Podcast Summary
Unemployment continues to improve but concerns remain about job quality: 165,000 jobs added, unemployment rate drops to 7.5%, but economic growth is slow and labor force participation rate is flat, causing concerns about job sustainability. Stock market performs well despite these concerns, and 'sell in May' adage may not apply this year due to Fed support.
The latest unemployment report shows a continuing recovery with 165,000 jobs added and the unemployment rate dropping to 7.5%. However, with only 2.2% economic growth and a flat labor force participation rate, some concerns remain about the quality and sustainability of the jobs created. Despite these concerns, the stock market continues to perform well, making it an attractive option for investors. The "sell in May and go away" adage may not apply this summer as the Federal Reserve is expected to keep supporting the economy. For those looking to improve their communication skills, the Think Fast, Talk Smart podcast offers valuable tips from experts on making small talk, managing anxiety, and being persuasive.
Government sector causing struggles despite US economic growth: Investors should consider buying into strong companies like LinkedIn during earnings season's revenue growth concerns
While the US economy is showing signs of growth with private payrolls up and private GDP at around 4%, it's the government sector that's causing struggles. Stocks remain a good investment option compared to bonds. During earnings season, we're seeing low revenue growth but good profit growth due to companies' lean operations. Unemployment is low, and companies aren't hiring in large numbers because they can increase profits with anemic revenue growth. Facebook's Q1 earnings showed revenue growth of 38% but missed profit expectations. However, mobile ad revenue growth continues, with mobile now accounting for over 30% of total advertising revenue. Facebook's big bet is on Facebook Home, which could create significant engagement and monetization opportunities. Companies like LinkedIn, despite nearly doubled revenue and more than quadrupled profit, saw a 10% drop due to investor concerns over expanding expenses and the need for continued top-line growth to excite investors. Overall, investors should view this as an opportunity to buy into strong companies like LinkedIn.
LinkedIn's long-term prospects remain strong despite dip in marketing revenue: Investors sold off LinkedIn shares following a slight dip in marketing revenue, but the company's strong fundamentals, including recurring revenue and deep moat, should reassure long-term investors
Despite a slight dip in marketing revenue and some investor sell-offs following LinkedIn's earnings report, the company's long-term prospects remain strong. LinkedIn's revenue comes from three main sources: marketing, premium subscriptions, and talent. While marketing revenue saw a slight decrease, the company plans to increase spending to scale the business. This might have caused some investors to sell off their shares, but those focusing on the long-term view should see LinkedIn's strong fundamentals, including its membership model that aligns the company with its customers, recurring revenue, and deep moat. Additionally, companies like Visa and Mastercard, which reported strong Q2 earnings and raised guidance, demonstrate the success of businesses with deep moats, high recurring revenue streams, and exceptional margins. These businesses, despite their large market caps, continue to generate impressive profits and should not be negatively impacted by short-term quarterly gyrations.
Comparing Valuations of Mastercard and Visa, and the Power of a Hit Movie at DreamWorks Animation: Mastercard's lower multiple compared to Visa makes it seem more reasonable. DreamWorks Animation's hit movie 'The Croods' highlights the importance of well-timed releases. Disney's diverse segments ensure long-term profits, while Buffalo Wild Wings maintains confidence in their business despite a Q1 miss.
While Mastercard and Visa both have high valuations, Mastercard appears slightly more reasonable with a lower multiple compared to Visa. Meanwhile, DreamWorks Animation's recent success with "The Croods" demonstrates the value of well-timed film releases and the power of a hit movie. However, investors may want to consider selling after such successes and waiting for a potential price drop before buying again. Additionally, Disney continues to generate significant profits through various segments, including their studio segment and ESPN, making them a strong long-term investment despite their high market cap. Conversely, Buffalo Wild Wings' Q1 earnings miss did not deter the company from maintaining their full-year guidance, indicating confidence in their business despite the short-term setback.
Companies respond to challenging environments with effective leadership and innovation: Buffalo Wild Wings adjusts pricing, McDonald's considers all-day breakfast, and Taco Bell invests in Doritos Locos Taco to boost sales and stay competitive in a slow-growth economy.
Effective leadership and innovation can help businesses navigate challenging environments. Buffalo Wild Wings, with its experienced management team, has faced rising chicken prices and is responding by implementing a new pricing schedule and reinvesting in the customer experience. McDonald's, on the other hand, is considering serving breakfast all day as a way to boost sales and offset rising commodity costs. Taco Bell's success with the Doritos Locos Taco demonstrates that even a simple innovation like a new shell can have a significant impact on sales and require substantial investment. In a slow-growth economy, companies are making bold moves to stay competitive.
Focusing on Trainers is Key to Successful Horse Betting: Experienced horse bettors prioritize trainers over recent performance or jockey reputation for winning picks.
While studying the daily racing form is essential for horse betting, it's important not to overvalue certain factors, such as a horse's recent performance or a jockey's reputation. Instead, experienced bettors focus more on trainers, who have a significant impact on a horse's career and performance. The racing industry has become more sophisticated over the years, with improved information available to bettors. However, success still requires dedication and research. Steven Christ, a horse racing expert from the Daily Racing Form, shares his insights from a 30-year career in the industry. He started out as a literature student who fell in love with horse racing and has since dedicated his career to upgrading the quality and breadth of information available to horse players. Today, his business, The Daily Racing Form, thrives by providing high-quality past performances online.
Revolution of horse racing industry by internet: The internet transformed horse racing with access to data, making it harder to profit due to high takeout rates, but bettors now focus on identifying value like in investing
The Internet has revolutionized the horse racing industry by providing access to vast amounts of data and interactive features, transforming a 2D experience into a 3D one. This has led to a significant increase in the information available to horse players compared to 20 years ago. While there are opportunities to make money betting on horses, it's much harder due to the high takeout rates, which can make it challenging for bettors to sustain a profit in the long run. The industry's high takeout rates are a major barrier to growth and the reason why there aren't more professional horse bettors. The approach to betting on horses has shifted over the years, with bettors recognizing that it's not just about picking winners, but also about identifying value. Just like in investing, bettors look for opportunities where the public makes mistakes in valuation and take advantage of those opportunities. The speaker's expertise in horse racing extends to investing in stocks, as he views both as games that require identifying value and taking advantage of public mistakes.
Understanding Risks and Rewards: Intelligent blackjack players can profit, while slots are a losing bet. Savvy investors and gamblers weigh risks and potential rewards.
While some people prefer to take calculated risks in areas like investing or playing games like blackjack, others prefer to avoid risk altogether and keep their money safe. For instance, Steven Christ from The Daily Racing Forum shared that he keeps his money in savings accounts and bonds, saving his risk for horse racing. In the world of casino games, blackjack is the only game where an intelligent player can expect to turn a profit, making it a good buy. On the other hand, slots are a bad bet due to the lack of strategy and the inevitable loss of about 10% of your investment over time. During the discussion, various topics were touched upon, including the future of print editions of The New York Times, the merit of good luck charms, and the recent makeover of the Kool-Aid man. The hosts also shared their thoughts on these topics, with buy recommendations for blackjack, The New York Times, and Conan O'Brien, and a sell recommendation for good luck charms. Overall, the conversation highlighted the importance of making informed decisions and understanding the risks and potential rewards involved.
Kraft's Kool Aid rebranding and other food industry updates: Kraft's new Kool Aid liquid mix may generate incremental revenue but likely won't reach $1 billion in sales. Activision Blizzard's stock performs well and has an upcoming earnings report. Whole Foods' high gross margins show consumers' readiness to pay premiums for organic groceries, with potential expansion into catering.
Kraft is attempting to revitalize its Kool Aid brand by introducing a new liquid mix product. The success of this rebranding effort is uncertain, with estimates suggesting it may generate incremental revenue but not reach $1 billion in sales. Elsewhere in the discussion, Activision Blizzard's stock was highlighted due to its recent strong performance and upcoming earnings report. Whole Foods was also mentioned for its impressive gross margins, which indicate consumers' willingness to pay higher prices for organic groceries. The potential for Whole Foods to expand beyond grocery stores, into areas like catering, was also raised as a possibility.
Whole Foods focuses on prepared foods and packaged goods, Clean Harbors specializes in hazmat and environmental cleanups: Whole Foods shifts focus, Clean Harbors sees 27% annual growth and high barriers to entry, both companies offer attractive investment opportunities
Whole Foods Market is shifting its focus towards prepared foods and packaged goods, expanding into local stores with concepts like bars. This conscious capitalism business, founded by John Mackey, continues to thrive as long as it stays true to its roots. Another intriguing company discussed was Clean Harbors (CLH), specializing in hazmat and environmental cleanups. With a diverse revenue stream and high barriers to entry, this $3.5 billion company has seen impressive growth of 27% annually over the last 3 years. Despite the potential for unexpected events like a Kool Aid spill, which could lead to further growth, the stock is currently valued at 20 times estimates, making it an attractive investment opportunity.
