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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, which has been lightly edited for length and clarity.
ANDY MILLS (AM): Q3 earnings are starting to roll in. What companies’ earnings do you expect to move markets?
SHELBY MCFADDIN (SM): I think, as usual, fortunately-unfortunately, the big market movers are going to continue to be those that benefit from AI because they are such a big part of the concentration at the top. So when we think about what there will be news about versus what’s gonna move the market, it’s going to be the former, where we’re looking at the Nvidias of the world, the Microsofts, everything like that.
But I think some of the companies that could be making news, even if they don’t have as much influence over the broad market, are companies that face the worst of the worst during the hiking cycle. So that could be companies that are in the credit bureau — something like TransUnion (TRU), where they have gone through a sort of drought with credit card applications and mortgage applications coming down and they’re now starting to see sort of the light at the end of the tunnel. And they also benefit or are hoping to benefit from the sort of reinvigoration of ad spend and marketing spend from various companies in retail and beyond that are relying on some of those sorts of identity services that companies like TransUnion provide.
AM: What other opportunities are you seeing?
SM: Another opportunity, similarly in the consumer vein and in consumer financial, would be American Express (AXP). And that’s because they sort of already have this grip on the premium end of the customer. So they were already quite resilient when things were looking down in that payment space. And now, going into a lower-rate environment where credit conditions are a little bit softer, they can start to expand the base again — rather, not the base, but they have landed, they can expand again where they’re capturing millennial spend, a little bit of Gen Z spend, and not having to be as picky, as meticulous about who is on the books. They can go ahead and get more consumers in their ecosystem, and that’s a win for them. So they have been able to win in this period — one, from maintaining some of their customers and then also having higher rates in terms of their lending products. And then now, as rates will slowly come down — yes, those rates on lending will come down a bit — they can go ahead and increase the number of cardholders they have.
AM: Another one of your picks is Costco. Can you tell me about that?
SM: The great thing about Costco (COST) for consumers and shareholders is that they’ve just got such great management at the helm that they really do deliver to all the stakeholders. Consumers have actually been able to see prices come down really before the rate-cut discussion started happening. If we were tuning in on the quarterly calls, they would very excitedly discuss “Here are 10 products where we’ve cut prices” because management was genuinely excited to be able to get those back down. So they’re pretty much always pricing at cost — they’re trying to give you the best value they can. We would expect to see any pricing there move in accordance with, really, what they’re seeing in supply.
I would expect with other places, you might see a little bit more stickiness; where there’s less white label at certain retailers, you might see a little bit more stickiness; where there’s more premium, you might see something a little bit more sticky. When we think about the Kirkland brand, what they’re able to do at the cost that they’re able to do it is really just first in class. So I would expect that they continue to get rewarded for the fact that they are drawing in consumers looking for value.
AM: Gotcha. So Costco might be a pick.
SM: Absolutely. Is the valuation quite rich? A hundred percent. We are constantly asking ourselves as a team: What is this really worth, and is the market arriving at this particular price? But in terms of just the fundamentals and how well the business is run, it is something we are excited to own.
AM: Awesome. Thanks so much, Shelby.
