In this podcast, Motley Fool senior analysts Matt Argersinger and Jason Moser discuss:
- The ripple effect of Big Tech layoffs.
- Netflix founder Reed Hastings stepping down from his co-CEO role.
- Cancellation rates soaring in one segment of the housing market.
- Differing views on interest rates from two major bank CEOs.
- The latest from Procter & Gamble, Nordstrom, and holiday retail data.
- CEOs they’d like to shadow for a day.
- Under-the-radar trends.
- Two stocks on their radar: Roper Technologies and Regions Financial.
John Rotonti, head of investor training and development at The Motley Fool, talks with Jurrien Timmer, director of global macro at Fidelity Investments, about what history can teach about the current market cycle and sectors that may hold opportunities for investors.
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Chris Hill: We’ve got CEOs to follow, under-the-radar trends to watch, and we’ve got the latest from Big Tech. Motley Fool Money starts now.
From Fool global headquarters, this is Motley Fool Money. It’s the Motley Fool Money radio show. I’m Chris Hill, joining me, Motley Fool senior analysts Jason Moser and Matt Argersinger. Good to see you both.
Matt Argersinger: Hey, Chris.
Jason Moser: Hey.
Chris Hill: We’ve got the latest news from Wall Street. We’re going to dip into the Fool mailbag, and as always, we’ve got a couple of stocks on our radar, but we begin with Big Tech. This week, Microsoft and Alphabet became the latest major companies to announce layoffs. From Microsoft, it was 10,000 employees, roughly five percent of the workforce. Alphabet 12,000 employees, nearly seven percent of the workforce. Matt, a common refrain from these companies in the sense that, both talked about how they over-hired during the pandemic.
Matt Argersinger: Right. That’s not a secret anymore. It just seems like every day we’re getting a new major announcement that a major tech company is cutting tens of thousands or thousands of jobs, 6 to 7 percent of their workforce. It almost feels like we’re getting numb to this happening. I think it’s also easy to ignore, and set aside a little bit because the economy, overall, is still adding jobs. The unemployment rate is still, I think, around 3.5 percent, which is near a record low. I think we have to remind ourselves that these companies are the largest companies on the planet, and they have massive tentacles within the overall economy. A 12,000 job cut from Alphabet, it doesn’t just affect Google employees. It affects workers who clean Alphabet’s offices, food service workers, businesses that do consulting or HR work for the company, businesses that partner with Alphabet on various projects. The more of these come, I feel like the more we’re going to see downstream effects to the overall economy. I think, we’re getting to a point where it’s no longer going to be about inflation that we’re concerned about or what the Fed is going to do next. It really is going to start being about jobs and consumer spending. I don’t want us listening to this, and seeing these headlines, and saying, “Well, things got overheated during the pandemic, these companies are just correcting, and there’s going to be a reversion to the mean, and sure”. But the economy is in a vulnerable state, and I think the more of this happens, the more we’re going to see that.
Chris Hill: Jason, it does seem like a situation where now the eyes turn to Apple. I mean, Apple is really the lone major tech company that hasn’t made this announcement. Do you expect them to, and if they do, what does it say? Because you can look at Alphabet for all of their success, their employee base is actually a little bit smaller than these two other companies.
Jason Moser: Yeah, it is. I guess it’s a coin flip as to whether Apple does this or not. I feel like they may be a little bit more insulated than some of these other companies really just due to the nature of the actual business. I mean, at the end of the day, Apple is still, primarily, the iPhone company. I mean, it’s a hardware company that uses that hardware. It’s the gateway drug to then bring people into its universe, and sell those services, and develop long-lasting relationships. It certainly is possibly, we saw a slowdown on the services side for that business, and so it is possible that they may feel like there are some areas where they can trim a little bit of the fat, so to speak. In regard to Apple, I just don’t expect it to be as drastic, perhaps, as some of the other Big Tech names we’ve seen.
Chris Hill: Let’s move on to Netflix, and founder Reed Hastings, going out with a bang. In addition to announcing that subscribers in the fourth quarter came in much higher than expected, the streaming giant announced that Hastings will be stepping down as co-CEO, but staying on as Executive Chairman of the Board. Chief Operating Officer, Greg Peters, has been promoted to co-CEO alongside Ted Sarandos, and shares of Netflix up seven percent on Friday, Jason?
Jason Moser: Yeah. I mean, on the face of it, it was a very strong quarter just due to the subscriber growth alone. They guided for around four-and-a-half million subscriber additions for the quarter, chalked up around 7.7 million. Great to report from that perspective, revenue, $7.8 billion. That was up 10 percent from a year ago, excluding currency effects. Operating profit is down slightly, but better than the target they set. An average revenue per member was up five percent on a currency-neutral basis as well. Really good news on the cash flow front for the year, generated $1.6 billion in free cash flow versus a modest lost a year ago. They are now guiding for three billion dollars in free cash flow for this year, and ultimately, project being free-cash-flow positive from here on out. It does feel like, maybe, that’s why Reed Hastings feels like this is a great place to pass the torch along. He’s got this business where he wants it, where it feels like it can really start to grow, and produce meaningful revenue and cash flows now. I’m still not bought in on the co-CEO model, it feels like every time we talk about this, a year later, we revisit why it didn’t work. It’s not to say it can’t work in this case, but I don’t know. I just like the chain of command a little bit more. CEO, COO, you got the decision-makers, they know their roles. It is a business in transition. I mean, you’ve got the ad-supported model rolling off now. It’s off too a slow, but what they consider a satisfactory start, and they will continue to start cracking down on the password sharing here, which could crimp results in the near term, but I think, ultimately, it’s the right long-term goal.
Chris Hill: Do you think part of the timing here is they’ve just launched the ad tier, and if you dose them with truth serum, Reed Hastings didn’t want to do the ad tier, did he?
Jason Moser: I don’t believe he did. I think he made the right call, ultimately, in doing it, because that opportunity is so large. I mean, a quote this market opportunity in a call with this estimated $300 billion pay TV and streaming industry, along with the $180 billion branded TV advertising spend. That’s not to say Netflix is going to capture all of that by any stretch of the imagination, but it is to say that’s a big market opportunity that business can pursue. They feel like he can ultimately contribute 10 percent or better to the business. Now, that’s three billion dollars plus by today’s numbers, and this is a company that will continue growing. But back to your point, no, I don’t think Hastings really wanted to do it. I feel like he probably felt like they had to do it either way. It sounds [laughs] like it’s going to be someone else’s problem going forward.
Chris Hill: Signs of trouble in the housing market. In the last three months of 2022, KB Homes, which is one of the largest homebuilders in America, experienced a cancellation rate of 68 percent. Meaning, home-buyers canceled 68 percent of the homes that went under contract. For context, just one year prior, the cancellation rate was only 13 percent. Matt, there are a couple of things I want to get to here, but first and foremost, how bad does this look for the housing industry?
Matt Argersinger: Yeah, that’s a dire statistic from KB Homes, and I don’t think they’re going to be the only one. They just happen to be the one that reports earliest. Yeah. You said it, normally their cancellation rate is a lot lower for the industry. It’s usually in the teens. But the reality is, a lot of these buyers are having trouble getting financing or they’re locked into a good rate, but are worried they overpaid by 10-15 percent for their home. I think, that’s a real worry, and that’s probably the case for most markets across the country. I just would say that, housing is a major contributor to the economy. You look at construction, materials, home improvement, financial services for the mortgage lenders, etc. It feeds into so many places, and so to see a cancellation that high, it’s remarkable to me that KB Homes didn’t sell off more, that the home-building industry hasn’t really sold off that much. But a lot of it was, they had a difficult 2022 already. Some of this was priced in.
Chris Hill: Earlier you were talking about the ripple effects of the layoffs at the major tech company, and you’re absolutely right about that. It’s not just for those individual people. There are ripple effects when the companies are that large. Let’s apply that thinking to this story. Because this cancellation rate, the last time we saw at this high it was 2008, 2009, and that was a housing crisis that threatened the entire US economy. Based on what you’ve seen so far, does this, at least, look contained to the housing industry, even allowing for the ripple effects for businesses tied to the housing industry?
Matt Argersinger: It’s a good question. I don’t think this spills over into a larger issue for the economy the way it did back in the last housing bubble and the financial crisis. I think, the scars from that global financial crisis runs so deep. As we discussed before the show, you didn’t have the same speculation in its latest housing run-up that you had back then. You don’t have the bank’s lending out billions of dollars to unqualified buyers, homeowners who bought, even in the last few years, they still have a ton of equity in their homes. Even if prices drop, 10-15 percent nationwide, a lot of those homeowners are still protected. But yeah, at the margins, I think, this hurts consumer spending. Absolutely, especially, when you marry it with some of the issues we’ve talked about that you just mentioned. Like those massive job cuts at Microsoft and Alphabet, and the other is Amazon, Salesforce, Twitter, etc. Or we could get into the other issues, the surge in car loans, the surge in credit card debt, which is at record levels, I believe so. I think it certainly could factor into lower consumer spending. To a certain extent, I think, we’re going to start seeing it with fourth-quarter earnings.
Chris Hill: After the break, we’re going to get a check on how the holiday retail season went, and we’re going to head to Switzerland for a headline out of Davos. Don’t touch that dial. You’re listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here with Jason Moser and Matthew Argersinger. Quick shout out to our flagship investing service, Stock Advisor. When you joined Stock Advisor, you get two new stock picks every month. Plus you get access to exclusive reports on fast-growing industries and exclusive access to our brand new Stock Advisor round table podcast on Spotify. The service is open to new members, is just $99 a year. If you want to learn more, just go to fool.com/intro. That’s fool.com/intro. Late this week, Nordstrom said that week sales and lots of discounting hurt their holiday sales and not surprisingly, Nordstrom cut their earnings guidance for the fiscal year which ends later this month, Jason.
Jason Moser: Well, the pre-announce is usually not good news and in this case, that streak continues. I think the company summed it up nicely in the release where they said, I, ”the holiday season was highly promotional and sales were softer than pre-pandemic levels.” To quantify that net sales down 3.5 percent for the nine-week holiday period that ended the year versus the same nine weeks from a year ago. It seems like the wealthier, better-off shopper is still spending, the lower-income spenders are not. That’s certainly playing out on Nordstrom. They took additional markdowns on inventory and they feel like they’ve got inventory in a good place now. But you look at this business, you go back to 2018 at this time during the year, the share price was closing in on $60. When you look at the numbers, revenue for the full-year clocked in around $15 billion. They saw net income $437 million. You look at this today. Share price now around $17. I think you’re looking at revenue. Same 15 billion hasn’t really moved. Big difference in the bottom line, the bottom-line is shrinking, they’re trailing 12 months, $326 million now, but it gets better. Chris. If you look at the balance sheet for this company and this is what’s really concerning. I think investors really need to take note of this. You go back to 2018, their balance sheet, they had $1.2 billion in cash and equivalents. You look at that number today is 293 million. That’s what we call that cash burn, that it’s worth watching because it plays out, it’s an indicator, it tells you what the business is doing and the state that the business is in. Right now, this is a business that’s really hunkering down, I think for some tougher times ahead.
Chris Hill: Not that Nordstrom is necessarily a bellwether for the retail industry, but we also got some additional data. Last fall, the National Retail Federation predicted that holiday retail sales would grow 6-8 percent and their track record is really strong. Earlier this week we got data. Overall sales grew 5.3 percent. I’m a little worried that the National Retail Federation missed by the margin that they did.
Jason Moser: Well, they did miss, but let’s give them a little bit of credit. Let’s give them partial credit because they did nail the year. They said sales for the year would fall between six and eight percent and sales for the year grew seven percent. They did at least bring some of the noise, so to speak, right Chris. But yeah, I think when you look at all of the retail categories, mean over a year ago, there were gains and all but two of the nine categories, furniture and home furnishings were down 1.1 percent. Interestingly, electronics and appliances were down 5.7 percent. But there was an interesting quote in that release that I just thought, well, I’m pushing back on this when they said the last two years of retail sales have been unprecedented, no one ever thought it was sustainable. I don’t know about you. It seems like a lot of business is higher because they thought it was sustainable and now they’re realizing it’s unsustainable and they’re letting all these people go. I think a lot of businesses did think it was sustainable. It’s just now we’re realizing it wasn’t and they’re having to right size accordingly.
Chris Hill: Procter & Gamble’s second-quarter results were in line with Wall Street’s expectations. But every division of the consumer products giant reported lower sales volume in the quarter. Matt, it’s not like P&G stock got hammered this week, but it does seem like the business has hit the ceiling in terms of raising prices.
Matt Argersinger: I think that’s the case. I mean, with any business, even a consumer stable business like P&G, at some point, price increases are going to hurt demand. It wasn’t a terrible quarter necessarily. I mean, if you looked at headline sales were down one percent. But if you take out foreign exchange and adjust for some acquisitions and divestitures, the sales were up five percent on an organic basis. But the point is, all of that came from price increases. As you mentioned, sales volume was down in all five of the company’s main segments, overall volumes were down six percent. It’s just fortunate that prices were up 10 percent so you get the overall sales increase. But I think what I’m worried about as now going forward, can they have more sales price increases, probably not. You can look at their earnings per share. It was down four percent year-over-year. As you know, even higher sales weren’t able to offset higher operating expenses and that I think those headwinds only gets stronger as we go through 2023. But should you worry if you’re P&G shareholder? For one, I expect the company’s going to raise its dividend again next quarter. That’ll mark the 67th consecutive annual dividend increase. They’ve been paying a dividend for 132 years. Believe it or not, the stock has outperformed the market over the last five years. If you’re in a P&G shareholder, I wouldn’t worry. It’s not necessarily why you own the stock, but you do at some point have to say, have to expect revenue to slow down here. Price increases are just not going to be able to flow-through as they were earlier in 2022.
Chris Hill: The World Economic Forum in Davos, Switzerland always attract some of the biggest CEOs in the world. But two from the same industry shared different predictions of what the Federal Reserve will do this year. JP Morgan Chase CEO Jamie Dimon said he believes interest rates are going higher than five percent. While Morgan Stanley CEO James Gorman said that interest rates have clearly peaked. Jason, who do you think is going to be proven correct?
Jason Moser: Well, we could get to that just one second, but I just want to say, can you imagine how triggered crypto investors had to be when Dimon said what he said about crypto in that interview. In calling it a pet rock, in saying why you guys waste any breadth on it is totally beyond me. I mean, he couldn’t have had harsher awards. Then he went further to split crypto in blockchain technology. I just thought that was an interesting conversation for sure. In regard to interest rates, I think I’ll tend to side with Dimon on this one simply because I think the Fed, I think Jay Powell, I think they’ve been pretty consistent with what they’ve been saying they want to do and that they would rather overdo it than not do enough. They’ve already botched the whole transitory call. I can’t imagine that he or they want to risk something else coming back to bite them something as significant as this. It’s really guided every policy decision. It just feels like at least if he overdoes it, then that will be consistent with what he’s been saying all along. That better safe than sorry, mentality. But I guess we’ll have to watch how the year plays out.
Chris Hill: Jason Moser, Matt Argersinger, guys. We’ll see you a little bit later in the show. But up next, if the era of easy money is over, shouldn’t you change the way you invest? The answer is coming up after the break. This is Motley Fool Money. Welcome back to Motley Fool Money. I’m Chris Hill. Jurrien Timmer is the Director of Global Macro at Fidelity Investments. Motley Fool senior analyst John Rotonti caught up with Timmer to learn what history can teach us about this market cycle and sectors where there may be some opportunity for investors.
John Rotonti: Someone else that the markets follow very closely, Howard Marks, thinks he has identified only the third, what he calls sea change in his 53-year investing career. In his recent memo, he says that the investment strategies that work best over the prior 13 years “may not be the one that outperforms in the years ahead.” Similarly, KKR, the large global alternative asset manager, just put out their investment outlook for 2023 where they say, “We have entered a regime change that requires a different approach to overall global macro and asset allocation.” What do you think about this? Are we in a sea change or a regime change? If so, does that require a change of strategy from the profitless high multiple tech stocks that benefited over the last several years from a zero interest rate policy?
Jurrien Timmer: No, it’s a great question and it’s a very important one, especially for the structural outlook. I think if I can summarize the KKR and Howard Marks, I think maybe what they’re saying is that the great moderation is over. You look past going to history and I look at a lot of history which you can tell from my charts, until the late 90s when we went into this disinflationary era called the Great Moderation, where you had lower inflation, lower interest rates, less volatility of inflation and interest rates, therefore, higher multiples. You had financial engineering start to take shape. You had the Feds put, if you will, lower rates, but quantitative easing. As soon as financial conditions were tightened, the Fed would put its foot on the gas pedal because there was no inflation price to be paid for that at that time. That was this great secular bull market where PEs were high, volatilities were low, and returns were outsized, and interest rates were well-behaved, and the Fed would always bill out the market. We can’t know in real-time whether the Great Moderation is over, but certainly, it looks over, at least at this point. You look at inflation, which is now coming down, but it’s come down from 9-6.5 or so, and the question is, will it go down all the way to two, or will it start getting really stubborn at three or four? We don’t know the answer to that yet, of course.
But the period before the Great Moderation was pretty volatile. You had the classic inventory cycle where the economy starts to overheat, becomes inflationary, the Fed starts to tighten, the yield curve inverts, the Fed overstays its welcome, it breaks something, you got a recession, and then the whole cycle starts over. That was the four-year cycle. You look at old charts of the Dow Jones and you can see that four-year cycle very clearly. The market today feels like the old market before the Great Moderation. It’s more volatile. Maybe the cycles are shorter because you don’t have these elongated periods where inflation just doesn’t do anything, and part of that has to do with globalization, the great labor arbitrage may be coming to an end either for geopolitical reasons or just because it’s been played out. The labor arbitrage has been played out. It’s possible that we go back to the markets of yesteryear in that sense. You mentioned the big growers, the FAANGs, the large growth names, and I’ve been following that whole phenomenon, not specifically for the FAANGs, but what we call the NIFTY 50 stocks. We have a custom series here that we create in-house that goes back all the way to the 1960s, where you can clearly see the NIFTY 50 period coming up, so the top 50 stocks in the S&P relative to the bottom 450. The original NIFTY 50 of course, was in the early 70s, which happened when, and this goes way back, but in ’68, you had a big speculative bubble. People were speculating in the space stock. Any company with the word tronics in it was just bid up to 50 times earnings. Those were the glamour stocks as they were called, and then the market fell.
We had a recession in 1970. It wiped out the retail speculators. Very similar to the meme stock stuff of today and the dot-com stuff of 1999. Then when the market recovered, the market was in the hands of institutional investors and they would only buy the companies that they knew they would never have to worry about in terms of producing earnings. They were the one-and-done companies like Colgate and IBM and Xerox and companies like that and those were the original NIFTY 50. That became a bubble relative to the rest of the market, and then a long period where they underperformed because we had inflation in the 70s. That tends to favor value stocks and small-cap stocks, not the big growth stocks, which are of course sensitive to changes in interest rates which were soaring back then.
Then we had a similar episode in the late 90s, of course, the dot-com bubble. We all know how that ended. Then around 10 years ago, the current phenomenon started and it never reached bubble levels, like the PE of Apple never went to 100, but relative to the rest of the market, the performance looked very similar. We had an eight-year run of large-cap growth companies dominating everything else, small-cap value, and by extension, the US would dominate non-US because the US is very centric to those very large growth companies. Purely from a technical point of view, it looks like that trade is over, and if that trade is over, you juxtapose that against, again, a really long-term chart going back 100-plus years of large secular swings between value and growth, small and large, US and non-US, commodities and financial assets, and they all have the same 30-year rhythm and we’re right at that point where, on a 10-year rate of change basis, value, and small, and commodities, and non-US should start to take the baton from the big grower. In that sense, I think a regime change seems to be underway indeed.
John Rotonti: That was the best financial history lesson in five minutes I think I’ve ever heard, honestly. Just to pull on that string a bit, if you think we are in possibly in this regime change, how do you think equity investors should be positioned going into 2023? What asset classes do you prefer? Is it the value, small-cap commodities that you just referenced?
Jurrien Timmer: Yes. I think the market will, almost by definition, based on what we just talked about, will broaden out. If you have five FAANG stocks and they’re 25 percent of the market and those are outperforming, you don’t really have to look very much further than that. You could just buy an index fund or just buy those stocks. But when you’re on the flip side of that and think back to 2000, 2001, when the dot-com bubble burst, and I’m not suggesting the overall market is going to follow the same route because that was a 53 percent bear market, which is something I definitely not feel expecting this time. But you had a market that went down or sideways, and there was a lot of breath in the market. All those names, all the older styles, values, small commodities, non-US, all did extremely well, and that, of course, also was when China entered the WTO. You had the whole EM investing phenomenon really take off into 2000. We’re obviously much further down the path on EM, but I do think 2023 and beyond will be a period where it’ll become more of a stock picker’s market and more of an active management type of market where you have to look beyond just that core group of really large companies. We’re already seeing this, but non-US equities, for instance, are performing very well, and one of the reasons, of course, is that the dollar is down and the dollar plays a large role in currency translation. But the other one is that the global cycle has become more fragmented.
The US is now in a late cycle, possibly heading into a recession. We don’t know, but you look at the yield curve, you look at where the Fed is going to take rates relative to your all-star, or the natural rate of interests. Every time it’s done that in the past, we’ve had a recession. A recession call is something we can’t ignore. Maybe it happens later this year, and maybe it’s only shallow, who knows? But this is where the US cycle is, and on the other side, China is now finally reopening after three years of COVID, like we reopened a long time ago. China has been relatively locked down the whole time, and now they’re reopening in a big way. I mean, I think the latest I heard was that by March, the entire economy is going to be completely freely operate it in terms of movements. Obviously, we have to worry about the human toll because a lot of people there haven’t gotten COVID, and they’re going to get it. They’re also going to start traveling. We have to worry about where else it ends up going.
But that’s a different dimension. But in terms of where the market cycle is, you have a period where China is now going to be creating that economic tailwind, even though the US is on the other side, and that creates opportunities to be invested in emerging markets in China, assuming China is investable, which is another, maybe a conversation for another day. But you see that fragmentation, and then you look at the level of interest rates. Eventually, the yield curve will start to steepen again. That tends to be good for banks. Energy stocks are still very, very cheap. There’s a lot of things that look interesting, and actually, even bonds look pretty interesting because they actually finally offer a real yield again. We can talk about the correlation between the 60 and the 40 going forward over the very long term, because that correlation tends to only be negative during periods of low inflation, and we don’t know where the inflation question is going to end up settling. But I think in 2023, bonds will actually offer a good insurance policy if we do end up having that other shoe-dropping, which again, we don’t know if it will, but at least it provides viable insurance now that the valuation across all these asset classes has risen.
Chris Hill: Coming up after the break. Jason Moser and Matt Argersinger are coming back. We’re going to dip into the Fool mailbag and they’ve got a couple of stocks on their radar. Stay right here. You’re listening to Motley Fool Money.
As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against so don’t buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here once again with Matt Argersinger and Jason Moser. Our email address is [email protected] Got a question from Emilia in New Hampshire, who writes, you often talk about CEOs on the show. If you could shadow a CEO for a day, who would you pick, and what would you hope to learn? Matt, who you’re going to follow for a day, if you could?
Matt Argersinger: I love that question. I think right now I’d go with Steve Schwarzman over at Blackstone. I love real estate. I love the alternative assets space and Blackstone has reached in so many places. I would just love to know what he’s thinking about the end market, and certain investments. But I also just would love to be in a room where analysts at Blackstone pitching him ideas which I think happens on a weekly basis. I think that’d be super fascinating.
Chris Hill: Jason, what about you?
Jason Moser: Yeah. I think I’d go with Josh Silverman at Etsy. I think he’d be a fun one because he’s helped build this tremendous network that ultimately has to serve so many different stakeholders. They took on the Amazon challenge with positive results. But ultimately, back to the stakeholder’s thing, we’d get the customers who buy from Etsy, but you also have the merchants that sell on the platform that the company has to serve. They have to build out this tremendous tech infrastructure. They’ve got a phenomenal mobile presence. What’s the philosophy on balancing the two-site design? How far forward-thinking are they? How do they act on that? Just seems a very interesting business that’s very customer-centric and a lot of moving parts there to understand better their decision-making.
Chris Hill: I would follow Howard Schultz at Starbucks.
Jason Moser: You just want the free coffee.
Chris Hill: I want to go to the Roastery and I think he’d be a good tour guide. But also as a shareholder, I would feel compelled to ask him like this is the last time. Like this is the last time? Just confirm for me that when you step away in April, this is really the last time. Question from Doug in San Francisco, “For as bad and investment, as it’s been over the past year, crypto still seems to get a lot of attention from the financial media. What is the topic or trend that you think we should be paying attention to, instead? Matt, what do you think?
Matt Argersinger: Doug, anything but crypto? They’re just so nobody productive businesses, productive assets, so why spend so much time on something that really just, I think has no intrinsic value to it. For one, I’d focus on companies that are paying dividends and growing dividends. That’s real cash and I mean, real cash in your pocket.
Chris Hill: Jason, what about you?
Jason Moser: Yeah, I think firstly, crypto gets a lot of attention for the financial media because they pay for it. I mean, you see all of the advertisements every day. I mean, they’re paying for those advertisements while they’ve got to talk about it on the show. That’s part of it there. For me, one of the services I run here is focused on 5G and connectivity. Obviously, I like that, but I would actually even take it one step further to go beyond just 5G. Talk about 6G, talk about the inevitable 7G, the capabilities these networks will open up. It’s just such a broad universe of opportunity, and connectivity enables so much that impacts so many around the world. It just seems like an endless conversation.
Chris Hill: Keep the emails coming. [email protected] is our email address, that’s po[email protected] Really appreciate it, great questions. Let’s get to the stocks on our radar. Our man behind the glass, Rick Engdahl, is going to hit you with a question. Matt Argersinger, you’re up first. What are you looking at this week?
Matt Argersinger: Chris, I’m going to go with Regions Financial, the ticker is RF. It’s just a really well-run regional bank locations, mostly in the South and Midwest. It was in fact the best performing S&P 500 bank in 2022. Q4 results just came out this Friday morning. You had net interest income up 11 percent, 3.99 percent, net interest margin, that’s up from 2.8 percent last year. It’s also a dividend knight if you know what that means. Not only is it raised its dividend by more than 10 percent per year over the last 10 years, but it’s also beaten the S&P 500 during that span, so just a lot to like about this bank.
Chris Hill: I like the fact that you’re bringing in a regional bank because we give a decent amount of oxygen to the big banks, it’s always worth remembering there are regional banks out there as well. Rick, question about Regions Financial?
Rick Engdahl: By those regional banks, how many banks are there out there? It seems like there’s big banks and then there’s all these regionals all over the place. I mean, how many banks do we need?
Matt Argersinger: Small local banks. Yeah, there’s hundreds Rick, and well, thousands if you count branches, but there’s hundreds of bank companies, and I think that is a good point. There’s definitely room for consolidation. I think Regions Financial in fact, could be a bio candidate itself.
Chris Hill: Jason Moser, what are you looking at this week?
Jason Moser: Chris, I always liked Mr. Furley, but this week I’m going with Roper Technologies. Ticker is ROP. Roper Technologies is actually a collection of many businesses that focus on everything from software to medical and water products. They are smaller companies that really specialize in niche markets, and so that makes for growing switching costs over time ultimately gives them a little pricing power and gross retention rates of greater than 95 percent in many cases. You look at the business itself, I mean, from 2012 through 2021, free cash flow grew at an annualized rate of 13.4 percent. Ten-year total returns on this business right now, 300 percent, almost doubling up on the market over that period of time. Earnings come out on Friday, January 27th before the market opens. I will be interested to see what they have to say.
Chris Hill: Rick’s question about Roper Technologies.
Rick Engdahl: You know, I do a lot of research before asking these questions and I went over to the Roper website and for the life of me, I could not find anything about what this business does. What the heck what this company for?
Jason Moser: Rick, I just told you what they do.
Rick Engdahl: I’m sorry, I nodded it off.
Jason Moser: Okay. Well, that sounds like a Rick problem not a Jason problem.
Chris Hill: Before I go back to Rick, I have to say it always blows my mind. Matt, you mentioned P&G earlier and how long that company has been around. Roper Technologies started in 1890. Maybe I shouldn’t, but I am impressed by businesses that have that longevity. Rick, what do you want to add to your watchlist?
Rick Engdahl: I think I have to go with at least something where I can envision the buildings. I’ll go with the little bank.
Chris Hill: I don’t know if they’re going to take offense to being called a little bank. I don’t know. Matt, what do you think?
Matt Argersinger: It’s a big bank, the 26th largest bank in the country, but I agree, relative to JPMorgan. It’s a small, tiny bank.
Chris Hill: Matt Argersinger, Jason Moser, guys thanks for being here.
Matt Argersinger.: Thank you.
Chris Hill: That’s going to do it for this week’s Motley Fool Money radio show. The show’s mixed by Rick Engdahl. I’m Chris Hill. Thanks for listening and we’ll see you next time.