Motley Fool Money - Brokerage Madness, Pepsi’s Pop, and Wrestling Smackdowns

Episode Date: October 4, 2019

Charles Schwab cuts trading commissions to zero and TD Ameritrade and E*Trade follow suit. Pepsi hits an all-time high thanks to healthy returns from healthier snacks. Costco slips on disappointing earnings.  And Bed, Bath, & Beyond stays afloat despite slumping sales. Motley Fool analysts Andy Cross, Emily Flippen, and Jason Moser discuss those stories as well as Constellation Brands, McCormick, and Stitch Fix. Plus, Motley Fool contributor Dan Kline analyzes the latest news from professional wrestling, the NFL, Harley-Davidson, and McDonald’s.  (To get 50% off our Stock Advisor service, go to http://RadarStocks.Fool.com.) Learn more about your ad choices. Visit megaphone.fm/adchoices

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Hey, hey, Chris. We've got the latest headlines from Wall Street. We will dip into the full mailbag, and as always, we'll give an inside look at the stocks on our radar. But we begin with a big shakeup in the brokerage industry. This week, Schwab announced it is cutting trading commissions for U.S. stocks and ETFs to zero. TD Ameritrade and E-Trade followed suit later in the week. And Andy, worth pointing out, all three stocks fell double digits. Yeah, a tough week for shareholders. Great week for clients, though. If you are an investor that uses one of those services, trading costs went dramatically lower. Now, don't over-trade. Don't use that as an excuse to overtrade true, motleyful principles, but clearly impactful to some

of these companies. Schwab, only about 3 or 4 percent of their revenues are tied to commissions, Chris. But when you look at E-Trade and TDA Ameritrade, much more significant, 17 to 25 percent of their revenues tied to commission. So much more impactful there, and that's why the stocks really took a hit this year. I think we've been seeing this. We've been seeing commission costs over the last two decades. I think my first stock that I bought, the trading costs were somewhere like in the 50 to 60 bucks or something. Ridiculous. Emily looks at me like, oh, my God. I think it is. Right. And it's true. And it's true. So you had to pay, call your broker, all that. So clearly we're moving in the right direction.

Interactive brokers, which was really driving the commission costs so much lower. And last we announced that they were going even lower through their Interactive Broker Light initiative. Now you're seeing Schwab really put the gauntlet down. When you look at the expense basis compared to their asset, Chris, Schwab is by far the lowest of any of the big banks, lower the Bank of America, lower than Merrill Lynch, lower than Morgan Stanley. So, Merrill Lynch is part of Bank of America, but lower than Morgan Stanley. So Schwab has the ability to do this because they have the most scale, and now they've

really put that marker out there for the rest of the industry to follow. Yeah, and the one thing I was thinking about, we saw some pretty harsh reactions this week. I would venture to say there are probably some overreactions there. I mean, I do think TD Ameritrade is one worth considering, but think about TD before the Scott Trade acquisition. I mean, I wonder how much this type of thinking went into that acquisition. Because certainly now that Scott Trade is a part of that TD Ameritrade family, it makes, this makes, you know, it's easier for them to do this. I wonder how much thought, you know, around this was in that TD Ameritrade Scott Trade tie up.

It does seem like it's also causing a little bit of skepticism in the industry, though. So Robin Hood, obviously being the first, I guess, brokerage, if you can call it that, to allow free trading, attracted a lot of people. There was rumors of a planned Robin Hood IPO. And as one might assume, this really undercuts a lot of their business now, right? But the big question is that they're not making their money by charging for tradings. Well, they're probably making their money somewhere else. And so Robin Hood has been notorious for selling, essentially, user data,

making their money in that regard. So it'll be interesting to see if, I think the costs are obviously good on a trading basis. They're still making their money somewhere else. Well, clearly brokers are making their money elsewhere, Emily, and so much on the fees. In Schwab's case, they've moved to more subscription offerings, too, through their intelligent portfolio plus offering. So trying to figure out how they can get revenues elsewhere because trading itself has become a commodity and now it's gone to zero. I'm just curious, and I'm going to ask you to sort of look into a crystal ball. So it's an unfair question.

But clearly, as you pointed out, Andy, Schwab ran the numbers. They looked at this. They said, look, this is not a big percentage of our revenue. We can make this move. We think this is good for us from a brand standpoint, from potentially the ability to take market share. They come out and announce this. Do we think the TD Ameritrade and E-Trade were thinking about making this move on their own before Schwab did this? because I think they looked at what Schwab did and said, we have 24 hours to announce we're doing this as well because we don't have any choice.

Well, they're far smaller than Schwab. Interesting. Fidelity has not followed up. And Fidelity is really the next big player in this block now. They are not public. Neither is a vanguard. So maybe they don't feel this public pressure, Chris. But I think after TDA and E-Trade, their stock fell so precipitously after Schwab's announcement, I think they felt like they just had no choice. Costco closed out the fiscal year with a fourth quarter report that was a little light on overall sales. Competition is tough, Jason, but Costco says they are optimistic for the new fiscal year. Well, we've been concerned, I guess, with Costco for a while now, just based on market saturation and the fact that it's a razor-thin margin business. And we talked about this a couple of weeks ago at the Fool event, the taping of market foolery there, the power of the customer-centric business and how you really just cannot dismiss them. And that's really what Costco is. I mean, that's what it was founded on is just the customer-centric nature of giving these members the lowest price as possible.

And we can certainly see Costco is a great example that that absolutely can transcend leadership. I mean, Jim Senegal set it up, and Craig Jellanick continues just to keep the ball rolling. When you look at the numbers, I mean, I was really impressed to see the top line up 7% for the Corps. Really impressive for a business like this. Membership renewal rates of close to 91% of the U.S. and Canada worldwide, 88.4%. They have 53.9 million member households. All of those numbers increased. So, yeah, growth is slowing, but they are growing, and they continue, I think, to just maintain a strong reputation in the space. So online, I think, is still, I don't know that I would look

at online or e-commerce as a tremendous opportunity for Costco going forward. It's still a tiny part of the business that around 5% of it is. of sales. But, I mean, I think we're seeing that there is some staying power in physical retail as well. The membership fee encourages you to use the membership. And then the pricing scheme is so good. Members feel compelled to keep going back for more. Good balance sheet. Two and a half billion dollars in net cash. And like I said, margins are razor thin, but they're stable. And by any metric, this has been a good stock to own. Yeah. And I think it was just maybe, was it last month, two months ago, that they started

to open up Costco's in China. And I remember, I mean, you just think about the international opportunity there as well. And I don't really, there seems to be a ton of people aligned there at the Costco's in China. So that might also be an interesting opportunity. The executive memberships as well. I mean, there are some different levers. It's a slow grower, but hey, they're growing and it just management is really, really strong. Well, and that's not their, that's their first China store. I think in Shanghai, and they're going to open another one, too. So that will be their first step in there, but won't be their last. Shares of Costco up 25% over the past year. It's really interesting to see that kind of growth

when, as you said, Jason, for a while now, there have been either questions or concerns about their ability to grow. We had those questions on this show. I posed them. I was a skeptic. I mean, I got to say, this one, I mean, it has surprised me how well the stock has performed. But look at it over three and five years, it gets even better. So, hey, you got to give credit where credits do. A roller coaster week for Stitch Fix. shares fell more than 10% on Wednesday after fourth quarter results came out, Emily, but the stock recovered by Friday and Stitch Fix up about 7% for the week.

Yeah, Stitch Fix is an interesting one. It's a divisive one because people tend to have strong opinions about it. I am... Why do you think I was to you first? I was there. No exception to myself, so I'm sure Andy is going to counteract everything I say here with a nice, let's say, bowl case for Stitch Fix. But personally, the quarter was really interesting. It's not I thought it was a bad quarter. They actually had some really impressive active client growth, 18% increase, 3.2 million people, a 36% increase in revenue, earnings beat. So the big

question was, well, why did the stock immediately at least trade down? And it seems like just guidance for the following quarter was kind of weak. They spent less on marketing. And they were like, we're going to have higher growth in subsequent quarters. And the big question was, how? So you're slowing down next quarter. You're not spending on marketing. How are you're getting that growth and they're like, well, it's our new direct buy feature. So, customers who are Stitch Fix subscribers can then go online and see like a, essentially a tailored feed of 30 to 40 items that they can immediately purchase. And I think the reason why we saw the stock rebound was because the immediate reaction was, I mean, the reaction that I still

have, which is, okay, well, you're turning into a more traditional e-commerce channel. And the whole idea of stitchfix is, you're supposed to tell me what I like and you send me a box of clothes, not I go onto your website and then I pick what I want because I can do that anywhere. But it seems like, so my impression was that's going to cannibalize a lot of their own sales. And I think that was the immediate oppression. But now the latter impression is saying, wait a minute, well, it's actually as good because it's a tailored feed. You're not getting thousands of items like you would if you went on to Amazon. I don't know if I buy into that narrative.

I've been a skeptic for a while, but I know Andy will have something to say. Well, I think the big concern out of the gate was just a profit picture for next year. year. They're investing, continue to invest a lot in their data algorithms, their website, all the features that Emily mentioned, and the profitability picture for not just next quarter, but next year is looking far less than what they had last year. And even this year, for this fiscal year, it's dropped a little bit, Chris. So as they continue to make these investments, and the revenue client growth, when they had a little extra quarter in there, so you back that out, their growth wasn't quite as high. But I'm just glad to see the active client growth and the revenue per user

continue to increase, and that's a good sign. So I think some of the costs of their investing is whether they can recoup those. I think the features that Emily mentioned, I think, are a differentiating factor of four-stitch fix. I think that's an advantage for them. And when you look at revenue growth of north of 20 percent, they get the profitability picture. If they can get the operating profits in that 10 to 15 percent sustainable level over the next few years, you have a stock that's been discounted of the last couple months or so. And I think it's a good position to have for, for long-term owners, but I wouldn't overweight your portfolios. Talk like the 1 to 2% range. Yeah, it's a lot of ifs in there. I heard a lot. If they're able to do this, if they're

able to do that. It's a lot of ifs. And what I see right now is a business that is operating in a luxury market with expensive clothing to an audience that admittedly is growing, but it's not going to revolutionize the way that the average person buys clothes. Ultimately, when somebody is crunched for cash, I mean, this is the first thing that they cut out of their budget. It's a lot of money. I'm not sure if I really believe in that. the idea of aggregating that fashion data. I've said this before, but I think that you can have two people who look exactly the same. They're exactly the same size, but they both like their clothes to fit a little differently. And so having to collect information about two

people that, you know, your algorithms might say should be exactly the same and acknowledge that they have different preferences, I mean, that's a hard thing to do. And it's not surprising to see them investing a lot of money into that, because it's going to take a lot of money to get there. And I just don't see it if you're, you know, you're seeing this profitability crunch. seeing essentially what is equating to potential for slower growth. The fact that they feel the need to go to direct sales channel. I don't know. A lot of red flags here for me, and I'm not sure if I buy into all those ifs. Shares of Pepsi hitting a new high this week after third quarter profits and revenue

came in higher than expected. Andy, considering the name of the company, the growth story here has pretty much nothing to do with Pepsi. This is snacks. This is sparkling water. This is Gatorade. Well, all contrary, my friend Chris, their Pepsi. brand actually was up. They've seen some organic growth their first time in, I think, maybe years. So that was really good. They're seeing growth in Quaker first time in years. Frito-Lay, obviously, Chris, to your point, has been the big driver, international, big driver. But you're seeing organic growth in Frito-Lay, which is the chips business, a snack,

Doritos, Cheetos, Fritos, even their new lines like Bear and off the beaten path. That unit was up 5.5% organic growth. So 5.5% revenue, that's nothing to sneeze. that when you're a company of that size for Pepsi, as they can continue to spread those costs out. So you see growth across all of the divisions, international and emerging markets, really attractive. The new CEO, Ramon LaGuarda, who took over a year ago, has really kind of gotten this new vibe feeling for Quaker. Of course, a lot of initiatives have been put in over the last couple years, but you're seeing growth across all of the divisions. You're seeing a profit picture that isn't super attractive. It's a very profitable company, but profit growth isn't going

to be off the charts. But you have a company that the stock has done very well, sells it 20 to 23 times forward earnings. It used to be at a discount to Coke. Now it about matches that. So, it's not as cheap as it used to be. They generate lots of free cash flow. They buy back the stock. They pay that nice little dividend, and that's why the stock's done pretty well this year. Yeah, I feel like every quarter I go to the call. The first thing I'm looking for is give me some information on SOTA stream. I want to know how that acquisition is working out because it's not insignificant. They paid billions of dollars for it. And interestingly, you're talking about Mr. Liguarda. Remember, the acquisition was made under Indra New Year's watch. She

made that acquisition and then promptly exited stage left. I just can't help but wonder if maybe the new leadership would have made that acquisition because, again, in the call, there's really no clarity, no concrete numbers. It is something they'll use to continue to combat weight. and plastic use and whatnot. I just can't help but feel that we're going to see a write-down on that deal at some point here in the near future. Interesting. They did mention a little bit that they said it's going well. So they didn't give any hard numbers to Jason's point, especially in Europe. That is their Seltsor play. Their kind of like carbonated water play is with Soda Stream. So I agree. I would love to see

some little bit more data behind how the acquisition is going because it was $3 billion, so it was significant. But at least they did point to, hey, it's going well. especially overseas. Coming up, we've got beverages, spice, but not everything's nice. So stay right here. You're listening to Motley Fool Money. Welcome back to Motley Full Money. Chris Hill here in studio with Jason Moser, Emily Flippin and Andy Cross. Shares of Bed Bath and Beyond basically flat this week, despite the fact that same store sales in the second quarter fell nearly 7 percent and overall sales were lower than expected. And on top of that, Jason, Bed Bath and Beyond still does not have a CEO. No, they do not. Is there a world

where Bed Bath and Beyond can still exist. Absolutely. I can see it. Maybe in a smaller form, but I still don't want to invest in it. And I mean, I have to say, I'm astounded that they continue to repurchase shares. I mean, we've established on this show a very long track record of them getting it completely wrong for years on end. And while I will give them credit, those share repurchases are much lower than they used to be. They are still actually wasting money on it. And for a company with a net debt position of around $3 billion, no CEO and no re-represon, real firm strategy as to how they're going to turn this thing around, I would advise investors to steer very clear.

Constellation Brands made its name as a beverage company with names like Corona Beer, Ballas Point, and Robert Mondavi Wines, just to name a few. But the headline of Constellation's second quarter report appears to be the loss it took on its investment in canopy growth, a cannabis company. Shares of Constellation falling 6% this week. Emily CEO Bill Newland says he thinks people may have gotten mixed up a little bit by this report. Do you think that's why the stock sold off? I don't think it's not why the stock sold off. Actually, as Newins pointed out in the earnings

call, they've actually made an astounding $757 million on their investment onto Canopy, because they bought in so early. But recently, it's been a little tough. It's definitely the reason why this company went from being profitable to at least accounting, unprofitable. So it's an interesting company. It's a little sad that the news about Canopy growth overtook a lot of their exciting developments, like their long. launches into hard cider and my personal favorite canned wine. But it's a good dividend player. It's a good solid company. The underlying beer industry is growing a lot. Do we really think canned wine is going to take off as a thing?

I'm not sold. It's better than boxed wine, but I'll give it a try. I don't not think it's going to take off. In Whole Foods, they have it right there. You can kind of buy it as you go by, at least in the places where you can buy one thing. Have you done that, Andy? I have not yet. I was just going to say, for all the times I've shopped at Whole Foods and seen those cans, I've still never pulled the trigger. I'm buying some today.

Shares of McCormick up 7% this week. Strong third quarter results for the Spicemaker. Jason, sometimes we focus on McCormick's industrial division. It looks like for this quarter, it was the consumer business that was doing the heavy lifting. Yeah, the consumer business did very well. The flavor solutions business, that industrial business was flat, though I think the reaction to the stock this week was partly a little bit of a bump-up in earnings guidance and some tail ones they are going to recognize in that flavor solutions segment. But I mean, this was exactly the type of quarter you would hope. for from a company like this. It's not some big top line grower, but it's good at what it's

good at what it does, and it's the leader in the space by a mile. Topline revenue growth of 2 percent, earnings up 14 percent due to, again, the consumer side of the business. Much like Nike, they witness some very strong growth in China, which is encouraging. I think that McCormick is just kind of the same old thing every quarter, but management is very disciplined. And I think that's the reason why the market continues to give it a lot of credit. And it's just now looking for that next big acquisition. Man, credit is right. When you look at this stock over the last few years, it's just beaten the market. And it's beaten the market with lower volatility. We talked about this

before. It's a very stable performer on the business side and on the stock side as well. I'm a very happy shareholder. What can I say? Andy Cross, Jason Moser, Emily Flippin. We'll see you later in the show. Coming up, we will dig into the business of the NFL and the business of professional wrestling. So make sure your tray table is in the upright and locked position because it could get a little bumpy. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Earlier this week, producer Matt Greer sat down with Dan Klein, who covers technology and consumer goods for the Motley Fool. They discussed a range of all-American

brands, including McDonald's and Harley-Davidson, but they started with wrestling. The world of professional wrestling just got more competitive this week with the launch of AEW, All-E-E-W-All-E-E-E-E-W is trying to to stand out by putting the focus on actual wrestling instead of backstage theatrics. So Mac began by asking Dan Klein, what does this mean for the biggest player in the space? WWE. So, WWE has focused on what they call sports entertainment. And that's the skits, the interplay, the drama.

They view it as a soap opera. The AW presentation is more about wins and losses. So it's going to track like a sport, and they'll have some of the shenanigans. they'll be promos, they'll be, but it'll be much more the old school. You remember the 70s wrestling where the idea is, here's why I don't like you, Mac, here's why I'm going to beat your face in, and that's to drive ticket sales. And ideally, they're airing on TNT, so it's the first non-WWE company with a major platform, and they've sold out a bunch of shows. There's a lot of momentum behind them, and it should worry WWE. Okay, so I hear all that, and I hear that they're going to focus

on the wrestling, but isn't wrestling ultimately entertainment? Isn't it all about the personality, and the stuff that happens outside of the ring? So I'm a little biased here. I mean, I'm a WWE shareholder. I'm a big, long-time wrestling fan, but I like what the AW guys are doing. They have some very compelling characters, and they're not ignoring that part of it.

They're just not going to the silly extremes, where sometimes you can watch a WWE show, and in an hour, not only is there not that much wrestling, but it feels like, wait a minute, like, why did that guy get a title shot? He lost last week. There's sort of no continuity thread in terms of the fake reality of it.

Yeah. So this way with AEW, I can root for some of these wrestlers the same way that I would root for a sports team. Absolutely. And, you know, look, some of the old day bad guy, good guy has gone away. But the business model of, wow, I want to see those guys punch each other in the face is more at the core of what they're doing. And again, wrestling is the least popular it's been in a very long time. WWE ratings are down at a time when they're about to get paid more for their TV rights than they've ever gotten by a lot. It more or less doubled. So they're a very successful company for the next five years with a smaller fan base than they need to sustain that.

Okay, and let's talk a bit more about that. So WWE shares down a lot over this past year, but Dan, over the past five years, up more than 400%. As you look out over the next five years, what do you think WWE's biggest challenge is and what's the... the untapped opportunity. Well, there's too much wrestling. If you're a wrestling fan, there is at least two hours on almost every night of the week, not counting some of these minor but still on television promotions. Also, it's getting people to leave their house is a harder bar.

So when we were kids and looking, I'm going to guess we're in the same age group, they came to Boston Garden once a month. It was an event. There was an hour on Saturdays on TV. They teased what was going to happen next month in the live show, which of course is the same live show they brought to every city. Now, why do I need to go out? There's 15 hours of wrestling on every...

So it's got to be a major event or someone special coming back or a debut. And that's a very difficult bar as a touring product. I quit watching wrestling after Andre the Giants. I'm tired. So it's been a while. Okay, let's move on to the NFL. Rating's up for the second year in a row. Dan, what do you make of the business of the NFL?

I think the NFL, other than having to worry about the health of its players issue, which could be a drain on its business long term. Other than having to worry. Now, I'm going to, I want to revisit that because that feels like a big concern. I feel like that could ultimately end the NFL. But in terms of the popularity of it, at the end of the year, when you sit down and look at the top 20 single TV shows for the year, it's always like 18 NFL telecasts led by the Super Bowl, the championship games, maybe the Oscars sneaks in there at number 16.

So even when the NFL is down, it's still immensely popular. really the only thing where if you watch a Sunday NFL game that's exciting, either the national one or the one in your market, you can be pretty sure when you come to work, you can talk about it. So I don't think the NFL is going to have any trouble, even if they were 20% less popular, getting more money for television, because how many things do you have to sit down and watch pretty much in the moment? You can't DVR game and delay watching it more than that night, or else it's going to be blown for you. Okay, and let's talk more about that because ESPN right now paying the NFL 15.2 billion over eight years for a deal that expires after 2021. So when you look at

that future, who do you think is going to pick that deal up? Is it going to be ESPN again? Are we going to look at someone like Amazon Prime or a new player? So ESPN absolutely needs the NFL. I could see nothing that would replace the value of, hey, you're not carrying ESPN in my cable system. I want Sunday night football. I want, you know, whatever ESPN other coverage they have. That's more valuable to them than on us anyone else. But I don't think in five years you're going to see a major streaming package that is not going to stop the NFL from saying, Netflix will offer us this or Disney Plus is going to offer us that to air exclusive stuff.

The reality is the owners are old, mostly, and they still want to be in the way they watch TV and accessible to the most people as possible. It's why they're not putting a ton of games on the NFL network. Not everyone has the NFL network. You can't be the biggest show of the week airing on Hulu. Okay, fair point. Let's move on to Harley Davidson, a company that you've followed, a company that you've written about, Dan, Harley, having a bit of a rough go lately. What's the story with Harley?

Where did it all go wrong, and what are they trying to do to correct it? It's kind of a brand disconnect. I mean, a Harley man, a Harley Davidson driver means a certain type of thing. You know, it's a powerful American motorcycle. And maybe that brand has gone a little out of fashion. And their efforts to sort of reach a new customer base sort of fly in the face of their classic customer base. So if Harley's going to sell you a little electric bike that goes me, me, me, me, instead

of making the big roars. The potato, potato, potato. Yeah. Like, you know, the burly guy in the biker jacket who's proud of his Harley's going to go, ugh, what's that? Yeah. So they're in a really tough. I'll just get a VESPA if I'm going to do that.

Yeah. They sell a premium priced product. when there's similar products for cheaper to an audience that's somewhat aged out. I mean, my dad's a Harley driver. He now has a tricycle Harley because he can't drive a regular one anymore. And they haven't replenished those people. And maybe they're going to have trouble doing so because the brand just simply doesn't resonate the way it once does. So is it fair to assume that you're bearish on the stock? Yeah, I'm very bearish on the stock because I just think there's too many motorcycle alternatives

at more affordable prices. And I don't think owning a Harley means, and maybe they go ultra-premium. Maybe it becomes more of a Rolex brand where they just produce less and charge more, and there's a path to success for them, but it's not the path they're following now. And let's close with McDonald's, which is unveiling or it's testing. It's PLT, it's plant lettuce, tomato sandwich. And I know, because you wrote about it, you're very skeptical. Yeah, because when you have a product you think's going to be a big hit,

test it in Western Canada in 16 stores or whatever the number is. Now, I'm skeptical because if you are someone who eats healthy and you have to go to McDonald's, it's nice that they have a choice for you. But you are not going to choose to go to McDonald's because they have a version of something you can get better someplace else that is more attuned to how you eat. So I largely eat gluten-free. And I've watched this pattern of stores add gluten-free products and then take them away when they have limited interest

because really a high-end restaurant needs to have a gluten-free pasta option. A low-end restaurant doesn't, because the person who is allergic to gluten isn't going a pizza hut. They're making a different choice. And that's what's going to happen to McDonald's. This will be very popular with a very small segment of the audience, and like

salads before it, it will quietly go away. Okay, I like this move. I'm a McDonald's shareholder, but let me tell you my thinking here. I think this is a play for families. And if you have the one person in the family who's a vegetarian, or a flexitarian or they're trying to make healthier choices. This is McDonald's way of saying the entire family can still come to McDonald's.

And that part will work, but I don't think the numbers on that are big enough. And I think the options of, I mean, my kid's picky. He loves McDonald's. But if I said, let's go to Chipotle instead because it's a little bit of a better choice for me, he'd be like, all right, I love Chipotle. There's just enough choice for that family. Again, at the airport where you're in a rush and you have no choice, You're going to be thrilled that they have this option.

And maybe it becomes a minor permanent menu item. It is not going to be a runaway hit because people who we eat healthy don't seek out McDonald's. And in terms of the name, PLT, do you like it? It's a great name. Okay, I love it because it reminds me of bacon. The weird thing is they could also get a plant-based bacon and do a PPLT. But this is not a plant. This is like a veggie burger type, right?

Do a plant-based bacon. Those exist. I like that. P-P-L-T. There you go. You heard it here first. Dan Klein, thanks for joining us. McDonald's, I want a royalty. Coming up, we'll dip into the Fool mailbag. We've got a few stocks on our radar. So stay right here. You're listening to Motley Full 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're here. Welcome back to Motley Full Money. Chris Hill here in studio once again with Jason Moser, Emily Flippen, and Andy Cross.

Our email address is Radio at Fool.com. Question from Isaac Mellon, who writes, I've been a stock advisor member for almost three years now. I've slowly built up a retirement portfolio of almost exclusively small-cap companies. I'm 25 years old, and I figure I have 40-plus years before I would need to start selling stocks. So I've focused on stock advisor picks that fall in that small-cap category. In general, the companies have performed well, and I see them continuing that trend in the

decades to come. However, I wonder if I should be adding in some dividend payers. They may add stability, plus getting paid quarterly for 40 years. Sounds kind of nice. I like the way he's thinking, Andy. It's smart thinking, Isaac. Well, first of all, congratulations for your success, hopefully in owning some of the great companies that we have in Stock Advisor, and it is tilted towards growth.

And I think on the small market with growth, consumer-friendly technology, that's really where their future is going to be. So that's awesome. You have 40 years of investing. That's fantastic. Hey, I love dividends. I mean, I think I bought my first share in Home Depot when I was younger than 25 years old, and I probably have held it all the way since. And it's paid nice and steady dividends that you can reinvest. So if you don't need this capital at all, having some dividend growth companies that you can invest in and build out your portfolio, I think it's smart. But don't feel like you have to go to that and replace of those stock advisor growth companies, because clearly, those are some great companies, and the future will

be set by those. Yeah, it's definitely not one or the other. You can have the best of both worlds. I think that the longer your timeline, the more sense it makes to own those dividend stocks, and just pulling some data from our own Rule Your Retirement Service led by Mr. Robert Brokamp. If you look at the performance of the S&B 500, so far this century, the index has returned 105% on a price-only basis. But if you look at the index's total return, which incorporates dividends into the mix, that performance jumps up over 200%. So you can see they have a material impact. It's worth owning some good dividend payers.

Well, I went one step further than you, Jason. I went to BroCamp himself. And I posed this question, because when I read this, my immediate gut, being a 25-year-old myself, was, I don't really own any dividend companies, the exception of constellation brands, which is really a cannabis company for me at this point. But really, I don't focus on dividend-paying companies. And so my first cut was like, yeah, no, you don't really need to, because it goes what Andy said. A lot of these small-cap companies, these are the growth stories that I think are going to be important 40 years from now. But Bro said, you know, hey, wait a minute. If you look at total returns, as long as you reinvest the dividends, actually dividend-paying

companies tend to outperform. Now, I'm not sure if that's true when you look specifically at dividend-paying companies versus just those small-cap companies, but I will say I wouldn't snark them. I personally still stick with the idea if I'm going to go out of my way to get them. But if you do get them, Brokamp says, be sure to reinvest a dividends. and hold them in a tax-advantaged account, like for instance, a Roth IRA because you've never pay taxes on those dividends. Yeah, I think also importantly to know is that during market slowdown periods, dividend payers and good dividend payers tend to outperform the market.

You said that like we're about to enter a market slowdown period. No promises there, Chris. One more question this time from Keith and Drury, who writes, I've recently started my career after graduating from college this last May, and I'm starting to build a diversified portfolio of stocks. in my Roth IRA account to help guide these picks. I've subscribed to Motley Fool Stock Advisor. My question is about sector allocation for my stocks. How should I split my assets between each sector? I've heard different lines of thinking on this topic with a popular view being to stick close to the S&P 500 makeup.

That is, for example, 21% of the S&P 500 is made up of information technology companies, so I should have around 21% allocated to IT stocks in my portfolio. portfolio. Is this a smart way of approaching the weighting of my personal account? I have absolutely heard that theory before in terms of like, look, if you don't want to go the index fund route, you want to build your own portfolio of stocks, stick to the allocation guidelines of the S&P 500. I mean, it's not a bad strategy. That's a pretty good place to start off. But I would also argue if you're looking to mimic that allocation, then maybe you should just be investing

in the S&P 500 index fund anyway. I mean, do something a little bit of a little bit of you. bit different. For me, I try not to get too granular. I like to find the four or five big market opportunities out there that I like, for example, health care or payments, find good companies in those markets and then invest in them. Yeah, I think there's three major problems with this. You know, you're really overthinking it, I think if you're trying to match allocation. The first being that, okay, so the S&P 500, that within itself is a choice. Why not the NASDAQ 100, right? The difference between information technology there is something like 20% versus 50%. So inherently choosing the S&P 500 is within

itself, an investment decision. Additionally, you have sector weightings that have drastically varied over time. It's not like the S&P 500 has always been weighted the way that it is today. So then you're talking about re-waiting at some undefined point in the future based on how those have changed. And the third is actually the criteria for the selection of the companies within these different sectors. So, for instance, earlier this year, I think Facebook and Apple were changed from tech companies to communication companies. So there's a lot of processes that go into actually trying to match weightings. I think here at the Motley Fuller, We tend to be much more business-focused investors.

So put a priority on finding good companies. I would just sanity check against a benchmark. I would say, look, do I not have any health care exposure? Because then you might think, okay, well, maybe I should at least have one company that's exposed to the health care industry, for instance. But yeah, I tend to be much more focused on the business than I am in the index. Also sounds tiring. Yeah, it really does.

Keithen's younger than me. He's got more energy. Quick shout-out. Joining our man on the other side of the glass this week is Josh Brist, a listener, visiting from Minnesota. He's on vacation with his family. That's so nice. I want to come hang out with us. So thank you for that, Josh. And real quick, with all the mention of Motley Fool Stock Advisor, if you're interested, you want to check out Stock Advisor. It's our flagship service.

You get monthly stock recommendations from Tom and David Gardner. You get their best buys now and a lot more. You can go to Radarstock.fool.com and 50% off for our dozens of listeners. So go to Radarstock.fool.com. Let's get to the stocks. on our radar this week and our man behind the glass. Steve Broido, we'll hit you with the question. Emily, you're up first. What are you looking at this week? I am looking at Square. The tickers SQ. This is a company that I'm a huge fan of. And the reason why I'm writing this high right now, no pun intended, is because they announce that they're officially launching the expansion of their payment processing service for CBD companies based here in the United States. Steve, question

about Square? So who is Square's primary customer? Is it me if I have a store? Who's using Square? Yeah, small and medium-sized businesses. Anybody who really needs help controlling their finances for their businesses and payment processing mainly. Jason Moser, what are you looking at this week? Well, it sounds like radar stocks this week are brought to you by the war on cash, Chris, because my radar stock is PayPal, P-YPL. You may have seen news this week that via a 70% interest purchased in Chinese payments company, GoPay, PayPal will now be granted license to provide online payment services in China. A big hurdle to clear just getting in the country. So when you look at the opportunity, and we're talking about trillions and trillions of dollars flowing through those networks, there's a big opportunity for PayPal over the coming years to really take advantage of this.

And you ask about why PayPal, and maybe it's that they're seen as the best option in a tech-driven payments world. Certainly Square is on that level as well. But it's a company that was built, obviously, on the technology versus one that is kind of pivoting towards technology. big cross-border opportunity as well. We've seen MasterCard and Visa both make big investments in that area. Steve, question about PayPal? So I find myself using PayPal a lot when I'm just checking out online. I'm like, you can enter your credit card. I'm like, ugh. Or you can just use your PayPal account. Perfect. Is this where PayPal shines? Am I using it correctly? I think you are. And I think, you know, also, I find myself using it more and more for everyday life things. When I pay for my daughter's

horseback riding lessons, for example. I think what they're doing is wonderful and that they're making themselves accessible to everyone. And that's thanks to them and thanks to mobile technology. Andy Cross, what are you looking at? Sorry to break the trend here, team, but I'm not going with another payments company. I'm going with Delta Airlines. They announced, they report official third quarter earnings next week, but they updated the guidance looking at revenue sales to be about 6.5% for the third quarter. What really caught my mind, though, is a little increase in some of their non-fuel cost driven by weather impacts and employees.

So I want to see on the call how they talk about that. They will probably earn $7 per share. Stock sells at 52, so has a P of less than 8. So looking to see what happens with Delta. And the ticker? D-A-L. Steve? Where a few fuel prices going. How does that can affect Delta? They're going down, but they have a refinery, so it's very interesting for Delta, too. Three stocks, Steve. You've got one you want to add to your watch list?

Well, I recently bought PayPal, so I think I'm going to double down on that one. Oh, yeah, man. All right, Jason Mozer, Emily Flip and Andy Kronas. Thanks for being here. Thanks, Chris. That's going to do it for this week's edition of Motley Full Money. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill.

Thanks for listening. We'll see you next week.