Motley Fool Money - Alphabet's Event Serves Notice To Wall St.

Episode Date: May 12, 2023

At its annual developers conference, Google's parent company reminded everyone how it got to be one of the most dominant businesses in America. (0:21) Matt Argersinger and Andy Cross discuss: - The latest inflation data and the current state of play for investors - Skepticism around the near-term future of Airbnb sending the stock lower - Alphabet shares rising 10% after the company unveiled new devices and AI-enhanced software - The latest from Disney, Roblox, JD.com, and PayPal (19:11) Ross Anderson, co-founder of Craftwork Capital and co-host of the "Check Your Balances" podcast, shares the most common question he's getting from clients, advice for college graduates, and the economic data he's watching most closely. (31:50) Matt and Andy answer a mailbag question about portfolio strategy, discuss The Cheesecake Factory's new rewards program, and share two stocks on their radar: A.O. Smith and Deere. Got a question about stocks? Email [e-mail] You can find the "Check Your Balances" show on your favorite podcast app, including Apple Podcasts: https://podcasts.apple.com/us/podcast/check-your-balances/id1551991071 Stocks discussed: ABNB, DIS, RBLX, JD, PYPL, GOOG, GOOGL, CAKE, AOS, DE Host: Chris Hill Guests: Matt Argersinger, Andy Cross, Ross Anderson Engineer: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

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That's why they call it Money. Cool Global headquarters. This is Motley Fool Money Radio Show. I'm Chris Hill, joining me in studio. Motley Full Senior analyst, Matt Argusinger and Andy Cross. Good to see you, as always, gentlemen. Hey, Chris. We got the latest headlines from Wall Street. We will dip into the full mailbag. And as always, we've got a couple of stocks on our radar. But we begin with the big macro. This week, we got more data showing that inflation is falling. but several things, including and especially the debate over the debt ceiling, seems to be casting

a shadow over investors and the market. Matt, it really does seem like we are almost in a holding pattern, particularly when it comes to the debt ceiling debate. But where do you think we are now? Yes, I think we're always as investors looking for that next thing to worry about. And so we saw the PPI's, you know, CPI data come in. It confirmed that inflation is rolling over, I think most investors have concluded that, okay, we probably hit peak inflation sometime back. The Fed is probably done raising rates. But now we've got this debt ceiling to worry about. We've got that issue to worry about.

How close do we actually get to the brink of not paying our debts, which we've never done, of course, in the U.S.? And then in addition to that, I think you have this, I'll call it, emerging banking crisis, where you're seeing deposits flowing out of banks into treasuries, into higher-yielding money-market accounts. So you've got liabilities that are real for banks, but then you've got their assets on the balance sheet, which are shrinking. And I think we've all experienced this, right? I mean, I have an Interactive Brokers account, which is paying more than 4.5% now on cash. And so you believe every dollar that I have that's not in Interactive Brokers, I'm trying to get into that account. So that's killing the banks.

And at the same time, because you've got commercial real estate issues to worry about, you've got CNI lending, you've got credit issues at the banks. they're not making new loans right now, what does that do to the economy? So there's a lot to worry about if you're investor in the short term. We're past the inflation concern, and now we've got these other challenges. Well, it's not like we had enough challenges, and they throw the debt-sealing debate on top of us, which is just really ridiculous. I mean, of all the things, you should not have to worry about the full-faith and credit of the United States government to pay its bills is one that I would always say should not be arguable.

Yet there's a lot of blustering this week. We're seeing it from both sides of the aisle. and we'll have to see how that plays out. Chris, when I look just thinking about this from the investing perspective, we talked about this earlier this morning, Matt, about the willingness to invest today as a capital allocator. How much am I, am I eager to put money to work? I am still investing in the best opportunities I think I can find when I look out the next three to five years. Interest rates certainly over the next 12 to 18 months will probably moderate to come down, I would think, how fast that happens. There's lots of debates and you look at the futures markets and

how fast they are pricing a cut to the federal cut interest rates. I think that's probably a little bit too aggressive, but certainly over the next 12 to 18 months, you'll see interest rates normalize. As a long-term investor, I'm saying, well, we're going to see more volatility in the short term, but long-term, where interest rates be, what will the cost of borrowing be, what will the discounts rates be? And that's how I'm baking into my conviction to invest in what businesses I can find today that I think are going to thrive and in what prices I'm willing to pay.

Yeah, Andy, I agree. And while investors are grappling with all those. questions and looking for those great long-term opportunities. They're saying, well, if I can sit in a 4-5% money market or treasury, short-term treasury or CD, I'm actually good with that for the next three to six months. Let's get to some of the big earnings news of the week. And we're going to start with Airbnb, where first quarter profits and revenue came in higher than expected, but guidance for the second quarter, kind of scared investors, shares of Airbnb falling 10% this week, Andy. A very solid quarter. I think maybe the whisper numbers, if you're really going to

talk as a trader were a little bit higher than even the earnings estimates were in there. Revenues were up 20%. That included $146 million. By the way, that revenue number was at $1.8 billion. That included $146 million in interest income. That was up from $5 million a year ago. So talking about interest rates. Airbnb benefiting from the higher interest rates as the capital of the cash gets stored into their accounts. Gross bookings at $20.4 billion, up 19%. Knights and Experiences booked up 19% to $121.1 million. And this is where I think maybe investors are looking for a little bit more. When you think about what we've seen from the likes of booking.com and we like from Marriott

and others, that the travel market is really coming back. Maybe the numbers just weren't as high for that. But Chris, as you mentioned, it was really the expectations going forward. A little bit weaker guidance when they start looking forward. Average daily rate was at $168 this quarter. that was flat versus a year ago. Total active listings were up 18%. That was an acceleration from the 16% in the fourth quarter. But the expectations for the rest of the year were kind of more muted, not seeing a lot of growth, not seeing a lot of growth that could get anyone really,

the market really expected to see a little bit more of a surprise going forward. Now, as long-term investors, I'm seeing this as a business that is generating, has shown the ability to generate both revenue and lots of free cash flow, and that's good for shareholders long-term. And CEO Brian Chesky, in talking about this current quarter, talked about, hey, we've got a tough comp. If you think back to a year ago, the summer of 2022, all this pent-up demand. He's right about that. But when you look at what happens with the stock, it's almost like the market is taking a wait-and-see approach. Well, in the margin side, they're seeing the expectations for their operating profits on an EBITDA basis.

In this quarter, this quarter coming in up to be a little bit similar to what the last quarter, was and then actually a little bit lower on the margin side. So the market's trying to get to figure out where the steady state is with Airbnb. Obviously, the market opportunity is huge as they kind of just had their summer release and they continue to be a really go-to brand for short-term rental and travel. But when they're turning that into revenue growth, into margin growth, and then obviously into free cash flow growth, maybe the market was expecting a little bit more in the short term. But long term, I still think the opportunity for Airbnb shareholders is pretty bright. Disney's second quarter results showed continued strength in the Parks Division, but the streaming

business lost 4 million subscribers and 400 million dollars. Shares of Disney down 9% as a result, Maddie. Yeah, that was what caught, I think, investors by surprise, was the drop in the subscription numbers. Now, if you dig in a little bit, though, I don't think it was as bad as maybe the numbers in the headlines suggested, which is, I mean, if you look at the domestic U.S. and Canada subscription numbers, yes, they did drop about 1%. But the overall drop was largely driven by an 8% drop in their Hot Star product, which is an Indian-based subscription platform. If you strip out Hot Star and you just look at core Disney Plus subscribers, which

includes domestic and international, that rose 1%. And then ESPN plus subscribers, that rose 2%. And Hulu subscribers were mostly flat. And the average monthly revenue per user, ARPOO, as we've come to known, that was up 13%. So I think as a whole, the direct-to-consumer streaming business wasn't that bad. I just think that the actual drop caught investors by surprise. You mentioned the parks being up 17%. That's a big strength for the business. I think in going into the quarter, a lot of investors were just really focused on the cost cuts. What is Disney going to do? What is BiLogger going to do to write this ship here? And I think they're doing it by all accounts. I mean, operating profits were up 40% year over year. They generate $3.2 billion in operating cash flow.

That was the highest quarterly figure since 2018. And in a few years, and you don't have to take my word for it, If you just take the consensus, this is a company that could be generating $7 to $8 per share in earnings. I think that makes today's share price look pretty good to me. But, of course, in the short term, there is that overhang with the subscription business. Well, and to go back to the point that Andy touched on earlier about the broader market and where do you allocate your capital, it seems like if you timestamp this moment for Disney, there are enough question marks that certainly the professional investors would say, You know what, over the next three to six months, I'm going to look for other ways to invest my money.

Exactly, and that's the conundrum right now. And by the way, in six months, you kind of have to start also worrying about Bob Eiger's succession. I don't think investors want another Bob Chappek experience here. So that's going to be another concern down the road. Roblox started its fiscal year on a relatively strong note. Sure, they lost more money than Wall Street was expecting. But Roblox showed nice growth in both daily active users and overall engagement and shares up more than 10% this weekend. So, Chris, let's just start with that a little bit more of a loss now than

expected. However, what's really interesting with the Roblox is right now, most of their metrics are growing back to the 20% level. When you think about average daily users were up 22%, revenue was up 22%, hours engaged were up 23%. Bookings were up 23%. So that's the revenue that'll be able to recognize going forward. But what's really interesting with Roblox is they were very clear on how they have spent a lot of money and very transparent on their cost structure, hiring people. They've gone from 1,700 to 2,300 employees. But what they said is they expect that basically has kind of top now. And they expect going forward, they're going to see their booking's growth is going to be higher than their

compensation expense and higher than their capital expenditures going forward. And I think when you think about the initiatives they're implementing with their advertising, just starting to test out some of their advertising, using it. and more and more AI. They're starting to really build that kind of metaphors in there, and they're starting to attract more and more people over the age of 13. And that's really good news, I think, for Roblox shareholders. Also good news for shareholders. This stock has quietly been up nearly 40% over the past year. They string a few more quarters together like this, and it starts to get really interesting. We had talked about the changes and the comparable.

So if you look at the last five quarters of a growth in their bookings, it was minus 3%, minus 4%. then up 10%, up 17%, and then up 23% this last quarter. So they were coming off those very tough COVID comps. That really knocked the stock down. Now we're starting to see a little bit more of this rebound and a little bit more of this stability and what's going to drive the business, the cash flow and drive the business model, and hopefully user growth that drives all of that for the shareholders. After the break, Alphabet serves notice of the old adage.

When you come at the king, you best not miss. Stay right here. You're listening to Motley Full Money. Welcome back to Motley Full Money. Chris Hill here in studio with Matt Argusinger and Andy Kross. Shares of Chinese e-commerce company, JD.com, got a boost Thursday morning after first quarter profits were higher than expected. But JD's report came with the somewhat surprising news that CEO Shou Lay is leaving after just one year on the job due to personal reasons. Definitely a surprise there, Matt.

That was a surprise. I mean, this was someone who kind of been earmarked for the job for several years, when Richard Liu was going to step down, which he did. And we know Richard Liu has a little bit of a colorful history, the founder of JD.com. But, yeah, Julie, being only there a year in the top job after having such a long career was surprising. And he only pointed to the fact that, you know, hey, I want to spend more time with my family.

You're not going to get probably a lot of more insights into that. But I will point out that, you know, China's reopened. I think there's been a lot of excitement, especially among the big e-commerce players like jd.com, Alibaba. How would they perform with that new kind of potential resurgence in commerce activity? But JD's revenue was up less than 2% year-over-year. I think that was disappointing. I know the stock got a bit of a pop.

They've been emphasizing their services more, the third-party sellers on their platform. That business is actually doing quite well. But here they are. They're handing over the reins to JD's CFO. She's only been there since 2018. They're also talking about spinning off their JD property and JD Industrials businesses. This is after spinning off the logistics business several years ago. I think with management reshuffling, I think with the spinoffs coming up, this is a tough one to kind of nail down.

What is the core earnings power and revenue power of this business over time? And being a Chinese company, it's already more opaque than you'd like it to be. PayPal's first quarter results got overshadowed by current quarter guidance that was lower than Wall Street was looking for. Shares of PayPal down more than 15% this week, and Andy, hitting a new five-year low. It's fascinating to think about this. I was talking to some investors here behind the scenes and just what do we make of PayPal and this is a business that when you look at the traditional metrics, it's just kind of a slow, steady grind right now. They have Dan Schulman, the CEO is going to be leaving later on. So there's uncertainty around there. Active accounts up 1% this quarter, not really super crazy. But the revenues were up 9%. That was ahead of their own guidance. Total payment volumes up 10%. Take rate was about flat. So the percentage of that volume is that volume. transactions turns into revenue. But it's interesting balance between the branded PayPal kind of business and some of this unbranded solutions they have for clients, and they're driving more transactions to the unbranded, and that's a little bit lower margin. So the guidance

of the margin, even though the growth will kind of be there, maybe the margin isn't there. And they kind of back-ended the guidance for the full year, into the second half of the year, as you mentioned, Chris, a little weaker in this next quarter. So some of that guidance just gives us a little bit of question marks. I still think the stock is a buy. I still think. The stock is a buy. think it's very inexpensive based on their cash earnings potential. They're buying back lots of stock. They still generate lots of free cash flow. But I just think until we figure out what's going to happen to the CEO, the stock might just be kind of stuck in a limbo mode here. I was just going to say, because Schollman announced in February that he was stepping down

at the end of the year, they're being diligent, if you want to be kind in terms of the process. If you don't want to be kind, you can say, I think, fairly like, what is taking so? along, I really feel like three months from now, they need to have a lot more color on who the next CEO is going to be, because I'm a shareholder. But I look at this business, and I think, who's the next CEO going to be? Until you can answer that, I'm not sure I want to load up on this stock, even though it's at a five-year low. And especially, Chris, because cost-control and cost-means is a big part of this, so they're really in this operational mode to debate about it. Are we going to get a strategist or an operator in the CEO role? We talked about Disney.

We've talked many times in the show that the challenges that many people are. companies have on secession planning. I think they were trying to be transparent and be out front saying, hey, he is leaving and we're going to find the best candidate and we're going to let you know. But there's also just some uncertainty around that that investors would prefer to have a person in right now that they know they could talk to and they could have a conversation with and build that relationship with. Although, on the flip side, it does seem like an attractive job. Like, this does seem like a company with a lot of optionality, a lot of good things to like about it, that presumably they're going to attract some good candidates.

Well, and also, it is still a very popular brand. It is still, I mean, 433 million people are using, have these accounts, and they have continuing more and more user engagement recently, and that's been a good sign. But the question is, how do you continue to innovate and compete against the likes of these other competitors in both the branded side and the unbranded side that are coming after PayPal? On Wednesday, Google held its annual developers conference, where the company unveiled new gadgets, including a folding phone with a price tag of $1,800, as well as new software fueled by artificial intelligence, shares a parent company alphabet up more than 10% this week, Matt. It really seemed like one of those events that reminded everyone at how strong this company

can be when they're on top of their game. That's a great word, remind, Chris, because I think there has been a bit of a narrative shift. I think when ChatGPT kind of broke into the market earlier this year, late last year, there was all this sudden excitement about AI, and it turned into this arms race between Alphabet, Google, and Microsoft. I think most assumed the time, and up until recently that Microsoft, they felt like they were first to market, they had their investment in Open AI, that Microsoft has more to gain from infusing AI into things like Bing and its other tools and making them available in

Azure for other users. But I think what Google laid out successfully, and as you said, reminded of everyone at this developer conference, is that they have this really extensive ecosystem of products that people use already. So forget about search. I mean, think about Gmail, Chrome, Google Docs, Google Sheets, Maps, Google Cloud. These are services used by billions of people, and Alphabet has the ability to infuse AI into all these services that people are already using, making them smarter, more efficient, better. And so if I'm on a Google user, why am I going to go away from that if those are already so popular? Well, they also had just a little bit of the challenge in

explaining where they are specializing. They have multiple divisions. They've now unified the division. They have an investment in Anthropic. So I think a little bit, I do, I mean, I'm a bull on Google in alphabet. I think the shares are attractive. But I do think, I do fault them for how they've kind of gone about communicating this, especially as Microsoft has been so aggressive and directly going after Google. Yeah. I think that's what this past week was. Let's remind everyone how good we actually are at what we've done. We've been doing this for years. We've been investing in AI for many, many years. Yeah, I just found it funny and also a little odd that when Microsoft made that investment in OpenAI, there were some people out in the financial community who were basically like, well, I think it's over now. And it's like, really? You think the people at Alphabet are just going to sit back and do nothing? Right.

And let's remember going into this on a valuation basis, Alphabet was a lot, a lot cheaper than Microsoft. So it had kind of more upside anyway as soon as more good news came out. All right. Andy Cross, Matt Argusinger, guys. We'll see you a little bit later in the show. But up next, what's the most common question? question, financial planners are getting these days from their clients. Our guest, Ross Anderson, weighs in on that and a lot more right after the break. So stay right here. You're listening to

Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Joining me now is Ross Anderson. He's the co-founder of Craftwork Capital, a certified financial planner and co-host of the weekly podcast, Check Your Balance is Ross. Thanks so much for being here. Pleasure to be here with you, Chris. Always enjoy being on. A bunch of things I want to get your thoughts on. And let's start with the big macro because we're getting this constant barrage of inflation data and interest rates. And I'm not saying that's not important.

But we are also getting more talk of a potential recession. And I'm curious, someone in your position, what do you find yourself focusing on as being particularly meaningful for investors? Well, I think like everybody, I'm looking at some of the same data, some of the CPI data. We're hoping that we're done with interest rate hikes for now, right? A lot of the same things that everybody's talking about. When I look at kind of the bigger situation, I think one of the more concerning items is just the amount of credit debt and just kind of what seems to be the consumer levering up. And you've seen a lot of strength in the U.S. consumer.

But if that is on the back of credit card debt and then we plow that into a real. recession. I think that that's a little bit of a scarier situation. But really, I try to zoom out from a lot of it. And I think just with humility around, even if you get the macro situation right, how does that help us make individual decisions in a better way? And I think an interesting example would be to look back at 2020, if I told you, Chris, what was going to happen in 2020 at the start of the year? And I said, we're going to have a 9% decline in GDP in the second quarter amidst a global pandemic, incredible amounts of unemployment. I think it ticked up to like 12%. And by the end of the year, we're not really going to have this thing figured out. Do you want to be a stock investor?

And you would have said, no, I think I'm going to sit this one out. I'm going to sit this out and I'm going to hoard cash. Exactly. With perfect foresight. You could have perfect foresight into what was going to happen in the U.S. and global economy. And you could have still blown it. And I think that that that is so indicative of just kind of how I view some of this as noise. I think we need to be making personal decisions on a risk management level, making sure that we've got our cash reserves in the right spot, making sure our portfolios aren't levered up in ways that they shouldn't be for our risk tolerance and our time horizon. But beyond that, I just don't see a situation where you can take that input and completely make perfect choices, even if you get it right.

Obviously, I don't want you to disclose anything from any of your clients, but to the extent that you can, I am curious if you are seeing any sort of common theme in terms of the questions you're getting from clients, whether it is the aforementioned potential for a recession and fears associated with that or something else. I'm curious what you're hearing and what you're telling them. Yeah, I think probably the most common question right now really shift. and it went from how exciting are treasury bills to, oh, my God, are we going to default on treasury bills? We've had this really incredible shift from people being excited that they could get

a, you know, four and a half to five plus percent yield in a treasury to then, wait, how safe is that investment that I just made? Is that really what I should be owning right now? And so I think as people are re-looking at these sources of kind of safe yield, right? We've been in an environment for more than a decade of incredibly low interest rates and basically being told, there's no other game in town other than stocks. If you want any growth out of your assets, if you want to grow your purchasing power stocks are the answer. And now we're seeing places where you can put your money in a bank and earn 4 plus percent. You can put your money in a treasury and earn 5 percent. And you go, wait, that sounds pretty good in an uncertain market that I might have some of that exposure.

And so I think Treasury's and then really the bond market as an extension of that has become a more interesting place to be an investor and to kind of relook at what role that plays in your portfolio, even though that's certainly not the sexiest thing that we can talk about. It's not, although I am, and I'm sure I'm not the only investor of a certain age who is in this situation. I am having flashbacks to 2011 when the debt ceiling conversation. dominated not just Capitol Hill, but Wall Street. And there was, I don't want to say paralysis, because that's probably overstating it, but it was just this cloud hanging over every part of the investing conversation. But in the back of my mind, I just think, well, we're not actually going to default, are we? I certainly hope not. But, you know, the political theater of it, I was told one time that the way you win a game of chicken is that you throw the steering wheel out of the car and you make sure that they saw you do it, right? That the way that you actually win a game of chicken is that you make them believe you're crazy enough because literally you've lost control.

That's kind of what it seems like we're headed for is a little bit of that style game of chicken where, you know, it's going to come down to the wire, I think. I really believe that they're going to dig in and make a show out of it. I don't think that that's necessarily good for us, but my hope is that we get resolution on this, and certainly that we don't put the faith of the U.S. Treasury in the kind of harm's way that it would have if there was a default. I really believe they'll get a deal done, but again, I think it's going to be a long road still from here. Let's move to a more positive topic then, and that is the fact that this month, millions of students are going to graduate from college. Any financial advice for them, or

Or if you could hop in a time machine, is there something you wish your younger self-new when you were walking across the stage, accepting your diploma and graduating from college? Well, I know, I think you teed this question up without completely knowing this, but I graduated college in 2007. That turns out to have also been headed into a fairly choppy time in terms of financial markets and it was a real great time to start a career in the financial advice business. So I had a couple rough years. And so I think my takeaway from that is, number one, don't extend yourself in terms of your

overhead. You know, if you're used to living like a college kid and having roommates, that is a good choice early in your career. Get your feet under you. Get your career going in the right direction. You don't have to make all of the super adult choices and go out and take on big car payments or big overhead in whatever format that takes for you right at the start. You can take it slowly. You can stay entrepreneurial. And really, the more nimble you are,

the more you're going to be able to take advantage of opportunities, whether that's moving to a different city for the perfect job for yourself, whether that is simply getting your savings going or starting to reduce your student loan debt. I just think there's so many things that can happen for you in a positive way if you don't bite off too much. And I'm saying that very much from experience as somebody that bit off too much coming out of college and then really paid the price for it and had to unwind a lot of bad choices. And it took a few years to do it. And ultimately, I'm a different person and a different advisor as a result of that. So I can't completely hate on those experiences because I think it did improve what I can do for other people. But definitely, I learned the hard way.

And so I would hope others don't have to do that as well. We are in the back half of this earning season. And one of the themes that I've been seeing is a little bit of a continuing. of something we started to hear rumblings of in the earning season earlier this year. And this is the fact that there are company executives, as well as some market commentators, who are talking broadly about the second half of 2023 being better for their businesses and the market in general. I'm wondering if that is an optimism you share. And regardless of that as we approach the midpoint of 2023, what are you watching for the second half of the year? I mean, there's no question that to me, what you're seeing a lot of companies do is focus on

belt tightening, profitability, being more responsible capital allocators. We've kind of come out of this growth at all costs environment and move towards an environment where profitability, which, I mean, again, that sounds like such a silly thing to talk about as investors. We should have always been concerned about profitability, but let's be honest, we've spent a bunch of years where we weren't. And so I think that that focus from a lot of these management teams is starting to be reflected. You're starting to see some of those choices flow through and be shown in terms of increases to profitability, even if the top line isn't growing as fast as maybe it was or maybe we would like to see. I also think that the uncertainty of this year, as you think about your personal

buying decisions. If you haven't had to go out and buy a house this year with interest rates up, if you haven't had to go out and make a massive investment or take on, kind of like I said, with the college folks, the big overhead, you would kind of delay that if you could. And I think that as we kind of see what's going to happen, as we see kind of what the extent of the recession will be, I think you're going to see those management teams be more comfortable allocating their capital because it stops being the fear of, well, what are we headed into to, oh, okay, it's here, this is what it is. Let's continue to evolve our businesses. And so I don't think you can defer those purchase decisions. I don't think that you can defer those investments

forever. And so I think there's been a little bit of can kicking going on. And yeah, so I am generally optimistic that as we stop having questions about what the future will be and start kind of getting into it, that you're going to see people go back to, okay, we still have a business to run, and that should be positive. Are you at all surprised when you hear people talking openly on financial television about interest rate cutting coming in the second half the year? It seems like there's a growing number of people who just assume once inflation's under control, interest rates are going to get cut, and they're going to go back to where they were before. And I just have a hard time believing we're going to go back to the era of free money for everyone forever.

Yeah, no, I agree with you there. I think they will probably come down a little bit eventually, but I don't think they're going to come down to where they were. We have to recognize that post-2009 was not a normal environment. It was a very extended period of very low rates. If you look at where rates are on average going back 20 or 30 years, you're going to see that that four to six percent, range is basically what normal is and that we've just been below it. And so, yeah, I think that they're going to normalize a little bit. I don't think it'll be immediate. I think the Fed is going to be very cautious in terms of what that first rate cut looks like.

And I think that they're going to be cautious about what that signals to the market. So, yeah, I'm not suggesting or encouraging that we're immediately going to head for rate cuts. I think the people making that bet are really betting on a recession. I think that is the bet that they're making is that we're going to plow into something uglier and they're going to have to cut rates. But it just doesn't seem like that's the likely path to be right now. New episodes of the Check Your Balances podcast are out every Wednesday.

So add it to your weekly listening. It is a great show and definitely worth your time. Ross Anderson, thanks so much for being here. Appreciate it, Chris. See you later. After the break, Matt Argusinger and Andy Cross return. They've got a couple of stocks on their radar. So 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 ourselves stocks based solely on what you hear. Welcome back to Motley Fool Money, Chris Hill here in studio with Matt Argusinger and Andy Cross. Our email address is Podcasts at Fool.com. Got a note from Ben and Sacramento who writes, thanks to everyone at Motley Fool Money for helping shape my investing mentality from my young adult years.

It's helped me grow my level of wealth significantly over the years, despite having a very mediocre salary. Sorry about the salary, Ben. He goes on to write, A few stocks I own have fallen more than 90% since I bought them in early 2021. My four lowest-performing stocks combined for now less than half a percent of my portfolio, and I'm trying to decide if I should sell these

and reallocate the money elsewhere, or pretend they don't exist now and leave them be and take whatever potential future return I get as gravy. What are your thoughts? Matt, what do you think? Ben, right there with you. I got a couple just like this. I've got a bunch of stocks that are also down 80, 90 percent, and they're a very small percentage

in my portfolio. I think what we've found over time at The Fool is that you're almost always better off just letting them be because one or two of them might end up rebounding and being a decent sized position again for your portfolio down the road versus trying to sell and just moving on. So I don't know. It might be best just to not doing anything. And then, the only thing I would say is just in general, from a tax strategy, if it isn't a taxable account,

you can maybe use that to offset some of your taxable gains. I think when we say, if you are going to sell, look at the bottom part of your portfolio rather than the top first, which is different than a lot of financial planners plan, but I think that's a better approach to think about how to continue to hold on to the great winners. Shares of the Cheesecake Factory have trailed the market's average return over the past few years. But this week, the company announced it will be launching a new loyalty program in June. Unlike most loyalty programs, cheesecake rewards, and yes, that is the name of the program. Cheesecake rewards members will not earn points based on how much they spend.

Instead, the company is going to use customer data to surprise members with rewards throughout the year. I'm interested to see how this goes, Matt, not just because they're taking a different approach on the rewards, but also this is a higher-end restaurant. We don't see this type of thing with... You don't. You see it all the time at quick serve casual restaurants, right, where you expect people to frequent more often. But this is an interesting bet. Now, unfortunately, I've only been a cheese food cake factory, I think, once in my life many years ago. But my parents absolutely love it. So mom and dad, if you're listening, sign up, let me know how it goes. What do you think, Andy?

Well, I think it's an interesting take on the rewards program. As Matt said, thank goodness they're not doing it by the calorie ingested, considering the cheesecake, which I love. But, boy, that is super rich. But I do like this surprise. mentality, very Costco-esque. Let's get the 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? Chris, I'm going with A.O. Smith. AOS is the ticker.

This is one of the country's leading makers of commercial and residential water heaters. So exciting, but it is an exciting business. First quarter sales in their kind of key North American segment were up 3%. That doesn't sound great, but it builds off some really impressive results they had a year ago. and it was surprising because a lot of investors thought volumes were going to come down for them. They had a 400 basis point improvement in their operating margins, which drove earnings up 22%. Very impressive there. And they also have big presences already in China and India.

And in fact, sales in India in the quarter were up 28% year over years. That's huge. Inventories were a big concern going into the quarter, no longer concerned. Those kind of have been normalized. They generate a ton of cash. They up their target for share buybacks by $100 million. But the dividend they paid in the quarter marked the 83rd consecutive years. that AOS has paid a dividend to shareholders.

83 years? 83 years. Going back before the U.S. entered World War II, they've been paying dividends every year. Dan, question about A.O. Smith? Is Ron here? I'm very confused at the moment because this sounds exactly like the kind of stock that Ron Gross would be harping about every other show, yet he doesn't seem to be in the studio today. He's not, but, you know, I learn from the best, Dan.

And this is definitely a Ron Groves pick. You're absolutely right. Andy Cross, what are you looking at this week? Well, Dan, if you liked 100-year-old companies, I think I got one that you might be interested in. It is deer spelled with three E's, Dan. D-E-E-E-R-E, symbol D-E. Deer is a world's largest manufacturer of agriculture equipment known for its tractors, lawn and garden equipment, construction, golf sport, mowers, for a tree, and so much more. They're also known for their brand, one of the most widely followed brands.

in the industrial space, $110 billion market cap, delivers more than $50 billion in sales, $7 billion in earnings every year. Found it 180 years ago. Food is essential. I love food. We talked about Cheesecake Factory earlier. We need to be more efficient in growing and harvesting that around the world. Deer is really leading that when it comes to technology and best-in-class products to make farming

more automated, much more efficient. They're focused on smart machines that can use this geographic information systems. and on-the-ground data to really optimize production. So the five-year returns, Dan, and this stock is 173% versus 65% for the market. 10-year returns, 400% versus about 200% for the market. So I know a lot of technology companies, rightly so, get a lot of respect for their stock returns, but dear over the last 5 and 10 years has really delivered for shareholders. It's priced at about 12 to 13 times earnings.

A lot of excitement about what will happen this year, a little bit more risk coming next year. It is a very cyclical company, so we have to watch out a little bit for that, but very impressive performance by Deere, and the stock is down 12% year-a-date, so I think it's a buying opportunity. Dan, question about Deer? A couple of things here, Chris. First, Deer with three E's, while accurate, is misleading, Andy, so I'm going to ding you for that.

And second, so early this year, John Deere let farmers fix their own equipment instead of having them go through their own, you know, recurring revenue stream of fixing equipment. How much is that affecting the stock price today? Oh, I don't think so very much, Dan. They still have such great brand loyalty. The reason they can do that is because of that brand loyalty, a lot of afterpart sales for deer. So I think that's not a reason for the stock underperformance.

I think it's just short-term trading. Two very old companies, Dan. You got one you want to add to your watch list? All right, this is a tough one because they both seem like really good shops. I'm going to go with deer simply because I like the color green. All right, Andy Cross, Matt Arkonsinger, guys. Thanks for being here. Thanks, Chris.

That's going to do it for this week's Monty Pull Money Radio show. The show is Mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you next time.