In this podcast, Motley Fool analyst Jason Moser and host Deidre Woollard discuss:
- Another big stumble for AT&T.
- Why 3M's spinoff might be worth watching.
- What's driving gold prices.
Motley Fool analyst Asit Sharma shares a stock he just bought and Motley Fool host Ricky Mulvey talks with Erin Karney, executive vice president of the Colorado Cattlemen's Association.
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 April 01, 2024.
Deidre Woollard: We're talking top stocks, including a new entry into the market. Motley Fool Money starts now. Welcome to Motley Fool Money. I'm Deidre Woollard here with Motley Fool analyst Jason Moser. Jason, how's your Monday going?
Jason Moser: Hey, Deidre, just fine. How about yours?
Deidre Woollard: Pretty good. It's a little bit, don't-listen-to-the-news-day, but we're [laughs] making it through. I actually want to cover something that happened over the weekend. I'm an old PR person and I know when a company announces news on a Friday, probably not great. [laughs] On a Saturday it's even worse. AT&T told us on Saturday that what they say are AT&T data specific fields leaked to the dark web about two weeks ago. This is pretty huge, so it's 7.6 million in current users, over 65 million past users. It's older data but it's got birth dates, it's got social security numbers, it's got a bunch of other stuff. Company says it doesn't have a material impact on the business, but this isn't good.
Jason Moser: [laughs] No, it's not. It's one of those things where I say it often and I really do believe this. If it's man-made, it's hackable or breachable. When you look at something like this, you have to assume it's a matter of when not if. This isn't something that has only happened to AT&T. We read about these types of security breaches everywhere, but when you consider them in the context of these types of companies: AT&T, Verizon, T-Mobile. It hits a little bit closer to home because these networks are pretty much the life blood of everything that we do, whether we're in home, in office, or mobile, we're using these networks and we're sharing just a ton of information. When you see this type of news, it's absolutely deflating on the consumer side, particularly when you consider the fact that, well, what's the option like what do you as a consumer do other than say, well, I guess that's just something that's going to happen and hopefully the company responds to it in kind with some type of service amendment. Or maybe we see them offering credit monitoring for a year or whatever, something that's good. But most consumers aren't going to just step forward and say, OK, well, this is going to make the switch networks. I'm moving from AT&T to Verizon because this would never happen to Verizon. Well, spoiler alert. Yes, it does and it will again. I think that's probably the biggest hurdle for consumers to get over. Because I think as you noted that this concern about a loss of public trust, yeah, there is a loss of trust, and the bigger problem really is there's just not much we can do about it, unfortunately.
Deidre Woollard: Yeah, I think to some extent we're getting used to it. It's hard to say, certainly that's a reason we've got cybersecurity, but cybersecurity doesn't catch everything. One of the things we keep learning is it's human error a lot of times. But the other thing I'm wondering here too, it's not been a great few weeks for AT&T, they had some outages and now they've got this. When you've got a company that's going through this sort of thing, you want that clear communication. I don't know, I want to see a little something more from them than just like, here we're going to offer you a free thing or here's five dollars or what they try to do to make it right.
Jason Moser: Yeah, I don't disagree there. I think it oftentimes depends on the company. I think leadership with companies like AT&T for example. We're just using them as an example because they're in the middle of it. But I mean, we can look at something like Boeing as well, they probably believe that they're in a little bit of a protected position. Again, going back to the whole, what's the consumer really going to do here? You might have some folks that want to switch networks on the margin, but it's not going to be something that ultimately befalls the business. I think it definitely depends on the type of business to the size of the company. I'm with you, I think that leadership in these cases is always better served, really getting out in front of this and communication is just key with these things. Particularly, when you see it start to snowball. It's one unforced error after another to just get back there and say, OK, well, we're going to give you a $5 off of your monthly bill. BFD, who cares? Or we're going to give you a free month of credit monitor, full year of credit monitoring and that's fine. Probably a lot of us have that already. I think it's really another good example of how we as consumers, we have to be vigilant about this stuff. It goes back to that whole argument of data. Who owns your data? I think in most consumers cases they want more control over the data, but we also have to understand there is a limit there and there's just not a lot we can do about it.
Deidre Woollard: Yeah, and I think the other issue here is switching costs. Most people don't switch their provider too often. It's like switching banks. It's a pain [laughs].
Jason Moser: I thought the same example there.
Deidre Woollard: This isn't great, but oh well.
Jason Moser: That was the first thing that came to mind was with banks. You see this happen with banks all the time. Breaches, consumers, there's an uproar, but what are you gonna do? It's just way more work. I think it's probably way more work to switch your banking relationship, but it's no picnic trying to switch your [laughs] mobile or your internet provider either.
Deidre Woollard: Well, we've got a new company on the stock exchange today, on The New York Stock Exchange. It's new and yet not new. 3M has officially spun off its health care business into Solventum. [laughs] Got some opinions on that name.
Jason Moser: Yeah.
Deidre Woollard: 3M shareholders, they get one share of Solventum for every four shares of 3M. Pretty big business, over $8 billion business in 2023, just on its own. Fascinating group of products, they're used in about 75% of hospitals, you've got dental procedures, wound care, dialysis, a bunch of different things. This actually seems like a pretty interesting company.
Jason Moser: I do agree. It's funny, the name when I see, when I read the name or when I hear the name and immediately I think chemicals.
Deidre Woollard: Yeah. Solvent, of course.
Jason Moser: It seems like some sort of chemical. I read up a little bit on the idea behind the name and they say, it ultimately is the [laughs] combination of two words, solving and momentum, so I can appreciate that. I guess they feel like there's plenty of momentum in the healthcare space and they're trying to solve problems. That's great, but I do think in many cases these spinoffs can be good things. You see some examples out there throughout history that have done well. PayPal is one when it spun off from eBay. Obviously, going through plenty of challenges today, but that doesn't mean it can't be a good investment or hasn't been a good investment for some. Zoetis spinning off from Pfizer, giving them the opportunity to really focus on animal medicine, I think was a really good one. I'll say, I think most folks know it, but I own shares as well. It's been very happy shareholder for a long time there. I think it boils down to with these types of businesses, what is the market, what's the core market the spinoff is focused on? Was it something that perhaps wasn't realizing its full potential as part of that greater business. I think in this case with Solventum, it didn't seem necessarily. It was like one of these things is not like the others. I think spinning it off from 3M makes sense in giving it the opportunity to really focus on that specific healthcare market because it of course, is a very large one.
Deidre Woollard: Yeah. You've also got a little bit of protection from the Forever Chemicals lawsuits and other things that are happening with the core of 3M business. It reminds me a little bit of what happened with Johnson & Johnson and Kenvue, and all of the things that they're doing on that side.
Jason Moser: Yeah.
Deidre Woollard: I like the focus on healthcare here. I'm sort of building a larger thesis because I'm thinking about aging demographics and the growing need for healthcare, we are all going to live longer. That means more healthcare. I was thinking about Johnson & Johnson the core business now that's the consumer part is Kenvue, so the core business is more serving hospitals. You've got GE HealthCare doing MRI machines and things like that. You and I chatted last week about Masimo spinning off their consumer end to focus more on healthcare. I think a lot of times when we talk about medical, we're looking at the high-growth biotechs. We're looking at the Ozempics of the world. We're looking at things that are skyrocketing. It seems to me like there's a lot of goodness to be found in some of these more picks-and-shovels plays in the medical space.
Jason Moser: Yeah. I think you're right. When you look at healthcare in general. Healthcare spending in 2022 grew 4.1% here in the U.S., it was at $4.5 trillion. That breaks out to just about $13,500 per person as a share of our gross domestic product. Now healthcare spending accounted for 17.3%. It's a huge market and it's a huge opportunity, but there are a lot of different components that make up that overall space. When you look in the medical device space, for example, that's obviously, key part not only to Solventum but many companies, Johnson & Johnson included, but I think it's encouraging at least with Solventum expanding into other markets. You mentioned things like oral care, health information systems. That does diversify it. It gives it a number of different ways it can make money. When it comes to healthcare, that's a good thing. That can combine nicely with your more specific pure-play type ideas when you're looking at a biotech company or specific medical device company that's pursuing a particular market, those are great to own. They're a little bit higher risk because they are very pegged to one particular opportunity. Whereas it sounds like Solventum is something that is not necessarily going to be pegged just to that one specific opportunity. Early days, we don't know a lot yet about how the company is run and ultimately how it'll do, but it does sound like it could potentially be a nice way to look at that healthcare opportunity from a bigger picture perspective.
Deidre Woollard: I'm going to wrap us up with something a little different. We're going to talk a little bit about gold. We had a record first quarter for the S&P 500, but gold is having its own moment. It's up over, it was about $2,245 last time I looked. I think it's interesting because it's telling us something. I think about market fear. We always hear that the people become gold bugs when they get a little bit scared about the market. Certainly we're in an interesting market cycle. What do you make of the high price of gold?
Jason Moser: Well, it seems to fit with the narrative today in the way the market has performed as you noted, valuation starting to really creep up there, and valuation is as much art as it is science, so we have to remember that. Then there's investor psychology that comes into play as well as how the market function. So it's very difficult, I think, at least in the near-term to make those types of predictions. I was reading an interesting piece on CNBC this morning regarding a Citigroup's stock market sentiment model that they call the Levkovich index, and it's named after a former employee there, I believe. But this index has reached what they call euphoria levels, which it's telling us that maybe a fall in equities isn't too far off the horizon. In Citi's case they're actually calling for this, this index suggests that equities could fall 9% over the next 12 months. Now that could prove to be correct or not, I don't know. They're literally predicting the future, which really is difficult to do, particularly in the near term. This brought to mind something that one of our founders, Erik Rydholm, said at our company's recent annual meeting, which I thought was just spot on. It's always a good reminder, in his thinking that you want to be directionally correct, don't try to necessarily nail down that tight of a window on something like what the stock market might do in the next six months or the next year. We want to be directionally correct in understanding, well, we know that the general direction of equity markets, history tells us it's up and to the right. So we want to be a part of that. That ultimately took me back to something another one of our co-founders likes to say a lot, whatever your holding period is, double it. That is going to improve your returns, taking that longer view. I think both pieces of advice are absolutely spot on there. Be directionally correct. As an equity investor, whatever you think you're holding period is, go ahead and double it, set those expectations upfront. Because we're not really trying to nail down this type of a window. We want to be more directionally correct. So I think in this case, this is maybe a sign that perhaps there's this notion that valuations are getting a little frothy. That may be, and we certainly see more hedging come into play when that happens. But I wouldn't let it deter investors like us, Foolish investors, I wouldn't let it deter us from, again, still wanting to participate in that longer-term opportunity.
Deidre Woollard: I'm not out there buying gold bars.
Jason Moser: I'm not either. Not that there's anything wrong with that, but it's just not my speed.
Deidre Woollard: Not my thing either. So what's one risky stock you're watching and one that helps you sleep better at night?
Jason Moser: Yeah, so on the risky side, UiPath is a company that I recently added to the official watchlist in our 5G and connectivity service, and UIPath builds and manages these automations and computer vision technology. They benefit from all of these tailwinds and things like AI automation, 5G, etc. But the problem is this is it's still an unprofitable business. There's no real cash flow to speak of yet. You have to account for the stock-based compensation. So speaking of valuations this is one that's close to 10 times sales without any really meaningful profits yet. Given the state of the market today, that seems like one we're I've got my eye on it. I'd love to see that valuation pulled back for whatever reason. Fundamentally, it seems like the company is doing good things and making progress. But yeah, I think the valuation really is, it's probably the biggest risk to accompany like this today for investors. So one that I'm watching but I'm still keeping on the sidelines.
Then one that helps me sleep at night is one that I own personally, is UPS. I'll likely own this one well into retirement whenever that may be hopefully many, many years from now. But UPS is one. It's gone through some tough stretches here over the past several years, but it's hard to argue against the tailwinds in logistics. Of course, UPS is one of the key players in moving stuff around all over the world. Recent negotiations with their employees I think you're going to put them in a good position for years to come. The dividend yield, which is really the main reason why I own it at 4.4% now, it's just one that makes more sense the longer you own it. Then there was an interesting headline today I thought, in that the US Postal Service has actually tapped UPS as its primary partner for moving cargo by air. The really interesting part of that story is that UPS is replacing FedEx, which had provided that service for more than 20 years. So clearly, one company is doing something better than the other. In this case, it seems like it's coming up roses for UPS.
Deidre Woollard: Yeah, certainly sounds like it. Thanks for your time today, Jason.
Jason Moser: Thank you.
Deidre Woollard: No matter what market you're in, Top Dog market-leading stocks can help you make a lot of money. Up next, Asit Sharma shares three top stocks he's buying hand over fist with my colleague Ricky Mulvey.
Ricky Mulvey: So Asit you messaged me a few days ago on Slack that you had three stocks that we hadn't really talked about a lot on Motley Fool Money. But in your opinion, we're just absolute screaming buys, which you're not one for hyperbole. What's going on here Asit?
Asit Sharma: Ricky, first, I want to make clear that these aren't my stock picks. These are three top stock recommendations from the entire investing team at The Motley Fool. These are three life-changing, life affirming businesses that every investor who's future-oriented should own, and they're not household names. Okay. Ricky, would I tell you to backup the truck and bet the farm on these three names? Of course not. It's not foolish. But would I tell you to include these enlist of 25 world-changing businesses to hold for at least five years? Absolutely. Ricky, you know, I tried to stay pretty even chills and balanced about businesses that I invest in. But I already have just super strong conviction in these companies.
Ricky Mulvey: You mentioned to me an AI play that nobody's even thinking about, a consumer goods company that's in the middle of a turnaround and the media is not even paying attention to it. So where are the ideas coming from?
Asit Sharma: It's such a great question. So a couple of weeks ago, the entire investing team met up at Motley Fool headquarters. Company flew in all non-local investors like myself, the financial planners, and the quantitative analysts, we call them quants. The team got together, we chose three under-the-radar stocks that we believe have the ability to trounce the market over the next five years. You clued us and a little bit on the three companies. We actually had five ideas, Ricky, but they got narrowed down to three in the quantatron.
Ricky Mulvey: Yeah, and I think that's something to really highlight there, which is that these aren't just market-leading ideas or market bidding ideas. These are market trouncing ideas. These are companies that can secure retirement. When you look back 20 years from now, you're putting a pool in your house. I've got to be careful with my words, Asit, but it might be thanks to these companies.
Asit Sharma: Totally. How we got to that in this amazing place called the quantatron. Let me just take a minute to describe this. So the quantatron is a secure room at Motley Fool headquarters where our quants do their magic. Ricky, it's filled with these amazing servers that are crammed full of Nvidia, H100 AI GPUs. There's a giant screen on the wall which displays the real-time evaluations of analysts stock picks as these neural networks sift through SEC filings, all the available data on a company, and then look forward with probabilistic calculations. Now I know you're out in Colorado. You're going to be there soon over at Alexandria, at the headquarters, so you'll be able to see this new room yourself. Of course, there's also pizza boxes thrown everywhere because the quants are these brainy guys who always seem to be working through the night. These three stocks scored an average of 9.1 on the quant regression progression valuation metrics, which are the highest scores to ever be recorded in our models.
Ricky Mulvey: That's incredible. Before we get to the specific names, because I know you want the name, but before we get there, I think we want to separate what makes these a quality stock from the top stocks that you're talking about. To do that, we're going to walk them on Erin. Erin, in your opinion, what separates quality stock from a top stock?
Erin Karney: Yeah. Thanks for that and great question because in my opinion, when I think about stocks, it's livestock. It's really thinking about what produces great cattle as well as meat. I think we can have this discussion all day, but it's really what produces the best steak on the plate.
Ricky Mulvey: That's a good point. That's a way of thinking about stocks as well is how do you get steak on the plate? I realized Asit, we've not properly introduced. Erin joining us now is Erin Karney, the Executive Vice President of the Colorado Cattlemen's Association, which represents Colorado's cattle industry in public policy concerns. Honestly, Erin you've a way more interesting job than either of us. So we're going to get to some of your background and career in a sec. But we did promise listeners top stocks. So I'm hoping that's what you can deliver. Asit did the setup, so do you have any top stocks that you want to share with listeners? Maybe three.
Erin Karney: Yeah, you know when I think about the three, the only one that come top to mind is cattle. I think that's the best livestock and I might be biased. But my family for four generations has been raising Angus cross breed cattle. I think we have perfected the genetics and the look of those cattle. I think narrowing down the top three to top one would be the Angus cross breed cattle.
Ricky Mulvey: I think that's a good point. There's a reason to keep it simple. Asit, I'm going to get to your stocks in a moment, but honestly, this is more interesting. What's it take to get to that place where you're, we have the genetics down? What are you producing with the Angus cross breed cattle that as a grocery shopper, I'm just going to the store and buying a stake and then that's my limited interaction with the meat that I purchase?
Erin Karney: Absolutely. When we think about the cattle industry, it's really segmented and it's really complicated. When we think about bringing that steak to your plate, that's almost two years of investment from the calf being born all the way to that process. It all starts on the ranch or with the cow-calf pair and that's where my family is invested in, what's that next calf crop going to look like. Then as you go down, you go into the stocker phase where it's teenage cattle that are weaned off their mom and either put on corn stalks or wheat pasture. Then they go into the feedlot phase where they get the good cover and they eat the best. It's like a hotel for cattle and then ultimately they go to the harvest facility. My focus really is on the ranch, in on the cow-calf pairs, and really investing in the future of the cattle herd. Really, what we foresee in the next two years that consumers are really going to demand on their plate. At those four generations, it really takes a lot of inherent knowledge, as well as knowledge from, a lot of universities have live animal science programs so that you can really perfect your skills on selecting and raising cattle.
Ricky Mulvey: What's a challenge that our listeners might not even be thinking about when you're raising these teenage herds of cattle? I'm sure there's some interesting social dynamics, things you got to deal with that many of our listeners, they work at a desk job or maybe they work from home, and not something they deal with or even think about when they go to a grocery store.
Erin Karney: Absolutely. We always say we're passionate about the cattle, but we're more grass farmers or natural resource stewards. It's really when you think about those open spaces, a lot of the ranchers are managing those natural resources, open spaces. It's all everything that comes with those open spaces, whether it be urban pressure, whether it be species introduction, whether it be the lack of water. In Colorado where I'm based, we're facing a number of these issues and a lot of by-producers that I represent are facing a number of these issues: natural resource concerns, water shortages, as well as one of the top topics in Colorado, of course, wolf introduction.
Ricky Mulvey: Actually, Asit, that's a key topic. Do you mind if I get to you a little bit later, Asit?
Asit Sharma: Sure go ahead. This is interesting. Let's do it.
Ricky Mulvey: The wolf reintroduction in Colorado is particularly interesting. The State of Colorado basically had the bright idea, "Let's bring in some of these natural predators", and they started reintroducing wolves, I believe, this past winter. We're now in April and a lot of cattle ranchers were against this because in many cases the state would only tell the cattle ranchers that the wolves were reintroduced after they had already been released or maybe there was just a couple of hours before. Like you said, you're managing it open space, that's incredibly difficult when you have a new apex predator reintroduced. How has that been for the past few months from the ranchers that you represent and have been communicating with?
Erin Karney: The ballot initiative was passed in 2020, so this has been about a four-year process of going through the wolf introduction process, but they were ultimately introduced in December of 2023. I think the culmination of the entire process, there's a lot of emotions on both sides. Ultimately, CPW didn't notify any of the area producers or area county officials or anything like that. There was really a big breakdown in communication which ended up a big breakdown in trust for the agency and for a lot of what's going on in Colorado. Right now where we are, there's ten introduced wolves in the state as well as a couple of others that have migrated down from Wyoming and we're still working through the process. Right now is a height of carving. Throughout western Colorado, there's a lot of snow on the ground. Ranchers are doing daytime, nighttime checks to check on their cattle. But when we think about where wolves are, it's not where you could see from miles and miles or you can see them just roaming through. This has really tough terrain, it's mountainous, and so it's just going to be tough and I think that's where our producers are, just trying to illustrate how hard it is to manage their cattle with this added introduction of Apex predator.
Ricky Mulvey: There's environmental reasons and then there's the work reasons as well where you have a very difficult job with an additional challenge that can be detrimental to someone's livelihood. It's tough. I also want to talk about the price of beef. We've talked about the concept of rolling inflation on the show, which is inflation is higher. I think it was Lucian Sanders first brought it up. But this idea that certain goods get much more expensive one time. One of those I've noticed really is beef at the grocery store. To me, I've seen these prime grades stakes become as expensive as like wild-caught sushi grade tuna which is incredible to me. What's going on behind the scenes with that, that me as a regular consumer may not know?
Erin Karney: The beef industry is really interesting because we always say we are price takers rather than price makers. We have to deal with a number of market issues as well as whether mother nature. A number of things behind what you're seeing at the grocery store is there has been widespread drought through a lot of cattle country which has caused a number of ranchers to liquidate their herds. When we're thinking about that and cattle supply, it's actually the lowest it's been in over 55 years. We're at the lowest cattle herd that we've seen nationwide in 25 years. The census just came out and we're about 15% lower than we were in 2017 numbers. When you think about that, and just supply and demand, our supply is really low, which is causing prices to go high. That's all the way through cow calf producers, all the way through the supply chain is just at a low. Interestingly enough though is, with the lowest cattle herd since the 1970s, we're actually producing about the same amount of beef. We're not growing, but we're staying the same. That efficiency in the last 50 years has grown that much, and we're just that much more efficient. It's a good story to tell, but it's awful for consumers that are trying to buy beef at the grocery store as they're seeing that really high priced, but that's just some factors that are going on behind the scenes.
Ricky Mulvey: No. I appreciate you letting me know. I feel a little more knowledgeable the next I walk into the grocery store. Erin, thank you so much for the fascinating discussion. I know we started as an April Fool's joke, but I really learned quite a bit. Asit, I am so sorry, but we are out of time. We do not have any more space in the show for you to get to your top three stocks.
Asit Sharma: What?
Ricky Mulvey: That's it, sorry. Maybe next April 1st? Thank you so much.
Asit Sharma: Thanks for your time.
Ricky Mulvey: Thanks, sir.
Erin Karney: Thank you.
Deidre Woollard: As always, people on the program may have interest in the stocks they talk about and Motley Fool may have formal recommendations for or against. Don't buy or sell stocks based solely on what you hear. I'm Deidre Woollard, thanks for listening, we'll see you tomorrow.
Ricky Mulvey: Alright, Asit. I don't know if anybody is still listening, but just between you and me. Do you have a stock you've bought recently? Serious this time.
Asit Sharma: Yeah, serious this time. Well, yes, I do. I recently bought shares of Advanced Micro Devices symbol, AMD. This is of course, a competitor to Nvidia in the AI-infused GPU market. I think they are a formidable competitor. Nvidia has the monster share in this market and they will continue to have the monster share in this market. But AMD is going to take a little bit of slice off of that. Even if it's a few percentage points, it'll be good for the company. They also sell a lot of chips used in all types of applications, from computers to laptops, to industrial devices, and increasingly we're going to see AMD put AI applications straight onto these chips. From their basic chips that go into computers to things like FPGAs, Field Programmable Gate Arrays, don't ask me really what that is. You've got a company here that's going to compete in this space and I think should be a very sound investment, four or five-year holding period.
Ricky Mulvey: Nice. Thank you for your time and your insights.
