In this podcast, Motley Fool senior analysts Jason Moser and Matt Argersinger discuss:
- The diversity and strength of Apple‘s business lines.
- Slowing growth in Amazon Web Services.
- Meta Platforms hitting its lowest point in six years.
- Ford Motor Company‘s demonstration of fiscal discipline.
- The latest from Alphabet, Microsoft, and Visa.
- ExxonMobil and McDonald’s hitting new highs.
- Chipotle Mexican Grill’s plans for growth.
- Surprisingly strong weeks for Teladoc Health and Intel.
- Overrated and underrated Halloween candy.
- Two stocks on their radar: SiTime Corp. and Lennox International
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 October 28, 2022.
Chris Hill: The biggest names in tech reported this week and ’tis the season for hot takes on Halloween candy. We got thoughts on all that and a lot more Motley Fool Money starts now.
Everybody needs money. That’s why they call it money. From Fool global headquarters this is Motley Fool Money.
It’s the Motley Fool Money radio show. I’m Chris Hill joining me in studio Motley Fool Senior Analyst Jason Moser and Matt Argersinger. Good to see you as always gentlemen.
Jason Moser: Hey.
Matt Argersinger: Hey.
Chris Hill: It’s earnings-palooza, we’ve got the latest on some of the most widely held companies and as always, we’ve got a couple of stocks on our radar. But we begin with Apple, the biggest tech companies in the world reported earnings this week, but the reaction to Apple’s report was different than the rest. Shares up more than 7% on Friday after fourth-quarter profits and revenue came in higher than expected. Jason, a little surprising when you consider how important the iPhone is to Apple’s business and iPhone revenue was more than half a billion dollars lower than expected.
Jason Moser: But Apple’s like pizza. Even when it’s bad or it’s not that great, it’s still pizza. Same thing when Apple, it’s still Apple. Did they blow the doors off quarter, nope but it was still a pretty Apple-like quarter and so even if they underperformed anywhere in regard to expectations, it was still a respectable quarter. Phones, services. They could have done a little bit better, but it’s not like these were bad results and they point to a company that ultimately remains pretty darn resilient even in the face of a tough economic climate like we’re in now. If you look at the numbers, revenue of $19.1 billion was up eight percent from a year ago and that includes 600 basis points of currency impact. To put some numbers around the fiscal year, fiscal 2022, $394 billion in revenue 8% annual growth. Services performed well, but probably not well enough in some eyes, $19.2 billion versus $18.3 billion a year ago, so 5% growth.
For a company we’ve been talking about, this is becoming a services company. That’s not all that inspiring but the flip side of that is they’ve got more than 900 million paid subscriptions across the services on their platform. That’s up more than 155 million over the last 12 months alone, a double what they had three years ago. They are pulling it off. I think they’re just going to have to execute a little bit on the pricing side and we’re seeing that with music and streaming. They’re going to raise prices in music that’s primarily due to licensing costs. They’re going to raise prices on streaming because they feel like it’s a better offering now and they can do it. Mac sales up 25%, iPad revenue was down 13%. Nothing terribly surprising there, wearables/homes/accessories, that was up 10%. I think all things considered, again, didn’t blow the doors off the quarter, but a very respectable quarter, particularly when you compare it to the other big tech names that we’ll talk about.
Matt Argersinger: I think Apple is always going to benefit from the power users of Apple that people that will buy the new iPhone, the new Mac, at least every two years. I’m just wondering, to your thought, if we do enter a slowdown or recession, consumer-driven or not, will their sales fall off just because people might delay buying that next iPhone, or the next iPad?
Jason Moser: I feel it maybe it does to an extent, but I think what we’re seeing, I think a pretty common theme we’re seeing this earnings season thus far as at least the current economic conditions and any potential recession that comes down the pike here, it seems to be impacting the lower-income earners as opposed to the higher-end income earners. Apple certainly benefits from that higher spender, that higher earner. It may delay, but I think ultimately that’s a timing thing and if it does that, then you probably look at that as an opportunity to buy the stock.
Chris Hill: Amazon’s third-quarter results showed slowing growth in the AWS division and the company lowered guidance for the all-important holiday quarter shares of Amazon down 10% on Friday. You tell me, Matt, how bad was this?
Matt Argersinger: Well, not great. I think you hit the two main things. It comes down to AWS and guidance. I want to know if I could tell a quick story really quickly though, before we get to that, which is July 2020, owned Amazon for 10 plus years, I had to sell shares first time because I was making a real estate investment, had some other things going on and I had to sell a bunch of things and I sold half my Amazon stake. I remember I trembled clicking the button to sell those shares because I didn’t want to do it. Of course, at that point, the stock had just gone over $3,000 a share pre-split so but $150 post-split today and I was like, I’m going to regret this. I know I am. Of course over the next year, I watched the stock go up to, I think 180,185, almost 4,000 pre-split and I was depressed about that. Watching the stock come, I never thought I would see the stock down on a post-split basis below $100 a share, which it briefly did this week after earnings.
I’m excited about that, but I’m also realizing, there is something to why it’s down and you hit it, which is there is this the Amazon Web Services part of this business it’s been the crutch, even though the retail business has held up, and if you look at the retail numbers, they were fine. I think it was up 13% overall, which given the maturity of the business, of that e-commerce business, pretty strong. But you see the slowdown in AWS, which is slower-growing now than Google and Microsoft’s competitors. I think the bigger thing might be the operating margins of that business have come down quite a bit. If that is the profit engine that is no longer there, or at least it’s diminishing to a certain extent that I think had a lot investors worried. Then of course you said the guidance, looking at growth between 2 and 8%, I believe on their guidance range over the fourth quarter, that is probably a lot sharper than investors were expecting.
Chris Hill: Again, this is the holiday quarter.
Matt Argersinger: This is it.
Chris Hill: This is what people expect, not just Amazon but all retailers to really make their bones. Did the range of the guidance surprise you because it struck me as wider than typically we hear from Amazon and I just thought, and not that I fault them for this, but I thought on the low side they might be a little sandbagging.
Matt Argersinger: Probably a little bit and I think Amazon is known for this. I even said that their operating income will between zero and $4 billion. That’s a tremendous range. I would not be surprised at all. I think what you’re getting at is if they come in at the high end of those ranges when actually report.
Chris Hill: Shares of Meta platforms fell to their lowest level since 2016 this week, after the company’s third-quarter report revealed just how much the company is investing in its metaverse division. Jason, we like it when CEOs communicate clearly, Mark Zuckerberg is being very clear about what he wants the future of Meta platforms to be.
Jason Moser: He is indeed. Then that’s, we’re going to see how that plays out. Certainly, it’s not a surprise that there are challenges on the advertising front. At the end of the day it is cyclical and it goes as the economy goes to when those purse strings tighten, ad budgets tighten with them. But you said it, they’re basically doubling down on this metaverse which right now is it still just a very squishy concept. You have Google with their moonshots. Those other bets as they call them. For Meta, for Facebook, this metaverse bed is an all in Pluto shot. It’s so far out there that most people just can’t see it and that’s understandable. I’m not saying that it’s a waste of investment dollars.
This probably works out in some capacity, but I think it’s going to take a while and there are understandable concerns that he’s overdoing it. Particularly when you look at the core business itself. Revenue was down if you exclude currency effects, it was up 2%. I think he’d take those bottom-line earnings down 49% from a year ago, which is obviously not good user growth, 4% was a positive, daily actives up 3%, but back to the ad market, while impressions were up 17%, price per ad continues to fall down 18%. They are spending a ton of money, though, capital expenditures $9.5 billion almost double from a year ago.
Guidance across the board not painting a very encouraging picture in the near term, as expenses continue to go up and revenue continues to come down. That repurchase about 32 million shares for the quarter at an average of about $203 per share and given where Facebook’s prices today or Meta, I’m sorry. Clearly, that wasn’t the wisest use of those dollars. I’m not the biggest fan of this company. I think most people know that said, and honestly from here. The stock is probably an opportunity for those who are able to take that longer view. It is really difficult to disrupt networks of that scale. I think that he will start to moderate those metaverse investments a little bit, but investors should be very prepared for a bumpy ride.
Chris Hill: Speaking of a slowdown in ad spending, Alphabet’s third-quarter profits in revenue were lower than expected. Really with the exception of Google Cloud, it was across the board, Matt, shares of Alphabet down 7% this week.
Matt Argersinger: Right. It’s important to remember that I think for a lot of these companies especially in the ad space, the comparable from a year ago were hard, they were going to be hard. If you look at Google’s revenue, for example in the year-ago third quarter up 41%. The fact that they have any growth at all over those numbers is pretty impressive, but you’re right. There’s definitely a slowdown here. I think the biggest thing that stood out to me was just that the YouTube, the advertising revenue for YouTube was down. Maybe that was I didn’t follow the guidance, so I don’t know if that was expected, but that felt like a little bit of a shock to me. I think that’s been such a sticky platform that’s always gaining popularity in my mind, but it looks like and I don’t use it so I don’t know if it looks like TikTok is actually finally making some inroads and taking some market share from that short form, medium-term form video.
I feel like the ads slowdown is comparable, the tough, comparable perils last year. Explainable. I think the YouTube slowdown is the thing to watch here. I wish Alphabet, just pay a dividend. You’ve got all these other things and I know there’s other bets. The one thing I’ll say about comparing Meta to Alphabet is that the thing I like about Google’s approach is that these other bets are spread around a lot of different areas where I feel like Mark Zuckerberg, and Facebook, Meta, it feels like an all-in bet where it’s not the case for Alphabet at the same time, I’d rather they clamp down a little bit on that spending and maybe focus on dividends or other things.
Chris Hill: Let me go back to YouTube for a second because I think that part of the reaction we saw was not just to the results themselves, but to the fact that earlier this year, Alphabet already pulled the lever with YouTube in terms of original programming, where they said, you know what, we tried this, it’s not working we’re just going to pull this. The results we saw from YouTube become slightly more concerning when it’s against the backdrop of like, they’ve already cut the original programming.
Matt Argersinger: That’s right. No, that’s a really good point.
Chris Hill: Visa, Microsoft and a lot more after the break so stay right here. You’re listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill is here in studio with Jason Moser and Matt Argersinger. Visa’s fourth-quarter profits and revenue came in higher than expected and Visa must have some extra cash laying around Jason because they increased their dividend and announced a $12 billion share buyback plan.
Jason Moser: I’m not complaining as a shareholder I’ll take it. This was another very strong quarter and a good example of why I think Visa is worthy as a core fintech holding. It was interesting in the call right through that a lot of recession torque and management clearly, they’re not planning for a recession in the coming year so maybe take that optimism with a grain of salt. If a recession does hit, we likely see them reassess the outlook, but I think counter to that is this is such a valuable network that leverages so many capabilities across the world.
Given the tailwinds and the electronic movement of money, maybe they’re a little bit more immune than others, but to the numbers. The numbers were really strong. Fourth-quarter net revenue up 19 percent from a year ago. Non-GAAP earnings per share of $1.93 up 19 percent. Total payments for the core, total payments volume was up 10 percent from a year ago, up 135 percent versus three years ago, cross-border, which is an investment that Visa and MasterCard in particular continued to make. Those volumes were very encouraging up 49 percent from a year ago and 130 percent versus three years ago, and the new flows, which is ultimately it’s beyond that consumer to business payments that they’ve always focused on.
Broader movement of money around individuals’ businesses, governments, that was up over 20 percent for the quarter. As you said, they are going to continue buying back stock. They bought back for the year, $11.6 billion in shares at an average price of just over $205. Now the share counts down nine percent since 2017. That’s really, that’s the MO with owning the stock. They’re going to continue to buyback those shares, pay a modest dividend. It’s a stock that has offered investors some real stability here this year, just down three-and-a-half percent versus in the S&P’s around 20. It’s been a good one to own.
Chris Hill: How much should we read into the fact that Visa doesn’t think there’s going to be a recession next year?
Jason Moser: Again, I think that it’s just one of those things that plays into that broader trend of the electronic movement of money. I think they benefit from that, but I would not be surprised if we do hit that recessionary period. You’d likely see management maybe reassess their outlook a little bit.
Chris Hill: Microsoft brought in more than $50 billion in revenue in the first quarter, but shares of the software giant are down a bit this week after guidance for the current quarter, a little bit lower than Wall Street was hoping for, Matt.
Matt Argersinger: Yeah, a lot a lot lower and maybe I’m surprised that the growth, they’re guiding for growth of just two percent in the next quarter. That seems very low to me. This was also, by the way, Microsoft’s lowest rate of revenue growth in five years. Good news is you still have the Azure Cloud business growing 35 percent. It was the one that was trailing Amazon for many years, but it’s really, it’s maintained its growth. It’s now growing faster than Amazon’s Web Services. Stand out to me, does anyone use LinkedIn around here? Because LinkedIn’s revenue was up 17 percent. I’m really surprised that the sessions to LinkedIn were up 24 percent. When I remember Jason, we’re working on a million-dollar portfolio back in the day and when Microsoft acquired LinkedIn. I just thought this just seems like a real stab in the dark for Microsoft who miss the whole social networking and this was their chance to get in on that. I think they’ve done a tremendous job with LinkedIn, even though I don’t use it very much. I don’t really know many people that do.
Jason Moser: I’m with you. Every time I log into it, I wonder why did I just log into this.
Chris Hill: There has been a lot of job movement in 2022, so I think that’s part of it. But take solace in the fact that you weren’t the only ones. There were plenty of people looking at that acquisition back was it $26 billion that’s my memory.
Matt Argersinger: That sounds about right.
Chris Hill: But I remember thinking at the time are they just bored, are they just doing it to just to see because to your point, Matt and also yours is, the way they have consistently monetized it and it’s really just been in the, I think the last couple of years that they’ve broken that out and highlighted that. But it is surprising when you look at the run rate on LinkedIn.
Matt Argersinger: Very impressive.
Chris Hill: Ford Motor posted a loss in the third quarter, but shares up eight percent this week. In part because Ford executives said they are going to stop pouring money into their autonomous driving initiative, Jason. They were very clear about this. We’re not doing this anymore.
Jason Moser: Well, certainly the future for now is more EV unless AV and I think shareholders have reason to celebrate there. They will continue to invest in the electric vehicle capability that they’ve developed and they’re the number 2 EV brand in the US now, so I think that says a lot. I wouldn’t say they’ve given up fully on autonomy, but management also recognizes that its a far more complex problem than some would have you believe it requires more time, capital, capability that would take them away from making sure that they focus on success in the near term with the things that they do really well, building cars. EVs are a little bit of a more natural extension, I think at this point. The company is in great fiscal shape of $50 billion in total liquidity.
As they noted in the call, they’re going to impair this investment in Argo, which ultimately was that effort at L4 Autonomy, and L4, If you remember, that’s considered to be fully autonomous driving, although a human driver can still request control and the car still has a cockpit. They are going to continue to invest in autonomy, but it’s going to be more L2, and L3, which ultimately just brings more human judgment into play there. I think that makes a lot of sense because I think most of us agree and I’ve been very critical of this move toward AVs because to me it feels like the technology for the car I think is there, but we don’t have the infrastructure, we don’t have the road system that can handle that at this point. Matt you said here earlier today in the production meeting, you got to build a city that’s geared for that specific technology there. So far the future, I think it makes it a little bit more sense, but I really do appreciate that they’re going to focus more on EV, more on the automobile, ratchet back on the autonomy a little bit and move forward.
Matt Argersinger: You can only innovate so much at the car level you said it. If the infrastructure and the cities and the roads aren’t meeting that technology investment, you’re never going to be able to do that and I just say kudos to Ford, by the way, a company, unlike other companies we’ve talked about that decides to cut bait on something that’s just not working out instead of doubling down.
Chris Hill: Well, and also saying like, look, we’re looking out over the next 10 years, and over the next 10 years, this isn’t going to pay off.
Matt Argersinger: Maybe let someone else innovate it and Ford can of course, build vehicles into that eventually.
Chris Hill: After the break, we’ve got restaurants, more tech, and two dividend aristocrats hitting new all-time highs. Stay right here. You’re listening to Motley Fool Money. Welcome back to Motley Fool Money, Chris Hill here in studio with Jason Moser and Matt Argersinger. ExxonMobil’s third-quarter profits were not just a record, but a just shy of $20 billion. The energy giants profits were within shouting distance of Apple’s quarterly profits, Matt, shares of ExxonMobil hitting a new all-time high on Friday.
Matt Argersinger: Yeah. All good, when oil prices are at multi-year highs, we know that is the business. But kudos to Exxon. Darren Woods the CEO, I believe he was on CNBC on Friday, and he said, We use lean times like we had beginning of the early on in COVID and the months after to really keep our CapEx programs going, keep exploring to prepare ourselves for the eventual good times like we have today. If you look at ExxonMobil’s history, it’s an energy giant, but it’s also one of the most innovative companies out there. They’ve always been really great capital allocators.
This is just proving the point that, if you can survive the boom and bust cycles of the energy space, which ExxonMobil has done very successfully for decades, you can do quite well as an investor. I love this, I’m looking at this chart. We’re beating too much on Meta, I get it, but it was like a year ago, Meta stock price market capitalization was three times the size of Exxon’s. Exxon is now on the verge of being twice the market cap of Meta and that happened in the space of about a year. Think about the turnaround there, but really impressive results. I saw that they raised their dividend. Again, this is of course a long time dividend payer Dividend Aristocrat company so you have that as well.
Chris Hill: Teladoc Health’s loss in the third quarter was smaller than expected. Shares of Teladoc up more than 20 percent this week Jason, is the worst if it over?
Jason Moser: Well, I don’t want to make a call, but it does feel like we may be finally getting past this mess of an acquisition when they decided to buy Livongo a couple of years ago. The good news is there was no further goodwill impairment this go-round. Maybe we’re on the other side of this thing and then get back to focusing on the core business. I think the results were very respectable, revenue was up 17 percent from a year ago to $611 million. The biggest driver of that growth continues to be BetterHelp, their direct-to-consumer mental health brand. That grew over 35 percent compared to the previous year. I think on that note to as much as I hammered them on that Livongo deal because I do, BetterHelp has grown and scaled so quickly and so effectively. It’s working now at a run rate of one billion dollars in revenue. Now think about that for a second, they bought it for $4.5 million back in 2015. Livongo, maybe not so great.
Matt Argersinger: You’re saying it’s the opposite of the Livongo acquisition.
Jason Moser: It’s the George Costanza of Livongo’s and it’s at least something to remember. They ended the quarter with total US paid members, 57.8 million versus 52.5 million a year ago, visit fee only 24.3 million versus 23.6 million a year ago, and average US revenue per member per month was $2.61, that was up nine percent from $2.40 a year ago. Utilization, 22.3 percent up from 21 percent a year ago as well. We’re seeing signs that the business is starting to normalize, they talked about pipeline development really taking a turn for the better and in a great position here for the remainder of year and going into 2023, getting through some unforced errors in a difficult macro environment, but I still like what they’re doing.
Chris Hill: I don’t think any of us believe that a company being acquired is reason enough to buy shares of a company. That being said, when you look at where Teladoc Health is today, do you think it is an acquisition target?
Jason Moser: I’m sure there are folks out there that would like to own it, but I think that Teladoc management would much prefer to be able to forge their own paths. I don’t suspect we’ll see that, but it’s an attractive asset.
Chris Hill: Shares of Intel up 10 percent on Friday after third-quarter profits came in higher-than-expected. The chipmaker also told investors it plans to reduce costs by up to $10 billion over the next three years. Cost-cutting is often music to Wall Street ears Matt.
Matt Argersinger: It is, but to me it’s never the panacea to what looks like a pretty steady downtrend for Intel’s business. I was looking at the results and trying to figure out, where the good news is and why investor-
Jason Moser: Why is the stock up?
Matt Argersinger: Revenue 15.3 billion down 15 percent year-over-year, adjusted net income down 60 percent from a year ago. I wonder if it’s one of the situations where investors just were expecting much worse and it wasn’t as bad as they thought, so the stock is up. This is a business that probably could be more efficient so I think that’s a good story. If they can save three billion in cost reductions by 2023, maybe 8-10 billion in cost savings by the end of 2025 is what they’re outlining. You also have a dividend, by the way, right now that’s yielding over five percent. If you’re an investor, maybe right now at today’s price, there’s not a lot that has to go right to really earn a nice return if you have that dividend in place, which they seem like they’re going to defend and if they can bring some efficiencies and the business brings some costs down and this cycle comes back, the semi-cycle comes back in a year or two, maybe that works out for Intel.
Chris Hill: Not to be overly cynical, but this is one of those announcements that any company, not just Intel, can go back to over the next three years. This is something they can point to six, 12 months from now and say, Hey, by the way, we made that announcement in late 2022 and so far this year, this is what we’ve done toward that goal.
Matt Argersinger: Right. It’s equivalent to sometimes a new CEO comes in and decides toss this kitchen sink out, we’re cutting all these costs, business is going to be lean, but guess what? We can look back a year or two from now and say, Hey, that’s when we made the business more efficient, look at our margins today, the business has come back. That’s probably what’s happening with Intel.
Chris Hill: Chipotle’s third-quarter profits came in higher than expected, but customer visits fell and shares of the Burrito Company down a bit this week. Jason, I say this not just as someone who host this show, but also as a shareholder, it is fascinating to watch CEO Brian Niccol and his team continue to walk this line of managing inflation while also managing price increases, they’re passing along to customers.
Jason Moser: Yeah. They do a very effective job of it. In with around 3,100 stores today, the management sees an opportunity for this business to get to 7,000 stores in total. Now, if you think that’s optimistic, which I do, so let’s discount that 20 percent that’s still around 5,600 stores they could potentially get to, I think likely will. To me, I think that helps make some sense of today’s valuation, get a Burrito maker trading at like 44 times forward earnings. Sounds like a lot, but there’s a lot of growth to be had there and they make good foods. When you look at the numbers, I think that really tells us a lot, sales were up 14 percent for the quarter $2.2 billion and that was driven by a 7.6% percent comp versus a year ago.
The in-store sales grew by 22 percent, digital sales represented 37 percent. If that sounds a little low, it is, but that’s a sign that people are getting back out there and I think that’s a good thing. Restaurant level margin 25.3 percent, that was up 180 basis points from a year ago and ultimately adjusted earnings $9.51, up 35 percent from last year, opened 43 new restaurants, 30 of those with Chipotlanes. Again, speaking to that convenience digital ordering, trying to be wherever the consumer wants them to be, they now have 30 million rewards members up from 24.5 million just a year ago. They continue with modest share repurchases, but ultimately that just offsets dilution.
The balance sheet remains in great shape over $1.2 billion in cash and equivalents. To your point, they’re managing the costs and inflation along with pricing yet it does continue to create headwinds. They’ve seen costs go up 20 percent over the last two years. They just effectively, just methodically pass-through little price increases here and there that customers continue to pay for. Then finally, Chipotle, the tech company I’m really looking forward to seeing how this chippy thing plays out. Talk about your chipmakers. Chip is autonomous chipmaking, like this thing it’s a chip making robot. I’m not talking about IT chips Matt, I’m talking about those sausage.
Matt Argersinger: I like those chips so much better, they are important chips.
Jason Moser: I think it’s just going to be fun to watch this play out. There is a very innovative management team, they try new things as a lot of fun. I’m happy to continue owning these shares.
Chris Hill: There was a point in time when the growth story for Chipotle involved other cuisines, the Shophouse concept, they were, I think kicking around a burger concept, that thing. Do you get any sense from Brian Niccol that that is something even on the back burner that they are considering or is that completely off their radar?
Jason Moser: I don’t get any sense that he has any interest in it at all. I say that as someone I loved those other efforts. I thought they made some really good food, there were tremendous offerings, but it’s encouraging to see that he really is going to focus on the core concept here.
Chris Hill: Breakfast. Where are we on Breakfast?
Jason Moser: We’ve been asking that for years.
Chris Hill: I know.
Jason Moser: Been waiting for it for years.
Chris Hill: But unlike the other concepts where you could find people who would take a bearish outlook and ultimately the company just decided to put those things away. Who’s bearish on breakfast?
Jason Moser: Feels like the biggest no brainer in the history. No brainers, Chris.
Chris Hill: Global same-store sales for McDonald’s rose 9.5 percent in the third-quarter, helping to push shares to a new all-time high. Matt, unlike a lot of restaurant chains, including Chipotle, McDonald’s, seeing an increase in customer traffic.
Matt Argersinger: Yeah. Great results for McDonald’s. The one disadvantage McDonald’s has by being such a global company versus a Chipotle, which still as far as I know, mostly a North American story, even though their global comp sales were up 9.5 percent, and US comp sales were up six percent, overall revenue was actually down five percent because you got the stronger dollar, lower traffic in a lot of the international stores. That was affecting them a little bit. Operating profits were actually down four percent, but again, in constant currencies, up four percent. McDonald’s is, the growing pains of being a very large company that scales across the globe is affecting it a little bit. But those things are outside of management’s control, and I’d say can’t control currencies or what happens in the macro economy. The results are fantastic from an operating basis. Also raised their dividend 10 percent, so a brand as mature as McDonald’s doing this well is really impressive.
Chris Hill: What about these comments that CEO Chris Kempczinski made on the call about the McRib, where he referred to it as the goat of sandwiches and compared it to Michael Jordan and Tom Brady?
Matt Argersinger: Maybe a stretch of the tad stretch I’ve actually never heard the McRib, so I can’t speak to its qualities. But well, to me, there’s the question of like really, this is the greatest sandwich of all-time? Also, McDonald’s is not in the McRib business, they are in the burger business. On another level, I just find it odd that he was essentially just pushing aside all the burgers and just saying, now there’s limited-time offer sandwich we roll out once in a great while. That’s the greatest of all time. I was like, really? That seems like a bad message to send.
Chris Hill: It might be, but can’t argue with the results so far. Just like stocks, some Halloween candies are overvalued, while others are flat out undervalued. After the break, we’ve got our picks for overrated an underrated Halloween candies, as well as a couple of stocks on our radar so stay right here. You’re listening to Motley Fool Money. As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser and Matt Argersinger. Tis the season guys, Halloween, just hours away actually. As we do every year, let’s talk about some overrated and underrated candies, because they’re not all fairly rated. Matt, I’ll start with you. What is an overrated Halloween candy, in your opinion?
Matt Argersinger: Got to be Jolly Ranchers. They’re small, they’re cheap. People throw them in your bag. They take forever to consume. They make your mouth turn green and blue for hours.
Chris Hill: They’re not chocolate.
Matt Argersinger: No, they’re not chocolate. I have to sit there and suck on one for an hour before I get to my next piece of candy, which is inconvenient.
Jason Moser: I understand where you’re coming from because it’s a very polarizing candy, but it’s a true story. I made a new year’s resolution, one year, several years back to my wife to stop eating Jolly Ranchers because I couldn’t stop I had a ball of those things. I’d throw 20 of them in there during a day because they’re so fruity and delightful.
Matt Argersinger: But unsatisfying, so you have to keep eating.
Jason Moser: You’re right. That’s why ultimately I made that resolution, and I will say I fulfilled that resolution, and now my hankering for Jolly Ranchers is almost non-existent.
Chris Hill: On some level, were you telling yourself you were eating fruit, you were eating something healthy?
Jason Moser: No.
Chris Hill: There’s vitamin C, maybe.
Jason Moser: No I think I was just in denial that I had a problem.
Chris Hill: What do you think is overrated?
Jason Moser: For me, this one came right to top of mind, Twizzlers. When I see the commercial even, I don’t get it. It’s like chewing on a shoe. I don’t care what flavor, whether it’s licorice, or strawberry, or cherry, whatever, I don’t get the attraction to Twizzlers. You find them in those variety bags. It’s thrown away. They’re not good.
Matt Argersinger: My parents alone loved Twizzlers. They accidentally left a bag of the long Twizzlers open. I don’t know if it was on the floor or something, but their dog consumed it. This just a week ago, consumed an entire bag of large Twizzlers.
Jason Moser: At least it wasn’t chocolate.
Matt Argersinger: Yeah. The dog is still alive.
Chris Hill: Let’s go to the other side Matt. What do you think is an underrated candy?
Matt Argersinger: Rolos. I’m not even a caramel fan, but Rolos, I love the taste that come in a little gold wrapping, which always feels great, but I just feel like I don’t know where they’ve gone. I don’t see Rolos that much anymore.
Chris Hill: I will say this about Rolos. I’m blanking on who makes them, but they clearly hit on something good and they just decided, no, we don’t need to innovate. It’s not like Mondelez with Oreos, where it’s like, let’s just try new flavors, no. We’ve got a hit on our hands, we’re just going to keep making this here.
Matt Argersinger: No need to innovate.
Chris Hill: What about you, Jason?
Jason Moser: Chris, I get so sized for Whatchamacallit. I can’t understand how we don’t see them in every variety bag, everywhere. The big candy bars, I think in mini form they would be even better. It takes me back to my childhood. You remember the original Whatchamacallit that didn’t have a caramel in it, now that has the caramel and it’s still delicious. I just don’t understand how this is not a candy we see everywhere. Whenever I find those things in my kid’s trick or treat baskets, they’re junior and senior in high school, but they still somehow come on with candy. I’m looking for those things. I’ll sneak them, I’m not scared.
Chris Hill: Well, they’re not listening to this show, so they don’t know probably that you’re sneaking them. This weekend we have an episode dedicated to the business of candy, because as any Hershey shareholder can tell you, it can be a very lucrative business for shareholders. One of the things they’re doing on that episode is power rankings of Halloween candy. Let’s go to our man behind the glass, Dan Boyd, who’s going to be on that episode with his power rankings of candy. But Dan underrated, overrated, any thoughts here either way?
Dan Boyd: I just want to echo that both Jolly Ranchers and Twizzlers are completely trashed here. Throw them directly in the garbage, no need. I want to echo my sentiment from previous years of this, Chris, and remind everybody that the Milky Way is a joke of a product, just completely awful. Just get a Snickers, it’s ten times better. Then as far as underrated candies, I want to go with the humble Payday here. The peanut and caramel combination, I think is extremely strong.
Chris Hill: Love and, can’t improve on that. Let’s get to the stocks on our radar. Dan, I’ll hit you with a question. Matt, you’re up first, what are you looking at this?
Matt Argersinger: I’m going with one, and I’m sure a lot of listeners haven’t heard of, its Lennox International ticker, LII. It’s actually been around since 1895. They were pioneer in the business of forced air heating for homes, but they make and distribute HVAC and refrigeration products. Record results in the third quarter. They are a dividend night, which means they have beaten the market over the last 10 years and raised the dividend by more than 10 percent annually over the last 10 years. Since their IPO in 1999, up 1,800 percent versus the market, which is up only about 350 percent. Big time performer.
Chris Hill: Impressive stuff. Dan, question about Lennox International?
Dan Boyd: I don’t know about the company, but man, the dividend night label is quickly becoming my favorite way to look at stocks. Is this stock dividend night? Then it sounds pretty good to me.
Chris Hill: Jason Moser, what are you looking at this week?
Jason Moser: Yeah, a company called SiTime. Ticker is SITM. SiTime specializes in designing precision timing MicroElectroMechanical Systems, or MEMS for short.
Matt Argersinger: Wow.
Jason Moser: Not to be confused with some metrics we discussed earlier in the week, like perhaps DTRG or something like that. But regardless, this is a smaller, more efficient chips essentially is what they are. Rugged, accurate, durable, effective. It’s really about moving away from coats and toward silicone, which is a better timing keeping mechanism. It’s better than the legacy courts-base system. That’s what SiTime focuses on their solutions. They’re used for everything from data centers, to communications, companies, to those personal devices that we have in our pocket, Chris. As the world moves toward more technology, faster means of communication, the more connected we become, the more MEMS timing systems are going to be required to make all this happen, which just plays right into their wheelhouse. Earnings for SiTime out on Wednesday, November 2nd, given the challenges we’ve seen in the greater semiconductor space, it will be noteworthy to hear what they had to say.
Chris Hill: Dan, question about SiTime?
Dan Boyd: Now, Jason to say that this market is somewhat saturated is a little bit of an understatement when it comes to chips and your various silicone processors and everything. What about SiTime makes it special and interesting for investing other than a Taiwan Semiconductor.
Jason Moser: Well, I think ultimately it’s that specialization in moving away from cords to silicone. Their thesis, and this is one that seems to be playing out is it is even more superior time keeping device and so that’s what they’re playing into. They sell their chips to big distributors who then sell to end customers. It’s worth noting that Apple really is one of their largest end customers, if not the largest end customer,.
Chris Hill: What do you want to add to your watchlist, Dan?
Dan Boyd: In no surprise, I’m going to go with the dividend night, go with Lennox International.
Matt Argersinger: There you go, Dan.
Chris Hill: Matt Argersinger, Jason Moser, thanks for being here, guys.
Jason Moser: Thank you.
Matt Argersinger: Thanks, Chris.
Chris Hill: I’m Chris Hill. Thanks for listening. We’ll see you next time.