In this episode of Motley Fool Money, host Chris Hill talks with Motley Fool analysts Jason Moser and Ron Gross about this week's Wall Street news. Shares of FedEx (NYSE:FDX) popped even as the company lost $2 billion in the quarter and warned about slowdowns to come. JPMorgan Chase (NYSE:JPM), Goldman Sachs (NYSE:GS), and Bank of America (NYSE:BAC) celebrated their stress-test success with increased dividends. Apple (NASDAQ:AAPL) lost its iconic designer. Plus, updates from: Nike (NYSE:NKE), Constellation Brands (NYSE:STZ) (NYSE:STZ-B), General Mills (NYSE:GIS), and McCormick (NYSE:MKC). And, as always, the analysts share some stocks on their radar.
Stay tuned also for an interview with Zoom (NASDAQ:ZM) founder and CEO Eric Yuan about his vision for the future of videoconferencing, why he launched the business in such a crowded market space, and more.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on June 28, 2019.
Chris Hill: It's the Motley Fool Money radio show! I'm Chris Hill. Joining me in studio this week, senior analysts Jason Moser and Ron Gross. Good to see you as always, gentlemen! We've got the latest headlines from Wall Street. Zoom CEO Eric Yuan is our guest. And as always, we'll give you an inside look at the stocks on our radar.
But we begin with some earnings. For the first time ever, Nike's fourth-quarter sales cleared the $10 billion mark. Nice accomplishment, Jason, but it also coincided with the first profit miss in seven years, and shares of Nike down a bit on Friday.
Jason Moser: Yeah, but let's remember, the profit miss was due to investments in the business. At least there's that. This is a really impressive business, it just feels like they can deal with virtually any macroeconomic challenge. Whether it's China or the consumer, or something else entirely. We look at the geographical breakdown, China was the star of the quarter, 22% sales growth. But even more impressive, we've talked a lot about North America and these retailers over the last year, Nike chalked up 8% growth in the North American segment, this quarter, which I think is an important number for them. It shows that they've got that thing going back in the right direction.
I've never used the SNKRS app that they have. They have this Nike SNKRS app. This thing's doing really well. It accounts for 20% of total digital sales now, and it's operating on a $750 million annual run rate. Nike digital itself grew 35% for the year. They're keeping inventory in check, continue to buy back shares. Frankly, if I was going to ding them for anything, I'd really like to see them juice the dividend a little bit as opposed to buying back shares.
Ron Gross: That'd be nice, for sure.
Moser: But to give them some credit there, the share count is coming down over the course of time. Since 2014, it's down about 10%. Those repurchases are at least helping.
Gross: The more they go direct to the consumer, though, that is bad news for the Foot Lockers of the world, yes?
Moser: In theory, it would be, yes.
Gross: Especially since most of their product is Nike product.
Moser: [laughs] Yeah. Well, I've looked at Foot Locker, Dick's Sporting Goods, those are the companies that I feel like are in a tough spot when you have Under Armour, Nike, Adidas, all of these companies are going more direct to consumer. It puts those puts middlemen in a very precarious place.
Gross: But you get such amazing service at Foot Locker! [laughs] What will I do without that service?
Moser: Well, that's why people keep going back, right?
Hill: Does the good number that Nike put up in North America put a little bit of pressure on Under Armour to deliver, maybe not a similar number, but at least directionally a similar number?
Moser: Absolutely! No question about it! That's the one thing we've been watching with Under Armour. They need to get that North American segment back in the right direction. It sounds like we're seeing some progress there. But it needs to keep heading in that direction.
Hill: FedEx lost $2 billion in the fourth quarter and warned of the impact of an economic slowdown. Somehow, Ron, shares of FedEx were still up slightly this week. This is a confusing company today.
Gross: It was a bit of a roller coaster because they beat profit estimates, but they warned about U.S.-China trade tensions, their non-renewal of their contract with Amazon that would take a bite out of 2020. They forecast a mid-single-digit percentage point decline in adjusted earnings for fiscal 2020. It's good and bad. Adjusted revenue up 3%, adjusted operating income down 7%. A mixed bag. The stock trades just that way.
Hill: The stock trades basically where was five years ago. They're a good operator, they have arguably the dominant brand in their industry. I'm not sure why they can't reward shareholders. And I'm not a shareholder.
Gross: [laughs] Neither am I. I do like what they're doing, going out to reach the customer. For example, most recently, they're putting in Dollar General stores places to pick up or drop off FedEx packages. That's 8,000 stores. Really good touch points with the consumer. Contrast that with Amazon, who is in Kohl's. Much smaller footprint, not as exciting. Of course, Amazon is doing many other things as well. But I do like that FedEx is going to meet the customer.
Hill: I mentioned this in our production meeting, I'm wondering if the big delivery companies like FedEx and UPS are now in danger of becoming analogous to the beer industry, where for a long time, you had the dominant players in the beer industry; with the rise of craft beer and more local produced beer, they start snipping away at the margins there. There are a lot more companies -- including, by the way, Amazon, who are in the delivery space -- you have a lot more independent players, and it seems like it's tougher now for them.
Gross: I agree with that. But it is such a capital-intensive business that it's not just that anybody who wants to do it can get a fleet of airplanes or a fleet of trucks. You have to be a big boy, like Amazon is. The smaller players, it's hard to compete.
Hill: Jony Ive, the longtime chief design officer at Apple, is leaving the company after more than two decades. Ive designed the iPhone, the iMac, and the iPad. He's leaving to start his own design firm. Apple is going to be a client. You tell me, Jason, how big of a loss is this for Apple?
Moser: Eh, I don't really think it is. It's a great headline. I don't think this is a big deal. It's one more sign that the Steve Jobs era is over. This is the new Apple, trying to move beyond being a hardware company and being more of a services and software company as well. I didn't realize, Jony's designs were somewhat of a polarizing issue there. I was reading some articles where people were happy to see this because they don't like what he did in making Apple's products difficult to repair, difficult to replace batteries, always in pursuit of shaving this thing down one more millimeter to make it a bit sleeker --
Gross: Wah, sorry for the great products!
Moser: Yeah, it does seem to be a little bit nitpicky. I think this is just another move in the transition of this company, it's becoming something different.
Hill: You know what I bet none of those people were? Apple shareholders.
Moser: Well, yeah. You made a good point in our production meeting earlier today. With him gone, and Tim Cook... he's not getting any younger, let's just put it that way.
Hill: None of us are.
Moser: No. You're right. But, what is the succession plan there? I'm sure some people wondered if he wasn't part of that. Clearly, he's not going to be now. Jeff Williams, the COO of the company, he's been with them since 1998. That's a name to keep in mind. We do like COOs that can make that step because they know so much about the business already.
Gross: It seems like maybe they were going to split the role into two, which I'm not sure I love. Steve Jobs always talked about Sir John as his kind of soulmate, his right hand man in creating the rebound that was Apple. I think Tim Cook or whoever the CEO is into the future needs that as well, somebody really creative, really innovative. Otherwise I think Apple will lose something.
Hill: Shares of Constellation Brands moving higher on Friday after first quarter profits and revenue came in higher than expected. Constellation is the parent company of Corona beer and a number of other alcohol brands. Ron, the wine division seemed like it was doing pretty well for Constellation this quarter.
Gross: Actually, wine and spirits were down for the most part on a shipment basis, but it's such a small part of the business. The beer segment, I want to say it's about seven times as large as the wine and spirits sales. Spirits, not getting it done for Constellation. The higher demand was in the beer segment. As you said, Modelo, Corona brands, doing quite well. Net sales overall 2.5% increase, but beer sales were up 7%. Operating margins widened. Really nice to see. Favorable pricing, stronger dollar helping them out there.
But they did report a net loss due to their investment in marijuana maker Canopy Growth, their $4 billion plus investment there. If you strip that out, you're fine. You've got earnings growth of 9%. They did raise their guidance. But Canopy for now is taking a bite.
Hill: In general, Constellation Brands has done a pretty good job over the years of acquiring these different alcohol brands, bringing them into the portfolio and their distribution network. Do you think what happened with Canopy Growth has essentially put, maybe not the company off marijuana altogether, but hit the pause button in terms of future marijuana-related acquisitions. At the time, one of the things we said on this show was, not just, "Wow, that's a lot of money to put into a marijuana company," but, "If they're looking to spend that money, why wouldn't they spend it on another alcohol brand?"
Gross: Yeah, certainly. It's time to hit pause, but it should be anyway because it's a big number, it's a big investment. Let's see how it plays out. Then they can decide what they want to do for the future. I actually like that they're divesting things that aren't working. They're selling some of their wine and spirits brands to Ernest & Julio Gallo, for example. They're trying to right-size their product portfolio. But obviously, that entry into the marijuana business is a big, big investment.
Moser: Yeah. I think they've also been feeling good about where Corona stands today. If you go back over the last decade, they had a period of time there where Corona beer sales fell off of a cliff. It took about eight or nine years for them to basically get back to those levels of eight years ago. But they did get it back. Now the trend is such, they've done a good job of selling this lifestyle brand. We see Craft Brew Alliance doing the same thing with their Kona brand. There's a lot of power in being able to sell lifestyle in the alcohol business, and Corona is making a little bit of a comeback.
Gross: Yeah, and keep an eye on trade wars, specifically with Mexico. Hopefully that's behind us. But a significant percentage, a majority of Constellation's beers, are imported from Mexico.
Hill: The big banks on Wall Street passed the latest round of stress tests from the Federal Reserve. JPMorgan, Bank of America, and Goldman Sachs were so happy with the results, Jason, they're getting ready to increase their dividends. Who doesn't like a higher dividend?
Moser: Everybody loves higher dividends. On the one hand, I do like the fact that we're putting these banks through this scrutiny. The Great Recession, the housing crisis, all of that together, we saw a lot of investors that were relying on those bank stocks as income plays, and they had the rug pulled out from under them for quite some time. For most investors, banks represent that ideal income opportunity. So, for these stress tests to be performed on a regular basis -- no, they're not perfect; can they be better, I'm sure, but they do address four key capital ratios for these banks. You can find those capital ratios in their SEC filings and learn more about them. But ultimately, they're just trying to make sure that the banks are healthy, and that what they're paying back out to shareholders in the form of dividends and repurchases is something they can sustain.
In this case, it sounds like all banks past JPMorgan and Capital One had to go back and do a couple of questions over. But ultimately, they passed as well.
Gross: I'm actually surprised in this age of deregulation that these stress tests are still in place to the extent they are. I'm happy they are. But I'm actually a little bit surprised that the government hasn't lightened up on some of those questions, the four key metrics, in order to let these banks do their own thing.
Moser: I wonder if that's not because maybe politically speaking, it's not as high up on the priority list. Coming into this presidential election, we're going to see all sorts of different priority lists. But maybe that's one where they feel like they can kick that can down the road if they want to address it later.
Hill: You know how you go by a construction site, and they have a sign up there. It's like "X days since the last accident." Maybe what the government is waiting for is, "Let's get 25 years or more past the Great Recession before we decide to cut the banks some slack."
Gross: That's a good policy! I like that!
Hill: The struggles continue for General Mills. Fourth quarter sales were down in the snack division and shares of General Mills down a bit this week. Ron, they've got a lot of different divisions. Obviously, General Mills has their cereal division, snacks, all types of things. What are they going to do to turn this thing around?
Gross: Pet food, baby! They're going to continue to diversify through acquisitions, as they did with the Blue Buffalo pet food business, which is actually really strong for them. 38% increase this quarter. The rest of the business, not so much. Organic sales, which are sales not of organic food, but not including acquisitions, that's what we mean by organic, fell 2% for the North American retail segment. Obviously, everyone's looking for healthier breakfast and snacking options. It's hitting everybody. Kellogg, Mondelez, Kraft Heinz, they're all seeing it across the board. They're all trying to diversify into healthier products or other complementary businesses, like a pet food business. General Mills is doing it. The stock's been strong. It was up 25% this year, even after they took a hit on this earnings report. People really liked that pet food acquisition. I think we're going to see continuing acquisitions.
Hill: In some ways, it's the opposite of what we talked about earlier with Constellation Brands. General Mills got a lot of attention when they went out and bought Blue Buffalo. The success they have had with that acquisition, I think that's going to fuel the fire inside that company to go out and find more acquisitions like that. Honestly, if you're running the cereal division or the snack division, you have to be a little nervous.
Gross: Yeah, probably all these companies are going to start competing for acquisitions. It's going to make the price of these acquisitions go up. They have to right-size their product portfolio also. They're focusing on Häagen-Dazs and Old El Paso, they want their snack bars to firm up a bit, and obviously the organic food offerings. They're working on the stuff they already own. But for sure, acquisitions are coming.
Moser: I love cereal! It always confounds me that it's such a headwind.
Gross: Oh, it's delicious!
Moser: Pop Tarts has a cereal now. Have you seen this?
Moser: It's Pop Tart cereal.
Gross: Sounds very healthy!
Moser: They're little Pop Tarts with little Pop Tart filling. Man, that's really good stuff!
Gross: Sugar in a bowl.
Moser: The box lasts like a day in our house.
Hill: Where do you find little toasters?
Moser: It's milk in lieu of toaster.
Hill: Oh, OK! Clearly, I'm confused. Second-quarter profits from McCormick came in 21% higher than a year ago. The spicemaker's overall sales, however, not as impressive, Jason, although McCormick did raise guidance.
Moser: If there's one thing that's going to get me more excited than Pop Tarts cereal, it's McCormick. You know that as well as I, Chris. I think the big story McCormick, and this is a bit of a prediction here, is that within the next 12 months, we're going to see them make another meaningful acquisition. With these consumer staples businesses, that's really where growth comes from. They did chalk up modest growth, 3% total sales growth for the quarter. It was a nice team effort from the entire business. They have the consumer side of the business, which is the stuff that we get in the store. They also have the flavor solution side of the business, which is industrial customers, restaurants. They lock into some pretty long, attractive contracts with other businesses as well.
It all did boil down to, for the longest time, this RB Foods acquisition with Franks and French's, and were they going to be able to pull that off. They pulled it off really nicely. They paid down the debt on that deal. Their coverage ratio, 5.5, means they can afford pretty much whatever they want to do going forward as well. They continue to focus on cost. Margins continue to tick up a little bit. They continue to run this business very efficiently. They reward shareholders in the process. I like to see that they're not repurchasing shares. They're paying that dividend out, but they're not repurchasing shares. But the language of the call is very clear that they are now on the hunt for the next acquisition.
Hill: I want to get to some of the language they used in a second. But when you think about acquisitions that they make; do they need to think in terms of something that has a national footprint already? Certainly there are acquisitions that they could make that are more regional-based.
Moser: There's no doubt that immediately buying some big national brand could have a bigger impact. I do feel like there are some neat brands out there on the regional level they could get for far less that they could plug into their distribution network immediately that could probably do really well.
Hill: One of the things that the company said regarding this latest quarter was they referenced a late start to grilling season.
Moser: [laughs] I was wondering when we'd get to that.
Hill: Grilling season never ends!
Moser: That's what I thought. I didn't realize it ended. But I guess it's like one of those, you can't wear white, what is it, after Labor Day?
Gross: Something like that.
Moser: I've got the sartorial senses of a tree. But, listen, that's one of those weather things. We see that, we make fun of it. I don't read too much into it other than, they're looking for something to say.
Gross: Don't you use spices regardless of where you actually cook the food?
Gross: More on the grill?
Moser: I will say, you have to at least acknowledge the fact that if you break the year into halves, the front half and the back half, the back half of the year is stronger for them due to the holiday season, if you think about cooking for things like Thanksgiving and Christmas and all the different holidays that fall in the back half of the year. There is something there. Maybe they just felt like they had to attach the grilling season the front end of the year to give Easter a fair shake. I don't know. I'm just speculating. It is what it is.
Hill: All right. Ron Gross, Jason Moser, guys, we'll see you later in the show. Up next, a conversation with Zoom Video CEO Eric Yuan. The video conferencing tech company Zoom has made a big splash on Wall Street, IPO-ing in April at $36 a share. Zoom now trades around $90 a share. Part of that rise was fueled by Zoom reporting better than expected earnings in its first quarter as a public company. The company's founder and CEO is Eric Yuan. After a long career at Webex and Cisco Systems, he started Zoom in 2011. Recently, Motley Fool CEO Tom Gardner talked with Yuan about a number of topics, including interesting applications of Zoom's technology, corporate culture, and growing up in China. But here's how Tom kicked off the conversation.
Tom Gardner: Eric, we wanted to start right in the first paragraph of your S-1, with the line about the aspiration of the company to make Zoom meetings better than in-person meetings. And I'd just love to hear your vision for that. What does that look like for you relative to the standard in-person meetings that we've all been having for our entire lives?
Eric Yuan: Yeah, so we are working very hard to improve the meeting experience. However, I think compared to face-to-face meeting, we're far from being there. Face-to-face meetings are still much better. I can shake hands with you ... with a face-to-face meeting. But online meeting, I would say the video quality is great. I can see you, I can collaborate, share content. But again, not as good, not as intimate as a face to face meeting.
However, I think the technology can change. I think in the future, the online video collaboration experience, like Zoom, can even give a much better experience than face to face meeting. I'll give one example, a feature we introduce one year ago, which is a meeting transcription. In a face to face meeting, I do not think anybody is going to have meeting notes. With Zoom, we can do that automatically.
So, I think we're going to get there, but it will take several years' effort.
Andy Cross: Eric, I want to ask a question in general. How do you think about the workplace? When you think out 10 years, what will be different in the workplace? How will Zoom be benefiting from that over time?
Yuan: Yes, good question. If you look at what's happening today in the workplace, over one-third of our workforce is our millennials. They need a flexibility. 10 or 20 years ago, everybody had to go to the office, physically working together. I do not think that'll be the case in the future. Anywhere, anytime we want to work together is great. You want to get together, go to work, or go to Zoom, online video collaborating space, even better than a face to face meeting. I think that's going to happen in the next 10 years.
Bill Mann: My question for you is, what was it that motivated you and the other leaders of Zoom to leave your previous employers? When I think about what Zoom does, it was a crowded marketplace. You're talking about huge companies and huge competitors that already did video conferencing. There was a certain confidence there that I'm fascinated by and would love to hear your take.
Yuan: I do think I had a confidence. Seriously, I was not thinking about leaving Cisco to start a new company. I started at Webex before as one of the first several founding engineers. And ultimately, I became vice president of engineering. The year before I left Cisco Webex, every time when I talk with a Webex customer, seriously, I did not see a single happy customer. Every morning, I didn't want to go to my office. I felt really embarrassed. I really wanted to fix that problem. I really did not look at it as the market being crowded. That's not what I thought about that. I really thought about how to happiness back to Webex customers. What can I do to fix that problem that I sort of created? That's why I decided to leave to build a better solution.
If I look at it from a market perspective, look at it from a competitive landscape perspective, you are so right. I don't think anyone wanted to start a company for that very crowded market.
Gardner: You talk about happiness today in many of your communications about Zoom. I'd love to hear maybe a few specific examples about how happiness is alive inside of a company that's growing at 100%. We hear in very high growth situations, that it can be hard to enhance the culture, that the culture may start to get diminished by all that growth and change. Maybe two or three examples of happiness in the workplace and for employees at Zoom.
Yuan: Sure. One thing I often told our employees, also told myself every day, is, when you wake up in the morning, the first thing you have to think about, are you happy or not? If you're happy, great. Please to come to the office, start working. If you do not feel happy, absolutely fine. Don't come to the office. Take a step back. Really understand what happened. If that's family related, please figure out the root cause, fix that problem. If the brand is related, also think about, what's the root cause? You might talk to the head of your department, you also can talk with me or your peers, to really understand what had happened, what's the root cause, to come up with a solution. If you do not feel happy, absolutely OK to stay home. No need to come to the office. Every morning, I ask this question to myself as well. If I feel very happy, I need to come to the office. Otherwise, I really want to understand why. If employees are not happy, guess what? Customers will not be happy, either. We truly believe, if we can do everything we can to make sure customers are happy, our billings will be OK. To make our customer happy, the No. 1 thing is, we need to make sure the employee is happy. This is our guiding principle.
Gardner: I'm curious about the simple end of the experience of a Zoom call, with the thumbs up and thumbs down. I know that must have emerged somewhere for you. I know from your history that when customers canceled early on in Zoom, you would contact them right away to understand why. So, just a little bit from you on how to ensure that you're getting the information back from the end user that they're having a good experience, and how that developed.
Yuan: Good question! It boils down to our company culture to really care about our customers. You've got to do it from top down and bottom up as well. I cannot say, "Hey, guys, let's focus on customer experience and our customers," if the customer already cancelled and I still don't know what happened. I do not think that's right. I should lead by example. Whoever canceled, I'll send a personal email, have a Zoom call, really understand what happened. If it's product related, I need to fix that problem. If it's pricing related, or anything related, I want to understand what's the root cause. Otherwise, the customer already left. You already lost the customer. As a CEO, you still don't know what had happened. I think that's the No. 1 part, why the customer left you. If you think your business is doing well, the product works so well, why did the customer cancel? I think that's No. 1 priority. That's why I personally worked early stage. Now we have a very skilled team for the process. Anyway, for the bigger problem, for whatever reason they wanted to cancel, I'm still involved. Sometimes, the company got acquired by one of our bigger competitors. No matter what I do, still, they will cancel. I still want to understand what we can do better. I think it's very important to understand what had happened.
Mann: In our company, we've spent a lot of time studying Jeff Bezos and what they did at Amazon, particularly early on. One of the things that they always emphasize, any cash that they had, they were plowing back into operations, into marketing, and things of that nature. Zoom is blessed with $700 million on its balance sheet. I was wondering if you might speak to how you think the company is going to deploy that most effectively?
Yuan: Yeah. Back to Amazon, I really like their philosophy, day one philosophy. That's where our boardroom, our conference room, the name is Day One. We have to think about where we're coming from. In sight of that, we do have a lot of cash in the bank. We should have discipline to spend. This is one of our top priorities, for our management team, to look at how we can leverage our cash to further drive our growth. Unfortunately, I do not have an answer now, but I'm really not good at spending.
Gardner: I'm going to encourage you, Eric, to consider this, not that I have any great insight. But looking at your company vs. other companies, looking at the incredible growth rates, the extremely high levels of satisfaction, Net Promoter score of 70, the extreme enthusiasm in your workplace and the great opportunity you have in front of you and the high margins, gross margins rising north of 81% -- I would look at the situation and ask, "Should we at Zoom spend a lot more on marketing right now? The more people we get on to our platform, we know it's sticky, we know we have the discipline of caring about the end user, we're going to solve their problem. Let's make sure they come to us before anywhere else. We've got $700 million. Let's continue to amp up our online spending so that there's no question in anyone's mind that Zoom is the dominant brand in the category."
Yuan: I think you're right on. That's why we wanted to become a partner of yours, right? Working together to guide us how to spend more effectively online.
Mann: I'm curious, because I know that you all have done a great job interacting with the people who are using Zoom's system and learning from them -- what are some of the most interesting use cases that you have seen how people are using Zoom?
Yuan: Several years ago was the first time I heard about a doctor using Zoom for telemedicine. This is five years ago. I'm really impressed, how the doctor talks to patients, gets the job done, without making the patient visit the doctor. This is part of telemedicine. That's one use case.
Another use case is the online teaching and learning. Quite often, the professor, seriously, they can live in Australia. The students can be anywhere in the world. That can continue the learning experience.
I think, all kinds of use cases, Zoom can help.
Gardner: Can you talk a little bit about your personal journey? We know about the Webex Cisco experience, and you mentioned the difficulties you faced in serving the end user there and why that advanced you to start Zoom. But maybe even before that, a little bit about your childhood, a little bit about your journey in life, and some of the values or principles that you hold dear.
Yuan: Sure, absolutely! I was born in China. I was born in 1970. I got my master's degree from Beijing, China, as well. And I traveled to Japan for four months, I think in 1994. I remember that Bill Gates, he was visiting Japan as well to give a keynote speech to one of the industry events over there. I was so impressed by his speech, very inspirational. And at that time, I realized, our internet is changing everything. So, after I went from Japan to Beijing. I thought about, what should I do? I was working for a publishing house of the electronic industry, and my biggest hobby is to collect books. At that time, I thought about, why not start a business to sell books online? I think in 1995, in China, too early. Nobody even had an email. At that time, I thought about, I should have come to Silicon Valley to take a look. However, I tried to get a visa; I got declined. It took me one and a half years. Finally, I got my visa. I tried eight times. Next attempt, I was successful. And my visa, it was a working visa, H-1 visa. It's not a business visa. So I joined Webex in 1997 as one of the first several firm engineers.
I remember, before I came here, my father told me, "You're going to a different country. We know that. It's a worldwide innovation center. However, you are not familiar with the culture. Also, you even do not speak the language well. You have to remember two things: hard work, stay humble." And every day, I think about what my father told me. Over the past 22 years, seriously, I remind myself of that. Hard work and stay humble. Those two things really helped me a lot.
Hill: Our email address is firstname.lastname@example.org. You can also hit us up on Twitter @MotleyFoolMoney. That's where Kevin Rice hit us up with this question. "Do you consider Shopify a good starter stock to buy and hold at the current price? I'd love to hear some feedback. I love all The Motley Fool podcasts." Thank you for the question, Kevin! Thank you for listening!
I should point out, shares of Shopify have doubled in the past year, and this company is not yet profitable.
Moser: Yeah. I think that's the big concern. It's a reasonable one. I will say, I like the business a lot. Generally speaking, it ticks all the boxes for me as far as when I look at these companies as, is it something I'd want to own. Shopify is definitely something I would want to own, save for one glaring problem, Ron! The valuation is out of hand!
Gross: Oh, details!
Moser: To your point, it's not profitable, it's not cash flow positive. The thing is, we know that it's not going to be profitable for some time to come based on what they continue to say in their earnings calls. You can't hold that against them. You're investing in growth. Clearly they're doing something right. I view Shopify as a great buy in thirds stock. If it's something that you want to own, great. Take the total amount of money you feel like you would want to invest in the stock. For simplicity's sake, let's say that's $3,000. Split that up into three $1,000 purchases, perhaps. You get some skin in the game, even if it's at what seemed like a crazy valuation. I'll tell you, 100% ago, we were saying the valuation seemed crazy, too. Then you can follow it, learn more about the business and whatnot.
Gross: Yeah, I think it's a fine company to own. Specific to his question about is it a good starter stock, I feel like the answer is no. Maybe that's because I'm a little more conservative, perhaps. But I'd rather see more stable, cash flowing, profitable companies as starter stocks.
Moser: Yeah, I think that's right. Starter stock, I'd go with something a little bit less conventionally risky.
Hill: A while back on this show, we talked about the latest innovation from Yum! Brands, parent company of, among others, Taco Bell. I'm referring, of course, to the Taco Bell themed hotel and resort in Palm Springs. It opens for a limited time in August. This week, they started taking reservations. Ron, they sold out in two minutes.
Gross: There's a lot of fun people in the world aren't there, Chris? [laughs]
Hill: [laughs] There really are.
Gross: I don't get it, but I like people that like to have fun. I'm not going to begrudge them, their fun.
Hill: I feel like this is going to be happening again in the future. Maybe they do this again next year, and the limited run of this hotel and resort, Jason, is extended.
Moser: Oh, there's no question! Next thing you know, we have a Taco Bell Invitational golf tournament to go along with it, and perhaps a Taco Bell pet hotel. There are all sorts of different ways you could run this thing.
Gross: The food. They're taking over the restaurant and obviously tweaking the menu to make it Taco Bell centric. I can only imagine.
Hill: Let's get to the stocks on our radar. Our man behind the glass, Steve Broido, is going to hit you with a question. Ron Gross, you're up first. What are you looking at this week?
Gross: I've got Waste Management, WM. Provides trash removal, recycling and other services to both residential and commercial customers. Dominant player in, let's face it, a very essential business. We've got to get rid of that trash. Limited threats of seeing demand outsourced or disrupted. They are entrenched because they have North America's largest network of landfills that they own. Organic growth and acquisitions have fueled their revenue growth, really great to see. They have increased their dividend for 16 consecutive years. Love a nice, stable business that can continue to do that. Yield currently stands at 1.8%.
Hill: Steve, question about Waste Management?
Steve Broido: If executives could go in a time machine and change the name of that company do you think they would? The word 'waste' in the title does get me.
Gross: That seems fair to me. We'll have to come up with another name and maybe help them rebrand.
Hill: Jason Moser, what are you looking at?
Moser: Well, speaking of rebranding, when I did our porch at the house, there was all this lumber that I tore off that thing. To get it picked up, I used Waste Management's service Bagster. You buy this thing at Home Depot, fill it up with all the stuff, and then they bring their big Waste Management truck out there and pick it up with a crane and take it away. Perhaps Bagster is that rebranding? I don't know.
Gross: I don't think so.
Moser: It was a great service, I will definitely use it again! I am looking at a company called PTC, ticker is also PTC. This is a company I've got on the watch list for the augmented reality service. They are in the business of augmented reality for the enterprise. You've heard me talk about Autodesk before, somewhat of a similar business, but an interesting data point, a thing consumers probably don't see is that around 42% of U.S.-based industrial companies currently use smart glasses as a part of their workforce. We just don't see that stuff. But this is a company that is firing in on that market. I'm going to dig in and learn more.
Broido: I heard Google Glass is coming back. Are you for that or against?
Moser: I am all for it, baby!
Hill: Two very different businesses. Steve, you got a stock you want to add to your watch list?
Broido: I think I'm going with Waste Management, despite the name.
Hill: All right! Ron Gross, Jason Moser, guys, thanks for being here! That'll do it for this week's edition of Motley Fool Money! Our engineer is Steve Broido. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening! We'll see you next week!