Stock Stories With a Valentine's Day Theme? Why Not?

In this podcast, Motley Fool host Ricky Mulvey and analyst Nick Sciple discuss:

• Wall Street's reaction to the latest inflation news.
• Shopify acting like a growth stock.
• A new partnership for Tiger Woods.

Motley Fool analysts Jason Moser and Bill Mann join host Alison Southwick and Motley Fool personal finance expert Robert Brokamp to share some Valentine's Day themed stories about stocks.

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 Feb. 13, 2024.

Ricky Mulvey: If you need to look at your investments today, check the one year chart two. You're listening, to Motley Fool Money. I'm Ricky Mulvey, joined today by Nick Sciple. Nick, good to see you.

Nick Sciple: Great to be back here with you Ricky. I on Mardi Gras as a Mobile Alabama native. The home of Mardi Gras in the US. It's a great day for me and I'm excited to be here with you.

Ricky Mulvey: Happy Mardi Gras. Not so happy day for the stock market. Got an inflation report that it wasn't to not celebrating quite like they are down in Mobile, Alabama and in Louisiana. Market appears to be taking a breather as the CPI print came out to three and we got to use decimals here, I'm sorry, 3.1% on the year. The economists wanted 2.9%. This is a rounding error Nick. Is this really a bad report or is this an excuse to sell?

Nick Sciple: Maybe both. I guess I would answer your question, yes. Not either or, just yes. It's a bad report just in the sense that came in worse than expectations for some market participants out there. That is a reason to sell. As we all talk about or know, valuations reflect expectations about the future, the higher those expectations are, the more the market is going to react, and reality fails to match those. Foolish investors are probably familiar with what happens when companies report earnings and businesses put out results that are different than the market expects. We'll talk about an earnings report here in a little bit. Macro also responds to expectations. In this case we've seen the market coming in today. Was up over 5% year to date in part. That was driven by expectations that the Fed might be getting ready to cut interest rates. Following today's inflation report market expectations for a Fed rate cut in March have fallen down to below 10% a month ago. Those expectations, we're discounting a 70% chance of a rate cut and so that change in expectations, how it affects valuation models, really is what's driving the selling today.

Ricky Mulvey: The Fed's not just looking at 0.2% miss, it's looking for the long term trends and that still appears to be good on inflation. I don't know. It always seems like those equity analysts are a little quick on the trigger to me. Let's look inside the report. There is some good news for people who buy stuff because inflation overall is slowing down. You've got used vehicle prices down about 3.5%, overall, grocery prices down about the same amount. Apparel down about a little less than a percent. The bad news, it's always mixed, you've got shelter prices up on the month, 6% year over year. It doesn't look like a huge deal to me. I saw a headline in the New York Times that said stock sink is stubborn inflation resets Fed forecasts. This is alarmist, Nick.

Nick Sciple: It could be, if you want to look on the bright side, the rate of the change is slowing down while we still have inflation coming in at 3.1%. That's lower than what we saw in December at 3.4%. We're slowly but surely ticking down toward that 2% target that the Fed goes after. However, I do think, the stickiness of inflation, this sticking around for longer than the market expects, and shows that inflation is stickier than the market had expected. I think historically expectations about inflation are real drivers of inflation. It could mean that market expectations maybe have stuck in. I will say looking at that shelter price inflation number, we still remain in a market where real estate is scarce. You see that in the valuations of companies out there in the market, limited resale inventory leads, brokers really having a tough time, but folks selling new homes are at all time highs and really sitting pretty. I think that that's part of what we're seeing in that shelter inflation number.

Ricky Mulvey: Maybe a reason to look at some home builders. Let's move to the Shopify earnings. What a tough day to release earnings that miss a couple of expectations for a growth stock. The earnings in the stock though, telling two very different stories. Usually, you hear about a company beats earnings, but then they issue softer guidance, so the stock falls, that's the PayPal story from about a week ago. This time we've got an earnings beat, we've got a swing to operating profitability. How about that year of efficiency guiding for 20% revenue growth, that's in line with Wall Street expectations. The stock is down more than 10% this morning. What's the street so fussy about?

Nick Sciple: Again, it comes down to expectations. As you mentioned, revenue growth, guidance, strong. However, operating expenses are going to come in a little bit heavier than the market was anticipating. As you said, look at this fourth quarter, this quarter just completed really strong performance. Hard to argue with any of those numbers. Revenue up 30% when you exclude the divestment of the logistics business. In 2023, it was the largest revenue quarter in the company's history. Gross profit delivered another company record up 33%, free cash flow margin at 21%. Shop Pay doing very well, just gross merchandise volume up 32%. Year over year and now it used on 60% of transactions on the platform. Even offline, the company is doing very well, offline gross merchandise value up over 20% year, every year. Looking backwards number is great everywhere, looking forwards. Again, if you look at the revenue number, great. You cited that 20% revenue growth number, if you exclude the logistics business, again, which has been divested, you're looking at more like a 25% plus revenue growth rate which is pretty good. Gross margin expected to expand. That's good. But again, as I mentioned, operating expenses is where the problem shows up. Guidance calls for a low teens increase in operating expenses. If you treckle that forecast down, you're looking at an operating income number somewhere in the 170 plus million dollar versus expectations, we're in the $380 plus million. For analysts out there in the market, you're also seeing free cash flow margin expected to fall meaningfully down to a high single digit percentage of revenue from over 20% we just saw in the most recent quarter. It is interesting though, driving into those increases in operating expenses. Management said there's two things behind that increase. One is employee costs. The company is citing payroll taxes that they're going to have to manage in the next coming quarter as well as employee compensation increases. Although you're not going to increase headcount folks do have some of these raises that kick in at the start of the year. But the other one is a little bit more interesting, which is marketing expenses. The company says it's going to push harder on performance. Marketing claims to have improved its performance. Marketing performance, saying, "It's unlocked some opportunities to reach potential customers at highly attractive lifetime value to customer acquisition costs and payback periods Including reducing payback over 30% through the use of AI and automation." Really they're saying our marketing is performing better than expected. We think we can get better results than we've seen in the past. We're going to push even harder on spending. If they're right, this increased spending today will result in significant returns in the future, so we shouldn't be upset about this increased operating expenses, but that really time will tell whether those results pan out. I'm going back to sum it all up. Good results in previous quarter however the company is spending more than expected, which has folks selling the stock but if those investments prove out, this might be a buying opportunity for long-term investors.

Ricky Mulvey: You're telling me a growth company is acting like a growth company?

Nick Sciple: I guess so. Founder led company, willing to invest where they see opportunities out there in the markets and willing to take the short term lumps to make that happen. We'll see whether those investments pay out, but management has said, we think that there's opportunities here and we're going to go after them.

Ricky Mulvey: Let's take a look at some of the strategy highlights from management. You tell me if any are worth investors' attention. One is that it's going more into the B to B commerce space. Signing a deal with carrier. They do some systems introducing a ship to store from, I haven't said Spotify, Shopify point of sale, which allows brick and mortar locations to ship online orders. A little bit of a departure from owning warehouses with Flexport. You've also got, speaking of marketing, Mr. Best, promoting the Shopify app, putting out a video that was by 40 million views larger than the biggest audience for the Super Bowl this year. You've also got some AI Copilots. We've got to have AI in their, Nick. You've got AI Copilots, photo editing tools, that thing. Any of these strategic initiatives worth investors attention?

Nick Sciple: Well, the Mr. Best one stood out to me just because it dovetails with that management commentary around expanded performance marketing spend ways to reach more potential customers at attractive prices that this Shoify of Mr. Best video has over 165 million views, help drive a spike in downloads for the shop app. This collaboration comes after the company did another collaboration with Drake last year, which presumably must have had some good results to see continued spending. It could be that the expanded marketing spend the company is talking about which means we'll see even more of these partnerships to try to juice growth in the business. If they're seeing good results in the numbers they're talking about, then that's good spending.

Ricky Mulvey: Let's talk about the price for a second. In 2021, Shopify traded at a 60X60 revenue multiple. Now it's at 15X. I say this firmly with my tongue in cheek. Are you ready to call this a value stock?

Nick Sciple: I don't know about a value stock, Ricky, but definitely more in line with where the company has historically traded. Really saw a massive multiple expansion in 2020, in 2021. That said, multiple has expanded a bit from where we saw the company this time last year. I'd just say it's not a value stock, it's a rule breaker. This is a company that's always traded over 10x sales, has always looked expensive when you just look at the trailing numbers, but it's also a business that is undoubtedly the top dog in its industry and that continues to expand its market every year. You talk about business to business sales. I talked about the offline business growing at a 28 percent rate. This is not just a company that's captured it's market but is growing, creating new markets year after year. I think that's the type of company that can continue to be at the market's expectations even when they're very high. If they can keep doing that, then it's best days are still ahead of it.

Ricky Mulvey: Let's talk about a big deal in the golf community, which I know you're following. Earlier this year, Tiger Woods left Nike. Now he's got a new brand with TaylorMade Golf equipment. It's called Sun Day Red. Woods is getting his own headquarters designers and staffing. Looks like it's functioning as its own business. TaylorMade management confirmed that Sun Day Red is planning to launch a golf shoe early next year, if not sooner. You told me this was a big deal and really interesting, why is it? Why is this a big deal?

Nick Sciple: Sure. Well, obviously anytime you hear the name Tiger Woods in golf, it's a big deal. He's the Michael Jordan of the sport with this Sun Day Red brand getting built out. Sounds like the Jordan brand for golf, which maybe Nike took a crack at doing over the past 27 years, but wasn't able to have the success that they hope to have. Clearly, that's why they've reduced investment in the business. Woods has had a relationship with TaylorMade going back to 2017. That's when Nike exited the club's business. This expands Tiger's relationship with TaylorMade into the apparel area that he had retained the apparel relationship with Nike even after going to another club manufacture. But this movement into not just an apparel relationship but TaylorMade now going to launch a golf shoe as part of the Sun Day Red brand early next year, if not sooner. This is a segment that TaylorMade currently doesn't operate in. If you go to the golf shoe segment of TaylorMade's website, you see two flip flops and one old out of date women's golf shoe from an old collaboration. This is really breaking into meaningful segment of the golf apparel market that the TaylorMade has not traditionally operated in. I follow a company we've talked about here on the podcast, I guess around this time last year, Kushnet Holdings. Ticker is golf. They're really the top dog in this segment with their FootJoy brand. That's one that Tiger had been wearing on tour since separating from the Nike apparel relationship. You've seen that stock down about five percent this morning concern about, well, with this new brand entering into the market, could that change competitive dynamics in the space? For my part, I'd like to see the Sun Day Red brand prove it first. Nike really made lots of efforts to break into the golf business and had some issues.

Dedicated golfers tend to stick to the products they like. They're a pretty particular bunch. While dedicated golfers, this group is only about 15 percent of players. They spend about 70 percent of the dollars in the sport. That's an area where FootJoy already has some really strong relationships. Unlikely to dislodge those established relationships. However, for new and beginning golfers, really this is an opportunity to capture them or to shift golfers away from some other brands. One other thing worth mentioning, TaylorMade last year made an investment in Popstroke, which is a top golf, but at put version of that is an area that Tiger's also invested in. You could see some synergies with the Sun Day Red brand in that investment in the way that TopGolf tries to push Callaway products and Travis Matthew products. You could see this Popstroke retail location being used as a way to try to push this Sun Day Red brand.

Ricky Mulvey: If you were in the TaylorMade boardroom, is this a deal you would have gone after? Tiger, I would say, is synonymous with Nike. Now you have the TaylorMade and their owners, which is the hilariously titled private equity firm, Centroid Investment Partners, credit where credit is due to their creativity. Tiger has got some risks. He's on the tail end of his career and it's going to be really expensive to get him to wear your shoes. Is this going to be worth the money?

Nick Sciple: Well, we'll see. I certainly would have kicked the tires on it if I was again Centroid, if I was TaylorMade. Tiger is the most influential famous golfer in the business, is going to be the one who's most likely to move the needle for you. It all depends on the price. There are some real risk though. You mentioned Tiger being at the end of his career. Folks might not remember three years ago really seriously injured himself in a car accident. Could have ended his career there. Has had some issues in the past with operating a motor vehicle. Not only that, the career coming to an end, there are some risks that some unexpected things could happen with Tiger. But I think private equity managed business looking to make a big splash. Maybe this company would like to go public at some point in future. The Tiger relationship would be helpful for that. Let's just say that. There's a risk to the deal but I think it's the type of thing that you have to go after if it's presented to you.

Ricky Mulvey: Nick Sciple, I'm glad you're not at Centroid Investment Partners. I'm glad you're right here at the Motley Fool. As always, appreciate your time and your insight.

Nick Sciple: Happy to be here with you Ricky.

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Ricky Mulvey: What was your first love? I'm talking about stocks, of course. Allison Southwick, Robert Brokamp, Jason Moser, and Bill Mann caught up for some stock-themed Valentine's Day stories.

Allison Southwick: Valentine's Day is tomorrow. Maybe you're planning to spend it with loved ones. Maybe you're planning to scrunch up your face and say it's a stupid made up holiday designed to sell chocolates and greeting cards. Or maybe like us, you're going to pour yourself a glass of something, sit back, and reminisce about the big loves of your life, the ones that got away, the ones that broke your heart, but stocks. Bill Mann and Jason Moser are analysts here at the Motley Fool, and they are joining us today in studio to share some of their big loves and losses in their investing in life. Hi guys. Thanks for joining us.

Bill Mann: Addie, I have a question.

Allison Southwick: Here we go. We're already gone off the road.

Bill Mann: Didn't even say hi. I have a question.

Allison Southwick: Fine.

Bill Mann: I'm just so happy to be here.

Allison Southwick: Ask the question.

Bill Mann: I know.

Allison Southwick: Okay.

Bill Mann: Today is Mardi Gras and tomorrow is Valentine's Day. Which means tomorrow is Ash Wednesday and Valentine's Day at the same time. What do our friends in Mobile and New Orleans do? Which is more important?

Jason Moser: Well, for some people it's a day of fasting, so that does not make for a very romantic [OVERLAPPING] .

Bill Mann: This is my point. Sorry. I was thinking about that earlier and I thought that I would bring it to the Grand Council.

Allison Southwick: Thank you. I have no answers for you, but I'm sure someone in our audience does. No more questions except the ones coming from me. Are you ready?

Jason Moser: Yes ma'am.

Allison Southwick: Here we go. First thing I want to know about is your first love by which we mean the first stock you ever bought. Jason, tell us about that first love.

Jason Moser: Oh, the first love, the one that I bought first. The first stock I ever bought. Let me think about this for a minute.

Allison Southwick: Bill Mann, why don't you go first?

Bill Mann: He didn't do his homework. My first love was impetuous, it was irresponsible.

Bill Mann: It was a little company called Midcom that I thought was going to go to the moon and it went to the moon in a very aggressive way.

Jason Moser: What did they do?

Allison Southwick: [laughs] What did it have done? This metaphor-loving day for stock.

Bill Mann: [laughs] They lost bunny, is what they did mainly. They were super good at it. I learned from the first, and the second was Berkshire Hathaway.

Allison Southwick: That worked out.

Bill Mann: That's the rebound.

Bill Mann: I think that was a good rebound.

Jason Moser: I think this is interesting because the first stock I personally bought, it's not the first stock I ever owned because I got gifts from my father along the way. But the first one I ever purchased on my own was Cisco.

Bill Mann: The forks and knives company?

Jason Moser: No, I'm saying it was the tech company, Cisco and that was back in 2000ish. You do the math, it wasn't really an opportune time to be purchasing.

Allison Southwick: But everyone was talking about it, like you turned on CNBC and it was like Cisco.

Jason Moser: Exactly. That was the first one I ever purchased on my own. I did that with the assistance of my, at the time, Edward Jones, account representative, when my dad had opened up that brokerage account.

Allison Southwick: He introduced you guys?

Jason Moser: He introduced us, he facilitated the relationship.

Bill Mann: He was the batch baker. Little did you know that he was actually talking about the forks and knives company, but you just didn't pay attention.

Bill Mann: Do you still own it?

Jason Moser: I do not.

Bill Mann: Because I think it's still down from that. I don't think it has ever recovered its price.

Allison Southwick: Wow.

Bill Mann: From then. That's a long-term buy-and-hold-and-cry.

Bill Mann: We will come back to this one a little bit later.

Allison Southwick: Will we? A little foreshadowing. Our next question is, what's your number? By which we mean, how many stocks do you own today?

Bill Mann: My number is complicated.

Jason Moser: It's complicated. He's giving a status updates here.

Bill Mann: I'm giving you a status. It's complicated. Well, because they are the stocks that you own for your kids and so things of that nature. But my number is 26.

Allison Southwick: Really?

Bill Mann: Which I understand to be more than some and fewer than most.

Allison Southwick: It feels a little low, but I mean, I know you're an upstanding guy and a good investor, so I think those are going to be quality 26. I pulled that out.

Bill Mann: Twenty of them are good, 6 I'm angry at. I've owned most of them for a very long time.

Allison Southwick: How long is a very long time?

Bill Mann: Well, Berkshire Hathaway was the second stock that I bought and I still own it. So that's more the case than not the case for me.

Allison Southwick: Jason, what's your number?

Jason Moser: My number right now it's 35 different publicly traded companies. Now I will say I own stock in the Motley Fool because we are fortunate enough to be able to do that, so 36 technically, but that's not really true because most people don't have that opportunity to own shares in such a wonderful business as ours so 35 and I kind of like Bill, I've always felt that number could be lower. But as I get older, I kind of default to not selling. If it's not working, it's not working, I still want to give it a chance, but it's not something I'm adding to. The number does seem to kind of grow a little bit as, as I get older as well so 35.

Allison Southwick: Maybe I'm wrong, but I feel like our listeners would be surprised to know that you guys are, that's how many stocks you own because you work at a company that recommends buying stocks. I would think that you would just be constantly adding. But I don't know.

Jason Moser: Well, it'd be nice if we could, but I think it's also always worth remembering that we have internal trading guidelines here that make it a little bit more difficult for us to just be able to buy and sell whenever we want, right? So because we're in the business of offering advice and writing about those companies, we have those internal guidelines that just make it a little bit more difficult for us to be able to transact like our members can.

Bill Mann: Allison, let me tell you a love story.

Allison Southwick: I want to hear. That's why we're here.

Bill Mann: This is how this works. Yes, we do recommend companies all the time, but I find it's the ones that you know for a really long time that sometimes turn out to be better opportunities than the brand new thing, which you don't know as well, it's just shiny and beautiful and you have not figured out its faults just yet.

Bill Mann: Fool's gold. Out of curiosity, are those the only investments you own or do you also complement that with mutual funds, index funds, anything like that?

Jason Moser: Well, I guess I actually do own a little bit in an S&P index fund, but that tends to be kind of a vehicle. It's other than that, real estate I think and that's kind of where it draws. I'm no crypto, no gold for me just yeah.

Bill Mann: I've got the usual, you know, Panamanian farmland and molybdenum and things like that. I've got some fun. Those sorts of things.

Allison Southwick: Our next question is, what's the one stock that you've married? By which we mean a stock that you never see yourself selling out of entirely?

Jason Moser: Well, I'm sure everybody would be just absolutely flabbergasted to hear that. I'm going with McCormick, so I will it's just such an answer for me because it's a stock that I've owned for a long time. It's one that I've continued to add to as I get older, it fits only more and more into my retirement strategy with dividends. The dividend aristocrat, I assume that at some point here, it will be a dividend king. I will cook as long as my body and mind allow, which means that my kitchen will always be just stocked with McCormick spices and flavors, and whatnot.

Bill Mann: Jason Moser by a number of hours, how long has it been since you've consumed something that McCormick makes?

Jason Moser: Well, had dinner last night.

Bill Mann: That's not a number, but OK.

Bill Mann: I'm not so good with my math Bill.

Allison Southwick: Bill. How about you? Which stock have you married?

Bill Mann: Jason. Can you guess mine? I could have guessed.

Jason Moser: I imagine Berkshire Hathaway or Costco.

Bill Mann: Thank you. Costco. Costco, a couple of weeks my wife, and I went in to get one item and we came out with 29. It's just the two of us now. We're not buying useful things for kids running around, we just came out with 29 items and I think about that a lot.

Jason Moser: They were well-priced and take up a lot of space.

Bill Mann: These both are true.

Allison Southwick: This week, because Valentine's Day is tomorrow, we're talking about love. Our last question for today is, who taught you the most about love? I'm looking for a stock that taught you your most valuable investing lesson.

Bill Mann: It all comes full circle because I go back to Cisco.

Allison Southwick: Let's hear this Tale of love.

Bill Mann: I wrote about this years back when I first got here. Your biggest investing mistakes. One of my biggest investing mistakes was ultimately investing in something that I didn't even know, I didn't understand. I did what this representative told me to do and I just took it at blind faith and just said, OK, no, that sounds great in hindsight obviously, it didn't work out so well. It was not the right thing to do. Cisco always stood out to me, whenever I see that ticker, it's a reminder to me, make sure you know what you're getting into. I look at Cisco as one of those ones that always stands out.

Jason Moser: Can I provide a Cisco-related lesson, from someone else, a fellow who used to be our tax expert on our discussion boards Phil Marty sadly passed away a few years ago. But he talked about how he held on to Cisco through the .com days because he didn't want to pay the taxes on it. Well, the market took care of that because he took care of all those gains so he didn't have to pay any taxes. The lesson there, of course, is if it's the time to sell something, don't let taxes deter you from what is the right move for your situation.

Allison Southwick: If it's time to break up with someone, we got to torture this metaphor.

Jason Moser: This metaphor has gotten off too easy. [laughs]

Bill Mann: Mine is also a tale of woe and it is basically this. When someone tells you who they are, you should believe them. The company is called Nuance Communications. It was purchased a few years ago, but it was a company that I bought and held forever because they had all of the licenses and technology for voice recognition technology back in the day when this was the shiny new thing and you didn't expect your refrigerator to respond to you. To this day, their successor company owns all of it, so they get paid but their executive team made sure that all of that money stayed within the building of Nuance Communications and they paid themselves so much money that really nothing ever trickled down to shareholders. After a while, you just have to realize, and this is what I realized from this relationship, that you have to understand that a management team that does not seem willing to pay down to shareholders, you should believe them and move on.

Jason Moser: You're putting so much into that relationship and you got nothing out of it.

Bill Mann: Nothing. They told me that's what was going to happen.

Deidre Woollard: They told you personally. They're like, Bill Mann I'm sorry but.

Bill Mann: Yeah. In the middle of the conference call and Bill no, you looked at me like I was serious. Totally not serious. No. They tell you in things like the proxy statement. That's their love letter and it was all about them.

Allison Southwick: Yeah, that's a good one. Well again, this week we're talking about love. Next week you're going to be coming back to talk more about loss. We're going to talk about the stock that got away, the stock you should have dumped earlier. The stock that really broke your heart, and that one time, you cheated. Yeah, that's right. Jason.

Jason Moser: Don't understand why you're looking at me.

Allison Southwick: You're the one that made the most guilty face so maybe we work on that.

Jason Moser: Nervous tick.

Allison Southwick: Thanks, guys, we'll see you next week.

Jason Moser: Thanks.

Bill Mann: Thank you.

Ricky Mulvey: As always, people on the program may have interests in the stocks they talk about in the Motley Fool, they have formal recommendations for or against so buy or sell anything based solely on what you hear. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.