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In this podcast, Motley Fool analysts Ron Gross and Jason Moser discuss:
Malcolm Ethridge, certified financial planner (CFP) and host of The Tech Money Podcast, weighs in on the Nasdaq sell-off and the potential for commercial real estate. He also offers a sneak preview of his upcoming book!
Jason and Ron discuss a new breakfast innovation and share two stocks on their radar: Outset Medical and Domino’s Pizza.
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.
This video was recorded on May 6, 2022.
Chris Hill: [MUSIC] E-commerce, semiconductors, real estate, fintech, medtech, and a lot more. If you are an investor, there’s no time like the present. Motley Fool Money starts now. [MUSIC]
MALE_1: Everybody needs money. That’s why they call it money.
MALE-2:[MUSIC] From Fool global headquarters, this is Motley Fool Money.
Chris Hill: It’s the Motley Fool Money radio show. I’m Chris Hill, and I am joined by Motley Fool Senior Analyst Jason Moser and Ron Gross. Good to see you, as always, gentlemen.
Ron Gross: Hey, how are you doing Chris?
Chris Hill: We’ve got the latest headlines from Wall Street, Malcolm Ethridge from the Tech Money Podcast is our guest. As always, we’ve got a couple of stocks on our radar, but we begin with the big macro. The US economy added 428,000 jobs in April, making it the 12th consecutive month of adding at least 400,000 jobs. On Wednesday, the Federal Reserve increased interest rates by a half percent after the rally on Wall Street late Wednesday afternoon. The market promptly tanked on Thursday with the Nasdaq falling five percent. So, Ron, busy week between economic data and the markets. Where do you want to begin?
Ron Gross: Chris, would it help if I said Uncle?
Chris Hill: Yes.
Ron Gross: Because this is no fun at all. Tough times out there for sure. As you mentioned, we did get another strong jobs report, but that, by no means, tells us the whole story. Unemployment does remain low at 3.6 percent, but wages aren’t keeping up with that very high inflation rate. As you mentioned, we did have this week’s 50 basis-point interest rates hike from the Fed, with definitely more to come in an attempt to fight that inflation. Interestingly, we actually saw GDP decline in the first quarter, with some actually predicting a recession on the horizon, and as in all investors are seeing, we have individual companies digesting lots of stuff. All the things that came as a result of COVID, certain demand for certain products that are now coming back down to Earth, supply chain disruptions, China cautiously returning to work after being on lockdown. We obviously have high inflation, removal of stimulus, higher interest rates, devastation in Ukraine. Thursday, as you said, the market just really tanked. I thought maybe we were on the upswing, but I think, despite all of this, you have to stay invested. You have to keep investing. I guess that’s my overall message and advice. Stay in the market. Keep putting money into the market.
Chris Hill: Jason, we come out of April with the Nasdaq year-to-date being down more than at any point this century to start the year. So that makes a day, like Thursday, a little bit more shocking with investors looking around saying, “Wait, I thought we were at the bottom.” As Ron said, this is one of those times that we all just got to get through, if we want the benefits of long-term investing.
Jason Moser: You’re absolutely right I think you put that well. It’s a period of time that you need to get through. I said, I think earlier on the week, it’s been a tough year for investors so far. If you’ve made it this far, and you haven’t been scared away yet, congratulations. Pat yourself from the back. Be prepared for the next shoe to drop. It’s less about predicting the future, and let’s focus more preparing for it. Let’s admit that there are still some valuations out there that are lofty, that are still out there.
You still see some of these businesses out there that are trading for 15-20 times sales. You can’t dismiss that, particularly when you consider the fact that the economic conditions have now changed significantly. We’re in a much different time, and so you got to think about that going forward. What’s going to be the acceptable valuation that’s a bit out of the norm here going forward. So that is a little bit of a trick, trying to come up with that answer, but regardless, being able to stay in, it’s a difficult thing to do. But the more you do it, the easier it gets. Chris, as we always say, if you keep money that you need in the near-term out of the market, that allows you to focus on the long term, and history shows us that, in the long term, we should all be just fine.
Chris Hill: It was a rough week for e-commerce stocks, shares of Etsy, eBay, Poshmark, Shopify, and Wayfair, all got hit due to a similar theme, namely, that consumers are pulling back on their spending. Jason, some of those, like Shopify and eBay, also lowered their guidance. Do you see any bright spots in the near-term for this group, or do shareholders of these companies just need to pack a lunch?
Jason Moser: No, I feel like they’re bright spots, much as if when you’re hungover, you see the bright spot that eventually you won’t be hungover. But right now, we’re in the middle of a hangover, Chris. We’re in the middle of this hangover. We’re seeing the after effects of all of the success that we pulled forward over the past couple of years. We’ve been having that discussion for the past couple of years. A lot of valuations got really out of control and seemed a bit pie in the sky because of the situation, and so we’re dealing with the after effects of this. It’s being compounded by everything else that’s going on the world right now.
With that said, I do think it’s a reasonable take that, while the pendulum swung too far to the glass half-full side over the past couple of years for a lot of these businesses, it is starting to feel like it’s swinging too far to the glass half-empty side. Now, I’m not calling a bottom, but just when you look at the way these businesses are performing, Wayfair, Etsy, Shopify, sure, numbers are down from the past year, but we also know that these management teams were forecasting that to happen. It’s not a secret, but when you look at the fundamentals of the actual businesses, they do continue to perform well. We talked about repeat customers with Wayfair being such an important metric. They placed 77.7 percent of total orders here in this most recent quarter versus 74.5 percent in the first quarter a year ago.
You look at Etsy, and sure, you’re seeing modest declines in gross merchandise sales. But ad strength is helping them maintain a take rate. Take rate at 17.8 percent was up 17.5 percent from a year ago. Then you look at Shopify. They grew sales 22 percent from the same a year ago, and that’s a slowdown. You’re talking about these businesses being a little bit more conservative on their guidance going forward as things start to normalize. That makes a lot of sense. We can’t hold that against these businesses. So I encourage investors to try to separate the macro from the actual fundamentals of some of these businesses because when you look at these three businesses together, Wayfair, Etsy, and Shopify, for example, good examples of businesses that seem to be doing pretty well, they’re doing what management says they’re going to do. They’re just dealing with a very difficult economic climate right now. It’s a lot of these dollars that people were hoarding, and saving, and then spending via e-commerce of these past couple of years. Those dollars now being rediverted to things like travel and entertainment, and that’s to be expected.
Chris Hill: Speaking of travel, Booking Holdings and Marriott both out with first quarter reports this week. They also feature this similar theme: a growing demand for leisure travel. Both stocks were flat for the week, but Ron, Marriott and Booking Holdings, these are two of the leaders in this industry.
Ron Gross: Flat for the week. This week is not too shabby. It’s pretty good actually. People are replacing online shopping with getting out there and traveling again, and I think that’s the story. You can see it in the results. Marriott, for example, solid quarter, beat results, reinstated its dividends, which is a really positive indication for that business, and maybe even the whole industry. Revenue up 81 percent, boom, big number obviously, adjusted profit increased 12 times to 413 million, about. Management didn’t offer guidance, but it said it sees a blockbuster summer, so there’s some indication for you there. Booking Holdings, very similar story. Stock remains down about 12 percent on the year, but the results are really turning around. Revenue up 136 percent. Similar comments to Marriott. Management said it is preparing for a busy summer travel season ahead, adjusted net income of 160 million. Booking Holdings only trading at 21 times earnings. So that looks interesting to me.
Chris Hill: If there’s a chip shortage in the world, someone forgot to tell AMD. First quarter revenue rose more than 70 percent due in part to growth in AMD’s high-end server chip business, and the stock, up 12 percent this week, Jason.
Jason Moser: I have said it before. I think, on its own, there are plenty of reasons to like AMD over the coming years. We’ve looked at this move toward connectivity, and we’ve got Edge, Cloud, data center opportunities, entertainment opportunities either. These are all drivers that are helping AMD continue to branch out, so they continue to benefit from a lot of these long-term tailwinds. You look at the results for the quarter, they speak for themselves. For first quarter revenue, it grew 71 percent to a record $5.9 billion. But if you back out the Xilinx acquisition, organic revenue was still up 55 percent. They grew gross margins, seven percentage points to 53 percent, and that is in part, thanks to a higher-margin Xilinx business, and that all brought down to the bottom line their earnings-per-share of a $1.13 versus 52 cents from a year ago.
So the two main segments of the business, computing and graphics, saw tremendous performance. Their revenue grew 33 percent from a year ago. The enterprise embedded in semi-custom segment revenue grew 88 percent from a year ago. Some of that was driven by very strong performance in things like Xbox and PlayStation, as a console refresh really took hold, and AMD plays a big role there. You see the Xilinx acquisition is integrating nicely. They announced they are also going to be acquiring another company for about $2 billion called PINsando or Pensando, whichever way you put it. But that’s going to give them more exposure to the data center opportunity, which then again speaks to the multiple tailwinds that I think will help drive AMD higher in the coming quarters.
Chris Hill: After the break, we’ve got the latest on real estate, fintech and more, so stay right here. You’re listening to Motley Fool Money.
Chris Hill: Welcome back to Motley Fool Money. Chris Hill here with Jason Moser and Ron Gross. Zillow’s first quarter revenue came in higher than expected, but costs are rising for the online real estate marketplace. Shares of Zillow down more than 10 percent on Friday and hitting a new 52-week low, Ron.
Ron Gross: Weakness in the business and the stock continues, as management attempts to put the house buying and flipping debacle behind them. They are attempting to paint a rosy picture with comments, like well-positioned and prepared to forge ahead. Okey-doke. [laughs] These financials, admittedly, are a little bit hard to decipher because that iBuying business is still flowing through the income statement, but it won’t continue going forward. So I think it’s best to ignore it from an analytical perspective and just focus on that advertising and marketing business, which is their legacy business.
It’s their IMT division that was up about 10 percent, so that’s not too bad, but it’s not that big a business. It’s a $490 million revenue business, but it was up 10 percent. The IMT segment had a $108 million profit. That was actually down 24 percent from last year. To get a picture of Zillow, that’s the segment you need to focus on. They do have a billion dollar-share repurchase program in place. This is important. Management has 2025 target of five billion in consolidated revenue and 45 percent EBITDA margins. That would give them $2.25 million of EBITDA in 2025, which would have them trading today at a pretty cheap four times 2025 EBITDA estimates. Do not believe it, folks. [laughs] No way is that going to happen.
Chris Hill: Block, the fintech company formerly known as Square, out with first quarter results that were lower than Wall Street was expecting. But the company said its Cash App business is going well. Jason, what stands out to you when you look at Block?
Jason Moser: How do I follow up doubting Ron there. That was terrific. Block, it was a good quarter. One great, one bad. It was good quarter. They did total net revenue of $3.96 billion. That was down 22 percent from a year ago, but most of that was driven really by the decrease in Bitcoin revenue. If you exclude bitcoin, total net revenue was actually up 44 percent from a year ago, so not bad, gross profit of $1.3 billion, That was up 34 percent from a year ago. If you look at the drivers, their Cash App generating $624 million. That was up 26 percent. Square, generating $661 million. That was up 41 percent a year ago.
You exclude the Afterpay acquisition, those numbers come down a little bit, but regardless, the core business performing very well, transaction-based revenue, $1.23 billion for the quarter. That was up 28 percent. Then gross profit there was $514 million. That was up 19 percent from a year ago. They processed $43.5 billion in gross payment volume. That was up 31 percent from a year ago. So I think this is a business that continues to perform very well. I do think it’s worth noting. This is not to say it’s a good thing or a bad thing, but it’s a bit of a Bitcoin-centric story developing here for sure. So investors just want to be aware of that. Some people feel very strongly about crypto and Bitcoin one way or the other. Just to quantify that, the word Bitcoin was mentioned 81 times in the shareholder letter this quarter. You go back three years, it was just 17. Again, not saying that’s good or bad, just trying to understand the direction this business is headed because it is becoming a much more diversified business than what we saw come public several years ago.
Chris Hill: Under Armour started its fiscal year not with a bang, but a whimper. Weak first quarter results came, with the company warning of more supply chain problems in China. On Friday, shares of Under Armour hit their lowest point, Ron, in over a decade.
Ron Gross: Not good, had some decent momentum during the COVID years. But they’ve basically given all that back, at least in terms of the stock price. Weak quarter, weak guidance, slam in the stock, this quarter largely impacted by reduced demand, supply chain disruptions as COVID caused China and some other areas to basically shutdown 14 percent decline in revenue from their Asia-Pacific region that generate above 15 percent of revenue from that region. Also, shipping delays and labor shortages hurt their ability to get products to [inaudible] stores, forcing them to cancel orders. Overall revenue only up three percent. Adjusted operating income was only 11 million. They reported a net loss of three million. Profit guidance was way below expectations, trading it only 15 times guidance. That’s interesting. If they can get some traction, and you want to take a nibble, OK. I honestly have no clarity to see how that would turn out, though. So buyer, beware.
Jason Moser: It’s trading at 15 times guidance? It’s at an 11-year low. Shouldn’t it be trading at like, I don’t know, one-times guidance? [laughs]
Ron Gross: [inaudible]
Jason Moser: Under Armour, more like underperformer. Am I right? [laughs]
Chris Hill: Starbucks is suspending guidance for the rest of the fiscal year due to uncertainty in China. But same-store sales in the US rose 12 percent in the first quarter. Shares of Starbucks up a bit this week, Jason, and this new CEO, Howard Schultz, really seems to be off to a good start.
Jason Moser: I tell you, he’s an up-and-comer. [laughs] It’s funny you see the one thing that really stood out to me in the call is that Schultz seems like he’s pumped to be back. You’ll love to see the enthusiasm like that from a guy who really has been around the block now a couple of times already. But I think this is a watershed moment for Starbucks here, as it works to really fully adapt to this new hybrid economy. Things have become more digital, more convenient. You can hear a lot of talk in the call about Starbucks becoming this new digital third-place, so to talk of Web 3.0, and NFTs, you even saw on the call there, which is just interesting for a coffee company. But the business itself, I think, really performed very well, given the situation, revenue up 15 percent to $7.6 billion, and earnings-per-share of 59 cents was down just slightly.
Domestically, they saw a good performance. Internationally, they saw a little bit weaker performance, if you look at the five percent growth in transactions, seven percent ticket growth in North America. They’re seeing a lot of strong receptions to things like mobile order, pay in advance, drive-through. That’s driving a tremendous amount of volume. They are feeling the pinch from the global supply chain issues, no doubt there. I think that going forward, Howard Schultz has a few things on his plate that he needs to knock out, one being leadership. He’s not going to be there forever. The idea is to be able to hand this off in 2023, but really making the investments in the workplace and the workforce. We’re seeing a lot of headlines regarding unionization.
That’s something they are trying to stanch understandably. So they feel like they can make better, more bold investments in their workforce and workplace without the unions. Then China. China is a total black box at this point, revenue there declined 14 percent, sales comps declined 20 percent from the same quarter a year ago, and that forced them to just pull back on guidance because they just don’t have the clarity there. But it really does feel like there’s a lot of enthusiasm. But behind what Schultz has in play here. So I’m excited to see how Starbucks works out here.
Ron Gross: I felt like Schultz is throwing Kevin Johnson under the bus a little bit. I am on record as being a big fan of Kevin Johnson. If I was wrong, so be it. But I still to this day remain a fan.
Chris Hill: Ron Gross, Jason Moser, guys, we will see you later in the show. Up next, our guest, Malcolm Ethridge weighs in on the Fed commercial real estate and more. Stay right here. This is Motley Fool Money. [MUSIC] Welcome back to Motley Fool Money. I’m Chris Hill. Malcolm Ethridge is a Certified Financial Planner and Executive with CIC Wealth. He is also the host of The Tech Money Podcast, and he joins me now. Malcolm, thanks for being here.
Malcom Ethridge: Thanks for having me. I’m glad to be back.
Chris Hill: It was a brutal April. It was the worst April for the Nasdaq this century. Thursday of this week, more red, especially in the Nasdaq. We’ll get into the specifics in a minute. But when you look at the stock market RETE large, what stands out to you?
Malcom Ethridge: As you talk about the brutality of the sell-off, the carnage, in the Nasdaq, the thing that’s most surprising to me is how we’re getting this wholesale sell-off of quality tech names. We’re not talking about going dumpster diving into the 2Q2 and even the ARK Innovation ETF and getting scrabs here. We’re talking about companies, like Microsoft, and AMD, and NVIDIA, Apple. They have no business getting sold off into the double-digits the way that they have. But they are just a victim of being connected to the rest of the Nasdaq and the greater tech world, as it were.
Chris Hill: What do you attribute that to? Part of it, obviously, is the last dozen or so years have been for the most part, a bull market. Is that what’s driving quality companies getting sold off? People just saying, “Look, I’ve had a good run for 10 years or so, and I’m going to take some money off the table,” so to speak.
Malcom Ethridge: A lot of it is indexing. Most of us own some fund, whether it’s in ETF or mutual fund, that has a mandate to it that says, if this, then that. So if the market falls two percent, then sell this much of that, and as the market continues to fall another two percent, sell this much more of that. So we keep seeing these electronic or technological AI-driven triggers down into the market because so much is computer-driven now and not so much driven by fundamentals, or even really technicals, more than just “I’m now looking for asset preservation.” So if Google, for example is a major holding in my portfolio, and it falls more than two percent on any given day, sell half of it, or sell 25 percent of it, or sell 10 percent of it, or whatever it is. I think that algorithmic trading is what’s driving things to fall so quickly and so sharply across the board rather than being very particular about what companies get thrown out.
Chris Hill: Almost like clockwork. You can count on this narrative when, particularly, not the stocks that we were just talking about, Microsoft, Apple, etc., but younger tech companies, unprofitable software companies, that sort of thing. You can count on people on financial television talking about the, “flight to quality”. Now is the time to move to the blue chips, the Johnson & Johnson, that sort of thing. You were on CNBC earlier this week. You recently said that we’re now in a stock pickers market. So where should people be looking?
Malcom Ethridge: I am with you in the sense that there are a lot of companies in the market right now that have no business being in the market. There are a lot of companies that came public in 2020 and 2021 because the SPAC money was there and helped them do it. It made sense for them at the time, and now we’re seeing that they’re starting to reverse course. A lot of them, I am certain, because we’ve seen this movie play out before circa 1999, 2000. We’re starting to see conversation where more than just Twitter is a big public tech company that’s going to go back private by some PE money. I think that that’s part of it. But then also as you talk about the “flight to quality” and folks wanting to be in the blue chip names.
That means then that there probably is where they should have been in the first place. If I am a person who get spooked by the Nasdaq being down 25 or so percent year-to-date, and I consider myself to be a long-term investor, and I am still looking for the trade button, on the day that I notice my portfolio has dropped significantly, that means I probably had no business in some of those names I was in, anyway, and I let somebody talk me into them, or I talked myself into following a crowd I wasn’t really a part of. You should’ve been in those quality names all along. But then you also have the folks who are in even the blue chip dividend payers, the stalwarts as they were, the Warren Buffett stocks, that the market is down for those two.
I mentioned it’s a wholesale sell-off. Everything is getting whacked right now. The folks who are in those bigger blue chip names are even feeling some heartburn in trying to decide should I stay or should I go. You didn’t ask me this, but I think what’s probably holding the market up, even where it is right now, is just the fact that there is no better place to be. We talk about the fact that the stock market is working against us, but the bond market isn’t really all that great right now either. So there is no “flight to safety”. Flight to quality, sure, I can go find better tech names than some of the things at the bottom of the Nasdaq. But there’s no “flight to safety” necessarily other than cash, and with inflation roaring above eight percent, even cash is trash. Still the stock market is showing itself as like the least dirty sock in the hamper, and if I got to be somewhere, I might as well, at least, be in the place that is going to pay some dividends, and at some point we imagine we’ll reverse course.
Chris Hill: Thank you for the image of the hamper. Let me go back to the SPAC companies that you referenced from the last couple of years because a lot of people are looking at how far the Nasdaq, in particular, has fallen this year. A lot of people are looking around tech, “Are we at the bottom yet? I’m not asking you to call the bottom, but do you think we get closer to the bottom when those companies, some of whom, as you said, had no business being public in the first place, start to just cash in their chips and say, “We’re not doing this anymore, and we’d like to find a way to exit the public markets.”
Malcom Ethridge: I think two things will happen. One, this is a great time to be in the private equity space, especially if you’re a firm who focuses on tech companies because there will be quite a few who are having backroom, back channel conversations about what will it take to take us private, especially those that are founder-led companies, where the CEO was the one who convinced everybody in the first place via S1 and everything else, this is the company to park your chips. For those founder CEOs, who their board is now starting to turn against them and say now what, their saving grace is going to be finding a PE shop that’s willing to take them back private, and allow them to catch their breath for a couple of years, and then probably come back and do it again.
But separately from that, I think what we’ll also see is a few companies doing the opposite, which is coming public now, still into a terrible market, at a down round. Companies that are VC-backed right now, where their early investors and their VCs are saying, I don’t even care if I don’t see that 10x, 20x return I was promised once upon a time out of this company anymore. I just need to get something because the day of reckoning is here. They’re going to force those companies to come public, even at a down-round, like I said, and that’s going to be another thing to look at to say, if this activity is happening, we can be almost as certain as certain can be in the stock market that this is where scraping the bottom looks like. I don’t think we’re quite there yet, but I have started to read through certain outlets that those conversations have been had in the background.
Chris Hill: We’ve talked about the market. You mentioned inflation. When you have conversations with your clients, what are the types of things that you’re hearing from them? Are there any common themes from what you’re hearing?
Malcom Ethridge: For the most part, clients just want to know. “You’ve told me how bad it is. You told me where the bad is. Now, where do we look? Where do you see positives in the market?” As financial planners or asset managers, one of the things that clients are always looking to us for is the better idea, like where do we go now? One of the places that we are pretty overweight and pretty bullish about is commercial real estate, and specifically in the industrial space, and even more specifically distribution centers. Distribution centers are popping up everywhere. I don’t even live in the suburbs, I live in the city, and distribution centers are being built less than 20 miles from my house. That’s the place where landlords have pricing power. They have the ability to raise rents at a moment’s notice almost to keep up with their inflation, and also, the supply chain is still broken. All of the disruptions to air, ground, and sea freight have basically been a tailwind for any company that has distribution centers and industrial RETEs in its portfolio, and so that’s a place that we’ve turned our gaze on behalf of those clients that are like, “Tell me where we go from here, if you just told me I can’t buy Apple and expect that to be the lottery ticket that’s going to do it this year”.
Chris Hill: You mentioned the supply chain issues. You add that to inflation. We haven’t even touched on the rolling lockdowns in China and how that’s affecting global companies as well. When you think about the next few months, even to the end of this year, what are you going to be watching to give you a sense of both the economy and the stock market?
Malcom Ethridge: The main thing for me is going to be what the Fed actually manages to do with this interest rate hike equation that it’s trying to solve. If you think about a car going down the highway 20 miles over the speed limit, and all of a sudden, in a distance, you see a police car sticking out. You’ve got to make this calculus of do I slam on the brakes completely? No, because the car behind me is going to run into the back of me.
Do I keep going as fast as I am? No, because then I’m going to get that ticket. How do I hit the gas just subtly enough that it brings me in under the speed limit before I get to the cop and the radar gun. Not that you’d know anything about this, Chris, but I happen to have a heavy foot. [laughs] I think that’s the calculus that the Fed is having to make. How do I land this thing smoothly without causing the bad chain reaction by misslamming on the brakes. Unfortunately, I’m not convinced that they can. I think we let the party go on so long, and the market was appeasing for so long, that we’re probably be on the point where they could just climb back down the other side of the mountain carefully.
Now, we’re really just, in my opinion, at a point where we’ve got to say, “Let’s just rip the Band-Aid off, have the pain in the short-term that we know we’re going to have, and then get beyond there as quickly as possible”. You’re a runner, so I know you’ll know this analogy I’ll throw at you because you know I love analogies. It’s like where I hear sports doctors talk about the plantar fascia injury, where you can keep on running on it and letting it tear slowly until one day it finally pops, or you can just come in here, let us snip that bad boy, it will heal itself backup pretty smoothly, it happens all the time, and you’ll get right back to running, like you were in a few weeks time. That’s where we are. It’s like we’re trying to continue to limp along on a bad foot, instead of having the surgery, going through the pain, and getting back on the right side or right sooner than later. We’ll see if they do successfully land this thing, through these incremental cuts that they are trying to do. I’m just not as convinced as Jerome Powell and his crew that they will be able to successfully do this, especially not after they gave us transitory for a year and then took it back.
Chris Hill: The last thing before I let you go. Earlier in the year on your podcast, you had an episode called “Ten Financial Commandments”. You teased a book that you were working on. I’m just wondering if you can share a little bit more about that and possibly provide an update.
Malcolm Ethridge: It’s basically a book that I’m finishing up right now. I’m probably guilty of over editing at this point. It could and should have been out already, but it will be out before this year is over. But what it is is essentially 10 of the things I find myself saying to people most commonly. By people, I mean, high earning young professionals, who are trying to get started and figure out where do I go? Basically, my peers who call me and ask for advice on what do I do here? One of the core tenants in the book, for example is, don’t invest in things you don’t actually understand. So that’s pretty apropos for where we are today. It’s something I’ve been saying to them, even through 2020 and 2021, where gain [inaudible] was the thing, and all of a sudden, now it’s not. So my focus was only invest in things you can actually understand and if you could explain it to a 10-year old, they would understand it. So the book is basically that. It’s me expounding on some of the core things that I find myself talking about all of the time to people to the point where I said, I should probably share this a little more broadly, and not just in my iMessage group chats, and in Slack, and those things.
Chris Hill: You can find the Tech Tonic podcasts wherever you get your podcasts. Malcolm Ethridge, thanks so much for being here.
Malcolm Ethridge: Thanks for having me.
Chris Hill: Doubling up after the break, [MUSIC] Jason Moser and Ron Gross return. They got a couple of stocks on their radar, so stay right here. You’re listening to Motley Fool Money. [MUSIC]
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. Welcome back to Motley Fool Money. Chris Hill here, once again, with Jason Moser and Ron Gross. Guys, who among us has not, once in his or her life, accidentally poured orange juice on our breakfast cereal? The innovators at Tropicana are trying to help with Tropicana Crunch, a honey almond cereal designed specifically to pair with orange juice, not milk. The company gave away boxes as a promotion on social media. Ron, I don’t know, do we give them points for trying here?
Ron Gross: They did it for National Orange Juice Day, which you knew was the thing. It’s clever-ish, but I just want to say the idea of maybe getting the extra pulp orange juice and pouring that on, it could literally make me gag, so stick with the no pulp orange juice if you’re going to go anywhere near this cereal.
Chris Hill: Jason, can I interest you in this cereal or no?
Jason Moser: No. [laughs] I’m good. Not the biggest orange juice guy. I’ll give them points for trying, but I do want to, at least, hark them back. Of course, I’m dating myself here, but some will remember back in the days of yore, the Wheaties commercials, I think at the time it was Bruce Jenner pouring orange juice over his Wheaties in the commercial. That led me to try that once, Chris, and I emphasize, once.
Chris Hill: Let’s go to our man behind the glass, Dan Boyd. Dan, before we get to Radar Stocks, any thoughts here?
Dan Boyd: I’ve read that article that you sent about this, and I do want to say that they’re hedging their bets big time [laughs] with this orange juice cereal. Multiple times in the article, they talked about how it’s an unforgettable breakfast experience and things [laughs] of that nature without saying, “This will taste good,” because even Tropicana knows that no, it will not.
Chris Hill: [laughs] It will be unforgettable. Let’s get to the stocks on our radar. Jason Moser, you’re up first. What are you looking at this rate?
Jason Moser: I know you’d think I made this company up, but I swear to you I didn’t. Outset Medical, the ticker is OM. Everybody I think here has heard at least of dialysis. Outset Medical is in the market of dialysis, and specifically, their Tablo Hemodialysis System, which ultimately is to simplify the process and help make it more accessible. They’ve got dialysis systems for the home, as well as acute care in hospital settings. But the company just recently announced earnings, and they continue to perform very well. Grew revenue 33 percent, they now project revenue for the full year between 144 and 150 million dollars. That would represent a 43 percent growth at the midpoint there. They are growing that in-home presence, which I think is really important as we move more toward healthcare in the home and virtual healthcare, remote healthcare. They also just announced recently a new source for cartridge production. They had that razor and blade model that will help bring the cost down while helping to inflate those margins. Dan, question about Outset Medical.
Dan Boyd: I’m looking at the stock price here, Jason, and the recent good news for Outset Medical does not seem to be reflected in how the stock is performing.
Jason Moser: Dan, it seems like recent good news for any company is not being reflected in their stock price these days. But you raise a good point. This is a very young company that is still working its way toward gaining market share and profitability. I suspect we’ll see a good bit of volatility along the way.
Chris Hill: Ron Gross, we got one minute left. What’s on your radar?
Ron Gross: Domino’s, DPZ, a long time favorite of mine, but they only recently bought it back in January because it was down 22 percent from its high. Guess what, it’s down another 22 percent from that price. But I’m still a believer. I think it’s a very well-run company. They’re just going through some changes here as a result of COVID waning. They’re going to lean on carryout more. They’re expanding driver hours using call centers, possibly partnering with third-party delivery apps. I hope that doesn’t happen. Now, trading at 25 times, much more reasonable than the 40 times it was trading at for quite some time.
Chris Hill: Dan, question about Domino’s?
Dan Boyd: Remember when Domino’s did this national ad campaign talking about how their pizza isn’t terrible anymore? [laughs] Guess what America, it’s still terrible. They tricked you. It’s salty cardboard and waxy cheese. It’s bad. Go get local pizza.
Chris Hill: [MUSIC] Tell us how you really feel there. Safe to assume you’re adding Outset Medical to your watch list.
Dan Boyd: You’ve got it in one, Chris. [Laughs]
Chris Hill: Jason Moser, Ron Gross, guys, thanks for being here.
Ron Gross: Thank you, guys.
Chris Hill: That’s going to do for this week’s show. Show’s mixed by Dan Boyd. I’m Chris Hill. We’ll see you next time.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Chris Hill has positions in Alphabet (A shares), Alphabet (C shares), Apple, Block, Inc., Etsy, Johnson & Johnson, Microsoft, Nvidia, Shopify, Starbucks, Under Armour (A Shares), Under Armour (C Shares), and eBay. Dan Boyd has positions in Zillow Group (A shares) and Zillow Group (C shares). Jason Moser has positions in Alphabet (C shares), Apple, Block, Inc., Booking Holdings, Etsy, Outset Medical, Inc., Shopify, Starbucks, Under Armour (A Shares), Under Armour (C Shares), and Wayfair. Ron Gross has positions in Apple, Block, Inc., Domino’s Pizza, Marriott International, Microsoft, and Starbucks. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet (A shares), Alphabet (C shares), Apple, Block, Inc., Booking Holdings, Domino’s Pizza, Etsy, Microsoft, Nvidia, Outset Medical, Inc., Poshmark, Inc., Shopify, Starbucks, Under Armour (C Shares), Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool recommends Johnson & Johnson, Marriott International, Under Armour (A Shares), Wayfair, and eBay and recommends the following options: long January 2023 $1,140 calls on Shopify, long January 2023 $115 calls on Marriott International, long March 2023 $120 calls on Apple, short January 2023 $1,160 calls on Shopify, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
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