In this podcast, Motley Fool senior analysts Jason Moser and Ron Gross discuss:
- How the Consumer Price Index report fueled a historic rise in stock prices on Thursday.
- China's potential for scaling back COVID restrictions.
- The role layoffs will play in the coming months.
- Disney's parks division being the lone bright spot in an otherwise disappointing quarterly report.
- The latest from The Trade Desk, Lyft, and Marqeta.
- Carnival's intriguing strategy to battle rising food costs.
- Two stocks on their radar: Outset Medical and Titan International.
Motley Fool contributor Rachel Warren talks with Anjee Solanki, national retail director at Colliers, about the top retail trends this holiday season and how consumer spending continues to change.
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 Nov. 11, 2022.
Chris Hill: It's the Motley Fool Money radio show. I'm Chris Hill joining me on the show Motley Fool Senior Analyst, Jason Moser and Ron Gross. Good to see you as always gentlemen.
Jason Moser: Hey.
Ron Gross: Hi, Chris
Chris Hill: We've got the latest headlines from Wall Street. We've got a closer look at retail trends heading into the holidays. And as always, we've got a couple of stocks on our radar. But we begin with the big macro on Thursday morning, the latest consumer price index report sent the stock market soaring. The S&P 500 rose five-and-a-half percent, the Nasdaq rose more than seven percent. All because inflation rose just 0.4 percent in October Ron, which was lower than economists we're expecting. If you had told me at the time, it was going to be a report that was a little cooler than economists were expecting, I would've guessed the market would be up. I wouldn't have guessed this.
Ron Gross: Oh boy. If you didn't like Thursday, Chris, you weren't trying because there was something for everyone across the board on Thursday. This is a big sigh of relief really, I think perhaps indicating that inflation is moderating. Some of the things that factored into that better-than-expected report were a decline in used vehicle prices that had a relatively big impact. Apparel prices, medical care services also went lower, but there was offsets, offsetting that were still higher fuel costs and really more importantly, higher shelter costs, which make up about a third of the CPI index. That acceleration was fueled by the biggest jumping cost of hotel stays in more than a year. That's important to note. It's really about hotels in this specific circumstance. One thing to note is I think we're seeing rent and housing costs come down, but there's a lag and that's not going to show up in the data for a while. But when it does, I think you're going to start to see people even get more excited. We got the better-than-expected print, as they say, on Wall Street and treasury yields fell sharply on the better-than-expected news. As I said, I think investors are hoping we're seeing peak inflation and now they're waiting for what's called the Powell pivot. It's when the Fed chairman will slow or stop the interest rate hikes. I think we've still got a long way to get to the Fed's inflation target of two percent. Don't think the rate increases are going to stop anytime soon. Future is tied to the Fed fund rates indicate an 80 percent probability of a 50 percent basis point hike in December. But I think there's hope that inflation is coming down. We can either avoid a recession or it will be mild and that's why the markets rallied so much. I don't ever recall seeing an index up more than seven percent in one day.
Chris Hill: Same although Jason, I don't know about you, but why don't we wait for Jay Powell to actually pivot before we actually name something that Powell pivot. But to Ron's point, we got this report. Eyes go back to the Federal Reserve, Johnte.
Jason Moser: I'm making a mental note here. I feel like after the show we need to establish a Powell pivot Twitter feed because it's just too good. I mean, you can just go so many different directions. That was the headline we all wanted to see. Inflation easing better than expected. The market's performance this week has been mind-bending at times. I think that's great. I think Ron made a lot of good points there in regard to potentially we're seeing inflation starting to ease in a more persistent fashion. You look at the prices that exclude food and energy, for example, that core inflation that policymakers see is more reflective of the trend that was up just 0.3 percent from September versus an expectation of 0.5 percent. We are seeing data from Zillow and CoreLogic that shows that rent prices are coming down in even property management software accompany RealPage. They reported that apartment rents fell 0.6 percent in October from September. That's the third largest drop it's recorded since 2010. Those are also very encouraging signs. But you look back in history here just a few months ago, I mean in August, we had the same thing play out. Better-than-expected inflation in the market received the news very positively the following month, we went back to inflation, back on the rise. I'm hopeful that this is the beginning of a more long-term trend. But I think he got to take it with brain and soul.
Chris Hill: Agreed. I don't think any economic conversation or recession conversation is complete without talking about the labor markets, especially in this environment, labor market remains strong. Unemployment's sitting at 3.7 percent only that's pretty darn good. Which also maybe pretty darn bad depending on what your point of view is. But we do have some indication that it's softening. I think layoffs are certainly accelerating technology and financial sectors. I think we're seeing that I feel like the cutting in the financial sector is more cyclical and typical while the tech sector is really reacting to, I think I'll use the word bubble, the bubble that occurred over the last few years and the over-hiring that resulted and it's just necessary to pair that back, as costs are too high and companies need to right-size their business a little bit to get their profitability of where they want it to be. A little bit additional softness in the labor market is probably necessary to get the Fed where they want to be.
Jason Moser: Well, and we saw signs of that already this week. We have better platforms starting to execute some layoffs, Redfin as well. It seems like there's a crystal ball element to our conversation. But Ron, it does seem like over the next 6-12 months, this is something investors should be watching when it comes to specific companies, particularly the larger tech ones, isn't it?
Ron Gross: For sure. We'll want to listen to guidance for our earnings estimates coming down. They're actually doing pretty well. I would have predicted that we would have seen the earnings come in a little weaker and guidance being a little weaker. I'm not seeing it as bad as I thought which may bode well again for not having a deep recession. But we'll have to watch costs. China news on Friday about the easing on some of the COVID restrictions is good, the Goldman Sachs described it as marginal and it won't really amount to more than a fine tuning. They really have to go further away from their COVID zero policy for journey to make a huge impact. But that may help with supply chain issues and some other issues as well with respect to costs. But we'll have to watch individual companies. How is profitability looking? What does guidance look like?
Chris Hill: I'm glad you mentioned China because Jason, for those who missed it on Friday, China announced the pullback of some of the countries COVID restrictions, including one dealing with international flights to the point that Ron made with the reference to the Goldman report, there was not a specific timeline. If you want to take a bearish view of this announcement, you can take, well, there weren't a lot of specifics. There wasn't a timeline. Let's wait and see. If you want to be a little bit more optimistic, you could look at the announcement from China and say, well, this is really the first indication of the central government moving away from that zero COVID policy. I'm just thinking of all of the times over the last couple of earnings seasons that we've heard companies talk about inflation, supply chain, China on their conference calls. Maybe I'm looking through rose-colored glasses, but I'm choosing to be a little bit more bullish on this China announcement. What about you?
Jason Moser: Well, I mean, I appreciate that perspective. I want to be more optimistic and hopefully, again, maybe this is really the first sign. Maybe they've started to wake up to reality here and understand there are better ways to handle this, I think, then adopting that zero COVID stance. Maybe the easing of these controls, maybe this is that first-step. I'm not sold that it is. I think it's odd to see this news coming out as, I think the country is dealing with its worst outbreak in more than six months. I don't know what ultimately changed there. Maybe it ultimately amounts to nothing. Maybe this is just like a headline and then that's really all. I think you go back to pre-COVID. I mean we were having this conversation regarding China and supply chains well before COVID. That's what I encourage folks to remember because we had companies in 2018, 2019 really talking on earnings calls, looking for ways to diversify their supply chains away from China. Because we were having trade issues even back then, and it's a difficult country to predict.
They march to the beat of their own drum so to speak. I feel like if I'm a CEO of a company today, one of my top priorities would remain figuring out how to diversify my supply chain away from China. Because either way I've seen enough to know that I don't have any faith really, honestly, and what they may or may not do going forward, not just necessarily regarding COVID either, but anything else that comes down the pike. If I'm a CEO, I think you really need to focus on trying to diversify their supply chain away from China as much as possibly seeing big company, Minneapolis even doing it really. They mentioned they're going to have some supply issues with their upper tier iPhones because of these supply chain hang-ups in China. We've already seen that they are making big efforts to move into India, for example to produce more in India. I think that when you see even the largest companies in the world, like Apple trying to do something like that. That's a real tail. It's going to take time for that to play out. It's going to take years for them to really appropriately diversify away. But I think we'll continue to see those conversations being had because I think it really does matter.
Chris Hill: Earnings after the break, including entertainment, media, and the war on cash. So stay right here. You're listening to Motley Fool Money.
Welcome back to Motley Fool Money, Chris Hill here with Jason Moser and Ron Gross. On Wednesday, shares of Disney had their worst loss in 21 years, fourth-quarter profits were well below expectations. The company warned about slowing growth for its Disney Plus streaming service. Ron, how warm is the seat that CEO Bob Chapek is currently sitting on?
Ron Gross: Getting warmer Chris, I'm not going to lie. This one made me win a little bit. I've held this stock for 20 years, my family has. That's a big move for a company like Disney. It was a bit of a shock, Disney Plus costs are ballooning or have ballooned. The media business was also weak. Some metrics to back some of the sub Disney Plus added 12 million net new accounts that did beat analyst predictions. Now, they have about 164 million subscribers, not bad at all. But the Lawson division surged to almost $1.5 billion more than double the year before, due to heavy spending on content marketing and technology, which let's face it, is sometimes necessary when you have a new business that you're looking to get off the ground and grow significantly. But I think what the investors in the markets are telling you is that perhaps was too aggressive because they were not expecting that loss. As you said, CEO Bob Chapek who is a bit on the hot seat, said, the streaming business has reached peak losses in the quarter. I don't know what that means, peak losses but that's what he said.
Chris Hill: That doesn't sound cool.
Ron Gross: That doesn't sound that good. But he said the business is still on track to reach profitability in fiscal 2024. Very important for us to watch that, to see if he sticks to that, because if he doesn't, then the hot-seat gets even hotter. They've got some changes, coming price increases to some Disney Plus packages and new ad supported subscription tier taking place in December. Higher prices could backfire though will need to watch that carefully. Management does have plans to make cuts to marketing and content budgets. I think that's necessary. The one bright spot was a 36 percent increase in revenue from theme parks, where Chapek comes from. Disney said the full-year results from the theme parks set all-time records for the company in both the revenue and operating income. As I said, the media division was weak, that's ABC, ESPN was a bit weak there. Overall companywide revenue up nine percent adjusted earnings actually down 19 percent. Guidance was disappointing, 20 times forward earnings. I think earnings are going to actually get better, so it will be even better than 20 times forward earnings. I'm not selling my shares at all. I'm going to let the company do what they do.
Chris Hill: Third-quarter revenue for The Trade Desk came in higher-than-expected, but guidance sent the stock lower this week. This was before the big rally on Thursday, Jason, so shares of The Trade Desk actually ended up in the positive territory this week. Put aside the stock, how is the business of The Trade Desk doing?
Jason Moser: I think the business is doing great. These reports get to be like a broken record, I mean, the best possible since. They just continue to do their thing, they offer smart, achievable targets. They achieve those targets, and they just continue to focus on this big market opportunity that's in front of them, particularly on the connected TV side. The results very strong, $395 million in revenue, $163 million in adjusted EBITDA nicely exceeding their own internal benchmarks and customer retention remains over 95 percent as it has for the past eight consecutive years going to that connected TV opportunity, because that really is the big opportunity for The Trade Desk. It was their fastest-growing channel. It's become their largest when they exit Q3 video, which includes connected TV, represented a low 40s percentage share of their overall business and continues to grow rapidly, they say as a percentage of the mix. Interestingly too, this is becoming an international opportunity. The connected TV spend grew in the majority of their international markets faster than it did in the US. You look at this company with its partnerships with companies like Disney and Peacock, those relationships are only growing big tailwinds in the coming years for this advertising supported video on demand. You've got a company here, generated $500 million in free cash flow over the last 12 months. It's up 53 percent from a year ago. This for me is just one of those holdings that I grow more and more comfortable with as time goes on. We'll just check back in next quarter.
Chris Hill: The rally could not prevent shares of Lyft from falling. This week, active riders were down in the third quarter and shares of Lyft fell to their lowest point since the company went public in 2019, Ron?
Ron Gross: It's not a good time for Lyft. Adjusted earnings were fine, but the revenue growth and the number of riders were disappointing. Revenue up 22 percent. Active riders of 7.2 percent ended the quarter with just over 20 million riders. They were shorter of analysts prediction and still below the 23 million that had before the pandemic contrast that with Uber, who said their ride count had bounced back to pre-pandemic levels. Lyft reported 66 million in adjusted earnings, but its actual net loss widened to over 400 million as they issue new stock to employees to make up for it's falling share price, not something you really want to see as a shareholder. Fourth-quarter outlook was in line with Wall Street predictions, reiterated guidance of $1 billion in adjusted earnings in 2024. I caution investors to be wary of that number and they're going to cut 13 percent of the staff to reduce costs, which I think is appropriate.
Chris Hill: From ride-sharing to the war on cash, Marqueta's third-quarter revenue came in higher than Wall Street was expecting. You're shareholder, Jason, how's Marqueta look into you?
Jason Moser: A company I think folks need to be paying attention to, remember, they operate a platform that delivers card issuing and transaction processing services. According to Bain Capital, the value of the embedded finance, which is basically non-financial companies offering financial services in some capacity, the value of those transactions is expected to reach $7 trillion by 2026. That's important because those are Marqueta's customers. Clearly pursuing a big market opportunity, total processing volume for the quarter was $42 billion in net revenue of $192 million. Gross margin 42 percent was down slightly from a year ago, but that was mostly due to timing and business mix. The thing to pay attention to with this company, they're very reliant on block that accounted for 72.5 percent of their total net revenue for the quarter. But this is a nice problem to have. A lot of this comes from the success of block Cash App, the Cash App card. We talked about how now Cash App card, the attachment rate for those that use the App at 35 percent of the users now using that Cash App card up from 31 percent just at the end of the year, and 25 percent from a year ago. That accounts for more inflows, direct deposits, people use those cards and spend more all plays into market as specialty. All in all, I think things are looking good.
Chris Hill: Guys. We'll see you later in the show up next, Rachel Warren with a closer look at the tough retail trends this holiday season. This is Motley Fool Money.
Welcome back to Motley Fool Money, I'm Chris Hill. Anjee Solanki is the National Retail Director for Colliers, a professional services and investment management company. Motley Fool contributor, Rachel Warren, caught up with Solanki to talk about the top retail trends this holiday season and how consumer spending continues to evolve.
Rachel Warren: One of the things we've been hearing about is that there might really be an unprecedented holiday shopping season ahead which seems counterintuitive in the current environment, but even just some of the earnings reports we've been seeing recently seem to portend that that may be the case. From your vantage point, what are you seeing? What retailers do you think are poised to do particularly well?
Anjee Solanki: We're going to still see, of course, the grocery spend, many buying to have parties at home, friends and family at home. People are really much more, I think, open to seeing one another and more of a large family format or a family and friends format. I think the spend is going to occur. We are going to see, I think, a soft peak as it relates to in-house decorations, more on the smaller sales still, HomeGoods is going to do well, all the TJX brands, of course, are going to do quite well in that category because they're grab and go, they're fun, they're playful, and from the consumer's perspective, if they're spending call it $10-20, in their mind they feel like, oh, that's doesn't seem too out of scale. However, if they compound that with quite a bit of items, it can shift. But we're starting to see that, and also what's fascinating to me, I don't know if you've picked this up but Walmart is doing these amazing commercials, really more touching that spirit of family and getting together, really driving, I would say, that subliminal message of, hey, it's time to get together as a group. Well, those things also spark. Well, if we're going to do that we're going to spend. The Dollar Trees, the Walmarts more those value oriented where you can grab-and-go, little tabletop accessories, etc, and then of course, on the grocery side for the holiday dinners.
Rachel Warren: It is fascinating to see how these trends are shaping up as we approach the holiday season. Another thing that's come to the forefront that I think investors think about as well is this idea of, especially, big retailers potentially discounting items as a means of lowering an inflation, and of course, that makes sense from the business perspective but there's also the fear of how could that impact the top and bottom lines. What are you seeing from your position right now?
Anjee Solanki: That is definitely a concern. Now, there's couple of things that I have factored in. For certain retailers, they may have over purchased and so they're still dealing with an oversupply. In that scenario these retailers really have to be mindful of the sequencing of discounting. What I'm starting to notice and see which I think is actually very different from prior years, it's not this call it, fire sale of sorts, It's also not very sequenced and tied to holiday. What I mean by that is that you're seeing the retailers discounting at different periods of time almost as though the consumer's not even aware when they may discount. It's almost like a little bit of a surprise. Now that with all this technology that we have, the ability to push notifications, the ability to spark, oh, just exited my car, I'm about to go into the grocery store and I get a notification that something I'm not even considering to buy such as, hey, do you remember you may want to buy some pumpkin pie. It's like, oh, it's a dollar off maybe I might do that. I think that retailers are getting much more clever. If you want to call it in how they ration out their discounts, so it's not tied purely to the Thanksgiving holiday and the Christmas. I think they're starting to really spread it out, which is helping them as it relates to how they're softly disposing of their oversupply. But, yes, for those that do not have the resources, the manpower, the technology, etc, that may be a significant challenge. As we all know, from an online perspective, Amazon decided to have a second Prime day. I wasn't too surprised purely because of the oversupply but nonetheless, it was still a significant clearing. I think they cleared somewhere around five billion in terms of inventories. That's a lot of inventory.
Rachel Warren: It's a lot.
Anjee Solanki: I'm sure it's somewhat a global perspective, but still it's significant amount.
Rachel Warren: When we spoke earlier this year I asked you a question along these lines but I'm curious to hear how your answer may have changed at all. What can you share about the changes that you're seeing in consumer spending preferences? How have those shifted? Do you think that these are permanent?
Anjee Solanki: There are a few that I've seen in terms of, people are really looking at, my dollar and how I'm using that dollar and where I'm using it as it relates to quality of goods. In some situations you will start to see, depending on your income, it's going to be very, very different, but I'm still seeing quite a bit of spend in the luxury space. I'm monitoring that very closely because I'm curious to see what it will look like come January as we continue to see the interest rates change and hike, so I'm watching that. From a behavioral perspective, quality seems to be still important and they're willing to spend a little extra for better quality. They're buying less about better quality. We're still seeing quite a bit of spin on the resale. People are being more open to buying on the resale market. I think we're going to continue to see there, some of which is more related to sustainability, ESG, and the other piece of it is also from a value perspective. We are going to continue to see the challenges in those economic areas where it is going to be very difficult for families to, if we don't see macroeconomic changes with gas and so on and so forth, we will see those what I would say, a continuation of this shift between people who have more to spend versus those that do not. That spend, of course, is going to be on staple items. My hope is that we'll try to figure out this balance between everything. But we're still seeing that spend occur. The other thing we're seeing a big spend is those that are very focused on value shopping are spending more in Fast Food and I don't know if you've noticed, but a lot of the Fast Food categories, the [Yum's] KFCs, the Taco Bell's, the Young Brands, etc, they are benefiting from it. They're seeing a nice increase in sales. However, it's dollar tacos. What's the health risks around that? That worries me too. Whenever we see these, call it financial challenges, those that really struggle and suffer are also those that also potentially at high risk as it relates to what they're consuming, how they're consuming, etc.
Rachel Warren: As we got to the end of our time together today, I think there's one key question for investors that are looking at the retail space right now, that are looking at some of these companies in different ways to play this landscape. What are some of the most prominent tailwinds or trends that you can see as driving the retail landscape in 2023 and beyond and how can we track the health of this space?
Anjee Solanki: Sure, I think it's really important to understand the strategy of a brand. What does that true omnichannel strategy that they are going to deploy? Remember this is a partnership and that partnership requires both sides. The investor's side and understand the retailer and vice versa. If we can be transparent in that conversation early on, of course, it's not going to be 100 percent but transparently it becomes a partnership. When there's some down days, one party helps, when there's some up days, the other party helps. That can be done in so many ways but financially from that point of view, but also from a longevity point of view. What I mean by that is from a trend perspective, you're going to see more conversations as it relates to having your retailer. What is your strategy as you deploy that demand delivery? How will you share that information? How are you looking at technology and technology as it relates to that specific store? Is there an opportunity to share that information with the developer? Not to the point where we're going to be managing your business, but to the point where we can again look at how the success of your business can drive the success of us bringing in more retailers to drive everyone's business up. I think if we can have more of those conversations, I think it really who's all of us into looking at retail. Continuing to see retail elevate and becoming even more healthier. There were a few clients I was speaking to the past few days, institutional clients that have become quite bullish again, as it relates to retail. Class A lifestyle, suburban retail because they are seeing, as I mentioned at the beginning of this discussion, this increased velocity as it relates to leasing. Retailers are having those appetites, as I mentioned, to expand, more open to buys, but they're being very cautious. Certain retailers, it's not 100 stores. It might be 10-15 per year. A very strategic. Having that balance is going to really show and shed some success. I think that omnichannel that approach to how we're delivering, how we're educating consumer, and that's going to continue to drive. I think you may have read or heard. The drone is out there and Walmart's drowning your gifts, so it's not Santa, it's the Walmart's drone that you'll see flying around here pretty soon.
Chris Hill: I'm not adopting the innovation of flying drones, but they've got a long way before they catch up to the scope and scale of Santa's delivery system. Coming up after the break, Ron Gross and Jason Moser return with a couple of stocks on their 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 in the Motley Fool Money formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here once again with Jason Moser and Ron Gross.
Guys, there has been no shortage of consumer-facing companies raising prices this year. But where they raise prices and by how much can be a delicate add? Carnival Cruise Line announced that starting in January, they're raising prices on specialty dining restaurants on their cruise ships due to increased food costs and supply chain challenges. One of the increases caught the attention of a producer, Ricky Mulvey. Guests will now be charged an additional five dollars if they order a third entree for lunch or dinner. Now, let's put aside just for a moment. How hungry you have to be to consume two entire entrees at lunch or dinner and think to yourself. I think I'm going to need one more. Ron, in terms of this move, is this helping Carnival Cruise Line's balance sheet? If you're a shareholder you're thinking, how this is going to work?
Ron Gross: I think it will cut costs marginally. But listen, I took a cruise once I liked the midnight bacon as much as the night crack. But it's not healthy and three entrees isn't healthy either, so maybe they're doing a public service to all of us by limiting our intake. But yes, I think it will cut costs. They're doing other things to their lobster dinners and some other cost-cutting measures. On the margins I think it will help.
Chris Hill: Jason, I don't know. I'm skeptical. I haven't been on a cruise in a very long time but this just seems like one of those moves that, look, I get that it results in more money, but why wouldn't you just raise the overall price of the ticket rather than nickel and dime people looking for a third entree?
Jason Moser: I've never been on a cruise. I don't really have a desire to go on a cruise. I share your skepticism. But really what this all boils down to me is if I ever started band, I'm totally get to name it midnight bacon.
Chris Hill: Feel free. I thought you were going to go third entree. That also seems like it could.
Jason Moser: Third entree could open up for a midnight bacon.
Chris Hill: Let's get to the stocks on our radar this week. Our man behind the glass, Dan Boyd, is going to hit you with a question. Jason Moser, you're up first, what are you looking at this week?
Jason Moser: Stock that closed at $11.47 on November 8th and now I'm watching it scratched $20 per share at the end of this week, Outset Medical ticker, OM remember they make dialysis machines known for the Tablo dialysis machine that opens them up to not only acute care settings in hospitals and clinics, but also in home settings. This was a really good quarter they announced raised guidance for the full year and this really was the quarter where they've been able to put that whole FDA hold on Tablo machines from earlier in the year they made it but to put that behind them. I remember that was something where the FDA, they were working with the FDA ultimately to provide more data. It wasn't a question of the machines but updates to the machines. They just wanted more data. The stock got hammered, when that hold was placed. They got through it very quickly and now it really does feel like they've just put this in the rearview mirror and that's why the stock has performed so well this week because it really is pursuing a large market opportunity in dialysis, in general, it's limited competition in the space. They were awarded a VA contract which enables them to be sold into 106 VA hospitals throughout the United States. All things considered, I think this is a business that is back on track, is one that I own shares in personally and I'm excited to see how they develop.
Chris Hill: Dan, question about Outset Medical?
Dan Boyd: Raising guidance, Jason? You never hear about that happening anymore.
Jason Moser: Unheard of in this market. Unheard of Dan and that's why I think the market is reacting so positively to that news.
Chris Hill: In all seriousness that caught my attention as well. Because I just thought, wow, we've been saying all year. This is not the time nor the place to be overly aggressive with guidance, so definitely something that's worth watching. Ron Gross, what are you looking at this week?
Ron Gross: An update for longtime listeners on Titan International TWI, a stock I've held anytime sold for a long time manufacturer of wheels and tires for agricultural and industrial equipment. Shares are up almost 40 percent this year that's even after falling 20 percent from their 52 week highs. Not that normal to see a stock up that much in this environment. Still a very small company with a market cap of only about $960 million. Company is probably in the strongest position. They've been in a quite a while. In this latest quarter, sales were up 18 percent gross margins and operating margins widened. Operating income was up 120 percent. Free cash flow was 40 million for the quarters, almost 70 million year-to-date. They've reduced their debt by 35 million in the quarter, improving their debt leverage ratios significantly. Management expects adjusted EBITDA of around 250 million for this year with free cash flow for the year to be at 100 million or more. That puts the stock at only five times EBITDA. EBITDA is a quick and dirty measure of cash flow. I'm thinking we have at least 30 percent upside left in the stock. Stock is around 15. I think it goes to the 20s or perhaps even the low 20s. That's around where I've sold some in the past. I think Titan is doing a great job. Recession is always the wildcard, a slowing economy. Slowing agricultural market is always a wildcard, but I think they look really strong right here.
Chris Hill: Dan, question about Titan International?
Dan Boyd: I'm just glad that old economy Ron showed up here on Friday of Motley Fool Money. I miss him.
Ron Gross: Just for you Dan.
Chris Hill: What do you want to add to your watch list Dan?
Dan Boyd: That's a tough one, Chris, because Titan continuously impresses and they're just making wheels out there, they're not reinventing them.
Chris Hill: Say don't you feel like they're reinventing the wheel?
Ron Gross: They have some technology out there that you could argue is reinventing the wheel
Chris Hill: But isn't that part of the bull case for this company? Who in the world needs to reinvent the wheel? That shows how solid their competitive position is, right?
Ron Gross: I guess so. That's why I'm picking Titan, Chris.
Chris Hill: No. Jason Moser, Ron Gross, guys we'll see you next time.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Chris Hill has positions in Amazon, Apple, The TJX Companies, The Trade Desk, and Walt Disney. Dan Boyd has positions in Amazon, Walt Disney, Zillow Group (A shares), and Zillow Group (C shares). Jason Moser has positions in Amazon, Apple, Marqeta, Inc., Outset Medical, Inc., The Trade Desk, and Walt Disney. Rachel Warren has positions in Amazon and Apple. Ron Gross has positions in Amazon, Apple, Meta Platforms, Inc., The TJX Companies, Titan International, and Walt Disney. The Motley Fool has positions in and recommends Amazon, Apple, Goldman Sachs, Meta Platforms, Inc., Outset Medical, Inc., Redfin, The Trade Desk, Walmart Inc., Walt Disney, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool recommends Carnival, Colliers International Group, Marqeta, Inc., The TJX Companies, and Uber Technologies and recommends the following options: long January 2024 $145 calls on Walt Disney, long March 2023 $120 calls on Apple, short January 2024 $155 calls on Walt Disney, short March 2023 $130 calls on Apple, and short November 2022 $17 calls on Redfin. The Motley Fool has a disclosure policy.
