In this episode of MarketFoolery, host Chris Hill chats with Motley Fool analysts Jason Moser and Taylor Muckerman about a few of the market's biggest stories.
Hasbro's (NASDAQ:HAS) second quarter was pretty good, and the stock is up 13% on the news, but the toy maker isn't completely out of trouble just yet.
On the other hand, Halliburton (NYSE:HAL) reported some awesome numbers, but sank 8% after its earnings call -- and that's with the price of gas soaring like it is. What gives?
Finally, the guys dip into the listener mailbag and give recommendations for companies with promise not just for the next five to 10 years, but even farther out than that.
A full transcript follows the video.
This video was recorded on July 23, 2018.
Chris Hill: It's Monday, July 23rd. Welcome to Market Foolery! I'm Chris Hill. Joining me in studio, Jason Moser and Taylor Muckerman. Nice to see you guys!
Jason Moser: Hey buddy!
Taylor Muckerman: The band is back together!
Hill: Good to be back!
Hill: Temporarily, yes. I'm here and then I'm heading to the train station to head up to Philly for a podcast conference.
Moser: Is that taking the rest of the week?
Hill: Just a couple of days. Looking forward to it. There may be a cheesesteak in my future.
Muckerman: There should be.
Moser: I don't understand how you put "may" in that sentence.
Hill: Cloudy with a 100% chance of cheesesteak. Let's get to the earnings. We have toys, we have oil, we're going to dip into the Fool mailbag. Let's start with the toys, though.
Hasbro's shares up 13% this morning. Hasbro's second quarter profit and revenue came in better than expected, which of course, Jason, leads to the question: what were the expectations? How high or low were these expectations?
Moser: Much as I like to do as a husband, Hasbro is really good at setting the bar low so that they can exceed said bar.
Muckerman: Smart play.
Moser: Hasbro definitely did not light the world on fire this quarter, but thank goodness for low expectations. A lot of the problems that we saw last quarter carried through to this quarter. If you remember, last quarter, the initial reaction, the market sold off the stock in a big way in the first part of the day. After the call, things tempered out a little bit. I think a lot of that had to do with the fact that they reiterated their operating profit guidance for the full year.
Looking at this quarter, it was more of the same, really. I think the only light on the quarter was in the Entertainment and Licensing segment of the business. Operating profit was up 64% there.
They are working through the Toys R Us bankruptcy. It's not an insignificant ordeal. This is something that accounted for about 10% of their sales, it was a big customer. They're working through this. I'll tell you, we've talked a lot about leadership these past couple of weeks, with Papa John's and all these things going on. This is a really great example of solid leadership and what they can do for a company, even in times of turmoil. These guys were so great on the call. They could make you feel good about going to go get a colonoscopy. You know it's something you need to do, but there's no way anybody looks forward to it. I'm convinced these guys could make you look forward to it.
They were talking about the headwinds in 2018. They're working through them, setting that plate for 2019 and beyond, going to be back to profitable. A tough time for the company, but management has done a very good job of keeping the market very forward-looking.
Hill: It's interesting, you mentioned the Toys R Us bankruptcy. That's one of those things, I think we talked about it on this podcast -- we went through this in the sports apparel industry with Sports Authority. Even though you have a brick-and-mortar retailer that is troubled, and eventually on its last legs and going out of business, it's not to say that there aren't negative ripple effects for the larger businesses at play here. We saw that with Nike and Under Armour, more so with Under Armour than Nike, with Sports Authority going down. It's probably not a surprise that we're seeing it a little bit with Hasbro, and we'll probably see it a little bit with Mattel.
Muckerman: Yeah. They didn't go bankrupt because they weren't selling anything. They weren't selling enough. So, certainly, some ramifications there for everybody involved.
Hill: Is there anything in particular with Hasbro that you're watching? I'll just take your word for it, that the management is that good at reassuring investors. Is there any metric in particular you're going to be watching over the next six months with this one?
Moser: Frankly, it's top line revenue, first and foremost. It's one thing for management to say that things are going to be OK. It's another thing to go out there and execute. I think beyond everything that they're saying, the fact of the matter is still, this is a very challenging retail environment for a company like Hasbro. They have a great portfolio of brands, between the franchise brands like Nerf and Play-Doh, partner brands a lot of that Disney stuff, they just brought Power Rangers into the mix, as well -- they have a great portfolio of properties there.
Again, I think this is where smart leadership is going to come into play. As long has Brian Goldner is there, I feel confident that they're at least able to address the headwinds in this industry much more capably than something like Mattel. But, again, it's one thing to say it, it's another to do it. If you're guiding for that operating profit growth there, that's ultimately what we're going to be holding them accountable to. If they don't hit that, then the stock will be punished. I am certain of it.
Hill: Let's move on to Halliburton, the oilfield services giant. Halliburton's second quarter revenue up 24% from a year ago. Taylor, we've seen oil prices going higher. Why is this stock down 8% today?
Muckerman: I think it's counter to what Hasbro had, maybe too high of expectations. It's really tough to set these expectations with the oil industry still in a state of flux. It's not necessarily as bad as it was a couple of years ago. But with the U.S. becoming the largest producer in the world, and our President tweeting his opinions on Iran and Saudi Arabia producing oil, there's still a lot of confusion. I think expectations were just too high, maybe not well educated. That's probably why the stock is down. I'm interested to see what they say on the call. At this level, I'm considering adding shares to my existing holdings, but I do want to see what management has to say, clarify a few things.
24%, largely driven by North America, as you would expect from Halliburton, over 60% of revenues coming from that geographic region. And largely land, U.S. activity. Canada and Gulf of Mexico down slightly. Same old story there for them. You see a lot of these completions of wells. We've talked about before, on here and Industry Focus, about companies drilling wells but not fracking them because fracking is the most expensive part of the whole ordeal. You see that coming into the fore now, and the completion side of the business driving forward for Halliburton. I think they're working through some of that inventory, now that oil prices have risen to make that worthwhile. But, management is staying the course, and I think they're right in doing that.
Hill: I was on vacation the last couple of weeks and did my best to detach from the world in general, but I could not help but notice, not only just driving by gas stations, but also seeing stories here and there. We're starting to see this narrative that, here in the United States, the price of gasoline is going up. I saw one this morning like, "Kiss $2 Gasoline Goodbye," all that sort of thing. When you see that, where does your mind go as an investor, in terms of opportunities and who's going to benefit?
Muckerman: Typically, you would think, if gasoline prices are rising, refiners would be somewhere to look. But refiners are running near record levels right now. It's not that they're having their foot on the brake, trying to drive up prices to increase margins. They're actively working through all of this excess inventory that you see coming out of U.S. shale oilfields.
I just think it's economics at play, supply and demand. Summertime is typically the higher time for gas prices, but you're right, this is the highest price I think we saw on July 4th in the last four years. Certainly, some pressure there on consumers.
Even Trump is feeling the pressure a little bit with November elections. Nobody likes high gas prices during elections. He even mentioned releasing some oil from our strategic petroleum reserves, which ruffled some folks' feathers. That's not what that is technically for. I don't expect that to happen.
I don't think there's really anybody in particular that's going to profit off of this. I think this is just typical market ebbs and flows with gasoline prices. Look for them to start to fall back down in reasonable levels here in the fall and winter.
Hill: Before we dip into the mailbag, I want to say a quick thanks to our man, Mac Greer, for filling in, hosting Market Foolery the last couple of weeks. Fantastic stuff.
From Ben Stubbins in Southport, England. Ben writes, "My son is about to turn 13 -- " No. Not 13. That would be a surprise to Ben, if he's listening. "Wait a minute, no." His son is about to turn three, "and I finally saved enough for him to start buying stocks rather than index funds. I can buy into ten businesses for the ultra-long-term. What do you suggest?"
I love the focus on, not just the long-term. We talk about the long-term.
Muckerman: We do, quite a bit.
Hill: Ben's focused on the ultra-long-term, and that's because his son is about to turn three years old. Obviously, Jason, we can't make specific recommendations, but let's maybe provide a couple of businesses for Ben to at least consider for his nearly three-year-old son.
Muckerman: This is a fun game you play with your kids, right? Your girls?
Moser: Yeah, it is. Congratulations, No. 1, for just thinking this way. I think most parents are not focused on stuff like this. Setting your kids up for success, time is your buddy here, and getting started sooner rather than later. At three years old, I'm sure the child doesn't really have any serious foresight into the machinations of the stock market and whatnot, but they can teach you a lot just by the things that they're doing and the things that they're going to do.
Speaking from the perspective of having two kids that are now almost 12 and 13, they have a portfolio of somewhere in the neighborhood of ten different stocks. I'll give you some ideas just based on their holdings. They own companies including Disney, Nike, Under Armour, Apple, Amazon, Starbucks, and even Hasbro, which we spoke about today. I think with Hasbro's pop, that marks at least four stocks in their portfolio that have at least doubled.
Moser: Yeah, they really get a kick out of knowing that their money is working for them. It's like, congratulations, you're winning at life for basically doing nothing other than just participating. That's what we're trying to get people to do -- participate.
Primarily, when we talk about stocks, we're talking about the businesses that they think will be relevant when they are 18, 22, and beyond. Those are some names that come up. They also think that the war on cash basket is pretty cool, because they know all the names and they understand the fact that money is going to be moving around for the rest of our lives, and those are the companies that are playing into that trend.
Muckerman: Jason mentioned a couple when he rattled those off. Alphabet, Amazon, PayPal, going to be around for quite some time. All of those companies are betting on the future and succeeding in the present. I think those three could certainly warrant some attention.
Then, a couple of wild cards. I have Protolabs, which is a company that has had a pretty nice last 12 months, and a company that I think could have a brighter future, indeed. Prototyping and low-volume manufacturing through 3D printing and injection molding. I think that's the way that 3D printing might have an impact on the world and for investors, rather than the consumer 3D printing models that we've seen go bust in the last few years.
Intuitive Surgical, and their da Vinci device, robotic surgery. I think that's a wave of the future. Doctors are still involved, but I could see that becoming completely robotic at some point down the line. Not to say there isn't competition in this industry. There are some folks emerging. Google is one of them, with a partnership with Johnson & Johnson. But, this company has a nice head start. I think that's another wild card.
Markel, a company we just recommended in Stock Advisor Canada. Buck Hartzell did the write-up for us and said it's a stock he never plans to sell in his lifetime. It might not be a bad stock to never sell in your kid's lifetime, either.
Moser: That's a good one. I own Markel, I like it a lot. I have virtually zero intentions of ever selling it. It's pretty small little insurer with a great runway. You keyed in on healthcare, which is a tremendous market opportunity out there, and something that's obviously going to be relevant for many, many decades to come. I'll go ahead and tell you, most recent stock that my daughters bought -- I'm in the running here with Mac, I'm going to try to mention Teladoc more times than he mentions Costco -- Teladoc is the stock that they bought most recently. They were really excited about that, because we've actually used that a couple of times in our household, and they thought it was pretty clever.
Hill: I'll just throw out one other industry, and that is video gaming.
Muckerman: For sure, yeah.
Hill: We've talked before about companies like Activision Blizzard, Take-Two Interactive, Electronic Arts, all that sort of thing. I was struck over the last couple of weeks -- we talk about this industry and the rise of e-sports and that sort of thing, but I had conversations with family and friends, and it was clear to me from those conversations that we are in, maybe not the earliest of stages with e-sports, but whatever comes right after the earliest of stages. We are so early in the rise of e-sports. I think that those three companies I named, as well as others, stand to benefit. It really does seem like it's not even close, at this point in time, in 2018, to cracking the mainstream consciousness in the way that actual sports are.
Moser: I agree. I don't pretend to know a whole heck of a lot about it. I think it's worth noting that Amazon owns Twitch, and Twitch is becoming a real force in that market. I think that was such a shrewd acquisition. They bought it for just a little under $1 billion a few years back. I think it's going to prove to be a tremendous driver for Amazon for a lot of years to come. If you own Amazon, you do have exposure to that space. That's how I choose to get that expose to the space, honestly.
Hill: Ben, I hope that was a little helpful. Jason Moser, Taylor Muckerman, thanks for being here, guys!
Moser: Thank you!
Hill: 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 stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow!
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Hill owns shares of AMZN, JNJ, PYPL, SBUX, UAA, UA, and DIS. Jason Moser owns shares of AAPL, Hasbro, MKL, NKE, PYPL, SBUX, TDOC, UAA, UA, and DIS. Taylor Muckerman owns shares of GOOG, AMZN, Halliburton, PYPL, SBUX, and UA. The Motley Fool owns shares of and recommends ATVI, GOOGL, GOOG, AMZN, AAPL, Hasbro, ISRG, MKL, PYPL, PRLB, SBUX, TTWO, UAA, UA, and DIS. The Motley Fool owns shares of JNJ and has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool recommends COST, EA, KNE, and TDOC. The Motley Fool has a disclosure policy.