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Company Report Roundup: Tesla, Tractor Supply, American Express, and More

Motley Fool - Sat Oct 29, 2022

In this podcast, Motley Fool senior analysts Emily Flippen and Ron Gross discuss topics including:

  • Pinterest, Meta Platforms, and Alphabet getting dragged down by Snap's bad news
  • American Express shares falling despite increased full-year guidance
  • Boston Beer's strong third-quarter report
  • The latest from Microsoft, Netflix, Tesla, and Tractor Supply

They also dip into the Motley Fool Mailbag and discuss:

  • Medical device pure plays
  • Investing books they recommend
  • Surprising economics of pumpkin spice
  • The latest from McDonald's and KeurigDr Pepper
  • Stocks they're more bullish on
  • Two stocks on their radar: ASML Holding and Blackstone

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 October 21, 2022.

Chris Hill: We've got stocks we're feeling more bullish on and investing books for your reading list. Motley Fool Money starts now.

From Fool Global headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show. I'm Chris Hill. Joining me: Motley Fool Senior Analysts Emily Flippen and Ron Gross. Good to see you both.

Ron Gross: How are you doing, Chris?

Emily Flippen: Hi, Chris.

Chris Hill: We've got the latest headlines from Wall Street. We will dip into the Fool Mailbag, and as always, we've got a couple of stocks on our radar.

But we begin with a ripple effect in social media and advertising. Snap, the parent company of Snapchat, posted third-quarter results that included a slight miss on expected revenue. But the company said it expects revenue to slide further in the fourth quarter, and shares of Snap fell 30% on Friday. The ripple effect is that shares of Pinterest, Meta Platforms, and even Alphabet fell on Friday on concerns of a pullback in marketing spend.

Emily, where do you want to start?

Emily Flippen: Let's start with Snapchat's quarter. Because at face value, this quarter wasn't all that bad. They posted adjusted profitability, revenue only barely missed expectations and the daily average users actually blew it out of the water. They grew 19% in the quarter. That's what Snapchat wants investors to focus on.

However, even despite the strong performance and the platform itself, revenue growth of only 6% is a reminder about just how challenging the ad market is. In particular, how Snapchat is monetizing their users.

But I will say as much as this is an influx of the ad market and budgets being cut across the board, some of this is still Snapchat specific. Management knows that they have more than 75% of all 13- to 34-year-olds in 20 countries across the world on their platform. They say that group represents 50% of all advertising spend.

If that's the truth, which I expect it is, why are they having such a hard time monetizing those users? Because the market is there, the users are there, but their revenue growth is not. Their guidance for continued deceleration in revenue growth is indicative of that.

But to your point, Chris, it comes down to the question of, well, this ripple effect. There are times when a ripple effect makes sense, but in order to figure that out, figure out whether or not those problems are company specific or broader.

The ripple effect is happening right now because so much of the impact of the ad market is because of privacy changes that Apple instituted last year. It's made it harder for companies to justify ad spend in terms of return on investment. Those metrics they were using to justify getting that ads spend on their platform, they're just not there anymore.

But also, let's use some common sense. Snapchat is not the same as Facebook or Meta and Pinterest, this is only partially impacted by Apple's ad spend, as Snapchat has been struggling to monetize its users for a really long time now. For instance, in February 2021, before Apple made these changes, Snapchat's average revenue per user was around $3.44 per user. Snapchat or Pinterest at the same time was $4.26, Facebook was over $11, fast-forward to today, Snapchat's ARPU has fallen to $3.11 versus nearly $6 for Pinterest and still over $11 for Facebook. This is a Snapchat-specific issue.

Ron Gross: I agree with what Emily said about the ripple effect or the bleed-over to other companies. Sometimes it makes sense, but you have to be careful. I think for example if you think capex is going to slow or industrial spending is going to be weak and Caterpillar comes out and lowers its guidance, well, then you might want to take a look at Deere as well. But Cat and Deere don't have exactly the same business models by any means, so they may not be impacted in the same way. You need to understand that. The same if Macy's says the holiday season looks weak, then it will likely be weak across most retailers, but not necessarily all of them. You want to look at the dollar stores or TJX to see if you believe the same thing would happen.

I will say that truly long-term investors that invest across cycles probably can ignore a lot of this, as long as there is nothing going on that signals a permanent impairment or a paradigm shift that will impact and sink all the boats. You have to differentiate between cyclicality and permanent shifts.

Chris Hill: Emily, just to wrap up on this topic, obviously, we've been hearing for months now major consumer brands talking about pulling back on the marketing spend. That's a lever that they can control to a much greater degree. We saw that this week with Procter & Gamble, which is one of the biggest advertisers out there. Second quarter in a row, they're pulling back in terms of their spend on radio. But I look at Alphabet falling even just a little bit, and I think really? People are going to pull back on the digital spend with a company that's been doing it so long and so well as Google?

Emily Flippen: No company is insulated from a pullback in advertising spend. But the companies that will gain market share and do the best are the ones that can show that they have the best return on investment on advertising dollars. Snapchat, for a long time now, has proven that's not the case. Versus, to your point, companies like Alphabet, even companies like Meta, they have a long history of providing good returns on investments and capital that has been allocated to their advertising spend on those platforms. I don't expect for that to change.

Chris Hill: Third-quarter profits in revenue for American Express came in higher than expected. The financial service company also raised guidance for the full fiscal year, saying that consumer spending remains strong. Despite all that good stuff, Ron, shares of American Express fell 7% on Friday. What gives?

Ron Gross: It was a solid report, and it did beat expectations. But I think the sell-off is because Amex is building up their loss provisions to prepare for potential defaults in a weakening economy. That's what investors appear to be focused on.

But the quarter was very solid. Revenue was up 24%, with total volume up 19%. They added 3.3 million proprietary cards. Acquisitions of U.S. consumer platinum and consumer gold cards and business platinum cards each hit record highs. Millennials and Gen Z customers are the fastest-growing demographic; they comprised more than 60% of the acquisitions this year. But they're seeing the strength in the economy impact their business in a positive way. Demand for leisure travel has stayed resilient despite sky-high airfare prices, which if you've traveled at anytime recently, my gosh, it seems crazy.

Business travel has started to increase as people will start to move away from the 100% Zoom experience. They also saw growth in travel and entertainment and international markets. Expenses were also up as they spent on customer awards, compensation, marketing. But net income was up 3% when you boil that all down. But earnings per share was actually up 9% because there were lower shares outstanding from share buybacks. As you mentioned, they did raise full-year guidance, even in building in those bigger provisions, which are now at $778 million for the third quarter. That was higher than what analysts were expecting. That was around $600 million, the expectations, so a decent amount higher because they're concerned, and that's why the stock is selling off.

Chris Hill: Shares of Netflix up 20% this week after third-quarter profits and revenue came in higher than expected. On top of that, Emily, Netflix's new ad tier starts on November 3rd, and management is projecting a lot of optimism for their ad business.

Emily Flippen: A lot of optimism and not much else there, Chris, because they're saying they're not expecting a material contribution next quarter from the launch of their ad network here. I'd caution against too much optimism for Netflix as a result of this quarter, because the changes that management is proposing didn't show up in the financial results of this quarter. In fact, even if the ad tier, the changes they had to monetization of existing users, if those never were proposed, they would probably still have a strong quarter this quarter.

A lot of what the markets responding to here is actually a growth in the number of subscribers versus a decline in the previous two quarters. It surprised the market. I think they added nearly 2.5 million subscribers in the quarter, which is pretty significant. Most of them non-U.S. or North American customers, which are monetized at a lower rate. But it did show that there's still interest in the content that Netflix is putting out.

What I will say, though, is that growth does need to be really reaccelerated. This quarter showed a 6% increase in revenue growth. Next quarter, they're guiding for around a 1% increase in revenue growth. There's really only two things that Netflix can do to reaffirm that this company can be a growth company and its valuation can reflect that potential future.

One is to get new subscribers on the ad tier. They need to be really careful with this because they don't want existing subscribers to downgrade. That's not a good thing for Netflix. They want to get new customers at a lower price tier that they wouldn't have otherwise achieved.

The second way is through better monetization of existing users, which can be achieved through price increases but seems to be more likely to be achieved through better monetization of people using password-sharing techniques. Finding a way to get those people who aren't paying right now to pay for those services.

Both of those will take a lot of quarters to start to show up in Netflix's financial results. Until we have clarity on those initiatives, I think it's too early to be saying that this is a complete turnaround.

Chris Hill: You mentioned the revenue growth that they're projecting for the next quarter coming in at just 1% higher. This also comes at a time where the management of Netflix was very clear on the most recent call, saying, "Don't focus on our subscribers. We're not going to be providing guidance on that anymore. We want you to focus on our revenue and our profit."

Emily Flippen: Unfortunately, I don't think this is one of the things that management knows. They're probably saying, "Hey, we can't guide for subscribers" because they're aware of the fact of just how saturated they are in the market right now. If the past two quarters have taught them anything, it's that giving poor guidance for subscriber growth is going to hurt the company and its perception. They do want to focus on monetization because that's where they have a bit more control versus the net quarterly subscriber additions.

Chris Hill: Microsoft is one of the biggest companies in the world, but that doesn't mean it's immune to economic challenges. This week, the software giant started laying off some employees, though the total number is reportedly less than 1% of the overall workforce.

I know it's not a significant number, Ron, but it is a bit sobering to see such a profitable business making cuts like this.

Ron Gross: Yeah. It's a lot of people. They have over 200,000 employees, so 1% is still a fair amount of people. But you're right, a lot of people think about Microsoft as immune to economic downturns or as perhaps recession-proof, but no company is truly safe from slowdowns and weaknesses. At the time, CFO Amy Hood said they would slow the rate of hiring in addition to letting about 1% of the workforce go. They said it was part of their regular adjustment at the start of its fiscal year. That might be true. Again, as you mentioned, it is only 1%.

But Microsoft did show some weakness in its latest quarter, slowed down in the Cloud business, declining video game sales, effects of a strong dollar definitely impacted them. Then all the usual suspects, supply chain disruptions in China, effects of Russia invading Ukraine, upheaval in the digital advertising market. A lot of things that showed a little bit of a chink in the armor of Microsoft. But at the time, the company did give an upbeat guidance, saying double-digit percentage increases in operating income when you adjust for currency still was in the works. They report next week, October 25. That's going to be a really interesting report to watch out for.

Chris Hill: It seems weird to say about a company this big and this dominant, but 2023 is shaping up to be an important year for Microsoft. When you think about, as you pointed out, the Cloud revenue coming down and can they reverse that? Also, 2023 is when everyone is expecting a decision on the Activision Blizzard Acquisition and what, if anything, that does to reinvigorate Microsoft's gaming segment.

Ron Gross: Yeah. I mean, Microsoft will remain a major player in cloud behind Amazon. It's just a matter of does cloud in general of slowing growth. Certainly, it will be around for the foreseeable decades. It's just a matter of what kind of growth.

Then they are hanging their head a little bit on the revival of their video game business. It'll be interesting to see if we get any guidance on that next week. We probably, maybe we'll get a sentence or two, but I think they'll focus more on, on cloud and maybe the PC business, and then we'll see where we go from here.

Chris Hill: More earnings after the break, so stay right here. You're listening to Motley Fool Money.

[music]

Welcome back to Motley Fool Money. Chris Hill here with Emily Flippen and Ron Gross. Shares of Tesla down a bit this week after third-quarter revenue came in lower than expected. But Elon Musk says the company has excellent demand for the fourth quarter. Emily, maybe a strong end to the fiscal year.

Emily Flippen: Yeah the quarter was bad, but management's guidance was pretty upbeat. I shouldn't say the quarter was bad. I will say, well, earnings came in at nearly half a billion less than expectations, so a pretty big miss on the top line. They still dramatically beat on the bottom line. Automotive revenue increased 55%, which more than outpaced an operating expense increase of around 30%, which contributed to earnings being pretty significant in the quarter. That alone was strong.

But to your point, Chris, management has been pretty aggressive, I think, with their targets. They continue to say that demand outstrips supply and that they're really confident that all of the production that they're putting out, even with the bottlenecks they're experiencing right now in terms of end-of-quarter deliveries, that those will ease up as the quarter goes on as we come in through the end of 2022 and that the production they're putting out today will match the demand that they're seeing in the market.

What is interesting is that Musk did make a comment on the call as is here par for the course for Elon Musk here. Yes. But his comment got a lot of markets attention. He said that he believes the market cap of Tesla will far exceed the market cap of Apple. In fact, he sees a path for it to be worth than Apple and [Saudi] Aramco, the two largest companies in the world combined. That's more than $4 trillion.

But I will say, I think it's pretty outrageous to think about that today, but a lot of things are outrageous to think about today. There's no denying that an order for Tesla to justify its current valuation, they're going to need to be one of, if not the largest automaker in the world with extremely efficient production. Every day, it seems like they're taking a step in that direction. There's a lot of untold optionality in their data services, so things like self-driving and batteries. If you're a believer in this business, I don't see this quarter as changing course for anyone.

Chris Hill: Mixed third-quarter results for Tractor Supply. Profits were higher than expected, revenue was a bit light, but Tractor Supply raised guidance for the full fiscal year, and that seemed to give the stock a little bit of a boost, Ron.

Ron Gross: Yeah, but you are completely right. A bit of a mixed quarter. Sales were up around 8% and comp-store sales are up almost 6%. Now that's down from 13% last year, but last year was quite strong, coming out of COVID. Sales were driven by comparable average ticket growth of 7%, but we saw a decline in average transaction count by about 1.3%. There's a little bit of a mix. You also had gross margins and operating margins fall a little bit on higher costs, transportation costs. They were able to offset some of that by higher prices. But they're raising compensation, hourly wages, benefits. You did see a little bit of a hit to margins. Earnings per share were helped by a lower tax rate, lower share count, which actually lead to growth of almost 8%, so not bad.

As you mentioned, management did raise guidance, mostly as a result of a recent acquisition that they completed. But they say they continued to gain market share but did delay some store openings due to some external conditions in real estate and construction industries. But overall, I think the company remains pretty solid: 18 times earnings 1.9% dividend yield.

Chris Hill: Shares of Boston Beer Company up more than 12% on Friday. The parent company of Sam Adams beer posted third-quarter profits and revenue that were higher than Wall Street was expecting, and Boston Beer also raised guidance, Emily.

Emily Flippen: It's always funny to me to think about how short our memories are. Because Boston Beer has always been a very lumpy business and it has this cycle to it. They hit on a trend, sales go crazy, and knowing that stops, the market's like, "I'm calling time of death on this business, the stock." That's what they are doing around this time last year. But when the business performance reminds investors that they still have a pulse, it's like the stock slowly gains until it hits on the next big thing, and then it goes crazy again, and we find ourselves in this repeating cycle. That's what we saw over the past year at the move to seltzer.

But I will say even though this quarter was a step in the right direction, growth was not stellar compared to years past. Depletions declined 6%, which again was better than expected, but net revenue rose only around 6% in the quarter. Gross margins have improved, so steps in the right direction. Depletion growth has been helped by brands like Twisted Tea and Hard Mountain Dew, believe it or not, making up for the declines are somewhat making it for the declines in truly. But what is important for this business is just finding out what the next best thing is, which, unfortunately, we don't know what it is today, but I'm a believer in Boston Beer, and I think they'll get there.

Chris Hill: They do have a pretty good track record in terms of their acquisitions of expanding outside of just the traditional beer category.

Emily Flippen: Interestingly enough, we cite Dogfish Head as an example of one of those good acquisitions. They didn't have to write down that acquisition a little bit in this quarter, which is not unusual for a company who makes an acquisition of that size a number of years later. But they're still seeing a decent amount of depletions growth from that brand. Not all bad from Boston Beer.

Chris Hill: Up next, we're going to dip into the Fool Mailbag, so stay right here. You're listening to Motley Fool Money.

[music]

Chris Hill: Welcome back to Motley Fool Money. Chris Hill here with Emily Flippen and Ron Gross. Before we get to the Fool Mailbag, this week, McDonald's announced it is going to test the sale of Krispy Kreme Doughnuts at nine locations in Louisville, Kentucky. Ron, I'm intrigued by this, not because I'm a shareholder of either McDonald's or Krispy Kreme, and not just because I occasionally enjoy a Krispy Kreme doughnut. But this is not the typical test by McDonald's. When they test things, it's usually on their own, it's not that often that they're bringing in a partner like this.

Ron Gross: Yeah, and the way Krispy Kreme works is they'll deliver the doughnuts from local Krispy Kreme bakeries in the area -- and they're doing this with three flavors, by the way, original glazed chocolate ice and raspberry filled. I'm not a fan of the raspberry filled there, but do it you want; it's your business. They'll deliver them from local bakeries, which is all well and good.

They already distribute goods to lots of third-party stores that delivered fresh daily program, they call it DFD, reached more than 5,500 domestic doors in the second quarter, so that's quite a bit. But if this ends up working, I'm not convinced Krispy Kreme would be able to use their DFD system in a wide national rollout. That would add 13,000 doors overnight, more than tripling that business, for Krispy Kreme, which is awesome, but awesome could also create massive problems, and it could really break their system. We'll see how it goes, and then they'll have to plan accordingly so they don't turn a potentially great thing into a troubling one.

Chris Hill: I'm happy to hear you say that, because that was one of my reactions when I saw this story. I thought, they're going to test this, and if it works, does Krispy Kreme have the capacity to go national with McDonald's on this, or is it just going to be a regional thing?

Ron Gross: I think it would have to start out regional. If you go right to national, I think it breaks pretty quickly. Let's see if it's successful. I'm more focused on the adult happy meal right now. I don't know if you've tried it. The little figurines, Grimace. All the guys are there and girls. But don't sleep on McDonald's. It's only down 6% from their 52-week high with a 2.4% dividend yield, so not too shabby.

Chris Hill: Our email address is podcasts@fool.com. That's podcasts@fool.com. We got a question from Ronald, who writes, "I was wondering about your thoughts on medical device companies. With a global ageing population, people are going to need knees and hips replaced. During COVID, I took a look at Stryker, Medtronic, and Zimmer Biomet. I opted out of Johnson and Johnson because it's such a conglomerate and I wanted more pure plays. Are there any medical device companies that you're interested in?"

Thank you for the question, Ronald. Thank you for listening.

Some solid thinking on his part, Emily, because yeah, I mean, J&J does have that medical device division, but if you're thinking just pure play, as strong a business as J&J is, it's not the way to go.

Emily Flippen: It's the medical device and med-tech industry right now, I think it's really intriguing for exactly the reasons that Ronald mentioned. We have an aging population, an increasingly unhealthier population, unfortunately, which does open up opportunity for companies to help treat some of these chronic diseases with new medical devices.

The one that's on my radar right now is actually ResMed the ticker's RMD. For people who are familiar with this business, they help treat respiratory diseases like sleep apnea, which is the majority of their business, which is to say they sell CPAP machines. These are machines that push air through somebody's system while they're sleeping to prevent their throats from closing up.

It's actually a pretty chronic disease that relatively under-diagnosed and not just in the United States but across the world. At least if you have ResMed to believe and if they're able to extend their lead as one of the largest CPAP makers while increasing the diagnoses of sleep apnea, it's easy to see a big opportunity here for the business.

I will say, I have questions about the CPAP industry, but right now, is the first step in line for treatment of sleep apnea, the alternatives on the market right now are hard palate surgery, not a first line of defense, so they're affordable, accessible, and reimbursable by insurance.

Chris Hill: To that point, Emily, I know a couple of people who have sleep apnea have these machines. To what you were saying, the diagnosis really is the crucial part there. Is ResMed involved in helping to get people to the point where they are going in for a diagnosis? Because otherwise, you're just relying on, if you sleep in the same bed as someone else, you're relying on them.

Ron Gross: Did my wife call you, Chris?

Chris Hill: I'm not saying that, but are they involved in the diagnosis front as well?

Emily Flippen: This is a good question and one where I get a little bit questionable about the entire industry. The majority of people who are diagnosed with sleep apnea experience other symptoms, most the time, sleepiness during the day. They're not sleeping well, so they go to the doctor and they say, hey, I'm having these symptoms. What doctors will often do is identify the signs of sleep apnea and then ask that they go to a sleep clinic. This is a place where they're staying overnight and having experts watch their blood oxygen and other critical metrics over time to see if they have sleep apnea.

Now, ResMed and other CPAP producers do help fund these sleep clinics, so this is where it gets a little bit questionable, so you can say they have a hand in helping increase the number of diagnoses.

Ron Gross: I may or may not have done one of these sleep tests before, but I was able to do it at home, which was not as controlled, but it was certainly better than having to go to a clinic.

Emily Flippen: If I can expand on that, 90% of ResMed's revenue comes from CPAP machines and the things that need to be replaced in the machine like masks, filters, tubes, that sort of thing. But another 10% of their revenue actually comes from software that people in clinics will use to do remote testing of things like sleep apnea, and that's an increasing part of their business.

Chris Hill: Never ask your barber if you need a haircut. I hear what you're saying.

Emily Flippen: Exactly.

Chris Hill: Question from Cole, who writes, "Can the Motley Fool Money team recommend some investing-related books? I trust the team's preferences."

I appreciate the confidence, Cole. Thank you for that. Ron, what do you got?

Ron Gross: We could do a whole show on great investing books. I won't do that, but I will mention a bunch. I would start off with the essays of Warren Buffett. Just give yourself some grounding in the Oracle of Omaha's sage words. It's really important to go back and read what he's written over time. Then I would move on to what are called the Little Books, which are literally Little Books on a wide variety of topics. I especially like The Little Book of Common Sense Investing, The Little Book That Beats the Market, and The Little Book on Valuation.

Few more, One Up on Wall Street by Peter Lynch is a classic. It'll set you up for a lifetime investing. Intelligent Investor, a little more tricky to get through, but that's the bible for value investors, I think you should flip through that.

Finally, a plug for The Psychology of Money written by Fool contributor Morgan Housel, with the audiobook narrated by our very own Mr. Chris Hill.

Chris Hill: You didn't have to say that, but I appreciate it.

Ron Gross: But I think it's a great book.

Chris Hill: I'm going to slip you 20 bucks after the show. But yes, having read it several times myself, I agree. Emily, what do you think?

Emily Flippen: Well, I like my books big, no, I'm just joking. But the one that's been on my radar recently is Ken Fisher's of Fisher Investments, the Markets Don't Forget (But People Do), the title of one of his books. It really highlights just some of the really dangerous tendencies of retail investors to believe that this time is different. I think it's topical right now because with the global crisis, we're having crazy inflation, hiking interest rates, the pandemic. It's easy to think, well, we're not going to come out of this, or if we do come out of this, things are going to be different. This time in the market is different than all the other times in the past. That mentality can lead investors to make big mistakes, like selling when the market's down, failing to buy when the market starts increasing. It's a testament to long-term investing, so if you're feeling yourself maybe a bit more afraid because of whatever is going on around us in the world right now, I definitely recommend it.

Chris Hill: This past Monday, I had the pleasure of speaking to the Boston College Investment Club, a very impressive group of young investors. I want to say a quick thanks to the student leaders of the club, Jack, Nick, and Annabel. They were great to work with.

This was a question I got, and I mentioned The Big Short by Michael Lewis. Because the movie is great, I love the movie. Michael Lewis is such a great writer. And The Big Short, I think for investors, does such a wonderful job of illustrating both how pervasive groupthink is on Wall Street and how this interesting group of investors cut through the group thing. We're able to see the crash that was coming in the housing market.

One more question from Dana in Massachusetts who writes, "What is something you are more bullish on now than you used to be?"

Emily, I'll start with you.

Emily Flippen: Mine is actually a company and that company is Sweet Green, the ticker is SG. I talked about it on the show before, but when this company went public, I was extremely skeptical of it, bearish, I can say, on Sweet Green because I didn't believe in the concept of $15 salads and their ability to succeed and these lofty goals of having more than 1,000 stores, mainly suburban locations. I just thought, this isn't a chicken burrito, this can't succeed. And while the stock has certainly not succeeded and they've had a medley of issues since going public.

One of the things that has surprised me that I'd become increasingly bullish on is the performance of their suburban locations, stores. They're actually outperforming their urban locations at a lot of critical metrics, it really surprised me. I've clearly underestimated the health consciousness of the suburban markets, and so for that, I apologize. But I do think if they can even get to a fraction of the expansion that they're expecting they could get, we could be looking potentially, and I say this cautiously, at a tiny little Chipotle here.

Ron Gross: As someone who had Sweet Green twice this week, I would wholeheartedly agree. They put out a good product, and that's the start for any good business.

Emily Flippen: Your pocketbooks might believe, though.

Ron Gross: It's true.

Chris Hill: Ron, what about you? What's something you're more bullish on now than you used to be?

Ron Gross: I have become more bullish on financials in general and individual financials in particular. Listeners would know, in the past, I've said the only way I play financials is through ETFs, like FNCL, for example, I've mentioned that before on the show. But lately, because of rising interest rates and my desire to add some solid dividend stocks to my portfolio, I've dipped my toe into some individual stocks like JPMorgan and Blackstone. I even going to be careful because I'm not smart enough to really understand what some of those balance sheets could be hiding, especially for some of those larger banks. Community banks are a little bit easier to understand. So I'm going to be careful but I've started to widen out my desire to put individual financial stocks into my portfolio.

Chris Hill: After the break, we've got two radar stocks for your watch list and one new beverage for pouring down the drain. Stay right here. You're listening to Motley Fool Money.

[music]

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. Welcome back to Motley Fool Money. Chris Hill here with Emily Flippen and Ron Gross.

Ever since Starbucks introduced the pumpkin spice latte nearly 20 years ago, pumpkin spice has only grown in popularity, showing up in everything from breakfast cereal to seltzer. With increased spice comes increased prices. A pumpkin spice latte at Starbucks costs 18% more than a regular latte. But Emily, that is nothing compared to the markups that are happening at Trader Joe's, where pumpkin spice hummus costs 50% more than regular hummus, and tiny pretzels, the markup is 160%. I love Trader Joe's, but holy cow, that's borderline price gouging.

Emily Flippen: Hey, look, turkey also costs a lot more over Thanksgiving. But don't rob me of my little luxuries. Don't make me feel bad about the fact that I'm spending 50% more on pumpkin spice hummus. This is the price that we pay for the little luxuries. And this is the best part of my year. I would like to enjoy it guilt-free. I don't need to be reminded about the cost of my pocketbook, Chris. I don't appreciate this story at all.

Ron Gross: Pumpkin spice has never been something that appealed to me. I get that I'm in the minority here because it seems to be taking the world by storm each year. Starbucks sold more than 500 million pumpkin-flavored lattes since they introduced it. Yes, I'm in the minority here, but I'm still going to stick to my guns and say I just don't get it.

Chris Hill: I'm not looking to guilt-trip you for your indulgences, Emily. But to that point, this is why we see these limited-edition products. They can come in for a short amount of time. They can charge a little more, it gives a little bit of a boost. This is why we see all these tests, right?

Emily Flippen: Certainly. Look, if you can get a little extra penny out of your consumers, then you definitely should do that. I'll tell you what, consumers love it for the most part. There are pumpkin spice hauls from Trader Joe's on a pretty routine basis. It's working.

Chris Hill: When it comes to soft drink companies, the best-performing stock over the past year is not Pepsi or Coca-Cola. It's Keurig Dr Pepper. Maybe that success has led to hubris, because this week, Dr Pepper unveiled a new-limited edition soft drink: Dr Pepper Bourbon-Flavored Fansville Reserve. It is a promotion for the company's rewards program called Pepper Perks.

I get what they're doing in terms of trying to get more people into their rewards program, Ron. But I am still amazed that they decided to develop a nonalcoholic bourbon drink.

Ron Gross: "Flavor that evokes sweet, savory, and woody notes with subtle hints of cherry vanilla, chocolate, and caramel."

I don't buy it for a second. I've tasted these nonalcoholic beverages before. They just don't do it. Maybe it's OK if you mix it with Dr Pepper, which is great, and Diet Dr Pepper is great, too.

This seems to be just playful, and it will be short-lived for a small amount of people who have to log in and enrolling their Perks Program, like you said, you have to scratch it off to win a can and some prizes. It's playful, but I don't think it's going to last.

Chris Hill: Emily, if I'm a Keurig Dr Pepper shareholder, I think my question is, This is the idea that won? You had a pitch contest, you got a group of people together say, we need to limited-edition thing, and this is what they came up with?

Emily Flippen: If I'm a Keurig Dr Pepper shareholder, the bar is low for me, because here's my thought. This is, as you mentioned, a poorly veiled attempt to get people into their Pepper Perks program. Here's what I did for our listeners. I signed up for you. I'll tell you about this experience.

Because let's say that you're interested in having this Bourbon Flavor Dr Pepper of which I guess if I was given it, I would have a sip. I signed up, which by the way, I did on my computer here in the office, signed right in need my phone, email address, name put all that stuff in, and then I went in, signed off, scratched off my ticket. I didn't win.

But I was curious. What if I go by myself at Dr Pepper? Can I get some loyalty points for this? I hiked my butt down to our local 7-Eleven, purchased myself a Dr Pepper, and promptly left. Then I realized halfway on the walk back that I forgot my receipt, which I need to prove my purchase of my Dr Pepper. I went back to 7-Eleven. They kindly printed me off a copy of my receipt. I came back, I uploaded it, and I was told "Your perks points will be reviewed in the following day."

I wait for my perks point to come in. I look at what I can redeem them for. And I'll tell you what, this has to be the worst loyalty program I have ever seen. The rewards -- most of them, by the way, are completely sold out. You can't redeem for anything of any tangible value. The only thing that looked attractive was for 60 points or six Dr Peppers, you could award a $10 Uber Eats Gift Card, but you can only reward it once.

There you go. Don't waste your time.

Chris Hill: Wow.

Let's go to our man behind the glass, Dan Boyd. Dan, before we get to radar stocks, any thoughts on either of these stories?

Dan Boyd: I have a problem with Dr Pepper marketing, Chris. The whole Fansville idea where Dr Pepper's some drink you drink at a tailgate is completely ridiculous. I've been to many, many tailgates in my life, Chris, and we're not drinking soda if you understand what I'm saying.

Chris Hill: I absolutely do.

Let's get to the stocks on our radar real quick. Ron Gross, you're up first. What are you looking at this week?

Ron Gross: As I mentioned earlier, a stock I recently bought a little of is Blackstone, BX, the world's leading investment manager focusing on alternative investments like real estate, private equity, and credit and insurance products. They've got a great business model that has reliable fee revenue. They have performance-based incentives that can dramatically increase profits. They pay a regular dividend that does fluctuate year after year. They recently announced that they were going to cut it somewhat, but it still stands at a healthy 4.3%. For those that are looking to add some dividend exposure to their portfolio, one that will do well in good times and bad times, I think, I would take a look at Blackstone.

Chris Hill: Dan, question about Blackstone?

Dan Boyd: What part of this is "old-economy Ron," here? Ron, I'm confused.

Ron Gross: It's not necessarily. Its early career ran as well, being that I used to read in the hedge fund business and like these businesses quite a bit.

Chris Hill: Emily Flippen, what are you looking at this week?

Emily Flippen: I'm looking at ASML. I think expectations were incredibly low heading into their third-quarter earnings report, ASML sells these high-end lithography machines to chipmakers, and one of their largest customers is Taiwan Semi.

They actually had announced their intention to cut capital expenditures by around 10% amid awakening chip market, which lowered expectations for ASMLs guidance. But ASML not only had a stellar quarter, but it showed a growing backlog of demand, highlighting the demand for their EUV extreme ultraviolet lithography machines. Right now, ASML machines are still outstripping supply in terms of, are there some demand is outstripping supply. Management expects very little impact from the ban on China.

Chris Hill: Dan, a question about ASML?

Dan Boyd: Seems like a wonderful company that I do not understand at all.

Emily Flippen: You don't need to understand it there, Dan.

Chris Hill: What do you want to add to your watch list, Dan?

Dan Boyd: You know what? I'm going to go with ASML. I'm just sort of a deer in the headlights looking at this company.

Emily Flippen: Perfect.

Chris Hill: Emily Flippen, Ron Gross, thanks for being here. That's going to do it for this week's Motley Fool Money radio show. The show's mixed by Dan Boyd. I'm Chris Hill. We'll see you next time.

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. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. American Express is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Chris Hill has positions in Activision Blizzard, Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Chipotle Mexican Grill, JPMorgan Chase, Johnson & Johnson, Microsoft, PepsiCo Inc., Pinterest, Starbucks, Taiwan Semiconductor Manufacturing, and The TJX Companies. Dan Boyd has positions in Activision Blizzard, Amazon, and Chipotle Mexican Grill. Emily Flippen has positions in Pinterest. Ron Gross has positions in Amazon, Apple, Blackstone Inc., Fidelity MSCI Financials Index ETF, JPMorgan Chase, Meta Platforms, Inc., Microsoft, Starbucks, Taiwan Semiconductor Manufacturing, and The TJX Companies. The Motley Fool has positions in and recommends ASML Holding, Activision Blizzard, Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Blackstone Inc., Chipotle Mexican Grill, JPMorgan Chase, Meta Platforms, Inc., Microsoft, Netflix, Pinterest, ResMed Inc., Starbucks, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool recommends Boston Beer, Deere & Company, Johnson & Johnson, ResMed, The TJX Companies, and Tractor Supply and recommends the following options: long January 2024 $47.50 calls on Coca-Cola, long March 2023 $120 calls on Apple, short January 2023 $92.50 puts on Starbucks, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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