March 27, 2023


Innovation Leader

Big Tech’s Big Returns and Sports Business in the Spotlight

Apple (NASDAQ:AAPL) posts record revenue. Microsoft (NASDAQ:MSFT) makes its intentions clear with respect to its gaming division. Visa (NYSE:V) and American Express (NYSE:AXP) rise on strong results. Tesla (NASDAQ:TSLA) tells Wall Street not to expect any new models this year. Home Depot‘s (NYSE:HD) getting a new CEO while Lowe’s (NYSE:LOW) gets a new partner in Petco (NASDAQ:WOOF). Atlassian (NASDAQ:TEAM) raises guidance and McDonald’s (NYSE:MCD) is optimistic about the McPlant Burger. Motley Fool analysts Emily Flippen and Ron Gross analyze those stories, discuss areas of the market that look attractive right now, and share two stocks on their radar: Fulgent Genetics (NASDAQ:FLGT) and Garmin (NYSE:GRMN).

And John Ourand from Sports Business Journal discusses NFL ratings, what the Olympics mean for NBC, the state of ESPN+, and the prospects for a Major League Baseball season.

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 Jan. 28, 2022.

Chris Hill: Apple sets a new record, Microsoft’s CEO makes his intentions clear, payments businesses get hot, and that’s just in our opening segments. Investors assemble, Motley Fool Money starts now. It’s a Motley Fool Money radio show. I’m Chris Hill, I am joined by Motley Fool Senior Analyst Emily Flippen and Ron Gross. Good to see you both.

Emily Flippen: Hey, good.

Ron Gross: How are you doing Chris?

Chris Hill: We’ve got the latest headlines from Wall Street. We’ll talk sports business with media reporter John Ourand. As always, we’ve got a couple of stocks on our radar. But we begin with the big macro, GDP grew at nearly seven percent in the fourth quarter, making 2021 the strongest year of growth in the US since 1984. Ron, you remember 1984?

Ron Gross: I do.

Chris Hill: When you think about the last few weeks for the market to be reminded of the strength of the underlying economy, for me, that’s welcome news.

Ron Gross: I think I went to my first Heavy Metal concert in 1984, as a matter of fact, good times. But yes, Chris, this was a strong approach, it was good to see. Any good news in this environment is welcome. Much better than expected pace to end 2021, but that pace is going to lead to higher interest rates, which I would think is what investors are reacting to. For the full year, the economy grew 5.7 percent, as you said, largest increase in decades. The economy benefited from vaccinations, cheap credit, economic stimulus, but do not count on really any of that continuing in 2022. The good news is that economists expect Omicron to be a drag on the economy only in January and perhaps much of February. But then they believe it will start to ease. The Fed will likely start to raise interest rates in March to slow the economy and inflation. Three or four hikes, I think seem like a definite at this point. Some I saw are predicting as many as seven hikes. To that, I’d say that’s a lot of hikes. We’ll see how the market digests that. It’s important to note that the fourth-quarter strength in GDP was led largely by the rebuilding of inventory by businesses, that does indicate confidence among those businesses that they can sell those goods through. That’s a wait-and-see, we have to see how that bears out. Supply chain problems will also be something to watch closely as we continue through this year, and finally, I’ll say wrapping up 2021, the economy recovered almost 19 million of the 22 million jobs lost near the peak of the pandemic. Wages have grown at the fastest pace in decades but consumers’ purchasing power has certainly been hurt by those higher prices.

Chris Hill: We’ll skip to some earnings. It was a big week and we’ll start with Apple. First-quarter revenue was just under $124 billion, making it the biggest single-quarter in company history. CEO Tim Cook said that Apple’s supply chain issues are improving which begs the question, Emily, what revenue is Apple going to put up when the supply chain is actually good?

Emily Flippen: While just looking at Apple’s quarter, you wouldn’t think those consumers are under pricing pressure, as Ron just mentioned, because Apple absolutely knocked it out of the park with this quarter, which was surprising given the issues they’ve had with obtaining chips for their devices. Clearly a vital input in supplying products for consumers to buy. But earnings still grew 25 percent year-over-year, same-story on revenue up 11 percent year-over-year, the highest they’ve seen, so a great quarter for Apple. While gross margins also improved as an investor, I just find myself scratching my head with Apple. I think what the market is missing with the story is just the innovation. What is the new thing Apple is going to be doing these days? Because the most exciting thing, they announced this quarter was something called a SharePlay and Ron, Chris, do either of you know what’s SharePlay is?

Chris Hill: No. I don’t.

Emily Flippen: Well, it allows you to share content like music and video over face time. Look, that’s great. I mean, it’s not a bad thing, but we’re talking about the most valuable company in the world at over $2.5 trillion, look, SharePlay just isn’t going to cut it.

Emily Flippen: Apple is at peace with what they do, but you have nearly $64 billion in cash on your balance sheet. Come on, let’s buy Peloton Apple, let’s do it, let’s shake things up.

Chris Hill: No, do not buy a Peloton. Let’s stick with that for a second because that’s an idea I’ve seen out there. Emily Apple has made a lot of investments in health. That’s a big part of the Apple Watch. I mean, all kidding aside, does Peloton make sense as an acquisition for Apple.

Emily Flippen: I really think it does. The engagement levels at Peloton post forward are truly impressive and while the market is clearly much smaller than what Peloton believed it to be at one point, the market still exists. Apple hasn’t done that well in some of the other initiatives. Apple TV comes to mind as not being a huge player in the streaming market. If you want to make Apple’s fitness success, I think an acquisition, in this case, is needed.

Chris Hill: Microsoft’s second-quarter results were highlighted by nearly 52 billion in revenue and CEO Satya Nadella, following up on last week’s acquisition of Activision Blizzard by confirming that, yes, in fact, gaming is the next big area of investment for Microsoft. Ron.

Ron Gross: Yeah, obviously Cloud being the focus over the last several years with gaming being left a little bit behind. But I’d like that move actually because Cloud is what transformed this company into the 2.2 trillion-dollar company it is today. Just mainly when the earnings report was released, the stock looked really weak, investors the knee-jerk reaction was to sell the stock off, but things quickly turned once management assured investors that the Cloud business still did have growth ahead because despite the headlines about Activision is still largely as a Cloud story. Looking at some of the metrics for the quarter sales were up 20 percent, as you said, almost $52 billion in sales. For the first time, the profits beat expectations. The Intelligent Cloud segment was up 26 percent, the Azure Cloud business, which is part of that Intelligent Cloud segment, posted a 46 percent increase in revenue, but that was actually a deceleration in growth from recent quarters, so strong in a vacuum, not so strong when you look at recent quarters and that is really what investors focus on. 

Some of the other segments, productivity and business processes, which include Office 365 and LinkedIn up 19 percent. The More Personal Computing division, again, the worst name of division I’ve ever heard, a more personal computing, that’s window surface, X-box up 15 percent. Shortages of semiconductors still hurting X-box and the Surface business, but they’re managing that relatively well. Operating income up 24 percent, earnings-per-share up 22 percent. Again, the forecast for the Cloud business was for an increase in revenue for the coming quarter, investors like to see that. They returned almost $11 billion to shareholders in the form of share repurchases and dividends for the quarter, love to see that, and then as you said, don’t forget the pending acquisition of Activision, significant drivers to the gaming business. I guess the Metaverse is coming whether we like it or not. That will certainly help Microsoft compete in that space.

Chris Hill: I’m still shaking my head at investors selling off this stock because it wasn’t quite as strong as they wanted it to be. What short-term mentality do you have to have to look at Microsoft after this quarter? Nadella started laying out their plans for where this company is going into. No. I think the solid days are over.

Ron Gross: It’s 30 times earnings, so it’s not that cheap. You have some people take some money off the table when the numbers don’t look exactly the way they want it, but stocks off 15 percent from its 52-week high, along with other things, 49 percent return on equity for this company, they buy back stock, they pay a dividend. I’m a proud shareholder. Big week for the card companies, Visa’s first-quarter revenue topped $7 billion for the first time ever, and American Express, so record spending on its card as Amex wrapped up its own fiscal year shares of both Visa and American Express up this week. Emily, I feel like even if you’re not a shareholder of these companies, you have to like what this says about consumer spending.

Emily Flippen: Certainly and the CNN had a headline that was along the lines of credit card companies soar as consumers go on spending sprees. I know you like to have our own Foolish takes on stories, but I have to say that about sums it up here. It’s a good time to be a financial services business. People are getting back, moving, and spending. It’s showing up in the financial performance of these businesses. Visa, in particular, are pointing at cross payment volume increasing dramatically year-over-year. That’s a really great business for them because it’s higher fee, so it results in higher-margin revenue for the business. American Express is a little different. They have the same tailwinds in spending, but less opportunity to benefit from credit card adoption internationally, because they’re largely focused on the North American market and they spent a lot of time talking about millennials and Gen Z and their perceptions of American Express all very positive. But as a millennial myself, I have to say, I think American Express needs a rebranding because I do not associate that brand with the youth.

Chris Hill: That straightforward headline writing may cut it at CNN, but it just won’t work at a place like the New York Post. You need some wordplay, you need something with a little bit more excitement. After the break, we’ve got the latest on EVS software and a big change in the C-suite. Stay right here. You’re listening to Motley Fool Money. 

Welcome back to Motley Fool Money. Chris Hill, here with Emily Flippen and Ron Gross. Tesla warned investors that supply chain issues might affect production this year and that no new models will be coming in 2022. On the flip side Ron, Tesla’s fourth-quarter profits and revenue did look pretty good.

Ron Gross: Yap. You nailed it, there was the highlights right there. Easily beat expectations but the stock sold off on disappointing product launch guidance, the stock’s now will off 34 percent from its 52-week high. The metrics in a vacuum for the quarter looked good. Revenue up 65 percent, gross margins, and operating margins widened. Profits up 750 percent from a small base but from a year ago, for the year they delivered more than 936 thousand vehicles worldwide. That’s up 87 percent from the year before. Elon Musk actually returned to the conference call this quarter, he wasn’t on it last quarter and he spent a fair amount of time discussing the potential of self-driving technology and a humanoid robot called optimists that the company has under-development. He said the robot, maybe the most important product that Tesla is working on and has the potential to be more significant than its vehicle business so some of the bluster that Elon Musk is noted for I don’t think investors appreciated. They’re focused on really the car business right now and the product developments and they weren’t happy with what they heard. 

The company said they would not bring any new vehicles like the cyber truck to market this year because of supply chain disruptions. The lack of a launch of a low-budget car in the mid $20,000 range also disappointed investors, CFO warned that near-term higher input costs could impact margins. Tesla’s factories have been running below capacity for several quarters because of supply chain problems. I’m not sure anyone would necessarily be surprised about that but it’s just some highlights that they made on the call. I can’t give any guidance here on valuation. That’s just literally too hard for me to predict what the future looks like for this business. I do see some investors taking advantage of the stock’s weakness to establish or increase the position. Obviously, some are heading for the hills with the shares down 34 percent from their 52-week high, it does remain a buying eight Motley full-services.

Chris Hill: Collaborative software company at last year and posted strong results in the second quarter, they raised guidance and said they expect subscription revenue to increase by 50 percent this fiscal year. Not surprisingly, shares a bit last year and up more than 10 percent on Friday, Emily.

Emily Flippen: Teamwork truly makes the dream work for this company. Lastly, into bread and butter has been their core products, their team collaboration software and it’s just as relevant as ever to be in the business of collaboration software. They are core products. Seems like Jira and Trello are still performing really well and that showed up in their financial performance. They had adjusted earnings of 30 cents a share which was much greater than the 39 cents expected and revenue was also seven percent more expected and that represented 37 percent growth year-over-year. Certainly a business, albeit a large one, that is sustaining growth pretty steadily. 

But as much as there is a rising tide here, there’s also a lot of execution strength that the space is really competitive and many expected growth to slow in this industry coming out of the pandemic but really we haven’t seen that show up in Atlassian’s products yet. They’re making a ton of money from their cloud apps, not just their cloud products, which are sales made and our entire ecosystem. I’d say it’s a great business, really strong, but a bit of caution may be warranted here. The business is still unprofitable and while they generate a ton of cash flow, I think if there any weakness in terms of the way that we saw with DocuSign over the last quarter, any pull-forward from revenue. This is still the type of business that can see its valuation contract.

Chris Hill: Home Depot is getting a new CEO. On March 1st, chief operating officer, Ted Decker, will move into the corner office. He’s been with the company for more than two decades and this ends Craig Meaner’s, seven-year run as CEO and when you look at what’s shares of Home Depot did during his tenure Ron, Ted Decker has a tough act to follow.

Ron Gross: For sure. Shares up 275 percent since he took the reigns back in 2014, return on capital of 32 percent currently up from around 21 percent when he became CEO so a very impressive tenure. Ted Decker looks awfully qualified for this role. Roles in strategic development, finance, and merchandising, currently president and CEO. I actually really do like when a merchant rises to the CEO level, but it’s not without its risks because a strong merchant doesn’t necessarily translate to a strong capital allocator and sometimes don’t have other essential leadership qualities that CEOs need. We’re seeing this play out over at Bed Bath where chief merchandise manager, Mark Tritton from Target, moved over to the C-suite at Bed Bath too early to tell how that goes but I think so far so good. But I do like when merchants are in-charge of merchant-type businesses. I think this company is in good hands, stocks at 22 times. I think it still remains a great company to own right here.

Chris Hill: Well, this follows the ascension that Meaner had. I mean, he had been with the company before he ascended to CEO, and anytime this type of thing happens, there’s always some questioning of should they brought it in an upstart outside to have a fresh pair of eyes on the business. This is not the Home Depot that was in need of a turnaround like it was earlier in this century.

Ron Gross: Great steady as she goes. It’s a very strong company. Ted is inheriting a very solid company with great metrics, great market position with lows obviously being the number two in the space, but right up there with them and I think he’s got a tough act to follow, but he’s being given a very strong company.

Chris Hill: We’ve got some low news later in the show that we will get to. The story of McDonald’s fourth-quarter results and really their entire fiscal year was dealing with rising costs; food, labor, paper products are all more expensive and McDonald’s expects those costs to tick up in 2022. On the plus side, Emily, the early results of the McPlant burger seem genuinely encouraging.

Emily Flippen: Well, earnings and revenue did both mildly miss expectations, I have to say this quarter wasn’t nearly as bad as what it could have been. As you mentioned, between rising inflation and labor shortages, many assumed it would be just a bad time to be McDonald’s. But in truth for apparently all getting a lot more McNuggets and a lot more McPlants than we’d like to emit and even worse, we’re willing to pay more for them so while margins have been dampened over the past few quarters, necessarily keeping the stock down, McDonald’s is actually doing a pretty good job in my opinion, of making use of technology and automation. They’re improving that tightening labor market plus hiking prices to pass along those costs of inflation to consumers and we’re literally all just eating it up. There’s clearly a little bit of pricing power with McDonald’s here that I think the market is underreacting to. But it has certainly been supported by the sales of McPlant, which was a partnership that has been long in the making between McDonald’s and Beyond Meat, they tested out a trial of the McPlant, their vegetarian burger, in a few select stores. Trials went really well and now they’re going to expand it to more stores before a potentially expanding it nationwide. This is going to be critical for Beyond Meat.

Chris Hill: Ron Gross, Emily Flippen, we will see you later in the show. Up next, John Moran from the Sports Business Journal will weigh in on NFL ratings, ESPN Plus, and the prospects for a Major League Baseball season. Stay right here. You’re listening to Motley Fool Money.

Welcome back to Motley Fool Money, I’m Chris Hill. We’re just days away from the Winter Olympics, the Super Bowl and hopefully pitchers and catcher’s reporting for spring training. We’ll see, but here to talk through a few of the business angles related to the sports world. Is John Ourand. He covers media for the Sports Business Journal, and he joins me now from his home in DC. Thanks for being here, John.

John Ourand: Absolutely, Chris, thanks for having me.

Chris Hill: Let’s start with the NFL. The ratings are through the roof. I think last weekend, the four playoff games averaged nearly 40 million viewers. You never want to jinx it if you’re one of the television networks or the NFL. But is it safe to assume that this is going to continue through the Super Bowl? This really seems to have built on the momentum in the second half of the NFL season.

John Ourand: If you view the NFL like a TV series, then yeah, it should continue going on because they just had a knockout round and Tom Brady gotten knocked out. Of course, Aaron Rogers, who knows what’s going to go with them. Those are cliffhangers, that got tied up a little bit and people want to come in then for the next round to see what happens to it. Generally, if the ratings are up about 20 percent per round, which is what it looks like, you should pretty much expect that to go in the championships areas and in the Super Bowl with a billion caveats as you know, down to what the weather’s like. Is it going to be cold? Looks like there’s going to be a massive snowstorm in the Northeast this weekend, which should make ratings go up a ton. Close gains, that makes ratings go up a lot more as well. There are a lot of caveats to it but the NFL is sitting pretty and they’re feeling pretty good right now.

Chris Hill: A few years ago, there was a narrative going around and it went like this, “The broadcast rights for live sports are a bubble that is going to burst.” Unless I missed something, I don’t think that bubble has burst. When I look at the ratings that the NFL has been putting up lately, I realize every sport is different. But is it safe to assume that the cost of live sports is going to go up in part because more than just traditional television networks are going to get in? We’ve seen Amazon make a big push for the NFL. It wouldn’t surprise anyone if Apple did the same thing for their streaming TV.

John Ourand: How much more can they go up? The NFL just completed deals for our contract that hasn’t started yet. That’s worth a $110 billion , billion with a b. It’s phenomenon. I will say this, I’ve been writing about the sports rights bubble for two decades now, and it continues to grow. Then my point is, there really has been no sports right bubble, but I’ll suggest to you that there is a bubble and the bubble doesn’t affect big time sports. The NFL, there’s no bubble right now. The NBA, there’s no bubble. The Big Ten College Conference, those rates are coming up this year, there’s no bubble with that. But for these mid-tier, lower-tier sports, that just would come to the table and get a couple million dollars for the right. Those are the types of deals that are drying up and when and if that goes and affects the bigger leagues, it’s not going to happen anytime soon.

Chris Hill: We talked earlier in the week on this show about Comcast and their latest earnings report, and the fact that they have the US broadcast rights for the Winter Olympics to Summer Olympics really for the next decade or so. How much pressure is on Comcast for the Winter Olympics to go well? Setting aside the political implications of the games being in China, it seems like an opportunity and also a challenge for Comcast, if one of their main goals, and it does seem to be one of their main goals, is to get more and more people using the Peacock streaming app.

John Ourand: Actually, I’m taking a contrary stance to the Olympics coming up and that there’s not a lot of pressure on NBC. Ratings are going to be down big time. NBC’s already informed the advertisers not to expect them to hit a ratings guarantee that was in the original ad contracts. The US team is projected to win fewer medals than in any other Winter Olympics. The time-zone changes make it really tough. Nobody is really expecting there to be a lot of activity on Peacock or TV ratings for these games, which makes it almost easier for Comcast and NBC going into those. People are expecting a very low bar to jump over if they get to that bar grade. Where the pressure comes in and how they’ve always viewed this is in 2024, offsetting those Olympics go to Paris. Then in 2028, the Olympics go to Los Angeles. That’s where the pressure comes in because that’s where Comcast and marketers and sponsors and everybody associated with the sports business have really projected a huge amount of interest from ratings, from online and that’s where the pressure comes in. Now, nobody expects much. We’ll see what happens.

Chris Hill: Comcast made it clear that they don’t really have the numbers in terms of subscribers and overall viewers on Peacock that they would like and they are working to address that. Switching to the Disney Corporation, what is this state of ESPN Plus at the moment as you see it?

John Ourand: ESPN Plus is a good adjunct to ESPN right now. It’s a good adjunct to the Disney Plus bundle right now. If you want to get into Disney Plus, we have some sport services that are over here. ESPN Plus, right now in my mind, it’s setup almost as a transition type of product because they don’t have the best sports and they don’t have the best editorial on there. They have good sports, they have good editorial, but the price point is low and they are testing and they’re trying to get people used to going to ESPN Plus or to Hulu now where you watch NHL games to watch your sports. They make the most money from ESPN. Of course, from cable operators. That’s not going away anytime soon, but it is declining, that they are overseeing a declining business there, and so they’re trying to prop up ESPN Plus. When it happens, where the ESPN, the linear channel, decline so much that they’re going to make it available over-the-top, they’re in a much better position than any other sports network that’s out there right now.

Chris Hill: Is there a point at which ESPN says, ”You know what, it’s going to make sense for us to take this larger sport, more popular sport and make it exclusive on ESPN Plus at the expense of their cable network.”?

John Ourand: Yes, I think it makes sense, and I think that follows what ESPN has always done back in the early 1990s when the ESPN launched the ESPN2. This is a famous story where they took a Duke North Carolina basketball game. They were two top five teams at the time, and they put it on ESPN2, even though ESPN2 was in almost no homes. The idea was they wanted to pressure the cable operators and the satellite distributors to carry ESPN2. That’s what they’re starting to do, you can tell with the Australian Open. If you’re following any tennis fan on social media, they’re complaining because all of a sudden, ESPN’s not showing overnight matches, they are making the tennis fans go to ESPN Plus in order to watch those overnight matches. They are trying to explain some deal that they did with UFC, mixed martial arts company. So much programming including the pay-per-views are on ESPN Plus, and where that makes sense is that the fans of UFC are really hardcore fans, and you want the hardcore fans to come in and actually paying money to see their event. UFC and ESPN both credit that, that UFC deal with goosing the ESPN Plus is a subscriber numbers.

Chris Hill: I’m old enough and a big enough college basketball fan. I remember that moment and I’m pretty sure my cable system did not have the ESPN2, so I missed that game. Last thing before I let you go, how confident are you that we’re going to have a full major league baseball season happening this year? Right now, the Players Association and the owners are at odds with one another. I haven’t checked FanDuel or any of the sports betting sites, but I imagine there’s a prop bet there, in terms of whether or not the season is going to start on time. What do you think we are looking at?

John Ourand: Quick caveat. I’m not covering this on a daily basis, but of course I cover the business and I talk to the people that are involved. I always go back to the start of last season. The owners went to the players and said, ”Because of COVID, because of the shortened spring training, we want to take our 162 games scheduled for this season only and make it a 140-game schedule.” They told the players, ”You get to work less and we will pay you the same amount of money.” The players didn’t trust the owners and said, “No, we’ll do the full 162-game season.” That to me, suggests that these two sides can’t agree on this color of the sky right now. The idea that they are going to be able to get together and find a happy medium between their two totally opposing sides is going to take a lot more gumption than I think either side has right now. I’m very skeptical that they’re going to start the season on time.

Chris Hill: Isn’t the USFL alternative pro football league, aren’t they starting up in April? This seems like a windfall for them if there’s no major league baseball in April.

John Ourand: April 16th is going to be the very first USFL game. It’s going to be on both Fox and NBC. It’s going to be the very first scheduled simulcast of an event since the Super Bowl 1 in 1967. That was 55 years ago. One of the reasons they picked up mid-April is because it took a couple of early season baseball games. Now, potentially, there are no baseball games there. The NCAA basketball tournaments will have happened potentially. No baseball is before you’re really getting into the NBA and NHL playoffs. This is really good news if you’re invested in the USFL.

Chris Hill: You can hear him every week on the Sports Media Podcast with Andrew Marchand of the New York Post. John Ourand, thanks so much for being here.

John Ourand: Chris, I appreciate it. Thanks.

Chris Hill: Coming up after the break, Emily Flippen and Ron Gross return with a couple of stocks on their radar. Stay right here. You’re listening to Motley Fool Money. As always, people on the program may have interest in the stocks they talked about and the Motley Fool may have formal recommendations for or against, so don’t buy yourselves stocks based solely on what you hear. 

Welcome back to Motley Fool. My name is Chris Hill here once again with Emily Flippen and Ron Gross. A couple of quick things before we get to radar stocks, Lowe’s is teaming up with Petco to test a store within a store concept. The idea being that pet products such as food and toys, as well as grooming services will be available at select Lowe’s locations. The first one is going to open next month in Alamo Ranch, Texas. Emily, seems like Petco needs this more than Lowe’s. But what do you think about the idea in general?

Emily Flippen: Well, this decision really came after 58 percent of consumers polled said that they’d be more likely to shop at a home improvement retailer if they could also get pet supplies there too. This to me is hilarious because it’s true. In fact, why don’t we also just expand it into grocery, I bet even more consumers would come to a home improvement retailer as part of their weekly stop so that they could pick up a carton of milk. I say this tongue-in-cheek. But in my opinion, these partnerships are really just trying to recreate the wheel. We have a second tier pet store, a second tier home improvement retailer, each grasping at straws here. In my opinion, we have a home depot right around the corner and we have Chewy. Why do we need this?

Ron Gross: I’m OK with them given this a shot, but let’s make sure it’s self-contained over in the upper left-hand corner somewhere because I don’t need animals running around the store as I’m trying to find a screwdriver.

Chris Hill: Our email address is [email protected] Got a question from Shannon in New Hampshire. She writes, “I’m a long-term investor and while I’m not enjoying the start of this year, I’m also not selling my stocks. Are there any areas of the market looking attractive right now? I know some unprofitable tech companies have lower valuations, but I’m looking for companies that are profitable now.” Ron, I’m with her.

Ron Gross: [laughs] As am I. It has been a rough start for sure, but I’m glad to hear that there’s no selling going on. You can almost look anywhere and find great companies that have sold off to at least a certain extent, the S&P 500 down around eight or nine percent this year, Nasdaq even worse at 13 percent, and both of those even worse from their 52-week highs. If you’re looking for profitable companies, you can find some of the best companies that we have, whether it’s Costco, Microsoft, Nike, Disney, Starbucks, selling at 15 percent, 20 percent, sometimes more discounts to where they were when they were trading at their highs. Definitely look in that space, there’s plenty of great, profitable tech companies that are also down even more as they got thrown out with some of the companies that are not yet profitable. But don’t sleep on those companies that are not yet profitable. There are still some that look awfully attractive here. Maybe the Cloud service, the SaaS companies that will grow into profitability in the future. You should really have an allocation to those as well.

Chris Hill: Emily, what do you think? Anything in particular looking attractive to you?

Emily Flippen: Well, Shannon is not going to like my answer, and while you can definitely do worse for yourself than to buy many of the companies we talked about on today’s show, Microsoft, Apple being great examples. I actually think that you should be greedy when others are fearful. I think the market is a little bit fearful of so-called unprofitable tech companies right now, which is still in my opinion, an interesting time to get exposure to those businesses. I would remind people not to focus so much on profitability in terms of that net income, what matters in my opinion, a lot more is actually cash-flow. If you look at the cash flow yields in many of these businesses, they are market-leading, industry-leading cash flow yields, so focus there.

Chris Hill: Let’s get to the stocks on our radar. Our man behind-the-glass, Dan Boyd is going to hit you with a question. Ron Gross, you’re up first. What are you looking at this week?

Ron Gross: A company that I just took a little position in earlier this week that I’m doing more work on is Garmin, G-R-M-N. They design and build GPS-enabled navigation and communication devices. They are synonymous with the risk-based GPS. They were a market leader in wearables before the rest of the world took notice and built GPS into basically everything. It is estimated that Garmin is the device of choice for about 90 percent of athletes and major running and cycling events. Apple, clearly the big boy in this space with their smartwatches, But Garmin is a very solid cash producing company, nearly five billion in revenue, impressive 59 percent gross margins, over a billion dollars of operating cash flow, strong balance sheet, only priced at 20 times earnings and they pay a 2.2 percent dividend. With Apple as the big boy here, I’m going to dig in and do a little more work before I decide if a bigger position is warranted.

Chris Hill: Dan, question about Garmin?

Dan Boyd: Garmin, now that’s a name I haven’t heard in a while. [laughs] Ron, I remember a while ago, everybody would have a Garmin in their car for navigation, but I don’t know with GPS being built into every new electronic, I don’t know is Garmin still relevant?

Ron Gross: They are for sure relevant to the tune of five billion dollars in revenue a year, but there is competition here. I’ve got my Garmin golf watch, which I absolutely love. But there are others out there, as I mentioned, Apple, so you’ve got to be careful.

Dan Boyd: Do you get lost on the golf course a lot there, Ron?

Ron Gross: [laughs] If you play like I play, you get lost quite a bit.

Chris Hill: Emily Flippen, what are you looking at this week?

Emily Flippen: A slightly different business than Ron, I’m looking at Fulgent. The ticker is FLGT. Their genetic diagnostic and testing business that has experienced a huge boom from COVID testing since the start of the pandemic, the stock has been a wild ride, reaching a high of just under a $190 a share before plummeting to where it is today, around $60 a share. It’s currently trading at only two times the book value of their shares and is my opinion being priced as if COVID testing is going away forever. If you believe that demand for COVID test won’t ever fully disappear, I think this could be an interesting time to take a position in Fulgent.

Chris Hill: Dan, question about Fulgent Genetics?

Dan Boyd: Emily, it seems like the stock price is going back to pre-pandemic levels right now. Would you say that this is the time to get in on it?

Emily Flippen: I think yes is my short answer to that question. I will say the risk here is that COVID testing is no longer needed. If you’re one of those investors who believe that COVID testing is going to go away, is not going to become the flu, it’s just going to disappear. Then I would certainly not say now is time to buy Fulgent because it can go lower from here. But I happen to disagree with that.

Ron Gross: Emily, am I right though? It was a testing company long before COVID even reared its ugly head. Then that gave them this huge boost to their business that wasn’t even expected. If COVID goes away, they go back to where they were pre-pandemic as a solid company with strong testing technology.

Emily Flippen: Yes, to be clear, the business is not all COVID testing, although that is the lion’s share of their revenue right now. They have found ways to pull other testing into their test. They’re combining the flu test and the COVID test now. If there’s a market for that combined test long into the future, I think this could be a great successful investment.

Chris Hill: What do you want to add to your watch list, Dan?

Dan Boyd: This is a tough one, Chris, because as much as I was making fun of Garmin, it seems like it’s a pretty solid company with five billion dollars in revenue. But genetic testing, I mean it’s not going to go away. I think I’m going to go with Emily on this one, but it’s really a toss-up.

Chris Hill: Ron Gross, Emily Flippen, thanks so much for being here.

Ron Gross: Thanks Chris.

Emily Flippen: Thanks Chris.

Chris Hill: That’s going to do it for this week’s Motley Fool Money radio show. The show is mixed by Dan Boyd. I’m Chris Hill. Thanks for listening. See you next time.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.