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IPO Fever, Big Auto Blues, and the Future of Self-Driving

By Chris Hill – Updated Sep 23, 2019 at 5:33PM

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WeWork is shelved for now, but Datadog looks pretty appealing. Plus, GM and the UAW duke it out.

In this episode of Motley Fool Money, analysts Emily Flippen, Aaron Bush, and Ron Gross discuss some of last week's biggest business news. Apple (AAPL 3.08%) Arcade priced at just $5 a month, and it has potential to be massive for the tech titan. Airbnb announced plans to go public in 2020. WeWork's contentious IPO was pushed back until at least mid-October, if not forever. FedEx's (FDX 2.01%) bad quarter speaks to more than just one-off stresses. Plus, news from Datadog (DDOG 2.43%), Yum! Brands (YUM 2.60%), General Mills (GIS 2.44%), and more. And, as always, the analysts share some stocks on their radar.

Stay tuned for an interview with senior auto specialist John Rosevear about the GM (GM 2.43%)/UAW strike, self-driving and electric cars, and what investors should be watching in the auto industry.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Sept. 20, 2019.

Chris Hill: We begin with a bellwether stock having a bad week. Fourth quarter profits for FedEx came in lower than expected. They cut guidance for the new fiscal year. Emily, we've seen FedEx have bad quarters before. This feels different for a few reasons, not the least of which is the fact that Fred Smith, the CEO, in the past basically downplayed Amazon (AMZN 2.55%) as a competitor in the shipping space. That was not the case this time.

Emily Flippen: Exactly. Amazon actually pulled out of their agreements with FedEx both for their air transport and ground transport earlier this year. FedEx definitely downplayed how important that was to their business. They said, "Amazon only makes up about 1% of our revenue, we're not going to see much of a change." And then, when they reported this week, it was very much a different tone, saying, "Oh, the escalating trade war plus Amazon really hampered us." And they hampered them to the tune of a 20% decrease in their earnings estimate for this year, which was already a year over year decline. Definitely a challenge for FedEx.

Ron Gross: Here's my question. In today's day and age, is FedEx still a bellwether? The world has moved on, and FedEx is still FedEx. Maybe we should stop looking to them as a sign of what's to come from the overall economy.

Hill:  I think your question points to part of what FedEx is dealing with, and why this one feels a little different. It is the increased competition from Amazon. It's the fact that their acquisition of TNT Express in Europe didn't really translate to the bottom line like the way they were hoping it would. And let's face it, they're in a tough business. Global shipping is a really tough business to be in. There are companies that name check the trade war as being a reason why they're not doing so well. I feel like it's warranted and FedEx's case.

Flippen: Actually, if you look at what FedEx painted in a positive light during the call, they're saying, "Hey, we're operating in a growing space." They're saying that 90% of total market volume growth is going to come from e-commerce through 2026. And that 59% of that market's going to be addressable to them so that they could ship. But that's a decrease from 65% today. So really, all investors took away from that was, "Oh, they're in a potentially growing industry, which would indicate maybe they're still a bellwether stock, but they're losing their market share to Amazon."

Aaron Bush: One of my pet peeves, I'm learning, as an investor is when management says something isn't a problem, and then a quarter or two later, it's a problem. That's so bothersome. We saw that last year within Nvidia, when they were like, "Our inventory concerns aren't a problem with crypto," and suddenly, it's a massive problem. We saw it with Abiomed, saying, "Our FDA letter that we're working through isn't a problem." And suddenly, next quarter, "Oh, we also have to do all these restructurings." It reminds me of that. When this happens, it just makes me question everything else management has to say.

Gross: Yeah. I wrestle with, did they lose credibility, in my mind, the management team, because they were fibbing? Or did they just get it wrong? Either way, it's not that impressive.

Hill: Last thing for you, Emily, on the stock. There are people out there who look at the long-term performance of FedEx, how well the company has done over time, and say, "You know what? If the stock is down 15% this week, that's a buying opportunity for me."

Flippen: I don't look back, I look forward. What I see is FedEx going to have to meet Amazon's investments into logistics, infrastructure, modernizing their fleet. That's going to be extremely capital intensive. It's probably going to force them to raise prices on their core consumers, which now have a lot of third-party options. So yeah, I don't look back and say, "FedEx is so important for the last 10, 20 years." I look forward and I think, "FedEx probably is not going to be as important for the next 10 or 20 years."

Hill: Shares of Microsoft (MSFT 3.37%) hit a new all-time high this week after the board of directors approved a stock buyback plan to the tune of $40 billion, Ron. Also, they increased their quarterly dividend 11%.

Gross: So impressed with what this company has done over the last four or five years. Incredibly strong balance sheet. They produce gobs of cash flow. They have $134 billion in cash. Cash from operations in the last fiscal year was $52 billion. They've got more cash than they know what to do with. Between 2017 and 2019, the fiscal years the company repurchased $35 billion worth of stock. Here we go with another $40 billion authorization, which they're not going to execute quickly. They'll be smart about it. Certainly, the last two years, it was a great use of capital. The stock's up 88% over the last two years. Over the last five years, it's up over 200%, crushing the market. Love the dividend. I think they could actually do more. It's only really about a 1.5% yield. Nothing stopping them, I think, from increasing that to maybe 2% or higher. But the company really continues to execute, especially with their cloud business. Love it.

Bush: Yeah. When I look at this -- we talked about this a bit yesterday on MarketFoolery -- it is impressive, because it's big numbers; but put into context, when you have some $130 billion on your balance sheet, when you produce $40 billion in free cash flow and growing it every year, this isn't a drop in the bucket. It's a nice little scoop in the bucket. But it isn't as meaningful as $40 billion would sound in pretty much any other context. It's still less than 4% of total shares outstanding. It's not like it's some big, bold, strategic move on behalf of management. But, every bit helps.

Hill: Ron, when you look at shares of Microsoft, do you think it's an expensive stock? Or do you feel like it's reasonably priced?

Gross: 26X forward earnings right here. It's not cheap, but they're really executing. No. 2 cloud company right now in the world behind Amazon. I think it's fine to own it.

Hill: This week, Apple launched Arcade, a new video game subscription service with access to 100 games. It's $5 a month, and that's for an entire family. Aaron, are you at all surprised at the low price? This is a company that made its bones charging premium prices for premium products

Bush: A little bit. I'm not surprised by most things relating to the service. But definitely, the price was lower than what I, and I think pretty much everybody else, expected. But when you think a bit about it, it makes a bit of sense. What they make up in price, they can more than make up on volume. What they're going to be doing with Apple Arcade is, out of the five tabs on the App Store, they're going to make one of them Apple Arcade. So all the 700 million Apple users that are out there, this will be one of the five tabs that all of them see. They have a huge distribution advantage. It's estimated that they've invested about $500 million into the initial slate of games, which is a pretty significant sum of money. What makes it different from something like Apple Music is, with Music, you have to pay for every single song that is played. With games, it's just that fixed cost up front. The more people that they can get into it, the margin is just incremental upside. Even though it's a lower price, I feel good about their ability to scale over their costs.

Flippen: It reminds me of Disney+, actually. People were really excited about the Disney+ offering, and they came in with this much lower price, because I think both companies realized that you have to change habits when you come out with these new products. Gamers for a long time were not used to consuming games on a subscription style basis. So, you come with a low price. It's a low hurdle for people to jump just to try it. And once they're in, people enjoy this, hopefully, and get stuck using it. It's not too much of a surprise to me to see the low price point.

Bush: I think consumers have almost forgotten, especially as we see things like cable become unbundling, bundling is actually a pretty great thing for consumers because it gives you more at lower prices. What's not to like? I think we're starting to see some of these companies come back and start to rebundle again in new ways, and that ultimately is good for everybody.

Hill: Last thing on Apple. Aaron, when you look at where this is going to go, this is going to get recognized in the services division for Apple. How big do you think Arcade can get?

Bush: It could wind up the most profitable service that Apple has. Games are such an important piece of the App Store, and the economics of games and being able to scale over their costs is significantly better than what we've seen in some of the other services like Music. So I do think this will move the needle. It might take some time to scale up and they'll definitely invest more in other games, but I do think it will be impactful.

Hill: Shares of General Mills up slightly for the week despite a less than fabulous first quarter report. Ron, General Mills has 15 categories it sells in -- breakfast cereal, snacks, baking products. It looks like the pet division is the shining star and the other 14 are lagging.

Gross: Well, you nailed it. Definitely a mixed quarter. Disappointing top line, but they did eke out some earnings growth, which was nice to see. Sales fell 2%. Strength only in pets thanks to the Blue Buffalo acquisition. Weakness pretty much everywhere else. International was especially weak. North America was flat, but that's actually good because it's an improvement over where it's been recently. What allowed them to eke out a profit was, they had some good pricing and sales mix that impacted margins to the positive. Margins widened. Operating income up 10%. Adjusted earnings up 13%. That's pretty good and allowed them to reaffirm their outlook.

But things remain weak. You have to grow those top line numbers, because you're not going to be able to continually expand margins, widen margins on price and mix for long. You need to sell stuff.

Flippen: When investors think about General Mills, they probably don't think about pet food, but that makes up about 10% of their total revenue. It's almost as big as their entire Europe and Australia business and bigger than their Asia and Oceana business entirely. It's important to remember here that this really is kind of a pet food story. The Blue Buffalo acquisition is really the only thing keeping General Mills alive. I also think investors appreciate the fact that they reaffirmed guidance for organic growth of 1% to 2% for the year. That also helps. But undoubtably buoyed by Blue Buffalo.

Gross: And it's interesting, because acquisitions often don't work out, and they often are a waste of money. Perhaps the story isn't over yet, but perhaps this was actually a pretty good use of capital.

Hill: So, how are shares of General Mills up 40% year to date? Was it just oversold?

Gross: It was oversold because the business was incredibly weak, as were many of these companies, whether it be Kellogg's, Kraft, Mondelez. And then, the Blue Buffalo acquisition reinvigorated the company, reinvigorated the revenue. That led to growth on the profit line. And of course, the stock reacts when profits go up.

Bush: In content, the stock is still flat over the past five years. Context is key.

Gross: Context is key.

Hill: Datadog went public on Thursday. This is a data analytics company. Shares up nearly 40% on its first day. You interested?

Bush: I am interested. I don't know if I'm interested in the price right now, but I'm very interested in the business. For some context, Datadog, they provide monitoring and analytics services for developers and IT teams. What they do isn't necessarily new. Other companies like New Relic and Splunk and others have worked in similar spaces. But what they've been able to do differently is continue to add new features, go into new areas, and then bundle things together in a way that makes it extra convenient for teams and developers to use. A lot of that progress has also shown in the numbers. If you look at the past year, revenue's grown 82%. 40% of customers use at least two of their products. It shows that their value proposition is working. Their dollar based net retention rate, which shows how existing customers are spending more money, over the past year, that's clocked in at 146%, which is about the best I've seen since maybe Twilio a couple years ago or so. Already operating cash flow positive. There's evidence that what they're doing technologically is helping people. Developers and IT teams are racing toward them very quickly. I think there's evidence that this can be a big company. It already is a big company because of how it's being priced at something like 40X sales. They still have a lot to prove, but it is an impressive business.

Hill: Already an $11 billion company. Before they went public, Cisco Systems made them a $7 billion offer to buy them. Think they're happy they turned that down?

Bush: A little bit.

Hill: This week, Airbnb said it plans to go public in 2020. Emily, obviously there's no S-1 filing yet. We don't know the numbers. But even without knowing the numbers, how interested are you in Airbnb?

Flippen: I feel like I've been teased with Airbnb for a while now. What happened to 2019? It seemed like that was going to happen for an IPO for Airbnb, but it did not. Yes, the CEO and co-founder Brian Chesky is now teasing a possible 2020 IPO. While we are still waiting for those documents to get a sense about the pricing and the business, their most recent valuation was in September 2017 at $31 billion. I think it's safe to say that, it does IPO in 2020, it's going to be a big IPO. That's saying something because the company, as of the most recent numbers we have, which I believe was the end of 2018, only was doing about $1 billion in revenue, which is great, but when you look at a 2017 valuation of $31 billion, it does testify to the value of maybe just the name brand that's being perceived in the market right now.

Hill: It will be interesting to see. To add a little more context, you look at Hyatt Hotels, that's an $8 billion company; Marriott, $42 billion. It's not inconceivable that, depending on any number of outside factors, Airbnb goes public, and it is automatically a bigger corporation than Marriott.

Flippen: And I don't think that's ridiculous. I think it's like going back to Uber and looking at Uber and the size of the cab market. In reality, a lot of these businesses are expanding their market by making -- hotels, for instance, staying at someone's house, more accessible. People are doing it more frequently because it's more accessible, because it's cheaper, versus staying at a Hilton or staying at a Marriott. So I think it's not completely unfounded, although it might not be the best return for shareholders.

Bush: Yeah, I don't know where exactly, it'll go public, but it definitely is a bigger idea. On the same side of, they have their own rooms and places where you can stay, but they also are increasingly acting like an OTA. They bought HotelTonight. Not only are they competing with the Marriotts of the world, but they're increasingly competing with the Expedias and Bookings of the world, almost a hybrid, unique form that we're seeing at scale for the first time.

Hill: WeWork officially postponed its plans to go public. Ron, given all the skepticism that we saw from Wall Street, along with the Wall Street Journal's, let's just call it less than flattering profile of CEO Adam Neumann, what is the path forward for WeWork?

Gross: Well, first, I'm happy to say that some rationality has returned to the IPO market. It's good when you see something be pulled that should be pulled. Valuation concerns, governance concerns, business model concerns, leadership concerns. There was so much writing on the wall here that certainly, the $47 billion initial valuation was going to be ridiculous, and perhaps they needed to rethink some things such as corporate governance, which they have done. The path forward. They really needed to raise $3 billion for a $6 billion line of credit to kick in. SoftBank may be there to backstop them. It remains to be seen. SoftBank was willing to buy $750 million worth of stock in the IPO to help soak up some of that excess supply, because it wasn't going very well. Maybe there's a way forward for them to raise capital in the private markets. But right now, they're really saying postponement is still mid-October at the earliest. It doesn't mean it's on hold forever.

Hill: Do you think Adam Neumann stays the CEO? This is reminding me of Travis Kalanick at Uber. The path forward for Uber included Kalanick stepping aside.

Gross: He's an eccentric dude, for sure. I think they probably need to bring in someone who is more of a professional manager and then kick him upstairs and allow him to be the co-founder.

Hill: After years of being the worst performing franchise in the Yum! Brands empire, Pizza Hut is finally showing some momentum in terms of growing sales in the second year of its partnership with the NFL. Pizza Hut is looking to capitalize on that momentum with its latest innovation, the Stuffed Cheez-It Pizza.

Gross: Boo.

Hill: It is a limited-time menu item. The Stuffed Cheez-It Pizza includes four large squares of a crust infused with the sharp cheddar flavor of Cheez-Its, a popular snack made by the Kellogg Corporation. I'm all in on this innovation.

Flippen: I thought Cheez-Its couldn't get any worse. Leave it to Pizza Hut to somehow bring back the Cheez-Its.

Gross: I'm taking the other side of the Cheez-Its trade there. Cheez-Its are just fine. But cheddar flavor has no place on the pizza.

Bush: Ron, would you hate a stock before you looked at it and analyzed it?

Gross: Are you saying I need to taste test this thing?

Bush: I'm saying you can't hate on this type of pizza without trying it.

Gross: I consider myself a pizza aficionado, and I can tell without tasting it.

Hill: I am pretty confident this is going to move the needle for average ticket price in the next couple of quarters for Pizza Hut.

Flippen: Well, I'd be lying if I said I didn't want to try it, even though my hatred for Cheez-Its is pretty palpable.

Hill: Earlier later this week, producer Mac Greer caught up with John to talk about investing in self-driving cars, the future of Ford Motor, electric vehicles, and more. But Mac began the conversation by asking John about General Motors and the United Auto Workers. The two sides have been meeting to hammer out a new contract as 46,000 union workers continue their nationwide strike.

Mac Greer: For those who haven't really been following this GM story as it unfolds, what's the issue? What does it mean for investors?

John Rosevear: Well, let's step back a minute so we understand the context. The UAW redoes its contracts with the three Detroit automakers -- GM, Ford, and Fiat Chrysler -- every four years. This is an every-four-year kind of thing. And when they do it, they pick one of the three automakers to really negotiate aggressively with, to try and get an agreement they can live with. And then they use that as what they call the pattern and try to impose similar terms with the others. And it usually works out.

This year, they selected General Motors, and they found that they were really butting heads with GM. The workers have a few issues. First of all, GM announced a big restructuring late last year. 6,000 hourly jobs cut. Similar number of white collar jobs cut. Several plants closed, and so on. In particular, a big factory in Lordstown, Ohio, which made the compact Chevrolet Cruze sedan, which has been discontinued, was set to be shut down. That's become a rallying point for the UAW. They want GM to give that factory a new product to build. From their perspective, GM is building vehicles in Mexico, more and more of them. And they say, "Hey, wait a minute, you've got to bring some of that to the United States, back to us."

Another issue, GM has been using temporary workers as a portion of their hourly workforce to try and increase flexibility. They're worried about the economy and so forth. Right now, about 7% of GM's U.S. factory jobs are filled by temporary workers. These folks make about $15 an hour, which is significantly below the UAW scale. UAW wants to reduce that percentage and give the contractors a path to becoming full-time employees getting the UAW scale, and so on. GM would actually like to use more contractors. That's another big bone of contention there.

There's some issues around healthcare. UAW workers pay only about 4% of their healthcare costs. GM had wanted to boost that to 15% but backed off that demand. We should note that the national average for family healthcare coverage, the average U.S. worker contributes about 29%. So they would both be generous plans, but the UAW strongly wants to stick with the status quo.

There's some other stuff in there, too. But those are the big points.

We understand, at least as of yesterday, that the sides are still far apart on this issue. This is going to be expensive for both sides. GM is probably losing something like $45 million a day because of last production with all its U.S. factories shut down. If this goes on into next week, we're going to start to see network effects, too. Suppliers will be furloughing. GM's factories in Canada and Mexico that depend on parts from the United States will be shutting down and so forth. That will get more expensive. Meanwhile, the folks on strike are getting strike pay from the UAW, which is $250 a week. They're getting their healthcare benefits covered via COBRA. UAW is picking up that tab. But it's a hardship for them, too. So there's incentives on both sides to cut a deal here. But it doesn't sound like they're close yet.

Greer: When we pull back and look at the business of GM, what do you think is the biggest threat? And what do you think is the biggest opportunity?

Rosevear: I think there are two sides of the same coin. We know that the auto industry is moving toward electrified propulsion, more and more computerized assistance, artificial intelligence assistance, with driving. Up to full self-driving, we think, eventually. These are seismic transitions for the industry. GM is deep into a plan to transition to that. They have 20 something electric vehicles on the drawing boards. They have a subsidiary called Cruise out in San Francisco that has made really good progress with self-driving. But they're restructuring the company to maximize their profits from their old business -- selling cars, trucks, and SUVs, particularly trucks and SUVs, which generate good profits -- to fund this transition.

The biggest threat to them, I would say, is that they don't make it. That they get into this new world, and others have beaten them out and stolen their market share. Or, alternatively, they commit heavily to electric cars and nobody shows up to buy them; everybody still wants to gasoline cars. That's also the biggest opportunity. They're being very aggressive here. If, in fact, the world goes the way they think it will, toward more electric vehicles, toward more connected cars, toward more self-driving cars, they are right now in a good spot to be out in front when that happens.

Greer: John, let's talk self-driving cars. If I'm interested in this space, I'm looking at some potential investments, where should I be looking?

Rosevear: That's an excellent question. Unfortunately, there isn't an easy answer. There are companies, obviously, working on self-driving cars. Some of them are well positioned. We should clarify that there are no self-driving cars out in the world yet. This is technology that is under development. When you hear cars described as self-driving, what you're really seeing is advanced Driver Assist systems like Tesla's Autopilot and GM's Super Cruise. Self-driving cars are a technology that we expect to emerge soon. There are a lot of companies working on it. The problem from an investment perspective is there no pure-plays. Waymo is a company that is out in front in terms of its technology. It is a wholly owned subsidiary of Google's parent, Alphabet. You can invest in Alphabet, but the portion of Alphabet's revenue and profit that's likely to come from self-driving cars over the next decade is relatively small in the grand scheme of Alphabet. Likewise, General Motors, Cruise is also doing very well. They're probably a step behind Waymo but a step ahead of most others. GM has a majority stake, a controlling stake, in Cruise. You could invest in GM for Cruise. It'll have a somewhat bigger participation. You might actually get shares of Cruise if GM chooses to spin it off. But again, right now and in the next five years or so, the portion of GM's top and bottom lines that are going to come from Cruise is fairly small.

And then there are other companies which are not yet public -- or, we should say, not public, because they may choose a different path. They may be acquired by a larger firm rather than going public. A number of start-ups, including companies like Zoox, as well as companies tangential to the self-driving space. Velodyne makes the LIDAR sensors that most self-driving cars under development depend upon.

I think, to an investor who is interested in this space, what I would say to you is, learn about it. There will be pure play opportunities. I'm convinced of this. They will start to emerge maybe within the next year or so. I know Velodyne is about an IPO. I would say, educate oneself.

Greer: John, let's talk electric vehicles. News out this week that Amazon is placing a new order of 100,000 electric delivery vans from Rivian, which is a rival to Tesla. What do you make of that?

Rosevear: I think it's interesting. Amazon is an investor in Rivian. So is Ford Motor Company. In fact, Ford's manufacturing chief Joe Hendricks sits on Rivian's board, which is some assurance that those vehicles will actually be able to get manufactured. [laughs] Ford is helping them with that. I think it's really interesting. That deal just came out earlier today as we're recording. It's not unexpected. There are things we don't know. Is this vehicle being designed jointly with Ford? Is this a pure Rivian design? Is this a utilitarian commercia van? Is it something else? Some sort of customized thing? Is there some element of self-driving or advanced Driver Assist that is contemplated for this? There's a lot we don't know. To back it off a minute, it is 100,000 vehicles, but that's over four years. It's 25,000 a year, which is not a ton of volume, but it is significant because people will see these in their neighborhoods, presumably. They may be branded as Rivian or uniquely recognizable in some way. It's significant in that sense. It's a plum for Rivian. It doesn't shake the world, but it's a noteworthy deal.

Greer: When we look at the auto industry as a whole, what's something you think we might be missing as investors?

Rosevear: Oh, good question. I always want to remind investors, this is a cyclical business. It takes a lot of capital. Margins are relatively thin, even in good times, etc, etc, etc. But the scale of this transition that we've been talking about, from gasoline powered, human-driven vehicles to electric, at least partially, if not fully, self-driving vehicles, is just massive. It's not just the automakers. They can't just set up one day and start building these things. There's a whole supply chain that has to come into existence, right down to -- one of the reasons that we don't have millions of electric cars on the road right now is, two or three years ago, there was not enough lithium coming out of the ground to make the batteries to power all these cars. All of these things are being scaled and ramped up and thought about and invested in right now. I think somebody who's like, "When is Ford going to roll out an electric F-150?" needs to understand that there are four or five years' worth of events that have to happen -- some of which have already happened, we are down that road -- on a huge scale, for Ford to bang out an electric F-150 every 53 seconds like it does with the gasoline F-150s. For the volumes to happen, there's just so much that has to change and be developed. And it is happening.

But I think sometimes people say, "Well, Tesla can put out lots of electric cars. How come GM can't?" First of all, GM operates on a much bigger scale than Tesla. Second of all, Tesla has been working on its own little supply chain for years. The bigger supply chain needed to support GM, Volkswagen, Ford, Toyota, etc, etc, that's coming into being. We're several years down the road of it coming into being. It's going to take several more years before it comes into being. Just the size of this transition, I think investors have to keep that in mind. The amount of money that's being spent by most, if not all, of the automakers, and this huge, almost global effort to bring this into being.

The parallel to that -- there are going to be winners and losers out of this. There are going to be some automakers that don't make the transition. There will be some automakers we think of as medium sized who might become very big. We don't know how that's going to play out yet.

Greer: John, as we wrap up here, how about one story you're watching going forward?

Rosevear: Ford is doing what they call the redesign of their business. CEO Jim Hackett, he was at Steelcase for many years. He has kind of a professorial teacher affect to him. He has brought to Ford this idea that they need to redesign their business both to thrive in the existing world and to be ready for this upcoming world that we've been talking about. A lot has started to unfold of this. For a long time, it was unclear exactly what they were going to do. There are a lot of elements and a lot of moving parts to this that are coming into play. If Ford pulls this off, they will be a significantly more profitable company four or five years from now. And they will be well positioned to play in this new world as well. That's the story I'm watching. What is Ford going to do in Europe? How is Ford going to resuscitate its Chinese business, which has really gone off a cliff, which is part of what's being redesigned here? How will buyers react to Ford dealers that don't have any sedans, which will be the case in a couple years? How will buyers react to the new products Ford is bringing out to fill in some of the spaces that are being opened by its decision to discontinue lower-profit models? All of this. This is a really fascinating story. I know that a lot of folks in America have an attachment to Ford, which makes it all the more compelling. They are doing this really interesting self-restructuring that was not dictated by urgent financial need, but was dictated by what they saw as a need to prepare for the future. The way it's unfolding is very interesting.

Greer: John Rosevear covers the auto industry for The Motley Fool. John, thanks for joining us!

Rosevear: Mac, thanks for having me!

Hill: Our email address is [email protected]. Question from Matt Riley, who asks, "Do you think the hype around artificial intelligence is similar to the hype that surrounded 3D printing? Seems like right now, there are a ton of ideas for how AI can be applied. But in the end, they will be difficult to execute or scale. Thanks for all the great work. Love listening to your show." We love that you listen, Matt. Thank you. Great question. Ron, what do you think?

Gross: Matt, because I care about you and the listeners, I reached out to our resident AI expert Seth Jayson about this question. He sees the two industries as being very different. He thinks AI is already doing much of what's been promised, especially with machine vision, natural language comprehension, and machine and deep learning. It's already making a major impact. For many companies. It's only going to become more useful as the software and hardware become better. He sees that as a big contrast to 3D. Really, in his opinion, the two things have not much in common.

Flippen: I'll take the other side of that trade. I mean, look, with 3D printing, there's something physical, I can see it there. AI is so popular right now because nobody knows what it is and everybody can claim that they do it. For instance, last month, doing some research on Intuit. AI was mentioned over 20 times in Intuit's most recent earnings call. They're talking about improving AI, improving the tax software. Look, AI is everything. I'm AI. You're AI. We're all AI, and we all love to say it.

Gross: [laughs] Is that helpful, Matt?

Bush: I'll take the middle road. AI is different because it's a foundational software based technology that lots of different companies and lots of different industries can build on. You won't hear an Intuit talking about 3D printing, for example, but you'll hear lots of companies talk about artificial intelligence. But it is smart to be aware of hype, because all technologies, all trends go through the hype cycle. AI is definitely higher up the curve than 3D printing is. But really, 3D printing, their problem was less the hype cycle with consumers and investors; the problem there was, the hype cycle got to the executives and they just lit money on fire on terrible deals. All of them.

Gross: Two against one, we win.

Bush: I think I'm in the middle.

Gross: 0.5 to one.

Bush: Tie.

Hill: It's a push. Let's get to the stocks on our radar. Our man, Steve Broido, is under the weather, but fortunately, Austin Morgan, the Iron Man, is behind the glass. He'll hit you with a question. Ron Gross, you're up first. What are you looking at this week?

Gross: I'm going back to Tractor Supply (TSCO 4.43%), TSCO. Operator of 1,800 retail farm and ranch stores in the U.S. Total Income recommendation in April. Stock has been weak this month, creating an opportunity for investors to get in. They are the largest operator of rural lifestyle stores in the U.S. 2016 acquisition of Petsense gives them another avenue of growth. I think margins are going to continue to go up. They've raised their dividend for the last eight years consecutively, with that dividend standing at 1.3%.

Hill: Austin, question about Tractor Supply.

Morgan: Ron, have you ever driven a tractor?

Gross: Actually, growing up, we had quite a big backyard, and I had a Deere tractor, and my dad taught me how to mow the lawn, and I loved it.

Hill: Was it a Deere lawn mower or an actual tractor?

Gross: It was an actual tractor.

Hill: Alright. Emily Flippen, what are you looking at this week?

Flippen: How about we try to drive something a little better than a tractor? How about a car? Today I'm talking about Uxin (UXIN -0.62%), UXIN, which is the largest e-commerce car dealer in China. I've talked about this company before. They report earnings next week. It'll be really interesting to see what they report, especially given all the noise around China right now in this slowing economy and maybe some of the tariffs that are coming in place, especially on vehicles. It'll be exciting. Uxin has a really innovative business model. They're taking the place of the CarMax in China, transporting vehicles. But it's definitely not without risk. It'll be an interesting one to watch.

Hill: And the ticker symbol?

Flippen: UXIN.

Hill: Austin, question about Uxin?

Morgan: How popular is the American muscle car in China?

Flippen: More popular than I think you would assume, but not as popular as in other countries.

Hill: Aaron Bush, what are you looking at this week?

Bush: Let's fly back across the ocean to another part of the world and look at MercadoLibre (MELI 6.59%), MELI, which is the dominant e-commerce company in Latin America. It's increasingly becoming a leading fintech company in the region, too. You look at the business, pretty much all of the metrics are swiftly moving in the right direction. The number of customers, number of items shipped, total payment volume. And, of course, being in Latin America does make them more prone to geopolitical risk. But those tough conditions actually keep a lot of the competition away. And if MercadoLibre is doing this well when times are poor, it makes you wonder just how good they can perform when times are good. The stock is down a bit, but frankly, I have a hard time seeing how this doesn't become a much bigger company in the long term.

Hill: Austin?

Morgan: Are they stuck in Latin America or can they expand?

Bush: Right now they are stuck in Latin America, but that is OK. There still are a billion people there, and pretty much, right now, with limited competition, it's all theirs to take.

Hill: Three stocks, Austin. You have one you want to add to your watch list?

Morgan: I'll go with MercadoLibre.

Bush: Alright!

Hill: Alright. Thanks, everybody! That'll do for this week's edition of Motley Fool Money. Our engineer is Austin Morgan. Our producer's Mac Greer. I'm Chris Hill. Thanks for listening! We'll see you next week.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Aaron Bush owns shares of ABMD, Amazon, Apple, BKNG, MercadoLibre, NVDA, TWLO, and DIS. Chris Hill owns shares of Amazon and DIS. Emily Flippen owns shares of Uxin Ltd. John Rosevear owns shares of Amazon, Apple, F, and General Motors. Mac Greer owns shares of Amazon, Apple, MercadoLibre, NVDA, Tractor Supply, and DIS. Ron Gross owns shares of Amazon, Apple, Microsoft, and DIS. The Motley Fool owns shares of and recommends ABMD, Amazon, Apple, BKNG, FedEx, INTU, MercadoLibre, Microsoft, NVDA, SPLK, TWLO, and DIS. The Motley Fool has the following options: long January 2021 $60 calls on DIS, short October 2019 $125 calls on DIS, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, and long January 2021 $85 calls on Microsoft. The Motley Fool recommends KMX, H, MAR, NEWR, Tractor Supply, UBER, and Uxin Ltd. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$142.45 (3.08%) $4.25
Microsoft Corporation Stock Quote
Microsoft Corporation
$240.74 (3.37%) $7.84, Inc. Stock Quote, Inc.
$115.88 (2.55%) $2.88
General Mills, Inc. Stock Quote
General Mills, Inc.
$78.48 (2.44%) $1.87
General Motors Company Stock Quote
General Motors Company
$32.87 (2.43%) $0.78
Yum! Brands, Inc. Stock Quote
Yum! Brands, Inc.
$109.11 (2.60%) $2.77
Tractor Supply Company Stock Quote
Tractor Supply Company
$194.12 (4.43%) $8.24
FedEx Corporation Stock Quote
FedEx Corporation
$151.46 (2.01%) $2.99
Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
$882.30 (6.59%) $54.52
Uxin Stock Quote
$0.60 (-0.62%) $0.00
Datadog, Inc. Stock Quote
Datadog, Inc.
$90.94 (2.43%) $2.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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