Motley Fool Hidden Gems Investing - Inflation, Retail, Restaurants, and 401K Insights

Episode Date: December 10, 2021

The US inflation rate rises to a 39-year high. Pet supply retailer Chewy tumbles on earnings. Costco rises on big 1st-quarter results. CVS hits an all-time high after its investor day presentation. Motley Fool analysts Emily Flippen and Ron Gross discuss those stories and weigh in on the latest from Lululemon Athletica, Rent the Runway, Stitch Fix, RH Holdings, Intel, Beyond Meat, Jack in the Box, and Shake Shack,  Plus, our analysts share two stocks on their radar: Tyler Technologies and Accenture. And CFP Dan Messeca talks 401Ks and last-minute financial planning tips for investors. For more from Dan Messeca and his co-host Ross Anderson, check out their podcast “Check Your Balances”. https://podcasts.apple.com/us/podcast/check-your-balances/id1551991071 Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill, joining me this week, senior analysts Emily Flippen and Ron Gross. Good to see you both. How are you doing, Chris? We've got the latest headlines from Wall Street. We've got some end-of-the-year financial tips with our guest, Dan Maseca. As always, we've got a couple of stocks on our radar. But once again, we begin with the big macro, specifically inflation. Prices in November rose nearly 7% over the previous year, the highest spike we've seen since 1982. Ron, I know what higher prices mean for consumers. How should investors process this news? Yeah, you know, that almost 7% increase includes food and energy, and energy prices have increased

33% since November 2020. Gasoline alone is up 58%. But I think the good news is that we're seeing gas prices come down pretty dramatically recently. And as you know, that is a good thing to see for consumers. As far as your question about investors, the market seems to be relatively OK with these numbers. The concern being that in order to cool down the economy, the Fed has said it will more aggressively taper its bond buying program. The bond buying program has injected money into the system to keep interest rates low and let's face it, money basically free. The Fed also said it'll begin to raise interest rates to cool down the economy, possibly beginning in June. So I think what the market is telling us is that it can digest two or three gradual

rate hikes over the next year, year and a half, and still move higher. Wild cards are in the picture about how transient or not inflation is, how effective this policy will be in curtailing it. Obviously, COVID, the variants are also a wild card. But all things being equal, I think the market is saying we're okay with what we see coming over the next 12 months. All right, let's get to some earnings. Shares of Chewy down nearly 20% this week. Third quarter revenue looked pretty good, but the loss was bigger than Wall Street was expecting. Emily, you know this company. Is the pessimism warranted? Maybe I'm a chronic optimist on this business, but I think the pessimism here is chronically

overstated. The issues that we're seeing with Chewy in this most recent quarter are really largely short-term. So supply chain challenges, labor shortages, higher inflation, these have all impacted the business a lot greater than you see with other businesses because of how focused on consumer goods it is. And it also comes at a bad time for Chewy because Chewy has been trying to build out its distribution hubs during all of this pandemic. So it's coming as a one-two punch for the business. But even despite these challenges, there were a lot of things that I liked this quarter. Gross margins were actually higher year-over-year thanks to the higher amount of private label sales. Even though guidance for that margin over

the next year is somewhat concerning, active customers were still up 15% year-over-year. Even more impressive, the net sales per active customers were also up 15%, and that's on top of those higher sales during the pandemic. Another strong report from Costco. quarter, revenue rose more than 16%, profits higher than expected, and shares of Costco close to an all-time high as we head into the holidays, Ron. Year-to-date, shares up 44%. Love me some Costco, continuing to execute really well. Comp sales up almost 10%. E-commerce, which I think is going to be a real, real big push for Costco going forward. Charlie Munger of Berkshire Hathaway recently talked about them going after Amazon even. E-commerce sales were up 13% during

the quarter. Pandemic was good for the business, no doubt about that. But some of that is calming down now. Food sales in particular, some bulk sales seeing some weakness. The company estimates that overall year-over-year price inflation was around 5%. So they are not immune from that as well, but they're doing their best to mitigate that when it comes to the consumer. Late October, Costco raised its starting wage for workers to $17 an hour. That also takes a bite out of profits, but I applaud it. As you mentioned, even with all those things, net income was higher than it was last year. So even with increased costs in merchandise, transportation, labor, profits higher. Management did warn of delays in toys and seasonal items over the holiday due to the global

supply chain problem we keep talking about when it comes to retailers, congested ports, shortage of truck drivers, scarcity of raw materials, all making it hard to stock the shelves. About 79% of Costco's imports are late by an average of 51 days, the CFO said on the call. Those are pretty big numbers. He added some inventory, in fact, won't make it before Christmas. Not great to hear that during the season. But Costco is committed to mitigating price increases. Galanti, the CFO said, inflation helps us a little because of the value proposition that we have. So they keep that value proposition in place. People keep renewing their subscriptions, their memberships, and Costco continues to fight on. Speaking of value, where is this stock right

now? Because we've seen years in the past where Costco was performing at a steady pace and the stock didn't ever really look that expensive on a valuation basis. It's had a pretty great run lately. You are paying a premium price for a premium company right now, 40 times forward earnings. You compare that to Target at 18 times, Walmart 21 times, BJ is very comparable at 20 times. You are paying a significant amount of money for Costco at these levels, but I think it's a fine long-term hold. Lululemon Athletica's third quarter results were better than expected, but the company warned about the potential for more supply chain problems. They also cut guidance on sales of its

home fitness device, Mirror. Emily, when I say Lululemon cut guidance on Mirror, they didn't use a scalpel, they used a machete. All anybody wants to talk is Mirror right now. I will say this, let's go back to my chronic optimism. This was an amazing quarter for Lululemon. A less amazing quarter for the Mirror portion of Lululemon, which by the way, makes up less than 3% of revenue. So while the pessimism around the guidance cut for Mirror is taking the headlines, let's not overlook the fact that Lululemon is absolutely smashing it. And unlike Costco, they're well-prepared for that holiday season. So they actually have the supply and the inventory built up to handle the increase in demand. But let's not ignore the Mirror story,

because when you said that they took an ax to this, they truly did. Earlier this year, they were guiding for $250 million in sales at the low end for Mirror. In the third quarter, they pulled that guidance back to around $125 to $130 million of sales. So nearly in half in the third quarter. It's understandable why people want to talk about it. If I was a Peloton shareholder, I'd feel vindicated knowing that this is a problem that is persisting across all at-home fitness. But as a Lululemon shareholder looking at just this business, the core business is performing well. It absolutely is. Although I do wonder, there were questions for the amount of money that Lululemon paid for Mirror at the time. I'm wondering if you think this maybe dampens

enthusiasm in the future for other acquisitions Lululemon might be contemplating. It's rare for Lululemon's management to pull back guidance like this. And they paid half a billion dollars for this acquisition. So it was a pretty lofty sum. The fact that they were not expecting to pull guidance back as heavily as they did, I think will add some investor skepticism the next time that management seeks to make an acquisition. But it's also important to contextualize the acquisition. The idea was never that this was going to be a large driver of revenue growth for the business. It was that this was going to be a great brand building aspect. And they're still acquiring customers into the brand through mirror. I don't want to say that it's a failed acquisition

quite yet. This week, Rent the Runway discovered that being a public company is a little bit harder than being a private one. Details after the break, so stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here with Emily Flippen and Ron Gross. Shares of CVS hitting a new all-time high this week. The company held an investor day, highlighted by increased guidance and a $10 billion buyback plan for the stock. Ron, I know we still got a couple months to go, but Karen Lynch's first year as CEO seems to be going quite well. Yes, this stock is up more than 40% this year, and they've laid out some really interesting, exciting initiatives going forward. Shares

were higher after this investor day as they raised their 2021 profit forecast, but they did disappoint investors with their 2022 adjusted earnings guidance, but investors seem to have shaken that off a bit and are more focusing on some of the good things that were passed along. They laid out several strategic initiatives, including pivoting the store footprint to focus on advanced primary care centers and minute clinics, expanding their Health Hub footprint, which focuses on chronic disease management, expanding home health services, including the launch of their health-related subscription models, which will be interesting to watch. They're going to drive their digital model with more than 35 million online members they have

right now. That includes execution of their omni-channel pharmacy strategy. They'll integrate all that with their new primary care services with their Aetna health insurance, their Caremark pharmacy benefit plans. As you may recall, they announced that last month they'll close approximately 900 stores. They're going to try to help the density that they're seeing. There were too many stores. They're right-sizing that. As far as guidance, management expects revenue from COVID vaccination and testing to decline 60% to 70% next year. New variants obviously are the wildcard there. They'll continue to update investors. So far, they've administrated 50 million vaccines, 29 million tests. That adds up to about $3 billion in revenue for 2021.

They're going to buy back $10 billion worth of stock. They raised their quarterly dividend by 10%. That implies a yield of 2.2%. Not too shabby when you look at the S&P 500 right now, which is under 1.5% yield. So CVS really continues to execute well, and they've got a lot of bold plans for the future. It really is incredible to think that less than 10 years ago, this was, for all intents and purposes, a drugstore. That's what it was. And the methodical pushing to health, starting with their decision, I believe it was early 2013, 2014, where they said, we're going to stop selling tobacco products, we're changing our name to CVS Health. It's really amazing to see how they've evolved. For sure, clearly no longer a retail story.

You're getting a story right here, which has a fair amount of growth probably in its future, and you can buy it for only 12 times right now, Forward Guidance. Now, it's not a high-tech, innovative growth company, but it is trading for only 12 times. It could be really interesting right here. Big week for online apparel services. Stitch Fix's first quarter results were overshadowed by the company's guidance, which caused shares of Stitch Fix to fall more than 25% on Wednesday. Rent the Runway's first earnings report as a public company featured widening losses and lower subscriber numbers. That stock has been cut in half since its first trading day back in late October. Emily, kind of a rough

week for both companies. Where do you want to start? Well, these two businesses are different sides of a similar coin, but let's start with Stitch Fix because that is a story that I think a lot of investors have followed quarter after quarter. We didn't see much new in this most recent quarter. There are still a lot of positive for Stitch Fix. The business has been profitable in the past and consistently generates positive free cash flow and operating cash flow. But Stitch Fix has really struggled with its vision. CEO Elizabeth Spalding took over for co-founder Katrina Lake earlier this year and has put Stitch Fix more in direct competition with a lot of traditional retailers,

allowing people who are not Box subscribers to go on and make orders digitally, get that clothes delivered directly to them the same way you would at an Amazon or any other online store. And it's still to be seen how this is going to resonate with customers. So, it's understandable that management is being a bit more tepid with guidance here simply because they're changing strategies right now and they don't know how it's going to play out with consumers. In terms of the communication that we're getting from these businesses, is Elizabeth Spaulding saying, look, this is going to be multi-quarter transformation. Let's face it, there are institutional investors, and in some cases,

individual investors like us who just don't want to sign up for that. And I get it. And let's say this, Elizabeth Spaulding, I think, is taking a unique strategy. But when I compare Stitch Fix to Rent the Runway, I do think the management at Rent the Runway understands their core customer better than Stitch Fix does right now. And that might be controversial statement given the fact that Rent the Runway, as we saw this quarter, is a loss-making machine. They are losing money hand over fist, but they have a very focused and niche market with their core urban women demographic. They're not expanding past that. Despite the fact that subscriber numbers haven't rebounded to where they were pre-pandemic,

they are still up significantly year-over-year. I do see a world in which they rebound back to where they were in 2019, especially when you consider that management says more than half of their use cases are actually casual in nature, so weekend wear, not necessarily depending on people going back to weddings or fancy events. It will be interesting to watch both of these businesses navigate what it means to be a digital e-commerce retail operation, but understanding your customer and having a differentiated strategy is really going to set them apart over the long term. Shares of RH up nearly 10% this week. The company formerly known as Restoration Hardware had third quarter profits and revenue coming

higher than Wall Street was expecting. They also raised guidance. Ron, it's been a really great run the last couple of years for RH. The good times keep rolling along. I love to point out over the last five years, the stock is up more than 1,800%. That is a furniture retailer, folks, 1,800%. Really interesting. They've done a great job. This quarter is no exception. Revenue up 19%. Now, that's up 49% from Q3 of 2019. A lot of retailers giving us that metric so we can compare pre-COVID levels. That's their fastest two-year growth rate ever. They are experiencing supply chain challenges like all retailers that led to them delaying the launch of their RH contemporary collection. It delayed the

opening of their first RH guest house, which is basically a boutique hotel concept. Interesting. They also had to delay the mailing of their fall source books until next spring. But even with all of those delays, operating results were strong. Adjusted operating margin expanded 100 basis points, adjusted net income up 25%. As you mentioned, they did increase their full-year outlook. Their long-term strategy is to build the world's first consumer-facing architecture, interior design, and landscape architecture services platform from inside their galleries. God, that's a mouthful. They intend to move beyond their $170 billion home furnishing markets into the $1.7 trillion North American housing market. Now, I do not love when management teams say,

if we only get 1% of the market, then dot, dot, dot. But that's exactly what they've done here. They see the market opportunity as $7 to $10 trillion. A 1% share of the global market represents a $70 to $100 billion opportunity. So I'll give them a little bit of the benefit of the doubt. They're a proven management team. These aren't shark tank entrepreneurs going on given that 1% pitch. But let's be careful that their desire for global domination doesn't take their eye off the ball too much, spread them too thin. In 2017, Intel bought Mobileye, a self-driving tech company, for $15 billion. This week, Intel announced plans to spin it off next year in an IPO that could value Mobileye at $50 billion. Emily, we got a few seconds left.

It seems like, if nothing else, encouraging news for Intel shareholders who, let's face it, have not had much to cheer about lately. Intel has slowly been losing ground to AMD over the past few years, but this is what sets them apart. Their strategic investments in Mobileye as a chip manufacturer for autopilot systems has a lot of growth in front of it that AMD and competitors may not be able to compete with. It'll be interesting to see what this fetches on the public markets. All right. Emily Flippen, Ron Gross, We will see you a little bit later in the show. Up next, Dan Maseca will share why next year is going to be a better one for your 401 plan. Stay right here. You're listening to Motley Fool Money.

Welcome back to Motley Fool Money. I'm Chris Hill. There's just a couple of weeks left in the year, which means there is still time to do things in your financial life to make the most of 2021 while you can. Here with some thoughts on that is Dan Maseca. He is a certified financial planner, co-founder of Kraftwerk Capital, and co-host of the weekly podcast, Check Your Balances. Dan, thanks so much for being here. Dan Kline, CFO, Kraftwerk Capital, Chris, it's a pleasure. Let's start with something that seems to be very popular this time of year, certainly gets a lot of play in the financial media. Hey, it's the end of the year, time to

rebalance your portfolio, sell your winners, but also sell some losers to get that tax benefit. you know, tax loss harvesting. Is this a strategy you are a fan of? People love talking about tax loss harvesting. And quite frankly, I think it's overrated. So now there are some reasons you might consider tax loss harvesting. So the first is if you've realized some gains throughout the year and you have positions towards the end of the year with losses that you might otherwise want to get rid of, it's a great opportunity to offset some of those gains and hopefully try to neutralize your tax bill. Nobody wants to pay more taxes than they have to. The other nice thing about tax loss harvesting, which again is selling losers at

the end of the year, is you can actually use up to $3,000 to offset ordinary income. So if you're looking for another way to reduce your tax bill, take that $3,000 and offset some ordinary income. Where I think it's not very valuable is the people who are looking across their portfolio holdings and just looking at every loser and deciding to sell it if they otherwise wouldn't be interested in selling that position, which is what some people do anyway. If you sold a stock at a loss and intended to buy it back, you have to wait 30 days to do so. And essentially all you're doing is resetting your basis to a lower number, presumably with a stock that you hope goes up anyway, because you're buying it again and you're just going to build a larger tax bill

for you in the future. So I don't want to put my taxes on a credit card. I'm not sure about everyone else, but that is the scenario where I think that's probably not a good strategy for you. Don't let the tax tail wag the portfolio dog. Is tax gain harvesting a thing? I mean, I do know there are people who, when they're thinking about portfolio allocation, they are maybe eager is the wrong word, but they look to their winners as a way to fund additional purchases. Yeah, absolutely. So there are reasons why you might sell winners. First, from a security standpoint, if there's a stock that you think has reached the end of its run and you no longer see future value, you might consider selling. But in particular, where I think it's an attractive

proposition is most people don't really appreciate this, but there is a 0% long-term capital gains bracket. So if you can sell a stock and pay 0% on a long-term capital gain, you should probably do that. Now for a single filer that goes up to $40,400 of taxable income, that's $80,800 for married filing jointly. And in a year that's been strange, and I think a lot of people have had their income impacted and you find yourself with less income than you otherwise would and have this opportunity to pay 0% on a stock that has run up. And, you know, even with stocks giving back a lot of their gains, there are a lot of stocks that have grown exponentially. You know, you might consider doing that. Now you want to make sure that you're understanding your taxable income

correctly, and you should speak with your CPA, but 0% is attractive and you can buy the same exact stock back right away because there's no waiting period to buy back a stock that you sold at a gain, only a stock you sold at a loss. One of the big macroeconomic stories of 2021 has been the great resignation. Some people who are a little bit older, maybe they were already close-ish to retirement, deciding for a variety of reasons that they're done with the traditional nine-to-five job. But a lot of this story has been younger people who have had a change in life, have been impacted by COVID one way or another. And part of this story also involves retirement accounts, Roth conversions, that sort of thing. How does that play into

the last few weeks of the year? Yeah. So if you find yourself with perhaps a gap in employment for whatever reason it may be, and again, your taxable income is lower than where you think it may be in the future, either it's because you're not working or you're building up a business, that might be an opportunity to consider a Roth conversion. So a Roth conversion is taking money in a pre-tax account, like a traditional IRA, for example, paying the taxes now and getting it outside of that taxable world, which means down the road, you can pull that money and any gains out tax-free. So if you think that income is lower than it will be in the future, you could choose to pay taxes at that lower income bracket. And I think that's an attractive thing as well.

Now, be careful, again, if you're pairing this strategy with the tax gain harvesting strategy, because those will impact each other. But if we think tax rates are going up and your income is going to be going up, Roth conversions should be on your radar. Another thing people do, particularly in the wake of the rise of Cyber Monday, which gave more prominence to what became known as Giving Tuesday, a lot of people looking at charitable contributions at the end of the year. You mentioned something when we were going back and forth earlier in the week, something I was unaware of, that you don't necessarily need to itemize your charitable deductions. That's correct. So for 2021 specifically, and we still have a couple of weeks,

if you hurry, you can deduct up to $300 per person for a contribution to a public charity without having to itemize. So that might impact your giving strategy. A lot of people have been bunching their charitable contributions so that they can push themselves over that standard deduction and take full advantage of it. But if you haven't made a gift this year and you're otherwise inclined towards charitable things, you should consider gifting, and it will both do good for public charities and help reduce your taxable income. You and I both live in the greater Washington, D.C. area, so there's no escaping political news. It seems like this time every year, there is talk about potential changes in the tax laws

coming the following year. But it's always got that word potential attached to it. So what do we know going into 2022? What is a change, if there are any, in the financial structure that we know is going to happen in 2022? I think there's very little, as far as sweeping change, that we know at the moment. There's been a lot of back and forth, and I think a lot of the doomsday things we heard early on have been wiped out. I think the advice I would give to most people is plan for yourself for things you can control, as opposed to trying to forecast what they might do in Washington. Because one thing that's true is whatever they might do next year can change a couple of years later. So don't put all your eggs in any sort of legislation.

I think anything that will change will impact probably the highest earners of the country. but one thing that will impact everyone that is scheduled to happen next year is the 401k contribution limits are going up. So if you are maxing out your 401k or will be in a, or will be in a position to do so next year, you should evaluate the amount you're deferring into your 401k because it's going up by $1,000, which means if you are under age 50, you can contribute 20,500 in 2022. And if you're over age 50, you get that $6,500 annual catch up contribution as well. Last thing before I let you go, there is another type of planning that goes on this time of year, it doesn't get as much attention. This is something that came up on your podcast

recently. People get a little time off around the holidays. Some of them like to plan what they're going to binge watch. I keep hearing about Succession, I haven't watched it yet. That's on my shortlist for what I'm going to watch next. But you were talking recently on your show about how you attempted to watch the new Beatles documentary series on Disney Plus over the Thanksgiving break. It's about eight hours in total. Have you finished watching it and do you recommend it? I have finished watching it. I recommend it to everybody. I will watch it at least a couple more times, probably before the year is up. If you are a Beatles fan, it is must see TV. Uh, I must admit the, the highlight for me was just seeing how happy John Lennon in

particular was, um, just seeing his face behind the guitar, smiling and having fun moved me to tears. I'm not too ashamed to admit it, but, uh, if you're a Beatles fan, a music fan, a history fan, check out, get back. See, this is why I enjoy listening to your show. There's great financial information, but there's, you know, the bonus stuff like this, and you can follow the check Your Balances podcast on Spotify, Apple Podcasts, Stitcher, Amazon Music, wherever you get podcasts, that's where you can find Check Your Balances. And you should, because it's great stuff. Dan Maseka, thanks so much for being here. Great being here. Thank you, Chris. After the break, Emily Flippen and Ron Gross return with a couple of stocks on their radar.

Stay right here. You're listening to Motley Fool Money. While my guitar Jerky weeps The note at the floor And I see It needs sweeping Still my guitar 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 once again. Busy week for restaurant news, so let's get to a couple of headlines before radar stocks. We'll start with Jack in the Box announcing it is buying Del Taco for $575 million in cash. And Ron, this was surprising to me because it was just four years ago that Jack in the Box sold Qdoba. They had a taco business and they sold it. What are they doing? Oh, Chris, I don't know. You know what they're doing? They're buying scale that is somewhat

complimentary. I think CEO Darren Harris has been around since 2020. He really wants to grow the company from 6,000 jack locations from around 2,200 today. Del Taco has 600 restaurants. That gets him part of the way there. Still a long way to go, though. Their buying scale, this will be accretive to earnings. It is very different from Qdoba in the sense that 99% of Del Taco locations have a drive-through, and they really are more in the quick service restaurant business than even perhaps Qdoba was. But they deserve a little bit of ribbing here to sell something for $305 million and buy something for $575 million, that is somewhat similar. Yeah, Emily, we were talking before about Lululemon and their acquisition history.

You got to question what Jack in the Box management is thinking here. Jack in the Box just figured out that if it doesn't have a drive-thru, they don't know how to make it work. Shares of Beyond Meat fell late this week after Taco Bell canceled a test of one of Beyond Meat's products because they were not happy with the quality. and Emily, I'm sorry to punch at Taco Bell like this, but if Taco Bell is saying your quality is not up to snuff, that's a little bit of a blow. That's one way to read this story, Chris. That's how I'm reading this story. I do understand that interpretation,

but I'm just sitting here thinking, if McDonald's can make it work, if Panda Express can make it work, and if KFC can make it work, then why can't Taco Bell? Hey, maybe the issue is on Taco Bell here. One Twitter follower said, Taco Bell already figured out how to make their stuff without real meat, so there was no need. They're getting hammered on Twitter. Tough but fair. Finally, Shake Shack is trying to boost its revenue by offering premium add-ons among the extras you can pay up for cherry peppers, avocado, and a black truffle burger. Ron, I think we're all in favor of businesses doing what they can to boost their revenue, testing things. We're fans of that in general. Before I get to my own feelings about the black truffle burger,

do you think this is going to work? I do not. I think truffle oil is a unique taste. People think they might like it because it sounds expensive. I personally do not like truffle oil at all, so I have a tainted view here. This is all about their truffle sauce, which is their kind of truffle oil combined with olive oil to make a sauce that is also served with their Parmesan garlic fries, which, by the way, sound just fine to me without the truffle sauce. I don't think this is a good idea. Emily, the first business I thought of when I saw this story was Chipotle, how Chipotle has, in general, done a good job of occasionally putting in either one-time items, testing new things. They've done a good job with that. They've had success with that.

I guess I'm just a little confused by the choice that Shake Shack is going here with things like cherry peppers. I'm confused by your confusion. From where I'm sitting, Shake Shack can just take my money now. My only question is, can I get the black truffle, cherry peppers, shallots and avocado all at the same time? Or do I have to get them separately? I think they will absolutely give you that if you want. Let's bring in our man behind the glass, Dan Boyd. Dan, you're a fan of food. Any reaction to any of the stories that we've discussed so far? Yeah, sure. Truffle oil to me and you know this is just one man's opinion tastes like socks not clean socks no no the other kind maybe like chipotle they'll have a truffle scented socks instead of uh soap cilantro scented

soap that sounds pretty good to me you know it'd be bold as if they took a direct shot at chipotle and started offering queso and just said yeah we're gonna do this or guacamole a little guacamole on your burger? Can I interest you in that, Dan? You know, it's funny, as we're recording, I just ordered Chipotle to be delivered to my house. All right, let's get the stocks on our radar so we can wrap up the show and Dan can have his meal. Emily Flippen, what are you looking at this week? I'm looking at a stock that a lot of investors may not be familiar with. Its name is Tyler Technologies. The ticker is TYL. They're a decades-old provider of information management solutions for the public sector. So they partner with small state and local governments for

operations for cities, counties, and other operations. It's a really fragmented industry. They compete mainly with pen and paper, but it's a $25 billion market opportunity. And with less than 5% market share, plus some really interesting recent acquisitions, I think Tyler Technologies may have what it takes to actually be a growth stock in this industry. Dan, question about Tyler Technologies? The phrase competing with pen and paper to me brings to mind like Chris going to the playground and starting to push toddlers down. It seems like a pretty easy thing to beat, but I don't know. What do you think? I might have overstated or understated the competition here. While two-thirds of the industry is pen and paper, so easy to push down toddlers

on the playfield here. The other one-third are places like Oracle, SAP, and Workday. So there are some big guns on the field as well. Just real quick, Emily, this is a $21 billion company. When you mentioned it earlier today during our production meeting, I thought to myself, oh, I've never heard of this business. It must be pretty small. How is this a $21 billion dollar company and it's just flown under so many people's radar. Well, they've had a lot of really interesting tuck in acquisitions and they generate a ton of cash, so they are valued highly, higher than a lot of their competitors. That is something to keep in mind. Ron Gross, what are you looking

at this week? I'm going to circle back to a wonderfully run company called Accenture, ACN, which I talked about last June, provides consulting technology and outsourcing services began as the business and technology consulting division of Arthur Andersen has been incorporated in Dublin, Ireland since 2009. Very steady cash flowing firm, reliable dividend, their focus on cloud security, digital manufacturing, bringing new growth to a relatively solid and conservative and mature company. In addition to organic growth, they consistently make acquisitions to enter new markets. Shares are up 43% this year, trading at 37 times forward earnings. You will pay a premium for a fantastic company, but they

consistently generate returns on invested capital in excess of 20%. They've raised their dividends for the past 16 years. I expect that to continue. The current yield is about 1% for those income investors out there. I think Accenture could be a wonderful core stock for anyone's portfolio. Dan, question about Accenture? When Ron was bringing Accenture to the table, I thought to myself, who is this guy? This is a technology company. This isn't Ron. This is an old economy. Then I did a little bit of research, and I read that they started in the 1950s as the consulting division of Arthur Anderson, back when computers were the size of gymnasiums. And I thought, oh yeah, no, this is Ron. Nice. So what do you want to add to your

watch list, Dan? I'm actually going to go with Tyler because I'm not familiar with it and I'd like to know more. Woo. Good choice, Dan. Emily Flippen, Ron Gross. Thanks so much for being here. Thanks. Thanks for having me. That's going to do it for this week's show. Next week, it is our year in review special. So drop us an email, radio at fool.com. We want to know who gets your vote for CEO of the year and what you think is the biggest headline for investors in 2021. That's radio at fool.com. Drop us a note. We want to hear from you. That's going to do it for this week's show. The show's mixed by Dan Boyd. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.