In this podcast, Motley Fool senior analyst Jason Moser discusses:
- Coca-Cola's strength in the face of currency headwinds.
- PayPal's new partnership with Amazon.
- Weber's largest shareholder grilling up a buyout offer.
Just in time for Halloween, Fools Alison Southwick and Robert Brokamp break down stock market superstitions.
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.
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This video was recorded on Oct. 25, 2022.
Chris Hill: We've got a potential buyout, a new partner for PayPal, and a strong report from an iconic brand. Motley Fool Money starts now. I'm Chris Hill joining me today, Motley Fool Senior Analyst Jason Moser. Thanks for being here.
Jason Moser: Hey, thanks for having me.
Chris Hill: Let's start with big red, shall we? Coca-Cola's third-quarter profits and revenue came in higher than expected, they raised full-year guidance. I was reminded of Pepsi's latest quarter when we saw these results, I thought, yeah, kind of like Pepsi. I don't want to say they always move in tandem because they don't. Lately, Pepsi's had a better run as a business, but Coca-Cola has had a nice run of late and just like Pepsi demonstrated with their latest quarter, Jason, Coca-Cola has got some pricing power and they are executing with it.
Jason Moser: I'm glad you said that because that is one of the primary keys to their success. One thing you know is when you read through this company's earnings call, this is truly just a global behemoth with a large presence virtually everywhere around the world. Basically, 2/3 of revenue and operating profit comes from outside of North America. It's always nice to see that kind of a business because they can exploit strength and insure up areas of weakness there. But all things said, it was a really strong quarter for them so much so that they see such a positive outlook for the rest of the year, they raised guidance. If you look at just the growth for the quarter, organic revenue grew 16 percent, unit cases grew four percent.
They did see some pressure on gross margin, which was down 190 basis points from the year ago. A lot of that coming from currency headwinds driven by the greater macroeconomic picture and certainly some inflationary concerns as well. But they do have the ability ultimately to exercise a little pricing power in that business model. Ultimately you saw earnings per share 69 cents grew seven percent from a year ago. Again, getting back to the way they see the rest of the year shaking out. They raised guidance for the full year. They expect organic revenue growth of 14-15 percent and earnings-per-share growth of 15-16 percent. Ultimately, you look at what this business deals with in the face of challenges as far as inflation goes, they continue to see healthy demand.
That's showing up both in growth, in value, and volume, which I think really just speaks to how strong of a business this really is, even in the difficult times. You mentioned Pepsi and you have to be fair here. Looking back over the last five years, it is really impressive to see how Pepsi has outperformed. The five-year total return, Coca-cola 48.8 percent, but Pepsi 86.3 percent. Again, for a long time we've spoken about the strength of Coca-Cola's business model. That hasn't really changed. I feel like this is a bit of a testament to how much better Pepsi's quarter actually was than Coca-Cola's?
Chris Hill: That's true. It builds off of a series of quarters that have been stronger than Coke's. But you touched on something and I'm wondering if this is going to be something for us to watch as earnings season continues to unfold. This idea of, I just think of it as, I think we might see some separation between the grownups and the kids because we know we're going to hear about currency headwinds. We know we're going to hear about the strong dollar. It is the stronger, more mature businesses like Coca-Cola in this case that can actually deal with that and put themselves in a little bit better position. They've got a little bit more pricing power. They're able to absorb the hit on the gross margin a little bit better. I just think we're going to continue to see this.
Jason Moser: I think that's a very reasonable point of view. This is a challenging time for everyone, but as we say it, so often it's these stretches where oftentimes you see the leaders really emerge even stronger than before and being so well-diversified across so many different lines, across so many different geographies and having such a strong brand. It really does put Coca-Cola in a tremendous position to keep on succeeding for years to come. You need to understand why you would own this stock in the first place. You're not buying this stock so that it doubles over the course of the next year or two years. This is a more defensive play. No doubt about it. But I think that that's really the key to it. You understand why you would own the stock in the first place. If you feel like you need that stability, that income generating presence in your portfolio, it's not going to light the world on fire, but it's a tremendous brand with a lot of power around the entire world. It's always one to keep in mind.
Chris Hill: For anyone who is wondering what we mean when we talk about stocks being a defensive play, it means that in a year like 2022, when the overall market is down 20 percent, Coca-Cola's flat. That's what it means. It means year-to-date it's outperforming the overall market by 20 percentage points.
Jason Moser: I know you could sit there and take the shorter-term view and be like, that's just what that one little stretch of time. But the fact of the matter is it does help you sleep better at night and it ultimately helps you justify owning those other growthy style investments. It gives you the comfort, the confidence to continue holding those stocks that you need to allow a little bit more time to play out or are dealing with the challenges that so many of those companies are dealing with today.
Chris Hill: Shares of PayPal are up seven percent today after Amazon announced it's adding Venmo as a payment option at checkout. Venmo is owned by PayPal and we've seen this from other businesses like Shopify and Lululemon that have offered Venmo as a payment option. Amazon though, that is a nice win for PayPal.
Jason Moser: I think this is a bigger deal for PayPal than for Amazon, but it's definitely a win for both. Venmo has grown considerably through the years. It's closing in on 90 million active accounts now, going to do something in the neighborhood I think, of around $250 billion in total payment volume this year. It moves a lot of money across that network and this is right in line with the digital wallet and checkout focus that management has recentered around recently. We saw PayPal get a little bit too far outside of their circle of competence, so to speak.
They were trying to do too many things and weren't really doing many of them very well and so you pull back on that, stay in your lane a little bit, focus on the properties that are really succeeding for you. That is PayPal, that is Braintree, that is Venmo. I think this is something that ultimately could play out very well, particularly for the younger generation of shoppers. The shoppers that really have grown up using Venmo so often, you link that thing up to your Amazon account. A lot of people have subscriptions to certain things that they purchase from Amazon. It's definitely a big opportunity to boost that total payment volume going through the Venmo network, which ultimately would be a very good thing for PayPal.
Chris Hill: The stock of the day is Medpace Holdings shares up 36 percent after the latest earnings report. I mention this only because two weeks ago on this show, Jim Gillies talked about Medpace Holdings as being the stock he was going to be watching this earnings season because management had been buying the stock and basically waving a big flag, signaling that they thought there was great value to be had. Kudos to our friend Jim Gillies. That's all. We're not going to talk about this. I just mentioned on Jim's behalf and hopefully, some of the folks who were listening two weeks ago heard what Jim had to say and took advantage of that. This isn't quite the stock of the day. But shares of Weber Grill are up 33 percent because BDT Capital Partners, which I was today years old when I learned about their existence, BDT Capital is the largest shareholder of Weber, and they've made an acquisition offer for the company. Reminding listeners that this is a company that went public at 14 and the buyout offer is $6.25 a share. It has been a rough, short public life for Weber grill and its shareholders, but maybe this is how it's supposed to end.
Jason Moser: It felt like it had been this way, we've talked about these businesses before, your Weber's and triggers of the world that make really great products. But don't necessarily translate into great investments because the products they make, I mean, you're hanging onto them for a really long time. I mean, you buy good trigger or good Weber grill and you take care of it. I mean, you can own that thing for 15-20 years and so then how else are they making money. Now I give all of them full credit. They're trying to figure out how to make additional money. Whether it's selling the charcoal or the wood pellets or spice rubs or even meal kits. But that's also not really the highest-margin business, sure it generate some repeat sales. But ultimately, I don't know that always translates necessarily into the best investment.
You can see the writing on the wall for this one from the very beginning too, because they raised $250 million in the IPO and that was less than half of what they were really hoping to raise. I think investors need to take that as a sign. That gives you an idea, maybe the enthusiasm, the expectations and in speaking of expectations, I mean, it's a business that earlier in the year, right earlier this year, the very first quarter, I think in February, they were guiding for around seven percent in revenue growth. For this year, fast-forward to August, macroeconomic conditions have worsened. They withdraw all guidance. You really have no idea or at least no faith that management really knew where the financials were headed for the near term, at least with this business. I mean they keyed in I think on some important strategic imperatives.
They were talking about new growth products, things like subscriptions, things like accessories and charcoal and wood pellet, whatever it may be, rubs, meal kits, accelerating the e-commerce growth and the DTRG. For those of you who don't know DTRG, that's direct to Ron Gross. Ron Gross himself just got to new Weber grill, boy is that things spanking new. But that was a big part of the business. That actually grew 12 percent, that e-commerce side of the business, the direct-to-consumer, ultimately expanding the retail base, investing more in emerging markets, a continued focus on operational efficiency. Maybe we will see the acquirer here, continue to focus on those strategic imperatives in order to get this business going back in the right direction. But again, it does feel like it's going to have to come a lot from cutting the fat and really maximizing efficiencies because you just aren't buying a new Grille every couple of years.
Chris Hill: Yes, although as you mentioned, our friend and colleague Ron Gross recently bought a Weber grill, shared on Slack a photo of the grill setup and we're like. That looks great and he just very quickly added like, oh no, I didn't put this together myself. That's a service that you can pay for it delivery and assembly and that thing that's like, OK
Jason Moser: The good news is that he opened the invitation to us on the chill. He's got to have us over for dinner and I cannot wait because he wasn't. It sounds like he knows what he's doing on a Weber and Ron, I'm looking forward to getting over there.
Chris Hill: Jason Moser, great talking to you. Thanks for being here.
Jason Moser: Yes, sir. Thank you.
Chris Hill: The season for monsters, ghosts, and superstitions. Wouldn't it be great if you could sacrifice just one stock in your portfolio by throwing it into a volcano, thereby saving the rest of your stocks. Allison Southwick and Robert Brokamp. Take a closer look at stock markets superstitions and which ones may have some validity.
Allison Southwick: Superstitions are a way for humans to create some sense of order, control over the randomness of life. Did something on lucky or irrational happen? It must be because of the whims of a supernatural power or force like fate or just, cats. But don't worry, because even if it doesn't make sense, it makes sense because you knew better than to open that umbrella indoors, you knucklehead. But we like to think of the stock market is being rational with our Bloomberg terminals, charts and algorithms and supply and demand and sellers and buyers. Wall Street is also a bit superstitious. Today we're going to see which superstitions in the stock market are actually worth believing.
After all, the funny thing about the stock market is that if enough people believe the same thing and act accordingly, then it can come true. I'm going to name the superstition and bro is going to let us know if there's anything behind it. Let's start off with a sign of our times, October. If you've heard the phrase sell in May and stay away, you were maybe wondering when it's safe to come back and the answer is, after October is done sewing chaos in the markets. The panic of 1907, the crash of 1929, and Black Monday in '87 all came in October. Across the pond apparently, they say sell in May and buy on St. Leger's Day, which is a horse race in September. But that means you'd be buying back into the market just before October's reckoning. I don't know, Bro, what do you think?
Robert Brokamp: I'll start with that wholesale in May things. If you break up the historical returns in the stock market by month, you can see there's actually a little bit of something to that so you can rank them on. According to the likelihood that the market made money and also just by the actual average returns of that month. According to your Denny research, the months between that May to October period do tend to be toward the bottom with the exception of July, which actually has the highest average return. There's a reason why October has a particular better reputation because if you look at 5-10 worst one-day drops for the Dow, they've come in October. However, it's not the worst-performing month. That honor belongs to September, which historically has posted a negative return 55 percent of the time it's making it actually the only month that is more likely to lose money and the average return is just a negative one point one percent. Also, October has something else going for it.
According to Charlie Bilello of Compound Capital Advisors, in past bear markets, the S&P 500 has bottomed in October more than any other month. Now the low of this current bear market was on October 13, so let's hope October comes through for us again. For each of these superstitions, I'm going to give it a rating of 1-5 broken mirrors. More broken mirrors means it's more valid. For sell in May and go away, I'm going to give it two out of five broken mirrors because the returns are historically lower, but you still make money, it's not consistent enough for you to really trade on it. But as for October, I'm going to give it for broken mirrors because it generally is it below average months, but also historically an interesting month. As a big fan of Halloween, I love the idea of the market being a little spooky or in October or at least maybe a little more dramatic.
Allison Southwick: Next we're going to look at the moon and all that. You've heard of bear markets and bull markets. But what about a werewolf market? If you can blame other strokes of bad luck or otherwise erratic behavior on a full moon, then why not the stock market? A number of studies have actually looked into the validity of investing based on the moon and to back in the odds agreed that during the 15 days of the lunar month closest to the new moon, so starting seven days before it, an ending seven days after. The stock market's average returns are higher than those of the other half of the moon. Better by as much as 10 percent a year if you follow the strategy like the faithful moon goddess worshiper you are. Bro, what do you think?
Robert Brokamp: What's interesting about these studies is that they look not just at the US stock market, but they found that this happens in other markets as well. In fact, one study found that it's stronger outside the U.S. As you pointed out, this better performance has to do with the time around the new moon, which is when the moon is between the Sun and the Earth, a condition known as syzygy, so there's a new word for the day. It's the opposite of the full moon, which according to these studies, is a worst time to be investing. Believe it or not, there are actual trading strategies, even websites devoted to trying to profit from this.
The proponents argue that studies clearly show that people are generally at their worst during the times around the full moon, you see higher rates of insomnia, depression, heart attacks, even homicide. Some studies have found that this happens and other animals besides humans, I will say that there are plenty of other studies that debunk these theories. But we definitely know that the moon effects bodies of water and we humans are about 60 percent liquids. Why wouldn't the lunar phases affect us and our investing? At least that's what thinking is behind this strategy. What's my final rating? Well, my first inclination would be because just give it one of five broken my ears, but the studies are actually pretty compelling, plus we're less than a week from Halloween's. I'm going to give it three broken mirrors just to be in the spirit of the season.
Allison Southwick: Onto the next one, and we've all heard of it. As with all noble sports ball traditions, an octopus in a Cincinnati aquarium selects who will win the Super Bowl, and if it's an AFC team, then we will suffer a bear market in the coming year, and if it's an NFC team, we'll have four more weeks of Tom Brady, or maybe I have that wrong. Take out the stuff about Octopi and Tom Brady and basically, if AFC wins, market go down if NFC wins, market go up. The theory was coined in the late 1970s by New York Times sports reporter named Leonard Koppett. Bro, what do you think?
Robert Brokamp: Well, so first of all, as a lifelong Tampa Bay Bucs fan, I'm guessing that Tom Brady wishes that octopus or whatever coaxed him out of retirement had done something different because the season isn't going very well for us, but as for the superstition, you're right, Alison, that the current version says that the market will go up a year after an NFC win. But when Leonard Koppett identified this trend in 1978, he wrote that the market would go up if a team from the original NFL won and would go down when a team from the original AFL won. To understand why this matters, we have to review a little bit of football history. Back in the early 60s, there were two leagues, the NFL and the AFL, and they didn't compete against each other though they did compete for fans and players. Then in 1966, they decided to gradually merge.
At first, they played separate schedules, but they agreed to play in what they called the Annual AFL NFL World Championship Game, which eventually thankfully became known as the Super Bowl. Then in 1970, they fully merged under one name, the NFL, and created the NFC and the AFC, but to make an equal number of teams in each conference, three teams in the original NFL had to move over to the AFC, the Steelers, the Colts, and the Browns. This is important because according to Mr. Koppett's version of the Super Bowl indicator, when any of those three teams win, the market is supposed to do well, even though they're now part of the AFC. Now, when Koppett wrote about this indicator, it had a 12-for-12 success rate, which is pretty remarkable. How has it done since then? Well, it has had a success rate of 75 percent, which is still pretty good, but it's not done very well recently.
It was on a six-year losing streak until 2021 when the Tampa Bay Buccaneers and Tom Brady beat the Chiefs. The Bucs are NFC team, and the market did indeed do well that year, but this year will likely be another loser for the indicator. The Rams won earlier this year, another NFC team, but right now the S&P 500 is down 20 percent, but who knows? Maybe things will turn around. Anyways, you may wonder what Leonard Koppett thinks of the indicator he created. Unfortunately, he passed away in 2003, but Jason Swago, The Wall Street Journal, did interview him a couple of years before his death, and here's what Koppett said, "It's a joke. I meant the whole thing as a satire on the fallibility of humans statistical reasoning. It's too stupid to believe." Of course, I agree. There's absolutely no reason for the outcome of a single game to determine the performance of the stock market, and for that reason, I gave it one out of five broken mirrors.
Allison Southwick: Next, we're going to look at the maiden in the volcano. For the maiden in the volcano superstition, we'll turn to Josh Brown, aka, The Reformed Broker. According to Brown, in times of market turmoil or in the midst of a heavy sell-off, many portfolio managers and investors believe that they have to blow out one position to appease the market gods, tossing a maiden into the volcano so that the island will be spared the wrath. Such thinking is as primitive as you get, noted Brown, but it feels good when it works. If this happens once or twice, logic aside, you'll swear on it.
Robert Brokamp: This one is a new to me. I guess the idea is that generally, you shouldn't sell during a market downturn because then you won't benefit when the market rebounds, but if you sell just a little, that'll appease the stock gods and they'll turn the market around and I think you get bonus points if it's one of your favorite stocks. I think it gets to how we anthropomorphize the market thinking that it's a singular living entity with its own free will when in reality it's the culmination of millions of investing decisions made by millions of people every day.
As you might expect, I don't think there's much to it, so I give it one broken mirror. However, in the 2009 article in which Josh Brown talked about this, he mentioned another superstition which he called the man in the box and explained it like this. "I just know that as soon as I put my position on an XYZ, the man in the box will know it and the whole market is going to drop like a rock." I think many of us have felt this way. We buy a stock and it immediately drops or we sell a stock and it takes off, or we at least fear this will happen, so I give that one three broken beers. Not because I think it's true, but because it's probably a pretty common superstition. I know I've felt this way at times.
Allison Southwick: Our last superstition we're going to look at is the presidential election cycle theory. Now, you might be thinking the superstition here is that when, insert political party you ascribe to, is in the White House, the stock market goes up, and when, insert political party you oppose, holds the presidency, the market goes down, but actually, this party agnostic superstition says the stock market in the US performs weakest in the first year or two of a president's term, and then recovers, peaking in the third year before falling in the last year of the presidential term, and then the cycle begins again. Bro, what do you think?
Robert Brokamp: Well, like many of these beliefs, there's actually some data behind it. Historically, the market does perform best during the third year of a president's term. The fourth year used to be considered pretty good until this century when we had bad years in 2000 and 2008, but the belief here is that for the first two years, the president focuses on policy priorities, but then does all he could do to juice the economy in the second two years so he or his party will get reelected. There might be something to that, but it doesn't mean you shouldn't invest during the first two years. Historically, the market still makes money, just not as much. I'm going to give this one four broken mirrors, partially due to the data and partially because we're about to enter the third year of a presidency, and frankly, I think we could use a little optimism about investing right now. In fact, according to Ryan Detrick of the Carson Group, the stock market has posted a positive return in the year following every midterm election since World War II, and let's hope that history repeats itself.
Allison Southwick: We started the show by talking about the October effect, which is also known as the Mark Twain theory, since he said, "October, this is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February." As long-term investors at The Motley Fool, we agree. It's always a dangerous time to speculate in stocks. Instead, hold through all the moons, all the Friday the 13ths, and all the Super Bowls because long-term, bottoms-up investing is something you can believe in. Before we go, we have a Mailbag episode coming up on November 15 and we need your questions to fill it. Send us your personal finance-related questions to [email protected] and we might answer it on the show.
Chris Hill: As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have formal recommendations for or against, so don't buy yourselves stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.