Podcast Summary
Strong Economic Growth in February: 249k jobs added, 4.9% unemployment, strong economy dispels recession narrative, low unemployment, affordable gas, record-breaking home prices, rising stock market due to strong economy and Fed's actions
The February jobs report showed strong economic growth with nearly 250,000 jobs added and the unemployment rate holding steady at 4.9%. This report dispels the false narrative of a struggling economy, as compared to seven years ago when we were in a deep recession with high unemployment, high gas prices, crashing housing prices, and a struggling stock market. Today, the economy is strong and resilient, with low unemployment, affordable gas prices, and record-breaking home prices. Additionally, the Fed's hesitance to raise interest rates contributes to a rising stock market. The strong economy and the Fed's actions are leading to a thriving stock market. It's important to recognize and celebrate these economic successes in the political discourse. The Think Fast, Talk Smart podcast, available every Tuesday, can help individuals develop strong communication skills to succeed in business and life.
Jobs report revisions can provide more accurate insights: Despite initial numbers, revisions to jobs reports can offer clearer economic indicators. Current economy favors investors due to low inflation, wage growth, and interest rates. Challenges remain for businesses adapting to changing consumer behaviors.
While the initial jobs report numbers can be important, the revisions that follow are often more telling and potentially more accurate. The economy is currently experiencing low inflation, subdued wage growth, and historically low interest rates, making it a favorable time for investors. However, the jobs report is not infallible, and revisions are a common occurrence. Costco, for example, recently reported positive same-store sales for the first time in a year but lower-than-expected second-quarter profits. The company's future success may depend on its ability to expand internationally and adapt to changing consumer preferences, such as the rise of online shopping. Overall, the economy's current state is favorable for those employed, but challenges remain for businesses looking to grow and adapt to changing consumer behaviors.
Growth prospects and valuation multiples of certain companies under scrutiny: Investors are closely examining companies in retail and tech sectors for growth potential and valuation, with concerns about Costco's earnings multiples and Valeant's accounting practices causing stock fluctuations, while Hewlett Packard Enterprise's growth in data center market contrasts Hewlett Packard Inc.'s declining revenue and low PE multiple.
Investors are closely watching the growth prospects and valuation multiples of certain companies, particularly those in the retail and technology sectors. The speakers expressed concerns about the potential for decreasing earnings multiples for Costco, which currently makes up a large portion of their investment portfolio, and discussed the resilience of the company despite economic changes. They also compared the valuation of Hewlett Packard Enterprise and Hewlett Packard Inc., with the former seeing growth in the data center market and the latter struggling with declining revenue and a low PE multiple. Additionally, Valeant Pharmaceuticals faced scrutiny due to SEC investigations into their accounting practices, causing a significant drop in their stock price. Overall, the speakers emphasized the importance of understanding the growth potential and market conditions for companies in their investment portfolios.
Investing in questionable companies: Proceed with caution: Be wary of companies that heavily rely on acquisitions and have questionable accounting practices or leadership issues. Potential risks may outweigh attractive stock prices.
When it comes to investing in companies with questionable accounting practices and leadership issues, it's important to be cautious, especially if the business model relies heavily on acquisitions. The speaker emphasized that there are enough red flags surrounding Valiant, a business that grows via acquisition, for him to avoid it. Even though the stock price may seem attractive after a significant decline, the speaker advises investors to dig deep and consider the potential risks. Additionally, the speaker shared the bizarre story of Aubrey McClendon, the former CEO of Chesapeake Energy, who was indicted for conspiring to rig bids and died in a car accident just a day later. The speaker reminded listeners that it's crucial to avoid investments that could potentially end up in the headlines for negative reasons.
Struggles in the office supply industry due to changing consumer behaviors and corporate governance issues: Companies in the office supply industry face challenges from declining sales of traditional products due to online purchasing and ethical lapses in leadership.
The struggles in the office supply industry, specifically for Staples, can be attributed to changing consumer behaviors and corporate governance issues. The industry's reliance on traditional products like computers, printers, and printer paper is declining as consumers shift to online purchasing. Additionally, the failure of some corporate leaders, like Staples' former CEO, to recognize the changing market and maintain ethical business practices can lead to significant problems. The industry's consolidation through mergers, such as Staples and Office Depot's attempted merger, may not save businesses if there's a lack of competition and innovation. Furthermore, Ambarella's earnings decline was not as severe as initially reported due to a one-time write-down. Overall, these companies must adapt to changing markets and prioritize ethical business practices to remain competitive.
Performance of fashion apparel stocks and GoPro's inventory issues impacting suppliers: Investing in individual fashion apparel stocks can be volatile. Focus on valuations, and be prepared to sell when returns are good. GoPro's inventory struggles impacted Amberbell, but IP security cameras, drones, and automotive cameras show promise. The fashion industry is cyclical and high valuations may indicate it's time to sell.
The performance of individual stocks in the fashion apparel industry can be highly volatile and timing is crucial for investors. Amberbell, a supplier to GoPro, is facing challenges due to GoPro's inventory issues and the need for other markets to pick up the slack. The IP security camera, drone, and automotive camera markets show promise, but investors will need to watch their growth and margins closely. Kate Spade had a strong holiday season with same store sales up 14%, but the industry is tough and investors should focus on valuations and be prepared to sell when they feel they've gotten a good return. The fashion apparel industry is more cyclical than many realize, and high valuations can mean it's time to sell. In other news, a London man legally changed his name to Bacon Double Cheeseburger, reminding us that our fascination with food knows no borders. If I had to change my name to something food related, I'd consider Hospitaliano, a nod to my love for Olive Garden.
Japan's Improving Economy and Corporate Governance: Japan's stock market performed well in 2015 due to inflation efforts, consumer and electronics industries show promise, negative interest rates are a reality, and improving governance makes it an attractive market for investors.
Japan, despite its long history of corporate governance issues and a stagnant stock market due to a deflated bubble in the late 1980s and early 1990s, is showing signs of improvement. Bill Mann, the portfolio manager at Motley Fool Funds, who is currently in Tokyo for an investment conference, reports that the Japanese stock market was one of the best performing in 2015 due to the country's efforts to stimulate inflation. Consumer companies and the electronics industry, in particular, are showing promise for investors. Additionally, the negative interest rate environment, which was once considered theoretical, is now a reality in Japan. While there are opportunities in the Japanese market, it's important for investors to do their due diligence and carefully consider the risks involved. Overall, Japan's improving corporate governance and economic policies make it an intriguing market for investors looking for opportunities outside of the US and Europe.
Challenges for foreign investors in the Chinese market: Foreign investors face difficulties in finding Chinese companies with strong corporate governance and desirable valuations, due to the political nature of many large companies and lack of prioritization of minority shareholders' rights.
While the company Sanrio, which owns popular characters like Hello Kitty, presents a potential investment opportunity due to its diverse portfolio of licensed characters, the Chinese market as a whole remains challenging for foreign investors due to a lack of corporate governance culture that prioritizes minority shareholders' rights. Bill Mann, a portfolio manager at Motley Fool Funds, expressed his concerns about investing in Chinese stocks, citing the political nature of many large companies and the difficulty of finding small companies with desirable valuations, good management teams, and strong corporate governance. Despite the U.S. market's downturn in 2016, Mann sees opportunities for value investors in the U.S. market.
2015 US stock market performance misled by tech giants' outsized returns: The market's focus on large tech companies masked the poor performance of many mid and small cap stocks in 2015. Trust and respect within investment teams are crucial for making informed decisions.
The US stock market performance in 2015 was misleading due to the outsized contributions of a few large companies, particularly in the tech sector, to the overall index returns. This hid the poor performance of many mid and small cap companies. Warren Buffett's recent annual letter highlighted the underperformance of some of Berkshire Hathaway's long-term holdings, including IBM, and the lack of agreement between Buffett and his right-hand man Charlie Munger on IBM's prospects underscores the importance of trust and respect within their investment team. Meanwhile, the market volatility presented opportunities in small and mid cap companies, which have been attracting investors. Despite the disagreement on IBM, Buffett and Munger's continued trust in each other is a testament to their successful investment culture.
Learning from Debates between Investors: Choose an investor for casual, open discussions, start researching a company and industry, and continuously update understanding
Healthy debate and differing opinions between investors like Warren Buffett and Charlie Munger can lead to valuable insights. When given the choice between spending an hour with one of them, the speaker recommends choosing Charlie Munger at a bar, suggesting a more casual and potentially more open setting for discussion. Regarding researching a company before buying the stock, the speakers recommend starting by identifying a stock on your radar and researching both the company and the industry. They suggest looking at financial statements, reading annual reports, and following industry trends. Additionally, listening to podcasts, reading news articles, and engaging in discussions with other investors can provide valuable perspectives. It's important to remember that research is an ongoing process and to continually update your understanding of the company and the industry.
Exploring Growth Opportunities in Marriott, Disney, and Zillow: Marriott's acquisition of Starwood, focus on managing hotels, and strong revenue per available room indicate growth potential. Disney's fees from cable networks and popular live sports offset cord cutting concerns. Zillow's promising spring home buying season and CEO's growth focus make it an attractive investment.
Traditional hotel companies like Marriott (MAR) still have opportunities for growth, especially with the recent acquisition of Starwood, creating the world's largest hotel company. This industry values "heads on beds," and Marriott's focus on managing hotels instead of owning or leasing properties contributes to healthy margins. To further research, consider looking at revenue per available room as a metric for growth. Additionally, TripAdvisor's instant booking platform offers the best prices for Marriott rooms. Regarding Disney (DIS), despite concerns about cord cutting and declining ESPN subscribers, the company's strong fees from cable networks and the continued popularity of live sports make it a potential winner. Disney's success extends beyond studio networks with merchandising and media networks also contributing to its growth. Lastly, Zillow (ZG) is a promising pick heading into the spring home buying season, but CEO Spencer Rasket's focus on the company's vision and growth potential, rather than earnings minutiae, makes it an attractive investment.
Zillow's focus on connecting middlemen with more buyers and sellers: Zillow aims to improve cash flow by reducing stock-based compensation and optimize real estate transactions, contributing to its potential growth into a multi-billion dollar business
Zillow's goal is not to eliminate middlemen in the real estate market but to connect them with more buyers and sellers. This approach, which focuses on improving operating cash flow by reducing stock-based compensation, is key to growing Zillow into a multi-billion dollar business. The company's profitability, when adjusted for stock-based compensation, is an important factor to consider when evaluating its potential to reach such revenue targets. The discussion also touched upon the idea that Zillow is not trying to disrupt the real estate market as a whole, but rather optimize the way transactions are conducted within it.
