Motley Fool Hidden Gems Investing - Big Retail, Stablecoins and Dividends, Oh My!

Starting point is 00:00:00 Jason Moser. Big retails taking a closer look at stablecoins. You're listening to Motley Fool Money. Welcome to Motley Fool Money. I'm Jason Moser. Joining me today is senior analyst, Mr. Matt Argersinger. Matt, thanks for being here. Matt Argersinger. You bet, Jason. Always glad to be with you. On today's show, we're talking Amazon and Walmart's potential stablecoin aspirations. Roku and Amazon are teaming up in the ad market. And we'll also take a look at a couple of Matt's favorite dividend stocks. But before we dive in, let's take a look at a few of the headlines driving the market today.

Starting point is 00:00:46 After a tough Friday, markets are up today as the conflict between Israel and Iran continues. According to Middle Eastern and European officials, Iran is signaling that it seeks an end to hostilities and wants to resume talks over its nuclear programs. Oil prices have recently spiked because of the conflict, with WTI crude price up 11% over the last week. However, prices are down today on the news that Iran does seek to end hostilities. Let's hope that's the case.

Starting point is 00:01:13 And finally, it's Fed week. The Federal Reserve interest rate decision is out on Wednesday at 2 p.m. with Chairman Powell's press conference to follow at 2.30. A lot going on, JMO, but I have to say, does it surprise you, as much as it does me, how resilient the market has been this year? I mean, here we are again on Monday, after that terrible news last week, on Friday, we're again within two to three percentage points of an all-time high. It makes you wonder what

Starting point is 00:01:42 would need to happen to actually shake this market. I am not complaining, Matty, but yes, it is a bit surprising. Well, when we come back, Big Retail takes a closer look at stablecoins. Hey there, are you enjoying your 30 minutes of daily inspo ingested through your eardrums? But what if I told you you could get a whole year's worth of fintech inspiration live? Yep, at Money 2020, the place where money does business. This October in Las Vegas, search Money 2020 to find out more. Matt, we both read over the weekend about how Amazon and Walmart are looking at ways to possibly issue their own stablecoins, which in turn could, and I want to stress could,

Starting point is 00:02:29 have an impact on payments companies like Visa and MasterCard, essentially by taking volume away from their massive networks. Now, I want to dig into this by asking first and foremost, how exactly would this work? As a consumer, I'm hoping this isn't the case, are they going to force me to use stablecoins to make my purchases? Oh, no, not at all. I think if you're a consumer, who wants to do more transactions within the world of crypto outside of the banking establishment, this gives you another option. I think this is especially appealing to someone who might live outside the U.S. or is doing cross-border transactions, who might live in a country with a more volatile currency. It becomes a nice benefit. It's a peg to the relative stability

Starting point is 00:03:11 of the dollar without actually having to be in dollars. But if you're someone like me, who has no problem with the banking establishment and generally likes to use credit cards for 99% of transactions, this won't affect you. Now, I think for Amazon and Walmart, it's a smart move. These are two of the biggest retailers on the planet, obviously. Not only does this potentially attract millions of new users who only want to transact in crypto, it could potentially also save billions of dollars, I mean billions, in processing fees that these retailers would otherwise pay to Visa, MasterCard, American Express, and banks to facilitate transactions. So, I don't think anyone should be surprised that Amazon and Walmart are getting into this.

Starting point is 00:03:49 Yeah, I'm glad you made that cross-border point, because that, to me, seems one of the most obvious use cases. And these are global businesses, obviously, so that's something that could certainly benefit. Now, this also hinges very much on the regulatory environment, which seems clear as mud right now. So, it does seem like we really need to see more in the way of consumer protections, some type of regulatory framework, if stablecoins are going to become a meaningful medium of exchange. And to be clear, I think that's happening, right? It's something that's going to take some time. But I mean, when you look at it today, tens of millions of people globally use stable coins as a medium of exchange today. My suspicion is that probably grows over

Starting point is 00:04:33 time. And it's worth noting, too, Visa and MasterCard are already partnering with crypto platforms to offer cards that allow you to spend against your stable coin balance. So it's not like Visa and MasterCard are ignoring the stablecoin opportunity. They're absolutely participating in it. And I think investors should be encouraged by that. But if you look at Visa and MasterCard over the last five years, the stocks have basically, more or less, they've matched the market. Stretch that over 10 years, they've outperformed vastly. And so, the longer you own these stocks, it seems like the more sense it makes. But let's look out over the next five years, particularly in this sort of evolving space. How do you think these companies fare,

Starting point is 00:05:13 given all of these changes. Right. So, the next five years, it's tough to say. But do stablecoins mean that these companies are disrupted and are going to do terribly over the next five years? I think that's an easy call. I don't think so. They're so dominant. Each operates in more than 200 companies. Billions of issued cards outstanding. Millions of merchants around the world that use them. I mean, you mentioned tens of millions of people using stablecoins, which is growing fast, but that's a drop in the bucket compared to Visa and MasterCard's network. Keep in mind, consumers get a lot of benefits from using cards, especially credit cards. First, they're generally free to use. They give me rewards like cash back or airline miles or

Starting point is 00:05:54 other benefits. Other than a stable currency, I'm not exactly clear what consumers get from using stable coins. I know Circle and Tether get their interest on the float, but do consumers get anything out of it? I don't think so. Look, at the same time, though, I'm the last person who says big, dominant companies can't be disrupted. But over the next five years, I don't see it happening with Visa and MasterCard. In fact, as you mentioned with both companies, they can actually become big players in the crypto space themselves. So, I'd rest fairly easy if I'm a shareholder. And guess what? I am, Jason. Yeah, I think you're right. It boils down to incentives. You got to give me a reason to want to change over. And like you, I'm perfectly

Starting point is 00:06:33 really happy with my current banking relationship and how it enables us to spend our money and track our spending. So it'll be, it'll be fascinating to see exactly what these companies do. Next up, Amazon and Roku get a little closer and we've got some dividend stocks you may want to keep your eye on. New from Nespresso, blend wellness into your coffee routine with a coffee plus range infused with functional benefits. Choose the coffee you love with added B vitamins like coffee plus b12 to help support immune function and coffee plus b6 to keep your day moving or go with the flow and choose ginseng delight our new double espresso with ginseng extract whatever lies ahead don't change your morning let your morning change you

Starting point is 00:07:16 discover coffee plus on espresso.com maddie roku and amazon are teaming up or rather they're extending or expanding their relationship this partnership will allow advertisers to reach roughly 80 million connected TV households through Amazon's DemandSide platform. This seems like a space where we're seeing more partnerships in order to take advantage of this massive opportunity, the ad-supported video on demand space, right? That AVOD space. And to be clear, like I said, Roku has already been working with Amazon's DSP to a certain degree, right? That demand-side platform. But this expanded partnership goes deeper where programmatic in-stream video inventory is concerned. So, what do you make of this news today?

Starting point is 00:08:04 Well, at first read, this definitely feels like a win for both companies. Obviously, given Amazon's size and other revenue sources, it's going to move the needle much more for Roku. But you've got this massive network of advertising touchpoints with Amazon's DSP. Now, you fully integrate that with Roku, which I think accounts for something like half or almost half of all TV streaming. I didn't know that. That's impressive. If you're an advertiser, you now have a much greater scale, but also, you can now be much more targeted because you're not having to potentially advertise to two audiences that already have significant overlap. I think it's a nice win for both companies, for sure. You remember, it wasn't all that long ago,

Starting point is 00:08:42 we weren't even talking about Amazon as an advertising business. It was just a little rounding error on the income statement. Maybe they made several million dollars. Now, all of a sudden, I mean, they're operating on basically like an $80 billion annual run rate with their advertising business. It's just phenomenal to see. Clearly, they've built out, I think, ways to win on both sides, right? Whether it's that demand-side platform or just through the content that they're slinging us through their many, many channels. So, this seems to make a lot of sense. Now, I think a logical question, or at least the question that came to me initially, is how this may or may not affect the trade desk. And obviously, a lot of

Starting point is 00:09:22 our listeners are very familiar with the Trade Desk, very popular recommendation in the Foolish universe. And I think it's worth noting Trade Desk shares are up today. So I don't think this was something that the market received negatively. And in fact, Trade Desk and Roku announced their own partnership toward the end of last year. So we're seeing a lot more collaboration in this space. So it prompted the question to me, like, is this a rising tide ultimately that lifts all boats situation? And I kind of feel like that's the most likely answer. I mean, when you look at the opportunity here in the advertising video demand space, revenue in AVOD worldwide is expected to reach better than $54 billion this year. It's projected to hit $71.3 billion by

Starting point is 00:10:07 2029. It's growing. And I think part of that has to do with the value proposition, particularly in emerging economies or economies that maybe are not quite as well off as ours. It's just consumers get tremendous value. And I think we're seeing more and more consumers even here domestically getting that value, a la Netflix bringing advertising into their model as well. So it seems like an exciting space. Now, with that said, Roku shares have had a tough go over it over the last five years, Matty. It's a big opportunity, like I noted, but it's a very competitive space. So is this a sign that Roku is getting things back on track? Do you see this from these levels today as, as potentially a market beater over the next five years, let's say.

Starting point is 00:10:52 Ah, so here's my problem with Roku, Jason. And it's, it's very superficial. Uh, I, I'm not sure who has actually made money investing in Roku. And I don't want, I don't want that to sound flippant even though it is, but, but unless you bought Roku within the first, when its first few months of going public in 2017, you've not only drastically underperformed the S and P 500, but you've lost money. The stock did soar in 2020 and 2021. But if you weren't lucky enough or savvy enough to sell during that time, you're down big from those highs. So, I'm not commenting on the business. And I think this expanded partnership with Amazon is definitely a good step. But is the company a good bet in the long run? Based on its track record as a public company,

Starting point is 00:11:35 and that actually means something to me, it doesn't appear to be a good bet to me, Jason. Yeah, I am an Amazon shareholder. I am a Trade Desk shareholder. I don't own Roku, never have, and I don't think I ever will. And part of my hangup with the business, following it since it went public, it's had to pivot a lot, right? Going from hardware to software and now trying to produce their own content, going into advertising, all these different things. It's just kind of tricky to see exactly where their primary focus is. And so, I think I'm happy being a shareholder in Amazon and the Trade Desk, and I'll just keep moving forward. Matty, let's wrap it up. We'll talk some dividend stocks. We all like

Starting point is 00:12:13 cash in the pocket. You run two of our different dividend services here that focus on dividends and income. I wanted to start, firstly, with your take on the metrics. What are one or two key metrics you think investors should prioritize when looking at dividend stocks? Yeah, there are many. I would say if you're just starting to look at dividend stocks, I think looking at how a company has grown its dividend, the growth rate of the dividend over time, and has that growth exceeded inflation on an annual basis? I think that is a tell that the company's growing its earnings, it's becoming a more profitable, more valuable company, and it's showing up in their dividends. So it's a good proxy for a company's growth. And then related

Starting point is 00:12:58 check out the payout ratio. We all get enticed by companies that have high yields, 6%, 7% yields. Generally, those companies are paying out a high proportion of their earnings out as dividends. And that can be unsustainable, especially if the company's earnings slow down or if it's a cyclical business. With dividend-paying companies, I generally like to see a payout ratio below 70%, even below 60% to be safe. So, those would be the two I would focus on initially. And occasionally, you'll see that payout ratio fluctuate. It could be due to one-time expenses or whatever it may be. So, I guess it makes more sense to really look for it over time, right? Yeah, maybe look at a five-year trend, and that'd give you enough information, probably.

Starting point is 00:13:41 Well, we've been talking about it all show. I know you've got some favorites in the space, Matty. Do you care to share if you have a couple of dividend stocks that you feel like are worth getting on listeners' radar today? Absolutely. I've always got some favorites. So, I'd say there are two that stand out to me right now. And both are, fortunately or unfortunately, tied to the housing market. So, just keep that in mind. I think both of these can be winning investments from here, but they would do a lot better, Jason, over the next several years if there was a pickup in U.S. home transactions. So, with that aside, the first stock is Owens Corning. The ticker is OC. We just re-recommended this in our dividend investor

Starting point is 00:14:19 service here at The Fool. It's a leader in roofing and insulation. If you've ever been to Home Depot, Jason looking for insulation for your roof or some other part of your house. You've probably seen the big pink bags with the Pink Panther images on them. That's Owens Corning. Really well-managed business. The dividend yield is only 2% right now, but it's been growing at double digit rates. Management has also been buying back a lot of stock. In fact, management is targeting $1 billion in combined dividends and buybacks each of the next two years. It works out really nicely for shareholders if you're looking at shareholder yielding companies. My second idea is Whirlpool, ticker WHR. I think everyone should know Whirlpool. It's North America's leading

Starting point is 00:14:58 kitchen, bathroom, appliance maker. You've got brands like Whirlpool, of course, but Maytag, KitchenAid, and Sincurator are all Whirlpool brands. My stock on the radar last Friday during our Friday show, Whirlpool stock has really suffered over the last several years. It's had rising competition from Asia. As I mentioned, the housing market here in the U.S. has been stagnant. But Whirlpool got some really nice news last week. It looks like the 50% steel tariffs that are being applied to various importers are also going to be applied to appliances. So, that's going to give Whirlpool, which manufactures the vast majority of its products in the U.S., a major leg up. Stock is very cheap, trades for less than 10 times

Starting point is 00:15:37 forward earnings, and has a dividend yield of almost 8%. It's a little bit riskier than Owens Corning, but I like the value and I like the turnaround potential. All right. I'm going to have to ask you one last question. You know it's common. Yeah. If looking at these two, right, Owens Corning, Whirlpool, do you have a favorite? Is the one you like over the other, or do these really just represent a nice sort of way to get a good sort of risk exposure? One, you said, obviously, Whirlpool, a little bit riskier. Owens Corning, maybe a little bit lower on the risk scale. Is it a nice one-two punch in that regard?

Starting point is 00:16:11 It's definitely a nice one-two punch. I own both. If I had to pick one for the short run, I might go with Whirlpool. If I had to owe one for the next five-plus years, I would probably go to Owens Corning. I just think its business is less cyclical. It's much more tied to refurbishment and replacement as opposed to Whirlpool, which of course needs people to be buying new appliances. So, I might go with Owens Corning in the long run, even though I like both. We'll leave it there. Matty, thanks again for being here. Thank you, JMO. As always, people on the program may have interest in the stocks they talk about,

Starting point is 00:16:42 and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and are not approved by advertisers. Advertisements or sponsored content are provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. I'm Jason Moser. Thanks for listening. We'll see you in a moment. Thanks for watching!

Motley Fool Hidden Gems Investing - Big Retail, Stablecoins and Dividends, Oh My!

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