AutoZone (AZO 1.53%) hits a new high after an impressive first-quarter report. Intel (INTC +1.14%) announces it will spin off its self-driving car unit (Mobileye) in mid-2022 as a way to raise money. Motley Fool analyst Bill Mann looks at those stories as well as Buzzfeed's (BZFD 1.91%) uninspiring first day as a public company and what the future of special purpose acquisition companies (SPACs) might look like.
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This video was recorded on Dec. 7, 2021.
Chris Hill: [MUSIC] It's Tuesday, Dec. 7. Welcome to Market Foolery, I'm Chris Hill. With me today, the one and only Bill Mann. Good to see you.
Bill Mann: I'm back and stocks are back.
Chris Hill: Stock are back, everything's good. The past four weeks, it's all forgotten because we've got two days in a row where everything is good again.
Bill Mann: It's really unbelievable. You and I both as part of our jobs, but also because we're extraverts, interact with people all the time about the stock market. It's really incredible what 48 hours of gains will do to people's moods. It's amazing.
Chris Hill: Today we have a big announcement in tech. We've got a small deal in SPACS and we'll get to all of that. But we're going to start with one of the stocks that is heading higher. That is AutoZone because shares are hitting a new all-time high after first-quarter profits and revenue came in, higher-than-expected, same-store sales were up 13.5%. I'm curious what you think of the business in this moment in time. I will just say let's just put aside for a second to spring of 2020 and what happened to the stock then because that's an aberration. With AutoZone, there's basically a two-year stretch from early 2017 to late 2018 where the company and therefore the stock went through a rough patch. Other than that, this is.
Bill Mann: It's a missile.
Chris Hill: The hindsight is 2020. Amazing stock of this century. This is one of those easy to miss because it's not sexy businesses that has just done nothing but rewards shareholders.
Bill Mann: So unsexy and not only that, and we're going to talk about a related story in just a few minutes. Auto parts has seemed to have been something that you would look at and you'd say from a trend basis, the rise in electric vehicles is going to make the auto parts business somewhat obsolete. But it turns out. I don't have the numbers in front of me, so it will be exciting just to make one up. [LAUGHTER] The stock has gone up something like 633% per year for 20 years. It is maybe a little high.
Chris Hill: I think that's a little high.
Bill Mann: Maybe that's a little high, but it has generated Starbucks and Costco like just fantastic long-term returns. Which as an analyst, you would never go in and say, you've got a company that's going to keep growing 20% per year for 20 years. You would be fired instantly by a bank. If that's the thesis you're putting out there, but that's exactly what AutoZone has done. This quarter, and you're right, 13% same-store sales over 2020. 2020 was weird. But they're just crushing it. They are absolutely just crushing it, 38% growth in earnings per share. This is a company that has just done this year after year after year.
Chris Hill: One of the benefits that we get from seeing a management team in place and how they operate for this amount of time is among the track records they build up is how good or bad they maybe at capital allocation. When you look at AutoZone, the way they've managed their store count, the way that they have employed buybacks as a method of rewarding shareholders. You've got to tip your hat to them.
Bill Mann: William Rhodes is the CEO of AutoZone -- company's based in Memphis, Tennessee, he's a Tennessee guy. He's 56 years old.
Chris Hill: He's a young guy.
Bill Mann: As you and I know, we're getting younger, 56, getting younger all the time, but like he has plenty of time to continue to run the show. He's been at AutoZone, essentially his entire career from once he got out of business school. You're exactly right. It is one of the things that we look to and it's the difference between the companies that are in businesses like this that are commodity-driven. Having a CEO like William Rhodes makes the difference.
Chris Hill: Intel shares moving higher because they announced that next year, they're going to spin off Mobileye, which is Intel self-driving car division. In an IPO that could value Mobileye in the neighborhood of $50 billion, which is a very respectable and significantly higher than the $15 billion Intel paid for it back in 2017. Let's start with Intel and then we'll get to the potential for Mobileye. But in terms of Intel, a stock that has been challenged over the past few years. This seems like a way to unlock value that is getting appreciated on Wall Street.
Bill Mann: Yeah not just unlocking value. Chris, when we were talking about doing this story earlier. I was aware that the reports had come out that they were thinking about doing this. I thought to myself, didn't Intel buy Mobileye like last week? Maybe that's a sign of the pandemic. That to me, 2019 is still last year. But it really seems like they just bought it. But yes, Intel has already come out and said they have a massive amount of restructuring and reconfiguring that they're going to do in their core ship business. Cashing in a little bit of Mobileye, it makes an immense amount of sets and they're going to still retain control of it, both financial and voting control. They're not thoroughly spending it back out. It will remain a subsidiary of Intel. But in a world in which companies like Rivian, Automotive, and Lucid are out there with 70 billion plus market caps and have produced nothing. This makes all the sense in the world for me, for Intel to make this move.
Chris Hill: Pat Gelsinger, the CEO at Intel, compared Mobileye to Tesla, which I suppose I would say that if I were.
Bill Mann: Sure, what trillion-dollar company can we compare this to? Let me think.
Chris Hill: To go back to something you just touched on. It seems like at least part of the calculus for Intel in this move is maybe informed by what they have seen with Rivian and the fact that as you said, it's a $70 billion company with no vehicles on the road. Look, this is one of those things that shouldn't matter to investors like you and me. But it actually does because it involves institutions buying shares in blocks much larger than you or I, or anyone listening to you.
Bill Mann: Speaking for yourself, but OK.
Chris Hill: But you look at what happened with Rivian. Let me put it this way. It's hard for me to look at what's happened with Rivian and draw a conclusion other than there is an appetite among institutional investors for Tesla type investments that aren't Tesla. They've already made their investment in Tesla. They know it's going to be.
Bill Mann: Or they missed it.
Chris Hill: Or they missed it. Or they're getting later than they wanted to and they recognize it's not going to be just like there's not one automaker, there's not going to be one electric vehicle maker. They're going to be multiples. There are going to be multiple winners. Some of that money is going to go into businesses like Mobileye.
Bill Mann: Absolutely. Mobileye to me is a picks and pans play on the industry. You go back in time, obviously I don't know that this is a huge insight, but I'm going to make it anyway. The automobile turned out to be a pretty big deal here in the United States of America and around the world. Yet we went from hundreds of auto companies in the 1940s to essentially four American companies at the beginning of this century. That was how it worked out. This will be a similar. It's going to be a rough go for an industry that really does have a lot of great things in front of us. This will be a lot of the flies industry. I believe that to be true. But companies like Mobileye, which aren't really worried so much about which company wins, I think that they are in a really great spot. The market also thinks that they are in a really great spot. Pat Gelsinger, to your point, recognizes that the rest of Intel isn't in a great spot, but you know what would help? Some cash.
Chris Hill: The timing is such that right now we're looking at the middle of 2022. For those in the business media who are looking to aggregate their list of IPOs to watch in 2022, it's Christmas come early because you can put Mobileye on that list.
Bill Mann: One less thing to do.
Chris Hill: Yes. Speaking of media and aggregation and list building, BuzzFeed went public yesterday via a special purpose acquisition company. I think everybody knows BuzzFeed or is at least, if not a regular consumer, at some point, someone has sent you a BuzzFeed article or a list of some sort, or it's popped up in your Twitter or Instagram feed. It wasn't a great day in terms of what happened, it closed down to 11 percent. There were that early pop. We got the reports over the weekend that a lot of people were initially interested in this and then they just walked away. I mentioned all this not to pick on BuzzFeed, but I do wonder, we've seen so many companies go public via SPACs, and some of them in terms of getting attention from investors and the business media, they barely resonate, it's barely a blip. This is a well-known business. Therefore, it got more attention than the size of the business would warrant.
Bill Mann: Exactly.
Chris Hill: I'm wondering if you think this signals not the end of SPACs, but a part of me feels like whatever heat SPACs had as a category, this was just one more bucket of cold water being dumped on it.
Bill Mann: I know how much you love for your guests to read on the show, [LAUGHTER] I know you love this, but I do have to read something that we at the Motley Fool put out about a year ago and it was about SPACs. A year ago, now, basically, there were a lot of people who believed that the way that you invest was to buy a SPACs, wait for it to announce, sell it and then buy another SPACs and they were going to get rich that way. We wrote, we're not trying to get you to invest in SPACs or to be excited about them. Every investment fad in history has ended badly for the majority of investors and we expect nothing different from SPACs when all is said and done. It's not to say we told you so, because it's dumb to say we told you so, but it is to say that in our job every once in a while, it's really unnerving to watch people to try and play the investment game in a way that it ought not be played, in a way that things aren't really done.
Because you would hope they would figure it out, but usually figuring out that you're playing a game that you don't understand, comes with some pain. The SPACs market this year has been horrible. There are SPACs that have come out public this year that are down more than 90%. It's incredible to think about. In the case of BuzzFeed maybe because it is a higher profile company, this may be the death now of our thinking about SPACs as being magic beanstalk beans. It's a way of coming public, nothing more, nothing less. There are things about SPACs that are better than coming public through a traditional initial public offering. But then there are things that are a lot worse. They really should have been some breaks put on, BuzzFeed went 94% of the premarket money decided to redeem rather than go public with the company because that as they say is bad.
Chris Hill: Well, hopefully, this has a similar and yet opposite effect from what we were talking about earlier with Mobileye and Rivian. In the same way that someone at Intel might have looked at what was happening with Rivian and said, you know if we spin out Mobileye, we could probably make a decent buck. I'm sure, I'm 100% confident there were digital media companies watching closely with their fingers crossed on Monday when BuzzFeed went public via SPACs. Because they were thinking, boy, if this works, then we can do the same thing. Hopefully, at least some of those digital media companies and the people running them are looking at what's happened to BuzzFeed and saying to themselves, you know what? We got to go back to the drawing board.
Bill Mann: Yes, and here's what's really important, and I think that this gets lost a lot. When companies go public, the reason that they are doing so, there are a lot of different reasons, but the primary reason is to raise money. They're going to raise money. BuzzFeed got $19 million after all of the redemptions. The group that brought them public got $35 million in transaction fees. [LAUGHTER] If I do the math, that comes out to be a pretty high percentage, that's math. This divided by that equals high. I would think that there were a number of media companies that looked at this and have said, OK, maybe this isn't the environment for it, but this is definitely not the vehicle for it, not now.
Chris Hill: Maybe this is a question that is drenched in hope.
Bill Mann: You're leading the witness?
Chris Hill: In the same way that hopefully some digital media companies watch this play out and said to themselves, we got to go back to the drawing board, I'm not suggesting that this puts the final nail in the coffin of SPACs, but is 2022 going to be a year with fewer SPACs than we saw this year, hopefully for everybody's sake?
Bill Mann: Chris, the crazy thing is that all of the SPACs that have been stood up by now are still out there looking for companies to merge with and they have a fuse on them that lasts a maximum of two years. We're going to see plenty of more companies being brought public by SPACs. Ideally, what we will see now is fewer SPACs being stood up to start with. Although, if you want to be cynical about it, I'd say it went pretty well for the SPACs promoter, they got $35 billion. But I don't know that this is the ideal, absolutely positively the bloom is off the rose. The belief that you can just buy SPACs, by individual investors, you could buy a SPACs blindly and it's going to go up, that's a dead issue at this point and I think it's better.
Chris Hill: I agree. Bill Mann, always great talking to you. Thanks for being here.
Bill Mann: Thanks, Chris. It was fun.
Chris Hill: As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have formal recommendations for or against, don't buy or sell stocks based solely on what you hear. That's going to be it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill, thanks for listening, will see you tomorrow.
