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Fall 2021 Investing Preview

The S&P 500, Nasdaq (NASDAQ: NDAQ), and Dow Jones Industrial Average have each risen more than 15% so far this year. How should investors feel about the rest of 2021? Which stocks should be on a short leash? What capital allocation strategies should Berkshire-Hathaway (NYSE: BRK.A) (NYSE: BRK.B) and Chipotle (NYSE: CMG) be considering? In this episode of Motley Fool Money, Motley Fool senior analysts Andy Cross and Jason Moser answer those questions, make business predictions about acquisitions and CEO changes, and share two stocks on their radar: Digital Ocean (NYSE: DOCN) and PayPal (NASDAQ: PYPL).

Plus, as the trial of Elizabeth Holmes begins, we revisit our conversation with Alex Gibney about the rise and fall of Theranos and his documentary, The Inventor: Out for Blood in Silicon Valley.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

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This video was recorded on Sept. 3, 2021.

Chris Hill: It's the Motley Fool Money radio show. I'm Chris Hill. Joining me this week, senior analysts Jason Moser and Andy Cross. Good to see you as always, gentlemen.

Andy Cross: Hi, Chris.

Jason Moser: Hey.

Hill: It is our fall preview. We've got thoughts and predictions for the last few months of 2021. As always, we've got a couple of stocks on our radar. But we're going to start with the market in general. Here is how the major indices have done through the first two-thirds of the year: S&P 500 up 22%, Nasdaq up 20%, Dow Jones Industrial Average up 17%. Andy, let me start with you. I know we are long-term investors, but how are you feeling about the rest of the year?

Cross: I'm actually pretty positive, Chris, and this has been a little bit of an evolution for me. I've been a little bit more cautious over the last few months. But when I start thinking about what is happening in the markets, listening to the Federal Reserve and Chairman Powell, just how they are handling the monetary situation in our country, what we're seeing out there with some of the responses to the COVID pandemic. Obviously we've seen a spike come up recently, but we start to see more and more of a little bit of relaxation and healthy ways. I think we'll see some continued momentum on the consumer side. Momentum is a very powerful thing, Chris, and we've seen the market hit all-time highs more than 50 times this year. Historically, when you look at this data after this performance through August, you tend to have a pretty decent end to the year. Now of course, that's all hindsight, so anything is possible. But I think we'll finish the year a little bit higher from here. I'm certainly not expecting another 20% gain, but I think the momentum is behind the markets, and you have so many businesses operating at a very, very high level, very capable with a solid leadership team here in the U.S. I think the investors, at least for the short term, want to continue to push this market higher?

Hill: What do you think, Jason?

Moser: Yeah, I like what Andy just said there and we have a lot of businesses out there performing at a very high level. Those are businesses, not only they are performing at a high level, but like he said, they have great management teams behind them. For me, it feels like the market is hot right now. It feels like maybe it's a little overheated. There's some questionable valuations out there. I certainly understand some trepidation that investors want to just take it a little bit more slowly. But one thing I've seen through the years as an investor and in the many years we've been investing is you never want to take your money out of the market. You need to remain invested, and if you feel like it's a time where valuations make you a little uncomfortable and I certainly understand that maybe it is worth bringing a little money into the folder and conserving a little cash because, to my mind, it's reasonable to think that we might have some opportunities. I think growth is going to slow a little bit. At some point or another interest rates are going to go up, Chris, they have to. They simply have to. That's going to be something that I think either the market is prepared for, but I think that's going to be something that could potentially contribute to that slowing growth, and maybe a little bit of a sentiment shift there, so to speak. Then of course we've seen just a constant narrative here on inflation and costs just continuing to go up. Understandable that there is some trepidation in the near-term, but as we invest, we always want to keep in the market and just got to be really picky. Look for those opportunities, for those really high performing businesses like Andy said.

Cross: Yeah, Jason, I think you'll find those opportunities. I mentioned the all-time highs. I think we will see some pullbacks. Maybe we will see a 5% pullback, haven't seen one in a while. But to Jason's point about costs, we're seeing businesses now become so much more efficient. We see the S&P 500 profit margins at an all-time high, you see, especially on the large companies, there's so much scale, there's so much ability to be able to handle the increasing costs. We'll probably see tax increases at some point going forward, we will certainly see the tapering start at some point. The Chairman has been very open about that, and I think the market's expecting that. I think interest rates will creep up and you will probably be above 1.5% in the 10-year from 1.3% now, and maybe go a little bit higher. But I think the markets are baking that in, and I think that overall too Chris, could be good for some of the more cyclical companies, and maybe we'll start to see a little bit more appreciation for the diversity and the breadth of the market. If you look at the equal-weighted ETF for the S&P 500 this year, it's outperforming the S&P 500.

Hill: Wow, you guys know the last few months of the year, there's always a lot of noise out there. Part of that is due to fun things like the holidays. We've got an Apple event coming sometime this fall. The Delta variant is obviously a far less fun factor, that's going to take our attention. With that in mind, Jason, what is something investing-related under the radar that you don't want investors to miss?

Moser: I think it may not be fully under everyone's radar, but it's something I don't think that's getting a lot of attention right now. Have you guys started your holiday shopping yet? Because I would if I were you.

Hill: Is that a joke?

Moser: I'm not.

Hill: Have you just made it, Jason?

Moser: Already making a list here because we are faced with a situation. Obviously the semiconductor shortages have been a big headline here over the last several months. But what we're seeing is we're seeing supply chain shortages everywhere. It is rampant. As a consumer, you see it in stores, as investors, we read about and hear about it in all these investor presentations and earnings calls. Go back to Hasbro's call here just recently, the toy company. They said they quantify the actual cost environment here, they're calling for ocean freight costs to be four times higher this year than last year. Think about that for a second, four times, for a company that really makes its hay in getting physical goods into the hands of consumers. I think that when you look at those costs, Hasbro is going to be pushing through some price increases this holiday season. We're seeing restaurants pushing through price increases to be able to fund wage increases. We've talked a lot about inflation being transitory or more permanent. I don't understand exactly how inflation can be transitory really. To me, you start giving people pay raises, you can't take that back.

When companies raise prices, they don't typically take those back, they might offer fire sales here and there. But to me, I think you couple the supply chain shortage, along with the fact that costs for these companies are going up and they are pushing those costs through to the consumer in some capacity. It's just something to keep in mind, and yeah, I think you better start thinking about what you want this holiday season sooner rather than later, because it might be tough to get some stuff.

Hill: Andy, what about you? Something under the radar you don't want people to miss?

Cross: I mentioned the taper early on and I think the big risk there and just concerns about that buyer of last resort if right now we're buying at $120 billion a month in securities that if it's buying those in mortgage-backed securities and government securities bonds to help keep those bond prices artificially low in some cases. But, there's so much money out there, Chris, and so many institutional investors looking to buy instruments, especially yield instruments, even at those low yields. I just think when that tapering does start, I mentioned it a little bit before, I think that's baked in, I think they're going to manage that very well. I don't expect the interest rates environment to start increasing Jason's cost aside, which certainly we're going to see cost increases. We already have, we saw Taiwan Semiconductor announce they're raising their prices, I think by 10%. We will see that, I think consumers will be able to handle that, I think corporations are in much better positions now to handle that than ever before. I think the buyers of those bond instruments are going to continue to show up, especially foreign investors, and that's going to continue to suck up the demand that the Fed is meeting right now. Maybe not completely, but enough so that we're not going to see this big spike in interest rates.

Hill: Before we go to the break, Jason Moser, give me a business prediction, it can be about a company, an industry, a product, a CEO, one prediction.

Moser: Yeah. This may sound a little bit out there, but I think Elon Musk steps down as the CEO of Tesla by the end of the year. If not the end of the year, maybe early into 2022. But to me, he's already bowing out of earnings calls, I think that everything that's going on right now in the space industry, I think that's really got them thinking about one thing and one thing only, and that's SpaceX. I feel like he's starting to think he's got Tesla in a decent enough place. He can remain the techno king and serve on the board and serve as guidance when needed. But I think it's just a matter of time now. I think he's preparing to transition out of that CEO role for Tesla.

Hill: Andy, what about you?

Cross: Well, I was thinking about a CEO step-down. He didn't come to mind, but maybe after he gets it up to a trillion-dollar valuation. Maybe then he'll step aside. I think as the acquisitions started to build up, we saw Zoom looking to buy Five9 for about $15 billion. I think we will always see acquisitions in the insurance business. We saw the first half of 2021 with more than 25 deals worth about $30 billion according to PwC. I think insurance companies are looking for different ways to grow, especially growing their user base and their premiums and force in the digital space and getting digital assets. As they continue to make investments in the digital space, they're a very fractured market, any TV you see some funny insurance commercials out there. There are a lot of insurance companies, and I think we'll see more consolidation in the insurance space. I think probably a meaningful size, one of maybe like the $20-30 billion range.

Hill: More of our fall preview after the break. Stay right here. This is Motley Fool Money.

[...]

Welcome back to Motley Fool Money. Chris Hill here with Andy Cross and Jason Moser. It's our fall preview episode. A lot of stocks have had a good run over the past year, but whether it is due to valuation or maybe some business challenges. Andy, what is one stock that you think needs to be on a short leash?

Cross: Chris, this is one that has not done so well, and I own it, and it's Pepsi (NASDAQ: PEP), and we've talked about this before, $215 billion market cap, sales of $75 billion. They made plenty of money. They have a nice, little dividend, but the stock is up only about 8%, not including the dividend this year. The last five years has underperformed the market. Sales have grown less than 4% on an annualized basis for the last five years. Profit's about the same. Actually, a little bit lower. The EPS has grown faster, Chris, just because they're buying back a lot of stock, and the free cash flow has actually been negative. Ramon Laguarta has been the CEO now for almost three years. He'll celebrate his three-year anniversary as CEO in October. I really like what they're doing about the environmental and conservation approach rolling out to be a better organization, to be faster, stronger, better, positive agriculture transitioning into 100% renewable energy by 2030, but it's just not showing up for shareholders, including myself. I've looked at other places. You could have that money I have in my account in Pepsi, and I've had Pepsi for a long, long time, and I'm just not seeing it, and so that one is one that I'm just keeping on that little leash, Chris.

Hill: Jason, what have you got on the short leash?

Moser: This one is strictly valuation, so don't at me anyone because you know I love Bill.com (NYSE: BILL). I love Bill.com. I'm an owner of those shares, but this valuation after this past earnings reaction, it even makes me a little uncomfortable. I think you need to be patient with this one. Remember, bill.com is a Cloud-based software that digitizes and automates back-office financial operations for small and mid-sized businesses around the world. Guidance, they're calling for 100% revenue growth here in the coming year, and they continue to benefit from growing network effects in this payments industry, which is just phenomenal business. When you look at when they filed to go public, they estimated their market opportunity around $30 billion globally, about $9 billion domestically. They've made a couple of acquisitions here recently that have expanded that market opportunity. They recently acquired a company called Divvy, which helps businesses control expense management. That was a $2.5 billion acquisition, then just recently announced they're going to be acquiring Invoice2go, a smaller acquisition, but still an accounts receivable solution that serves over 225,000 small businesses. They're doing all of the right things. They're expanding the market opportunity and executing, but the stock today is valued at 150 times gross profit, so I think that if you're interested in this business, you just need to be patient with it because it maybe has gotten a little bit ahead of itself.

Hill: Andy, is there a stock you are more bullish on now than you were a year ago?

Cross: Yeah, Chris. Workiva (NYSE: WK), symbol WK. I recently added that to my buy list. It provides financial reporting and compliance through Cloud services for, gosh, more than 4,000 clients, including 75% of the Fortune 500. A mission of powering transparent reporting for a better world. If you're a company that's got to report to the SEC or report data, that's a very regulated, very tricky business to get right, and Workiva specializes in. Their Wdesk platform is that cornerstone that provides that structure through XBRL, which is an extensible business reporting language, that's becoming the standard now. They have a deep and diverse leadership team, including two of the three executives, the COO and the CFO are both female. They have a very positive culture. The CEO owns a lot of stock. The co-founder owns a lot of stock. They're based in Ames, Iowa, so they're a tech company, but not in the heart of Silicon Valley, so I like that, a very friendly environment. Sales growth rate, 20-25% range is their target. They have very high gross margins, Chris. I look at Workiva, the valuation isn't super high for a Cloud-based [...],nice growth business there. They're on that profit curve to be able to generate real profits along with the nice free cash flow yields. They spent a lot of R&D, a lot on their culture, and I like Workiva.

Hill: If you're a public company, maybe this is not the area where you want to skimp on the budget. "Let's save a little money. We'll cut back on our reporting to the SEC. That'll help a lot."

Cross: Chris, it's only getting more and more complicated around the world.

Hill: Jason, what about you?

Moser: Well, Chris, I'm going to take you back to our year-end review show when we look back at 2020, and then we were talking about investing discoveries of the year, and my discovery that year was Cloudflare (NYSE: NET). I have just become more bullish on Cloudflare here in 2021 for a lot of reasons. To me, it just continues to serve so many very important markets, clearly security being one of the primary ones, but just a tremendous Cloud business, the platform there with Cloudflare Workers. Tremendous management. Their CEO, Matthew Prince, he's very Bezos-esque, I think, in his thinking, which is encouraging to me. He's very happy to take that long-term view and sync those profits right back into reinvesting in the business. The stocks had a great year. So far, up 60%, hammering the market. I think when you look at the most recent earnings report, you'll see that they've recently crossed the four million mark in customers and that large customer accounts grew 70% from a year ago. I think there's plenty of gas left in the tank for this one. It's one I own, and I plan to add to this winner.

Hill: Capital allocation is obviously an important skill for companies and CEOs, but let's face it, not all of them are great at it. With capital allocation in mind, Andy, please fill in the blank. When is blank going to spend money on blank?

Cross: Happy birthday, Warren Buffett, turned 91 years old this week. He celebrated his birthday on August 30th. An incredible run, and one of the best capital allocators, I think, inarguable over the last 50-60 years, but the question is, what is the future of Berkshire-Hathaway? They have a lot of cash on the balance sheet. They are just so diversified when it comes to their investments and their portfolio. Plenty of cash that they also make, and you got to ask the question, what are they going to continue to do with that? When is that next big acquisition going to come? So I have two questions: When are they going to make a big tech acquisition, a big tech company acquisition to put in their portfolio, and how about a special dividend? One-time dividend, pay your shareholders back some cash that he loves, but he doesn't love dividend, but as he gets older, maybe it's time.

Hill: Jason, fill in the blank.

Moser: It doesn't seem like it's going to take that big of a check to strike here, but when is Chipotle going to actually spend some money and execute rolling out breakfast? This is something that has to happen, Chris. To my mind, this has been one of the most phenomenal turnarounds we've seen in our investing lives here over the past several years. They came back from the break from those food safety concerns. New leadership there, clearly, is taking the business in a different direction, a good direction. I think it only makes sense to expand your market opportunity. Add a few more hours to that day, open your stores a little bit early. Listen, I make breakfast tacos here for dinner. Brekkie burritos are the bomb, maybe throw some chilaquiles on the menu. There'd be a lot of different ways you can go with, Chris. To me, it seems like a no-brainer.

Hill: Jason Moser, Andy Cross, guys, we will see you later in the show. Up next, as the trial of Elizabeth Holmes gets underway, we will revisit a conversation with documentary filmmaker Alex Gibney about the rise and fall of Theranos. Stay right here, you're listening to Motley Fool Money.

[...]

Welcome back to Motley Fool Money. I'm Chris Hill. This week, the trial of Elizabeth Holmes began in San Jose, California. After years of being compared to people like Steve Jobs and Thomas Edison, a courtroom is probably not where Holmes expected to be at this point. After dropping out of Stanford at the age of 19, she started Theranos, a company touting a breakthrough blood testing technology. At its peak, Theranos reached a private market valuation of $9 billion. After the SEC charged Holmes with fraud in the spring of 2018, her company's value dropped to zero. The following year, a docu filmmaker, Alex Gibney, who had just finished his documentary about Theranos, The Inventor: Out for Blood in Silicon Valley.

What intrigued you about Theranos and Elizabeth Holmes to the point where you said, that's going to be the next movie I direct?

Alex Gibney: It was the psychology of deception and fraud. I mean, I've been interested in that for a long time, and also in a way, an extension of something I did in scientology, which is the prison of belief. It's getting into the psychological component of how a fraud like this can happen, that's what really interested me. But from the fraudster side and the investor side, and a journalist side I should add.

Hill: I'll definitely want to get to the investing side and the journalism side. But let's stick with the belief side because one of the people you interviewed in the documentary is Dan Ariely, behavioral economist. One of the things he talks about is how story is more important than data. Story has emotion, data does not, and the power of a good story really seems like a thread through this entire documentary. It's really behind a lot of what went on here, isn't it?

Gibney: I agree. I think in a way the film is all about storytelling, and how much we like a good story, and how powerful good storytellers can be. I mean, I think in that sense, Elizabeth was in the tradition of good storytellers, like Edison, who constructed a narrative around himself as the main character, and Steve Jobs who did something very similar, but also was able to weave magnificent presentations and dramatic stories about products. Elizabeth was really good at that too, just she didn't have a product, that was the problem.

Hill: Well, and she has a good story about herself and her reasons for starting Theranos. But I have to say, the device itself was a good story. I mean, about a third of the way into your movie, I found myself rooting for the device to work and I know how this whole thing is going to end. But as a consumer of healthcare and just as a human being, it's like one of the employees says in the movie, you want it to be true so badly.

Gibney: That's right. Tyler Shultz says that, and that I think is the key to how something like this works. You want it to be true so badly that you invest all of this hope in something that clearly isn't working, and there's a willful denial, both on the part of Elizabeth and the part to some extent of people who worked for her until the divide between reality and fiction just became too great. But I think for Elizabeth overtime she on the one hand knew how badly the machine was operating, and yet at the moments when she needed to pitch the dream, she pretended or deceived herself into believing that it was just weeks away from being perfected, and a key example of that would be when they were all dancing to You Can't Touch This after they achieve a pitiful milestone. It was as if they had discovered Penicillin or something like that.

Hill: As I was watching this I was reminded of The Smartest Guys in the Room, the documentary you did about Enron, particularly how the company's deal with scrutiny from business media. Because Ken Auletta from The New Yorker, Roger Parloff from Fortune Magazine, these are smart, experienced, award-winning journalists, and when they start pressing her for details and data, she stonewalls them, and by the time the Wall Street Journal starts asking tough question, they bring in the lawyers. The intimidation tactics used by Theranos reminded me of what Enron was doing back when they were pulling off their fraud.

Gibney: Very similar. I mean, Enron would literally go after analysts and force firms to fire them. Then they clamped on journalists too, sometimes with a stick and sometimes with a carrot, they did a magnificent job of bluffing people. Sort of like, if you're not smart enough to understand what we're doing here then I can't be bothered to tell you. But interestingly about Enron, and I think ultimately what happened in that meeting with the Wall Street Journal, Enron was brought down by journalist Bethany Mclean asking a very simple question: How does Enron make its money? John Carreyrou in a way asked the same question: how does the machine work? They kept hiding behind trade secrets when in fact, there was another secret that was really at work here.

Hill: Well, speaking of Carreyrou, that was one of the surprising parts of the documentary for me. Again, even though I know the story, even if Elizabeth Holmes didn't start this whole thing to defraud people right from the start, part of what makes it easy to believe in the promise of this blood testing technology is the idea that you'd be crazy to lie about something involving human lives like this. What surprised me was, as things begin to unravel for Theranos, she digs in and becomes even more committed to the point where Carreyrou says, "Looking back, I underestimated her willingness to lie in public."

Gibney: Yes. That I think testifies to a psychological dimension of the story, which is what interested me in to begin with. Because you will recall when Bernie Madoff got caught, he basically threw up his hands and said you got me. But I think Elizabeth had such an investment in the dream that even though she knew how badly things were working, she relentlessly relied on either outright lying or the weirdest kind of stretching of the truth that she could boldly proclaim because it was the reputation of what John was accusing her of. Because I think that they thought long and hard, and Enron did this too, they would come up with phrases. They were tortured phrases that if you really parse them, you could say we're maybe close to being accurate, when she's dissembling about whether or not they were using proprietary technology. I mean, I think they thought that proprietary technology was hacking into the Siemens machines so that they could handle small samples. That's like taking a part of a car and putting a new rubber band on the flywheel or something. I mean, it's just crazy.

Hill: Startup companies in Silicon Valley often take aim at industries that are ripe for disruption, I don't think that's going to change anytime soon. But I'm curious if you think that this entire episode with Theranos and Elizabeth Holmes has in any way given pause to how investors and VCs invest. Do you think it's going to make them be a little bit more cautious or is there just too much money involved at this point?

Gibney: I guess it depends at which point. As you say, there's an awful lot of money in Silicon Valley, so what's a million here or a million there. If you're betting on a 50 to one shot, that million dollars, you've been on 10 of those and one of them comes in, your bet has more than covered. But later on, when the money gets serious like Rupert Bernanke invested $125 million, you'd hope that investors would kick the tires, you hope that companies like Walgreens would demand to look inside the box, but they didn't. Which teaches you something scary about human nature and I think they won't get it right until we understand how fraud we all are and how susceptible we are, as you say to Dan Ariely's notion that stories prey on emotions.

Hill: You've done a lot of investigating in the area of fraud. When I look through your IMDb page, it shows up both in your work as a director and as a producer. I'm curious if you have now gotten to the point where you've seen certain traits or commonalities among individuals that people can use to pinpoint as early warning signs. Is there something going on in the world of business right now that you see and you think, you know what, it really wouldn't shock me if that company or that person was committing fraud on some level.

Gibney: It's usually the kind of messianic, almost religious sermonizing that takes place from CEOs. Whenever I see that, I think maybe, or maybe they're covering up for something really big. The more you see somebody who promises outlandish things, the more you suspect that underneath that, might be a fraud. Just the way you see with politicians, for example, in a darker realm, politicians who rail against homosexuality, or ministers who rail against homosexuality. In extreme ways are likely to be the ones who are caught in the bathroom stall with somebody of their own sex, so it's an extreme version of part of our psychological makeup.

Hill: Did anything surprise you when you were making this documentary?

Gibney: What surprised me really was how effective she was, how many people fell for it, and how often when they came to a tipping point, all Elizabeth had to do was to talk to them and people would be convinced. Tyler Shultz himself talks about it. He knew how bad things were in the lab, but he called the tiled world, and then he would go up to the carpeted world and have a conversation with Elizabeth and she would just convince him, and then she had convinced his grandfather to basically doubt his own grandson. So you realize the power of storytelling. How effective can it be despite all the evidence?

Hill: How do you think they were able to get Walgreens as a customer? I mean, there are various points in this story where if you didn't know anything about it, you might think to yourself, "Okay, well, now she's going to be discovered." I think one of those points is when an established business like Walgreens comes to the table.

Gibney: Well, I think that Walgreens panicked and panicked in this sense. They desperately wanted to be part of some new tech. They felt they were an old fashion company and they needed some glitter and they were going to be left behind if their competitors, who are embracing some kind of new tech and they weren't. So, Theranos comes along and that seems to fit the bill for something exciting, some dazzling new 21st Century solutions to old problems that they can count as being very hip and modern. I think they were susceptible to that pitch. But then you realize that the top executives of the company we're conned by Elizabeth in the most fundamental way. I mean they had an investigator who's just dying to rip apart the Theranos Edison Machine and look inside it and to see what was going on. But Elizabeth convinced the executives not to let him. It had that work. You're right, but I think also Elizabeth was very clever about gathering around her, step-by-step. People who would testify to her establishment credentials. You realize you rely on others. By the way, this happens in journalism all the time. You rely on past clips as if those clips are all true, and they maybe, or they may not be. Henry Kissinger probably relied on George Shultz. Then Jim Maddox probably relied on George Shultz and Henry Kissinger. Then you have the snowball and investors, "Oh, Larry Ellison put some money in." Once Fortune, and I think that's why Roger Polark felt so bad once Fortune put Elizabeth on their cover. It was like, "Well, Fortune did it, it's good to go, this is fantastic. It's got to be real."

Hill: Not to give away the ending of your movie, but Elizabeth Holmes has been indicted on multiple accounts of wire fraud. There's no trial date set at the moment, but when this trial eventually happens, she's going to be facing up to 20 years in jail. She is a young woman. Do you think Elizabeth Holmes has a second act?

Gibney: I think that line from Fitzgerald, there are no second acts and American life is maybe the stupidest thing he ever said. I think she probably does have a second act. But how that second act manifests itself, we'll see. She still has defenders, people who feel that she has been a maligned entrepreneur. Tim Draper famously came out for her the other day and said, "The criticism of Elizabeth is akin to an assault on humanity," or something like that. You could look it up. So, yeah, I do. I think she does have a second act, but it remains to be seen whether that second act will be before or after prison.

Hill: While you're waiting for the outcome of the trial, checkout Gibney's documentary, The Inventor: Out for Blood in Silicon Valley, which is currently streaming on HBO Max. Up next, Andy Cross and Jason Moser return with a couple of stocks on their radar. Stay right here, you're listening to Motley Fool Money.

[...]

Welcome back to Motley Fool Money, Chris Hill here once again with Andy Cross and Jason Moser. Time to get to the stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Andy Cross, you're up first. What are you looking at this week?

Cross: Great. DigitalOcean, symbol DOCN, a $7 billion company that provides Cloud architecture that allows developers, start-ups, and small to medium-sized businesses to build and deploy software in the Cloud, and in a really simple and cost-effective way. Much easier and much more scalable for small companies and something like maybe Amazon Web Services. It doesn't have a lot of bells and whistles. They're expanding their market and their client base. They have more than 600,000 clients around the world. They operate what they call these little droplet virtual servers that can be spun up very quickly for developers. It's a very simple, transparent cost structure. They have more than $400 million in annual recurring revenue that's up 35% in the last quarter. Revenue per user is up 25%. They have a very nice dollar-based retention rate of 113%. The CEO was a former Chief Operating Officer at SendGrid, before it was acquired by Twilio. So, I like DigitalOcean. It has lots of cash on the balance sheet. It's not horribly expensive at 17 times price to sales, Dan. So DigitalOcean, DOCN.

Hill: Dan, question about DigitalOcean?

Dan Boyd: DigitalOcean sounds like the failed follow-up album to a one-hit wonder band. Or can they possibly compete with Amazon Web Services?

Cross: Yeah, they are right now. I thought it sounded like a good band name, Dan. I like DigitalOcean as the actual band name. But yes, they can compete, they are competing. Ultimately, as they grow and grow in their market space and they try to add more and more of those services, it does get more competitive. So, something to watch. But DigitalOcean, the band or the company, is interesting to put on your radar list.

Hill: Jason Moser, we've got about a minute left. What are you looking at?

Moser: Yeah. Taking a look at PayPal, ticker PYPL. The super app is code complete and starting to roll out. I think they may have recognized some potential kryptonite and that they didn't have a brokerage offering. Chris, we saw the headline this week that they are exploring a stock trading platform for U.S. customers. They have actually hired an industry vet to start investigating the opportunities there. I think unlike something like a Robinhood, the nice thing is PayPal already has a real and sustainable business that's not dependent on that whole order flow issue. This would really be nothing more than a complementary addition to an already very good business.

Hill: Dan, question about PayPal?

Boyd: What am I going to ask you about PayPal? PayPal is a juggernaut. PayPal's like the biggest war on cash company on the planet. Like, what am I going to ask? Are they doing OK?

Moser: I love you, Dan.

Hill: I don't think I need to ask what you're going to add to your watch list.

Boyd: You know what, Chris, I don't think you do either.

Hill: Andy Cross, Jason Moser, guys, thanks so much for being here.

Cross: Thanks, Chris.

Hill: That's going to do it for this week's edition of Motley Fool Money. The show's mixed by Dan Boyd. Our producer is Mac Greer, I'm Chris Hill. Thanks for listening, we'll see you next week.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Andy Cross owns shares of Berkshire Hathaway (B shares), Chipotle Mexican Grill, Cloudflare, Inc., PayPal Holdings, PepsiCo, Twilio, and Zoom Video Communications. Chris Hill owns shares of Amazon, Apple, Chipotle Mexican Grill, Cloudflare, Inc., PayPal Holdings, PepsiCo, and Twilio. Jason Moser owns shares of Amazon, Apple, Bill.com Holdings, Inc., Chipotle Mexican Grill, Cloudflare, Inc., Hasbro, and PayPal Holdings. The Motley Fool owns shares of and recommends Amazon, Apple, Berkshire Hathaway (B shares), Bill.com Holdings, Inc., Chipotle Mexican Grill, Cloudflare, Inc., Digitalocean Holdings, Inc., Five9, PayPal Holdings, Taiwan Semiconductor Manufacturing, Twilio, Workiva, and Zoom Video Communications. The Motley Fool recommends Hasbro and recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2022 $75 calls on PayPal Holdings, long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.


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