In this podcast, Motley Fool analysts Ron Gross and Emily Flippen and host Dylan Lewis discuss:
- Why the consumer focus on groceries and lower-cost items are helping Walmart and hurting Target.
- The story behind Adyen's 40% post-earnings drop.
- The latest results from JD.com and Tencent, and how to look at some of the scary headlines coming out of China.
- Two stocks on their radar: Astec and Nice.
Vici Properties CEO Ed Pitoniak speaks with Motley Fool host Deidre Woollard about what to expect next on the Las Vegas strip, why wellness is an increasingly interesting category for experience spending, and what good real estate deals look like in this environment.
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 August 18, 2023
Dylan Lewis: A real estate bankruptcy shakes confidence in China and consumers across the globe focus on lower-priced items, Motley Fool Money starts now. Everybody needs money. That's why they call it money.
It's the Motley Fool Money radio show. I'm Dylan Lewis joining me over the airwaves, Emily Flippen and Ron Gross. Great to have you both here.
Ron Gross: How are you doing, Dylan?
Emily Flippen: Good to be here.
Dylan Lewis: We've got a sneak peek at what's next on the Vegas Strip, a check-in on China and stocks on our radar, but we are kicking off talking about retail. Emily, Ron, big earnings week. This week for retail, we saw results from Walmart and Target. We're going to talk about them in a minute. But one of the things I want to talk about first, it's just how are you guys looking at retailers this earnings season? Ron, what are you looking for in results? What are you hoping to see?
Ron Gross: I think a more significant return to discretionary spending for actual things, rather than just for experiences like travel, which is doing quite well. Prices still need to come down for that to happen and consumers need to feel like they have the money to spend. What worries me a little bit, is we're seeing declining savings account balances, an increase in credit card debt. That might put a little cramp in my wishes for the coming quarters, but that is what I would like to see.
Dylan Lewis: Emily, what about you? What are you looking for?
Emily Flippen: You know it's funny my judgment hasn't changed just because the economy has changed. When I look at a retailer, I look for two of the same things I always look for. You have to sell relevant products and you have to sell them to the right consumer. It's merchandising and meeting the consumers where they are, which means you have to have the right products. We're seeing now the right products, as Ron just mentioned, tend to be a little bit more necessary, a little less discretionary in times like this. You also need to understand where your consumers are coming at from. Are they coming in foot traffic or they're doing curbside pickup or delivery, e-commerce? Understanding where the customer is vitally important and from a lot of the maybe weaker results we saw from some retailers this quarter, I think it's fair to say that some management teams are stumbling here.
Ron Gross: Inventory management is really key, especially when times are a little bit tougher and not just going along easily. If you are inventoried incorrectly, if you're merchandised incorrectly, it's going to take not only multiple quarters to dig yourself out of that, but the discounting and the promotional activity you're going to have to undertake is going to really hurt your margins.
Dylan Lewis: Let's check in on some of the results from Big Box. We saw results from Walmart and Target this week. Ron, a seemingly strong quarter for Walmart. They beat expectations on the top and bottom line, raised their full-year outlook. What's behind the strong report here?
Ron Gross: You are correct. They really did put up a good quarter. It was interesting, the stock actually sold off. Go figure, but the numbers look solid to me with revenue up about 5%, U.S. comp sales up 6%. That was slightly slower than earlier in the year, but it was above analysts' expectations, which usually the stock trades more on the basis of. You said 2.9% increase in transactions, 3.4% in the average ticket. Pretty good. E-commerce up 24%, led by strength in pickup and delivery. Grocery, which Walmart shines in, really a big part of the story here. Sales of grocery and health and wellness products increasing. People staying away, as we said from some of the higher-priced items, the non-discretionary items. But margins were up, inventory was down, adjusting for losses from some investments they have. Earnings were up 4% and as you noted, they were able to raise the full-year outlook for sales and profit. They say they see modest improvement of sales of big-ticket and discretionary items in the quarter. Maybe we'll see a trend follow through to the next quarter.
Dylan Lewis: A little bit of a different story with Target's earnings. In the company's second-quarter report posted revenue below expectations and reduced its full-year outlook for earnings, revenue, and same-store sales. Ron, does that have you spooked at all?
Ron Gross: Well, the stock is actually up, so go figure on that one, too. Earnings were actually relatively solid and margins improved. All in all, I think a better-than-expected quarter, which is maybe what the stock responded to. But certainly some weakness, certainly some caution here, sales down 5%, comp sales down 5%, digital sales down 10%. They continue to struggle. Some backlash continuing from the controversy that began in late May around their pride month collection of LGBTQ-themed goods, that's sparked protests and some backlash. They're still working through that. But gross margins were up really significantly because last year, as we said, they had to take a ton of markdowns, be really promotional to change their merchandising strategy around to things that people actually wanted go figure. Margin is up significantly and that was able to really flow down to the bottom line in a pretty nice way. Inventory levels are now down 17%. That's all pretty good. They're being cautious, sales were weak, so they're lowering guidance for the future. I don't begrudge them that they see some good trends starting in August. Maybe they'll be able to beat expectations down the road. But they seem to be at least on a better track than they were this time a year ago.
Dylan Lewis: Emily, these are two companies that I would generally expect to trend in the same direction and be subject to a lot of the same whims when it comes to economic forces. Just the way that people are looking at their wallets and their spend, any thoughts on why we're seeing different outlooks for these two businesses this year?
Emily Flippen: I actually venture to say that there are two completely different businesses. I think anybody who is maybe in my age and demographic is aware of the fact that you don't go to Target unless you want to spend a lot of money versus my trip to Walmart. I'm trying to get in and out as quickly as possible, doing as least damage as possible. There's an argument to be made that the type of consumer who is irregular Walmart shopper versus Target shopper could be a bit different. And I think that's why we're seeing this result is because Target has their merchandise has focused so heavily on discretionary spending that's hitting them harder this quarter. But I've been a big fan of Walmart. I have been a big defender of Walmart. I think their investments in e-commerce and tech have been incredible. Like I said, meeting the consumers where they are, their curbside pickup has been a great boon for their business. But now with some revised guidance and price changes. Target is actually cheaper on a forward basis in terms of earnings, which is rare when you see this happen for these two types of retailers. Target, despite the fact that they might be in a worse position in the near term could be the better buy here.
Ron Gross: Walmart is benefiting from their focus on groceries for sure. As Emily said. Walmart at 24 times forward earnings, Target at only 17 times. You're paying more for Walmart, which is currently a better-run company. That actually does make sense. But if you think Target is going to get their act together, 17 times could be quite attractive. I will add that Target pays a 3.4% dividend yield, while Walmart's only at 1.4%. That could be another reason why you could be interested in Target as a stock to own right around at these prices.
Dylan Lewis: One of the things I want to dig into before we move on to our next stock is just looking at some of the ambitions that Walmart has in the e-tailer space and in the online space. This is something that we've seen both companies invest in really heavily. Ron, they made some mention of their membership program, Walmart+, they made some mention of the online ad business, are these things that you think of as nice-to-haves for this company or are these at some point material and part of the thesis for the business?
Ron Gross: I think at some point they become material. Walmart's advertising business for example, was up 36% for the quarter. From a small base though, it's not a huge part of what they do yet, but it could continue to grow. I don't want that to dilute what they do. I think some of Amazon's troubles stem from some of that part of their business, but I think over time, loyalty advertising will become a more meaningful part of the bottom line.
Dylan Lewis: We got to check in from a less familiar name, Adyen, and a look at retail activity as well. This week, the Dutch payment processor fell 40% after reporting first-half results that were below expectations. Emily, you follow this company pretty closely, what made the stock fall so much?
Emily Flippen: What a brutal quarter for Adyen. I will say, I think part of the reason why we're seeing the reaction from the market that we are is because this is a company that's based out of the Netherlands, they only report results twice a year. So the reaction that we're seeing, you can almost imagine it as like two quarters combined, there's a massive slowdown in terms of revenue especially their revenue coming from the payments that they're taking in North America. For reference, their North American revenue grew 23% in the first half of this year in comparison to 52% in the second half of 2022. Everybody's coming into this investment saying, well, we saw 52% growth in North America last half, what do we see this half? Probably a little bit slower, but did you think that growth was going to be cut in half again? Probably not. That's very much just knee-jerk reaction we're seeing from the market and it was combined with weakness on their bottom line as well. They continue to invest in things like hiring a lot of staff, especially those based out of Europe, which have been particularly expensive for them putting them into tech roles. This is an expensive business that didn't solve their margins decline as well. It was the one-two punch of weaker revenue growth probably thanks to rising interest rate, weaker consumers, the pullback in spending from enterprises and then the inability to control costs at the same time.
Dylan Lewis: This is an interesting business for us to look at because they are not in some ways directly related to what we see in consumer spending, but obviously all of their customers are going to be businesses that are subject to consumer spending and so they're right there with them. They count some pretty big names as customers, Netflix, Meta, Microsoft, and we saw some commentary from management talking about how some of the cost-cutting focus that we're seeing from businesses means that they are looking at other players in this space. Are you worried Emily, about them losing any of these big relationships as some companies are a little more cost-focused?
Emily Flippen: Yeah, that's a great question and I will say management cap, using that word, optimizing, people are optimizing. One of the benefits that Adyen has there retain these larger customers is they have a little bit more of a tailored solution. They are not the cheapest player, they have never been the cheapest player. But there are one that are more able to integrate solutions for increasingly international operations. When you're a large organization, it's vitally important that your payment processor stays up. That you don't have these issues with cross-border payments, these types of challenges. But the competition in this space is extreme. I think investors, when they talk about the story being overly focused on stuff like consumer spending is probably not the right narrative. As an Adyen investor and somebody who follows this company, my focus is more around whether or not these processing and settlement fees are likely to be commoditized. Whether or not they really do have pricing power associated with better settlement than other players, and I think that's where the question mark is for the thesis of Adyen long-term.
Dylan Lewis: Emily, before we go to break, want to ask you one quick question on the spot. I see a 40% drop and I say, either this is a sign of trouble or buying opportunity. How are you looking at it for this business?
Emily Flippen: I haven't made up my mind yet. Actually, I really want to dip my toes in and say, I see this as a buying opportunity, 40% drop is a pretty extreme reaction but again, if you're concerned that the company is just overspending higher interest rates and yeah, it's a buying opportunity. Because that stuff's temporary that you believe in the company long term there's still sticking around, but my concern is that this is true for all these payment processors. For anybody who's facilitating payments, whether you're based in Europe or the U.S. or anywhere around the world, is that there could be like structural decline to margins for this company and that's what my concern is.
Dylan Lewis: All right. Coming up after the break, we've got to look at the big picture in China and whether there was signaled trouble or opportunity for investors. Stay right here, this is Motley Fool Money.
Dylan Lewis: Welcome back to Motley Fool Money. I'm Dylan Lewis here on the airwaves with Emily Flippen and Ron Gross. In addition to the retail updates we got this week, we also got earnings from major tech firms in China, JD.com and Tencent and the news that major property developer Evergrande will be filing for bankruptcy protection in the U.S. in one of the largest debt restructurings ever. Emily, seems like a good time for us to check in on China?
Emily Flippen: Yeah, investors are getting two different stories, I'd say, depending on which articles you're reading about China. Because if you just look at the results from some of their big tech giants JD and Tencent, things actually look pretty strong. Now, admittedly, things are supposed to look strong. This is a country that's coming off of the COVID-19 pandemic sales so the comps are still relatively weak. But with the JD, you have this focus on consumer spending and with Tencent, you have this focus on consumer spending for services. So you have the actual physical goods with JD and then the things, the services with Tencent and both of these companies had really strong quarters. JD saw an 8% rise in net revenue which was mostly led by actually appliances and mobile phones, so that's hardware spending from consumers. So relatively strong from consumers in a country where the narrative has been that the economy is weak. At the same time, Tencent also saw a massive uptake in their value-added services revenues, so this is spending on things like video streaming or games and online advertising, all of these things are ticking back up. So both of these companies have managed to expand their top-line, expand their bottom line, but neither can get out from underneath the thumb of the broader narrative which is with this overhang in the state of the Chinese economy, is this performance temporary? Is a slowdown still coming for them?
Dylan Lewis: Yeah Ron, this is a cloudy economic picture, I think for China. Maybe is a good way to put it. There are a lot of different indicators that we're seeing here. There was a major headline this week as I mentioned before about Evergrande, but that is just one piece of the macro picture in China. We've also seen headlines around youth unemployment, some concerns around deflation, what are you paying attention to as you're trying to make sense of what's going on there?
Ron Gross: I think the two biggest issue China needs to fix are the housing market and domestic spending. That domestic spending has been hurt by the rising unemployment especially among young people and interestingly easy for me to say. China said it would stop releasing data on youth unemployment which was actually over 21% most recently. Interesting they're not going to report that. You mentioned real estate giant Evergrande filed for bankruptcy last week, real estate developer Country Garden said it would suspend payments on some of its bonds. So there really is a lot of things reverberating through this economy. Companies in manufacturing, construction, export industries, they're all reporting weaker sales. The Central Bank is trying to cut interest rates, they're expected to lower the amount of reserves, banks need to hold because they're trying to stimulate this economy. It's going to be a while here, this is not a quick turnaround. China stocks are down as a result of this for sure.
Emily Flippen: Yeah, it's worth mentioning that when we talk about Evergrande and the real estate sector in China, part of the reason why the GDP numbers look so bad is because real estate is around a third of total GDP for China. When you have a big developer like Evergrande trying to restructure their debt, can't make their payments, that really does drive a lot of the narrative around economic growth but I'll just again reiterate that consumer spending in China is still strong. Now, it's not crazy. We're not talking about how it was over the last decade, but especially when you compare it to the U.S. counterparts, we're in a rising interest rate environment, but still relatively healthy in terms of consumer spending. So I'm much more focused on consumers than I am about developers at this point.
Ron Gross: Yeah, interestingly what happens in China does not necessarily stay in China, there is certainly a concern that this bleeds over to other markets including certainly the US, and I think we are seeing that across a wide range of companies especially this earnings seasons. Companies in the chemical industry for example, DuPont and Dow, industrial equipment suppliers like Caterpillar, all reporting some weakness coming from this part of the world. Interestingly, those experiences we talked about Marriott seems to be doing OK in China, but also Starbucks, Apple, their numbers were relatively OK from that part of the world. But we should keep an eye on this because as the second largest economy in the world, that certainly has implications.
Dylan Lewis: Yeah, I want to talk a little bit about the two sides of this. The businesses that operate primarily in China, and also the global businesses that are subject to the whims what happens in the Chinese market. Emily, how are you thinking about companies that have a lot of exposure to China?
Emily Flippen: I think we've seen a lot of companies that have exposure to Chinese manufacturing, and diversify their manufacturing over the last five years for a medley of reasons. But there's still a large number of companies as Ron just pointed out, that derive a significant portion of their revenue from sales made in China and I don't shy away from those investments today. We're talking about one of the largest economies in the world. I don't think investors can ignore it in their portfolios, but there is a difference between buying a company like Apple that has exposure to China versus buying JD or Tencent and then nothing against either of those businesses, but I think the narrative for Chinese companies is very much dictated by the actions of their government and how they're perceived politically in the world, that's driving value for companies. When you see great quarters from JD and Tencent, I mean Tencent had gross profit up 22%, massively beat expectations. The stock is flat. So if you're expecting for the fundamental drivers for these companies to react in the stock market the same way they do for U.S.-based companies, I think that's may be misgiven.
Ron Gross: Yeah, I agree with that. Global companies with exposure to China are fine with me from an investing perspective. You just need to understand that there's likely to be some sales weakness coming from China and that's going to impact earnings and cash flow and maybe what you are willing to pay for a company at least in the shorter term. Pure-play China-based companies admittedly aren't really my thing. Too much risk for me, too hard for me to figure out although I'm sure some will do pretty well.
Dylan Lewis: Emily, I'm curious with a quick take on this one. Are you interested in Chinese companies or is this something that's in the too-hard bucket for you?
Emily Flippen: I still hold many of my Chinese investments. I haven't added to them recently mostly because of the uncertainty around their politics.
Dylan Lewis: All right. Emily Flippen, Ron Gross, will see you guys a little bit later in the show. Up next, we've got insights on a surprising category that's capturing experienced spending here in the United States. Stay tuned. You're listening to Motley Fool Money.
Dylan Lewis: Welcome back to Motley Fool Money. I'm Dylan Lewis. We've been seeing the trend of consumer spends which from goods to travel and experiences and that's helped fuel a massive post-pandemic rally in Vegas. VICI CEO Ed Pitoniak has seen it firsthand his company owns major Vegas properties including Caesars Palace, Las Vegas, MGM Grand, and The Venetian Resort. He sat down with Motley Fool Money's Deidre Woollard to talk about what to expect next on the Las Vegas Strip. Why wellness is an increasingly interesting category for experienced spending and what good real estate deals look like in this environment.
Deidre Woollard: When we last talked back in 2021, VICI has grown so much since then. What would you say is the biggest difference between now and then in the growth in your real estate portfolio?
Ed Pitoniak: I got to tell you, Deidre, so we were five-and-a-half years old since our IPO. I got to tell you that years here at VICI feel like dog years. A few years ago feels like eternity ago. At the time I would have talked to you we would've been collecting maybe $1.4 billion rent a year, 1.5, we're on track next year in 2024 to collect almost $3 billion of rent. When I spoke to you, we definitely announced our Venetian acquisition, which we announced on March 1st, 2021. Then we announced, I don't know when we spoke, Deidre, if we had announced their MGP acquisition, which we announced around this time in August of 2021. Those were two truly transformative transactions, not only did they nearly doubled our size, but they greatly expanded our presence on the Las Vegas Strip. Before those two acquisitions, we had two assets on Las Vegas Strip, Caesars Palace, Las Vegas, and Harrah's Las Vegas. Today we have 10 properties in Las Vegas Strip. That's probably one of the biggest transformative elements in not only the scale of our portfolio but also the quality of our portfolio given the quality of those assets, especially when combined with the incredible quality of the MGM regional assets that we've acquired through the MGP transaction. So greatly increased scale, greatly increased quality and obviously, since we last spoke, we've also gone into the S&P 500 and become an investment-grade credit. So it's been very transformative two years.
Deidre Woollard: It certainly has and part of the transformative story there is about Las Vegas and you at VICI have bet on Las Vegas. It's been incredible to watch that city bounce back. You've got domestic travel, conventions are coming back, international is growing. You've got some land to play with, and I'm very excited to find out what you'd think VICI might do next with that.
Ed Pitoniak: Well, first of all, Deidre, you're right. Las Vegas came roaring back once it really fully reopened after COVID. In fact, I think it's safe to say Las Vegas has probably been the busiest place on earth for the last year or so. As we look forward, we're very excited about Las Vegas continuing to continue to broaden and deepen the experiential offerings that it offers forth every single day of the year. Obviously, we talk a lot about the residencies, whether it'd be Adele or Lady Gaga or Bruno Mars, Rush, or others. But we also talk obviously about an ever-expanding food and beverage or culinary scene. The other big news in recent years is the arrival of professional sports. First with the Las Vegas Golden Knights in 2017, just won the Stanley Cup championship this spring. The arrival of the Las Vegas Raiders a couple of years ago, the expected arrival of the Oakland A's, and a whole lot of talk out of the NBA led by the commissioner himself, Adam Silver, that Las Vegas will be one of the next growth cities for the NBA and will also happen to be the location and the first in-season tournament final for the NBA this December. And that's never mind, F1 and the Super Bowl in November and February respectively. But when it comes to sports, what we're particularly excited about is the fact that you can now envision what we call the sporting triangle of Las Vegas. That is formed my Allegiant stadium, where the Raiders play, T-Mobile arena, where the Golden Knights play, and the A's stadium which will sit just about where the Tropicana casino sits right now. If you draw a triangle among those three locations, we own all the land and buildings, virtually all the land and buildings within that triangle. MGM operates them and MGM is working on some very powerful ideas in how to intensify and densify the experiences that can be offered within that triangle and we're very excited about supporting MGM in that effort.
Deidre Woollard: I love that because it highlights the fact that VICI is moving on from being just, it's been known as the gaming REIT, but you're really involved in some other things that are much more experiential now, certainly as part of the revitalization of Las Vegas that way. But I want to talk about your news with Canyon Ranch because I find this fascinating. VICI has provided equity investment and mortgage financing. But I found what was really intriguing here is the agreement centers on converting other properties potentially into Canyon Ranch property. So you've got this really powerful luxury brand. You've called it a generational opportunity. That sounds like a longer-term investment in the brand. Is that what you're seeing here?
Ed Pitoniak: Yeah. It is a definition of long-term investment capitalizing long-term trends. Canyon Ranch has been around almost 50 years. First and Tucson around 1980 then in Lennox around 1990. It has become one of the leading brands in the world when it comes to holistic wellness and life enhancement. Yet with only those two full resort locations, there will be a third we're helping to finance coming soon next couple of years in Austin, Texas. But exactly your point, Deidre, we think that the canyon ranch economic model is so powerful that if we can transport that model to conventional resorts that have high conversion potential to Canyon Ranch resorts, we really open up the map for Canyon Ranch both domestically and globally.
Deidre Woollard: So, Ed, I'm really interested in the relationship with Canyon Ranch because you've got luxury wellness, they're very powerful brand. You've also got this partnership with Great Wolf, which is sort of entertainment, kids, fun, water slides. Why are these types of deals attracted to VICI right now?
Ed Pitoniak: They're attractive, Deidre, for both, if you will, cultural reasons and demographic reasons. The cultural reasons have to do with the case, Canyon Ranch with the fact that wellness is really becoming a more powerful force in everyone's lives, not only of the baby boom generation of which I'm a member but younger generations as well. In the case of Great Wolf, it is a bedrock cultural element. The kids love to play in water. You could almost think of Great Wolf being like Canyon Ranch for kids because kids feel really well when they get to play in water the way they do at Great Wolf. So once again, it's tying into the way people want to live and play for decades to come. I think both brands, Great Wolf and Canyon Ranch tie into that.
Deidre Woollard: Well, I wanted to talk about something else too. You've deepen your footprint in Canada recently with four casino properties in Alberta. I was curious. Is this the case of the right opportunity at the right time or are you looking into more international expansion?
Ed Pitoniak: It's really both. They were the right opportunities at the right time. But they are also part of a deliberate international expansion strategy that you'll see us undertake over the next few years. We believe that Canada is a fundamentally good place to invest, it's somewhere I actually lived for 16 years, I know well, Alberta happens to be a great place to do business, but we're also very intrigued with UK, Europe, Australia, and New Zealand. Again, we will be both opportunistic and the way we were in Canada and we'll also be strategic in terms of the way we grow into these countries.
Deidre Woollard: Thinking about the Canyon Ranch and the Great Wolf properties, would you be considering working in partnership with those brands as they expand, perhaps internationally?
Ed Pitoniak: Very much so. And we think both of them in fact have very compelling international expansion opportunities. Neither of them, or I should say, both of them have offerings that are really not exactly replicated by competitors or other brands in international markets.
Deidre Woollard: So when you're looking at opportunities, what is it appealing about a potential, about a region or a city that feels like it might be the right place for that type of thing?
Ed Pitoniak: I would say that fundamental issues have to do with what are the forecast for demographic, cultural, and economic health in those regions, whether they be domestic or international. You want to know that there's going to be a certain level of prosperity, a certain level of human energy, and a certain ability, both economically and if you will, psychologically, to engage in discretionary experiences, which is what the creators of our experiences are all about.
Deidre Woollard: If I find that interesting as VICI moves beyond Las Vegas, you're entering into smaller markets, different types of markets. So it seems like it's a little bit different than where you were in the past.
Ed Pitoniak: That's true and I would say that we're so proud about the fact that Las Vegas is an ecosystem unto itself. Then we can't expect and shouldn't expect all of our investment activities to be of a scale or magnitude and an impact with what we can achieve in Las Vegas, we can invest in really great experiential properties occupied by really great experiential operators outside of Las Vegas. We just have to accept the fact and we gladly accept the fact that the economics of those properties just simply aren't going to rival those of The Venetian, MGM Grand, Caesars Palace, or Mandalay Bay.
Deidre Woollard: It would be hard to rival those, absolutely. But when we talk two years ago, we talked a little bit about the growing legalization of gaming and sports betting that has only increased since then. You've got properties outside of Las Vegas that are involved in gaming. How have those changes impacted VICI?
Ed Pitoniak: I think the real benefit of online gaming, but in particular, sports betting is that sports betting has given gaming operators a chance to engage a younger audience in a way they've never had the opportunity to do so before. Sports is one of the two great national conversation topics, weather is the other one. Getting operators do sports betting have had a chance to engage a younger demographic. That was really vital to the COVID recovery because younger people return to out-of-home experiences sooner than older people did. So both regional gaming and Las Vegas came back quicker more powerfully because of this newly engaged, younger clientele that had been accessed through that younger clienteles, avid interest in sports in all of its forms and in all the ways they can engage with whether it'd be viewing or betting.
Deidre Woollard: Golf is part of the VICI property portfolio as well. How are you thinking about the long-term value of golf properties? Is there still going to be ongoing demand for golf?
Ed Pitoniak: Yes. When we invest in golf the way we have with Cabot, we're investing in a very particular golf. It's what we call pilgrimage golf, Deidre. Cabot is in the business of making golf places and operating golf places we believe are going to endure for generations to come, much in the way Canyon Ranch will endure for generations to come. In doing so, they're really following the model of famous golf places like St. Andrews, like Pebble Beach, like Pinehurst, where you're creating a destination of such rarity that you will be creating a place that remains popular no matter of the economic cycle or no matter the larger trend waves that golf on a holistic basis may go through.
Emily Flippen: That makes sense. Well, thinking about the future, I know you're always looking for good deals. You always seem to have great cash available when you're ready. What do you think constitutes a good deal in this market?
Ed Pitoniak: [laughs] Yeah, it's getting harder to know day by day. Deidre fee is the equity and credit markets especially has been so volatile. We saw that last week with the US tenure treasury. I think it moved almost 20 or 30 basis points in a week. These are moves that are really hard to get your head around. It makes it hard to predict and forecast exactly what's going to be a good deal and what will prove not to be a good deal. But you are right, we have a lot of liquidity. We have lot of unsettled forward equity. We have a lot of cash. It does give us firepower at a time when a lot of others don't have firepower. We're using carefully to make sure we're buying great real estate occupied by great partners on terms it creates shareholder value.
Dylan Lewis: Motley Fool Money doesn't have a Vegas residency yet, but you can catch us on the radio weekly and every day in your feed wherever you listen to podcasts. If you're looking for stock ideas, we've got a report, Five Stocks Under $49 for free at fool.com/report. That's right. Five-stock picks totally free at fool.com/report coming up after the break, Emily Flippen and Ron Gross return with a couple of stocks on their radar. Stay right here. You're listening to Motley Fool Money.
Dylan Lewis: 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. I'm Dylan Lewis joined again by Emily Flippen and Ron Gross. We've got stocks on our radar coming up in a minute. But first we have to talk food. We always talk food in the D segment here. This week, activist investors Starboard Value announced a 9.9% stake in Outback Steakhouse owner Bloomin' Brands. Ron, Starboard has a history of restaurant brand turnarounds, notably Olive Garden owner Darden Restaurants. You think they've got the recipe for something good here?
Ron Gross: Starboard Value, who I worked with quite a bit back in my hedge fund days, they're very good at what they do. They have strong experience in the restaurant sector, as you mentioned Darden, for example, where they cut costs, increased efficiency, sold more alcohol. They famously went after the quality of the breadsticks and the fact that they were bottomless over at Olive Garden. They know what they're doing. They also were involved with Papa John's and 2019. Bloomin' has been a tough nut to crack, so to speak. Jana Partners went after them twice. My former firm, Barington Capital went after them back in 2018. No activists has really gotten in there and increase shareholder value in any significant way. But I think Starboard Value is going to give it a shot. It's unclear what changes they want to push for right now, but we'll certainly keep an eye on it only nine times forward earnings. The stock is cheap and if they can get something done, this could be interesting.
Dylan Lewis: Personally, I think I'm happy to pay $11 for a Bloomin' Onion instead of $2 billion for roughly at 10% stake in Bloomin' Brands. Emily, is there another restaurant or fast food brand that should embrace the Bloomin' way of a menu item as the parent company theme name.
Emily Flippen: Yeah, like as long as you don't touch the Bloomin' Onion, I think all the investors are going to be OK, but I will say, you know, Taco Bell, I have beef with Taco Bell. Nobody goes to Taco Bell for the Tacos. You really need to rename it like name it Crunchwrap, Supreme Bell, I don t know Quesarito Bell. But Taco Bell is, that's bad. Burrito Bell would be better.
Dylan Lewis: There's an opportunity there.
Ron Gross: You can't change iconic names, like McDonald's, Wendy's, and White Castle tells you nothing about the fact that they're burger joint, but the ship has sailed. We're not going back to the drawing board on those guys.
Dylan Lewis: You already know. Let's get over to stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Ron, you're up first. What are you watching this week?
Ron Gross: Oh Dylan, you're going to love this one. Courtesy of my friends over at our firecrackers service. It's Astec Industries, A-S-T-E. It's a relatively small company, only 1.1 billion in market cap, produces equipment for a variety of industrial services including road improvement and production. They make mining industry equipment, they crush rocks, and then they have an asphalt and concrete product line. They currently have record sales improving earnings as they become more efficient. The Biden infrastructure bill is going to help them. That's going to be $110 billion put to road repairs over the next five years. I need to dig into valuation a bit more because it looks cheap at 16 times forward earnings compared to the market, but not compare to similar industrial companies. I just wanted to make sure I know what I'm getting there if I decide to pay this price. Only has a 1% yield, but for dividend investors, not too bad.
Dylan Lewis: Dan, a question around what sounds like a classic Ron Gross stock Astec.
Dan Boyd: I have a theory that Ron Gross, when he was about four years old, went to a near construction site and saw the people working in all the machines and said, you know what, that's what I'm going to follow. That's what I'm going to be interested in for the rest of my life.
Ron Gross: That's what I'll never do, but I will be interested from afar.
Dylan Lewis: What kid doesn't love big trucks?
Ron Gross: Exactly.
Dylan Lewis: Come on. It's classic toy stuff.
Dan Boyd: Emily, what's on your radar this week?
Emily Flippen: After the contrary, big trucks always just gave me a headache. I'm looking at a completely different business this month, and that's nice. The ticker is literally N-I-C-E. They're like a call center as a service business, but also has some cloud-based enterprise solutions, mainly aimed at things like compliance and public safety. I always described it as like a jack of all trades master of none. But they had a really strong second quarter. They had revenue rising 10% earnings, rising 33%. They even raised guidance. But of course, what did the market do? It crushed them. They did not raise guidance enough, which implies that there's going to be a slowdown in the back half of the year, but they have really nice tailwinds. They continued to actually integrate and actually commoditize, like they're monetizing the value from AI, from their call center options. Strong business, just some temporary weakness.
Dylan Lewis: Dan, a question about nice.
Dan Boyd: You know I'd never heard of this company. Now learning that there customer call centers as a service. I mean, like wow, I can't talk about how incredibly interesting this company is. Emily, thank you so much for bringing it to my attention.
Emily Flippen: If it makes you feel any better, they actually got started in Israel as some former Army members, is actually focused on things like financial crime and compliance. It's a little bit more interesting than what you're probably imagining.
Dylan Lewis: Dan, I think I know already but which one's going on your watchlist?
Dan Boyd: Big trucks for the weighing. Let's go Astec.
Dylan Lewis: Emily Flippen, Ron Gross. Thanks for being here and bringing your stocks this week.
Ron Gross: Thanks, Dylan.
Dylan Lewis: That's going to do it for this week's Motley Fool Money radio show. The show is mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll see you next time.
