Motley Fool Hidden Gems Investing - Don't Be a Grinch, Keep Holding

Episode Date: December 30, 2024

We set the path for being better investors and friends in 2025.   (0:13) Jason Moser and Dylan Lewis discuss: - How some profit-taking and tax loss harvesting have caused a bit of a holiday hangover for the market to close 2024. - Why mounting consumer credit card debt and delinquencies might finally start to eat into discretionary spending in 2025.  - Alphabet’s agenda for the new year: AI, Gemini, and Project Mariner .  - A few resolutions to ring in the new year. Companies discussed: TGT, WMT, GOOG, GOOGL Host: Dylan Lewis Guests: Jason Moser Producer: Ricky Mulvey Engineers: Dez Jones Learn more about your ad choices. Visit megaphone.fm/adchoices

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Because we have your number. Did the Grinch steal O'Reilly? You're listening to Motley Fool Money. I'm Dylan Lewis, and I'm joined over the airwaves by Motley Fool analyst Jason Moser. Jason, thanks for joining me. Dylan, happy to be here, closing out an interesting year and getting ready to kick off a new one. Yeah, it's that nice short week between Christmas and New Year's where News cycle's a little bit slower. We get to spend a little bit more time

with some of the stories, maybe a little bit of time with people that don't have anything to do with work. Did you have a nice holiday? Yeah, yeah, it's a very busy time for our household. We've got a lot going on in a 10-day stretch. So we've got a couple of birthdays, a wedding anniversary, Christmas, New Year's.

So it's a lot crammed into one holiday, but so far we've gotten through it unscathed and everybody seems happy. How about you? Can't complain. You know, I had my fair share of holiday drinks, had my fair share of family time. I am back home and very happy about that. And, you know, honestly, I mean, the stock market, maybe like some of us that are now back at home after some

holiday travel, dealing with a little bit of a post-holiday hangover. We have the S&P 500 down about 2% since Christmas. What happened to the Santa rally? Well, I mean, it's not unheard of for some selling to occur towards the end of the year, right? I mean, we see sort of investment firms cleaning house, investors kind of cutting away, losers taking advantage of some tax loss harvesting. So, you know, it's not terribly uncommon to see a little selling going into the end of the year. I think it's interesting for me more to think about going into 2025. And there's still some uncertainty, right? We have a new administration getting ready to take over here, I think, on January 20th. And there are a lot of questions that remain in regard to exactly what

they're going to pursue, what they're going to prioritize, what our interest rate policy ultimately looks like. And we'll obviously get to a story here in a little bit, just in regard to the state of the consumer, which I think leaves us with a lot of questions. And let's not forget, it's been a really good year for the market. I think the S&P right now, year to date, total return somewhere in the neighborhood of 26, 27%. So that is absolutely nothing to sneer at. So as you were wrapping up the year and checking in on your brokerage account, your portfolios, did you do any end of year tidying up? You know, I have not done that.

I typically, you know, I typically don't do that. I try not to overreact. For me, I mean, I am going to be making some sales here. I'm going to be making some sales here in the coming months, I guess, as I shore up some final college tuition funds, but on the whole, no, I've been focused a lot more on my winners and trying to spot opportunities to add to them while just kind of, you know that old saying, right? You water the flowers and you pull the weeds. I'll pull those weeds eventually, but thankfully I don't have a ton of them. It's always a good thing, right?

Yeah. Yeah. Yeah. Only changes for me was upping what I can contribute to my 401k on a paycheck basis. Just making sure that I'm hitting that new match, thanks to the IRS, bumping things up $500, but otherwise keeping things steady as they were. Oh, wait until you get to be my age, Dylan. Then you get to take advantage of those catch-ups, right? Can't complain about a catch-up, right? We'll get there eventually. That's $31,000 a year if you're over 50, for the folks listening. And a little PSA, you still have time to make that change for that first paycheck of the year if you're interested in doing that. Let's hit that credit card consumer

debt story that you mentioned. This is a story we've been following for a long time. And we, in particular, I've been talking about quite a bit on the show. American budgets being tight, inflation, higher interest rates really straining the consumer and how much money is available for discretionary spending. It has felt like for such a long time, we are in bend, don't break territory. Are you confident that holds for 2025? Well, I'm not. I partly am and partly not. And what I mean by that is this, what we're seeing is kind of a tale of two economies here. And it's one where higher earners are doing OK, but it's the lower earners that are finding themselves in a real bind. And we were talking about the story that we saw in the Financial Times earlier in regard to just lenders writing off credit card debt, right?

They've written off $46 billion in seriously delinquent balances for the first nine months of this year. that's up 50% from a year ago. And when they say seriously delinquent balances, that generally refers to debt that's 90 days or more past due. But what we're seeing for the most part is that higher earners are still doing okay. The personal savings rate of four and a half percent, that is flat from the same time a year ago. But it's worth keeping in mind that is weighted more towards higher earners, the lower third of consumers here in the U.S., according to this report, essentially have no savings at all. And I think that's where we start to get a little bit more concerned because you said it there, the key phrase there, discretionary spending. And that's

something that will be impacted by this most likely if these numbers are accurate. One thing that kind of strikes me processing all the data from the holiday season that's coming in is it doesn't seem like this has yet affected what people were doing at the stores this December and late November. I think we saw the National Retail Federation say that the holiday spend was estimated to be just shy of $1 trillion, a new record for the year. Saw a data point that a third of consumers have taken on debt during the holidays. So a lot of the data we're looking at for this story is kind of November and backwards. It's not really incorporating the heaviest part of the December spend, which I mentioned, Jason, say like, I'm concerned that we are going to be

seeing this problem get a little bit bigger and a little bit bigger as the months go. I think that's a reasonable assumption. I always say never underestimate the American consumer's ability to behave irrationally, right? We're all tapped out. We'll find ways to get it done. And there are more tools in our system now for folks to spend money. Right now, it's not just credit cards. I mean, that whole buy now, pay later market that has grown considerably since first being introduced just several years ago. But yeah, I think it's going to be really worth paying attention to when we see these banks announce report earnings here in January. We'll see the big banks, JP Morgan, Bank of America, companies that really do play a big

role in a lot of these credit card lending businesses. It'll be worth paying attention to see their take on it, looking at the numbers as far as writing down the seriously delinquent debt. And that could that could give us a little bit of an idea of what maybe we could expect here in this coming year, because those are big numbers. And we know that overall credit card debt in the U.S. is well over one point one trillion dollars now, which is which is, you know, all time highs really. And that's that's again, it's OK for your higher earners. But we are definitely seeing those lower earners really, really start to feel stretched. Yeah. Going to that idea of the kind of bifurcated consumer where you have high earners generally

doing well, lower income earners struggling a bit more. Do you see that playing out with retailers and basically it being dependent on who their audience is for what results might look like for 2025? I mean, I think that's what we have to keep an eye on. That's the first market that really comes to mind. It's just general retail, but discretionary spending. And I mean, I mean, you're going to see pockets where some continue to perform well. I mean, companies, you know, Lululemon is one that stands out to me that even in a period like this one, I mean, and they do favor sort of the higher price point, they might fare well or at least get through this OK because their customer is a little bit more towards

that higher earner class. But I mean, definitely discretionary spending in general. I think, you know, watching the performance of companies like Target and Walmart and hearing their language on these earnings calls in regard to the state of the consumer, because we've certainly seen a lot of those higher earners also start focusing more on value in shopping at places like Walmart and Target that are so good at offering that value. All right. So that's our sneak peek at the consumer for 2025. Maybe not the most optimistic view, but I think one worth paying attention to. We also got a sneak peek at what Alphabet has in store for the new year.

CEO Sundar Pichai giving a strategy meeting with his team ahead of the new year and a little bit of preview of things to come. The major themes from the news outlets, Jason, this is a disruptive moment with AI. We have mounting antitrust pressure. Which of those two do you want to dive into first? Well, I think AI is probably the one that interests people more. I mean, the antitrust stuff is probably going to drag on for a while and we're not going to ultimately have that all works out because it feels like there's going to be a lot of litigation involved there. But kind of going back to that market performance, you know, these last several days of the year and going into 2025, you know, we've seen just such a tremendous amount of spend on AI from companies

all over. And it's becoming a little bit more imperative that they actually show, that they actually prove to us exactly how AI is going to make our lives better. And it certainly seems like like Alphabet, it seems like they are really taking this very seriously, calling 2025 the year where they really need to focus up on it and prove that value proposition, so to speak. And I think the early signs, at least, you know, in regard to a company like Alphabet, let's just call it Google because that's what most people know it as. Easy enough. Yeah. I mean, Google, what do we know Google for, right? It's search. And a big question mark has

been sort of how are these large language models, these chatbots, so to speak, how are they going to impact Google's core advertising business, right? Is search going to go away? And I tend to view it a little bit more as an evolution. I don't think search is going away. I think it's just evolving, right? I mean, I grew up in the day of the encyclopedia, Dylan. So my version of search back then was having to crack open these 50 pound books and search for the information that I was looking for, as opposed to now, where I could just, you know, hammer in a little search bar what I'm looking for, and it just comes up in an instant. So we're seeing the evolution, I think, of search. And so search is going to, it's going to be a little bit different. We're

going to do it a little bit differently. And it seems like Google is starting to really work on ways to bring AI into their universe, because remember, Google isn't just search. I mean, they have a lot of properties with billions upon billions of users. That is a tremendous competitive advantage and it gives them a lot to work with. I think what's interesting is you could view what we are seeing with generative AI as a humongous existential threat to a company like Google. But you could also look at the way that they are answering it and they are very clearly spreading their bets across different approaches to how people interact with information. We've We've seen the AI overviews for search in the more traditional sense where you put something

into their search bar. As part of the search results, you're getting the AI overviews. We've seen them also push this Gemini app. They expect it to be one of the next really big apps for them as a competitor to ChatGPT. They've also been pushing a little bit into agentic AI with their Project Mariner offering, which is very prototypey, very researchy. the idea is you would have within the Chrome browser, a AI agent who is able to do things for you on your behalf, kind of like an assistant. And so I don't think that they are making a

singular bet on the direction of getting information. They're trying to see what the marketplace wants and kind of what users want. Yeah, I think that's spot on. I mean, I think that's the beauty of it. You're right. They could look at this AI opportunity as a threat, right? But I think they're viewing it as an opportunity with all of these different platforms. They can find ways to bring value to make those platforms more friendly and easier to use. I mean, as someone who's gone in there and fiddled around with Gemini, I mean, it's something very similar to, you know, a chat GTP or a GPT or whatever.

It all kind of does the same thing. But you could see them starting to incorporate that functionality, that ability into more of their platforms, whether it's Gmail or Maps or Google Drive or what have you. So I think that's the nice thing there. And the other thing to remember, too, is I think in regard to AI, you know, this isn't a Google specific problem. I mean, this is something that companies everywhere are really having to tackle how to bring AI into their businesses, how to bring AI into their business models and ultimately capitalize from it. It reminds me a little bit of back in the day when Facebook first came public and we were talking about the challenges for Facebook

going mobile, would they be able to do it? Everybody was so used to using Facebook through that laptop sort of environment there. And again, that wasn't really a Facebook specific problem either, right? Everybody was trying to figure out how to tackle mobile because that's the way we do so much now. And so I don't look at this necessarily as just a Google specific problem. And I think one of the advantages that they do have is they have so many platforms with so many users, they're going to be able to test and learn a lot. I would be more concerned if they were just kind of spinning their wheels or not really doing anything.

But it really does sound like they're making a lot of efforts to try a lot of things, test and learn, continue on with the things that are working, abandon the things that are not. So as a Google shareholder and someone who's recommended the stock and some of our services here at The Fool, I'm going to take the glass half full perspective here. I'm going to hang on to my shares. I think that they've got something good here. And again, I think another neat thing about Google is if you go back 10 years, advertising was well over 90% of their business. That's come down over the years. Now it's around 75%. And so they're making their money a number of different ways now. And a lot of that comes from subscriptions. And I think

they'll find out ways to monetize things like Gemini in good time. All right, Jason, it is our final show together for 2024. And we have, I think, as I look at my watch, about 32 hours until the clock strikes midnight here on the East Coast, takes us into 2025. That means we have a little bit over a day to decide how are we going to be better in the new year. So I'm curious, what are your resolutions? Better as investors or better as people? Let's try both. So I always, Ian, I'm going to give a verbal nod here to Tim Hansen because he's the one that brought this to my attention several years back. He always liked to make the resolution at the beginning of the year to not sell anything. And I always just like that perspective, going into that year and hoping, you know, just let's not be too active, right?

Sometimes the best action is inaction. And so I do like that idea. Now, I mentioned I probably am going to have to sell a little bit here or there throughout the year just to shore up some final finances for college tuition for my girls. But that was always the plan, right? Investing ultimately is a means to many ends. So I'm not going to make that resolution this year, but I'm going to try to minimize at least that selling and always keep that at the top of mind. I do want to introduce at least three new companies to my portfolio this year. As I get older and I start focusing a little bit more on bringing more dividend players into

my portfolio. I think I'd really like to be able to introduce three new stocks into my portfolio this year. And then finally, just on a personal note, I mean, just trying to be a better person. I can be a pessimist at times. I mean, I know that's hard to believe, but Dylan, it's true. No, you. I want to make a concerted effort to wake up each day on the right side of the bed and keep a positive perspective. I just think it's more productive. I think it impacts the people around us in a good way. And so I'm really, I just, I want to continue to make that effort, try to just approach each day with a fresh, positive perspective. Well, you bring plenty of positivity to me here on the show. I'm always happy to be taping with

you. I always feel like there's a sunny disposition coming through. And if there's more of that in our future for 2025, I'm mighty happy about that. Well, what about you? I mean, you got any resolutions on your radar, anything you're trying to do as an investor or a person? You know, I've always found that I'm better off when I have a system rather than a wish, if that makes sense. And so something like talk to my relatives more does not wind up really manifesting in the very moment. But if I can do something like, hey, I want to call a family member or friend once a week, then I tend to have a better chance of having something that works and sticks. I think my resolution is I have found, this is not an investing one, but I have a very

good weekly rhythm to the way that i do things there's the sunday shop big cook set things up for monday through wednesday i haven't found a good daily routine and good daily rhythm and i'd like to bring a little bit more stability and structure into my day um so that i i can be kind of kind of what you were saying before a little bit more prepared a little bit more positive a little bit better to the people around in my life and so yeah it feels like the daily rhythm was a lot easier when we're going to the office every day there was just there was a pattern right a structure. And it's a little bit different now when you're working from home. Yeah. And so if any listeners have suggestions for that daily rhythm, for that daily routine,

podcasts at fool.com is where you can reach out and send those. And really, we want to hear your resolutions too. Money related, not related. We want to know what they are. Jason Moser, thanks for joining me for the final time in 2024. Well, thank you. I appreciate it. And happy new year to all of the listeners. Thanks so much for listening. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. All personal finance content follows Motley Fool editorial

standards and is not approved by advertisers. Motley Fool only picks products that are personally recommended to friends like you. For the final time in 2024, I'm Dylan Lewis. Thanks for listening. We'll see you tomorrow. Thank you for watching.