Check out my new interview with Consuelo Mack; Another example of a 'quality bubble'; Lululemon Athletica's issue with 'dupes'; Wedding in Montreal

1) It was a treat to sit down and talk about stocks and investing with someone I hadn't done so with in about 20 years...

One of my first TV appearances two decades ago was with business news journalist Consuelo Mack on her program that airs nationally on PBS: WealthTrack. So I gladly joined her again to chat and reflect on the many important lessons I've learned over the years.

Part one of our conversation aired on Thursday, which you can watch here on the WealthTrack site.

In it, I warned about the "quality bubble," about which I wrote in my August 13 e-mail, and cited Apple (AAPL), Costco Wholesale (COST), and Nvidia (NVDA) as stocks priced for perfection today. And I also pointed to Cisco Systems (CSCO) and Coca-Cola (KO) as cautionary tales for what can happen to investors who overpay for popular stocks.

Instead, I argued that investors should look for great companies whose stocks have fallen out of favor – for example, Meta Platforms (META) in late 2022 (it's up by 5 times since then)... and keep an eye on Nike (NKE) and Starbucks (SBUX) today.

Other stocks I mentioned in the interview included: Eli Lilly (LLY), B3 – Brasil, Bolsa, Balcao (BOLSY), Intercontinental Exchange (ICE), and CBOE Global Markets (CBOE).

Again, you can check out my WealthTrack interview right here.

2) I was reminded of another example of the quality bubble when I read this article in yesterday's Wall Street Journal: Valvoline Can Be a Slick Addition to Your Portfolio, which concludes:

At about 23 times prospective earnings, the valuation isn't an obvious bargain at first glance. But as it expands its store base, its selling, general and administrative expenses will be spread across a larger number of stores, and margins should continue their recent rise.

And, while capital expenditures are fairly high at the moment, limiting free cash flow, much of that has gone to growth rather than maintenance. A key challenge is selling more products and services to customers who don't even get out of their car while visiting a store. Anything that slows down the process could be more trouble than it is worth.

Unlike its namesake oil changes, that won't be quick or easy, but it is a compelling value proposition.

Regular readers may recall that I wrote about Valvoline (VVV) in my May 2 e-mail after three Columbia Business School students pitched it to win the 17th annual Pershing Square Challenge stock pitch competition (and the $100,000 prize!).

They put together an outstanding 55-slide presentation that captured what a good business this is and its strong growth potential... But ultimately, I didn't think the stock was a good buy at the time – for two reasons:

First, I think the rise of electric vehicles ("EVs"), which of course don't need the oil changes that account for 74% of Valvoline's business, could be a long-term headwind for both earnings and the multiple that investors place on them.

Second, the stock, which is only a few dollars below its all-time high, trades at 4.6 times trailing revenues and 31.1 times trailing earnings per share. That strikes me as a fair price – but I like buying at unfair prices when I'm confident that the market is making a big mistake!

Since May 2, as you can see in the chart below, the stock has been on a bit of a ride... but is now down about 2% since then (and trails the more than 10% increase in the S&P 500 Index over the same period):

The company's earnings have grown, so the stock is now trading at 27.6 times trailing earnings and 23.2 times 2025 estimates.

That's not bubble territory, but Valvoline is still too richly priced for me...

3) Yesterday's WSJ also had another story about a company I wrote about last Thursday and Friday, Lululemon Athletica (LULU): Lululemon 'Dupes' Are Just as Cool With the TikTok Crowd. The article captures how competitors are taking bites out of Lululemon's business by selling similar items at much lower prices:

Less expensive versions of premium products have become an acceptable alternative, particularly for younger shoppers. In some cases, "dupes" – short for duplicates – are considered cooler than the real thing.

That is becoming a problem for the company that pioneered high-end athleisure and made $100 leggings the norm.

"A brand logo doesn't hold as much meaning as it used to," said Mikayla Kitsopoulos, a 22-year-old college student. "Finding bargains is the new status symbol."

When Kitsopoulos was in high school, she wore Lululemon leggings, which cost about $100. Now, she buys her leggings on Amazon for about $30. She said the quality and fit is almost identical, so why pay more?

This competition emerged just as the company made some missteps – a one-two punch that has cut the stock nearly in half this year. As the article continues:

It recently removed a new type of leggings from its stores and website after customers complained about the fit. The Breezethrough leggings were designed to be breathable, quick-drying and abrasion-resistant. Customers liked the fabric, but some said the seam lines made their stomachs and backsides look too big.

Other blunders have included a color palette that was too limited and not having enough of some products such as smaller size leggings. The misfires have pushed people such as Natalie Assink to seek out different brands. The 20-year-old college student said she switched from Lululemon to Gymshark and AYBL not just because their leggings cost less, but also because they have more color varieties.

Lululemon Chief Executive Calvin McDonald acknowledged some of the missteps in June when he told analysts that the company was working to add a wider range of colors and increase stock of smaller sizes. "We didn't have enough color and newness," he said.

Lululemon isn't sitting still, of course... Here's more from the WSJ:

To defend against dupes, Lululemon is talking up what it says is its quality and innovation. "When you are reading a [product description on a tag] or communicating with salespeople in our stores, we need to make sure you understand the lengths we invest in our apparel to make sure it's top quality," [Lululemon Chief Brand and Product Activation Officer Nikki Neuburger] said.

The company also is trying to differentiate itself from other premium brands by expanding into new categories such as sneakers and casual clothes, she added.

As I concluded last week, I think the stock could be a buy... but I'm inclined to wait to see the next earnings report, which will be released on Thursday.

I suspect Lululemon might miss estimates, causing another leg down in the stock, which might provide a great entry point...

4) I believe in the saying that "showing up is 80% of life"... so I try to make it to every special event my friends and family invite me to – be it a wedding, birthday party, bar mitzvah, etc.

Consistent with this, I flew to Montreal on Friday to go to the wedding of my friend and former student Bing Xu and his longtime girlfriend Adrienne on Saturday.

It was a beautiful and fun weekend – and I'm pleased to say that this old geezer was on the dance floor all night until the party ended at 2 a.m. on Sunday morning! Here are some pictures:

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.