Motley Fool Hidden Gems Investing - The Kids Aren’t Alright (Banks, However, Are)

Episode Date: October 14, 2025

In this episode of Motley Fool Money, long-time analysts Emily Flippen, Jeff Santoro, and Jason Hall dive into bank earnings, Robinhood’s meteoric rise, and take a look at how alcohol consumption has changed the landscape for vice investments. Companies discussed: JPM, GS, WFC, HOOD, STZ, SAM Host: Emily Flippen, Jason Hall, Jeff Santoro Producer: Anand Chokkavelu Engineer: Dan Boyd Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode. Learn more about your ad choices. Visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

We're digging up bank earnings and trying to figure out between Robinhood, beer, and cannabis if the kids are truly doing all right. This is Motley Fool Money. It's Tuesday, October 14th. Welcome to Motley Fool Money. I'm your host, Emily Flippen, and today I'm joined by analysts Jason Hall and Jeff Santoro. Guys, I am really excited to get into some of the shifting trends that we've been seeing over the course of the past year. That includes a 250% rise in Robinhood shares, as well as beer

and alcohol consumption reaching all-time lows in the United States. But first, I know we have some very important housekeeping to do with the news of the day and bank earnings. I mean, I guess we really should eat our veggies before moving straight to dessert, right? And Jason, and every quarter, a slew of banks report quarterly results. That really kicks off earning season. You're a better analyst than Jeff and myself because you actually look forward to these reports every quarter. But today, we're seeing a lot of broad-based beats, it seems. Dealmaking, trading, they're all running hot in the first full quarter here. When you look at these reports, what do you think investors should be taking away? First off, I'd say a lot of people are

going to challenge whether they would consider somebody that looks forward to bank earnings to be better than somebody like yourself, Emily. So, I just wanted to get that out there. But no, this is definitely important, what we're dealing with, because we got results from three of the big four U.S. banks, J.P. Morgan, Wells Fargo, Citi reported, and of course, the investment banking giant, Goldman Sachs. They all delivered really strong results last quarter. Citi and Wells, their businesses, for different reasons, have long struggled. And we've seen Some serious work from Jane Fraser, CEO of Citi, working hard to tear down this unwieldy, low-profit empire that her predecessors built and try and turn Citi into a leaner,

more profitable bank. We saw some of that progress this quarter. Really strong revenue and earnings growth, even after the impact of a nearly $3.25 billion write-down tied to the partial sale of Banamex, its international subsidiary. Credit quality is also holding up really well. Return on tangible equity is improving. It's worth noting that it's still way below its peers, but it's moving in the right direction. If we look at Wells, similarly, it's on a big upswing. It just reported its first full quarter free of the asset cap that the Fed imposed. You go back to 2018 when that asset cap was put in place. That's part of the punishment. You guys remember the fake account scandal? Unfortunately.

Unfortunately. Finally. We're finally free of that, and Wells can start growing its assets again. Earnings were up 9%. That was actually mostly from fees, including investment banking and card fees. Now, net interest income, that's the money it makes from loans after paying interest on deposits. That was up 2%. Other parts of the business are accounting for a lot of the growth. Credit card balances were up slightly. That's something that JPMorgan Chase, which is the largest credit card issue, also noted. Yeah. And JP Morgan has always kind of been the exception to the rule here for banks in terms of its relative performance. And I know, Jeff, every single time we have these banks reporting

earnings, everybody is itching to know what CEO Jamie Dimon had to say. It seems like he always has a hot take for us. Did he say anything that piqued your interest? Well, every time the banks report, I'm interested to hear what Jamie Dimon says, because I feel like he's often bearish when things are going well, but it never seems like the doom and gloom that he predicts actually comes to pass. So I know, Jason, you're going to talk about what he had to say a little bit, but nobody ever seems to call this out. That's probably a different podcast, but I'm curious what you think, Jason. Yeah, Jeff, I know you wanted to say that, right? Jamie Dimon's always wrong with his bearish calls. I don't think he's really making predictions as much as just trying

to buffer the worst tendencies of the market to swing to those extremes of sentiment, either bearish or bullish. And honestly, I was a little surprised that he was a little more middle path with his comments after this quarter, pointing out that while there are soft spots, he wasn't as doom and gloomy, pointing out that the consumer and the economy have remained really resilient. It's actually the comments that he made and well CEO Charlie Scharf made, they said almost the exact same thing. Yeah. I don't follow the bank sector as closely as you do, Jason. But one thing I do find interesting every quarter is the degree to which these banks tend to do well or struggle seems to be tied with the type of banking they specialize

in and what the economy is doing, right? So right now, I'm really interested in seeing what the banks that focus on things like mergers and acquisitions that have a lot of trading volume, if they're into brokerage trading and things like that. I think if we see a booming economy continue for a while, those banks, the M&A activity, I think that's all going to continue and these banks should do well. What I worry about as an investor is if we see a downturn, and we will at some point, it's just a matter of when, I feel like that could really hit the brakes on some of these businesses that are putting up some strong numbers so far here in 2025. Yeah, Jeff, that's right. Banks are extremely cyclical. They go as the economy goes.

And honestly, that's the case for commercial banks and investment banks, those different sides of the banks, that the universal banks have a little bit of both. And we're in this weird place where everything's working really, really well. Those who have the capacity to spend and borrow continue to do so. That's both individuals and businesses. If we look at JP Morgan's investment bank, it did exceptionally well. Dealmaking's picking up. That's not just the strength of the economy, but it's also the product, I think, of an

administration that's willing to let big M&A happen, plus the stock market that's good. You talked about trading volume. But IPOs are a big deal, too. Morgan was in on Circle and Figma's IPO that happened recently. It also advised on the Walgreens deal that took that company private. Look at Goldman Sachs. It just had one of its best quarters ever, benefited from the exact same trends. Huge trading activity. Think about institutional trading. That's a big thing for these investment banks. We have refinancing, a business-friendly administration. All of those are encouraging more dealmaking. The big $55 billion acquisition of EA, that was Goldman that was advising. So, you put it all together. On the consumer side, the banks are doing well.

We don't see any big immediate risks in the economy. Nobody took big moves to bolster their balance sheets for imminent credit losses. And if their comments weren't sanguine, they were very cautiously optimistic about the economy. Maybe management's whistling through the graveyard and not as confident as they proclaim. But I think it's just more evidence that enough of the consumer class is strong enough to prop up the economy. And the biggest banks, I think,

are largely de-risked from the middle and lower income families that are struggling right now. Well, even if we are sticking our heads in the sand, ignorance may be bliss here. Up next, we're digging into what caused Robinhood's shocking our performance this year.

And if there's something beyond a meme craze happening, stick with us. Where some see heroes. and others see egos. Bloomberg sees the era of billionaire athletes. While others follow the noise, we follow the money. Learn more at Bloomberg.com. Welcome back to Motley Fool Money. I want to take us back in time to 2021. Robinhood, which is the app-based trading platform aimed at younger adults, has just gone public. The business has a short period of relative success before concerns over things like options trading and privacy led to shares selling off.

And for a couple of years, the platform didn't really do much. But at the turn of 2024, it seems like this perfect storm has led to a massive jump in operating profits, right? Crypto and options trading volumes came back, higher interest rates led to strong high margin revenue, and management went into cost-cutting mode, bringing operating expenses down by nearly 50%. Shares have since roared. But in 2025, it seems like shares have continued to roar.

after rising over 200% in 2024. Shares are up another 250% in 2025 alone. Jeff, when I look at this performance versus the fundamentals, there's some part of me that can make sense of it. But on the other hand, it's still priced incredibly loftily at nearly 30 times forward sales. So is there something here beyond just a meme stock craze? So to me, this is a story about how speculative and gambling vibes are everywhere in the markets right now, right? Let's remember how Robinhood makes its money. You talked about this a little bit. Most of their revenue, 54% in this last quarter, comes from transaction revenue or payment for order flow. Put another way, every time someone trades, they make a little bit of money. The market booms, people are

excited, there's exuberance, a lot of trading happens, and you're going to see them have great quarters over and over again until that slows down. Just as an example, in the last reported quarter, their revenue from options trading grew 46%, from equities, that grew 65%, and cryptocurrency currency grew 98%. So, people are clearly transacting, and Robinhood is benefiting. Now, I guess the question is, can it continue, right? And that's where the valuation factor comes in. I think it can, as long as the vibes that we see in the market right now continue. What concerns me, though, is their user growth, right? So, in the last quarter, their funded customers only grew by 10%, while total platform assets grew 99%. So,

the results are clearly being fueled by more people trading more often, rather than really strong user growth. And it's worth remembering that in 2021, when we had all of the last time the market was similar to how it is now, they posted $1.4 billion in total transaction revenue for that year. That metric dropped to $814 million the next year, $745 million the year after that, before returning back to these lofty highs we've seen more recently. So, I think for this business, as it's currently constituted, and I know they are making some changes to change this for the future. I think they're going to be very much tied to the market cycle, and that's worth remembering for investors. Yeah, Jeff, I think that's right in terms of what's happening now. But again,

I think thinking about the difference between the cyclical realities of these sorts of businesses and the secular trends is really important. Yes, it's a blistering market for stocks and crypto is driving the bulk of the results. But look at BlackRock, which is an absolute giant here, just reported a 17% increase in assets to $13.5 trillion. Most of that was the result of increases in stock market value. I think that 10% accounts growth, that's nothing to sniff at. This is an incredibly saturated market. That means that a lot of those customers that Robinhood is gaining, it's taking them from someone. This is an expansion of the market. It's less just a gamified app and a taxable brokerage account than it was when Robinhood first popped up.

And as it adds more offerings, I think it's going to become stickier. The retention rates of brokerages are already in the mid-to-high 90s for the industry. The goal for Robinhood is to keep young users for decades. That's what they want to do. And just as, again, with banks, there's the cyclical reality, but the secular tailwinds are favorable. Those same young users that are choosing Robinhood now, they're going to receive a massive portion of the $100 trillion-plus wealth transfer from boomers to their kids and grandkids over

the next couple of decades. And a lot of that's going to be leaving legacy platforms. And if Robinhood plays its cards right, it's going to go into Robinhood accounts. It certainly performed better than I expected. And I will say, though, as much as I've written off this company incorrectly over the course of the past couple of years, I think buying today is buying at peak hype, so to speak. And it could be an interesting one to add to a well-diversified portfolio if and when trading volumes start to fall and the tide start to shift away from Robinhood in terms of just some of the user growth and trading volumes that depend heavily on external factors. In my mind, that's an

interesting time to be adding Robinhood to a diversified portfolio. Coming up next, we're digging into what's causing the decline in alcohol sales and if that's just a trend or a seismic shift. Stick with us. Where some see heroes and others see egos, Bloomberg sees the era of billionaire athletes. A fad to some, the future of money to others. We see crypto's trillion dollar swings, the end of jobs or the end of human struggle. We see the endless funds fueling the AI hype while others follow the noise. We follow the money. Learn more at Bloomberg.com. Welcome back to Motley Fool Money. Last week, a stock I own and have historically really liked reported earnings and I was miffed. Constellation Brands, that ticker is STZ,

is the owner of beer brands like Pacifico, Modelo, and Corona. And they reported earnings and they have historically been a little bit more resilient in terms of alcohol brands, but now they're facing the same slowdown that has plagued companies like Boston Beer. And the truth is people are just drinking less alcohol. And it seems like management, especially for Constellation Brands, refuses to acknowledge this broader trend and is blaming it on the macro environment. And while I'm sure that's partially true, I'm curious if in y'all's reality, as you look across the alcohol landscape here, alcohol consumption declining quarter after quarter, surveys finding that this has been going on for a while, where the percentage of Americans who drink alcohol

is at all-time lows. So Jason, when you see this type of shift in consumption, does it strike you as something that is temporary due to external factors? Or is this really a permanent seismic shift in the market? I don't know if I would say it's permanent, but I think then that we can certainly think that this may be a generational shift. The trend aligns with data that younger adults are less likely to go out in public group settings like bars and have become more socially isolated, spending more time on apps. So honestly, some of the trends that have led to the rise of the Robin Hoods of the world are things that are on the other side, maybe affecting this. And we could talk about the negative implications of that, right? In terms of less social activity,

less engagement, less interaction with real people in the real world. I mean, there are some upsides to less alcoholic consumption. At the same time, there's also anecdotal evidence that the social lubricant aspect of social drinking has some net positive aspects for society. But it's certainly looking like, as to your point, a lot more than just a macro thing here. After all, history does tell us that there's kind of an inverse correlation between economic factors and alcohol consumption, i.e. people tend to drink more when times are tough, not less. I also don't buy the GLP-1s are undermining the snack food and booze industry in anything like permanent ways. People quit GLP-1s at very high rates because they make them feel

miserable. Then they go back to the lifestyle and habits that they had before. Until we see GLP formulations that don't make a large cohort of patients feel like crap, I don't believe those drugs are going to permanently alter people's consumption patterns. Now, carrying it a step further, we are also seeing trends of lower underage alcohol consumption as well. Again, not a bad thing, but it's a thing that's happening. Jeff, maybe you have a little bit better pulse of the youngs than me. What fun intoxicants should we invest for the next generation? That's a great question. The ones that make me money as an investor, I guess, would be the way I'd go. Look, I know this is an unsatisfying answer, but I think the truth of the future of

the alcohol industry probably lies somewhere in between what we've been talking about. And I think it's the downturn in drinking is probably a combination of factors, right? Some of it is related to the macro environment. I don't think that's entirely untrue. The data you just pointed out, Jason, about younger adults socializing less, drinking less in public while they're socializing, I think there's truth to that. I think the GLP-1s are playing a small role, right? I think it's going to be all of those things. Another factor, I don't know, when I was younger, the thing that limited my drinking when I was not making a lot of money was how much I wanted to spend of my discretionary income on alcohol. And if, you know, all the data shows

now that younger people are having an even harder time, you know, getting things going with high college debt, things like that. So it could just be an economic factor in terms of where this generation is. I think this is a pendulum swing, not a death spiral for the alcohol industry. Now, the pendulum may not swing all the way back to where it was. I do think it's possible we see lower amounts of drinking in the future. But my guess is that it levels out somewhere in between what we're seeing now and what we saw maybe five or 10 years ago. I think what would be interesting to watch is how these alcohol companies handle cannabis

when and if it becomes federally legal. You've seen consolation brands already took a stake in canopy growth. I think we're going to see more consolidation in this space between the alcohol companies and the cannabis companies. Similar to how tobacco companies have diversified away from cigarettes, but have still remained in tobacco products. I think that's going to be the interesting thing to watch with this industry as we move forward.

And some of those beer brands have been more proactive, to your point about Constellation Brands, versus companies like Boston Beer, who have continued to see, I think Jim Koch, the interim CEO, said that he saw something to the effect of THCs taking mid-single-digit share of beer in certain states where it's been legalized. So they might not be investing, but they're certainly aware. As we wrap up here, I'm going to put you both on the spot. In maybe 10 seconds or less, if you had to choose between investing in a broad-based basket of companies, let's say alcohol versus cannabis. I'll even throw pharmaceuticals in there with the GOP ones. Which one do you think is going to outperform and why?

I'll quickly start. I'll say I think it's the cannabis industry. I think there's a reason why consumers are continuing to shift there. That's where a lot of the growth is. It's clearly still and getting its feet sorted out from underneath of itself. But I think in five years, they probably relatively outperform. Jeff, what about you? I think five years is too quick for the cannabis industry to outperform. I might take that bet on the longer term. I think alcohol companies are going to figure this out. They're going to learn how to pivot to the popular drinks, and they're going to learn to diversify their portfolios. I'm taking alcohol companies. Yeah. Cannabis, I think, has too many

yellow flags. And the consumer goodsification of that industry, the packaged brand and products, think it erodes the potential for anybody to do what the tobacco industry does, which is take a really cheap product, find customer base that's addicted to it, and get good margins. Can I just actually skip both and just take Altria for the over here? I love that idea. You know what? I can't wait. Listeners, hold us accountable. Bring us back in 2030 and we'll see if it was the alcohol, tobacco, or cannabis industry that won out. Jason and Jeff, thank you both so much for joining. Thanks, Emily. As always, people on the program may have interest in the stocks they talk about in The Motley Fool may have formal recommendations for or against, so don't

buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Jason Hall, Jeff Santoro, and the entire Motley Fool team, I'm Emily Flippen. We'll see you tomorrow.