Motley Fool Money - GDP, Tesla, FinTech, and "Burrito Season"

Episode Date: January 27, 2023

As much as we love stocks, sometimes the Big Macro really does drive the market.  (0:21) Emily Flippen and Ron Gross discuss: - Stronger-than-expected GDP sending stocks higher - Tesla ending the year on a high note - Chevron's record profits and huge buyback plan - Visa and Mastercard delivering strong profits (again)  - The latest from Intel, Microsoft, Southwest Airlines, and Johnson & Johnson (19:11) Deidre Woollard talks with Corrado Russo, head of global securities at Hazelview Investments, about real estate, REITs, and a part of the market investors might want to avoid.  (30:00) Emily and Ron discuss Chipotle's plan to hire 15,000 workers for "burrito season" and share two stocks on their radar: Mercedes Benz Group and Domino's Pizza.  Looking for stocks trading at a discount?  Go to www.fool.com/report to get your free copy of our "5 Stocks Under $49" report. Stocks discussed: TSLA, INTC, CVX, MSFT, LUV, MA, V, JNJ, REXR, CMG, MBGYY, DPZ Host: Chris Hill Guests: Emily Flippen, Ron Gross, Deidre Woollard, Corrado Russo Engineer: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, I'm Charlie Cox. Join us on Disney Plus as we talk with the cast and crew of Marvel Television's Daredevil Born Again. What haven't you gotten to do as Daredevil? Being the Avengers. Charlie and Vincent came to play. I get emotional when I think about it. One of the great finale of any episode we've ever done. We are going to play Truth or Daredevil.

What? Oh, boy. Fantastic. You guys go hard. Daredevil Born Again, official podcast Tuesdays, and stream Season 2 of Marvel Television's Daredevil Born Again on Disney Plus. earning season is heating up and one of the biggest names in tech is cooling down. Motley Fool Money starts now.

Needs money. 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 Chris Hill joining me, Motley Full Senior Analyst, Emily Flippin, and Ron Gross. Good to see you both. How you doing, Chris?

Hey, Chris. We've got the latest headlines from Wall Street. We've got the latest on real estate. And as always, we've got a couple of stocks on our radar. But we begin with the big macro. Despite fears of a recession, U.S. GDP rose nearly 3% in the fourth quarter. It was slightly higher than economists were expecting. And as much as anything, Ron, that GDP number helped push the overall market higher for the week. For sure, Chris. You know, it looks like we've pivoted somewhat. And instead of interest rate hikes dominating the headlines, we're talking more and more now about the potential for a recession. session, whether it will happen, and if so, how shallow or deep it will be.

And reports like the GDP one provide data points to help economists, strategists, even traders, make some educated guesses. And as you said, GDP was slightly better than expected. Importantly, it was quite positive, not negative. So that continues to signal a resilient economy. But as there should be in a rising interest rate environment, there were some signs of weakness that we should pay attention to. 2.9% was less than the third quarter's 3.2% pace. So we see a slowing there. Consumer spending, which is 68% of GDP weakened a bit. Housing has come

down sharply. But you do have strengthened government spending that help offset that. The labor market remains strong, which is good for workers, but not necessarily good for bringing down inflation. So you boil that down. Here we are sitting here with the economy, I think, a bit worse than these numbers would indicate because interest rates take a while to make their way completely through the economy. So a recession is by no means off the table. Chances of it being mild, I think, are increasing. Stock market, as you say, has been strong this year as a result, but the Fed is not done yet.

Expect more rate increases, but hopefully, I think, likely at a slower pace. Well, I know I just locked down financing for my mortgage on my first house. If that's any indicator, that means rates are straight down from here. No, in all seriousness, the Fed has done a great job of managing investor expectations when it comes to interest rates. So it's not surprising to see the uncertainty now focusing on, okay, well, what's the help of the economy? Where are GDP numbers at? Because the uncertainty used to be around interest rates. That dominated the headlines.

That drove market movements. That uncertainty is largely gone. Now we're moving on to, okay, what uncertainty can we find in other places for right now is the GDP numbers. So it's not surprising at all to see this news really driving the sentiment in the market. Let's get to some of the big earnings news of the week. Many people know Elon Musk as the owner of Twitter, but it turns out he's also the CEO of an automotive company called Tesla. Fourth quarter revenue was a record $24 billion and shares of Tesla up more than 25% this

week, Emily. Yeah, let's be clear. The expectations are relatively low for Tesla in the quarter. Not to say that the business was expected to be weak, but with all the anti-eastern. that are happening around Twitter and Elon Musk. It's fair to say that investors were expecting things to be a little bit less than stellar, especially with the news over the last quarter or so about Tesla employees, potentially doing work on Twitter.

That caused many investors to be concerned about, okay, what does the resources look like for Tesla today? Should we be worried as Tesla shareholders? But even in the face of increasing competition and higher expenses, this was a record quarter for Tesla. Automotive revenue grew that 33% to over 21 billion. dollars. Earnings even beat expectations by six cents, reaching $1.19 per share. There were some concerns around the gross margins for this business. Because over the last five quarters, we've seen the automotive gross margins tick down and they reached just under 26 percent in this most recent quarter, which is their lowest level over the last five quarters. But it isn't entirely

unexpected. A, just like other automotive makers, Tesla is trying to go mass market. So lowering the prices of its vehicles to make it more accessible to consumers as they did at the end of last year. is probably a smart strategy in Tesla's book. They need to keep up a really high revenue growth rates to justify today's valuation. But it's also just an aspect of the car market. Over the last couple of years, used cars, new cars have been incredibly expensive, in part thanks to supply shortages. So there is a natural contraction in prices. But I think this says a good quarter for Tesla and a strong indicator that they're willing to pivot and change to keep up with the changing times. And this is a stock that's been recommended a bunch of times across different monthly

full services. My hunch is that shareholders were happy to see Musk back, you know, in the job they want to see him in, which is, you know, please focus on being the CEO of Tesla. Well, it's actually kind of interesting to think about how the dynamic of Tesla shareholders and Musk fans has changed over the past year. So I think there are a fair number of people who are shareholders of Tesla, maybe even fans of Elon Musk that still today think that, hey, the brand of Tesla is maybe worth more without the involvement from Elon Musk just because it could potentially damp in sales when people are afraid to buy a Tesla simply because of its association with a relatively controversial figure. So it's interesting. It used to be a net benefit for Tesla,

but I think that discussion has become a little bit more to the forefront of shareholders' minds. If Elon Musk were to disappear tomorrow from Tesla, I can't say that my confidence in Tesla's shares or the shareholder confidence would necessarily be shook. Shares of Intel fell nearly 10% on Friday after the chipmaker ended its fiscal year, not with a bang, but but a whimper. Fourth quarter profits were much lower than expected, with revenue down more than 30 percent year over year, Ron. Not good, Chris, not a strong report. Weak report, worse than expected results, disappointing guidance. It's hard to point to something good here. A steep decline in demand for PC processors

largely to blame, but Intel is just not the competitive and the innovative force that it once was. This is not your father's intel. The company has clearly struggling. As you mentioned, revenue down 32 percent, client computing group down 36 percent, data center business down 33 percent. Adjusted earnings were 10 cents per share, well, well below expectations. CEO, Pat Gelsinger, has his work cut out for him. He's attempting to reinvigorate and reinvent the company. He's accelerating the introduction of new manufacturing technology. He's building factories, factories in the U.S. and Europe, shifting concentration away from Asia. And he's trying to turn Intel into more of a contract manufacturer, handling outsourced work for companies. That will be in direct

competition with Taiwan Semiconductor. Formidable competition. So not a gimmie there, what he is trying to do. They're also cutting costs rather dramatically. Intel warned that revenue could fall to the lowest quarterly level since 2010. in their recent guidance. And the CEO, perhaps little consolation, said, I'd like to remind everyone that we're on a multi-year journey. Well, one would hope so because this report is really, really weak and tells not the industry bell whether it used to be.

So I'm really curious to see what AMD, Qualcomm, and others say when they report. And finally, I'll mention they did maintain their dividend, which stands at a pretty healthy 4.9%. Isn't every company on a multi-year? Your journey? Aren't all businesses? What kind of comment is that? Not a multi-year turnaround, perhaps. A journey, yes. Just real quick on the stock run. Shares of Intel are trading basically where they were seven

years ago. I realize they're going through a rough stretch here, and Gelsinger and his team are trying to turn this around. Do you look at the stock and think, oh, on a valuation basis, this is starting to get interesting, or are there just too many questions? marks around what they're trying to do. I've recommended the stock. It's part of our instant income portfolio. I like the 4.9% dividend as long as it's safe. For now, I think it is.

Valuation's hard because looking at metrics right now compared to where their earnings are right now are not necessarily indicative of where this company will be a year or two from now. And to project into the future is really, really difficult. So I'm in kind of this wait-and-see mode to see how Mr. Gelsinger execute. Well, if it helps, I hear they're on a multi-year journey.

On Friday morning, Chevron's fourth quarter results wrapped up a year of record profits. But earlier in the week, Chevron made more headlines by announcing a $75 billion share buyback plan. Emily, where do you want to start? Well, is Chevron on a multi-year journey here? Because it seems to me that their only priority is basically spinning all of their capital or repurchasing shares at this point, because $75 billion. admittedly over five years is certainly driving the narrative for severance shareholders.

Sure, their record profits were nice over the course of 2022. I mean, they are the second largest U.S. oil producer, so it's understandable that they had an incredible year over the past 12 months. But nothing like high expectations to be a time to repurchase your shares near all-time highs. It's certainly a conundrum for shareholders. On one hand, share buybacks do pad investors' returns. They're a way for, almost like dividends in a sense, where they're a way for Chevron to just show support for their shareholders. You might not get a lot in terms of capital gains, but hey, maybe you get some share repurchases, you get some dividends, and that justifies this purchase.

But $75 billion represents more than 20 percent of Chevron's current market cap. This is a massive investment by the business. And this plan has been called a slap in the face to drivers since the perception is that Chevron continues to benefit off the pain of consumers, the people who are actually consuming and using oil on a day-to-day basis. But it's a pretty silly move, if you ask me, just because I think Chevron sees the writing on the wall. The multi-year plan is not well thought out with this business, because support for their stock does depend on oil production. And most forecast shows growth in oil production slowly declining over time. That's likely to compress earnings.

So if you're looking at Chevron's price to earnings ratio of around 10 times right now with their dividends and their sharey purchases, I wouldn't jump to the assumption that this is a value stock or a cheap business by any means because those earnings are likely to compress. But buying back their shares at these levels in this amount of quantity is certainly a head scratcher. Coming up after the break, we've got the latest on software, healthcare, and the war on cash. Don't touch that dial. This is Motley Full Money. Welcome back to Motley Full Money. Chris Hill here with Emily Flippen and Ron Gross. Microsoft grew revenue in the second quarter, but it was the software giant's slowest sales growth in

more than six years. Shares of Microsoft up a bit this week, Ron, but you tell me, how concerning is this? You know, the report itself was okay, but the stock got hit on the future guidance. Interestingly, the shares have since completely rebounded and actually moved higher, along with the strong tech sector and the stock market, at least strong for the week. Only up 2% revenue, very slow, six years, as you mentioned. Their cloud business was up 18%. Their specific Azure business was up 31%, which on the absolute basis seems pretty strong, but there's indications that these businesses are slowing. And some of the guidance spoke to that.

Their Windows operating system fell alongside personal computers being weak. Related Windows and Surface tablets business were weak. Video gaming was weak. It all kind of fed into the adjusted earnings being down about 6%, which, for a company like Microsoft, you don't really want to see. You certainly don't want to see negative growth, but they still generated operating cash flow of $11 billion for the quarter, and it was the guidance that sent the stock down. CFO said the cloud business slowed at the end of the year and would further slow in the coming months, and that's what people are mostly focusing on.

Microsoft eliminating 10,000 jobs in response to this slowdown. Shares are 25 times forward earnings, kind of pricey, but I'm actually okay paying that for a company of this caliber. There's some interesting things going on with AI and Chad GBT as well that investors should keep an eye on. Anyone who attempted to fly on Southwest Airlines over the holidays probably was not surprised to hear this week that Southwest posted a loss of $220 million in the fourth quarter. Emily, they got some work to do over there. Yeah, maybe they need to reach out to Microsoft and chat GDP or GPT.

to figure out how they can fix the systems because the system errors that happened to Southwest over the last month or so in the course of December were really bad. I don't want to sugarcoat it. Investors are already aware, but in December, they had a complete system-wide meltdown as a result of severe weather that caused cancellation for more than 16,000 flights. The way that Southwest is distributed alongside these legacy systems that just weren't able to handle the amount of cancellations that happened led to just complete chaos at Southwest Airlines. They're eventually able to get their feet back under them, but the end result was a hit of nearly 800 million in pre-tax earnings that caused a loss of 38 cents per share in the most recent

quarter, which is significantly higher than the loss of nine cents per share that Wall Street was expecting. Now, revenue was up 22 percent in the quarter, but let's not forget that they are comparing that to 2021, right, when the pandemic was still negatively impacting travel. So not a lot of good things to see here, but I will say here's what you want to see from Southwest in this scenario, accountability. Now, if you're an in a number of Vester and Southwest are interested. I encourage you to actually listen to the call yourself, go through, read the transcript to try to figure out how you feel about how accountable Southwest management was in this scenario. I will say there was outright apologies, which I always like to

see. They didn't shy away from the conversation. They didn't sweep it under the rug. The entire call was about the meltdown that happened over the last month. So I appreciate that level of transparency, but I'm still not sure how I feel about their use of blame. For me, it falls a little bit blaming. They're blaming the weather, which everybody suffered. They're actually saying that their processes and technology generally worked as designed, which to me is an even bigger red flag. But then they went even through and to kind of describe these opaque descriptions about improvements that they've made.

And my thought is, this is going to be something that takes a year or longer for Southwest to fix. You do not turn the technology and the ship around overnight. So I discount any improvements that they've made are the last couple of weeks. They're band-dates, in my opinion. What I did like to see was the $1.3 billion that are allocated for funds to upgrade and maintain their IT systems. I want to make sure that money is well allocated. Unfortunately, investors won't have a good sense about whether or not this turnaround has really happened until probably

a year from now. For as much as inflation affected consumers last year, you wouldn't necessarily know it from the latest earnings reports from Visa and MasterCard. Both credit card companies posted earnings that were higher than Wall Street was expecting. Ron, what stood out to you? You know, as is typical, similar reports for both companies, both benefiting from travel, rebounding. But MasterCard actually warning that revenue growth will likely slow as travel growth plateaus. But for the quarter, they both had revenue up 12 percent. Visa did a little bit better on the bottom line with earnings up 21 percent versus MasterCard up 13 percent. But both had volume

growth, one at eight percent, one at seven percent, basically the same. Cross-border volume, which tracks spending on cards beyond the country of its issue. So it's a gauge for travel demand. It was up 31 percent for MasterCard, 22 percent for Visa. And this is where MasterCard said that revenue growth is likely to slow. Pent-up demand for travel will diminish going forward. Visa did not make similar comments. But both companies strong. I think it's fine to own one or even both of these companies. They both pay a dividend less than 1 percent yield, but they're both really really great companies to have in your portfolio. Shares of Johnson and Johnson treading water this week after fourth quarter profits fell 25% to impart to lower demand for its COVID-19 vaccine.

Emily, the profit number got a lot of attention, but the guidance from J&J seemed pretty encouraging. Yeah, I'll tell you what, when you look at the results, if you take out the impact of COVID and foreign translations, it's actually a really strong quarter from Johnson and Johnson. Their operational revenue grew over four and a half percent, which is amazing for a business of this size. And again, adjusted earnings per share look a lot better, growing more than 10 percent in the quarter. So actually, a really strong quarter for Johnson and Johnson here.

I will say a lot of investor focus has been put on their spin-off, though. They're in the process of spinning off their consumer health unit. It'll be a business named Kenview. And spin-offs, actually, interestingly, if you look at the history of them, produce a decent amount of shareholder return. So if you're a shareholder of Johnson and Johnson, and you're scared about this space, you're I wouldn't be overly concerned, at least to start, because history shows that businesses only complete a spinoff when they think that an independent company will be worth more alone

than it is together. Now, what that actually looks like, we don't know yet, but it does seem to see an interesting and potentially lucrative move in Johnson & Johnson's position to reward shareholders. I appreciate you reading my mind, Emily, because I am a Johnson and Johnson shareholder and I am worried about this spinoff. I would only be worried about the timeframe. It's going to take 18 to 24 months for this spinoff to happen, which is a bit long. But I will say they're also going through an unusual process of doing a pre-spentoff

IPO, which will raise money for Johnson and Johnson and Kenview. So it's actually a good move for shareholders in this place, at least in my initial opinions. But ultimately, it will shake down to how Johnson Johnson manages that 80% voting control that they'll retain over Kenview. That could potentially be dominating for how this company is run. All right, Emily Rahm, we'll see you later in the show. Is the bad news for real estate already priced in? That answers after the break, so stay right here.

This is Motley Full Money. Welcome back to Motley Full Money. I'm Chris Hill. Time to get a check on real estate. Carrotto Russo is a managing partner and head of global securities at Hazelview Investments. Deidre Woodard caught up with Russo to talk about his firm's new report on global public real estate, why many reits may be underpriced, and one part of the market that investors might want to avoid. I really like this report because it talks about REITs, which just happens to be one of my favorite subjects.

And it talked a little bit about the impact of dampened expectations when it comes to REIT investing, because last year wasn't a great year. Why could REIT still be an economic bright spot in 2023? Yeah. So if you kind of look at what happened in 2022, obviously with high inflation and interest rates starting to go up, there was an expectation of a potential economic weakness and a potential recession coming on board. And all equities, you know, suffered from dampened expectations to an earnings starting to come down. And REITS weren't immune to that. But if you look at 2023, we actually think that REITS could outperform relative to those expectations.

And if you really think about it, you know, while we've seen market rents significantly go up over the last three years since the beginning of COVID, the underlying companies haven't really captured all of that growth yet. So even though market rents might tailor off and might flatten and even come down a bit, there's still a very large embedded growth relative to where market is. So two things are really happening. One, you have contractual leases. At the end of the day, people are obligated to cut you a check for rent every single month. So even if the economy rolls over, those amounts are relatively fixed in terms of how much they have to pay on a monthly basis. So you tend to have a very resilient earning stream

when you get into economic weakness or recession. So I think that's the first thing that can sort of outperform relative to what people's expectations are. And then the second thing is, even though rents might be up, let's say, in certain sectors like industrial or multifamily, as much as 50, 60, 70%, the underlying companies have only captured about half of that.

And that's because of these long-term leases that you signed several years ago, that takes time to expire and to roll over to the new market rent. So even though rents might be flat, you have leases that have expired from five years ago, seven years ago, 10 years ago that are a much lower rent today. And so they can roll those over at new leases at today's rents that are significantly higher. So not only do I think you get resilient earnings growth relative to expectations, but I think you can see continue. growth in the real estate space or in the reed space relative to some of the other equity asset classes. Interesting. So you mentioned leases expiring.

Can that also be a negative, though, because especially in sectors like office, as leases expire, will new leases get renewed? Yeah, I think it's a great point. And obviously, when we talk about real estate or reeds, we're lumping everything into one. But when you look under the surface, there's so many different types of real estate. Like you mentioned, you have office, you have industrial, you have hotels, apartment buildings, retail shopping centers or strip centers, all have very different experience in terms of how they might behave relative to the economy. Office generally has very long leases, so the impact from the downturn is actually relatively slow. Having said that, obviously, with the work from home stemming from the COVID quarantines, is reducing the demand for overall space.

in that environment. So I think you could see some weakness or softening as leases expire. You might see a softening of rents there. But again, keep in mind if these leases were signed five years ago, seven, 10 years ago, even if rents have only gone up modestly, they're still higher than where they were five or seven years ago.

So I think it's more a function of, can you fill the space? Is there enough demand to fill the space than where potential rents might go? And I'm happy to start. sort of, you know, dive a bit more into that. But office could be a very interesting sector in terms of how it plays out over the next two to three years. Oh, yeah, absolutely. So when you're looking at REITs as an investor, you're looking, I know, at funds from operations, you're looking probably

at occupancy depending on which sector it's in. What else are you looking for as metrics to watch with REITS? Yeah, well, you want to look at net acid value changes, period over period. if you look at historical price performance of wreaths, the highest correlation is to what their net asset value has done over time. So to remind everyone net asset value obviously is how is the overall value of your properties changing relative to your debt that you have

and other liabilities that you have in your book. So what is the net amount of value that is ascribable to the equity holders? And so what we've seen is over time, those that grow NEV, have also outperformed. So I think that's, you know, especially in this environment where there's a potential for cap rate changes, there's a potential for releasing and where market rents might go.

Paying attention to how net asset value would change over the coming quarters is going to be a significant thing to watch as we try to determine who's going to outperform and not. I wanted to go into a couple of the reeds that you specifically mentioned in the Hazelby report. One of them is Rexford Industrial. You talked earlier about being location-specific. This one is really location-specific as an industrial read, right? Because it's mostly sort of Southern California, that big inland empire area where all of the traffic sort of from like the big Long Beach Terminal goes kind of through that area

before it goes to the rest of the country, right? Yeah, I think that's right. And that is a big reason why we like Rexford. It's the only industrial mark in the U.S. where supply is shrinking in Southern California. And that's because land is becoming so scarce in that market. You've seen a lot of the industrial land that's being converted to a higher and more profitable use like residential. As residential shortages in that market continue to be an issue, they're buying up as much land as you can.

And so that means that there's very little land left over for new industrial stock. Yet we're seeing a significant demand for that infill industrial space, which has gone off. the charts and that's really been driven by the port of LA and Long Beach as well as broader e-commerce growth and so that's leading to market rents that are being going not only have been going up significantly but we believe that they'll continue to go up at a double-digit place for the foreseeable future Rexford has an incredible balance sheet they're the best in the industry they have a 20% loan to value debt on their balance sheet so they're relatively immune to rises and interest rates.

And then acquisitions is really, you know, their secret sauce. The company is buying over one billion of new assets per year. And that's being driven by a pretty robust, you know, in-house originations team. So, you know, we think when you look at the valuations, the stock still trades at a 20% discount to our forward-looking intrinsic value for the underlying portfolio. So you've got, you know, you're getting it at a discount, it has significant growth, and it's got great state and power given its balance sheet. As we've wrapped up here, we've talked about a bunch of different sectors.

Is there any sector that worries you if we are headed sort of into a global slowdown and potentially a mild recession here in the U.S.? Yeah, so again, if you're going into recession, you don't want to be in cyclical sectors. And I think, you know, the one that sort of highlights its cyclicality is hotels. I would we be a bit worried about hotels going into economic downturn for a few reasons. One, traditionally and historically, hotels have not fared as well in a recession, as you know. One of the first things that we cut out is our travel, both on the corporate side and on the personal side. So I think you could see a potential weakness in occupancy.

At the same time, hotels have had a very, very strong fundamental backtrane. over the last two years, believe it or not. And that's in stark contrast to 2020 when nobody thought we'd ever get on a plane and step foot into a hotel ever again. And the second we were able to reopen, it was one of the sectors that came roaring back. They've enjoyed extremely high occupancy

for quite some time now. They've enjoyed some of the largest margins that they've ever had. And the stocks have done relatively well. And so that my fear is that most of that benefit that they've enjoyed over the last couple years has been driven by leisure travel. As we've sort of been locked up for a year in 2020 and we saved a lot of capital, this first thing we did is went and enjoyed a very nice vacation. And we didn't cheap out in terms of our accommodations. I think once we get out of our system, it's hard to see us continuing to do that year over year.

Now, the saving grace was supposed to be that the reopening of business travel was going to pick up the pieces as leisure travel slowed. Business travel would come roaring back. And that might still happen depending on how mild a recession is. But I would be worried if you go on the global recession, to your point on the technology companies, you know, cramping down on their budget, spending. I think you could see a lot of corporations. and typically business travel is one of the first things that get caught back in that environment. So I'd be a little worried about that sector going into 2023. Coming up after the break, Emily Flippin and Ron Gross return.

They get 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 once again with Emily Flippin and Ron Gross. You know, despite the positive start to the year for the overall market, there are still a lot of great companies whose stocks are trading down at levels that they haven't been at in a long time.

Our investing team has put together a report of five companies that have all fallen below $49 a share, and the report is free. Just go to fool.com slash report, and you'll get immediate access to the report. which I have to say I love the title. It's creatively entitled five stocks under $49. Ron, you know me. I love it when things are straightforward. Again, just go to fool.com slash report. You can access it for free immediately.

While one of the big narratives recently has been major companies announcing layoffs, at least one business is bucking that trend, Ron. This week, Chipotle announced a plan to hire 15,000 new workers in preparation for what the restaurant chain referred to as burrito season. We'll get to burrito season in a second, but I got to say, I was a little surprised by this, because we've talked a lot about big tech, but it's not just big tech, right?

I mean, earlier this week, Hasbro announced with their struggles, they're laying off 15% of their employees. So the fact that Chipotle is stepping up and hiring this many people over the next, let's just call it, four or five months, That's surprising and encouraging. Yeah, you know, Chipotle is executing and they're doing well. I want to say the stock's up 15% so far this year, trading at 39 times, by the way. So not cheap. They need to continue to execute and still put up growth and still continue to increase their store count as well as their same store sales count. But you know, we're used to seeing seasonal hiring at Walmart Target, companies like that.

We're not used to necessarily seeing it in the quick serve, restaurant industry. And certainly, as you say, not around something that I've never heard of called burrito season. So I will just end my thoughts here by saying I demand equal time for pizza. In fact, pizza should have a whole season and burritos can just have a long weekend. Yeah, Emily, you know, I was saying earlier in our production meeting, I feel like burrito season is 12 months out of the year. And to Ron's point, so is pizza season. I'm genuinely, interested to hear more from Chipotle on this because they appear to have just thrown this phrase out there. Maybe they have grander plans and promotions around this in the same way that Amazon

years ago came out with Prime Day. But what was your reaction? Yeah, I will say, you know, my theory for burrito season, which they define as March to May, is maybe that's the point where the New Year's resolutioners have given up on their beach bodies and they're saying to themselves, oh, I'll just grab myself. a burrito. But no, this is awfully convenient timing, isn't it, Chipotle? Because we do have news of all these layoffs. And it's a good PR move to say, hey, look, we're not laying people off. In fact, we're hiring people. And you know, the reason why we're hiring people, a completely made-up holiday that we've never talked about before. I mean, this whole thing kind of stinks to me.

And the reason why it stinks to me a little bit. And I'm a big fan of Chipoli. Don't get me wrong, both as a consumer and an investor, is the fact that in 2021, they had some of their hiring highest turnover ever for their employees. They had a turnover rate of over a hundred and 94 percent. And their corporate staff turnover doubled over the course of 2020 to 2021. They constantly talk in their earnings calls about the costs associated with employee separation. They similar to Starbucks are one of those businesses that invest heavily in their employees. So it's pretty expensive for them when they have high levels of turnover. Last quarter alone, they expense nearly four million

dollars for employee separation costs. So part of me is like, yeah, they probably need to be hiring to backfill the positions that they've been suffering over the last year or so due to turnover. And they saw a convenient opportunity to make a good PR move out of it. And can we all agree it's Chipotle, not Chapolte. It kind of drives me a little. No, you did it perfectly. Oh, good. When people say Chipotle, it kind of drives me a little nuts. Yeah, can we also agree that the period from March through May already has a title and that title is Spring? Again, we're all fans of Burritos. I think, to your point, Emily, as an investor and a shareholder, fan of Chipotle. But on a more serious level, Ron, maybe this is under the guise of promotion and maybe it ends up being a little too cute by half.

But the best businesses, and I'm thinking as, you know, Costco as one example, the best businesses, part of their recipe for excess is finding a way to hire and retain employees. And if this is Chipotle's way of saying, yeah, we haven't done as great a job as we could have on this front and this is a way to move in a better direction, then hopefully it works out. Yeah. If they want to combine real capital allocation decisions in the sense hiring 15,000 people with something cute like burrito season, that's fine. But the first thing has to come first. Is that a smart use of capital? Do they need those resources? It can't just be because of this made-up season. It has to be that they're hurting for resources. And if they feel comfortable

as a management team, that's the right way to go. We'll give them the benefit of the doubt and we'll keep an eye on it. All right. Let's get to the stocks on our radar. Our man behind the glass, Rick Angdoll is going to hit you with a question. Emily, you're up first. What are you looking at this week? Yeah, a stock that popped up on my radar this week is actually Mercedes Benz. They're are traded over the counter in the US with a ticker MBGYY. And the reason it's on my radar is because yesterday they announced that they're the first company to certify level three self-driving in the United States.

This is a big deal because most car companies, including Tesla themselves, are still at what we'd call level two. So certifying for level three means that a state regulator, in this case, Nevada, reviewed their technology and gave them permission to have complete liability for self-driving under certain circumstances in their state. So basically, Mercedes-Benz is putting financial liability on themselves, if anything goes wrong, when their self-driving is in use under certain circumstances. Now, there's a lot of caveats here, but this is a big note, right? Because Level 2 basically says, hey, the liability, even when it's in use, is still on the driver. Now, to be clear, this is

only for their S-class vehicles, the most expensive vehicle that they sell. It's not going to be everywhere overnight the way it would be if Tesla were to implement something like Level 3, self-driving. But it is still a huge milestone for self-driving in general. So, yeah, definitely a business that popped up on my radar. Rick, question about Mercedes-Benz. I'm curious about the Mercedes brand. It used to be like a really top-end thing. It feels like an old brand now.

So is Mercedes still the Cadillac of cars? I would say that brand has been threatened, in part because they were caught cheating on their emissions test. A lot of people were concerned as a result of this, the corporate governance there. They also are kind of delayed in the electric vehicle adoption. So they have a handful of electric vehicles, but definitely losing ground in terms of attracting new consumers versus the way that Ford or Tesla may be. So the brand is still there, but I would say it's slowly degrading, in my opinion.

Ron, we got a minute. What's on your radar? Speaking of pizza season, a company I have a long history with that I'm revisiting is Domino's DPZ. I think we all know what they do. They make mediocre pizza, Chris, but they do it quite well. 19,500 stores in 90 countries, 20% of that market. Return on invested capital of 51%, long growth runway ahead of them. It's a franchise business. They think they can open many, many more franchise stores. They pay a dividend of 1.3%. Stock has come way down from its COVID high, which was probably a little bit too high at that point in time. But I like the company right here. I think they do a really

nice job. Rick, question about Domino's pizza? You seem to be such a pizza fan. I just have to ask your opinion on pineapple. Absolutely. I'm from New York. We don't eat pineapple pizza, but I see that Emily's a big fan. You do you. What do you want to add to your watch list, Rick? Well, I haven't had lunch yet. I'm kind of hungry. So I'm going to know with the pizza, even if it is mediocre. Ron Gross, Emily Flippin. Thanks so much for being here. Thanks, Chris. That's going to do it for this week's Motley Full Money Radio show. The show is mixed by Rick Engdahl. I'm Chris Hill. Thanks for listening. We'll see you next time.