In this podcast, Motley Fool senior analyts Ron Gross and Matt Argersinger discuss:
- New inflation data and real estate concerns in Silicon Valley.
- Why they're watching company margins and guidance updates over the next few weeks.
- Disney shutting down its metaverse division.
- Lululemon's (unsurprising) writedown of Mirror.
- The latest from Walgreens Boots Alliance, RH, and McCormick.
- Moderna's prospects.
- Pepsi's new logo.
- Two stocks on their radar: ERP Properties and Wesco International.
Brad Stone, head of Bloomberg's global tech coverage, weighs in on the state of affairs at Amazon, whether Jeff Bezos will return as CEO, and what to watch in the growing industry of AI and ChatGPT.
To get your copy of our free report "Top Stocks For Rising Interest Rates" just go to fool.com/interest.
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 March 31, 2023.
Chris Hill: The first quarter of the investing year is in the books. Motley Fool Money starts now.
It's the Motley Fool Money radio show. I'm Chris Hill joining me in studio Motley Fool Senior Analysts Matt Argersinger and Ron Gross. Good to see you both gentlemen.
Matt Argersinger: How are you doing, Chris?
Ron Gross: Hey, Chris.
Chris Hill: We've got the latest headlines from Wall Street. Brad Stone from Bloomberg is our guest and as always, we've got a couple of stocks on our radar. But we begin with the big macro, the latest inflation data, the personal consumption expenditures price index. Say that three times. No. Thank you, showed an increase of 0.3% in February. This is one more data point that the Federal Reserve is watching closely as they decide whether to raise interest rates again or not. This also coincided with the end of the first quarter of the year for investors. The Dow, basically flat year-to-date S&P 500 up around 7%, NASDAQ, up around 17%, Ron. Coming into the year if you told me that's where we'd be at this point, I think I would have been thrilled, but with all of the bank drama earlier this month, it doesn't seem as good as the numbers would indicate.
Ron Gross: Yeah. We can get to the macro stuff in a minute but I agree. I want to talk about the markets and the performance because it does not feel to me like we're in any of a strong market. January was strong, February was weak. March, we had a banking crisis [laughs] but March then actually ended up strong. It's been all over the place in terms of volatility and I think rather than the graph being up into the right, we haven't felt that way.
That's perhaps why when I noticed that the NASDAQ was up, as you said, 17%, I was like, wow. Now, of course, tech was crushed last year and so we did get some rebound, but we're getting a rebound in a rising interest rate environment, which I wouldn't have necessarily predicted that. People may be feeling somewhat good about their investments, but I think they're still feeling very shaky about the economy and as we discussed in previous shows, anything with the word contagion in it is really on the dicey side and creates quite a bit of anxiety.
Matt Argersinger: I agree. It's been such a roller coaster. I feel like we've lived a year in this first quarter. Inflation's been persistent, the Fed has been relentless. We've got recession fears. We've had mass layoffs in the tech sector which keep coming. Disney's the latest, not really a tech company, but we've had the biggest bank failures since the global financial crisis and of course, this regional banking crisis and we've got these problems in the commercial real estate market that we should also talk about. But the fact that we are where we are is pretty impressive. If you'd been an investor who'd sat on the beach since the beginning of the year and didn't check your phone? As you said Ron and Chris, it's like, well, you're feeling pretty good, but then you're not feeling good.
Ron Gross: But then you feel good again.
Matt Argersinger: Well, then it's good again.
Ron Gross: The economic numbers are interesting. We are seeing a slowdown in the economy. We are seeing inflation come down, but slowly. It's taken a while and that's why I don't think we're done quite yet with interest rate increases. Predictions, you're bound to be wrong, but probably one more then some stagnation and then at some point, declining interest rates, which I'm looking forward to. But what the Fed is trying to do is happening. It's just that job market is still very strong. We need it to continue to be a little bit weaker. We did see that in the jobless numbers, but it's just taking some time.
Chris Hill: Matt, I want to come back to the layoffs that you mentioned because this week we got two more tech companies based in Silicon Valley, Electronic Arts and Roku. They're both laying off 6% of their employees. They're downsizing their office space and I understand the argument of people who say, well, the tech sector, that's not the whole economy. There's a much bigger part of the economy beyond the tech companies in Silicon Valley and that's true. But when you look at Silicon Valley, it's hard for me with all of these announcements not to start thinking about the ripple effects, particularly when it comes to commercial real estate.
Matt Argersinger: No, that's exactly right. If you look at the, according to data from the San Francisco Chronicle, the current office vacancy rate. I was shocked when I saw this. The current office vacancy rate in downtown San Francisco is 29.4%. That in commercial real estate land is a depression. It's eight times the vacancy rate pre-pandemic and you can compare that to the New York City vacancy rate, which has also been hit pretty hard. It's at 16%. But either way, the point here is, yes, Silicon Valley has been hit extra hard, but there's a bigger story here about commercial real estate, especially office. Vacancy rates are way high.
We're in this new era of work-from-home or hybrid work where no matter what, corporations just need less space and the problem is Silicon Valley Bank and others. It was a little bit of a harbinger for what I think could be a pretty big problem with commercial real estate lending. If you look at the regional banks, according to some data, 80% of the lending to the commercial real estate market comes from these regional banks. Ask any bank whether they're excited about refinancing and office building right now, especially with debt that is maturing in the next few years and it gets really dicey.
Ron Gross: That could give the Fed some cover to slow interest rate increases more quickly than they might have done otherwise but it's hard to hope for that. It's hard to hope for a shock to the economy such that the Fed can slow down. As I've said before, you choose your poison. Hopefully, the crisis won't be too bad and the Fed will be able to lighten up relatively soon and we can all move forward.
Chris Hill: We're about to enter in the near term let's just call it a three-week period where earnings season is in the past, the next earnings season is coming up starting in about three weeks. I'll start with you, Matt, what are you going to be watching over the next couple of weeks? Let's just put aside the possibility of another bank story coming forward and adding to the drama. What are you going to be watching to give you an indication? Because it seems like part of what we've been talking about fits the narrative that we've been talking about for a few months now, which is the second half of 2023 appears to be set up for some positivity. Again, even keeping in mind what the market has done year-to-date, but over the next few weeks, what are you going to be watching?
Matt Argersinger: This is that period where I think companies if there had been major changes to their business outlook, this is where guidance starts to come in. A company will warn about their quarter. They'll try to get ahead of the news and I've got a whole list of real estate investment trust by the way, that I'm looking for, for guidance because I'm worried about, especially in the office space as we've talked about. I'm worried about what that business looks like in terms of occupancy rates, net operating income. It's getting dicey and I think that could tell a bigger story about the overall economy so that's where I'm watching.
Chris Hill: Ron, what are you going to be watching?
Ron Gross: Yeah, I was going to say guidance and also I want to see what margins look like because I want, especially with retailers, I want to understand what discounting and promotional activity is happening and what pricing power looks like, how much control they have over pricing and I also want to look at the inventory levels because they're too high in a lot of different sectors as a result of weakness in the business so I want to see if that inventory bleeds off.
Chris Hill: This week, Disney began the process of laying off 7,000 employees. Included in the group is the 50 people who make up Disney's entire division focused on the metaverse. It's being seen as another move by CEO Bob Iger, to reverse decisions made by former CEO Bob Chapek. Matt, we were talking about this earlier. I have to believe that a company like Meta Platforms, which is heavily invested in the metaverse, is not happy to see a company like Disney with all of that intellectual property just shutting this whole thing down.
Matt Argersinger: I agree. It's a good news item if you're a Meta, Facebook. But I don't think this is yet a larger indictment on the idea of the metaverse. I think this is more about Iger just axing anything that he didn't create and so he's running roughshod over everything Chapek created. It reminds me a little bit of Disney Interactive studios, which was a video game subsidiary that Michael Eisner actually started before Bob Iger got there and Bob Iger ended up killing that too because it lost a ton of money.
You could never really compete with the larger video game publishers and Iger eventually said, we're just better at licensing our IP to companies like Sony and Activision rather than trying to make our own games. I don't think this is Disney shutting things off. I think they're saying, let's wait for this market to mature. If it's a viable media universe, we're going to get our IP in front of it and maybe this Apple news coming down this year might catalyze the metaverse to the way that Disney could actually start getting involved.
Ron Gross: Yeah, I think the metaverse does make sense for a company like Disney, essentially. Chapek called it the next great storytelling frontier. I can see that. That doesn't seem silly to me and again, connecting the physical and digital worlds. Again, for a company like Disney, I think that makes sense. Interestingly, Iger is not necessarily a metaverse skeptic. I believe he sits on the board of a start-up called Genie's, which is a company that helps users create avatars which eventually are going to be used in the metaverse so maybe down the road, we'll get back there.
Chris Hill: After the break, we've got the latest reminder that not every acquisition ends up working out. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in studio with Matt Argersinger and Ron Gross. Three years ago, Lululemon made its first acquisition ever when it paid $500 million for Mirror, a virtual home fitness company. In December of 2020. On our year-end review episode, Ron picked the Mirror acquisition as his choice for the dumbest investment of 2020, saying he was not a fan of the acquisition and comparing it to Under Armour, buying MyFitnessPal for $475 million and selling it years later at a loss. This week, shares of Lululemon were up 15% after strong fourth-quarter results. Ron, anything else in that fourth-quarter report?
Ron Gross: I don't like to to my own horn, Chris, but they they did have an impairment of about $443 million out of the 500.
Chris Hill: Just to review, they paid 500 million and they just wrote down, let's just call it 88% of it.
Ron Gross: That is what happened.
Chris Hill: It's nice call.
Ron Gross: Thank you. They're not abandoning the fitness market. They're going to pursue it in the non-hardware way with a more app focused strategy, which probably makes sense. If they'd done that in the first place, I wouldn't have had to be critical in the first place. But I do want to say that shouldn't take away from the strength of Lulu's business. Yes, that's a mistake. Fine. But this has been a really wonderful business, a really wonderful stock. The numbers back up, the fact that they are continuing to execute quite well for the quarter revenue up 30%, that's 29% in North America and 35% internationally.
Comp sales up 27%, and direct-to-consumer, up 37%. Gross margins were down. We still seeing some markdowns that are necessary to clear some inventory out. But in general, you saw very nice control of expenses with operating margins actually up slightly 50 basis-points, not slightly half a percent and adjusted earnings as a result were up 30%. There's continuing to get it done. They're doing a good job, bringing inventories down there still high, but they're getting them down over time. They gave strong first-quarter and full-year guidance trading at 30 times a premium price, but a premium company as well.
Ron Gross: Walgreens, second-quarter profits and revenue came in higher than Wall Street was expecting. CEO Roz Brewer highlighted the company's closing of its acquisition of Summit Health, saying Walgreens is now one of the largest players in primary care. Shares a Walgreens up more than 5% this week, Matt.
Matt Argersinger: Yeah. Good results. If you look at their core pharmacy business, the same-store pharmacy sales there were up almost 5%, really strong. Then if you look at the US healthcare revenue, which is somewhat health is joining on a pro forma basis up 30% a year-over-year. That's pretty strong. But my question is, will the real Walgreens please stand up? Because it hasn't been so many moving parts to this company. If you look at the 5 billion majority investment they made in Village MD back in 2021, majority investments in companies like Shields and CareCentrix, then you've got the five billion Walgreens pay last fall to settle lawsuits related to its distribution of opioids over the years.
Then you've got the nine billion dollar purchase of someone else. This is all happened within the past two years. The stock is underperformed pretty starkly. It's down, it's lost about a third of its value over the last five years. I just think if you're an investor looking at Walgreens, you got to let the dust settle on all these major capital moves. Figure out how this US healthcare revenue business is going to work and then you can decide if you want to invest in the stock. But to me, there's just too many moving parts right now.
Chris Hill: Yeah. It does seem like with all those acquisitions, if you're looking at this, if you're the Board of Directors, you're saying to Rosborough are like, now let's put all of this stuff to work.
Matt Argersinger: Let's just give it some time to bake and then we can decide how to move forward.
Chris Hill: The struggles continue for RH, fourth-quarter profits and revenue came in lower than expected for the company formerly known as Restoration Hardware. Shares of RH up a bit this week, Ron, but the last year-and-a-half has really been rough.
Ron Gross: Stock was at 700 and now we're around to 238-ish. Really been smacked. I don't want to hit a company necessarily only when it's stand. For years, this was a wonderful investment, one of the best-performing stocks really that we would talk about. But they have fallen on hard times right now. CEO Gary Feldman went on a rant. I don't know how else to describe it on the conference call blaming the Fed, inflation, interest rates, the banking crisis, all of those things for a decline in the luxury housing market.
That might be true. But ranting has really never a great luck for a CEO. A little bit of restraint there, I think, would have been the better part of valor. But the business is quite weak with revenue down 15%, gross margins down, operating margins down 960 basis points, that's 9.6 percentage points, which is really weak. Earnings down 14%. But if we adjust for some benefits, some income tax benefits earnings were actually down 49%, inventory way up as they're having trouble selling things in this environment. They're doing what they can.
They're eliminating some jobs. They're trying to achieve cost savings of about $50 million annually. Guidance was weak. One thing that they always say, and I really don't like this, they say things like the market opportunity is $7-10 trillion. If we only get 1%, Chris, that's a $70-100 billion opportunity. I do not like to hear that talk for management teams. As an investor, as an analyst, that doesn't thrill me. They'll get back to business once the market firms, but they are spread really thin with hospitality and housing and galleries. They may want to stick a little bit more to their knitting.
Chris Hill: Shares of McCormick up nearly 15% this week after first-quarter profits came in higher than expected. The spice maker also reaffirmed guidance for the full fiscal year. Matt, what stood out to you in McCormick's report?
Matt Argersinger: Well, it's the strength of their flavor solutions segment, which is their commercial foods segment that serves restaurants and other major food manufacturers. The beauty, I think in McCormick is really, you've got this great balance between the retail and consumer facing side, which makes up about 60% of sales and this commercial business, which it makes up about 40%. During the pandemic, as people were at home, they cooked more and people cooked predominantly for the first time in their life, McCormick did really well with their consumer segment.
Now that people are going back to restaurants and going out more, the commercial side of the businesses is picking up the slack where the consumer is slowing down a little bit. It's just got this really great balance. Of course you got a dividend that continues to grow very nicely. I just think McCormick always seems to trade with such a huge premium. Its shares right now it's 32 times earnings. Now it's always traded for premium so I'm not going to quibble, but I would just say, gosh, if you could ever get this business cheap, which is rare, it'd be quite an opportunity.
Ron Gross: From memory. I think they're also pretty good at acquisitions. Cholula was an acquisition that I think made really good sense. Frank's RedHot. I like these acquisitions that often don't like acquisitions that companies make. I wonder if they have something else up their sleeve coming up.
Chris Hill: How seriously do you take the exploration date on spices? That is one of those things. It's like I pay, look for medicine. I'm taking that very seriously for spices. I'm like, really, i have to buy a whole new bottle?
Ron Gross: They do say if it's been sitting in your cabinet for more than six months or so that the flavor goes away, but I think you can get away with it.
Chris Hill: Matt Argersinger and Ron Gross, guys, we'll see a little bit later in the show up next is Jeff Bezos preparing a comeback to his former job at Amazon? Bloomberg's Senior tech reporter, Brad Stone ways in. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Brad Stone is the Head of Global Technology coverage for Bloomberg News. He's also the author of several best-selling books, including Amazon Unbound: Jeff Bezos and the Invention of a Global Empire. He joins me now from California, Brad, always good talking to you. Thanks for being here.
Brad Stone: Hi Chris. Good to be here.
Chris Hill: Let's start with Amazon. CEO Andy Jassy has announced a couple of rounds of layoffs over the past few months, 28,000 jobs, which is a small percentage of the overall workforce at Amazon but it's also a population that is bigger than a lot of towns in the United States. I'm curious what your thoughts are on the way Jassy and his team are approaching this because there are certainly those who think if you're going to do layoffs, you only want to do it once. They've done it twice, and l don't think it's going to surprise a lot of people if there's a third round later this year.
Brad Stone: Right. Yeah. The number might be relatively small, but the significance is high. Amazon has been in growth mode for most of its 30 years. I can point to a couple of years during the dotcom bust where they had some layoffs and slowed hiring but essentially things have been up into the right. Now Jassy has had to deal with some pretty extraordinary circumstances, not just the pandemic and the resulting slowdown in e-commerce but arguably the Jeff Bezos lead overbuilding that preceded the pandemic. I think he's been in adjustment mode, course correction mode.
I also think that the inflation has thrown another variable into the mix and probably also a declining stock price down what, 30% over the last 12 months, maybe more. Jassy probably catering a little bit to shareholders, to investors to try to right the ship and change the sentiment around Amazon. To your point, it hasn't been handled as elegantly as possible. The idea that the latest thing is that they were stopping construction on the second phase of H22 is another black guy for a company and a process that was viewed very skeptically by a lot of people for a long time.
Chris Hill: This is the handpick successor of Jeff Bezos. How happy do you think Bezos is with the overall job that Jassy has done for the last couple of years.
Brad Stone: My belief is that if Bezos is doing a full accounting here, then he probably a lot of the things that have gone wrong over the last two years can really be laid at Jassy's feet. I think he would have to look at some decisions that he made himself over the past five years. Like let's look specifically at what Amazon has cut back on or stopped doing in the past two rounds of layoffs. A lot of physical retail, the Amazon Go stores, the bookstores, those 4-Star stores. That was a Bezos led initiative. He was pushing the company into physical retail and experimenting and they've rolled it back. It didn't work. The devices business, Alexa. Alexa was originated, envisioned, and orchestrated by Bezos himself.
It was an idea that Amazon could be the front edge and AI and that conversational assistance where the way that people would interact with chatbots. Now over the past few months, we've seen that that may not be true, that there's this technology called ChatGPT that is much more interesting than Alexa. It'll be interesting how Amazon pivots there, but they've had that, they've certainly had to take account of that. Then everything in the fulfillment centers, Amazon subleasing out space at bought and didn't need. That's a lot. I guess is that Bezos isn't second guessing Jassy. My view is that he's probably not as involved, even as maybe Jassy and the other board members might've hoped, that Bezos has really moved on and that this is firmly Andy Jassy's company.
Chris Hill: The speculation that he might pull a Bob Iger pulled a Howard Schultz and come back for another run as CEO. You're not betting on that?
Brad Stone: Is fanciful. He has moved on. The name of the yacht, the super yacht, Chris, you might remember, the yacht is called Koru and it means reinvention. That's what Bezos has done right in front of our very eyes, physically, romantically, and lifestyle-wise, and he has moved on. We may find that out soon that he bid for the Washington Commanders. That process is ongoing as we speak. He is bought property in Hawaii. He has got the yacht now. He is fully involved as climate philanthropy. He has got a set of headaches to deal whether the Washington Post. So no, he's not one to revisit previous decisions. If anything, if you asked me to guess I would I would say that we'd be more likely to see him drop the executive title in his role as Executive Chairman, that much likely are then to see him returned to day-to-day operations at Amazon.
Chris Hill: Well, since I'm coming to you from the greater Washington DC area, and it is a regular topic of conversation in these parts with the expectation that Dan Snyder is going to sell his NFL team. How serious do you think Bezos is about becoming an NFL owner?
Brad Stone: I think he's serious, there's there's enough smoke here. I mean, we know that he hired Allen and Company. I think the New York Post reported that we know that Snyder, at least early on blocked him from bidding because it enmity around the post-coverage of Snyder's tenure as owner. We don't know if that's still true. I'm sure he would love Bezos to bid it up a little bit. I don't know if Bezos has come back to the table after being rebuffed but all this indicates to me that he sees this as another fun adventure for him to have at this stage in his career. I think if it's not the Commanders, it's likely that when the Seattle Seahawks comes through the state process that is currently in that he could be a bit of that team. I definitely think he's interested.
Chris Hill: Earlier this week, Alibaba announced it's going to be splitting itself into six separate companies. How seriously do you think companies like Amazon and Alphabet are considering some version of a similar move? If they are even considering it at all.
Brad Stone: Well, let me take Amazon because Alphabet does not necessarily as much in my strike zone nor do I think the activist pressure would be as an intense and I'll get to that in a second but Andy Jassy is a first-generation Amazonian. He feels ownership over the entire thing. He started his career in the retail side of Amazon selling CDs and DVDs. He was on the advertising, but in the advertising business and marketing business. Then he was basically the founding CEO of AWS before Bezos made them see the whole thing. He's much likelier to have the Bezos view that this business is stronger together. Now, the key point here is activist shareholders who are noting the huge run-up in Alibaba stock and all the excitement around the IPO during the particular six divisions.
I think that's gotta be people are noticing that. I just do wonder if activists come to Amazon, an advocate for something like this, what defense that they can have after a two-year period where the stock performance has been so dismal. Historically, it's been Bezos, the founder and his credibility that has protected Amazon, but with a distracted and detached Bezos. I'm not sure the defense is a strong. I don't think they're considering it to answer your question directly. I just don't feel like that's something that Jassy would want to spend time on but the question is, if the current stock performance continues and the Alibaba split up was seen as a great success, will active as force Amazon to consider it? I think it's likely.
Chris Hill: I want to move on to something that you and I were chatting about during the break. It's as hot topic in the tech world as there is. It's ChatGPT. You mentioned OpenAI is based right there in San Francisco, where do you think all of this is going in the near term, the next 6-12 months? What are you hearing from people you talk to and what are you going to be watching for in terms of business achievements or milestones to give you a sense of what the next 12 months looks like for ChatGPT and AI in general?
Brad Stone: I don't apologize by the fact that the emergence and popularity of ChatGPT and Dolly before it took me by surprise. It took the industry by surprise. Google was taken by surprise. But the attention, the hype around it has been extraordinary. I don't have a crystal ball. I think that very soon we're going to start to see a litany of competitive responses from the likes of Amazon in terms of how AWS extend some of these capabilities to its customers, to developers. Google IO is coming up in the Spring. I think it's going to be wholly AI focuses as Google's conference and we're going to see a litany of announcements and we're going to see Sundar Pichai and maybe what could be almost considered a job-saving campaign because the critics are out for him now talking about his personal view and philosophy on AI and why Google is set to recapture the lead.
Arguably, it has the deepest bench, but OpenAI really did take it by surprise. And I think we're going to see more conversation about some of the scary possible ethical implications of these technologies and what it means for jobs and for society and education. When kids have access to get AI to do their homework and write their papers for them. Then the next incarnation of these things, ChatGPT-5, we just saw GPT-4, just came out. Oh, subscribers, OpenAI can access it. It's a remarkable leap and the next incarnation will be even more interesting. I think to me it's exciting. It's like one of these stages in Silicon Valley where the tech is surprising us at forcing us to reconsider our assumptions about frankly how we're doing our jobs and living our lives and what it means that this technology is now available, so it's an exciting and unpredictable time.
Chris Hill: In addition to your reporting and writing, you are also involved with the podcast Foundering, a show that takes a closer look at drama in the tech industry. Tell me about the latest season.
Brad Stone: Oh, yeah. Thanks, Chris. I appreciate the opportunity to talk about it. We've now done four seasons of Foundering. I did a season actually on Amazon, and that was Season 3, and Season 4, we wanted to mix it up a little bit is the rise and fall of John McAfee. He's the cybersecurity pioneer who almost invented the industry in the late '80s, early '90s. Then when, I would say right off the edge into the world of drug experimentation and violence and crypto scams, there was a presidential run in there. He was on the lamb and then died under mysterious circumstances. So it's a wild story, and my colleagues did a great job of it.
Chris Hill: You can check out The Foundering Podcast wherever you get your podcasts and pick up a copy of Amazon Unbound: Jeff Bezos and the Invention of a Global Empire. It is a great read and one of the best business books I've read over the last few years. Brad Stone, appreciate the time. Always great talking with you.
Brad Stone: Thank you, Chris. Appreciate it.
Chris Hill: Coming up after the break, Matt Argersinger and Ron Gross return. They've got a couple of stocks on their radar. So stay right here. You're listening to Motley Fool Money.
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 or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in studio once again with Matt Argersinger and Ron Gross. You can hear Motley Fool Money every weekend on radio stations across America.
You can also listen seven days a week on your favorite podcast app, for example, we have a conversation with Motley Fool Co-Founder David Gardner coming up on the podcast. So take out your phone, open up your favorite podcast app, and with one click of a button, you can follow Motley Fool Money, and never miss an episode. Our email address is [email protected]. Question from Tim in Wisconsin who writes, "I bought shares of Moderna in the summer of 2019 after listening to your show, I'm interested in your thoughts about continuing to hold this stock versus selling for other opportunities." What do you think, Ron?
Ron Gross: Good question, Tim. It is a recommendation in our Rule Breakers service. The recommendation is partially based on the excitement around mRNA medicines, which is the patient's own body to manufacture proteins that he'll or prevent disease. And that is actually the technology that allowed them to create the COVID vaccine so quickly, they got $18 billion in cash that will allow them to develop their 46 drugs that they have in their pipeline. But it's not all good news because the COVID vaccine demand is significantly down. There's going to be a 73% decline likely in revenue from that this year. Future revenue beyond 2023 could be even less, but it's seven times earnings with strong technology, strong balance sheet, probably fine as part of a well-diversified portfolio. I just personally wouldn't want it to be an outsized position.
Chris Hill: This year, Pepsi will celebrate its 125th anniversary, and as part of that, the company unveiled an updated logo this week. Pepsi will start using the new logo this fall in the US and Canada, and then roll-out to the rest of the world in 2024. Matt, they've been working on this for literally years. I would love to know as a shareholder how much money they spent on this new logo, I like it. I've seen the logo, it looks good. But if they come out and say, we spent $200 million developing this, I'm going to be chagrin.
Matt Argersinger: Well, their brand is everything. And I have to say I like it as well. I'm much more navy blue guy than a royal blue guy. So I like that color. If I had to go mad, bet on it. I would say, I think the Pepsi name is little too bold. But otherwise, I like it, it's probably worth every penny.
Ron Gross: I'm just going to say it's a circle and it's red, white, and blue, and it says Pepsi. I could've gotten that for much cheaper then they fade.
Chris Hill: Next time Pepsi wants to update their logo they should get in touch with Ron Gross. Let's get to the stocks on our radar. Our man behind the glass, Dan Boyd is going to hit you with a question. Matt Argersinger, you're up first. What are you looking at this week?
Matt Argersinger: All right, I'm going with EPR Properties. The ticker is EPR. It's a real estate investment trust that focuses on experiential properties. So you've got resorts, restaurants, bowling alleys, top golf is a major tenant. Places where people go to enjoy fun experiences. But they get 45% of the revenue Dan, from movie theaters. By the way, one of their movie theaters tenants is Regal, whose parent company just filed for bankruptcy.
So immediately theaters have oh, they're in trouble, but not really, all the rent continues to be paid even by Regal. This could be a record year for the box office and by the way, Amazon, Apple, are looking to spend quite a bit of money putting out films that they want to go to cinemas first. So if you are an investor who can tolerate some risks, Dan, EPR's dividend yield is almost 9% well-covered by the company's operating cash flows, balance sheets in decent shape, and the other parts of the business, non-theater parts are doing just fine.
Chris Hill: Dan, question about EPR Properties?
Ron Gross: Matt, I want you to guess the year the last time I was in a movie theater.
Matt Argersinger: 2019.
Ron Gross: You're correct. And what movie did I see, Matt?
Matt Argersinger: Oh my gosh. I saw Cats and it was terrible.
Ron Gross: Wow.
Matt Argersinger: You must have had that theater to yourself. It was like a Saturday afternoon. It was great and also terrible because the movie is real bad.
Chris Hill: Ron Gross, what are you looking at this week?
Ron Gross: I'm looking at Wesco International, WCC, originally formed in 1922 as the in-house distribution arm of Westinghouse Electric. You remember Westinghouse, leading provider of business-to-business distribution, logistics services, and supply chain solutions. They're capitalizing a lot of exciting growth trends, grid modernization, green energy automation, digitalization, and then more than a typical distributor, they offer a strong service component to their business and to their customers. So they have those competitive advantages. They have scale, distribution and service. Their backlog is at an all-time high, free cash flow is set to increase significantly over the years. My friends over at value Hunter service that we have here at the Fool thinks that it has a meaningful upside at current prices.
Chris Hill: Dan, a question about Wesco International?
Ron Gross: Not really a question, Chris, more of a comment. You know why I love it when Ron is on the show? Because he brings a company that I've never heard of and it's huge and super important to the entire world.
Matt Argersinger: That's a nice thought.
Ron Gross: I can't tell if he's being sarcastic.
Matt Argersinger: I'm not. I'm being honest. I love it. I've never heard of this company. And it seems like they're, well, if they disappeared tomorrow, a lot of businesses would be in trouble.
Chris Hill: What do you want to add to your watch list, Dan?
Ron Gross: I'll tell you what I don't want to add to my watchlist, Chris, and that's movie theaters.
Chris Hill: All right, that's fair. Ron Gross, Matt Argersinger. Thanks for being here.
Ron Gross: Thanks, Chris.
Chris Hill: Drop us an email, [email protected]. That's [email protected]. Keep sending us your questions about stocks and investing. That's going to do it for this week's Motley Fool Money radio show. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you next time.
