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29-05-2025
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Walmart's Warning; Money Tips for 2025 Grads
In this podcast, Motley Fool analysts David Meier and Andy Cross join host Dylan Lewis to discuss: The market cheering a short-term solution to trade tensions between the U.S. and China. Walmart signalling that prices on the shelves are going up anyway. Cava's "new factor" helping it continue to put up strong growth and comps numbers in a really tough market for restaurants. Dick's Sporting Goods' head-scratching $2 billion buy of Foot Locker, and the lesson to take away from one of athleisure's best performers: On Holdings. Two stocks worth watching: Evolv Technology and Booz Allen Hamilton. Motley Fool personal finance expert Robert Brokamp offers his money tips and financial commencement speech for the class of 2025. 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 Walmart, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Walmart 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 $639,271!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $804,688!* Now, it's worth noting Stock Advisor's total average return is 957% — a market-crushing outperformance compared to 167% 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 19, 2025 This podcast was recorded on May 16, 2025. Advertisement... Dylan Lewis: We've got a short-term trade agreement and a head-scratching acquisition. This week's Motley Fool Money Radio show starts now. It's the Motley Fool Money radio show. I'm Dylan Lewis. Joining me over the airwaves. Motley Fool senior analyst David Meier and our Chief Investment Officer, Andy Cross. Fools, wonderful to have you both here. Andy Cross: Hey, Dylan. David Meier: Hello, Dylan. Dylan Lewis: This week, we've got the money commencement speech for this graduation season one retailer shopping in the bargain bin and, of course, the stocks on our radar this week, we're going to kick off talking trade. How could we not? We're not going to quite call it a trade deal yet, Andy, but the Trump administration striking a short-term agreement with China. This follows the announcement on terms with the UK. Market obviously happy to see anything that brings tariffs down. What is a long-term investor to do with a short-term trade? Andy Cross: That's exactly right, Dylan. It is short-term. It's 90 days. It drops those imports on Chinese imports from 145 to about 30% more or less, and tariffs on US goods from 125% 10% back into China. It's sensible, right? It makes sense. The market was looking for this. We obviously saw that relief rally across the board. We've seen in tech, tech was up 8% this week alone. We saw some retail excitement around that, too. It is temporary. It's 90 days. Hopefully, we see better spirits reveal for a longer trade agreement. We saw Goldman lower the recession risk down a little bit from 45% down to 35%. But listen Dylan all on how the companies manage this. The best companies will be able to continue to thrive through this, but it does increase the cost of goods sold and the cost structure of many companies, and we're going to have to hear from them to see what they believe they can either pass on or absorb. Dylan Lewis: I think maybe optimists in the market, David look and say, we have one deal or the agreement in principle here for a deal. We have what happened with the UK as well, earlier this month. Ideally, these stack and start to build some certainty over time that businesses can operate on and that maybe other negotiations can build on too. David Meier: I completely agree with what you just said, which is we're looking for certainty. It's still not here yet. First of all, this 145% escalation was ridiculous. Clearly, markets love the pause. But a 30% tariff in place is significantly higher than anything that we've seen almost in history and certainly modern history. Yes, companies are looking for certainty and interestingly, if we go to what companies have been saying recently in their earnings, all they are doing is commenting on uncertainty. In fact, some companies have even pulled their guidance. Long term, yes, we need more clarification. We need a resolution because this 90 day pause, this could just revert right back. But I think as a long term analyst, what I'm looking to do is to look over the next few quarters and see how the commentary from companies change, because again, either customers are going to pay higher prices or company margins are going to contract. Neither one of those are good, but it's probably most likely going to be a little of both. Dylan Lewis: Early in the week, we had that announcement. Later in the week, we had commentary and earnings out from Walmart, they gave us a guide both for what to expect in terms of their business, but also what to expect on shelves and they made no bones about it. They expect prices to go up this summer for consumers. David Meier: Yes, we need to seriously think about this. Walmart, the king of low prices, has just said it is going to have to raise some prices on some of its goods. Seriously, think about that. Walmart is one of the most powerful buyers of goods in the world. It can literally almost get any deal that it wants. That's known as a monopsony. It has ultimate buying power, and it could not force suppliers to reduce their prices in the wake of these tariffs. Again, Walmart executives basically repeated what we talked a little bit about above. The tariff policies do not help our economy at all. This company has the best data about the health of the consumers across a wide variety of income levels. Again, I don't want to sound too alarmist, but this is an astounding statement from somebody who prides itself on being a low-cost provider to consumers. Andy Cross: CEO Doug McMillon Dylan said the cost pressure from all the tariff impacted markets started in late April and it accelerated into May. To Dave's point, we're going to see this through the summer. This is hitting everybody, and this is the big daddy, the big gorilla out there when it comes to supply, but they get so much of their product from China that it is impactful to see how they navigate that. That said, it was still a pretty good quarter they put up. David Meier: It was. Dylan Lewis: What's interesting to me about this is they are putting those signposts out there and those warning signs, but they are also saying, Andy, we're reiterating our guidance of 3%-4% net sales growth. They expect it to co down to the consumer on a price level and what they see on the shelves, but they aren't necessarily forecasting a hit to the business and what they've laid out financially for investors. Andy Cross: I think so. I think they can eat some of that, but they're going to have to figure out the pricing around that. They have so many skews. They sell so many things, don't forget their e-commerce sales were up 22% this quarter, which was an acceleration from not just last year, but from just the quarter we saw in December, their total sales up 2.5% and 4% on a constant currency basis. A pretty healthy performance on the comp sale. Like we talked about, this is really the giant, and we see continued increasing in their membership income was up almost 15%. Their advertising business up 50% so they have that really breadth, even though they are known predominantly on the retail side in the Walmart stores. They have that breadth that allows them the flexibility that others just don't have. David Meier: One of the things that executives commented about was, even if there's less buying from lower income cohorts, actually, folks at the higher end are trading down. They're coming to Walmart a little more so that's an interesting paradox that the company is seeing. Andy Cross: Yeah, you're seeing the higher income shoppers more at Walmart. As a percentage of traffic going through, I think you're seeing those higher income stepping foot and they're saying, like, Wash, there are prices in there that I can get at Walmart that I can't get elsewhere, and I need to be able to save money myself. Dylan Lewis: Alright, CAVA also out this week with some new numbers for the market to digest. David generally strong results for the Mediterranean fast casual chain, but also taken in part with the other ones that we have seen from restaurants so far this quarter, confusing look at what's going on with the American eater right now. David Meier: Yes, very clear that CAVA is growing fast and executing well in an environment where consumer confidence is still waning. The metric that stood out to me the most was a 10.8% increase in same store sales, and that was powered by a 7.5% increase in visits. That's to your point, that's very different than what we heard earlier in the month from Chipotle and Domino's, who saw visits to their stores or amount of traffic decrease. I think one of the things to remember here is CAVA is earlier in its growth cycle, and opening stores and having younger stores actually really helps right now from a same store sales perspective. I would be remiss if I sorry, I didn't say one other thing, I am impressed, but this company has just reached the billion dollar sales mark over the last 12 months. That is impressive. Andy Cross: Interesting deal in their food beverage and packaging costs increased to 29.3% of sales. That was an increase of 110 basis points or 1.1%. They added a steak. Steaks more expensive. They're diversifying the menu, adding that in there, that increased their beverage costs. Their average store revenue went up to 2.9 million from 2.6 million a year ago. That's an increase of 11%, and as Dave mentioned, the same store. The guidance was pretty strong at 68%, and store margin around 25%, which is pretty much what they've been delivering. The question is, is that worth the price that you're paying today? I think if you close your eyes and hold CAVA stock for the next few years, you're going to do OK, but I think in between now and then, it's going to be pretty lumpy. Dylan Lewis: Andy you brought up the steak there, and that came up on the conference call. Their team talking about how consumers are into premium items, steak being one, pita chips being another. They are not seeing that order value go down very different than what we've been seeing with comps declining at Chipotle. Some of that being traffic driven, but some of that being price sensitivity, as well. Domino's saying the lower income consumers aren't spending as much as well. When you see all this together, are you parsing this and saying, the newer concept experience, the growth story is what's helping a lot of consumers look past this, or is there something else going on here? Andy Cross: They increase prices 1.7% in January. They're not going to increase prices the rest of the year, which I found that very interesting. They got a little price bump in January, not going to get that. They're testing out Chicken Shawarma in Dallas and Florida, which I hope they come to DC, or if I visit Dallas and Florida, I'm excited to test that out because I think you're right, Dylan. I think customers are willing to try that new experience, and when they try a new experience, be able to explore a little bit into other offerings like they're offering at CAVA. David Meier: One of the other things that management commented on, and I took a few data points to try to verify if this is correct, and I think it is, is basically their price increases have been less than the rate of inflation, which is not something others have been doing. The commentary from management is in today's environment, we offer a great value proposition, and the numbers back that up. Dylan Lewis: Coming up after the break, we've got a two billion dollar buy. We're struggling to understand. Stay right here. This is mount full money. 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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 prospectus at This is a paid advertisement. Welcome back to Mot Fool Money. I'm Dylan Lewis here on air with David Meier and Andy Cross. Fools, we've got a deal to discuss. Dick's Sporting Goods is buying Foot Locker for 2.4 billion and the market reaction pretty clear here, Dick's shareholders not loving the deal. Shares down 10% this week on the news. David, what did you think of it? David Meier: I don't get it. I think it's pretty clear that the market didn't like the idea, too, based on where you talked about Dick's Sporting Goods stock being on Thursday, May 15. Look, Foot Locker has been struggling for years, and I think it's because buying patterns are changing. Within the deal structure, for management at Dick's to come out and say that they are going to operate Foot Locker as an independent entity, pretty much communicates that this is all about turning Foot Locker around frankly, I don't see that. Sales have been contracting. The cash flow generated from this business has been trending down. I don't see the return on investment. Again, if we go back to where customers are buying their shoes from, it's not necessarily as much in the mall anymore. The direct to consumer channel is becoming more and more important. Big product makers like Nike and Skechers, On Holdings, name your favorite shoe provider. I like to market, and I'm skeptical that this is a good deal. Andy Cross: It does give them an international presence. Dick's is not internationally at all Foot Locker is 30% international, so it gives a little bit of that presence. What I was really interested, you guys, to hear them talk about Nike, Dave you mentioned that. Nike was mentioned 21 times on the conference call. Ed Stack said, I think it Elliott Hill at Nike and his team are doing a great job, and we were pretty excited about what's going on with Nike. This is the move back into wholesale or retail as opposed to direct to consumer. Foot Locker is going to be a beneficiary of that move back to a wholesale standpoint. They're clearly seeing benefits from Nike's turnaround that Elliott Hill is doing and what they're trying to do at Foot Locker. They're only paying about 30% above book value for Foot Locker. Dick's is not very inquisitive, so they don't have a lot of goodwill on the balance sheet, so I can see this playing out. David Meier: That is a very good point, Andy, because the new CEO, his specialty was taking care of the different channels so to bring him back, right, that could very well be a catalyst that helps Foot Locker along the way, and perhaps Dick is getting a bigger benefit by having more opportunities for Nike to get in its doors. Dylan Lewis: Speaking of direct consumer and sticking in the world of sporting goods, sneaker maker On Holding is out with their earnings this week. Andy, this is one of the fastest companies in Athlesia at the moment, and they seem to be continuing to set a very brisk pace. Andy Cross: Fastest in performance, as well as in just the fastest on the track because On Holdings has really truly become this performance brand when it comes to running. I think there were some concerns. Certainly, I was like, Oh, my gosh the consumers slow down. What's tariffs going to do On Holding, which has a big chunk of their business in Americas, although they're very global as well. But overall, it was a really strong quarter. Revenues were up 43%, direct to consumer was up 45%. Wholesale was up 42% these are growth numbers very strong on the top line direct to consumer is now 38% of sales. That was a little bit of an increase. They raised their sales guidance for the year to 28% from 27%. They tighten up the operating profit margin because of some of those costs, but their sales by region team is what I found so impressive. Americas was up 33%, about 28%, 29% on a constant currency, because of the strong Swiss franc, which On Holdings reports into. Europe, Middle East and Africa was up almost 34%, but here's the kicker. Asia was up 130%, 129% on a constant currency basis. Now Asia is just slightly smaller than Europe, Middle East and Africa next to the big behemoth, which is America On Holding is a global brand that is speaking and performing very well. Shoes were up 40%. That's the real bulk of their growth. Apparel doubled, but apparel is a very small part of their base. They're really known for their shoe technology finally, inventories was down almost 5%. They talked a lot about this on the call, managing inventories, really focusing on the brand, and focusing on that wholesale network, which is so important, as we saw with the acquisition of Foot Locker by Dick's. Dylan Lewis: For On Holdings, revenue tripled over the last four years. The company solidly profitable. Margins have expanded. David, Andy just painted a pretty rosy picture of this business. I did, too. Looking at the report and just looking at the outlook, is there anything you'd be concerned about here? David Meier: I have to be concerned about where future tariffs go. One of the reasons that On is getting a little bit of benefit within the markets is 90% of its shoes are sourced from Vietnam and Indonesia so basically, less product coming from China, which has less impact. If we remember after the tariff was announced, one of the most interesting things that happened in the market that day was apparently Vietnam got on the call or at least got a message to President Trump that they wanted to talk, and President Trump tweeted out, Hey, Vietnam wants to talk, maybe we'll see what we can do there and all of the barrel companies and shoe companies that have a lot of business in Vietnam basically shot up. That is the main thing that they have to manage. To counter that point, also what management talked about is they're going to be passing along price increases let's think about that. Again, this is a company that we know is continuing to grow quickly, and on the back of this really surprisingly good report, I think we can say the On brand is really here to stay. In fact, it's giving them permission to raise prices in this environment and that's huge. Because what that does is that allows them to one, still be able to meet customer demand and two, be able to protect their margin structure just a little bit let's not forget, this is a global business, and all this is happening because consumers around the world want its products. That is a phenomenal accomplishment, considering the struggles that Nike and Under Armour have seen recently. On is just not going away. Andy Cross: Putting these all together, Dylan, with the Dick's and Foot Locker news Nike is like 30-40% share in the US. They're probably 50% share in Foot Locker alone then at Dick's, they're probably maybe like a quarter of the shelf space so, you think about On Holding now competing against Foot Locker Dick's combination as I mentioned, they really are focused on that wholesaler, the wholesale distribution network. They're very I wouldn't say cautious. They're very careful on expanding their own footprint, their own store footprint. They're very successful here in the US, but they are taking a little bit more cautious approach it will be interesting to see how the Dick's Foot Locker relationship impacts the likes of On, not just Nike. Dylan Lewis: Taking a step back here. It seems like you guys, if we're looking at the race metaphor here, are putting On Holdings in the gold medal position, maybe putting Nike in a silver medal position, and putting Dick's and Foot Locker in the bronze when it comes to this race. Sounds about right to me. Andy Cross: I think that's about right. It'll be interesting Dick's reports next week, so it'll be very interesting to see what they report with their Hoka business and how they talk about the whole Dick's Foot Locker acquisition. Dylan Lewis: Andy, David, we're going to hear from you guys a little bit later in the show. Up next, Robert Brokamp steps to the lectern and gives his financial tips for 2025 grads. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool money. I'm Dylan Lewis. Spring semester is over, and college students are back home for the summer or taking the stage for graduation and starting their careers. Joining me to talk money tips for recent grads and drop some sage life advice, Motley Fool's financial planning expert Robert Brokamp. Bro, thanks for joining me. Robert Brokamp: Thank you, Dylan for having me. Such a pleasure to be here. Dylan Lewis: I have to ask. We're going to talk postgrad plans, how to set yourself up financially? What was your first job out of college? Robert Brokamp: I was actually an elementary school teacher at a school called Holy Trinity, which was associated with Holy Trinity Church, and I point that out because if you ever saw the movie The Exorcist, you've seen it because it's right on the same street as the Exorcist steps, and one of the scenes from the exorcist was filmed in the church. I was a sixth and seventh grade language arts teacher and religion teacher, not making a lot of money and living in a very expensive city. Dylan Lewis: You said not making a lot of money. Were you particularly financially aware at that point, or, at what point did you start getting on it now being a financial planning expert? Robert Brokamp: That was it. I was making not much money, already had a kid, and I figured, boy, I need to make the most of the little money that I make. I used a relatively new thing back then called the Internet to find what was then a relatively new company called The Motley Fool and that's when I started learning about money. In fact, I met Tom and David Gardner at a book signing in 1997, two years before I actually joined the company as an employee. Dylan Lewis: I think there's a little bit of inspiration there. You don't have to start out on the financial journey. You can find the financial journey. The Internet, I think, has become even more ubiquitous since then. Robert, is that right? Robert Brokamp: Most people know about it, yeah. Dylan Lewis: My financial awakening was at the Fool, too. I had studied finance and had dabbled a little bit here and there, but had done the bare bones of, I have a Roth IRA because my parents made me set one up as soon as I was tax paying age. Robert Brokamp: Good for them. Dylan Lewis: I got lucky in that I was starting off on a strong foot, but that was because of their savvy, not because of my own. For our summer interns or for our fresh grads that are starting out there, what is the checklist? What is the advice for beginning that process? Robert Brokamp: Well, I'll start with the summer interns. Or anyone with any kind of a summer job it's related to what you just said. Once you have an earned income, you can contribute to a Roth IRA. Because you do need income to contribute to the retirement account. The great thing about it is it grows tax free as long as you follow the rules. The rules being that you have to leave the earnings in there till you're age 59.5. Now for the younger folks out there them, I don't want to leave my money alone that long, but the good thing about the Roth IRA is you can take the contributions out tax and penalty free anytime. If you contribute $2,000 and it grows to 3,000, you can take out that 2000 and just leave that thousand alone until you retire boy, by the time you retire, it'll be worth a good bit so that's important to think about. If you are on an internship and ideally you're working in an internship related to what field you may want to work in, it's important, really just to understand the day to day of that job to see, is that the type of industry you want to work in? Take advantage of all the opportunities you might have to see what goes on in the company, talk to anyone who will sit down and talk to you, whether it's a newer person or even as high up as a CEO, if you can get access to that person, because you want to make those types of connections. You also want to make a good impression because once you do graduate from college, you might want to rely on someone from that internship to give you a recommendation, or you might want a job with that company there have been many situations here at The Motley Fool, back when we had an internship program, someone was an intern, they graduated from college, and then they started their career here at The Motley Fool. Dylan Lewis: One of the things I'll throw out there on the topic of interns, sometimes, depending on the structure, you're 401(k) eligible. Sometimes you're not 401(k) eligible, which gives you that first early introduction, Bro to the rollover and being prepared for that and just being aware that your financial life will move with your professional life. Robert Brokamp: One of the things I talked about is leaving the money in the Roth IRA. If you take that earnings out before age 59.5, you're going to pay taxes and a penalty. Same with a 401(k). This will happen if you're at an internship at a company that auto enrolls people. You're putting money in the 401(k). You're getting a tax break. The body gross tax deferred. But when you leave that company, you should roll it over to an IRA or to a 401(k) to you job if that's the situation. If you don't you will pay taxes and a penalty. In some cases, what companies will do when you don't have a lot of money in there, usually like less than five hod $7,000, they'll just send you a check and you're like, Hey, great, I got a check. I'm going to cash that check. That's what's going to get tax penalties. You got to get that check into an IRA within 60 days. Dylan Lewis: Depending on where you look, the number varies, but there are estimates out there for graduates and the average student loan debt. We're going to be talking to people here who maybe are very interested in putting money to work, but also have the reality of loan payments beginning. How do you think about what to save, what to invest and what that checklist looks like, the hierarchy for that? Robert Brokamp: I would say, first of all, it starts a little bit with just how you feel about debt. Does that create a sort of a psychological burden for you? Do you feel uncomfortable having debt? If that is the case, I am inclined to say pay that off as soon as possible, unless you're in a situation where you are eligible for 401(k) in which you receive a match, which is basically free money. You should at least get that match before you direct any money to paying off the debt. Now, if you feel like I'm comfortable with debt, and it's a low interest rate low single digits. I think you could be comfortable stringing out that debt longer, and then saving more. Historically, the stock market has returned 10% a year on average. You hardly ever see 10% in an actual year. You'll see many great years, many less great years, but over the long term, you ideally should be earning something that exceeds the typical interest rate on student loans. Dylan Lewis: I know for the last couple of years, the student loan environment has been a bit of wait and see, and the factors affecting whether people are going to make repayments have been changing a little bit. Anything that people should have on their outlook for that? Robert Brokamp: I would say that the days of hoping to have your student loans forgiven are at least temporarily over. I'm sure there are people that have been putting it off hoping that loans will be forgiven, and then now they are now talking about garnishing wages, maybe garnishing Social Security for student loans. I think it's just best to pay it off, at least pay the minimum payment. Now, there are situations, jobs, companies that will help you pay it off in some situations, you have to stay with the company for a certain amount of time. If you're part of that type of program, I think it makes sense to participate and only pay as little but I would not count on a great forgiveness in the future. Dylan Lewis: We fit IRAs, we hit 401Ks, we fit student loan debt, anything else on the financial checklist. Robert Brokamp: Just some rules of thumb that I think people should consider once they entering the job force. First of all, there's a good budgeting rule of thumb that is basically you devote 50% of your after tax income to necessities, things like mortgage, healthcare, groceries, 30% to discretionary purchases, like entertainment, dining out, vacations, and then 20% to savings. Then underneath that, once you graduate from college and you're getting a paycheck, like, well, how much can I afford to spend on housing, which is going to be the biggest item in your budget. A good rule of thumb is to keep it to less than 30% of your budget, if you can. I know that's harder in some more expensive cities. Then the next biggest item on most people's budgets is transportation. And that basically comes down to buying a car. A good rule of thumb there is the 2410 rule, which is basically put 20% down. Do not extend payments for more than four years and keep your monthly payment to 10% or less of your monthly gross income. Also keep a car for ten years, if you can. You pay it off in four years, and then that money you were sending to pay off the car, get into a high year old savings account, keep saving that money over the next six years. By the time you need to buy another car, you already have the cash waiting to be spent. Dylan Lewis: It's like you're staring at my driveway. I've got a 2014 Subaru hanging out. Robert Brokamp: Outstanding. Dylan Lewis: Well past the decade and thriving. To bring us home here, I'm asking you to indulge me a little bit. You've prepped a mini commencement speech. What do you have for us and for the graduating class of 2025? Robert Brokamp: Dear graduates of 2025. This may be one of the few times in your life that you'll be encouraged to be Foolish. Motley Fool was founded more than 30 years ago by brothers Tom and David Gardner and their friend Erik Rydholm. What started out as basically a project in a backyard shed is now a website with millions of visitors every month, and they chose the name the Motley Fool to stand out to be different, maybe even rebellious, little counter cultural. The name comes from Shakespeare, and the message was and is that you can manage money on your own and have some fun along the way, without the help of Wall Street, who back then were and to some extent, still are the kings of the wealth management industry, but not particularly benevolent kings. They're often charging high fees from mediocre results. I'm here to tell you to take control and maybe be rebellious, to be foolish with your money, because if you do just what the average American does, you will struggle to accomplish the financial goals that I'm sure you have. Let's start with investing. According to a Schwab survey, the older generations, the boomers, the G-Texers like me, didn't start investing until their 30s. But you can start right now with very little money as little as 25 bucks. You could open an account with a discount broker, buy even one share of stock, or even better if you're just starting out by one share of the Vanguard Total Stock Market Index Fund, you'll then be a legitimate part owner of every publicly traded company in America. If you start saving $100 a month at the age of 22 and earn 10% a year, which is the long term average of the stock market, you'll have almost $750,000 by the time you're 65. What if you put it off for a decade and don't start investing until you're 32, you'd have less than $300,000. Investing right now at such a young age and eventually accumulating that money would put you in the minority of people in America. In other words, you'll be a bit countercultural and very foolish. Of course, to invest, you first have to save currently in the US, the average household saves less than 4% of their income. Yet studies show that people should be saving 10%-15% just for retirement, let alone for things like a house and a car. Do all you can to sack away at least 20% of your income. I know it may not be possible at all times, but make it your goal. Even if you can get most of the way there, you'll be doing better than most other Americans, and more importantly, you'll eventually be financially independent doing what you want and when you want. One of the biggest decisions you're going to make is whether you will get married and to whom. It'll be a huge factor, perhaps the biggest in your day to day happiness. Unfortunately, more than 40% of marriages end in divorce, and one of the biggest causes of divorce is money, and that's because many couples didn't talk about their beliefs about saving, investing, debt, or about their priorities before they tied the knot. Before you get married, make sure you and your fiance are on the same page about money. You can start by doing an online search for something we call the Fooley web game, which features questions you and your partner can answer together to see how much you're financially aligned. I'll end here by citing the graduation speech of one of the world's great Rebels, and that is Steve Jobs, who co-founded Apple in his bedroom in his parents' house when he was 21. He dropped out of college, but he still kept attending classes, including a calligraphy class that influenced the future type face and fonts of Apple products. He also spent time just wandering around India seeking enlightenment. A commencement speech he gave at Stanford in 2005, he said that he learned at the age of 17 to live each day as if it were his last. Job said, "your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma, which is living with the results of other people's thinking. Don't let the noise of others' opinions dry out your inner voice." Of course, one day was Steve Jobs' last. He died in 2011 at the way too young age of 56. While it's important to save money for your future, it's also important to not save everything for your future. Save enough to fund your goals, but please have plenty of adventures along the way. I'll close with the final two sentences of Job speech, which you got from a countercultural magazine called The Whole Earth Catalog those sentences are stay hungry, stay foolish. Thank you. Dylan Lewis: Robert Brokamp, I tip my cap to you. Wise words, as always, and a pleasure as always. Thanks for joining me today. Robert Brokamp: Thanks, Dylan. Dylan Lewis: Listeners, that's advice you can take to the bank, but it's not all we've got for you this week. After the break, David Meier and Andy Cross come back with me to talk about the stocks on their radar this week. Stay right here. Listening to Motley Fool money. As always, people on program may have interest in the stocks they talk about and 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 Motif editorial standards. It is not approved by advertisers. Advertisements are sponsored content, provided for informational purposes only. To see our full advertising and disclosure. You're listening to the podcast version of this week's radio show, check out our show notes. I'm Dylan Lewis, joined again by Andy Cross and David Meier. Fool's last segment, I asked our colleague Robert Brokamp, for his money tips for college grads, and he dropped the Banger Financial Commencement speech we all probably needed to hear when we were in our early 20s. I want to know going over to you, Andy, best piece of non-financial advice for someone donning the cap and gown this May. Andy Cross: I would say, like, if you have a chance to experience as much as you possibly can as early as you can after graduation, in school and after school, try it. Try all different kinds of experiences, and don't be afraid to fail. That's just a big thing. Like, go out there. You fail, you fail with some friends, you go on to the next thing. Dylan Lewis: David similar? Are you going to say, go for it, fail or are you going to say. No, Andy's wrong. Succeed. You have to succeed all the time. David Meier: No, Andy is spot on. What I told my daughter and what I told her friends when they asked me, do not be afraid to take risks when you're young. That's when you should be taking risks to try things. Try things. Now, don't let it kill you. Don't let it be catastrophic, but do not be afraid to take risks now. It gets harder when you get older. Dylan Lewis: We tend to be financially minded here on the show, and there is the classic advice. The dollars you invest early are worth more. I'm going to caveat that with some non-financial advice. Fun costs less when you are young. It is easier to have a good time for less money when you're younger. You got to balance that lifetime value and figure out where it makes sense for you. Don't be afraid to spend a little bit and enjoy it, as well. Let's get over to stocks on our radar this week. Our man behind the glass, Dan Boyd is going to hit you with a question. David, you're up first. What are you looking at this week? David Meier: I am looking at a company called Evolv Technology and the ticker symbol is EVLV. This is a $750 million small cap that's changing the way public and private buildings manage their security. The company sells security, hardware and software that scan people as they enter buildings. As you might imagine, its biggest customers are sports venues. One cool thing is that AI is actually an incredible catalyst for the company going forward given how much data its systems collect. 2024 was an absolutely terrible year for the company. It was investigated by the FTC on how it markets its technology, and that resulted in the CEO being replaced. But with that in the past and new CEO John Kezerski at the helm, I look forward to hearing how the company will grow from $100 million in revenue in 2024 up to some much bigger number in the future. Dylan Lewis: Dan, this name is a new one to me, Evolv Technology ticker EVLV. You got a question? Dan Boyd: Yeah. I mean, with a small market cap of less than 1 billion in a recent FTC investigation, my question for David is, what are you doing, man? What is this? What are you bringing me? David Meier: I'm actually bringing you a company whose hardware is different than the typical metal scanners that are outside of venues, and I'm also bringing you a company whose customers love it. One, throughput times are faster, which means people get in, to get a good experience before they even get in the door, and it still provides plenty of safety. Yes, there was an issue in terms of how they market, but you cannot argue with the product and the software that this company delivers to its customers. They love them. Dylan Lewis: Andy, David's showing off his engineering background there, getting into the gears on the product. You got a tall order this week. What's on your watch list? Andy Cross: Well, I'm not a consultant and have never been a consultant, but I'm looking at another consultant, Booz Allen Hamilton symbol BAH. The consultants have really been just hammered over the past few months, including Booz Allen Hamilton because of their ties to the federal government. Booz Allen business is almost all tied to the government. They're a consultant that provides management and tech services to the federal government. It's one of the largest AI providers inside the federal government and has one of the largest cybersecurity operations globally. But with all the activity and all the conversation around doge and worries about cutbacks, especially in defense in civil agencies like Homeland Security and justice and others that booze Hamilton this is 100 year company has long called a client, and then the Secretary of Defense signing a memo of five billion in defense contract cutbacks. Things are not looking particularly bright for the likes of Booz Allen Hamilton and other consultants. Yet, they still have a very large backlog of 39 billion. They have a book to bill ratio of 1.4. That's the highest we've seen in six years. They have an expanded partnership in AWS. The stocks rebounded a little bit. They report earnings next week, team, I'm excited to hear what they have to say about those cutbacks and about their client interest in more demand for Booz Allen services. Dylan Lewis: Dan, a question about Booz Allen Hamilton ticker BAH. Dan Boyd: Not really a question, Dylan, more of a recollection. Back in the old days when I was dating, I ended up dating a few women who worked at Booz Allen Hamilton, and unfortunately, it didn't work out with any of them. I don't know. Is that a black mark against them? Could be. Dylan Lewis: It's not. You get a little dividend yield. They've increased 16% per year for the last five years, Dan. Wow. Dan, I don't know if the dividend yield is going to be enough to overcome your dating experience. Is Evolv Technology the one going on your watch list this week? Dan Boyd: It is, Dylan. Dylan Lewis: Dan, appreciate you and David, appreciate you bringing your stocks. That's going to do it for this week's spot for my radio show. Show is [inaudible] by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll see you next time. Andy Cross has positions in Apple and Chipotle Mexican Grill. Dan Boyd has positions in Chipotle Mexican Grill. David Meier has no position in any of the stocks mentioned. Dylan Lewis has no position in any of the stocks mentioned. Robert Brokamp has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Chipotle Mexican Grill, Domino's Pizza, Nike, and Walmart. The Motley Fool recommends Booz Allen Hamilton, Cava Group, On Holding, Skechers U.s.a., and Under Armour and recommends the following options: short June 2025 $55 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy. Walmart's Warning; Money Tips for 2025 Grads 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
27-05-2025
- Business
- Yahoo
There Is No (Convenient) Alternative
In this podcast, Motley Fool analyst Asit Sharma and host Dylan Lewis discuss: Moody's downgrading U.S. debt, and why it's somewhere between a symbolic and a substantial update for investors. Whether the downgrade and "sell America" thinking mean international investors are rethinking whether there is no alternative (TINA) to the U.S. Coinbase joining the S&P 500, and crypto's continued march toward legitimacy. David Henkes, a restaurant industry expert and senior principal at Technomic, joins Motley Fool host Ricky Mulvey to talk about why more people are brown-bagging it for lunch, and what successful restaurants are getting right. 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 Coinbase Global, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Coinbase Global 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 $639,271!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $804,688!* Now, it's worth noting Stock Advisor's total average return is 957% — a market-crushing outperformance compared to 167% 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 19, 2025 This podcast was recorded on May 19, 2025. Dylan Lewis: Moody's joins the crowd on US debt. Motley Fool Money starts now. I'm Dylan Lewis, and I'm joined over the airwaves by Motley Fool analyst Asit Sharma. Asit, thanks for joining me today. Asit Sharma: Hey, Dylan, thanks for having me. Dylan Lewis: As we catch up on the news this Monday morning, the macro picture stays very much in the headline. Market starting up to week down a little bit after ratings agency Moody's downgraded US debt on Friday. Asit, SMP Fitch head downgraded US debt several years ago. Moody's finally joining them. Is this a symbolic change or is this a substantial change? Asit Sharma: I think it's in between, Dylan, so they changed the debt rating from A to as or AAA to Aa1. That's a slight difference, but it is a notch down, and it does join its peers, which had already taken VS out of their top-tier rating bucket. What does it mean? Well, Moody's pointed to higher interest rates and, of course, the burden of our increasing debt as a country. These are long-term things. Interest rates have been elevated now for a few years, and the debt has been around it feels like it's been around since I was born, only gotten more out of control. This shouldn't be a surprise to investors. In fact, after some initial I think Sellof in the futures this morning being stabilized a market realized, well, everyone knows the situation the US is in. It is still by far, the preeminent currency. In the world, the reserve currency, and there's still a lot of advantages to the US. It's not like it's a terminal problem, but one more sign that really from a policy basis, and this is going across multiple administrations from both parties, we've got to address our debt, and there are some other things you can read into it as well. A little bit of the volatility in the rollout of the tariffs that the Trump administration has passed through is playing into this as well. Dylan Lewis: I like that you talked a little bit about the long arc there. Moody's in a statement said, Hey, this is successive US administrations and Congress failing to agree on measures to reverse the trend of larger annual fiscal deficits and growing interest costs. This is a problem that has been building for quite some time. It seems like both the rating agencies and the market are looking for some sign that deficit will get under control, and that would rebuild some of the confidence in US debt and make a little bit easier for the US to operate. Asit Sharma: I think that's exactly what the market is looking for. When you go back to the last time the US got its ratings cut from basically just flawless credit where it is today, which is still pretty good credit. It's just not thought of as being risk-free anymore. It was more about the inability of policymakers to even pass resolutions so that we can fund our own government. That was really what shook the markets last time around. Now this is acknowledging that we can't run these deficits forever. As a country, we've got to find a way to bring our debt relative to our GDP output back in line. It's a little high just now, and it's not something that we can't solve. We could do this, but what it's going to take is some pain. One thing that politicians don't like to pass downstream is sacrifice, pain, burden because they feel like they might not make it back into office when they're up for reelection. This is the key problem in the US economy. It's not really about the deficit. What it is, it's about politicians who are scared to come clean with the American public and say, Hey, we've got to make some sacrifices somewhere because this isn't sustainable. Dylan Lewis: When creditworthiness comes into question, we typically see yields on debt go up. We are seeing that the 30-year treasury spiked above 5% in the wake of this news. We talk about the federal government being the foundation for borrowing and for debt in the United States. What does it mean when something like this happens for companies and for borrowing in the grand scheme of corporate finance? Asit Sharma: It's tough because corporations utilize debt in two ways. We're all familiar with companies issuing bonds to finance expansion or maybe just to reshape a balance sheet. Everyone understands that only the best companies can access the bond markets at will when interest rates get elevated. But corporations use a lot of commercial paper, too. These short-term interest rates rising has made commercial paper more expensive. Even the everyday functionality that lots of corporations use as a form of liquidity becomes more expensive, which means then downstream, they've got to keep more of their own capital in their treasury accounts, which means the CFO somewhere is saying, I don't know if we can spend all this on capital investment this year, I need more money in the bank because I'm not paying X percent more interest on our overnight paper. It has all these weird follow-on effects that we rarely think about as investors, but it's just a slow drip drab of problems just as in the real world, for us, you see that 5% threshold being crossed for the 30-year, and then you're trying to buy a house, and you look and you're like, Whoa, what happened to long term mortgage rates? It looked like it was getting better. This is way too much. I'm going to hold back now, and maybe I'll keep renting for a while. We all feel it. Corporations feel it and citizens feel it. Dylan Lewis: It's the financial Rube Goldberg machine. It starts off in one spot and just works its way through everything else. Asit Sharma: Totally, you can't understand how it works looking at it. Dylan Lewis: After the tariff escalations in early April, there was this sell America concept, the Sell America trade that got a lot of noise in the market. This seems to have stoked that a little bit. For the longest time, for certainly most of my investing life, the acronym has been TINA. There is no alternative to investing in the US, and that the US market in particular is risk-free debt. Even with all these concerns, Asit, is there really an alternative? As people are seeing these headlines, is there somewhere else that investors are going to be looking to park their cash other than US treasuries, other than the US stock market? Asit Sharma: Dylan, there is no convenient alternative. Let's put it this way. If governments want to take the trouble, if corporations want to take the trouble. If the US public, which is a big buyer of US debt wants to take the trouble we don't need to buy these bonds. You can go buy German bonds, which are perfectly safe and almost seem attractive because while the German government has its share of political problems, it doesn't seem near as chaotic as we have been over the past six months or so. It's just something that as technology increases, corporations find it easier to look elsewhere. The markets are pretty liquid in Europe, and even some investors are looking to Asia to place money. I think in the future, what we're going to see is countries like China, which has for a long time, said they wouldn't mind breaking the dollar's dominance, cooperate with other brick nations. There's a whole chain of countries that want to be in on bricks, by the way. I think you'll see that, especially on the sovereign level, governments will take the trouble to utilize other currencies, A, for trade and B for what you're talking about, which is to park assets, to park sovereign assets instead of in the United States, do a little work and spread them out among a host of other countries that in the past just didn't seem viable, but a global trade, which is not going backwards, even albeit temporarily from US tariffs, the long term mark of that it's a very globalized society that we're going to live in from here on out. It is something that governments can consider. Now, to our advantage, you can't do this overnight. We got time to fix the problem, but come on, people. Come on, policymakers, we need to solve this and soon. Dylan Lewis: It's been a busy week for Secretary of Treasury Scott Bessent. He has been taking questions on the country's debt, but also talking to leadership over at Walmart after the company made it clear in their earnings release, tariffs mean higher prices for consumers coming soon. As we were talking before we got on air, about how the tariff story and Walmart ties very directly into the deficit story and what we are seeing with US debt. Walk me through that. Asit Sharma: Walmart is a company that does about $680 billion worth of business in a year. That's the top line number, the revenue number. It also enjoys a really favorable tax rate as all US corporations do. Corporations got a tax break in the previous Trump administration, and that was set to roll back. What's happening now is, of course, we have this year's legislation, and it looks like those tax cuts will actually stay in place. There are some theories out there that point to how tariffs are related to the deficit, and that the imposition of tariffs is one way to bring money back into the country. I would say that Secretary Bessent would argue that it's not really about taxing the consumer, but it's having corporations pay their fair share once tariffs are imposed, which actually brings up something that many of us miss. When you read the headlines, it's all about China should eat the tariffs or the US citizens are going to eat the tariffs. Actually, there's that party, there's the intermediary between this foreign country that exports the goods and us who buy them, and that's a place like Walmart. By the Trump administration's eyes, Walmart should absorb this. I think President Trump used the word eat that they should eat the tariffs, and he points out that they have billions of dollars in profits. Now, before I get to those profits, we'll just take a step back here and say that this is one part of the puzzle to potentially reduce a deficit, which is to raise money by the imposition of tariffs. Now, it's not going to solve the problem because there are so many trillions involved, but it's one more way to bring in some revenue to the federal government. The two are related in that way, getting back to Walmart, though. This is a disciplined company that didn't get to be the biggest company buy sales on the planet by being undisciplined or not being focused or bending to anyone. It just asked Walmart suppliers. They know how to play hardball. I'm thinking about this. I don't know what the future is going to bring, Dylan, but I will say that Walmart has a very good argument to hold the line here, maybe, and push back against the Trump administration. It's about just basic economics. Walmart may sell so much each year, but their operating margin is only 4.3%. What that means is the Trump administration is very correct to say they're making billions of dollars, but they got this absolute scale where the revenue is so high, just a little bit of profit brings in billions of dollars to the bottom line. What happens if you break that equation and suddenly Walmart has to absorb 30% increases from the biggest flow where it gets its goods that we buy? They don't have a lot of wiggle room and very quickly, you could see if they just yielded wholesale to this proposition, all of that would evaporate, and they would be negative. They'd be losing billions of dollars. I think this sets up a very interesting dialogue. I don't know how much of it is going to be public. I think Walmart would prefer as you and I were chatting, before the show, for this not to be in the public eye, they would have these conversations behind the scenes with the US government, but it does set up an interesting push-and-pull to see where that line is where I think Walmart may concede a little bit and telegraph to the administration. Okay, we'll try to absorb some of this, but they have to stop at some point because ultimately they understand who really calls the shots, and that's the shareholders there. They're not going to like that share price going down. They're not going to like seeing profits evaporate. Dylan Lewis: Closing us out today on the news roundup. The S&P 500 is welcoming a new name today, crypto exchange, Coinbase joining the index. This feels like a little bit of a milestone moment for crypto, another step in legitimacy, and it's fitting in a way. Coinbase is joining the S&P 500 because Discover is leaving it. An Old Guard financial services company being acquired by Capital One, I love the symbolism of that, Asit, and just in terms of narrative arc, it is as Chef's Kiss Perfect as I could possibly structure it. Asit Sharma: It's like the thing that was the technology back in the day is being urged out the door. Come on, Grandpa. It's time for you to go you got the new thing here. Coinbase, you have to hand it to them. Whether you're a believer in crypto, this market over the long term, they have been very key in driving the industry forward, and they talk a lot on their calls about just this driving not just their top line, but utility across the whole ecosystem. The fact that when they discuss their earnings now, they talk not just about a global spot market for crypto, but also a derivatives market for crypto and the growth of stablecoins. All of the language of their earnings call, Dylan is just showing how far they have come as a business and how there's become a financial asset in the crypto world. We always thought that and we, being myself, maybe, and a few other people that I talk to because I'm not super knowledgeable about crypto. The folks that I have conferred with this on. I've always thought that utility was going to be the greatest driver in that all the crypto assets, derivative assets, digital assets that would make it would be very useful in some ways. But I think that the fact that coin base has joined the S&P 500 is a testament to just having a financial asset, something that people can turn to instead of, say, gold, had its own existence out there, and not everyone saw that. The trading volumes prove that out. Now, let me just argue against myself for 1 second. Even though you can say they've made it. Let's congrats to them. They've joined the club. I still think so much of this is driven by the success of Bitcoin and the trading volumes associated with that one asset. That's a risk with this business. It always has been. It may be that way for a long time. If you see another crypto winter could this be one of those companies that joined the S&P 500 and very quickly, just it felt like it was plateauing or even sagging a bit? That could happen, too. Dylan Lewis: I think the reality is, if you are a crypto lover, if you are a crypto hater if you own the index fund, you now own crypto exposure. It's as simple as that. Asit Sharma: Totally. Whether you like it or not, you're also a crypto investor, so there. Dylan Lewis: You and I, fellow crypto investors, Asit Sharma, thanks so much for joining me today. Asit Sharma: Thanks a lot for having me, Dylan. Dylan Lewis: Coming up on the show, times are tough for restaurants. Industry expert and principal at Technomic David Henkes joins my colleague Ricky Mulvey to talk through why more consumers are brown bagging it and what successful restaurants are doing right. Ricky Mulvey: David Henkes, senior principal at Technomic, and a global food and beverage industry trend watcher. Thanks for joining us again on Motley Fool Money. David Henkes: Sure, thanks for having me, Ricky. Appreciate it. Ricky Mulvey: So it's a tough time for restaurants. And I wanted to get you as soon as I saw this story last month in the Wall Street Journal, especially, I think it's continuing to play out in earnings for a lot of the large restaurant chains, which is that people aren't going out to lunch. Nationwide, the number of lunches bought from restaurants and other establishments fell 3% in 2024 from the year before to 19.5 billion. But that is important in context because that is fewer than were purchased even in 2020 in the middle of the pandemic. Now, people are going back to work, but fewer are going out to eat. David, any reflections on what's happening here? David Henkes: Well, I think there's a couple of things that you have to take into consideration, and the context for this is that the restaurant industry is struggling right now. There's been a lot of traffic issues. And so when you talk about the decline of lunch and the absolute number of meals consumed for lunch, you've got to look at it in the context of the broader industry. Where last year, if you look at the numbers that we publish or I think most other industry trend watchers, last year finished very weak for restaurants in particular. Big players like McDonald's had significant issues with traffic. Their sales numbers were much lower than they were in the last couple of years. And so, I think focusing on just lunch muddies the broader context, which is that consumers have really pulled back from restaurants over probably the last 12-18 months. When you look at the inflationary environment and menu price increases, menu prices are probably about 30-35% higher than they were pre-pandemic. What that's caused consumers to do even before the current situation that we've been in with the tariffs and all of the economic uncertainty that we're sitting in here today, is that over the last 12-18 months, consumers have really noticed higher prices and have pulled back. When you talk about lunch, lunch is one of those, I guess, easy day parts where you can replace it with a meal brought in, if you're brown bagging, if you're going into work. Certainly, when you look at office occupancy, we're getting back to pre-pandemic levels, but we're still not back there. There's a lot of bigger dynamics that are going on, and I think I've said a number of times that it's harder than ever to profitably run a restaurant in today's environment than in the 29 years that I've been doing this at Technomic. The lunch part is concerning, but I think the broader concern is just the consumer pullback that we've seen across the entirety of the restaurant industry. Ricky Mulvey: I have a theory on the consumer pullback, and it hit me when I was at, like, a fast-casual Mexican chain that is not Chipotle. I went up to order, and there was a screen that I was ordering at. There was one cashier on the other side, but I was ordering at a screen, and then I do my order, and it says, do you want to tip 18, 20, or 22%? This is being asked to me by the screen, and now I'm doing an algorithm in my head, algebra would be a better way of putting it, where I'm ordering at a screen, not with a human, but I know there's people making my food, and I know someone has to bring my food, but I also have to bus my own table. I think the food away from home cost may not account for the wider spread tipping culture, especially for fast-casual dining, which increases it I think even more. I don't know if tips are considered in the 30% from five years ago. David Henkes: No, actually, those are just menu prices. You're absolutely right. I think the US has a tip fatigue problem among a lot of consumers right now, and I think that happened during the pandemic when every restaurant that was open and we wanted to support restaurants and service workers, and so people were willing to tip extra, and so we developed this tipping culture during COVID, which really has stayed with us. When you talk about menu price increases, and listen, labor costs are one of the Top 2 costs that restaurants have, and they've continued to rise, and minimum wage pressures and all of that that are going up, and so there's no question that restaurants, if they can, they'd love to push a little bit more of that back onto the consumer. Historically, though, fast food or limited-service restaurants haven't been a tipping establishment. Tend to find it in full-service sit-down restaurants. I think where people 3, 4, 5 years ago were happy to tip, they've gotten very fatigued by that, and I think that's an additional pullback that we're seeing, where in addition to all of these higher prices that you're seeing just on the menu, and maybe some additional fees or things that are now on the menu, you are also being asked to tip everywhere for a coffee, for a muffin. Obviously, you're tipping the machine basically when you're ordering at the kiosk. I think a lot of people certainly look at the economics of running a restaurant and say, why can't you pay a living wage to your workers so that it's not being pushed back to me? It's challenging because the economics of running a restaurant are really hard. To the extent that you can offer those tips and, hopefully, drive some of your employee satisfaction to a greater extent, then that's a win for the restaurants. But it really has turned off a lot of consumers, for sure. Ricky Mulvey: The winners and losers are not even here. Is this still a big problem for the major chains that you follow a Technomic is the pain more acute for the smaller restaurants that don't have that ability to negotiate with suppliers quite like a Chipotle can? David Henkes: Listen, I think the pain is being most acutely felt by the smaller mom-and-pop independent restaurants. Just because you're right. They don't have the financial wherewithal, the negotiating power, they don't have the ability to invest in technology, and some of the things that help alleviate some of these cost concerns. But listen, we just released our chain data. In 2024, we tracked over 1,500 chains. We published the Top 500 of them in what's called our Top 500 Report. Chains had probably one of the worst years that we've seen in the last, I don't know, decade. Chains were only up about 3% last year. It's a substantial slowdown from what we've seen. I think this consumer pullback is real and it's impacting certainly the independence, and I think from a margin in profitability, we're seeing that from independence, but it's certainly hitting the chains. Last year, you had over 30 restaurant company bankruptcies. That's continued here into the first quarter of 2025. The big chains aren't immune from it. Really, then I think the exception proves the rule when you see great performers like a Texas Roadhouse or a Chili's who are just killing it. Those are really the standouts, but the rank and file of a lot of chains, up to and including McDonald's and some of the other ones are really struggling in this environment, and the consumer pullback is real. Ricky Mulvey: Even Chipotle was surprising to me. I want to get to Texas Roadhouse and Chili's in a sec. I probably at Chipotle once a week, so I'm definitely biased there, but I can get a good bowl of food for 12 bucks, I know what I'm getting, and yet fewer people are going there because of the price increases. Now, I know they've increased prices, but that one, even where there's a really strong perceived value there, at least for me, and I think for a lot of people, is experiencing that decline. Are you seeing any traffic numbers or same-store sales data that is surprising to you as a trend watcher here? David Henkes: Well, I think we're increasingly seeing winners and losers. Some of the things that have been most surprising to me, again, Chili's, the last two quarters have posted basically right around 31% same-store sales. That is unheard of for high-flying chains, much less a legacy casual dining chain. Chili's is one that we just continue to look at as executing on all cylinders. They are doing phenomenally well. I think Taco Bell is one that they posted 9% same-store sales this most recent quarter, first quarter after being up 5%, 4%, but they've been doing really well. McDonald's was down about 3.5% last quarter, Starbucks continues to struggle, they were down 2%. A lot of what are the biggest chains in the industry are having value issues, they're having traffic issues. Some of the smaller chains, and some of them don't publicly report, but we've been very high on a lot of these beverage players, Dutch Bros, some of these non-Starbucks coffee or beverage chains that are doing really well. Last year, we saw, a bunch of these chains that just did really well, 7 Brew and Swig, which does the dirty sodas, things like that. I think it's a tough time for legacy brands, and I think consumers are voting with their wallets, and they're trying to say, I have fewer dining occasions today than I did a year ago, and so I want to pick those establishments that are my favorites or that I know I'm going to get a great value. Value, by the way, is not necessarily lowest price, but they want a great value. We're not in a situation where rising tide is lifting everybody anymore, we're in a situation where the industry is flat to maybe slightly down, and you really start to see those winners that are standing above and beyond everybody else because of what they offer to the consumer. I think, same-store sales are certainly part of it, and you can look down the list and see who's performing. But, again, Chili's, Taco Bell are the ones just as I'm looking at. You can look at maybe a handful of chains that are outperforming in this market. But for the most part, it's flat to down when you look at most of the big public company chain reports and what their same-store sales are. Ricky Mulvey: Dutch Bros is the one that continues to surprise me. I went there one time, I think I got a chocolate-covered strawberry mocha. Saw on the menu, they have a 911 drink, where you can get six shots of espresso in one drink. But people like it. I see lines outside the door at eight o'clock. Anyway, Chili's. Chili's is the incredible one to me, 31% from a year ago. I think they were growing since then, too. Three for me deal. Can't go wrong with that. I think you get chips and salsa, burger, fries for 10 bucks. I was pretty happy with it. You look at Chili's versus Applebee's. Applebee's is not enjoying a similar level of growth, even though on the surface, you would think they're having a pretty similar offering. What has Chili's been able to figure out in this environment that many other chains have not? David Henkes: We've done a fairly deep dive into Chili's, and actually, some of our sister publications have awarded the CEO with Restaurant Tour of the Year. Obviously, they're doing a really great job. They are relevant to, I think, the younger consumers. I've got a couple kids in their 20s who Chili's is now on their radar again. Ten years ago, if you asked a younger person to go to a chain, they would have been like, no way, there's no chance. They've become relevant again. A lot of that is through their social media marketing. Certainly, the value promotions, the margarita promotions they run are really successful. But they do a great job of having a barbell strategy. They do have a lot of low-priced or value-oriented type things, but you can also have a premium experience if you want. I think there's a lot of chains doing that, and I don't want to over-commit to that's why they're doing well, but I think they've just remained relevant. I think the big part of what they do is, I've talked a lot about the general manager and how important the general manager is in setting the tone for the service, the overall experience that patrons have when they come in because a lot of your experience is not just how much you paid or what the food was because a lot of these casual dining chains are in that ballpark, but it's also the experience you have through servers. Chili's has done a great job of really giving their general managers the ability to fix things within their own restaurant. They've invested heavily in their GMs and the labor situation, and training, I think, in different ways than some of their competitors have because you're right, Friday's, Applebee's, some of these other casual dining chains that you would say, they all play in the same sandbox, if nothing else. They are not doing nearly as well. Chili's last year was up 15%. If I look at Applebee's, they were down 6%, Friday's was even lower. Chili's has done a great job through relevance, through marketing, social media, menu development, menu relevance, and service and ambiance to really set the tone for what a casual dining restaurant should be in 2025. Ricky Mulvey: Then as we close out, I saw on your X account that key lime pie is in your Top 3 desserts. Citrus with dairy, a little controversial. I was surprised to see that. Key lime pie, happy to see it show up, but it's not something you really crave. I guess, you got a wild mind here, David. What's your Top 3 desserts? David Henkes: I love a good cheesecake. In my mind, that key lime pie is an elevated, I know they're not the same, but it's the same type of experience with a little bit of a sour. I was down in Key West about a year and a half ago, two years ago, and I had some of the fresh key lime. Birthplace of key lime pie, and it was just delicious. I think if I had to look at my Top 3, that's a great question. I'm not a big sweet guy. I'm more of a savory guy. My wife really loves the sweets, and I'm more of a salty, savory-type things. Brownies ice cream, I like, I'll eat it. But I think key lime pie, it's definitely up there for me. Obviously, it's controversial, you don't appreciate it. What's your top dessert or there are tight up there . Ricky Mulvey: I appreciate it. I'm a sweets guy, so I appreciate the key lime pie. No disrespect to the key lime pie. You know what? I don't think Dulce de leche gets enough, love. I love Dulce de leche. Great. I'm going to take Jenny's Take 5 great ice cream. Very specific. Then the classic s'more. When you're building up to that outside time and you got a campfire going, s'mores are coming, that's when the hype cycle is coming. I'll go with those Top 3. David Henkes: I'll tell you, one other thing that I will throw in, and I was just in Europe on vacation a couple of weeks ago. The gelato in Europe is phenomenal. I might put that. It's got to be a very specific gelato because the stuff you get here in the States is not as great. But if you're over, and I was in Portugal and Spain, and some of the gelato that I had there was just second to none. It was phenomenal. Ricky Mulvey: I really got to travel to get the desserts to you like. I got to go to Key West and I got to go to Europe. [laughs] You're making it tough on the listener. David Henkes, Senior Principal at Technomic. Thank you for your time and your insight. Appreciate you joining us on Motley Fool Money. Ricky Mulvey: Thanks for having me, Ricky. Dylan Lewis: Listeners, a quick programming note as we wrap up today's show. This is my last Monday episode here in the host seat. I'll be wrapping up my time here at Fool later this week and I have one more radio show ahead of me with the team this Friday. I've been lucky enough to be here over a decade and been honored to be one of the many voices here at TMF that you turn to for a Foolish take on what's going on in the market, whether it was here on Motley Fool Money or way back in the day on Industry Focus. I'm going to miss chatting with our analysts and hearing from you all in our mailbag and on our voice mail, but I'm excited to flip over from host to listener. We talk about it often here, time is the most valuable thing you have. The biggest tool in your investing life, and it's the most valuable resource in your personal life. Thank you for all the time you spent with me over the years. 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 something based on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content provided for information purposes only. See our full advertising disclosure. Please check out the show notes. For the Motley Fool Money team, I'm Dylan Lewis. We'll be back tomorrow. Asit Sharma has positions in McDonald's. 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, Coinbase Global, Moody's, Starbucks, and Texas Roadhouse. The Motley Fool recommends Dutch Bros and recommends the following options: short June 2025 $55 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy. There Is No (Convenient) Alternative was originally published by The Motley Fool Sign in to access your portfolio
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13-05-2025
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Is the Fed on the Right Track?
In this podcast, Motley Fool host Dylan Lewis and analysts Tim Beyers and Bill Mann discuss: The Fed's continued wait-and-see approach to tariff policy, inflation, and interest rate cuts. Ford's warning of tariff impacts. Why MercadoLibre is worth a look amid macro uncertainty. How Uber and DoorDash are both flourishing as they cash in on the delivery market and consumer laziness. Two stocks worth watching: Apple and Ibotta. Motley Fool contributor Jason Hall talks through his time at Berkshire Hathaway's annual meeting in Omaha, Warren Buffett's plan to step down as CEO, and what to expect from Greg Abel. 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 09, 2025 Advertisement... Dylan Lewis: It's the Motley Fool Money Radio Show. I'm Dylan Lewis. Joining me over the airwaves, Motley Fool Senior Analyst Tim Beyers and chief investment strategist over at Motley Fool Asset Management, Bill Mann. Fools, great to have you both here. Tim Beyers: Great to be here. Bill Mann: How you doing? Dylan? Dylan Lewis: I'm doing great. This week, we have a showdown in the food delivery market. We're going to be checking in on Warren Buffett's last Berkshire meeting as CEO. Of course, you guys have brought the stocks on your radar this week. We're going to kick things off with Fed Watch 2025. Jerome Powell and his merry band of Fed policymakers got together this week and decided to keep interest rates exactly where they are. Bill, Powell has been signaling, wait and see. Is that the right move here for Fed and Co? Bill Mann: It seems like it. I would suggest that the president thinks that it is not. It came out pretty hot, calling him a fool for not cutting rates. The Fed feels like they're in a pretty comfortable spot. There's still a little bit of inflation that they see. But it really bears remembering that the Federal Reserve, they are not a forward looking entity. They are in a lot of ways backward looking. They tend to respond to the market rather than impact it. Yeah, it seems fine to me that they've left rates where they are. There's an awful lot of confusion, and some of that confusion is being brought about by an administration that really seems to love chaos more than anything else. The end result for that chaos, they're hoping is lower costs for federal debt. Tim Beyers: Yeah, and I'll just add here quickly, Dylan. Fed rate cuts are a pretty blunt instrument, and you want to use them rarely. I'm backing Bill on this one. I like that Jerome Powell is slowing his role. That is exactly what he should be doing. Slow your role. It's a blunt tool, use it sparingly and we'll see what happens. I don't expect us to be having a sudden news announcement about rate cuts sometime in the next couple of months. I very much doubt. Part of the slow roll here is Powell and company really want to see, OK, do tariffs stick around? Does that lead to higher prices? Does that create an inflationary environment where it might affect the Fed policy and what they want to do with rates? We are starting to see some progress and some updates on the trade side of things, Bill, US and UK reaching some early terms on trade and tariffs this week. Headline most goods from the UK coming into the US will face a 10% tariff. There are some carve outs. I have to be honest, even having spent about an hour reading through this, it is very hard for me to parse what will and what will not be affected by this. Bill Mann: Yeah, it really bears remembering. I've said this before that the tariffs really only have one target in mind, and that is China. Whatever you see happening with the UK, it is in some ways, the impact of the US government forcing our allies and even non allies to choose, which horse they're going to back. When you see something like a tariff rate cut between the US and the UK, you have to keep in mind that the biggest game in town is the impact of the US and China tariff war, if you will. Tim Beyers: Yeah, can we just be quick on this, Dylan? I think the word deal in the US UK deal is doing a lot of heavy lifting there, because this isn't really a deal yet. It might be a deal. It could become a deal, but it isn't really a deal here, because let's be clear, the 10% tariff is still there. There are maybe some carve outs for different things. But essentially, Bill's got this right. What we're trying to do is just curry favor. Create allies. There is some wisdom to that. There is a lot of chaos from the Trump administration. But if you are intending to try to bring China to the table and bring better terms for the world and particularly for the United States, you would be wise to have allies in making that argument, making that play. Here's a chance to try to create some allies. Dylan Lewis: Rather than deal, agreement in principle, why don't we go with agreement in principle? Bill Mann: Agreement in principle. Tim Beyers: Are they chips or are they fries? Bill Mann: Yeah, the nomenclature doesn't matter. It's just you've got to keep your eye on what the ultimate goal is here. It's really interesting to see, as we are recording, the president say, hey, maybe 145% wasn't it. Maybe it's 80%, and people are noticeably going to say well he's caving, the overton window is moving on what tariffs should be. Everything that you see has to do with statecraft and what is happening between the United States and China. Dylan Lewis: Throughout earning season, we have been looking at how companies are processing that and forecasting what they're signaling to the market. We had Ford weigh in with their results and also some commentary on the macro, and a lot of attention on the automakers. Bill, when Ford reported, they said, hey, we're expecting a 2.5 billion dollar hit due to tariffs, not as bad as what GM had signaled, but still a sizable effect for this business. Bill Mann: Yeah, and one of the things that is true about autos is that even the ones that are American nameplates, a huge amount of the input will come from other countries. In this case, for Ford, mainly Canada, and obviously, there's been a huge amount of discussion about the appropriateness of us having tariffs with literally our largest trading partner. But this is an outcome of that. You're already seeing some recognition of the damage that is going to come for a company like Ford. The market seems to be responding somewhat calmly, I would say, and I think that has to do with the fact that there is either a recognition or a hope that something will get done there that will take the pressure off of a company like Ford. Dylan Lewis: In addition to the tariff hit, they also noted, hey, we are going to suspend some of our guidance. So far the starting season, we have seen management teams handle the tariff situation differently. Tim, we've had people suspend guidance. We've had teams say, hey, we're going to provide multiple forms of guidance based on different scenarios we can anticipate. Some have made dramatic changes to outlook. For companies in your portfolio, the management team's behind them, what are you looking to hear? Tim Beyers: Well, I'm looking to hear as much honesty and transparency as possible here. An area that I cover where this is happening with regularity is the semiconductor market right now. Both in Nvidia and AMD, you'll remember, Dylan, because I think we talked about this somewhat recently. They had to say, hey, look because of export restrictions, we are not going to be able to sell some chips that were designed to sell into the Chinese market. We thought we were going to have I think in Nvidia's case, it was about 1.5 billion worth of chips that they have essentially just written off. In the case of AMD, it's about 800 million. I just want clarity. I want clarity and transparency as much as humanly possible. You're not going to get it perfect. Just tell us what you're facing and how you intend to deal with it. That is probably the best that these management teams can do, because, again, I'll go back to what Bill said earlier. This is an administration that they are rolling in chaos and loving every second of it. They're like, living their best life, just throwing chaos left and right. But I think to be fair, that is part of what they believe they should do, whether or not that proves to be true, I don't know. But amid that, management teams need to be transparent. With the challenging environment here in the US, investors have been looking for businesses not as reliant, not as exposed to US trade. Tim, we got an update on one of your favorites in that zone this week. This is one of my favorites, too, Mercado Libre, one of my biggest holdings. What's going on with the business? It's just crushing it here. I'll give you some overall top line numbers here, and then I'm going to focus in on one that I think is particularly important. 13.3 billion in overall revenue. If you just go on a pure basis, that's up 17%, if you do foreign exchange neutral because Bill can tell you this currency is crazy throughout South America. It was up 40% on a foreign exchange neutral basis. Total items sold 492.2 million total transaction, total payment volume, 58.3 billion. That's up 72%. But here's the one I want to focus on, Dylan, because it is increasingly true about Mercado Libre that they are becoming a FinTech. They are becoming a provider of credit for consumer markets where they operate, particularly in Brazil and Argentina, but also Mexico, that credit portfolio now is $7.8 billion. They have scaled to become a credit provider in these markets at an astonishing rate. I think that deepens the mote for Mercado Libre. This is a fairly recent rule breakers recommendation. Part of the reason for that, Dylan, is that we think the mote is getting deeper here. It's not just because of the macro. The moat seems to be getting deeper here. As much crazy as happens in South America, with just the chaotic financial markets, currency fluctuations, there's a lot of things you have to remember, at least for me, what I remember as an investor, is that Mercado Libre is good at this. They have handled this for a really long period of time. They know how to deal with the various machinations of the markets that they are in, and they're doing really well here. Great business. Dylan Lewis: We're going to take a quick break. We're going to be back in a minute with Uber and DoorDash duking it out to be your go to delivery app. Stay right here. Motley Fool money. Hey Fools, we're taking a quick break for a word from our sponsor for today's episode. Real estate. It's been the cornerstone of wealth building for generations, but it's also often been a major headache for investors with 3:00 A.M. Maintenance calls, tenant disputes, and property taxes. Enter Fundrises 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. Welcome back to Motley Fool Money. I'm Dylan Lewis. Here on air with Bill Mann and Tim Beyers. The battle to earn share of human laziness continues. DoorDash and Uber both out with their earnings reports this week, giving us a glimpse into the ride hailing and food-delivery industries. Tim, DoorDash, the pure play here, shares down about 10% after they reported. On the surface, this looked like a pretty good quarter. Tim Beyers: It was a good quarter. I love that they are cashing in on human laziness. That is accurate. Factually correct, Dylan. Here's what I want to focus on. DoorDash has decided to spend 5.1 billion of its 5.8 billion in cash and investment, short term investments on acquisitions, two of them, specifically, Deliveroo provides DoorDash local commerce primarily in the Middle East, so expanding their footprint, I think that deepens the mote a little bit. I find that pretty interesting. That was about 3.9 billion dollar of the 5.1. The other 1.2 was for seven Rooms, which is a New York City based provider of hospitality software for doing things like improving in store sales. Revenue was up, good free cash flow, good business. I like that they are trying to do reasonable acquisitions that can expand their footprint. It might be an opportunity with a stock down like this, Dylan. Dylan Lewis: Bill, looking at a company like DoorDash, digital business, not subject to tariffs in the traditional sense, but still very much subject to the macro environment and input costs. When you look at what they were talking about with the quarter and what they were forecasting out, what are you seeing? Bill Mann: For the life of me, I can't really figure out how DoorDash's shares are up and the business is up when every restaurant that I'm tracking is down. It feels like this is a symbiotic relationship between the two, but maybe it's not. Here's what I wonder about DoorDash. They do give average ticket size information, but I'd love to know what the spread of that is because I actually have this pet theory that people are much more inflation-agnostic than they let on by virtue of the fact that so many people do things like order coffee and use DoorDash and order smoothies and use DoorDash. I would love to know what those sub $6 tickets, how many of them there are. Dylan Lewis: That is the pinnacle of laziness, right there, Bill. Bill Mann: A hundred percent. I guess laziness may be among the most inflation-resistant materials that there are then. Dylan Lewis: I love that. I think we need an indicator for it. I'm looking at Uber and the results there, a little bit more balls to this one because they're also in ride-hailing, and that's a very large part of their business. It seemed to me like a business-as-usual quarter here, Tim. Tim Beyers: It did. But let's stick with the theme here, how about a hand for Uber Eats? That was the category that led for Uber up 22% in constant currency just EBIDA, which I know adjusted terrible. They just out all of the important things, blah, blah, blah, still up 45%. It's a bogus metric, but this business is getting stronger. I have to say, Dylan, they have been on a roll for a while now, and this is a scale business, but they're another one. They are operationalizing laziness in the best possible ways. Dylan Lewis: Putting the results here for these two companies together and zooming in specifically on the food delivery business, DoorDash did 23 billion in orders in the most recent quarter, Uber did 20 billion in delivery bookings. That is specifically their Uber Eats business. A couple of years ago, if you were to ask me, I would have said inevitable that Uber takes over the space. They are a bigger company. They have done this before in ride-hailing. DoorDash is bigger and growing faster. Bill, what are they doing right here? Bill Mann: Well, in some ways, you don't have to do much when you have that level of scale. What we really have now in the US, at least, is a duopoly. I don't know that DoorDash and Uber have necessarily competed out against each other, but they've run every other alternative business out of town. They've done it with their relationships. I think that they've done it with their service, although, again, I'm not someone who has smoothies delivered to me, and I think that they've done it [inaudible] Tim Beyers: Come on, admit it. Dylan Lewis: Doesn't make you a bad person, Bill. Bill Mann: There was that one time, Tim. They've really done it with their relationship, and oddly enough, with their pricing and ubiquity. I think from here, you've got the duopoly in the US. I know in other countries, Tim brought up Deliveroo, but I think that's really what you've seen more than anything else. Tim Beyers: We need to give just some credit to the paradigm shift that's happened here. In some ways, Dylan, this is a testament to what happens when paradigms shift. What I mean by that is habits change. We've been joking about operationalizing laziness, but that is habit change. Habit change has come. I'll confess something that I use DoorDash for. You know what I use it for? About $25 orders to deliver flowers. Great flower delivery, amazing flower delivery. It's just an alternative. It's disruptive, but it's just interesting. Last Mile logistics works when habits change. I think that's a big part of the story, Dylan. Dylan Lewis: Tim, you just gave me the perfect tee-up to remind listeners, Mother's Day is this weekend, so if you're running late, if you haven't gotten it together, you take Tim's advice and DoorDash some flowers. They will save you and make you the son or daughter that you want to be to your mom. Bill Mann: That's right. Dylan Lewis: Bill, wrapping up quick here. We also had an update from Novo Nordisk this week. This is supposed to be one of the great growth opportunities out there in the market with the GLP-1 drugs. Shares down more than 50% from highs. What's going on? Bill Mann: Novo Nordisk is quite literally a one-product company. I know they have got a portfolio, but Semaglutide is their cash cow. You have the Inflation Reduction Act in this country. Pricing in the US is coming down. They are directly in focus. They did meet their earnings. They had an OK report, but I think that people are starting to look at the GLP-1 drugs and beginning to differentiate and it just seems like Lily has a superior application to Novo Nordisk. I think that there's trouble ahead for this company. Dylan Lewis: Bill, Tim, we're going to see you guys a little later in the show. Up next, we've got the scene from Omaha from a Fool that was on the ground for Berkshire Hathaway's annual meeting. Stay right here. You're listening to Motley Fool Money. FEMALE_1: [MUSIC]. Last year, Amazon was the world's largest corporate buyer of renewable energy, meaning that all of our energy comes from wind farms like this one. Guy, what happened to recording API Solar Farm? To learn more [inaudible] Dylan Lewis: Welcome back to Motley Fool Money. I'm Dylan Lewis. Last weekend was Berkshire Hathaway's annual meeting, the Woodstock of Capitalism. Motley Fool contributor Jason Hall was in Omaha to get in on the three days of stocks, snacks, and Buffett. Jason, this was a particularly momentous year. You were on site for Warren Buffett, officially passing the torch to Greg Abel. Spend me some yarn. What was it like? Jason Hall: I was, and the momentous thing was not the two pounds that I've gained since getting home eating See's Candy. I was at the Berkshire meeting that was Charlie Monger's last meeting a couple years ago before he died later that fall. Of cause, after calling this meeting, we're wondering if the board's going to let me show up anymore. I think they probably will. But we decided to go, a few of us went, because a little bit of the expectation that this was a good chance. Buffett turns 95 later this year, that this was probably his last meeting as CEO. We were not expecting him to retire or make any announcement, so much so that we were actually in the exhibit hall when it happened. We stupidly made the decision to try to get ahead of the crowd. We didn't expect anything to happen. Jeff Santoro, one of our colleagues here at the Fool was there with us, was smart enough to have his earbuds in and listening to the live stream on his phone. Then he just stopped and got this look on his face. We're all like, what's going on here? Then he started repeating what Buffett was saying about it being time to let Greg Abel take over. Then I just took a moment and stopped, and I looked around the hall at all the people walking around, the hundreds and hundreds of people in the hall that had no idea that everything had changed. But at the same time, it was a reminder that nothing had really changed. Dylan Lewis: Buffett has long said that he likes businesses that a ham sandwich could run, and I don't think would feel like his ego is too bruised by saying that's what he has intended here with Berkshire, that someone else can take it over. We view it as a very complex business, but I think he would like that to be almost a non-issue, the fact that he is transitioning the leadership over to Greg Abel. Jason Hall: I think that's right. It is complex because there are hundreds of operating businesses, but most of those businesses are actually relatively straightforward and simple. The decentralization of the operators of those businesses, making the decisions, and not having to phone HQ to get instructions for what to do is absolutely built into the business, and that certainly simplifies the process. The other thing, too is, Dylan, this has been in the works for more than a decade. We can go back to when Ted Weschler and Todd Combs came on in 2010 and 2012, they both have taken on a lot of responsibility with running different subsidiaries, having those CEOs of the subsidiaries report to them. On top, they're taking on some of the portfolio. Greg Abel has been the key contact for the Japanese trading companies that Berkshire has significant investments in for multiple years. It's not like he's just handing in the keys at the end of the year and everybody has to figure out the combinations to the safe. Everybody's already doing other things, so I think that that helps simplify things as well. Dylan Lewis: There are a lot of businesses that are certainly brand name-wise at Berkshire Stater that have struggled tremendously when it comes to succession. I'm thinking of Starbucks. I'm thinking of Disney. You talked a little bit about the planning process here, but we watched the market weigh this in real-time on Monday when it opened processing this news. Market was down about 5%, but it was not a huge sell-off for Berkshire shares. I think by and large, people knew that at some point this was coming, and the market seems pretty happy with Greg Abel as the named replacement. What lessons do you think we can draw from the way that Berkshire's handled this? Jason Hall: As a starting point, it's having a plan and to be thinking and looking and acting for things that are going to happen well in excess of your likelihood of being the person making the decision. One of my favorite Buffett quotes is somebody sitting in the shade today because somebody else planted a tree a long time ago. That's one of my favorite quotes. It's a reminder of being able to truly think in the long term, and that's not next year. It's certainly not next quarter. It's thinking in decades and even sometimes in centuries and how ingrained that is in the DNA of the Berkshire that Buffett has built. Dylan Lewis: That is an all-time favorite Buffett quote, and he certainly does not need to add to the anthology of quotes, but he is still going to talk and still going to have his isms here and there. Before we get into the future of Berkshire, any bits of wisdom from this year that you thought were particularly appropriate? Jason Hall: Yeah, he's become the Greg Maddox of quips here. He might not have the fastball, but, man, he can still locate a pitch like nobody you've ever seen. There were two that really stood out to me that were my favorites. My first one was I'm somewhat embarrassed to say that Tim Cook has made Berkshire a lot more money than I've ever made Berkshire. Steve picked Tim out to succeed him, and he made the right decision. Nobody but Tim could have developed it like it has. That was the one that really stood out to me the most that he said. The other quote that really stood out to me was, we are very patient when we are looking at opportunities and we want to act quickly. But while we're being patient, never underestimate the amount of reading and work that is being done to be prepared to act quickly. Because we do know equities in a variety of private companies that when the opportunity presents itself, we are ready to act. We think about a lot of times Berkshire doesn't move quickly on things. They're slow, they're stodgy, but they can move quickly. We've seen them do it, and it's the work that they put in before that matters. Here's the thing that stands out. That was Greg Abel that said that, Dylan. That wasn't Warren. Dylan Lewis: Sneaky there. Good way to tee that one up. What I like about that Apple quote and the focus on Tim Cook is that is probably one of the most successful succession stories of the last 20 years, where you had someone who built a visionary-type approach to product, created incredible consumer products in everyone's homes, and a lot of people were worried about what that would look like in the next chapter, found the perfect operator to efficiently manage that business and move it forward. Is that the story and the expectations that Berkshire investors should have with Greg Abel? Jason Hall: I think so. There's something that Greg has in common with a lot of other operators running a lot of the subsidiaries at Berkshire that a lot of people don't know. Buffett wrote about the founder of Forest River in the annual report this year, Pete Liegl, who just died late last year at 80, who sold the business to Berkshire and continued to run it for the next nearly 20 years after selling the company. There are a lot of those people it was only a couple of years ago that Greg Abel sold his stake in MidAmerican Energy to Berkshire Hathaway. He came to Berkshire in 1999 with MidAmerican Energy, which he had a substantial stake in. There's very much a founder's mentality and owner's mentality across the executive team. I think Greg Abel is just very emblematic of how important that is to the culture of leadership, not just at the corporate office, but going down to the subsidiary levels as well. Dylan Lewis: Let's talk a little bit about the state of Berkshire as a business and what Greg Abel is inheriting here. A lot of operating businesses, about 190 by my account, trillion dollar market cap, which will make getting bigger a little bit tougher. There's a decent amount of cash, maybe understating it, about $350 billion in cash for the business right now. That is a blessing, but it also invites so much speculation as to what is next, because it's seen as this huge opportunity. I'm certainly guilty of wondering what's on the shopping list. Are you thinking about that at all? Jason Hall: A little. I think the thing I'm thinking about more right now, though, is thinking about those operating businesses. More than half of them, their earnings declined from the prior year in 2024. A lot of retail, a lot of manufacturing, a lot of exposure to the economy that I think investors should remember. This isn't a recession proof business. It's very resilient because they're well run and they have that incredible balance sheet. But I'm really thinking about that. But I do think there's one interesting thing about that big pile of money. Call it $350 billion that they could put to work just in cash right now. That's not even include the debt that they could get access to, but just writing a check and the check not bouncing, there are 474 companies in the S&P 500 by market cap are small enough for Berkshire to write a check for today. Dylan Lewis: I mentioned Starbucks and Disney combined market caps smaller than $350 billion. Jason Hall: They could buy both. But here's the thing. I don't think they would want to buy the problems those businesses are having. That's the thing. I think the move that we're going to see is when there are things that the company can buy that are wonderful businesses that will compound and generate wonderful cash flows, and the prices are reasonable. Berkshire hasn't bought any of its own stock, almost and it's been five quarters now. I think that says a lot about where the capital allocators there see value, and they don't see a tremendous amount. They're happy to get their 4% yield and just keep waiting until the bigger fish are biting. Dylan Lewis: Do you think we'll see that dividend? People have been wondering for a long time, has that cash file has gone up. Jason Hall: Look, here's the thing. Buffett is stepping down as CEO at the end of the year. He's not stepping down as chairman. I believe he's going to stay chairman as long as he's alive unless he's incapacitated. I expect they're going to have to wheel him out. I really do. I think once he's just the chairman, that happens, guess who decides about the dividend, the board, not the management. I don't expect that that less cash efficient thing is going to happen as long as they've got the skilled capital allocators there that they do have in Ted and Todd. Abel, we've seen how incredibly patient he is in deploying a lot of capital into the energy business. Go buy another stock if you want to dividend, people. Dylan Lewis: I'm going to put you on the spot here, 350 billion in cash. They could go on one heck of a shopping spree, if you could snap your fingers and either create a large holding for Berkshire in a business that's publicly traded or just put Berkshire in a position where they can own that company outright, what business would it be? Jason Hall: I think an interesting fit that might fit under the purview and circle of confidence of these new larger capital allocators might be something like Adobe or Autodesk. Software, recurring revenue, massive economic motes, very good margins, great operating cash flows, converting lots of free cash flow to feed that capital allocation engine. Let's think a little different, maybe look at some big software companies. Dylan Lewis: Apple was one of the best-performing Berkshire stocks for a long time. Maybe there should be a little bit more tech in the portfolio, Jason. Jason Hall: There you go. Dylan Lewis: Jason Hall, thank you so much for joining me. Please, warn the Berkshire Board if you plan on attending any more annual meetings anytime soon. Jason Hall: I will. Well, to share one last quote here, and this is it because this is something Buffett talks about, and I think the board is thinking about that at the health and safety of their executives. If you're going to have your life progress in the general direction of the people you work with, you admire, and you become friends with, there are people that make you want to be better than you are and that you want to hang out with the people that are better than you are, and that you feel are better than you are because you are going to go in the direction of the people that you are associated with. Dylan Lewis: Jason, you are better than me, and you make me better. Thank you for joining me today. Jason Hall: Thanks, Dylan. Dylan Lewis: Coming up next, a couple other people who are better than me. We've got Tim Beyers and Bill Mann back with the stocks on their radar this week. Stay right here. You'll listening to Motley Fool money.. As always, people on the program may have interests in the stocks they talk about and the Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. All personal finance content follows Motley Fool editorial standards. It's not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. See our full advertising disclosure. You're listening to the podcast version of this week's radio show. Check out our show notes. Bill Mann: Dylan, I serve as the chief investment strategist of Motley Fool Asset Management, LLC, affiliate of the Motley Fool. While affiliated, MFAM is a separate and independently regulated entity. None of the investment decisions made at MFAM involve individuals from the Motley Fool's media or business operations. As you know, Dylan, all of Motley Fool Money Management operates independently in this way. Dylan Lewis: Those are our Ps and Qs. I'm Dylan Lewis, joined again by Tim Beyers and Bill Mann. Gentlemen, I talked Berkshire and the annual meeting with Jason Hall in our last segment. He was on the ground at the annual meeting. You guys were following along at home. Buffett news, obviously huge. Bill, any reflections for you on the state of Berkshire? Bill Mann: He was on the ground. Didn't he miss the actual? Dylan Lewis: Yes. This is the own goal we've all been waiting for. Bill Mann: This was the Gray Pumpkin Charlie Brown times a million. Dylan Lewis: Yes. I can tell you a certainty that Jason will never leave a game in the fourth quarter with two minutes left for the rest of his life. But he was there for the vibes. He was there for the atmosphere. Bill Mann: He just wasn't there for the announcement. You can sense it was coming and not just because of the realities of the actuarial table. Warren Buffett is 94 years of age, and we sensed last year that he was slowing down. They did not get into the thing that people wanted to talk about the most, though, as much as I thought, which was the 340-ish billion dollar cash hoard that they have built up. A lot of which coming from their sale of Apple in this last year, I think that he is leaving that discussion to be the first set of decisions that Greg Abel will make when he steps into the chairman's role. It's a huge obligation for him, but Berkshire has always described that cash as a weapon to be deployed during opportune times, and they don't see this time as being opportune for that. I completely respect the fact that they are still leaving that on the table for future times when it's more ideal. Tim Beyers: I think that decision about the cash is going to be over in 30 seconds. That Greg was going to say, we're not paying a dividend, and we're going to wait until we get the right opportunity. There's a bunch of people that are thinking, here we go. Here comes the dividend. I'm like, sorry, that is not happening. That is my reckless prediction for this show. No chance is that happening anytime soon. Dylan Lewis: Tim, you're saying meet the new boss, same as the old boss when it comes to capitalization at Berkshire. Tim Beyers: Hundred percent. Dylan Lewis: Let's get over to stocks on our radar this week. Our man behind the glass, Dan Boyd is going to hit you with a question. Bill, you're up first. What are you looking at this week? Bill Mann: Mine is a little fruit company called Apple. Maybe you've heard of it. It is one of the largest companies in the world. I don't know that people have really focused on the implications of the court finding with Spotify that is taking away potentially a pretty big extremely profitable cash flow stream for Apple. It just doesn't seem like something that people have focused in on. You would love with the App store if you are a shareholder of Apple for that cash flow stream to be as high as possible because it literally comes with minimal effort from Apple. I think that that's something that people are going to want to pay attention to in upcoming months. Dylan Lewis: Dan. Bill is zooming in on the Apple tax, their commission over on the App store. You got a question. You got a comments on Apple this week? Dan Boyd: What can I say about Apple. Their stuff is too expensive. It's just flash. It's no substance. None of that matters. It's Apple. Is anybody selling Apple? I guess Berkshire did, but- Bill Mann: There's that one guy. Tim Beyers: There's that one guy out in Omaha. Dylan Lewis: What might be a radar stocks first, I think Dan just answered his own question right there. Dan Boyd: I don't know. Maybe I should think about it more, but me and thinking, we don't go too far back. Dylan Lewis: Virtually unprecedented. Tim, I don't know what that means for your set up here. I don't know if you have a hard assignment or an easy one here in pitching Dan- Tim Beyers: I assume nothing here. But I do assume, except for one thing, I will assume, Dan, that you like saving money. I think you preferred to have more money rather than less. Dan Boyd: I don't have any Apple products here at home, except for the ones that the Fool has given me, so I think that tracks, yes. Tim Beyers: My radar stock here, Dylan, is Ibotta. It is literally for the statement, I bought a thing, relatively recent IPO about 12 months ago. This is a cash redemptions business. You have an app, scan a receipt, and on that receipt, if there are offers, so say like you have bought some Ritz crackers, and there is $1 redemption on Ritz crackers, you get $1. Now, there's a bunch of companies that do this. Here's why Ibotta is different and better and interesting to me. They have huge distribution deals. Let me give you two. One is more recent than the other. Walmart's a big one from about a year ago. About three months ago, they just got Instacart. What this means is that if anybody is trying to win the Shelf Space War, and the Shelf Space War is digital right now, you were increasingly shopping on apps or shopping on the computer. It's Ibotta that is creating the coupons there. It's good business, and I think it's only going to get better. Dylan Lewis: Dan, a question or a comment about Ibotta? Dan Boyd: Well, unfortunately, Tim stole my joke. I was going to do an Ibotta like, I bought a bunch of stock today. Hey, how you doing? But he stole that from me. I'm just going to point out what Tim did not mention that Ibotta is actually a Denver Colorado company. I'm going to chalk this up, Dylan, to flagrant homeism from Mr. Tim Beyers. Dylan Lewis: Guilty as charged, Tim? Tim Beyers: Guilty as charged. Dylan Lewis: I'll bring us full circle here for a second. Ibotta is an app, and if I'm not mistaken, subject to the Apple tax and the commissions that come in via the App store. As Bill noted, if those go down, I have to think that that is good news for Ibotta shareholders, Tim. Tim Beyers: Hey, from your mouse to God's ears and Ibotta's bank account. Dylan Lewis: Dan, which one's going on your watch list this week? Dan Boyd: You know what? I'm just going to go Ibotta because it's fun to say and really, that's all that matters. Dylan Lewis: Dan, appreciate you weighing in. Bill, Tim, appreciate you guys bringing the radar stocks. That is going to do it for this week's Motley Fool radio show. Shows fixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll see you next time. Bill Mann has no position in any of the stocks mentioned. Dan Boyd has positions in Autodesk, Berkshire Hathaway, and Walt Disney. Dylan Lewis has positions in MercadoLibre. Jason Hall has positions in Berkshire Hathaway, MercadoLibre, Nvidia, Starbucks, and Walt Disney and has the following options: short September 2025 $125 calls on Starbucks. Tim Beyers has positions in Apple, Berkshire Hathaway, and Walt Disney. The Motley Fool has positions in and recommends Adobe, Advanced Micro Devices, Apple, Autodesk, Berkshire Hathaway, DoorDash, Ibotta, MercadoLibre, Nvidia, Starbucks, Uber Technologies, and Walt Disney. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy. Is the Fed on the Right Track? was originally published by The Motley Fool
Yahoo
05-05-2025
- Business
- Yahoo
The Best Company in Big Tech?
In this podcast, Motley Fool analyst Nick Sciple and host Dylan Lewis discuss: Microsoft posting double-digit growth across five segments and continuing to put capital expenditures to work on AI and the cloud. Why Microsoft is leading big tech and has the best near-term outlook for the "Magnificent Seven" stocks. Meta's advertising present and AI future. Motley Fool analyst Yasser el-Shimy and host Mary Long continue their conversation about Warner Brothers Discovery and shine a spotlight on David Zaslav, the man tasked with leading the media conglomerate into the future. 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 Meta Platforms, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Meta Platforms 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 $623,685!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $701,781!* Now, it's worth noting Stock Advisor's total average return is 906% — a market-crushing outperformance compared to 164% 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 5, 2025 This video was recorded on Mai 01, 2025 Dylan Lewis: The cloud spend ain't slowing down. Motley Fool Money starts now. I'm Dylan Lewis. I'm joined by the airwaves by Motley Fool Analyst Nick Sciple. Nick, thanks for joining me today. Nick Sciple: Great to be back here with you, Dylan. Dylan Lewis: We have been living largely in a market dominated by macro vibes and Microsoft and Meta reminding Wall Street that earnings power exists with their reports this week. Nick Sciple: That's right. We're seeing why big tech are the big dogs on the stock market, and seemingly immune to all the macroeconomic and consumer demand concerns that we've been hearing about in the headlines all year long and you see that in the performance of the shares this morning and pulling the rest of the stock market along with them. Dylan Lewis: Microsoft posting up some pretty strong results, revenue up about 13%, net income up even more than that. The market cheering that shares up almost 10% after the report. What did you see in the results? Nick Sciple: Analysts really drilling in on Cloud results and really strong output for Microsoft in that respect. Cloud revenue up 20%. If you drill within that, Azure revenue up 33%, 16 points of that growth associated with AI, but management called out. They're really stronger than expected performance from Azure came from non-AI services. Things like accelerated cloud migrations, which are still going on. I know AI's catching everything, but the cloud is still a thing. Microsoft everywhere you look, Xbox, even at the Box Office this year have had some success. Minecraft is the number 1 most successful movie so far here in 2025. If you had to look for one negative, it is cloud margins, which are under pressure because of that continued AI spin, but really, this is a big tech giant that continues to be a steam roller that keeps on rolling. Dylan Lewis: They continue to spend. That CapEx number not coming down anytime soon, even with the macro picture being what it is, Microsoft's leadership team saying, "Hey, plans for the second half of the year remain what we outlined in January. We are not slowing down the spend; we continue to see the opportunity there." I know that's something a lot of people were waiting with bated breath for wondering, "Is AI spend going to slow down? Is the macro picture going to interfere with these plans?" Doesn't seem like that's the case. Nick Sciple: That's right. You saw lots of headlines leading up to this report, questioning AI spend. What is the return on investment, suggesting that big tech may be pulling back, but if you listen to commentary for Microsoft's management, demand continues to outstrip supply. They said, "Demand for AI services is growing faster." They can bring data center capacity online, and the company expects to have AI capacity constraints beginning in June of this year, and that's despite spending more than $16 billion on CapEx in this quarter and plans to spend as much as $80 billion this year. Demand continues to outstrip supply, and certainly management thinks they're getting good return on investment. Dylan Lewis: One of the things I was really struck by getting outside of the cloud and just looking at the overall business was there are five different segments for Microsoft that are posting double-digit revenue growth. They are seeing acceleration in some categories like Microsoft 365. They're seeing a little bit of a pickup when it comes to search and news advertising. This is a big business. Some of these are smaller segments, but I dare say that this might be a firing on all cylinders quarter, Nick. Nick Sciple: Hard to see anywhere where there's really disappointment. You could say a little bit of deceleration in commercial cloud revenue, but when you're going from mid-teens growth to low double-digit growth, that's still pretty good. If you look at guidance, still expecting to have strong growth in the quarter to come. Guidance for Azure is expected at 34-35 percent growth in constant currency. That's right in line with 35% constant currency growth they put up this quarter. Operating margin still expected to increase, and management also called out that if you think about a business that's transitioning, Microsoft being one of these businesses, transitioning to AI business margins, reportedly better now than when Microsoft was at a similar stage from that on-premise to cloud shift. Really, a business that's showing success across all metrics and guidance calls for more of that to come. Dylan Lewis: Staying with the big tech names, market also very happy to see numbers out from Meta. I think shares were up about five or 6% after they reported. It seems like a similar story to what we saw from Google parent, Alphabet, last week. At least for the time being, ad spend looking backwards remains strong. The results that we're posting look good. They're noting there's the possibility of some softness in the outlook, though. Nick Sciple: If you look at Meta's results, revenue up 16% ahead of estimates from analysts, net income up 35%. Really, the big standout if you drive below the top line is engagement and advertising efficiency. A lot of that is driven by their investments in AI. Meta continues to be the dominant social media platform worldwide, and you see that on how many folks are active on the platform. Family daily active people reached $3.43 billion for the reported quarter. That's 60% of the world's total Internet population, and again, continuing to grow. That's 6% more daily active people year over year. Ad impressions, up 5% year over year, average price per ad, increased 10% year over year. That's the fourth consecutive quarter of double-digit growth when it comes to price per ad, and a lot of that is being driven by AI. AI recommendations drove time spent gains on Facebook up 7%, Instagram up 6%, and Threads up 30%. You're also seeing more advertisers use AI tools put more inventory on the platform. Thirty percent more advertisers use AI creative tools in the first quarter and improved ads, recommendations, models for Reels is increasing conversion rates on that platform. They continue to say that conversion is outpacing impressions. If you look long term, Mark Zuckerberg said their long-term goal is to basically make it where any business can give us the objective they're trying to achieve, like selling something or reaching a new customer, and AI can just do the rest for you, that he thinks if he can deliver on that vision. Over the coming years, that increased productivity from AI is going to make advertising an even larger share of global GDP than it is today. You look at these Meta results, it's a platform that was already dominant in advertising, and I think these AI investments are making them that much stronger today, and they're going to be even stronger in the years to come. Dylan Lewis: I do want to hit some of the AI stuff because we have some other new stuff there, but just sticking with the ad business for a second, we are seeing the way that tariffs, reduced consumer demand can start to flow through to all of the other businesses that are reliant on it. Generally, we think of Meta as this incredibly strong big business. It is going to be subject to whether consumers are buying stuff and whether advertisers see that consumers are buying stuff and are advertising to them. So no surprise. We saw a little bit of a falloff with political spend. Management mentioned that on the call, but they did note, we're also probably going to see a little bit of weakness from some Chinese retailers if the tariff situation holds up. Nick Sciple: That's right. That was some big worries that folks had called out leading into the earnings report. Folks like Chen and Timo had been big spenders on Meta and other online platforms, and with these large reciprocal tariffs put in place in April, the cost of those products on those platforms likely to go up significantly. Meta did say that has impacted their business in the current quarter. That said, if you look at revenue guidance for the quarter ahead, in line with expectations, and that suggests that efficiency gains elsewhere, their ability to increase productivity of advertisements for their other advertisers are more than making up for that lost revenue. That was a good sign to see, part of why the stock is up. Dylan Lewis: Mark Zuckerberg was quick to note improved advertising definitely one of the major opportunities that they see when it comes to artificial intelligence, but there are other ones. He's got five that he sees in particular, advertising one, more engaging experience is another, business messaging, Meta AI, and AI devices. Any of those that you want to zoom in on, Nick? Nick Sciple: Certainly, Zuckerberg has placed his chips on AI devices. Felt he got burned in the past by Apple controlling the ecosystem on the iPhone and wants to make significant investments there and really own this new platform. He has said on the last earnings call, that this is the year where we're going to prove whether AI glasses can successful or not. They call out Meta Ray-Ban glasses, sales have tripled year over year. They fully rolled out live translation on the Ray-Ban glasses in all markets, so that's adding functionality to the platform. We'll talk in a second about the new Meta AI app, but that's directly integrated with these glasses. I think you can see where the company is beginning to go. Immediately today, the impact of AI is making the core advertising platform stronger, but in the future, you can see where the company is trying to evolve, and I think that's worth paying attention. Dylan Lewis: I think I'm a near-term skeptic on the Ray-Ban glasses. I am more easily convinced that the Meta AI ambitions might turn into something for the business. This is their new stand-alone AI assistant app, something that they are launching in addition to giving us this earnings report this week. It is another hat in the ring for people who are already using Gemini, already using OpenAI, some of these other chatbot tools. What do you think we'll see from Meta here? Nick Sciple: It is going to be interesting. They called out on the earnings call that Meta AI already has over a billion monthly active users, if you include the users on Messenger, Instagram, Facebook, WhatsApp, where it's really directly built in to the chat tool. If you glance at those numbers, one billion monthly active users puts it in the same ballpark with ChatGPT, where the public numbers say they've got 400 million weekly active users, probably similar. That said, different use case of this kind of Meta AI app, certainly integrated into these other platforms than what you'd seen from ChatGPT. With the stand-alone app, we'll get a little bit more apples to apples comparison on how people use the Meta AI app compared to others, but as I said earlier with AI glasses, I don't think the text-based chatbot is what Zuckerberg sees as the end state for AI. I think he sees that as where we are today, but where things are headed toward, and he's emphasized this a lot is voice-based chat integrating with some of these other devices that they're working on selling. I don't think this is the end of the road for where Meta is headed in AI. Dylan Lewis: I think it's interesting to have them in there because as a stand-alone app, it will force them to think a little bit about the business model and the economic realities of AI chatbots. We have seen companies like OpenAI say, "We are doing the subscription model." There's a free version, and then there's a premium subscription. Alphabet historically has been a business that has been ads based. Their Gemini app is also a subscription model. Meta needs no introduction. It is an ad-based business that is stepping into a spot where, for the most part, consumers expect subscription models. I have to imagine that that's where they would lean, but there also may be some more creativity here now that we have someone who has not been reliant on the subscription model for where most of the revenues come from. Nick Sciple: Maybe you see the next generation of sponsored content, where you're searching for a thing online, and we can make a perfect piece of ad copy to nudge you toward purchasing things. You can see how maybe ads can be integrated into that platform over time as folks use these things in a more robust way for shopping and less about just generalized chat purposes. But listen, I think Meta is positioning themselves to be among the leaders in AI. What's interesting is they also called out that they are capacity constrained when it comes to data centers, but they're not running a commercial AI platform, where they're selling services to other folks like a white-label ChatGPT or anything like that. Meta is using incredible amounts of AI resources just for its core business. I think long term, they are positioned to be a leader, even though today they're not the one that's front and center, what you think about when you think about AI. Dylan Lewis: One of the things I've always appreciate about Mark Zuckerberg is he's able to communicate the vision very well. You might always agree with the vision in the case of some of the metaverse ambitions, but when it came to monetizing the portfolio of apps they had originally, there's a clear process to the way they do that. Similar thing here with artificial intelligence and with what the company's ambitions are. We have five opportunities from them. Where would you put AI existentially for Meta in how important it is for the long-term thesis? Nick Sciple: I think it's super important for Meta. For the core, if you just put aside the reality labs business, the AI glasses, AI directly drives the growth of the core ads business, to the extent that AI can let them lower the barrier to entry for creating ads and make those ads more efficacious and more targeted, it'll make Meta's core advertising business, which is already the best in the world, that much stronger, and grow the core business. But then if you look outside of that to the reality labs business, again, you can see where this is headed. In addition to offering the chatbot, this is also the app where you upload your AI glasses and start to communicate with those things. Also, Zuckerberg has repeatedly said their AI models are voice optimized, so you put those two things together. It looks to me like Zuckerberg wants to Meta AI, Meta glasses like Iron Man's JARVIS or what Apple always promised Siri could be, but never actually delivered. If he can deliver that in a compelling form factor, I think that can make Meta AI the place their people go first. If it's integrated in a super useful way and help those Meta AI glasses become the next computing platform. Zuckerberg said, "This is the year where AI glasses go mainstream." It's really make it or break it for the company this year, so expect more announcements from the company. He also said on the call that they have some new launches coming this year with EssilorLuxottica, that's the parent company of Ray-Ban. The existing form factor for Meta AI glasses that we know today may not be the state of the art of the technology here at the end of the year. I think for their existing business, can drive efficiency and make the company that much stronger, and then long term for where Zuckerberg thinks the company is headed, he's wearing these glasses on every interview he goes on now. You can see where things are playing out there as well. Dylan Lewis: We still have a couple big tech companies that are yet to report. We'll hear from Apple and Amazon later this week. But look at Microsoft. Share spiked about 10% following earnings, as I said before. They are now the best performer in the Mag 7 so far in 2025. They're also the only company in the Mag 7 year to date that is currently in the green. Don't look now, but they don't have the antitrust issues that Alphabet has. They don't have the FTC looking at them the way that Meta does at the moment. They do not seem as subject to consumer spending and advertising as Amazon, Meta, and Apple. Is Microsoft the big tech company that has the best outlook right now? Nick Sciple: I think in the near term here in 2025, I think that's absolutely true. In the long term, maybe you could raise some other questions, but as an enterprise software company, Microsoft is arguably the most insulated from tariff and economic uncertainty because its products are mission critical and customers aren't likely to drop them under any economic circumstance. In fact the company called out that they help their customers become more efficient during economic downturn, so maybe there's even more demand for these types of software products that can make your company more efficient. Long term, if you had to point to a question around Microsoft, it's their positioning in AI. They're partnered with OpenAI, which is great. OpenAI is currently the leader with their ChatGPT model, but they've gone over the past year plus from close friends to looking more and more like frenemies. Microsoft reportedly has begun developing its own internal models and is testing some of those of competitors like xAI and the other AI companies out there. Meanwhile, OpenAI has begun signing data center deals with SoftBank and Oracle and starting to distance its for Microsoft. If you look at the early reviews on Microsoft's copilot offering has been criticized as expensive and not that useful. I think if you contrast that with the positioning that I lined up for Meta, where they're not quite as hyped today, I do think the path that they're on I think is a lot more clear, whereas Microsoft is in this frenemy relationship with OpenAI and may have to go their own when it comes to their AI aspirations over the long term. But as we sit here today, Microsoft is the business that no matter what happens with tariffs, I think they're just going to keep on ticking. Dylan Lewis: I feel like Microsoft and AI are like that couple that gets together in the first season of a sitcom, where you're like, "This is either going to go really well and they're going to have the whole run of the series, or they're going to be broken up by about Season 2 or Season 3, and we're going to start seeing them with other people. Nick Sciple: That's right. For Satya Nadella, I hope Sam Altman doesn't break his heart. We'll just have to see. Dylan Lewis: Nick Sciple, thanks for joining me today. Nick Sciple: Thanks, Dylan. Great to see you. Dylan Lewis: Hey, Fools, we're taking a quick break for a word from our sponsor for today's episode. Real estate. It's 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. 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Coming up on the show, analyst Yasser El-Shimy and Mary Long continue their conversation about Warner Brothers Discovery and shine a spotlight on David Zaslav, the man tasked with leading the media conglomerate into the future. Mary Long: I want to turn to the man in charge, David Zaslav. What spurred this conversation, Yasser, was that Michael Wolf recently wrote up a 15-page profile of Zaslav in New York magazine. The word mogul is used a lot, more so to describe what he wants to be and who he wants to be perceived as. I'll leave it there for the time being. Just to kick us off with this part, what impressions did you have as you worked through this article? Yasser El-Shimy: Mogul is definitely Zaslav's aspirational self. He's a controversial personality in Hollywood, no doubt about it. He is perceived by many artists as a slash-and-burn executive who's there to only focus on the bottom line, cut projects when they don't fit his view on how to maximize profits and cash flow. Most famously, I believe there was this project of the Bad Girl movie that never saw the light of day because he decided to effectively take a tax right off on it by just tanking it after it had been shot and edited and everything, it was ready for release. That has not endeared him to a lot of people in Hollywood and also artistic journalistic community in and around Hollywood that cares about film and cares about entertainment industry from an artistic perspective. Having said that, David Zaslav was a very successful CEO of Discovery, and he had turned Discovery into one of the most profitable businesses in the entertainment industry when he was at the helm. He has tried to effectively bring that same kind of logic into Warner Brothers Discovery, where they are focusing a lot more on efficiency. He is not shy from going with, let's say, non-mainstream productions. All you have to see is open your Max app, and you'll find all kinds of TV shows that are highly artistic that are the White Lotus succession among others, come to mind as prime examples of that line of thinking, but also, he is not afraid to yank a project when he sees it as not having promise of being successful. He's also not shy away from licensing HBO content or other Warner Brothers' content to other distributors and other platforms. Ted Lasso, for example, a hit show on Apple TV. That is a Warner Brothers production, and he effectively did it for another platform, so he doesn't shy away from that. He also doesn't shy away from licensing older content into other platforms like Netflix, where you can watch Six Feet Under right now and so on. He does care about the bottom line. Doesn't necessarily make him the grim reaper for all artists in Hollywood, but he's definitely viewed with a lot of controversy. Mary Long: One of the most fascinating and comical anecdotes from this profile of Zaslav it opens telling this story about a recurring Zoom meeting that happens at 10:00 AM every Friday among a handful of 80-something-year-old, one-time media industry big wakes, they're not at the top of the hill of the industry as they once were. It's interesting. This recurring conversation is all about the future of media, but it's from people who no longer really have the same pull in that media industry as they once did. Zaslav at 72 is the youngest person on this call. [laughs] One of the things that this article keeps hitting is that Zaslav seems to believe that it is his calling to save the media industry and to bring it into the future. He is, "a man charged with leading the media business into the future, navigating the business out of its cultural, generational, and technological obsolescence." With all that said, what is Zaslav's vision for the future of media? What does he see it as being? Why does he believe that he's the man for the job? Yasser El-Shimy: I think he loves the industry. There's no way around that. That comes through in all of his interviews and all the work that he has done. There was no need for him to take on the massive challenge that is merging with Warner Brothers had he actually not been really drawn into film and to TV and wanting to wade further into that world. You can even see from the New York magazine piece that they're talking about how he bought an old Hollywood mansion that used to belong to the producer of Chinatown, a classic movie. Zaslav tried to play down saying that he just appreciated the architectural style of the home, but I think all the whispers are that David Zaslav is a bit of a romantic when it comes to the film industry. His vision for the future of media, while he has that romantic side to him, I think he also is trying to salvage that film industry from going into obsolescence, as the article said. He has to take on the likes of Alphabet and Amazon and Apple. It's no longer just competing with Fox and other studios, Universal and others. He now has to compete with the tech titans of the world. To do that, he has to make his studio as efficient as possible to create content that will be popular either financially or through a cult-like following. I mentioned the artistic shows on HBO as an example, but he definitely sees franchising as a huge part of that vision, that he wants to recreate the magic that maybe Disney once had with the Marvel's Universe. Maybe he can do that with the DC Comics Universe. That's something he's been really focusing on with movies, obviously, like the Joker, TV shows like the Penguin, but also newer iterations of Superman and Batman and so on. He's also going for a new Harry Potter series coming in next year. He really thinks that franchising is going to be the future, and definitely, when you can find the hit, you just double down. Mary Long: Another gripe that folks might have with David Zaslav is that while he has certainly made a lot of money during his tenure as CEO of Warner Brothers Discovery, the stock has not performed terribly well, and that's perhaps an understatement. Post-merger, Warner Brothers Discovery started trading at $25 a share, valuing the company at $60 billion dollars. Now it's closer to nine dollars a share, so with a market cap, that's about a third of its IPO value. We talked about Zaslav growing Max, paying off debt, all of this. In spite of the stock's underperformance, Zaslav himself, in 2024, his pay package was worth $51.9 million. It was up 4% from what it was the year before. Interestingly, his pay package is tied to the generation of free cash flow, rather than to the stock price. Theoretically, that encourages him to do what he's been doing to pay down that hefty debt load, but it also encourages these production funds that we've talked about that get a lot of pushback from the people that are actually making the films in the studio. All that said, what do you make of this incentive structure and Zaslav's pay package as it exists now? If you were tasked with building a pay package for Warner Brothers Discovery executives, but also for Warner Bros. Discovery shareholders, what would you tie the metrics of success for those executives to? Yasser El-Shimy: Let me start with saying maybe somewhat of a minority position here, which is to say that I actually think that the pay package makes some sense for now, at least, the incentive behind the pay package. I'm not going to comment on the exact numbers of how much he's paid. But in terms of the incentive structure that's in place, to generate cash flow being the barometer of rewarding his success or his tenure, I think, makes sense. The reason, of course, being that the company just was born with a massive debt load that needed to be repaid almost immediately, and so to generate cash flow is to be able to manage that debt load and to pay it down year after year. He has done a fantastic job at that. As I said, he's taken down the leverage of the business from five times in debt to EBITDA to 3.8 right now, still more to go, but he has been getting it done. From that perspective, I think it makes sense. Moving forward, perhaps, as maybe that net debt to EBITDA ratio comes closer to two times. Once that happens, then you want to perhaps incentivize other aspects of the business, including growth in both the studio and streaming divisions, I think that it's going to be extremely hard, if not impossible to arrest the decline in the linear TV side of the business. The best he can do there is to just manage that decline so that it's not a freefall. I think he's been doing that to a good extent. But yes, just focus on the growth on the studio and streaming division once you've cleared the hurdles that currently exist. Mary Long: Yasser El-Shimy, thanks so much for the time. Always appreciate having you on the show, and thanks for shining a light onto not just this interesting company, but this interesting executive, as well. Yasser El-Shimy: I'm glad to be here. Dylan Lewis: 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. Don't buy or sell anything based only what you hear. Advertisements are sponsored content, provided for informational purposes only. Motley Fool and its affiliates do not endorse, recommend, or verify the accuracy or completeness of the statements made in the advertisements. TMF is not involved in the offer sale or solicitation of any securities advertised herein. It makes no representations regarding the suitability or risks associated with any investment presented. Investors should conduct their own due diligence and consult legal tax and financial advisors before making any investment decisions. TMF assumes no responsibility for any loss or damages arising from advertisements. For the Motley Fool Money team, I'm Dylan Lewis. We'll be back tomorrow. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dylan Lewis has no position in any of the stocks mentioned. Mary Long has no position in any of the stocks mentioned. Nicholas Sciple has positions in Meta Platforms. Yasser El-Shimy has positions in Amazon, Microsoft, and Warner Bros. Discovery. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Netflix, Oracle, and Warner Bros. Discovery. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy. The Best Company in Big Tech? 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
