“Motley Fool Money” From the Floor at FoolFest 2024

In this podcast, Motley Fool host Dylan Lewis and analysts Matt Argersinger and Andy Cross discuss:

• Why dividends and some specific market indicators are in focus.
• What to watch as earnings season picks up.
• Netflix’s metrics game, and whether spend returns for big-ticket items at Home Depot.
• Some of our favorite memories from a decade of FoolFests and a few trivia questions to revisit Fool stocks and the market over a 10-year period.

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 July 15, 2024.

Dylan Lewis: We’re live from Washington, D.C. for FoolFest 2024. Motley Fool Money starts now. I’m Dylan Lewis, and I’m joined by Motley Fool analysts Andy Cross, and Matt Argersinger and a room full of Motley Fool ONE members here in Washington, D.C. Matt, Andy, thank you for joining me. Fools, thank you for joining me. It is such a privilege to be here in person. It’s FoolFest. We are here in Washington. I’m excited because this is my home city, and it’s fun to host our members. It’s fun to host our fellow Fools who aren’t from DC. We’re going to have a lot of conversations about the market. We’re going to have a lot of conversations about stocks. Andy, Matt, you guys are both going to be on stage for the conversations. Give me a little preview, Matt, what are you excited to talk about for members?

Matthew Argersinger: My main man, Anthony Schiavone and I works with me on Dividend Investor, we’re going to make the case that dividends are about to make a big comeback. At this moment right now, and it’s so sad for me to say this, but the yield on the S&P 500 is a paltry 1.2%. That is the second lowest guys outside the dot-com boom in early 2000. We know what happened after that. Up until about 35 years ago, if you go back through history, even going back to the 1870s, the average dividend yield was 4.5%. What happened? We’re going to talk about that. We’re going to share some of the reasons why we think the dividend yield is so low today in the market. We’re going to more importantly share reasons why we think the dividend yield is about to take a big rise up. Part of it has to do with interest rates, but there are a lot of other reasons why we think dividends are going to make a big comeback in the market. I think the paradigm has really shifted. We’ve already seen a lot of companies, well-known companies, Alphabet, Meta, Salesforce initiate dividends. I think Amazon in the next 12 months, put me down for this, is going to initiate dividend as well. Dividends are making a comeback. We’re going to talk about that. I’m excited to get into a lot of the data we’re going to share.

Dylan Lewis: This is breaking. You breaking news right here.

Matthew Argersinger: It’s all we do on the show.

Dylan Lewis: That’s fantastic.

Matthew Argersinger: Breaking news.

Dylan Lewis: I love it.

Matthew Argersinger: Andy, what are you excited to talk about?

Andrew Cross: We’re closing out before questions and answer, the last event, we are going to be discussing about markets, artificial intelligence, the potential growth indicator, also known as the PGI, which is a metric that we’ve been using in tracking. Tom created that measures the cash on the sidelines and money market accounts, savings accounts essentially versus the value of the stock market valuations. It is an indicator about enthusiasm or caution that investors may be feeling depending on where they are putting their money, whether it’s in the markets, or whether it’s in the savings and in the money market. Talking a lot about just the markets in general and about artificial intelligence and how that is impacting both what we are doing as analysts, as researchers. Then, of course, what’s happening with companies across the landscape. I’m excited to get on that, and it closes out the event, so I know we better be good.

Dylan Lewis: You got to bring us home.

Andrew Cross: I got to bring us home.

Dylan Lewis: Well, we are here on site, but the market is not hitting pause. We have a big kickoff week for earnings ahead of us. We have more of the big banks reporting. We have many of the credit card companies reporting, TSMC, ASML over on the chip side, Netflix reporting. Andy, looking out at this earning season, knowing we’re going to be seeing several weeks of big time earnings reports, what are you looking out for?

Andrew Cross: Netflix was fascinating because recall, just a few months ago after the first quarter, the stock fell 9% or so after they announced a really pretty outstanding quarter. But they came out with some news that they are continuing to not report some metrics that a lot of investors rely on, including things like average revenue per subscriber. They had already announced that they’re not going to be talking about subscribers as much, but including now, not including the numbers about how many subscribers they’re adding each quarter. I think investors, while the quarter was outstanding, and it showed growth of 16% on the total number of streaming additions that reached 270 million now. They added 9.3 million last quarter. They raised their operating margin guidance still expecting revenue growth of 13 and 15% for the year. The news that they are cutting back on some of these key metrics, I think shocked a little bit of the investors. However, I think going forward, Netflix truly has become now this company that while subscription volumes and growth are important. It really is about the revenue and the cashflow as they look to build out their advertising business. I do hope they continue to give some percentages about how many subscribers when they add are coming from the Ad side, the advertising side, as opposed to the paid side. But we’re not going to get the metrics that we used to see, so I think that’s causing some concern for some investors. It really is a cash flow now story as they are generating so much cash and so much revenue that they are putting into use in lots of different ways, including more live programming.

Dylan Lewis: It’s an interesting time to check in on Netflix because we have almost perfectly retraced that 70% drop that happened, I think in the first half of 2022. The stock is not at all time highs, but it is up there, and the streaming landscape continues to be incredibly competitive. We were talking a little bit before we hopped on the stage, and I’m curious. I want to use the benefit of this live audience to get a sense of something we were talking about. Just out of curiosity, show of hands in the room. How many of you have an active Netflix subscription? Three quarters of the room, 80% of the room?

Andrew Cross: Almost everyone.

Dylan Lewis: All right. What about HBO Max or Max, I suppose? Much fewer, maybe 25%. Apple TV? A little bit better we got more. Paramount? Oh, sad. Oh, no. Sorry for transmitting. There are just some late hands there. But I think what we were kind of hypothesizing before we hopped on stage was Netflix is perhaps the most important brand name in streaming, and maybe the one that people cancel last. It seems to be the case here, Matt.

Matthew Argersinger: I think so. I was telling Andy and Dylan. I haven’t watched Netflix show in like six months, but I keep paying every month. I’ve been doing that for gosh 10 plus years now. It does feel like that one that everyone defaults to. No one cuts, and maybe because Netflix has done a great job of maybe every few months has something that attracts our attention. I think it goes back to their data advantage, their history. They got into streaming obviously well before a lot of the other competitors. They know us the best. I get an email from Netflix maybe once a week that says, hey, Matt, there’s a show or a documentary you might like. Generally, I click on that email. Now then I’m like, I do want to watch that. That’s my cue. I probably won’t watch it, but guess what? I love getting that email, makes me feel good. I just feel like Netflix does a great job of keeping me engaged, even though, gosh, minutes and hours watching Netflix is about as low as it’s ever been.

Dylan Lewis: You know to listen to their recommendations.

Matthew Argersinger: I do.

Andrew Cross: Dylan, for the upcoming quarter that when the report earnings on Thursday, the things I’m paying attention to continues to be the advertising business. In the markets where they have the advertising option, about 40% of the new members who join are coming on that ad side, and it’s the bulk of the growth. It’s not in all markets, but they’re pushing out there. More interest and more details on the ad business, we’re not going to get some of those measures we had before. They’re pretty good at highlighting all the great content they have, and they do, as Matt was saying, they just have become the one thing you can’t really give up because of what they are doing both on the scripted programming, as well as the more and more of the live programming. The ad side, I just want more insights onto the ad business, because that can be a real growth over the next five years of Netflix’s overall revenue and cash flows.

Dylan Lewis: Matt, I know when it comes to earnings and companies you tend to look at a lot of the bellwether companies. What are you looking at the earnings?

Matthew Argersinger: For me, there’s really two book ends to this earning season. Prologis reports later this week. If you don’t know Prologis, it’s the biggest industrial real estate company in the world. Business on four continents, 1.2 billion square feet, 6,700 tenants, Amazon being the largest. To me, it’s just a bit of a bellwether for understanding demand on the corporate side. If you’re a very large company that you’re managing inventories, you’re managing supply chains, you have distribution channels all over the world, you’re likely using Prologis or at least one of their competitors. They report later this week. I’m very excited to see what they have to say, especially since they talked a little bit about softness on the leasing side earlier this year. That potentially is going to get better as the year goes on. They already talked about the fact that Amazon is already actually upping its space needs. That’ll be fascinating to me. Then the other side of earning season. This happens around mid August is when the Home Depot reports.

If Prologis tells me something about the business industrial side of the economy, Home Depot tends to tell me about the consumer side of the economy, because it’s also so plugged in, of course, with the housing market, which here in the US is so important. Home Depot has had a really difficult 18 months or so. If you look at their comps, they’ve been flat to negative. Big ticket items like lumber and appliances have been slow to sell, and it tells a little bit of a story about a consumer that’s spending less on big ticket items, more on travel experiences, and about the fact that we have this stuck housing market. The existing housing market, which is obviously the bulk of the housing market in the US, has been stuck. Stuck for good and bad reasons, stuck because mortgage rates are high, because a lot of existing homeowners, probably like you in this room, if you have mortgages, have a mortgage rate that’s 3%, 4%, even 2.5%. I’ve talked to some people. That’s tough to give that up, even if you wanted to, to move up to another house or a second house and take on a mortgage that today is going to be 6.5, 7, maybe 7.5%. It’s just a stuck housing market. Until that gets unstuck, we might not see a lot of relief on that side, but maybe the Fed cuts rates later this year, and maybe mortgage rates start to come down. Maybe that gets this housing market unstuck. Home Depot’s my window into that market.

Dylan Lewis: Matt, I hear you say there until it gets unstuck, and I look at a company like Home Depot, and that is firmly in the bucket of not going to get displaced for me. It is one of those businesses that is not going anywhere. Is this really just a matter of looking out into the future, say, hypothetically, results are not exactly what we want to be seeing? It’s more a matter of when, not if we start to see that demand come back. Perhaps if we see a dip, it actually might be a good time to be buying shares.

Matthew Argersinger: Absolutely. It’s always been win for Home Depot. They’ve been so good at playing and benefiting from the various cycles. By the way, investing in their pro side and their distribution businesses to the contractors. That’s really diversified their revenue stream, much more so over the last 10 years. This is a company to me that has a tremendous staying power. Even in this period where you look at the housing market and it’s been pretty abysmal in terms of transactions. They’ve business has still held up for them. It’s a great dividend company as well.

Andrew Cross: Matt, they closed that big distribution deal. I think it was like 18 or 20 billion the one that continues to build out that connections and that network for the distribution side, and the professional side, and the contractor side. When I think about Home Depot, and it’s one of my longest holding, I think it is my longest holding position and one of my largest positions. While the stock has not done that well, the continued net worth that they’re building out, you look at the next five years, especially on the professional contractor side is really where Home Depot, I think, thrives and competes so well against other competitors including lows.

Dylan Lewis: It is awesome to be at FoolFest. It is always special to be at FoolFest. It is particularly special, I think, this year to be at Fools Fest, because our first FoolFest was in 2014. We are coming up on a decade of FoolFest, which is essentially a time-holding period that we would be comfortable with if we were looking at companies. It’s also a very long time in terms of memories and interactions with members. Looking back on the past decade, Andy, what jumps out?

Andrew Cross: Talking to producer extraordinary, Mac Greer who has been with us for so many years and has helped with so many different shows, and he and I were just recounting. I think it was actually a 2014 FoolFest. We were talking about the conversation we had with Malcolm Gladwell, the author of The Outliers, and the tipping point and just a really eccentric, interesting, great thinker and writer. He had a quote there that Mac and I were recounting that says, along the lines, and I’ll just read it here. “I’ve become more and more convinced, particularly from writing this book,” and I forget which book it was at the time, “but also, just from my experience is this, the company culture is the hardest thing to quantify, but the most important predictor of where a company is headed.” It gets back to the famous quote of culture eating strategy for breakfast by, I think, Peter Drucker. The idea of that, when you’re investing in business, especially if you’re investing in it for many years, really understanding how the leadership team is set up. How the culture is set up. How are they compensated? How are they thinking about treating their employees and all their stakeholders? That was continued evidence as David and Tom and many others across the investing team just paid a lot of attention. It’s not the only thing. There are a lot of factors that go into investing. I think a little bit difference is understanding the leaders who are behind the companies. Of course, at the places like FoolFest, including this week, we’re interviewing different CEOs and talking to different leaders, and that’s just really fun. It’s a fun intellectual endeavor to try to get underneath what the strategic and the cultural ambitions are for any leadership team.

Dylan Lewis: We’ll be hearing from leaders at Kinsale and Kaba. That’s an opportunity for us to get a lens into that. Matt, what about you?

Matthew Argersinger: I was thinking back the last 10 years, and I guess my brain immediately went to 2019 the FoolFest. Anyone remember attending FoolFest in 2019? I believe it was in National Harbor. You’ve got some hands. Gosh, we were so innocent back then, weren’t we?

Dylan Lewis: Healthy.

Matthew Argersinger: Healthy. Yes, I just had a son. It was just a happier time, and then, of course, we know what happened in 2020. I’m going to cheat a little bit, Dylan, because there was another event that we had that October for our ONE members. I think maybe many of you attended that. I think that was in DC. I know it was in DC. There was a special event that we had as part of that ONE event, which was we had a evening reception at Nobu restaurant, just a few blocks from here. Actually, anyone in this room attend that? Just a couple of hands.

Dylan Lewis: A couple of hands.

Matthew Argersinger: What was amazing about that was we had just recently launched our million acres brand as part of the Motley Fool, which was making private equity investments in real estate. One of the investments we made was in that Nobu restaurant. It had come up for sale just a few months earlier. We had made an investment in it, and a lot of our members who were dining and enjoying that reception at Nobu that evening were owners of that restaurant, and still remains owners today. The restaurant’s doing quite well, of course. But to me, it’s just that, it’s a story about pre pandemic. We’re at a restaurant. That restaurant eventually shut down for three or four months in early 2020, a lot of restaurants did. It had to pivot to take out and some other things. Then it reopened, I believe, late 2020, maybe early 2021, and now it’s a thriving restaurant, and the Nobu brand, of course, is really strong. It was just this evolution that we’ve had since 2019 to today. It’s just nice to see the markets at all time highs. We’ve come through it as the United States, and our economy tends to do. I remember I was like, what an innocent time in 2019, a happy innocent time, and we got through it, and, we’re still happy today.

Dylan Lewis: I’m going to give some love for FoolFest 2022. The first one back after we missed some time. I think that was a particularly special one. It was one of the first ones that I was a little bit more involved with, and I enjoyed that one a lot. Now that I’ve got you both reminiscing a little bit, I am going to take the chance to look back on 2014, the year that we had our first FoolFest and throw a little bit of trivia at you. My first question for this trivia round, this company came public in 2014 as the largest IPO of the year. It raised over $20 billion with its issuance, giving the business and its visionary founder plenty of capital to grow in their home market outside the United States.

Matthew Argersinger: No, you go first.

Andrew Cross: I was going to say Shopify.

Dylan Lewis: Matt.

Matthew Argersinger: Alibaba.

Dylan Lewis: Yes. That’s right. Alibaba, the visionary founder, Jack Ma, and that early investor that wound up also getting access and having tremendous returns, Masayoshi Son at South Bank. What’s interesting about that is Alibaba was the largest IPO of 2014, but not the most successful when it comes to investor returns. Actually, if you look at the stock chart, it’s not particularly inspiring. I think a lot of those Chinese tech companies have had a pretty tough time. I want to throw some of the other 2014 IPOs at you and just get some reflections. We have GoPro, HubSpot, King Digital, Grubhub and Zendesk. A couple of names there from the Fool Universe. Any thoughts there?

Andrew Cross: Well, the HubSpot is fascinating just considering what is happening in the news recently about potentially Google acquiring it. Not acquiring it now Google going after maybe a cybersecurity company. I’m guessing of those, HubSpot probably did the best.

Dylan Lewis: Up 1,500% since IPO. S&P 500, a modest 190%.

Matthew Argersinger: How did GoPro do?

Dylan Lewis: Not as well. Down about 95%.

Matthew Argersinger: I think King Digital, if I remember, got acquired by Activision Blizzard, right? At the Candy Crush?

Andrew Cross: How many of those were acquired? GoPro was? King Digital was?

Dylan Lewis: King Digital was a Zendesk as well. I think Grubhub was also acquired by Just Eat Takeaway internationally. A lot of acquisition scooped up there.

Andrew Cross: Yes.

Dylan Lewis: Question number 2 for you, reflecting back on 2014. We know NVIDIA today as a $3 trillion company, a decade ago, it was a bit smaller. There were plenty of reasons. Excited about NVIDIA then, it was a key supplier to hardcore gamers, which is why it was a stock advisor wreck in 2005 and in 2009. But in 2014, AI was just a glimmer in Jensen Huang’s eye. At its peak that year, what was NVIDIA’s market cap? A, 1-5 billion, B, 5-15 billion, C, 15-25 billion or D over $25 billion.

Matthew Argersinger: I’m going to go with B, what was it 5-15?

Dylan Lewis: Five to 15 billion.

Matthew Argersinger: I know it was 5-15.

Dylan Lewis: You absolutely nailed it. NVIDIA peaked out at $11 billion toward market cap in 2014.

Matthew Argersinger: It was overvalued then.

Dylan Lewis: It always has been, and I think that’s the hard part. To get to that $3.1 trillion figure we know it has now today, it did better than 75% annualized returns over this decade.

Andrew Cross: Just incredible. By the way, I don’t know what the drawdown was during that period. Matt was talking about Netflix falling 70% at various points, but there’s no doubt that NVIDIA has had those big drawdowns, maybe more than one during that 10-year run.

Dylan Lewis: I think the thing that I am always trying to remind myself of with a company like NVIDIA is great companies can continue to find that next wave. It was gaming for a while. Then crypto became a tailwind for this business, and now AI is the tail.

Matthew Argersinger: If I could shot a quick NVIDIA story. This is 2010, and I believe we had the CTO of NVIDIA come to the Motley Fool for a brief conversation with some investors. They were lamenting the fact that the new Call of Duty game, which I don’t even know what version that was. That game come out was not going to use their GPU for some of the processing of that game. They were so disappointed because that was going to mean a 20% hit to revenue that year. Just to think that the fact that that’s what they were talking about in 2010 was just well, our new GPO wasn’t showing up the new call of duty game and that’s was a big hit to our business.

Andrew Cross: Just a quick look here. It looks like during the 10-year span, NVIDIA had fallen 25%, more than 50%. I think that was during the crypto wave. Then, of course, during COVID when it fell. Gosh. No, not quite 75. Maybe 60% or so. That 75% return annualized, which is just incredible for a company, even starting at $10, 11 billion still incredible. To earn that return, in hindsight is very easy, but it’s very hard to do it when you’re in the middle of it and your stock’s down 60% or 65%.

Dylan Lewis: My final question for you, 2014 was a particularly good year for the Rule Breaker Scorecard at the Motley Fool. Three different recommendations that year went on to become ten baggers or more, and each have been wrecked several times since. One is in cybersecurity, another in E-commerce, a third in Cloud connectivity. Can you name any of the three 10 baggers from the Rule Breaker Scorecard?

Andrew Cross: Mattie, this is yours. You’re on the team.

Matthew Argersinger: Back then, which just sad that I don’t get this. Palo Alto, maybe the cybersecurity one.

Andrew Cross: I was going to say Palo Alto.

Matthew Argersinger: What were the two other categories?

Dylan Lewis: We have E-Commerce and connectivity networking.

Matthew Argersinger: I’m going to go with Shopify for the E-Commerce one?

Dylan Lewis: No.

Matthew Argersinger: Oh, my gosh. Mercado Libre. The connectivity. My gosh.

Dylan Lewis: Or cybersecurity.

Matthew Argersinger: Any guesses from the audience here?

Andrew Cross: Palo Alto we already had for cybersecurity.

Dylan Lewis: The third one is Arista Networks.

Andrew Cross: Arista Networks.

Dylan Lewis: Networking.

Andrew Cross: Got it.

Dylan Lewis: Reflecting on that, I think what was amazing to me in putting together show notes is just the number of 10 baggers. That’s an incredible run for the Rule Breaker Scorecard in one year. Also, every single one of those companies was wrecked another time after that. Many of them many more times. Mercado Libre has been wrecked a bunch. It is one of my largest holdings, it’s a company that I absolutely love. But I think all three of them demonstrate they continued to buy quality companies.

Andrew Cross: Certainly, Dylan, I imagine, looking at the scorecard from 2014, there are certainly ones that have not worked out nearly as well. Whatever the S&P is up the last 10 years, maybe 12% or 11%, something like that annualized. There are certainly ones that don’t work out. But those ones that do work out that you continue to hold and build out positions. As I go through those ups and downs, for those of us who can, those are the ones that can be the stables of your portfolio that then you’re looking back 10 years and like, wow, I’m continuing glad. Well, I have some ones that have not worked out, and we clearly do. Those that have worked out are really driving the bulk of the returns for the portfolio.

Matthew Argersinger: Morgan Housel had a mindset recently. He’ll be speaking tomorrow at FoolFest, by the way. He looked back at Warren Buffet some point had written that, Warren Buffet over his career has bought 500 companies, something like that, 500 stocks. Really, 90% of those returns have come from five positions. That’s what it is. I look at Mercado Libre in my own portfolio, and man, it’s made up for a lot of mistakes. That’s the beauty of Rule-Breaker Investing, I think, and that’s what you are. I always thought of rule breakers as venture capital investing in public markets. If you hit the 20, 50 baggers or 100 baggers a few times.

Andrew Cross: Wow.

Matthew Argersinger: It makes a huge difference.

Dylan Lewis: I’m going to wrap us up here by just adding that, in addition to all of those things in 2014, 2014 was the year that I joined the Fool. I mentioned that mostly to acknowledge I’ve been here a decade and I am the least tenured person on the stage. I think if we look out in the audience, there are probably a lot of people who’ve been here quite a bit longer than me. I maybe I’m still on the early side when we look out at this room full of members. Mostly, I mentioned all this to say, you guys have been here since before FoolFest existed in many cases. We’re really excited to share the next couple of days with you. We’re really excited to share the next couple of years with you, and we’re really excited to share the next couple of decades with you. That’s going to do it for this Motley Fool Money episode. The show is mixed by Desiree Jones. I’m Dylan Lewis. We’ll be back tomorrow from FoolFest again. Thanks for listening.

Matthew Argersinger: Well done.