It’s a Small World After All

(upbeat music) It's a small world after all. I promise this will make sense soon because Motley Full Money starts now. (upbeat music) I'm Ripon Ars and today I'm joined by fellow analysts, Nick Cypill and John Cuost. We're gonna take a look at some potential bounce back candidates for 2026 and a look at Disney predictions heading into the year, but first, Venezuela. The big news over the weekend was the U.S. capturing Venezuelan president Nicolas Maruro and his wife detained them in the U.S. to face charges of narcole terrorism, drug trafficking and conspiracy. Nick, you are covering this story. We will obviously not be digging too deep into the political ramifications. That's not really what we do here, but what are the biggest implications of this news for investors? - Certainly huge news geopolitically. Would argue this is the biggest U.S. military, commando operation really going back to the bin Laden raid more than a decade ago for investors for the business community. The big takeaway is what's going to happen with Venezuela's energy production. Venezuela has more proven reserves than Saudi Arabia yet produces less than 1% of global supply today. And that's really a trend of kind of withering infrastructure that's been going on for the past couple of decades. First under at the Hugo Chava's administration and then under former president now Maduro. As I mentioned, Venezuela has over 300 billion barrels of proven reserves, about 17% of the global total but production today, just 1% of global supply. In the late 1990s, Venezuela was producing 3.5 million barrels of oil per day today, now under $1 million a day. That's a 70% decline under the Chavez Maduro administration. And if you look at disclosures from the national oil company of Venezuela, it's pipelines, haven't been updated in by some accounts. 50 years would need over $58 billion to rebuild those pipelines. And by the reports of the administration, the US administration, part of what's going to happen after this regime change is an investment in that energy infrastructure. What becomes of Venezuela's oil production going forward? Can new investment return that trend to the growth that we saw in the late 90s? - Yeah, so speaking of that growth and potential, who are the potential winners and losers from a comeback in Venezuelan energy production? - Right, so it's the big winners, did really jump off the bat or the US oil major. Chevron, the big one, they're the only US major currently operating in Venezuela, produces about 150,000 barrels a day, about 70% of Venezuela's overall output. Those other oil companies formerly operated in Venezuela, however, in the nationalization push over a decade ago, lost some of their production, have some claims against the Venezuelan government to try to get some of those back. So those big US oil companies, particularly Chevron, have the relationships, the infrastructure, the head start to get underway in Venezuela. However, these are companies that were burned in the past under nationalization. They're going to want stability before they line up to spend big money on the investment needed to get production back in line. Any realistic timeline, we're looking three to five years before really meaningful production increases. Take place, that's really a long-term thesis. That said, to the extent that production can get back online that the losers here would be potentially Canadian oil producers. Venezuela's crude oil is very similar in grade to the oil that comes out of Canada's oil sands, that same heavy sour grade of oil that are used to produce things like diesel fuel in US Gulf Coast refineries. With that decline in Venezuelan oil production that I talked about earlier, Canadian producers have come in to fill that gap. The Canada went from producing 2.7 million barrels a day exported to the US in 2013 up to 4.4 million barrels back in 2024. Obviously, if those Venezuelan barrels come back online, that is direct competition for those Canadian oil producers and could put downward pressure on that production. But again, as I said, we would need several years of investment to get that production back online. And again, these are on all one-for-one substitutions. A lot of this Canadian heavy oil gets piped directly to midwestern refineries. So the competition would be really more for oil that goes to supply refineries on the Gulf Coast. But if investment can get Venezuelan oil production back online, that would be direct competition for Canadian producers. That's why you've seen the same way big US oil companies have moved up today on the news of what's going on in Venezuela, you've seen some real downward pressure on the Canadian producers. Yes, so speaking of the market, the initial market reaction. So the market tends to weaken when there's geopolitical crossfire, and that definitely would have happened over the weekend. The US market has initially moved higher on Monday. Why do you think that's the case beyond just the energy companies, the general buoyant market? Yeah, I mean, I think the market was relieved to see that doesn't appear to be further-- kind of, you mentioned crossfire, and your question, there really wasn't any crossfire, right? There was only going to fire going one direction for the most part when you look at the casualties and the success of the operation. So I think the market was relieved to see it appears this is the end of conflicts here. Now, that is obviously far from certain. But I think that's what the market is saying here is that this is a one-and-done operation and that moving forward, we should see more stability. And perhaps more investment in Venezuela, which would be good for the global economy. So I was surprised to see key Latin American stocks moving higher on the news since they may put potential targets if things keep escalating. Long-time rule, bigger recommendation. Barcalo, leave it. It was up 10% just two hours before the close today. Does that make sense to you? Potentially, again, if Venezuela's economy can get back on track, really huge opportunity for Mercado Libre and other e-commerce players in the industry. So I mean, currently, Venezuela, less than 5% of Mercado Libre's revenue. But there's more than 30 million people in Venezuela. And this has been bordering on a failed state for the better part of a decade. No e-commerce infrastructure. I mean, you follow Mercado Libre more than me. But it's been a recurring thing on the earnings calls of if you back out Venezuela, we're doing pretty good. Well, can you imagine if Venezuela turns from a headwind to a tailwind for Mercado Libre? This is a company that you saw what happened when Argentina got back on track under a new administration. That became a tailwind for the business. So I think folks are optimistic about Venezuela going from being a real laggard in the South American economy to being something that can be a tailwind for further growth. And if that's the case, then Mercado Libre won't be the only company better if any from that. John, let's bring you into the mix as an investor. What's your takeaway from the situation? Yeah, as everything that just Nick just said, the arrow is pointing in a positive direction for various perspectives, especially when you're going back to Mercado Libre, right? One of the big reasons it has struggled in Venezuela is because of currency debasement. That currency just keeps going down and down. It's hard to do business in that environment. So pointing towards stabilization, that is good long term. And I think it's a little bit premature to say that we're already there, that Mercado Libre and others are already going to enjoy that benefit. It's going to take a long time to play out if it ever does. I think that probably the market is going to get a little bit impatient, right? Because it does tend to overreact both positively and negatively. I wouldn't be surprised if we saw that, but I definitely understand what it's seeing and why it's having a positive outlook. And I think it's right. Yeah, if we see stabilization in Venezuela, that's a good thing for some of these businesses. Yeah, so thank you, John. And Nick, thank you for your expertise on this. Ultimately, a big story to kick off the new year. The world and its investors will be watching. Coming up next. Can some of last year's losers be big winners? Let's see if two out of favor stocks can have monster makeovers in 2026. Last year was a good one for investors, but not for all investors. John and I took a look at two rule breakers that fell hard last year. We think they can bounce back this year. I went with Lulu Lemon, but you went with Duolingo, John. What's going on with Duolingo? Yeah, so Duolingo ticker symbol, DUOL. The stock was down 46% in 2025, Rick. And down 67% from its highs in 2025. So losing two thirds of its value. And some variety of factors going on, but one of the big headline grabbing things was when chat GPT did a demonstration where essentially a different, a homegrown version of Duolingo could be just created with some prompts in the app. And I think that that caused investors to say, does this company have a durable competitive advantage? Or am I just going to learn a new language from something that I create on my own in a chatbot with using generative AI? And so we see the stock price pulling way, way back. The CEO of this company, Luis Von On, he would say take the long view and I think that that's right. And so there's many reasons why I think that this can bounce back in 2026. Yeah, and especially, I mean, it just a big winner before this year, this past year, 2025. And then clearly it's stock that had a lot of momentum at business that's still growing. So I'm with you on Duolingo. But I went with Lulu Lemon. So Lulu Lemon has had a very rough downward facing dog kind of year in 2025. It started basically all you have to do is follow the sales. Sales, this company in the athlete's your market and the upscale yoga wear market was doing so well for a long time and then just basically stumbled. And over the past couple of quarters, comps in the Americas in the US rather had been negative. A company that's been traditionally growing and while it's doing well internationally and in other markets like Canada in the US, it's sort of struggling, which is still a large market. But I do like it here. I was at full fest 25 a few months ago, wearing Lulu Lemon pants that I'd gotten from my American Express Platinum card because they are now having like a free $75 credit you can use every quarter. And I did it to mock Lulu. I mean, at the time I was sort of bearish when I was making that presentation. I'm saying, look, look, that's 50 something old guy wearing Lulu Lemon pants on camera. Probably like hurting the brand by doing this. But in the process, I had a very comfortable pair of pants on that evening. And since then, I use my December credit. I have some friends that are Lulu Lemon fans and didn't know about the credit now they're using it. So my mind has sort of got done a full 180 on this where I thought, you know, I thought when the bank of them, oh, I'm sorry, when American Express, when their Platinum card has a credit, like $50 sacks credit every six months, you can expect bad news as you see, sacks is now almost struggling financially right now. But in this case, even though amazing desperate for Lulu Lemon to reach for something like this, for this kind of big discount being offered, I think it could help. So I am with Lulu Lemon and there's activism is happening, but I think organically it'll be able to fix itself in 2026, very attractively priced after the markdown. So yes, Doc, that I think will bounce back. - And Rick, I love the point that you're making here because I think that with a brand like Lulu Lemon, the argument is against it that maybe it's losing its brand power, maybe it's losing its luster, but you look at the numbers. Revenue is still at an all time high. And it's operating margin at 22%. To me, this is not indicative of a business that is losing that brand power in a material way, at least not right now. It hasn't manifested yet. So I think that it is overblown the concerns that it has. Yes, a slow down, yes, a headwind here and there, but I think you're right. I think this is a stock that is poised to bounce back in the coming year. - Yeah, and doing really well internationally. I keep thinking to like Crocs, which has been a disappointing stock lately, but in the word time in the U.S., everyone just figured out Crocs are done, and internationally started to take off. And then celebrity started to hop on Crocs, and then it happens, it gets bounced back for a while, but that's it for that. Coming up next, it's a small world after all. Let's take a look at some predictions for Disney in 2026. - So, Disney World did not have a very good year last year. The stock was up 3% losing to the market in 2025. It's had a few rough years. I was covering the company earlier this week. Well, I know it's Monday, but I earlier over the weekend and published earlier Monday. And I had four Disney predictions. And John, I know you and I, we follow these Florida companies, so we know Disney. And Nick, if you have some thoughts, go ahead and share them. But I want to quickly go over these four predictions that I have, and you guys tell me if you think, yes or no, if you think it'll happen. So, the first is Disney will announce an internal CEO this year. And my argument for that is that this is a company that Bob Eiger has said he's going to step down at the end of this year. The board has already said they're going to announce their next success or early in 2026 to avoid what happened back in 2020 during the Bob Chaper can't off. But I do think that Disney will announce an internal CEO, even though the stock has failed to be at the market in four of the last five years. Because the company's still doing well. It's a company very complicated, a company with a lot of moving parts. So I think they will hire internally. I don't know who it will be, but I don't think they're going to seek an outside CEO. Any thoughts? >> Yeah, I mean, the rumors are that the head of the Parks division seems to be in pole position to win that job. Obviously, there's been three names kicked around. The parks really are a trophy asset. Still took, you mentioned the parks had a tough year in 2025. Still was able to take up price in the fall. And it's an example of a company that really has almost infinite pricing power. I mean, if you told folks five years ago that Disney World prices will be where they are today and that the lines would still be out the door to get in. This is an example of a company that can just take up price whenever they want to and their willingness to do. So I think reflects that they know that their asset is one that is globally, people are willing to pay whatever it takes to be a part of that park. >> Thank you, Nick. So my second prediction for John, anyone who has thoughts, it will stay out on the media buying frenzy. So it did that in 2025. We saw Paramount get bought up in the summer. Obviously, the year ended to Warner Bros. discovery and a bidding war eventually go to Netflix. I think they're just going to continue. They were not an active bidder, at least not a prominent bidder in any suit. I think they're going to continue to stay out of buying assets. They already have enough stuff in their arsenal. Thoughts on that. >> Yeah, I couldn't agree more with you, Rick, because what more does Disney really need? I mean, the intellectual property library that it has at its disposal, there's so many options that it has just because of how vast it already is. So plus, at its size, what are you going to acquire that's going to materially move the needle? It's going to be a lot of money. I don't think that that's a path that Disney wants to go. Definitely, it's in the mode of, let's do a lot with what we already have. I think that the Mandalorian is a great example of what it can do with a franchise and when it has a really good story to tell. And so I think it's going to run that playbook. >> Yeah, if anything, I would expect Disney to be a seller of assets. We were talking about before we hopped on on the call, would not be surprised to see ESPN spun out of Disney, whether it's next year or a few years down the road that the head of ESPN, Jimmy Petaro, was one of the names kicked around as potential Disney CEO. Well, again, we haven't had the final CEO announced. Looks like he's not going to be going to be the choice. They have been expanding their assets back that back in this fall when they took over in a FL network. There's been all this conversation of what's next for ESPN. And I think what could be next for ESPN? It is a life as an independent company. >> My third prediction was Disney will have this year's biggest movie and this is almost cheating, but it really wasn't when I looked back. So Disney had the three highest grossing movies worldwide in 2024 and at three of four in 2025. The other one was at Chinese movies. So out of the US studios, there's only been six movies that have grossed more than a billion dollars in tickets in 2024 to 25. Disney put out all of them. So I'm basically saying as any Marvel fan knows, Avengers Doomsday comes out in December of this year. And I think it's pretty much a lock, just like Avatar this year in 2025. I think it's pretty much a lock to be the biggest movie. I don't know if you guys have any thoughts on that. If not, we can move on to the fourth prediction. >> I mean, there weren't many movies that came up on the slate that even could give it a run for its money, really. I mean, Christopher Nolan is going to have the Odyssey coming out later this year. But you know what, the trailer wasn't great. I don't see a lot of buzz for it. So the Hunger Games come out, doon. But really, I don't see anything that can, those are the only ones I see that could potentially challenge the crown, but I don't think that they will succeed. I think your right, Disney gets it. >> Yeah, my fourth one is, Disney will beat the market in 2026. Again, this is a stock that is actually lost to the market in four of the last five years. Very disappointing, 3% gain last year. In a year when media stocks were soaring on takeover news. But I do think this stock is attractively priced a forward earnings multiple in the midteens. It is growing, it predicted to grow its earnings at a double digit pace. All since its streaming business turned profitable in fiscal 2024, revenue growth is still slow. But I think just the more efficient Disney that we're going to be seeing in the next years is enough to get investors excited in the company. Again, thoughts on that? >> Well, it's not unprecedented, Rick. That's for sure. You can have a low growth company that turns it around on the margin profile and does well as a stock. And one example I'll give from 2025 is Dollar General. It didn't put up much top line growth, but it had the profit margin improvement and was a solid, solid performing stock in 2025. Now, I'm personally pretty lukewarm when it comes to Disney stock outlook, but I see your point that it doesn't have to put up a ton of top line growth in order to be a good stock for the coming year and beyond. >> Yes, beyond. Well, totally story five is coming out. So to infinity and beyond, we'll close on that, John. Well done, John and Nick, thank you for indulging me today. 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, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisers are sponsored content and provided for informational purposes only. To see our full advertising disclosures, please check our show notes. For John Quast, Nick Cypill, and the entire Motley Fool money team, I'm Rick Minars, may your days be sunny and your life Motley Fool money. (upbeat music)