Motley Fool Money - The Office Space Depression

Episode Date: September 22, 2023

Office real estate appraisals are seeing haircuts worse than the depths of the great financial crisis.  (00:21) Ron Gross and Matt Argersinger discuss: - The Fed walking its talk and maintaining the expectation of another rate hike. - How office real estate is showing signs of trouble, but shouldn’t be weighing down all REITs. - The latest on UAW, WGA, SAG-AFTRA strikes and one metric that shows the gap between company results and worker pay.  (19:11) Justin Hotard, Heads up Hewlett Packard Enterprise's High Performance Computing & Artificial Intelligence segments – breaks down misconceptions around artificial intelligence, and the best ways you can start learning more and understanding the AI future.  (33:22) Ron and Matt break down two stocks on their radar: Fairfax Financial and Nike.. Stocks discussed: WPC, FDX, GIS, NFLX, WBD, F, GM, FRFHF, NKE,  Pullback stocks report – info about the 5 stocks and joining Stock Advisor available at Fool.com/Pullback. Existing Motley Fool premium members can access the report here.  Host: Dylan Lewis Guests: Ron Gross, Matt Argersinger, Sanmeet Deo, Justin Hotard Engineers: Dan Boyd  Learn more about your ad choices. Visit megaphone.fm/adchoices

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The interest rate picture gets a little clearer, while Labor Outlook and Entertainment and Autos stays murky. Motley Fool Money starts now. That's why they call it money. Cool global headquarters. This is Motley Fool Money Radio Show. I'm Dylan Lewis. Joining me over the airwaves, Motley Fool's senior analysts, Matt Argersinger, and Ron Gross. Gentlemen, great to have you both here.

Dylan. How you doing, Dylan? We've got an inside look at quantum computing, a music catalog fetching $200 million, and stocks on our radar, but we are kicking off today with the latest in FedWatch, 2023. After meeting this week, the Fed decided to keep rates where they are maintaining the wait-and-see approach. Ron, it seems like, based on everything we've been getting from the Fed so far, we can bank on one more rate hike this year. That does seem to be the consensus. So, so far, they've held interest rates steady this time around, a 22-year high, I will note. Currently stand at 5.5 to 5.5%

Now, 12 of 19 officials favor raising rates one more time this year. Seven think they can leave them unchanged. We don't have, we have a majority, but not unanimous view at the moment. And the Fed officials indicated they expect to keep rates higher for longer. And that's what the markets really did not appreciate hearing. They're, you know, you get them wishing for cuts. and when they hear higher, longer, they sell stocks, and we've seen them come down. But officials do seem more confident that they're going to be able to get down to their 2% goal, 3.7% now, while achieving this so-called soft landing with no sharp economic downturn or slowdown, which would be wonderful. They do see inflation, I'm sorry, unemployment ticking up to 4.1% from 3.8%.

percent in August, that's going to be necessary to get the economy slowing to where it needs to be. But so far, as long as we can be a little bit patient and live with these higher rates that we're so not used to living with, I think we're going to be okay. I mean, we see in the 10-year, the 10-year currently stands at 4.48%. That's the highest level since 2007. That's not great for stocks. It's not great for borrowers who want to buy a car or perhaps a home. So we just have to live with this new normal for a while. But I think from an economic perspective, we might be okay. Matt, it's NFL season, so I'm going to quote Dennis Green. The Fed is who we thought they were. They continue to stick to what they've been telling us. They've been walking their own talk here.

And I think it's remarkably consistent. It's also something where it's maybe changing the landscape of what investors should be looking at or have been looking at. It has to. And Ron said it. I mean, look at, yeah, the 10-year treasury being the highest in 16 years. I mean, think about the world we lived in from late 2008 through the end of 2021. For more than 12 years, we lived in a world of virtually zero interest rates. Mortgages were cheap, auto loans were cheap. Businesses could easily and cost-effectively refinance or roll over debt. I mean, the real cost of debt capital was zero.

Free money is my favorite kind of money. I just want to go on record to say. I love it, but in that kind of world, long duration assets. And when I say long, I mean long, because in theory, you're discounting future cash flows at zero, where we were discounting cash flows at zero. So, of course, at the time, it made sense to invest in companies where the future cash flow was way often in the distant future. You're going to invest in risk assets.

Zero percent treasury yields basically forced you to. I think you guys might remember the term Tina. There is no alternative to invest in stocks. And I think for 12 years, that was really the paradigm, no alternative to stocks and no alternative to growth stocks in particular. The world has definitely changed. If rates are going to go to stay higher for longer, as Ron kind of put it, then guess what? Those future cash flows are going to be worth a lot less today than they were just a few

years ago. I think that has big implications for the stock market. Yeah, Matt, for me, it's a total rethinking of everything that I came of age financially learning and understanding. I basically started investing in the wake of the great financial crisis. I'm all of a sudden having to learn a lot more about treasuries than I thought because I was all stocks all the time. This is something that I think is affecting the way that people look at what's in their portfolio. It's also, I think, affecting a lot of businesses that had very debt-intensive structures. That's right. That's right. I mean, no doubt. I mean, this is changing the landscape a lot

in a lot of ways, and literally changing the landscape for commercial real estate, especially office. I don't think it's hyperbolic to say it anymore to say that office real estate isn't a depression. And perhaps its deepest downturn, perhaps even since the Great Depression 90 years ago, I know, for one, it's certainly worse than the great financial crisis. How do I know that? Co-Star had a report out just yesterday looking at values of office properties, financed by commercial mortgage-backed securities. Those types of properties have to be appraised every year. So those office properties were appraised lower by an average of 12.8% in 2022 and another 14.1% so far here in 2003. If you go back to the great financial crisis, comparable properties,

comparable office values were appraised lower by just 11% in total. So since the end of 2021, more than $17 billion of value has been wiped out. And that's just office buildings financed by CMBS. It doesn't figure it looking at the office space that's been financed by banks or private lenders, which is a much bigger pie. Two quick anecdotes I have to share of just how bad things are in the office space. WP. Carey, it's one of the largest net lease reits in the market, owns a ton of office. They announced yesterday that they're going to offload their entire portfolio of office buildings, 87 properties by the end of this year. They're going to sell most of them in a spinoff of a new reet, but they've managed an owned office property.

for decades. They're getting completely out. And then on a microscale, especially if there are any listeners from Florida, particularly the Jacksonville area, the Wells Fargo Center. It's the largest building in the city of Jacksonville. 37 stories, kind of a beautiful building, kind of defines the skyline of the city. In 2014, it sold for 75 million. Two days ago, it was announced that it's likely to go under contract for 35 million, which is less than the building's $46.4 million in outstanding debt. Office property, the office sector isn't a depression. It's definitive now. So, Matt, my question is, you know, look back to 2009 where we said, gosh, in hindsight, it seemed like we should have seen it coming. Like, there was, the writing was on the wall.

Is the writing on the wall now? And we're sweeping it under the rug? Is this something to be really concerned about that will reverberate through the economy, through the stock market? I think, well, it's certainly having an effect on REITs, and we can get into that. I would say, to answer your question, Ron, it's hard to ignore now just because in 2009, there was at least a path for these office values to get higher. We weren't living in this post-pandemic world of where the demand and use case for office was in doubt like it is now. I think there was always a pathway for commercial real estate landlords and banks at that time to work things out slowly and steadily and not have it sort of crushed the economy for the long term. We saw office

values actually bounce back. That is not going to be the case this time. And I think for a lot of banks and a lot of financial institutions out there, there are some big concerns. Matt, you mentioned reits just a second ago. I know most investors hear a narrative of this space is beaten up. This space is dealing with a lot of tough stuff right now and think, is there an opportunity here? When you look at the reet landscape. Are there interesting opportunities? Are the things that you want to be buying right now? Absolutely. I think there are, Dylan, but of course, I've been saying that for several months now. I've been wrong. But I mean, there are some incredibly well-run reits. Many that don't have any office exposure whatsoever that are training at multi-year lows. And valuation-wise,

some of them are training at their lowest values outside of COVID in more than a decade. Look at Prologis. It's the largest rate. Owns nothing but industrial assets like warehouses and logistics, facilities. They're seeing record rents, record utilization for their assets. It's down 30% from its high. Realty income, famous net lease rate, phenomenal track record. Its dividend yield is almost 6%. I mean, outside of the COVID crash, that's the highest in almost 10 years. And there's data from Center Square, which I follow. They do great research on the REIT space. In aggregate, they think REITs are trading it around 80% of their net asset value. That's only happened a couple times in the last 20 years, and it's always been a buying opportunity. And by the way, going

back to our earlier conversation, REITs are short duration assets. They're generating cash flow today. They're paying dividends today. That's a good place in mind to be, but I've certainly been wrong about that, at least for the last several months. You know, I hear REITS and I immediately think dividends, which is a space that Matt and I both have spent a lot of time in. You now have competition for dividend stocks and treasuries, as we just mentioned, that you haven't had. for a very long time. You have a risk-free 4.5% in a 10-year versus a risky asset like a stock at somewhere between 3% and 6% from a dividend perspective and then potential upside in terms of appreciation or perhaps depreciation. We've got competition here that we haven't had in quite

some time. Yeah, it's a paradigm shift for sure. The millennial investors out there like me are doing a little double-take looking at those yields. Sorry if they're coming for your dividend stocks, Ron and Matt. All right, after the break, we've got a number that helps explain the labor strikes we've been seeing. Stay right here. This is Motley Full Money. Welcome back to Motley Full Money. I'm Dylan Lewis, joined over the airwaves by Matt Argersinger and Ron Gross. We're zooming in on labor this week. After a Friday noon deadline passed, the United Auto Workers' strike expanded, now includes more plants and more economic impact. Ron, from what we're seeing from UAW leadership and the union's $800 million strike fund,

seems like they have the stomach and the resources to hold this one out for a while. I think you're right, at least for a while. And it seems like things are expanding in terms of strikes at GM and Stalantis. Not so much for Ford, though. Progress or quote, real progress seems to have been made with Ford and the UAW. So it'll be interesting to see what comes out of that. If you recall, the strikes were originally initiated on September 15th at assembly plants in Michigan, Ohio, Missouri.

Now we have strikes, I think, that are coming at 38 more locations across 20 states. So this is heating up. The UAW is looking for higher hourly pay, better retirement benefits, cost of living adjustments, better wage progression, work-life balance, a lot of things that cost a lot of money. And each automaker is different, but in general, they want to be. want to try to avoid fixed costs, things like traditional pension plans or anything that would make them less competitive. It's been estimated that this could cost $80 billion per automaker over the length of

the contract if the UAW were to get everything they want. That sounds high to me. It's probably a little bit of hyperbole, but for sure this would have a significant impact on profitability to the benefit of workers, and therein lies the debate. This is an incredibly high-profile labor dispute, and it comes in parallel with another one. We see the writers and actor strikes, and there's been some progress. We've seen entertainment leaders like David Zazlov, Bob Eiger, and Ted Sarandos joining the conversation. We still don't actually have a deal in place there, and we are also seeing the companies begin to note the effect that they're expecting to hit Warner Brothers Discovery,

estimating 300 million to 500 million hit to their adjusted earnings based on what they're seeing so far. Matt, seeing these two disputes together happening at the same time, does it feel like there's something that transcends some of the industry-specific issues and that there's something kind of broader building here? I think so, Dylan. I mean, I'm sounding a bit like a market historian on today's show. I don't want to mean to do that. But, I mean, look back at the past few decades.

We talked about low interest rates, but we've had rapid globalization, the rise of the internet, growth of technology, super growth in worker productivity across. industries. And what did that do for corporate profit margins? If you look at data from Yardini research, which tracks the S&P 500 operating and net margins over time, in this past second quarter, S&P 500 operating margins were 11.8%. That's just below the record in 2021 and more than double where they were in 1994. So corporations have done extremely well. Investors have done well. On the flip side of that, wage growth, as we know, has been sluggish. Up until recently, real incomes didn't show a ton of growth in 40 years. You've had a lot of job losses in blue-collar industries.

Labor's influence kind of continued to wane over that whole period. Well, look, that's starting to change. Labor is exerting some serious influence. We talked about UAW, the Hollywood strikes. I mean, look at the deal UPS delivery workers recently got. Look at the labor pressures that Amazon and Starbucks have faced. If labor can push back just a little bit, and it seems like it's more than a little bit, I think it has big implications for corporate problems. market margins going forward. You guys mentioned some of the enormous costs that these companies might be facing. Can these companies be as profitable going forward as they have been in the past? I think that's a big question.

One of the things I think is kind of interesting with this story is we're seeing labor spill into results from companies, even if they aren't necessarily in the middle of disputes themselves. We got earning season kicked off this week and saw results from FedEx. They are one of the early companies to report in earnings season. They don't have any labor. disputes at the moment, but their rival UPS did, and the uncertainty of whether or not they would reach a deal led some customers to move over to FedEx. Ron, the company reported an additional 400,000 packages in a single day due to customer wins. What else jumped out to the results looking at stuff from FedEx?

You make a good point. So you're going to avoid UPS while they're in a labor dispute, because you want you to make sure your package gets delivered. So you switch over to FedEx. I don't know if that market share will persist. I think people move back and forth, but at least for this quarter, it certainly helped. Now, the stock is up 50% year-to-date. It was up strong on this report as well, despite the fact that revenue is down 6% overall. But they are making some cost-cutting moves that are really impacting the bottom line. They're merging their express and their ground units. That's going to save $4 billion over two years. As a lot, As a result, operating margins are up pretty significantly to 7.3% from 5.3%.

Adjusted earnings up 32% as a result. So you have a little bit of weakness in the top line, but those cost cuts are really bringing profitability down to the bottom line. Not everything is perfect. They did talk about a muted peak season. They do see revenue to be flat this fiscal year after previously guiding for an increase. So, there is some weakness if you want to look at FedEx as a bellwether in terms of economic activity, the holiday season that will be heating up.

There is some areas of concern there. They did complete a $500 million accelerated share repurchase. They think their stock is cheap. 17 times forward guidance. Not too bad, but it was cheaper 50 percent ago. It's had a strong run. We're going to stick with the earnings stories and some of the early companies to release. Ron, you mentioned FedEx as a bellwether.

Kind of the same story with General Mills. They report early, and we kind of get a sense, Matt, of what we're seeing and what we can expect to see in the grocery aisle from the owner of Cheerios and Dunkeroo's. What did you see looking at the company's results? Yeah, that's right down. Well, on the surface, pretty good. Net sales were up 4% to $4.9 billion. Gross margin, which is so key to businesses like this, gross margin was up 540 basis points to 36.1%. That's among the highest they've reported recently.

But here is where things don't look so great. Operating profit down 14%. There's a huge jump in SG&A expenses. Net earnings down 18%, mostly due to higher net interest expense. So you can see those two forces are kind of working opposite. And if you dig into the net sales growth, it was really all driven by what companies like General Mills call value realization, which is kind of a combination of price and product mix.

That was up six percentage points, but volumes were down two percentage points. Hence, you get the 4% net sales growth. This is really common. I was looking recently at Kenview, the recent Johnson & Johnson spin-off, another large consumer staples company. Same thing. Sales growth is all about price and mix now, not volumes. So my worry here is what happens when these companies can no longer push price, because volumes

are flat and declining, especially in the consumer staples space, we might see a little bit of sluggish sales growth going forward. So looking for where the revenue growth is coming, going to be key for a lot of these consumer packaged goods companies. Ron, anything else as you're looking at retail or some of our restaurant concepts, anything like that, that you're watching this earning season? I'm looking at inventories. Inventories have been all over the place for a while. A lot of these retailers have been incorrectly merchandised. They've been discounting. They've been really promotional to get things right. I want to see how that looks in the coming quarter. All right. We'll keep an eye on it.

Ron, Matt, we'll see you guys a little bit later in the show. Up next, we've got the story of how supercomputers are informing your weather forecasts for good and bad. Solidarity for us. What does leadership really look like? On the power of advice, a new podcast series from Capital Group, you'll hear from athletes, entrepreneurs, and executives who've led on the field, in the boardroom, and in their communities. It's not about titles.

It's about impact. Discover what drives them and the advice they carry forward. Subscribe and start listening today, published by Capital Client Group, Inc. Welcome back to Motley, Fullmer. money, I'm Dylan Lewis. AI is the theme of 2023, but we're all still learning the lingo and understanding what it actually looks like. To help understand better, we went straight to an insider, Justin Hotard.

He heads up Hewlett-Packard Enterprise's high-performance computing and artificial intelligence segments. The Motley Fool's Sandmeet Deo spoke with Hotard about the differences between high-performance computing and quantum computing, some of the biggest misconceptions around artificial intelligence, and the best ways you can start learning more to understand the AI future. It kicked off with an overview of the foundational technologies that have allowed AI to flourish. For someone who's just heard of Hewlett-Packard enterprises for the first time today, can you describe in simple terms what the high-performance and AI segment does? And how about Hewlett-Packard Labs?

Yeah, absolutely. So maybe I'll start with Hewop-Packard Labs, which for many listeners, they probably knew Hewle-Packard is. Hewlett-Packard had a long history or throughout its history, has always had a commitment to advanced research and technology. And labs really plays in that space. And the reason it's connected into the high-performance computing and artificial intelligence business is a lot of the advanced research we do is in collaboration with other research

institutions, including governments, the United States government, but also other governments around the world or research labs around the world. And the whole purpose is to look at technologies that aren't just nearly in front of us, but might be five, ten, or in some cases even 15 or 20 years. in front. And so that's labs. And then on the high-performance computing and artificial intelligence space, this is a business that's pretty unique. In fact, there's only a few players in the world that deliver these kinds of systems. And these are very specialized systems to run really large workloads. So a good example is our supercomputers power most of the world's weather systems today.

You may have heard that the United States Department of Energy has the world's fastest computers for conducting scientific research. We power all of those systems with our technology today, but also in other places as well. We have the Europe's fastest supercomputer as an example. And the reason this is all relevant is these big systems and supercomputers are actually have the foundations of technologies we need to train and tune and ultimately deploy artificial intelligence.

And in fact, we've been working in artificial intelligence with many of our customers, both in the public sector, but also in the private sector, commercial enterprises for many, many years, well ahead of the boom that's happened over the last few months. Could we attribute the better weather forecasting to your high performance computers? If it's better, you can definitely give us credit. That's great. So I'm curious, how did you personally get into this field? And what's kind of like the one aha or wow moment they experienced in your journey with HPE?

Yeah, so I've been at HPE for about eight years. and spent my career really in tech. I was a joke. I was a marginal electrical engineer in undergrad and therefore had to go get a business degree to be useful in the tech industry. But when I came to HPE, my focus was actually on helping build our computing business. We had just separated from Hewlett-Pack or the company that still makes printers and PCs. And we saw high-performance computing as an area that was going to continue to grow in part because we saw the opportunities in areas like artificial intelligence. So I worked on an acquisition of a company called SGI back then. And then shortly after that, I got into running our standard server business.

And that's, you know, for the core of the company, that's our biggest business. We power, you know, we have servers that power a lot of the cloud applications and services that you might be using. We power a lot of the telecommunications providers. So, you know, different telcos around the world, of course, they've become as much an internet service provider as they have a voice service provider. And so in that time, I was spending time really in the core of the business and got, when the opportunity came up to run as part of the specialized business, I jumped right in. And I think what's fascinating about this business or what's kind of excited me the most is this cutting edge technology really makes a tremendous difference in our lives. I mean, one of the most obvious examples is if you think about how quickly, we brought the COVID vaccines to market.

That was because of our supercomputers and work and other partners in the technology industry, working closely with the U.S. Department of Energy and then, of course, with the pharmaceutical manufacturers to accelerate testing and simulate testing on computers, which really, you know, really, if you think about the arc of vaccinations and what we were able to do, you know, to get back to some, you know, start to get back to normal with, with, after the pandemic, it was a big part of it. But, you know, there's many, many other examples, including weather, which we've already talked about. That's exciting. So it's impacting our daily lives and we don't even know about it almost.

That's right. That's right. I mean, it's, you know, it's been a foundational part of, you know, what we're doing in, scientific discovery and research. And I think when we look, if you look back, let's say 10 years from now, you'll find the current work that's being done on these systems is

going to enable things like a healthier planet through looking at carbon neutral technologies and certainly with renewables, but also areas like personalized medicine, thanks to some of the research and advancement that's happening on these computers today. And as you said, of course,

hopefully a better, more localized weather forecast. Exciting. So as a bit of a tech novice in terms of all the alphabet soup of terminology in the tech world, what's the difference between high-performance computing and quantum computing? Is there a difference? There's actually a really big difference. And if you think about high-performance computers in their simplest term, are really large and extremely fast calculators of data.

And so our fastest computer can do a billion billion calculations per second. And so that's the X-Scale computer that we announced last year called Frontier in the United States of the Oak Ridge National Laboratory. That's a great calculator. The quantum computing is a bit different, still very early. But what quantum is good at telling you is these are all the scenarios that could happen at once. And because you can look at all the scenarios in parallel, It has some really good applications.

There's a lot of the excitement and early applications have been around cyber security and how you can encrypt things that are almost impossible to break. Or on the other side, how you can use quantum computers to decrypt something much, much faster than a typical or traditional high-performance computer, which has to work through every calculation. I'm really fascinated by the work that you're doing with NASA. If you could tell us a little bit more about that, that'd be really cool. I love space, by the way.

Well, there's quite a bit of work in space. I mean, I think obviously, you know, there's been a ton of work in this area, and we've been a long partner with NASA. And, of course, you know, we're excited about what the private sector is doing in the space as well. But what we see really with these opportunities is whether it's through accelerating material research, processing data up in space. So one of the things that we announced, we've announced two computers. computers, SpaceBorn and SpaceBorn 2, which actually provide high-performance computing

and supercomputing up in space. And this is really critical because this allows us to, or allows certainly scientists to do testing in space and actually process the results there, which may prove impossible to bring back because they can't bring the materials back or the, you know, the tests they're running may be compromised by the time they try to run and analyze the results in space. And so that's just one. example of the kinds of things we can do with high-performance computing. And it's a great example of why we were talking about cloud earlier, why the cloud works for a lot of applications, but the edge, this is effectively a great story about the edge, right? Why you want processing

at the edge? It's like the ultimate edge. The ultimate. Exactly. Exactly. So are there any popular myths or misconceptions about high-performance computing or AI that you like to set straight that people aren't getting right? Yeah, I think there's a few things. I mean, I think one is, I think there's a big myth about, you know, there's a big concern about AI taking us, taking over and taking control of humans. And I think that's, you know, we've all, we've all watched the movies and read the science fiction books. It's, it's, it's probably a long ways away. I think, I think the reality is, is that today, you know, the technology's best as a, is an accelerator for human capability, right? As a human assistant. We talk a lot about, you know, the scientists, the technologists, the physician,

you know, any of those people with AI are going to be far more effective at what they do. You know, but I also I also harken back to realizing that every time we have a technology cycle, you know, mobile communication, the internet, you know, it can be used for bad as well as good. Right. And so obviously we've got to be thoughtful about what those things are and practical about them. but the benefits are so much more compelling than the cost. I mean, the ability to, I mentioned the acceleration of vaccine, the ability to look at drugs that won't pass approval because they may have an adverse impact on too many people,

but now recognizing that maybe they can heal a set of the population without adverse impacts and be able to provide more personalized medicine, is one example. The acceleration to helping our planet become healthier, through carbon neutrality and renewables. One of the things we're doing in the high-performance computing space right now and working closely with commercial partners as well as researchers is how do we make wind farms more efficient, right?

And it's actually a really complex problem that a supercomputer and artificial intelligence can help solve. And I think there'll be many, many more things like that that will come from artificial intelligence. So let alone making our lives easier, right, just automating tasks and replacing things that are mundane maybe that give us more time and capability to spend that more valuably. So I think that's probably the biggest myth that I see.

And yes, we need to be responsible. Responsibility is a key thing. It's something we talked about our labs organizations. I think our labs team has been working on for years as responsible and ethical use of AI. We absolutely be thoughtful about regulation. We need to enforce the laws that we have against our artificial. intelligence use cases as well and be thoughtful about, you know, really thoughtful about where regulation makes sense. But I think we need to recognize that there's, there's so many,

so many benefits to this technology as we look ahead. Yeah. It's almost like where you say you kind of have a future view of what's, what's coming in the world, which is really interesting. So if our listeners want to kind of get more involved with or learn more about AI, high performance screening, like where do they start, any fun resources or beginners guys that you could offer? Yeah. I mean, I think, First, I'll say come to our website, at HB.com. We've got a ton of information. We've got primers and we've got tools to get started.

In fact, depending on where our listeners are, if they're looking to start an AI project, actually, we've got software that makes it really easy to start building your own models. And you can actually take that software and you can run it in a public cloud. You can run it on a computer, your own private cloud if you have that. But if you want to just get the basics of AI, we have those resources too. And actually, then the other thing I would say is, you know, I'd look at your, I'd actually look at some of the areas where AI is being used today, right? I mean, absolutely play with the, you know, some of the chat bots that are out there, use it in search.

I think just playing around and learning is the most important thing. You know, it reminds me a lot of the start of the Internet. You know, the early use cases were maybe interesting and exciting, but what we do today and certainly when we did 10 years after the, you know, the Internet became. came a household term is very different than what we did initially. But it comes from people playing with it learning and thinking about the possibilities and applying them to their own, to their work and lives. And then last thing I'll put a plug in for HPE is, you know, for those of you that work with us, reach out to us, right? We're happy to be a partner in that.

We can help you talk about how your data works and how you get it organized because there are really some great, you know, some great things you can do. But we realize that lots of people are, you know, when you cut through the buzz, lots of people are at a pretty standing start in this space, and we're eager to be helpful as much as we can. If you're worried about an AI future, fear not. Motleyful money is made by humans for humans, at least for now. And if you're a fellow human looking for stock ideas, our analysts at Motleyful Stock Advisor have compiled a list of five stocks whose prices have tanked, but still have strong fundamentals

and potential growth ahead. Just one example is a company that lost more than three quarters of its value, despite showing surging revenue. The team is revealing this stock, along with three. four more in our new Five Pullback Stocks Report. Available for free, only to Stock Advisor members. Simply go to fool.com slash pullback to learn about these stock picks. And if you're listening to today's radio show as a podcast, we'll drop a link to Fool.com slash pullback in the show notes. Coming up next, we've got stocks on our radar. Stay right here. You're listening to Motley Full Money.

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Go to Q-I-N-C-E-D-com slash Motley for free shipping and 365-day returns. Quince.com slash Motley. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against. So don't buy or sell anything based solely on what you hear. I'm Dylan Lewis, joined again by Matt Argusinger and Ron Gross. We're going to get to radar stocks in a second. But first, I had to talk about the story, guys. Pop Singer and Multi-Platinum selling artist Katie Perry sold the rights to five albums,

released between 2008 and 2020, including her mega hit Teenage Dream, to a music rights company. for a reported $225 million. Matt, she joins the ranks of Bob Dylan, Paul Simon, and David Bowie, who have all sold music catalogs for over $200 million. Is Content King? Is that the takeaway here? I guess it has to be. I mean, I think that's a huge. I'm not a huge Katie Perry fan, and that seems like a huge price to pay, but maybe I get it. I mean, if you look at Michael Jackson, In 1985, he paid 47.5 million for the, I think, almost the entire Beatles catalog. And if you adjust that for inflation, comes out to about 150 million in today's dollars. So, you know, Beatles, Katie Perry?

I have got to say, I just think Jackson made a pretty shrewd purchase or is his estate now. I guess it still owns it. I'm not sure. But anyway, this has been going on for a long time. And yes, content continues to be king and very expensive. Yeah, Carlisle certainly thinks that there's some money to be made. Their litmus music is behind some of these purchases. They've deployed more than $3 billion since 2018 in the sports media and entertainment space.

So they're putting Monday to work. They see something special here. You know, Ron, I was going to say when Dylan's catalog sold for over $200 million, it was reportedly generating $16 million a year in revenue. 13 times sales sounds like it's Ron Gross territory. I don't pay for sales. I pay for cash flow. All right. Let's get over to stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Ron, you're up first. What are you looking at this week? Fairfax Financial, FRFH, or Dan on the Toronto Stock Exchange, FFH. It's a recommendation from my friends over at our Value Hunter Service. They're a holding company, two main lines of business, insurance, and investing. They often go hand in hand. In this case, Fairfax.

has a $57 billion investment portfolio. CEO is a very skilled investor. Prem Watsa often referred to as the Canadian Warren Buffett. No one is Warren Buffett, but okay, he's the Canadian Warren Buffett. He has an amazing 25.7 percent annual compounding of book value over the last 25 years. So he's very talented. The insurance business is finally on track. New management came in in 2010. It's now profitable, wasn't profitable in the past. So you've got strong insurance operations at the same time as strong investing operations. They're actually benefiting from the higher interest rate environment, only trading slightly above book value. It could have some nice upside if my value hunter friends are correct about the valuation. All right. I'm going to kick this one to

our Warren Buffett behind the glass. Dan Boyd, a question about Fairfax Financial. So Canadian Warren Buffett, Ron, what? Wow. That is, that is pretty wild. He's a talented man, Dan. Mr. Watsa. Yeah, it's a heck of a comparison. It's a lot to live up to. Matt, what is on your radar this week? So, Dylan, I'm looking at Nike, ticker NKE. They report results next week, and the market is not optimistic. And neither am I. I mean, there's been some pretty bad news out there. You guys have seen it from Foot Locker. exporting goods, other retailers. So the stock is trading almost 50% below its high. But it's also trading for under 25 times forward earnings, which is not cheap. But if you look

back over the roughly last 30 years or so, there's my market historian stuff again. That's been a pretty good time to buy Nike. I also love that the company's made the dividend a big focus. They've just about double the payout over the last five years. So I'm watching next week pretty closely. This might be a time to find a bargain in Nike shares. Dan, do you have something that could bring Matt into the present or future with a question about Nike? So, Matt, are you like a sneaker guy? Do you have like a big closet full of Nike's somewhere in your house that you keep in pristine condition? No, I'm not a sneakerhead, Dan, as you know. I do keep a ton of comic books in closets and hopefully pristine condition, but not not choose. Does Nike make comic books?

Not as not that I'm aware of, man. Not yet. Sounds like an opportunity. Dan, are you going to go to the Great White North or just do it? I got to tell you, man, I'm very familiar with Nike and their brand. I am not familiar with this Fairfax company whatsoever. And the whole Canadian Warren Buffett thing has got my interest levels very high right now. So I'm going to go Fairfax. Nice.

I never thought I'd have to say it, but I guess Nike has to work on its branding. I think you just got outdone by Ron Gross there. Unbelievable. Love to see it. Well, Matt, Ron, thanks for being here, bringing your radar stocks. Dan, thank you for weighing in. That's going to do it for this week's Motley Full Money Radio show. The show is mixed by Dan Boyd.

I'm Dylan Lewis. Thanks for listening. We'll see you next time.