🐶 Could This Underdog Stock Make a Run?

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What’s on the Menu 🍴

Today’s Dough is jam packed!

You’ll get a new stock investment idea, a top wealth building trap to avoid, and reasons why you might want to keep investing regardless of what the recession pushers say.

Let’s dive in!

• Could This Underdog Stock Make a Run? 🐶

• Over-Priced Mutual Funds Are Wreaking Havoc On Net Worth 🤨

• Did The Federal Reserve Do The Impossible? 🤯

Today’s newsletter is a 5 minute read.

Could This Underdog Stock Make a Run? 🐶 

If you’ve ever found yourself too many pints deep while out with friends or needing a ride to the airport before sunrise, then you’ve likely hailed a ride on your phone using Uber or Lyft.

Both companies have quickly become household names as leaders in the ridesharing industry.

Uber and Lyft are also publicly traded companies, and both have experienced a rollercoaster of ups & downs in the past few years.

For all their similarities however, Uber & Lyft have delivered very different returns for their investors:

UBER & LYFT return since 2019 IPOs

Uber’s advantages over Lyft include:

• Over 80% market share in ridesharing

• A larger global presence

• A thriving food delivery business

• Higher profit margins

• Higher growth rates (see below)

So it’s no surprise that UBER stock has outperformed.

But perhaps it is somewhat surprising that LYFT stock has languished in the past year despite growth, margin improvement, and UBER stock rising 125% to all-time highs.

LYFT’s market cap is now just a mere $5 Billion versus UBER’s market cap of $136 Billion!

Even if we ignore size, on almost every valuation metric UBER trades at 2-3 times the level of LYFT.

This of course tingles our investing spidey senses…

Could LYFT stock be an undervalued opportunity?

We are starting to think it just might be.

There are really only two global scale ridesharing players (Uber & Lyft), so even though Uber is much larger, being a smaller piece of an oligopoly can still be quite profitable.

There are also numerous auto manufacturers and tech companies working on autonomous driving capabilities including Tesla, GM/Cruise, Waymo/Google, and others.

Acquiring Lyft would be a quick way to acquire a large customer base, a high ranking consumer facing app, and tech infrastructure for their future autonomous vehicle hailing networks.

There’s also DoorDash, which has a heavy presence in food delivery but not ridesharing, while Lyft has the opposite.

DASH could potentially make a good strategic fit with LYFT to better take on Uber.

Even without an acquisition, LYFT stock could be intriguing for a “catch up” or relative value play as they continue to drive towards much better profit margins in the coming years.

There are certainly still risks.

If Lyft has another stall-out in growth, or even shrinks at any point, then the stock could have plenty of downside.

We’d also like to see more robust cash flow and less dilution from employee incentive stock options in the coming quarters.

It’s certainly not a totally clean and de-risked story, but we do think it’s worth putting on your radar given the magnitude of the stock divergence between UBER and LYFT!

Over-Priced Mutual Funds
Are Wreaking Havoc On Net Worth 🤨

Millennials all over the United States are trying to figure out how to manage their wealth.

Many of them have parents who have financial advisors themselves and are often told “you should just use our financial advisor”.

Keeping it in the family may or may not be the best fit for you, though.

I’ve reviewed a lot of portfolios, and I notice when children use their parents financial advisor, they’re subject to:

1. High AUM (aka management) fees

2. High mutual fund expense ratios and load fees (aka: a percentage of your wealth gets immediately zipped away as a commission just by investing in the mutual fund)

I just reviewed a portfolio that had astonishing fees for the mutual funds they were invested in by their “parents advisor”:

For reference, a simple S&P 500 ETF (exchange-traded-fund) such as the ticker VOO, only costs a MEASLY 0.03%. That is 3 basis points… while a mutual fund with a 1% fee = 100 basis points.

These mutual funds aren’t even beating the market or there are equivalent exposures that can be had through much cheaper ETFs.

So, why do advisors pull this kind of stuff?

Honestly, many of them are victims of circumstance.

They work for a large wealth management firm (I won’t name any names), and they simply put clients into portfolios that they’re taught to.

You may have to ask them directly to use lower cost funds! They won’t do it automatically necessarily.

The other issue, is they may be set in some antiquated ways. The financial industry has gone through MANY changes over the decades!

New-age advisors prioritize fee efficiency and max value.

These advisors aren’t just managing an investment portfolio… they’re reviewing your tax returns, doing estate planning, cash flow planning, and way more.

It’s important to know what you’re actually getting for your money, and the belief system your advisor has around money management.

Of course, just because an advisor uses a mutual fund with a high fee doesn’t mean they’re bad.

But, it does mean you may want to have a conversation with them to figure out why they feel the fund is going to help you reach your goals.

This is why I preach building a strong foundation around money management FIRST, before or while you work with an advisor.

It will help you be able to have the right conversations, and make sure you’re not getting robbed of net worth because you simply “didn’t know better”.

Get access to my Wealth Master Plan training program to build your financial plan, and a 24/7 chat room to ask me questions with our Wealth Building Community.

Did The Federal Reserve Do The Impossible? 🤯

As we start off a new year… it’s leaving a lot of people asking where the recession is?

Did the Fed actually pull off a “soft landing” and avoid the worst?

Are we doomed for the fun to end soon as the stock market rips to new all-time-highs?

To answer this question… we have to look at the actual components that make up a soft landing (aka: the economy not falling into a recession).

Ingredient 1: A Higher Federal Funds Rate

You can’t have a landing without the Fed making moves on interest rates, right? We’ve seen the sharpest interest rate rise on record and the upper rate is 5.50%.

Rates have now been elevated for over a year now. By now, this action has trickled into the economy. It has mostly affected the housing market in today’s case as buyers don’t want to buy, and sellers don’t want to sell.

The good news? Savers are being paid. The bad news? Debt holders are paying. This balancing act could be helping the soft landing along.

Ingredient 2: Declining Inflation

What got us into this mess in the first place, was inflation rising very far very fast.

The Federal Reserve raising interest rates has done its job on inflation.

We have to remember that the housing market was on fire starting in 2020. Higher housing prices led to higher inflation. So, slowing the market down has helped significantly as it’s a large part of the inflation calculation.

Ingredient 3: Low Unemployment Rate

We’re experiencing historically low unemployment, even after the Fed has slowed the housing market, and the general consumer discretionary economy with higher interest rates.

Ingredient 4: Growing Gross Domestic Product (GDP)

You have to have negative economic growth to truly be in a recession… so, where is it?

Although we know GDP numbers get revised over time, it’s clear as day that the economy isn’t contracting.

What has happened so far, is the Fed has raised interest rates and slowed the housing and labor market, while keeping unemployment down, and economic growth chugging along.

To top it all off… the stock market measured by the S&P 500 is roaring to new highs.

It appears the Fed is on the right track towards a soft landing.

We will have to await to see when they feel it’s appropriate to shift interest rate policy from here and what that does overall to the economy.

Food For Thought 🧠

“To be yourself in a world that is constantly trying to make you something else,
is the greatest accomplishment.”
- Ralph Waldo Emerson

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.