Why Companies Are Increasingly Going Public Without an IPO

In this episode of Motley Fool Money, Chris Hill chats with Motley Fool analysts Ron Gross and Andy Cross about the latest headlines and earnings reports from Wall Street. They talk about the latest unemployment report and the president's testing positive for COVID-19. They go through the earnings reports of a retail company, a cloud platform, and a multinational food, snacks, and beverage giant. They share some stocks to put on your watch list and much more.

Also, catch Asit Sharma's conversation with journalist Matthew Yglesias about growing America's economy.

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 October 2, 2020.

Chris Hill: We begin with the big macro. We will get to the jobs report in a moment, but we have to start with the news that the President of the United States has tested positive for COVID-19, and because more details are coming out by the hour, let me also add that we are recording this at just after 12 noon on Friday.

Ron Gross, I'm going to start with you. We've been doing this show for more than a decade, there are other shows that mix business and politics, we're not one of them, so anyone looking for the political ripple effects of this news, there are plenty of shows out there that they can listen to, we focus on investing and the stock market. And right now, with the S&P 500 down about 1% on Friday, the reaction from the market is not too bad, considering the President's health is compromised in a way that we haven't seen out of the Presidency in a very long time.

Ron Gross: Yeah, a relatively muted response, which I don't think I'm surprised by. We often say that the market hates uncertainty, and this certainly does create uncertainty. But you know you have to really extrapolate some pretty morbid things into the future to become panicked about the situation. But we certainly wish everyone well, but we don't know how this will turn out. But for today, for this market cycle, the next Monday's market, it's about near-term uncertainty within the context of an incredible six months of uncertainty, [laughs] when you throw in the pandemic, and the economy, and the looming election. So, are you doing anything as an investor as a result of this news? I think the answer is "no." If you're a trader, maybe you're positioning yourself in certain ways and hedging in certain ways, but for the individual Foolish investor, I never even would think of selling stock on a day like today, and I would treat it as a normal day.

Andy Cross: Yeah, I think, interesting, Chris. This might ramp-up this weekend's negotiation between Treasury Secretary Mnuchin and the House Speaker Pelosi, as they continue to negotiate around a stimulus bill for so many out there that are in need of help. And I think this might just again be even more and more of a signal for them to continue to realize that, you know, we are in a very fragile situation and the COVID cases are continuing to ramp-up across the country in certain spots. And so, there's maybe a little bit more public scrutiny on that, even when someone like the President tests positive for COVID. So, I would not be surprised if I see even more further progress made in the deal talks.

Gross: And while we may feel that the economy is reopening, and we'll talk about the jobs report in a minute, I think it's really important to remember that there are industries, there are sectors, there are individuals that are really hurting. We saw Disney announce an incredible number of layoffs recently. The airlines are looking for stimulus and they'll be laying off folks; have been and will be. So, from an individual economic and then just an individual people perspective, we've got some work to do here to support those that are still really hurting.

Hill: The U.S. economy added 660,000 jobs in September. That is below what economists were expecting. The unemployment rate now sits at 7.9%. So, Ron, it's going in the direction we want to go, but it appears that the momentum is slowing.

Gross: The momentum is slowing, the more all-encompassing unemployment number we look at, sometimes called the U-6, showed a little bit of a better indication, dropping to 14.2% from 14.8%. But still, you know, we've got a long way to go here, which is not surprising. The biggest drop in jobs was in government, as at-home schooling continued and the census jobs fell. Interestingly, leisure and hospitality, kind of, led the way as things do reopen and people do get back to work to a certain extent. But the government is the biggest drag. Economy needs to continue to reopen. We need stimulus. We need to support folks, as I said. And over time we'll see that, hopefully, that unemployment rate continues to go down.

Cross: The number that I was looking at, is the number of permanent job losses increased by 345,000 to 3.8 million; that's a seven-year high that compares to 2.5 million in February. So, this is people who have been out of work for more than 27 months and looking for work. So, that combined with some of the facts and numbers that Ron mentioned earlier, were some of the large cap corporate companies out there now looking to pare back some of their workforce, Disney, the airlines all stayed, some of the Wall Street banks now. So, I think there's just this concern that, while the numbers were below expectations, the economy is in this very delicate spot, and whether it's new stimulus or just more and more growth, we're not seeing the consumer maybe ramp-up, and the consumer weakness, that was a real strength of the past couple of months, that's a concern with, I think, the economy. I think you're seeing that in the stock market. And in this job report, some of that data showed that, hey, listen, the economy really still is in this spot where it needs some help.

Gross: And despite what we've been through, the stock market is not cheap, especially the Nasdaq, where we've seen incredible runs from some of these technology companies; both the large cap and some of the mid cap ones as well. And so, any shock to the system, any uncertainty will create a sell-off. I would imagine, I don't have it in front of me, that you're seeing a larger sell-off in the Nasdaq today than you are in the Dow, for example, or the S&P 500. So, we need to be wary about the continuing uncertainty and any shock to the system that comes will affect the market. But you know, stick to your knitting, buy great companies, hold them for the long-term.

Hill: Let's move on to some of the big stock news of the week. Second quarter profits for Bed Bath & Beyond came in dramatically higher than expected. And for the first time in four years, same-store sales were positive. Shares of Bed Bath & Beyond (BBBY) up 40% this week. Ron, Mark Tritton has been the CEO for 11 months. And not only does it look like he is turning this business around, he's turning it around [laughs] during a pandemic.

Gross: Chris, as the A-Team's Hannibal Smith famously said, "I love it when a plan comes together." And I say that as both a shareholder and I know [laughs] you are a shareholder as well, but let's not take victory laps just yet, we got a long way to go. Mark Tritton is doing a great job executing on his, what he's calling the omni-always transformation, which is, you have a number of ways to reach the consumer and sell your products. But we've got a long way to go, especially in the stores, which, let's face it, that is the big part of this turnaround, or certainly a big part of it.

If we go through the numbers, total comp sales up 6%. As you said, first growth since the fourth quarter of fiscal 2016. The big story, strong growth in digital channels, up about 89%. Now, that was offset by a 12% decline in the stores themselves. And that is important to note; we can't take victory laps, we can't gloss over that, there's a lot of work to do here. Sales were down overall about 1%, decline in the stores, as we mentioned. A reason for that, sale of the One Kings Lane home decor unit, actually, which most people don't even realize happened [laughs] earlier in the year, they sold off a division. The gross margins were up, operating expenses were down. It led to an adjusted EPS, Earnings Per Share, increase of 47%. So, things are looking good, but we've got a long way to go.

Hill: Well, and one more thing to watch, earlier in the week, before they came out with their earnings report, there was the announcement that they're partnering with Instacart and Shipt to provide same-day delivery. It's going to be interesting to see what that does to move the needle for them, particularly with the holidays coming up.

Gross: Yeah, very important. Again, executing on Tritton's omni-always transformation. Shipt is a wholly owned subsidiary of Target, which is an interesting partnership there. But the company is doing well, the restructurings in place, they're looking for an increase in EBITDA of $250 million to $350 million as a result of the restructuring. They're paying down debt, they just reduced it by about 30%. So, they're doing everything they need to do, making really smart moves, we're going to keep a close eye.

Hill: Shares of Twilio (TWLO -1.49%) up 12% on Friday, after the cloud services company raised its forecast for the quarter. Twilio is scheduled to release its next earnings report in early November. Andy, safe to assume that the increase in remote working and remote education is helping them here?

Cross: Yeah, it is, Chris. So, it was at their Twilio SIGNAL Conference, and they updated for investors, they had an investor day remotely to, kind of, give some more guidance. They updated that Q3 guidance for the revenue to be ahead of the $401 million to $406 million they talked about last quarter. So, they really talked about just continuing to expand their market, they're serving more and more people. Right now, their market is somewhere about $60 billion, their market size of the services they offer. And they expect that to go to $87 billion over the next few years. They're serving more than 200,000 clients. As you mentioned, Chris. The market that they are serving now inside the COVID pandemic and the world that we live in. They've done some surveys where 97% of the companies said that their digital strategy accelerated by six years, and one in three companies are now using live chat or integrated voice response systems than were before. So, you're seeing companies really try to adapt to a virtual world, try to adapt to serving in an omnipresent, very much like what we're seeing at Bed Bath & Beyond, as the world shifts.

This is really playing into the space of Twilio, their services, their messaging services; their, now, email service, after the SendGrid acquisition; voice, video chat partnerships with WhatsApp and Facebook Messenger. So, we've seen a lot of growth in those areas where people are spending a lot more time in their communication; that's really benefiting Twilio, and it showed this week when they updated their guidance.

Hill: Ron talked about the market not being cheap overall. You look at shares of Twilio, they've nearly tripled [laughs] in the past 12 months. What kind of expectations should you have if you're just thinking about buying shares now?

Cross: Yeah, a lot. Now they're priced at more than 26X sales, stock is at all-time high, they are certainly executing -- like, that SendGrid acquisition that they made, which actually boosted up their balance sheet, that's one thing that we've been a little bit hesitant on Tom's team over the Discovery landscape, just as the balance sheet gets bigger and bigger with some of their acquisitions. Now, of their total assets, half of it is in goodwill, intangibles, and that's a little bit of a warning sign to watch, but they really are executing. The stock has really had a very nice run. There's certainly a lot of growth baked into the Twilio story, but Jeff Lawson and his team, so far are executing, I think, above expectations.

Gross: Read this morning that Microsoft was entering, at least partially, into the Twilio space. So, be careful, when the big boys come a knockin', you know it's going to be a battle there. Microsoft's got a behemoth balance sheet, can go in many different areas; obviously, a very well-run company. It will be interesting to see if the more nimble Twilio can stave off the bigger behemoth of Microsoft ...

Cross: Yeah, you don't want to bet against those who are really focused in that one space.

Hill: Pepsi [PepsiCo] up a bit this week. Third quarter sales grew 5%. Ron, Pepsi is obviously hurt by the fact that restaurants and entertainment venues are close to such a large degree, but the snacks are helping to keep the business afloat.

Gross: Exactly. This was a, sort of, fine quarter. You know, I'm not jumping up-and-down, but really nothing wrong with it. There was a rebound in soda sales, which was nice to see. But as you mentioned, an increased demand for snacks keeps the business really, really growing. Overall, net revenue up 5%, but Frito Lay North America up 7%. Interestingly, higher demand for breakfast foods led to a 6% rise at the Quaker foods business, so that also helped business a bit. The beverage business is still up 6%, which is stronger than we've seen recently. There was strength in Starbucks-branded iced coffee, lower calorie versions of Gatorade and Mountain Dew; which sounds awful to me, but you do you. [laughs] The restaurant business, as you said, is still weak. So, the strength in those other businesses helps offset some of the declining restaurant business, which led to an increase in earnings per share of 10%, which is absolutely nothing to sneeze about in this type of environment.

They did go back to full-year guidance, which were actually above expectations; so, investors like to see that. The stock is trading at about 25X right now, in line with Coke, [Coca-Cola] so no disparity really there, despite the fact that Pepsi has the snack business. And if that's not enough for you, they recently introduced their Cheetos Mac 'n Cheese; which doesn't sound good to me, but again, you do you, if that sounds good, you know, go for it.

Hill: That was my favorite quote. Hugh Johnston, the CFO, [laughs] talked about how, "We're trying to keep up with the demand for Cheetos Mac 'n Cheese." So, clearly, that's helping to move the needle.

This week, investors got more reminders that initial public offerings are not the only way companies can go public. Palantir, a data analytics business; and Asana, a software company, both went public on Wednesday through direct listings. Andy, they're not issuing new shares to go public, to raise capital. What is the thinking here, because, you know, we've sort of been trained to think, you go public, it's an opportunity to raise money?

Cross: Often you go public because you need the money. So, 2020, the IPO market has really had this resurgence. It went through a freeze during the Spring time, but now it's come roaring back, and there's now nearly $100 billion that's been raised. And by the end of the year, it will eclipse what we did in 1999 and 2000. So, traditionally you hire an investment bank, you're a business, you go through the roadshow, they call it, and you talk to institutional investors and you try to drum-up interest in your business to be able to issue shares on the public markets and go public. Well, now with the likes of Spotify and Slack, who really started it, and now Palantir and Asana software, they're doing direct listings, where you don't issue shares and you just go from a private company to a public company. You still work with an investment bank called a capital advisor, but it's less about issuing new shares and just really providing liquidity for your insiders and your institutions who own shares -- a lot of VC people, investors -- to basically have liquidity for their stock and be on the public markets. So, it's nontraditional, certainly, but we've seen it now four times to somewhat mixed results, Palantir stock is below where it went public, the first day of trading. And that's the risk with direct listings, Chris, is you don't have the support from the investment bank that charges those hefty fees to really bring a little bit of more order to a very chaotic process and drum-up that business for the stock, you don't have that in the direct listing; that's the risk. But if you can pull it off, it's far cheaper and it's more transparent and more equitable to their buyers and sellers.

Gross: I think one of the consequences of this, or maybe if I could predict how this shakes out down the road, is that you'll see investment banking fees compress. So, they'll still make a fine amount of money, they'll still offer the services that are relatively important to companies, but it won't be as egregious as it is now. So, it'll kind of be a win-win for the companies, the investment banks will still be able to make some money. For the most part, I think the direct listing is not going to be this big thing that overtakes the traditional IPO market, because it is mostly about raising capital, not about giving your existing shareholders liquidity; at least it shouldn't be. I'm not typically interested in buying a company whose shareholders are trying to get out. So, I think that's how it shakes.

Cross: Yeah. And just some context there. Typically, investment banks will charge somewhere between 3% and 7%, maybe 8%, but with a direct listing, it's basically a flat fee; that's the deal size, by the way. It's a flat fee, and Slack paid $20 million or so, and Spotify $35 million or so for their services to their capital advisor, so it's much cheaper.

Hill: Shares of McCormick (MKC 1.68%) flat this week despite third quarter profits and revenue coming in higher than expected. The spice maker also announced a 2-for-1 stock split. Ron, I know this is not a Software-as-a-Service business, so I guess I understand the market collectively shrugging its shoulders, but McCormick seems to be delivering.

Gross: Yeah, it's a solid quarter. The 2-for-1 stock split makes no sense, whatever. [laughs] It's a nonissue, fine, let them do that, it's not that important to the investment thesis; not important at all, in fact. But a solid quarter, sales up 8%. Consumer segment is the one getting it done, up 15%, reflecting continued consumer preferences for cooking at home. Their Flavor Solutions segment, which is their restaurants segment, obviously, lower demand from restaurants and food service customers. But the segment did improve sequentially as things open up, so that was nice to see. Adjusted operating earnings per share up about 5%. A nice quarter. They resumed guidance, looking at 4% to 5% revenue growth, which is the upper-end of their previous range. The stock is not that cheap, I love it, I know Jason Moser loves it, 34X; let's be careful, they got to put up the growth to support that stock.

Hill: The ways in which any country goes about growing its economy is complicated, and there are a lot of variables that factor into making it happen. But if you ask Matthew Yglesias, he will tell you that one thing America needs to do to grow its economy is think bigger, much bigger. Yglesias is a journalist, one of the founders of the media site Vox, and author of the new best-seller One Billion Americans: The Case for Thinking Bigger.

Earlier this week, Motley Fool contributor Asit Sharma caught up with Matthew Yglesias; here's part of that conversation.

[...]

Asit Sharma: Let's start with the premise which you lay out in the introduction: America is too small. Could you explain this concept to listeners, especially in the context of, you know, how you laid out in this almost adversarial relationship with two growing economic superpowers, China and India.

Matthew Yglesias: Yeah, you know, I don't even want to be too adversarial about it, but let's just say, for as long as I've been alive, for as long as you've been alive, for as long as anyone has been alive, America has been kind of the No. 1 country in the world. We've had the largest economy and therefore we've been a leader on the world stage. And that is threatened now. It's great in so many ways that China's economy has grown over the past generation. It's had historic reductions in poverty. India has grown, not quite as much, but also quite a lot, and you know, really great things happening there. But it means that in purchasing power parity terms, China is now No. 1 and we're No. 2. In exchange rate terms, we're still ahead, but there's a lot of questions about that.

And so, you see, the Chinese market, economically, it's really big now. It's the biggest movie market in the world. And so, there was a great report from PEN America about how Chinese censors now dictate to Hollywood what they can put in their movies, because they need access to that market there. And of course, you know, economic strength eventually becomes military strength, becomes diplomatic strength, becomes all kinds of other things like that. And so, the proposition of my book, the thought is, well, should we accept this or should we think about how to change it, right?

The only real way to change it is to grow our population, but that might be bad, right. You might think, OK, sure, with a billion Americans -- not tomorrow, but like ramping up to a billion over the course of the 21st century -- we could stay No. 1, but maybe terrible things would happen, right. And so, the whole point of the book is to go through it and show, like, no, terrible things wouldn't happen. We would still be a relatively sparsely populated country. We could actually solve a lot of problems about some of our declining heartland cities. We could be a more prosperous country. We could be a more dynamic country. We would have some challenges around traffic jams, other things like that, but I think there's good solutions to those problems, which I lay out. And it's trying to be an optimist, solutions-oriented book about how, if we kind of take this challenge seriously, we can meet it, we can rise to it and sort of get beyond this politics of people yelling at each other over culture war differences and work on what it takes to grow and expand and be the great country that I think Americans want us to be.

Sharma: Yeah, Matt, I really love how ambitious the book is and how you, sort of, strip away preconceptions that we have about this idea that we should be a much more populous country. You start with one preconception I had; you talk about population density. And you mention that, if we tripled the population in the lower 48 states, that would only take us to about 315-odd people per square mile; if I got the math right.

Yglesias: Yeah.

Sharma: That's about as dense as France and less than half as dense as Germany. Now, I've had the chance to travel in [laughs] Germany, it doesn't feel any different than the U.S. when you're there on the ground. Certainly, big cities are crowded, but, you know, Manhattan is crowded. The rural population in Germany feels very sparse, but so it does here, if I just go a couple of hours East to Eastern North Carolina, feels very sparse compared to where I am in Raleigh.

I really was interested in this idea of densities versus relatively underpopulated areas, you feel that we have a chance to expand back into rural areas and also have growth that's a little bit smarter within the big cities. Can you talk a little bit in more detail about these ideas?

Yglesias: Yeah. So, one thing that's striking is, actually most of our rural counties, at this point, are losing population. And almost all of them are losing their working age population. And that's because, you know, for thousands of years people have always left farms and the countryside to move to the big city. You know, that's just happened from time immemorial. But people used to have larger families, right. So, if one or two kids did that, there were still two or three sticking around in the farm. And now that's not the case, and that's kind of sad, right. I mean, small towns are great, lots of people love them, lots of people like to live there. But when people want to live in a small town, they want to live in a thriving small town. They want a church that has members in it. They want a library that can stay open, because people are paying taxes. They want a store, maybe a diner or someplace, a school. But we have so much right now -- I think I spend a fair amount of time in rural Maine and they are shutting schools down and combining them with the school in the next town over, because they're running out of kids. And that's not what people want out of their rural communities.

Then we have big cities. St. Louis has lost 60% of its population. Detroit about half. Cities like Philadelphia and Baltimore; you know, less than that, but still hundreds of thousands of people. And then there's an incredibly long list of smaller cities, where they're talking about Grand Rapids, Akron, Toledo, Utica, Binghamton, Bridgeport, they're down 10,000 here, 10,000 there. And it creates a really difficult situation for those kinds of places. You can't maintain your infrastructure when your population is shrinking. If you are paying pensions to cops and firefighters from an older city that used to exist with a smaller population base, you can't provide current services or you need to raise taxes more, but that just encourages more people to go to Nashville, to Austin, to places that are growing. And there's nothing wrong with Nashville and Austin, like, I really like those places too. But how did we get into a place in America where we have this, kind of, zero-sum mentality? Where if sunbelt cities grow, rustbelt cities have to shrink. Where if coastal cities are going to thrive, rural areas have to wither and die. And I don't think that's what anyone really wants out of the country, just like nobody wants us to become, like, No. 2 to the Chinese.

And what I wanted to, in the book, is, like, get people to take this seriously. Like, I think we want to grow in the country, I think we want to be No. 1, but our elected officials are not taking the challenge. I mean, it's basic math, it's a numbers game, right. If one city was depressed, if Detroit was the only city that we lost, people would say, well, they must be doing something wrong there, right, they got to fix it. But if it's dozens of cities all across the Midwest and the Northeast, it's no one city's fault, it's not their problem. Cleveland, you know, I'm sure they made their mistakes, but every similarly situated city is in the same situation. And we need more people to lift all these boats.

Sharma: Yeah. And I think that your answer is not surprising. We have some things we can do with making the economics better for people to start families and to raise children; and you talk about that in the book, but your big answer really is immigration. And so, I do want to talk about this in the big picture what that means to dramatically increase immigration into the U.S., but while we're on this topic of cities out in the heartland, out in a formerly industrial areas that are losing population, you've got some interesting proposals that might be able to open up or rejuvenate these cities. I'll name a couple, the national renewal visa, new universities, decentralizing the Federal government, which of these do you think is, of your ideas, is maybe the biggest or most effective arrow in the quiver? You have a concept called the "comeback city," [laughs] so to bring the population back to these cities.

Yglesias: I think this idea of new visas, which I got from the U.S. Conference of Mayors, they endorse this proposal. So, it should be more widely discussed. I mean, everybody should buy my book to be clear, but [laughs] this idea is out there, people just started talking about it, and it just said, look, you know, some people don't like immigrants, I don't know, I disagree with them, but it is what it is. But if a city someplace says, OK, we have lost population, we would like more immigrants to come here. Let's create a mechanism for them to sponsor extra visas for young-ish educated people to come in and go.

Because you look at things like the H1B lottery, it's so oversubscribed. So, many more people who qualify for those visas, want them, they can actually get them. So, that's for, sort of, skilled technology workers. You get one of those, you work for a few years for a specific company that sponsored you. That's great and it's a good program.

But let's create a new program for similarly qualified people and say, OK, there's a city that sponsors you, and you go live there. And so, then we could have things, like, right now a lot of IT work gets outsourced to Infosys and they go and they do it in Bangalore, right. But maybe they could open an office in Binghamton and bring people there, because they'd like to bring people over to the U.S., their workers are more productive that way. Then they come in, and it's customers for local businesses, it's a shot in the arm to the local tax base. Some people will just leave when their visa expires, but some people will stick around, because, you know, you put down roots in a community and there it is.

And you see with refugee resettlement all the time. A bunch of Somali refugees were settled in a town called Lewiston, Maine, which is, it's a long way from Somalia, [laughs] it's very different. And, you know, they're free to move at this point, but a lot of them stayed, because there's cultural institutions there. And it's really revitalized the city. Which you compare it to other, sort of, papermill towns in Maine, and it's doing so much better, because it's gotten these extra people. It has something a little unique, it has a different mix of service businesses. There's a lot of opportunities there. So, we could do that for so many places in this country.

And it's just, we're basically leaving an opportunity on the table. Like, we know people are clamoring to come in here and we have a politics that's dominated by, sort of, paranoid about it rather than asking how can we turn this to our advantage?

Sharma: What about the environment, Matt. All these solutions sound so great. How can we do this and not have a negative impact on the environment?

Yglesias: I think you have to think about this in a few different ways. One is that, in a world of changing climate, it's going to impact every country, it's going to impact everybody. But the places where it has the biggest impact is actually in the developing world. You know, Bangladesh, Nicaragua, Nigeria, face much more serious problems with this than the United States does, right. And so, to the extent that people are able to come to, I don't know, Minneapolis, we're actually adapting to the climate change problem in a useful way. And so being resistant to migration makes the problem worse, not better.

Now, also it's true, more people is more stuff, more consumption, and there is an ecological burden there. That being said, the trajectory that we're on, is like, it's simply not sustainable, right. Either we can develop, for some things we have technologies that work, electrification, and like we just need to do it. For other things, we don't. There is no zero-carbon way to make steel and concrete right now. That's a big problem, because we're not going to have a world with no buildings. We can find a solution to that, in which case we're golden no matter how many people there are; or we cannot find a solution to it, in which case we're in a bunch of trouble. And the people are going to be somewhere. Most of the world's emissions are outside the United States. The best way we can contribute to solving a global problem is to really focus on developing and deploying those new technologies that can save us.

[...]

Hill: Guys, some quick restaurant news. It was a little over a year ago that Popeyes chicken sandwich caused a sensation helping to drive revenue higher for Popeyes parent company, Restaurant Brands International. And the next innovation is already in the works. The website Foodbeast reports that Popeyes has been testing chocolate-filled beignets at locations in Massachusetts as the company gears up for a nationwide launch.

Andy, the chicken sandwich wasn't enough to get me to go to Popeyes, I think this is going to do it.

Cross: Why Massachusetts, Chris? I mean, beignets, Popeyes, Louisiana; not quite sure I get the Massachusetts store angle to it. But beignets and chocolate, I mean, anyone who has been down to New Orleans and gotten the beignets down there at Cafe du Monde, I mean, those are just fantastic. So, I like that combination. Could it be better than the chicken sandwich? Don't know, but it is awfully tempting.

Hill: Yeah, I think the testing in Massachusetts was they assumed they had Louisiana locked up and maybe go elsewhere ...

Cross: [laughs] Probably true.

Gross: I will say, if a picture does speak, the picture is pretty appetizing.

Hill: Meanwhile, in Ireland, the Supreme Court ruled this week that sandwiches made by subway contain too much sugar to legally be considered bread. And that's funny, but humor aside, the ruling has actual financial consequences, since it means franchisees will have to pay a value added tax of 9%. Andy, that's real money.

Cross: I mean, it is a tax story, right? I mean, this is Ireland just going out there saying, hey, this is a great way to get a little bit of tax money, like, [laughs] let's go after Subway's brand, because it's not actually bread. So, I read this as a way to take a little bit of a high horse and get some tax revenue at the same time.

Gross: Is the recipe different overseas than it is here? It seems like bread to me.

Hill: It's bread-ish, but you know, you can get some really good bread in Ireland. Our man behind the glass, Dan Boyd, was over there a couple of years ago, he can speak to the quality of the bread in Ireland. Maybe that'll come up when we get to the stocks on our radar. So, let's do that now.

Ron Gross, you're up first. Dan is going to hit you with a question. What are you looking at this week?

Gross: I've got Union Pacific (UNP 0.99%), UNP. They operate Union Pacific Railroad, one of the two largest railway networks in the U.S. They operate 23 U.S. states across the Western two-thirds of the U.S. They've got a strong durable competitive advantage, as railroads typically do, giving it stability and pricing power. Increased efficiency has given them strong net margins. Management has done a really fine job navigating the coronavirus pandemic, which unfortunately, across the board has significantly impacted results, but demand has increased recently due to growing e-commerce volumes. They've paid dividends for 121 consecutive years and the yield stands at 2%.

Hill: Dan, question about Union Pacific?

Dan Boyd: Absolutely. So, Ron, is that ragtime I hear in the background there, is Charles Lindbergh some sort of celebrity at the moment? I'm pretty sure this is the 2020s and not the 1920s and you're talking about railroads?

Gross: I didn't hear a question in there, but listen, you got to move stuff from place-to-place, there is intermodal, which is, you know, you use two different types, at least, of ways to transport things across the country, and this is one of them.

Hill: I want to make sure I heard that correctly, Ron. They've been paying a dividend for 120 years?

Gross: 121 consecutive years, pretty cool.

Hill: Andy Cross, what are you looking at this week?

Cross: I'm looking at Rocket Companies (RKT 1.30%), symbol RKT, the home to Quicken Loans and Rocket Mortgage. Rocket is the largest mortgage originator in the U.S. Originate, bundles and sells home loans. Founded in 1985 by Dan Gilbert, out of Detroit. Went public in August at about $18/share, today it's around $22. It hit a high of $31, came pulled back. Serves 9%, Dan, of the U.S. home mortgage market. So, those who are looking to refi or looking to get a home mortgage, Rocket Mortgage may be a good place to check out.

The goal is to get 25% of the $2 trillion U.S. market eventually, very high retention rates, 75% of their clients who used them before, use them again. High net promoter scores. Really started and continue to innovate in the end-to-end digital mortgage business, and it's a business that I continue to watch and I think it has some real nice prospects to it. It came out from the IPO price in a way that I think led investors to say, hey, this is a really interesting business, but it's cyclical, Dan. Finance companies, mortgage, housing, very cyclical. So, we got to watch to see. Business is doing very well right now. Growth is actually high. But can they sustain it for the long term, that's the question I want to know.

Hill: Dan, question about Rocket Companies?

Boyd: Certainly. Rocket has always been lauded as, like, the company for the younger generations to get mortgages, because they're all online and everything. Is that actually true, are they servicing mostly younger people's mortgages?

Cross: Yeah, well, it is definitely true, younger people are a big part of that market. And the nice thing about Rocket is they're so efficient on loans per month per team member, they're triple the national average, and that's been even better in 2020. So, they're very effective in servicing and originating those mortgages. And I think as more and more people, especially young people, look to get mortgages, I think that's a market that's really ripe for Rocket Companies, certainly.

Hill: What do you want to add to your watchlist, Dan?

Boyd: Well, choo-choo, Chris. Because 121 years of dividend payouts is extremely compelling. I'm going with Union Pacific.

Hill: All right. Andy Cross, Ron Gross, guys, thanks for being here.

Cross: Thanks, fellas.

Gross: Thanks, Chris.

Hill: And that's going to do it for this week's edition of Motley Fool Money. Our Engineer is Dan Boyd, our Producer is Mac Greer. I'm Chris Hill, thanks for listening, we'll see you next week.