In this podcast, Motley Fool host Dylan Lewis and analysts Jason Moser and Matt Argersinger discuss:
- What Brian Niccol will need to do to turn around Starbucks as CEO, and how Chipotle will handle the departure of its superstar executive.
- Earnings updates from Home Depot, Walmart, and Brinker International.
- Warren Buffett recent buys Ulta Beauty and Heico, and what Berkshire Hathaway and other smart money's rising cash hoards might mean.
- Two stocks worth watching: Palo Alto Networks and Kenvue.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our beginner's guide to investing in stocks. A full transcript follows the video.
This video was recorded on August 16, 2024.
Dylan Lewis: It's the Motley Fool Money Radio Show. I'm Dylan Lewis. Joining me over the Air Waves, Motley Fool senior analysts Jason Moser and Matt Argersinger. Fools great to have you both here. We've got the inside scoop on what Warren Buffett's been buying. Earnings updates from Big Box Retail and stocks on our radar. We're going to kick off this week with a touch of the Big Macro Matt rates on P's minds, based on what we're seeing with inflation data and some of the other macro indicators seems like that rate cut everyone's been looking for in September, just a little bit more likely.
Matt Argersinger: Definitely on track there Dylan, and I don't like using this term because I hate when I hear it in news media or financial news terms, but I feel like Goldilocks is the best way to describe the current macro situation in the US, because, yes, inflation data this week, we had CPI up just 0.2% for the month, 2.9% year over year, so we're trending below 3% now for inflation. Then on Thursday morning, retail sales up 1%. Both that and the core number 0.4% of you strip out autos were better than expectations. Jobless claims, also trending lower, we were seeing that go up in recent months. That's now turning down again. Muted inflation, strong job numbers, strong retail sales numbers. I know we're going to talk about some retailers during the rest of the show. This points to really no signs of recession and cooling inflation, just the environment we need for I think the Fed to start cutting rates come September.
Dylan Lewis: We'll get a look into the Fed's crystal ball when Chair Jerome Powell makes a speech at the Jackson Hole Economic Symposium next week. Until then, Matt, we wait with bated breath, hoping that we get that too hot, not too cold economic situation.
Matt Argersinger: I'll just say this, if you want to know the state of the situation, the VIX right now is under 16. It was over 60 a week ago Monday, and Professor Jeremy Siegel was out there calling for 75 basis points, emergency rate cut. But here we are. Everything's back to normal, everyone feels better. It's amazing to watch the market go through these gyrations, but certainly Goldilocks is the best way to describe it right now.
Dylan Lewis: Matt, I want to stick with you for what I think is maybe the story of the week, and maybe one of the stories of the food industry for 2024, Starbucks announcing that current CEO, Laxman Narasimhan will be replaced by current Chipotle CEO, Brian Nichols, and boy, do the market reactions say it all for this one? Starbucks had one of its best days ever on the news with shares up about 20%, Chipotle shares down over 10% on this one.
Matt Argersinger: The market was very decisive in the least on this move, and it's a big move. I'm a Starbucks shareholder and a Chipotle shareholder. But if you're a long suffering Starbucks shareholder like I am, this was obviously great news. If you look at what Brian Nichols was able to do at Chipotle, the tremendous track record there, what are he was able to do in terms of unit economics of the stores, we'll get into that, but this has been a struggle for Starbucks. If you look at Laxman's barely 18 months of the company, com sales have come down. The China business has been a mess. It was one of the big growth engines for the business, that's really fallen off. It feels very sudden to me. I think I'm not surprised that Laxman is out. I think the speed of it is definitely surprising and maybe even a little unfair, given some of the headwinds that he had to deal with, especially on the labor front. I would say this about Starbucks. It's a whole different beast than Chipotle. This is a much larger store base, it's global, I mentioned China. It's complex. You're dealing with highly customizable beverages. It's higher skilled labor. It's a third place, or at least it used to be a third place for a lot of people. I don't see a lot of people calling Chipotle a third place or going to hang out there, but they do at Starbucks. This might be minor, but there's also a dividend here with Starbucks. A dividend that's been raised consistently since 2010 has become a big part of the capital allocation picture. I'm really curious what Brian Nichols going to do with that dividend if he's going to make it cut it or at the very least stop growing. This is a big challenge. I think this is not going to be a simple turnaround. I don't think it's fair to blame Laxman for a lot of things that happened at the company. In some ways, I think he was being set up for this transition. But can Brian Nichols be the right guy and not bring Howard Schultz back again? We'll have to see.
Dylan Lewis: Jason, Matt just noted some of the differences between Chipotle and Starbucks. These are both household names and ones that we recognize right away. A key difference here also, scale. When Nichols took over Chipotle, he had about 2,500 locations, now has about 3,500 locations, Starbucks has over 38,000 locations. A little bit of a different story here when we talk about footprint, a lot of Chipotle shareholders, obviously not happy to see Brian Nichols go. What's the Chipotle side of this?
Jason Moser: Well, I too, I'm a shareholder of both Chipotle and Starbucks, and I think the market got it right in its reaction to this news. It's funny, Matt and I did a presentation at our full Fest event recently, where went through Starbucks and talked about the pros, the cons, the concerns, whatnot. For both of us, really, leadership was one of the biggest concerns, biggest risk because there was just so much we didn't know. Laxman was more or less unproven on this front. To see this happen so quickly, I can't say that I'm surprised given how the business is performed. I think you know, when you look at Starbucks, I think one of the big challenges, as you know of the scale, I think that's key there. I think if you break that down even a little bit further, you look at Chipotle, and the 3,500 stores that Chipotle has today, those are all company owned stores. They have ultimate control over those stores and how they're run. In Starbucks with obviously exponentially more stores at 38,000 plus, you also have to remember that that basically splits in half. Half of them are company owned, but half of them are licensed. There is a lack of control. There are differences that come with those licensed stores that can make the experience a little bit trickier, a little bit less consistent. I'll be interested to see how Nichols addresses that, because if you remember, one of his biggest moves at Taco Bell back in the day before he went to Chipotle was introducing the Dorito Locos tacos. That thing was huge, and that took the business into a whole new direction.
I think, honestly, that innovation, for lack of a better word, was something that certainly interested the Board at Chipotle. We talk about Starbucks a lot in regard to how well they do on the beverage side, and particularly on the cold beverage side. I think most of us older folks, I'll go ahead and throw it out there. But we were used to Starbucks coffee, hot beverages. But what they've really done so well over the last several years is executing on the cold beverage front, which I think is great. What they've not done well at all, pretty much the entire history of the business. They've not executed on the food side. It's always been amazing to see the success of this business given the fact that they've just never been able to nail the food part. Nichols has a lot of experience there on the food side of the equation. I think it's at least worth paying attention to any moves he makes on that food front, because there's definitely an opportunity there. But I think Matt made a lot of good points there. This is a big undertaking, and it's a different experience altogether. I think the highly customizable beverages and offerings will be something that they have to figure out to address. I think he can do it. He's got great experience on the mobile front. Helping build out that mobile presence with Chipotle. I think that's a big point of concern with Starbucks is revamping that mobile experience. I'm cautiously optimistic. I think they got a really good guy here, and certainly, he's got all of the incentive in the world to perform given that pay package that they gave him, I think what, $10 million cash signing bonus and $75 million in performance equity there, too. He's got all the incentive in the world. Starbucks is obviously still a very powerful global brand.
Matt Argersinger: I love what you said about food, Jason. I think this, in a lot of ways, is about product innovation. It's also about culture. I think those are a couple of things that Laxman just didn't get right. Laxman, to his credit, was focused on efficiency, was focused on supply chain, throughput, a lot of things that Brian Nichols did so well at Chipotle. I think those are more the blocking and tackling. It's really about product innovation and culture that they're going to have to focus on.
Jason Moser: The big question now for Chipotle is obviously leadership. We've got Scott Boatright, who is the COO. He's going to step in as the interim CEO. But it's not guaranteed that he's going to resume that position. I thought it was interesting to note Jack Hartung, who is the CFO since 2002, recently announced he's going to retire in 2025. Well, not so fast. Now he's decided to remain with the organization indefinitely as the president of strategy finance and supply chain in order to ensure a smooth transition. There are a lot of leadership questions out there that are still unanswered for Chipotle. Nichols got this thing going in a good direction. It's going to be really key that new leadership better not get in there and rock the boat too much, because what they've been doing has obviously been working.
Dylan Lewis: To your point, there, Jason. I think this might have been a little bit of a surprise over at Chipotle. I don't know that this was something that they were necessarily expecting. Maybe it's a little bit before Brian Nichols steps back into a Chipotle, after all this, I'm curious being forced to give up Starbucks or Chipotle, which one are you going with?
Jason Moser: Me, wow. You're forcing my hand here. Well, I've owned Chipotle for a long, long time, and it is a big winner for me. I think I would probably hang on to Chipotle, but listen, Dylan. I don't have to give up either one, so I'm hanging on to both of them.
Dylan Lewis: Matt, I'm going to force you into the same question. What do you think?
Matt Argersinger: Gosh, if Starbucks hadn't gone up almost 25% last week, I might have said Starbucks, but gosh, that's such a big rise already. I think Chipotle, with the store count has a lot more upside. If I hadn't choose one, I'm probably leaning toward Chipotle.
Dylan Lewis: Coming up after the break. We've got Home Depot's take on the state of home renovation. A look at the consumer with Walmart earnings. Stay right here. You're listening to Motley Fool Money.
Welcome back to Motley Fool Money. I'm Dylan Lewis here on air with Matt Argersinger and Jason Moser. Gents, in what has been a tough retail environment, Walmart seems to continue to cruise along largest retailer in the US reporting results ahead of expectations this quarter. Jason, what's going right for him?
Jason Moser: Well, this is steady as she goes. This was a good quarter and a good outlook in an environment like this one. That matters. There's no secret the consumer is really focused on value, and that is Walmart's MO right there. When you consider investing really is all about the future, they raised guidance across the board, and just a bit more than modestly, I'd say. It was all around encouraging, I'll let Matt to get into some of the other numbers here, but one thing I wanted to make sure to call out, just because I think this is such an interesting part of the Walmart story now. The global advertising business grew 26% including 30% for Walmart connect in the US. Now, we don't think of Walmart as a tech company or an advertising company per say, it's just a boring stodgy retailer. But when you look at the way this advertising business has grown, I think it's encouraging to see this business branching out and become a little bit more diversified. If you look at the fiscal 2023, their global advertising business generated $3.4 billion in revenue. Still a drop in the bucket compared to their overall top line there. But the previous year, it stood at 2.7 billion. I think the year before that it was 2.1 and they just see continued growth in that market there. Not just your old stodgy retailer anymore. Walmart is starting to branch out and figure out new ways to make some very high margin dollars.
Matt Argersinger: But that stodgy retailer is putting up some nice numbers though. If you look at revenue, 4.8% US comps up 4.2%. What I liked about Walmart's results were its growth in both transactions and ticket size, which is something a lot of big retailers have struggled with that mix and Walmart's executing on both fronts. I would say e-commerce sales up 21% is also pretty impressive. I would just say that Walmart's results confuses me a little bit because we keep hearing about the health of the consumer, especially maybe on the lower end of spending, and it appears and we don't really know exactly what those consumers are buying, haven't had a chance to listen to the conference call, but it doesn't seem like they're having any challenges right there, if you look at Walmart's results.
Dylan Lewis: I think where Walmart seems to have succeeded and been able to continue to thrive in a tough environment is the focus on value. I saw them emphasizing over 7,000 short term rollbacks on prices, the value offering similar to what we're seeing in some of the fast food conversations becoming much more important for consumers. Maybe Matt Walmart just has that association in the way that some of the other retailers don't.
Matt Argersinger: I think that's right.
Dylan Lewis: Sticking with retail, but maybe a slightly different sector of it. We're going to look over at Home Depot results. Top and bottom line came in better than expected, but I don't know if it was exactly a great quarter, Matt.
Matt Argersinger: No, I think it's already been a tough year for Home Depot, and I think this quarter just shows that it's not getting any better. Sales were actually up 0.6% year over year, not a big number, but better than expected. But that was all only if you include sales from SRS distribution. The distribution buss acquired in mid June. If you look at comparable store sales, which gets a better gauge of sales, they fell 3.3%, including a 3.6% drop in the US. Management also took guidance down, again, for the full year. They were guiding for a decline of 1% in comps. Now, that's going to be a decline of between 3% and 4%. Earnings per share are also guided down. Not good all around, and management pointed to the same thing they've been pointing to in recent quarters, which is reluctant on the part of their shoppers to buy the big ticket items, bigger appliances, home renovations, lumber. They're seeing that both on the consumer and professional side. CEO Ted Decker on the conference call mentioned interest rates 10 times, but in a little bit more of a surprising way. We know interest rates are higher. That's causing a lot of reluctance in spending. But his point was more about there's an anticipation of lower rates. What's that's doing is if you're a customer who's contemplating selling your home or doing a big home renovation, you're saying, well, why I'm going to do it now if I know interest rates might be lower in six months or in 2025? It's now this anticipation story. I think a lot of smart consumers know that interest rates are heading down. Is that causing them to hold off because they're waiting for lower rates? I think that's a fascinating twist that we have going on.
Jason Moser: Now, when you look at Home Depot, the one thing that makes me wonder is, is this a coiled spring story at some point. I don't think we don't really have any question as to the strength of Home Depot's business. But it is cyclical to the extent that it has to deal with these macro factors, at least to a degree. Obviously, interest rates and inflation have been central to their earnings calls for a number of quarters now. It feels like it's probably safe to say that interest rates should continue just to come down. I know we recently saw mortgage rates down at their lowest in some time and refinances really picked up. A lot of people are staying put and not moving because they are waiting to get those 5% or lower interest rates back in, which maybe we'll get there at some point or maybe not. But at some point, rates continue to come down. You have to start asking yourself. Is this a coiled spring story? Then, honestly, and as a shareholder of Home Depot. I love the fact that I get to hang on to that dividend while I wait.
Matt Argersinger: That's the beautiful thing. I would say, you're right. It's really about home transactions and home renovations. Those are the key arteries for Home Depot's business. If those turn around significantly, Home Depot's business will turn on significantly. I will point out that this was interesting. Home Depot didn't buy back any stock in the quarter. That's the first time they haven't bought back stock since 2021. Management talked about trying to lower leverage on the balance sheet as the main reason. But I think that's a bit telling. The stock is trading about 24 times forward earnings, not exactly a cheap valuation, but you get that dividend.
Dylan Lewis: Rounding us out with earnings takes, shares of Brinker International down 10% this week after reporting results. You may not know that name, but guessing you know the name Chili's and Maggiano's little Italy restaurants. This is the parent company. Jason, you dove into the report, what did you see?
Jason Moser: Well, it's not just baby back ribs for these guys, Dylan. [laughs] This is a business that's in a self admitted turnaround. It appears to be moving generally in the right direction. I think the headline for this quarter was in earnings miss, but I will say they hit their full year targets that they set out a quarter ago. That's something I always pay attention to is management doing what they say they're going to do, because that makes a difference, I think. Total revenue for the year $4.4 billion earnings per share of $4.10. Now, for the quarter, there were some numbers that fascinated me, and I just want to call these out because the comp restaurant sales were up 13.5% with an increase in Chili's comps of 14.8%. I just didn't realize Chili's was so strong, Dylan. I hadn't been wanted forever, but it appears that consumers are flocking back thanks to these new menu innovations.
Dylan Lewis: I was going to say, Jason. I don't think I have seen a Chili's in two years. Let alone visited one. That's impressive to me. That's usually bucking a lot of industry trends in a way that just surprises me. Just did yesterday.
Jason Moser: The need to, and the stock is at a tremendous year up, 40% year to date.
Dylan Lewis: We'll be right back after a quick break with a rundown on the latest stocks in Warren Buffett's Berkshire Hathaway Portfolio. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Dylan Lewis, joined by Jason Moser and Matt Argersinger. Fools, we got to look at what Warren Buffett's been selling as part of Berkshire's earnings report a little while back. We've also now got a sense of what he's been buying. New regulatory filings out showing Berkshire has been building positions in cosmetics chain Alta and aircraft part supplier Heiko. Jason, do either of these surprise you as Buffett stocks?
Jason Moser: They're probably not at top of mind for a lot of folks, but I think when you look under the hood there and you start seeing what these businesses do and then trying to make sense of it. It doesn't seem too far out of left field. Ulta, we know, is a cosmetics company. Cosmetics, generally speaking, very resilient. I can tell you, as a household with two teenage daughters and my wife. I see a lot of that stuff every day, and Alta gift cards are very popular gifts in my house. I'm not surprised to see the interest in the company. I think the company itself has had a very tough year. The stocks down 32%.
They've clearly been suffering from inflation, what seems to be a more and more stretched consumer. That I think is part of it and I think this is probably a little bit of an opportunistic call. It's not a big bet for the company. But it's one of where I think they clearly see value. The stock right now is valued around 13 times trailing earnings and for a business like this, it's a very well known, and I would say resilient, almost premium brand. Maybe not premium in the sense that some might think, but it is a very well known brand in the space. I think this is one of those value plays where they see potentially a recovering consumer, inflation coming down, perhaps the interest rate environment improving. Maybe this is one of those we're talking about a coiled spring there in Home Depot. Maybe this is a little bit of a coiled spring they see there. Heiko, a little bit of a different story, polar opposite here. Heiko boring business seems more up his alley. They serve the aerospace sector, providing aftermarket parts and in specialized services, so boring, but a very necessary. This stock has had a pretty good year. It's up better than 30%. It's similar to a competitor in their space, trans dime. I think a lot of folks know, as well. But this is a much lower margin business, a little bit less specialized and so I think it's something that maybe just right up his alley, he feels like he knows about this space in Heiko, I think has a long track record of performance there. Again, both investments, not really big bets, so to speak, but perhaps see some value there. I think it's worth noting he also increased his stake in insure Chubb by about 4%. I think he owns close to $7 billion in Chubb now, and insurance clearly is something that he knows very well. But when you consider what has gone on over the last several quarters, he sold, I think more than $75 billion in equities in the second quarter. To bring that cash pile up to $277 billion. That's an all time high. I think there's some profit taking there, and now they're starting to look for some opportunities, and these were a couple that stood out.
Dylan Lewis: Let's talk a little bit about that profit taking. Berkshire not exactly desperate for cash, but sitting on a bit more thanks to its reducing its apple position, cutting that in about half and Matt earning Berkshire about $60 billion recently. Apple is still the firm's largest position. I think they hold about 80 billion in shares. Is this something where we had a fantastically wonderful investment that just needed to be wound down because it was such a large portion of the portfolio? Or do you feel like there's maybe a little bit more to read into here with Apple?
Jason Moser: I think it's more of the latter, Dylan. Buffett's not afraid ever to hold big outsides positions in his portfolio, so I don't think he had any problem with Apple becoming bigger and bigger if he still fully believed in it. I think he does. But I think let's be clear, when he was buying Apple gosh, eight or nine years ago for the first time, Apple is trading for 13 times earnings. I remember, it was in the wake of Steve Jobs passing, and there was questions about the resilience of the business as a hardware company. Now Apple's trading for around 30 times earnings. It's had a tremendous run. That might cause Buffett to bring the register in search of better opportunities. We want to say this is Buffett being conservative. This is him hoarding cash to look for really, great opportunities in the market. We have to remember that though, unlike many times over the last 15 plus years, you're getting a nice yield on your cash. Warren Buffett Berkshire owns around 230 billion in T-bills. Well, I think that's more than the Federal Reserve has on its balance sheet and those T-bills are earning 4-5%. That's a great place to be. I think there's no rush on Buffett's part to seek out opportunities unless he sees great values and so when there's a cost of caps at the market, I think that goes for a lot of big money players. It's a lot easier to hold cash and a lot easier to wait for fatter pitches.
Dylan Lewis: Buffett not alone in his cash building. We also have data out from S&P global showing that globally, internationally, private equity and venture capital funds, currently sitting on a record 2.6 trillion in uncommitted capital. Jason, taking the Buffett cash hoard narrative and pairing it here with a PE and VC world that has been waiting for the deal-making environment to improve, should we be reading anything into these cash levels?
Jason Moser: Well, yeah, I think you got to read a little bit into it. We see these record levels and what? These funds added $50 billion to their cash reserves just in the six months since December of 2023. That's just a tremendous amount of money. There are 2.6 plus trillion in uncommitted capital. At some point that money has to start getting put to work. Matt makes a very good point there right now, and you've got some very low risk ways to make a reasonable return on your cash. I think a lot of this capital of controllers of this capital. They just haven't really felt pressed haven't felt the pressure to put it to work, because it's just been a very uncertain time. We're recovering from a very strange past three years or so that really threw the economy into just a whirlwind. You've got inflation that is now starting to normalize a little bit, but that's been a big question mark. The interest rate environment has been a big question mark and then I think there's an election in November, if I'm not mistaken. That is, I'd say, probably a big question mark as well. You put that all together. It's certainly understandable why this money has been sitting on the sidelines right now. But because we're starting to see that environment improve, we starting to see some of that uncertainty fade into the background. I think we're starting to see some signs that businesses are more and more, that this capital is ready to get to work. I think we saw Lockheed put a little money to work to day in a deal.
Clearly, we can talk more about things like Mars and Kellanova. But you're just starting to see signs that this capital is itching to get back to work and I think that once we get through this uncertainty, and once we realize that maybe there isn't another shoe to drop, there'll be a little bit more confidence to get this stuff to work. When it does, it happens slowly and then all at once, as they say, and I suspect that'll be the case here.
Dylan Lewis: Matt, anything specific to the private equity or venture cap world outside of just the general macro picture that's driving some of this cash hoarding on the sidelines?
Jason Moser: Well, yeah, one area that a lot of the private equity firms, if you think about Blackstone, KKR, Carlyle, Brookfield, they tend to be big commercial real estate investors as well. That tends to be one of their expertise and that Jason talked about shoes left to drop. I would say there are shoes left to drop in the real estate space and the commercial real estate space. I think transactions have just been a lit frozen there because banks who maybe are on the brink of taking back a lot of this office real estate in particular are reluctant to do so. They're trying to work it out. They're trying to delay, pretend that the interest rate environment is going to get better and they can get some money back on the debt that they put into these assets. I would say that could be one of the areas in the market that's still stuck a little bit. Still has room to play out. We haven't hit bottom in a lot of places, and I think that's partly why there's a significant amount of capital in the PE industry right now, just waiting for that shoe to drop still.
Dylan Lewis: I want to bring this down to the individual investor and the way that people may be thinking about cash in their own accounts. Jason, when you're thinking about putting money to work right now, are you excited? Are you being opportunistic, or are you also sitting on the sidelines?
Jason Moser: Well, I will admit, I've been sitting on the sidelines for a little bit. That's due to remember that word exogenous. Dealing exogenous factors? Well, I've got, a couple of kids that are going through college. I've been a little bit more in cash raising mode lately, but I still have money to put to work. Now, I will say I continue to put money to work every pay period. I've got money going into the global index and then I absolutely am continuing to pay attention to opportunities out there in the market, mostly looking to add to winners as I'm able to. But I think it's encouraging seeing this money on the sidelines. It does make it keeps my attention. Because I think we are going to start to see a floret of activity, and that typically is a good thing for investors.
Dylan Lewis: Matt, what about you, what's been going on in your account?
Jason Moser: Well, I usually am fully invested, and I'm not really sitting on a lot of cash, but what I have been doing lately is letting my dividends pile up a little bit. I have one portfolio that's really focused on dividend and income. Generally, when I get dividends in, I tend to reinvest pretty quickly. The last few months, I've let dividend cash pile up a little bit. Seeing what else is out there? The market certainly is near an all time high. A lot of the values that I'm looking for aren't really there in the market and so letting that build a little cash for me, so I'm not hoarding, but I'm certainly being reluctant to spin that dividend cash out. Again, I'm keeping that close to the best.
Dylan Lewis: Jason mentioned that Kellanova deal. We're going to talk about that coming up after the break. Stay right here. You're listening to Motley Fool Money.
As always people on the program may have interests in the stocks they talk about and the Motley Fool may have formal recommendations for or against. Don't buy or sell anything based solely on what you hear. I'm Dylan Lewis joined by Matt Argersinger and Jason Moser. We've got stocks on our radar coming up in a minute. But first, rounding out the news the week, you tease this one earlier, Jason. Mars, the owner of M&Ms and other snack brands, will be acquiring Kellanova and its portfolio of snacks and food brands in a $36 billion deal. Kellanova is the product of Kellogg's splitting off its cereal brands over into the WK Kellogg brand, putting some of its other brands together. We're less than a year out from that happening. I think that was like September 2023. Are you surprised to be seeing Kellanova saddling up with Mars this quickly?
Jason Moser: I'm not surprised at the consolidation. Never underestimate the power of Pringles and Cheez-Its, non dimension things like Eggos and Pop Darts and Whatnot. This is It's a sensible deal in the sense that there's not a lot of overlap here. Mars is a fascinating company. Everything from candy bars to animal health. Everything in between, a fascinating company to study for anyone ever ever looking to learn more about business. But it makes sense to me in that there's not a lot of overlap. It's going to give Mars a lot of shelf space in some very resilient brands that do well in thick and thin. I will say, listen, I'm a big Cheez-Its extra toasty guy. I know that's a controversial take, Dylan. I will say, I have noticed in these inflationary times, I am always looking for the deals on those Cheez-Its extra toasty. I'm looking for the extra toasty deals. I want to see those things on sale. They've gotten very expensive and so it is interesting to see them picking up such a wide variety of brands, but it makes a lot of sense because there's a lot of shelf space involved.
Dylan Lewis: Jason, are the extra toasty Cheez-Its, the formerly discarded Cheez-Its that were burnt? Did they just brand that into something that people will buy?
Jason Moser: You just say I'm eating trash? You telling me I'm eating trash.
Dylan Lewis: I'm saying.
Jason Moser: No. Now, we live in a day we live in a day and age where you can order your pizza well done. Some folks just like it a little crispier than others. I think they really you want to talk about innovation. Those extra toasty cheeses. That was product innovation, my friend.
Dylan Lewis: Genius, a lot of focus on cheese it here, but Kellanova also owns Pop Darts, Eggos, Pringles, Rice, Crispy Treats, a lot of well known brands. Probably better than the Kellanova brand themselves. Matt.
Jason Moser: That's right. I'm just happy that Mars has taken this company away from the public market, so I don't have to hear the name Kellanova anymore because I just think it's I never like that name, and I wish they would have just called themselves Pop Darts Inc or Pringles Corp. Much more simple, and for me to understand. I don't even know what what does Kellanova even mean?
Dylan Lewis: It sounds like it means it's being acquired.
Jason Moser: Yes, sounds like it shouldn't have been a pubic company in the first place.
Jason Moser: Many of those names out there. I'm with you. I don't like the name. It reminds me of Kenvue with the J&J. Kenvue sounds like a speaker company and then think about, IBM splitting off into what Kyndryl. Kyndryl sounds like some pharmaceutical commercial you'd watch on TV. What is it with the names?
Give me my Illinois tool works and simple name. I just need simple.
Something that at least explains gives you an idea of what this company.
Hershey Company. Thank you.
Dylan Lewis: Just stay away from your K names with Jason Moser. I think is probably the takeaway there. Let's get over to stocks on our radar. Our man behind the glass. Dan Boyd is going to hit you with the question as he does every week. Matt, you're up first. What are you looking at this week?
Jason Moser: JOT this up perfectly, because I'm going with Kenvue. I hate the name. But I like the business. Ticker K-V-U-E. This is the spin off from Johnson & Johnson about a year ago. I think Dan is going to like this one. I know he's into skin care and self-maintenance. This is a consumer health company, big market-leading brands, Tylenol, Zertek, Bendrl, Listin, Nutragina. You've heard of them. Q2 results weren't all that great. But on an organic basis, you had sales increase 1.5%, still demonstrating nice pricing power. What I'd like to see is that sales for most of it can use products outpaced the overall market. They're gaining market share among their top brands. Margins came in better than expected and that's enabling management to spend more on marketing, which they plan to do over the second half of the year. I think that's going to help sales going into 2025. Stock is only trading for about 18 times forward earnings, well below peers like Proctor and Gamble and Colgate. You have a business that's holding up pretty well, discounted valuation. Dan, you got to love this, pays about a 4% dividend yield that they recently raised.
Dylan Lewis: Dan, a question about Ken view Ticker, K-V-U-E.
Matt Argersinger: I do like the dividend. I will cop to that. But, Matt, a lot of these brands are established and old. Can we expect Kenvue to really grow a whole bunch in the future?
Jason Moser: I'm not expecting a ton of growth, but I think there's still room to expand internationally. They can still take market share with a lot of the products. And again, you've got that dividend, so the earnings don't have to grow that much to get a nice return out of the stock.
Dylan Lewis: Jason, what's on your radar this week?
Jason Moser: Yeah, going back to the Well on Palo Alto Network stickers P-A-N-W. This is a radar stock I called back out in March earlier this year. Earnings come out for Palo Alto on Monday after the market closes and for those who can recall, Palo Alto is a cybersecurity company. In plain and simple terms, it is a cybersecurity company, and so very much like your Z scalers and crowd strikes of the world, in 2023, revenue broke down into two main categories with product accounting for 23%, and then subscription and support accounting for 77%. You like that because that's the higher gross margin business. It gives you a little bit more clarity, a little bit more consistency and predictability. Now, if you recall, when we were talking about Palo Alto a little while back, there were some issues earlier in the year they and pulled back on guidance for the year citing what they called spending fatigue. This was something they noted in the call, which they were talking about their consumers. The big companies that they sell their services to. They were spending fatigue. Companies that were holding off and waiting to make those investments, that raised some eyebrows, and the stock got shacked. But it's actually hung hung in there. Pretty good this year. Stocks up a little bit this year, outperforming the market just slightly and I think that for me, what I'm looking for in this call, two things, really. They're making this move toward platformization, getting their customers onto their platform and being able to give them the services they need being a part of that whole Palo Alto family. But then the other thing to me, really, it's the CrowdStrike story. I want to see how that impacted Palo Alto, what their take on that is. We'll learn more about that on Monday.
Dylan Lewis: Dan, a question about Palo Alto Networks, Ticker, P-A-N-W.
Dan Boyd: How come their headquarters is in Santa Clara and not Palo Alto?
Jason Moser: It seems bizarre. But I give them a pass because they just locked down Keanu Reeves for this big new ad campaign and he seems pretty excited to be a part of it, and everybody loves Keanu. Am I right?
Dylan Lewis: Good time, Dan, which one's going on your watch list this week?
Dan Boyd: I can't argue with Keanu Reeves, so I'm going to go Palo Alto.
Dylan Lewis: The Internet loves Keanu Reeves? We love Keanu Reeves, it turns out, too.
Dan Boyd: American Treasure.
Dylan Lewis: Jason Moser, Matt Argersinger, appreciate you guys being here and bring in your radar stocks? Dan, appreciate you weighing in. That's going to do it for this week, Motley Fool Money radio show. Thanks for listening. We'll see you next time.
