In this podcast, Motley Fool senior analysts Ron Gross and Matt Argersinger discuss:
- The latest inflation numbers and the Fed's plans.
- How a small group of companies are driving market returns, and why the rest could catch up.
- Why the market was hungry for shares of restaurant brand Cava.
- Two stocks on their radar: Chevron and Burford Capital.
Author Polina Pompliano shares some unconventional business advice and insights from her new book Hidden Genius: The Secret Ways of Thinking That Power the World's Most Successful People.
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 June 16, 2023.
Dylan Lewis: It's the Motley Fool Money radio show. I'm Dylan Lewis, joining me in studio Motley Fool Senior Analysts, Matt Argersinger and Ron Gross, great to have you both here.
Matt Argersinger: Dylan.
Ron Gross: How are you doing Dylan?
Dylan Lewis: We've got to splashy IPO, a look at Hidden Genius, and stocks on our radar, but we are kicking off with the big macro. Ron, we got an update on inflation this week. New CPI data shows inflation up 4% for the year ending in May, down from April's check-in and down substantially from last year. This seems like good news, Ron?
Ron Gross: Yeah. I'll take good news where I can get it. The lowest level in about two years, that sounds like good news to me. The smaller-than-expected increase reflects decreases in the cost of energy, gasoline, and electricity included in there. A slowdown in food price increases, but on the other side, rent, and housing does remain elevated. Used cars and trucks do remain elevated. This is somewhat backward-looking, which is a criticism the Fed has fallen to. Those things do remain elevated and they're important because housing makes up about one-third of the indexes waiting. Whatever happens to housing is going to have a really big impact on the consumer price index. Core inflation. If you strip out food and energy, a little bit hotter up 5.3% from a year ago. Important to understand that as well, but I think as you said that the top, we will take good news where we can get it.
Dylan Lewis: We've gotten an inflation update and we also got an update from the FOMC. You got to love it. It's almost like they know we're paying attention to both of them at the same time. This week, the Federal Open Market Committee decided to keep rates where they are in what some folks are calling a skip. Ron, we're going to skip Matt right now and stick with you here. [laughs] What jumps out to you?
Ron Gross: Following the release of that CPI data, the market guessed correctly that there was nearly a 100% chance that the Fed would skip. That is exactly what happened. The vote to skip, a rate increase was unanimous, but there's always a but. The Fed also signaled that rate increases could come later this year. Fed officials indicated they expect to raise rates two more times this year. I don't believe that is a foregone conclusion, I believe they will look at the data and make the appropriate decisions. That's what they think currently right now. Investors basically shrug that off, although at first, they didn't hearing to more. But they shrugged it off. Things look pretty good, inflation is moderating, economy remains solid. Maybe the labor market remains too solid quite frankly. The Fed probably wants to see some weakening there in order for them to feel comfortable that inflation will continue to come down. But the markets have been strong. Inflation looks good. We're not anywhere near recession right now so that soft landing becomes more possible. Don't forget that Cava IPO that we'll talk about in a bit got people just a little bit giddy on Thursday.
Dylan Lewis: I think things are surprisingly exciting in the markets. We see some short-term news and some near-term positivity. But if you take a step back, Matt, and look at where we've really been over the last 9-12 months, there's a lot of good results and good returns here for investors.
Matt Argersinger: There is. I think Ron said it right when you said giddy. Because guess what happened about a week ago? The S&P 500 hit 20% above its October lows, which if you're a technician there that says, hey, we're in a new bull market whether you believe that or not. I think what's fascinating about the stock market lately and it's just been a relentless rise for the market is traders will often call this a lack of breadth in the market. I'm not a trader, but it is interesting to see, I think the disparity between the market-cap-weighted S&P 500, which is the traditional measure of the index. That year-to-date, this is as of Thursday's market close, it's up over 16% for the year. We're not even six months through the year, that's a fantastic year, let alone six months return. But if you look at the equal-weighted version of the S&P 500, which there's the Invesco S&P 500 equal weight, ETF, RSP, as of Thursday, that's up only 6%, and then you come into my world right now of dividend stocks. If you look at the Schwab US dividend equity, ETF, that's actually down 2% year-to-date. You look at that and say, well, gosh, there's a whole section of this market. This S&P 500 that's not really even participating in the bull market. I think traders would say that's probably bad news, but you can look at it this way. It does tell you that most of these stocks haven't participated. If they start catching up to the rest of the market, and that's usually what happens over time. Equal weight does catch up to the market cap weighted. This bull market could be for real. These small-cap companies, these mid-sized companies start contributing to the returns
Dylan Lewis: Wow, look out ahead. We've started seeing people refer to this a little bit as the S&P 7, where there's a very small portion of companies driving a very large percentage of the returns in the market. Ron, do you feel like the other 493 companies [laughs] in the S&P, you're going to start pulling their weight at some point?
Ron Gross: They're not necessarily weak, they're just weaker. We have seen some strength in industrials retail actually showed some signs of life. Just recently, like you said Target and others move up. S&P has a whole 19 times forward earnings, which people will point out and say, well that's not so cheap, be careful. But if you strip out the stellar performance of the NVIDIA's of the world, you'll probably see something that's a little bit more reasonable, and I think that's important to understand.
Matt Argersinger: I think if you look at the equal-weighted, again, going back to that equal-weight S&P, the forward multiples are closer to 15, which is around the historical average for the market. If we're looking for another encouraging sign in the market, be lonely IPO market has a new darling, Ron. Fast-casual restaurant brand Cava, listed on the New York Stock Exchange this week. Shares nearly doubled on their first day of trading. It seems like people were looking forward to this one.
Ron Gross: Oh yes, giddy, another word, we will continue to use. I go way back with this restaurant, I'll tell you a 10-second story. It's a Local Rockville, Maryland start-up, which is where I currently live. I talked about Cava and the show pre-pandemic. I talked about them when they purchased Zoes Kitchen and a private transaction. I mentioned that I thought one day they would go public. The next night, I'm eating at their full-service Cava restaurant the one that has waitresses and is full-service. I saw the owner, I called them over, and told them about our radio show and that I talked about him on the show yesterday. He said, oh my gosh, I heard that show, that's you? He called his wife over, he offered to buy us drinks. He was so excited, it was so much fun.
Matt Argersinger: He was giddy.
Ron Gross: He was giddy. It's a wonderful restaurant by the way. The full-service when as are the other ones. That's my little story. Fast-forward, four or five years, and this IPO is not just a big deal for Cava, but for the IPO market, which has had a really weak, lackluster 18 months. But this one boy, as you say, people were geared up for it. It wasn't a cheap valuation to start with, and then it doubled. It's a 263 fast-casual chain. They have a dips-and-spread business that they sell in stores like Whole Foods. I happen to like those as well. They did acquire Zoes Kitchen locations. They've converted 145 of those currently into Cavas. Real success story 3-4 high school or elementary school friends got together to start this. They're going to use the proceeds to keep opening up new stores. The wrap on the valuation is that they're not profitable. That's because they are in growth mode. Their store economics are pretty good with about 20% margins on a store basis. If they stop growing right now, they probably would be quite profitable. But at double the valuation from the IPO, I would say, let's be careful here. The stock didn't start to sell-off on Fridays, but probably I've seen some people flip the stock and make a quick profit. But it's a great concept, great food, I'm a big fan, just has to trade at the right price for me.
Dylan Lewis: Matt, I think a lot of people are paying attention to this one because we have been so desperate for new names in the market. Do you feel like this reception maybe opens the door for some of those other big-name private companies out there? The Stripes, Reddit, Instagram's Discords of the world to say, you know what, maybe we'll make an entrance in here.
Matt Argersinger: I think that could be right, Dylan. Not that Cava is the one that kind of breaks the floodgates, but it has been, as Ron said, a lackluster period for IPOs. 2021, of course, was the record for IPOs on US exchanges. There were 416 IPOs that year that raised almost $160 billion. That's a huge year, but then it completely fell off the table last year. There were just 90 IPOs, less than 10 billion was raised. It was the lowest year since coming out of the financial crisis. It's picked up a little bit this year, they're actually 33 IPOs in the first quarter. That's a high number for me, I didn't realize they're that many. Then we had Cava sense, you also had Kenvue. The spin-off of the Johnson-Johnson consumer health business. As you mentioned, there's companies like Stripe, Reddit, even SpaceX maybe could be in the offing. I think it's all about the overall market though. Here we are again. We're close to all-time highs in the stock market. Credit markets are not as unforgiving as they thought they might be, so it could open the door for more.
Dylan Lewis: This pent-up demand is one of the reasons you saw Cava stock jumps so much. The next question people are asking is this another Sweetgreen which saw the same thing happen but not so great since then stock has come way back down or is this Chipotle or perhaps something similar to Chipotle?
Matt Argersinger: By the way, what industry benefits usually the most from a healthy IPO market? Well, the big investment banks. Another part of the market that really hasn't participated in this bull market just yet.
Dylan Lewis: One prediction I do feel pretty safe on. I think Ron is going to be going back to Cava this weekend to try to get some free drinks after talking about it on the radio show today.
Ron Gross: For sure.
Dylan Lewis: After the break, we've got to a $10 billion deal that flew under the radar and accompanied benefiting from AI in a big way. Stay right here. This is Motley Fool Money.
Welcome back to Motley Fool Money, I'm Dylan Lewis here in studio with Matt Argersinger and Ron Gross. Matt, earlier in the show, we were talking about how inflation is moderating a bit, especially in food prices. Looking at results from Kroger this week seems like we're starting to see some discount, and maybe a little bit slowing down in those price rises.
Matt Argersinger: I think that's right, Dylan. I think a lot of investors know about Kroger, but they might not know it's the second-largest grocery in the United States behind Walmart. It has around 2,700 stores, 35 states. It's not just Kroger, it's Ralph's Harris Teeter food for less, Smith's, even Dylans in there. But fiscal first-quarter results are pretty good, same-store sales up 3.5%. Revenue of 45 billion was roughly in line with guidance and earnings came in a little better. I think to your point, Dylan, it's companies like Kroger that sell essential items, so they're a little less susceptible to the shifts in consumer discretionary and the pricing changes we've seen there, but it helps that those prices are coming down for things like food and basic healthcare items. Then one thing I wonder about though is; there is still inflation in the market, you are going to have a rollback of Snap benefits here in the next few months.
How it's lower-income consumers, which often go to Kroger, how might they be impacted by that? We've looked at Kroger a lot for our dividend investors' services here at the Fool, it's got a great track record of paying and growing its dividend. The one thing that's held us back though, and that's hanging over the company and the stock is that they're trying to merge with Albertsons, which is the third-largest grocery company in the United States. The deal was announced way back in last October, and the idea was if Kroger can acquire Albertsons, that would help them keep pace with Walmart and Amazon who's making big inroads into the grocery space. But the deal, as many deals right now it's still under regulatory review, no real visibility insight is when it actually gets approved. What's interesting though, is if Kroger is able to combine with Albertsons, they'd have about 13% market share. Still way behind Walmart, which 22% something you're trying to see why that merger wouldn't be allowed to go through. Ron, I know you weren't watching Kroger results too closely, but over-under AI came up five times [laughs] on a company called which direction?
Ron Gross: It's got to be over.
Dylan Lewis: Which is surprising maybe for grocery store. But we continued to hear AI in results from Oracle this week. The company closed out its fiscal year by posting 50 billion in revenue for 2023, and the company's Cloud segment was a big part of the reason why it's emerging as one of the preferred offerings for people doing generative AI Ron.
Ron Gross: You used to be all ball bearings. Now it's all AI for those Chevy Chase fans out there, stocks on fire. This is not your Oracle from May 2000 when it got caught up in the telecom equipment boom and the Internet boom and then came back down to life. It's back and this boom in generative AI is really boosting demand for all of their Cloud services. They're focusing on expanding their Cloud infrastructure business. They're going to try to compete with Amazon and Microsoft. A daunting task because they are clearly the market leaders. But it appears there's plenty of dollars to go around at least now as the hype and the froth really has taken hold, they're boosting their Cloud offerings, they have a deal with NVIDIA. They acquired Cerner last year that has helped business and it's showing up in the numbers. Cloud sales up 54%, that's after a 45% jump in the previous period. Their Cloud infrastructure business up 76% in their application business up 45%. Very strong. Overall sales were not as strong, only up 17% and margins were down a bit because operating expenses were up. You boil that all down and you had earnings per share up about 8%, not bad at all. In terms of guidance management said Cloud revenue should increase at least as much in the year that just ended as we just saw. We also expect to deliver higher operating margin percentages this year, they said. Only 23 times, this is not a crazy expensive tech stock. It's very interesting. Adobe just reported similar results. It's all Cloud, it's all AI. Adobe's at 29 times, Oracle at 23 times, Salesforce at 27 times. Not too bad. Might want to take a look at Oracle.
Dylan Lewis: For a business that's on fire. I want to put some quick numbers to that Ron, Oracle is currently at all-time highs up 80% over the past year, 140% over the past three years. Is this a name that we should start paying more attention to in the likes of big tech because it is reaping become nearly a $400 billion company?
Ron Gross: I think, yes, and Larry Ellison is reaping a lot of those rewards is not one of the richest people in the world. These numbers have to continue though, these growth numbers have to continue otherwise these stocks all of a sudden become expensive. We need to keep an eye that growth persists.
Dylan Lewis: One spot to look for growth, Nasdaq, buying a Adenza, and another sign of optimism in the markets. Matt, we saw a pretty big acquisition this week. Nasdaq buying financial software company Adenza for $10 billion. This company specializes in risk management and regulatory issues. What did you see in the release for this announcement?
Matt Argersinger: I'm surprised about this. We talked about this before the show, Nasdaq's only about a $25 billion company. They are doing a $10 billion deal that's big for them, it's definitely a needle mover. But you said, it's a provider of, "mission-critical risk management and regulatory software to the financial services industry." Let's hope they can run some of that regulatory software maybe over their own deal to see if it actually gets the green light because they're going to have to do that. This is for Nasdaq, this is a high-growth, high-margin recurring revenue type of business that they see boosting growth margins overall for the company comes with 115% net revenue retention, which means that customers are generally spending more dollars over time on the platform. Does this get approved? I think that's the big question for everyone in this market right now. I think it does because this is, first of all, it's coming from private equity. Side another publicly traded company. Well, it's big relative to Nasdaq size. It feels more like a complementary addition to the business rather than Nasdaq going out and acquiring another exchange or another trading business. But I think the bigger point for me is that this is just another example that companies are interested in doing big deals. I think last year deal-making was non-existent. But here we are 2023 especially with the market, technically a new bull market approaching a new all-time high investors are getting, I'm going to do it again. Ron. [laughs]
Ron Gross: Giddy.
Matt Argersinger: Our companies are getting giddy about doing deals.
Ron Gross: Last year deals, not great. People are worried about recession. Even the first quarter of this year, not-great, although topped one trillion dollars but still relatively not that strong, but we are starting to see a pickup. I'm seeing a lot of activity in healthcare as well. UnitedHealth did a deal, CVS did a deal, leap therapeutics, Amgen, Johnson and Johnson all did deals recently and I think that will likely continue. You're also seeing retail deals, always you see tech. I do think we're going to start to continue to see a steady flow, which again will make those investment bankers awfully happy.
Dylan Lewis: I'm glad you brought healthcare space because I think that's another sector that hasn't really participated in this market, and the fact that there's probably some good valuations there to get deals done. Matt, one final note on that Nasdaq deal. I was a little surprised to see the stock sold off 10% on the announcement, we have seen some of these big mergers and acquisitions go sideways recently. Do you think there's a little bit of pessimism around?
Matt Argersinger: I think it's a big pill for speaking in healthcare. It's a big pill for Nasdaq to swallow. The fact that they're funding the deal through their own stock is probably a reason for why the sell-off there.
Dylan Lewis: Ron Gross, Matt Argersinger, fellows, we will come back to you in the show in a little bit. But first, we've got stories that show the Hidden Genius of Spotify's Daniel Ek and Shopify's Tobi Lütke. Stay right here. You're listening to Motley Fool Money.
Welcome back to Motley Fool Money. I'm Dylan Lewis. Whenever we can, we'll like to learn from the best, and so does reporter and author Polina Pompliano. She spent the last few years studying some of the world's most successful people each week as part of her newsletter, The Profile. A lessons and framework from that work are in her new book, Hidden Genius, the secret ways of thinking that power the world's most successful people. This week, Polina gave us a rundown on how Daniel Ek's view on leadership led to one of Spotify's greatest innovations and why you might want to rethink any idea that can fit into an elevator pitch. Your book has no shortage of stories and you take it a step further and you get into the concepts and frameworks that a lot of folks that you've profiled really lean on in order to be successful. You've got lessons from folks like Al Pacino. You also have lessons from professional rock climbers. Having spent so much time looking at this stuff, what have you personally picked up from studying the Hidden Geniuses?
Polina Pompliano: I'll talk about one framework that I've really applied to every area of my life, which is, I heard LinkedIn founder and he's also an investor, Reid Hoffman say this once on a podcast, but he said consistency plus time equals trust. If you think about that, that's something that you can implement in every single area of your life. It could be relationships, it could be your professional life, it could be business, it could be investing. Basically, when you don't trust people who constantly say they're going to do something and then break their promises. But it's not like one time I was like, hey Dylan, I can't do the podcast, let's reschedule. It's constantly over and over, over a long period of time. You can apply that to your personal relationships, if you're a healthy person, you're probably attracted to people who keep their promises to you. They say, hey, let's go out on this date and they keep it, and then over a long period of time, that's how you build the foundation for a relationships, because you have to trust each other.
Charlie Munger says, if you're about to get married and your marriage contract is 47 pages, I suggest you not enter because it's that, that's not a bedrock of trust. But for me, the way I implemented this is, when I started the newsletter The Profile in February of 2017, I was like, OK, this could go one of two ways. I could start this and say, I'm going to publish every week, I'm going to be super consistent, but then life happens, somebody passes away, you have to go to a funeral. You have to travel across the world. Sometimes you have a child, you get married, all these life events happen and you know that you're probably not going to be able to be consistent. I was like, what things can I put into place to keep that formula? Because I know that if somebody signs up on a Friday and then I have a vacation that weekend and I don't send it on Sunday, they're not going to get it until a whole week later. That means that there going to be like, what the hell is this? I forgot I signed up for this. I put things into place that would allow me to be consistent even when life happened so that if something came up, I still have a backup like, I'm going to send you this on Sunday is not going to be the complete newsletter, but it's going to be something that keeps that consistency going, and I truly believe because I haven't missed a single Sunday since February of 2017. That allowed me after three years of doing The Profile for free, earning people's trust and then asking them, hey, I have a paid layer and then they were willing to back me financially because they knew I wouldn't take their money and run off to Mexico.
Dylan Lewis: Yeah. Polina, if I'm not mistaken that concept that you're laying out there. In the book you talked about it as the compounding element of trust. This idea that these habits accrue over time and build and I think a lot of our listeners as investors are very familiar with the idea of compound interests, but it's something that I think can probably be taken a step back and apply to a lot of the things that people do.
Polina Pompliano: Basically, Naval Ravikant says, all returns in life have come from compound interests of something, and it could be money, but it could also be trust. One of the people I talk about is Shopify CEO Tobi Lütke. He says that whenever he meets somebody, your trust battery is that 50%, he calls it a trust battery. He's every single interaction you have with this person, either discharges it a little bit or charges that a little bit, and over a long period of time you know where this person say, is that a reliable person, and he's like, aim to be a person who's battery consistently stays charged at over 80%.
Dylan Lewis: I think that's a good metric to follow. I think Tobi Lütke is a pretty good person to follow in general world. We're big fans of him here at the Fool, we've been following Shopify for a long time. I'm curious. I know you've really talked about people from all walks of life here, but we have a focus on the publicly traded world and companies that are public traded leaders of them. Are there any other names in the investing sphere that our listeners might be familiar with it yet some stories about?
Polina Pompliano: For example, Spotify CEO Daniel Ek. I find him fascinating because he has this really interesting concept for leadership and the way he approaches it. He talks about how, if you onetime heard an airline CEO say that, you should invert the leadership pyramid where the CEO is not at the top, they're at the bottom. He was like, that would be interesting, how could I implement that in my company? We've all heard of bottoms-up leadership, but what does that actually mean in practice? He talks about how, if you see yourself as the CEO is just an enabler of creativity and resources and giving fuel to people's ideas. That's the lifeblood of your company. You are not the lifeblood, it's all the employees and all the people that make it that. He talks about how, as an example, he had a team of engineers working on this feature that they thought would be amazing. They thought if Spotify could have a personalized playlist for every single user based on their own interests in music and whatever, could they create a personalized playlist for them.
Daniel Ek was like, that's all right. It's not worth spending all this money and time on this, it's probably a very small portion of people are going to use it. They ignored what he had to say and continued working on it despite his lack of enthusiasm, and then he found out that they shipped it, they launched it to the public through the press with everybody else. That just shows by the way, how as a leader, because if you're terrified of your boss, you would never do this. You would never launch something without them knowing. They did that and he was like, I remember reading it in the press and being like, this is going to be a disaster. That turned into Discover Weekly, which is one of Spotify's most loved features now. I think the lesson in that is, a lot of times the CEOs at the top, if it's a top-down approach, they stay for creativity. But if you even just have the mindset of bottoms-up, it seems through the culture and people were more bold in taking risks, then they otherwise would be if you have a terrifying CEO who's like, it's my way or the highway, and they run it more like a dictatorship than a democratic process.
Dylan Lewis: As a longtime Spotify user, I am thrilled that that was the culture and approach there at the company. I love my daily mix and I love my Discover Weekly. I liked the discussion of executives there. For your work at The Profile and for the book, you spend so much time scouring the Internet, looking at all of these different pieces of who these people are, these moments that speak to them and help people create a composite. Our analysts and our listeners are trying to do that all the time when they're looking at management companies or a founder and having spent so much time doing it, I'm curious, do you have any tips for how to do that well?
Polina Pompliano: Yeah, I do. In the book I tell the story when I was in college and I had a journals on like one-on-one class, and we had to write a profile of a classmate. I ended up profiling my classmate, but I had only just done the interview and I wasn't happy with it because I was like, this person so boring, I asked them all these questions, but it wasn't a really exciting life or exciting answers that they gave me. I went to my professor, and I was like, listen, it's still early on in the process let me change my subject, and he was like, no, because he recognized that I as an interviewer, hadn't done my job, I hadn't evaluated this person properly, but also I hadn't ask the right questions. He said, no one is inherently boring. They're only boring because you haven't asked the right questions yet. That one thing I think about on a daily basis, I think that to evaluate somebody well, you not only have to ask them good questions which is key, but also you have to, Hans Zimmer calls it listening to the subtext. You have to listen to the subtext of the conversation or the situation that you're in. What are they saying without actually saying it? What is their body language saying? Are they being defensive when asked certain questions? But also, the thing that I pay most attention to is an interviewer, that I think all investors should pay attention to is, listen for the things that people emphasize, and the things that they downplay. Because that tells you more about what they're trying to show in display and what they're maybe trying to hide. I'm constantly listening for that. When I asked you about your life story, why are you telling me that part, but what about that other part, etc. Why are you emphasizing this portion of the business, but you're not really talking about that one? Why your answers long for this question, but really short for that one? It's you're listening to the subtext and understanding the incentives of the person giving the answers.
Dylan Lewis: One thing I wanted to ask you as we close here is, there's an idea that you bring up in the book, and it's from Ed Catmull, who's one of the co-founders of Pixar. I think counter to almost what every business student is taught in class, and it is that good ideas do not necessarily fall into an elevator pitch type approach where they're easily explainable. Can you talk a little bit about that and also just any of the counterintuitive elements that you pick up from the book?
Polina Pompliano: I loved it the elevator pitch, I hope I kill the elevator pitch. No. The elevator pitch is the idea that if you're stuck in an elevator with your boss, you can explain your idea in 30 seconds or less, and you'll top that all through school. What is your elevator pitch? Succinct to the point where it's easily understandable. But Ed Catmull, who's incredible, and he's very, very creative. He says that unfortunately, that's not how creativity works because if you tried to explain some of the most successful Pixar films in 30 seconds or less, it would sound insane. He's like imagine, describing Toy Story. He's like people would be like, oh, there's going to be like overly commercial. Like all these toys people can buy, like what the hell. Or like Ratatouille, a rat that can cook. Like that sounds disgusting, and if not done tastefully, it can really end up being disgusting. So he's like, if you can sum up your idea in 30 seconds, that means it's probably iterative of something that's already happened or somebody has had this idea before, and it's been done, whatever. It's not that original. Basically what I took away is that to be a truly original creator, you need three things. You need to have a really unique point of view on the world. You need to have a really ambitious idea, and also you need to be able and ready to fail spectacularly in the pursuit of that idea, and Catmull talks about how at Pixar they have these like war room meetings where they really go after and attack. The idea from all sorts of angles, and he says it gets really heated, but it's never personal. It's also, what Julia says, attack the idea, not the person. See it as a separate entity. Because once you are able to challenge it in that way, it gets better, and better, and better.
Then I think he says, by the way, the film is never finished or good. He's like, it's still, but we put it out anyway because this is the best possible version that we could get to, and I think that's really counterintuitive. But the other thing I want to touch on is when you're looking at public companies, CEOs or people you are evaluating to make an investment in, I always think about he's now at Bridgewater Associates, but Mark Bertolini, and I was able to interview him about this. But he told me that he has this whole idea of the four levels of Taoist leadership. He came up with it, but it's based on Taoism, He says, as a leader, first-year employees hate you, the second level is they fear you, the third level is they praise you, and the fourth level is they don't need you. You're invisible because the company can run itself, and I think most people, when they think about leaders, they don't think about, how would they become invisible? Because that is the ultimate goal. If the leader is successful, the organization can run itself, and I think when you're evaluating people, you should look like, is this person just trying to make themselves needed or useful or there. Because, in the case of Bertolini, his final chapter at Aetna was to shepherd the sale to CVS Health. So he did his job to his investors, employees, whatever, and I think like when you're evaluating someone, you should be like, is this the type of leader who aims to be invisible.
Dylan Lewis: Polina Pompliano's book, Hidden Genius, is available wherever you get books this June. Coming up after the break, Matt Argersinger and Ron Gross 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, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Dylan Lewis, join again by Matt Argersinger and Ron Gross. Gents, let's get over to the stocks on our radar. Our man behind-the-glass, Dan Boyd, is going to hit you with a question. Matt, you're up first. What are you looking at this week?
Matt Argersinger: Well, we've talked a lot about sectors of the S&P not participating in this bull market, and energy is the worst among them is so far this year. So the contrarian in me tells me that I wanted to look for bargains in the energy space. Because I'm focused on dividends and dividend growth, I really like Chevron, ticker, CVX. Not only do you get a dividend yield of almost 4%, Dan, but you get a dividend that's grown at least at about two times the rate of inflation over the last 10 years. Pretty strong growth there. It's a fully integrated energy giant, so it makes money from upstream to downstream assets. That keeps revenue and profits steadier, even when oil prices are volatile, and they usually are. Here's what I like best, Dan. Chevron is producing a ton of cash right now, investing in the businesses, buying back stock, paying a dividend, and that's with oil prices around $70. Management expects they can maintain that level of investment, and shareholder yield, with prices as low as $60 a barrel, so there's a margin of safety in there. Loved the income, loved the valuation, and I think it's one of the safest ways to bet on the energy sector.
Dylan Lewis: Dan, a question about Chevron.
Dan Boyd: Seems like a stock that's got it all in the bag, Matty, except for that whole climate change thing.
Matt Argersinger: Right. Certainly a long-term concern. Definitely, Chevron is working on that, and they've got a lot of initiatives and carbon capture and other things in that space.
Dylan Lewis: Ron, what's on your radar this week?
Ron Gross: I've got something a little different this week courtesy of my friends over at our value hunter service. Full disclosure, I own the stock as well. It's Burford Capital, B-U-R. Leading provider of capital to the legal sector. Typically, this means they will fund a plaintiff's legal costs in exchange for a portion of any financial recovery from that lawsuit. They've only lost about 9% of their concluded cases. They've got a very strong track record. They've recently won a huge case in Argentina that could be worth 4-$7 billion. The whole market cap of the company is only 2.9 billion. Now that'll probably be negotiated down and they won't get the total windfall. But that's just one deal. The stock did pop significantly as a result. But my friends that Value Hunters think the stock is probably worth double where it is right now, and the CEO said for those who are longtime listeners that the company is firing on all cylinders.
Dan Boyd: Huge.
Dylan Lewis: How could you not like that. Dan, a question about Burford.
Dan Boyd: This is a company that gives people money for lawyers to sue people.
Dylan Lewis: Yes. Lawsuits are very expensive. People can often fund those out of their own pockets. So they will lend you money, and they will take a portion of the proceeds if you are successful.
Dan Boyd: Wow, sounds even more evil than oil companies.
Dylan Lewis: Dan, you've got law, you've got energy. What are you doing here? Which one's going on your watchlist?
Dan Boyd: Wow, I hate both these stocks, Dylan. This is hard. No, I'm just kidding. These both look like some pretty solid companies here. I think I'm going to go with Burford because I'm really curious as to how this company works and what they can do in the future.
Dylan Lewis: Nice around the board. Matt Argersinger, Ron Gross. Thanks for the stocks. Thanks for being here, guys.
Matt Argersinger: Thanks, Dylan.
Ron Gross: Thanks, Dylan.
Dylan Lewis: That's going to do it for this week's Motley Fool Money radio show. The show is mixed by Dan Boyd. I'm Dylan Lewis. 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. Dan Boyd has positions in Amazon.com and Chipotle Mexican Grill. Dylan Lewis has positions in Salesforce, Shopify, and Spotify Technology. Matthew Argersinger has positions in Amazon.com, Chevron, Chipotle Mexican Grill, and Shopify and has the following options: short July 2023 $120 puts on Target and short July 2023 $135 calls on Target. Ron Gross has positions in Amazon.com, Burford Capital, Microsoft, and Target. The Motley Fool has positions in and recommends Adobe, Amazon.com, Chipotle Mexican Grill, Microsoft, Nvidia, Salesforce, Shopify, Spotify Technology, Target, and Walmart. The Motley Fool recommends Amgen, Burford Capital, CVS Health, Chevron, Johnson & Johnson, Sweetgreen, and UnitedHealth Group and recommends the following options: long January 2024 $420 calls on Adobe and short January 2024 $430 calls on Adobe. The Motley Fool has a disclosure policy.
