Latest news with #DavidMeier
Yahoo
2 days ago
- Yahoo
25 Investigates: Cost of investigation into MA State Police recruit death surpasses $300K
It's been nearly 9 months since the Massachusetts officials brought on an independent attorney to investigate the death of a state police recruit at the academy. 25 Investigates now knows how much that investigation has cost you, the taxpayers. We obtained invoices showing work started in September and as of May this investigation tallies $309,777.03. But the questions around what exactly happened and why still haunt the family of Enrique Delgado Garcia who died after a boxing training exercise at the state police academy. 'It's been about eight months, more than eight months, and we still don't really know what happened,' Jose Ramon Perez Garcia told Boston 25's Kerry Kavanaugh in Spanish during an interview in May. Enrique was 25 years old when he died in September. Sources familiar with the investigation told 25 Investigates that he suffered broken bones, damaged or missing teeth, and a spinal injury. By October, the Attorney General Andrea Campbell named an attorney to lead an independent investigation into his death; David Meier, a trial attorney for over 30 years and a partner at Todd & Weld LLP. Through a public records request 25 Investigates obtained contracts and invoices documenting the cost of this investigation. For his work, Meier was paid $500 an hour. His partner Melinda Thompson $400 an hour. There are also billable hours for various investigators. Invoices tally $309,777.03 through the month of May, the month we submitted our request. There are invoices showing hours worked. But details of the investigation completely redacted. This independent deemed necessary because of conflict of interest. 'I'm looking for someone who can look at this with an independent view who doesn't have a stake in its outcome,' said Worcester County District Attorney Joe Early in September 2024. Worcester County would have had jurisdiction over this case. But in September, Early said Enrique was a beloved victim advocate in his office, so this needed to be outside the scope of any district attorneys' office. 'It's a lot of taxpayer money,' said Paul Craney is with the government watchdog group, Mass Fiscal Alliance. 'I think what the public really wants in here is when they're asked to be put on the hook to pay for something like this, is they want to know what did we pay for.' The contract shows an end of June 30th. 25 Investigates asked the attorney general's office if that means that is when the investigation will conclude. We've learned that is just an end of the fiscal calendar year. Meantime Enrique's family continues their painful wait for answers. 'A young man just 25 years old, they shattered his dream,' Perez Garcia said. According to the records we obtained, the state has paid about half the cost of the investigation so far. The balance is about $153,035.42. Twice, attorney David Meier offered a discount for his services, reducing the total cost by $74,350.00. In May, Massachusetts State Police announced major reforms at the state police academy. Changes include dividing the upcoming class into two smaller cohorts, appointing new academy leadership and completing an hour-by-hour review of the training curriculum and recruits' academy experience Boxing remains a suspended activity. This is a developing story. Check back for updates as more information becomes available. Download the FREE Boston 25 News app for breaking news alerts. Follow Boston 25 News on Facebook and Twitter. | Watch Boston 25 News NOW
Yahoo
18-05-2025
- Business
- Yahoo
On Holding on Fire
In this podcast, Motley Fool analyst David Meier and host Ricky Mulvey discuss: On Holding's blistering sales growth. Why pharma investors aren't reacting to President Donald Trump's executive order on drug prices. If Alphabet's stock deserves to be in value town. Then, Motley Fool personal finance expert Robert Brokamp joins Ricky to discuss why investors should consider buying individual bonds. To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy. A full transcript is below. Before you buy stock in On Holding, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and On Holding wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $635,275!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $826,385!* Now, it's worth noting Stock Advisor's total average return is 967% — a market-crushing outperformance compared to 171% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of May 12, 2025 This podcast was recorded on May 12, 2025. Advertisement... Ricky Mulvey: Does Alphabet deserve a grocery store multiple? You're listening to Motley Fool Money. I'm Ricky Mulvey, joined today by the smirking David Meier. David, thanks for being. What are you smirking about? What's so funny? David Meier: Oh, it's all good today. All good. Ricky Mulvey: Good. Just making sure I don't look funny or anything. That's why we do a audio only podcast for today. Politics keeps mixing with markets, and we have some earnings from a fast growing apparel later in this segment, Dylan and Ja-mo hit the trade deal-ish trade agreement question mark between the US and China yesterday. But there's another move from the White House that could have significant implications for markets. President Trump signing an executive order that Americans must get a "Most favored nation price for prescription drugs." David, when I saw this, my first reaction was sweet. You know what? I bet the big drug makers stocks are going to dive on this. They did not flinch. The US is where a lot of their profits come from. What's going on here? David Meier: The reason they didn't flinch is because the market doesn't believe that those profits are going away. It's as simple as that. If we look a little bit under the hood at what the executive order actually says, it does lay out some cases where other countries around the world pay lower prices than we do in the US. Well, they negotiate differently. The market for drugs is way more open in the United States than it is in other countries. Governments tend to negotiate on behalf of their people because they're the ones making the purchases. They have some negotiating power. We here in the United States tend to let markets determine prices. There are other players. There's PBMs and things like that. But this is basically the market saying that the US markets will withstand higher prices. Basically, with the stocks not really moving on the news, the market says, Well, we look ahead and we don't see how you're going to do this. Basically, the other thing that the executive order said was, Health and Human Services Secretary, go out and put together a plan in 30 days for what you think the prices will be. There's a negotiation that's going to happen in between, so we'll see what happens, but as of right now, I think that's what the market is saying. Ricky Mulvey: Well, the pharma lobbyists are saying something else, David, they're certainly sweating a little bit. According to Bloomberg, the brand drug lobby, PHRMA my old employer had an emergency call on Sunday and said that this could cost the pharma industry one trillion dollars over a decade. You look at a drug like Ozempic. This was mentioned in the press conference with President Trump, where a month of is almost $1,000 in the United States, about 60 bucks in Germany. That's not great if you need Ozempic. That's also a huge profit margin for Novo Nordisk. Novo Nordisk CEO trying to defend the practice in Congress a little while ago saying, don't look at me. Look at the pharmacy benefit managers. Those are the ones that are really screwing up prices here. The lobbyists are certainly concerned here, and is this a time where if you own stock in a drug maker, especially one making weight loss drugs, is this a time to revisit your thesis? David Meier: The short answer is yes. Should you panic? I don't think so, but you should go back given how this all tends to work. Regulation does play a part in many industries, but in pharma specifically. The lobbyists are going to have to basically make the case to the HHS secretary to say this is why we think these drugs should be priced here. Again, this is about pricing power, this is about bargaining power. The lobbyist pharma is going to have to roll up their sleeves and do some work over the next 30 days and beyond that because if I read everything correctly, there's some other milestones at 180 days and a year out and multiple years out. This is going to take a while to play out. They're going to have to do some work to basically say, look, there's a reason that we one should be able to charge these prices, and two, there are benefits to our industry as a result. Because you got to remember, a lot of that gets plowed back into research and development of all kinds to bring the next generation of drugs and next generation of care. I don't think anybody would want higher prices just for the sake of higher prices. We should want our healthcare to be reasonably priced. But at the same time, we don't want to disrupt the long term innovation that happens here as a result. Ricky Mulvey: I think the administration is saying and I would actually agree on this point. I've been accused of being too liberal and too conservative on this show, so we'll see what complaints I get this time. The administration would basically say, we don't want to stifle innovation necessarily, but it shouldn't be on Americans alone to fund that innovation when you have other developed countries in the European Union, Australia, for example, paying significantly less for the exact same drug coming out of the exact same factory. David Meier: That makes sense. Then the question is, who's going to do the negotiating? Is our government going to step in and do the negotiating? That would be a big change to how our markets work today. Ricky Mulvey: We'll see how it goes. I should also mention I've never worked for a brand name pharmaceutical lobbyist. I'm afraid of catching heat today, David. I don't know why. Let's move on to earnings. [laughs] Let's talk about earnings. Let's focus on the fastball here. On Holding the maker of comfortable shoes, where rocks and mulch often get stuck at the base of it, I enjoy wearing them still, they reported this morning sales up a blistering 40% from one year ago. That is on a constant currency basis because we're going Swiss francs to US dollars with this earnings report, getting us in some trouble. It's about $860 million in sales for the quarter. That's in US dollars. I'm looking at a retailer that is earning basically 40% more sales than one year ago. David, what is On getting right in this environment? David Meier: They have the product that people want. I hope I don't sound glib when I say that, but that is true. Their products are very good and in demand all around the world. They had good growth in all of their geographical segments, and it's because they have taken the time and made the investments to put technology into their shoes that make them both comfortable, functional, whether you're running, whether you're working out, whether it's casual, all these things, but playing tennis can't forget about Roger Federer they have product that people want. As we saw here this quarter, more people wanted it, even as we're starting to get into a little bit of the impact of the tariffs. Ricky Mulvey: On Clouds were one of my tariff panic purchases. Those included airpods for a birthday gift. I had to get some basketball shoes. Then I was like, my On Clouds have completely worn out at the bottom, where the rubber is gone, and I need to get these before the prices get jacked up by maybe 50-100%. I don't think that's going to happen now that we have the pods, but I do have some new On Clouds. I'm a big fan of the product. Is this something you own? Are you taking a lynchian look at this company? David Meier: I don't own shares, but I was a bit of a sneaker guy. I have tried them, and also like them. You probably aren't the only one making a purchase ahead of what may have transpired, and you did it because you liked the product. It was their direct to consumer channel that actually had the best growth. I don't think you are in the minority in terms of maybe pulling a purchase forward. But to management's discredit, they actually said, we still see plenty of demand for the rest of the year. It's not a top line thing for them. What they are actually saying in terms of the tariff impact is maybe margins will get pinched a little bit. We're doing our best to figure out what those might be. We're not really knocking them down heavily, but we just want to let you know that it could be volatile. But on a top line basis, they say our product is in demand. We're making sure that all the places where we sell our shoes have plenty of product and good up to date products. I credit management for at least at the beginning handling this uncertainty pretty well. Ricky Mulvey: Let's dig into the numbers a little bit more. Looking at operating margin here, I think there's a story because now On is about on par with Nike's historic average, about 10-ish, 11%. Nike dipped in a recent quarter, but we'll take that out to be nice to our friends at Nike. This is significant for a younger brand that you would think needs to spend more as a percentage of their sales on marketing or maybe have less negotiating power with shoe stores like Foot Locker and yet, there they are in an efficiency basis, pretty much on par with Nike, what story does that operating margin number tell investors? David Meier: This is actually a fantastic question. Let's use the Nike and On Holding comparison. Both companies do sponsor athletes. But Nike, man, think about the suite of athletes that market their products. That's actually a huge expense for Nike, and they make the most of it by getting in terms of volume and pricing that they've been able to generate for their products over the years. Even though On does have, again, those sponsored athletes, it's less compared to what Nike spends. They have actually done a good job of again, creating a product that people want, creating a product where word of mouth marketing is probably more important than necessarily the sponsored marketing. Again, getting the products to consumers in the way that want to buy them. On has the advantage of having a consumer that is more apt to buy in a direct consumer channel, an online e-commerce type channel than Nike had when it was starting out. The other thing I credit is, in addition to putting good technology into their products, they've actually done a good job of building their business from a supply chain management standpoint, from managing their marketing all these things, and figuring out where they can price their product in order to keep moving it at the volumes that they need. At the same time, they've been able to reinvest back into the company to say, hey, here's our latest technologies that we want to put in shoes. We want to expand into apparel. Hey, we need to open up a distribution center in Atlanta. I give management a lot of credit for not only creating a good product, an emerging brand, but they've created a very good business around this. This is something that's important for the long run because if you look at the history of Under Armour, Under Armour had a phenomenal brand, but they weren't the best operator. Eventually, that caught up with them as they tried to get bigger and bigger. Going forward, we'll see how all this plays out for On, but they've done a good job of balancing all the things that they need to balance in terms of creating a good long term business. Ricky Mulvey: You don't think Elmo is getting Step Curry rates for those commercials? David Meier: I don't know. Depends on how good Elmo's agent is. Ricky Mulvey: That's a good question. They have the commercial with Elmo and Roger Federer. They're using Elmo quite a bit in their commercials. I think On looked at Adidas and saw the trouble they ran into with Kanye West and said, what is the opposite celebrity we can find? Then you get Elmo selling shoes for him. David Meier: You asked about my smirk earlier. There is nothing but good entertainment value as well as educational value in what we're talking about today, because that is just awesome. Ricky Mulvey: Let's close out with the story on Alphabet. We've gotten a few questions about this company from listeners. Because of its underperformance relative to the market and story line going into it, there's a Wall Street research report from an analyst named Gil Lurie. He would like to set the company on fire, basically saying the only way forward for Alphabet is a complete breakup that would allow investors to own the businesses they actually want, making the point that the entire business is valued on the worst multiple that investors can find. That's the search multiple. It's about 17 times. Before I get to your question on valuation, why do analysts need to assign the worst multiple to the whole business? There's a lot of smart people looking at Google, and I assume some of you can do math. David Meier: [laughs] That is essentially the average. One way you could go about valuing Google/Alphabet is value the search business, which is by far the biggest business, generates the most cash flow, has the most uncertainty around it today. What is AI search going to bring in the uncertain macro environment? Is search going to go down? Is it a commodity now? There's all things facing the search business, but they have many other segments. What this analyst is basically saying is, hey, these other segments deserve higher multiples. Well, maybe that's true. As an analyst, you could do that yourself and say, YouTube is worth this. The Cloud business is worth that. The chip business is worth something else. If you think that as a whole, the business should be trading at maybe 24 times a weighted average multiple instead of 16, as an analyst, you can say that. The challenge, in my opinion, in breaking this up, is where do these companies get their capital from? All of them need investment capital in order to operate, and a lot of that comes from search. While I understand that breaking everybody up could unlock a lot of value, if you look at the most recent breakup of a very large company, go to GE. General Electric has split into GE Aero, GE Vernova which is the energy business and GE Healthcare. That had a conglomerate discount, and it took years to divide that business up. Now, the sum of those parts is greater than the previous whole. But it's not necessarily easy for those companies to operate on their own. Again, the internal capital allocation process is taking a lot of cash flow that comes from search and putting it in new businesses, making new investments, making new moonshots. Is moonshots a thing still associated with Google? Ricky Mulvey: We can count Waymo. They got self driving stuff going on. David Meier: There's all sorts of stuff. While I understand breaking it up could unlock a lot of value, I also am sympathetic to the idea that, hey, most of the capital comes from search. If you put these businesses on their own, does that mean they have as much capital as they need in order to grow as fast as they want? I don't know the answer to that question. It's a risk to basically set all those free as individual companies in the market, and the market might say, well, this is great, but, Waymo, you need a lot of capital going forward.. Maybe I'm not going value you at the multiple that somebody else thought you were now that I can see all of your financials. Ricky Mulvey: Let's close out with the question that introduced the show. There's some narratives going against Google right now. The search business is declining. You're doing nothing compared to ChatGPT. Your business there could become obliterated. For that, Mr. Market is assigning Alphabet a lower than average earnings multiple about 17 times. David, that is what Kroger trades at. A very mature grocery store business. Here, you have Google, which still dominates the search market. It's got a growing Cloud business. It owns YouTube, which is the biggest streaming service anywhere. It's free, but we can set that aside for now. I've got this company on my watch list. Should I pick up some shares while Alphabet's in value town? Are we looking at a falling knife here? David Meier: Me personally, as someone who I've followed this company for a long time. I'm in agreement with you. I think shares are probably undervalued, but they're probably a little undervalued for a reason, and that's because there's a lot of risk and uncertainty that's ahead of the company in the short term. If you have a case where the lawsuits don't have a big impact, if there's not a call for a breakup by the FTC, if the other businesses that are growing, again, the ones we mentioned, YouTube, GCP, things like that. If they have all of the earnings power that this analyst thinks they do, eventually the market will be able to see through all of it and figure out what's the right multiple. I just personally think this is a phenomenal business generates significant cash flow. They have multiple ways that they can reinvest that cash flow. It's probably a little undervalued today. Even as a conglomerate. Ricky Mulvey: We'll leave it there. David Meier, thank you for your time and your insight. David Meier: Thank you so much, Ricky. This was a lot of fun. Ricky Mulvey: Hey, Fools, we're going to take a quick break for a word from our sponsor for today's episode. Real estate. It has been the cornerstone of wealth building for generations, but it's also often been a major headache for investors with 3:00 AM maintenance calls, tenant disputes, and property taxes. A Fundrise Flagship Fund, a 1.1 billion dollar real estate portfolio with more than 4,000 single family homes in the Sunbelt communities, 3.3 million square feet of in-demand industrial facilities all professionally managed by an experienced team. The Flagship Fund taps into some of real estate's most attractive qualities, long-term appreciation potential, a hedge against inflation, and diversification beyond the stock market. Check, check, and check. All without the complex paperwork, massive down payments, and soul sucking landlord duties. Visit to explore the portfolio, check out historical returns, and see just how much easier investing in real estate can be. Carefully consider the investment objectives, risks, charges, and expenses of the Fundrise Flagship Fund before investing. This and other information can be found in the funds perspective at This is a paid advertisement. Up next, Robert Brokamp joins me for a look at bonds and what investors should consider before adding them to their portfolios. Investors own bonds for safety and income, but recent history has occasionally told a different story. The total return from the overall bond market has been flat to slightly negative over the past five years. That's if you bought into this safe investment as COVID kicked off. Over the past few years, investors in bond funds have experienced unexpected and historically steep declines. In 2022, the Vanguard total bond market ETF lost about 13%. Bro, that is nothing for a growth stock investor, but this could spook anyone who's closer to retirement. Robert Brokamp: Yeah, and 2022 was probably the worst year for the stock market in US history. It was quite notable. The main cause of the declines has been the rise of interest rates. If you go back to 2020 in the middle of the pandemic, the 10 year treasury yielded an astounding 0.5%. But over the last few years, it has risen to almost 5%, reaching that in 2023. It's fallen down a bit back, but it's still at around 4.5%. When rates go up, the value of existing bonds go down. Why? Well, if you had bought a 10 year treasury back in 2020, that yielded 0.5%. It's now less attractive because after all, who would want 0.5% yield if 4.5% is now available? The price of the 0.5% treasury has to adjust downward. However, there's good news. The price of that bond will return to its par value as it gets closer to maturity as long as the issuer, in this case, uncle Sam, is still in business, so the price decline won't last forever. Ricky Mulvey: Unfortunately, that same dynamic may not play out in a bond fund, which could hold hundreds or even thousands of bonds with different maturities and credit ratings that are constantly being bought and sold. But you can get varies with your 12 month trailing yield, your 30 day SEC yield, or your weighted average coupon rate. One solution is to buy individual bonds instead of bond funds. However, it's not as simple as it sounds, so Bro's got a few tips starting with invest enough to be diversified. Robert Brokamp: There's one rule of thumb that says you shouldn't attempt to construct your own bond portfolio unless you have at least $50,000 to invest. That's because the issuers, whether it's corporations, municipalities, foreign governments, they can all go bankrupt and default on the debt. That doesn't mean you'll lose everything, actually. Investors typically recover 40% to 60% of the original value of the bonds after a company restructures, gets liquidated, but it usually takes a while for investors to get some money back. You want to spread your bond books around. When it comes to investing in stocks, we hear at the Fool generally say you shoul down at least 25 companies, and that's probably a good starting point for bonds as well. Though if you invest in really really safe bonds, you can get away with a smaller number. For example, you can feel more secure with a smaller bond portfolio or a smaller number of issuers if you invest primarily in US treasuries, which are still considered among the safest investments in the world. Ricky Mulvey: Fledgling casino developers may not like this tip, but Number 2, stick to investment-grade bonds. Robert Brokamp: To minimize the risk of buying bonds from a company that may go belly up, you want to stick with investment grade issuers, and those are rated Bbb or higher by standard and Poors or Baa or higher by Moody's. According to fidelity, here, the 10 year default rates on bonds of different ratings from 1970-2022 as rated by Moody's. Tripple A bonds have a default rate of only 0.34%, so pretty darn safe. Investment grade 2.23%. Speculative grade, high yield junk, whatever you want to call it, 29.81%. That's a high default rate, which is why they pay such high yields. But even if you stick with investment grade, there's still the risk of default. In fact, if you own individual bonds long enough, you probably will see a couple of defaults. It's still important to diversify your bond portfolio, but you can mitigate that whole default risk by choosing highly rated bonds. Ricky Mulvey: Next up, find out whether the bond can be called. Robert Brokamp: Every bond has a set maturity rate, but many can be called before then. What happens is that a company decides to pay off its bondholders before maturity. You bought, let's say, a 10 year bond, but then it got called five years in. Why did they do that? It's usually because interest rates have dropped or the bonds credit rating has improved. It allows the issuer to redeem the old bonds, issue new ones at lower rates. Unfortunately, that leaves investors left with having to reinvest the money at lower rates. You want to make sure you know beforehand whether the bond you're going to buy is callable, and if so, what the yield will be. You'll often see at the quotes, you'll see either the yield to call, YTC, or the yield to worst, YTW, and that's what you'd receive if it does get called. By the way, another benefit of treasuries is that they're not callable. Ricky Mulvey: This next one gets a little tricky if you like owning investments in standard brokerage accounts, Bro, but pursue the primary market. Robert Brokamp: When bonds are first sold to investors, what is known as the primary market, they're usually sold in $1,000 increments and will be worth $1,000 when they mature. This is known as their par value. But once a bond is issued, it trains on an exchange. This is known as the secondary market. At that point, a bond rarely trades for $1,000. The price is going to either be higher or lower, depending on changes in interest rates and what's going on with the company, maybe what's going on with the economy. If you buy a bond that is below or above its par value, this is going to add a layer of tax complexity because when the bond matures for $1,000, you're either going to receive less or more than you paid for it. This is a really complicated topic, but in most situations these days, investors are buying bonds at a discount, meaning they're paying, let's say, 950 bucks for a bond that will eventually mature in 10,000. That $50 difference is going to be taxed as ordinary income in most situations, not as a capital gain. You can avoid all this tax complexity if you buy bonds right when they're issued in the primary market and then hold to maturity. That said, buying bonds in the primary market isn't easy. You're going to increase your chances by having an account with a brokerage that underwrites a lot of bond offerings. Some of the bigger discount brokers also have access to some primary offerings, but you might want to check with them beforehand to see how big that inventory is going to be. Ricky Mulvey: If you want to play this game, you got to know what you're buying. Understand how bond prices and yields are quoted. Robert Brokamp: Now, if you've never seen the quote for a bond, it's going to look a little interesting to you because despite being typically worth $1,000 at issue and at maturity, bond prices are quoted in a different way. You basically move the decimal point to the left. A quote for 99.616 for a bond indicates that the bond is being offered for $996 and 16 cents. You'll likely see both the coupon and the yield quoted. The coupon was the interest rate on the day the bond was issued. But once the bond begins trading and moving above or below its par value, the yield is a more accurate representation of what you'll actually receive as a percentage of what you paid for the bond. Then finally, most bonds pay interest twice a year. When you buy a bond in the secondary market, you'll owe accrued interest to the previous owner for the time she or he owned the bond in between payments, but then you'll get the full six months worth of interest during the next payment, even though you only owned the bond for maybe less than six months. Ricky Mulvey: Bro, our engineer Rick Angol was asking for more excitement before we started recording in our segments. Really I think he's getting it with understanding how bond prices in yields are quoted. Let's keep going with the tip of buying directly from Uncle Sam. Robert Brokamp: You can buy savings bonds, treasuries, I bonds, treasury inflation protected securities, otherwise known as tips, directly from the government, commission free @ It's a really convenient way to buy treasuries. Unfortunately, it can only be done in taxable accounts because the government isn't set up to serve as a custodian for IRAs. But the consolation here might be that interest from treasuries is actually free of state and local income taxes, so that makes them somewhat more compelling. Also, in the case of treasuries and tips, you don't actually buy the security immediately, knowing the exact yield you'll receive, rather, you're basically signing up to participate in an upcoming auction. Once the auction is complete, you'll be informed of the rate you'll receive. Ricky Mulvey: Finally, you can get the best of both worlds with defined maturity ETFs. Robert Brokamp: If you've been listening so far, you can see that buying individual bonds requires more education and effort than just buying a bond fund. Fortunately, there's a type of bond ETF that offers most of the benefits of buying individual bonds. These are known as defined maturity or target maturity bond ETF. These are funds that only own bonds mature in the same year, and that year will be identified in the name of the ETF. Toward the end of that year, after all the bonds have matured, you'll just have a bunch of cash. The cash will be distributed to the shareholders and the ETF ceases to be. The two main issuers of this type of ETFs are Invesco, and they call them BulletShares or iShares, and they call them I-Bonds, but that's not to be confused with the inflation-adjusted bonds issued by Uncle Sam. You can use these ETFs to invest in all kinds of bonds, corporates, munis, TIPS, high yield bonds. Both the Invesco and iShares websites have tools that can help you build a bond ladder with these ETFs. You have a certain amount coming due each year, probably particularly attractive to retirees. Like all bond funds, these ETFs are going to go up and down in value depending on what's going on with interest rates in the economy, but they should return close to their initial share price, that is the price of the ETF on its very first day once the fund matures. But there are no guarantees, and this is more likely if the ETF invests in safer bonds, less likely if you're choosing an ETF that invests in high-yield or junk bonds. But the bottom line is that with these ETFs, you can get the ease and diversification of a bond fund, yet a measure of the predictability about what the ETF will be in the future, similar to what you'd get from an individual bond, in other words, most of the best of both worlds. Ricky Mulvey: As always, people on the program may have interests in the stocks they talk about in the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear personal finance content, follows Motley Fool editorial standards, and we not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only to see our full advertising disclosure, please check out our show notes. Motley Fool only picks products that it would personally recommend to friends like. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. David Meier has no position in any of the stocks mentioned. Ricky Mulvey has positions in Kroger. The Motley Fool has positions in and recommends Alphabet, Moody's, and Nike. The Motley Fool recommends GE Aerospace, Ge Vernova, Kroger, Novo Nordisk, On Holding, and Under Armour. The Motley Fool has a disclosure policy. On Holding on Fire was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
15-05-2025
- Business
- Yahoo
Rule Breaker Investing's Gotta Know the Lingo, Vol. 7
Our all-Fool cast is here to help you understand some common and not-so-common investing terms, so that you can leap tall buildings, swing from a web, and more importantly, be better investors! To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy. A full transcript is below. Ever feel like you missed the boat in buying the most successful stocks? Then you'll want to hear this. On rare occasions, our expert team of analysts issues a 'Double Down' stock recommendation for companies that they think are about to pop. If you're worried you've already missed your chance to invest, now is the best time to buy before it's too late. And the numbers speak for themselves: Nvidia: if you invested $1,000 when we doubled down in 2009, you'd have $318,970!* Apple: if you invested $1,000 when we doubled down in 2008, you'd have $40,016!* Netflix: if you invested $1,000 when we doubled down in 2004, you'd have $598,613!* Right now, we're issuing 'Double Down' alerts for three incredible companies, available when you join , and there may not be another chance like this anytime soon.*Stock Advisor returns as of May 12, 2025 This podcast was recorded on May 07, 2025 David Gardner: Asset location, inventory turnover, customer acquisition cost, spiffy pop. Each of these represents intermediate level terms that most serious investors know, and most people who are not serious investors do not know. Well, I'm inviting on three serious investors. This week, Motley Fool senior analysts in order to help teach the rest of us some new terms. Terms like the one I just let off with, each of which has been covered in the past episodes of this week's recurring simple, some more advanced, all terms, we think you need to know. Drawn from investing in business, understanding these terms and the concepts behind them will enable you to become smarter about the game of investing smarter, which in my experience leads to happier and richer over time. Or maybe you already know these terms. In which case, I have a scoring system and you can score yourself this week. It's Volume 7 of Got Another Lingo welcoming in Nick Sciple, Yasser Al Shimi, and David Meier to teach you and me only on this week's Rule Breaker Investing. Welcome back to Rule Breaker Investing. It's Gotta Know the Lingo. Volume 7. The purpose of this series is to look at some of the terms that you might hear about and not always fully understand from business, accounting, investing, sometimes technology as well. Some new oncoming terms to get you thinking about the language of investing, business, and sometimes life to get you smarter about these concepts, we're about to do Volume 7. I'm going to be welcoming on Nick Sciple, Yasser el-Shimy, and David Meier to share three simple terms and then three advanced terms. I'll talk about the scoring system for that in just a minute. Coming up a bit later this month, I'm excited to welcome back superstar business writer and marketer, Seth Godin, author of iconic books like Purple Cow, who will make his first reappearance on the Rule Breaker Investing Podcast since becoming my first ever author in August. It was August 1st, 2018. Seth Godin back ahead this month. I also want to call out last week's Mailbag for the extra notes coming in via Twitter X. The Mailbag was originally a bit light on the email side until I reached out over on Twitter X, put up the Ask Us Anything flag, so thank you again to those followers and listeners. Just a reminder that our email address is rbi@ to power up your Mailbag every month. You can always tweet us @rbipodcast on there on Twitter X as well at David G. Fool. There since February 2009, actually. I'm not quite OG status for Twitter, but 16 years of interacting with the public at large has certainly strengthened me and helped grow the Fool and this podcast. I mentioned the scoring system for this week. Before I welcome our senior analysts. Let me make it clear how you can score this week's podcast while listening. You're scoring us. We have six terms for you, six that we're going to share this week and illustrate for you at the end. I'm going to ask you, dear listener, quietly to think with each one, did I learn anything from these Fools? If you feel like you didn't learn anything for a given term, your five minutes or so were wasted by that particular term, the score would be zero because you learned zero, and we were zeros. If on the other hand, you thought that was helpful. Maybe you even did know the term, but hey, they made me laugh. Give us a +1. Finally, if, as Nick or Yasser or David present their terms with their illustrations, if you find yourself delighted, not just by the quality of the learning, but maybe you got to smile along with it, if you really enjoyed it, give us a +2. That is the scoring system for Gotta Know the Lingo. Well, as I shared at the start of the year, just before we get started here, let me mention my 2025 book, Rule Breaker Investing is available for pre-order now. After 30 years of stock picking, this is my magnum opus, a lifetime of lessons distilled into one definitive guide, and each week until the book launches on September 16th, I'm sharing a random excerpt. We break open the book to a random page, and I read a few sentences. Let's do it. Here's this week's page breaker preview. Two sentences from near the very end of the book and I quote. "To quote the British historian Thomas Babington McCauley on what principle is it that with nothing but improvement behind us, we are to expect nothing but deterioration before us?" Then I wrote the word Excelsior. That's this week's page breaker preview to pre-order my final word on stock picking shaped by three decades of market crushing success. Just type Rule Breaker Investing into Barnes and or wherever you shop for great books. When you think about it, a great investment book literally pays for itself. To everyone who's already pre-ordered, thanks. That means a lot to us. Before we start, I want to mention what happens next week. It's my birthday next week, and your annual birthday present to me. This has happened most every year, the last several years, is that you let me know what you've learned from me over the last year, or if you're a longer term listener, maybe what you've learned from me over the longer term. What have you learned from David Gardner, 2025 edition, Our email address, rbi@ You can tweet us @rbipodcast on Twitter. Again, if you have a little extra time this week and you want to celebrate my birthday with me drop me a story. Drop me a few lines, a few paragraphs, if you like, rbi@ I will turn it around and share back the ones that feel most apt, the most beautifully written, the most inspiring on next week's show. Thank you in advance. Without further ado, let's get started. Nick Sciple. Welcome to this week's podcast. Nick Sciple: Great to be here with you, David. David Gardner: Nick is a senior analyst on the Motley Fool Canada Investing Team supporting our Canadian services outside of the Fool, most of his time gets taken up by his 2-year-old and his 10 month old, but Nick tries to find time to follow Alabama athletics and get to as many concerts and shows as he can. Nick, my icebreaker question for each of our senior analysts this week is, what is a financial term that you, Nick Sciple wish you'd known prior to adulthood? Nick Sciple: Well, David, I think, for me, compound interest is the one that came to mind, it sounds a little technical and academic. But when I pictured getting wealthy as a kid, I pictured Scrooge McDuck in his bank vault swimming around in big buckets of gold coins. I thought you just saved your money, and you put it in the bank, and then slowly over time, that's all that happened, but I didn't realize that your money is actually out there working for you. It's like when you're a kid playing baseball or kickball, and there's some ghost runners on base, you already got a hit earlier on, and there's a pretend person out there running the bases for you. That's what your portfolio is doing. But as a kid, I really had no understanding of that as I came to grasp that more over time. It'd be crazy not to be participating in the stock market, participating as someone benefiting from compound interest out there in the world. I didn't understand that until later in life. I wish I would have known it earlier. David Gardner: Appreciate that, Nick. you're reminding me one of our fellow fools, Mark Reagan, who was at our company for some years, told a great line when I first met him. He said my mom raised me, and she said to me, Mark, there are three ways to make money in this world. With your mind, with your body, or with your money, which one would you like to do? And he said, Tell me about that third one. How can I make money with my money? Welcome, Nick, Roll Tide. Let's introduce next Yasser Al Shimi, Yasser is a senior analyst at The Motley Fool, where he serves as the acting advisor and investment coordinator for Global Partners, our international markets-focused service. Since having kids, Yasser's free time is a thing of the past, but he still manages to follow Italian soccer every week. Nonetheless, Yasser, welcome. Can you remind me of the team? I know it's like premier league. It's the big time. Yasser El-Shimy: Sure. The league itself is called Serie A. That's a Italian soccer league. My team is AS Roma. That's a team I've followed for over 20 years now, and I think I'm going to stick with it for the next 20, at least. David Gardner: There I am showing my ignorance in a lot of ways of international soccer. I guess I should just ask you this basic question, Yasser, is AS Roma the best team? Yasser El-Shimy: Well, that depends. For me, it is the best team. No questions asked. From a footballing perspective, however, it's not by far the best team in the world. Now, they don't have the resources to compete with the likes of Barcelona, Real Madrid, PSG, or some of the Premier League clubs, but they still nonetheless manage to play for the fans, play for the Jersey, and that's what I love the most about them. David Gardner: Thank you. Yes, so it looks like they're looking for at least one more promotion at some point. Yasser, what is a financial term you wish you'd known prior to adulthood? Yasser El-Shimy: Well, I would have gone with compound interest, thanks a lot, Nick, but minus the mental image of swimming in gold coins. I think, for me, I would have appreciated learning more about diversification. I think that growing up, my parents and a lot of the people I knew, and, of course, I having grown up in Egypt, not in the United States. A lot of the people I know tended to invest almost all of their money in real estate or to a lesser extent in CDs, certificates of deposit in the bank. Unfortunately, not a lot of investments go the way of stocks, bonds, or other alternative investments that might exist. I think that has definitely been a missed opportunity for a lot of people, especially with the depreciation of the local currency over time. David Gardner: Thank you for sharing that, Yasser. Remind me of two quick facts. What was the year you came to the United States from Egypt? What was the year you bought your first stock? At what age? Yasser El-Shimy: I moved to the US in 2007. I think I was around 25 years old at the time, and it took me two years to buy my first stock, and it was a process of, getting to learn what stock investing even is, and thanks a lot to the Motley Fool for helping with that. But ultimately, I decided to go ahead. Even as a graduate student, I set aside the little money that I had and started investing. Thank God I did. David Gardner: Fantastic. 2009, by the way, not a bad year to start investing. Yasser El-Shimy: Exactly. David Gardner: Hey, David Meier. Welcome, David. Great to be with you. David Meier: Great to be with you, too. Thank you very much for having me. David Gardner: David is a senior analyst at The Motley Fool, where he's part of the Trends team, the lead investing liaison as well with our marketing teams. Since his daughter is out of the house married and an oral surgery resident at Case Western. He spends many afternoons on the golf course working to lower his handicap. David, I'm sorry to take you off the golf course this particular afternoon. How's the handicap? David Meier: On the way down, which is good. David Gardner: Do you want to quote publicly for all time through this podcast where you are right now or do you not want to? David Meier: I am a seven index right now and descending. David Gardner: Single ditch. Very impressive. David, what is a financial term you wish you'd known prior to adulthood? David Meier: Obviously cannot disagree with either of those two terms, but I'm going to go in a little bit of a different direction. I'm going to go with the term bond vigilante. First of all, it's just pretty cool. In your mind, pictures these armed men and women who are terrorizing the bond market. But in all seriousness, the reason that I think it's an interesting term is, hopefully, I won't screw up James Carvill's quote too bad, but he said "Some people dream of coming back, being reincarnated as a 400 hitter or a psi Young Award winning pitcher in baseball." I want to come back as the bond market because in the bond market, I can intimidate anyone. What these bond vigilantes are are supposedly these groups of people who conspire and say, we are actually going to be the ones who set rates. The reason that it's interesting, in my opinion, is because over my 20-plus years of investing 20 at The Motley Fool, the bond market actually plays a role, and I think it's good for investors to understand how interest rates moving up or down can impact stocks. It's one of the things that's helped me become a smarter, happier, and richer investor over time. David Gardner: Thank you for that, David Meier. While that is not one of our official terms for Got to Know the Lingo this particular week. I'm going to call that a bonus. I admit I didn't really know the phrase bond vigilante either. There's at least one phrase on this week's roster that I didn't really know much about. I'm learning along with everyone else, and let's get started. Let me turn first to Nick Sciple. Nick, you're queuing up a simpler term in a more advanced term. We're going to rotate through our simpler terms first. What do you got for us? Nick Sciple: David, so for my simple term, I went with proxy statement. Might also find it referred to as SEC Form DEF 14A. The proxy statement is a document that publicly traded companies are required to file with the Securities and Exchange Commission and distribute to their shareholders before any annual or special shareholder meeting. It exists to give shareholders enough information to competently vote on the matters before them at the meeting, whether that's election of electors at regular annual meetings, or if there's a big transaction where there might be a special shareholder meeting, that's to vote on that transaction, other changes in corporate policy. As well, gives you insights on executive compensation and incentives, insider ownership, potential conflicts of interest, and that things. All good. Background information, one of the most important SEC filings to check each year. David Gardner: Well, I would say, Nick, from the earliest days as a little investor raised on my daddy's lap, I think that I remember receiving through the mail proxy statements. then as I came of age, I would get them all myself for stocks in my portfolio. Do you have an opinion on how seriously we should take these, how much time we should spend for somebody who's keeping up with the diversification required by the Gardner Kretzman Continuum, a very difficult term to parse. We'll skip it this week. But for somebody who roughly has as many stocks in their portfolio, as their age, number of years on this earth, and that's me. I'm around 58 years old and I have around 58 stocks. How much time should I devote to proxy statements? Nick Sciple: I think it is important to understand how management is compensated and what their incentives are. Especially when you're looking at a company for the first time and you're unfamiliar with the business. If management is incentivized to increase per share metrics, which I own the shares. I would like to increase earnings per share. That is a lot more aligned with me than, for example, a manager that's incentivized on adjusted EBITDA where, hey, those adjustments are pulling out some real important costs and also incentivize things like acquiring assets to juice those types of metrics. Knowing what the incentives are of the management team that you're following and knowing potential conflicts of interest they have is important. Is it important to spend a lot of time debating whether they should be hiring auditing firm versus another auditing firm? I don't think you should spend any time on that at all, who is running the business and what their incentives are, I think is super important, especially when you're starting a position. David Gardner: Thank you. I might also add that I agree executive comp would jump off the page versus who the auditing firm is. I think maybe in terms of time management, we're all time-starved in this society. We should be. There's so much productivity to our every hour, I hope. But I would say it makes a lot of sense. Do you agree, Nick, to focus on the proxies of your biggest holdings? If I have a small starter position in something that really isn't going to tilt my portfolio too much, maybe I shouldn't spend too much time with that proxy. If I have a 5% or greater position in anything, you guys should probably vote that proxy. Nick Sciple: That's right. I'd say, the bigger the position is, the more important it is. The more influential a particular manager is over the business, the more important that is. You might be curious about what's going to happen next for Berkshire Hathaway. Well, if you read through that proxy statement, you get a pretty clear sign of who the next chairman is going to be. It's going to be somebody with the last name Buffett. But I think for different company, [inaudible]. Yasser El-Shimy: I'm so glad you brought this term to the podcast, Nick because this is actually not from a time management standpoint, but this is the first document that I go to whenever I come across a new company, and it's for the exact reason that you say. I want to know who the management teams are. But more importantly, I really want to know what their incentives are. Charlie Munger famously said, "If you give me the incentives, I'll show you the behavior." We have seen across the years of stock market investing, that is exactly what tends to happen. You can root out what you think is bad behavior right away just by spending a few minutes going over that section. Lastly, I'll say, the other thing that you get to see is, who are you investing alongside. You get to know who owns a big stake. Who's been selling their stake. It's it's a document chock-full of information, and it's nowhere near as famous as a 10K or a 10Q or anything like that. David Gardner: Good points, David Meier. Nick, let me turn back to you to close. I've asked you each to produce an interesting and illustrative sentence to put your term into to close. What do you got? Nick Sciple: My sentence is, if you're worried, your management team is taking advantage of you and other shareholders. Go check the proxy statement, and you'll find out real quick. David Gardner: Very well done. Thank you, Nick, for getting us off to a fine start proxy statement. Term Number 1 this week of the simpler sort. Let me move on to Yasser El-Shimy. Yasser. Term Number 2, what do you have? Yasser El-Shimy: Well, so some of us Rule Breakers are familiar with the first trait of a Rule Breaker that David came up with, and that was top dog and first mover. However, I'm going with a slightly version of that term today, which is something that you'd find in MBA textbooks, basically, the first mover advantage. Now, what we mean by first mover advantage is basically the benefits that a company would gain by being the first to enter a new market or introduce a new product or service that even creates a new market. This strategic position can give a company several advantages, including brand recognition, for example. Being the first allows you to establish a strong brand. Maybe even brand association. If your company's name becomes a verb or the action that's being done, think of Google, for example, for search and Uber for ride-sharing and so on. It can give you other advantages, including having bigger market share in that new market. It can give you resource access. If you can secure critical resources like patents, supplier contracts, or even physical locations, think Prologis for warehousing, for example, that could be an interesting example here. All of that gives you an advantage as a first mover that makes it a little more difficult for your rivals, for your competitors, to try and play catch up with you. The final thing I'm going to conclude here in terms of the advantages is effectively setting the industry standards or the customer or user expectations. First mover can define basically how products work. They can set the expectations for the end users of what they can come to expect from the service or from the product, and therefore forcing anyone who is trying to enter into this sector, a later entrant to adapt to those expectations and those standards that that first mover had in fact set itself. David Gardner: First mover advantage is obviously very important concept, and you're right. It is a little bit the stuff of MBA or grad students in coming from the business world, Yasser El-Shimy. I do think that it's something anybody can understand. It can be taught or explained pretty well to a bright child, and they are real. You're right. You mentioned brand and setting the benefits of brand, and I sometimes just think about the media coverage that goes to somebody like OpenAI, the sheer amount of brand building that the media does for you because you got out first. It's hard to put a number on it. Maybe there's a new term here, Brandwagon. I don't think I'm going to go there, but there's getting on the Brandwagon with the media helping you out is part of that, but I really appreciate your points about consumer expectations, making the rules early, even though you're ironically breaking the rules, but setting the standards of expectation. Nick Sciple: It's really interesting in either technology adoption or in the process of innovation, you're absolutely right. First movers can grab a lot of that advantage for themselves. But there's a paradox in there in that sometimes it's actually the fast follower that reaps all the benefits because either they come up with a better way of doing something or less expensive or something. The first mover did a whole lot of hard work, but it was the company that came in second that reaped all the rewards. Again, it could not agree more that it is a great thing to understand. But just beware, there's somebody out there always trying to get you. Yasser El-Shimy: That's an excellent point. Thank you so much for raising that because I was actually going to talk about some of the risks that come with being a first mover here, including what I might call a first mover disadvantage. There are certain sectors where there are, in fact, lower hurdles for new entrants to come into that sector, especially in technology. Think, for example, coding. That's something that's both quick and easy to do and scale as well. If you're a first mover, good for you, but that may not necessarily give you a clear advantage over late entrance. In fact, we might come from behind, fix your mistakes, out innovate you, and still benefit from the fact that you had made the first move to create the market to begin with. I'm thinking here, for example, Zoom for video conferencing versus Webex by Cisco. Cisco was the first to create this field or industry and Zoom comes in with a better product and basically takes a lot of market share. David Gardner: It's a good example, and obviously we can find good examples on both sides. That's why we're just here to educate and to make sure that you, dear listener, know these terms and have a nuanced appreciation, even of the simpler terms like Yasser's first mover advantage. Thank you for that, Yasser. Do you have an interesting illustrative sentence for us? Yasser El-Shimy: Sure. My sentence is the Patriots first mover advantage makes it impossible for another New England football team to rise and claim to be the team for New England. David Gardner: I don't think even if you don't like the Patriots, and I know some people listening don't. You can't disagree with that. Well, said. Let's move on. You went from football to football. Very nice, Yasser. David Meier, you have our final simple term. This is term Number 3 for Gotta Know The Lingo, Vol. 7. What you got? David Meier: I'm coming with portfolio management. Now, I actually was down in our asset management group for a while, and so I actually got to manage other people's money. I thought about this a lot. But portfolio management, really, when it comes down to it, it's just how are you collecting a group of stocks into a portfolio that is going to try to do what you want it to do? There's no right way to do this. Sometimes it gets much more complicated or it seems much more complicated than it is. For example, like professional investors on Wall Street. They will say, I need a portfolio of stocks that are not correlated with each other. Well, that's great, but that's hard to do. Then I remember something that you said, David, which was, make your portfolio be the future that you want to see. That's a completely different approach to portfolio management. I will say this. The way I try to go about it and the way I still try to do it is I try to create a group of companies in a portfolio that have the highest quality and the most attractive risk and reward. I figure if I can do that, over the long term, I should be able to beat the market a little bit. But put very simply, anybody can do portfolio management, however they want, because it's just a way of putting stocks together. David Gardner: Really appreciate that. Portfolio management, when you rock out that phrase, a lot of people for them, it probably means something formal and something that they need to study. While none of us is going to disagree with that, it is important and it is worthy of study. I don't think, David, as you're saying, that there's any single school of how to do this. In fact, I would say in some ways, it is undertaught. Even just looking at our company, I think the Motley Fool does a great job identifying stocks you might want to add to your portfolio. We've tried to think about people's portfolio dynamics over the years. But the reality is, other than our asset management part of our company, which is regulated, and we don't really talk about that here, everybody is left to their own to figure out how to manage their own portfolios. We can't give specific prescribed advice about what to do in your portfolio, even though that would be so relevant if we could. Anyway, therefore, there's a little bit of choose your own adventure. What color is your parachute? I'm all about that. I really want each of our listeners to be thinking about one or more principles that contain their intentions. Roughly how many stocks do you want to have? What kinds of diversification, etc? Yasser El-Shimy: David, I wanted to ask you, and maybe I'm throwing you a hand grenade here, but the pros and cons of concentration, being concentrated in your portfolio versus being diversified. We always hear arguments on both sides of those coins, and I would love to hear your thoughts on it. David Meier: Oh, it's such a great question and thank you for asking it. Well, there's something to be said for investing heavily in what you know. Because that's the thing you're most comfortable with. That's the thing that you probably pay attention to the most. Also may be the thing that if there are times when the stock is volatile, because you know it well, you may be more patient with it. You may actually think on a longer term time horizon than if I was trying to switch things in and out. But there is actually you don't necessarily just want one stock some people can do it. Not everybody can because that's going to be a very volatile portfolio. But do I need five to create diversification? Do I need 8, 10, 12? Some of it will depend on your own bandwidth, meaning how many of these can I follow? If I'm a normal retail investor who's doing this as part of the families, I'm a breadwinner. Plus, I'm trying to manage the family's finances. Probably not a whole lot of extra time to be going through this. I personally think you can get some decent diversification on about 10-12. If you can follow more, and you know those companies, it certainly will help. David Gardner: Well, well said. Yasser, hand grenades are welcome. I don't really think that qualified as a hand grenade. It was just a very thoughtful and important question to ask. Thank you for sharing that. David, your interesting and illustrative sentence, please, portfolio management. David Meier: I think for everyone, the best portfolio management is the one that enables you to sleep best at night. David Gardner: I do love that, and that is an excellent sentence. Thank you, David Meier. We are at the halfway point of this week's podcast, my dear Fools. We've just gone through three simpler terms, a reminder for each of them now, proxy statement, first mover advantage, portfolio management. Again, if you feel like you already knew any of those and we added no value to your life for that one or even all three. Well, that would be a zero. No, that would be sad. That would be a zero. On the other hand, if for one or more of these terms, you learned something or laughed, give us a plus one. Finally, if you found yourself utterly delighted and you now see the world in a new way that you didn't before this week's podcast, give us a plus two for that one. This is a quality assurance system. Let us know on social media or via our mailbag, how we scored for you this week. Why? Let's now move from our simpler to our more advanced terms, gentlemen. I'm going to turn back to Nick Sciple. Nick, what is your more advanced term for Gotta Know The Lingo, Vol. 7? Nick Sciple: My more advanced term is 10b5-1 trading plan, which if that doesn't sound complicated, it is. Refers to Rule 10b5-1 of the Securities Exchange Act of 1934. A 10b5-1 trading plan is a pre-arranged written plan established by corporate insiders, like officers, directors, or other large shareholders to buy or typically to sell company stock at a future date. They exist to provide an affirmative defense for those insiders against insider trading. To qualify for that, you have to establish the plan at a time when you don't have material non-public information. You have to give your broker specific instructions on how to carry out those trades, whether the date, price or a formula, calculate those and also, you have to exercise no further influence over the plan once you've established it. There's also a minimum cooling off period. It's about 90 days after you put the plan in place. Then since 2023, now every time a company files a quarterly or an annual report, they have to disclose those 10b5-1 plans that their executives have entered into during the quarter. It gives you advanced notice on upcoming buying or selling from insiders of the companies you own. David Gardner: Very well explained again, Nick, for those keeping score at home, and I hope you are, if you're wondering how this is spelled, it's 10b5-1, just to make sure we're parsing the language as perfectly as Nick, who by the way, is a lawyer would do himself. I admit this is the one I need to look up, guys. If you just hit me with 10b5-1 trading plan, I know it in concept, but I didn't actually know it by that highly technical name, but I appreciate that you brought it, Nick. Let me ask you back, what is significant about 10b5-1 trading plans for you as an individual investor? Nick Sciple: If you looked at the headlines last Friday, you may have seen just about anywhere you look on big financial websites, Jeff Bezos has filed to sell up to five million dollars worth of Amazon stock. If you go check Amazon's 10-Q, you will indeed see that on March 4th, 2025, Jeff Bezos, founder and executive chair of Amazon adopted a trading plan to satisfy Rule 10b5-1, where he's going to sell 25 million shares of over a period ending May 29th, 2026. When you see that headline and say, Bezos is selling $5 billion of stock. Maybe I should be concerned about what's going on with Amazon right now. If you actually drill into what's going on here, this is a plan established two months ago that's going to run over the course of a year plus. If you go and cross reference those sale numbers with the proxy statement that we talked about earlier, you see that's less than 3% of Bezos's overall stake in Amazon, something that's very likely just for personal financial planning, funding his other business interests, not something to worry about as an investor. David Meier: I'm glad you brought this one up too because I think it's very important that executives, directors, etc, disclose ahead of time when they're going to be selling. One of the things I can't stop thinking about Peter Lynch and his favorite quotes is that people sell stocks for a variety of reasons, but they only buy for one. Yes, it's great to know this information, and it's also great to know when they've actually purchased shares as well. There might be just a little more information value in the purchase, but it's always good for investors to understand what is happening with the leadership of the company and their stakes in the company. Nick Sciple: I'm glad you mentioned the purchase angle, and I think there's definitely a lot more information available in management purchases than there are in sales. I did mention, you can use a 10b5-1 plan for share purchases, although that's pretty rare to see done, management blind buying into the market, although you do see that, occasionally, one example we saw actually earlier this year, TKO Group, which is the parent company of WWE and UFC, their controlling shareholder endeavor, bought about $300 million in stock over the course of just about a month between January 17th and February 12th at prices up to $177 per share. Know anything about TKO Group? There's some pretty big catalysts coming down the line this year. The UFC's rights agreement with ESPN expires here at the end of 2025. They're going to be launching a new boxing league in collaboration with the Saudi Entertainment Authority this year, and then domestic rights for the WWE's premium live events also expire in March of next year. With management blind buying in January and February, legally compliant, maybe says something about how they expect those negotiations to proceed throughout the year. If you look at the shares here today here in the mid 160s, management was blind buying 10, $15 higher than where we are today. Maybe it's something to have your eye on. David Gardner: There you go, Nick Sciple somehow managing to fit in some references to WWE and/or UFC. I know you're a fan. By the way, Netflix seems to be doing pretty well with its WWE show. Nick Sciple: That I think is going to be a big driver for Netflix's advertising business moving forward. You think about that weekly inventory, getting folks to tune in. They're continuing to put the gas pedal on when it comes to sports content. Going to have another Christmas Day game this year, another boxing event this year. I don't think this is the end of Netflix's forays into live sports. David Gardner: Well, and as I look this up, because I did not immediately recognize the numbers and letters together in the way that they're configured on my friend Wikipedia, one of my best friends in this world, I found out that SEC Rule 10b5-1 was enacted by the SEC in the year 2000. It's been around for 25 years, but then it wasn't around for 100 years. It makes me glad that I think, in general, the world for individual investors, the world of transparency and better information, is so much more present here in 2025, starting really somewhere around 2000. Remember Arthur Levitt, SEC chair. We had something to do with that back in the day, Regulation FD, Fair Disclosure, where companies could no longer give information just to Wall Street. Any material information had to be given to individual investors, and the Motley Fool was a big proponent of that and helped get that passed. Anyway, it makes me happy to see that this has been around for 25 years, but it does make me wonder, Nick, about the century before that. Nick Sciple: That's right. It was the Wild West, I guess, back before we got some of these investor protection laws here in the past 25 years. David Gardner: How about an interesting and illustrative sentence to go? Nick Sciple: If you see insider selling under a 10b51 trading plan, usually, that can be safely ignored. But when you see purchases made under a 10b51 trading plan, you should start paying attention. David Gardner: Very well done. Very well said, thank you, Nick. Let's keep moving on to term Number 5. Yasser earlier you brought us first mover advantage. You could even argue you were taking advantage of a first mover advantage with that introduction of that term. What do you have now for term Number 5? Yasser El-Shimy: For term number five, I'm going with insider ownership. Insider ownership refers to the shares of a company that are owned by executives, directors, and other key insiders. Think, for example, venture capital firms and so on that may have invested early in the business and kept their shares in the business as they IPOed. These individuals often have significant control over the company and they exercise a lot of influence over its decisions and how the company operates. But I think the most important element of insider ownership is the signals that it sends to market. I'm going to just go ahead and say that generally speaking, the higher the insider ownership, the more positive I feel about the stock, and I can go on about why that's the case, if you'd like. David Gardner: Well, do go on a little bit about why that's the case. Yasser El-Shimy: I think there's an important signal in the insider ownership here. The first one is alignment of interests. The higher the insider the ownership, the more certain you are as a retail investor, that the company's management has skin in the game. It's deeply invested in the company and its success, and that the interests of management should align, hopefully with those of other shareholders who have obviously vested interest in the company's success. But it can also be a confidence indicator. It shows you that executives, directors, and so on, feel pretty bullish about where the company is headed and the business they are creating and that's always a good indicator to have. Finally, I think also and that's my favorite one, perhaps, it should signal an inclination on the part of management and the board to be more long-term oriented or have more of a long-term focus. Companies with higher insidership, they often prioritize sustainable long-term growth over just the quarterly earnings and kind of trying to move the company around one way or another in order to make it for just one quarter. David Gardner: Thank you for that, Yasser and Yasser and or other senior analysts, if I'm interested by this, if I'd like to know how to find these numbers, what is a ready source that you could recommend that I as an individual investor tap into? Yasser El-Shimy: Sure. One easy free source to use, although I cannot vouch for the veracity of those statistics would be Yahoo Finance. If you go on Yahoo Finance and you write the stock name, under financials, you'll find a bullet that says, Percentage of shares owned by insiders or something like that along those lines. That's a very easy way for retail investors to access that information. Although, for us, we tend to rely on other more professional behind payroll sources for that data. Nick Sciple: Yeah, I might also just a double underline. You can go to the proxy statement, which we talked about earlier. That won't be updated throughout the year, unless there's additional special meetings at least around May, every year, you'll get the proxy statement filed for the companies that you follow, and they will disclose all shareholders, usually over 5% and then also for any named executive officers, they'll tell you exactly how many shares those individuals hold. The proxy statement at least once a year, will give you some of that information as well. Yasser El-Shimy: I have to give Nick kudos for weaving in his proxy statement again into this term. Bravo Nick David Gardner: Plus one to Nick. [laughs] I do ask you guys just to independently come up with your terms, but it is fun to see the interconnectedness, because in insider ownership, we do see some proxy statement. We also see some 10b51 trading plan. These are one level down in terms of complexity. This is more under the hood relative to many people that we meet in society at the water cooler at work on the bus or in our investment club who don't necessarily know these things or know how to look for these things but they do count. Thank you. Thank you Yasser, thank you Nick, for those comments, Yasser interesting and illustrative sentence, please. Yasser El-Shimy: Let's go with this one. The Gardner Brothers' big insider ownership in the Motley Fool gives us Fools confidence in the business and its future. David Gardner: Well, I really appreciate that. Come on, score one for the home team and without navel-gazing too much, thank you for that. Tom and I are substantial owners of the Motley Fool. All of the other owners are our employees. We really have no outside capital in our company, despite having taken in a lot of venture capital money back in the day. That's a fun story we don't often talk about, but thank you for that, Yasser. Appreciate that. Insider ownership. By the way, we always hope our insiders are friendly, good people. Sometimes they are active private equity types or showing up trying to sway or take over the board. This is also something to be guarding against in some cases. Let's move on to our final term this week. Gotta Know The Lingo, Vol. 7. David Meier, last time you went with portfolio management, is the next one tied in? David Meier: Not really. David Gardner: That's fine. David Meier: Yes, I appreciate that. David Gardner: It's a horse of a different color. David Meier: But it is one that's been popping up in the news lately. From a current event standpoint, the term that I would bring to everybody is stagflation. It's probably a term that we haven't heard here in the United States for going on 40 plus years because I think that was the last time it occurred. What is stagflation? It is the combination of stagnant growth so the growth of our economy is very small to zero at a time when inflation stagflation is rising. This is actually a very bad scenario for our economy. One of the reasons that it's bad is because those two things work against each other. For example, if I wanted to increase the growth of investment in our country, one thing I could do is I could bring down interest rates. But bringing down interest rates actually might make the inflation problem worse. Making the inflation problem worse we would all feel the negative effects of rising prices. But one way that I can make inflation come down is to increase rates. But the unfortunate byproduct of that is if I increase rates to combat inflation, I actually might push the economy into a recession because companies will not be willing to invest in growth in whether it's factories or human capital and things like that. The fact that it's coming up in the news gives me a little bit of pause, and that's why I think it'd be good to bring it to listeners today. David Gardner: I appreciate that, David. The last time I really heard that in a regular way was in my undergraduate economics course at the University of North Carolina Chapel Hill, which, by the way, was the late 1980s, which is the last time reflecting on it at that point that it had happened. I admit I ended up not majoring in Econ. I went the English literature route. I didn't really tie a bone or complete this. But, David, have you looked back at this, can you remind us of how we got out of it the first time through? David Meier: Well, this is part of the problem. It actually takes a long time to get out of it. If I remember my history correctly, there was significant stagflation in the early '70s, but it wasn't until the late '70s and early '80s when interest rates increased, some of it from the Fed actually pushed the economy into a recession. Again, it's a negative outcome that we didn't necessarily want, but that's what resets things, unfortunately. The recession resets the expectations, the aggregate demand comes down, people stop buying things. Therefore, prices moderate. You combat the inflation. Then people say, oh, wait, there's an opportunity. Let me start investing because United States has typically been a great place to always invest. Then the economy then mends itself on the way out. Yasser El-Shimy: Let me throw you a curveball, David.[laughs] David Gardner: Not a hand grenade this time. Yasser El-Shimy: Not a hand grenade this time. David Meier: I expect nothing less from you. Yasser El-Shimy: It's just a curveball. If I were to put you on the spot and ask you to choose either 10 years of stagflation or 10 years of deflation, which would you go for? David Meier: Oh, boy, I would go for 10 years of stagflation. If we had 10 years of deflation, that would be exponentially worse than stagflation, because at least we have a little bit of growth, prices might be moving higher, but we would still be able to consume things. In a deflationary environment, the problem there would be even if prices are coming down, no one would be buying anything because most likely companies would be shedding labor. We'd probably see in a situation like that, unemployment rising rapidly. Again, we're talking deflation across the board, there are certain instances where deflation is a good thing. But if all of our prices are going down, then businesses are probably struggling. If businesses are struggling, employment is struggling, therefore, citizens are struggling. I'd much rather have 10 years of stagflation. David Gardner: Fortunately, we haven't had deflation in any meaningful way in a long time. Although there have been worries over the last 15 years. The markets have reacted, and it's not pretty. Let's actually add some pretty here, David. What is your interesting illustrative sentence to close? David Meier: So Peter Lynch, going back to him again, also said, If you spend 13 minutes a year studying the economy, you've probably wasted 10 minutes. I disagree. Given that stagflation has reared its ugly head again, I suggest spending at least five minutes on it. David Gardner: Are you throwing a hand grenade at Peter Lynch on this podcast? David Meier: No, it's definitely not a hand grenade. [laughs] It is a backhanded compliment.[laughs] David Gardner: Well said. Fellow Fools, there you have it. Gotta Know The Lingo, Vol. 7 We had six terms this week, just to review them in order. Proxy statement. First-mover advantage, portfolio management, 10b51 trading plan, insider ownership and how to find it, and stagflation. I think my talented fellow Fools did indeed bring some simpler and some more advanced, a little bit of header talk here at the end of this week's podcast. How'd you score at home? Remember, 0, 1 or 2 for each of those, feel free to tweet it out if you got a high score or a particularly low score. We hope your results, dear listeners speak for themselves, whether it was a 0, 1, or 2 for each of our terms, we had a lot of fun bringing that to you this week. Thank you again to Nick Sciple, Yasser El-Shimy, and David Meier. In fact, I want to give them each an opportunity for a final line. It's baseball season again and in Major League Baseball, as hitters come up to bat, they get their requested walk-up music played. For my senior analysts this week, I thought, why not give them a walk-off line? Let's do it in order. Nick Sciple, you're up first with your walk-off line. Nick Sciple: I think it's OK to steal lines from other people and bring them together and make them in. David Gardner: Sure. Nick Sciple: Something new so here's what I'll go. On the Canadian Investing give me love to quote Stein's Law, that which cannot go on forever must stop. I think that certainly describes the macroeconomic world that we're in today. Jack Bogle always used to say, You should stay the course. Keep on investing. My favorite head football coach ever. Nick Sciple says, trust the process. Listen, in this world that we're in, that which cannot go forever, must stop. Stay the course, trust the process, and you'll be a successful investor over the long term. David Gardner: Pretty good walk-off line. Thank you, Nick. Yasser, your walk-off line. Yasser El-Shimy: Sure. As a recent steward of our global partners' service, I would like to remind investors that there are other markets beyond the United States, and that is not to say that we should not be investing in the US, absolutely not. But rather, that diversification is not just for sectors or market caps, but it's also for geographic locations, and being overly concentrated in one geography can come with its fair bit of risk. Look at your portfolio, think about how diversified you are from a geographic perspective. David Gardner: Thank you, Yasser. Very well said. Could you put the name again on the service that you help lead? Yasser El-Shimy: Global Partners. David Gardner: Something to consider signing up for, fellow Fools. Let's go to David Meier. David, your walk-off line. David Meier: How do I top those two? I guess maybe I don't need to top it, but how am I even in the same ballpark? David Gardner: Just play music with this. David Meier: I'll give it a try. In periods of short-term volatility, quality companies are always your long-term friends. David Gardner: What a nice close. I was reminded last time on volume six in this series, our fellow Fool Analyst Sanmeet Deo rocked the Dos Eckes man of TV advertising and fame, who says, "As you'll all remember, stay thirsty, my friends." But Sanmeet went with "Stay curious, Fools." That is indeed the spirit of this series. Gotta Know The Lingo, where we're here to educate, especially, of course, always to amuse and rich, as well, but to educate. We're actually building up quite a glossary of terms, A-Z. Once you start multiplying 6*7, we've done 40 plus terms and concepts at this point. If you enjoyed what you heard and want to keep learning with your child in the car or just by yourself on your phone somewhere, Google, Gotta Know The Lingo, Rule Breaker Investing, and you'll see our previous six episodes in this series. A final reminder next week it's my most self-indulgent podcast of each year because it's my birthday week. What have you learned from me? It'll be the latest addition to 2025 of what you've learned from David Gardner. It's always fun to summarize the cardinal points or things that you've heard from me and just share them back. I take your gifts in the form of emails, rbi@ is the address, and then I share them back out as a summary of some of the most important takeaways that I can give you in investing and business and life. Again, rbi@ You can tweet us at @rbipodcast. In the meantime, have a foolish week. Fool-on. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. David Gardner has positions in Alphabet, Amazon, Berkshire Hathaway, and Netflix. David Meier has no position in any of the stocks mentioned. Nicholas Sciple has positions in TKO Group Holdings and has the following options: short January 2027 $150 puts on TKO Group Holdings. Yasser El-Shimy has positions in Amazon and Uber Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, Berkshire Hathaway, Cisco Systems, Netflix, Prologis, and Uber Technologies. The Motley Fool recommends TKO Group Holdings and recommends the following options: long January 2026 $90 calls on Prologis. The Motley Fool has a disclosure policy. Rule Breaker Investing's Gotta Know the Lingo, Vol. 7 was originally published by The Motley Fool
Yahoo
01-05-2025
- Business
- Yahoo
The Compounding Consumer Crunch
In this podcast, Motley Fool analyst David Meier and host Dylan Lewis discuss: Domino's earnings sending the same warning signals as Chipotle -- lower-income people aren't ordering as often. Temu and Shein pushing tariff increases to American consumers. Old Dominion Freight Lines and Saia signaling fewer goods are coming into the U.S. Motley Fool Analyst Anthony Schiavone and host Ricky Mulvey take a look at homebuilders and the four major economic forces hitting their stocks. Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue » To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy. A full transcript is below. Before you buy stock in Domino's Pizza, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Domino's Pizza wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $610,327!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $667,581!* Now, it's worth noting Stock Advisor's total average return is 882% — a market-crushing outperformance compared to 161% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of April 28, 2025 This video was recorded on April 27, 2025 Dylan Lewis: Temu makes the price of tariffs known. Motley Fool Money starts now. I'm Dylan Lewis, and I'm joined with airwaves by Motley Fool analyst David Meier. David, thanks for joining me. David Meier: Thank you for having me. Dylan Lewis: Today, we're going to be talking results from Domino's, some of the major logistics providers weighing in on the macro and a bit more pressure on the American consumer. Last week, we saw results from Chipotle. This morning, we see results from Domino's. I got to be honest, David, I feel like we're seeing a lot of the same things with both these results. The consumer is not eating out quite as much as it used to. David Meier: Yes. In fact, it's almost eerie how close their US same source sales decline were both in the mid-single digits decline. For the Domino's, it was a half a percent, and for Chipotle, it was 0.6%. Yes, it is both companies talked about lower income folks are not eating out as much, and it's probably because they're trying to figure out where they can save money in their budgets. These two companies are feeling that effect right now. Dylan Lewis: If you are looking for bright spots in the report here, I think it was largely a downer report, but looking forward to the bright spots, the company did reiterate its 3% annual growth target for US comps, very far away from where it was for this recent quarter. I guess they feel like on the back half of the year, if the picture solidifies more, if they get more insight into what pricing might be, they might be able to recover some of that ground. I guess you could also look to the international segment for some bright spots here, but I feel like that's about it. David Meier: I think you have hit the nail right on the head. Some of the US sales will be dependent on promotions. Basically, they want to get people in ordering pizzas, ordering food from them. right now, the international segment is extremely healthy, which put up comps of 3.7% for the first quarter, which is quite good, relatively speaking. I hate to be a downer, but the other problem that is there is franchisees are actually seeing their margins get pinched, and that's not good. Basically, what I'm saying is they actually need this volume. Domino's needs volume of customers in order to get some scale on the cost of goods sold that are going up, unfortunately, for them, as well as consumers in the United States. It'll be very interesting to see how this plays out. I think this is actually a really good barometer of what consumers in the US are feeling and where they're going to try to save their money, how they're going to make their decisions about spending. Chipotle and Domino's will be a great microcosm of what's happening in the economy, in my opinion. Dylan Lewis: These are really, I think, two of the best of breed type. David Meier: Absolutely. Dylan Lewis: In the space. They typically have been able to put up very good results even when other companies have struggled. They have been very early to things like mobile and online ordering. They've been really smart in some of their offerings and getting people back into the stores. I feel like if we are seeing these types of numbers from strong providers, as earning season goes on, we're probably going to be seeing even more pain from some of the weaker players. David Meier: I think you're spot on. These are two of the best operators in the business, literally the best operators. If they're seeing their margin on the franchise side, they're seeing those margins get cut, and again, demand diminishing. It doesn't bode well for others, especially if you don't have the operating prowess to figure out how can I relieve the pain a little bit from a shareholder perspective? Where can I get a little bit more efficient? You're exactly right. Look at Chipotle. Chipotle is still opening stores, and they're opening stores with their fast lanes, and they're still opening stores internationally. It's not like they're stopping because, again, Chipotle is a very strong business, and Domino's is doing the same thing. These are both strong businesses. I agree. Looking ahead, it'll be very interesting to see what other companies report and then compare it to what these two bellwethers have reported. Dylan Lewis: Sticking with the theme of companies in the big picture. Over the weekend, prices at discount e-commerce companies based out of China, like Shein and Temu, went up for American buyers. David, these two businesses that generally have specialized in these de minimis products and items that come in duty-free under $800, saying to the consumer, this is going away, and we need to show you exactly what these prices are going to be. David Meier: They did. [laughs] Again, I'm not meaning to laugh, but it is pretty incredible when companies come out and say, expect prices to increase 90-400%. Think about that. That's 5X. The reason for it is there was a loophole. If you brought in less than $800 worth of goods. The tariff was de minimis. You were tariff-free, essentially, because of that small amount. That loophole has been closed. Again, I think this is another sign of what's to come. If these are two companies that relied on this loophole, essentially, to drive sales, and I think you have some data that you're going to share in sec to consumers who are looking for lower cost goods in order to help with their lives. This is a lot of pain for them. Dylan Lewis: I think Shein and Temu both businesses based out of China. I don't think it's surprising for them to be in their press releases for this stuff saying, this is why we are doing this. David Meier: Correct. The idea is to put pressure back on the United States. Dylan Lewis: But even businesses domestically have started to be pretty transparent about the fact that pricing is due to tariffs. We've seen that even itemized on the receipts in some places. I don't think for a lot of retailers, there's much upside in absorbing that cost and making it opaque. I think a lot of them are going to be quite literal with what the increase is because they know they don't have too much control. David Meier: You're absolutely right. Let's think about this from the largest perspective possible, and that's a company like Walmart. Walmart operates on thin margins. That's how it works. You go to the store, you buy stuff from them all the time. The stuff keeps turning and turning quickly through the store. That's how they make their money. They're not charging high margins for any of the stuff in their stores. But Walmart has buying power. They are what's called a monopsony. They can go to their suppliers and say, you know what? You're going to have to eat this. I'm not eating this in terms of the margin profile. But smaller companies and many other retailers who also operate on thin margins they don't necessarily have the balance sheet strength or the sheer bargaining power to be able to absorb this. Again, if I want to look and see where the US economy is going, I'm looking at the restaurants as they continue to report, and I want to see who's getting impacted and what the level of impact is. I'm also looking at retailers. They report next month. They're about a month off the cycle. I want to know exactly what they're saying. What are they doing? What is their response? Because I agree with you. I think they're going to have to pass prices on. Their margins are just too thin to absorb a great deal of it. We'll see how that affects demand. Price goes up, demand tends to go down unless you absolutely need that product. Dylan Lewis: You teed me up for a data point, so I got to deliver. [laughs] When we were prepping for today's show, I came across this note from UCLA researchers. They looked at the role of de minimus shipments for different types of consumers based on zip codes. De minimus shipments from China make up about half of direct-to-consumer shipments for lower-income ZIP codes, more than double that of the richest ZIP codes. I think to take that piece of data and then bring it into the conversation we were just having about Domino's and Chipotle, there's a compounding of factors that seems to be happening here, especially for the low-end consumer. David Meier: Yes. Dylan Lewis: It feels like the retail outcomes for me over the next year or so is going to be pretty split out into who do those businesses cater to. David Meier: I completely agree. We can think about it from this perspective. Unfortunately, a tariff, which is an import tax bringing goods into the United States, that is a massively regressive tax. It is everybody on the lowest side of the income profile. They get hurt more. When it becomes more expensive for them to pay for the goods that they need to run their lives, they feel it. People in the higher income brackets, yes, they don't like it, but they can figure out how can I manage this? How can I get substitutes? Maybe I just cut my budget back a little bit, my lifestyle doesn't really change. But it really impacts the lower end of the income spectrum. Unfortunately, that also means less because they pay sales taxes and things like that. It's going to be very interesting, again, to gather all this data over this earnings season and get a snapshot of where we are and where we're going. Dylan Lewis: We have the benefit of reports from companies at a couple different points in where goods are bought and where they get to. Also results out from Saya and Old Dominion Freight Line over the last couple days. They are telling a very similar story, essentially saying, hey, we know January and February is typically a slower period for us. March is when we tend to see things pick up. Looking at the results, that has not happened. David Meier: Saya was very upfront about this that they in their modeling, this company is a very old, very mature trucking company. They said, look, we expect a lift every March, and we didn't get it. We did not get a lift in demand for our trucks. Now, unfortunately, that has a major impact for them they have to keep those assets productive because those are essentially fixed costs to them. They have the trucks. They're paying for the trucks. They're paying for the labor, which is a little less fixed. That impacts their margins. If they impact their margins, that means there's less investment dollars that they can make to open up new centers, to buy new trucks, etc. For them individually and for old Dominion, as well, the lower demand means lower margins, means lower cash flows, means, what am I going to do if I want to try to invest my way out of growth? It's not that easy. They probably have to figure out where they're going to cut costs. But to your point, trucking is a leading indicator for the economy. These are the people who when stuff comes into the ports, they move it all around, or when stuff gets manufactured, they move goods from one place to another. You have both companies essentially saying the same thing. Demand is down. We're not moving as much goods. I don't mean to beat this to belabor this point too much, but in my opinion, these are great indicators of, we're going to see where the economy is going based on these sets of companies. They're actually seeing as a result of their first quarter results, and then what they're projecting into the second quarter into the full year. We're seeing lots of companies basically say, uncertainty. I don't know what the macro is going to do. I need help. I need the administration to tell me this tariff is off and I can deal with it, or this tariff is on, and here's the amount because that's the only way they can plan to figure out where am I going to take my company? Where am I going to make my investments? How much do I need to add labor? Do I need to shed labor? I just find this absolutely incredible that all this is going on in a country that is as huge and complex as ours, especially in a global economy, we're going to see how this experiment plays out. In my opinion, I think we're going to feel some more pain before something actually changes. Dylan Lewis: Facing all of that uncertainty, management at Old Dominion Freight Line, this quarter tried to get the market to focus a little bit on the market share story. That was something that was really important for them. They wanted to talk about sustaining their market share and basically saying, there's a lot of stuff out there that we can cannot control. We are going to win market share, and as we see a lot of activity come back into the channels, we will benefit. That's a very similar tone to what Domino's management said. Basically, we want to continue to sustain our market share growth because that is something we can control, and it's one of the keys to our long term success. I'm seeing from management teams right now within the realm of what we can do, this is the rubric that we want to be graded on. David Meier: I think you bring up an absolutely huge point in the way the Motley Fool as an organization and as a group of investors, the way we try to invest. that is, we really focus on high quality companies. A company is not going to say that in a time of uncertainty, if it doesn't have balance sheet strength, if it doesn't have good cash flows, if it doesn't have management teams that have been through these cycles before, to say, you know what? This isn't a lot of fun right now, but we know what we're doing. We know where our advantages are. We have good balance sheets. Surprisingly, Old Dominion, while it has been shedding some cash on their balance sheets and increasing their share buybacks, they actually have a relatively strong balance sheet with very little debt. if they needed to take on some debt in order to help them get through this cycle, they can do that. Chipotle, Domino's. Those both have pristine balance sheets. They're managed very well. They would not be able to say those things unless they were the high quality companies that they are. Dylan Lewis: David, it sounds like, in addition to market share, you're saying. A little bit of balance sheet strength, something you're looking for during these times, anything to put your mind. David Meier: Absolutely. You can't have it because what else is happening recently. Interest rates are going up. If you're a company that needs to borrow money, this is the wrong time to be borrowing, Buddy. Dylan Lewis: Listeners coming up next, Anthony Schiavone and Ricky Mulvey take a look at homebuilders and the four major economic forces hitting those stocks. Ricky Mulvey: Homebuilders were on a good run. As a whole, the group has smashed the return of the S&P 500 over the past five years. State Street's Homebuilders ETF returned about 180% to the S&P's 86%. Higher interest rates cooled action in the existing housing market, and a housing shortage meant steady demand for new houses. But in 2025, Ant, we have some new forces. US imports a lot of building materials. For example, most of our gypsum or drywall comes from Mexico and Canada. China is a major supplier of refrigerators, and much of the labor force that are involved with building houses are immigrants. More than half of drywall/ceiling tile installers are immigrants. We've got four major forces going on here, two helping a housing boom and two, which we can gently call are headwinds. I know you look at these companies closely. How are the homebuilders holding up in 2025? Anthony Schiavone: I think right now the homebuilders are holding up just fine. As you mentioned, this is still an issue of long term tailwinds. We have a shortage of housing in this country. But also, something I feel like we don't talk about enough is that the median age of an existing home in the US is now 40-years-old. As homes age, maintenance costs also increase. I think that could generate even more demand for homebuilders moving forward. Now, you also mentioned a few headwinds. Do I think that the homebuilding market is as strong as it was a few years ago? No, I don't. Ultimately, the reason why I believe that is mostly because of supply. If you look at the monthly supply of existing homes on the market, it's now back to pre-COVID levels, and it's trending higher. With each passing years, the golden handcuffs or the lock in effects on existing homeowners continues to weaken since the average mortgage rate on outstanding mortgages and current mortgage rates gradually converge together. That's a bit concerning to me that the existing supply directly competes with Homebuilders. At the same time, homebuilder inventories of unsold homes, they're also at the highest level since 2009. Incentives like mortgage rate buy downs, they're also still very high. Those two things can only exist for so long before homebuilders are forced to reduce their prices. I don't really have any concerns about the demand for housing, but the supply side of the equation, at least in the near term, makes me a bit more cautious on homebuilders moving forward, compared to just a few years ago. Ricky Mulvey: But the flip side of that, if you're looking for a house right now, maybe you're getting a few more incentives if you're looking for a new home could be a little bit of a better time to buy. That's what I'm hearing from you, is that correct? Anthony Schiavone: I think that's accurate. Ricky Mulvey: Let's look at D.R. Horton. This is the largest homebuilder, and they recently reported their quarterly earnings. You're seeing the headwinds there, net income for them down 27%, homebuilding revenue down 15%. They've also taken 7% of their shares off the market over the past year. They pay a little bit of a dividend, if that gets you excited at. Also, you have management highlighting more sales incentives, as you mentioned. When you looked at their most recent results, what stood out to you? Anthony Schiavone: Two things. First, the fact that D.R. Horton's stock rose after missed earnings expectations and lowered its full year revenue guidance tells me that the investor sentiment was pretty low going into this report. Then, secondly, this management team continues to focus on cash generation and shareholder returns. They are prioritizing share repurchases and dividends, and that's been a huge philosophical change in D.R. Horton's capital allocation framework of the last 10-15 years. What I find interesting is that they are now planning to spend four billion in share re purchases this year compared to an earlier expectation of about 2.7 billion. Between share repurchases and dividends, depending on where its stock price trades throughout the rest of its fiscal year, this is a company that has the potential to return roughly 10% of its market cap to shareholders through dividends and buybacks. As a returns focus investor, I think that's pretty interesting. Ricky Mulvey: CEO Paul Romanowski was asked about the impact of tariffs. Importantly, they didn't really talk about it in the commentary upfront. They waited for an analyst question that was basically, what is your playbook for this? This is what he said. There's so much noise around tariffs today and is changing day to day, sometimes hour to hour. Hard to figure out exactly where that lands, but over the last several years, our suppliers have done a good job of having to respond quickly to supply chain challenges, and we feel like we're in a good position to do that. Our suppliers are in a good position to do that. We do feel that our strength and size and scale across markets will put us in a good position to hold those costs and see the lower end of any impact from tariffs wherever they land. Are you buying that explanation from CEO Paul Romanowski? Anthony Schiavone: Ricky, I'm actually buying what management is saying. D.R. Horton's average home sells for about $375,000 ballpark. Their gross margin is about 22% on those home sales. That implies that their average cost to build a home is roughly 295,000. According to the National Association of Home Builders, terrace will increase costs by roughly $10,000. That extra $10,000 on top of the $295,000 original cost, assuming that cost is even borne by D.R. Horton, it's not going to impact profitability or housing costs all that much. In fact in a period of policy uncertainty, that may even benefit large homebuilders like D.R. Horton or Lennar, who benefit from scale and low cost advantages. They can take even more market share from smaller, less well-capitalised builders. Ricky Mulvey: Well, with respect to the National Association of Home Builders, I don't see how you make that projection right now when these costs are changing hour by hour. I would think the other big issue for these companies, which would affect small and large homebuilders, is if a lot of your workforce are immigrants, then that's still a huge challenge and could add to the costs, delays in constructions, construction times, that thing that you can't just fix by talking to a supplier Ant. Anthony Schiavone: The tariff uncertainty that you brought up is a good point. But we've already seen some exemptions on building materials already in the works. I don't think tariffs will impact the builders by that much. As far as labor goes, this is an industry that has been impacted by labor shortages for years. I used to work in a construction industry. We were always shore people. I just think that that just benefits the larger builders like D.R. Horton Lennar, NVR, those types of companies that can procure that labor a lot more effectively than a smaller builder. I think the smaller builders are going to definitely a more difficult time. If you look at the market share of some of the larger homebuilders, particularly D.R. Horton and Lennar over the last say, 10 years, they've gained so much market share, and a lot of that's come at the expense of smaller operators, and I think that might continue moving forward. Ricky Mulvey: Something Jason Moser's talked about on the show is that basically when times get tough, when times get more uncertain, that's where the big can get even bigger, and that's echoing what you're saying right now. Let's focus on a small builder. That's Dream Finders Homes. It's a smaller player definitely than D.R. Horton. It's concentrated in the Sunbelt and in Colorado. It runs an asset light model, where it acquires these finished lots with options contracts. Management would say, this lets them being a lot more nimble. They don't have a lot of land inventory on their books. Is that model meaningfully different from a lot of the other homebuilders you watch? Anthony Schiavone: Actually, a lot of homebuilders have actually transitioned to this asset light land option business model, 15 years ago, D.R. Horton owned roughly 75% of its lots outright. Today, it only owns about 25% of its lots and controls the remaining 75% of their lots through option contracts. This is definitely a model that has gained a lot of steam for the homebuilders. Historically, when you look at the homebuilding business model. It was to acquire land put it on the balance sheet, develop that land, then actually build a home. Then once the home was sold, homebuilders would take those sale proceeds to buy more land and repeat the process. The problem with that model is that a lot of invested capital is just tied up in these land assets where cash is not being returned to shareholders. But this asset light model doesn't tie up all the homebuilders invested capital into these low returning land assets and allows them to be much more like a manufacturing company that can return more cash flow to shareholders. I think ultimately, it's just been a better model that has been adopted by more homebuilders over time. Ricky Mulvey: What's this model mean for these homebuilders if we're entering a building slowdown? Anthony Schiavone: The way the model works is essentially a home builder will pay roughly 10% of the purchase price of a lot upfront as it deposits in return for the right to build on that land. But importantly, they don't have the obligation to build on that land. If macro conditions worsen, a homebuilder can simply walk away from the deal, and all they lose is the 10% deposit. That minimizes risk. Since the asset light homebuilder doesn't have capital tied up in land, homebuilders who have used this model tended to have much stronger balance sheets than they did in the past. Ricky Mulvey: We've heard from the biggest homebuilder, D.R. Horton already. Dream Finders is going to report on May 1. What are you going to be watching for in that report? Anthony Schiavone: Dream Finders guidance calls for a little more than 9,000 home closings in 2025. We saw D.R. Horton released its full year home sales guidance I think last week. If Dream Finders can at least reaffirm its home closing guidance, I think that would be a pretty positive sign for the stock, especially since there's so much existing new home supply coming onto the market in places like Florida and Texas where Dream Finders sells a large portion of its homes. as a shareholder of Dream Finders, myself, supply has been a big concern of mine in the last year or so. I'll be looking forward to the home closing guidance that management provides. Ricky Mulvey: We've talked about a few homebuilders here. How do you think about the investibility of this space. We got so much uncertainty given the forces that we talked about earlier. Do you have some favorites, or is this one where you think retail folks would be better off taking an ETF or basket approach? Anthony Schiavone: About two thirds of American households own a home. This is absolutely an area that us retail folks know pretty well, and it's an area where I think individual investors can have an edge. But to play devil's advocate against myself, I guess, the largest asset that most Americans own is a single family home. The question I would ask is, are you comfortable essentially doubling down on the housing market, or would you rather diversify somewhere else? If you do decide that you want to gain exposure to the home building industry, I think taking ETF or basket approach is completely fine. That's essentially what Warren Buffett did and Berkshire did a few years ago when they bought a basket of homebuilder stocks. I think Berkshire since sold those homebuilders, but I think the strategy still makes sense if this is a sector that interests you either now or at some point in the future. Ricky Mulvey: Anthony Schiavone, appreciate being here. Thanks for your time and insight. Anthony Schiavone: Always a pleasure. Thanks for having me. Dylan Lewis: As always, people in the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So far, it's the only thing they still on what you hear. All personal finance content follows Motley Fool editorial standards, and it's not approved by advertisers. Motley Fool only picks products it personally recommend friends like you. For the Motley Fool team I'm Dylan Lewis. We'll be back tomorrow. Anthony Schiavone has positions in Dream Finders Homes. David Meier has no position in any of the stocks mentioned. Dylan Lewis has no position in any of the stocks mentioned. Ricky Mulvey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, D.R. Horton, Domino's Pizza, Dream Finders Homes, Lennar, NVR, Old Dominion Freight Line, and Walmart. The Motley Fool recommends the following options: long January 2026 $195 calls on Old Dominion Freight Line, short January 2026 $200 calls on Old Dominion Freight Line, and short June 2025 $55 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy. The Compounding Consumer Crunch was originally published by The Motley Fool Sign in to access your portfolio
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09-04-2025
- Business
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Tesla Underdelivers
In this podcast recorded April 2 before President Donald Trump's big tariff announcement, Motley Fool analyst David Meier and host Mary Long discuss: How different companies were bracing for the tariff impact. Tesla's sales slump. Motley Fool contributor Jason Hall joins host Ricky Mulvey for a look at Texas Instruments and Taiwan Semiconductor. To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy. A full transcript is below. Ever feel like you missed the boat in buying the most successful stocks? Then you'll want to hear this. On rare occasions, our expert team of analysts issues a 'Double Down' stock recommendation for companies that they think are about to pop. If you're worried you've already missed your chance to invest, now is the best time to buy before it's too late. And the numbers speak for themselves: Nvidia: if you invested $1,000 when we doubled down in 2009, you'd have $249,730!* Apple: if you invested $1,000 when we doubled down in 2008, you'd have $32,689!* Netflix: if you invested $1,000 when we doubled down in 2004, you'd have $469,399!* Right now, we're issuing 'Double Down' alerts for three incredible companies, available when you join , and there may not be another chance like this anytime soon.*Stock Advisor returns as of April 5, 2025 This video was recorded on April 02, 2025 Mary Long: Welcome to Liberation Day. You're Listening to Motley Fool Money. I'm Mary Long. Join on this Wednesday morning, the Liberation Day of all Liberation Days by Mr. David Meier. David, great to see. Happy to have. How you doing? David Meier: I'm doing well. It's great to see you, too. Mary Long: Today is April 2, the day after April Fool's Day. As I've mentioned a few times already in this show, it's also Liberation Day. What the heck does that even mean? It's a great question. It's a fair question. We don't actually fully know. David Meier: No, we don't. Mary Long: But we are set, allegedly, to find out later today at 4:00 PM Eastern Time when President Donald Trump is scheduled to make an announcement from the White House Rose Garden. This event is being dubbed Make America Wealthy Again. We're recording this at 11:30 AM Eastern. The show won't come out until right during right after the Make America Wealthy Again event. We're not going to talk too much or make too many predictions about what exactly is going to unfold during that event. David, I will ask you to kick us off. Anything you're keeping an ear out for that you're especially going to be paying attention to or any bets you're making on what exactly might unfold? David Meier: We literally have no idea. It could be anything. We can't make any bets right now, and that's actually that's actually an issue that's facing the business community at large. It's actually an important event where we're going to get some information. One, what's the magnitude. We keep hearing 20% across the board, but it could just be reciprocal when other countries don't have big tariffs on us. There could be carve outs. There could be exemptions. There could be anything. We can tariff certain parts of the world and not tariff certain other parts of the world. We really don't know. It's going to be the thing that we have to do is just listen and digest the information that we get this afternoon from 4:00-5:00. Mary Long: You hit on this point. Many other people have hit on this point. It's worth hitting on this point again that so much of the anxiety wrapped up in this event is that there is so much we don't know. We have no idea what's going to happen. That uncertainty is what's largely been tied to the freak-out that's been happening in the markets. We know markets love certainty. It sounds like we're going to get some details from 4:00-5:00 Eastern Time today. The result of those details might not be something that everyone is rooting for, but still, we'll have a bit more certainty then than we do now. Do you think that that certainty, however great or small it might be, will be enough to calm investors? David Meier: I don't know. [LAUGHTER] I know that's a horrible answer, but here's the thing. This is the way markets tend to work. There's a set of expectations. What we have seen for a few weeks now, some days the markets are getting a little bit worried and the trend has been down. Investors are definitely thinking that there's perhaps some bad things coming forward when they look out into the future. There's a little bit of worry about recession. There's a little bit of worry about inflation coming up. If we get information where tariffs are higher than the market expects, that means that, oh, no, I need to change my expectations as investors. Something like that could put pressure on the market and cause it to go down. We've been hearing 20% across the board as the one thing that's been coming out pretty steadily. If it's 5% across the board, if that's not priced in, that could actually cause markets to jump. As far as calming investors, we don't know, but there's a little bit of level set right now where there's an expectation of something around 20% across a wide swath of the globe. Markets haven't really liked it for the most part, if you look at the general trend. It's also interesting that the White House moved this from 3:00-4:00 to wait until markets closed. Mary Long: The Trump administration argues that tariffs are just one part of Trump's large economic agenda. The point behind them is that they will work to boost US manufacturing and American jobs. Short-term pain is expected to be a part of that process. Perhaps, why? We've seen this event move from 3:00-4:00. It explains the downward moves that the market's been making recently in the past quarter. Let's zoom out, and let's run a little bit with this longer term trajectory. When will we know if those intended long-term effects, more American manufacturing, more American jobs is actually starting to come true, even in spite of some continued short-term pain? David Meier: It's a great question. It's actually a very Foolish question because ultimately, we don't want to necessarily be responding to the ultra short term. We want to figure out, longer term, what is this going to mean? I love what you've asked here. Unfortunately, increasing manufacturing, both from a plant standpoint as well as a job standpoint, that just takes a while. You can't just build a plant overnight. That's not how that works. When will we start seeing results? First of all, we got to figure out what's being said. Business leaders need to start figuring out, what does that mean? Some people have made some commitments already about, "Hey, we want to be a part of this. We want to bring manufacturing back." But others like the CEO of Ford in an investor conference the other day, basically said, "Right now, it's all chaos and costs." Once you get enough information to remove the chaos and then actually figure out what the costs are, then we'll start to see businesses making plans. Then we'll start to hear, "This is what we're going to do in response to the tariff. We're going to go after this market. We're going to start making this many widgets. We're going to make them in this state by opening up a plant." Unfortunately, it's not going to be probably 3-6 months before we start seeing those business plans and serious business plans. Not just, "Hey we want to be a part of this," but here's actually what we're going to do. Here's how many dollars we're going to spend. Here's where we're going to build those plants. That's just unfortunately going to take a while, so we're going to have to be patient. Mary Long: As you allude to, we're already starting to see some companies respond to these tariffs, and they're doing so in a number of different ways. You've got some like Johnson & Johnson, which just announced it's making commitments to boost its own US production. It's going to commit $55 billion in US investments over the next four years. That includes the development of three new manufacturing sites. You've got other companies like Walmart that are turning to their suppliers in Walmart's case, many Chinese manufacturers and are asking those suppliers to cut prices and essentially shoulder Trump's tariffs for the company. You've got other companies, Target and Best Buy, being two in particular that have warned customers about higher prices as they strive to preserve their own profit margins. The opposite of that is Nike, which adjusted its margin guidance, suggesting, "Hey, it'll attempt to absorb the tariffs for the time being." There's still a lot of uncertainty, but we're already starting to see these different defensive moves come into play. If you are the CEO of David Meier Enterprises, and I intentionally kept that unspecific because it doesn't matter what industry these companies are in, but if you're a CEO of David Meier Enterprises, how would you be bracing your company for whatever tariffs might be coming down the pike later today? David Meier: I'm going to work on the assumption that I make something that I'm a manufacturer because I think this will help illustrate some stuff. First of all, we knew this was coming. This was something that the new administration campaigned on. They've talked about ever since. We've seen companies do this, too. Hopefully, I've already made some advanced purchases of things that I think I'm going to need from other countries before the import tax, which is what a tariff is, gets put on the stuff I'm trying to buy. That's the first thing. The second thing is, I need to run some different scenarios. Again, if it's 5%, if it's 10%, if it's something ridiculous, like 50%, what does that mean for demand for my products? Hopefully, I've also done some scenario analysis. Then I'm going to actually talk about something real quick as it relates to Walmart and then assume that my company has this as well. Walmart can be considered what is known as a monopsony, and that is essentially where one company is powerful enough to really control prices by their buying power. Think about Walmart. Huge company. Lots of stuff goes through there. Of course, they can go to their suppliers and say, "Look you don't have that many other options. We buy most of your stuff. We can go and find other suppliers and work with them. We have plenty of people who want to work with us. You're going to have to take the pain here because we're not willing to bring that on the American consumer as Walmart." If I was fortunate enough to be in that position, as CEO of an enterprise that could do that, I would be telegraphing that to my suppliers as well, because what we want to do is try to make as many plans as possible before it comes. Then once we get the information, more information, better information to figure out this is the direction we want to go from this point forward. That's how, hopefully, I would have been preparing for, digest, and then say, "We now have the information to say, 'This is the direction our business needs to go' and then go." Mary Long: We'll move on to related, but also unrelated story. Tesla dropped their first quarter delivery and production numbers this morning. Vehicle sales fell to an almost three-year low. Analysts had expected the company to sell more than 390,000 vehicles in the first quarter. The real number was shy of 340,000. Is this sales slump attributable to Musk backlash, or is there more to the story? How do you parse this out when you look at these numbers? David Meier: A good question. There's actually a little more to this story. For a little additional context, I will also say that prediction markets were expecting about 356. Not only do you have experts say they were expecting 390, but you have wisdom of crowds saying 356, so this number is really was lower than a lot of people expected. Recently, Tesla has been having some struggles. It's not just for Musk backlash around the world based on what he has decided to do injecting himself into the global political scene. There was already a little bit of waning demand. Unfortunately, I think that people have said, "Hey this is not something that we agree with," and they were able to vote with their wallets and say, "Hey, we're not going to buy your car under these set of circumstances." It doesn't mean it won't change in the future, but right now. I think some of it is that this is a continuing trend that Tesla's experienced, but I believe that there's been a little bit of catalyst in terms of the backlash for how Musk has interjected himself into the global political scene. Mary Long: This Tesla piece does tie to the tariff conversation that we were having earlier. Many Tesla vehicles are produced in the United States. The Model Y scores as number 1 on American-Made Index. Still, though, they do import an estimated 20-25 percent of goods from international sources. We don't have an exact number on that. That estimate comes from the National Highway Traffic Safety Administration, doesn't specify which countries Tesla imports from, but we know that it does get a number of its goods from international sources. A 25% tariff on all imported cars and car parts starts tomorrow, April 3. Tesla is one of the car makers that stands to be less affected by those tariffs because so much of its products are produced in the United States, but that tariff change that's rolling out to all automakers, might Tesla expect to see an uptick in vehicle sales in the nearest future because of that and changing dynamics in car prices? David Meier: I certainly think it's possible, and you are right. One of the advantages of having less content produced outside the United States is that they have better visibility into the cost structure in a world where there are more tariffs. The other thing is Tesla's in an advantaged position. Who's to say they can't get an exemption on all those parts that they bring in from other countries? It's a very real possibility given the relationship that Musk has with the current administration. It is absolutely very possible. One of the things that Tesla has been doing is bringing down the prices for their cars in order to make them more affordable. In a situation where other substitutes, the competitors have to figure out what to do with the tariff and the amount that's been levied on them. How much are they going to pass along in terms of prices? How much are they going to deal with in terms of their margins? This very well could give Tesla an advantage in the short term. What's interesting is the initial market reaction today on April 2 was the stock fell on the production and deliveries news, but last I checked at almost approaching noon, the stock was up, so investors taking a longer term view may be seeing that very same thing that you're talking about. Mary Long: David Meier, always a pleasure to talk with you. Thanks so much for coming on the show this morning and helping us sort through and make sense of all of the uncertainty that we're seeing unfold today. David Meier: Thanks, Mary. I really appreciate it. Mary Long: How do you know if a company is walking the walk or just whispering some sweet nothings to shareholders? Up next, full contributor Jason Hall joins Ricky Mulvey for a look at two semiconductor companies, Texas Instruments and Taiwan Semi. Ricky Mulvey: Jason, we are recording this approximately 48 hours before Tariff Liberation Day as we talk about two semiconductor manufacturers, we shall see what happens on that day. But we're taking some time to check in on Texas Instruments and Taiwan Semiconductor, primarily because I was watching Scoreboard on Fool Live and saw your take that you think that Texas Instruments will outperform Taiwan Semi over the next five years. I own both companies, so what an excuse to talk about them? Jason Hall: Absolutely. Ricky Mulvey: It's a little bit of an intro for people less familiar with this space, what is different about the chips that these companies make from each other? Jason Hall: Basically everything, I think, is a summary of it. But Taiwan semiconductor, it's called TSMC in the industry parlance. TSMC is the manufacturer of basically 100% of the leading edge logic chips out there. You think about the chip in your smartphone that powers your smartphone. Obviously, NVIDIA's GPUs, anybody that follows that industry closely knows that TSMC is the company that makes the chips for their GPUs. The CPUs and GPUs, that's logic chips. Then you have memory chips that companies like Micron and others manufacture. Semiconductors, the leading edge stuff, that's TSMC. They also make the bulk of all of the used to be leading edge stuff because they've built out the capacity, and they're such an incredible operator. They do the contract manufacturing for the big fabulous semiconductor design companies. Basically, everybody that designs their own chips but doesn't make them. If it's Apple, we mentioned NVIDIA, AMD is a big TSMC customer. Those companies go to TSMC to actually do the manufacturing. Texas Instruments is a fully vertically integrated semiconductor manufacturing. They do their own design. They work with some clients to design special needs chips, but a lot of it is just stuff that they've designed over the past 50 years. Some of the chips that they designed back in the 80s are still being sold to go in industrial machinery and that kind of stuff. They have a big direct sales channel on their website. Over 100,000 customers, and a lot of them just go on their website and find a part off the shelf and order directly from Texas Instruments. Now, here's the biggest separator is its chips are analog chips and integrated chips. The best way to think about what they make is the logic chips that TSMC makes and the memory and all that kind of stuff, all that stuff operates in the virtual world in the electrical electronic world. Those chips have to interface with the real world. They need to get power in. They need to send signal out. That's what Texas Instruments chips do. Is there how electronic devices actually interact and interface with the real world? Ricky Mulvey: Both of these businesses, semiconductor stocks have historically been cyclical businesses, Taiwan Semi, definitely at a high point right now or highish point, I should say. Do you still see semiconductor stocks as cyclical businesses, and does that affect the way that you invest in them? Jason Hall: Yeah, absolutely. Businesses are cyclical when their customers and end markets are cyclical. The end market for chips are still cyclical because of that reality. What has changed, Ricky, is the size of some of those end markets. We think about logic, that's TSMC and memory. Those industries have benefited from this explosion in demand for accelerated computing infrastructure. It's bigger than just AI. It goes before AI, is the Cloud, this accelerated computing infrastructure. Now more recently, of course, AI has been like the nuclear explosion in demand, and that's led to this super cycle for TSMC and some other companies that are reaping those gains, and the demand is so big. This new market is so big for those companies that they're more than making up for loss volume and revenue from other sectors that have been weaker, like PCs, consumer electronics, industrial and automotive. Ricky Mulvey: Now let's separate these companies a little bit, both cyclicals, but both have different stories right now. Texas Instruments has come off a bit of a weak period, 2024, a bit of a down year from a revenue and operating profit perspective, and that has a lot to do with their embedded processing business. Can you explain what's going on there? Jason Hall: Yeah, so there's definitely some kind of asynchronous cyclicality between its analog business and its integrated business. But the big thing that we're seeing broadly is that it's in the late stages of a transformation in its manufacturing. It's shifting to a larger form factor for its chip making that's going to give it some structural benefits. But there's a protracted downturn in demand across multiple end markets. We actually just saw the last quarter that it reported was the first quarter in about two years where its analog business actually showed just a little tiny bit of demand growth. We can go back to 2023 when demand was really down for its analog business. This is the larger business too. There were some periods where demand was actually up for the integrated business. It's a little bit of a difference in how different parts of the cycle can affect those key businesses. But again, the big key right now for Texas Instruments, is that not only is the business weak, but it's kind of exacerbating its bottom line because it's about three quarters of the way through this big capital project to spend to make some structural changes to its cost structure and its manufacturing that are going to eventually help the business do better, but the timing is just really tough. Ricky Mulvey: In the past few years, extraordinarily strong for Taiwan semiconductor, its shareholders have been rewarded quite a bit. Why are you seeing an opposite story for that chip manufacturer? Jason Hall: The easy answer here is AI, and it's largely the correct one. We've also seen some recovering demand in other areas like smartphones. But being essentially the only contract manufacturer that has both the capability and the capacity to make the most advanced chips, it's been a massive boon for TSMC. In one sentence, if you're NVIDIA's foundry, you're doing really well right now. Ricky Mulvey: With TSMC, there's a different political component because it is sort of this national security infrastructure for Taiwan. China has had its eyes on Taiwan. It's an extraordinarily complicated story between the Taiwan and Greater China relationship. All of that is to say, if you are sitting in the United States, this is a company that carries some political risk that you probably don't fully understand. I don't fully understand it. How do you think about this if you're owning shares of TSMC, which I own a few shares of. Jason Hall: I do, too. I think it's definitely kind of in the too hard pile for most people, and even the people that are true experts in this area of geopolitics and military threat and risk, would say the same thing. It's a bit of an unknowable but it is a legitimate threat. There's significant national security implications across every Western country if those chips were made unavailable. TSMC, of course, is taking steps to address this expansion in the US. We know that's been ongoing for a while. There's also expansion in Europe, multiple facilities are looking to bring online by around 2027. Now, here's the thing. Those moves might be great for getting diversification of chips to the market if there were a military event actually on Taiwan. But that's not really going to protect shareholders very much. I think it's important to decouple those kind of things down from one another. But what it really comes down to me for is thinking about individual risk tolerance. How much do you have? If you have some tolerance to be able to be exposed to that too hard pile sort of answer, then position sizing comes into play. I'm sure there are a lot of investors, Ricky, that have done incredibly well with TSMC over the past five, 10 years, that might find it prudent to reduce their exposure, take some of those profits now off the risk table, despite there still being a lot of growth potential still for TSMC. Ricky Mulvey: I own Texas Instruments as well. When I bought the stock a few years ago, I found this was a leadership team that was saying all the right things. We measure our performance on free cash flow per share. This is something that activist investors Elliott Management has more recently sort of held management's feet to the fire. They point out on their investor relations page. Look at us. We've reduced share count by almost 50% over the past 20 years. But during this time, I'll say, over the past five years, this total return has underperformed the S&P 500, and for me, more importantly, it's underperformed the Schwab US Dividend Equity ETF SCHD, which is probably the more appropriate comparison, big strong companies that pay dividends. Management's saying the right things, but there's a little bit of a long term underperformance problem here. Jason, what's going on? Jason Hall: We look at Rich Templeton, who the company has basically built in his image over the past quarter century. Over the past five years, we've gone from a transition to his second retirement to Haviv Ilan, who's a long term insider, who's now running the company, and some people might say, well, what's going on? What's the shift here? I want to push back a little bit here, Ricky. Yeah, it's underperform those indices, but over the past five years, it's earned an average of 14.7% annualized total returns. It's not like it's been a bad investment. It's just a period that the market's CAGR has been over 18%. Let's contextualize that a little bit. Also, again, think about the cycle. Shares are down some 20% from the high back in late 2024. All this is happening during a period where its end markets are weaker. Now, one more thing. If we've had this conversation just about any other time over the past few years, Texas Instruments total return would be a little bit better than the benchmark, even again, during that persistent downturn in demand. It's not like it's been a bad investment. It's just not doing as well as some of its peers, and again, it's trailed an incredibly good market. Ricky Mulvey: Hey, I own the stock. Don't blame me. I'm just looking at the numbers here, Jason. Jason Hall: [LAUGHTER] As a shareholder, I'm right along with you on this. Ricky Mulvey: Let's get back to the original premise of this conversation. TXN greater than TSM over the next five years. So investors have been more excited about Taiwan Semiconductor. Texas instruments, it's doing boring stuff. It's checking the temperature on things. It's doing analog processes. This isn't the big explosive, exciting AI chip making stuff. why are you more bullish for the long term future of Texas Instruments than Taiwan Semiconductor right now? Jason Hall: It gets back to the story of the cycle, and I think it's so important with these chip makers to remember that. High fixed costs. You leverage those fixed costs when demand is strong to make more money, take that money and reinvest in your business when the opportunity is there. Texas Instruments has been steadily spending money through the downturn, and I think that's made its stock maybe look a little more expensive on both earnings and cash flows. On the other side of the coin, TSMC's CapEx spending is actually down from the peak in 2023, and it's monetizing much of that spend already. Now, its CapEx is about to start ramping back up. We talk about all of the capital commitments it's made in the US and Europe. As it deploys that capital, it's going to be going for a couple of years before it really starts to get a return on that capital. So its shares might look a little cheaper than maybe they really are. I also think that we need to acknowledge that we always overinvest in these big buildouts. History has shown us that that is the reality. All of these businesses are in a land grab mode, and we're going to get to a point where there's going to be too much supply, and that will lead to the cycle turning for TSMC. Now, there's going to be a shift from the buildout to the upgrade cycle, and I think we might be maybe closer to that shift from buildout to upgrade cycle than others do. The flip side of the coin here is that TSMC is going to continue to spend capital. TXN, on the other hand, is about three quarters of the way through its current CapEx cycle, which means that its CapEx is actually about to fall just as it starts to leverage the 300 millimeter wafer size for its chip manufacturing. This is going to give it some real structural cost advantages versus its competitors. In other words, its cash flows could really begin to soar in the years ahead making today's stock price that might look a little bit more expensive, really compelling for long term outperformance. Ricky Mulvey: Jason Hall, I'm going to end it there. Appreciate your time and insight. Thanks for joining us for Motley Fool Money. Jason Hall: Cheers, this was fun, Ricky. Mary Long: As always, people on the program may have interest in the stocks they talk about, and 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 are not approved by advertisers. With Motley Fool Money team, I'm Mary Long. We'll see you tomorrow. David Meier has no position in any of the stocks mentioned. Jason Hall has positions in Nvidia, Taiwan Semiconductor Manufacturing, and Texas Instruments. Mary Long has no position in any of the stocks mentioned. Ricky Mulvey has positions in Texas Instruments. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Best Buy, Nike, Nvidia, Taiwan Semiconductor Manufacturing, Target, Tesla, Texas Instruments, and Walmart. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy. Tesla Underdelivers was originally published by The Motley Fool
