Motley Fool Money - Big Banks Cash In

Episode Date: July 14, 2023

If you bank with the one of the giants, you might be helping pad their bottom line.  (00:21) Jason Moser and Matt Argersinger discuss: - Why they’re watching margins and inventory levels this earnings season. - How interest rate spread pushed JP Morgan to a stellar quarter. - How short sellers are creating big YTD returns for beaten up companies. (19:11) Deidre Woollard speaks with Steve Wyett, the Chief Strategist Officer at Bok Financial, about how shifting interest rates have affected consumers and asset allocation, and the divide between the big banks and everyone else. (31:29) Jason and Matt break down two stocks on their radar: Franklin Electric and Disney. Stocks discussed: JPM, PEP, CVNA, RDFN, CMG, DPZ, FELE, DIS Host: Dylan Lewis Guests: Matt Argersinger, Jason Moser, Deidre Woollard, Steve Wyett Engineer: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

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If you're 45 or older and at average risk, ask your health care provider about the Coligard test. Colagard is available by prescription only. Learn more or request a prescription today at colagard.com slash screen. Earning season kicks off once again. Motley Fool Money starts now. That's why they call it money. Cool Global headquarters. This is Motley Fool Money. It's the Motley Fool Money Radio show. I'm Dylan Lewis. Joining me in studio, Motley Fool's

senior analyst, Jason Moser, and Matt Argusinger. Fellow, great to have you both here. Hello. We've got a look at why some tech stocks are flying, the divide in banking, and of course, stocks on our radar, but we are kicking things off looking at earnings season. We had Big Banks report this week officially kicking off earnings season. But before we get into some of the higher level results for these businesses. Let's talk a little bit about expectations for this earning season. It's been, I think, a bit of a tumultuous period, and a little bit of a difficult period for businesses as they're planning things out and trying

to forecast for the year. Jason, as you're seeing results come in from companies, what are you paying attention to this quarter? I think one thing to watch is margins, I mean, all the way from the top to the bottom, right? Gross down to net. We've seen a lot of companies going into this year focusing a lot on maximizing efficiencies, right? I mean, Facebook or meta, rather, this was the year of efficiency. A lot of companies really, really focusing on batting down the hatches. I mean, they're cutting workforces, investing in technology, automation, things like that.

So I think watching margins, you know, we've seen a big focus on these cutting costs, and those are helping, right? We're seeing that play out on these financials. Now we're starting to see, for a lot of these businesses, that input costs are starting to come down as well, right? inflation starting to moderate. That's not an opinion. That seems to be a fact. Now, whether that sticks, we'll see. But it does feel like those input costs are starting to come down. There's a potential, I think, for companies to really benefit from this. Because you figure prices will stay where

they are. Typically, companies don't raise prices and then lower them once conditions get better. But if input costs start coming down, even just incrementally, that can have a profound impact on a number of businesses. Now, admittedly, a lot of them are probably consumer-facing, staple-type businesses. But just a couple of examples. I mean, we saw with McCormick recently in their most recent call. They talked about driving significant gross margin improvement. Now, part of that was due to things like the Comprehensive Continuous Improvement Program and the Global Operating Effectiveness Program. I love these. I love these. Roll off the tongue. It just really tells you tells the tail. Back to sort of the focusing on cost side of things. But now even they are starting to see

that they were a little bit more thoughtful about pricing during those high inflationary times, but now that those input costs are coming down, they're seeing that play out on their margins positively. Just this week, Pepsi, another good example. From their call, they talked about the gross margin improvement they saw on the quarter, there's 132 basis points on the gross side, 45 basis points on the net side. That was driven by productivity, again, maximizing those efficiencies, so to speak. But they also noted that pricing was up exactly in line with commodity inflation. And so what that means is, as long as they keep on bumping those prices up as inflation goes up,

they're not seen as trying to take advantage of the consumer, so to speak, right? And they're just kind of keeping up with inflation. But if those input costs start coming down, they're going to be able to maintain those prices. I feel like we should start to see that play out positively on these margin pictures for a lot of these companies in the back half of the year. Matt, what about you? What are you looking at as companies report? Mine is very similar to JMOs in that I'm focused on inventories. A lot of the companies I like to look at are kind of small to mid-sized companies, industrial, materials, consumer discretionary,

and a big worry for these companies has been a real hefty buildup in inventories over the last few quarters, especially finished good inventories. So if you go back to 2020 and 2021, we had these pretty big supply chain challenges, right? Inventories were stretched, yet demand was still pretty high. So companies did their best to kind of bulk up their inventories, and anticipation of demand staying strong, head off any potential more new supply disruptions. And what that did is it just really bolt up their inventories.

So if you look at companies that I follow, like the Toro Company, outdoor construction landscaping equipment, their finished goods inventory was up almost 40% year-over-year-year-year-last quarter. Columbia Sportswear, up 34%. Watsgo, a distribution company, up 16%. Oxford Industries, the Tommy Buhama company that I love, up about 45%. In a lot of cases, inventory growth has far-outpaced sales. So that's usually a red flag. Now, larger companies have done a much better job. If you look at Amazon, Home Depot, Target, Walmart, Nike, these companies have a lot more channels. They're geographically diversified. Their inventories are actually flattered down. So I think if you're an investor like I am in smaller to mid-sized companies, that's where you want to look at. Because what J-Moh was worried about is margins, if inventories remain high in Q2, you're going to have discounting, consumer demand might slow, lower profit margins, lower earnings. And that's a big worry. Managing inventory is really hard. I don't think it gets enough credit.

Not at all. I mean, it does seem simple in concept, but to make sure you have what your customers want when they want it all the time is just really, really hard. And we saw that when supply chains break down, and that's why we've seen this big move to have more redundancy in that space, where it's not just in time manufacturing or just in time inventory anymore. It's just in case inventory that a lot of companies are focused on. Well, we got an early look this week at maybe what to expect for this earning season.

J.P. Morgan got the party started. The bank posted earnings of $14.5 billion, up 67% from a year ago. Revenue up to $41 billion, good for 34% growth. I was a little surprised to see these strong results, Jason. And we also saw some cautiously optimistic commentary from the bank's leader, Jamie Diamond. I was very happily surprised as well. I mean, we saw all three banks beat on the top and the bottom lines. I mean, there's got to be like a triple crown or like a triple Lindy for this, right? I mean, I don't know. We love Jamie Diamond. Maybe this is the triple Jamie.

I don't know. But either way, it was good news, particularly when you look back just the last quarter. I mean, the trend really last quarter, banks were taking a bit of a conservative approach. I think recession talk was a bit more front and center. That seems to be sort of taken a little bit of a back position this quarter. I mean, on J.P. Morgan's call alone, the word recession was only mentioned four times. It wasn't something that was integral to the information that was being given as like they're just preparing in case. But they do feel like conditions, generally speaking, are still pretty acceptable.

As far as the numbers go, I mean, for JP Morgan, net interest income of $21.9 billion. That was up 44% from a year ago, or up 38% if you exclude First Republic. So, I mean, which way you cut it, I mean, that was a very encouraging number. And it really played out the way we were hoping it would, right? we've been talking for a while now as the interest rate starts to come up, that should play out in favor for these banks, right? They can realize a little bit more on that spread. That net interest income would come up, and it's proving to come up, which is obviously working out for these banks. The reserves, I think, the provision for these credit losses are still

something that they're worried about. We saw with JP Morgan, the provision for these credit losses grew 27 percent from the previous quarter. I think if you exclude First Republic, it was a little bit of a better picture, because they do have to sort of consider what they brought in with that acquisition. But all things considered, I mean, Jamie Diamond continues to see the U.S. economy is resilient, but I think he also acknowledged the fact that the consumer is becoming strapped. And we talked last week about the fact that excess savings that we've all accumulated over the last three years or that many accumulated is now gone. And clearly, there are going to be some more costs coming down the line here for consumers and student loans pick back up.

So they are preparing for a rainy day. It feels like maybe they're a little bit more optimistic than they were a quarter ago. One of our colleagues on the investing team, Yasser al-Shimi, he said this morning, after going through J.P. Morgan's results, well, I guess the hurricane never came after all. Which I mean, which I loved because, you know, roughly a year ago, Jamie Diamond was saying, hey, watch out. There's a hurricane coming. He was partly right, though, Jamie Diamond, in the sense that it wasn't a hurricane, but it was a tornado that kind of touchdown hit the regional banks.

and I think swooped up a ton of deposits in assets and deposited it right into J.P. Morgan's balance sheet and other mega banks. So I was not surprised how strong those results have been so far for the big banks like J.P. Morgan and Wells Fargo because they really benefited from what happened in the spring. And look at those interest margins. I mean, we're still in a situation where consumers of those banks are still getting basis points on their savings or their checking accounts, yet J.P. Morgan and others are lending at much, much, much, higher interest rates now. And so it's a perfect situation for them. I would worry about what happens over the next few months. As comms get a little harder, interest rate level stay high,

you're still going to see a lot of rotation out of a lot of these assets that sit on the books of the banks. Yeah. So one of the things I want to ask you is I think we've been in an environment, Matt, where people have had to look back and say businesses were operating in an environment that did not last, and we've had to adjust our expectations accordingly, a lot of that in the high-growth sectors and tech sectors. Should we have that same line of thinking here as we're looking at results from these banks? I think we should. I think we should, because as long as these interest rates stay high, like I said, the comps are going to get harder. There's more avenues

for that money to flow where it needs to flow and away from the banks. And plus, as Jamo said, the credit issue is going to rise. It might rise slowly, but there's a lot of real estate. There's commercial real estate on the books. There's trouble loans. Those take time to work off, but I think we're going to see some elevated charge-offs, certainly in the near future. I think something else to keep an eye on, because these are really just the first of many banks to report here in the next couple of weeks.

You look at Wells Fargo again, net interest income up 29% from a year ago. A couple of weeks back, Matt Franklin and I had a conversation on the show regarding the competition for deposits with smaller banks. And that's going to be something to keep an eye on, the regional banks, the community banks, how the interest rate policy is working for them. Because banking size matters. I think we've seen that, right? I mean, it just does, and they can do a lot more with that scale.

The competition for deposits on the smaller side, that means they're going to have to offer their consumers their depositors a little bit more, right? I would expect with the regionals and the communities, we're going to see not quite as rosy, a picture, I think, in regard to that net interest income as we're seeing with the big banks. I think it'll still probably be good, but I do think it's going to be a little bit more of a competitive scenario for those smaller banks. So just something to keep in mind. All right. Coming up on the show, the story behind a stock up 400% in the past couple months. Stay right here. This is Motley Full Money.

Welcome back to Motley Full Money. I'm Dylan Lewis here in studio with Jason Mozer and Matt Argersinger. Big Tech has gotten most of the headlines this year, so far driving a large portion of the S&P 500 returns. But if you look at some of the beaten-up companies year-to-date, you might be a bit surprised. Shares of Carvana up 700% year-to-date. Redfin up 300% year-to-date. Coinbase, 200% year-to-date. The list goes on for Shopify, Open Door, and Airbnb also strong starts to the year. Matt, what's going on here?

Well, I think something that might be happening here is a lot of short-covering, Dylan. So this is data from Y charts. You mentioned Carvana. coming into the year, 50 million shares sold short of Krivana. That was 45% of the outstanding shares. Wow. Sold short. Massive. Shopify, 50 million shares sold short.

Redfin, you mentioned, 20 million shares sold short. Digital Realty Trust, the company I follow, this is the data center read that Jim Chanos hates. 18 million shares sold short. That's up a lot recently. Airbnb, 25 million shares sold short. Open Door. Open Door, more than 100 million shares sold short as of recently. And then Coinbase, 40 million shares sold short. Look at the price of that lately, as you mentioned.

So these stocks have surged over the past few months, and I think the ultimate question to ask, if you're an investor in any of these, is has the fundamental picture actually improved for these companies? Or are these really just short-term technical bounces? The news wasn't as bad as feared. So the stocks rallied a little bit, and then it forced a lot of short sellers to cover their shares. When they cover, of course, they're buying the stock they have to, and that's caused a lot of these surges. So if it's the latter, I think you have to be a little worried about the sustainability of these gains. Yeah, one of the things I wanted to talk about with this is you mentioned the fundamental look,

and that's so important to the way that we look at businesses. There are some names on here that are heavily followed in the full universe and are part of our premium world. How do you factor something like this in to the thesis for a business that you're following or maybe own in your portfolio? Right. It's not something I tend to look at a lot, except I think if you are a believer in the fundamental of these companies, and I think a lot of these companies have great fundamentals, and I think we have, among us, investors at the fools, we have a lot of confidence in the long-term picture here. So the short interest can be a little bit of a catalyst. I've never looked and gotten worried. If I believe in a company, if I have confidence, I'm never generally worried

if the short interest tends to build up in it. But you can at least look at it and say, well, gosh, if I'm right, and a lot of people are betting against it, then there is kind of a short-term catalyst, potentially, where if the news turns out to be right, and in We know in the long run of stock market's a weighing machine, so if the earnings turn out to be good, that's probably going to rally. It's going to rally pretty sharply. Jason, looking at these results, I think it's hard to know for sure, but I would guess that some of these short sellers have had a little bit of a rough time when they look at their portfolios. It's tough to be in a position where you're short something that has gone up quite a bit in a short period of time. I look at this and I say, did we learn nothing from the GameStop saga of 2021?

I'm surprised that we are still seeing people pile into heavily shorted names. when there's this awareness that at some point there may be a short squeeze. Well, I mean, you think about shorting, and I love, you know, Maddie's talking about sort of a catalyst, right? And the way I look at investing, I'm always looking for either a short-term catalyst, a short-term event, or a long-term trend, right? Usually I'm looking for a long-term trend just because it's a longer-term in nature thesis. But Airbnb kind of stood out as one where I saw that short interest. Now, Airbnb is a company I recommended recently in one of my services. I mean, I love the business.

Fundamentally, just I really like it. I think it's got a lot of potential. Seeing that there was that heavy short interest, I'm kind of like, yeah, you know, I mean, there's a short-term catalyst to go along with that long-term trend. So it can be beneficial in that regard. But yeah, it does feel like with shorting, when it starts looking obvious, right? If it's obvious to you, you better assume that it's obvious to everybody. And the thing about shorting is it becomes more expensive as it becomes more obvious.

The demand for shorting becomes more expensive. I mean, the demand for shorting makes shorting stocks more. more expensive. Their costs that come with it. So, when you're looking at something on paper and you think that's an obvious candidate, remember, if it's obvious to you, it's probably obvious to more people. And, you know, there are a number of different ways to short, right? You can straight up short a stock, but there's also option strategies you can take into account, and that can minimize those costs while still giving you the opportunity to play right in that sandbox. Generally speaking, I'm not a short guy. I just don't do it. It's not where my mind is at. I

I feel like there are smarter people out there doing that line of work, and I'm going to let them just kind of handle it. But yeah, just remember, if it's obvious to you, then it probably is obvious to many. I've definitely shorted stocks in the past and bought bearish options and kind of played the downside, but not, like you said, Dylan, with these companies, with these types of companies where they're either growing or they've kind of got multiple options and how they can kind of proceed, it's a real dangerous game to play. I think there are times as short, but going into this year with already so many of these shares,

sold short. If you piled in, you're feeling pretty bad right now. Well, just make sure it's fundamentally a business that you're okay with. If you're short something, be prepared. If it doesn't work out, would I still be happy owning this business? Because chances are, that is going to happen. I mean, not every time, but if you are a serial shorter, I mean, that's going to happen at some point or another. So for me, it really still all boils down to the end of day, making sure these are businesses

that you fundamentally are happy owning. Now, if you are just, if that's your philosophy, that's your thesis is just shorting stocks, I mean, that's fine. That can be a short-term way to make some money, and there are plenty of lists that you can generate all throughout the year of the heaviest shorted names, and you can just go ahead and short all of them. Maybe there's a basket concept there just waiting to be born, Della, I don't know. But it's worth noting. I mean, with shorting, the best you can do is 100 percent, right? I mean, ultimately, that's really the most you're going to make is 100 percent gain, because ultimately, you know, that stock has to go to zero. And I think that's, you know, one of the arguments against it, at least if you can take that longer view, if you're investing for a lifetime, is you find a those fundamentally good businesses that you can hang on to for long periods of time. And your returns, I'm not going to say, are limitless, right? But they just absolutely can continue to compound far beyond that 100%. Well, how many shares do you think have been shorted of Amazon over the last 20-plus years, right? Going back to even the dot-com era.

Yeah, on like a valuation thesis. Right. Well, just whatever, yeah, any thesis. But yeah, valuation is one of those in the toolkit of the short seller that's used often, I think, used very poorly. because it's the wrong reason to short a company like an Amazon, or even some of the companies we mentioned, when they are growing at exceptional rates. And if you're wrong by just a little bit, the market can punish you in the short term. What's that famous saying?

I think it's, you know, you can be wrong. I think it's the market can remain irrational longer than you can remain solvent. Thank you, Dylan. That's exactly it. I was about to butcher that. It's a good. It's a good. It's the best one to remember for this.

Yeah. So bringing it back around to some of these companies. companies, Matt, we talked about how this may be a little bit of a short-term tailwind for them. If you're seeing these results, this is probably setting some unrealistic expectations for people that have bought these stocks recently. What do you have to have in mind just kind of a final word here if you're following these businesses? I would just really understand, has the fundamental picture improved?

If you didn't say yes to that definitively, love the gains you're good end, and that's probably what you're going to get. Jason Moser, Matt Argusinger. Fellows, we're going to see you a little bit later in the show. Up next, we've got a deeper dive on interest rates and the banking sector. Stay tuned. This is Motley Full Money. Welcome back to Motley Full Money. I'm Dylan Lewis. We're still waiting through the collapse of Silicon Valley and other banks, but the response to their failures is already reshaping the banking industry. To understand how Motley Full Money's Deidre Willard spoke

with Steve Wyatt, the chief investment officer at Bach Financial. The two dug into how shifting interest rates have affected consumers and asset allocation and the divide between the big banks and everybody else. You know, you can get pretty decent rates now for CDs for high-heeled savings accounts. How do you see consumers thinking about that? Has there been a move to saving more because you can actually finally get a decent rate? Yeah. Look, I started my career in the bond business in January of 1982. Interest rates were very high at that period of time. And for savers, that was a fabulous period to be a fixed income investor. The last 15 years, candidly, the bond market has offered nothing. It's been returnless risk for the better part of

15 years. So you're absolutely correct that for the first time in a long time, we're seeing interest rate policy kind of benefit savers at the expensive borrowers. We've been benefiting borrowers at the expense of savers for a very long time. And so there's a couple of bigger trends going on here. And this is another reason that we're kind of a little bit cautious on the equity markets. It's just that as rates move higher, you can generate a reasonable level of return in the bond market for a lot less risk than the equity market for the first time in a while. So I think that, look, just the math of how we're valuing equities on a go-forward basis is changing some. But for individuals that live on interest income, this has been actually a pretty good spurred.

to their personal income where they were earning basically nothing and really being forced. That was the hard part as a portfolio manager or dealing with clients is that those clients that really wanted to build an investment portfolio where they were getting cash flow and hesitant to sell, you know, didn't want to have to necessarily sell something to distribute corpus. We were forced to find alternative kind of bond proxies. And while the unwind of that last year was pretty painful, dear, to the first time, what we saw bonds down double digits. And in fact, long-term treasuries were down more than equities last year.

That was a painful unwind. But as we sit here today, now we're looking at fixed income that can play a little bit closer to the historical part in a portfolio. We can actually reduce risk a little bit because we've got higher cash flows. Look, we still think the Fed's going to be raising rates. but they're a lot closer to the end than the start of that process. So this is a period of time where we are trying to find those types of high-quality bonds, adding a little bit of duration to the portfolio, a number of our ultra-high net worth clients,

finding real value in tax-exempt bonds, where we're now looking at tax-equivalent yields that approximate long-term equity type returns. And so just as a from a portfolio construction process, this interest, rate environment is a lot more normal for us than what we've been going through, you know, as the Fed was pushing rates to zero and pursuing quantitative easing and really distorting, if you will, the fixed income markets. And that's the other part of this just as we look at the markets. It's been very hard to get any, what we would say, you know, real price signals out of the capital markets. When you had the Fed in there being a massive buyer of treasuries and

mortgage-backed securities, pushing interest rates to zero. It just made the valuation process and really the capital allocation process so much more difficult. You've got to get back to using some muscles we haven't used in a long time as we think about building portfolios now. Well, the first shock that we had sort of in the beginning of the year was the banking crisis. Now it seems like the worst of that hopefully is over the big banks. They just passed their stress tests. Do you feel like consumer faith in banking has been restored, especially with regard to regional banks? So I work for a regional bank. You do indeed.

Look, this is a multifaceted question, and I'm not a spokesperson for BOK financial overall. But let's talk about just speaking of the banking industry overall. It is good that it does appear that the worst of the fears that were in place as we saw, Silicon Valley Bank fail and real question marks occur. Man, what a, and it was just a really interesting time because the thing that took down Silicon Valley Bank was completely different than what we would normally see where banks get in trouble in their no case. They have credit problems. That isn't what this was. This was a failure of risk management 101. Interest rate risk in their bond portfolio. This wasn't some esoteric off-balance.

sheet derivative thing that got them. It was their bond portfolio right there in front of them, and they failed to manage the risk of that. That's unusual. The vast majority of banks did a much better job of managing risk. Not every one of them. There have been other banks that have been in the news that kind of look like they had some excess interest rate risk on their balance sheet or maybe more than what they should have. And look, I can buy into the fact that the Fed had told us for what, the better part of two and a half years, we're not raising rates. We went into 2022 looking for two, maybe three rate increases. They end up raising rates by five percent. So I get it. The outcome of the interest rate cycle was different than what we all thought it was going to be.

That doesn't mitigate the failure of risk management on the part of Silicon Valley. And I think the vast majority of the banking businesses were managing. risk much better than that. Having said that, as we've gone through that, we do think that there are a couple of things that make things difficult. And one of those in the week, and just a couple of weeks after Silicon Valley Bank failed, and our Oklahoma Senator, James Langford, was interviewing Treasury Secretary Janet Yellen in the Senate and Senate Banking Committee testimony. And the question that our senator raised was about the safety of depositors and whether or not the Treasury was going to guarantee all of the depositors. And basically, Chair Yellen, as you know,

came out and said, look, if you're a systemically important financial institution, a SIFI institution, all depositors are safe, but everybody else were going to take it on a case-by-case basis. Dearie, let's just be honest. That's not tenable over a long period of time. our banking system has changed so dramatically from where it was 20, 30, 40 years ago, when the ability to do business with one of the larger banks in the country, let's just, you know, just as an example, I'm going to say JPM, the largest bank out there. If you, depending on where you lived, you might not even be able to do business with JPM because they weren't in your region or weren't in your market or, you know, whatever.

technology has completely changed that. So we can, any company, any person can do business with any bank at any time very easily. It just flattened this out. And so if you're going to have a banking system where depositors are treated differently in the SIFI banks versus the regional banks, we are always going to have this tension because depositors have the potential of being treated differently. I'm not sure that's what we wanted to to depositors. I don't know that we want to have depositors have to have maybe the same sense of doing due diligence with the bank that they're doing business with as opposed to investors, if you're going to be a stockholder or a debt holder of a financial institution. And the other part of this dear group, of course, is $250,000 covers a lot of

people, a lot of individuals, but particularly as you get to companies, you don't have to be a very big company at all for you to have an operating account in excess of $250,000. And so I think there are some things that we're still going to need to work out. I can tell you that in our first quarter earnings release, BOK Financial's first quarter, we had a bit of a discussion around the FDIC assessment that we're expecting from the failure of Silicon Valley Bank. And it's not an immaterial them out, Deirdre, I was stunned at what the number was, and of course, it would be more for the bigger institutions. And so, you know, this is going to be something as we think about how FDIC insurance works going forward. We don't want to put people in a position where they feel

like they have to move money out of the regional banks. I would just tell you this. Just look at the difference between what the bigger banks are paying on money versus the smaller regional banks, and the bigger banks are still paying one or two basis points on checking accounts because they just have deposits coming out of. People feel like that's where they have to be doing business, return of capital, as opposed to return on capital. But if you look at the majority of the banking system, you know, one of the things has been kind of a headwind for the performance of those stocks has just been where our deposit beta was pretty low 12 months ago, we're having to pay a lot higher rates for deposits. And when I say we, I'm speaking broadly. I'm not speaking

about just be okay financial. But the banking industry is paying a higher amount for deposits, and ultimately that's a bit of a margin problem for profitability. So it's a multifaceted issue, Deirdre. It's when we just think about the banking system and how our banking system is set up. And maybe this was one of the, even, this was one of the scarier parts, as we talked internally about what happened to Silicon Valley, our banking system is not set up for any financial institution to have 50% of their clients come and say, I want my money. We're not set up that way. That's not the, that's not how. And so if there's that risk, and you put this another way, and this is where I would just,

tell you, the regulatory authorities are not going to waste this opportunity to have additional regulation come at the financial institutions. We've heard talk of additional capital requirements, weighted more towards the big banks, but be okay financials, a top 30 financial institution. We're going to get part of this as well as everybody else. If you start requiring more capital, higher liquidity measures, all of that means is that you're going to have less of an ability, any lower, if you lower the risk on your balance sheet, that generally means less profitability. Just like in an investment portfolio, when we talk to our clients, if we're going to take less risk in our investment portfolio, we need to dial down our return expectations.

And so I think that's the environment that the financial system is going to be operating within as we move forward. As we try to, you know, fine-tune that balance between return and the amount of risks that we have in the financial system. Coming up after the break, Jason Moser and Matt Argersinger return with a couple stocks on their radar. Stay right here. You're listening to Motley Fool Money. As always, people on the program may have interests in the stocks they talk about, and the

Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Dylan Lewis, joined again by Jason Moser and Matt Argersinger. We've got stocks on our radar this week, but first, two stories in food. If you're craving Domino's, you've got a new way to get it. The Pizza chain is partnering with Uber Eats and Postmate apps in four pilot markets with the hope of rolling ordering in those apps across the country by the end of the year. Matt, another innovation for Domino's?

Yeah, totally. And a win-win, I can't speak for the pizza necessarily. But what I love about this deal for Domino's is that you're essentially expanding the marketing and distribution for your pizza, but you're not really changing the operations or experience. I mean, you're going to still have uniform Domino's Deliverers delivering the pizza. Deliverers? Is that a – anyway. So that won't change. And yet – so the experience doesn't change. The operations doesn't change. It just boost Domino's visibility and accessibility. So I can understand why the stock got a nice pop this week.

Delivery Associates. Delivery Associates. That's what I was going for. Sorry, yeah. Respect the title. Thanks, Jamo. It seems like Domino's is just happy with you ordering the pizza no matter how you get it. That seems to be the end. 100%. Jason. We've also got some of the – innovation over in avocados. Chipotle is testing out a guacamole-making robot, the AutoCato, which can prepare avocados for guacking, hopefully reducing the amount of time to make guac. What do you make of this? Well, this is near and dear to my heart, Dylan. I mean, for so many reasons. I mean, I love guacamole. I think Chipotle's guacamole is second to none. I've even got three

guacamole trees outside on my deck at my house. I mean, like, this is, I'm an avocado guy. I like that they're guacamole trees and not avocado trees. You're like, no, no, no. I've already factored in the fact that they are going into guacamolocation. By the way, it's avocado associates. Got a key lime tree sitting right next to them. I mean, it's already done, right? Chipoli is just a wonderful restaurant for so many reasons. I mean, I love their innovation. I mean, chippy, right, the machine that makes the chips, this is just another opportunity for them to try to maximize efficiencies, as we were talking about earlier in the show. It does matter, right? I mean, Chipotle's guacamole is in high demand. People pay for it. I mean, it's pretty fascinating to see. I mean,

This dates back a little bit, but I mean, according to the restaurant, customers order nearly 50 million pounds of guacamole per year from Chipotle. And more than 450,000 avocados are used daily. Now, if you've ever peeled and pitted an avocado to make guacamole, I mean, that's not, it's some work. Yeah, it takes some time. So if they're finding ways to help cut down that time and get a little bit more of uniform nature there and give those workers an opportunity to serve their customers better.

Well, I'm all for it. It's AI. It's avocado intelligence. Oh. Wow. How did they miss that opportunity, man? Wow. See? To your point, Jason, I read that it takes roughly 50 minutes for Chipotle to currently make batches of guacamole. This is something that will hopefully bring that time down, probably also a little bit of a response to what we're seeing in the labor market for them. I would imagine so, and I will just throw in there, I can make my guacamole much quicker. Oh. Oh, shot's fired.

It's not in the same quantity, and I'm sure there probably has something to do with it. 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 one? I am looking at Franklin Electric, F-E-L-E is the ticker. It's a newly crown, or I should say knighted, dividend night.

So these are companies that have grown their dividend at a compound annual rate of at least 10% over the last 10 years and beaten the market's total return, so I love these companies. There's a lot of like about Franklin Electric. It's kind of a leading manufacturer of water and fuel pumping systems. It's actually the largest maker of submersible electric motors, which are really important I've learned for kind of large-scale irrigation projects. You have a CEO who's been with a company since 1988. Great first quarter record revenue, operating profits up 32%.

Here's what I love the most. They raise their dividend 15% in February. That was the 31st consecutive annual increase. But their payout ratio or the percentage of their earnings that go towards paying the dividend, just 21% right now. So lots of room to keep growing that dividend. Man, I love it when you bring a stock that I've never heard of, Matt. That's awesome. Dan, I don't know if you're familiar with this one. Curious, do you have a question or a comment on this?

Two things. One, Matt, I'm kind of mad at you about your avocado intelligence comment, and I just want to remind all the listeners that this is just absolutely unacceptable content. And two, are you Ron Gross? This is 100% a Ron Gross value stock right here. I know. You've accused me of this before. and I'll just say I learned from the best, Dan. I learned from the best. Accused. I mean, that really sounded like a compliment. Yeah. Next thing, you know, Maddie's firing on all cylinders.

I can't give Ron Gross that much credit, guys. All right. I don't know. Hopefully Ron's not listening. It does sound an awful lot like a Ron Gross stock. But that's a good thing. I mean, you guys focused on a lot of the same stuff. Totally makes sense. Jason, what is on your radar for this week? Well, we talked a little bit about this last week.

Continuing into this week, there's a little bit more certainty in regard to Walt Disney, ticker D-I-S. Obviously, a lot going on with this business. The big rumor last week was that Bob Eiger might be looking to extend his contract with the company, and that is in fact been confirmed. Iger has now extended his contract through 2026, which is two years beyond the 2024 date where he was supposed to exit. So, hey, the ride of a lifetime was so good and he had to get back in line and write it again.

Hopefully he got the fast pass. You think he regrets that title? Maybe. I think he's definitely second-guessing it. I know I would. But, yeah, I mean, listen, with Disney, stock is at a brutal 12 months, a brutal year to date. We can make fun of Iger re-upping here. It's an easy joke to make.

Honestly, I think he really is the best choice for this business right now where it is. Disney is a business, I don't want to call it in chaos, but it is a business undergoing a major transition. And they just haven't figured it out yet, right? I mean, it all really boils down to entertainment, streaming, all of these legacy operations that they have, things like ABC. I was interested to see they're even talking about spinning out FX, which they just bought recently.

And honestly, I feel like FX was always a really good differentiator for them, kind of like their own little version of an HBO. So I don't know. I don't really care if they own it or not. I just want to get my FX and things like Mayans and Sons of Anarchy and stuff like that. But, yeah, I mean, they obviously have a ton of work to do on the TV side. ESPN is another big question. Don't know exactly how that's going to shake out,

but they are looking for external partnerships, maybe to expand the distribution and engagement there. Speaking of dividends, Maddie, I think an easy win for Disney right now reinstate your dividend. I mean, come on, things have been suspended for three years plus. Give shareholders at least a reason to want to be patient. They have more than enough financial levers they can pull to do this. I know they say that they expect it by years in. Do it now.

Dan, a lot in there. Question about Disney? We've got a writer's strike, an actor's strike, and an egotemic in the CEO position. I don't know if Disney's time is right now, boys. Is that all to say that you're putting Matt's selection on your radar? Yeah, we're going Franklin. All right. Jason Moser, Matt Argersinger.

Thanks for being here. That is going to do it for this week's Mountain Full Money Radio Show. The show is mixed by Dan Boyd. I'm Dylan Lewis. Thanks for listening. We'll see you next time.