On this podcast, Motley Idiot analyst David Meier and host Mary Lengthy focus on:
- What merger rumors sign about Nissan‘s enterprise. (Be aware: This podcast was recorded earlier than Nissan and Honda introduced their plans.)
- How retailers are leaning into the vacation spirit.
- Recommendation for a seasonal ornament firm.
Then Stephanie Guild, Robinhood‘s head of funding technique, joins Motley Idiot host Ricky Mulvey to debate her outlook for 2025 and what’s excited Robinhood buyers previously 12 months.
To catch full episodes of all The Motley Idiot’s free podcasts, take a look at our podcast middle. To get began investing, take a look at our newbie’s information to investing in shares. A full transcript follows the video.
This video was recorded on Dec. 18, 2024.
Mary Lengthy: It is not a automobile crash, it is consolidation. You are listening to Motley Idiot Cash. I am Mary Lengthy, joined as we speak by David Meier, considerably of a automobile man, David Meier, I ought to say, which is the way you described your self simply within the pre-recording. David, how are you this morning?
David Meier: I am doing nicely. Thanks. How are you?
Mary Lengthy: I am doing nice. Good to be right here. We’ll kick as we speak off speaking about two carmakers. Therefore, the considerably of a automobile man remark. Honda and Nissan are in talks to affix forces. We’re not sure in the intervening time what precisely this may appear to be, whether or not it is a merger, an acquisition, perhaps some holding group scenario. However the market likes this information for Nissan. Inventory is up 17% this morning. David, you bought any quick takes on this? What did you suppose whenever you first noticed this headline this morning?
David Meier: I actually did a double take after I noticed the headline flash throughout Bloomberg TV this morning, and I used to be like, wait. What? This can be a little bit of a shock. It is not day-after-day that you just see two massive Japanese firms, and I am going to stress Japanese for now, need to merge. Actually, in my 20 years of investing, I do not suppose I’ve ever seen two Japanese firms speaking about merging. I talked about this on the Morning present as nicely on Wednesday the 18th. I requested a fellow Idiot and a extra skilled worldwide investor, and our pal Invoice Mann. I used to be like, dude, does this com in? He was like, No, it is not. Actually, he talked about that in Japanese enterprise cultures, mergers like this are extra of an admission that one thing has gone very incorrect.
Mary Lengthy: Even simply should you return just a few years, it looks like there’s been fairly a bit going incorrect at Nissan. Listeners would possibly keep in mind the title Carlos Gone. He was Nissan’s then chairman. He was arrested in November 2018 for monetary crimes. He denied these fees. He escaped on a jet a couple of 12 months later, proper earlier than his trial started. It is not simply man on the free kind points that Nissan’s face. They’ve additionally had monetary issues, too. Working earnings for the primary half of the fiscal 12 months was down 90% from the 12 months in the past, interval. It is US gross sales fell 2% in the newest quarter, 2% in comparison with 90% sounds minimal, however neither is nice. Two half query right here, specializing in what’s gone incorrect. To start with, why is Nissan so within the slumps? Then I am going to simply provide the second query proper off the bat. Why does Honda need that baggage?
David Meier: The primary one is a very good query, and I believe the primary place to look is competitors. Competitors within the world auto gross sales enterprise is fierce. As an instance you come out with new fashions for the 12 months, they usually do not resonate with automobile patrons. Guess what? You have made numerous investments. You have tied up numerous stock, and it is sitting on the lot, which is costing the dealership cash as nicely. In a scenario like that, your gross sales development is extraordinarily difficult. What do you do as a way to increase gross sales? Effectively, you may low cost the value, which that blows up the mannequin as a result of that is not what you had been anticipating whenever you made all of the investments, or you may provide financing offers.
Both method, each of these damage margins, and that is one of many issues that we’re seeing at Nissan over the previous few years. Margins have been contracting, and that’s by no means factor for an automaker as a result of they function on skinny margins. If we have a look at what is the money move assertion at Nissan, what story is that telling? Effectively, we see the working money move generated by the corporate has been coming down whereas CAPEX, capital expenditures, the funding the corporate must make yearly as a way to hold its factories going, is staying excessive. Once more, working money move or money coming within the door, falling just isn’t factor. You by no means need to be in that place, particularly when you need to make these large investments. Attending to the second query, which is, why does Honda need Nissan’s baggage? I can let you know proper now they do not need the bags. That is not what they’re after in a merger like this.
However Honda is definitely an unbelievable operator. For those who have a look at their monetary statements during the last 10 years, it’s wonderful how constant their margins are. They’re skinny. They are not making all that a lot revenue, however they’re persistently constructive. Maybe the pondering in that is, hey, if Honda and Nissan merge, the only entity may very well be a stronger competitor within the world market, i.e, they might have extra share. Then within the course of, Honda may take its operations know-how and switch it over to Nissan’s operations and hopefully assist clear up their margin story.
Mary Lengthy: You discuss this declining working money move and this flatter CAPEX. What can Nissan or if it is Honda that is taking this on? What can they do to jot down these patterns?
David Meier: The very first thing that you have to do is, once more, ensuring that the inputs, the place the money move is coming into what you are promoting from, you need to be certain although all these are working. One of many attention-grabbing issues I noticed on Nissan’s money move assertion is their gross sales receivables have declined considerably. What’s a gross sales receivable? When anyone buys a automobile, they usually finance it. The finance turns into the receivable on Nissan’s stability sheet. What Nissan then does is it sells that to a 3rd get together, usually some monetary establishment and says, hey, I need the money now, so I am going to provide you with a bit of little bit of a reduction on this mortgage. However you handle the mortgage. You’ll be able to have the money flows that are available. Money as we speak, for promoting off a mortgage.
If that is not working, and that was an enormous a part of Nissan’s enterprise mannequin previously, that is very dangerous. It may very well be since you’re discounting these loans aggressively as a way to get them off the books, or it may very well be that there is simply no patrons on the market, and also you would possibly even must hold them on the books, which isn’t what a automobile supplier a automobile maker desires to do. That is the primary from what’s the very first thing you bought to do? You bought to just be sure you have the product that folks need. You are promoting it for worth, and that you just’re giving loans which can be engaging to outdoors patrons if you wish to get them off your stability sheet. Not the simplest factor on this planet to do.
Mary Lengthy: With Nissan having hassle offloading these loans to different patrons, do you suppose that that is a Nissan drawback, or is that an business drawback proper now?
David Meier: Effectively, it is in all probability extra of a Nissan drawback, as a result of if we have a look at others, I do not see the identical margin profile. I’ve seen money flows, working money flows coming down at different automobile makers. Perhaps it is an business drawback as nicely. However proper now, no less than from what I am seeing in Nissan’s assertion, it is affecting Nissan greater than it appears to be affecting others.
Mary Lengthy: Going to pivot tales for a second. The vacations are simply across the nook, and CNBC was out this morning with a narrative about how retailers are hoping customers spend huge on vacation decorations regardless of being funds aware in different areas. Earlier than we dive into this a bit of bit, David, is the Meier home decked out with vacation decor?
David Meier: Minimally. Our daughter is grown and out of the home. We take far more of a minmalist method. We do have some good lighting, just about all white lights that look good on the home. However no, we positively do not go all out like we used to when she was youthful.
Mary Lengthy: I used to be going to say, is that this to recommend that when upon a time you took a maximalist method?
David Meier: Oh, my goodness, sure. We had lights all over the place on locations on the roof the place I ought to have by no means been, in addition to garden ornaments all through the entrance yard and the yard.
Mary Lengthy: Wow. I’m uncovering details about you that I didn’t know. It sounds such as you had been the home to go to, like, stand out with maybe in your Nissan Leaf out entrance and watch, like, the lights sync as much as music, and many others.
David Meier: Oh, I may, so I really like, by the best way, I completely love these movies on YouTube, of the engineers who had been in a position to sync up the music and the lights. If I may have carried out that, I’d have. Let’s put it there. [laughs]
Mary Lengthy: Consulting agency Deloitte is a chunk of this story. They’ve an annual vacation spending survey, and that report discovered that customers are prioritizing decorations, the maximalist David Meier method, if you’ll, over items [laughs] this vacation season. Retailers try to lean into this. Walmart‘s obtained a six-foot tall white nutcracker that just about bought out earlier than Halloween. House Depot has Santas and reindeers along with extra primary decor. If customers are spending much less on items this 12 months, do you count on retailers to get the bounce that they need and maybe want from decorations? Is that sufficient to interchange what would usually be spent on vacation items?
David Meier: Mike lady is unquestionably telling me, no, there ‘s no method that ornament expenditures may fill the outlet if there was an enormous one by way of items. The most important purpose is, look though my home and yard was full, there’s actually solely a lot you are able to do by way of decorations. However that stated, I, too, have seen numerous these larger decorations. They’re in our neighborhood. I’ve mates elsewhere who’re saying, oh, my gosh, have a look at the scale of this Santa. They’re taking photos of neighbors of their neighborhoods. These further massive decorations appear to be a really huge hit this 12 months from the half a dozen information factors that I’ve collected.
Mary Lengthy: One thing that stands proud to me in that is that numerous these are reusable, and so you do not essentially have to purchase new decorations every year. The Nationwide tree Firm sells synthetic Christmas bushes, wreaths, and garlands on-line to retailers like Coles, Macy’s, Amazon, House Depot, you title it. Their CEO, Chris Butler, instructed CNBC that gross sales have been slowing previously two years. After having surged throughout peak pandemic time, they’ve slowed. Once more, it appears to me like it is a powerful enterprise, whether or not it is lights or wreaths or garlands, lots of people use the identical stuff 12 months over 12 months. Say the Nationwide tree Firm brings you on as chief E.L.F, what concepts do you need to convey this enterprise again into the inexperienced?
David Meier: Oh, my goodness. That is so superior. That is a fantastic query. Let me simply say, I didn’t know of the Nationwide Tree Firm earlier than you introduced it up. They might be already doing a few of these issues, and I would not be incomes my chief ELF marketing consultant hold. However I believe the very first thing that I’d be pondering is, hey, we obtained to maneuver past the Christmas vacation. There must be bushes adorned for each event. That is the very first thing. Do not get slowed down in a seasonality kind factor. Then the second factor, which, once more, I’d think about they’re doing this, I completely view the tree because the razor and the razor blade. The tree is the razor. It is the factor you purchase, and try to be promoting all types of various razor blades primarily based on all these numerous events that we talked about above. It is not simply events.
As an instance it is the beginning of basketball season, and my daughter now lives in Cleveland. Why not enhance the tree Cleveland Cavaliers ornaments, or perhaps sprinkling half Cleveland Cavaliers, half Cleveland Browns should you’re each a basketball and soccer fan. Birthday, all these items. A part of the explanation of my reply is we even have a synthetic tree that does not have any faux needles or something like that. It is primarily simply wooden. It is very easy to assemble. You’ll be able to put the ornaments on and the lights on, and every part is simply so clear. It may actually do greater than we must be breaking it out extra than simply on the Christmas time as a result of it is a great little showcase piece within the residence each time anyone comes over.
Mary Lengthy: David Meier, it sounds to me like you could have definitely earned your hold as Chief ELF. Not solely are you professional maxed out Christmas gentle decor, however now you are advocating for 12 months spherical vacation decorations. Thanks a lot for coming down from the North Pole to affix us as we speak on Motley Idiot Cash. Actually respect having you.
David Meier: Thanks a lot, Mary. This was a lot enjoyable.
Mary Lengthy: That is the season for finish of 12 months look backs and 2025 predictions. Up subsequent, Stephanie Guild, Robinhood’s head of Funding Technique, joins Ricky Mulvey for a have a look at what’s thrilling to Robinhood buyers, why stuff thinks we’re in a paradigm shift, and what rocks she’s wanting beneath as we head into a brand new 12 months.
Ricky Mulvey: Steph, you latterly wrote in your 2025 outlook “it is essential to all the time preserve a mixture of optimism and curiosity and investing”. I actually like that since you do have to be a long run rational optimist. If you are going to play this sport, we’ll break this query into two components. Proper now, what are you interested by?
Stephanie Guild: I am very inquisitive about issues which can be taking place with respect to the chips and semi-conductors, the stuff that’s going to energy AI. The latest announcement, for instance, from Google on their quantum oriented chip simply begins to blow my thoughts as a result of they really threw phrases in there like one other dimension. It is the issues that you just examine should you begin to get into religious elements and even watching not too long ago, I watched the film Interstellar. I have been type of interested by these issues. That’s what I am actually inquisitive about is the longer term lifestyle versus the way it works as we speak.
Ricky Mulvey: When you begin doing chips that measure particle uncertainty slightly than ones and zeros, it does make us begin questioning if we’re going right into a parallel universe to faucet into these totally different computing units, it is a wild time to be alive.
Stephanie Guild: Or we have already got the facility to try this and we simply do not know but, just like the particles and the way they act once they’re watched versus once they’re not watched. Like, that’s simply.
Ricky Mulvey: For these listening, that is the Schrodinger’s cat factor that enables numerous these quantum chips to work, and that is mainly it was an experiment from some time in the past a thought experiment. You open a field and you do not know if the cat is alive or useless till you open the field, and the act of observing is what decides that. That’s true on a common degree, and that’s numerous what’s powering these chips. I do not know if that is one thing that scares me or makes me optimistic. Steph, what are you optimistic about as we wrap up 2024 and head into the brand new 12 months?
Stephanie Guild: Quite a lot of issues. I believe it is and the explanation why I wrote what I wrote is as a result of so usually, I’ve witnessed and skilled individuals who I realized rather a lot from that have a tendency to simply take a viewpoint of, I believe it is pure in your mind to search for dangers. You are all the time on the lookout for the dangers. You definitely must hold that kind of thoughts. However I believe all too usually generally, many individuals will use that as the one method to view one thing, after which you may miss issues. For those who’re all the time on the lookout for what may go incorrect. I believe it virtually hearkens again to, like, the Stone ages once we needed to actually focus. That is like embedded in our mind. However should you keep optimistic, I believe you could find alternatives.
You clearly all the time have to consider the chance, however one thing to reply your query, is the truth that we’re in, I believe, a paradigm shift that has rid of numerous the issues that we have seen during the last 30 years. It doesn’t suggest that we do not have extra coming and have extra as we speak, and I can establish numerous them. However we’re in, to me, the fourth mushy touchdown economically since 1960. The final one was within the 90s. I believe it’s on account of a mixture of getting a worldwide monetary disaster, then having, it was a horrible world pandemic and simply having numerous issues flushed out and shifting views.
Together with that, you have had large technological advances, a considerable amount of R&D. CAPEX has been rising sooner than gross sales development throughout the S&P. To me, it is an ideal confluence of issues, plus an surroundings that for a very long time unhealthily had very low rates of interest. I believe as we speak, like, having rates of interest is an effective factor in our economic system. I believe there’s rather a lot to be optimistic about.
Ricky Mulvey: If you stated we’re going by way of a paradigm shift proper now, what particularly are you speaking about? Is that the mushy touchdown? Is that rates of interest? I need to dig into what you are speaking about there.
Stephanie Guild: It’s the truth that usually, should you look again in historical past, you would possibly count on that we might be in a spot the place now unemployment ought to begin to rise. The Fed raised charges, probably the most they’ve raised charges in virtually 20 years. Many individuals thought we should always have had a recession from that, and we did not. I simply suppose there are numerous underlying elements to our economic system which can be making it simply be higher than we may have imagined. That is why I believe now we have you could have an surroundings the place I stated, firms aren’t essentially reducing labor drive even if their rates of interest had elevated.
Maybe it was a blessing that got here from the truth that rates of interest had been tremendous low for therefore lengthy, they obtained to fund issues nicely into the longer term at very low rates of interest. Science has simply actually superior us. If you put all these issues collectively, I believe it simply creates an surroundings the place you could have a stability of numerous issues. Like, all of the dangers are in stability with the rewards. Nothing’s excellent. I can level out numerous dangers that would come, however I simply suppose we’re in that candy spot proper now.
Ricky Mulvey: You see numerous particular person buyers over at Robin Hood on the app. Any information about how retail buyers have been appearing this 12 months? I do not know. How lengthy on common are people holding shares? Are you noticing something attention-grabbing as you have appeared on the consumer information on Robin Hood?
Stephanie Guild: Yeah, just a few issues. One, we see prospects. That is at an combination degree. I am not taking a look at particular person holdings in any respect. There are the matics inside what they maintain, they usually have a tendency to carry core positions in them. Then they commerce across the volatility of those core positions. The core positions are likely to land in a few totally different the matics, one being the massive cap tech virtually utility firms of this technology. The electrical automobile theme, Definitely chips and something type of AI associated. You have obtained some journey in there, I might say, like, there is a theme of journey, whether or not or not it’s airways, cruiselines, hashish can also be a theme.
Ricky Mulvey: Hashish is again this 12 months?
Stephanie Guild: It is only a theme that is been prevalent within the combine. We now have the Robin Hood Investor Index, and that is what I analyze month to month. It takes the 100 largest, most owned. I should not say largest, however most owned firms, after which assigns a weight to them primarily based on the combination weight that our prospects assigned to it inside their portfolios, irrespective of how a lot cash they’ve. That is how we determine, like, what persons are centered on.
The number one has been Tesla for a very long time. I’d say that for the reason that election, we have seen positively an exaggeration of these themes and taking part in on these themes. The brand new one, or I might say, the one which has grown is something crypto oriented. You have seen them commerce across the volatility of Tesla. You would inform they had been getting centered on different issues for some time. However then as quickly because the election hit, they elevated their holdings proper earlier than that. The opposite factor I’ve seen, and I do not know if it is a operate I believe it is a operate of our buyer base slowly getting older. Like, the median age is 34. A number of years in the past that was 30 and earlier than that it was of their 20s. Now you do see additionally an uptake of simply buying broad primarily based index funds, and that wasn’t essentially, one thing that we noticed fairly persistently earlier than. That is like within the final 12 months or so.
Ricky Mulvey: We love index funds. It is an effective way to diversify. If you say buying and selling round volatility, does that imply shopping for excessive and promoting low or is it doing the alternative? What do you imply by buying and selling round volatility?
Stephanie Guild: I might say the alternative. Like, our prospects have definitely earned my respect as a result of what I see is that one thing goes down they usually’re not afraid to make use of it so as to add to positions. Then if and when it bounces again, which is usually finally does, then they use it to trim. Put the capital elsewhere. On the margin. You do not see, like, abruptly Teslas within the index, after which it is out of the index, however it’s on the margin.
Ricky Mulvey: As we look ahead to 2025, you talked about a Peter Lynch quote, which is the one who turns over probably the most rocks wins the sport. I hope we’re in a inventory pickers market. It is the idea of the present that we’re doing on Motley Idiot Cash. However what rocks? What sections of the backyard do you suggest that retail buyers begin wanting over?
Stephanie Guild: It is a good query. The place I am most centered is away from the Prime 10 names. The ten largest shares make up about 37, 38%, relying on the day that you are looking at it of the S&P 500. For 2026, they’re anticipated to have earnings development of 6%. That isn’t loopy, particularly in comparison with the place they have been during the last couple of years. It has been double digits, and people shares have been driving the earnings development for all the S&P for a number of years now. However I do suppose that there are going to be a widening. It is why I believe we’re in a inventory pickers market.
Like after I look beneath that floor, I believe the mid-cap area is to me, I name it and I did not put this in my outlook, however the midcap area to me is like the center youngster. Like, it will get ignored. Everybody at publish election, it was all about small caps. That is come off the boil a bit of bit. I believe the mid-cap area is an effective mixture of decrease valuations than massive caps, however a bit of higher mixture of sectors and a bit of higher stability sheet, which means, leverage is a bit of decrease than within the small cap area on common. I believe there’s different locations like the place I have been centered is I have a tendency to consider the world in elements.
Development versus worth versus high quality, and people issues that we have self outlined in our group. The place I have been wanting matches this method of widening. , like, development, however on the proper worth or also called GARP, and even simply on the lookout for worth. Now, on the lookout for one thing simply primarily based solely on valuation is often not the easiest way to take a position as a result of issues can keep low cost for a very long time. Issues can keep costly “for a very long time”. An instance, to me, of a GARP inventory is Salesforce or Ticker CRM. That firm, to me, has been a bit of bit up till the final earnings name, a bit of unfavored, trades at an affordable valuation versus different tech names within the area. They’re simply beginning to come into utilizing AI to their profit with their issues known as Agent Drive.
Ricky Mulvey: AI Agent Drive. Maniov realized rather a lot about I believe when he rolled his ankle scuba diving or had some leg harm, after which he was getting all into AI Agent drive to the buyers. Sure.
Stephanie Guild: There’s three issues that I all the time have a look at after I take into consideration investing, and I consider what is the route of rates of interest? As a result of that may have an effect on valuations? I believe they will be round right here inside a variety. What’s the earnings development expectations after which sentiment? Sentiment, does all people find it irresistible? That is what , I all the time that is what I care most about, as a result of if all people thinks one thing is nice, the bar has simply gotten actually excessive, all the time liking it to if anyone tells you a couple of film, they usually suppose oh, that is the perfect film you need to watch and also you go see it, and you are like, that was good. However you had too many individuals telling you it was good. I take into consideration investing the identical method, no less than within the brief time period. I believe CRM suits numerous the issues that I wish to search for, however I believe it was one thing like 73% of analysts now have a purchase ranking. It has been increased previously, however it’s not unloved, like another names which can be on the market.
Mary Lengthy: As all the time, folks on this system could have curiosity within the shares they discuss, and the Motley Idiot could have formal suggestions for or towards Trot Purchaser promote shares primarily based solely on what you hear. All private finance content material follows Motley Idiot editorial requirements and aren’t accepted by advertisers. The Motley Idiot solely picks merchandise that it will personally suggest to mates such as you. I am Mary Lengthy. Thanks for listening. We’ll see you tomorrow, Fools.
