In this podcast, Motley Fool host Dylan Lewis and analysts Ron Gross and Jason Moser discuss:
- Tesla's sweet report.
- How Southwest and American Airlines are trying to rally from an oversupplied air travel market.
- Disney's succession plans.
- Earnings from UPS and Coke.
- McDonald's E.Coli issues.
- Two stocks worth watching: Compass Minerals and Remitly.
- How cocoa production and the commodities market are shaping what treats people will be giving out this Oct. 31.
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 Oct. 25, 2024.
Dylan Lewis: That pile of candy on your kitchen table is looking a bit more valuable this year. Motley Fool Money starts now.
It's the Motley Fool Money Radio show. I'm Dylan Lewis. Joining me over the Airwave is Motley Fool senior analysts, Jason Moser and Ron Gross. Fools. Great to have you both here. How you doing?
Jason Moser: Hey how are you doing Dylan.
Dylan Lewis: Doing good. We got a spooky story on the commodities market, activists logging some wins, and, of course, stocks on our radar. We're going to kick off with some big money moving around in market cap this week. Shares of Tesla up over 20% following earnings giving the EV maker its best day on the market in over a decade and bringing the company into the green for 2024, Jason. What's behind the bump?
Jason Moser: Well, obviously, it's been a tough year to this point for the company. This was certainly a report that I think helps get the narrative back on track, a nice recovery from the We, Robot reaction from a few weeks ago. In a fun fact, Dylan, Tesla produced their 7th million vehicle on October 22. For you doubters out there, hey, listen, this company keeps rolling forward, as they say. You look at the numbers, revenue was strong, just a bit over $25 billion that was up 8%. Then you look at adjusted earnings of 72 cents per share. That was up 9% from a year ago. For investors, I think it always bears repeating. We say this all the time.
This is obviously a polarizing stock for many. But there is a passage in the slide deck that just stood out to me, and it's a good reminder. They are accelerating the world's transition to sustainable energy. I think that's important to remember. This is a massive vision. It's one that will take many years to play out. Yes, it'll be a volatile holding. But also, yes, it's taking on a massive vision that I think generally most degrees the direction the world is headed. I think a big challenge recently for the company has been on the margin side. We've seen automotive gross margin come down fairly significantly over the past few years as price wars have escalated somewhat. That definitely took a turn positively for Tesla this quarter. Automotive gross margin was up almost 250 basis points, thanks primarily to cost optimizations. I think price wars are still ongoing there, but the company's becoming a little bit more efficient. They noted that Cybertruck achieved positive gross margin for the first time as production increased sequentially.
Listen, I've ridden one of those, and I have to admit, I don't quite get it. I'm not sure how large that market ultimately is, but we know that Tesla has a rabid fan base, so there is some a future there. I think the thing that might fly under a lot of radars, though, I was really impressed by the energy generation and storage performance. Revenue there of almost $2.4 billion, that was up 52% from a year ago with strong gross margin expansion there as well, close to 600 basis points sequentially. I think for Tesla, in the near term, at least, some big questions, how will the timeline shake out for initiatives like Cybercab and Robovan. Musk noted in the call, he thinks that there's 20-30% vehicle growth here in the coming year, 2025, notwithstanding any negative external events, but all in all, definitely a positive quarter that got this narrative back on track.
Dylan Lewis: Ron, Jason just noted that 20-30% next year figure, I feel like when it comes to Musk projections, timelines, estimates, we all have our own approach to modeling the probability and how realistic they are? What's yours?
Ron Gross: Well I think what makes Elon Musk partially what makes him interesting, besides his intellect, is his optimism and his forward thinking vision, which I think is unique and probably very exciting for investors in Tesla. From a modeling perspective, I think history has shown us that we need to be a little bit conservative and not take everything at face value for sure. Maybe some discounting to his projections. Some of his hyperbolic statements are warranted if we want to build in some conservatism to our models when we look at what this company could eventually be worth.
Dylan Lewis: We're going to keep with the earnings focus. We have some fresh numbers out from some of the major airlines, Southwest and American. Ron, where do you want to start with those?
Ron Gross: Dylan, investing in airlines has historically been pretty tough to get right. Just ask Mr. Buffett, who points it to airlines as one of his bigger mistakes throughout his career. I don't think current times are really an exception. Where we are now is following the post COVID recovery that quickly came back down to Earth. The recovery was nice, but it quickly came down to Earth. Airlines found themselves with an oversupply of empty seats over the summer that really forced many to cut ticket prices, cut back on unprofitable routes. We saw that show up in results. Now, it looks like they've largely worked through a lot of that, and the industry is now in a better position to increase prices, and that should impact margins in a favorable way. I think growing optimism about the US economy, the broadening market rally, that's contributed to the strength of the group. At the same time, we've seen oil prices come down, especially over the last month. That's obviously one of the most significant costs that the airlines have to deal with.
Since August, stock prices have really rebounded nicely across the board. I'll point out some of that, when we look at two specific airlines that reported this week, American Airlines, first, a third quarter loss, but they did raise their profit guidance for the year. As management said, the company's sales strategy shift earlier this year to win back corporate clients is paying off. Now, in May, they fired their chief commercial officer after a new sale strategy really failed. They're now trying to win back corporate clients that they abandoned to a certain extent. They're working through that. For the full year, the airline expects as much as it adjust $1.60 a share in profits. That's up from $1.30 previously. Stock is up 35% since August. But it is still down 10% on the year. That gives you a little context. If we look at Southwest, their third quarter profit fell from a year ago, but that actually beat estimates because there's a lot of pessimism out there in the sector. They've also had to fend off the activist investor Elliott Investment Management during the last several months.
They forecast unit revenue for the fourth quarter would increase 3.5-5.5% on a 4% drop in capacity compared with a year ago. It said costs, excluding fuel would likely rise by as much as 13%. They have some work to do there in terms of costs. But they did increase revenue about 5% during the third quarter, and adjusted earnings were 89 million. Sounds low, but analysts were actually forecasting break even. Better than expected to set for Southwest, and that stock is up 15% since August.
Dylan Lewis: Maybe even more important than some of the earnings results that we got from Southwest? You brought up the activist investor Elliot Management. This has been a really long back and forth and a very public one. They seem to have reached a resolution there. The airline will have six new directors, including five nominated by Elliott Management. Elliott has been lobbying for eight seats, was planning to call a special shareholder meeting to make that happen. They'll also be pushing out the executive chairman, Gary Kelly, former Southwest CEO. He's going to leave his role a little bit earlier than originally planned. Ron, you know the world of activists a little bit better than I do here. What do you think of the trade and the bargaining here?
Ron Gross: As a former activist, I know these things are hard to get done, and it's always a very big negotiation. You actually do want to come to an agreement rather than go through a proxy contest, if you can ever do so. Here, it looks like they did. They really wanted the CEO out. It looks like they gave in there, but they have such pretty strong board representation as a result of the deal. I think they're probably happy with that. Elliott knows what it's doing. It's Paul Singer's firm. They've been around forever, managed more than $50 billion. They've done deal after deal after deal and pretty well. Their track record is pretty good. Couple of things they really wanted to see was getting rid of that open seat boarding process and moving to a more traditional assigned seating system. They wanted premium seating options where the prices could be a little bit higher for certain passengers. It seems like they're going to get a lot of what they want. They still win 10% of Southwest, I believe. It's to their best interest for this company to turn the corner and start to see things improve.
Dylan Lewis: We also got a little bit of an update at the leadership picture at Disney, House of Mouse out this week with an official timeline for its succession planning. Jason, we've been looking for clarity here for quite some time. Finally, have it. What do you think of the plan?
Jason Moser: Do we really finally have? It's not like we have to press the segments was like, stop me if you've heard this one before. All kidding aside. This is I think encouraging news, at least for Disney investors, that we've got a little bit more of an idea of where this may be headed. We saw the Succession committee recently interviewing ESPN Chairman Jimmy Pitaro, the experiences Chairman Josh D'Amaro, and then entertainment Co Chairman Dana Walden and Alan Bergman is all potential successors. I think we'll see more names thrown in the hat here before it's all said and done. But like I said, they've interviewed with the Succession committee, and the plan is to have that successor installed by early 2026. That's still a long ways away. This is encouraging. Obviously, Disney has an Iger problem. They need to be able to move on from Bob Iger. That's a good thing, of course but to me when I see this news, when I see these names and their positions within the company. To me, it raises the bigger question and I think it's worth deliberating, at least. Is Disney's ideal successor really an internal candidate, or would the company benefit more from an external fresh set of eyes to help lead the company forward? We've seen companies like Wells Fargo that ultimately went external Starbucks, of course, obviously, just just went external. I'm not entirely convinced that an internal hire is the solution? Maybe it is. Maybe it works out well but to me, I'd love to see at least some external candidates come to the service before this decision is ultimately made.
Dylan Lewis: Feel like Disney shareholders have had to be pretty patient for the last decade or so. The returns have not been great since 2014. Going to have to continue to be patient. We're not going to see the successor for a while. Are you guys willing to be patient with the stock, Ron?
Ron Gross: My kids have owned the stock for probably more than 20 years, and for them, it's been a pretty good investment. I bought some during the pandemic. The time the dividend was cut before and after that. When the stock was so depressed, and I thought it represented a good value. It has not been a good investment so far 2-4 years later, depending on which piece we're talking about when I purchased. I'm hanging in there. I think it's one of the most iconic brands in the world that I think it's nice to have a position here.
Dylan Lewis: Coming up after the break. We got a glimpse of how boxes are moving around the economy, and what's going on with soft drinks. Stay right here. You'll listen to Motley Fool Money.
Welcome back to Motley Fool Money. I'm Dylan Lewis here on air with Jason Moser and Ron Gross. We're going to keep the earnings parade rolling. We talked about Tesla returning to growth, last segment. They are not the only one, UPS giving its quarterly update this week, and for the first time in two years, Jason, showing growth on the top and bottom line.
Jason Moser: Well, UPS brought my Chewy delivery yesterday, so you should not hear my dogs barking today. That's good. But it's been a tough year for the stock. Shares down a bit over 10% of the S&P obviously outperforming that considerably. But this was an encouraging report. CEO Carol Tome noted on the call that last earnings call, they had said the second quarter would not only be the bottom, but it would be a turning point, and they would return to revenue and profit growth, and lo and behold, here we are. They saw consolidated revenue of $22.2 billion. That was up 5.6% from a year ago. Adjusted operating profit was $2 Million. That was up 22.8% from a year ago, and then adjusted EPS of $1.76. That was up 12.1% from a year ago. Encouraging there.
A lot of that was attributable to a 6.5% increase in daily volume. UPS isn't the most difficult business to understand. We know what they do get stuff from point A to point B, but I think they made a neat little acquisition of a company called Frigo recently, Frigo-Trans, and that's aimed at ultimately enhancing the company's ability to provide in temperature controlled logistic solutions across Europe for the healthcare center, or the healthcare sector rather. This is ultimately think pharmaceuticals. This matters because 80% of pharmaceuticals in Europe require temperature controlled transportation. I think that's a neat little addition to the business. They raised guidance a little bit, expecting revenue for the year of just over $91 billion in a little operating margin expansion there as well. Listen dividend yield 5% now. Payout ratio is 95%, keep an eye on that, but they've got the balance sheet to take care of that. More importantly, I think it's a very predictable and reliable business because it seems like we're only having more and more things delivered to our houses on a daily basis.
Dylan Lewis: I feel like the market overall probably has to be pretty happy to see that guidance increase with the holiday quarter coming up soon.
Jason Moser: Well as a shareholder. I was really happy to see it, too, Dylan.
Dylan Lewis: We had a sign of the times type quarter for consumers when we were looking at results from Coke. Demand isn't strong, and the gains are on pricing, Ron.
Ron Gross: Demands aren't strong, but my 94 year old father drinks 2-3 cans of Coke a day. [inaudible] are doing their part. Maybe there's health benefits, you never know. But yeah, this quarter was interesting. The results were better than expected, that was due to higher prices that offset weak demand. Consumers are feeling some fatigue here over higher prices, and that hit the stock a little bit. Organic revenue which strips out acquisitions, divestitures, currency, that was up 9%. That's a pretty good number. That was due to 10% growth in price and mix, and a 2% decline in concentrate sales. Roughly four of the 10% price increase comes from markets experiencing really high inflation like Argentina. The rest were results of price hikes. Unit case volume fell 1% in a quarter driven by weakening demand in some international markets. CEO said a set of consumers are ''Exhibiting value seeking behavior.''
That speaks to the fatigue that we're seeing in fast food restaurants as well, a bit of fatigue over higher prices. Case unit volume in North America was flat for the quarter, shrinking demand for water, sports, coffee. Interestingly, Fairlife milk, Topo Chico were performing well despite those higher prices. Unit case volume fell 2% in the Europe, Middle East and Africa, Asian regions, so not great there. But all in all, adjusted earnings were up 8%. Management said they see them heading toward a more normalized level of pricing going into next year that tracks similar rates as inflation or the CPI is what they mentioned specifically. Perhaps a slowdown in their ability to exhibit pricing power, one reason Warren Buffett has liked Coke for so long.
Dylan Lewis: We're going to stick with food and beverage here and talk McDonald's to bring us home. Shares down as much as 9% this week as the market processed an unappetizing headline, E. coli outbreak linked to McDonald's quarter pounders that comes from the US government. Jason, so far, 75 people have been sickened by the outbreak. One person unfortunately died. Seems to be tied to elements of the company's supply chain. We are seeing some of the troubleshooting going on. But what is your immediate take looking at this?
Jason Moser: Yeah, it's an unfortunate situation, of course. To me, when it comes to restaurants, this is just a matter of when not if. It's just the nature of the business. I think the question really is, because you mentioned the reaction to the stock in the aftermath of that release there. But it really angled out that back. Why is this not a bigger reaction to the downside? I think there are a few reasons. Number 1, you look at the scale of McDonald's is a huge company. There's still a lot that we don't know, so we don't know the ripple effects there. But like you mentioned, 75 people at this point, 13 states. The CDC has come out and said the risk of the public is still very low. I looked at this and compared it to Chipotle. You remember when Chipotle was going through all of their issues, that was, I think back in 2015. That was 2015-2018, so it was a long stretch there. At that point, Chipotle was a $22 billion market cap when that happened. Today it's $82 billion. But today, McDonald's is a $212 billion company. I think that clearly we'll see more information come out as this progresses. Hopefully, there are no more illnesses, and hopefully no more deaths as well. But it's just an unfortunate part of this industry.
Dylan Lewis: Yeah, this feels like particularly bad timing for McDonald's. We've been talking about how food traffic has been suffering, we've been talking about the value oriented consumer. They're trying to get people in their doors. Hopefully, this is something that is quickly resolved, we'll see them falling along.
[MUSIC]
Dylan Lewis: Up next, we check in on one of the most important ingredients for Halloween and why it's a bit more expensive this year. Stay right here. You're listening to Motley Fool Money.
[MUSIC]
Dan Bova: Hey, this is Dan Bova from entrepreneur.com. I'm just going to be honest with you, I'm not super successful. But, man, do I want to be. That's why I love hosting our show, How Success Happens. On every episode, I get to speak with people who have reached their goals and looked back at those goals and left puny goals and kept going higher and higher. I want to learn from these people, find out their formula for success, and maybe ask them for a small loan that I swear I will pay back soon, I swear. I'm talking to superstar athletes, actors, comedians, writers, inventors, tech founders. I'll admit I don't always know exactly what they're talking about, but I'm sure you will because you are way smarter than me. Please give How Success Happens a listen to get fired up, to get inspired, and because really, I think you're listening to way too many murder podcasts, and we're all starting to worry. That's How Success Happens. Download, listen, get inspired.
[MUSIC]
Dylan Lewis: Welcome back to Motley Fool Money. I'm Dylan Lewis, joined by Jason Moser and Ron Gross. Halloween's next week, so we thought we'd give investors and trick or treaters a little preview on what to expect when you're going door to door. Jason, for the folks that are going to be dishing out candy this year, if you are looking for chocolate, it might be a bit more expensive or a bit smaller than it's been in past years.
Jason Moser: It may be. You know, I love timely topics, Dylan. I think this is just perfect for this week, obviously with Halloween just around the corner. It got me thinking, do you remember the last time you went trick or treating? Obviously, it wasn't recently. I'm assuming it wasn't recently.
Ron Gross: [inaudible].
Dylan Lewis: I think the cutoff is somewhere around 12 or 13.
Jason Moser: Is it? Because I will tell you, I'm seeing like high school seniors coming by our house at times, and I'm just thinking, wait a minute, girls, don't you have something else to do? But I get it, I guess, free candy in a trustworthy neighborhood. We're going to always treat them right, no matter what. But yeah, this is clearly a little bit of a different season. Nobody's going to really think about this, but this is our job. This is what we do. We're nerds. Cocoa prices have actually more than doubled since the start of the year. They remain at record highs based on Wells Fargo data. According to International Cocoa Organization, yes, there is such a thing, they projected in August that global cocoa production this season would fall by 14.2%. I think on the one hand, obviously, we're talking about Halloween, but I think on the other hand, too, this extends well beyond just Halloween. This is all sorts of uses for cocoa. This is going to impact folks beyond just candy.
But I think an interesting thing in regard to cocoa, it's not your normal agricultural crop. You can't just grow it wherever. It takes specific regions, temperatures to grow, and we've seen areas in West Africa really is where it flourishes. In West Africa, place like the Ivory Coast and Ghana, that supplies over 70% of the world's cocoa today. Adverse weather, more than anything, temperature has really impacted the yield in those regions, and that's not going to end anytime soon. The projections actually are that cocoa prices are going to remain high until at least September 2025, so it looks like this still has some legs.
Dylan Lewis: This is a story that I think we first got wind of a couple of months ago, thanks to our colleague, Matty Argersinger, because he's been following Hershey's and looking at what's been going on with their business. We have seen this pop up as we've looked at Hershey's comments and also some comments from other players in the industry like Mars. Ron, I'm going to read a quote out to you here from Michelle Buck, ''We have experienced historic cocoa prices for some period of time now. Our approach on the pricing has been to take a measured approach. We've absorbed a lot of inflation already, but we do believe we need to pass some of it on, and we're seeing the category hold up fairly well in this tougher environment. We think it's historically rational, and it will continue to be." Help me translate that comment from the President of Hershey's.
Ron Gross: I think what she's saying is that higher prices are coming. I've seen quotes that say, ''Not this Halloween, necessarily.''
Jason Moser: Well, I've bought two bags of Halloween candy.
Ron Gross: All ready to go.
Jason Moser: I beg to differ, that stuff is not cheap.
Ron Gross: Maybe it wasn't Hershey product. Maybe it was Mars.
Jason Moser: Trust me, there's some Hershey stuff in there.
Ron Gross: But if prices were to remain this way, they of course, would have to be passed on to the consumer. They already have been to a certain extent. They obviously don't want to go too crazy at this time of year. This is their bread and butter, so to speak. Time of year, where they do most of their sales. They want to be measured, but they also have a business to run, and margins are going to continue to get smacked around. Hershey's in August reported an operating profit of $287 billion but that was a decrease of 49% from the previous year with margins getting whacked around. Exacerbating the agricultural situation here, and I don't think Jason mentioned black pod, which is a fungal disease that affects cocoa trees and reduces yields. I don't want any black pod in my Almond Joy. Hold the black pod, please. I know it's actually not funny, there's people that rely on this crop for their livelihood. But exacerbating this problem is speculation. You have people that speculate on all types of commodities. They take advantage of shocks to the system, in this case, an agricultural shock. Hedge funds jump in, speculate, makes prices even higher. They're betting that things will go higher, that creates a self fulfilling prophecy to some extent. They continue to go higher. It exacerbates the problem and makes everything worse. That's some of what we're seeing here as well.
Dylan Lewis: We're having a little bit of fun with this, but I do think it is kind of interesting to check in on commodities and be able to talk about it because we almost never do it on the show. It doesn't really fall into our lane as investors, Jason. But cocoa is not really alone in experiencing some big spikes this year. We have seen some other produce products. I think, notably oranges up dramatically this year, and this is a very real thing that winds up flowing into the input costs for a lot of the companies that we follow.
Jason Moser: It really is. I really think it was interesting how Ron referenced the bread and butter, whereas I would have said Dylan, I would have said the chocolate and peanut butter. [laughs]
Ron Gross: I was trying to think very quickly, but this is live. I couldn't think quickly enough.
Dylan Lewis: Yeah, I'm glad you brought that up. Oranges, obviously. We saw with hurricanes Helene and Milton, Florida has suffered severe damage here recently. Obviously, our hearts go out to everyone involved, not just in regard to oranges, cocoa, as well. This is the nature of the risk with commodities. They're subject to things that are just out of our control. I think it was putting some numbers around it in regard to Hershey, for example. They're able to pass along some pricing. They're able to raise prices a little bit, and we've seen prices go up virtually across the board whenever we go shopping. They're guiding for 200 basis point gross margin decline this year, and a lot of that has to do with some of the costs involved with the business. Now, I think one thing to keep in mind there, too, though, when it comes to commodities, and particularly businesses that are so reliant on those input costs, it does ebb and flow.
These companies, they lock in pricing for commodities like cocoa, for example, oftentimes well in advance, and that can be good. While we're seeing some headwinds now, it's also reasonable to assume that as prices abate, they will start to see some tailwinds further down the road. Hershey is projecting for that but it is going to take a while. But this ultimately is one of those things where it does ultimately flow through the business to the consumer. It results in higher prices, and a lot of that just has to do with less supply. Limited supply is Econ 101. A word that we've heard a lot here over the last few years is shrinkflation. Consumers might see smaller chocolate bars, for example, and different flavors, more non chocolate treats.
Jason Moser: Hey, page and candy corn. I know candy corn is a very touchy subject for a lot of people [LAUGHTER]. I don't know. I've always felt like, I can take it or leave it I guess, but if I'm going to a party, and I walk in the front door, and I see a bowl of candy corn.
Dylan Lewis: You stick in your mitts right in that bowl.
Jason Moser: I'm going to grab a few. Why not? They're standard. It's fun.
Dylan Lewis: You want to be the first one to get to the Candy corn bowl. You don't want to be the sixth or the eighth person.
Jason Moser: That's the point. I feel a lot better if there's a spoon in that candy corn bowl. A serving spoon. That makes it a little bit more palatable. But definitely, we're seeing companies relying on more things beyond just chocolate this year for those Halloween bags. I've seen this personally. Like I said, we bought a few bags of candy to make sure we're prepared for the trick-or-treaters that come by. I saw this year, and I was surprised to see because I haven't seen in years past, but we saw these bags with a lot more things like your fruit-flavored candies, the gummy treats, like Skittles gummies, lifesaver gummies. Obviously, you've got things like nerds and sweethearts and whatnot. I think you'll see companies relying [laughs] a little bit more on that kind of stuff, Laffy Taffy [inaudible].
Dylan Lewis: Oh, banana Laffy Taffy [laughs].
Jason Moser: Delicious and funny at the same time [laughs].
Dylan Lewis: To your point, Jason, I can put some numbers to that. Research firm, Circana, saying that there's not as much candy being stocked on shelves that involves chocolate, and they are seeing a double-digit increase in nonchocolate items on the shelf this holiday season. So not only is this something that is affecting candy companies, it's affecting some of the decisions that retailers are making with what actually goes on the shelf. You mentioned that there is a natural Eben flow to the commodities markets. For the record, not everything has gotten more expensive this year. We've seen things like soybeans, like corn, like cotton all down year to date. Ron, I'm curious, have you ever invested in commodities? Has that ever been something that's been interesting to you?
Ron Gross: I don't believe I've directly invested commodities, but I've done it through companies that are really reliant on commodities. In fact, I've only done it once or twice, and they both have been here at the Fool, where I recommended both a zinc company and a steel company, and they both went horribly wrong. In fact, the zinc company called Horsehead Holdings actually filed for bankruptcy. What I learned is that it's a very difficult thing to invest in. It is 100% cyclical, maybe not literally, 100%, but it is a cyclical business. You have to be very careful about a company's balance sheet. They have to be able to weather any storm that comes up, even if it's a long cyclical downturn. In Horsehead Holdings' case, they had a huge capital expenditure program in place at the same time that zinc prices plummeted. They couldn't make it work. The balance sheet became a liquid, and they had to file for bankruptcy. The balance sheet has to be rock solid, so you can wait out cycles. You have to have a stomach for waiting out cycles. The cyclical companies often look cheap. They look cheap for a reason. I think there are plenty of other great ways to buy and hold and own stocks. Commodities might not be one of them. They're very tricky to get right.
Jason Moser: Ron, wouldn't you say, don't you think Commodities investing to me, it seems like it would be more just more short term in nature. I think for investors who are interested in that, you got to be ready to move fast. You can't just set it and forget it.
Ron Gross: I think it's by low cell high. Get out. But doing that can be tricky because if you think something's going to turn in a month, three months, or six months, and it doesn't turn for a year or two years, obviously impacts your rate of return, impacts the opportunity costs for that capital. I agree with you that it's probably more a trading type of investment than it is a long-term buy-and-hold investment.
Dylan Lewis: I was going to say, it's a bit of a flip from how we traditionally look at investing here at the Fool, where we're long-term buy and hold. We are often looking specifically for businesses that have competitive advantages one, which is selling that commodities don't necessarily have, but also businesses that are going to do fairly well during the normal times and survive the major shocks that an economy will throw, where it feels like commodities you are looking to weather most of the time and then capitalize on those short term shocks as they show up, Jason.
Jason Moser: Yeah. I'm not much of a commodities investor. I can't recall ever making beyond my spice cabinet here at home. I don't know that I've ever actually made direct [laughs] investments in commodities. Thankfully, I'm just investing in I got to get my obligatory plug-in here, Dylan McCormick.
Dylan Lewis: [laughs].
Jason Moser: I'm invested in the company, so I feel very good about buying all of those herbs and spices because I know I'm paying myself in that regard. But, yeah, it's just always struck me as just a very difficult thing to do. I've said it often. Investing is kind of is easy, as difficult as you want to make it. You can be successful, either way. To me, commodities investing just always struck me as being a very difficult way to do it. Honestly, you need access to a lot of information. I think scale matters here. Then you always have to remember it. There are just so many things that are out of our control. Those wild cards that can come into play that you would never really predict.
Ron Gross: I think investing in commodity-based companies is a trap that value investors fall into, maybe more than others, because you do your screens and you uncover something that's trading at 10 times earnings, and it piques your interest and you're like, "Oh, this is a pretty good company. There's nothing wrong with this company." Management team looks solid, products look solid. Sure, it's a commodity, and sure it's cyclical, but at 10 times, I'm being compensated to wait out the cycle. Then it goes very badly and it turns into a value trap rather than a value investment. I would warn investors to be very careful when they get enamored by a low PE or something that looks cheap. Keep an eye on that balance sheet, make sure that they can withstand the cycle.
Dylan Lewis: All right, I got my wish. We got to have a solid 10 minute breakdown on commodities for the year.
Ron Gross: [laughs].
Dylan Lewis: This is it. That's the one time we're going to do it. I'm going to bring us back to the fun stuff. We are approaching Halloween. As I mentioned, I'm going to throw a hypothetical at you guys. What is the Desert Island candy for you? You have one candy for the rest of your life that you get to eat Jason, what is it?
Jason Moser: I love Halloween Dylan. My girls are at college now so they've moved out. We still decorated her. I said, Well, I did. The girls helped when they were back for fall break. I thought about this one long and hard. I think Reese's peanut butter cups are a strong option, but where I'm going, Whatchamacallit. Because Whatchamacallit has got it all.
Dylan Lewis: Wow. I was not expecting a Whatchamacallit. I don't even think I've had a Whatchamacallit in the last decade, Jason.
Jason Moser: Oh, man. It's just a great option.
Dylan Lewis: Ron, what about you?
Ron Gross: I'm going candy, Dylan, not chocolate, and [MUSIC] I'm specifically going to runts. Banana runts, cherry runts. They are delicious. Probably not good for the teeth, but they are delicious.
Jason Moser: [laughs] None of this stuff is good for our teeth Ron.
Dylan Lewis: The gross household, not feeling the pinch of higher commodity prices, focusing more on that candy. It seems for folks that are out trick or treating, might see a couple of fewer of those king-size candy bars this year. We're going to keep the recommendations and ideas coming with radar stocks in a moment. Stay right here. You listening to Motley Fool Money [MUSIC].
Dylan Lewis: As always people in the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against snow fire sell thing based solely on what you hear. I'm Dylan Lewis joined again by Jason Moser and Ron Gross, and we are jumping right into Rate Our Stocks This Week. Our man behind the Glass Rick Engdahl is going to hit you with a question. Ron, you're up first. What are you looking at this week?
Ron Gross: I'm going to take another look at Compass Minerals, CMP. They've been around since the 1800s leading producer of salt for highway deicing. Rock salt is the most common substance used for winter road maintenance. Now, things have not been good for Compass lately. Demand for the company's core road salt has been depressed by one of the mildest winters in more than 25 years. New CEO has positioned the company to play defense, or limiting the dividend, that will save them about $25 million in cash per year, head count reductions coming, temporary layoffs at one of their salt mines, right-sizing inventory, taking some steps to right the ship, but it's not going to be easy. Shares did rise recently after they released preliminary third-quarter results so that we're not as bad as the market feared. I'm going to dig in a little bit. They're restating some results. I want to see what impacts that have as well and I need to think about climate change, and if this is maybe something to really be concerned about.
Dylan Lewis: Rick, a question about Compass minerals, ticker, C-M-P.
Rick Engdahl: A question about salt. Have they tried like the Himalayan pink salt on the roads? Does that work any better? Because it used to be just one thing. You go to the store, you buy salt. Now, it's just like it's a hard decision every time.
Ron Gross: I think that's mostly for cook. I think it'd be too expensive for the roads.
Dylan Lewis: There's a very popular college dorm room market they could enter with those salt lamps, as well. It's an opportunity. It's a growth zone for them if they're interested. Jason, what's on your radar this week?
Jason Moser: Yeah, I had lunch this week with a friend of mine. He's up in New York City, manages fund Mario Sabel, and he got this back on my radar, Remitly. ticker, R-E-L-Y. It's a company we talked about before. It's basically the same thesis as a company have talked about many years ago called Xoom, X-O-O-M. But they provide outbound remittance services from the US to over 170 countries around the world. They earn the revenue from transaction fees and the foreign exchange spreads that come with that. You look at the metrics that matter. You're talking about gross sending volume, transactions, active customers, new customers. The most recent quarter active customers grew 36%, send volume was up 36% as well. The two co-founders own about 5% of the company today. Still growing revenues, strong growth there, 45% over last three years. What I'm keeping an eye on learning a little bit more about.
Dylan Lewis: Rick, a question about Remitly. Ticker R-E-L-Y?
Rick Engdahl: I think in order to learn more, Jason, you really need to use the product, so if you're interested, I'm willing to be on the receiving end of your financial transfers. I'm here to help.
Jason Moser: Message received.
Dylan Lewis: Rick runs a pay-to-play radar stock segment. [laughs] Which one's are on your watch list this week, Rick?
Rick Engdahl: For some reason, I'm just feeling salty today.
Jason Moser: All right.
Dylan Lewis: There we go.
Jason Moser: There we go
Dylan Lewis: Compass Minerals is the winner. All right, Ron Gross. Jason Moser. Thanks for being here and bringing your radar stocks.
Jason Moser: Thank you.
Dylan Lewis: Rick, as always appreciate you weighing in. That's going to do it for this week's Motley Fool Money Radio Show. Show is mixed by Rick Engdahl. I'm Dylan Lewis. Thanks for listening. We will see you next time.
