Investing Trends to Follow in 2024 – The Motley Fool

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In this podcast, Motley Fool host Dylan Lewis and analysts Ron Gross and Matt Argersinger talk about:
Motley Fool CEO Tom Gardner shares his investing lessons from 2023 and a stock he’s excited about for 2024.
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.
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This video was recorded on Dec. 29, 2023.
Dylan Lewis: We’ve got hot stocks and hot seats. It’s our 2024 preview show. Motley Fool Money starts now.
Tom Gardner: Everybody needs money. That’s why they call it money.
Dylan Lewis: From Fool global headquarters, this is Motley Fool Money. It’s the Motley Fool Money radio show. I’m Dylan Lewis. Joining me over the airwaves, Motley Fool Senior Analysts Matt Argersinger and Ron Gross. Gentlemen, great to have you both here. This is our final radio show of the year, which means it is our 2024 preview show. Got CEOs on the hot seat. Ron is excited. We have stocks to watch in the New Year, and of course, some thoughts on generative AI from none other than Motley Fool co-founder Tom Gardner. We’re going to kick off by setting the scene a little bit guys, and talking through the state of the market. Ron, I want you to fill in a blank for me here, 2023 was a year of blank for investors.
Ron Gross: 2023 was an important rebound year for investors Dylan, 2022 was rough, you remember 2022? It was not a lot of fun. We all felt it. But here we are at the end of 2023 and it looks like the Fed may actually pull off a soft landing with inflation moderating, and the economy, including the labor market, remaining on relatively solid footing. Following 11 interest rate hikes in 2023, there’s now talk of rate cuts, maybe three of them, in 2024. That is music to the market’s ears. S&P 500 up around 25% In 2023, Nasdaq up 42%. I think if we actually see rate cuts in 2024 and economic growth remains positive, we’re in for another good year for the stock market, despite the fact that the market isn’t necessarily cheap. But I still think 2024 could look pretty good.
Dylan Lewis: Matt I think if everything holds, we might be able to convince Ron to get a soft landing tattoo in 2024. [laughs] I think there might be something there.
Matt Argersinger: I like that.
Dylan Lewis: Matt, your turn to play Mad Libs here. When I look at my portfolio year to date, I feel blank.
Matt Argersinger: Much better than I did two months ago, Dylan. That’s how I feel because it has been quite a two month period for the stock market. Really almost record setting and just as a small example, one of my brokerage accounts, I call it my income portfolio. It has around 30 stocks, mostly REITs and dividend paying companies. At the end of October, that portfolio was down about 3% year to date, way behind the S&P, I wasn’t feeling very good. As of this morning, as we’re taping the show, it’s up more than 19% year to date.
Dylan Lewis: Wow.
Matt Argersinger: Now I’m still behind the market, but I am feeling a ton better about my portfolio and my investments, I’m sure a lot of listeners are as well. I would say for all the reasons Ron said, I think 2024 could also be a good year for the stock market. It feels like, yes, inflation is moderating, the Fed is done, likely going to be cutting. But Ron mentioned that the stock market is somewhat expensive. But if you drill down and you look at for example the equal weight S&P 500, it’s trading at roughly historical average. If you look at the Small Cap Index, Russell 2000, it’s trading below its historical average. A lot of sectors like real estate energy look cheap to me actually. I think the macro backdrop is definitely supportive. Overall, stocks aren’t that expensive. Other than maybe some geopolitical risk which we know is out there and this silly election that I’m sure we wish we could all avoid, that’s coming in next fall, I think the market is set up pretty well for 2024.
Ron Gross: Yeah, I was going to make that equal weight index point. Matty, when you look at your dividend portfolio and you say you’re trailing the market, well the equal weight index is only up about 11% this year. Maybe you’re not. Maybe you’re benchmarking yourself to an incorrect index which is really the magnificent seven, those seven large cap tech stocks driving that 25% return. I think some investors should moderate what they think in terms of, did I do well this year or maybe underperformed.
Matt Argersinger: Great point, Ron. See Dylan? I feel even better now [laughs] about my own portfolio now. Thanks, Ron.
Dylan Lewis: It sounds like you guys both are looking forward to 2024 and some of the opportunities that might be out there for investors. Let’s zoom in a little bit on some spaces and trends that you’re particularly excited about. Matt, I’m going to go to you first on this one. What’s an industry you’re watching?
Matt Argersinger: Sure. A little boring, but something I’ve talked a little bit on this show this year, which is this whole idea of supply chain optimization or onshoring of a lot of manufacturing, logistics, transportation. I think it’s a multi year trend, but I think it’s one that really takes off in 2024. Look, we spent decades going the other way. Globalizing supply chains, outsourcing manufacturing, logistics, embracing cross border trade, building just in time inventory management. Great. That was all wonderful. It did wonders for corporate margins. But I think the pandemic did a lot to up end that. There was serious disruption early on, there was even a lot of corporations still complaining about their supply chains in 2023. I think we’re getting to a point where most governments realize some of this has to come home. We have to bring some of this manufacturing home. We certainly have to bring some more inventory back home. Transportation, by the way, labor and transportation have gotten more expensive. It’s not as easy to outsource those kinds of things as they were in the past. I think a lot of that’s coming home and I think it actually starts not necessarily with the US, but I think it’s our next door neighbor to the South, Mexico. I think that’s a place where investors might want to spend some time in 2024. If you look at entering 2023, the Mexican stock market had basically spent a decade going nowhere. In fact, I think it was negative on a total return basis. It’s on track to finish 2023, up 30%. I think it goes up another 30% in 2024. There are a few ways to play it. You could buy. There is the iShares MSCI Mexico ETF. The ticker is EWW, if you count one a broad index of Mexican stocks. I’m hoping to get a little more granular and focus on some of the industrial transportation and real estate aspects of the market. One company, and I won’t say these names because I’ll butcher them. But one taker is VTMX. It’s the largest owner of industrial real estate in Mexico, like warehouses, logistics facilities. It’s a recent IPO, by the way. Another ticker, OMAB. It operates 13 airports in Mexico, including Monterey, which is the big business hub. Both of those companies pay dividends. I like them, and so those are some areas where I’m looking at for 2024.
Dylan Lewis: Wow. Forget the magnificent seven. Start looking over next ideas. I love getting some new and interesting ideas there Matt. Ron, what are you paying attention to in 2024?
Ron Gross: Long-time listeners of the show will know that I’ve talked about gene therapy and genetic engineering and my personal biotech basket of stocks a lot in the past, but not so much lately. That’s because it’s been a pretty rough ride for biotech stocks. My biotech basket has gotten smacked around after going to the moon at one point. But I think my thesis that gene therapy will play an extremely prominent role in the future of medicine still holds up, at least I think it does. Recently we received evidence to indicate that very well may be the case. In December, the FDA approved the first ever therapy utilizing CRISPR gene editing technology for the treatment of sickle cell disease. We are manipulating the human genome to cure disease. It’s incredibly exciting, incredibly scary, but I think the future looks bright. This was a partnership between Vertex, VRTX and CRISPR Therapeutics, CRSP. I think in just the beginning, I think as these technologies and the pricing and the insurance all come together in 2024 and much after that, this will be years and years and years, the future of medicine will start to take shape.
Dylan Lewis: Ron, you’re in good company there. Our colleague, Bill Mann, brought up some of CRISPR’s developments over the year as we looked back on 2023 and said, wow, I can’t believe that this is where we’re at and this is what we’re talking about. It almost seems like the stuff of science fiction.
Ron Gross: It literally is when you think that we can cut the human genome and replace it with non-mutated pieces, it’s wild. CRISPR is not the only gene therapy out there. There’s many other types that are in production or looking for approval as well. One of them or more than one of them will certainly transform the way we think about medicine.
Dylan Lewis: All right, coming up after the break. We’ve got comebacks to watch next year and a few reckless predictions. Stay right here. This is Motley Fool Money.
Welcome back to Motley Fool Money. I’m Dylan Lewis joined over the airwaves by Ron Gross and Matt Argersinger. We’ve talked stocks and we’ve gotten some of the investing ideas out on the show. Which means we get to have a little fun now. We get to look forward out to 2024 and maybe get a little reckless with the way we look at things. I want to start talking about comeback stories. I look back on 2023 and I think one of the great turnarounds was Meta. They wound up ratcheting down their metaphor spend, they had their year of efficiency. They drove impact, the stock doubled basically, in 2023. A pretty strong comeback story, Ron when you look out to 2024, what is a company that you think might be able to turn things around?
Ron Gross: Well, Dylan, I talked about Target on the show a few weeks ago. Shares are down 7% this year in a very strong market as we discussed. But I think this is a comeback worth watching. I own it for this very reason. Brian Cornell has historically been a very strong CEO, but he’s currently attempting to reinvigorate the business. They have the wrong inventory mix. The consumers shifted away from big ticket non essential items in a post COVID world. They were caught with their pants down, so to speak, and they’ve been working their way through this inventory ever since. Margins have been smacked around as they’ve been forced to become promotional, to rid themselves of unneeded or unwanted inventory. They had a controversy over Pride Month that did not help, and they’re working through all these things. Shrink remains a problem with all retailers including Target, but I think they’re on their way. Same Day services are a big part of this business. Now Brian Cornell knows what he’s doing 52nd consecutive year, they’ve increased their dividend 3.2% yield only, trading at 15 times earnings. I think this is one to watch.
Dylan Lewis: Matt, Ron is going over to retail. Where are you looking for turnarounds in 2024?
Matt Argersinger: I’m going to a famous coffee chain, Dylan Starbucks. Starbucks had a rough year. It looks like it’s going to end 2023, down about 10% that’s rough. In a year when the S&P 500, it’s going to finish up almost 25%. The stock is still down more than 20% from its all time high in 2021, so it’s just been a rough few years for Starbucks. But look, Q4 results were pretty solid. Global comps were up 8% China comps were up 5% That’s been a market that’s been a struggle for them recently. Operating margins were higher and I like the new CEO’s optimism. The long term strategy you laid out a couple of months ago. I think he went a little heavy on the coffee puns, but that’s OK. I like the focus on reinvigorating the brand and really becoming more global. Look, the guidance for 2024 for fiscal 2024 was pretty solid. Comps growth between 5-7% revenue growth between 10-12% and earnings growth between 15-20% I think if Starbucks can meet or exceed those ranges this fiscal year, I think this stock is in for a big comeback.
Dylan Lewis: Those are the companies we are looking at and saying, hey, yeah, there might be something there they might be able to turn around. Let’s talk about companies that need to turn it around. Let’s talk about some businesses and in particular some CEOs that are on the hot seat. Ron, when you look out at CEOs that really need to perform and put up a good year in 2024, what do you see?
Ron Gross: I’ve owned the stock for more than 20 years, but Bob Iger of Disney is certainly on the hot seat to my mind. Taking a second shot at leading the venerable House of Mouse and he’s trying to figure out what do they do with legacy TV networks? How do they focus on streaming? How do they make it cost effective? Three parks and cruises are always important. What do we do with the ESPN Sports Network as if that wasn’t enough you’ve got activist investor Nelson Peltz knocking on the door. He wants two board seats. You’ve got another activist investor ValueAct taken a significant stake, reportedly. There is some work to do here. Their latest report in November did show some progress and they did reinstate their dividend after suspending it in the spring of 2020 for shareholders long term like myself, that was a big deal to see, but Iger has his work cut out for him, 21 times depressed earnings. If earnings were a little bit more robust, I think you would see a lower multiple there. I’m remaining a shareholder for the foreseeable future and Iger has to get this done.
Dylan Lewis: We’ve talked about the leadership woes at Disney and so I’m not terribly surprised to see that one pop up in there. Matt, you got something outside of some of the things we’ve discussed a lot on the show?
Ron Gross: I do. This is not a stock I own, but Goldman Sachs CEO David Solomon, on the hot seat. I’m not an expert on the company or really any investment bank. But I think there have been enough rumors about dissatisfaction among board members and other partners in Goldman Sachs over the past year. There was his failed entry into consumer finance via the Apple partnership and GreenSky, the ladder which they sold at a pretty big loss recently. I know he deejays but I think he’s given that up. I know that’s whatever. But this could be the nail in the coffin. I mean, not only did Goldman Sachs stock underperform JP Morgan by a wide margin, 2023. That’s a bit of a no, no. But it also underperforms Citigroup, which is our version of Deutsche Bank. When it comes to investment banks, it’s the dysfunctional member of the family.
Matt Argersinger: There’s so much retail in there too, at Citibank.
Ron Gross: That’s true. It’s probably not a fair comparison. But I’ll just say I think Mr. Solomon’s days are numbered. And that’s really because it’s really NEG of Goldman Sachs the days are always numbered, right? It’s never a lifetime gig.
Matt Argersinger: Same with all the employees at Goldman Sachs and investment banks. You don’t own those jobs, you rent them.
Dylan Lewis: I’m going to put out a PSA to leadership teams for 2024 on behalf of Matt Argersinger. We don’t want your coffee puns and we don’t want your beats we want leadership from management. That’s what’s top of the list. Well put. We put, I’ll throw out CEO of X Linda Yaccarino in there. Not because I’m particularly impressed or unimpressed by her performance, but I think it is just tough to hold that mantle when you’re working so closely with Elon Musk And I would not be surprised to see someone else holding that job at some point, maybe Musk again, it’s hard to say. That is perhaps one of my reckless predictions for 2024. But I’m very curious to hear what your reckless predictions are for 2024. Ron I’m going to start with you, what are you looking out to the year and expecting?
Ron Gross: On the heels of the great Charlie Munger’s passing, I think Warren Buffett is going to decide to step down as CEO of Berkshire Hathaway in 2024. Passing the torch to Greg Abel, current CEO of Berkshire Hathaway Energy Buffett’s heir apparent. Buffett will remain chairman of the board. I think it has widely been assumed in conventional journalism and in the press that Buffett would remain CEO, really as long as he possibly could. I think he’s going to decide to step down sooner than expected, paving the way for the next leaders of Berkshire Hathaway smoothing that transition.
Dylan Lewis: I think it’s a lot to be said for doing something you really enjoy with, people that you enjoy doing it with. I could see losing Munger being something that maybe put some of that stuff in perspective from. Matt, what about you? What is a reckless prediction for 2024?
Matt Argersinger: There it is. I’ve got two baskets of stocks. This first basket, I’m going to call it my snacking/indulgent basket. It’s got McDonald’s, Coca-Cola, Pepsi, Starbucks, The Hershey Company, Domino’s Pizza, and Yum Brands. That’s one basket. My other basket is a basket of weight loss drug companies, Novo Nordisk, Eli Lilly, Amgen, Pfizer, and probably some more that I haven’t thought of. I think my snacking basket is going to double the return of the weight loss basket in 2024. I cannot bet against the American appetite. The American appetite loves snacks, fatty foods. Look, there’s a lot of optimism around these drugs. I think they’re incredible. I think we don’t completely understand the side effects and the costs are really high as well, so the widespread adoption, I think it’s going to take some time and I don’t think in the long run it dents any of American enthusiasm for junk food.
Ron Gross: If that happens, I bet it’s because of valuation, not because of revenue growth. I bet the medical stocks have stronger growth, but the valuations are.
Dylan Lewis: You got potentially. What was my secret going.
Ron Gross: I’d be really interested to see if that comes true, we’ll revisit it in the year.
Dylan Lewis: Matt was crystal clear in how he was gauging the performance here. He was not trying to carve himself out anyway. He was very, very on it with that and I think you’re right, Matt. I think we have to wait a little while for the performance of these drugs to materialize in a way that really matters for some of these businesses.
Matt Argersinger: That’s right. I just think a lot of people just there’s no reason a company like Hershey should be down 30% in 2023. It’s just that doesn’t make sense. It’s a wonderful business. Anyway, there you go.
Dylan Lewis: It’s tough betting against the American eater.
Matt Argersinger: That’s right.
Dylan Lewis: Matt Argersinger, Ron Gross, Fellas. We are going to catch you guys a little bit later in the show up Next, Motley Fool, CEO and co-founder Tom Gardner talks me through his investing lessons from 2023.
Welcome back to Motley Fool Money. I’m Dylan Lewis. What would a 2024 preview be without a stock idea or two? Ahead of the New Year, I caught up with Motley Fool CEO and co-founder Tom Gardner about the pace of technological innovation he’s expecting to see in the New Year and why he thinks a Fool favorite stock is primed for a good year in 2024. Tom, thanks for coming on.
Tom Gardner: Great to be here, Dylan.
Dylan Lewis: So I think we’re generally going to be looking forward here in our conversation, but I do want to start with a little bit of a look back. What is something from the past year that you are carrying forward as a lesson, when you look at companies, when you look at leaders, when you look at ideas in 2024?
Tom Gardner: Well, it’s probably more of a lifelong investing principle. It is that long term investing makes money. I think that’s an important message that can get lost in the chaos of down markets that are very painful, particularly for growth investors. Go through that period, you’re looking at your portfolio down 37% and it’s not a good feeling whether you just started investing or you’ve watched more than a third of your wealth evaporate in an 18 month period that you had built up over years or even decades of investing, it hurts. I still remember reading about Shelby Davis Senior in the wonderful book, The Davis Dynasty. Shelby Davis Senior, who turned a $50,000 investment in his 40s into a $900,000,000 portfolio in his ’80s simply by buying and holding, and pretty much never selling and focusing in his case on the category he had a lot of expertise in, which was insurance, but what he taught through the documentation of his returns, is that two things that I take away. One, it’s a really good idea to have as your default setting, I’m just going to hold and may be paired with that. If I have some money that I can add in down markets, that’s wonderful.
But then the other principle that I took away from Shelby Davis is that he was down 70% in the 1973-74 bare market, and he was fine with that. I would say not everyone listening, not every Motley Fool member has to be fine with a 30% decline or a 60% decline or more. But we do need to understand what it is that would cause us to stop investing, to dread our portfolio, and to feel ashamed almost of what has happened to us. We haven’t allocated our portfolio correctly because we’ve demonstrated the Motley Fool for 30 plus years now that long term investing makes money. We also happen to have demonstrated that long term investing in the motley fool way does beat, the market does beat inflation. But at the baseline, what most investors want to know is if I put my money into this vehicle, this marketplace, will I get more back from having done so? The answer is, historically in the US markets, yes, you will, as long as you’re looking out 5,6,7 years. But if you’re thinking I put my money in, I’m hoping to be affirmed with more money at the end of every quarter or every year that portfolio is set up to fail, unfortunately. That’s probably the main lesson that I take and that I think we really need to teach to all Motley Fool members and prospective members, that is that long term investing makes money.
Dylan Lewis: For some companies, 2023 was the year of efficiency. I think for many investors it was maybe the year of AI. I’m not going to ask you to crown what 2024 will be unless you want to, but I’m curious what themes you’re paying attention to as you look out at the year.
Tom Gardner: Well, I think the pace of technical change quickens and I think that’s an easy bet to make. Perhaps we should all reread or at least just prompt and remind ourselves of the principles outlined in the wonderful book, Only the Paranoid Survive, by Andy Grove, founder CEO of Intel. At the time that he wrote the book and for many years. The leap of faith that Intel took was, let’s go for speed instead of memory, is let’s go for speed because this is non linear growth. Morris Law, if we’re not all familiar with Morris Law, go read about it and start thinking about that in the context of AI. Understand that what’s happening with AI and machine learning, Generative AI, large language models, computational AI, the possibility of Q star, if you’ve heard about that. What happens when AI is thinking about what to say next? That’s the language model and is thinking about what to do next, that’s the computational model and put those two things together, that’s a very powerful being that accesses all information in the history of mankind and is thinking about what to say and what to do, how to multiply, and to express views. So I think the pace is going to quicken and it’s going to be very disturbing in a way, I think of those words that combine the origin of the word, terrific is a combination of amazing and terrifying, thrilling. It’s like what a thrilling finish to that game and what a thriller that movie was. There are good and bad feelings to the pace that we are moving into technically. I guess I think it’s a very good idea for everyone to find that technical leading thought leader in your circle of friends. Let’s say you have children in college and computer science. Have dinner once a month just to discuss what’s happening. Because I would say, for example, everyone who’s listening should go take a look at PIKA, P-I-K-A. Everybody should see what’s happening with PIKA. I believe that PIKA just released its tool kit to kind of the first people on the waitlist.
Having spoken to one person who’s played around with it, they think it’s many times better and more sophisticated than they thought it was going to be from the amazing marketing trailer that they put out not that long ago. In a world where we have PIKA rolling forward and Jeffrey Katzenberg saying, the cost of animated films is going to collapse and then animation is just one shade away from photo realistic. Is that an actor or is that a person we already, I mean, or is that a simulation? Who’s acting in this movie and how is this movie created? If that’s happening in media and entertainment, think of it happening in all aspects of our lives. The change is coming and I do think GPT is way ahead of the others. I think it’s going to be hard for Gemini and other tools to catch up. OpenAI really got a big lead out here and that’s helpful to them. I think the change is coming. The last thing I’ll say Dylan about this for the year ahead is there is a full circle feeling for me to the origins of the Motley Fool. We were born in the early 1990s, really at the outset of the popularization of the Internet. We were right there as a business, and most of the meetings we were in with people saying, oh, cyberspace. What do you all do in those anonymous chat rooms? People naturally highlighting the negatives as they saw them come through.
That’s not a bad thing because there are a lot of bad things about the Internet. It’s not a bad thing. But you don’t want to miss the big story, which is the comfort of your print subscription, pretty much vanished from at least the business landscape. You may be still getting a print newspaper delivered to your home, and that’s great. If you enjoy that, I can tell you the business value of that, the commercial value of that, the investability of that, those things are all gone. They disappeared. They were wiped out a long time ago. Meanwhile, trillions of dollars of value is created by those anonymous chat rooms and that digital Internet cyberspace and all that uncertainty that was out there. That was the big wave. Already now we see that if you look at the magnificent 77 very large companies, Meta, Amazon, Apple, Microsoft, Alphabet, Tesla, Nvidia. Those seven companies, they make up 25% of the value of the Wilshire 5000. So that is a completely remarkable thing, that seven out of 5,000 companies would make up 25% of the value of the whole marketplace. I say that because each one of those companies is very associated with the Internet, with digital transformation, with AI and machine learning. When the largest companies in the world are leading us and showing us where the world’s going. We should pay very close attention as investors and also in our work life and our daily life.
Dylan Lewis: I need to get some takes from you on businesses that you’re excited about and are excited to follow in 2024. Is there a business or two on that list for you?
Tom Gardner: Well, I’ll say a company that’s done very well for me and others at the Motley Fool that I think is quite well positioned now Is Shopify. Take a symbol, S-H-O-P, Shopify did the work to restructure its fulfillment distribution because that’s a big problem for Shopify is that, if you can order on Amazon and it gets delivered in two hours, which, you know that’s what Amazon is working toward. Amazon is working toward, hey, I’d like to buy this, fill in the blank complex product, unique product, obscure purchase, and I’d like to have it in the next 45 minutes at my front door. Amazon would love to do exactly that. That’s what they’ve been working toward and their investments are in the tens of billions of dollars to create that type of distribution. Shopify went on its journey to try and figure out how on Shopify sites to try and get within a few days, whereas Amazon is trying to get it down to less than a day and there is a reality, we love convenience. I once gave a speech to the executive leadership, top few 100 leaders at Whole Foods, and I said, people say your whole pay check and all that. Well, I bet there’s a lot of customers that would pay you a little bit extra if you could just drop the food in their mouth for them.
That’s how much human beings love convenience in my opinion and so they like same day delivery. Between the two, they’ll choose that over another. Shopify made some investments and then chose to just get out of those investments, unravel them, and sign up with Amazon and ride on their distribution system, just in the way that Netflix chose to ride on AWS, Amazon Web Services, even though they compete. In general, Amazon can be a very hard competitor out there. But when you’re partnering with them, they draw pretty good regulatory lines, but between those, they’re not going to compromise their whole AWS platform to try and grab some extra data from Netflix that they shouldn’t be peeking at. I think they have excellent discipline in that company and Shopify woke up and realized, let’s just do that. We’re a digital company, we’re a 50% gross margin company, we’re a growth oriented, software minded business. We’re not hammering away to get an extra tenth of a percentage point in margin on distribution.
That was a big change and that’s hard, I’ll just say, that’s hard to do as a leadership team because you’ve got a lot of people, you’ve made investments, you made public statements. As we know, it’s hard to reverse a public position that we take in life, so if we’re like, we’re going to do this, we’re arming the rebels, we’re going up against Amazon. No, we’re going to flip all of that and go in the opposite direction. But when businesses do that, when businesses make the transformative statement, I like to look very closely at that because I usually find that is either desperate scramble by a troubled company or a founder led super long-term business is going to make the change and even though it’s going to confuse people, their employees, their shareholders, sometimes even their customers, but that’s a harder one. But in general, when the businesses make those transformative decisions, and I see they’ve got a foundation for long-term leadership, that could be a very good thing, because the greatest CEOs will compromise short-term for great long-term outcomes and the worse, the bad CEOs are scrambling for every quarter and just trying to meet their stock option investing and exit. I think Shopify is in that former category, great leadership. They made some great decisions. They have more than $5 billion in cash on their balance sheet and 750 million in cash from operations. I think they made those restructuring decisions in stocks around $80 now, it was up at 160, it was all the way down in the mid 20s. Here we are at around 80 and I think it’s got a really good next 5-10 years ahead of it.
Dylan Lewis: You’ve talked a lot about different stocks for different investors and different expectations. At this point, Shopify is a very large company, but it is still a growth business in a lot of ways. Where do you see it slotting in in terms of appropriateness for investors and the expectations they should have owning it.
Tom Gardner: Great question. We’re doing more and more of that work at the Motley Fool. We really want to help every member see the potential volatility of a stock. What type of returns you might get over the long-term from this business. I would say with Shopify, I still think it would have to be viewed as an aggressive investment. Its market cap is now $100 billion so that’s quite an accomplishment. It’s a 45 bagger since coming public in just 2015. Since 2015, in just about a little bit less than nine years, you’ve got a 45X return in your Shopify shares. We’ve been there for a lot of that at the Motley Fool across services and solutions at the Motley Fool. We’re very thankful for the work that Shopify does for all their stakeholders and I’m optimistic for the future it will not be a 45 bagger over the next nine years. That would make it the largest company in the world. As naturally happens, that rate of return will decline. But I still think it’ll be a market beating rate of return. The other thing that will decline alongside the decline in the gains that you’ll get, the rate of gains that you’ll get is it will become a less volatile stock over time. Right now it has a Beta of 2.2 which, it would mean that if the market is down, the Nasdaq was down 35% in late 2021 over the next 15 months or so, it fell about 38%, you shouldn’t be surprised to see Shopify down 60, 70% when that happens. That Beta is tied to S&P, but we might want to tie it more to the Nasdaq. But overall, you shouldn’t be surprised to see Shopify go down more than twice what the market does.
If the S&P goes down 17% your Shopify, don’t be surprised if it’s down 35-40%. Those can be painful times where you can have your resolve shaken like something really wrong with this company, and in some cases it will be wrong and you’ll have those losers and they’ll fall apart. But if you keep looking at the balance sheet, keep looking at the leadership quality of the business, keep looking at the trends, the opportunity they’re serving. We all know Shopify is creating the platform for merchants to sell anything around the world and that is, obviously has a very favorable trend. If you were to compare Shopify to say, Bed Bath and Beyond, like a physical retailer, you have to go to the location to buy. Employees have to go to work every day at certain hours. These are all counter trend for those physical retailers. Shopify is on the other side of that and benefiting from the major trends that exist. I think Shopify will be more volatile than the market and it will beat the market. But we’re not going to get a 45 bagger in the next nine years.
Dylan Lewis: As a shareholder, I’ll be cheering on Shopify in 2024, and of course, we’ll be covering it along the way here on Motley Fool Money. Listeners we want to hear from you on the companies you’re watching in 2024 and the guests you’d like to hear us interview in the New Year on the show. You can write in @podcast.fool.com or you can call into our hotline and get your voice on the show. Give us a call at 703- 254-1445. That’s 703-254-1445. Coming up, Ron Gross and Matt Argersinger return with their radar stocks for 2024. Stay right here, you’re listening to Motley Fool Money.
As always, people on the program may have interests in the stocks they talk about and the Motley Fool may have formal recommendations for or against, so don’t buy or sell any stocks based solely on what you hear. This is our final Motley Fool Money radio show of the year and so I do want to give a special thanks to all the stations that carry the program, especially those that have been with us since the early days. I also want to give a shout out to our regular podcast listeners that are with us every day. Folks like Seid in Toronto, who wrote in saying they’ve listened over 10,000 minutes of Motley Fool Money this year. Gentlemen, that is 160 plus hours. That is basically every single show that we put out, and we only get to do this program because there are people like Seid out there listening. We appreciate them so much. Let’s get over to stocks on our radar gents. I’m joined by Matt Argersinger and Ron Gross and this is a special radar stock segment. We are looking out to 2024 and our radar stocks for the year. Our man behind the glass, Dan Boyd, is going to hit you with a question and Ron, I’m going to go to you first. What is your radar stock for 2024?
Ron Gross: This is one that Matt and I have discussed. He actually, probably knows it better than me. It’s American Tower, AMT, a real estate investment trust that owns and operates more than 220,000 communication sites, including 43,000 in the US and Canada, and 180,000 around the rest of the world. These sites lease space to cellphone providers like Verizon, AT&T Mobile. A single tower can house equipment for all three of those companies. They play a critical role in wireless infrastructure, long history of growing by leveraging its low cost of capital to build out its assets. New technologies are always helping them spur growth. They’ve increased their dividend by more than 20% annually, 3.2% yield. Not the cheapest street in the world, but one to keep an eye on.
Dylan Lewis: Dan, a question about American Tower.
Dan Byod: Look at this, Ron Gross with the bold prediction that information infrastructure is going to have a big place in the coming year.
Ron Gross: It’s right in front of your nose, Dan.
Dylan Lewis: The best ideas are the ones that you don’t have to think that hard about.
Ron Gross: Exactly.
Dylan Lewis: You don’t need to give them grief for that. Matt, what’s on your radar this week?
Matt Argersinger: Well, I guess I should apologize to all listeners because I’m also bringing a REIT. We’ve got two REITs in our radar stocks. That might be a first for Motley Fool Money, I don’t know. But I’m going with EPR Properties, Ticker EPR. I discussed this one a few weeks ago, but I have to bring it back because it remains one of my favorite ideas right now. I recently added to it personally. There you go. But this is a company that specializes in entertainment real estate. Their biggest real estate holding is movie theaters, which you think would probably have been terrible over the past few years and it has been, and one of their largest tenants, Regal Entertainment recently filed for bankruptcy. But despite all that, EPR had a really solid year. Revenue was up solidly in the third quarter. Its portfolio is 99% least. The balance sheets in great shape, and management has been making new acquisitions and diversifying into other retail categories. Although this stock is at a really nice bounce, it still trades for less than 10 times funds from operations per share, pays an almost 7% dividend yield, still down 30% from its pre pandemic high. I think it spends 2024 regaining a good chunk of that lost ground and gets back to growing its dividend.
Dylan Lewis: Dan, a question about EPR Properties.
Dan Byod: What am I supposed to do here with [inaudible] ?
Dylan Lewis: Go back to the movies Dan.
Dan Byod: That’s real estate. It’s a good investment. Is that funny? Can I make jokes from that? Come on, you guys got to give me a stock that sucks or something. This is ridiculous. How am I supposed to do my job?
Matt Argersinger: Next time in 2024.
Dylan Lewis: We’ll work on our material and maybe you can work on yours. Which one’s going on your watchlist?
Dan Byod: I’m going to go to the American Tower because just like Ron. I think that information infrastructure might have something to do with the next year.
Dylan Lewis: Matt, Ron and Dan, thanks for being here. That’s going to do it for this week’s Motley Fool Money radio show. I’m Dylan Lewis. Thanks for listening. We’ll see you in 2024
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Dan Boyd has positions in Amazon, Berkshire Hathaway, and Walt Disney. Dylan Lewis has positions in Shopify. Matthew Argersinger has positions in Alphabet, Amazon, American Tower, Coca-Cola, EPR Properties, Hershey, Intel, Netflix, Shopify, Starbucks, Tesla, and Walt Disney and has the following options: short January 2024 $125 calls on Target, short January 2024 $125 puts on Target, short January 2024 $57.50 puts on Coca-Cola, short January 2026 $70 calls on iShares-iShares Msci Mexico ETF, and short January 2026 $70 puts on iShares-iShares Msci Mexico ETF. Ron Gross has positions in Amazon, American Tower, Apple, Berkshire Hathaway, CRISPR Therapeutics, Domino’s Pizza, JPMorgan Chase, Meta Platforms, Microsoft, Pfizer, Starbucks, Target, Verizon Communications, and Walt Disney. Tom Gardner has positions in CRISPR Therapeutics, Meta Platforms, Netflix, Shopify, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, American Tower, Apple, Berkshire Hathaway, CRISPR Therapeutics, Domino’s Pizza, Goldman Sachs Group, JPMorgan Chase, Meta Platforms, Microsoft, Netflix, Nvidia, Pfizer, Shopify, Starbucks, Target, Tesla, Vertex Pharmaceuticals, and Walt Disney. The Motley Fool recommends Amgen, EPR Properties, Hershey, Intel, Novo Nordisk, and Verizon Communications and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2024 $47.50 calls on Coca-Cola, long January 2025 $45 calls on Intel, long January 2026 $180 calls on American Tower, short February 2024 $47 calls on Intel, and short January 2026 $185 calls on American Tower. The Motley Fool has a disclosure policy.
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