Shelby McFaddin, an investment analyst at Motley Fool Asset Management, spoke with Quartz for the latest installment of our “Smart Investing” video series.
Watch the interview above and check out the transcript below. The transcript of this conversation has been lightly edited for length and clarity.
ANDY MILLS (AM): So we’re looking ahead to the second half of 2024. You’ve got some stock picks for us today. What are your picks?
SHELBY MCFADDIN (SM): Yeah, so looking at the second half, we are really excited about Walmart and Costco and we can see that in our active choices, them being in some of our model portfolios and also being in our TMFC ETF. They display a great amount of strength when it comes to delivering value to the consumer. And I think that that’s gonna be a really strong play as we go into the second half because they’re able to deliver on necessities while also having a business model that supports that sort of impulse purchase and being able to treat yourself at a value level.
AM: Walmart and Costco, even with consumer spending cooling off?
SM: Even with, because when we think about Costco specifically, we know that they have a bit more of a premium customer and we’ve seen that sort of premiumization be a ballast for a lot of the consumer and retail sector. So in a sense that they have more income and they’ve got a greater amount of savings, the typical customer. And so they have already sort of survived the worst of inflation and they’re not changing too much of their consumption as compared to when we look a little bit farther down the income ladder where those different choices are continuing to be made. So the customer just tends to be a bit more sticky. Any sort of shakeout that Costco was going to see, especially in the executive membership, has really already happened. And so what’s left are loyal members who’ve not had to make any more trims on their discretionary spend.
AM: Walmart’s been trading kind of like a growth company for a while. Is that gonna continue?
SM: It could. And I think where that stemmed from, and if it’s of course something that we’ve noticed when we look at, you know, how we wanna allocate to that stock is that it’s reliable. And so oftentimes we’ll see investors clinging to those core stocks and treat them as growth because they’re a place where you’re going to get a stable dividend and the share price is sometimes reflecting more sentiment than fundamentals. So the sentiment is that Walmart’s going to continue to be very reliable and so that gives them a sort of an intangible boost. It adds a premium to the stocks that you can’t necessarily model out, but I would disagree that it should be priced as a growth stock.
AM: Looking into the second half of the year, you got Walmart, you got Costco, any other ones?
SM: I would say we continue to be excited about MasterCard. You know, when we look at the valuation, it is a little bit rich, but at the same time it is the sort of toll taker, if you will. And so even if real spending is down, they still have to pass through the rails. So that continues to excite us. And then also sort of deeper into the consumer space, we’re still excited about Netflix. It’s a bit rich. Again, that tends to be the story in this market, but they’ve proven themselves to be a growth producing and cash generative company that is now sort of in the advertising era of their company life. I think that has surprised investors how well they’ve been able to do now that this sort of subscription growth is a smaller part of the engine.
AM: So is Netflix gonna start trading like a traditional media company?
SM: It’s definitely possible. I wouldn’t say it’s something that we’re going to see in the immediate future, but given the fact that it’s sort of starting to overtake traditional cable, we’ve seen in the internet chatter that people are recognizing that when you combine all of these subscriptions, it’s effectively cable again. You no longer have to work with a major telecom provider to have these different bundles and tiers if you wanna get your sports and your cinema channels. But you do have to use three different providers in order to get that. So it’s effectively cable bundled in a different sort of mechanism. So it’s definitely possible.
AM: Gotcha. Do you think subscribers of Netflix might bail on Netflix and just go back to traditional cable?
SM: I think that has a lot to do with what the cable companies are going to offer. And it comes down to things like is the on demand offering competitive with Netflix and other streaming offerings? Because that’s really what the difference is. That is the differentiator with these streaming networks. And we’ve also seen that when we look at those sort of landing pages for different major companies, they’ve got the APIs worked in for these different streaming networks. So they’ve already been working together in such a way that I’m not quite sure it would benefit them, the cable companies, the traditional cable companies to split off and say, you’re not welcome here. Because that then means that someone might leave Netflix and then they have to have two subscriptions now. Either that or the traditional cable company has to deliver on the exact same offering, which we start getting into all the rights and, and things like that. It’s quite expensive.