In this podcast, Motley Fool Chief Investment Officer Andy Cross and senior analyst Ron Gross discuss:
- The Fed's latest rate hike, April's jobs report, and the latest banking drama.
- Apple's surprising quarterly results and $90 billion share buyback plan.
- Shopify shares rising 25% due to multiple company announcements.
- The latest from Marriott, Booking Holdings, and Starbucks.
- MercadoLibre's continued growth and impressive runway.
- Warner Bros. Discovery posting a first-quarter profit in its streaming division.
- The latest from Uber, Lyft, Atlassian, and Johnson & Johnson.
- Two stocks on their radar: Nice and Oxford Industries.
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.
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This video was recorded on May 05, 2023.
Chris Hill: Is Earnings Palooza, one word or two? Doesn't matter. Motley Fool Money starts now. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show. I'm Chris Hill. Joining me in studio, Motley Fool senior analysts, Ron Gross and Andy Cross. Good to see you as always gentlemen.
Ron Gross: How are you doing, Chris?
Chris Hill: We've got the latest headlines from Wall Street. It is such a busy week. We don't even have time for a guest. But as always, we've got a couple of stocks on our radar. We begin with the big macro. On Wednesday, the Federal Reserve raised interest rates by a quarter percent as expected. Friday morning, the Commerce Department announced an additional 253,000 jobs were added in April, sending the unemployment rate down to 3.4% all while the banking industry continues to be more exciting than most investors would like. Ron Gross, where do you want to start?
Ron Gross: Where to begin, Chris? How about that stock market on Friday? Pretty strong. Let's work backwards. Let's start with Friday. As you said, job numbers came in better than expected, although March was revised down. As you said, unemployment remains very low at 3.4%. Wages were up, which does have some economists scratching their heads. You probably wouldn't necessarily predict that, but wages are up. From my perspective, it's really hard to root for a week job market and it's hard to root for wages to come down. But [laughs] in a certain sense, that's what the Fed is going to be looking for in order to stop raising rates and eventually start decreasing rates. I think this strong number gives the Fed some cover in case they wanted to keep increasing. I think the important part is that earlier in the week working backwards after they hiked for the 10th consecutive time, some of the language indicated that perhaps they would pause and you would have expected market to shoot up on that, but no, Chris, it did not because I think some folks were really focused on Powell's speech, which is usually the case where he made some more modest comments and said, don't get too excited yet, we might not be out of this quite yet, but things are certainly moderating with respect to inflation and perhaps good things are ahead. I'll just add that there is a price cut priced in to 2023, statistics would say. I think that's way wrong. I can't imagine we're going to see interest rates cuts in 2023. We might even see another hike or two. I'm not an economist. That's just my read of the data.
Chris Hill: Andy, to Ron's point, what a difference two days make? Because on Wednesday afternoon it was looking like, when we look ahead to June, the Fed is going to come out and pause. We get the jobs report. We get the wage report. It's like the economy is still just humming along nicely, which means we're probably getting another rate hike in June.
Andy Cross: Chris, as I sit on Fool Live this week, I don't know why the Fed felt like they had to get ahead of the jobs report with that announcement, maybe they had some indications inclining of what this strong jobs number is going to look like. But as the chair said in his press conference and as Ron alluded to, we've had 10 straight increases in the federal funds rate and unemployment has just stayed at record lows and they need to see unemployment and the hourly wages with that running at 4.5%, which by the way, I think now so many of us are starting to bake in some of those increases knowing that the inflation numbers are still quite strong. That's really what has the Fed concern that the wage increases are not going to moderate and that's going to keep inflation running hot. That's why now it looks like, as Ron said and I agree, you just have this higher for longer and investors have to recognize that. That might just continue to put this volatility in the markets as they digest this expectation. Wow, and this is what I think is driving Fridays numbers, the economy is actually still and the consumer relatively in good shape.
Ron Gross: Layering the banking crisis. Good case, there wasn't enough going on. The banking crisis is interesting because everyone keeps saying there's nothing to worry about and then a new bank folds every few days. The latest one being First Republic Bank, which eventually ended up being sold to JPMorgan. Friday, the strong market actually is more probably about the rebound in regional bank stocks than it is about anything in the Fed payroll report or in the interest rate cuts. We are seeing some people saying, maybe things aren't necessarily as bad. Perhaps there seems to be an unannounced bailout available for anyone that needs one and it has some investors feeling more calm.
Chris Hill: You used the word rebound, and broadly you're correct about that. But a week ago we have First Republic being seized by regulators. Then as you said, it's sold to JPMorgan Chase. PacWest is the next regional bank that everyone is looking at. This week, Andy, shares of PacWest down 60%. Western Alliance, First Horizon both down more than 35%. Broadly, it seems like things are OK, but we still have regional banks that are right there on the edge.
Andy Cross: Well, the volatility in the stock prices, as I was listening some other analysts talk is, who wants to go long into this weekend? Only one of these banks with just anything can happen over the weekend. It's like get out right now, close your sure position and take whatever maybe little gains you may have had this week. JPMorgan, the deal they got for First Republic, that is a very good and long-term deal they got. While the crisis might be going on for some of the smaller banks, certainly some of the larger banks are still in pretty good shape.
Chris Hill: Yeah. It reminds you when you think back two weeks ago with Silicon Valley Bank and the aftermath of that, and I remember asking someone on this show, where is Jamie Dimon and all this? Usually the smartest person in the room, probably the most respected person in the banking industry, where's Jamie Dimon? Why isn't he talking? The answer was, Jamie Dimon is watching all of this and he's going to make his move when the time is right.
Andy Cross: A hundred percent.
Ron Gross: Yeah, buying assets on the cheap.
Chris Hill: Let's get to some earnings. We're going to start with Apple. Second-quarter results were better than expected, but that took a back seat to Apple's announcement of a $90 billion share buyback plan. They also hiked the dividend another 4%, Andy.
Andy Cross: Yeah, whopping 4%. I like to see that a little bit higher, but clearly it was an earnings report that on the expectations front, I think they exceeded some expectations of worsening iPhone sales. iPhone sales were up 1.5% to 51.3 billion, a Q2 record and ahead of some of the estimates, and that was the big concern. Now you have the iPhone that's so meaningful to Apple's business. Even though sales overall were down 3%, there were a lot of currency impacts there. The real growth angle here, Chris and Ron, were the emerging markets and you got a sense of that because Tim Cook has been talking more about that, the CEO of Apple, traveling over to India and the impact of what India soon to be, if not now the most populous country in the world. They've opened up two stores in India now. The emerging market growth is really impressive across the Philippines, Saudi Arabia, Indonesia, Mexico, UAE, Turkey. China was actually down, so we're still seeing some impacts from the China come through. Mac and iPad met expectations, but really tough comps with last year. Those weren't very impressive. Services continues to be the other side of the coin with iPhone, up 5.5% to 21 billion, another all-time record, and that was on top of 17% growth a year ago. Wearables was about flat at about 8.8 billion on the sales side, 975 million paid subscribers now to services. That is just really impressive when you think about the ecosystem that Apple is building. Apple Pay later they launch, launch shop with video. The high-yield savings account partnership with Goldman Sachs, they said was really incredible. Global manufacturing now supporting 13 gigawatts of renewable energy. Gross margin was up 130 basis points. That was pretty impressive. Even though product gross margin was down a little bit. Add it all together, you have net income down 3%, you buy back a bunch of shares, you put out announcement that you're going to return shareholder to capital and you have a stock that's up 4.5%.
Ron Gross: I'll take the other side of it because we've got an hour here. We'll chat about the other side of it. Don't tweet me, Apple is one of my favorite companies and it's one of my biggest holdings. But what are you going to pay for a company with declining revenue and income, even though yes, they've reduced their share count significantly and they'll pay you a whopping 0.6% yields? Are you going to pay 27 times because that's what you've got to pay right now? Now, I'm not selling, so that means I'm willing to pay 27 times. I'm not probably willing to pay 30, 33, 35 times. I want to see some growth, Apple putting up some growth numbers.
Andy Cross: Well, Ron mentioned the impact of the banks to the market this week. Apple as a $2.7 trillion company, the stock's up almost 40% year-to-date. They represent, I think somewhere around 7% of the S&P 500 of that index and they have a big impact on the dollar too because it's price-weighted. You see the impact this large company with this quarter. Also just a flight to safety I think is also impacting there. You see it with Apple, you see with Microsoft when you're going for quality. Even though people are saying, hey, I'll pay 20 times earnings for that business. That is one of the most respected businesses in the world.
Chris Hill: For those who do want a tweet ad him, @rongross144 is Ron Gross's Twitter handle.
Ron Gross: Please do.
Chris Hill: After the break, we've got the latest in travel stocks, e-commerce and more. We're just getting started, so stay right here. You're listening to Motley Fool Money.
Welcome back to Motley Fool Money. Chris Hill here in studio with Ron Gross and Andy Cross. Marriott's first-quarter revenue rose 34%, fueled by higher consumer demand outside the US. Share us Marriott up a bit this week, Ron.
Ron Gross: It's a strong report and it's been a strong year up 20% the stock so far for Marriott. I think you would expect that as things started to open up and now especially in China, you really seeing that help their results in a pretty big way. First-quarter comparable revenue per room, RevPAR, as we like to say, is up 34% worldwide, 26% in US and Canada, and 63% in international markets. In Greater China, RevPAR rebounded to 95% of pre-pandemic levels and Mainland China recovered fully to 2019 levels. That's a big deal that will show up in the numbers. As you said, revenue was up 34%. US and Canada, Marriott saw solid demand across leisure segment of business demand continued to improve, that obviously will help the bottom line as well. CEO said that global economic picture is uncertain, demand remains strong and we're not seeing signs of a slowdown, so those that are worried about recession one CEO's opinion. They added 11,000 rooms globally adjusted our earnings per share up 67%, raised full-year forecast trading around 21 times full-year earnings guidance, not too bad for me, a little bit less than 1% dividend yield.
Chris Hill: Did they provide any color on the Bonvoy program? Because it seems like from a marketing standpoint, Marriott is pushing that program hard. I'm assuming it is paying off in terms of loyalty program members.
Ron Gross: Yes. I don't have the numbers in front of me, but the program is doing well and numbers are up for sure.
Chris Hill: Sticking with travel, gross bookings for Booking Holdings rose more than 50% in the first quarter, but shares of Booking Holdings were already close to an all-time high before the report, Andy. It probably would have needed to be incredible results and amazing guidance to move the stock meaningfully higher.
Andy Cross: It would have to be beyond amazing, Chris, because this was like with very much with Marriott. This was a very impressive quarter, of course, a lot of those expectations, the stock was up 26% to date so far you mentioned that gross travel bookings up more than 50% if you back out some of the currency impacts. It doubled a year ago, so relatively it's still very impressive, but compared to a year ago, it was down. But at 155% of the first quarter of 2019. It's above where we were pre-pandemic, which is great. The real impressive thing we're seeing with Booking now and with their platform is 45% of all bookings are booked through their payments platform directly with them versus 34% a year ago. That really helps drive efficiencies. They see future bookings out now longer than before. People are planning their trips. Corporations maybe even planning their trips, their bookings, whether it's flights or whether it's rental, hotel stays. They're looking out further now and that's a sign of confidence that Booking is seeing. Asia had more than double when it comes to the room nights booked. That is now at an all-time high total of 274 million. That was up almost 40%. Rental cars were up 23%, airline tickets up 73% versus 69% a year ago. You're just seeing this momentum with the travel industry, EBITDA that the operating profits were up nicely, up almost 90%. It was a little bit below expectations because again, as people are planning those trips further out, Booking will recognize that revenue later, but the marketing expenses happened right now. That might be a little bit of what analysts are paying attention to and investors paying attention to right now. Share count down 8% over the past year, earnings per share up almost 200%, free cash flow up 78%. China's still is not back to where it needs to be and they're excited about what's going to happen in China going forward.
Chris Hill: I know that stock splits don't matter because it doesn't change the underlying value of the business. But a single share of Booking Holdings is $2,500. There are reasons that businesses have for splitting this. Is there any talk of that at the company or even around the company that maybe it gets them into other funds because the share price would be lower if they split it?
Andy Cross: That's right and they don't pay a dividend for a relatively stable company. It can be very cyclical too, but you have a business that sells less than 20 times this year earnings compared to Marriott out at about 21 times. Right in that same ballpark, the market pays about 18 times and this business can grow, I think in the 10-20% range. I think the deal is pretty good whether it splits the stock or not.
Chris Hill: Starbuck's second-quarter results were highlighted by higher profits, same-store sales in the US rising 12%. For the first time in nearly two years, positive same-store sales in China, and despite all that goodness, Ron, shares of Starbucks down 6% this week.
Ron Gross: Yeah, I was scratching my head. It's definitely because investors were not impressed with the guidance. The guidance was cautious, which I don't blame them. There's still a lot of moving pieces here, but they were able to pass through prices. China as you said, operations are becoming more efficient, that did lead to a solid report. I wouldn't have been surprised if the market had taken the stock higher revenue up 14%, same-store sales up 11%. That was driven by a 6% increase in transactions and a 4% increase in the average ticket. US same-store sales up 12%, international up 7%. Now only 3% in China, but growth is growth. We'll take growth and we're seeing that as we discussed with Marriott as well. That will continue to increase. Employee turnover in the US has declined in recent months, they had some issues there. New equipment in stores is helping the workers become more productive, adjusted earnings up 25%. First-time the new CEO was on the call after Howard Schultz stepped down in March, they reaffirmed guidance. That wasn't that exciting as we said to investors though, and the stock sold off a bit 27 times, not cheap, and so people are willing to take money off the table if they don't like what they hear.
Chris Hill: Shopify's first-quarter results were better than Wall Street was expecting, but the report was overshadowed by Shopify's announcement that it's cutting 20% of its workforce. Altogether, investors did like what they heard and shares of Shopify rose 25% this week, Andy.
Andy Cross: Well, almost more importantly, Chris, they are selling their fulfillment business and their logistic business that they just bought a year ago this week when they made an acquisition of deliver for more than two billion dollars. They are now selling that all over to Flexport, a 10-year-old logistics company that they already had an equity investment into. They will now get 13% of that business for selling to Flexport. They are offloading a business that they were very excited to invest in. Logistics, as we've talked about, very expensive, very complicated. There are a lot of players in there. Amazon, the big player and Shopify felt they had to build out a logistics business. Now they're getting out of that. That on top of a very good quarter with gross merchandise volume so the stuff that's sold across Shopify platform up 15%. That was far better than analysts estimates at about 10%. Revenue was up 25% ahead of estimates by about 70 million. Their merchant solution sales is up 31%. Gross payment volumes was 56% of that gross merchandise volume versus 51% a year ago and that payment business is very valuable. Now the big question is for Shopify is they talked a lot about artificial intelligence and AI and the investments they're making there that they are no longer making in the fulfillment business. Will that be enough to continue to propel the business forward? That's what clearly are excited about what they're seeing in Shopify and they've been beating the stock up for the past six months.
Chris Hill: You got to respect CEO Tobi Lütke for cutting bait on an acquisition just one year later.
Andy Cross: Absolutely. They recognize that this was not a business they wanted to be in. They talk about different investments they want to make, and logistics is not the investment that they thought it could be, and now they're going to focus on much more of their core offerings for e-commerce solutions.
Chris Hill: After the break, Earnings Palooza rolls on so stay right here. This is Motley Fool Money.
Chris Hill: Welcome back to Motley Fool Money. Chris Hill here in studio with Ron Gross and Andy Cross. Despite being in the same industry, Uber and Lyft continued to perform as very different businesses. Both reported first-quarter results this week, but the reaction was much more positive toward Uber than Lyft. Ron, it really seems like it largely comes down to the guidance when you consider Lyft forecasting a weak Q2 and Uber CEO basically saying, by the end of this year, we're going to be GAAP profitable.
Ron Gross: Uber is really in control at this point. They haven't diversified model with Uber Eats and Lyft is focused, but Uber now controls 70% of the US rideshare market. I don't think that that's going down. Let's just say Lyft had been cutting prices in order to gain market share. I don't think that can continue because the business model won't support it. This is Uber's game and they're putting up pretty strong results as a result. Revenue up 29% and gross bookings grew 19% increased the number of consumers and trips and the value of the transactions on the platform. Trips were up 24%. Mobility, which is the ride share up 43, delivery, Uber Eats up 12%. They haven't been having trouble finding drivers that had been a challenge across the industry. They added more than one million active drivers during the quarter. That's a 35% increase. Good to see them making headway there. Uber won their membership deal now accounts for 27% of total gross bookings. That's pretty good for the business model as well. CEO indicated that growth no longer takes a back seat to profitability speaking the music of Wall Street, which is what we want to hear nowadays versus a couple of years ago. Although they did report a loss, they had adjusted EBITDA of $760 million better than expected. Guidance is for that to improve. Then you contrast that with Lyft who's guidance is weak stock getting smacked, not profitable, and likely to lose share in the future and it remains Uber's game to lose.
Chris Hill: Shares of Atlassian taking a hit this week, despite the fact that third-quarter profits in revenue came in higher than expected for the software company. This is something that we've seen from companies bigger than Atlassian where the slowing cloud growth outweighs what on paper look like pretty nice results.
Andy Cross: Chris, that's exactly right. The slowing of the expected growth for their cloud business they're looking for this last quarter, they just reported their third fiscal quarter for the fourth-quarter cloud to be 26-28% on the revenue side. That still is about 37% for the year, which is what they guided before. But the deceleration from that growth of what it was this quarter up 34%, along with our data center business, which was up 47%, very impressive, that's really the concern because they are spending a lot of time and money and energy on making this transition over to the Cloud for their clients, moving away from on-premise into the Cloud for their tools. That is starting to show that, maybe this changed a little bit more difficult. They talked about this on their call. The team talked about how they're having still challenges on expanding their seat licenses for the Cloud business and for the subscription business in this macro-environment as companies including Atlassian, which laid off 500 people, aren't hiring as fast and that doesn't equal as many licenses as it did before. Some of the guidance for Atlassian is a little bit weak and that's hit the stock this week.
Chris Hill: This week, Johnson & Johnson spun off the consumer health part of its business under the new name Kenvue. The company is now home to well-known brands like Tylenol, Band-aid, Listerine, and more. Shares of Kenvue rose more than 20% on its first day of trading, resulting in the company having a market cap of $50 billion. Ron, we were talking about this before we started recording. This is a little unusual because it's not exactly a spin-off and it's not exactly an IPO. It's both.
Ron Gross: It feels more like an IPO with the spin to come later. They took the company public, they generated cash as a result of that J&J. The pharmaceutical business will retain that cash as a result of innocent selling Kenvue. Then as they say, they'll distribute the remaining shares of Kenvue to shareholders later this year. I searched and searched and searched for a little bit more meat on the bones there and I could not come up with it. That's a little bit different than perhaps a typical spin where you think I'm going to get a half a share, preferred share or one share for each year. A little bit different. But I think if investors are patient, this will pay off. Kenvue is a strong business. It's not the biggest growth business in the world. It'll be a moderate-growth business. The billion dollars in profits, billion-and-a-half actually, and as you said, very strong brand names, the dividend will likely be the reason most people flock to this stock I would think. Indications are that the yields will probably be around 3% when all is said and done. I think for a stable company with strong brand names and a strong balance sheet, that might be a nice place to put some money in your portfolio.
Chris Hill: But it's going to be interesting to see what happens in the fall because as you said, there are still these details to come out. We don't know exactly how many shares J&J shareholders will get. We don't know exactly what the dividend will be. Because if you think about the IPO that happened this week, there was a lot of built-in enthusiasm in part because we hadn't had a big splashy IPO in a while. This was not some young start-up going from being a private company to a public company. This is an established, well-known business, a lot of transparency and a very experienced management team.
Ron Gross: In this market that's probably like the perfect IPO for this market because I'm not sure how investors would have received something more on the risky side, but J&J retains 90% of this company. We'll see what happens down the road later this year. We'll see what the float looks like. We will see what liquidity in the market looks like, but it's a solid, mature company and I think investors will do fine.
Chris Hill: Another strong report for MercadoLibre, first-quarter reports for the Latin American e-commerce company were much higher-than-expected. Their payments system continues to grow. After a rough 2022 shares, MercadoLibre are up more than 50% year-to-date Andy.
Andy Cross: It sure was a strong quarter Chris, when you look at their gross merchandise. Volume of products sold across the market was up more than 43% and 9.4 billion. That was often a 35% increase just a quarter ago. So sequential goals. Seeing the acceleration and increasing the take rate, which is the revenues they get off of what sold to 17.8% from 16.7% driven by shipping fees, they do have a very logistics-heavy business and they spend a lot of money on their logistics and shipping as well. Ad revenues, they have been spending a lot of effort and resources on building out an ad platform tied to the MercadoLibre platform and they are really excited about that and that's having some marginal improvements. They had some minor price increases to help offset the cost. Really, revenue strength across the entire board up 58% when you back up the strong US dollar up 62% in Mexico, up 26% in Brazil, up 39% in Argentina. Chris, you mentioned the payment volume, that was up 46% or almost a double when you back out the strong dollar. Off-platform payments volume more than doubled for six months consecutive quarters. When you think about the real value that MercadoLibre is building in their platform, you're seeing both the sales growth but what's really impressive is that starting to show up into the profit picture. I think that's what's really getting investors excited.
Chris Hill: What do you think the runway is like for this business? Because it's a $60 billion company. When you think about years ago when MercadoLibre was a smaller business, Amazon essentially tapped out and said we're not going to compete in this region of the world.
Andy Cross: MercadoLibre are often considered the Amazon of Latin America. I mentioned this strength. They really are building up this strength and this brand. There's leadership position in a part of the market that is very unique and require in lots of different unique skill sets. I think that runway just in that Latin American market where so much consumer activity continues to migrate online, really speaks well to the growth avenue for MercadoLibre.
Chris Hill: Warner Brothers Discovery posted a loss in the first quarter that was bigger than Wall Street was expecting, but the streaming division was profitable. CEO David Zaslav says, Warner Brothers Discovery is going to keep focusing on their balance sheet run.
Ron Gross: They should. They ended the first quarter with 2.6 billion in cash and almost 50 billion in debt. That makes good sense to me. That's a fair amount of debt. Just a reminder, the company was formed last year as a result of Discovery's merger with AT&T's Warner Media. The resulting company does have a lot of debt on the balance sheet, so certainly something to focus on. But the highlight was really management's comments that direct-to-consumer business, the DTC business, which includes HBO and Discovery, should be profitable for 2023, all of 2023. That's a year ahead of guidance. A pretty big deal, I think investors certainly were happy to hear that. The rest of the report, not so impressive. Revenue was down 5%. The studio segment, which includes Warner Brothers, a 7% decrease in revenue, networks segment which includes CNN and TNT and networks like that, had a 10% increase in revenue. But direct-to-consumer was the big deal here with adjusted EBITDA of $50 million. Profitable-ish, there are some adjustments in there and it's not net income, it's EBITDA, but still on their way. That was a $700 million year-over-year improvement and on their way to profitability. They're going to launch their Max streaming service on May 23, which is the combination of HBO, Warner Brothers library and some unscripted Discovery shows. Harry Potter content will be in there. No discussion on the call about the writers' strike. CEO David Zaslav did talk about it a bit on CNBC Squawk Box show, said all the right things. Obviously, everyone wants to come to a resolution here, but they are way far apart, the writers and the studios here. I don't see this happen in getting resolved overnight.
Chris Hill: Let's be clear. Warner Brothers Discovery is not the only business that is dealing with this. When you look at Netflix, Paramount Global, which had a rough week in a rough report, Disney, NBC, Universal. For context, the last time there was a writers' strike, it lasted three-and-a-half months. The challenges they were dealing with then Andy seem almost quaint by comparison to, hey, we have this new world, it's all about streaming, we need to figure out how we're going to get paid because say what you want about the old era, but there was more transparency in terms of television ratings and box office receipts.
Andy Cross: A 100%. You also have the generative AI and how people are going to create content and how many people are going to be involved in creating these amazing shows or anything really. That's just putting in a whole Cloud over the entire industry I think.
Chris Hill: Coming up after the break, we have a couple of questions for Warren Buffett. We also have a couple of stocks on our radar. Stay right here. You're listening to Motley Fool Money.
As always, people on the program may have interest in the stocks they talk about on the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you issue. Welcome back to Motley Fool Money. Chris Hill here in studio with Ron Gross and Andy Cross. You can hear the show every week on radio stations across America, including our brand-new affiliate KAOI in Maui, Hawaii.
Andy Cross: What a hell. Time for a road trip.
Chris Hill: You can also listen to the Motley Fool Money podcasts seven days a week on your favorite podcast app. Earlier in the week on the podcast, our colleagues Deidre Woollard and Matt Frankel were talking about the Berkshire Hathaway meeting which is happening this weekend. Obviously one of the highlights is the marathon Q&A session that Warren Buffett and Charlie Munger do. Matt Frankel submitted a question as hundreds if not thousands of people do, and wanted to get your thoughts on these guys because the question he submitted for Warren Buffett is actually the question I have as a Berkshire Hathaway shareholder, which was essentially and I'm paraphrasing what Matt said on the show. Walk me through the Activision Blizzard stake that you took, which was a year ago, is right before last year's meeting because Matt wants to know, hey, was that just an arbitrage play or was there strength in the underlying business that you were seeing, that thing? That's his question. Ron let me start with you. You get to ask Warren Buffett a question. What are you asking him?
Ron Gross: I think I would say, Mr. Buffett, your ownership of Apple notwithstanding your views on technology are pretty clear. I'm wondering what you think of artificial intelligence and ChatGPT, and whether you think it's good for business and society. What I really want to know is what Munger thinks because he'll go off on or maybe he won't, maybe he thinks it's really interesting and as long as it's positioned correctly and has regulations associated with it, it will be a positive thing for society, but I would actually love to hear what both have to say.
Chris Hill: Well, and beyond that, you have to believe that there are at least looking at the question of what's the best way to invest in this. Andy, what about you?
Andy Cross: Well, the banking crisis and the industry will get a lot of conversation. But what I'm really interested in is I want to know is Mr. Buffett's phone ringing more or less than it was during 2008 crisis. Maybe even pull the audience, what is the over-under on how many times and how many calls per day the Federal Reserve or the Treasury Department or just any bank may have called Warren Buffett and asked him for some help, or as more likely Berkshire Hathaway for some help.
Chris Hill: Well, let's go back to earlier in the show we were talking about Jamie Dimon at JPMorgan Chase. For context, Dimon made very clear at the beginning of the week that the government called him about buying First Republic. Warren Buffett, do you think about how he pounced on those shares back during the Great Recession, 2008-2009? You have to believe he's getting calls about some of these regional.
Andy Cross: I'm sure he is. I'm guessing back then he was almost more like a US citizen, save the financial industry and perhaps even the US economy at that point. Then we're just not in that spot right now.
Ron Gross: He's more interested in injecting capital for some sweet deal, some convertible preferred or some deal that is good for Berkshire. I don't think he's interested in actually buying assets or buying a whole bank to put into the Berkshire fold. But yes, I'm sure he was consulted.
Chris Hill: Let's get to the stocks on our radar. Our man behind the glass, Dan Boyd is going to hit you with a question. Ron, you're up first, what are you looking at this week?
Ron Gross: Dan, I've got Oxford Industries. OXM owns a number of high-end apparel brands, the most well-known probably as Tommy Bahama. They've got Lilly Pulitzer, Johnny Was, and Duck Head. The company was founded in 1942. It's paid a dividend every quarter since becoming a public company in 1960. Twenty years ago, they were focused on their Oxford brand. They've divested, they've acquired mostly beginning in 2003 when the Tommy Bahama brand came on board, that now accounts for about 60% of revenue in the most recent quarter, they have 2.3 million customers. Sales were recently up 24%. Their dividend payout has increased by 261% over the last 10 years and they currently yield 2.5%. I will caveat this by saying apparels are rough business, inventory levels are high as is their debt.
Chris Hill: Dan, question about Oxford Industries. Ron, I got to imagine you've got some Tommy Bahama pieces at home in your closet right now. You would not be wrong, Dan. Andy Cross, what are you looking at this week?
Andy Cross: Dan, I'm looking at Nice Limited and Israeli-based company. And here's the deal Dan, if you have integrated or if you've talked to a Fortune 100 company through a chat system or an email or anything that's tied to customer service you likely have dealt with Nice's system. N-I-C-E is simple provides cloud customer service platform and tools through its suite office called CX1 that does all omnichannel contact center software, AI, chat analytics, automation, 27,000 clients, including 85% of the Fortune 100, generates more than two billion annual sales. The mark cap is 13 billion. The stock has actually flat year to date, still has one and a half billion dollars of cash had generated Nice return on equity. You're paying 23 times forward earnings. They'll report earnings next week. What I'm really interested in is just their conversation around generative AI, ChatGPT. They've been very aggressive and investing in artificial intelligence over the years, but I really want to see what they are doing for those investments going forward.
Chris Hill: Dan, question about Nice. Andy, whenever you're in a customer service situation, how quickly are you trying to get to talk to an actual person instead of one of these chatbots or phone trees or whatever else.
Andy Cross: Dan, if I had one of those old dial phones where you dial zero to get to a person, I would be hitting it constantly. You would see my fingerprint in there. I am very actively trying to get to a person, yes. But that's not always going to be the way my friend.
Chris Hill: Two very different businesses. Dan, do you have one you want to add to your watchlist?
Dan Boyd: Listen, I know that AI, and chatbots and stuff, there's no avoiding them. I know that they're here to stay and somebody's going to be making money off of them. But I'll tell you right now, boys, when I'm involved in a customer service situation, I just want to talk to a real person. I'm going with Ron this week to the Oxford Industries.
Ron Gross: Do you own any Tommy Bahama, Dan?
Dan Boyd: I have a couple of pieces myself, Ron.
Andy Cross: I'll just say Dan, that Nice they provide lots of hell for very nice people to be able to talk to people just like you. Lots of curmudgeons out there who want to talk about
Chris Hill: Ron Gross, Andy Cross guys, thanks for being here today.
Andy Cross: Thanks, Chris.
Chris Hill: That's going to do it for this week's Motley Fool Money radio show. The show is mixed by Dan Boyd. I'm Chris Hill, thanks for listening. We'll see you next time.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Andy Cross has positions in Activision Blizzard, Atlassian, Berkshire Hathaway, Booking Holdings, Johnson & Johnson, MercadoLibre, Netflix, Starbucks, and Walt Disney. Chris Hill has positions in Activision Blizzard, Amazon.com, Apple, Atlassian, Berkshire Hathaway, JPMorgan Chase, Johnson & Johnson, MercadoLibre, Shopify, Starbucks, and Walt Disney. Dan Boyd has positions in Activision Blizzard, Amazon.com, Berkshire Hathaway, and Walt Disney. Ron Gross has positions in Amazon.com, Apple, Berkshire Hathaway, JPMorgan Chase, Marriott International, Starbucks, and Walt Disney. The Motley Fool has positions in and recommends Activision Blizzard, Amazon.com, Apple, Atlassian, Berkshire Hathaway, Booking Holdings, Goldman Sachs Group, JPMorgan Chase, MercadoLibre, Netflix, Shopify, Starbucks, Uber Technologies, Walt Disney, and Warner Bros. Discovery. The Motley Fool recommends Johnson & Johnson, Marriott International, Nice, Oxford Industries, and Western Alliance Bancorporation and recommends the following options: long January 2024 $145 calls on Walt Disney, short April 2023 $100 calls on Starbucks, and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.
