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Why Is a Coronavirus Vaccine Bad News for Some Stocks?

In this episode of Motley Fool Money, Chris Hill chats with Motley Fool analysts Jason Moser and Ron Gross about the latest headlines and earnings reports from Wall Street. They discuss the market's reaction to the news of a potential coronavirus vaccine from Pfizer (NYSE: PFE). They also go through the results of leading entertainment, gaming, betting, ride-sharing, tech, and restaurant stocks. They talk about an IPO, share some stocks to put on your watch list, and much more.

Also, Chris and Motley Fool senior analyst Emily Flippen bring the latest updates from the marijuana industry and talk about its long-term growth potential.

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 November 13, 2020.

Chris Hill: We're going to begin with the story that we have all been waiting for.

On Monday, Pfizer announced that its COVID-19 vaccine, which is in phase 3 trials, is more than 90% effective in participants who were not previously infected. Obviously, Jason, we still need final approval, there are still steps to go, but in terms of the ripple effect for the stock market, it was pretty breathtaking to see entire categories of stocks go up 10% or more. And on the flip side, a lot of the "stay-at-home" stocks are falling 10%, 15% or more.

Jason Moser: Yeah. This is the news that we want to hear, right? I mean, this is the news we've been waiting for. And it does sound like we're one step closer to the light at the end of the tunnel, so to speak. But to your point there, I think it's been very entertaining to watch the knee-jerk reactions of the market over the week. And I don't think it was really a surprise to any of us to see this "stay-at-home" stock reaction. I mean, we were all anticipating that there would be some sort of rotation from one to the other. It was a little bit surprising to see how drastic some of those moves were, but you know, that's the power of big money and a lot of liquidity, being able to make decisions very quickly and just go ahead and move.

It is worth remembering, as you said, this is something, this is not over, we still have plenty of work to do in regard to production, distribution. I mean, there is going to be time that goes through here. But you know, it makes me think back to the FoolFest presentation that I gave in, I think, it was June of this year, when I was talking about stay-at-home stocks and presenting some ideas for members. And my final takeaway was ultimately like, look, the stay-at-home stock conversation is fun, it's interesting to look at businesses from that perspective, but let's make sure to understand this is a short-term catalyst, it's not a long-term trend. I mean, we're not going to be staying at home forever. And so, make sure that these stay-at-home stocks that you're interested in, that you're buying, make sure they're going to be good businesses even after all of this is said and done.

Because, you know, you look at companies like DocuSign, like Teladoc Health, like Chipotle even, I mean, these are companies that, I think, will continue to prosper well after all of this is done because of this acceleration in this digital transformation. So, it's worth just keeping that in mind and understanding that a lot of these short-term knee-jerk reactions are just that, short-term knee-jerk, we still like a lot of these businesses that we've been focused on over this past year.

Ron Gross: Yeah, I'll take a little bit of the other side of what Jason was saying about how the stay-at-home phenomena was perhaps a short-term catalyst. I think, I don't blame any of the traders out there for not necessarily knowing how to play this or play it correctly, because we didn't know, necessarily, if this was a permanent paradigm shift in the way the country is going to operate, or a bubble was forming, or a combination of both. And I do think, in the sense, even though this will shake out and the vaccine will get people back to doing things they used to do, I do think there is going to be a certain amount of a paradigm shift in this country.

For sure, not everyone is going back to work. And I think for the way companies run, the way companies that benefit from work-at-home operate, that will benefit them, the commercial real estate market is perhaps forever changed, at least for the foreseeable future. I do think there are some real paradigm shifts.

And so, seeing the reaction in the markets is always interesting to me, because you would think that the institutional investor certainly knew a vaccine was coming at some point, so to bid these stocks up to the point where they then needed to really correct, is interesting, like, why would you do that? And I think it's because of human nature and we don't really know -- we don't know where the paradigm ends and the bubble begins.

Moser: It's greed, right? It's just uninhibited greed. But Ron, I think you and I probably agree for the most part on this. I do agree, I think we're going to see some permanent changes in the way things are done. I was thinking about this last night as I was picking up dinner from Chick-fil-A. I love the fact that I can just order off of that app, go park in a parking place and then have them bring that food out to my car. It's one more solution where I don't necessarily have to go to the drive-thru, I don't have to go to in the store. So, you know, the restaurant industry, I think is a good example of one where we'll see, I think, a permanent shift in the way behavior is.

And we saw a great example this week in Chipotle announcing that digital-only store, if you saw that. I mean, I think that's so smart to do, because I think this has changed the way consumers ultimately will want to do business, at least to some extent, we just didn't really know it until it was, kind of, forced upon us. [laughs]

Gross: [laughs] Yeah, I wonder, did the situation accelerate those changes or those changes maybe have never come to the extent we're seeing now: That's an interesting ... we'll look back at it in 10 years and try to do a postmortem on it.

Hill: Disney ended the fiscal year with another loss, but the fourth quarter report came with some positive news as well. Disney+ now has 73 million paid subscribers just one year after it launched, and shares of Disney up 8% this week, Ron.

Gross: Yeah, it crushed expectations. Disney+ clearly the bright spot. Vaccine bodes well for the parks. But you know, for now, still pockets of weakness. First annual loss in 40 years; that's pretty ... you know, speaking of a once in a lifetime circumstance that affects businesses, that's a big data point. So, total revenue dropped 23%.

Looking at the various segments, Direct-to-Consumer, not surprisingly, up 41%; but interesting to note, at higher operating loss. Improvements at Hulu, ESPN+, offset by higher costs at Disney+, because guess what, the rollout is going quite well, as you mentioned, 73.7 million subscribers, you know, really strong. And let's not sell Hulu or ESPN short on the streaming side. Hulu 36 million, ESPN 10 million subscribers, so pretty cool. The one-year free trial offer for Verizon customers, for Disney+ is expiring this week. Let's keep an eye on what that does to subscriptions, because that could be interesting.

Let's mention a couple of other things about some of the other segmentsș Media Networks, up 11%. Weakness in ESPN offset by increases in FX and the domestic Disney channels. No one should be surprised that the parks were down 61%, but again, the vaccine bodes well, I think, for next year and the year after. Studio entertainment revenue down 52%. No big theatrical releases versus last year. We had the Lion King, Toy Story 4, so it shouldn't be a surprise there as well.

Disney announced they would not pay its semiannual dividend, I think that's prudent, let's keep, kind of, hunkered down here for a while until we see the actual return, but I do think things are looking up for Disney; I've held the stock for years, really decades, and I continue to be a proud shareholder.

Hill: Unity Software (NYSE: U) went public in September, and issued its first quarterly report after the closing bell on Thursday. The video game software business didn't just lose money, Jason, they lost nearly 6X [laughs] as much money as Wall Street analysts were expecting. So, of course, shares of Unity Software rose more than 10% on Friday.

Moser: Well, it's an IPO, Chris, so there's lots to go through there in regard to how those financials all play out. But I think the big picture takeaway here, this really was just the kind of quarter you wanted to see them report as their first one post-IPO, there's nothing crazy here either way, really, no real surprises, this really is just the business we signed up for. And for those unfamiliar with the business, Unity operates a software platform that helps customers develop, create, run, monetize, interactive real-time 2D and 3D content, and it helps their clients bring more visualization, real-time experiences to more industries. It's known for its gaming prowess, but really, it's entering markets including, automotive, architecture, engineering and construction, many more via all sorts of interesting partnerships from companies like Autodesk, to Nvidia and plenty more.

But to the quarter itself, revenue of just over $200 million, that was up 53.3% from the third quarter of 2019. They operate in two segments of the business. There's the Operate solutions on the Create solutions. The Operate solutions segment of the business grew 70%, 72%, that represents about 60% of the overall business versus the Create solutions segment.

We saw gross margin tick down just a little bit, but an interesting datapoint here that I thought tells a good story here. Customers that contribute more than $100,000 in annual revenue to the business, that grew to 739 customers from 553 a year ago, but interestingly, the percentage of those customers' total revenue, that stayed flat at 72%. In other words, it's a sign that they're not growing overly dependent on those big customers, right. And that's a good thing, they're growing that overall customer base and not relying too much on the big customers. Dollar-based net expansion rate of 144% versus 132% shows that they're expanding the relationship that they have. Guidance in check for the rest of the year, I mean, all things considered, a very good start. But yeah, we'll need to pay attention to the financials as they work all of the IPO nuts-and-bolts through.

Hill: Shares of DraftKings (NASDAQ: DKNG) up on Friday after a third quarter report that came with increased guidance for the fourth quarter. And the return of the NFL in September seems to have helped the sports betting business, Ron.

Gross: Yeah, a pretty strong quarter, and probably the growth continues here for quite some time. Revenue up 42% after adjusting for the timing of that, kind of, wonky public offering that they did where they, kind of, backed into a Special-Purpose Acquisition Company called Diamond Eagle. An increase of monthly unique players of 64%, now topping one million. As you said, major league sports, like, NBA, MLB, NHL returned; very, very important. Now, sales and marketing are up significantly, about $200 million. That's necessary. They're live now in seven more states; that comes with increased expenses, but that is going to be the way that they grow this business. They're making lots of moves here.

They're entering new states, both on the Gambling side, the Fantasy side, the Advertising side. They're signing new strategic agreements, PGA, MLB, even the Cubs and the New York Giants are, kind of, now the official teams of DraftKings. They're investing in technology, including a stand-alone casino app, so lots of stuff.

I even like what they're doing on the corporate governance side, adding two Directors. Michael Jordan is now a Special Advisor to the Board. So, lots of good stuff is going on. They raised their 2020 revenue guidance, introduced 2021 revenue guidance; which is pretty strong.

Hill: Shares of Lyft (NASDAQ: LYFT) are up more than 20% this week. Lyft's third quarter revenue was higher than expected, and they announced they're working on a food delivery service. Ron, I don't mean to be skeptical, but that is a healthy bump in the stock price for a business that is still quite unprofitable.

Gross: Right, and show me the path to profitability, please, someone. But this was a good quarter, all things considered, but I think [laughs] there are many things to consider. But all things considered, not too shabby. Now, revenue is down 48%; that's year-over-year, not surprising. What's important to watch is how they're doing sequentially, how things are improving. So, a 47% increase in revenue from the second quarter to the third quarter, clearly showing improvement as things get back to normal. Of course, now we're seeing spikes and things getting back to unnormal; I can't predict necessarily what's going to happen there, but I think we're going to be hunkered down, clearly, for the Winter, so you know, let's keep an eye on, again, sequential. Probably we'll be weak going into next quarter.

But there was a recovery in active riders, a 44% recovery from the second quarter. I'm not getting in an Uber or a Lyft anytime soon, but clearly folks felt comfortable doing so. For context, active riders were 12.5 million in the third quarter versus 22.3 million this time last year, so still a big bite taken out of their business. Net loss was around $450 million for the quarter.

They remained focused, I love this, this is the whole path to profitability thing we like to make fun of, or at least I do, they remained focused on achieving adjusted EBITDA profitability by the fourth quarter of next year. Who wants to bet that that gets pushed into 2022? I do. Proposition 22 out of California, really important, as we discussed with Uber, just as important for Lyft and other companies that focus on the gig work or the independent contractor. If that had gone south for them, it would have been a major deal. So, it was extremely important that that appears to have been passed.

Balance sheet is OK, $2.5 billion of unrestricted cash. And as you said, John Zimmer, the Founder, said they're getting into the delivery business, doing it differently than Uber. They're going to partner with the companies that want deliveries to the so-called last mile. It will be fun to watch how that shakes out.

Hill: Cisco Systems' (NASDAQ: CSCO) first quarter report had the distinction of being the fourth in a row where the company's revenue declined, and yet, shares of Cisco Systems up more than 10% this week. Jason, what's going on here?

Moser: Well, thank you, low expectations, right, Chris? Listen, I don't mean to sound like too glass half empty here, but I can't think of one reason to [laughs] invest in this business, given the other options that are out there today. I mean, it just kind of feels like the IBM of a new generation. And if you look at the numbers, that really does tell you the story. Sales down 9% from a year ago, earnings per share as well, guidance is not inspired. They've been outplayed and out-innovated by all of these smarter and nimbler companies out there. And I don't think there's a reason to expect that to change.

I mean, you could have seen maybe some signs in the Cisco WebEx, the video conferencing segment of the business, but that hasn't even really performed, given that we're living in this Microsoft Teams and Zoom world now.

So, you look at this company's financials over the last several years, topline is going nowhere, net income going nowhere, EPS is really only being driven by share repurchases. They do have a relatively healthy balance sheet, it feels to me like the biggest catalyst for this company is going to be some sort of meaningful acquisition, but we're going to have to wait and see there.

Hill: Third quarter profits from McDonald's (NYSE: MCD) were higher than expected, same-store sales in the U.S. rose more than 4%, but shares of McDonald's flat this week, Ron.

Gross: You know, they beat expectations despite revenue being down 2%, but there is some good and some bad here. So, a mixed report. Global comp sales down about 2%, but in the U.S., up 4.6%. So, the U.S. clearly is doing better; international, down 4.4%. So, the U.S. is much stronger than their international business. Drive-thru and delivery continue to be an integral part of recovery, an essential part of their recovery. Their Famous Orders marketing campaign, Chris, did you get your Travis Scott meal during the quarter?

Hill: I did not. [laughs]

Gross: Yeah, neither did I, but it was quite effective. And they're doing a pretty interesting job with their marketing lately, which they've indicated will continue. Earnings up 5%, not too bad in this market, declared a 3% increase in their dividend. We've discussed before, some folks cutting their dividend, some folks business strong enough to actually increase their dividend, which is an indication of good things to come, I think. 2.4% yield from McDonald's, not too shabby. And they announced new growth strategies, like their marketing campaigns focusing on digital delivery and drive-thru, what they call the 3Ds.

They're going to introduce a loyalty program, a McPlant line-based plant menu-based items, and most importantly, a new crispy chicken sandwich. So, I'll sell the plant-based items and I'll buy the chicken sandwich.

Hill: Speaking of the McPlant, shares of Beyond Meat (NASDAQ: BYND) down 20% this week, in part because of that news, Jason, but also, Beyond Meat's third quarter report was really ugly.

Moser: It wasn't the best, I do agree, but a bit of a tale of two businesses. You saw the retail channel net revenues are up 39%. That you, unfortunately, then had it countered with Food Service net revenues down 41% year-over-year. Now, retail is far away from the larger part of the business, that represents about 80% of revenue through the first nine months of the year. But interestingly, the International Food Service really took a hit, down 65%. Total International revenue down 46%. And all of this just ultimately results in a topline growth of just under 3%. That's a problem for a stock that's valued the way this one is, or was.

Not really a knock on the business, but you have to look at the facts here, it's not a profitable business, there's no free cash flow. And it's not necessarily, even in the good times, it's not necessarily a high margin business either, so you have to consider that. And the power of substitutes in this market.

Hill: Five states had some type of marijuana legalization on the ballot and voters in all five states approved those measures. Emily Flippen is a Senior Analyst at The Motley Fool and oversees our cannabis investing service, Marijuana Masters, which made her the perfect person for me to catch up with earlier this week to talk about Election Day, where she sees this industry going and more.

[...]

I'll get to the Federal legislation in a second, let's start with the states, because we had five more states now, Arizona, Mississippi, Montana, New Jersey, South Dakota, they all approved some form of legalization. We got more states coming in the next couple of years including states like Florida, Ohio, New York, they're going to have additional legalization measures on the ballot. But for right now, given what we just saw on Election Day, with five more states, how much of a boost is this for the cannabis industry?

Emily Flippen: It's extremely important for the cannabis industry to gain legitimacy, and the more states that have cannabis legalized, preferably recreationally for the industry, but even medicinally, provides a level of legitimacy to their businesses right now, especially because cannabis and marijuana is still illegal under Federal law. So, more states that have legalized, provides a little bit of a tailwind to businesses that may already be up and running in states where cannabis businesses have been operating for adult use, recreational use, already legally. So, it's an incremental tailwind.

I like to say that we'll see states start to fall in, kind of, like a domino fashion to begin to tax the substance, to gain revenue from it, but the big move, we'll have to turn to the Federal government.

Hill: Well, and when you look at some of the numbers, and I know California is the biggest state, so it's not like a state with a population of Montana or South Dakota can extrapolate similar numbers, but when you look at the tax dollars that California is bringing in, it makes a pretty compelling case.

Flippen: It makes a compelling case for the states to legalize when you look at it from the perspective of businesses. So, the cannabis businesses, the people who are owning/operating retail dispensaries, growing the product, extracting it, selling it themselves, it's not as simple as what state has the biggest population, I want to be there. Because we're legalizing on a state level, every individual state has their own regulations about where you can sell, what you can sell, how you can sell, all of these things make it really interesting when you look at the economics of cannabis businesses. It's not the same across the United States, it's highly dependent upon individual regulations.

I'll point to Florida as a market that's really interesting. You mentioned that's a state that could potentially legalize for adult use at some point in the future, right now they have medical, and they have to vertically integrate in Florida. So, that means that if you're a cannabis operator, you have to grow your cannabis yourself, you have to change the product and then sell it yourself, you have to do everything yourself. And actually, because of the way they have licenses shake out, makes for a really, really lucrative state, more lucrative than the California market, which is seeing more pricing pressures because they've opened up for more licenses.

Hill: Under the Trump Administration there was no appetite whatsoever for any kind of Federal legalization, under a Biden Administration there might be, although at this moment, control of the United States Senate is kind of up in the air. Mitch McConnell, the current Majority Leader, in the past really hasn't shown any interest in moving this type of legislation. Is it fair to assume for investors that with Mitch McConnell, if he remains the Majority Leader in the Senate, Federal legalization legislation really isn't moving anywhere?

Flippen: I think that's a fair statement. I tried to temper investors' expectations for what a Biden Administration may do when it comes to cannabis. The most that a Biden Administration has talked about is potentially decriminalization, which is great for, you know, social level, not as important from an economic level, right? So, the businesses themselves would still be dealing with a substance that's illegal under Federal law.

And that puts your focus toward, OK, well, if it's not a priority of the Executive branch, then this needs to be a priority of Congress. And we've seen a lot of legislation come up over the past few years, I'll point to the SAFE Banking Act, which was passed by the House of Representatives to open up the banking sector for legal cannabis industries at the state level, and that simply hasn't been docketed to the Senate, it hasn't been made a priority, it's dying on Mitch McConnell's desk as it were. So, I don't expect for that to change in the future, not just because we haven't seen a lot of excitement over the past few years for the Senate to take up changing legislations, but also because we clearly have more pressing priorities in this country, in my opinion, as opposed to, you know, getting the SAFE Banking Act passed. We have healthcare reform; we have the potential for dealing with this pandemic that we're all suffering through right now. So, I just don't think that this is top of mind for the Senate. So, I would tell investors to temper their short- to medium-term expectations for what could happen on a Federal level.

Hill: Let's move to the company side of things, because we've talked before about, look, a lot of interest in this industry over the last few years, therefore a lot of start-ups and the potential for consolidation. Do you expect big companies, whether they are in this industry or outside of this industry, but maybe want to start getting exposure to it, do you expect, over the next couple of years, large companies to make investments in cannabis businesses or did what we saw with Constellation Brands (NYSE: STZ) and Canopy Growth (NYSE: CGC), did that scare people away?

Flippen: I think it will take some sort of Federal legalization to really see the money start to flow into these cannabis businesses. But the businesses that we see already taking the risk of investing in the space are businesses that see the writing on the wall. I think Constellation Brands may have been the exception, but I'm pointing specifically toward tobacco companies, Altria Group, making their own investments into the cannabis industry. These are businesses that need to make those investments despite the outsized risk.

I think Canopy Growth and Constellation Brands may be a little bit ahead [laughs] of their time. And as that investment is panning out and the losses are accumulating to Constellation Brands thanks to that investment, what I would expect over the short- to medium-term are two things. First, larger businesses, if they are getting involved in the space, I would expect for them to have partners, to have cash investments, not to take large equity stakes the way that Constellation Brands has with Canopy Growth. And the second thing that I'd expect is, for actual cannabis companies, legal cannabis companies right now in states where they operate, making investments into other businesses. For instance, you mentioned Arizona is a state that has legalized adult use cannabis starting in January of next year, 2021, we already saw a current multistate operator in the U.S. make an acquisition in that state to try to expand their own business. These little deals, I think, we're going to start to see shake out as more and more states come online.

Hill: For investors who look at this industry and think, OK, if I'm looking 10 years out, 20 years out, I think it's bigger then than it is today, I want to start dipping my toes in the water here, where should they start looking? Because you know, to take a completely different industry, housing, we've talked before on this show and on other shows, about how maybe jumping right in with home builders isn't necessarily [laughs] the best way to go, you can invest in housing through home improvement companies like Home Depot and Lowe's, the "picks-and-shovels" companies. Is the cannabis industry sort of the same way that for people like me, who do not have any investments in this, starting out, look at maybe those ancillary companies on the margin?

Flippen: Yeah, that's a great way to get started in the cannabis industry. The first thing I'll say, before diving into some of those segments is, look, don't fall for the fear of missing out in cannabis. I think a lot of people feel like they need to get exposure, they have to do it right now or they're going to miss the boat. The reality is that this is an industry that's probably going to take at least five to seven years to really start to pan out. And even from that point, it may take another [laughs] decade to grow. You're looking at very, in my opinion, long-term tailwinds here. That means there's no rush, don't panic and feel the need to buy every cannabis company.

But that being said, if you're interested in this space, but you're not necessarily interested in buying a pure play cannabis industry, there's lots of ancillary plays, you can look at retailers of hydroponics as a good example. Hydroponics has been the cheapest way to grow cannabis. And a lot of these retailers, Scotts Miracle-Gro is a good example of a company that made an acquisition of a hydroponic retailer, even GrowGeneration, specifically targeting the cannabis industry. These are two companies that have expanded as a result, that are otherwise solid businesses that aren't buying and selling cannabis themselves. So, there's lots of ways to play the industry.

If you are looking for those pure plays, then what I would consider is to look to the U.S. A lot of the Canadian players get a lot of press and a lot of excitement, but in my opinion the way regulations have shook out in Canada makes it really hard and price competitive market, not to say there aren't good companies or good plays, but generally speaking, I think the opportunities that we see in the U.S. are greater in my opinion.

[...]

Hill: Seven weeks until the end of 2020, guys, which means there is still time for some new IPOs. On Friday, DoorDash filed its paperwork with the SEC. The leading food delivery app in the U.S. was last valued in the private markets at $16 billion. What do we think, are they possibly going to find some takers for their stock?

Gross: I think this looks OK to me. $1.9 billion in revenue over the nine months, net loss of $149 million, which actually isn't that bad. It seems to me they're getting close. So, it would be nice to see a profitable IPO. As you said, $16 billion is a big valuation for a nonprofitable company, but I think there are some takers here.

They're the leader in market share, 49% compared to Uber's 22% market share, GrubHub's 20% market share. They've got one million delivery workers. Prop 22 also helped these guys, because they're all independent contractors, of which my son was one over the Summer, more than 18 million customers. I hate the corporate governance here, three classes of stock, the voting power will be controlled by the Founders, but what are you going to do, that's how these things are going nowadays.

Hill: Our email address is Radio@Fool.com. We got an email from Charlie Baldwin at Lehigh University. Go Hawks! He writes, "I'm 22 years old. I've been invested in the market for a couple of years now. Most of my portfolio is invested in tech stocks and I own a lot of Amazon. With this new antitrust lawsuit against Google [Alphabet], I'm curious how shareholders have historically been impacted by regulatory breakups? If Amazon were to get broken up, would it be good or bad for me? PS: I'm a huge fan of the show, it's gone a long way in providing a foundational understanding of my knowledge in the stock market. Thank you so much."

Thank you, Charlie. Thank you for listening and thanks for the question. Jason, I'll go to you first. What do you think?

Moser: Yeah. I mean, it's difficult to say, because regulatory breakups aren't really all that common. I mean, the threat of regulatory break-up is one thing, but that threat could result in ultimately a different action. Like, Amazon or Google could come out there and say, hey, well, what if we went ahead and spun-off this business before you try to break us up? That could solve the problem. And so, you know, that could work out, and that actually can work out fine oftentimes.

I mean, this wasn't a regulatory break-up, but back in 2013, Pfizer split out its animal medicine business, Zoetis. And so, now you have two companies, you have Pfizer and Zoetis. And if you go back to that point in January where they split that out, Pfizer's total return to this point here is around 82%, Zoetis' is 463%. Now, I'm a very happy Zoetis shareholder, Chris, but that's because I love the animal market, right? I love pets. I think animal medicine, there's just a tremendous opportunity there, and Zoetis owns that market.

I think if you look at something like an Amazon, for example, and I'm an Amazon shareholder, I mean, the plain example would be splitting off the Commerce business from the AWS business. I can see the merits in owning both. I certainly think that they are market leaders in both respects there. And so, again, it boils down to, is it a regulatory break-up or did they come to some sort of a resolution beforehand? Either way, this together, this is a [laughs] phenomenal business, whether you're talking about Alphabet or Amazon.

I think that if you separate the two most important parts of it, they would continue to figure out ways to be awesome. So, I wouldn't worry too much about that at this point.

Gross: I think, in general, if it's the Justice Department's goal to hurt a company's competitive position, that typically would bode poorly than for the company going forward. It might very well be good for the consumer, but in general, a company's competitive advantage would go down.

Hill: On last week's show, we talked about how Panera is starting to test the idea of selling alcohol in a few locations in the Greater Kansas City area, and we put out a call to the dozens of listeners for little boots-on-the-ground research, and they delivered. E-mail from Andrew in Overland Park, Kansas who wrote, "A couple of weeks ago, I went into Panera to get a coffee after work. I found the place that was always empty, filled with people drinking. They had turned it into a fun bar-type atmosphere with wine and local Kansas City hard seltzers and brews. Apparently, not everybody is a fan, because on my way to work today I stopped by the Panera near my house and an older couple was complaining to the manager about being there the night before, they were offended that their favorite restaurant had become, as they put it, "a swinger's bar.""

Now, the characterization of this couple aside, thanks to Andrew -- nobody has better listeners than we do when it comes to this, I don't know, it seems like the test is off to a good start, Ron.

Gross: I love it that it's their favorite restaurant, that's the part of the sentence that I just loved. I don't know, this doesn't work for me. I don't see this altering this restaurant in any major way. I think it's going to remain what it is. The clean food slogan I always found odd, but you know, it's relatively fine food for lunch. It's not a nighttime establishment, it's not a bar. I don't see this taking hold.

Hill: I'm just going to say one more time, Bloomberg doesn't have their listeners doing boots-on-the-ground research like we do. We have the best listeners.

Let's get to the stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Jason Moser, you're up first. What are you looking at this week?

Moser: Sure. Let's open this with Cloudflare (NYSE: NET), ticker is NET. Cloudflare operates a cloud platform that delivers a range of different network services to businesses around the world with a focus really on edge computing. And these services focus on security, performance, reliability, internal protections and more.

Edge computing, for those not familiar, edge computing ultimately optimizes connected devices and applications by ultimately bringing computing closer to the source of the data being used. So, as we talk more about 5G and faster bandwidth and more and more data and more robust experiences, edge computing is going to play a big role in that. And Cloudflare's business is really interesting, their model leaves, really, no stone unturned as they serve everything from free-to-use, to pay-as-you, to subscription offerings.

No customer accounts for more than 5% of revenue, the top 20 customers remain under 20% of total revenue. All in all, they have 3.2 million total customers; that's free and paying subs. You know, big-time customers, like Mars, Garmin, [laughs] IBM, of course, Shopify, LabCorp and many, many more.

So, yeah, I think in this age of edge computing, in this move to 5G and faster everything, Cloudflare is going to be a business that's really helping get us there.

Hill: Dan, question about Cloudflare?

Dan Boyd: Absolutely, Chris. And Jason, you know this isn't for me, but this is for somebody who maybe doesn't know, because I totally know. Maybe you should explain what edge computing is?

Moser: Yeah. Well, you know, edge competing ultimately is just about bringing the actual devices and applications, bringing computing closer to the source of the data being used. So, it's actually shortening the distance that that data has to travel through infrastructure that's strategically placed all over the world.

Hill: We got a minute left, Ron, what are you looking at?

Gross: I got to revisit Titan International (NYSE: TWI), Chris, TWI. Global manufacture of highway wheels and tires, I've owned this for years, recommended it many times on this show. So far, it's been a rather large blunder of mine, quite frankly, but it is showing signs of life. Shares are up 250% since June 1st, up 65% just in November. Yes, I'm still losing money on the investment, but some positive results. Agricultural markets look like they're going to strengthen, we could get an infrastructure spending bill that would bode well for the construction market, and the balance sheet looks better than it has in a long time. So, I'm not done yet, I'll keep updating our listeners.

Hill: Dan?

Boyd: Not really a question, Chris, more of a comment, but it's very on-brand for Ron to pick a tire company that was founded in 1890.

Gross: [laughs] Thank you, Dan, I do the digging for the listeners.

Hill: [laughs] What do you want to add to your watchlist, Dan?

Boyd: Well, despite Ron's absolutely glowing summary of how Titan International has done him so far, I think I'm going to go with Cloudflare.

Moser: Yeah, there you go.

Hill: All right, guys, thanks for being here. We're out of time, that's going to do it for this week's Motley Fool Money, 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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Chris Hill owns shares of Amazon and Walt Disney. Emily Flippen owns shares of Constellation Brands, GrowGeneration, Home Depot, Scotts Miracle-Gro, and Shopify. Jason Moser owns shares of Alphabet (C shares), Amazon, Autodesk, Chipotle Mexican Grill, DocuSign, Shopify, Teladoc Health, and Zoetis. Ron Gross owns shares of Alphabet (C shares), Amazon, Microsoft, Titan International, Verizon Communications, and Walt Disney. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Autodesk, Beyond Meat, Inc., Chipotle Mexican Grill, Constellation Brands, DocuSign, GrowGeneration, Home Depot, Microsoft, NVIDIA, Scotts Miracle-Gro, Shopify, Teladoc Health, Walt Disney, and Zoom Video Communications. The Motley Fool owns shares of Zoetis. The Motley Fool recommends Cloudflare, Inc., Lowe's, Uber Technologies, Unity Software Inc., and Verizon Communications and recommends the following options: long January 2021 $60 calls on Walt Disney, long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, long January 2022 $1920 calls on Amazon, and short January 2021 $135 calls on Walt Disney. The Motley Fool has a disclosure policy.


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