In this podcast, Motley Fool host Dylan Lewis and analysts Jason Moser and Matt Argersinger discuss:
- Netflix's price increases, and why the economics of its new advertising approach might be better than its subscriber business.
- How making EVs affordable is eating into Tesla's industry-leading margins.
- The Craig Jelenik era at Costco and how the company is doing succession right.
- Two stocks worth watching: Chipotle and Home Depot.
Motley Fool host Deidre Woollard caught up with McKeel Hagerty, CEO of Hagerty, about his company's focus (insuring classic cars) as well as his favorite ride and the unique ways Hagerty tries to reach new customers.
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 Oct. 20, 2023.
Dylan Lewis: Prices are going up at Netflix, but the company might not actually want you to pay them. Motley Fool Money starts now.
It's the Motley Fool Money radio show. I'm Dylan Lewis joining me over the airwaves. Motley Fool Senior Analysts Jason Moser and Matt Argersinger. Gentlemen, great to have you both here. We're going to do a little rundown on the business of classic cars. We have an update from one of the most important companies in the world and of course, we have stocks on our radar. But we are kicking off today with updates on three big time fool stocks. We're going to get the party started with Netflix, Jason, shares of the stream are up over 15% after it reported earnings and told the street, yeah prices are going up again.
Jason Moser: I mean, you got to love it when a company can exercise pricing power. I think that is Netflix's case, they are demonstrating that they can do that to a degree. I think, when you look back at it, I think for some, the introduction of all of these new membership tiers was a thesis breaker in some cases. I do get that. The argument for a long time for Netflix was, it's simple. You only have so many choices. You're paying just this small flat fee, and that was great for that time. But, markets involve competition enters the fray. Obviously, streaming is a very tough business. The bigger that you are, the easier it is to manage those content costs. I think that in regard to Netflix. They're looking at this from two different perspectives. They can raise prices on their ad free offering and offer something to those folks that really don't want to deal with ads. That's good. The folks that really want that, they will pay it. As long as they continue to be thoughtful about those price increases and they don't go too much at once, I think they've still got plenty of room to go there. Now, the other side of that coin now is they have this ad supported offering.
The ad supported offering is something that is really starting to gain some traction. The ad tier is a nice way not only to bring in new subscribers, I think it's, 6.99 a month. It also offers an option for those looking to maybe whittle down their bill while still having access. If you don't like those price increases. Well, now you have another option. Now you have another choice. You can "downgrade" to perhaps the ad supported model. I say "downgrade", because honestly, Netflix would be very happy to see you downgrades to that ad supported model because it is something that is very profitable for the company. They talk about it in the call, the connected TV market, the linear TV market. As they get into that connected TV. The advertising support of the deal and demand. It's $180 billion global opportunity now. With Netflix, you're looking at a business that has fully 70% of their subscribers outside of the United States now, that has been a massive sea change in the customers that this business serves. It's a different business than it used to be, but that's not necessarily a bad thing. It really does seem like they're making this all work.
Dylan Lewis: Jason, you mentioned the $7 a month for ad supported. The premium tier of Netflix will now cost $23 a month, which is almost a double from 2013. I'm trying to make sense of what the growth level is for this business because it seems like they've got a couple different things going for them. You mentioned the ad-supported tier. Seems like we have some flexing of pricing power going on, but we haven't even mentioned the password crackdown. The great password crackdown of 2023. I think we're seeing that show up a little bit in the results too.
Jason Moser: There's no question. We saw I think nine million net new subscriber ads for the core. Significantly higher than really what was expected. A lot of that was attributable to this paid sharing that they're rolling out. That paid sharing offering does make a lot of sense. We're going to see that rolling out. I mean, it's not just Netflix that's doing this. This is going to become basically just standard operating procedure for streamers as they go forward. They find a way to expand that subscriber base, so to speak. In granted, it's going to be a little bit short-lived. They do feel like they're going to see some incremental boost to those paid sharing subscriber ads here in the coming quarters, and that'll eventually die down. But again, it gives them a chance to continue the relationship with the consumer without necessarily losing the consumer and ultimately what it does, and we saw this reflect in the financials. It's meaningfully boosting their margins, their cash flow numbers. They raise the share repurchase authorization to I think 10 billion dollars now, I don't know that I really am so focused on watching Netflix, repurchasing shares, given the content costs that come with running a business like this. But clearly expanding the offerings, giving more tiers of membership. That's working out very well for them. It's having a boost to the subscriber numbers. It's obviously playing out well in the financials, and I suspect we'll see that continue.
Dylan Lewis: Over to another big earnings mover. Shares of Tesla down 12% after the company reported. Q3 results, Matt. I look at the market reaction here and it seems to be a mix of what's in the rear view in the earnings report but also what's ahead for this company.
Matt Argersinger: I think that's right, Dylan. It's a tough environment right now to be in the business of making electric cars. It always is a tough business to be in. Look, despite what many investors think and say this is still Tesla's core business. I know there's AI, there's the robo taxi business, autonomous driving. But building and selling electric vehicles is Tesla's core business right now. On the good side of things, production was up 18% in the quarter. Delivery numbers were pretty solid, up 27%. There's still really healthy demand, particularly for the Model 3 and Model Y vehicles. It's good for Tesla for being able to continue growing at that pace when other vehicle manufacturers aren't coming anywhere near that growth. At the same time though, you've got production expenses which are higher. The cost of capital is higher. Consumers are more strapped because probably more so than any time since the pandemic, we've been through ups and downs in the economy. Now there's a lot more uncertainty, especially with interest rates higher. You look at gross margins for Tesla, they fell to 17.9% That's down from 25.1% a year ago. I think a lot that has to do with sales price. The average Tesla sold in the quarter for 44,000. That's down about $10,000 from a year ago. Tesla, like a lot of companies, is trying to find the right price mix while at the same time trying to control costs, and that's hard. I'd say the good news for Tesla, it's got $26,000,000,000 in cash now, plenty of room to keep experimenting, innovating, investing, and even though shares are down from the report, as we've talked about, Tesla has got this cult of investors that doesn't really care about bad news certainly in the short term. That keeps its equity price pretty high. They can always raise equity if they want and get access to the capital markets.
Jason Moser: You keyed in on something in there too, that's really important to mean. Tesla is still, at the end of the day, it's a car company. But one thing, Musk knows how to do, he knows how to sell the sizzle. I think we can all agree there. You read through the call and we look at Tesla as a car company through today's lens. But in the call, you see him saying things like, we're going to continue investing significantly in AI, that's the massive game changer. Then he goes on to say, you know, if you have a fully autonomous cars at scale and fully autonomous humanoid robots that are truly useful, then it's not clear what the limit is. That's where you see like, yeah, it's a car company today, but obviously that cult of investors that we referred to, I mean, they're looking farther down the line here and they're looking at that language, fully autonomous cars at scale. Autonomous humanoid robots that are truly useful. It is going to be fascinating to see. He obviously has a track record of over promising and underdelivering, at least on a time line. It's going to be really interesting to see what this company looks like in 10 years and 20 years because they have very bold aspirations clearly.
Dylan Lewis: From a company that is incredibly forward-looking and maybe always changing to one that is perhaps one of the most predictable businesses of all time. We saw a change at Costco being announced this week. CEO Craig Jelinek will be stepping down after the holidays ending an 11 year run at the head of Costco. Jason in some way is a little bit of a surprise, but I think if we take a step back and look at some of the movements that this company has been making, maybe not so much of a shock.
Jason Moser: No. I guess I was a little surprised just to see that Jelinek was stepping down. Costco is not a company that I have undercover, so I'm not following it on a daily basis. I guess I just felt like time has just flown by. He was there for, 11 years and now I guess it's time for him to go ahead and step down and pass the torch. But, this is one of those companies where, when it comes to succession, I think you really are looking for someone to be able to step into that role, to just keep that ball rolling. Keep doing what has been done all of these years to make this such a successful business. Costco at the end of the day, it's not a very complicated business. You're selling stuff to your members and you're trying to give them the best price possible. I think as long as they continue to do that, chances are good they'll continue to be successful. Particularly when you're hiring from within. The value there from a cultural perspective is probably really difficult to put a number on.
Dylan Lewis: To your point, Jason, Jelinek's replacement Ron Vatchz started as a forklift driver with the company over 40 years ago. We look at this internal promotion and someone who has been with the company for a long time, Matt, does this feel like succession planning done right?
Matt Argersinger: Absolutely. It's what you'd love to see. Both Vatchz and Jelinek were COO before they became CEO, they were both with the company. Jelinek, I believe joined in 1984. He was a warehouse manager and kind of moved his way up. You mentioned Vatchz who was a forklift driver and moved his way up. This is how you'd love to see it done, but I like the points you guys made about what's unique about Costco's business though. Well, maybe it's not so unique, but it's just such a steady, consistent business, almost unshakable business model. I'm not saying a CEO coming in, can't really change things or could mess things up. But this is the opposite of that famous Warren Buffet quote. Which is, when a manager with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it's the reputation of the business that remains intact. Well, in this case with Costco, you have a business with very sound fundamental economics and that's going to remain intact really, no matter who is at the helm. But I do love the way they do the succession at Costco, and I can understand why there's been really no reaction to the stock price because this is a business that's just going to keep churning.
Dylan Lewis: Coming up after the break, we've got updates from major bellwether companies. Stay right here. You're listening to Motley Fool Money.
Dylan Lewis: Welcome back to Motley Fool Money. I'm Dylan Lewis, joined over the airwaves by Jason Moser and Matt Argersinger. With earning season in full swing, we wanted to zoom in on results from a couple of different companies that help paint a picture of the overall macro environment right now, Matt, let's start with Prologis. This is a lesser known name, but you like digging into this industrial ret because you see it as a bellwether for the economy.
Matt Argersinger: I do, Dylan. It's the world's biggest industrial real estate investment trust. Over 200 billion in assets. Those assets are primarily warehouse and logistics facilities. It's the backbone of the modern e-commerce driven economy that we're evolving toward. For example, Amazon is Prologis largest tenant. You've also got tenants like 3M, PepsiCo, UPS, Walmart, major global companies that rely on Prologis facilities to move goods, store goods, and really participate in commerce around the world. If you look at Prologis results, they were pretty good. You had solid same-store, net operating income growth occupancy up to 97.5% at the end of the quarter. That's near record. Core funds from operations, a cash flow metric for rates of 14.6% year per year. Prologis raise guidance again for the full year. All good news there. But then when you look at management's comments, either in the press release or the conference call, get a bit of a different picture. You've got phrases like negative customer sentiment, increased market vacancy, moderation of demand, lack of clarity. I think Prologis management is foreshading a little more economic weakness and uncertainty than perhaps I think it's being reflected in the overall market, but it's certainly being reflected in Prologis stock, which I think looks really attractive right now. It's trading around a three year low 3.1% dividend yield. Just 20 times core FFO per share guidance. But that number is actually a lot lower today than it's going to be in the near future. They've got a ton of growth ahead as their leases roll to market over the next several years. I just there's a lot to like about Prologis. I would just say in the near term though, it's telling us a pretty cautionary tale about the economy.
Dylan Lewis: Matt, you mentioned that the numbers themselves look pretty good, but the commentary is where things started to get a little bit more concerning as you start to see more results come in over earning season, especially from some companies that are a little bit more in the real estate game. Is that where you're looking for some management commentary to help you understand where things are going?
Matt Argersinger: I think so. The reason I'd like to follow real estate obviously is space is used for a lot of different things in the industrial space like for Prologis, that's really where a lot of economic commerce is taking place. I think as more companies report, we're going to get a fuller picture of where things stand.
Dylan Lewis: Over to one of the world's most important companies, Taiwan Semiconductor, Jason. You dug into the results from the world's largest chipmaker. What did you see?
Jason Moser: Tremendous position in the value chain for this company. They go out of business and the world probably stops turning. [laughs] It's an important one. From that perspective, it was a good quarter, I think, in that the company exceeded its targets and expectations. They're dealing, I think with some difficult near term issues and market conditions and inventory levels. But it's nothing they can't handle. When you look at the numbers in US dollars, third quarter revenue was 17.3 billion dollar. It was down 14.6% from a year ago, but actually up 10.2% sequentially. They're seeing a little bit of improvement there in the gross margin number. Operating expenses accounted for 12.6% of revenue that was up 50 basis points. But again, you look at this business, their balance sheet, just a fortress, $48 billion in cash in short term investments. They continue to build out facilities in order to be able to meet the demand in what they do. Now again, back to these difficult near term issues and market conditions. They did talk about that, the call, they tightened their capital expenditures. Previously they were within a range of $32-$36 billion. They brought that down to $32 billion given just general market conditions right now. They talked about in regard to this overall macroeconomic state of things.
They see slow demand recovery in China. They see just just a weaker overall macroeconomic conditions. Right now, their customers are very cautious in inventory control. In the near term, customers are going to continue to get through that inventory. Going through the fourth quarter. But they are seeing some early signs of demand stabilization in PC and smartphones, which is not a surprise that there was weakness there. We've been talking about that weakness for many quarters now with a lot of these chipmakers. But I think that what we're looking for is this company to be able to get through that inventory, watch their customers get through that inventory toward the end of the year and start 2024 in a little bit of a healthier level. It does look like they see revenue growing. Guiding for revenue growth up about 11% sequentially year for this coming quarter. Some near term issues, yes, but generally speaking, the big picture still remains very optimistic.
Dylan Lewis: Jason, for folks that are more casual observers of the chip market, they may be a little surprised to hear moderate demand or even slow demand just given what a boon AI has been for some of the chipmakers. Do you feel like basically if we're talking about chips that are in AI applications, we are off to the races? And if we're talking about chips that are more in conventional consumer electronics, that's where we're seeing a lot of this more kind of stagnant demand?
Jason Moser: Certainly AI is the phrase de jure. It's no surprise to see those replacement cycles and PC's and smartphones extend. Just the technology is getting better and better and so I suspect we'll continue to see that is the case.
Dylan Lewis: Finally over to one of the big money movers, the world's largest alternative asset manager, Blackstone reported, and Matt, it seems like maybe money isn't quite as easy to come by as it used to be.
Matt Argersinger: It is not Dylan, and the investors have taken that heart pretty hard on Blackstone's stock this week. Blackstone is in the business of investing capital, and earning management and performance fees on that invested capital. Raising capital has become a bit of a struggle. They raised 25 billion in the quarter, and that's still a really gargantuan number, but it's much lower than forecast, and down from the second quarter when it was 30 billion. They also raised just less than one billion for corporate buyouts this quarter. That's a fraction of what Blackstone normally raises. President Jonathan Gray, he gave an interview to the Financial Times this week. He mentioned that, look, institutional investors kind of holding back new commitments to private equity until the new year. He pointed to higher rates as being a key factor as well. Ten year treasury, it's at a 16 year high, so the risk free rate where they are, it just makes potential returns in the private equity space look less compelling. Then if you look at the results for Blackstone, distributable earnings, which is their big metric that was down 12% in your year. If that continues, we're going to see Blackstone's dividend fall because that's closely tied to distributable earnings. This is a wait and see until 2024 story, I can understand why the stock's beaten down right now.
Dylan Lewis: Institutional investors, retail investors, turns out not that different. When yields start looking attractive, people start paying attention to debt and other places to put their money. Matt, appreciate the commentary there, Jason, I appreciate your thoughts on earnings. We're going to see you guys a little bit later in the show, but up next we've got a breakdown on a name you need to know if you're into muscle cars, stay right here. You're listening to Motley Fool Money.
Matt Argersinger: Just to be slow they must hang down little GGO.
Dylan Lewis: Welcome back to Motley Fool Money, I'm Dylan Lewis. Here on the show, we like to find companies that operate in unique spaces and shine a light on them. For every interest there's probably an industry, if you're into classic cars, short of having doubles or triples, your best way of protecting your collectible ride is probably having specialty insurance. Motley Fool Money's Deidre Woollard caught up with McKeel Haggerty, CEO of Haggerty Insurance about his company's focus, insuring classic cars, as well as his favorite ride and the unique ways Haggerty tries to reach new customers.
Deidre Wollard: Let's talk a bit about Haggerty because you went public in 2021, but the history of the business is so much older. Tell us a little bit about where it was and where it is now.
McKeel Haggerty: Well, thanks. We're in our 39th year as a business. Celebrate our 40th anniversary next year. It started in even smaller niche than insuring classic cars. We started as a family company in the basement of the house I grew up in, insuring wooden boats, if you can imagine, just classic boats, but many of the ideas that were there are really the same. That is, insurance is a well known product or service that people buy out there, but when you sell into a community of people, a community of minds, the risk dynamics are pretty different. That was certainly true in the early days with wooden boats and it's a big part of what makes our classic collector car insurance business so different.
Deidre Wollard: Well, it's interesting because you went from boats and you've got the insurance business. We see this is a pretty niche business, but you're growing this larger brand, which I think is really fascinating and catering to the classic car enthusiast going deep into events. Why are events so important? Tell us a little bit about the world of classic cars.
McKeel Haggerty: Well, the car world is large and not just the new car buying world with OEM's trying to sell us new cars every year, but the vintage car world, it's almost a century old, believe it or not. In the very early decades of the last century, people even then were interested in the earliest of cars. They kept them running and they would bring them out to for special events and they would show them. It created this community of car lovers that it would move forward each decade and in each generation the interest in different types of cars evolves, but it's always been this community piece. When you fast forward all the way to today a large population and I'm just using US numbers of a few hundred million people. There are tens of millions of people that consider themselves in some fashion a car enthusiast. In those tens of millions of people, not everybody owns a vehicle that's special to them, but many do. These are not just the big celebrity car owners, these are not just multi millionaires, these are just everyday folks that have a special car that they keep in the garage and it has a special place in their world and events are part of it, media is part of it. They consume car magazines and obviously a lot of online content today. They watch television shows on streaming and cable television. All of those things are a hallmark of a big community and that's the world we serve. Again, insurance is not the maybe sexiest product out there that people ever think about it. Nobody wants to buy car insurance, but if you love your car, like truly love it, then you think very carefully about decisions like how do you take care of it? How do you protect it? Where am I going to park it when I'm out on a Sunday drive and stop for lunch somewhere? Those are the things that car people think about and that's our world. That's the community we play into.
Deidre Wollard: If you own a classic car, why do you need special niche insurance versus just insuring it through one of the big insurance companies?
McKeel Haggerty: Well, many of these cars are insured through the big insurance companies and we partnered with many of those companies to work with them, but that's the second part of the story. The big difference is this, we've all heard the old saw that you go out to a car dealership, you buy your brand new car, you drive it off the dealer lot in a mile down the road, you get into an accident. Now hopefully you're OK, but the car is destroyed. One of the most frustrating things that people find out is that even that mile down from the showroom floor, that car is already depreciated in value. The insurance company will pay you a depreciated amount for that total loss. That's true. Cars you buy them, they depreciate in value, they go down to maybe not nothing but next to nothing and then many of them go away. They just fade into the ether of old cars and junk yards, that thing, but some of them hit bottom and then they start going back up again in value. That's the collecting feature. It can take years, it can take even decades before a car is collected, but that's when we start seeing clubs form buying those cars or somebody wrote an article. Wouldn't that be a cool old car to have? Those cars start appreciating in value. Insurance, normal car insurance doesn't take into account that appreciation of value. That's what we do. We come in, we help people or our insurance partners value these cars and make sure that they're well protected for their appreciated value, and then we offer great coverage, but then it's the claim part that's most difficult because claims fixing an old car, not the total loss, but think of fender bender or something that happens out on the road, those cars need special care. You have to go to special restoration shops, repair shops. The big insurance companies, again, many of them who are our partners, they're just not set up to deal with that. They put on new plastic parts for a brand new car. They're very standard ways of fixing things. They put in third party windshields when a windshield is broken, but for our car owners the windshield on a 1965 Mustang is a special windshield and it needs to be handled very differently. That's where we step in and we're a growing business. We've been growing a lot, well, really since the beginning, but that's where we step in, both for the consumer but also the big insurance companies and solve that problem for them. It makes everybody happy too, because we get to play with people's toys.
Deidre Wollard: Well, speaking of that, the reason I became interested in your company is I have an uncle who collects classic cars. He's got around 70 of them in a warehouse in Florida. It's a whole lifestyle for him now, he goes to the car auctions a lot and doesn't buy every time, doesn't sell every time, but it really is this lifestyle. You talked a little bit about the events and I know they attract a wide variety of people, but the auctions especially, why are auctions so important to Haggerty?
McKeel Haggerty: Well, first of all, they're super fun. I've been attending auctions for 30 years and it's fun just watching any car selling an auction. They're sometimes rowdy environments and there's this gladiatorial feet quality to a car auction when it pulls in and maybe it's loud and the bidding starts and the auctioneers start calling out numbers. When a really valuable car sales, I still, I get shivers thinking about sometimes millions of dollars being bid on a car. It rolls out and it goes to somebody, some new collection. But there are many different types of auction companies that do high end, low end, sports cars, different things. We had been sponsors of many of these auctions through the years and they're great, they're fun, they're awesome, but we also knew that they were a great way to attract new customers for us in the insurance and our membership business. We also knew that maybe there was a better way to think about serving some of these customers. We actually, after going public, acquired an auction company and have been layering them into our other events strategy and saying, look, we're not trying to control the auction world, is going to be many choices, but we want to be a really high quality choice where service is really good, cars are described really well, both buyers and sellers get all the information they need to make good choices and then you'll let the excitement happen. Auctions are super fun and they're a big part of our world now, alongside insurance.
Deidre Wollard: You've also got a membership model and that grew about 20% in the last quarter. It seems like an interesting entry point for getting involved and getting engaged with Haggerty. How does that work?
McKeel Haggerty: Well, if you think from the lens of insurance and think of some of the big, well known larger insurance companies. When I was growing up, AAA was figured very prominently in people's minds. They're an insurance company that also did roadside assistance and they had a membership component there. You think USAA, one of the just titans of our insurance base, great company, served originally US military officers and their families. They've since expanded that to families of enlisted soldiers and which made for a much larger total addressable market, but there was always a membership component under that. I always really looked at those businesses and said, they sell insurance, insurance is a good business. But they engage with people in between just sending them a bill for their policy. They engage with them offering different things, different services. Maybe engaging them in a community aspect and that was really what we dreamed about doing. We have a program called the Haggerty Drivers Club and it is available to anybody. It's $70 a year membership. You get roadside assistance in a magazine and discounts and access to a number of our events, but the model really here is insurance is great, but insurance isn't the most fun thing to talk about. Having cars to talk about is a lot of fun. If you were to look at our magazine for example, I think we're the second highest circulation car magazine in the world of any kind, audited circulation and there's no talk of insurance in there. This is about the love of the car, this is about events is about cool cars to drive or celebrities that own certain cars. You name it, we covered in there. That's the brand building part as well that you mentioned that I had always admired some of the best companies, insurance or otherwise. They just really thoughtfully built their brands around engaging with people in things that they care about. Having these media components around associated with membership it's been very successful for us.
Deidre Wollard: Last question for you, what would you like potential investors in your company to know about Haggerty?
McKeel Haggerty: Well, what I'd say is that it may sound niche, but it's a much larger group than many people think. It's probably been the biggest surprise of investors when they've looked at the company. We talk about a total addressable market of 44 million vehicles now. This is not some media number that we're making up, this is actual data we have of registered vehicles. It's large, large audience, very persistent economically. Across the board, all the way from buying cars, all the way down through insuring them and very resilient in downturns like we may be if we're calling this a downturn today, an inflationary environment. It's just good steady business and it's fun. It's fun to look at.
Deidre Wollard: It is fun. Thank you for your time. But one quick last question. What's your favorite collectible car or what car do you wish you could own maybe?
McKeel Haggerty: Well, I grew up in the Midwest, so we were a Ford family. But for whatever reason, my very first car that I dug out of a snow bank when I was 13 years old was a 1967 Porsche 911 S. Before anybody thinks like, oh, you had a Porsche when he was 13, like I paid $500 for it and with my lawn mowing money and I still have that car. In fact, it's a beautiful sunny day and I drove it today.
Dylan Lewis: If you're into Classic Rides, Haggerty's site has blog posts for free, for the aficionados. And if you're into stock ideas, we're offering our Motley Fool Money listeners a discount on our flagship service, Stock Advisor. With stock advisor, you get two stock recommendations per month. Access to our analysts on our members-only live stream Motley Fool live and Stock Advisors full scorecard of stocks generating market-beating returns. To learn more, head to fool.com/MFM discount. That's fool.com/MFM discount. If you listen to the podcast version of our radio show, we'll drop a link in the show description. Coming up after the break, Matt Argersinger and Jason Moser return with a couple of stocks on their radar. Stay right here. You're listening to Motley Fool money.
Always, people on the program may have interests in the stocks they talk about in the Motley Fool. May have formal recommendations for or against selling or buying anything based solely on what you hear. I'm Dylan Lewis joined again by Jason Moser and Matt Argersinger. We've been talking a lot this year about consumers cutting back and there's one spot that it just doesn't seem to be happening, boats. Matt, in prepping for this week's show, you shared what might be my favorite headline I have seen this year. It comes from Axios, "Americans sound miserable" but they are buying lots of boats. What do you make of this?
Matt Argersinger: [laughs] Yes. It's fascinating. I guess, post pandemic, there was this surge in buying for boats. When we say boats, we're not talking about yachts. These are fishing boats, small sailboats, jet skis, and I mean the numbers are massive. There are more people buying boats today than ever before in the country and the demand just doesn't seem to go away. And there was something like 800,000 first time boat buyers that entered the market in 2020 and 2021. I've never owned a boat, I know it's not the cheapest and easiest thing to have, but it's fun. I can understand why in a post pandemic world, the boat is a thing to have.
Dylan Lewis: Jason is the boat on the holiday shopping list for you and the Moser family?
Jason Moser: Listen here, man. [laughs] I grew up with boats and I love them. But this headline, Americans sound miserable but are buying lots of boats. Two things can be true here, you can be buying boats and you can be miserable. I think going back to that first time buyers number that Matt pulled out there, that probably has something to do with it. Because once you buy a boat and you realize everything that comes with it, then you start asking yourself, was this really worth it? Boats are super, they're fun, they are also a big responsibility, and they are a big money suck. There's just no question about it. I'll be interested to see how this ultimately plays out, particularly given the first time purchasers because I was looking to see how this translate into something investible. Brands with corporation, which this plays right into their market. Boy, I'll tell you, the stock price isn't really reflecting this. The three year chart, it's up maybe 15%, the one year chart, it's up only 7% year to date, it's just flat, so I don't know. Maybe we'll see this flow through or maybe those first time buyers that they are quick case of buyer's remorse.
Dylan Lewis: Matt, you've been talking quite a bit about how this high interest rate environment has been, in a way in upper class and upper middle class stimulus. Do you feel like that might be playing into what we're seeing here?
Matt Argersinger: It could be. I believe in that a lot by the way, I just think the high interest rates that people are getting on their savings, especially in these upper tiers, it has been somewhat of an economic stimulus. I just think this has more to do with people being at home a lot more, especially office workers and it's just a great new hobby, recreation. But I have to believe, Jason that, some healthy portion of this 800,000 first time boat buyers are probably going to be handing in the keys this year or next. Maybe that's why Brunswick stocks are doing so well.
Dylan Lewis: There's that old adage, there's two great days when you buy a boat, the day you buy it, the day you sell it. We'll see what Day 2 looks like for some of those folks. Let's get over to stocks on our radar. Our man behind the glass, Rick Engdahl, is going to hit you with a question. Jason, you're up first. What are you looking at this week?
Jason Moser: Just keeping an eye on Chipotle Mexican Grill ticker, CMG, they have earnings coming out next week on Thursday. There's a recent announcement they just came out with. They're going to be raising prices. Again, talk about Netflix raising prices. Chipotle is another company that has demonstrated they do have a modicum of pricing power. Now, we're not entirely clear on how much and where at this point, but this isn't the first time. They've raised prices several times here over the last several years. You do start wondering if they aren't flying a little too close to the sun. You can't raise those things forever, particularly in this environment. But I think furthermore, in just looking at the earnings release, would you keep an eye on traffic in transactions to get a better idea of how the stores are going in the digital orders as well. They continue to do great things with the app and the rewards program. They've grown that rewards program now to 35 million members. That's up from 29 million a year ago. They've got this new initiative called Free Potle, which, hey, listen, I'm on board with free chipotle. But this was something they launched earlier this year where it's essentially, just 10 free food drops that they threw their rewards members throughout the year. Case of Banco Guac, whatever it may be. But I guess my real question is could these price increases cause some near-term friction in the coming quarters? I guess time will tell.
Dylan Lewis: Rick, a question about Chipotle.
Rick Engdahl: How important is it to Chipotle that everybody who goes there has a single order that they always get? Nobody ever changes up, nobody ever thinks about it. It's got to be fast and they keep their menu limited.
Jason Moser: Well, I think that's something they've really exploited certainly through their app. Once you get your favorite order there, they make it very easy to order and pick up, so it's something they've definitely benefited from.
Dylan Lewis: Matt, what is on your radar this week?
Matt Argersinger: I'm going with the Home Depot ticker HD. No introduction needed for this one, you've got 2,000 stores in the US and US territories, 300 plus stores in Canada and Mexico, fourth largest US retailer by sales, fifth largest online retailer. I'm thinking most investors don't know that. But look, this has been a tough year for Home Depot. They've had to deal with an inventory overhang, comp sales has been down, customer transactions are down. Big ticket items like lumber and appliances have really struggled. That's one side of the story. The other side is inventory is now under control. Sales trends have started to improve. They're going to lap those record results from a year ago. Comps will start to look better and they just put in a new $15 billion buyback program. Over the last 10 years, Home Depot has bought back almost 30% of its shares. That's pretty impressive. I look at the stock today, beaten down under 20 times forward earnings 3% dividend yield. I feel like sales and earnings will be bouncing back in the new year. Looks like a bargain to me.
Dylan Lewis: Rick, a question about Home Depot.
Rick Engdahl: How much of their bottom line is attributable to the giant skeleton?
Matt Argersinger: Well, this month it's huge. Rick, it's huge.
Dylan Lewis: Rick which one is going on your watch list this week?
Rick Engdahl: Hey, it's October and I got to go with the giant skeleton.
Dylan Lewis: Got to, absolutely.
Rick Engdahl: I'll get you a burrito. Actually, I'll get the burrito on the way to the Home Depot.
Dylan Lewis: There you go.
Rick Engdahl: Maybe both are on my radar.
Dylan Lewis: Rick, I appreciate you waging in on our radar stocks. Jason and Matt, I appreciate your bringing them. That's going to do it for this week's Motley Fool Money radio show. The show was mixed by Rick Engdahl. I'm Dylan Lewis. Thanks for listening, we'll see you next time.
