In this week's episode of Market Foolery, host Chris Hill and Fool.com contributor Jason Moser take a look at some market news and discuss why the CEOs of The Trade Desk (TTD 0.43%), Cloudflare (NET -2.65%), and Dick's Sporting Goods (DKS -1.01%) should receive strong consideration for any "CEO of the Year" awards.
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This video was recorded on Dec. 15, 2021.
Chris Hill: It's Wednesday, December 15th. Welcome to Market Foolery. I'm Chris Hill. With me once again, Jason Moser. Thanks for being here.
Jason Moser: Well, it's always a pleasure. Thanks for having me.
Chris Hill: We've got a preview of our year-end review special on Motley Fool Money, which is coming later this week. But the word of the day is retail. Let's just start with the monthly retail sales report that we got for the month of November. Sales are up just 0.3 percent which is half a point lower than analysts were expecting. There are couple of different ways we can go here. Let me start with this though, that a lot of people in the financial media seem very eager to tie this to the rise in inflation. I'm not discounting that completely. But I do wonder if part of this modest gain that we saw in November is the fact that we had a big gain in October. That a lot of people, as we've been saying since late August, early September, sort of telling people, get your shopping done early. Is it possible that's at least part of what we're seeing?
Jason Moser: I would think so. I absolutely think that's part of it. You could see even in the retailers themselves from Amazon to Target, Walmart. The biggest retailers around the country decided to go ahead and get their holiday shopping seasons started earlier than the normal it seemed. So I'm sure that pull forward a lot of demand. I think to your point on inflation, the retail sales figures are not adjusted for inflation. So certainly that could contribute to some of that growth. But really, no, not firmly all of it and so I do think it was a pull forward that that played into this. When you look at it from a year-over-year basis, you can see that these retail sales rose 18.2 percent in November from the year earlier. While it may be seemed fairly modest here on a month-over-month basis, like when you compare it to a year-ago, clearly, it's a much more noticeable difference there. So I think the pull-forward would have something to do with that.
Chris Hill: One other reason I'm not overly concerned about this is you think back to the latest earnings reports we got, particularly from Walmart and Target, both CEOs being bullish about how prepared they were for the holidays. I get that this is a detailed report that came out this morning, but we haven't heard anything from Brian Cornell or Doug McMillon. We haven't heard any of the major retailers come out and say, ''Yeah, we're going to have to pull back our guidance a little bit.'' Maybe that happens later in the week, but right now, I don't know. I'm having a hard time getting overly worked up about this.
Jason Moser: Yeah, I am with you. I certainly don't want to jinx it. It's absolutely possible that something could materialize later on the week or next week. I don't think that will be the case. I think we are looking at a consumer that is in a really good spot right now. When you look at over the past year-and-a-half or so, we saw a lot of bank accounts get padded with a lot of cash. Folks were able to pay down some of their credit card debt. If you've look at consumer credit card balances here, they recently reported still $123 billion lower than at the end of 2019. So I think we're looking at a situation here where we have a consumer that is in a very good position to spend. Even if they pulled that spending forward a little bit for this holiday season, that spending goes on. The holidays in the spending doesn't stop. Obviously, it slows down a little bit. But I think generally speaking, we're in a position where the consumer is in a pretty good spot right now. They're going to have a number of different avenues to get that spending done on whatever it may be. So yeah, I like you. I don't read too much into this. It feels like we're still on a pretty good place.
Chris Hill: Unless we hear otherwise, we'll get more color from the retailers in January. Let's move onto one retailer in specifics, and that's Lowe's. Dave Denton is the CFO at Lowe's and in a meeting with analysts, he said that Lowe's is preparing for, "A modest sector pullback in 2022." I guess some people freaked out about this before the market opened this morning seeing report. But by the time I saw this, the market had been open for a little bit. In fact, Lowe's stock was basically even at the point I was looking at, I think it's up a little bit now.
Jason Moser: The knee-jerk reaction [inaudible 00:05:07]
Chris Hill: Why is that? I know it's not like it's something you're responsible for. But I looked at this and I just thought, I have the benefit of hindsight of seeing that once the market has been open for about 90 minutes, everyone came to their senses and said, ''Okay, this is fine.'' But in a moment, in just sort of the initial reporting of it, I'm wondering why no one paused and thought, hold on a second. Dave Denton has been with Lowe's for three years. He was with CVS Health before that. This is an experienced executive. We talked a lot about Marvin Ellison, CEO at Lowe's. Denton is part of that executive team. I'm just wondering why no one took a moment and said, is it possible Dave Denton is just being cautious? He is not ringing an alarm bell, he's just doing his job, he is being appropriately cautious.
Jason Moser: Yeah. It feels like they do a very good job quarter in, quarter out setting realistic expectations. They don't go too crazy either way. Anytime investors see growth slowing or that expectations for growth will slow. They are talking about for 2022 is essentially comps somewhere in that flat range to maybe negative three. Anytime you see the prospect of flat to negative comps. I understand the knee-jerk reaction, but then it does feel like the market came to its sensors and I'm glad that's the case. But because to me, when you pan out a little bit and you look at the market opportunities Lowe's is pursuing and you look at the dynamics of this market, the drivers of this market. It's very interesting Mr. Ellison, on the call said. This is something we pointed out before when we talked about Home Depot is we've got two factors at play here to me that really bond very well for both Lowe's and Home Depot in the coming years.
Maybe that's the difference is just I'm talking about years and you'd figure the market is probably looking at the next year. But talking about the fact that obviously number 1 we have a lack of housing stock in this country. We have a shortage in regard to housing that has prices are going through the roof. But we also have an aging population of homes and aging stock of existing homes. Marvin Ellison quoted that number. I think he said something to the extent of over half of the existing homes in the country are over 40 years old. We've seen that data point called out and Home Depot's calls as well. There there is definitely something to that. But to me, those seem like pretty obvious tailwinds for a business like this. Now, time is everything. If you're looking at it from a shorter timeline and maybe 2022, isn't going to present a tremendous growth story for folks interested in something like Lowe's or even Home Depot.
I think you stretch that timeline out and if the drivers become very clear, the opportunity becomes very clear and you see what Lowe's is focused on with the actual business. It's really encouraging, they're digging more down into the pro side, which we've seen Home Depot succeed so much on that front. There is a blueprint out there for why that works on Lowe's is getting into it. They're digging more into that private-label branding portfolio of theirs, which will continue to be a boost to margins later on down the road. Then also, they're talking about building out this delivery model, this market delivery model, where ultimately big and bulky products are just going to flow directly from the supply chain to the customers homes without ever actually going through the store.
They are building a lot of infrastructure to be able to support this new delivery model and that's going to take a little time and it's going to cost a little money. It's going to reflect in the financials in the near-term. But I think strategically they're very sensible decisions that will ultimately, I think, settle those up for a lot of success to come. When you look at what the stock is done, we always talk about Home Depot because it's so much bigger. Lowe's has done so well here. Last five-years, stock is up 277 percent. If you look at just the time that Marvin Ellison started a little bit over three years ago, the stocks up better than 185 percent. So just, I think to me this is maybe a timeline, sort of a timing issue. Obviously, we take a little bit of a longer lens there. With that in mind, I am very encouraged with where Lowe's is and where they're headed.
Chris Hill: I know that a lot of times the pre-market activity, the after hours activity that we see when a company either makes a statement or comes out with an earnings report, that sort of thing, I know a lot of times that holds up. But I feel like slightly more and more, we're seeing this type of activity where the report comes out, the market hasn't opened yet and it's like the pre-market shares a lowest down five percent and once people take a minute to digest it, it's flat or it's in the positive range and it is one more reason why I'm so glad I'm not in the business of short-term trading. It's exhausting because it seems like a much better game to play is the long-term game.
Jason Moser: You're absolutely right. Of course I'm going to agree. There's another example out there today in the market, Cerence. A company that we cover pretty frequently. A company that I've recommended in a couple of my services here at work. That focuses on artificial intelligence and what not in the automobile and in mobility. Cerence headline this morning, CEO stepping down and they have a new CEO coming in immediately. Typically you will see when a company just out of the blue announces the CEO is stepping down and you'll see that overreaction, the stock sells off. Cerence's stock is selling off because of this. I think it's all one point today it was down 16 percent, but this crazy thing. I'm looking at this and I'm thinking, OK, I'm reading through this release. The CEO that's stepping in is a 20 year veteran of this company.
He's an original architect of the technology and has succeeded at this company for so long, even when it was part of Nuance. Remember it spun-off from Nuance all that time ago. To me I look at this headline, I think, you know what? This new CEO that's stepping in Stefan Ortmanns. I think that's bullish man. I'm actually really encouraged that this is going to be the new CEO in the market selling off the stock today. It is funny. Perspective is always going to be in the eye of the beholder. The shorter your timeline, it's going to be a much different perspective when you look at it from our view and think more in the context of years. It becomes a little bit more apparent for folks out there who see this Cerence sell-off today. That's why it is funny to see it because when I look at this new CEO coming in, Dr. Ortmanns, this seems to be like a really big win for the company given his exposure with the business to this point.
Chris Hill: You've seen the movie Goodfellas, right?
Jason Moser: Multiple times.
Chris Hill: I was thinking about it early in the movie where Ray Liotta's characters describing the neighborhood and the people in the neighborhood and that sort of thing. He talks about Polly who is the local boss. He is that great live resize. Polly might have moved slow, but it was only because Polly didn't have to move for anybody. I think as an investor, I'm trying to be a little bit more like Polly just move slow. You don't have to jump just because there's a headline out there.
Jason Moser: I love it.
Chris Hill: We're doing our year-in-review special on Motley Fool Money this week. Doing categories like dumbest investment of 2021. By that I mean companies making investments. Because companies spend money in a lot of different ways, acquisitions, dividends, buyback. That's one thing. For people who want to weigh in, drop an email at the [email protected] But one of the categories we're going to talk about, CEO of the year. Chief Executive Magazine just came out with Ken Frazier from Merck as their CEO of the year. I'm not asking you to give away who you're going to mention, but are there candidates on your shortlist because I'll give you two. One is Lauren Hobart and the job she's done at Dick's Sporting Goods, which is just incredible. She has been CEO for less than a year. I think February 1st is when she started. The way that stock has performed. I think she has to be on any one shortlist.
This isn't probably for CEO of the year, but it did occur to me the other day that Tim Cook has been the CEO of Apple for just over ten years now. Just like she had enormous shoes to fill when he moved to the corner office. At some point, maybe, I don't know, five-years from now. He's 61 years old, I believe. I think if you're an Apple's shareholder, you're not worried about Tim Cook. He seems to be healthy and all that good stuff and has given no inclination of stepping down anytime soon, but I think in the back of your mind, you need to be thinking of, I don't know who is going to be next, but that person is also going to have enormous shoes to fill. But who's someone on the shortlist for CEO of the year.
Jason Moser: Yes shortlist, I had put together that all star team and CEOs that I really like. It's hard for me to say whether I'd actually pick either one of these gentlemen as my CEO of the year to speak. But definitely, I mean, I look at a guy like Jeff Green and what he's done with The Trade Desk, I look at Mathew Prince and what he's done with Cloudflare. Two businesses I like a lot own shares in both of them. Really, really excited about their prospects. They just continue to do what they say they're going to do. They continue to just issue that short-term market demand for show me the money today. I mean, these are businesses that continue, quarter in and quarter out to talk about the reinvestments they make in the business and validating those reinvestments with stronger performances. It seems like every quarter. I can't say whether either one of them would make it to the top of the list, but they are definitely on my all star team.
Chris Hill: Jason Moser, great talking to you. Thanks for being here.
Jason Moser: Thank you.
Chris Hill: As always, people on the program may have interest in the stocks they talk about. The Motley Fool may have formal recommendations for or against. Don't buy yourselves stocks based solely on what you hear. That's going to do it for this edition of Market Foolery. The show's mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.