had some, you know, questions about their backlog and what their future growth is going to look like. There are some real things to kind of keep in mind as you look at a stock like Dualingo, but shares are down 77% from their high. Actually, that they're about 30% off of their low. So it it is in that little bit of that recovery phase. But this is one of those businesses that I think the disruption story is just so much more compelling than the disruption reality. Uh if you want to travel and you want to communicate with somebody in a different language, I don't doubt that having AirPods in your ears uh or you know using your phone, which you know I did when I traveled uh to France last year, that's getting easier and easier all the time. There's still something about learning another language. You know, we live in a school district where you can learn, you know, kids can do immersion, you know, and learn French or learn Spanish. These are still things that people want to do, whether it's a hobby, whether it's something they need to do for work, whether it's just something for educational, something to do. I just think that's much more compelling than a lot of people think. And to layer on top of that, this is an educational platform, right? Like they're now doing chess, they're doing math, they're doing they're teaching kids how to read and letters. I think there's much more potential growth ahead and the valuation has gotten relatively compelling trading for 4.1 times sales still has a compound annual growth rate of 34% over the past 5 years. So the story of disruption is is real and that's what the market is pricing in. I think the reality reality may be a little bit better. >> My one question about this and it's almost like the dumb guy question here I'll admit is but does it work? Because I've I started it a couple of times and I gave up. I thought the kind of games were a little weird and you know great if if I'm ever in Spain I'll be able to say you have a white horse which I know again that's not yeah and and and I will tell you at in my kids school district they started requiring it and they actually had licenses to force it then they stopped and we asked the teachers about it like oh it didn't work. So, I I love the idea of it and I also I I I know they talk about churn and maybe it's not as bad as I think, but it just feels like something that it it it it's just not clicking for enough people. And that's part of part of the >> education is a really really hard market and especially when you talk about school districts. I mean, how many hundreds of companies have been started thinking like, oh, I'll create this digital tool for a school district and it's just it's really really hard to get them to use it. uh to get it, you know, to get kids to use things, to get teachers to integrate it into their district. The the thing that I think is compelling is if you get into it, it can be extremely sticky, right? The the day streak is something that people definitely hold on to. The communication piece I think is really interesting. And so my daughter is six, you know, learning how to read. and I heard her talking downstairs and it turned out she was talking to Duallingingo because that's how they're interacting now. So instead of you know tapping a button answering a question, you can actually sit and talk to it. So when you talk about learning a language or I think the much more compelling thing long term is going to be some of these kids things, you know, education I think is just going to become much more self-start and where are you going to get those answers? Is is it just going to be YouTube videos where you can go learn stuff? I mean, you can become an engineer effectively on YouTube today, but is there going to be some sort of structure behind that? I think Dualingo uh has a lead at that in that. We know they have languages. We know that's a business that continues to grow. If they move into other areas, as you know, gamified as this uh the the app is, I think they have a pretty compelling solution, but there's a reason that it's as cheap as it is today because that AI story uh disruption story is pretty compelling. All right, number three on the list is the one you brought to this table. And I gotta say the comp the valuation here looks extremely compelling with a forward price earnings multiple under 10. The trade desk, >> right? Yeah. And again, just like you just said, there's a reason it is where it is today. Uh down about 80% from last August. 80 80. I think most of us know what Trade does. Tradeesk is the marketplace to connect uh advertisers to online inventory. uh they are I think pretty good at it. They're not alone at it. And from its heights, what part of what's happened is is that Amazon has gotten into this game. Amazon's very hard to compete against. So this idea and the valuation of a few years ago that assumed they had this whole market forever. That was very wrong. Period. Okay, that that's not coming back. And they have some self-inflicted wounds. I personally would like to see founder CEO Jeff Green kind of become executive chairman. And I just think he's not the most cred credible voice on Wall Street right now to Wall Street. So maybe it's time for him to kind of move to the back. But forget the past. You can't go back and change the past. Right now, as you say, you have a really decent business that is still in growth mode at under 10 times expected earnings, great balance sheet, almost three times the cash's debt. I don't think this stock is ever going to regain the heights that it had before necessarily, at least not in the near term. But I think it is set up to be an important player in a growing market that has a lot of room to grow from here. I think this is a market beater. I I think you need to just flush out the past and if you're in a hole on it, you know, I get it. I am too. I wish I would have sold a year ago, but I think from here the foundation is there for an excellent business. We talked a couple of weeks about go about Zeta Global. So then that would be one of the companies that's kind of disrupting the trade desk's business. What do you think about the companies that are coming into this space and saying, "Hey, maybe we're going to be able to be able to do this built on a foundation that's built for artificial intelligence instead of a foundation that was built a year ago." Is that a disruptive threat that is worth keeping an eye on or is that kind of a distraction like I think you know for example like we see with Dualingo? >> You know somewhere in between? I mean the thing that you don't know is the trade is I mean well obviously they're working on their own versions of this and I don't think you and I can sit here and say this one is going to end up being better than that one. I think having the in customers having the incumbent kind of advantages mean something. It's not a moat. It's not impenetrable. But again part of the bullcase here is is that this is just a massive market and it's only growing. I think there's room for multiple winners. Again, one of the things we learned is is that the trade desk at its peak valuation was kind of priced as if it was going to have the market for itself. That was wrong. >> We're not coming back to that. There is a lot of room for a lot of companies to make money here. All I'm looking to do in when I buy stocks is beat the market. So, can this return 7 to 10% annually over the long term? I think it can. >> Yeah. Looking at the growth rate, one of the crazy things is as down and out as they are still growing revenue over the past 12 months at 15.5%. So you get a single digit forward multiple at a decent growth rate. And if they can pick that up and you get up to a, you know, 20 plus percent growth rate in the future, you start rerating that stock. You can you can see a stock triple, quadruple pretty quickly. All right, number four on our list is one that everybody knows, every investor hates at some point in their life. that is the Walt Disney Company. Disney's stock has gone absolutely nowhere over the past 10 years. But I think there's a reason to be optimistic right now. If you actually look throughout Disney's history, they go through these massive decadel long es and flows, right? You you can go back through a period of history where they didn't make a good movie for 10 years and everybody thought they were dead. Uh you could they can go through a period where the stock 10xes, you know, the early Eisner days because they can't do anything wrong. I think we're kind of somewhere in the middle right now. And the changes that the new CEO, Josh Dearo, I think could potentially bring to the business are going to be pretty transformative. I would not be surprised to see them jettison ESPN had some layoffs, more more layoffs recently. I think that business just needs to focus on what they do, which is sports. I don't think there's a lot of synergy with the current Disney ecosystem right now. Same thing with what do you do with all these cable networks and ABC? Does that tie into the money maker, which is parks and experiences? This is the thing that we have to remember as investors. Parks and experiences make the money. The movies get the headlines, but the money is made with generation after generation of people going to Disney World. I took my family there earlier this year, and it is crazy to see the difference between a Disney World park and a Universal Park, which is newer, which is arguably nicer, which is very well thought out, but people just love the Disney experience. That's not going anywhere over the next 50 years, 100red years. I mean, I So, I just think this is one of those companies that you're getting it pretty for a pretty reasonable multiple about 13 times forward earnings, 15 times trailing earnings. If they get rid of some of these non, you know, synergistic businesses like the cable, like like broadcast, like ESPN, they're going to be able to take some of the cash, pay down debt, expand their, you know, they're spending $60 billion or so to expand parks and experiences. I think this is a company not going to be growing at 30% a year like some of the companies we talk about, but it is going absolutely nowhere. So, I think it's underappreciated by Wall Street today. First of all, definitely agree. The Universal Parks are garbage. All right. And, you know, send your comments. I don't care. But you just sit there and basically pretend to something's virtually happening and then they spray something on you when Shrek sneezes or whatever. Come on. I call me oldfashioned, but I want a roller coaster. Right. Here's my thing with Disney. I think you're right. it works eventually, but I wonder if you're not thinking bold enough. I get I I agree with you 100% that the experiences is the business. Okay. And I get the way the IP ties into that, but I don't see why you can't just get rid of jettison all of it, the streaming, the movies, everything with a perpetual license agreement. Just put it all out there. We've seen this. >> You just become six a better version of Six Flags. Well, a much better version of Six Flags because you have all that IP and you have the goodwill and all of that. I don't think they need it and again get an agreement to keep all of that IP. I think we saw with Comcast that just spinning off the cable is not good enough. It doesn't really it's not the spark. That's why they're now doing a second spin-off. I sort of think the same's going to true prove true of Disney. There has to be a model. You want to know a dream deal, Travis? How about >> get rid of the con the the the cable stuff with the streaming that's left that 5050 with Netflix and keep a Netflix equity stake so Disney has a license forever for all of this IP but make the content creators the content creators just partner up that way and let Disney focus on as you say the profitable part of this business they're probably not going to go that far but I think there's a there there if they actually got really bold and just leaned into what works for them. >> Well, if Disney's management wants us to consult on this potential deal that you are laying out here, I'm happy to charge a high fee for that. >> Yeah, I'll take 1%. >> Exactly. Uh yeah, I think the the story that we're both telling here is there's a lot of value sitting in the business there. It needs to be unlocked. It needs to be put in the right place. Uh there's just so many things that I think made a ton of sense in the 80s and 90s when this business was built when you could build a business around ESPN and just sort of force everything else in into the cable bundle around ESPN. That's not the way the world works today. So some of these things uh just don't make sense under the Disney umbrella. But man, you look at those parks numbers, over $10 billion in operating profit. And again, they're expanding all of them. I wouldn't be surprised a decade from now if we're talking about more than 20 billion dollars in operating profit coming from those parks and cruise lines. All right, let us know what you think about the four stocks that we talked about today. Symbotic, Dualingo, the Trade Desk, and the Walt Disney Company. Which one of those is your favorite? Don't forget to subscribe here on YouTube to the Mly Fools channel. Thanks for watching everybody. See you here next time.