Motley Fool Hidden Gems Investing - Netflix and Tesla Play With Pricing

Episode Date: July 21, 2023

International travel is back in a big way, and Netflix really wants you to choose between higher tiered plans or ad-supported. (00:42) Ron Gross and Andy Cross discuss: - The reasons Netflix is doing away with its lowest paid offering. - What investors should make of the Johnson & Johnson/Kenvue splitoff.  - Why concerns over Tesla’s tightening margins might be overblown - Trends in travel and consumer spending based on results from United, American, Discover, and American Express. (19:04) Motley Fool Money’s Alex Friedman caught up with author David Meerman Scott about the lessons he and Hubspot co-founder Brian Halligan think businesses can borrow from the Grateful Dead. (32:40) Ron and Andy break down two stocks on their radar: Toro and Mueller Industries. Stocks discussed: NFLX, JNJ, KVUE, TSLA, AMEX, DFS, AAL, UAL, AXP Host: Dylan Lewis Guests: Ron Gross, Andy Cross, Alex Friedman, David Meerman Scott Producer: Ricky Mulvey Engineers: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

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From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show. I'm Dylan Lewis. Joining me over the airwaves, Motley Fool senior analysts, Andy Cross and Ron Gross. Great to have you both here, guys. Hey, Dylan. How you doing, Dylan? We've got updates from tons of companies, marketing lessons from the Grateful Dead and stocks on our radar. And we are going to dive right in because there are a lot of big names that reported this week.

Andy, let's start with Netflix. Shares of the stream were down nearly 10% after it reported 6 million new customers during Q2, but Q3 forecasts were not as rosy as the market was expecting. Do you think the reaction here is fair? Well, the stock had done so well. Dillon was up, it's up 50% year-to-date. So a lot of enthusiasm going into the quarter. Very healthy member growth as that paid sharing, which we'll get into in a second, kicks in.

But the revenue growth was a little lacking because advertising, the advertising business they're investing into is not material. It won't be material this year, not until next year. And then higher growth in their lower fee regions. So they see more members growing in that area. And because they don't charge as much, the revenue growth wasn't quite as high. So the revenue at $8.2 billion was a little bit below estimates, but still up about 3%. Revenue from advertising, as I mentioned, really not material. And then growth a year ago was 8.6%. So you're seeing this deceleration. Average revenue per member, Dylan, was down 3%. So like I mentioned, higher members from those lower average revenue per user countries like

Europe, Middle East, and Asia, they saw 2.4 million new members, which was twice as high as other regions, but they don't charge as much as they do here in the U.S. So they had some timing of those additions a little bit off. They lowered some of the prices in those less penetrated areas and they saw a drop in those average revenue per users across every region except the U.S. and Canada, but that was really only up about 1%. So overall, the revenue side a little bit lacking, but what was impressive is the operating income and the operating profits. Operating income was up almost 16% operating margin at 22% versus 20% a year ago. They saw some lower headcount. They saw better expense managing and cost of goods sold was down a little bit and tech

spend was down a little bit. So overall, expense management, lower costs on the production side. They're dealing with the writer's strike. They're dealing with the actor's strike. That's going to slow down some of the content spend over the year. And they're rolling out the paid sharing across more than 100 countries. Their cancel rate was low and they're seeing strong conversions from those shared memberships going into paid members.

So that's encouraging for shareholders like me. You know, I don't want to seem frugal or anything, but for me, Netflix is getting kind of expensive with a standard plan of, I think I'm paying $15.50 right now, and I don't want ads, so I don't want to downgrade to the $6 one. So I guess my question is, when does pricing power, when do they bump up against pricing power here and people start to balk at $18, $20 a month? Well, I think that's, it's funny, Ron, because I was thinking kind of the same thing as I was going through some of our subscription plans. And when you said frugal, I thought you were

talking as an investor from the stock side. I was like, hey, it's less than 35 times earnings for this year's earnings. So I think that's right, Ron. They do have some, I think because they are such a leader in the space and I think the others, and they're profitable, they generate free cash flow. So that's a big advantage for them. They'd be able to continue to invest and put those profits back into the content slate. I think that's the big concern. If they can't get fresh new content coming in. Now, they do have a lot of international content, which is great. That isn't necessarily a subject to some of the writer's strike and the actor strikes here in the U.S., but they need to continue to innovate into that content to be able to charge what they can

charge. Ron, to your point, one of the things that kind of slipped in with the earnings release was the update that Netflix is removing its least expensive basic content plan this month. It seems like they're trying to push people to this ad-supported model, Andy. I think that's right. They're investing a lot into the ad market, into that business, Dylan. And they talked a lot about the investment taking time to pay off. They know they're new to this. They know that they have a lot to work through about and partnering with Nielsen to figure out some of the demographics, figure out the targeting. So they're very patient with this investment and they want it to pay off. And I think they are recognizing that we have an opportunity to push

people into the ad part of the market and raise the prices and keep that price high for the ad free subscription tier that Ron is now whining a little bit about. Hey, hey, hey. There's some budget tightening going on at the Gross Household. Sticking with the big names, Johnson & Johnson shares up 6% after the company reported strong earnings and guidance, thanks in large part to its MedTech division, which hit nearly $8 billion in revenue, good for 15% year-over-year growth. Ron, it seems like this segment is becoming a lot more important to J&J. Well, for sure. Pharmaceuticals continue to be by far the largest segment. But MedTech, in a post-COVID world where people are getting back to hip replacements and knee replacements,

that segment is really surging. And it showed up in the results of this report, which was a pretty solid report in my mind. They beat expectations on both top and bottom lines. Now, growth didn't knock the cover off the ball. It's not a very high-growth company at this point, but you did have sales growth up 6%, 8% in the U.S. All segments, as you said, including medtech were up. Pharmaceutical being the biggest was only up 3.1%, so that does tend to bring a drag to the overall numbers because it is so much larger than the other segments, but still a healthy growth. If we remove COVID-19 comparisons, which it's hard to anniversary those comparisons, pharma was actually up 6.2%. So just to give people an indication about the health of that

business. You take that all into account and you have adjusted earnings up about 8%. So that allowed them to raise 2023 guidance. They see strong demand for cancer drugs, recovery in medical devices due to, as we said, an uptick in surgical procedures. They expect pharma sales to grow more in the second half of 2023 compared to the first half. So a lot of good indications there for management. If we pivot for a second to their consumer health unit, which recently went public, Kenvu, that also reported and beat analyst estimates for their first quarterly report since being a public company. J&J still holds about 90% of that company.

And they announced that they're going to be doing what is called a split off, which is a little bit different than a spinoff. J&J shareholders will be able to choose to exchange their shares for Kenview once the predetermined exchange rate is determined. We don't have the exact information yet. We know this is probably going to happen in the near term, which spooked some people, sent the stock down a bit, rebounded subsequently later in the week. But we will be seeing that soon. Kenvue, $24 per share, 19X forward earnings, not the cheapest, it's not the fastest-growing company in the world. I like regular J&J much better at 16X, raised dividends 61X straight years, 3% yield. I'm getting interested in

J&J. Wow. Andy, I'm curious, looking at J&J looking at Kenview here. Do you agree with Ron? Is the pharmaceutical and medtech business a little bit more interesting to you than this consumer brands business? I think so because just the healthcare market in general from the investing side hasn't performed all that well just overall. So from an evaluation perspective, as Ron pointed out, interested. I am interested in getting those Kenview shares and we'll probably certainly explore getting those. I'm a J&J shareholder, so adding those to help just diversify the portfolio a little bit in the consumer side. So I'm excited to see that part of the business.

But I think in general, agreeing with Ron is always a smart thing. So I think I'm going to do that this round, too. That's good alignment there. We love to see it. Tesla also reported this week and shares down 10% after the company beat expectations on the top and bottom line. But Andy, the market zoomed in on shrinking margins, which came in at the lowest level in over a year.

You have followed this company for quite some time. Is this something to be worried about? Well, I think there is a lot of focus, obviously, on the margin side. And we've talked about this with Tesla. They've been very upfront, Elon Musk and Zach Kirkhorn, the CFO, talking about the margin picture and the fact that they're not shying away from that, that they are cutting prices to be able to grow their fleet. What is interesting to me is the success, Dylan, they've been having in lowering their

cost per vehicle. In fact, they recognize lower cost per unit in just about every category of their manufacturing. So if you see the strategy of what Tesla's going after here, they are continuing to grow their fleet because they're excited about full-service self-driving fleet, robo-taxis, a lot of that future kind of stuff. The revenues were up 50%. Automotive sales were up 46%. Obviously, that's the bulk of the driver. Energy sales was up 74% in the quarter. their gross profit profit was only up seven percent which gets to your margin picture

but the profitability um on on the per unit vehicle is what really is kind of uh attracting me to what they are trying to do because they are they are the most profitable car company by a landslide they are scaling out their ev business they are growing that fleet and they're using it to do it in a way that on a per unit basis is more profitable. And hopefully that scale can continue to widen their lead. Now you have a billion dollar market cap. They have loads of cash. They generated $1 billion in free cash flow this quarter. So they have that model that is just light years ahead of the other car companies. But there is that margin picture that they've seen this compression over the last couple of quarters that is a little bit concerning. But

they're benefiting in on the cost per unit side, which I think is impressive. You mentioned the robo-taxi ambitions, and I'm curious, for a company that has so many forward-looking elements to it, robo-taxis being one, I think the Cybertruck being another, how do you factor those into the valuation for this business and just kind of what to expect for this business? Well, I think if you listened to whether it's Elon Musk, and he had pointed out to Cathie Wood's ARK Investment as a place to go and look at some of the future state potential with their FSD, their full self-driving vehicles and the robo taxis and the advantage there. They have more than 300 million miles of SSD driven to date.

I mean, that's just, that's so impressive. It's also, by the way, there's a lot of talk about the investments into Dojo, which is their quantum computing world, because of their ability to be able to handle all of the data that they're collecting. So I think that's clearly part of the valuation story. And I still think that what he's trying to do is if you're a believer in Elon Musk, you got to be a believer in Tesla, too. All right. After the break, we've got to look at travel trends and credit card companies. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Dylan Lewis, joined on air by Andy Cross and Ron Gross. It's summertime, and I'm guessing people are either on vacation or thinking about it.

This week, American Airlines and United both reported giving us a sense of the summer travel picture. And, Andy, looking through the results, we have record quarterly earnings for these companies. The main thing that hit me was jealousy, mostly that we are at our homes recording here, and the people out there seem to be taking a lot of international trips this summertime. Well, it's true. The international is the big driver, Dylan, and the stories are very similar. They both saw very nice, healthy demand, very nice, healthy revenue growth. They saw some benefit from fuel prices that lowered their cost basis. United is a little bit more internationally focused, so they saw a little bit higher in the revenue growth, up 17%.

American Airlines saw revenue growth of about 5%. Both of those were ahead of consensus and both ahead of their own estimates. Cargo continues to be the weakness, which is not surprising. we're not buying as many stuff we know that that peaked really during covid so you can both consider to see cargo revenues drop pretty aggressively but it's the excitement around the travel dylan it's excitement around international especially around business travel international passenger revenues for united was up more than 40 percent and their international um uh passenger revenue per available seat miles that's the unit revenue

was up more than 13%. International business was up 40%. So both companies have done very well. Their stocks have performed very well. United has been up, is up more than 54% year to date. So it's done a little bit better because the international focus guidance is still pretty strong going forward. The stocks, cyclical stocks, both sell somewhere in the high single digits from a PE basis. So maybe you have a little bit of kind of cyclicality kind of working through there and a lot of excitement from the airline travel. And Robert Issam, the CEO of American Airlines, must be a Ron Gross fan because he said on the call, yes, we are firing on all cylinders. I don't buy all cylinders. First of all, flights are extremely expensive. Have you flown recently?

And you're lucky if you even get off the ground because they all get canceled. So, I mean, there's got to be some backlash here at some point. I think consumers are getting a little fed up with what seems to be a very healthy earnings report for these companies, but the customer service is lacking. Yeah. And the domestic side, Ron, we've already started to see some of the airline prices go down, but they're not seen on international. International continues to be the strength. You know, United had a lot of challenges in Newark with the Canadian forest fires that kind of put some real challenges into them. And both of them continue to recognize some of the challenges and invest into their technology, into their hub system. We also saw record results from

some credit card providers this week, American Express and Discover, both reporting, in Amex's case, Ron, revenue for the quarter hitting $15 billion, thanks to all-time highs in consumer spending. It doesn't seem to matter what's going on. People continue to pull out the card. But yet there's some caution here from both companies because they're both, when I say both companies, American Express and Discover, they're both increasing their provisions for credit losses. And that is actually what investors are mostly focused on here, sending stocks of both of these companies down, even though, as you said, for like American Express, for example, reporting reported earnings at an all-time high. But we look to the future in the stock market and we have to

see how healthy actually is the consumer and how will this show up in defaults. But overall, American Express did a fine job, revenue up 12%. That was actually lower than investors were hoping for, what analysts were hoping for, but still relatively healthy. Card member spending was up 8%. Travel and entertainment, which we talked about with the airlines, was a very strong category, up 14% for the quarter. Millennial and Gen Z consumers remain the fastest growing customer cohort. So overall, quite a good report. Then come in a $1.2 billion provision for credit losses. That's up from $410 million a year earlier, and people get a little nervous. So stock's down. Management did reaffirm full-year guidance. Shares 15 times earnings,

1.4% yield. I think American Express is a wonderful company. We're just going to have to keep an eye on the consumer. Despite strong results from Discover, the credit card company was down 10% after reporting earnings because it was disclosing an FDIC probe. Ron, how seriously should we be looking at this? It's actually not going to have a material impact on the financial statements, but we still have to wonder about how is this company being run? Do they have a good handle on the various regulatory matters? The quarter was fine. We did see, again, some more defaulting loans and provisions for loan losses, and that impacted results. Net income was actually down 18%.

Earnings per share down only 10% because they buy stock back, so not as bad there. But the controversy is what all the investors were focused on. They said they misclassified certain credit card accounts into its highest pricing tier. That seems like something you shouldn't probably do. So merchants were charged more than they should have. They say the revenue impact will not be material. They're setting up a fund to compensate merchants, I think, to the tune of $365 million. So they're going to have some work to do to extricate themselves from this. You never want to see regulatory actions taken. They also have another action from the FDIC that is completely separate from this related to consumer compliance issue. So let them work

through this. Eight times earnings, 2.7% yield. It's not an expensive stock, but I'd like to see them work through some of these regulatory issues before I get interested. Andy, putting a bow on this earnings discussion, travel spending up, but we're also seeing those loan loss provisions creep up as well, as Ron was talking about. How are you feeling about the health of the consumer right now? Well, Dylan, we also have the student loan issue that's just sitting out there that I think still hasn't really gotten a lot of attention there. So there's definitely some risks to the consumer there's pockets of strength in there and we're spending but but overall i think it's it's it's it's be a little bit cautious going forward on the consumer side andy cross ron gross fellows

we'll see you a little bit later in the show up next we've got another look at experience spending summer concerts and how one legendary act made it big by not trying to chase down every dollar they could Welcome back to Motley Fool Money. I'm Dylan Lewis. This summer, one long, strange trip is coming to an end. Grateful Dead's spinoff, Dead & Company, wrapped its final tour this week, capping off an epic run for one of the most bankable and fun summer concert series.

Motley Fool Money's Alex Friedman caught the band at Fenway Park and caught up with author and Dead fan David Meerman-Scott about the lessons he and HubSpot co-founder Brian Halligan think businesses can borrow from one of music's most unique acts. David, you and I both love The Grateful Dead. A lot of our listeners, they may not be fans of The Grateful Dead, and some of them may even have negative feelings about The Grateful Dead. So for folks who are not Deadheads,

why even look to this band for inspiration on marketing and business? Oh, my. Wow, we jump right in, don't we, Alex? Yes, sir. So I think it's super cool because they've done so many things throughout their long history since 1965 differently than most other bands have done. And they've managed to have an eclectic group of people who followed them all along the way. And I'm one of them. And I saw my first concert in 1979 when I was 17 years old. And my most recent concert last weekend in Boulder, Colorado.

So people like me are constantly wanting to experience this music, this band, this experience, this tribe of like-minded people because they've really created something that's super unique and a very important part of the lives of people who become fans of the band. The Grateful Dead broke a ton of different industry rules as a band, and one that really stands out is letting and even encouraging fans to tape their concerts so that they could have those shows for life. Basically, this is one of the first examples of a freemium business model I'm sure a lot of folks can think of. So when you think about the band making this decision, what do you imagine the lasting impact was on them for doing this and for the world? It was super interesting how this came about. I had a chance to briefly speak with Bob Weir about it quite a number of years ago. And they were noticing that fans were bringing recording devices into shows. And originally in the early days of bringing, I mean, this is serious recording gear with like, you know, microphone stands and so on. In the very early days, they tried to police it like every other band did and say, hey, no recording allowed. And then they had a band meeting and said, well, wait a minute, let's rethink this.

You know, why do we want to be the police and telling people what they can't do? Why don't we just let them do it? And then they realized, the band, that those recording devices, especially the tall microphones that stood, you know, six, eight, or ten feet tall, were destroying other people's viewing sight lines. So they created a taper section behind, typically it was behind the mixing board, so it's a good place for sound. And they sold taper seats where tapers could sit. And it was brilliant, a brilliant form of marketing. Like you said, it's kind of an early freemium model. I also call it in the trading initially, it was cassette tapes back in the day. Now people trade MP3 files. But back in the day, trading of cassette tapes was a social network before Mark Zuckerberg was even born because, you know, if you had a great show on a cassette tape, you know, you might make a copy of it for your friend and trade it with them or give it to them as a gift. And the band was cool with that.

Feel free to share it with people. We just don't want you to sell it. And it turns out that the band didn't think of it as marketing per se. They thought of it as just let's be nice to the fans and let them do what they want to do. But it actually turned out to be brilliant marketing because that's how many people were first exposed to the Grateful Dead with this free content. And that's how I was exposed. My next-door neighbor was playing Grateful Dead cassette tapes from shows in his bedroom that I could hear from my house. And I was like, wow, that's really cool.

What's that? And I started to ask him what the band was, Grateful Dead. Oh, that's super cool. This was in the late 1970s when I was a teenager. And Brian Halligan told me the same thing. He was on a painting crew in high school and painted houses. And the leader of the crew would play Grateful Dead through a, you know, a boombox style cassette player. And that's how he got exposed. So, you know, there's two out of two who got exposed as a result of these cassette tapes that were played in college dorms and in car stereos and on painting crews and from people's bedroom windows. And that led more people to want to see the band live, and they sold lots and lots and lots and lots of concert tickets as a result. That's clearly one way that the band prioritized their fans. And in the book, you talk about how there are lots of other examples of how they prioritize their fans in different ways.

So when you think about businesses looking to build and strengthen their brand, why do you think prioritizing your most loyal customers is so significant? Oh, because, you know, I think especially now, but certainly back then as well, it's the humanity of it. It's the idea that we are all part of a community. And that's really what the Grateful Dead did in such an important way is they realized that, you know, yeah, we're a corporation. Yeah, we're the creators of this music. Yeah, we're the ones on stage. Yeah, we're the ones selling the tickets. But if it weren't for the fans, this thing wouldn't happen. If it weren't for the entire community coming together at these shows and experiencing this together, none of this would be happening. So they didn't think of it as marketing. And several members of the band who I had a chance to ask about it always told me that, no, we didn't think of it as a way to make more money, as a way to do marketing, as a way to do branding. What we thought of constantly was how can we be human? How can we do the best for the fans? And another example of that, besides the taper thing is such a cool example, but another example of that is the band was finding that people were creating t-shirts and other things that they were selling in the parking lots or in the parks nearby the stadiums and arenas where the shows were happening. And it was mostly fans who were just creating, you know, 20 or 30 or 40 t-shirts to sell.

And they were using a licensed logo, the Grateful Dead Steal Your Face logo. We call it the Steely for short. And at first the band was like, what do we want to do about this? I mean, they're taking our intellectual property, they're taking our copyrighted logo, and they're creating t-shirts and they're creating posters And they're doing other things with this material, you know, belts and belt buckles and all sorts of things. What should we do? And what they ended up doing, which I think is another example of this cool humanity, this cool idea of branding and letting the community be a part of it, was they said, if you're selling a few items to make a little money to buy a ticket to go to the show, we're cool with that. But if you become a big business and you bring a truck to a show and you set up a tent or you're selling mail order, then we want to get paid and we will officially license your merchandise. And even today, there's hundreds of officially licensed Grateful Dead merchants out there who are selling millions of dollars, many millions of dollars worth of Grateful Dead logoed gear on all kinds of different things.

And that's generating revenue for the band, of course, now when they do that official licensed, but they're also getting that logo out so people see it. And they're still allowing very small-time people to sell a few things at a show with no problem at all. When you think about the band and their partnerships and creating affiliate merchandise, are there any other partnerships that other businesses have developed in a way that's kind of a similar playbook from the Dead? Yeah. You know, it's interesting because the Grateful Dead had this, you know, amazing logo and they wanted people to get it out there, they created these partnerships to do that. And there's a number of companies that have programs like Amazon comes to mind where you can sell merchandise through Amazon as an official partner. And Amazon, of course, takes a cut and you have to follow their rules. That comes to mind.

I also think of the Apple ecosystem where there's all those apps and other companies are doing that kind of model as well, where, you know, you're not part of Apple in the sense that you're not part of Apple as the company, but you can become an affiliate and you can sell your app through the App Store. And it's kind of a similar model. And I think that's interesting that many of these things that the Grateful Dead did back in the day in an analog world are now pointing to how in a digital world we do sales and marketing. And that's fascinating to me because I love this idea of digital marketing and digital promotion and digital sales. And many of the things Grateful Dead pioneered are things that we are doing today in the digital world. I know HubSpot, that's a company that a lot of us here at The Fool really admire. And you wrote your book, Marketing Lessons from the Grateful Dead, with your friend and co-founder of HubSpot, Brian Halligan. So I'm curious, as someone who's been able to watch HubSpot evolve over the years, are there any clear ways that Brian and HubSpot have been able to take inspiration from the dead?

Oh my gosh, lots of them, yeah. So I've been on the HubSpot board of advisors since 2007. I was the initial very first advisor to the company and still am involved with it. It's super great. So I think one of the most important things that Brian did, and Brian's done many of the things that we wrote about in our book, but one of the most important things that Brian did was initially to sort of carve out a new niche in the software space. because prior to HubSpot, there wasn't a great way that small to medium-sized businesses could

manage their marketing. And initially it was marketing, now they're doing sales and customer support and other things. But initially with marketing and Brian said, well, no, we're going to create something new. We're going to create something brand new, just like the Grateful Dead did. And then they marketed that through content, just like the Grateful Dead allowed fans to record their concerts and the content of those concerts in the form of cassette tapes grew the Grateful Dead's business. HubSpot did a fabulous job and still are, by the way, 17 or 18 years, whatever it is later, doing a fabulous job to create the kind of content that will generate fans first. And then maybe some of those fans will want to buy something. And again, that's

what the Grateful Dead did. You know, you can listen to cassette tapes and never have to spend a penny with the Grateful Dead and be perfectly happy listening to the cassette tapes that your friends gave you. But maybe over time you wanted to go see a show and then you bought a concert ticket. And the same with HubSpot is they had so much great content in the form of blogs, YouTube videos. They have HubSpot Academy where you can take free courses about marketing and other subjects. And all of that free content built fans of HubSpot. And, you know, there's millions and millions of people who have been exposed to that content. Most of them didn't become clients. But if you decided, oh, you know what, I think I need some marketing software

that will help me to run my business, then, oh, okay, well, of course, I'm going to go with HubSpot because they're the company that have been providing me with all of this great content. We'll see you next time. to Motley Fool Money. 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 stocks based solely on what you hear. I'm Dylan Lewis, joined again by Andy Cross and Ron Gross. We're going to get over to stocks on our radar in a minute, but this is my first time talking with both you guys during earnings season. We've touched on some of the themes that are

visible already. Hot travel market, consumer spending holding up so far, but something for us to be keeping an eye on. Ron, what's on your radar this earnings season? Probably the same thing that's always on my radar. I'm looking at earnings growth for the companies that I'm most interested in and management's forward guidance. I'm looking for clues as to the health of the consumer and for companies' willingness to spend, which may help me form an opinion as to the likelihood of a recession either later this year or in 2024. I'm hoping there won't be, or if there is one, it will be shallow and short. I'm also looking to see if the rally that we've been experiencing in the S&P 500 broadens out. So far, it's really been because of the performance

of five or 10 very large cap tech stocks, Apple, Microsoft, Nvidia, Tesla. But the equal-weighted S&P 500 index is only up about 9.5% versus the regular S&P 500 up 19%. So the rally has not been broad. If it does broaden out and we start to see the other 490 stocks in the index start to rally, we could have a very interesting back half of the year. Andy, what about you? What are you watching this earnings season yeah it's the the equal weight it's setting our catch up ron so we're starting to see a little bit of progress which is great but i agree with you we need to see some broadening out yeah for me a lot of it to echo ron's on the consumer side a lot of the pipeline from the enterprise spending on the tech side we saw a lot of commentary over the past uh

couple conference call quarters about some of the enterprise customers lengthening out their sales cycle, pushing out some orders the second half of the year, a little bit cautious. And that impacted a little bit of the forward growth rates and the expectations. And at the enterprise level for some of those large clients, that can be very profitable growth for the companies providing that like cybersecurity, whatever you may have. So I'm looking to see commentary from that about are they starting to see more interest in the pipeline and the activity that they saw got pushed out or maybe cautious come back to the fold. All right, let's get over to stocks on our radar. Our man behind the glass, Rick Engel, is going to hit you with a question. Ron, you're up first. What are

you watching this week? I'm watching Toro, TTC, leading outdoor equipment company with brands and equipment such as lawnmowers, professional turf equipment, irrigation systems, snow removers. They serve both residential and professional markets. Nowadays, more than three-quarters of their sales are to professional customers, including landscaping companies, golf courses, and stadiums. Their net sales have more than tripled over the last 10 years. Selected acquisitions have helped that. The business is less seasonal than it used to be. We've got a lot of large government spending programs that are going to help this company going forward. They strong operating cash flow, raised their dividends for 14 consecutive years, 1.3%

yields only, but that should continue to keep growing. I think it's worth looking at Toro. Rick, a question about Toro. Yeah, who would win in a fight, a self-driving lawnmower or a self-driving Tesla? I got to give it to Tesla, come on. I'd like to point out, by the way, that Ron and Matt Argersinger, our colleague, might slowly be becoming the same person. This is a Matt company, by the way. This is a recommendation in our dividend investor service,

which Matt runs. Andy, what is on your radar this week? I'm looking at Mueller Industries, symbol MLI. It's a $5 billion industrial manufacturer of copper, brass, aluminum, and plastic products that targets the plumbing, the air conditioning, the heating, and the refrigeration markets. Dylan, I don't know if you've been outside recently,

but it's quite hot. And unfortunately, climate change is real, as we've seen over the past couple of years. And this company helps provide building solutions and products that target refrigeration markets, like I mentioned, the air conditioning markets, industrial plumbing. They've been around since 1917. They've grown revenues over the past five years by 11% per year and profits by more than 50%, well more, but the long-term growth targets of 10% growth in operating income. It's very profitable, generates high returns on capital, boosts their dividend by 20% recently, now yields 1.3%. It is a cyclical company. The stock's up more than 50% year to date. So we are seeing a lot of excitement in this kind of company, especially around some of

the issues that they are helping to solve with their tubing and their products. So I'm looking for a little bit of a pullback before I get too excited in Mueller Industries. But boy, it's been a long-term winner and very exciting to see how they are growing the business. MLI. Andy, you're dead on. I'm a huge fan of Central Air, even if I have to turn it off while we're recording to avoid that low hum in our audio. Rick, a question about Mueller Industries. Not a question, just a comment that as side hustles go, Jim Mueller's really, he's firing on all cylinders here. Yeah, I didn't know he had his hand in other pots there. Rick, which company is going on your watch list this week?

I'm going to go with Toro just because I want to see that fight. Yeah. All right. That'll be a future debate. We'll have Ron Gross and we'll have Matt Argersinger debate the merits of Toro, agreeing with each other. Rick, thank you so much for joining us for this segment. Andy, Ron, thanks so much for joining me for today's episode. Thanks, Dylan.

That's going to do it for this week's Motley Fool Money Radio Show. The show is mixed by Rick Engdahl. Thanks for listening. We'll see you next time. Thank you.