In this podcast, Motley Fool analyst Tim Beyers and host Dylan Lewis discuss:
- Why you might not be able to buy the Apple Watch soon in the U.S.
- Comcast's data breach affecting more than 30 million customers.
- FedEx's latest results and why they might be better than the market thinks.
Motley Fool host Mary Long caught up with Kristy Akullian, senior member of the iShares investment strategy team at BlackRock, for a look at her team's 2024 outlook and one country to keep an eye on.
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 Dec. 20, 2023.
Dylan Lewis: If you're looking to get a new Apple watch, the clock is ticking. Motley Fool money starts now. I'm Dylan Lewis and I'm joined over the airwaves by Motley Fool analyst, Tim Beyers. Tim, Lean, Mean full of caffeine. I mean, now you said it and I agree with it.
Tim Beyers: I love it.
Dylan Lewis: We've got the latest data breach, a look at trends in shipping, and some thoughts on what 2024 might bring from Blackrock. But we're going to start out talking about an item that might be on a lot of holiday gift lists this year, Tim, and that's the Apple watch. If you're in the market for one, if it is on your shopping list for someone for Christmas, you better act soon based on the current state of things because Apple will pause selling some of its latest models before Christmas, Tim.
Tim Beyers: Yeah, it's really interesting. Sales of the Apple Watch Series 9 and Ultra 2 are supposed to be halted. This is according to Fortune here at the company's online store as of the 21st. So we are recording on the 20th, so that is tomorrow. At its physical retail locations, apparently beginning on Christmas Eve, giddy up, hurry up and get in there and get one. Apparently, this is because of a ruling by the International Trade Commission from October that said that Apple has violated patents from Masemo that include in these watches a blood oxygen sensor. It looks like a software patent here that Apple has violated. I think it is interesting. I know that Apple has been very interested, and I have seen this myself. Apple is pinging me even on my old, my ancient iPhone SC to use the health features on my iPhone more often. It wants me to do things like learn to use walking speed on my iPhone. Apparently I have to download another app to do this. But the watch was really the entry point for Apple introducing more health related innovations into the ecosystem and making its devices much more attractive to the health conscious consumer. This feels like a little bit of a setback, Dylan.
Dylan Lewis: This all has come about because of a ruling from the US International Trade Commission back in October. I'm not sure whether it was convenient or them being nice to allow for the bulk of the holiday season to fall into a spot that they were comfortable with sales continuing. Is this the kind of thing you think may actually get resolved, or do we have to prepare ourselves for there to be an actual impact to US Apple watch sales?
Tim Beyers: I think there will be a little bit. But this timing is very, very generous. It's not banned until Christmas Eve. Dylan who's buying on Christmas and who's buying between Christmas and New Year's.
Dylan Lewis: All the people that I have forgotten, Tim.
Tim Beyers: Does this actually have a genuine material impact? Probably not. Anybody who wants one of these watches is going to get one. If they genuinely want it. No, I don't expect it to have a material impact. Now, there's probably a lawyer out there who is yelling into their phone, and we want to hear that feedback. I want to hear why I'm wrong about this. It feels wrong to me, Dylan. But there's probably a very good legal reason why Apple has to go take a strident defense here. Especially since, to your point, Apple's going to sell these watches, they're going to move. I don't think anybody believes that come January 2nd, there's going to be a bunch of unsold, Ultra Apple watches just sitting on shelves or sitting in a back room somewhere like the Ark of the Covenant, in the back of some government warehouse somewhere. That's probably not going to happen, Dylan.
Dylan Lewis: Yeah. Last minute. Shoppers. You're in luck. This may get resolved. For our listeners that are legal experts, [email protected] is where you can send those legal takes. Tim, I will be sure to forward any of them along to you.
Tim Beyers: Yeah, I'm sure I'm wrong and I welcome being corrected.
Dylan Lewis: Let's stick with Tech. We had news of another data breach this week. Comcast, this time in focus announcing nearly 36 million Xfinity accounts had been compromised in a data breach. With hackers accessing personal information like contact info, birthdays, and the last four digits of customer social security numbers. Tim, the stock has not moved on this news. I'm curious, how does the market, or how do investors look at a news piece like this? Because it sounds bad, but also the stock is totally unfazed.
Tim Beyers: That's probably because we expect nothing from Comcast. Is this surprising? No. This is the stock market often trades on expectations. The expectations for Comcast are like shrug of Mochi. They did it again. I'm disappointed. Shocker. Not I have Comcast. It's not like I am anti-Comcast or anything. I think Xfinity is actually a fairly good service here. But they just don't have a whole ton of competition here. We've come to accept that there are some sub optimal things that come with Xfinity. But I will say here, Dylan, this one is squarely on them. I think there's a larger narrative that we need to pay attention to. NetScaler, which is part of Citrix here, did put out a fix for this. Their Cloud Software Group released a build which affected the vulnerability here. This was on October 10th. The vulnerability was targeted at NetScaler application device controller and the NetScaler gateway. They warned that if this was exploited, you could end up with allowing your network to have unauthorized data access.
What Comcast said, and which really stinks here, and this is according to the Verge, that the exploit, there was unauthorized access between October 16th and October 19th. Almost a week later. There had been a patch that was issued. They said, hey, this is a problem, fix it. Please fix it to all customers. This is according to the blog post that the company put out. Comcast didn't fix it, apparently. We don't know. We don't really have all the details here. But it doesn't look like they fixed it. Because they said this happened between October 16th and October 19th, and if a fix was available on the 10th, what happened here? A shout out to my friend and a partner on this week in Tech, Tim White, who had been talking about for a while now, and I think made a pretty accurate prediction about we can expect there to be lawsuits around cybersecurity liability, or real focus on insurance, writing insurance policy around legal liabilities, having to do with cybersecurity breaches.
Because it's becoming more, and more, and more common. In this particular case, these breaches do appear to have something to do with just how you orchestrate what's called a virtual private network. A VPN is essentially, if you could think about, it's like going into your house, you enter your house and now, one key gets you in the front door, and now you can go anywhere inside your house. Unrestricted access, and that's like a VPN. You get into the corporate network, you enter through the front door, and once you're through the front door, you have mostly unrestricted access. And of course, these miscreants got access to a lot of customer data, and now that's a problem for Comcast. That's very different than what some of the other players have been talking about. The biggest one here that's been talking about it is Zscaler. We're talks about zero trust and the idea of no, let's not have just one door and you get access to everything. We're going to give you zero trust. Once you enter a door and you get into a space, when you want to go to another space, you got to ask for permission again. We're not going to trust you every time. You got to keep asking for more permission. I think this is the beginning. The more we see this, Dylan, the more this is going to change how companies think about security policy. If I'm an investor, I really don't want to be investing in a company that has access to a lot of customer data online and doesn't have a strategy for protecting that customer data. That's got to be part of my risk analysis now. I mean, it's a big deal.
Dylan Lewis: Tim Comcast is not alone in being hit by this, Boeing and Toyota also hit as well, and I think as investors we only have so much control over that. Companies only have so much control over that. To a certain extent, there's a sense of randomness to it is your view on this that what companies do have control over is the way they respond, and it sounds maybe Comcast did not respond in a way that you were particularly happy about. Also just the procedures they have in place and the data management network management procedures that they have to try to ensure that they can make things as secure as possible.
Tim Beyers: I just don't think you can be lazy here. I mean, if anything, I should be careful about making a judgment here because I don't want to call Comcast engineers lazy. That's not right. This is a mistake and I think we should label it as a mistake. But the environment is such that there isn't a lot of room for mistakes Dylan, if you've got to patch a piece of software and you're being told by your provider, hey, patch this piece of software and do it now, then do it now, no not wait. If that is a problem for you, then get a different system that doesn't require you to do patching in the same way that your existing system does. This is going to become an increasingly big deal, so it has some implications for security providers it's probably good for companies like Zscaler, CrowdStrike, lot of Cloud security providers. It gives them more ammunition for their argument as to why you should upgrade, and at the same time, it puts a lot of pressure on chief information officers, chief information security officers, CTO's to say like, look, what is our security policy? What is our posture? What do we need to upgrade? Let's do it now.
Dylan Lewis: Tim, our final story moves us away from digital goods and assets and over to the physical world. FedEx shares down almost 10% after the company released fiscal Q2 earnings and results came in a little bit below expectations. But it seems like Tim for me, the company's guidance showing another quarter of year over year declines is really what's getting the headlines and really what's moving the stock today.
Tim Beyers: It seems like it, I mean, so the reported earnings per share of $3.99 were well under the expectations of $4.19. Overall sales down from 22.8 billion the year prior to 22.2 billion. That's problematic. That's down not quite 3% but down enough. It just doesn't look quite right now. They've cut costs materially and overall operating profit margins were up here. The first thing I thought about when I saw these results is, is there a deep Amazon effect here? Because we've all seen it. We all see the Amazon delivery trucks every day. We can hear that weird noise that they all make when they're dropping off their packages. It does make you wonder. What's interesting to me is that FedEx had said in their comments that they had been getting share from say, their primary competitors, and we're not talking about Amazon there. We're talking about, the Postal Service, we're talking about UPS, we're talking about companies like that. There is an argument for that in terms of the ground business, FedEx ground, the operating margins. First of all, the operating income didn't double, but it was up massively from 598 million to about 900 million, and the operating margin went from 7.1% in the year prior, to 10.4% so there is an argument to be made that there might be some consolidation here.
It may not just be those weird Amazon delivery trucks. FedEx is actually doing significantly better in its ground business. The hard part is that this is a highly diversified business and international may not be going as well as we'd like to see the express business, it's not clear that that's going nearly as well as they want it to go, but in that core business in the US on the ground, FedEx does have something to build off of here. It's not clear to me whether or not this is a value yet, Dylan, but there is something to build on here and I found that to be interesting, so maybe put this one on your watch list and do a little more research because FedEx is probably not going away. It's still a big cash generator. We still rely on it for logistics around the globe and particularly here in the US, and Amazon does not want to do all of this either. I find it interesting it's getting whacked today, I think for good reason, but there's this small little glimmer of hope, who knew the white FedEx ground trucks? They're still out there.
Dylan Lewis: Love it and I love that we are wrapping the show with a stock idea there Tim. I think this might wind up being our final show together for 2023. As we wrap, I just want to thank you for joining me today and joining me throughout the year.
Tim Beyers: Thanks lot, Dylan, I appreciate it more caffeine on the way, for me I've only had one cup of coffee today. That is not nearly enough. But merry Christmas and happy holidays you to all of our listeners. Always a pleasure.
Dylan Lewis: Thanks, Tim. Our year-ahead outlooks worth investors' attention. Kristy Akullian is a senior member of the Shares investment strategy team at Black Rock. Mary Long caught up with a Cullen for a look at her team's 2024 outlook in one country to keep an eye on.
Mary Long: Your team just published a 2024 year ahead outlook we'll chat about that in just a moment. But before we get there, I want to address our audience because the Motley Fool we're about genuinely long term investing buying companies you believe in holding them for a minimum five years. Why should those individual buy and hold long long term investors even worry about the background economic picture at all?
Kristy Akullian: I think that's a great starting point. One of the things that we like to say here is that it's not timing the market, it's time in the market. I think we would completely agree with that stance, that you're investing for the long term, and I think that staying invested and being invested, even when it maybe doesn't feel comfortable, those are our guiding principles too. I think that what you'll see and what comes out in the guide and what we're talking about is actually just that we see a lot of investors holding cash and probably too much cash. A lot of what we write about is really just the importance of stepping out of that and actually investing.
Mary Long: To your point, having an idea, even if it's rooted in prediction, having an idea of what to expect in the year ahead can help with that mindset piece, so when things go off the rails, we hope that that doesn't happen, but if that does, we're maybe more mentally and emotionally prepared to see our portfolios reflect that.
Kristy Akullian: Exactly.
Mary Long: With that, I'll give you the impossible task of predicting the future. [laughs] What does the Crystal Ball have in store for 2024?
Kristy Akullian: Just a level set here too and think about things from the broad macro environment of what we expect to happen, and then translate to what that means for markets as well. At the macro and the economy level, I think that we expect that growth is going to slow down. It's been really stronger than investors and that everybody really anticipated in 2023. We think it's still going to be positive. We're not necessarily saying our base case isn't that we think we're heading into a recession. But that process of going from growing really fast, to growing a bit slower or something more normal that can be painful in and of itself. We want to be a little bit of downside protection in a portfolio. We want to be a little cautious while still remaining invested because we think that that could come. In terms of things like what the Fed is going to do for next year. We do think that we're probably at the end of the Fed's hiking cycle, but we actually don't think that they're going to cut interest rates as much or as soon as the market thinks right now. That could be another cross current at the macro level for investors to think about. Then translating that to what to do in markets is, our Crystal Ball for next year just like staying up in quality. I think that makes sense.
Mary Long: I think in the news we've seen more discussion recently about this tension between what data says the economy is like, and then how people feel the economy is like. When you're looking to the year ahead, how much are you weighing those classic economic data points, and are you at all seeking out more anecdotal feelings based stories from consumers and individual investors, people that are active in the economy as opposed to institutions?
Kristy Akullian: Yeah, I think that's exactly right. This year, if you just look at the data of it all, it looks pretty good, and if you go talk to people, it felt pretty bad. I think a really big part of that was inflation, and I think that there is a sense maybe even outside of the investing community, but just like American public, that they feel like inflation falling should mean prices are falling. Of course we know that, that just means they're not going up by as much as they used to. I think that there's a little bit of a dissonance there just in terms of what people are experiencing, and I do think even though it's harder to get exact data on this, this isn't something that is like, perfectly measurable, but I think that there's a transmission mechanism between how people feel, and how the markets react to something. A lot of that can just be chalked up to animal spirits or how much risk appetite people have, and when people feel less wealthy and they feel less confident in the future, they're going to spend less. The risk of the consumer no longer powering the US stock market like it has this year, is one of the risks that we highlight for next year, just in terms of what performance could look like. There is a really real mechanism whereby how you feel about markets actually impacts how they perform.
Mary Long: Your outlook talks a lot about the yield curve that changes to it, make cash less appealing, got the shape of that curve. We'll determine what the best will be determined by all these various factors. What's the yield curve? Why should investors pay such close attention to it?
Kristy Akullian: [laughs] I don't think we have said yield curve as much in the last 50 years as we have in the last one. It's such an important thing that we're thinking about. I think it first came into the public, and common conversation, if you will, when it inverted, and that was over a year ago now. What that means is that yields on longer dated bonds were actually lower than yields on shorter dated bonds. If you think about what that does in terms of an incentive structure, it inspires less people to actually invest for the long term, and to actually just play it really safe and do things like hold cash. That point that I started with in terms of the importance of staying in the market, what an inverted yield curve did was it, disincentivized people to do so, and so we still see that the yields on closer to cash or very short dated fixed income exposures are still higher than longer term ones. That to us, looks like something in the economy that isn't functioning exactly as properly. We still think that that needs to return to a normal upward sloping yield curve. Meaning that you get more interest rate or more interest and more yield on those longer dated exposures. We're waiting for that to happen before we think that we're in the all clear. But we do think that now is such an important time to step out of cash because we've seen that start to happen.
Mary Long: To step out of cash and into fixed income or other asset classes?
Kristy Akullian: I think both. The yield curve in particular though is telling us stepping out of cash and into something like core bonds. In the way that in finance there's so much jargon, they think of this as the intermediate or the belly of the curve if you will. Where we see the most opportunity is in the 3-7 year maturity range, so something like IEI, the iShares 3-7 year Treasury ETF is one that we're talking about a whole bunch with investors right now as an alternative to holding cash.
Mary Long: You outlook touches on this. I don't know that they mentioned demographics specifically, but you do talk a lot about international exposure. Which international markets do you have an ion and why?
Kristy Akullian: A big one that started this year and I think can continue is Japan. They're really undergoing a sea change at the macro level. Japan has not had inflation for decades, but they did finally realize some. There have been some important changes to the way that their central bank is reacting to that, and back to the yield curve question, I think that there's some opportunities in Japan that we really haven't seen in multiple decades just because we're starting to see more normalized interest rates there. Inflation can inspire people to go out and actually invest as well. I think that looks relatively positive. One that's specifically on the demographic side is India. Well, we see really strong growth out of India, both as a partner in the front shoring and economic competition way, but also just in terms of how young their population is and how that can continue to drive even more. GDP and broad growth from that country as well. Those are two places we're keeping an eye on for next year and the years ahead.
Mary Long: This is perhaps unsurprising, but it sounds like there is a lot all over the world and in many different industries to keep our eyes on in 2024 and ahead. Kristy, thanks so much for the time and all of your insight. We really appreciate it.
Kristy Akullian: Awesome. Thanks so much for having me today.
Dylan Lewis: As always, people in the program may own stocks mention, and the Motley Fool may have formal recommendations for or against, so don't buy, sell anything based solely on what you hear. I'm Dylan Lewis. Thanks for listening. We'll be back tomorrow.
