Motley Fool Money - Welcome to the "Larry David Gif" Stock Market!

Episode Date: June 24, 2022

Wall Street pros and individual investors are sifting through lots of noise to find signals about the stock market. (0:30) Matt Argersinger and Jason Moser discuss: - The lack of clarity (at the moment) facing investors - Former growth stocks (PayPal, Netflix, Facebook) being added to the Russell 1000 Value Index - What the latest results from homebuilder KB Home reveal about housing - The latest from DocuSign, Darden Restaurants, and Kellogg. (19:00) Jim Mueller analyzes the companies competing for Netflix's ad business, opportunities in the metaverse, and Big Tech's pursuit of streaming live sports. (33:00) Jason and Matt answer a listener's question about Activision Blizzard and share two stocks on their radar: Qualcomm and eBay. Our free investing starter kit includes research on 15 stocks and 5 ETFs. Get a copy simply by going to http://fool.com/starterkit Stocks discussed on the show: NFLX, PYPL, META, FDX, DOCU, DRI, KBH, NVR, DHI, K, ROKU, TTD, GOOGL, RBLX, SRAD, AAPL, CMCSA, AMZN, ATVI, QCOM, EBAY Host: Chris Hill Guests: Matt Argersinger, Jason Moser, Jim Mueller Engineer: Dan Boyd 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. Housing the Metaverse. Bellwether stocks. We've got a lot to cover, so let's get started. Motley Fool Money starts now.

That's why they call it Money. Cool Global Headquarters. This is Motley Fool Money Radio show. I'm Chris Hill, and I'm joined by Motley Fool's senior analyst, Jason Moser, and Matt Argusinger. Good to see you both. Hey, hey. Hey. We've got the latest headlines from Wall Street. We'll get an update on the entertainment media landscape. And as always, we've got a couple of stocks on our radar. But we begin with the big puzzle. On the one hand, data out Friday indicates that both gas prices and mortgage rates are starting to drop. On the other hand, some major companies are either freezing, hiring, or laying people off. Matt, let me start with you. Everyone's looking for clues to where the economy and the stock market are going. But it kind of seems like clarity is weeks,

if not months away. Absolutely. Chris, I'm trying to figure it out myself. But I think what I say confidently is this isn't like 2008. There's not a systemic crisis that is going to bring everything down. Jobs, the economy, asset prices, energy prices, credit markets. I mean, the whole world basically crashed back in 2008. I think we all agree on that. I think what we have today is just really a big jumbled mixed bag. It's the best way I can describe it. Because I think on one hand you've got industries like you've got the home builders, you've got manufacturers, you've got technology companies seeing a pretty sharp slowdown. But on the other hand, you've got the energy industry, which is having its best moment in more than a decade. You have hotels and resorts that are charging

rates that are higher than before the pandemic. So travel feels pretty strong. Retail is doing fine for the most part. So it just feels really unsettled. I think you can make good arguments for the economy to go in either direction. And I think that's being reflected in the stock market right now. Investors have a sense that there are opportunities, and there always are opportunities, But they're hesitant because you just don't know what kind of shape the economy is going to be in several months from now and what higher interest rates are going to mean for a lot of businesses. So, right, I think a holding pattern is where the investors and the stock market are right now. Jason, I want to key in on one word Matt said at the end there, and it's hesitant because I think that as much as anything, that sums up the mood for a lot of individual investors. and also for a lot of the fund managers and institutional folks on Wall Street, there is a hesitancy

to jump into this market with both feet. Yeah, it reminds me of that Larry David Giff or GIF, whatever side of the argument you fall on there. But, you know, he's kind of like uncertain, right? He's like, eh, I don't know, maybe so, maybe not. I just, I don't really, you know, we're kind of all kind of doing that right now. And it does feel that way. I like your use of the word puzzle, because it feels like we're trying to just put these pieces

together, and it's just right now, that picture just isn't there. I mean, there's so many signs pointing in so many different directions. I mean, consumer sentiment at a record low personal savings rate is around 4.4% now and falling. There's not going to be any more stimulus, really, to help prop up a consumer spending in that regard. Credit card balance is going up, starting to see some pressure in the jobs market. And then you look at the way the market's been performing. I'm glad Maddie brought up 2008 because I mean, that's, I think, an important time to remember.

We all lived through that and as investors. It felt like the prevailing attitude at the time was the world was coming to an end. It felt like it was because there were some fundamentally structural issues at play there that don't exist today. And if you look at the way the market performed in 2008, it wasn't good, Chris. I mean, it was down 36.5%. And that's right about in line. with the average bear market since 1929, right? The S&P loses on average about 36%. We're not even close to that right now. So, I mean, there is every reason to believe we could see the

market go lower, but it doesn't necessarily mean it will. And then you add to that this dynamic and play that over the last 20 years, half of the S&P's strongest days occurred during a bare market. And certainly we're all seeing that at play. I mean, there's just some very big moves to the upside on certain days when the headlines look a little bit better than others. And so it makes it for a very confusing time, I think. And honestly, I think it really does point back to why we invest the way we do here, because it is very difficult sometimes to try to ascertain exactly what's going on on a daily basis. Adding to the confusion is the fact that at the close of trading on Friday, the Russell

1,000 value index will do some rebalancing. and among the stocks being added to the value index are Netflix, PayPal, and meta platforms, the parent company of Facebook. Jason, those are three of the biggest growth stocks of the past decade. What are they doing in a value index? Well, other than the obligatory rebalancing that comes from stocks headed to different benchmarks, I think it's interesting to think about why these businesses are where they are today. you look at the performance year-to-date, meta down 50%, PayPal down 59%, Netflix down 68%. There are reasons why that's happening, though, right?

The bigger question investors need to ask themselves, as opposed to why are these value stocks, why are these companies where they are today? And I think, you know, these are all businesses. They're all market leaders in their own right, and there is uncertainty abound in all three as well. So, what is that uncertainty and what are the chances that they can turn this conversation around? And so you look at something like Metaverse. To me, Meta stands out as the one with the most uncertainty because it seems like it's

kind of placing all of its chips on this bet on the Metaverse, which right now is just a big, fat question mark for a lot of us. We don't know what that's going to look like. We don't know how many people are going to choose to participate. We don't know how really that's going to monetize. Video streaming and digital and mobile payments. I think the uncertainty is very much just less, right? I mean, there's just less uncertainty in regard to those long-term sort of tailwinds there. So it's going to be interesting to watch how these businesses recover from this sort of value

territory. But it's also worth remembering that as businesses get bigger, right, this just becomes more and more the part of the conversation. I mean, we had a point we're talking about Apple in this light, right, as it became a dividend-paying stock. Well, Chris, That worked out pretty well for investors. So I would encourage you to kind of see the glass half full in this case. From value stocks to Bellwether's shares of FedEx up nearly 10% on Friday. Fourth quarter results were mixed, but FedEx gave strong guidance for the new fiscal year. I'm not a shareholder, Matt, but this is one of those companies that I root for because

of its role in the broader economy. I'm not a shareholder either, Chris. But after these results, I'm thinking about it because, I mean, go back to our, earlier discussion on the economy, if you want to feel pretty good about things, yeah, look at FedEx's earnings. So when the quarter just ended in May, revenue was up 8% year over year, yet adjusted operating profits up 13%, and pretty much better profit margins across the board. And this was a quarter, by the way, where we had significantly higher fuel prices. That's a huge line item for FedEx, yet they managed through it pretty darn well. And yeah, the guidance was where the strength was really.

You had forecast earnings per share growth of around 14% in the current fiscal year, which just started. Now, some of that growth is coming from buybacks. So FedEx, which really hasn't been a big repurchaseer of its stock. They bought back more than $2 billion worth of stock over the last fiscal year. So that's really helping the earnings per share. They also recently raised their dividend by 53%. So you step back and you have this bellwether business.

The stock is trading for roughly 11, 12 times forward earnings. And now the dividend is yielding 2%. And you've got double-digit earnings growth potentially this year. So, like I said, I don't own shares of FedEx, but I think if you're a shareholder today, you've got to feel pretty good about it. And it tells you a pretty good story about the economy. On Tuesday, DocuSign announced that CEO Dan Springer was leaving effective immediately. Board Chair Maggie Wilderotter takes over as interim CEO as DocuSign looks for a permanent replacement.

Jason, we've talked before about how a rising stock price provides a halo effect for CEOs. We're in a bare market. Shares of DocuSign are down more than 50% year-to-date. They are not alone, as we have discussed before. I'm wondering if you expect to see more changes in more corner offices. I absolutely think it's a possibility. I mean, a business that stands out to me is being a part of this conversation is PayPal, right? It wouldn't shock me at all to see CEO Dan Shulman at least feeling like the spotlight could

be turning his way. You look at what's going on with DocuSign. These companies have found themselves on a tricky spot, right? I mean, this is a business. It's fundamentally far better than it was, even just a couple of years ago. I mean, if you look at first quarter of 2019 revenue for DocuSan, $214 million, you fast forward today, first quarter of 2022, that was revenue of $58 million. I mean, it's still working. working its way towards profitability, but it is cash flow positive. I mean, this is a business that's fundamentally a better shape, but there were some unforced errors along the way that were committed.

I mean, in regard to forecasting, there's employee attrition and Dan Springer, to be fair, took his lumps here recently talking about how they did such a great job of fulfilling demand during a tough time. That demand more or less just showed up on their doorstep, though. They didn't do as great a job. They kind of took their eyes off the ball in creating. demand. And I think that could be where the concern for this business is today. Perhaps there's another shoe to drop. It's hard to say, but I do know when you look at recent

language in PayPal's call, I mean, there was a tone of humility on the part of Dan Schellman and saying, listen, we need to rethink our philosophy and methodology around forecasting. And we need to get back to where we were before the pandemic and making sure we give the ball to our teammates and let them develop and run and grow this business as well. I said it before, it felt like maybe PayPal became a little bit of a Dan Shulman-centric story. It felt like maybe DocuSign became a little bit of a Dan Springer-centric story. And that's a sword that can cut both ways. And unfortunately, in this case, it resulted in Mr. Springer having to step down. And I don't mean to indicate that the sole report card for any CEO should be the stock

price. It just seems, though, that because of the environment we're in, You use the word rethinking. I can see more boards of directors. And in some cases, maybe CEOs themselves, sort of evaluating where they are, where their business is, and say, you know what, it might be time for a change. Yeah. Yeah. I mean, it's just, it's just no two ways about it. I mean, leadership can make or break a business in certain cases. And it's something, you can never take these types of situations for granted. Good business is a good business, but you'd still have to have someone leading the way. Up next, we've got the latest in housing, restaurants, and more.

So stay right here. You're listening to Motley Full Money. Welcome back to Motley Full Money. Chris Hill here with Matt Argusinger and Jason Moser. Shares of Darden restaurants up nearly 5% this week. The parent company of Olive Garden raised their dividend 10% and posted higher than expected profits and revenue for the fourth quarter. Jason, we talked about this earlier in the week.

Olive Garden drives the bus for Darden. But they've got a fine dining segment that's doing much better, although management is being cautious with their guidance. They are. I mean, Darden has always been very good about using its size to its advantage and keeping prices low, maximizing efficiencies, and reaching every level of consumer from the lower end to the higher. And it certainly feels like they've been able to keep that ball rolling here over the last couple

of years, which have been a tough time for really all restaurant businesses. But to your point, there are the numbers. sales up 14.2%. That was driven by a same store restaurant sales of 11.7%. Now, like you said, Olive Garden drives the bus. That's the biggest contributor to the business. And those comps were up six and a half percent. But the fine dining to your point, 34.5 percent, Chris. People wanted to treat themselves this quarter, it sounds like. And that's all very encouraging. I think the 10 percent boost to the dividend from a quarter ago is a sign of strength as well. Interestingly, what What Darden does, right, and you heard this on the call a lot, they continue to underprice

inflation and their competition. I mean, inflation has really been a key theme for a lot of these calls, and they continue to focus on underpricing inflation and their competition to present a value proposition and bring people in. It certainly worked out very well for them on Mother's Day. It was the highest sales day ever for Olive Garden, the second highest guest count day in their history. Interestingly, also on staffing.

Now, they have more managers per restaurant than pre-COVID times. And so at the manager level, they're doing great. They're back to basically pre-COVID levels on the team member side as well. Though they did note there's some pockets of restaurants where there's some staffing issues, but generally speaking, in a world where staffing in the service industry has been very difficult, it feels like Darden has managed their way pretty well, and that is playing out on the business. Am I the only one who thinks that when earnings season heats up in July and August? I guess we're going to hear the phrase staffing issues from more than a couple of retailers

and restaurants out there. I feel like we will. I feel like we will. And it feels like Darden has put themselves in a pretty good spot where this is concerned. KB. Home's second quarter profits and revenue came in higher than expected and shares up nearly 15 percent this week. Maddie, you watch real estate and housing more than anyone I know. What, if anything, does a home builder like KB Home tell us about the housing market?

Well, it tells us a pretty good story, I think. I was looking at KB. Holmes results. And to me, they kind of told us exactly what I think most of us think is going on with the housing market, which is housing market's not crashing. I mean, it's not falling off a cliff by any stretch. People are still buying homes, especially in straw markets like the southeast, southwest, and even California, where KB. Home does a lot of its building. There has been some moderation, though, as we've seen interest rates, mortgage rates surge higher,

really historically over the past few months. So if you look at KB's results, even though revenue and margins were higher, that's really mostly reflective of higher home prices. Deliveries, on the other hand, were flat, orders have actually come down, and cancellations have picked up a little bit. So to me, KB Home going up as much as it did recently is really just kind of a relief rally because home builders have just been hit really hard. So you've got the higher revenue, higher margins, but lower growth.

I think that's kind of the same story. A lot of the home builders are telling right now. My one disagreement that I have with KB is their guidance. It has me a little worried. So they're guiding for that the average selling price is going to keep moving higher to about $500,000. Right now it's around $490,000. That strikes me as pretty optimistic.

I expect we're going to see a moderation in prices. We're going to see those orders probably continue to come down. And I feel like home builders are probably going to protect margin more than anything else, and they're already facing a lot of pressures on the supply side and the cost side. So I'm a little concerned, but I do think that home builders have just been beaten down so hard, including KB Home, that any kind of decent good news, in other words, housing market's not crashing, good news is going to send their stocks probably higher. Should we be looking for sort of similar guidance from other home builders as well and essentially

compare what they think is going to happen to home prices going forward to what KB Home is saying? I think that'd be smart to do. We're going to see this coming quarter when the home builders report what they say about the average selling prices. I expect a lot of the other home builders like NVR, ADHorton, are going to come out and say, Now, we actually think prices are going to stay roughly flat, maybe even slightly lower over the next fiscal year. So we'll have to see. This week, Kellogg announced plans to split into three separate public companies,

one for breakfast cereal, one for snacks, one for plant-based foods. CEO Steve Callahan is planning to run the snack business. And Jason, I'm already a consumer of both Cheez-It's and Pringle, so I might have to invest my money where my mouth is. Well, I feel like you're probably right there. The Snacks company, to my mind, seems like the more attractive of the three opportunities. I mean, when you look at the overall business, I mean, Kellogg has been relatively stagnant here over the last five years. I mean, compound annual growth rate on the revenue side of 2.1%, which is just nothing really to write home about. Although, I will say, it's had a very good year to date. Stock is actually up and

outperforming the market handily, so that's nice. Of course, I just had very strong feelings on the tickers here, okay? In two ways, the cereal companies ticker better be Pops, P-O-P-S. If not, missed opportunity. And for the love of God, I'm with you on Cheez-It's, I'm going extra toasty. And it feels like it's a perfect opportunity for that Snacks Division ticker to be C-H-ZT. If it's not Cheez-It, color me disappointed. Jason Moser, Matt Argusanger.

Guys, we'll see you later in the show. Up next, we will get the latest on the Metaverse and the Entertainment Industry with Senior journalist Jim Mueller. Stay right here. This is Motley Full Money. Welcome to the jungle. We've got fun and games. We got everything you want, honey. We know the names. We are the people that can find whatever you may need. Welcome back to Motley Full Money. I'm Chris Hill. Earlier this week, the Wall Street Journal reported that Comcast and Alphabet have emerged as the top contenders to work with Netflix on the ad-supported tier of their service. Joining me to discuss that and other parts of the entertainment media landscape is Motley Full Senior

analyst Jim Mueller. Jim, thanks for being here. My pleasure, Chris. How are you doing? Doing well. I want to get your thoughts on Netflix apart from this, but let's start with this story. Is this a lucrative opportunity for whoever wins the right to work with Netflix on advertising? Not right off. Certainly not this year. Probably not next year. It's going to take a little bit because Netflix and whoever wins, Google, Comcast, whoever, need to figure out how to serve the ads, who gets to see the ads, et cetera, et cetera, et cetera. But it could be. It could be. But if Netflix shareholders are thinking this is going to be

the savior of the company, it's going to take a few years for this to really get going. What do you think is a reasonable success metric? What should people be looking for? Because It seems as though Netflix is very focused on launching this in this calendar year. Look for revenue growth, as management said at the end of the call last quarter, at the end of the first quarter call. But for quite a while, Netflix's revenue growth is going to be still subscriber counts. How many subscribers you have? Because remember, anyone who goes to ad base here and is willing to be, you know,

to be served those ads, Netflix is losing money on because they're going to lower the price. And so they have to make that up plus whatever extra they can get per person for that. And so if you're thinking of billions and billions of dollars of revenue from advertising, they're going to have to overcome even more billions of lost revenue because of the drop in the pricing tier. Why do you think Netflix is going the route of partnering with someone? certainly, you know, Google is as experienced at advertising digitally as any business out there. Is it just so that they can launch this sooner?

Because I'm sure there are people within Netflix who are making the argument saying, no, we should build this thing ourselves. You answered your own question. Yes. This is to get it out there quicker. Get someone who knows the advertising business because Hastings and Sarandos and those guys, they do not know advertising at all. They know content, they know subscription, they diddley on advertising. So get somebody who is experienced on that, learn from them. And in comments made today in another Wall Street Journal article, CoS CEO Ted Serandos is quoted

as saying that they're basically they want to end up building their own and iterating and making it their own thing, which means that this partnership is going to be a few years, maybe a decade at most, I think, just from what they were saying. They definitely want to do it themselves. But I think they recognize that in order to start generating more revenue, they need to get in this faster than the two-year timeline they mentioned at the end of the first quarter. What do you think the current state of Netflix is? Is this a stock that looks, certainly it's lower price than it was, say, a year or so ago. And, you know, it's always fascinating to me when there's a business that is the clear leader. Let's be clear about this. All other

subscribing services would love to have the number of subscribers that Netflix has. They're the clear leader in that category, but the stock is really beaten down right now. So you're asking, is it a value play? No, I think it's a value trap at the moment. They're in trouble. They lost two million subscribers this last quarter. They came in two million subscribers light against what they had guided to Wall Street. And when they issued that guidance in January, it was half of what Wall Street was expecting. So they got pounded about that. And they couldn't even make it because of a near 1% churn. And for the current quarter, Q2, which the report in July, middle of July, they guided to

they're guiding to a 2 million subscriber drop. That's the first time they've ever guided in like 16 years. I've been tracking this for 16 years. That's the first time they've ever guided to a subscriber drop. And if they miss on that and the drop is like 3 or 4 million, yeah, you don't want to be buying shares at today's price. That means the virtuous cycle of more subscribers means more revenue, means more spending on great content, which brings in more subscribers.

That's been the driver for the company so far. But now if their subscriber count is actually beginning to go down, you're going to start running that backwards, and that is death to the company. They need to get revenue. That's why they've finally caved on the advertising thing. That's why they're starting to focus on very carefully, so they don't push people away on the sharing issue of passwords and so on.

So, yeah, I think they're reacting to things and in trouble. Sadly. Before investing in it, again, I would like to see them start to solve these problems. And full disclosure, I do not longer own any shares of the company. Earlier this month, there were reports that Netflix might be buying Roku. Certainly, the more recent reports about Comcast and Alphabet probably put all of that to rest. If you're a Roku shareholder, are you disappointed or are you relieved? Yes, Sarandos confirmed that in the same article. We don't need to be. It's a quote. Declining the comment on reports that Netflix could be interested in buying the streaming of Roku. So that was quoting from the Wall Street Journal article. We don't need it.

And frankly, anyone who actually kind of thought about it said, okay, they've got $6 billion of cash on the books. How much are they going to spend to buy Roku and what's it going to give them and how else might they use that money? And remember, they're spending a lot of money on that content. So I don't think the Roku thing was anything more than a rumor. and not even much of one. As a shareholder, Roku, probably kind of relieved. Roku has a pretty solid business by itself. They've just hit a little bit of a rough patch,

and I think shareholders give that management team time to get through it. They should be all right. All right, let's move away from streaming video and into the Metaverse. Meta Platform CEO Mark Zuckerberg said this week, his goal is to have 1 billion people in the Metaverse, each spending hundreds of dollars a year. Let's put aside whether or not you or I think it's going to get to a billion people and how long that will take. I am curious, though, about sort of the commerce part in all of this. When you think about the Metaverse,

do you think there are public companies that are among the likely candidates to either enable e-commerce in the Metaverse or provide the entertainment or services or whatever that people are going to actually spend money on. Oh, sure. Advertising, obviously, and that's what Facebook, I'm sorry, I can't say meta platforms without cracking up. That's obviously what does where Zuckerberg is going with that. But there's so many ways to play the Metaverse.

So you've got advertising, you've got companies like the trade desk that do a good job of placing ads where they do the most good. And they'll learn from the patterns of what people do inside whatever. platform they're on about which ads would serve those people well. And you've got Google, Alphabet, of course, and their expertise of advertising. Then you've got the platforms. I mean, the way a lot of people are talking about it is it's as if the Metaverse is a single thing. It's not. It's scattered all over the place. You've got Facebook's version. You've got Roblox's version. And within that, you've got a whole hundreds, if not thousands of different

little worlds to go explore. You've got live baseball. You've got that that has metaverse. I mean, you see this, what they call statcast, the arc of the ball, the speed of the pitch, the placement. All that is using data from the real world and adding a layer of computer generated imagery and information on top, which is what's called augmented reality, if I've got my terminology right. So you could play into, well, Major League Baseball is not public, but there are companies that collect that data and provide it. Sport radar is probably the biggest player there. So lots of different ways to play it. If I were going to be investing in this long-term trend, I'd want to be willing to sit for at least a decade as it slowly builds out.

I mean, the internet, it took a long time for the internet to really get going. And this, I think, is bigger and requires more of a commitment by people to have some sort of hardware permanently on, if they're going to be in it all the time. That is going to take longer for this to come into a reality for most people. You mentioned live baseball, and that's actually where I want to wrap up, because I know you're a big baseball fan. Apple and Peacock are each paying Major League Baseball $100 million for the rights to stream games. Amazon Prime is doing New York Yankee games on Friday nights. As someone who is a subscriber of Apple Plus, they are pushing the baseball on a regular basis. I'm curious if these are services that you think are going to lure people in.

because the larger trend, obviously, is something that I think we all talked about for a while, and it took a while to get going. But it was this idea that big tech companies like Apple and Amazon would actually start bidding on live sports. There were people back in 2008, 9 and 2010, saying, oh, this is coming. It actually took a little bit longer. But do you think Apple and Peacock sort of dipping their toe? to Major League Baseball's waters. Do you think this is a prelude to larger things? Oh, definitely, definitely. Apple, in addition to that baseball stuff, they're the likely

winner of the NFL Sunday ticket. It just hasn't been announced yet, but that's the speculation, which means they'll have a bunch of American football games on every weekend, starting probably next year. Yeah, I think DirecTV has the contract. through the end of this year. So not only baseball, but sports in general. I mean, I ran across a story while thinking about this, Sinclair, the television network company. They just launched. In fact, it went live this past week. Their regional sports network, Bally Sports, as a independent streaming service to play baseball games for the five baseball teams in that regional sports network. And regional sports meant network.

Like, yes, Yankee, I don't know what the ES stands for, but it's the Yankee one. NESN covers the Boston Red Sox. All these regional sports networks, they're starting to launch their own little subscription services to this. Major League Baseball, of course, has the whole thing except for your regional teams for 150 a year. I finally poninged up. Just to watch some of my Mariners games. So, yeah, this is definitely happening. This is definitely a thing, and you can expect more and more and more of it to come going forward.

Jim Mueller, good luck to your Mariners. Thanks for being here. Thanks. Up next, Jason Moser and Matt Argusinger return. I got 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 and

be solely on what you're here. Welcome back to Motley Full Money. Chris Hill here once again with Jason Moser and Matt Argusinger. Our email address is Podcasts at Fool.com. Got a question from Levi in South Dakota who writes, any updates on the Activision Blizzard buyout? We're saving to build a house, and I'm wondering if this is too risky

to put some of our house savings into for an arbitrage play. Warren Buffett likes it, so does that indicate safety? Thank you for the question, Levi. Let me just review for folks who haven't been following it as closely as we have, back in January, Microsoft announced it would buy Activision Blizzard for $95 a share. The deal is expected to close next year. At the moment, Activision shares are around $77. At the end of April, Warren Buffett said at the Berkshire Hathaway annual meeting that Berkshire

owns 9.5% of Activision Blizzard, and it's because he said, you know, sometimes I'll see an arbitrage deal and I'll do it. And I'm quoting here, it looks like the odds. are in our favor, but absolutely we can lose money on this company, fairly large sums of money, depending on what happened if the deal blows up. So, Matt, we can't give specific, personalized guidance for Levi, but I don't know. I think the fact that Buffett himself is signaling like, yeah, we like our odds, but there's no guarantee. I feel like that in and of itself provides even more guidance.

Right. That's the guidance. These are, these can be dangerous. I forget who said it first, but it's the metaphor of you're picking up pennies in front of a steamroller. In this case, it's a little different, though. The spread is so wide. You got Buffett behind it. I have to say, this is one of those arbitrage plays. Just speaking from my own personal perspective, I own shares of Activision Blizzard, not because of the arbitrage play. I've owned it. I've owned the shares for years. But it's one of those situations where I do think there's probably not as much downside because of the, you said the stock's at 77. Well, that is just.

just slightly above where Activision's been trading the last five years. So I feel like even if the deal falls through, regulatory concerns or what have you, I don't feel like it's a situation where the stock is actually going to plummet. It'll fall, but maybe the downside isn't as sharp as it might be safe for another arbitrage play. So it's, you know, maybe worth a small bet for the average investor. I don't know. Yeah.

Jason, I feel like this is one of those situations. If you're interested, maybe make it a small percentage of your investing dollars. Yeah, I think that's fair. I mean, the old saw goes, if something looks or seems too good to be true, it usually is. It feels like in this case, I'm with Maddie. It does feel like this deal likely happens, and even if it doesn't, I mean, Activision Blizzard on its own is still a good business. So the downside is relatively limited, but you know, you go back to the funds, right? I mean, these funds are for building a house. So this is a big deal. You really, you don't want to put that stuff at risk. So I think it all goes back to just these are the types of situations. Maybe you have a small portion of your portfolio that's dedicated to special situations investing, which is what this would qualify as.

And also remember, there are going to be short-term capital gain taxes here at play, depending on the type of account that you use. But yeah, I tend to agree with that. It feels like the downside in this case is probably somewhat limited. All right, let's get to the stocks on our radar. Our man behind the glass, Dan Boyd is going to hit you with a question. Matt, you're up first. What are you looking at this week?

Chris, I am looking at eBay. eBay, and the tickers EBAY, simple as it comes. This, everyone knows eBay, and it's still an e-commerce powerhouse. I mean, they did $10 billion in annual revenue last year. Still have 147 million active buyers, 17 million active sellers. So it's a huge platform, huge marketplace. And it's just a huge, big-time cash generator. Nearly $1.8 billion in free cash flow over the last 12 months.

They've used a lot of that cash flow to reduce share count by buybacks. They bought back over 50% of the stock over the stock, the last nine years. Trades at a 4P multiple 11. They started paying a dividend in 2019. They've raised that a few times already. I just, you know, I hate disagreeing with the market, but I think eBay is way too cheap right now. Dan, question about eBay? You know it's not too cheap, Chris? All the stuff that I want to buy on eBay. I got to tell you, boys, I do like eBay as a service. It is a wonderful way to get things that are out of print or special or signed or, you know, anything that commemorative or memorabil or whatever. I love the service.

I think that as a stock, if it's super cheap right now, might be a good opportunity because I don't think eBay's going anywhere. There you go, Dan. Jason Moser, what's on your radar? Yeah, keep an eye on Qualcomm, ticker Q-C-O-M. I'm going to have the good fortune next week to interview CFO Akash Pakiwawa. And we'll be talking, hopefully, about a wide range of topics, things like how they're handling the ongoing supply chain issues, Apple's moves to becoming more vertical. They have an ongoing partnership with Microsoft. And, of course, they're ongoing efforts in building out 5G.

But, hey, it's also worth noting they are a founding affiliate of 6G at UT, a program at the University of Texas that is working on the inevitable rollout of 6G in all of its applications. So it should be a very fun and educational interview. and folks probably know I have recommended Qualcomm and both of my services here at the Fool. So I'm especially excited. Dan, question about Qualcomm? Now, Qualcomm seems like one of those stocks from the 90s that has just stuck around for whatever reason. I'm sure that they've been very important in developing technology and stuff in the past. But all I can think of when I think of Qualcomm is like landlines.

Well, Dan, that's not really a question, but I'm going to put it into question form and add it to the interview next week. So thanks for the help. I love the reference to landlines. Dan, of those two, do you have one you want to add to your watch list? You know, Chris, as much as I like the old rotary phone, I think I'm going to have to go with eBay on this one. Again, it's a service that I love. I think it's a great site.

Matt Argusinger, Jason Moser. Guys, thanks so much for being here. Thank you. Thanks, Chris. That's going to do it for this week's Motley Full Money Radio Show. The show is Mixed by Dan Boyd. I'm Chris Hill. Thanks for listening.

We'll see you next time. Thank you.