Motley Fool Hidden Gems Investing - The Motley Fool Money Half-Year Review

Episode Date: June 30, 2023

2023 is half over and the stock market has rebounded significantly from its 2022 lows. (00:21) Andy Cross and Jason Moser discuss: Revised first quarter GDP data Nike earnings coming in a bit light The Biden Administration's proposed new artificial intelligence chip export restrictions for China. (19:11) Motley Fool Money's Deidre Woollard caught up with Dave Meyer, the VP of Growth and Analytics at Bigger Pockets to talk through how the housing market has held up this year in the face of higher rates and whether trends like aging in place and sunbelt migration are here to stay. (32:07) Jason and Andy talk about two ideas on their radar: Amazon and Winmark. Stocks discussed: MKC, NKE, GIS, DAL, NVDA, AMD, CCL WBA, PEP. AMZN, WINA Host: Ron Gross Guests: Andy Cross, Jason Moser, Deidre Woollard, Dave Meyer Engineer: Dan Boyd  Learn more about your ad choices. Visit megaphone.fm/adchoices

As the first half of 2023 comes to a close, we've got some encouraging economic data, earnings from Nike, and a look at how the housing market has held up so far this year. Motley Fool Money starts now. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show. I'm Ron Gross, sitting in for Dylan Lewis. Joining me today are senior analysts Andy Cross and Jason Moser. Fools, how are you doing?

Hey, Ron. Hey. Fools, believe it or not, 2023 is half over. The stock market has rebounded nicely from the 2022 lows, with the S&P up about 15.5%, and the Nasdaq up a whopping 31.5%. Oh, and by the way, Apple's market cap now tops $3 trillion. Today, we're going to talk semiconductors and spice and everything Nike. See what I did there, fools? But we begin with the big Macro. On Thursday, revised data showed that the economy actually increased at a 2% annualized pace in the first quarter, up from the previous estimate of 1.3%. And we got some encouraging inflation data on Friday. Earlier in the week, Fed Chairman Jerome Powell said that more interest

rate increases are likely as the job market remains strong. So, Andy, not bad, all things considered, is good news actually good news here? Or does this just give the Fed cover to continue to raise interest rates? Well, the good news is that the U.S. economy, the most important in the world, is doing pretty well, especially considering where many economists and, frankly, investors had thought we were heading at the start of 2023. Inflation moderating, things are looking up. But that core rate, Ron, is still two times where the Fed really wants to be. So the strong economy and that pesky inflation gives more cover for the Fed to raise rates probably at least once, maybe even two or three times this year, as the Fed chair kind of implied. Odds are running right

now at about 85% for another 25 basis increase next month after Chair Powell said his remarks over in Europe this week. So, when you think about the real GDP got revised to 2% annualized up from the 1.3 pace that they had originally forecasted. And the Q2 estimates have been steadily moving up with the Atlanta Fed now. The GDP now forecasts at 1.8%, which is about where S&P Global is estimating as well. Consumer spending up 4.2%. In the quarter, revised from an increase of 3.8%. That's the strongest in about two years, although from that PCE number just today, it saw that May data is that spending is moderating up just 0.1% versus an increase of 0.6%. That's month to month, where it was in April. So you have the US economy strong,

you have employment still very strong. Yeah, we are starting to see a little bit of moderation on the employment, but unemployment rate at 3.7%. Only 6.1 million Americans out of work. So that economy still looks strong. The very interesting thing is that the stocks are just rolling with this. You talked about the impressive market performance this year. I think that investors have gotten used to, OK, we might have another one or two increases, but business is strong. The recession that everyone was forecasting might get pushed down, and things are looking pretty good for the U.S. economy, and that speaks well for businesses and for stocks. Yeah. I just hope that consumer spending is not at the expense, so to speak,

of their savings or of higher credit card levels. So, consumers, be careful out there. Yeah, for sure. On Thursday, McCormick reported strong results and raised its full-year profit outlook, but the stock actually sold off a bit, Jason. So, you tell me, what am I missing here? Well, Ron, I mean, you buy the rumor and sell the news, right? That's what they say, right? Seriously, though, I don't think you're missing anything here. I mean, with the slight sell-off there, as well as the raised earnings guidance, This still puts the stock around 33X full-year forecast. I mean, it's not a cheap stock still, so to speak. It's a little bit of a lofty multiple even for this company. But it does

garner that lofty multiple for a number of reasons. I mean, it's competitive position, the nature of what they sell, it's dividend aristocrat status. So, to me, this is nothing more than maybe a little profit-taking. But I think the good news is, when you look at the quarter, the results were really strong all the way across. Volumes are up, they're maintaining pricing, in their controlling costs. That's really all you can ask. Management is taking a very confident tone regarding the back half of the year as well. Maybe something the market took a little bit of note of here, we do have a leadership transition. Longtime CEO Lawrence Carzius is going to be moving over to executive chairman. COO Brendan Foley will become the

next CEO starting in September. Foley's been with the company for about a decade, very experienced in the space. He was with Heinz before joining McCormick. Ultimately, going back to the numbers, they really tell an encouraging story. Revenue was up 10%, excluding currency impacts. Gross margin up 310 basis points. Earnings per share up 25%. Raised guidance, like you said. And as I mentioned, pricing remained strong, and costs are staying under control. So, I think a very encouraging quarter for the company. And more importantly, do you have a favorite flavor of Cholula hot sauce? Ooh. You know, I actually really am. I'm an OG. I've tried that lime, which is good,

but I'm an OG, too. Andy? Same with me. I just like straight up what I grew up with, and that's what I'm sticking with. Okay. The correct answer is sweet habanero. I'll have to give it a shot. On Thursday, Nike reported fourth quarter sales that topped expectations, but profits came in slightly lower than expected. And Andy, the report looks solid to me from a revenue perspective, but gross margins were down, overhead expenses were up. So, I ask you, do we have an expense problem here? Yeah, more of a challenge than I'd say a problem, Ron. Margins were actually a little bit higher than the consensus analyst estimates, and those margins should really improve down the

line next year with the CFO saying on the call, we can now see around the corner on the transitory cost headwinds that pressured profitability in fiscal 2022 and fiscal 2023. They just finished their fiscal 2023, by the way. And we are confident that we will deliver above-average margin improvement in fiscal 2024. That's the next 12 months. Let's look at the quarter. Revenue's up 5%. These are all not adjusting for the strong currency. Nike Direct, up 15%. Nike Owned Stores, up 24%. Nike Digital, up 17%. In Nike Digital now, about one quarter of revenues versus where that was pre-pandemic, which was about 10%. Wholesale was a little bit of a weakness. That was down 2%. Big strength in China, Ron, 25% when you back out the strong dollar, with footwear up

22% and apparel up 36%. Now, on the margin side, as you mentioned, margins were down 140 basis points to 43.6% on those higher input costs, elevated freight and logistics costs. But they expect that to roll over and improve pretty dramatically in 2024. So, admin costs up 8%, too, as you mentioned, overhead expenses up 10% on a lot of higher wages. So, the one impressive part to the story was really on the inventory side. We saw inventories flat on a dollar basis and actually down on a unit basis. So, inventories were up 16% last quarter. So, that is a real improvement. So, they increased the dividend payouts by 9%. You have a stock that sells at about 30 times earnings. So, I wouldn't be in a rush to go out and buy this, but Nike is such

an institution when it comes to footwear, when it comes to retail apparel, when it comes to sports apparel, and they continue to innovate and get a lot of different athletes and new products out there. So I think I wouldn't be too worried about the margin story this quarter. General Mills reported mixed results, and its profit outlook was softer than investors were hoping for. Jason, a lot of talk on the call about retailers keeping inventories tight. Was that the primary drag here? I think you're right. That was certainly part of the call. Supply chain and inventory dynamics continue to be a part of the story with companies like General Mills. But management did speak to this specifically on the call. They didn't know. They really don't see this

as a General Mills-specific problem. And furthermore, they don't really see it as a problem going forward. It kind of boiled down for them to their two largest, or two of their largest customers, just trying to right-size their balance sheets and their inventory levels. And that just trickles through General Mills' numbers. But the numbers were respectable. organic net sales grew 5%. That was partially offset by those inventory headwinds we were just talking about. Adjusted gross margin up 120 basis points. Operating profit of $889 million, essentially flat from a year ago. Now, these adjusted numbers account for some investments and some divestitures made over the past year, so that we understand each other, Ron. You look

at me sometimes with those quizzical looks. I'm like, yep, well, that's the adjustment, right? But yeah, earnings essentially flat at $1.12. I think the outlook for the upcoming year looks strong. They're getting these inventory levels right-sized. They do feel like organic net sales are poised to grow 3% to 4% for the coming year. And the best news is, really, this is why you own the stock. They raised the dividend by 9% for the quarter. So, all in all, I think not so bad. Solid dividend, only 17 times forward. I say only, 17 times forward. So, not bad in the interest? Everybody likes cereal. Sounds good.

Coming up, we'll talk airlines and drugstores, and we'll see what's going on with the Biden administration and the computer chip industry. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Ron Gross here in studio with Andy Cross and Jason Moser. Earlier in the week, Delta reported strong quarterly results and management raised its 2023 guidance. Andy, Delta shares are up 42% this year as the airline continues to recover in a post-pandemic world. Is there still room for improvement here, or are we almost fully recovered? Yeah, well, reinstating that dividend earlier this month definitely helped drive some of the gains now, about 0.9%. They had a $0.10 quarterly dividend. That was versus a $0.40 quarterly before the pandemic,

before they cut it. So, a lot of enthusiasm for air travel, and Delta is one of the best out there. You mentioned the quarter that they had, revenue was up 45% and 14% higher than the March quarter of 2019. They had an operating income of more than $500 million versus a loss. Operating expenses up 26%, with non-fuel costs up 24%. So, again, revenue is up 45%, costs up in the mid-20s. That's a really good quarter. The guidance was strong. Revenue up 17% to 20%. Operating margin of 10% to 12% guidance. That will equate to about an earnings per share of somewhere between $5 or $6. So, you have a stock that sells at $46, maybe $6 of earnings. That's about a seven times four guidance for the year. You have a little bit of a dividend. No wonder the stock has performed so

well, especially with so much interest in air travel. Capacity has come back. They're starting to see both consumer really ramp up on spending when it comes to air and a little bit of business or small, medium-sized businesses. Travel has come back. They're still waiting a little bit on some of the large and some of the international. So, really, Delta really getting it done in the stock. While it has had a nice run, look for a little pullback before you start adding to it. NVIDIA and other chip companies were down this week on reports that the Biden administration is considering new artificial intelligence chip export restrictions for China. The report indicated that the curbs could come as quickly as next month. Jason, are NVIDIA and potentially

AMD the companies most impacted by this, or do you think this will have repercussions across the industry? Well, I think they're two of the obvious suspects. I mean, I would throw Marvell and honestly others in there as well as at least exposed to this, right? Marvell has 42% of its revenue coming from China. AMD and Nvidia is more around 22%. But I think this really also goes to the nature of the technology that's being shipped out right here. This is about artificial intelligence. This is about military-grade applications and the like. So, companies like Nvidia and AMD are two that are really playing in that sandbox. But again, so is Marvell. If you look at these three companies and just their AI aspirations, recently, Nvidia guided for 64% revenue growth, thanks in

in large part to, quote, a steep increase in demand related to generative AI in large language models, end quote. AMD CEO Lisa Su says AI is, quote, our No. 1 strategic priority. And then you look at Marvell, they're talking about their AI revenue doubling this fiscal year to $400 million, and then doubling again from that next fiscal year to $800 million. So, you look at these companies, they're all exposed. Worth noting, too, the Netherlands just announced they're getting on board here with these restrictions. And the reason this matters, the Netherlands is home to ASML. They make the machinery that is required to produce the most advanced chips. So, just kind of interesting to see how they're siding on the U.S. side of this

equation so far. After an initial sell-off on Monday, Carnival shares shot higher this week on strong bookings and better-than-expected results. Andy, Carnival stock is up 130% so far this year, but that is still way, way off from pre-pandemic levels. What stood out to you in this report? Yeah, Ron, it's a $17 stock today that hit almost $70 in 2018 when it was making $3 billion in operating profits versus losses for the past four years. But the turnaround is clearly in place and investors are warming up to that. You saw revenues more than double this quarter. Ticket revenues up 144%. On-board revenues of 59%. They're going to start generating some of their EBITDA earnings before interest taxes and depreciation. An amortization of more than $600

million this quarter versus a loss of $928 million in the Q2-22. That was above their high-end guidance of 600 to 700 million. Cruise ticket prices are now above 2019 levels. Net per diem, that's the spending like on board when you're on the cruise ships, we're up 7.5%. That was above guidance. Their guidance for 2023, they expect 100% occupancy, even with a 5.7% more capacity into their ships with higher overall net ticket prices compared to 2019. So when you look at this business, you're saying, wow, the cruise business is cruising right along, doing quite well. But overall, I got to say, it's not a great business. When you look at the long-term trends of Carnival, it just meanders along. Returns on capital of the low double digits, operating

margin, even operating margin can be quite good. But there's so much capital that has to go into these businesses. I think the returns are pretty much more market matching at best. Especially after this run, I wouldn't chase Carnival, especially when it sells at probably 30 times or so forward earnings. Earlier in the week, Walgreens' stock fell sharply as the company lowered its financial outlook amid weaker consumer spending. Jason, I'm curious, is this a macro problem in your eyes or something specific to Walgreens? Probably a little bit of both. I'm going to waffle there, Ron. It does look like that. Waffle away. Thank you.

know. It does look like the headwinds are going to continue for some time to come. Management set the table for a potentially challenging fiscal 2024. And anytime you see mention of the word turnaround in the release, and we saw that here, that's a bit of a yellow flag, at least. There are a couple of main dynamics at play here, though. The demand for COVID shots and testing has cooled off considerably. I mean, that's clearly not a Walgreens-specific problem. CVS was just talking about the very same thing last month. And I think that these companies are going to have to gear for that going forward. But management also did note, there is a more cautious and value-driven consumer out there. One thing that's sticking out of my

mind here, now that we've seen this Supreme Court ruling come down in regard to the student debt relief, and we know these payments are going to start back up here around October, it's reasonable to think the consumer might be a little bit more crimped here in the near term. So, it'll be just kind of keep an eye on that as far as retailers go. The good part for Walgreen, though, they do continue to invest in their U.S. healthcare segment. They continue to grow the top line of that business, but it's one where they continue to invest a lot as well. So, it's recording operating losses. But it brings more of a tech flavor to their business in healthcare solutions. So, partnerships with things like VillageMD, Shields, and CareCentrics. These are

working well for the company. But the bottom line, at the end of the day, you're right, they cut full-year earnings guidance by about 12%. That's a big deal for a company like this that has a track record of really meeting and beating expectations on a regular basis. I don't know. I feel like there's probably a light at the end of the tunnel, and maybe this represents a time for investors to get interested in the stock. But it also looks like the near-term headwinds are going to continue for Walgreens for some time to come. Quick answer, yes or no. Jason, the Nasdaq is higher or lower at the end of the year than it is now. I won't hold you to it. Yes.

Andy. Yes. I say no. Oh. I'm going to hold you to that, Ron. All right, Fools. We'll see you a little bit later in the show. Up next, a conversation with Dave Meyer, the VP of Growth and Analytics at BiggerPockets on the state of the housing market. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Ron Gross. We're halfway through the year, so it makes sense to check in on where things are sitting across the market.

Motley Fool Money's Deidre Woolard caught up with Dave Meyer, the VP of Growth and Analytics at BiggerPockets, to talk through how the housing market has held up so far this year in the face of higher interest rates and whether trends like aging in place and Sunbelt migration are here to stay. We're right about the halfway point of the year. What would you say has been some of the main stories in real estate so far? I think there are two primary stories in real estate. The first is about inventory. We all know that mortgage rates are rising. So I guess you could say that is the story. But that is sort of the well-known story. I think the thing that people were not necessarily expecting is that inventory or supply in the real estate market would come down at the

same time as higher interest rates were pulling demand out of the market, and it would provide some stability in the housing market. And so overall, I think what most people who follow the housing market are surprised to see is how resilient it has been in the face of rising interest rates in 2023. Yeah, it's true. Existing home sales have been down about 20%, but prices have fallen, I think, about 3%. So really what we're seeing is you don't have that massive price drop that people thought that we might have. Yeah, that's right. And I know that's confusing to people because there is demand leaving the market. We do see that there are fewer home sales. We do see mortgage purchase applications are down, but inventory is

historically low. Redfin actually just came out a couple of days ago and said that May of 2023 was the lowest amount of inventory they've ever seen in their history of tracking that. So that helps provide some background context for why prices aren't in free fall while some people were expecting them to be. Do you have any predictions for the future, for the rest of the year? Is this inventory crisis going to resolve itself? I don't think it's going to anytime soon. There are some pretty big factors that are driving this extremely low inventory. The first is, of course, the rapid increase in interest rates. And that has created what people in the industry are calling the lock-in effect.

And that's basically that people don't want to move because if they wanted to move to make a lateral move and go to a similar house, they would be paying significantly more, sometimes 40% more on their mortgage. If they wanted to move up, it would be extremely expensive. And I think one of the main dynamics going on here is that even if you wanted to downsize, and maybe you're an empty nester and you're looking to downsize, you could be paying just as much or more to have a smaller house. And so that's really keeping people in place. That to me is the primary dynamic. But there are other trends. We've seen that the average homeowner

is now staying in their home for more than 12 years. Whereas if you go back to 2005, it was six and a half years. So it's nearly doubled. People are staying in their homes longer. So we're just not seeing the same velocity of sales that we were used to in previous decades. And of course, during periods of economic uncertainty, you also just see people not wanting to make big financial decisions like moving. Yeah, that's true. One of the factors that I'm watching is the whole aging in place phenomenon, because we thought that people were going to move to Arizona or Florida. And certainly people are moving to Arizona and Florida, but most people really are wanting to age in place. And that I think is going to have to shake out at

some point. Our baby boomers are in their late 70s now. It doesn't seem possible that everyone's going to be able to stay in their homes and into their 90s. Over the long term, how should we be thinking about that demographic shift? Yeah, it's really interesting. I think we're just starting to see, we've heard a lot about the intention for people to age in place. But as you alluded to, we don't know if that's really what's going to happen. I do think this dynamic is one of the main reasons we're seeing that increase in homeowner tenure increase, as that people don't move out or go to another living situation. But I think this has a big impact, not just on total supply, but it really sort of stops and sort of clogs up the entire housing

market system as it works, typically there's sort of this pattern where, you know, young families, people in their late 20s or early 30s, they buy a quote unquote starter home. Then a couple of years later, they move up to their family home. Maybe they have one or two of those while they're maybe if they have kids growing up. And then at a certain point, they want to downsize into a smaller place. But given some of the things we've been talking about, we are not really seeing people downsize. And that means that they are sort of clogging up this whole upward trajectory of people and the changing of hands of these different property types. And what you see is that the type of housing that the boomers are in are often the same type of homes that are for

first-time homebuyers because they're sort of the smaller where they've downsized into them. And so that sort of creates this bottleneck. And as you've probably seen, first-time homes, smaller homes, starter homes are just not really available. And I think this is one of the major drivers of that is that boomers are not vacating them. Yeah, that's true. And people are, the starter home thing is tending to exist less because people mostly, I think, due to the impact of student loans, they're buying their first home later. And so, you know, they're buying their first home later. They're trying to save money before that. They expect to stay in their homes much longer. Like the NAR profile of homebuyers and sellers, you know, we talked about people staying

in their homes like seven to 10 years. They forecast when they ask people how long they think they're going to stay in their home, they're saying like 15, 20 years, which may or may not play out. But yeah, there is this expectation that I'm buying my forever home the first time and that's and that's just it. Yeah, that would be a big change in dynamics, but it does seem more and more that that's what's happening. We also see builders reacting to that because builders are now not building the quote unquote starter home, which most people categorize as a home of 1400 square feet or less. We're now seeing the average home that people buy, even on their first one is 2,500 square feet. So that would be more, you know, conducive to what most people would want

if they had a couple of kids. And so we see those people buying those right away, probably in preparation for what you're saying is that they don't intend to leave. They don't want to do the starter home, the family home. They just want to get in one home and stay there for as long as they can. Yeah. And it's interesting. The other part of this I think is new homes. So the new homes, like permits and everything haven't had been down about last year. So maybe starting to go up a little bit now, but I mean, home builders, they want to try to time the market. They want to build when people are ready to buy. But at this point, one of the things I'm noticing is that with existing home inventory being so low, new home inventory is a greater part of

the total homes for sale. I wonder, do you think that's going to be a long-term trend? I think it's one of the most interesting dynamics going on. And my guess is that at least for the time being, I don't see really how some of these impediments to inventory alleviate themselves in the short term. The lock-in effect doesn't seem to be going away. People seem to be wanting to stay in their homes longer. And honestly, it's not a good experience to buy or sell a house right now. It's really stressful to people. I think people are avoiding it. And builders are reacting to that. So during normal years, new home sales, new construction comprises about 11% of total home sales. It's above 30 right now. And in some places, it's even higher. And builders are seeing

this as a huge, huge opportunity, I think. You see, yes, it is down from the peak, but just in May, new permits went up 5% month over month, which is a pretty considerable increase. And I think most people, myself included, thought builders were going to be really pretty bearish over the next couple of months. But I think the opposite, at least in single-family home construction, is happening. I do think they're staying away from commercial construction, but that's another topic. Yeah, I think this month was the first time the builder sentiment survey went back up over 50%, which means builders are feeling more positive. And I think the incentives that they're having to offer have dropped a little bit too. So it really is a sign that people are back out there

looking. And I think part of that is there is this sort of, the sticker shock of the mortgages may have kind of sunk in a little bit. Thinking about mortgage rates, do you think that we are now sort of getting into a more stable place? God, it is very difficult to forecast mortgage rates these days. But my best guess is that we're probably going to see similar mortgage rates through the rest of the year, which is high sixes, somewhere around there. We have obviously heard that the Fed intends to raise interest rates to another 25 or 50 basis points, which would put upward pressure on mortgage rates. But what I think people need to know about where mortgage rates stand right now is that they're most closely correlated with the yield on the

10-year treasury, not with the federal funds rate. And normally, the spread between the yield on the 10-year. And mortgage rate is about 170, 190 basis points. Right now, it's about 320 basis points. And so there is a huge risk premium in mortgage rates. And so there is room. So I think you could see it going either way. Like the Fed raises interest rates, mortgage rates could go up. But if inflation keeps coming down, even if the Fed raises interest rates, if that spread starts to come down, there is reason to believe mortgage rates will at least be stable. And a lot of economists are forecasting that mortgage rates will come down, maybe not by the end of this year, but probably early in 2024, maybe to the low sixes. Sunbelt migration, big story for the last

decade or so. Do you see that as the future? I'm starting to see some data showing up, maybe a little bit more of a move to some of the Midwest areas just because of people chasing value. What are you seeing in terms of demographic trends? People think I'm crazy, but I've been saying that I'm long on the Midwest for a long time. I just think we see these big macro trends that our people want affordability. They don't need to be close to the economic engines as they used to be like San Francisco or New York. You can live remotely, not everyone, but more and more people can. And I think we're going to see a lot of the cities in the Midwest that are affordable and start to grow. And I think the quality of life, which is hard to measure, it's hard to

quantify, but does seem to be another major predictor of where people are going to live. And obviously everyone defines quality of life a little bit differently. But generally speaking, the cities that rank high for high quality of life do start to see big trends. I don't think the Southeast is really going anywhere. I don't think we're going to see like an exodus from that at all, but I do think like their relative growth rate will probably slow and we'll see some other places. Like you said, um, Midwest, you see like places like in Arkansas, which is the Southeast, but it's not what most people think of. I think most people think of like the Carolinas and Tennessee and Georgia and Florida. So some of these other places really start to grow, um,

mostly at the expense of Western cities, which are seeing the biggest out migration. You can catch more from Dave on BiggerPockets' On The Market podcast. Coming up after the break, Andy Cross and Jason Moser return with a couple of stocks on their radar. Stay right here. You're listening to Motley Fool Money. 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. Ron Gross here with Andy Cross and Jason Moser.

Okay, fools, we have time for two quick stories before we hit stocks on our radar. are prices of sriracha, if I say that correctly, the spicy ketchup-like sauce, are as high as $70 on eBay and $124 on Amazon. Hoi Fong Foods has been struggling with a years-long shortage of the chilies that are used to make the sauce, which is hurting production and causing some shortages. Gentlemen, thoughts? Are you a fan of this product? Would you pay up for this product?

Big fan. I have it. my fridge now. Don't know that I'm going to pay up for it. The thing is funny, these things feed on themselves. They're like runs on banks. The more these things publish, the more panic it creates, and it bids that price up and up and up. But I tell you, it's a good sauce. I use it on its own and also as ingredients for other sauces. I got a bottle sitting in my closet that I don't think they've opened up yet. Get that on eBay. If you need some, you know where to call.

Sticking with the theme, on Independence Day, Pepsi will unveil Pepsi Kola Chup, which is perhaps exactly what you're thinking it is, ketchup infused, yes, with Pepsi. Guys, I got to say, on a hamburger or a hot dog, this may not be ridiculous. Maybe not. I have heard of soda in barbecue sauces before. Stubbs and Dr. Pepper, for example. Stubbs, owned by McCormick, by the way. Really, what this boils down to, it reminds me of the beginning of the season here.

I need to go ahead and make up a new batch of my Big Daddy's Boy Howdy mustard sauce. We just call it the house sauce at home. It's that recipe that I made up. We talked about it before on the show, Ron. Maybe as we celebrate freedom this year, maybe I should celebrate by giving that recipe out finally after all these years. Are you going to add some Mr. Pibb or Dr. Pepper to it? It just doesn't require it. I'm just waiting for the Mountain Dew-infused mayonnaise, and then I'm going to drop off

a bottle at Ron's house. You need to build up an IPA barbecue sauce, right? All right, fools. It's time for a couple of stocks on our radar, and I'll bring in our man Dan Boyd to ask a question and pick his favorite, Jason Moser. You're up first. What do you got? Yeah, I've been keeping an eye on Amazon, ticker AMZN. This is just a story to watch play out over these next several weeks. You've got the FTC planning to file a suit targeting Amazon's core online marketplace in the coming weeks. This is something that has been a long

time coming. The main allegation by the FTC is that Amazon uses its power to reward the online merchants that use its logistics service and punish the ones that don't. Now, if that's true, that certainly doesn't sound right. It's going to be interesting to see how this really goes. they've also got the FTC investigating Amazon's deal to buy Roomba. We're looking at actions being taken against Google. Obviously, Microsoft, Activision, Blizzard on the microscope here. It's a tough time to be big. Amazon, you say? Am I pronouncing it correctly? I'm not familiar with the company. Newfangled company. You'll hear more about it. Hey, in England, they pronounce it Amazon. Dan, question from you.

Yeah, sure. Amazon's one of these companies that has its claws in every part of everyday life for the majority of Americans, at least. Is anything the FTC going to do to disrupt that, or are they going to sit back and continue to be one of the most important companies in our economy? I have a feeling they're not going to be able to do a whole heck of a lot. It just remains to be seen. These things are always so tricky. Typically, companies negotiate in ways to spin things off or sell little pieces off to appease regulators, but time will tell. All right, Andy, you're up. What are you looking at?

Let's go from a $1.3 trillion company to a $1.2 billion company. Dan, this is a very small company, so tread carefully. It's Winmark, symbol W-I-N-A. It operates as a franchisor of five secondhand resale brands like Play It Again Sports, Plato's Closet, which is for teens, Once Upon a Child, Children's Clothes, Style Encore, Women's Clothing, and, Dan, Music Go Round, musical instruments secondhand you can buy. Also owns a little technology leasing arm. Has nearly 1,300 franchises in the U.S. and Canada that sign 10-year lease terms and pay franchise and royalty fees, 4% to 5% of the sales. As a franchisor, Winmark provides services and support to their

franchise partners like marketing and technology, e-commerce. Since 2010, they've recycled almost 1.6 million products that get a second life as part of another user. And that's more than 450 items per day. So that speaks a little bit to the sustainability play here of Windmark. Speaks really to the interest of consumers in reusing and recycling products to support that more sustainable lifestyle rather than having to buy a bunch of new products from a store that takes a lot more energy to make. So this whole thing creates a really outstanding business model, Dan, 94% gross margins, 60% plus operating margins, and 40% plus free cash flow margins with not a lot of assets, really only $40 million of assets for an $80 million in sales

and $40 million in profits. So, a single-digit kind of grower, but it's increased the dividend more than 40% annualized for the past few years. Winmark, W-I-N-A. Dan? Yeah, so I was independently of this podcast looking at this stock to purchase this week already. I love this stock. As a dad, I love buying things secondhand. It is a great way to get good products on the cheap. So I'm a big fan of Winmark Corporation. The stock is up 40% and it sells at 35 times free cash flow. So it is a little bit pricey. So maybe just wait for a little pullback. But do you have a favorite, Dan? I think I know the answer to this. Little known Amazon or Winmark? Go Winmark, Ron. All right. Andy Cross,

Jason Moser, thanks for being here. That's going to do it for this week's Motley Fool Money. Our engineer is Dan Boyd. I'm Ron Gross. Thanks for listening. We'll see you next week.