In this episode of Motley Fool Money, Chris Hill chats with Motley Fool analysts Emily Flippen and Jason Moser about the latest headlines and earnings reports from Wall Street. They discuss Disney's (DIS 0.86%) Disney+ subscription guidance. They've got two recent IPO updates. They also bring updates on retail, apparel, pet supplies, and coffee stocks. They share some stocks to put on your watch list and much more.
Also, Chris chats with Motley Fool personal finance expert Robert Brokamp on how to max your retirement account and some year-end financial tips.
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 December 11, 2020.
Chris Hill: We've got the latest headlines from Wall Street, we've got year-end financial tips with Robert Brokamp, and we've got a couple of stocks on our radar, but we begin with the Magic Kingdom. On Thursday, Disney made a number of announcements tied to the company's Disney+ streaming service, including new movies and shows tied to franchises like Star Wars and the Marvel Universe. Disney+ currently has 86 million subscribers. CEO Bob Chapek expects at least 230 million subscribers by the year 2024. And, Jason, investors like what they heard, because on Friday, shares of Disney rose 15% and hit a new all-time high.
Jason Moser: Yeah. Listen, my kids are dancing around the house here, as longtime shareholders of Disney, and I understand why. When you look at his business, when you add up all of the media-related operating income, it's very meaningful to this business; basically half of it, and so I think the concerns for a while, as we move into the streaming world, where this revenue might start disappearing, this income might start disappearing, and I think what we're finding is, it's not really disappearing, it's just being essentially redistributed. And so, they're taking more ownership of that entire media relationship and that transaction. That, long-term, is really what you want to see. And so, while it'll take some time for the economy to fully shake out, again, this is what you want to see.
I mean, you fired in on some really big numbers there. I mean, to think that essentially just a year ago they were calling for Disney+ to have somewhere between 60 million and 90 million subscribers by the end of fiscal 2024, to get to 230 million to 260 million is really phenomenal. There have been some tailwinds that didn't exist back then that exist now, of course, but I think that the bottom-line is, you have a company with a ton of IP, a lot of excitement in being able to really start focusing on becoming a very modern-day media company, and it'll take a little while to shake out, but I mean, this is a shot across the bow, I think, for Netflix (NFLX +1.04%). Netflix, I think, is the obvious competitor here; I think they're taking note of what's going on here. But, yeah, great for Disney, sounds like things are going well.
Hill: Emily, how worried should Netflix be?
Emily Flippen: If I were the CEO of Netflix, I would not be losing any sleep over Disney+. And granted, take my opinion with a grain of salt, I'm a 26-year-old millennial with no kids, but I have never, in my life so far, felt the need to sign up for a Disney+ subscription. I think it's great for families. If you're extremely interested in science fiction and the universes that Disney has created, that's wonderful, but I think having estimates for 230 million to 260 million subscribers by fiscal 2024 is probably the most aggressive assumption I've seen Disney management make. For comparison, and while I realize Disney's international operation, that's nearly 80% of the U.S. population. So, there's big assumptions being made into not just domestic, but international penetration, over just a number of years.
I think this is a great service, but I do not think this is a service that is as in-disposable to every single household the way that Netflix is.
Hill: Yeah, Jason, Bob Chapek has been in the corner office not very long, I got to say, as a Disney shareholder, pleased to see the stock doing what it's doing, I was surprised he put that big a target out there for 2024.
Moser: It is. I mean, to be fair, that is a very big target, and they're going to need to evolve this service to become a bit more of a universal offering for sure. For context, Netflix is going to close out the year somewhere around 200 million global subs. And I think that part of the aggressive assumptions here for Disney is that they continue to roll out in new markets. They just launched in Latin America, incidentally, collaborating with MercadoLibre, so I know a lot of Fools out there that would love to hear that. They'll be launching in more markets, including Eastern Europe, South Korea, Hong Kong in 2021. I mean, I think there are a lot of markets that are really clamoring for this content.
The question really for Disney is, will they be able to evolve into that more universal service? Remember, they have Hulu, they have Disney+, they own FX. I mean, they're figuring out ways to integrate that stuff into their overall media landscape. And then the question for Netflix is, again for me, it's not about Netflix being displaced. I think Netflix is just a core entertainment offering for every household, it's just going to be a matter of how much they're going to be able to raise prices from here. Because remember, Disney+ on its own is still significantly less expensive than Netflix, granted they are still two fairly different services at this point.
Hill: It was a big week for IPOs. We're going to start with DoorDash (DASH 1.17%), shares of the food delivery company rose 85% on its opening day. Emily, DoorDash has the biggest market share in this industry, are you as optimistic as Wall Street seems to be?
Flippen: There's a lot of things I like about DoorDash's business. And it's worth noting here is that, as much as DoorDash's stock price has risen, there's also been a lot of controversy, a lot of haters out there [laughs] for lack of a better word, for people who look at the food delivery market and almost compare to ridesharing, in the sense that there's no way these business can operate profitably. And yes, they're right in the sense that DoorDash is not consistently profitable, but there were silver linings to this offering. I'm not sure if it justifies the price we're seeing today, but some of the silver linings are, Chris, you mentioned, they have the single largest market share for food delivery in the U.S. at more than 50%. And they have a big addressable market.
One of the things that really surprised me from their S-1 filing was that out of the $600 billion that were spent in restaurants by Americans in 2019, so pre-pandemic, more than 50% of that was consumed off-premise. So, a really large market opportunity for DoorDash to serve, but what is, in my opinion, the deal-breaker with DoorDash isn't the really high valuation that we're seeing on the market today, the crazy euphoria from IPOs, but it's actually their weaknesses in internal controls. They noted weaknesses related to, both, a lack of skilled staff, which is concerning for the size of DoorDash today, but also, a lack of adequate processes for revenue to cash reconciliation processes. These are huge red flags.
I think the best way I can relate that for individual investors who maybe don't know what internal controls mean, it's kind of like going out on a date with somebody for the first time, sitting down at dinner and they're telling you about their life, they're telling you about their family, their job, everything seems kind of interesting to you and you're thinking to yourself, hey, maybe I'll give them a call after this. And then at the end of the date when they turn to you to say goodbye, they say, well, I think everything I told you tonight is true. What are you supposed to make of that [laughs] as an investor? My short story is, I'm not looking at DoorDash as an investment until I see turnarounds in their internal controls.
Hill: One day after DoorDash, Airbnb had the biggest tech IPO of 2020. Shares more than doubled on its first day of trading. And, Jason, Airbnb's market cap is now bigger than Marriott, Hilton and Hyatt Hotels combined.
Moser: Yeah. And it's bigger than Booking.com; that says a lot, I think. It's very difficult to rationalize these IPO reactions of late. You know, it is what it is, as they say. But I do think with Airbnb, Airbnb is a good business with a relatively long track record of success, they've been around for a while. And the market tends to give these types of dominant companies a bit more wiggle room on that path to profitability, as long as there are signs that the business is growing and they're not making boneheaded investments. And I think we can make that case for Airbnb right now. I'm not justifying the reaction necessarily, but I do understand the interest in the business and the brand awareness with a business like this alone is phenomenal.
Approximately 91% of all traffic to Airbnb comes through direct or unpaid channels. In 2019, 69% of the company's revenue was generated by stays from repeat guests. So, that tells you, they don't have to really pay-up to get customers. And a lot of the customers that use the service, like it and come back. I mean, those are good metrics to have, and I suspect they'll continue to get better.
Emily was talking about big market opportunities, and we like to talk about that on the show a lot. Airbnb is another good example of one. They estimate their serviceable addressable market to be $1.5 trillion total between short-term stays and experiences. And I think it's worth noting too that for younger travelers just coming into the market, new generations of younger travelers, the Airbnb way of doing things is totally normal. I mean, for a lot of older folks, it's been a little bit of a change, right, a little bit of a different mindset, but for a lot of younger travelers that are just coming in, this is just the normal way of doing things and it's a really nice option for a lot of travelers out there. So, my point is, there's just a really long runway of opportunity, and as we know, investing is all about the future. So, I do feel like there's a big opportunity here with this company.
I understand the excitement, I can't really justify [laughs] the price today, but again, it seems like a bright future for good business.
Hill: Meanwhile, shares of Costco (COST 0.40%) were flat despite same-store sales in the first quarter rising 15%. And Emily, another quarter for Costco where digital sales were up big too.
Flippen: Yes, digital sales did lead the net sale increase of 17% last quarter. Digital sales, e-commerce, were up 86% year-over-year, so Costco is clearly making good on their promise to attract consumers, not just with their in-store big-box offering, but also encouraging people during these times to shop online. I think shares dipped in part due to the slowing growth, it's natural that as this pandemic, I want to say, comes to a close, that might be [laughs] an overstatement right now, but I'll say as people are venturing out more, they're less likely to stock up on things the way they were in prior months. Growth in Costco stores has started to slow down, still keeping up in the double-digits, but slowing nonetheless.
But there's also something to note here in terms of the premium that they're paying, that is hitting their bottom-line in terms of COVID wages; that's what they're calling it. Essentially, they're increasing the amount that their store associates are getting paid for working during this pandemic. It's great, it's important from a business and social perspective, but I do have to ask myself, how many of these wages are sticky post-COVID? I think it's going to be challenging for them to come back to their associates, many of whom they are paying more over the past year, to say, hey, now that there's a vaccine, now that sales have normalized, you're not getting paid as much as you were last year.
Hill: Shares falling a bit this week, but still up 50% for the year, Emily. And is it just me or is Lululemon (LULU 3.10%) cautiously optimistic about the holiday quarter?
Flippen: I would almost say the word "cautiously" is too much of an understatement here for Lululemon. Their revenue of $1.1 billion was up 22% year-over-year, and this is against the backdrop of a pretty soft retail environment, especially for clothing retailers. So, Lululemon has certainly made up in terms of market share during 2020, I would encourage investors to look at the [laughs] yearly price movement, not the weekly, for this company to really show the dominance that Lululemon has created over the course of this year.
To further emphasize that, same-store sales were up 19%, and again, this is when most people aren't [laughs] going into physical stores, they're shopping online. What I think is probably the most important aspect for Lululemon's business is their ability to reach consumers directly. These are consumers that are going directly to Lululemon's website to shop, especially as we head into the holiday season. Direct-to-consumer sales grew 94% reaching over 43% of revenue in the last quarter. This is important, because consumers are seeking out the Lululemon brand. This is going to make the company more relevant in the future, and as somebody who is a frequent wearer of Lululemon's [laughs] yoga pants and clothing, it's a trend that I can get behind.
Hill: Shares of Stitch Fix (SFIX +0.13%) up 65% this week, after first quarter revenue came in 10% higher than a year ago. Jason, they reported a profit too, but this seems like a big jump in the stock price [laughs] for not a very big jump in the topline.
Moser: Ah! The power of low expectations, Chris, [laughs] we talk about it often. You're forgiven, if you're wondering why there's such a strong reaction to, really, what were just kind of OK results. And I think they were decent enough results, but this bottom-line was a massive short squeeze. And around 37% of the float was short, according to Cap IQ data, at the beginning of the week here. So, when you have a company that beats those expectations and when you have a company that's guiding for 20% to 25% sales growth for the year, I understand at least the enthusiasm there, that's a significant acceleration for them from what they've been witnessing, so they better deliver.
The big question for me with Stitch Fix is, will they be able to sustain the modest tailwinds for their business that COVID has created this year? And I'm just not so sure. I mean, anecdotally, I've spoken with people who've used the service and then stopped. I'm just not sure about that longer-term relationship with a customer, and that really matters for a business like this, because you pay a lot to acquire them, you need to keep them. And in Stitch Fix's case, due to the nature of the business, once they go, once they leave, they more than likely don't come back. So, that's something really to keep an eye on, and we don't get enough information, I think, regarding churn and retention from them.
But let's not take anything away from them, it was an encouraging quarter, perhaps it can shift the narrative on the business a little, and congratulations on a good week.
Hill: Chewy's (CHWY +1.49%) third quarter loss was smaller than expected, but revenue continues to grow for the pet supply retailer. Shares of Chewy up 10% this week, Emily.
Flippen: Chewy might be one of my favorite investments right now; I'm a personal shareholder. And this past quarter really just further emphasizes my enthusiasm. Net sales increased 45%, but more importantly, Autoship which is a subscription star revenue as e-commerce retailers get, the Autoship program sales were 69% of net sales. So, a lot of those sales are going to those repeat customers. The customer retention rate at Chewy is truly spectacular for an e-commerce retailer.
But what really stood out for me, two aspects, first of all, not only has active customer increased by 40% over 2020, largely because of the tailwinds that the pandemic gave to the pet industry, but the engagement of these pandemic-acquired customers is still very much tracking inline with customers acquired previously for the company. This is really important, because Chewy closely tracks the customer acquisition costs to lifetime value, and making sure that the customers they acquire stick with the platform will be critical for their comparables next year, so I really like that aspect.
And I'll just quietly tack-on, Chewy is also aggressively expanding into pharmacy. Probably the most exciting aspect of their business right now is that Chewy expects their pharmacy business to generate over $350 million in net sales, which would be 5% of revenue this year. And further, they're expanding their relationship with local vets and encouraging trends in pet telemedicine, so there's a lot of things that I like about this business. But to sum up, this is a business that is truly firing on all cylinders.
Moser: "Teladog!"
Flippen: "Teladog."
Hill: [laughs] I like the branding. Shares of Starbucks (SBUX 0.62%) hitting a new high this week. At its investor day event, Starbucks' executives gave insights into how their business is rebounding and they said they expect earnings growth in 2022 to be at least 20%. Jason, they also talked about the investments that they're making, but that 20% growth, [laughs] that's another aggressive target.
Moser: Well, we've got a theme going on, I think, for the show. Aggressive growth targets and big market opportunities. Again, we talk about the company is focused on large and growing market opportunities, and coffee is another one. In your monitor size, the addressable market they're at $360 billion of revenue in 2019, they expect that to grow to be roughly $450 billion in revenue by 2023. So, again, a big opportunity all over the world. And for Starbucks, it was nice to see in their investor presentation, they're trying to focus away from all of the past news with the pandemic and the troubles and the challenges, and focus more on the recovery going forward, and getting back to that third place and the advantages they had built throughout the years with that third place concept. So, they're calling for fiscal 2021 to be a bit of a year of recovery, but that's going to set the table for 2022, because they'll be lapping some of those recovery impacts and that'll contribute to that earnings growth.
Hill: Make the most of 2020 while you still can. Here with some ideas is Robert Brokamp, he's a Certified Financial Planner and The Motley Fool's Resident Expert on Retirement. He joins me now.
Robert, good to see you my friend.
Robert Brokamp: So good to see you too, Chris.
Hill: So, I know that if it's not No. 1 on your list for things to do at the end of the year, high up on your list for people looking to make the most of their financial life, is to look at your retirement account and really max that out.
Brokamp: Absolutely. Yes, and you actually have until April 15th to contribute to your IRA for 2020, but for most employer-sponsored accounts, you know, 401(k)s, 403(b)s, so forth, you actually have until December 31st. Plus, many accounts don't allow you to just send in a check, the money has to come from your paycheck, which means you have to make the change usually on the 401(k) website a few days before the final payroll of the year.
So, just as an example, here at The Motley Fool, if you want to max-out your 401(k) in 2020, you have to make that change three weeks before the end of the year. So, if you want to do that, contact your HR department to find out what the drop-dead date is for you. And just so everyone knows, the maximum you can contribute this year, $19,500, with another $6,500, if you'll be 50 by December 31st. And those figures are staying the same for 2021.
Hill: In terms of employer benefits, obviously, it depends on the employer that you're working for, but there's the opportunity to max-out employer benefits. I guess one of the significant new opportunities this year is tied to the CARES Act, do I have that right?
Brokamp: Yeah, there are a couple of things related to the CARES Act, and one of them is the ability to make a coronavirus-related distribution, it actually can be from your 401(k) or your IRA, it's an amount of total $100,000 across all retirement accounts. Take that money out, even if you're not 59.5 yet, you don't have to worry about the 10% early distribution penalty and you have up to three years to put the money back.
The great thing about this is, unfortunately, many 401(k)s, 403(b)s are not so good, this is a way to get money out of a not so good plan and then put it in an IRA. The tricky part is this is only available to people who have suffered a financial or health hardship related to the coronavirus, and there's a list of criteria on the IRS website. But if you meet those criteria, and your plan allows it, it's a great way to get money out of a mediocre employer plan.
Hill: Well, and it's a great reminder that not all plans are created equally, you know, for a lot of folks, I would argue for the majority of folks, they just want to go about their lives and do their jobs, and the 401(k) plan that their employer has provided, well, people at my company they know what they're doing. But it's a great reminder, Robert, that it's always worth asking that question of your employer, of your HR team, like, hey, how good is our plan, because I know they're not all great?
Brokamp: Right. And here's the deal, everyone loves HR people, they're awesome, but they may not be financial experts, they may not be expert investors. So, the 401(k) plan may have been chosen for reasons like convenience or costs, but it may lack some important features that are pretty easy to implement, such as the ability to buy individual stocks, the ability to contribute to a Roth account or do an in-plan Roth conversion. And sometimes all you have to do is highlight these possibilities to the HR team, they'll consider it and then make that change to the plan.
Hill: In a vacuum, what's the best version of an IRA in your opinion?
Brokamp: Well, these days, the Roth is about as compelling as ever, because we are at historically low tax rates, plus many people have lower income this year. A recent survey from Bankrate found that about half of households took some sort of income hit. When you contribute to the Roth, you don't get a tax break today, but you get a tax break in retirement. So, if you expect to be in a higher tax bracket in the future, either because you're making more money or because you expect tax rates to be higher in the future, which to me seems likely given the fact that we have so many underfunded benefits, social security is underfunded, Medicare is underfunded, we have huge deficits -- we went into the pandemic with huge deficits, but now they're even bigger -- at some point, tax rates have to go up. So, if you're in a middle to low tax bracket, a Roth makes a lot of sense.
Another hand, if you're in a high tax bracket, the traditional still might make sense, but only if you invest the money that you save in taxes. So, if you contribute, let's say, $10,000 to a traditional 401(k) and you save $2,000 in taxes, invest that $2,000. If you instead spend that $2,000 you would have been better off in the Roth.
Hill: December, from a financial perspective, is that time of year where it seems like every year, I'm seeing either articles or people on financial television talking about, now is the time to look at your portfolio and think about rebalancing. And for some people it's like clockwork, they make it part of their routine, OK, I'm going to look, I'm going to sell some of my winners, I'm also going to sell some of my losers to get the tax benefit, to sort of cancel out the taxes that I would pay on the winners. Are you a fan of this strategy doing this, like, clockwork every single year?
Brokamp: Generally, not every year. Generally speaking, rebalancing is a risk management strategy, it generally isn't a return enhancing strategy. So, for people who are near or in retirement or maybe you have money for college and your kids are in high school, I think rebalancing makes sense. Folks who are more than a decade away from retirement, it's probably less important. And really to me, the key to rebalancing is make sure that you have enough cash, the foundation of investing for Motley Fools and everyone everywhere, is that you have any money you need in the next three to five years out of the stock market.
Well, maybe the last time you thought about how much cash you need was a year ago, surprisingly it's been an amazing year for the stock market. As of this taping, the S&P 500 is up 14%, but Nasdaq is up 40%. So, if you are in a position where you're going to need some money in the next three to five years, I think it makes sense to look at that. Whether you do it now or wait a month it sort of depends on your tax situation, if you're going to be in a lower tax bracket this year maybe you should rebalance now. Historically though, December is a good month, so it might be OK to wait until next year. But those to me, that's the foundation of rebalancing, do you have enough short-term money protected.
Hill: Last time you were on the show you had some financial advice that surprised me, which was, maintain your health. And what you said that surprised me was that [laughs] the No. 1 reason people retire sooner than they had planned is due to poor health. This is also the time of the year where I don't know about your house, but there are a lot more cookies around my house. Do you have a tip for maintaining weight gain over the holidays, because I feel like you're really good at this?
Brokamp: Well, thank you, very kind of you. So, I will say, I'm going to give a recommendation for a book that's always good for this time of year when it comes to resolutions, this is about [...] Atomic Habits by James Clear. And one thing he pointed out is that habits are enhanced by the environment. So, just like your house, our house, the kids the other day made brownies and cookies and then they left them right there on the island in the middle of the kitchen. Any time I walk by the kitchen, I'm just going to grab them because they're there. So, you either put them in a tin and put them away or what I did is I moved them to the dining room where I don't pass through as often. You know, if you have eggnog, I love eggnog, but I keep it out in the garage fridge not in the main fridge, so I don't see it all the time. So, one thing is removing temptation.
And I would say the other thing is, get involved with a group that does exercise regularly. At 2:45 every day, there's a group of us at The Motley Fool that does push ups. I haven't been able to do it for a while because of the back issue, but every day when you know that there are a group of people who are going to be doing pushups together, you might be more likely to do that. Every Tuesday and Thursday, a group of us Fools meet at nine o'clock and we're led by a workout by Sam, our in-house Financial Wellness Director. So, any sort of group thing kind of adds an extra layer of accountability to your exercise.
Hill: Last thing and then I'll let you go. I know you are a huge fan of holiday music, and what's great about holiday music is there's more and more of it every year. What have you heard that's new this year that caught your attention?
Brokamp: My biggest one is Dolly Parton's new album. I mean, we all love Dolly Parton, there is a great podcast series about her, you know, [laughs] she contributed money to developing the vaccine for the coronavirus. She's an American treasure. Her new playlist is wonderful, I highly recommend that.
Hill: You can listen to Robert Brokamp every week on The Motley Fool Answers podcast. You can find it wherever you find podcasts, he's a Certified Financial Planner, he runs our Rule Your Retirement service, he's basically a superhero in disguise. [laughs] Robert, Happy Holidays my friend!
Brokamp: [laughs] And to you as well and to all Fools everywhere.
Hill: Coming up, Jason Moser and Emily Flippen return with a couple of stocks for your watchlist. Stay right here, you're listening to Motley Fool Money.
Welcome back to Motley Fool Money. Chris Hill here once again with Emily Flippen and Jason Moser.
Our email address is [email protected], drop us a note, would you, we're lonely? [email protected].
We got one from Josh Powell. He writes, "I'm currently deployed in the Air Force. The military offers a savings deposit program while deployed, which guarantees a 10% annual interest rate compounded quarterly. I'm able to contribute any money made while deployed and keep it in the account for about 270 days. Do you think I'd be better off investing my money in the stock market or taking the guaranteed return? I understand the risks in the market, but with the positive news of COVID vaccines, I don't want to miss out on a boom in the economy."
It's a great question. Thank you for that, Josh, and thank you for listening.
Jason, you know, the customary practice that we can't give individual advice, but you know, that's a -- I mean, typically when I hear about guaranteed returns for savings vehicles, sometimes it's in the neighborhood of 1% or lower, 10% annual [laughs] interest rate compounded quarterly, personally I'd be pretty attracted by that.
Moser: Yeah. Josh, thanks for the email and thank you for your service. So, we always use that old saw, any money that you know you're going to need within the next three to five years, you really shouldn't have it in the market. And that's for a lot of reasons, you don't want to be stuck being a desperate seller of anything. But to the point on the guaranteed return, that exceeds, I think, the market's historical average, or if it doesn't exceed it, it's darn close to it. And that's not risk-free, [laughs] especially today, I think valuations are a bit more out of control today and a little bit more questionable. So, I wouldn't worry about that fear of missing out, the market is going to be here when you get back. It sounds like this opportunity is something that there's a limitation to it, there's a time limitation to it.
So, I think, personally, I would probably opt to take advantage of it as much as I could, because 10% guaranteed sounds like a really attractive offer. And you can always keep investing and you can always keep investing more when you get back.
Hill: Emily, what do you think?
Flippen: Normally, when somebody would come to me and say, hey, I have an investment opportunity that guarantees me a 10% rate of return, I would tell them to run the other way because it is 100% a scam. But I did Google this before we got on today, [laughs] and this is real, this is the first I've heard about the saving deposit program. I know what I would do personally is definitely take advantage of the 10% return, put my emergency fund in there. There's no way, in my opinion, that I would be giving up that opportunity.
Hill: If 2020 has proven anything it's that you can never have too much comfortable clothing, and Chipotle is here to help. This week Chipotle -- yes, Chipotle -- [laughs] unveiled a new line of clothing, including sweatshirts, long-sleeve tees and pajamas. Emily, I got to say, I was looking at the clothing, obviously, I can't touch and feel it, but it looks like quality merchandise.
Flippen: It looks like quality merchandise, and it's stylish too. The hoodie they have is a nice sleek black, it has the subtle, yet bold, Chipotle logo. I have to admit, I was somewhat enthused, maybe I should ask for this for Christmas this year.
Hill: Jason, I don't know about you, I did notice and appreciate the fact that, you know, some of the waistbands are roomy, [laughs] which I think is a great amount of self-awareness on the part of Chipotle, because if you're going to be out there slinging, you know, extra sides of guacamole, you don't want to be selling super-tight clothing.
Moser: By design, I would imagine. Absolutely. Listen, I agree, this stuff is pretty classy-looking, way classier than that Taco Bell stuff. So, maybe this is for that more, under the radar fan, who just really is looking for a way to support their favorite brand without being too ostentatious. But, hey, listen, it probably didn't cost much to do it, and it creates a little awareness, and Chipotle has really, really done amazing things since the days of the food safety issues. So, another, probably, simple bet for them that likely pays off.
Hill: Well, it reminded me of the first time I went into a Shake Shack, I was standing in line, and before I could even order my food, they had t-shirts for sale, just like right there right when you walk in. I mean, all kidding aside, it seems like the sort of thing where, as long as Chipotle is doing this at a modest profit, then it's free advertising for them, right?
Moser: I think so. And again, anything you can do to build your brand in a positive way, and I think Chipotle has really turned a corner here and they've regained, I think, a lot of customers' trust that they perhaps lost several years ago.
Hill: Let's get to the stocks on our radar. We'll bring in our man behind the glass, Dan Boyd.
Emily Flippen, you're up first, what are you looking at this week?
Flippen: Yes, the company on my radar this week is Axon Enterprise (AAXN +0.99%), the ticker is AAXN. Axon, better known as their former name, TASER, provides taser and body camera equipment to the vast majority of U.S. police forces. I think they have penetration rates north of 90%. But the reason why I'm excited by the investment today is that, if you look at the strategy that management is taking, they're looking at expanding into new areas, like record management and dispatch. This update is really old and outdated, legacy equipment that most police forces are using. And given the world we're living in today, more accountability, more technology can only help in my opinion.
Hill: Dan, question about Axon Enterprise?
Dan Boyd: Absolutely, Chris. Jason, does Axon have any real competitors?
Flippen: There are some very small competitors, but actually, as I mentioned before, they have penetration rates north of 90%. So, in their core business -- that's taser, the body cam -- they are by far the dominant player. The issue is, when you get down to price, ultimately some police forces may be more price sensitive, in which case, there are cheaper, although admittedly, worse-quality alternatives on the market right now.
Hill: Jason Moser, what are you looking at this week?
Moser: Yeah, keeping an eye on Qualcomm (QCOM 0.08%), ticker is QCOM. You probably saw the headline this week that Apple is forging ahead with their plans to develop and build its own cellular modems for use in its own devices, like iPhones and iPads, and that cellular modem is necessary, it's a necessary piece of equipment. This is not something that really came as any surprise to any of us who follow these companies, but you see the reaction of Qualcomm, there's a little bit of a reaction selling off the stock. I think that's a bit shortsighted. And you may remember, not all that long ago, Qualcomm and Apple, they were involved in a pretty long and drawn-out dispute that seemed like it would never end. Thankfully, it has ended, and both companies agreed to drop all litigation, they forged a six-year licensing agreement, including a two-year option to extend a multiyear chipset supply agreement. So, this was a really ideal resolution, and it's a long-term resolution.
So, for me, Qualcomm is one of the most important businesses in this line of work, it holds over 140,000 patents and applications worldwide. I mean, it is the most valuable IP portfolio in this business; has over 300 licensees. And as we move into 5G and even beyond into 6G, more things becoming connected, Qualcomm will remain a very important participant in that value chain.
Hill: Dan, a question about Qualcomm?
Boyd: Yeah. When I heard that you're picking Qualcomm for the show, I thought to myself, what is this, 1995, I haven't heard that name in years?
Moser: I know. It's making a comeback here. You can thank 5G for that. And Qualcomm was stuck in this saturation cycle as we were waiting for this next generation of device to come out. Now that 5G is upon us, it is definitely taking advantage and utilizing all of that IP to get that business growing in the right direction again.
Hill: Dan, what do you want to add to your watchlist?
Boyd: Well, you know what, Chris, I love a good blast from the past, so I think I'm going to go with Qualcomm this time around, even though my gut tells me maybe it's not the best idea.
Moser: [laughs] Thanks, Dan.
Hill: [laughs] Emily Flippen, Jason Moser, thanks so much for being here.
Moser: Thank you.
Flippen: Thanks for having us.
Hill: That's going to do it for this week's edition of Motley Fool Money. The show is mixed by Dan Boyd, our Producer is Mac Greer. I'm Chris Hill, thanks for listening, we'll see you next week.
