Motley Fool Money - 2024: Top-Heavy, AI-Fueled, Supply-Constrained

Episode Date: July 5, 2024

It’s our mid-year review show! We talk through the market’s strong start in 2024, how it’s being driven by the big names, and where the deals might be. (00:21) Jason Moser and Matt Argersinger discuss: - Why the market is up, but top-heavy in 2024, and the types of stocks currently trading at a discount to big tech. - Four defining themes of the year so far: AI, interest rates, next-gen tech, and the pivot to value for consumers.  - The state of real estate, and why low supply means prices may stay high in residential for a long time, even in spite of high rates. (31:01) Matt and Jason break down two stocks on their radar: ABM Industries and Rubrik. Stocks discussed: NVDA, MSFT, AAPL, ABM, RBRK Host: Dylan Lewis Guests: Jason Moser, Matt Argersinger Engineers: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

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It's halftime for 20. In 2020, we're checking in on the forces and trends shaping the market so far this year. This week's Motleyful Money Radio Show starts now. That's why they call it money. The best thing. Cool global headquarters. This is Motley Fool Money Radio Show. I'm Dylan Lewis.

Joining me over the airwaves, Motleyful senior analysts, Matt Argersinger, and Jason Moser. Fools, great to have you both here. Hey, hey. Dylan. We are digging into the year that has been so far in 2024. It is our annual mid-year review. show. We've got to look at what's been going on in the stock market and real estate, maybe a reckless prediction or two. And of course, stocks on our radar. We are going to start off with

the state of the market. The S&P 500 closed out the first half the year up 14%. Nasdaq composite up 18%. Very strong starts, especially considering how good 2023 was for investors. Matt, I'm going to ask you to fill in the blank here to get us started. The market in 2024 has been blank. Top heavy. Top heavy, Dylan. That's what the market's been so far in 2024. You mentioned the returns for the first six months here. Great returns. Great returns for a full year. Here's the problem. How many investors actually got that 14% on the S&P 500? I know I didn't. And I think part of the reason is because of how top heavy the market has become. There was an interesting chart that was passed around recently. It came from Goldman Sachs. And it looked at the median

company price to earnings ratio for the top 10 largest companies in the S&P 500 versus the rest of the companies in the S&P 500. The P-E ratio for the top 10? 30 right now. The median P-E ratio is 30. The rest of the S&P, 18, which in isolation is actually a pretty high historical multiple on its own. But 30 versus 18.

And this kind of dovetails with research from Yardinni. He put out an interesting chart a little while ago that kind of, reaffirms this, it looks at the overall market in terms of market cap segments. If it starts with what he calls the mega cap eight, which is alphabet, Amazon, Apple, meta, Microsoft, Netflix, invidia, and Tesla. We all know those names. The four PE ratio for this mega cap eight right now is 31. For the large caps, if you look at the SP 500, 21. For the midcaps, which is the S&P 400, it's 15. And for the small caps, which she's looking at the S&P 600, the forward P ratio there is just 14. So the largest companies in the market also have the highest valuations.

And to a certain extent, we haven't seen this disparity between valuations at the top end of the market. So low end since the year 2000, right before we had, of course, the dot-com crash and a three-year, roughly three-year bear market. So going back to that year-day return for the market, it's 14%. That's great. I'm just wondering how many investors actually got that. And by the way, Nvidia on its own, Nvidia is up 150% so far this year. It's driving 30% of those returns for the overall market. So if you're like me and you had a diversified portfolio and didn't own Nvidia, you are definitely trailing the market like me. Jason, when you look at your portfolio year-to-date, how do you feel? Well, I feel grateful. I feel like when I look at my portfolio,

it's resilient, right? And I have some of those top-heavy components, not all of them. To Maddie's point there, in regard to Nvidia, clearly that has been just a tremendous tail win for folks who have owned it, who have held it. Go back to July 2021, from then to now, Nvidia's up 1,200% just on its own. The next best of all of those big tech names is Apple, you know, with returns of close to 140%. So it really, top-heavy is a good word, I think. When I look at my portfolio, while I don't own all of those components, I mean, it is resilient. I think that's thanks to owning companies like Home Depot or companies like McCormick, right? These are companies, no, they're not lighting the world on fire, but what do they have in common? They pay nice, hefty dividends, and that's quarter in and quarter out,

and it's very reliable. So for every doc you sign and for every outset medical I own, and owning a little bit of that Home Depot or McCormick or Starbucks or something prologist. I know Maddie loves that. My most recent edition of my dividend portfolio, that adds a little resilience. It gives me some peace of mind I feel pretty good about it. So when the tide does turn and it will, right? We'll probably mention that R word rotation more than once here in this show. When that happens, we'll be ready.

Matt, it was interesting hearing you run through the different pockets of the market there and the valuations. because I feel like, especially during peak pandemic, but really in the last 10 years that have been very tech-driven, the story has been nosebleed valuations for small and mid-cap tech or companies that aren't even profitable. It's interesting for the narrative to be we see very rich valuations for these very large, very established cash-generating businesses. Given that environment, are you a little bit more interested in some of those other pockets of the market? Well, I am and I have been, but it's been to my absolute detriment. I mean, I've talked a lot about REITs on this show. I've talked about small caps. Those just haven't been the places to be. And look, I'm not here to shame or disparage the top 10. Like Jamo, I own a few of them as well.

I own Amazon. I own Alphabet. I wish I owned Microsoft and Vivida, but I don't. But these are the best businesses in the world, frankly. I mean, they generate tremendous amounts of cash. They have their balance sheets are in amazing shape. They're resistant to recessions, unlike a lot of companies that I look at in more cyclical industries or small caps, they deserve a premium evaluation. I just worry that it's too much of a premium evaluation. And what we've seen every time it gets to this kind of disparity, we've seen a big compression, a big reversion to the mean where these companies' valuations go right back to the median for the overall market. Not saying that's going to play out this time, but if it does,

you're going to see a lot of catch-up along these small caps and mid-caps, which I'm interested in. Well, I think it's at least reasonable to expect that something like that will happen. Again, I'm going to say it again, rotation. I mean, we are going to see interest start to flood and do other parts of the market. I mean, the reason why these top 10, so to speak, have such lofty valuations that perform so well, that's where all of the interest is, right? Every day, the headline after headline for headline about everything these companies are doing, particularly when it comes to AI.

Like Maddie said, these are some of the best businesses in the world. They deserve these valuations to an expense. to an extent, but at some point, we will see that tied turn. If you look at just big tech here, the profit growth here in just the first quarter, it was something like 50% profit growth here just the first quarter. Now, that is starting to slow down. And projections are that as the year continues, as we go to the back half of this year, those earnings, that earnings growth will continue to slow down. And we could start to see more interest developing in other markets like energy, materials, consumer discretionary, industrials,

financials. There are a lot of opportunities out there, large and small. It's not just these top 10. We will see that interest start, too, to move about here eventually. All right. Coming up after the break, we're going to check in on some of the themes that are pushing companies higher and lower in 2024, including AI. Stay right here. You're listening to Motley Full Money. Welcome back to Motley Full Money. I'm Dylan Lewis, joined on air by Matt Argersinger and Jason Moser. We're going to keep the 2024 check-in rolling. Jason, the last segment we were talking about AI as a force pushing so many of the mega-cap stocks higher. Let's dig in a little bit, because I look out at 2023 as the year of efficiency when it comes to tech. I'd almost

characterize 2024 as the year of spendancy in tech when it comes to AI. Because the money's flowing in, but we're not seeing a lot yet. No, they are. You're right. There's a lot of spending going on right now on the promise of what AI will ultimately deliver. And I think there's a lot to be for that, right? I mean, we've seen companies well beyond, just like you're in Vidias. I mean, super micro computer, I think, what, year to date, up 195 percent. Even companies like Vistra, which is an energy supplier to AI server centers, is up 130%. I mean, it is spanning markets, so to speak, but it does feel like, to me, when I start thinking about this AI stuff, and I don't mean, I don't mean that in a bad sense, but it's just, where are we on the hype cycle? Right? Because as we know, all of these

technologies, they sort of follow this hype cycle. And it seems we're early enough in the AI discussion where we could be kind of at that peak of inflated expectations or somewhere in that area because we're focused on the promise of what it's going to deliver, but we don't really know fully what it's going to deliver. Now, maybe that ultimately gets us down to that trough of disillusionment, right, where we start to see some opportunities arise. But something I thought was just interesting to call out, because I do start to think about the follow-on effects of AI and ultimately how that may play out in our lives. Recently, J.P. Morgan's CEO, Jamie Diamond, he was talking about AI ultimately cutting

the work week down to three and a half days by the time that many of the younger generation, right? My kids, for example, once they start getting into the workforce, this could be a very, very different perception of what the work week is. Now, all of a sudden, you've got a three-and-a-half day work week. Well, what are the impacts of that, right? I mean, is that that's more time for leisure and travel, was more time for entertainment, more time for consumption in general. It sounds like a lot of money to be spent. So, depending on how the economy follows suit, there could be plenty of opportunities opening up well beyond just the actual technology itself. I will just add, the one thing I worry about when I think about AI right now in the near-to-medium

term is the idea that a lot of these big companies, and we talked a lot about the mega-cap companies earlier in the show, is that how much of it is them buying from each other? How much of it is, As much as them buying from Super Microcomputer, Nvidia, or other companies buying from Software for Microsoft, I worry about some of the interchange of profitability between the companies themselves and what that looks like if the cycle ever turns. Yeah, they're all kind of feeding off of each other right now. Exactly. Just money being passed around, right?

Here's some money for the cloud. Here's some money for chips. It'll turn into something. We promise. One of the other major themes that we've started to see materialize a little bit more this year has been immersive tech. You've seen Apple begin to unveil more details on its plans in augmented and virtual reality. Jason, what do you think of the general state of that market right now?

Yeah, Apple certainly brought it back to the forefront here with Vision Pro announcement. I've said it before, I'll say it again. Having used the Vision Pro at a local Apple store, I'm of two minds. The technology itself is magic. It's really amazing. The problem is the use cases really just aren't there yet. It's definitely not a need. Right now, it's a want for many.

I think by and large, the biggest challenge is, and this is not just an Apple-specific problem, but it's in regard to all of these headsets in the immersive technology space. We just don't have that compelling reason as to why we as consumers need one. When it comes to Apple specifically, I mean, we've already seen the initial target of selling 800,000 of those vision pros. That's been ratcheted back to 450,000 by now. And I honestly think that's probably a little optimistic as well. And that's simply because of the cost of the device itself. But that was a strategy that they took on start at the high.

high-end and try to work their way down. I think that makes a lot of sense. I think what I'm more encouraged with in regard to immersive tech right now is the industrial use cases, right? We're seeing use cases from engineering to healthcare and all sorts of areas in between, where yet it's a little bit more niche. It's absolutely not at the mass consumer level yet. I believe this is something that's going to take some time. And it's also interesting to note that Google is kind of stepping back into this sandbox, so to speak. We know Google Glass didn't do all that great when they announced it several years back. But they're working with Magic Leap to try to develop some new technology. So we'll see where that goes. But in interesting space, it's

just going to take a long time, I think, to develop for the consumer. It's been fascinating for me to see the development in immersive tech and AR and VR side by side by the developments in AI, because it has been a wonderful reminder that it does not really matter how good the technology is. ultimately, it comes down to the distribution and the switching costs of adopting that technology. Jason, we've had headsets for a while. You know, the Oculus has been out for quite some time. I've seen estimates that the installed base for those headsets is somewhere in the tens of millions, I think somewhere around 50 million or so cumulative. OpenAI's ChatGPT had 100 million monthly active users in January of 2023 months after launching. So, I mean, the scale that these

software-based tech solutions are able to reach, just so far outpaces anything that's hardware-oriented because of all of the consumer hurdles along the way. Right. Well, it's one thing to try it. It's another to adopt it, right? I mean, Instagram threads, anyone? I'd love to hear a breakdown of those headsets. How many are actually collecting dust right now? Because my suspicion, it's the majority of them. All right. One of the other unavoidable themes this year in the market in general has been value orientation. A stretched consumer is a value-oriented consumer. Matt, we've seen this show up in a bunch of different places. We've seen it in retail. We've seen it in fast food. What are some of the

major developments that have jumped out to you? Right. I was even at Panera Bread the other day, and they rolled out this new value menu, which is, you know, I think it's $7. It's sandwich combined with certain soups or salads, and normally you pay $10 plus dollars for those combos. So, you're seeing in a lot of places. I think, you know, one interesting story for the past six months was Starbucks, and just seeing that stock lose roughly 20 billion in market cap. And a lot of it is, you know, you can't draw a direct conclusion to it, but probably a lot of it is, it's Starbucks is expensive, you know, and I think a lot of these companies have pushed prices pretty hard over the past few years. And now it's the consumer is starting to reject those price

increases, and they're seeing hits to their traffic. And so there's a real effort now, I think, among retailers, restaurants, other large companies about, well, what can we do on the value side? Can we bring traffic back? Can we bring customers back? Even if that means taking a short-term hit to profit margins. And so there was a real shift there. And I think that's, you know, it's not as if the consumer is spending less, because we see that in the numbers. Consumer spending is still at all-time high. We know that. Household balance sheets are in great shape. It's really just about selectivity right now in terms of how they're spending. Rounding us out and maybe kind of leading us into that conversation. The retailers and the restaurants out there lowering their prices

being a little more value-oriented, probably going to help out a bit when it comes to the inflation picture. Rates have been one of the other big, big, big stories for this year. If we rewind to January, Matt, outlook for the year was three rate cuts seem likely. That has not happened, and we haven't even gotten close to the inclination that there will be a rate cut. The Fed has been very, very cautious so far this year. Right. I mean, I guess I think if you go back to December of last year, there was predictions for six to seven rate cuts this year, and I think we might be lucky to get one. I think the shift happened because we saw these inflation numbers fall really sharply. I mean, if you remember, we had a peak of 9% year-over-year CPI in the summer of

2022. That was the peak. And we came way down from that. And of course, the Fed ratcheted up interest rates hard to get us there. The problem is getting down to that last, you know, that last percentage point from 3% to 2% has been really hard. And I think it's surprised the Fed to see how sticky inflation has been. And I think for investors, you've got to have to, you kind of have to understand that we might be in an environment now where interest rates are going to be higher for longer and that we're in kind of a new paradigm in terms of what we can expect from the cost of capital in the market. It was zero for more than 10 years. And I think we got used to that. And it seems unusual to be here with interest rates, you know, four and a half percent, five percent

on the Fed Funds rate. But guess what? That's roughly normal. Historically, that's about normal. And I think it's been tough to get used to normal when over the past decade we got used to zero interest rates. So, you know, it's an adjustment period. But I think investors have to be adjusting as well to the fact that we could be in a period of higher for longer rates. Jason, hire for longer means different things for different companies, for the banks, especially early on in some of the rate hikes. We saw some opportunity there with interest margin and then seizing some of that. For businesses that have heavily financed consumer purchases, it is a headwind, and it's

an obstacle that they have to get over. As you're looking out at this interest rate environment, anything you're paying more attention to with the companies you're looking at. Yeah, well, a couple things Maddie mentioned there that I like hearing, number one, the word normal, right? I remember back in 2005 when my wife and I, we bought our first house and we got a 30-year fixed-rate mortgage at 5 and 3 quarters percent. And that was with excellent credit and a 20 percent down payment. That was unreal at that time, right?

So if things haven't really, they're just starting to normalize now. But the other point he made there in regard to cost of capital, I think that's something to pay attention to so many companies raised so much debt over the last several years and really are paying nothing for it. Looking at companies' debt loads now, understanding their capital, needs going forward, paying attention to that coverage ratio, which ultimately just looks at that operating income covering the net interest expense. That'll be something investors can watch looking at that capital structure and just understanding the debt that these companies are subject to and what they'll need going forward because it seems like the cost of business is going to be a little bit more elevated for a little bit longer than most of us we're expecting. All right. Up next, we are sticking

with our look back for the first half of 2024, but we're going to shift our gaze over to the world of real estate. Stay right here. You're listening to Motley Full Money. Motley Full Money. I'm Dylan Lewis. We're doing our annual mid-year review. Up next, the world of real estate. Matt, Jason, let's start at the top here. Rates, we talked about them a bit last segment, but I do want to bring it down specifically to housing and to the real estate market.

Matt, higher rates, higher borrowing costs, and yet higher prices so far. Right. It's not what you expected. I mean, if you told me two and a half years ago that mortgage rates were going to go from under 3% to over 7%, I would have said, yeah, there's a high likelihood that we're going to see a fall in home prices. But we haven't seen that, Dylan, and the reason is actually quite simple. We've got a supply problem. And in fact, we've had a housing supply problem for a decade plus, but I think it's more acute now.

And that's because with interest rates the way they are, it's not really hurting the demand side. I think most people, especially first-time home-biner, would be happy to buy home if they could find a home. But that's the problem. There just aren't enough homes on the market. And that's because what happens when you have mortgage rates this high is we have millions, tens of millions of homeowners who are sitting on mortgage rates, fixed mortgage rates at 4%, 3.5%, 3%, %, even below 3%.

And even if they wanted to sell their house to realize those high values and to move up or to maybe even downsize, they feel like they're stuck because they don't want to trade their 3% fixed mortgage rate for a 6.5, 7, or even 7.5%. mortgage rate. It's too much of a spread. And so it's not so much an affordability issue as we think it is. It's not really a demand issue. I think there's plenty of home buyers out there that are looking for homes. It's just that there's a lack of homes because on the existing supply side, they're just not a lot of inventory in the market. And so the only game in town right now is on the new housing side, which is why home builders have done so well over the past, say, 18 months is because they're able

to build new homes, bring inventory to the market. They can also oftentimes, offer, you know, homebuilder financing, which is better than what a lot of homeowners or homebuyers can get with banks or traditional lenders. And so that's the only game in town. It really is a supply issue. And it goes back even after the global financial crisis in the previous decade when we just underbuilt homes for years and years and years, even though household formation was staying roughly the same. So we're in a situation now where there's probably four to five million homes that should be out there in the market that aren't. And so combining that with the high mortgage rates, we have a very, very tight market, which is why home prices

are just staying high. Mattie, somebody I noticed in reading through some of the stuff earlier, and I just was wondering if you had any thoughts or an opinion on this, because I think another issue at hand here, and this really kind of, I think, plays into the affordability issue at this point, too. It's just this inflated amount, this large institutional interest in home buying. We're seeing, We're seeing a lot of very well-endowed funds, right? Institutions getting out there, snapping up a lot of these homes because, of course, they've got the capital. They can buy it for cash right on the spot. They don't have to worry about rates.

That's not even a part of the conversation for them, right? But why are they buying those houses? Obviously, it's an investment, right? They're looking to make money. So they buy it for one price, hopefully sell it for a higher price, and we're already in a place where these are already in a place where these prices are relatively inflated. Do you see that dynamic changing anytime soon? No, I see the dynamic getting bigger. I mean, in terms of institutional buying of homes, the problem is it's such a small part of the overall market.

Even if you look at, say, invitation homes, which has 80,000 plus single-family homes in their portfolio, and them along with Blackstone and other companies often get called out for sort of elbowing their way into the housing market and they're shutting out. potential buyers, but it's, it's their, their ownership in the overall housing market is like a fraction of a rounding error. It's so small. Yeah, I mean, I saw, it saw numbers. It was less than, it was less than 8% at some point. And that was the, that was sort of the inflated interest in purchases, right? So it didn't seem like it was that substantial. It grabs the headlines, and I think it makes a lot of people angry. And that's, that's why you see those headlines, because they're really clicky. But it's such a, their influence, the institutional influence on the

house market is very small. We're, again, we're dealing with a massive supply. issue. And it really is about the fact that I think existing homeowners just don't have a reason to sell or don't have an incentive to sell when there's such a rate disparity right now. Yep. I want to dig into a separate side of that supply issue, Matt. Looking at some of the housing data out there, if you ignore the first half of 2020, which I think we can all admit was a weird time and maybe not a great one for comps, housing starts are at multi-year lows. And so I wonder with this supply issue, the only way to remedy that, and maybe not a great one as far as I know, is for there to be more houses available. But if we have housing starts at Lowe's,

are we looking at something that is a multi-year story rather than something that is going to be fixed in the next 12 months or 18 months? Oh, no. This is, I don't even know if it's fixed in the next five to 10 years, Dylan. Because, yeah, you mentioned the low starts, and that's because even home builders, who, again, the only game in town, they also have balance sheets to worry about. They also have margins to protect. And so with rates the way they are, they're also not building as many homes, even though their profits are at kind of all-time highs. And, you know, we can go down so many rabbit holes with the housing market. I mean, zoning is a major issue in a lot of markets as well.

There's just a lot of forces against building new homes, substantial amounts of new homes in a lot of markets. And so we are in a tight supply situation in terms of housing in the United States in pretty much every market, not even to mention some of the hotter markets like the Sunbelt and Southwest, where people are in. are just flocking to. So, how does that get resolved? I don't know, but it's certainly not something that gets resolved anytime soon unless we see a big break in mortgage rates. But again, if we see a big break in mortgage rates, let's say rates drop from 7 to 5.5% over the next year

to 18 months. Maybe the Fed starts cutting rates. Who knows? Housing prices are going to go higher. So then you got back to the affordability issue. And even, you know, home buyers who want to buy homes are getting priced out, even, you know. So it is a, it's an immovable object, and I don't see it getting pushed around anytime soon. It reminds me of what one of my old economics professors always reiterated in class. At the end of the day, economics rule. And it's so true. Supply and demand.

Yep. Absolutely. Matt mentioned the folks who have those nice, low interest rate mortgages, probably staying put for a while. A lot of them probably prioritizing, improving their. home rather than moving into a new one, that tends to be the business of Lowe's and Home Depot. And I think it's kind of fun to bring them into this housing conversation. Jason, those are two companies that you pay attention to pretty closely.

What are you seeing from them in 2024 and what it says about the state of the rental market as it relates to housing? Yeah, well, I will put myself in that class of low-interest homeowner, no interest in really moving because I don't want to get rid of that 3% rate. And even thinking five years forward, I mean, what's that really going to look like? See, Jamo, you're part of the problem. In more ways than one, right? The interesting thing I think with Home Depot and Lowe's is whether it's new homes or old homes,

I mean, these are companies that should, in theory, benefit to a degree. I know they love to call out this idea that well, well over half of the homes in our market today are 40 years or older, and that just means a lot of upkeep. But yeah, I mean, for a lot of folks, whether it's upkeep or whether it's new projects, I mean, there are clearly companies that are going to benefit. But when you look at the way these companies have performed over the last 12 months as well as a year-to-date, they've woefully underperformed. And that's understandable, given the consumer environment, the interest rate environment.

And really, they continue to call that out on their earnings calls. You look at Home Depot, for example, they just recently called that out. I mean, it's not just housing turnover-related spend, because clearly turnover is very low, but people are putting off these large projects because the interest rate position, the interest rate, the cost of getting this capital, it's something that's just weighing on the mind of the consumers. I mean, if you think Starbucks is expensive, Phelon, how about, gee, tell me how you feel after you get an estimate of redoing your deck, right?

I mean, that's just something. Those are big-ticket items. Loads very much. Oh, my God. Yeah, I mean, it's the same thing, right? I mean, Lowe's, same thing, right? I mean, it's just the current environment is making it very difficult for consumers to commit. And even if they can get the access to that capital, we have to really start weighing out,

where do I need to spend this money versus where do I want to spend this money? The nice thing is, I mean, these are businesses that run in cycles. These are really essentially the two businesses that control this market for all intents and purposes here domestically. as the economy starts to pick up, as we start to see housing improve, as we start to see the interest rate environment improve, even just incrementally, I think that'll start to play out on these businesses and that'll ultimately be a little bit of a tailwind. It's just a matter of when that happens. The good news is, I think for us, as foolish investors, you know, we take that longer view. We're not really worried about the next 12 months or 18 months. These are businesses

that you can own, really as long as you want, given the market that they serve, right? We understand how important the housing market is to our overall economy. And these are two businesses that really help drive those results. I want to get outside of housing for a second with real estate and look a little bit over on the commercial side. I feel like for as uncertain as the rate picture has been, on the commercial side, maybe buildings have a little bit more visibility into their tenant plans than they did one, two, three years ago. And we might see the picture firm up a little bit there. Matt, what are you seeing there?

I'd say a little bit, but only a very little bit, Dylan. I think if you're a retail landlord or an industrial landlord, even a hotel landlord, I think the visibility is a lot better than it was, certainly than it was coming out of the pandemic. If you're an office landlord, though, you know, unfortunately, I would say you're still kind of on a very slow-moving train wreck because we see it, you know, what we see is we We see debt maturing. We see office values crashing for the, you know, for the most part. And so, and unless you have very high-end Class A properties in great locations, you're not seeing any demand on the tenant side. So you're just seeing lower occupancy, their debt's about to roll over,

you can't refinance. That's the tough part. The reason I love the real estate market on the commercial side is because you can play it in a lot of different ways. You can buy industrial rates. You can buy hotel rates. You can avoid office rates if you want. But there are a lot of moving parts the market. And I would say office is still one, and it's a big part of the market, the visibility is not very good at all. Matt, are you following the tenant flows there when it comes to investing ideas in that space? Basically, it's got to be Class A. It's got to be high value areas. Yes. I mean, if it's a newer building, Class A with technology and a great, great market, the demand is there. Certainly if you're also a biotech lab space, that's great. If you're a B-to-C

office building that's old, it doesn't offer many amenities, you are. are in a very tough spot right now. All right, coming up after the break, we've got stocks on our radar, and we've got a few reckless predictions as well. Stay right here. You're listening to Motley Full Money. The text man's taken on my dog

and left me in my state-let home blazing on the sunny afternoon. And I can't sail my yacht. He's taken up. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. I'm Dylan Lewis, joined again by Matt Argersinger and Jason Moser. Jens, we will, as always, have our radar stock segment coming in a second, but I do want to wrap our mid-year review by turning our attention forward a little bit. I'm going to ask you guys to make a few reckless predictions.

first one, Jason, building on our rate conversation earlier, when it's all said and done in 24, we will have blank rate cuts. Zero. I think zero. I think we basically stand pat until the election. We're at a point where we have more potential outcomes from this election than I think ever in history. And at that point, once we get through the actual mess that this election is sure to be,

then starting in 2025, I think the interest-great policy will take a little bit more front and center. Matt, I think you were one of the first people on the show several months ago to start talking about the idea of zero cuts in 2024. You agree with Jason? I mostly agree. I'm going to say one, though, but I'm also going to say it comes after the election in the last meeting of the year. So I guess that's the December meeting, I think. So one cut for 2024. Mattie, you're just time on the market.

Hey, you know. Oh, wow. Yeah. All right, number two, as we tape Microsoft, Nvidia, Apple, all have market caps above $3 trillion. On December 31st, 2024, Matt, the largest company on the market will be? I want to say Amazon, which is not one of the three. Unfortunately, Amazon would have to about double to get there, so it can't be Amazon.

But I am going to say it's Microsoft. I think Nvidia, which I think as we tape, is just above Microsoft as the biggest. I think Nvidia is going to fall. That's my record's prediction. I think Nvidia's going to have a pretty sharp fall, maybe a 10-15% fall, and that's going to put Microsoft back into the pole position. Jema? Yeah, I do actually tend to agree with Microsoft there.

I think Nvidia, listen, I'm not knocking the business, right? But this thing has been Enfuego. And I think that we will see just the day-to-day utility of Microsoft and the importance that it plays in virtually everything that we do. I think that'll take it across the finish line. All right, reckless prediction number three. I'm going to start with you, Jason, on this one. In its flavor forecast for 2024, Spicer Maker McCormick named Tamarind, its flavor of the year.

By the close of the market year, how many dishes will you have cooked using Tamarant? Well, I mean, it's going to be at least one, right? Well, listen, Tamarins are very popular use cases for Middle Eastern dishes, Indian dishes, and stuff that I'm learning how to cook more and more. So I am going to go with five. Wow. Matt, do you think Jason has five recipes in him? Or do you think he's being too ambitious there?

No, no. This man cooks. I know he cooks a lot. And so I'm going to say five is the bare minimum that he's going to have. Wow. All right. I'm going to let you guys go off menu here. You've been indulging some of my topics for reckless predictions.

Jason, what's a reckless prediction you have for the rest of the year? Oh, I can't wait to get the feedback on this one. We have seen clearly this year, the interest in electric vehicles taking a little bit of a backseat, no pun intended, right? A lot of automakers pulling back on their EV investments focusing more on hybrid and in combustible engines. I think before the end of the year, Tesla will announce it's entering the hybrid vehicle market. Reckless prediction. That is reckless. No chance. It is reckless, I know. But I had to come up with something off the wall and completely crazy.

If it does come true, it is. I mean, I can't even see the word. I can't even see the word hybrid coming out of Elon Musk's mouth. All right. Let's get over to stocks on our radar. Our man behind the glass, Dan Boyd is going to hit you with a question. Matt, you're up first. What are you looking at this week? I'm looking at ABM Industries, ticker ABM. I've got to give a shout out to my main man, Anthony Chavone, on our dividend investor service for uncovering this one. This is a 115-year-old company specializing in the exciting business guys of facilities maintenance. So, you know, think janitorial work, building maintenance, landscaping, parking.

Businesses and landlords need these services. And ABM has these really long-term contracts with companies, with universities, warehouses, airports, sports stadiums, 123,000 employees. It's one of the largest employers in the country. A very consistent and sustainable business. also a very consistent and sustainable dividend. AMBM has raised its dividend for 56 consecutive years, and even though the yield right now is only about 1.8%.

I think it's going to get a lot higher over the next few years. Management recently committed to raising the payout ratio to between 30 and 40% of earnings. I think that translates in a double-digit dividend growth over at least the next several years. You know I love to see that. Dan, this seems like a Mattie, classic here. A question about ABM Industries.

I was going to say that this seems more. like a Ron Gross stock, 100 plus year old company talking about janitorial services. This is old economy, Ron, rising from the, I don't know, vacation. Where is he? I don't know, maybe it's a Zoom filter that's on. I'm basically Ron Jr. He knows that. There's anything wrong with that. No. All right, Jason, what's on your radar this week? Yeah, so I am taking a closer look at a company called Rubrik. The ticker is R.B.R.K. And it would be very clear. I'm just taking a closer look and learning more about this business, absolutely not a recommendation yet, at least. But Rubrik is a cybersecurity company focused on making sure that their customers can operate their businesses even after a crippling

cyber attack or a cyber breach. And so some examples that they use, think about a hospital that needs to continue admitting patients even after a cyber attack or schools that are open or people, when they swipe their credit card, they want to make sure they can get money out of their bank, even if the bank is impacted by a cyber attack. So it seems like, you know, the kind of business that would matter. It's a very new business to the market, just IPO in April of this year, but $5.5 billion market cap. They're closing in on $700 million in annual revenue. Of course, no profits yet. This is, you know, one of those businesses. But it does, you know, they're pursuing, obviously, a very large market in cybersecurity. Founder led with about 20% inside ownership. So, again,

and just starting to learn more about the business and understanding the competitive advantages that may or may not exist. Dan, a new name to the market, a new name to our radar stock segment. What do you think about Rubrik? You know, when you told me what the companies were before radar stocks, I thought this was going to be Maddie's contribution because it's got a, I've never heard of it, one. It's got a wonky-looking stock chart because it just became public in April. And I don't really understand what the company does. And I was like, yeah, this sounds exactly like the stuff that Maddie likes to bring to the table.

but no, no, fooled again over here. I guess Matt wins either way, no matter who you pick for your watches. That's right. Hey, everybody's got to clean up. Everybody's got to keep the place looking nice. So I'm going to ABM. That's what I'm talking about. That's going to do it for this week.

Smileyful Money Radio Show. Thanks for listening. We'll see you next time.