Motley Fool Money - Nissan = Cars with Baggage

Episode Date: December 18, 2024

Who wants to buy a struggling car company? Honda does! Well, maybe. (00:14) David Meier and Mary Long discuss: - What merger rumors signal about Nissan’s business. - How retailers are leaning into the holiday spirit. - Advice for a seasonal decoration company. Then (13:56), Stephanie Guild, Robinhood’s Head of Investment Strategy, joins Ricky Mulvey to discuss her outlook for 2025 and what’s excited Robinhood investors in the past year. CNBC story mentioned: https://www.cnbc.com/2024/12/18/holiday-decor-spending-could-help-retailers.html Companies discussed: HMC, NSANY Host: Mary Long Guests: David Meier, Stephanie Guild, Ricky Mulvey Engineers: Rick Engdahl, Desiree Jones Learn more about your ad choices. Visit megaphone.fm/adchoices

This episode is brought to you by Indeed. Stop waiting around for the perfect candidate. Instead, use Indeed sponsored jobs to find the right people with the right skills fast. It's a simple way to make sure your listing is the first candidate C. According to Indeed data, sponsor jobs have four times more applicants than non-sponsored jobs. So go build your dream team today with Indeed. Get a $75 sponsor job credit at Indeed.com slash podcast. Terms and conditions apply.

It's not a car crash. It's consolidation. You're listening to Motley Full Money. I'm Mary Long, joined today by David Meyer. Somewhat of a car guy, David Meyer, I should say, which is how you described yourself just in the pre-recording? David, how are you this morning? I'm doing well, thank you. How are you? I'm doing great. Good to be here. We'll kick today off talking about two carmakers, hence the somewhat of a car guy comment. Honda and Nissan are in talks to join forces.

We're unsure at the moment what exactly this would look like, whether it's a merger or an acquisition, maybe some kind of holding group situation. But the market likes this news for Nissan. Stock is up 17% this morning. David, you got any immediate takes on this? What did you think when you first saw this headline this morning? So I literally did a double take when I saw the headline flash across Bloomberg TV this morning. And I was like, wait, what? So this is a bit of a surprise. It's not every day that you see two large Japanese companies. And I'll stress Japanese for now, want to merge. In fact, in my 20 years of investing, I don't think I've ever seen two Japanese companies

talking about merging. I talked about this on the morning show as well on Wednesday, the 18th. So I asked a fellow fool and a more experienced international investor and our friend, Bill Man, I was like, dude, is this comment? And he was like, no, it's not. In fact, he mentioned that in Japanese business cultures, mergers like this are more of an admission that something has gone very wrong. And it seemed even just if you go back a few years, it seems like there's been quite a bit going wrong at Nissan. Listeners might remember the name Carlos Gohn.

He was Nissan's then chairman. He was arrested in November 2018 for financial crimes. He denied those charges. He escaped on a jet about a year later right before his trial began. It's not just man-on-the-loose type issues that Nissan's face. They've also had financial problems, too. Operating income for the first half of the fiscal year was down 90% from the year ago period. Its U.S. sales fell 2% in the most recent quarter.

2% compared to 90% sounds minimal, but neither is good. So two-part question here, kind of focusing on what's gone wrong. First of all, why is Nissan so in the slumps? And then I'll just give you the second question right off the bat. Why does Honda want that baggage? So the first one is a really good question. And I think the first place to look is competition. Competition in the global auto sales business is fierce.

Let's say you come out with new models for the year and they don't resonate with car buyers. Guess what? You've made a lot of investments. You've tied up a lot of inventory. And it's sitting on the lot, which is costing the dealership money as well. So, you know, in a situation like that, your sales growth is extremely challenging. So what do you do in order to boost sales? Well, you can discount the price, which that blows up the model because that's not what

you were expecting when you made all the investments. Or you can offer financing deals. Either way, both of those hurt margins. And that's one of the things that we're seeing at Nissan over the last few years. been contracting, and that is never a good thing for an automaker because they operate on thin margins. If we look at what's the cash flow statement at Nissan, what story is that telling? We see the operating cash flow generated by the company has been coming down while CAPX, the capital

expenditures, the investment the company needs to make every year in order to keep its factories going, is staying high. Again, operating cash flow or cash coming in the door, falling is not a good thing. You never want to be in that position, especially when you know you have to make these huge investments. So, getting to the second question, which is, why does Nissan want, excuse me, why does Honda want Nissan's baggage? I can tell you right now they don't want the baggage.

That's not what they're after in a merger like this. But Honda is actually an incredible operator. If you look at their financial statements over the last 10 years, it is amazing how consistent their margins are. They're thin, right? They're not making all that much profit, but they're consistently positive. So perhaps the thinking in this is, hey, if Honda and Nissan merge, the single entity could be a stronger competitor in the global marketplace.

i.e., they would have more share. And then in the process, Honda could take its operations know-how and transfer it over to Nissan's operations and hopefully help clean up their margin story. You talk about this declining operating cash flow and this flatter CAP-X. What can Nissan, or if it's Honda that's taking this on, what can they do to kind of write those patterns? So the first thing that you need to do is, again, making sure that all these, The inputs, where the cash flow is coming into your business from, you have to make sure though all those are working. One of the interesting things I saw on Nissan's cash flow statement is their sales receivables

have declined significantly. So what is a sales receivable? When somebody buys a car, they typically finance it. The finance becomes the receivable on Nissan's balance sheet. What Nissan then does is it sells that to. a third party, typically some financial institution, and says, hey, I want the cash now. So I'll give you a little bit of a discount on this loan. But you take care of the loan. You can have the cash flows that come in. So cash today, right, for selling off a loan. If that's not working,

and that was a big part of Nissan's business model in the past, that's very bad. It could be because you're discounting those loans aggressively in order to get them off the books, or it could be that there's just no buyers out there and you might even have to keep them on the books, which is not what a car dealer, a car maker wants to do. So that's the first, you know, from a, you know, what's the first thing you got to do? You got to make sure that you have the product that people want. You're selling it for a good price and that you're giving loans that are attractive to outside buyers if you want to get them off your balance sheet. Not the easiest thing in the world to do. With Nissan having trouble offloading those loans to other buyers, do you think

that that's a Nissan problem or is that an industry problem right now? Well, it's probably more of a Nissan problem because if we look at others, I don't see the same margin profile. I have seen cash flows, operating cash flows coming down at other carmakers. So maybe there's, you know, maybe it's an industry problem as well. But right now, at least from what I'm seeing in Nissan statement, it's affecting Nissan more than it seems to be affecting others. I'm going to pivot stories for a moment. The holidays are just around the corner. And CNBC was out this morning with a story about how retailers are hoping consumers spend big on holiday decorations despite being budget conscious in other areas. Before we kind of dive into this

a little bit, David, is the Meyerhouse decked out with holiday decor? Minimally. So our daughter is grown and out of the house. So we take a much more of a minimalist approach. We do have we do have some nice lighting pretty much all white lights that look that look nice on the house. But no, we definitely don't go all out like we used to when she was younger. So I was going to say, is this to suggest that once upon a time you took a maximalist approach? Oh, my goodness, yes. We had lights everywhere on places on the roof where I should have never been, as well as lawn ornaments throughout the front yard and the backyard.

Wow. Okay. So I am uncovering facts about you that I did not know. It sounds like you were the house to go to, like, stand out with perhaps in your Nissan leaf out front. watch like the lights sync up to music, et cetera. Oh, I could, so I love the, by the way, I absolutely love those videos on YouTube of the engineers who were able to sink up the music and the lights. If I could have done that, I would have. Let's put it down. So consulting firm Deloitte,

this is a piece of this story. They have an annual holiday spending survey. And that report found that consumers are prioritizing decorations, the maximalist David Meyer approach, if you will, over gifts this holiday season. So retailers are trying to lean into this, Walmart, It's got a six-foot-tall-white nutcracker that nearly sold out before Halloween. Home Depot has Santas and Reindeer's in addition to more basic decor. If consumers are spending less on gifts this year, do you expect retailers to get the bounce that they want and perhaps need from decorations? And is that enough to replace what would typically be spent on holiday gifts? So, my gut is definitely telling me, no, there's no way that decoration expenditures could fill

the hole if there was a big one in terms of gifts. And the biggest reason is, look, even though my house and yard was full, there's really only so much you can do in terms of decorations. But that said, I too have seen lots of those bigger decorations. They're in our neighborhood. I have friends in other places who are saying, oh, my gosh, look at the size of this Santa, right? And they're taking pictures of neighbors in their neighborhoods. So those extra large decorations seem to be a very big hit this year from the half a dozen data points that I've collected.

Something that sticks out to me in this is that a lot of these are reusable. And so you don't necessarily have to buy new decorations each year. The National Tree Company sells artificial Christmas trees, and garlands online to retailers like Coles, Macy's, Amazon Home Depot, you name it. Their CEO, Chris Butler, told CNBC that sales have been slowing in the past two years after having surge during peak pandemic time. They've slowed. Again, it seems to me like this is kind of a tough business, whether it's lights or wreaths or

garlands. A lot of people use the same stuff year over year. So say the National Tree Company brings you on as chief elf, what ideas do you have to bring this kind of business back into the green? Oh, my goodness. That's so awesome. So that's a great question. And let me just say, I did not know of the National Tree Company before you brought it up. So they may be already doing some of these things. And I wouldn't be earning my chief elf consultant keep. But I think the first thing that I would be thinking is, hey, we got to move beyond the Christmas holiday, right? There

should be trees decorated for every occasion. That's the first thing. Just don't get bogged down in a seasonality type thing. And then the second thing, which, again, I would imagine they're doing this, I totally view the tree as the razor and the razor blade. The tree is the razor. It's the thing you buy, right? And you should be selling all sorts of different razor blades based on all those various occasions that mentioned above. And it's not just occasions, right? Let's say it's the start of basketball season and my daughter now lives in Cleveland. So why not decorate the tree with Cleveland Cavaliers ornaments, right? Or maybe sprinkling half Cleveland Cavaliers, half Cleveland Browns, if you're both a basketball and a football fan, birthday, all these things. So part of the reason

of my answer is we actually have an artificial tree that doesn't have any fake needles or anything like that. It's essentially just wood. It's really easy to assemble. And when you can put the ornaments on and the lights on and everything is just so clear. And it can, so it could really do more than, we should be breaking it out more than just at the Christmas time because it's a wonderful little showcase piece in the home whenever, you know, whenever anybody comes over. David Meyer, it sounds to me like you have certainly earned your keep as chief elf. Not only are you pro maxed out Christmas light decor, but now you're advocating for year-round holiday decorations. Thanks so much for coming down from the North Pole to join us today on Motleyful Money. Really appreciate having you.

Thank you so much, Mary. This was so much fun. Tis the season for end-of-year lookbacks and 2025 predictions. Up next, Stephanie Gild, Robin Hood's head of investment strategy, joins Ricky Mulvey for a look at what's exciting to Robinhood investors, why Steph thinks we're in a paradigm shift and what rocks she's looking under as we head into a new year. So, Steph, you recently wrote in your 2025 outlook, quote, it's important to always maintain a mix of optimism and curiosity and investing, end quote. I really like that because you do need to be a long-term rational optimist. If you're going to play this game, we'll break this question into two parts. Right now,

what are you curious about? I'm very curious about things that are happening with respect to, you know, the chips and semiconductors, the stuff that is going to power AI, the recent announcement, for example, from Google on their quantum-oriented chip just starts to blow my mind because they actually threw words in there like another dimension. And that, I mean, it's the things that you read about if you start to get into like, you know, spiritual aspects and even watching recently I watched the movie interstellars. I've been sort of thinking about those things. That is what I'm really curious about is the future way of life versus how it works today. Once you start doing chips that measure particle uncertainty rather than

ones and zeros, it does make us start wondering if we're going into a parallel universe to tap into these different computing devices, it's a wild time to be alive. Or we already have the power to do that and we just don't know yet, like the particles and how they act when they're watched versus when they're not watched. Like that is just... So for those listening, this is the Schrodinger's cat thing that allows a lot of these quantum chips to work. And that's basically, it was an experiment from a while ago with thought experiment. You open a box and you don't know if the cat is alive or dead until you open the box. And the act of observing is kind of what decides that. That is true on a universal level. And that is a lot of what's powering these chips. I don't know if that's

something that scares me or makes me optimistic. Steph, what are you optimistic about as we wrap up 2024 and head into the new year? A lot of things. I think it's, and the reason why I wrote what I wrote is because so often I've witnessed and experienced people who I learned a lot from that tend to just take a viewpoint of, I think it's natural in your brain to look for risks, right? You're always looking for the risk. And you certainly need to keep that top of mind. But I think all too often sometimes many people will use that as the only way to view something. And then you can miss things. If you're always looking for what could go wrong, I think it's almost harkens back to like the stone ages when we had to really, really focus.

Right. That's like embedded in our brain. But if you stay optimistic, I think you can find opportunities. You obviously always have to think about the risk. But something to answer your question is the fact that we are in, I think, a paradigm shift that has gotten rid of a lot of the problems that we've seen over the last 30 years. It doesn't mean that we don't have more coming and have more today. And I can identify a lot of them. But we are in, to me, the fourth soft landing economically since 1960. And the last one was in the 90s. And I think it is as a result of a combination of having a global financial crisis, then having, you know, it was a terrible global pandemic, and just having a lot of things flushed out and shifting perspectives.

And along with that, you've had huge technological advances, a large amount of R&D. CapEx has been growing faster than sales growth across the S&P. And it just, to me, it's sort of a perfect confluence of things. an environment that, you know, for a long time unhealthily had very low interest rates. And I think today, like having interest rates is a good thing in our economy. So there's a lot to be, to be optimistic about. So when you said that we're going through a paradigm shift right now, what specifically are you talking about in terms of is that, is that the soft landing? Is that interest rates? I want to dig into what you're talking about there. It's, it is the fact that

typically, if you look back in history, you might expect that we would be in a place where now unemployment should start to rise. The Fed raised rates, the most they'd raised rates in almost two decades. And many people thought we should have had a recession from that. And we did it. And I just think there are a lot of underlying aspects to our economy that are making it just be better than we could have imagined. And that's why. Like I think we have, you have an environment where I said companies are not necessarily cutting labor force despite the fact that their interest rates had increased.

And perhaps it was a blessing that came from the fact that interest rates were super low for so long. They got to fund things well into the future at very low interest rates. And science has just really advanced us. and when you put all those things together, I think it just creates an environment where you have a balance of a lot of things. Like all the risks are kind of in balance with the rewards.

Nothing's perfect. I can point out a lot of risks that could come, but I just think we are in that sweet spot right now. You see a lot of individual investors over at Robin Hood on the app. Any data about how retail investors have been acting this year? I don't know. How long on average are folks holding stocks? Are you noticing anything interesting as you've looked at the user data on Robin Hood? Yeah, a few things. One, we see customers, and this is at an aggregate level, I'm not looking

at individual holdings at all. There are thematics within what they hold, and they tend to hold core positions in them, and then they trade around the volatility of these core positions. So the core positions tend to land in a couple of different thematics, one being the kind of large cap tech, almost utility companies of this generation. The electric vehicle theme certainly chips and anything sort of AI related, you've got some travel in there, I'd say, like there's a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a, a. theme of travel, whether it be airlines, cruise lines. You know, cannabis is also a theme. Cannabis is back this year? It's just a theme that's been prevalent in the mix. We have the Robin Hood Investor Index, and this is what I analyze month to month. And it takes the 100 largest, sorry, most owned, I shouldn't say largest, but most owned companies. And then assigns

a weight to them based on the aggregate weight that our customers assigned to it, within their portfolios, no matter how much money they have. So that's how we kind of figure out, like, what people are focused on. The number one has been Tesla for a long time. I would say that since the election we've seen definitely an exaggeration of those themes and playing on those themes, the new one, or I'd say the one that has grown is anything crypto-oriented. and you've seen them trade around the volatility of Tesla.

They were getting, you could tell they were kind of getting focused on other things for a while, but then as soon as the election hit, they increased their holdings right before that. And the other thing I've seen, and I don't know if it's a function, I think it's a function of our customer base slowly getting older. Like our average, the median age is 34. Several years ago, you know, that was 30. And before that, it was in their 20s. And now you do see also an uptake of just purchasing broad-based index funds.

And that wasn't necessarily like something that we saw pretty consistently before. That's like in the last year or so. We love index funds. It's a great way to diversify it. When you say trading around volatility, does that mean buying high and selling low? Or is it doing the opposite? What do you mean by trading around volatility? I'd say the opposite.

Like our customers are certainly earned my respect. Because what I see is that something goes down and they're not afraid to use it to add to positions. And then when it, if and when it bounces back, which is often eventually does, then they use it to trim and put the capital elsewhere. On the margin. You know, you don't see like all of a sudden Tesla's in the index and then it's out of it the index, but it's on the margin. As we look forward to 2025, you mentioned a Peter Lynch quote, which is the person, who turns over the most rocks wins the game. I hope we're in a stock pickers market. It's kind of the basis of the show that we're doing on Motley Full Money. But what rocks?

What sections of the garden do you recommend that retail investors start looking over? It's a good question. Where I'm most focused is away from the top 10 names. So the 10 largest stocks make up about 37, 38%, depending on the day that you're looking at it of the S&P 500. And for 2026, they're expected to have earnings growth of 6%. That is not crazy, especially compared to where they've been over the last couple of years. It's been double digits. And those stocks have been driving the earnings growth for the entire S&P for several years now. But I do think that there is, there are going to be a widening. It's why I think we're in a stock pickers market. like when I look below that surface, I think the mid-cap space is to me, I kind of call it,

and I didn't put this in my outlook, but the mid-cap space to me is sort of like the middle child. Like it gets ignored. And everyone, you know, at post-election, it was all about small caps. That's come off the boil a little bit. And I think the mid-cap space is a good mix of lower valuations than large caps, but a little better mix of sectors and a little better, balance sheet, meaning like there's a leverage is a little lower than in the small cap space on average. I think there is other places like where I've been focused is I tend to think of

the world in factors. So growth versus value versus quality and those things that we've kind of self-defined in our team. And where I've been looking kind of matches this approach of a widening. So looking at like growth, but at the right price or also known as GARP or, you know, even just looking for value. Now, looking for something just based solely on valuation is usually not the best way to invest because things can stay cheap for a long time. Things can stay expensive, quote unquote, for a long time. An example to me of a GARP stock is Salesforce or, you know, ticker CRM. That company to me has been a little bit, you know, up until the last earnings call, a little unfavored, trades at a reasonable evaluation versus other tech names in the space.

They're just starting to kind of come into, you know, kind of using AI to their benefit with their things called agent force. AI agent force, which Mark Manny off learned a lot of, I think when he rolled his ankle scuba diving or had some sort of leg injury. And then he was getting all into AI agent force to the investors. Yes. You know, there's three things that I always kind of look at when I think about investing. And I think of what's the direction of interest rates? Because that can affect valuations.

And I think they'll be sort of around here within a range. What is the earnings growth expectations? And then sentiment. Is sentiment just does everybody love it? And that's what, you know, I always, from quarter to quarter, that's what I care most about because if everybody thinks something is great, the bar has just gotten really high. Always liking it to, if somebody tells you about a movie and they think, you know, oh, this is the best movie you have to watch it and you go see it and you're like, that was good.

But you had too many people telling you it was good. I sort of, I think about investing the same way, at least in the short term. And so I think, you know, CRM kind of fits a lot of the things that I like to look for. But there, I think it was something like 73% of analysts now have a buy rating. It has been higher in the past, but it's, you know, it's not unloved, like some other names that are out there. 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 strong buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and are not approved by advertisers. The Motley Fool only picks products that it would personally

recommend two friends like you. I'm Mary Long. Thanks for listening. We'll see you tomorrow, fools. You know,