In this episode of Motley Fool Money, Chris Hill chats with Motley Fool analysts Ron Gross and Jason Moser about the latest headlines from Wall Street. They take a look at some trapped-at-home stocks that are experiencing tailwinds as people stay indoors. They’ve also got a historic announcement in the banking sector. Finally, they share some stocks to put on your watch list and much more.
Chris also chats with Motley Fool’s Certified Financial Planner and Retirement Expert, Robert Brokamp. He talks about the unique situation of the stock market, dividends, and retirement savings.
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on September 11, 2020.
Chris Hill: We’ve got the latest headlines from Wall Street. Retirement expert Robert Brokamp is our guest. And as always, we’ve got a couple of stocks on our radar. But we begin with a few companies that fall under the heading of what I like to call, trapped-at-home stocks, and we’re going to start with Peloton (NASDAQ:PTON).
Shares of the exercise equipment maker up more than 10% this week, after fourth quarter sales rose 172%. Earlier in the week, Peloton announced changes to its product lineup. Jason, they are cutting the price of their core exercise bike, they’re adding a more expensive version, they’re also adding a cheaper treadmill.
Jason Moser: Yeah, this was a really impressive quarter on a lot of fronts. And I think a lot of us were at least a little bit skeptical when Peloton first came public, I know I was. Exercise, it is kind of a difficult market to achieve some real sustainability, but let’s also acknowledge at least here the role that “luck,” for lack of a better word, has played in this. The pandemic has pulled forward a lot of business for a number of companies, right, that’s, you know, one of those little silver linings. And by no means am I saying that a pandemic is a good thing, but there’s no question that there are businesses out there that are benefiting from it and Peloton is clearly one.
And I think they’re actually doing a very good job of taking that fortuitous timing and then really running with the ball. I mean, if you look at the numbers, 3.1 million total members now, paid subscribers continue to grow at a very impressive rate, revenues up 172%. I mean, it’s not Zoom, but let’s give them some [laughs] credit there, right? Retention rate of 92%; that means that people are sticking around. Which I think was one of the bigger questions that a lot of us have, guiding for 218% revenue growth for the current quarter and 96% revenue growth for the year. And that all boils down to those members coming and growing those paid memberships. And then those members are doing more with it, 24.7 average monthly workouts per connected fitness subscription versus 12 in the same period last year, so people have a little bit more time on their hands, it seems like they’re doing some productive stuff with it.
And I think that, to your point about bringing the pricing down on some of those machines, some of that equipment, it’s probably easy in the near-term to think that’s a margin negative, but I think in the long-run it’s going to help them bring that product out to more people. And I think the big question really is just, when we get back to normal, do people still want this stuff? Are people ready to go back out to a gym or are people very happy just working out of home? I mean, that’s the question, I don’t know the answer yet, but it certainly seems like they’re doing a wonderful job of getting that installed base.
Ron Gross: Yeah, that that was going to be my question, J. You know the old joke of how eventually all exercise equipment just is a place for you to throw your clothes. And are we going to revert to the mean at some point here when things get back to normal? I got to believe, if we don’t revert back to the mean, we revert somewhere closer to the mean than we are right now. People will go back to the gyms and people will get sick of their Peloton, just like they get sick of their elliptical and their treadmill. So, that just speaks to extrapolating growth into the future and just being careful not to say that this is going to continue at these rates even for the foreseeable future, let alone in the longer term.
Moser: Yeah. I think that’s just the thing that we’ve seen with so many of these companies over the last six months or so, it’s not that they’re not doing well, they’re doing well, but they’re really pulling forward a lot of success. And the market is recognizing that today, but then you have to, sort of, think about what does the market think about that two years from now, three years from now? If all of that success was pulled forward, then they’re kind of flatlining over a couple of years or something. So, it’s always worth keeping that in mind.
Gross: And that’s not to take away from the fact that they’ve done a wonderful job. I mean, some of these instructors have a cult following, people really claim they just can’t do without their workout with Jenn Sherman, whoever it may be, on the network. I don’t know why I can’t just use my old stationary bike downstairs and subscribe to one of these services. I guess my bike is too old and not good enough. But if I wanted to be cheap, I guess I could go that route.
Hill: Shares of RH Holdings (NYSE:RH) hitting an all-time high this week. Second quarter profits for the company, formerly known as Restoration Hardware, came in much higher than expected. And, Ron, apparently people are not afraid to pay up for luxury furniture when they’re trapped in their homes.
Gross: Yes, as Gary Friedman said, luxury brands generate luxury margins. Deliveries were held back because of COVID a bit, but the number to look at is total company demand up 16%, which is very strong. They were negatively impacted a bit by a 23% reduction in open store days. Obviously, the hospitality industry was kind of weak as we all know, but adjusted earnings up 53%. Free cash flow doubled to $218 million. They do see some elevated spending on the home will continue to influence demand and the company sees continued good things ahead.
Hill: It’s pretty amazing the run for this company has been, essentially 5X, if you go back to the bottom for the year. It’s still not that big a company, Ron. Do you think, at $8 billion market cap right now, do you think someone is looking to make this an acquisition or do you think Restoration Hardware management is like, you know what, we’re doing just fine on our own?
Gross: I think for now, Gary Friedman really likes what they’re doing and how they’re executing. And as he said, he doesn’t see this as necessarily temporary, as we were kind of saying maybe some of the Peloton demand is. Now, certainly some may be, but he sees booming real estate activity and second homes continuing, accelerated shift from urban to suburban helping, uptick in homebuilding will drive increased spending. So, they see this as a long-term play here. They’re executing very well. Some folks might remember that over the years they really changed their business model quite a bit to galleries and membership and loyalty, and it’s worked out quite a bit, quite well. One question he asked himself was, in this age of online shopping will it be OK to focus on galleries and stores and that home experience? And he answered the question by saying, yes, he continues to think in the longer term that the in-store buying experience will be the majority of the revenue.
Hill: Not everything was sunshine and rainbows for the trapped-at-home stocks, second quarter revenue for Slack came in higher than expected, but growth is slowing, Jason, and Slack down more than 10% this week.
Moser: Yeah. So, I was saying this a little bit earlier this week. It kind of feels to me, and I think Slack is still a little bit younger right now. It just feels like a Twitter story unfolding here, one where we saw all of this potential at one time and then you kind of look back and it just kind of resulted in mediocrity and not really as much as it possibly could have been. Maybe I’m wrong, I think from the user perspective they certainly have a lot of work to do. But it wasn’t a bad quarter, it was just one of those quarters that makes you ask, is this it? I mean, given the situation, we’re seeing a lot of companies really benefiting from this new stay-at-home, work-at-home economy. And Slack is benefiting to a degree, but not as much as some of its counterparts in the industry.
Microsoft Teams is obviously going to play a lot into this, whether folks want to admit that or not. But while revenue growth is slowing down, it’s speeding up for other businesses; and that’s something that you have to keep in mind here. The net dollar retention rate was down at 125% from 136% a year ago. Now, they noted that that was due to customers downsizing, freezing in hiring, or hiring more slowly. And it’s absolutely understandable. You just kind of ask yourself, do they get that back or are there businesses that are rightsizing what they do with Slack and paying a little bit less in the process? And if they are doing that, is that going to be what they are doing going forward? You look at the revenue growth guidance for quarter three at 32% and not really all that impressive considering 38% for the year. Eh! OK! But again, you look at some other players in the space that are really chalking up some more impressive numbers. So, I kind of feel like the market has got this one right thus far. It’s a good decent product, relatively OK business, so I can see potential there. But maybe it’s not going to be as impactful as some of the other companies in the space.
Hill: Citigroup (NYSE:C) made history this week, longtime CEO, Michael Corbat, will leave the corner office next February. Taking his place is Jane Fraser. This makes Fraser the first female CEO of a major U.S. bank. And Ron, I was not aware of Jane Fraser before this week, but reading about her, looking at her experience, Citi shareholders have got to feel good about this hire.
Gross: It’s about time. I love this move. She is eminently qualified. She runs their consumer bank; really the largest part of Citi right now. She’s run their Latin American business before. Expertise over at McKinsey for a while. Went to Harvard. Has been with Citi since 2004. She knows the landscape. Knows the industry. I think this is a great move. You know, women accounted for 26% of all senior U.S. financial service executives in 2019, and that is an increase of 6% from 2016, but we got a long way to go. This is a great first step. She’s not going to have any colleagues at the other banks to join her quite yet that are female, but I think this will open it up and we’ll likely see more of that. She’s got her work cut out for her, Citi hasn’t done great under Corbat, stock is down 36% this year. It’s the country’s third largest bank. They do have some work to do. As a former New Yorker, Citibank is still my bank, so I’m rooting for them. But I really like this move.
Hill: Actually, I think that’s one more reason Citi shareholders should feel good about this. I mean, not that Corbat was a bad CEO, but the stock performance the eight years he was in the corner office, I mean, it’s basically up 40%. She doesn’t have the toughest act in the world to follow, from the stock perspective.
Gross: Correct. JPMorgan up 140% during that period of time. Bank of America up 150% during that period of time. She gets to start from a low base, which is not a bad place to start, I guess.
Hill: Shares of Lululemon Athletica (NASDAQ:LULU) down this week despite second quarter profits and revenue coming in higher than expected. And Ron, digital sales were up more than 150%!
Gross: Not too shabby, right? The stock is up 490% over the last five years, just executing wonderfully. I mean, what are they going to do this quarter, sales increased to 2%, not too shabby considering most of the stores were closed to shopper traffic for several weeks during the period. Comp sales down 51%; again, what do you expect? The number you mentioned is the big number, e-commerce up 155%, that’s a big number, they’ve done well there. That now accounts for 64% of sales as compared to 54% last year, or I should say in the fiscal first quarter. So, not too bad.
COVID expenses, inefficiencies hurt margins, adjusted earnings per share were down 23%; again, not surprising. No big inventory writedowns here, but I think that is something we should keep an eye on. They may have to be promotional to get some stuff out the door, we’ll see if they take a writedown. They are cautiously optimistic about the holiday season, but they think profits are going to be hurt because they’re going to create their marketing spend.
If you recall their acquiring the Mirror, the at-home fitness company they’re acquiring for $500 million, they’re going to put some marketing spend behind that. They’re going to open 70 seasonal stores in key centers for the holiday season. So, all-in-all, I think their business will get back on track; there’s nothing much you can do when COVID closes your stores.
Hill: Yeah, the Mirror acquisition is going to be fascinating to watch how that plays out. Second quarter revenue for Chewy came in higher than expected. The online pet retailer posted a smaller loss in the quarter than Wall Street was expecting, but shares of Chewy still down on Friday. Jason, help me out here, isn’t this the kind of improving financial picture that Wall Street would want to see?
Moser: Yes. But you know, Chris, we always say, the market can remain irrational a lot longer than we can remain solvent. You know, sometimes there’s maybe a little bit of profit-taking or whatever that may be. And perhaps that’s what is going on with Chewy this time around. Because by all measures, it really was another good quarter; much like Peloton, Chewy is really taking the cards we’ve been dealt and running with them.
The first quarter sales grew 47% to $1.7 billion. Autoship customer sales were $1.16 billion, representing almost 70% of net sales. And you know what, hey, listen, I got one of those Autoship boxes on my front porch this week, Chris. This was interesting I thought; in the call they noted they were able to add more than twice as many net active customers on a year-over-year basis with only, with just 11% more marketing spend. So, they’re doing a really good job of getting more customers in without having to spend as much for them, and they’re keeping those customers. So, they ended the quarter with 16.6 million active customers; that was up 4.6 million from the second quarter a year ago. Net sales per active customer $356; that was 3.2% growth after adjusting for an extra week the prior year.
But it all boils down to a business that continues to grow its topline very nicely. Customer acquisition costs are coming down, margins are going up. They’re going to build some more fulfillment centers to bring the cost of getting stuff from point A. to point B. down. And again, that pet market, you know, we love it, it’s very resilient, and I suspect that they are on the path toward meaningful profitability, and I think, a really attractive business.
Hill: Second quarter revenue for Dave & Buster’s (NASDAQ:PLAY) fell 85% compared to a year ago. Let me say that again, Ron. Second quarter revenue fell 85%!
Gross: It’s a tough business to be in during this time, Chris. I mean, as of March 20th, all of the company’s stores were temporarily closed. The quarter ended with 84 reopened; that’s out of 115. As of now, basically they’ve got 89 open, so they’ve still got a way to go. They’re all operating under reduced hours, capacity limitations; you got to spread people out to play the games. So, that results in the business getting crushed. Revenue, as you said, down 85%. Comp sales, similar, down 87%. They lost around $60 million for the quarter. Looking at the balance sheet, they did end with $224 million in cash. They raised $110 million through an equity offering in May, which was probably a smart thing to do, you know, assuming that they were able to get it done, and they were.
Cash burn means the cash that they’re really out the door with every week, is around $3 million, $3.3 million. That’s actually, in my mind, not that bad; it could be a lot worse. They’ve managed to lower their breakeven sales level considerably by taking costs out of the business; and obviously, you know, when you’re closed, your cost goes down just “naturally,” for lack of a better word. I think what investors are probably focusing on is that on the call management said 61 of 84 reopened stores are generating positive store-level EBITDA; that’s positive store-level cash flow for the month of August. So, that is a positive indicator. And especially if you believe things will only get better from here. So, now they were forecasting, they will open the remaining stores before the end of December. So, if you’re a lover of the Dave & Buster’s model and you think that things will get back to normal sometime in 2021, maybe not too bad a stock to pick up at $16/share, but there’s some risk here for sure.
Hill: Kroger‘s (NYSE:KR) second quarter profits and revenue came in higher than expected, but shares of Kroger still down a bit for the week. Jason, Kroger stock is positive for the year, but we haven’t really heard the same types of things out of Kroger that we’ve heard out of, say, the grocery divisions of Walmart and Target.
Moser: Yeah, perhaps. Certainly, Walmart having the grocery presence that they have, that’s a massive competitive advantage. I mean, groceries aren’t sexy, Chris, but it’s a very big market, and Kroger is certainly holding their own. And like you said, the stock has had a good year-to-date so far. And I think that’s because of the results that they chalked up this quarter. As an example, comps, excluding fuel, were up almost 15%; total revenue was up 14%, excluding fuel. Again, digital sales, up 127%. This is a business that’s been able to pivot; and that’s obviously a very good thing. Gross margin held steady, just under 23%. And inventory was down just modestly. So, they’re really able to keep supplying their customers, and that’s what really matters in the grocery business.
So, you’ve got a company that’s buying back a few shares and growing its dividend; I can think of worse ways to play the grocery space, to be honest.
Hill: All right. Jason Moser, Ron Gross, guys, we will see you later in the show. Joining me is The Motley Fool’s resident expert on retirement, Certified Financial Planner, Robert Brokamp. Good to see you, my friend.
Robert Brokamp: So great to be here, Chris.
Hill: A few things I want to get to, but let’s look back just a week or so. August was a record month for the stock market, and I feel like any time [laughs] a record is set in the world of investing, a pause button needs to be hit. Do you look at something like record month for the market in August, do you look at that as the time for investors to essentially hit the pause button and reevaluate what they have in their portfolio?
Brokamp: Yeah, absolutely right. So, just to summarize it. In August, for the S&P 500, it was its best August since 1986 for the Dow, it’s its best August since ’84 for the Nasdaq, it was its best for 2000. But really what’s notable is that was the fifth month of a great five months. So, from April to August, the stock market made money each and every month, which is not that usual. And that return for the S&P 500 over that period, 38%, was its best five-month return since 1938 according to the Bespoke Investment Group.
Generally, that’s good news, because according to Ryan Detrick of LPL Financial, when you have the market making money in five subsequent months, then generally, the market is higher 12 months after those five months. So, that’s pretty good news. That said, we are in a situation, it’s very unique, right? So, right now the stock market is higher than it was at the end of 2019, but earnings are way down. I mean, the consensus is that the earnings from the companies in the S&P 500 won’t get back to where they were at the end of 2019 until the second half of 2021. So, you have a situation where stock prices are up, but earnings are down, that basically means much, much higher valuation. And I think it was summed up pretty well by a Wall Street Journal article published late last month entitled, The Median S&P Stock Has Never Been More Expensive.
And that’s the part that makes me nervous. If you’re a long-term investor, if you have a high-risk tolerance, you don’t need the money in the next 10, 20 years. Who cares, no big deal. But if you are closing in on retirement or if you’re retired, if you have money that you were saving for college and your kids are in high school, in those situations I think it does make sense to think, you know, maybe at this point I should look at my asset allocation and decide whether I should take a little off the table? You can do that by actually selling or you can do it with your contributions and withdrawals. So, if you’re contributing to your 401(k), you think you have enough stock exposure, maybe just have those future contributions go into cash or bonds. Or with your dividends, if you’ve been reinvesting your dividends, maybe turn that off and let it accumulate as cash for a little while.
Hill: I thought of you earlier this week when I saw the story about ExxonMobil. How financially challenged that business is at the moment, to the point where reportedly ExxonMobil is [laughs] thinking about cutting their dividend, which has been as sacred a dividend payment as there has been in the stock market. I know you are a big fan of dividend aristocrats, because while they are not the most exciting businesses out there. And these are, you know, Lowe’s, Target, Medtronic, Procter & Gamble. They got smart people working there, but you know, not the most exciting businesses, but in terms of investing, you really like this group.
Brokamp: I do. So, everyone understands what the aristocrats are. They’re the companies in the S&P 500 that have been growing their dividend every year for 25 years. There are 65 of them, 29 of which have been growing their dividends for more than 50 years, and they’re kind of known as the dividend kings. The index itself is equally weighted, quarterly rebalanced, so it never becomes highly concentrated into the big five to 10 names. And no single sector can exceed 30% of the index. And these days, it’s heavily weighted toward industrials, consumer staples, and materials. These really are, kind of, your boring companies, but as a group it yields 2.7%, maybe not as high as you would hope, but it’s still higher than the current yield on the S&P 500, which is just around 1.7%. And again, these companies have a history of growing their dividend every year.
Hill: This week, I also learned about National 401(k) Day. I learned that it existed, I never really heard of it before. But help explain this to me, this is held the first Friday after Labor Day. Before we get into 401(k)s, what is the rationale behind the timing of that?
Brokamp: So, you have to go back in history. Like the big honking law that governs all retirement accounts, or at least the qualified ones, like, 401(k)s and IRAs, it’s actually the Employee Retirement Income Security Act of 1974. It was signed into law by President Gerald Ford on Labor Day 1974. Interestingly, 401(k)s actually didn’t exist at that point, they didn’t come around until a 1978 law that didn’t take effect until 1980. And even then, the point of the law wasn’t to create this account that would be the No. 1 way people save for retirement. It did have some ways for people to defer their income in a tax advantaged way. A benefits consultant named Ted Benna looked at this, and thought, I think I’m onto something here, I think there’s a way to really ramp up tax advantaged savings. At first, a lot of people actually thought that it was a tax loophole that would be closed, but instead, eventually it got the blessing of the IRS and then it took off from there.
So, the reason why we have 401(k) Day on Friday. The idea is, and this is to quote the group that started this, the Plan Sponsor Council of America. The concept is, you start the week with labor and you end the week with retirement.
Hill: I know there are people who are concerned about the commercialization of holidays, and you know, Halloween getting promoted in August. But I think we’re really going to be off the deep end if I start saying National 401(k) Day decorations at Target. On a more serious note …
Brokamp: As the retirement guru here at The Fool, I am all for it. Let me just say that, and if you want to do it, if you want that stuff to start coming out two months before 401(k) Day, I’m all for it.
Hill: On a more serious note, what is the state of 401(k)s right now in America?
Brokamp: So, it’s interesting. So, one of the biggest 401(k) providers is Fidelity. And every quarter Fidelity provides a report that basically is the general statistics on all the 401(k)s and IRAs that they’re in charge of. So, the most recent report is based on the end of the second quarter, that’s the end of June. Of course, the stock market is up about 10% since then and people have been contributing to their accounts. But to give you a general idea, the average 401(k) balance at the end of June was $104,000; that’s up from $91,000 after the first quarter, which is when the market, you know, dropped, still down a little bit from a year ago in the second quarter of 2019. But generally speaking, people are doing very well. Savings rates are up. The average person is saving over 13%, that is a contribution of what they’re contributing as well as what the employer is putting in. Less than 1% of people stopped saving for retirement, and 9% actually increased their savings, and only 12% of companies cut their match. By the way, one of them is Exxon, because they are trying to protect [laughs] that dividend, they actually will stop matching contributions for their employees’ 401(k).
So generally speaking, people are doing very well. And I know when people hear 401(k) balances. They think, well, 401(k) balances are really dictated by, partially, how long you’ve been working at a company as well as how much you’re making. So, I actually asked Fidelity to provide a little bit more color to this, so they provided some numbers based on generation. For people who’ve been contributing to the same plan with the same company for 15 years: Millennials, $196,000; Gen-X, $375,000; boomers, $447,000.
So, looking at these people, things are going pretty well. The thing I will say is, these days we hear a lot about the letter shape of the economy; V-shaped, W-shaped, now you hear more K-shape, where some people are doing well, some people aren’t. And I think you’re going to find that too with retirement savings. People who have a 401(k) with Fidelity probably with a big stable company, they’re probably doing pretty well. About half of the people in the country don’t have, half of the workers don’t have access to an employer sponsored retirement plan, I bet those people aren’t doing so well because they don’t have that plan, plus they are more likely to be in these lower income jobs that are seeing much higher unemployment rates.
Hill: You wrote something recently that maybe do a little bit of a double-take. It was something you wrote about how to make the most of what you called, your most important money making asset. And it seemed obvious once I actually read it, but I will admit a lightbulb [laughs] went off in my head when it was revealed, like, oh, it’s your paycheck. [laughs] It’s like, oh, yeah, I guess, that is. I don’t want to go through it point-by-point, but what are a couple of ways that people can make the most of this?
Brokamp: Yeah, it’s really important, because you know, we’re all saving for retirement. And that basically is the point in your life when your portfolio replaces your paycheck. But it starts with the paycheck and then, of course, you have to save and invest a portion of that paycheck. And it’s really in financial economic circles, this is known as your human capital, your unique mix of intelligence, education, skills, work ethics, social skills, that basically translate into you being able to get a job, keep a job, and keep earning money for doing that job. So, I just laid out several principles that I think contribute to someone enhancing their human capital. And I think the No. 1 thing is to be the CEO of “You, Inc.” like, no matter what job you have, you have to think of yourself as a self-employed entrepreneur, even people who get, like, a regular steady paycheck. They’re in the business of regularly demonstrating to their colleagues and their managers that their services are worth paying for. Something my dad told me when I was younger is, always do more than is asked of you, that way your bosses will feel like they’re getting a great deal.
Hill: Well, and one of the things you point out, and this was news to me, you talk about the importance of maintaining your physical health. What surprised me [laughs] was the stat you had in there that poor health is the No. 1 people retire sooner than they had planned.
Brokamp: Yeah. So, as we know, a lot of people are behind in their retirement savings. And the standard advice is, well, you just work longer. But the truth of the matter is, almost over 50% of people in their 50s, who are in a long-term job, lose that job. They may get laid off, but the No. 1 reason is health reasons. And when people do lose their job in their 50s, only 10% get a job where they got the same income that they were earning beforehand. So, enhancing your human capital is important, but you do have to be healthy enough to do your job, to be able to work, and it’s about a third of people don’t work as long as they hoped to because of their own health issues or it could be the health issues of a spouse or parents. Basically, they had to quit their job to take care of a family member.
Hill: If you want to hear more from Robert Brokamp, subscribe to Motley Fool Answers. It is free to subscribe. It is a weekly podcast that Robert and Alison Southwick do every week. He’s a Certified Financial Planner, he’s the Resident Retirement Expert, and he’s really pushing hard for decorations on National 401(k) Day.
Chris Hill here once again with Jason Moser and Ron Gross. Guys, before we get to the stocks on our radar, let’s dip into The Fool mailbag. Radio@Fool.com is our email address. That’s Radio@Fool.com.
Question from Natalie in Arizona, she writes, “We’ve heard from a lot of different CEOs trying to lead their companies through this pandemic. Who is a CEO you think more highly of today than you did at the beginning of the year?”
It’s a great question. Jason, let me start with you.
Moser: Yeah, I was very fond of Dan Schulman of PayPal before [laughs] 2020 started, but going through this, not only from just a human perspective, but also from a CEO leadership perspective. I mean, he’s done a remarkable job, I think, of displaying empathy, and yet also communicating that this is a point in time for PayPal, the business, where they are going to strike and strike hard, and really play offense and gain market share as we move more of our finances online, and rely on the electronic movement of money.
So, to me, Dan Schulman has just been — it’s been a really, really good thing to watch.
Gross: I’ve been so impressed with Kevin Johnson over at Starbucks. Obviously, being at the helm since round 2017, followed Howard Schultz’s tough act to follow. I’m just very, very impressed with how he’s handled the situation, shifting that business, closing 400 stores, moving to pick up. I’m mostly impressed with his honesty, his transparency. If you ever watch him in an interview, he tells it like it is, it’s no bull, he explains it very well and you can trust him. It’s very, very impressive. For that reason alone, I think Starbucks is a wonderful company to own; and if you like the business model and coffee, even better.
Hill: Yeah, I think about the major retailers, Home Depot and Lowe’s I would say to a lesser extent, just because they’re more niche than Walmart and Target. But I think about Brian Cornell at Target, Doug McMillon at Walmart, sort of combining elements of what both of you said, being very smart, being very tactical from a business standpoint that as shareholders you like to see, because it benefits the business. But also, being very straightforward about the costs going up, the money they’re spending on safety, the money they’re spending to keep customers and employees safe. It’s really great to see.
With that, let’s get to the stocks on our radar. We’ll bring in our man behind the glass, Dan Boyd, to hit you with a question. Ron Gross, you’re up first, what are you looking at this week?
Moser: I’m going to go back to Editas, EDIT. It’s one of the eight biotech stocks in my biotech basket that I’ve talked about before. Editas and my basket is largely focused on the gene editing sector of the biotech market. A couple of interesting updates from Editas over the last two weeks. They’re focused on the CRISPR Cas9 gene editing technology. The FDA has granted Rare Pediatric Disease designation to its EDIT-301 medicine, which hopefully, down the road, is going to be a cure for sickle cell disease. So, to get that designation, that will help with expediting marketing approval down the road.
More recently, they received a favorable ruling in a really long outstanding patent fight over the CRISPR technology, still a long way to go, but this one little nugget gets them closer to where they need to be from a patent perspective. So, I’m still a bull on gene editing technology. I’m a bull on doing it in the basket approach, spread out your risk, these stocks are definitely not for those who can’t stand volatility.
Hill: Dan, question about Editas?
Dan Boyd: Yeah. When we talk about gene editing, we’re talking about editing human genes, right, not like lettuce genes to have more calcium or something?
Gross: Well, the technology can actually be used in a myriad of ways. But yes, the ultimate goal is to change the future of medicine on humans, yes. [laughs]
Hill: Jason Moser, what are you looking at?
Moser: Yeah, digging more into a company called Synaptics, ticker is SYNA. Synaptics is the provider of custom-designed semiconductor solutions, focused primarily on haptics and touch, but they pursue core markets in Internet-of-Things applications, including edge computing and high-speed video interface automotive as well as mobile and PC products. And ultimately, it is just about enhancing the user experience through its ways of doing things. And again, focused on the touch there, and that’s because they are responsible for a lot of those trackpads that you’ll see on your laptops or the touch screens that you’ll see on tablets and phones. And they’re even actually a play in the immersive technology market as well, and those head-mounted displays. But they generate revenue by selling the technology, whether it’s chips or firmware software to some of the world’s largest OEMs. And you’re talking about companies like Qualcomm, and Google, [Alphabet] and Microsoft, among others.
So, small-cap company, nice balance sheet, fairly new leadership and they’re trying to refocus the business and enhance profitability. And it’s one that I’ve been digging into lately for our Augmented Reality and Beyond service.
Hill: Dan, question about Synaptics?
Boyd: Yeah, I’m really glad both of you guys brought companies I’ve heard of to the show today. Thank you very much. You mentioned this word “haptics,” Jason, what is haptics?
Moser: Yeah. So, haptics, essentially, it’s the sense of touch. So, say, if you’re gaming, for example, and that controller that you’re holding, you’re driving the car, hitting the ball, and you feel that vibration of an impact, haptic technology is that touch technology.
Hill: What do you want to add to your watchlist, Dan?
Boyd: I’m all about haptics, I guess. So, I’ll go with Synaptics.
Gross: [laughs] I guess.
Hill: [laughs] All right, guys, we’re out of time. That’s going to do it for this week’s show. Thanks for listening, we’ll see you next week.