In this podcast, Motley Fool analysts Ron Gross and Asit Sharma and host Dylan Lewis discuss:
- The Fed's rate cut, the market's reaction, and what history has to say about cuts this dramatic.
- Nike's CEO swap, what went wrong for John Donahoe, and whether Elliot Hill has what it takes to turn the company around.
- A new partnership masking bad results from Olive Garden.
- FedEx's signals about shipping trends.
- Two stocks worth watching: D.R. Horton and Intel.
Reddit hit the market in 2024, but it's been around as the front page of the internet for almost 20 years. At the 19:50 mark, CEO Steve Huffman joined us to talk through how the company stands out in the world of social media with its focus on community, where it has been, and where it is heading.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our beginner's guide to investing in stocks. A full transcript follows the video.
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This video was recorded on Sept. 20, 2024.
Dylan Lewis: Rates are down and markets are up. Motley Fool Money starts now. It's the Motley Fool Money Radio Show. I'm Dylan Lewis. Joining me over the airwaves. Motley Fool senior analysts Ron Gross and Asit Sharma. Fools. Great to have you both here.
Ron Gross: How you doing, Dylan?
Asit Sharma: Great to be here, Dylan.
Dylan Lewis: I'm doing great because we have plenty to talk about. We've got another CEO change at one of the world's biggest brands. Got a rundown on one of the bigger IPOs of 2024 straight from their CEO. We also have stocks on our radar, of course. But really, we are kicking off this week with a look at the big macro, because, Ron, how could we not? The Federal Open Market Committee this week decided to cut the core rate for the economy by 50 basis points. We knew going in what direction things were gonna be heading. We did not necessarily know the magnitude or what the market would make of it.
Ron Gross: Oh, boy. Big big, big day. We were waiting. It's the first rate cut from the Fed since it began hiking in March of 2022, marking a pretty big, and I would say, long-awaited shift in monetary policy. Fed Chairman Powell, to you and me, categorized the Fed's latest cut as recalibrating policy down over time to a more neutral level. Now, that word recalibrating, is a word that the markets have really focused on, as one analyst put it, using the word calibration allows Powell to push this narrative that this easing cycle is not about us being in a recession, it's about extending the economic expansion. A little nuance, a little slanting there.
But then we got weekly jobless claims that fall 12,000, and that was far below estimates, reassuring people that we look like we're actually maybe have achieved the soft landing that we have been talking about for so long on this show and on every other show out there. It is an exciting time. The Fed projected lowering interest rates by another half point before the end of 2024. They have two more policy meetings to get that done. And then through 2025, their forecast interest rates landing at 3.4%. Then through 2026, rates are expected to fall to 2.9%. So at least the pundits and the Fed, they're signaling lots more rate reductions to come. They increased their expected unemployment rate this year to 4.4% from 4%, and they lowered their inflation outlook to 2.3% from 2.6%, which is approaching that 2% target that they talk about so often. When this all happened on Wednesday, stocks were mixed, they eventually turned negative. Everybody got a good night's sleep, decided, you know what? Things are perfectly fine. Stocks shot up on Thursday. All is well, Dylan.
Dylan Lewis: Before the announcement, we'd had a little mini pool going just for fun. Ron, Asit, you guys both had a 25 basis point drop. We had different ideas about what the market reaction could look like, and I think just goes to show how difficult it is to anticipate these things. But as all the dust settles, Ron mentioned, the market reaction, very strong. Asit, we're looking at the S&P setting a new all time high on Thursday afternoon.
Asit Sharma: Yeah Dylan, and what's a little surprising in this is the breadth of the market was very strong. Or maybe that's obvious to market watchers. The Fed has changed its posture. Everyone should participate. We had an amazing day on the NASDAQ as well. So the NASDAQ rose 2.5%. This surprised me a little bit because typically you'd expect what's leading the market forward to take a breather. It's not to say we didn't see the other sectors you'd expect come into play. Housing was strong, consumer good stocks were strong. But this is the interesting thing when we think about how the market moves forward from here. Tech is still going to participate and the reason is that lower interest rate environment is going to free up capital among lots of companies to make those investments in technology, be it artificial intelligence, the Cloud, or other initiatives they've been holding back on a little bit because capital has been tighter. It's been more expensive.
As the cost of capital decreases, some of these big balance sheets that are associated with tech companies are going to unleash. Then enterprise businesses, which buy stuff from the big tech companies, they're also going to unleash their balance sheets. That helps prime the economy. I think investors, as Ron said, initially, a little ecstasy on how to interpret this woke up the next day thinking, wow, this is the beginning of a new posture, and we can see those smaller 25 basis point cuts in the future. This is going to be good for business, and we're going to go ahead and invest. So the market took a really, I think, positive interpretation of the result.
Ron Gross: I think one thing we can learn from the predictions that we made for fun on Tuesday and got completely wrong, at least in my case, was that you don't really need to focus on a minutia, 25 basis points, 50 basis points. Is the market going to be up on one day versus down on one day? If you're going to take the macroeconomy into account when you look at investing, think of it broadly. Do we seem like we're on good footing? Is the economy growing? Is inflation coming down? Our interest rates, at least, over the last 10 or 20 years, have they been historically low and then perhaps historically high, and we need an adjustment. You don't need to be so hyper focused. It can get fun, and we like to talk about it on the show. But general directions are much, much more important than being hyper focused on any one metric or any one day.
Asit Sharma: I'm just going to disclose here our actual predictions. You said the market would not have that grade of a day because you expected a 25 basis point cut. I said to be cute. Well, I also expect a 25 basis point cut, but the market, by the end of the day, is going to finish in positive territory. I draw two things from us, both being wrong. Number 1, on a personal level, I'm not that great at predicting the Fed's moves. [laughs] Number 2, I think there's a virtue in staying mostly like business focus versus shifting to too much of a macro focus as investor. If you choose wisely, you're going to invest in companies that can withstand the stresses of a rising rate environment, and they'll benefit on the back end when interest rates start to ease up.
Dylan Lewis: I agree with everything you guys said. I'm going to do a mix here of focusing on the minutia, to quote, Ron, [laughs] and also taking that broader view. If we look back, 25 basis points has generally been the Fed's preferred denomination for moving things around. The times that we have seen a 50 basis point move in recent memory, early 2001, 2007, and then March 2020 with COVID. Ron, I look at those times, and I think about right now, talking about perhaps a soft landing. This feels like a comparatively calm period, relative to some of those other ones. Do you feel like the magnitude of what we're seeing here is more of a response to how quickly rates went up?
Ron Gross: Yeah, the relatively calm is the soft landing. It's almost synonymous. If it really does happen. I think we have to call it pretty soon because if six months from now we go into a recession, you can't say see, we had a hard landing because that's so far in the future. But right now, with inflation coming down, economic growth continuing, unemployment going up a bit, but still being what, at least in the past, would have considered full employment still at these levels. Things look pretty good. The market's not cheap, but history tells us that when if you look back 40 years, JP Morgan did a study, finding the Fed has cut rates 12 times with the S&P 500 within 1% of an all time high, the market was higher a year later, all 12 times with an average return of around 15%, not too shabby. I'll take 15% all day long, Dylan.
Asit Sharma: Not to be too much of an optimist here. But there's a scenario that we had in the mid '90s, where we didn't start with such a big rate cut, but long term rates were about where they are now in that 6-7% range. Alan Greenspan had a series of 25% basis point cuts, and that was really stimulative to the economy. The stock market had a pretty good rise during that time, so we could see a scenario like that as well, potentially. A either week on a positive note or trying to.
Dylan Lewis: Coming up after the break, we've got a major CEO change, another one. Will it get this iconic brand back on track? Stay right here. This is Motley Fool money.
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Welcome back to Motley Fool Money. I'm Dylan Lewis here on air with Motley Fool analysts Ron Gross and Asit Sharma. A couple of big bellwether companies reporting this week, and we've got a CEO shakeup to sort out. The Greek goddess of victory will have a new chief executive to try and return it to its winning ways. This week news out that John Donahoe will be stepping down as Nike CEO. He'll be replaced by Elliott Hill, who'll be coming out of retirement to rejoin the company, where he spent over three decades. Asit we have spent a lot of time documenting the troubles over at Nike on this very show. Are you surprised to see Donahoe out?
Asit Sharma: Not really, Dylan. I think that Nike has some self inflicted problems that it's recovering from, even though that got masked coming out of COVID, where it looked like they were firing on all cylinders. Donahoe did two things that were really critical to Nike's future when he took over in 2020. First, he favored this more data driven approach to new products in favor of using analytics to design, new shoes, technical clothing, etc., versus all this human knowledge that had been built up through decades of expertise. I'll note they walked back that decision late last year. The second thing that Donahoe did, which was really critical to where we stand today is Nike leaned into this direct to consumer model.
So selling directly to us, driving consumers to Nike's website at the expense of its wholesale business. Now that wholesale business is what you or I would refer to as the retail side. So think athletic stores, department stores, and boutique running shops. When you combine these two things, that data driven product decision for making new products, and this willful deemphasizing of the wholesale relationships, two things happened. One, we saw a decline in the innovation that customers have always associated with Nike products and the Nike brand, and it opened up the door for smaller brands to forge these relationships with wholesalers and take up that shelf space that Nike was giving up. Just look at the all important running shoe business. Which is still, I think the economic core of Nike. It's the spiritual core of the company. We've seen an explosion in brands like Hoka, on Brooks and others. So you can see where this is heading. Nike's financial results have been deteriorating. In June, the company gave its worst quarterly outlook in years, so something had to give. I think it's still like a Sterling brand. They've got a lot of resources. Elliott Hill, who's worked at the company for decades before he retired, has a decent shot at getting back to Nike's original business model and rekindling that innovation, which might turn the ship around.
Dylan Lewis: When Hill was last with the company, he was focused on marketing and commercial ops for Nike, and also focused on the Jordan brand. I'm going to put it to you with him coming out of retirement Asit. Are we getting Michael Jordan coming back to the bowls in the '90s? Or are we getting Michael Jordan coming back to the Wizards in the early 2000s?
Asit Sharma: I'm going to put my money on the Michael Jordan of the 1990s. I think this is such a great metaphor you bring up, Dylan. Getting back to that storytelling that Nike was so renowned for, being able to inspire customers to want shoes, to want the clothes, and combining that with really great product is where they've always excel. That's their flywheel. In particular, I think Elliott Hill has seen this story before. He's seen it play out. He knows what to do. I think that's at least where they're going to head and where they're going to try to rekindle that magic.
Ron Gross: I'll say, as an investment strategy, I love looking at iconic brands that are somewhat broken. It actually works quite a bit of time. Not always. You have to do your analysis and your research. But this could be one like that, a few weeks ago, a buddy of mine asked if I like Nike, and because I'm an investment professional, I said something very wise. I said, yes, if they can get their act together, which is a very deep analysis of Nike. This change at the top could be a first step toward that, but it's only a first step because they do need to walk back some of that multi channel strategy that they implemented years ago, get back into retail, as Asit said. But you know what? The shelves are now full with On and Hoka and others. So it's not going to be the easiest thing. It's going to take some time. But at 26 times earnings versus on at 50 times or Under Armour at 33 times. It's not the cheapest thing in the world, but if they can improve earnings, that multiple gets a little bit more reasonable, and I might be willing to wait and see what happens.
Dylan Lewis: Over to the earnings beat. We have an interesting quarter from Darden Restaurants, Ron. Top and bottom line came in below expectations. The company reaffirmed its full-year outlook. The market didn't really seem to mind too much.
Ron Gross: Exactly. That's exactly what happened. It was worse than expected, but the stock popped, which I think was largely due to a new deal with Uber Eats. They did reiterate full-year guidance to indicate maybe things aren't as bad as some might think based on this quarter. But the quarter was a bit of a mess. Total sales increased only 1%, and that was really driven by the fact that there were new restaurants, 42 of them. Because same store sales were down 1.1%, led by Olive Garden, which was down 2.9%, which is a pretty major disappointment. Longhorn Steakhouses was really the only division with same store sale increase at 3.7%. Management said the significant step down in traffic during July, which is what led to earnings being lower than expected. But Dylan, never fear, because Olive Garden is reviving all-you-can-eat, never-ending postible later this month as part of an ongoing effort to bring back customers. I think good things are on the horizon, adjusted earnings were down 1.7%. They do think things are looking up. This partnership with Uber Eats it's a test. If it works, it'll expand to more than 900 locations, Olive Garden locations next May, if the pilot is successful. We'll have to wait and see. They're still integrating their Chewy's acquisition. It's not actually in results yet. Ruth's Chris is actually completed, but it's not really in results yet as well. So we'll keep an eye on this one. A little bit of a messy quarter, though.
Dylan Lewis: Bring us home and maybe bringing slightly fewer boxes to your home, FedEx, like Darden, missing the mark on expectations, Ron. Unlike Darden the company also lowering its expectations for the rest of the year. We look to this business for a sense of what is going on in the economy. What are you seeing?
Ron Gross: There is some concern that this is an indication of a weak economic outlook. I'm not sure. This might be more FedEX related or cyclical than structural, but cyclical would not be great either, because that could speak to somewhat of a weak economic outlook for at least the time being. But in particular, this company, the results were pretty, pretty poor, at least significantly worse than expected with revenue actually down 0.5%. The Fed Express division, which is the merger of their ground, and their FedEX Services division, had lower operating results. There was a decrease in shipping volumes on US domestic priority packages. International did a little bit better offsetting that. But customers were trading down to cheaper options, which really does take a bite out of margins and profits. That's where people are saying, well, in a lack-luster economy, you don't need to have such urgency to get things quickly to where they need to be. Some people are extraplating that that could be an economic problem. I'm not necessarily sure yet. We'll see.
CFO John Dietrich said recent pricing actions are expected to help offset weaker than expected demand trends. Another wait and see. I think my thesis here would be a lot to wait and see here. They did have to cut projections, trading only at 14 times the low end of that guidance versus UPS around 16 times. UPS also has its struggles. But they're really focusing on cutting costs, taking some of the fat out of the system. $2.2 billion of permanent cost reductions is what they are aiming for. Let's give this another quarter, even another six months and see what the trajectory looks like.
Asit Sharma: I just found it interesting that FedEx had signaled to the market last year that we're not really this volumes growth story anymore, but we're going to be a great earning story. We're going to cut costs, as you mentioned, and we're going to be much leaner and more efficient on the operational side. I think that's a work in progress. But this quarter is just interesting in that it's again a volume story. So what if volumes are even weaker than you expect, then what kind of story are you? But I agree. In general, it's not something that can be solved overnight. Of course, as we've been talking about, an economy which maybe is going to lean a little bit more toward growth as we get into further rate cuts.
Dylan Lewis: Ron Gross, Asit Sharma, I appreciate you being here. We're going to come back to you in a little bit on the show. Up next, we've got a rundown on a gross story, 20 years in the making, and one of more interesting IPOs, 2024. Stay right here. You're listening to Motley Fool Money.
Welcome back to Motley Fool Money. I'm Dylan Lewis. If you're like me, you know Reddit as the front page of the Internet, and if you don't, maybe you know it as one of the more interesting IPOs of 2024. The company debuted March and since has posted Soaring User and Revenue Growth. This week, Reddit CEO Steve Huffman joined me to talk through how the company stands out in the world of social media with its focus on community, where Reddit has been, and where it might be heading. It's a treat to talk to you because I'm a long time user of Reddit.
Dylan Lewis: I first started using Reddit in college, and that was I don't date myself too much. That was over ten years ago. When I started using it, it was a mix. It was for the memes, but also I was learning how to dress myself. I was going to our male fashion advice and trying to pick up some tips there. I was going to school in Boston, and so I was trying to figure out what was going on in the city and what I needed to know about events, and so I was going to our Boston. I'm guessing that some of our listeners of the show are also longtime Reddit users like me. There are probably also some folks who are part of the 300 million plus folks who come to you weekly for folks that do not know Reddit very well. How do you describe it to them?
Steve Huffman: Starting with the hard questions. Depending on what I sense their context is. I explain Reddit in a couple of ways. If I was explaining it from the ground up, I'd say Reddit is communities. These communities can be about anything and everything. Every interest, passion, hobby, whatever you're into, whatever you're going through, it's on Reddit somewhere. Then what I would say is, if you're pretty much between the age of 17 and 70, whether you're a nerd or nomi, you have a home on Reddit. There's something there for literally everybody.
Other times I explain it in contrast to social media, and social media is powered by algorithms. Reddit is powered by people. Every piece of content that becomes popular in Reddit is made popular by people voting and voting in the context of a community. Users can make things popular, but they can also disappear things. By definition, polarizing content doesn't do as well on Reddit. What you get as a result is Reddit is the most human place on the Internet because it's powered by people. If you look at the conversations on Reddit, everybody has comments. But if you look at the comments on Reddit, if you look at the object of the sentences, you'll see that they're talking to each other about whatever it is. As opposed to social media where they're often talking at but past the poster. They're either super effusive or maybe the opposite but there's a lack of connection there. On Reddit, it's people organizing around things they love talking about those things like real human beings.
Dylan Lewis: You were one of the co-founders of Reddit, and you launched it back in 2005. You sold it. You worked on other projects, came back as CEO, I think back in 2015. You've now successfully brought it public, and you've had a couple really strong quarters so far. What's that process been like for you and what's it been like to see the platform grow into what it has so far.
Steve Huffman: Look, in 10 seconds there, you basically just described my entire adult life. It's been a 19 year journey. If I were to hit the high points when we started Reddit, it was 2005. The Internet was a different place. Social media didn't exist. The platforms didn't exist, let alone the word. The word influencer certainly didn't exist. We're born of the open Internet. Insensibly, we're starting a business. It really was more of a passion project or a labor of love, or really we were just building what would be fun and interesting for us. That was the first era of Reddit the first five years. Then I left for five years. I worked on a different company. I came back to Reddit with a new mentality that this thing is special. I didn't realize that at first, I mean, I loved it, but it was the only thing I ever worked on. I didn't appreciate how special something like Reddit was.
It brought out, I think, in many ways, the best of people or at least a different side of people, really empowered people, grew on its own. While I was gone, Reddit went through some challenging times, I thought if Reddit doesn't survive, not even doesn't survive. If Reddit doesn't live up to its potential, that would be a huge missed opportunity. There's a risk that it might not even survive. That's the mentality or the thinking I had when I came back to the company. I've been back 9 years, the last 9 years I've really been trying to realize that potential. It's been a journey of the company growing up, us understanding the platform better and better. Sometimes I think of our job, not as product people. It's more like we're anthropologists, like studying this living organism and trying to be the best stewards of it as possible, and then realizing its potential both as a platform and then also as a business. The business side of Reddit is really starting to mature as well.
Dylan Lewis: Where do you guys think you are in the grand scheme of Reddit's potential? I guess you can take that in the platform direction, you can take in the business direction, wherever you want to go with that.
Steve Huffman: Such an interesting idea to contemplate because on one hand, Reddit has been bigger than I ever thought it would be since August 2005. By some measure, we're big now. We about 90 million people visit Reddit every day, 360 million people visit Reddit every week. That's big in terms of absolute numbers. But social media, the biggest platforms there have 1 billion 2 billion users every day. There is a I think huge opportunity there. Reddit, we're about 50 50 US versus none US. I'd say other major platforms are more 80 to 90% none US. I think a lot of opportunity to grow more users. Then on the business side, I think we've gotten out of the beginning phase, we're in the ads business. That's our primary business model. Though we license data and we do some other stuff as well. Primarily ads. It's growing in the last quarter reported, 50% growth, little more 50% growth. That's great. Our ads are working. Our customers are happy, we're continuing to deepen relationships there. We IPO in March. On one hand, I feel we've gotten to a certain level of stability and scale where this feels real and it's working. On the other hand, it almost feels we're at the very beginning. I have a lot of the same feelings today as I did almost 20 years ago, which is, we've barely scratched the surface of this thing, and it can be so special, and I think really great on the platform side and the business side. I'm really of two minds about it. The Jeff Bezos idea of day one is really something I feel we're living right now. It feels like the beginning.
Dylan Lewis: Taking a step back on the business as a whole. We talked through some of the different components of it. Recent quarter, loss has started to narrow for you guys. You have a very high margin business at core. When you look at the gross margins. What is the path to profitability look like for you guys and is that a near term priority, or are you happy with what you're seeing and you want to be able to continue to invest in the business, even if it means running out a little bit of loss.
Steve Huffman: I like the progress we've made. Last couple of quarters, we've been profitable on an adjusted EBITA basis. We've been positive cash flow, last couple of quarters. The next milestone for us is GAAP profitability, and we're getting closer to that. It's an important milestone. We're also a growth company. One of the most important levers for us over the last couple of years has been we've been very disciplined on headcount growth. Our costs Reddit is the simplest business you'll ever see. Add revenue comes in, or 89% gross margin last quarter. We basically spend money on two things, computers and people. If we're disciplined about how many people we have, we can control costs that way.
Our management goal has been to grow revenue twice as fast as costs. Now we've been able to do quite a bit better than that the last couple of quarters, and so we're getting closer to GAAP profitability. I wouldn't say it's a direct goal for Reddit on any particular timeline but I do think it's important to get there. It's a sign, I think of a healthy, sustainable business, something we've been working toward for a long time. But Reddit it's business model is truly advantaged. We basically have no CAPX on top of that. If we can continue to grow users and grow revenue and be disciplined about headcount, I think we're in a great shape, and I think it puts us in a business point of view, a unique position in the market.
Dylan Lewis: Here at the Fool, we're long term buy and hold investors. We're typically looking at businesses with a five plus year time horizon. I'm curious with that setup. For a multi year outlook, what type of thing would you like to be graded on? Or what would you want the rubric to be for Reddit itself and for yourself as a CEO?
Steve Huffman: When we set goals internally at Reddit, I like to use both words and numbers. The numbers are important. I'll tell you what the numbers are. We want to grow users, DAU and we want to grow revenue, dollars. But not all users are the same. There's social media stuff we could do to grow that we've not done. Not all dollars are the same. You get into short term, long term, sustainable or not. The answer is in our mission. Community belonging and empowerment for everyone in the world. If you speak English, everybody has a home on Reddit. Can we grow users in English by making the product better by making onboarding more effective. Then can we grow outside of English using machine translation and some of our program work. Then on the revenue side, we like having direct relationship with advertisers, and we try to make our ads more and more relevant, more and more effective for the advertiser. You should grade us on users. You should grade us on revenue. There's all sorts of input metrics that we don't necessarily report, but things that I think about are new user retention, what we call our good visits. Like when a user visits Reddit, we call it a good visit. If they find a post, they spend more than 30 seconds on. Headcount is another one that we report. Hopefully, you see high revenue growth, good user growth, you see us building products in harmony with Reddit and its mission and disciplined headcount growth. Those would be the things that I would watch.
Dylan Lewis: To wrap us up here, on Reddit, you are Spez, and for folks that haven't used it and want to check it out, what's a sub Reddit community that you think they should check out to get a good feel for what Reddit is at its best.
Steve Huffman: When I Demo Reddit and this is what I do for investors a lot. Broadly speaking, our investors, can and should be users. Of course, the inverse is something that I was very excited about for our users to be investors. That's one of the reasons we went public. When I'm showing somebody Reddit for the first time or talking about read it for the first time, I often just pull it up. I show them ask Reddit because on ask Reddit, you'll see people asking all these funny or interesting questions.
A typical ask Reddit post might be, what's your funniest memory from elementary school? Then you'll have thousands of people telling stories. They've probably literally never told before. That's one post out of thousands every day. I do ask Reddit. I often pull up science just so you can see a serious side of Reddit. I'll show them Data. Data is a sub Reddit for dads. I have a couple of kids. What I like about data is you usually see a funny post next to a series post asking for advice. Maybe next to a profound post. Somebody grieving something very difficult that's happened or trying to relationship challenges as a result of having kids, things like that. Really stuff that you wouldn't talk about on social media. Then similarly, I might pull up photoshop request, which is a sub Reddit at where people pay $5 to $10 to alter photographs. But again, you can pull it up almost any time. You'll see something funny, you'll see something that'll make you cry, you'll see something sentimental, and it really, I think captures this idea that this is how humans are that they spend their free time with no other incentive than it feels good, supporting each other, helping each other, sharing a few laughs, just going through life's journey together. I think that's really incredible. I think it's not a Reddit thing. It's a people thing that Reddit I think uniquely reveals.
Dylan Lewis: Steve, I have to thank Photoshop request for the birthday gift I gave my father last year because I had found a picture of his father at a store that he ran when he was younger, and there was a famous person who had come and visited the store, and it was this great picture, but there were like, all these random people in it. I wanted to just give a photo of my grandfather and this NFL player. Sure enough, the photoshop request community delivered, and I wound up being a great son for my father's birthday, and it cost me, I believe, $10. This all [OVERLAPPING] .
Steve Huffman: That's what it's all about. That's super cool.
Dylan Lewis: Listeners, that was just a portion of my conversation with Steve Huffman. We'll be airing the longer form interview where we dive into the company's ad business, his thoughts on AI, and how Reddit prepared to go public this weekend over in our podcast feed. You can catch that and our daily Motley Fool Money episodes wherever you listen to podcasts. Coming up after the break, Asit and Ron return with a couple of stocks on their radar. Stay right here. You're listening to Motley Fool Money.
As always, people in the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against so many personal thing based solely on what you hear? I'm Dylan Lewis, joined again by Motley Fool analysts Asit Sharma and Ron Gross. Ron, we were talking olive garden earlier in the show. In addition to the earnings update, you mentioned. The company is bringing back an all time crowd pleaser and cult classic. It's never ending pasta bowl for $14. Looking to get diners back in with some deals. My question to you, Is this a deal? I know that people love it, but can you really eat more than one bowl of pasta?
Ron Gross: You're asking me [LAUGHTER] . First, I have something to say. The stocks up on the Uber Eats deal. But as far as I know, you can't eat all you can eat pasta or never ending breadsticks via Uber Eats. I don't think they're going to keep going back and forth for you. The two things a little bit negate each other. But if you give me a good meat sauce on a good bowl of pasta, I go back two, three times, absolutely.
Dylan Lewis: Maybe Uber Eats will anticipate that second bowl of pasta and just put it in there for you so that they know it's waiting. Asit, what do you think? Do you really have two bowls of pasta in you?
Asit Sharma: I'm great at rationalizing, so I tell myself, I can go for a second, I can go for a third. I'm taking a run tomorrow, and I never take the run. I can handle more than one bowl of pasta.
Dylan Lewis: Maybe you guys are just more active than me. Maybe that's what it is.
Ron Gross: Maybe not.
Dylan Lewis: Let's get over to 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: Dylan, as I look for beneficiaries of lower interest rates, DR Horton, DHI caught my eye. They're the leading home builder in the industry over the past 22 years, a presence in 121 different metro markets spread across 33 states, concentrating on providing entry-level home opportunities for buyers. They also build and sell single family rental, and multifamily rental properties. They become the number one builder in over 50 major markets across the nation, including Houston, Austin, Dallas Fort Worth. It has been a good focus on the South, because the demographic trends work nicely with people moving toward that direction. It's paid off nicely. They're responsible for nearly 14% now of all single family new home sales nationwide. I think as interest rates come down, as people come back into the housing market, demand improves, I really think the fact that they're focused on houses at $400,000 or less in many circumstances, really be the beneficiary of it, and their metrics are great 17% return on assets over long periods of time, 22% return on equity. I think this really looks like a good one, especially for this macroeconomic environment.
Dylan Lewis: Dan, a question about DR Horton, Ticker, DHI.
Dan Boyd: Sure, Ron. What's our time horizon on returns here? Because if I know one thing about building houses, and I really do only know one thing about building houses, is that it takes a while.
Ron Gross: It does take a while. But there are plenty of homes in certain pockets, but we need many more homes. It's a demand supply imbalance, which is why prices are out of whack. It will take some time, but you're only paying 12 times earnings here, Dan so you can wait.
Dylan Lewis: Asit, what is on your radar this week?
Asit Sharma: Well, Dylan, I'm a sucker for a turnaround story, especially the kind that people wouldn't touch with a ten foot pole. That would be Intel among major companies in the semiconductor industry. The stock has struggled because Intel is having trouble expanding its manufacturing business. It wants to get back into the business of making specialized chips on a big scale. But it's having trouble landing a Market customer. That foundry business, which is the name for this manufacturing business is killing the financial statements just last quarter. This segment lost 2.8 billion dollars. But Intel has been slashing costs. It's been pulling back from some of its more ambitious expansion plans such as opening a new manufacturing plant in Germany and US government just confirmed that it's going to fund another $3 billion for Intel to work on its domestic manufacturing plants in states like Arizona and New Mexico. It finally got that Market customer. This week, Intel announced that it's going to get further into a partnership with Amazon. The companies are going to co-invest in new chip designs. Intel will produce some artificial intelligence chips for Amazon web services using both its own technology and Amazon's technology. I think this has the beginnings of finally a company that has had trouble turning around, looking better as we go out. I will give you a time frame 3 to 5 years.
Dylan Lewis: Dan, a question about Intel.
Dan Boyd: Feels like we talk about chips and chipmakers all the time here on the show. I don't know. Asit I feel like Intel's got a uphill battle here.
Asit Sharma: You're right. They do. We should throw some cold water on this. Be careful. If you want to follow my lead into the stock. Watch your position size.
Dylan Lewis: Dan DR Horton going on your watchlist?
Dan Boyd: Absolutely.
Dylan Lewis: Asit, Ron thanks for your stocks. That's going to do it for today's Motel Money radio show. Shows mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll see a 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. Asit Sharma has positions in Amazon. Dan Boyd has positions in Amazon. Dylan Lewis has no position in any of the stocks mentioned. Ron Gross has positions in Amazon, Darden Restaurants, JPMorgan Chase, and Nike. The Motley Fool has positions in and recommends Amazon, Chewy, FedEx, JPMorgan Chase, and Nike. The Motley Fool recommends Intel and Under Armour and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
