Company Updates and Marketing Lessons From the Grateful Dead

In this podcast, Motley Fool senior analyst Ron Gross, Chief Investment Officer Andy Cross, and host Dylan Lewis discuss:

• The reasons Netflix is doing away with its lowest-cost plan.
• What investors should make of the Johnson & Johnson/Kenvue split off.
• Why concerns over Tesla's tightening margins might be overblown.
• Trends in travel and consumer spending based on results from United Airlines, American Airlines, Discover, and American Express.
• Two stocks on their radar: Toro and Mueller Industries.

Motley Fool Money's Alex Friedman caught up with author David Scott about the lessons he and Hubspot co-founder Brian Halligan think businesses can borrow from the Grateful Dead.

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.

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This video was recorded on July 21, 2023.

Dylan Lewis: The earnings rush is on and consumer spending keeps climbing, Motley Fool Money starts now.

It's the Motley Fool Money radio show. I'm Dylan Lewis joining me over the airwaves, Motley Fool senior analysts, Andy Cross and Ron Gross. Great to have you both here guys.

Andy Cross: Hey Dylan.

Ron Gross: How are you doing Dylan?

Dylan Lewis: We've got updates from tons of companies, Marketing Lessons from the Grateful Dead and stocks on our radar, and we're going to dive right in because there are a lot of big names that reported this week. Andy, let's start with Netflix. Shares of the streamer down nearly 10% after it reported six million new customers during Q2. But Q3 forecasts were not as rosy as the market was expecting. Do you think the reaction here is fair?

Andy Cross: Well, let's talk it down so well. Dylan, it's up 50% the other day, so a lot of enthusiasm going into the quarter. Very healthy member growth as that page sharing, which we'll get into in a second kicks in. But the revenue growth was a little lacking because the advertising business they're investing into is not material. It won't be material this year, not until next year. Then higher growth in their lower fee regions, so they see more members growing in that area and it's because they don't charge as much. The revenue growth wasn't quite as high. The revenue at 8.2 billion was a little bit below estimates, but still up about 3% revenue from advertising, as I mentioned, really not material. Then growth a year ago was 8.6%, so you are seeing this deceleration. Average revenue per member, Dylan, was down 3%. Like I mentioned, higher members from those lower average revenue per user. Countries like Europe, Middle East, and Asia, they saw 2.4 million new members, which was twice as high as other regions, but they don't charge as much as they do here in the US, so they had some timing of those additions a little bit off. They lowered some of the prices in those less penetrated areas, and they saw a drop in those average revenue per users across every region, except the US and Canada, but that was really only up about 1%. Overall, the revenue side a little bit lacking, but what was impressive is the operating income and the operating profits. Operating income was up almost 16%, operating margin at 22% versus 20%. A year ago they saw some lower head count. They saw better expense managing and cost of goods sold was down a little bit and tech spend was down a little bit. Overall, expense management, lower cost on the production side, they're dealing with the writers' strike, they're dealing with the actors' strike. That's going to slow down some of the content spend over the year, and they're rolling out that page sharing across more than a hundred countries, their cancel rate was low and they're seeing strong conversions from those shared memberships going into paid members. That's encouraging for shareholders like me.

Ron Gross: I don't want to seem frugal or anything, but for me Netflix is getting expensive with a standard plan of, I think I'm paying 15.50 right now, and I don't want ads, so I don't want downgrade to the six dollar one. I guess my question is, when do they bump up against pricing power here, and people start to bark at 18, $20 a month?

Andy Cross: Well, I think it's funny, Ron, because I was thinking the same thing as I was going through some of our subscription plans. When you said frugal, I thought you were talking as an investor from [laughs] the stock side. [inaudible] It's less than 35 times earnings for this years earnings. I think that's right, Ron, I think because they are such a leader in this space, and also they're profitable, they generate free cash flow, so that's a big advantage for them. They'd be able to continue to invest and put those profits back into the content slate. I think that's the big concern, if they can't get fresh new content coming in. Now they do have a lot of international content, which is great. That isn't necessarily subject to some of the writers' strike and the actors' strikes here in the US, but they need to continue to innovate into that content to be able to charge what they can charge.

Dylan Lewis: Ron to your point, one of the things that slipped in with the earnings release was the update that Netflix is removing it's least expensive basic content plan this month. It seems like they're trying to push people to this ad supported model, Andy.

Andy Cross: I think that's right. They're investing a lot into the ad market, into that business, Dylan. They talked a lot about the investment taking time to pay off. They know they're new to this, they know that they have a lot to work through about and partnering with Nielsen to figure out some of the demographics, figuring out the targeting. They're very patient with this investment and they want it to pay off, and I think they are recognizing that we have an opportunity to push people into the ad part of the market and raise the prices and keep that price high for the ad-free subscription tier that Ron is now whining a little bit about. [laughs]

Dylan Lewis: There's some budget tightening going on at the gross household. [laughs] Sticking with the big names, Johnson & Johnson shares up to 6% after the company reported strong earnings and guidance. Thanks in large part to its MedTech division, which hit nearly eight billion in revenue, good for 15% year-over-year growth. Ron, it seems like this segment is becoming a lot more important to J&J.

Ron Gross: Well, for sure, Pharmaceuticals has continued to be by far the largest segment. But MedTech in a post COVID world where people are getting back to hip replacements and knee replacements, that segment is really surging and it showed up in the results of this report, which was a pretty solid report. In my mind, they beat expectations on both top and bottom lines. Growth didn't knock the cover off the ball. It's not a very high-growth company at this point, but you did have sales growth up 6%, 8% in the US. All segments, as you said, including MedTech were up, Pharmaceutical being the biggest, was only up 3.1%, so that does tend to bring a drag to the overall numbers because it is so much larger than the other segments, but it's still a healthy growth. If we remove COVID-19 comparisons, which it's hard to anniversary those comparisons, Pharma was actually up 6.2%, so just to give people an indication about the health of that business. You take that all into account and you have adjusted earnings up about 8%. That allowed them to raise 2023 guidance, they see strong demand for cancer drugs, recovery in medical devices due to, as we said, an uptake in surgical procedures, they expect Pharma sales to grow more in the second half of 2023 compared to the first half, so a lot of good indications there for management. If we pivot for a second to their consumer health unit, which recently went public, Kenvue, that also reported and beat analyst estimates for their first quarterly reports since being a public company. J&J still holds about 90% of that company, and they announced that they're going to be doing what is called a split off, which is a little bit different than the spin-off. J&J Shareholders will be able to choose to exchange their shares for Kenvue once the predetermined exchange rate is determined. We don't have the exact information yet. We know this is probably going to happen in the near term which spooks some people, send the stock down a bit, rebounded subsequently later in the week. But we will be seeing that soon. Kenvue $24 per share,19 times forward earnings, not the cheapest, it's not the fastest growing company in the world. I like regular J&J much better at 16 times, raised dividends 61 straight years 3% yield. I'm getting interested in J&J.

Dylan Lewis: Wow, Andy, I'm curious looking at J&J and looking at Kenvue here, do you agree with Ron, is the pharmaceutical and med tech business a little bit more interesting to you than this consumer brands business.

Ron Gross: I think so because just the healthcare market in general, from the investing side hasn't performed all that well, just overall. From a valuation perspective, as Ron pointed out, interested, I am interested in getting those Kenvue shares and will certainly explore getting those J&J shareholders. Adding those to help diversify the portfolio a little bit into the consumer side. I'm excited to see that part of the business. But I think in general, I'm agreeing with Ron as always a smart thing. I think I'm going to do that this round too.

Dylan Lewis: It's good alignment there. [laughs] We love to see it. Tesla also reported this week in shares down 10% after the company beat expectations on the top and bottom line. But Andy, the market zoomed in on shrinking margins, which came in at the lowest level in over a year. You have followed this company for quite some time. Is this something to be worried about?

Andy Cross: Well, I think there's a lot of focus obviously on the margin side, and we've talked about this with Tesla. They've been very upfront. Elon Musk and Zach Kirkhorn, the CFO talking about the margin picture and the fact that they're not shying away from that, they are cutting prices to be able to grow their fleet. What is interesting to me is the success Dylan they've been having in lowering their cost per vehicle. In fact, they recognize lower cost per unit in just about every category of their manufacturing. If you see the strategy, what Tesla's going after here, they are continuing to grow their fleet because they're excited about self-driving, fleet, robotaxis, a lot of that future stuff. The revenues were up 50%, automotive sales were up 46%. Obviously that's the big drove. The bulk of the driver energy sales was up 74% in the quarter. Their gross profit was only up 7%, which gets to your margin picture. But the profitability on the per unit vehicle is what really attracting me to what they are trying to do because they are the most profitable car company by a landslide. They are scaling out their EV business. They are growing that fleet and they're using it to do it in a way that on a per unit basis is more profitable and hopefully that scale can continue to widen their lead. Now you have a billion-dollar market cap. They've loads of cash. They generated one billion dollars in free cash flow this quarter. They have that model that is just light years ahead of the other car companies. But there is that margin picture that they've seen this compression over the last couple quarters. That is a little bit concerning, but they're benefiting in on the cost per unit side, which I think is impressive.

Dylan Lewis: You mentioned the robotaxi ambitions and I'm curious for a company that has so many forward-looking elements to it, robotaxis being one, I think the Cybertruck being another. How do you factor those into the valuation for this business and just what to expect for this business.

Ron Gross: Well, guys, if you listened to whether it's Elon Musk and he had pointed out to Cathie Wood's ARK Investment as a place to go and look at some of the future state potential with their FSD, their full self-driving vehicles and the robotaxis and the advantage there, they have more than 300 million miles of SSD driven to date. That's so impressive. It's also, by the way, there's lot of talk about the investments into Dojo, which is their quantum computing world. Because of their ability to be able to handle all of the data that they're collecting. I think that's clearly part of the valuation story and I still think that what he's trying to do is if you're a believer in Elon Musk, you got to be a believer in Tesla too.

Dylan Lewis: After the break, we've got to look at travel trends and credit card companies. Stay right here. This is Motley Fool Money.

Welcome back to Motley Fool Money. I'm Dylan Lewis, join on air by Andy Cross and Ron Gross. It's summertime and I'm guessing people are either on vacation or thinking about it. This week, American Airlines and United both reported giving us a sense of the summer travel picture and Andy, looking through the results, we have record quarterly earnings for these companies. The main thing that hit me with jealousy, mostly that we are at our homes recording here [laughs] and the people out there seem to be taking a lot of international trips this summertime.

Andy Cross: Well, it's true the international is the big driver, Dylan, and the stories are very similar. They both saw very nice healthy revenue growth. They saw some benefit from fuel prices and lower their cost basis. United is a little bit more internationally focused, so they saw a little bit higher than the revenue grows, have up 17%, American Airlines, revenue growth of about 5%. Both of those were ahead of consensus and both ahead of their own estimates. Cargo continues to be the weakness, which is not surprising. We're not buying as many stuff. We know that piece really doing co-bids, they can both continue to see cargo revenues drop pretty aggressively, but it's the excitement around the travel deal and it's excitement around international, especially around business travel. International passenger revenues for United was up more than 40% and their international passenger revenue per available seat miles, that's the unit revenue was up more than 13%, international business was up 40%. Both companies have done very well. Their stocks have performed very well. United is up more than 54% year-to-date. It's on a little bit better because the international focus guidance is still pretty strong going forward. The cyclical stocks, both sale somewhere in the high single-digits from a PE basis. Maybe you have a little bit of cyclicality working through there and a lot of excitement from the airline travel and Robert Isom the CEO of American Airlines, must be Iran gross fan because he said [laughs] on the call, yes, we are firing on all cylinders.

Ron Gross: I don't buy all cylinders. First of all, flights are extremely expensive. Have you flown recently? You're lucky if you even get off the ground because they all get canceled. There's got to be some backlash here at some point. I think consumers are getting a little fed up with what seems to be a very healthy earnings report for these companies, but the customer service is lacking.

Andy Cross: Yeah, and the domestic side Ron, we've already started to see some of the airline prices go down, but they're not seeing on international. International continues to be the strength. United had a lot of challenges in new work with the Canadian forest fires that put some real challenges into them and both of them continue to recognize some of the challenges and invest into their technology, into their hubs system.

Dylan Lewis: We also saw record results from some credit card providers this week, American Express and Discover, both reporting in Amex's case, Ron, revenue for the quarter hitting 15 billion, thanks to all time highs in consumer spending. Doesn't seem to matter what's going on. People continue to pull out the card.

Ron Gross: But yet there's some caution here from both companies because when I say both companies, American Express and Discover, they're both increasing their provisions for credit losses and that is actually what investors are mostly focused on here, sending stocks of both of these companies down. Even though, as you said for like American Express, for example, reported earnings at an all-time high. We look to the future in the stock market and we have to see how healthy actually is the consumer and how will this show up in defaults. But overall, American Express did a fine job. Revenue up 12%. That was actually lower than investors were hoping for, what analysts were hoping for, but still relatively healthy card member spending was up 8%. Travel and entertainment, which we talked about with the airlines, was a very strong category up 14% for the quarter. Millennial and Gen Z consumers remain the fastest-growing customer cohort. Overall, quite a good report. Then come in a $1.2 billion provision for credit losses. That's up from 410 million a year earlier and people get a little nervous. Stocks down. Management did reaffirm full-year guidance shows 15 times earnings 1.4% yield. I think American Express is a wonderful company. We're just going to have to keep an eye on the consumer.

Dylan Lewis: Despite strong results from discover, the credit card company was down 10% after reporting earnings because it was disclosing an FDIC probe. Ron, how seriously should we be looking at this?

Ron Gross: It's actually not going to have a material impact on the financial statements, but we still have to wonder about how is this company being run or do they have a good handle on the various regulatory matters? The quarter was fine. We did see, again some more defaulting loans and provisions for loan losses and that impacted results. Net income was actually down 18%. Earnings-per-share down only 10% because they buy stock back. Not as bad there, but the controversy is what all the investors were focused on. They said they misclassified certain credit card accounts into its highest pricing tier. That seems like something you shouldn't probably do. Merchants were charged more than they should have. They say their revenue impact will not be material. They're setting up a fund to compensate merchants, I think to the tune of $30,065 million. They're going to have some work to do to extricate themselves from this. You never want to see regulatory actions taken. They also have another action from the FDIC that is completely separate from this related to consumer compliance issue. Let them work through this. Eight times earnings 2.7% yield. It's not an expensive stock, but I'd like to see them work through some of these regulatory issues before I get interested.

Dylan Lewis: Andy, putting a bow on this earnings discussion, travel spending up. But we're also seeing those loan loss provisions creep up as well as Ron was talking about. How are you feeling about the health of the consumer right now?

Andy Cross: Well Dylan, we also have the student loan issue that's just sitting out there that I think still hasn't really gotten a lot of attention there. There's definitely some risks that consumer, there's pockets of strength in there and we're spending, but overall, I think be a little bit cautious going forward on the consumer side.

Dylan Lewis: Andy Cross, Ron Gross, fellas, we'll see a little bit later in the show. Up next we've got another look at experienced spending summer concerts and how one legendary act made a big by not trying to chase down every dollar they could.

Welcome back to Motley Fool Money. I'm Dylan Lewis. This summer, one long strange trip is coming to an end. Grateful Dead spin-off. Dead & Company wrapped its final toward this week, capping off an epic run for one of the most bankable and fun summer concert series. Motley Fool Money is Alex Friedman caught the band at Fenway Park and caught up with author and dead fan David Scott about the lessons he and HubSpot Co-Founder Brian Halligan, think businesses can borrow from one of music's most unique acts.

Alex Friedman: David, you and I both love the Grateful Dead. A lot of our listeners, they may not be fans of the Grateful Dead and some of them may even have negative feelings about the Grateful Dead. For folks who are not deadheads. Why even look to this band for inspiration on marketing and business?

David Scott: Oh my. We jump right in, don't we? Alex. [laughs]

Alex Friedman: Yes sir.

David Scott: I think it's super cool because they've done so many things throughout their long history since 1965, differently than most other bands have done. They've managed to have an eclectic group of people who follow them all along the way. I'm one of them and I had my shops on my first concert, in 1979 when I was 17 years old and my most recent concert last weekend in Boulder Colorado. People like me are constantly wanting to experience this music, this band this experience, this tribe of like-minded people because they've really created something that's super unique and a very important part of the lives of people who become fans of the band.

Alex Friedman: The grateful dead broke a ton of different industry rules as abandoned. One that really stands out is letting and even encouraging fans to tape their concerts so that they could have those shows for life. Basically, this is one of the first examples of a freemium business model. I'm sure a lot of folks can think of. When you think about the band making this decision, what do you imagine the lasting impact was on them for doing this and for the world?

David Scott: It was super interesting how this came about. I had a chance to briefly speak with Bob. We're about it quite a number of years ago. They were noticing that fans were bringing recording devices into shows. This is serious recording gear with microphone stands and so on. In the very early days, they tried to police it like every other band did and say, no recording allowed. Then they had a band meeting and said, wait a minute, let's rethink this. Why do we want to be the police and telling people what they can't do, why don't we just let them do it? Then they realize the band that those recording devices, especially the tall microphones that stood 6,8 or 10 feet tall, were destroying other people's viewing sight lines. They created a tapers section typically it was behind the mixing board, so it's a good place for sound. They sold tapers seats where tapers could consent. It was a brilliant form of marketing, like you said, it's an early freemium model. I also call it in the trading. Initially, it was cassette tapes back in the day now people trade MP3 files, but back in the day trading of cassette tapes was a social network before Mark Zuckerberg was even born. Because if you had a great show on a cassette tape, you might make a copy of it for your friend and trade it with them or give it to them as a gift. The ban was cool with that. Feel free to share it with people. We just don't want you to sell it. It turns out that the band didn't think of it as marketing per se. They thought of it as just let's be nice to the fans and let them do what they want to do. But it actually turned out to be brilliant marketing because that's how many people were first exposed to the Grateful Dead with this free content and that's how I was exposed. My next-door neighbor was playing Grateful Dead cassette tapes from shows in his bedroom that I could hear from my house. I'm like that's really cool. What's that? I started to ask them what the band was Grateful Dead or that's super cool. This is in the late 1970s when I was a teenager and Brian Halligan told me the same thing. He was on a painting crew in high school and painted houses. The leader of the crew would play Grateful Dead through a boom box-style cassette player and that's how he got exposed. There's two out of two who got exposed as a result of these cassette tapes that were played in college dorms and in-car stereos and on painting crews and from people's bedroom windows. That led more people to want to see the band live and they sold lots and lots and lots of concert tickets as a result.

Alex Friedman: That's clearly one way that the band prioritize their fans. In the book, you talked about how there are lots of other examples of how they prioritize their fans in different ways. When you think about businesses looking to build and strengthen their brand, why do you think prioritizing your most loyal customers is so significant?

David Scott: Because I think especially now, but certainly back then as well. It's the humanity of it. It's the idea that we are all part of a community. That's really what the Grateful Dead did in such an important way as they realize that, we're a corporation, we're the creators of this music, we're the ones on stage, we're the ones selling the tickets. But if it weren't for the fans, this thing wouldn't happen. If it weren't for the entire community coming together at the shows and experiencing this together, none of this would be happening. They didn't think of it as marketing and several members of the band who I had a chance to ask about it always told me that no, we didn't think of it as a way to make more money, as a way to do marketing, as a way to do branding. What we thought of constantly was, how can we be human? How can we do the best for the fans? The taper thing is such a cool example, but another example of that is the band was finding that people were creating T-shirts and other things that they were selling in the parking lots or in the parks nearby the stadiums and arenas where the shows were happening. It was mostly fans who were just creating 20 or 30 or 40 T-shirts to sell. They were using a license logo, the Grateful Dead steal your face logo. We call it the Steely for short.

At first the band was like, what do we want to do about this? They're taking our intellectual property, they're taking our copyrighted logo and they're creating T-shirts, and they're creating posters and they're doing other things with this material. Belts and belt buckles and all sorts of things. What should we do? What they ended up doing, which I think is another example of this cool humanity, this cool idea of branding and letting the community be a part of it was, they said if you're selling a few items to make a little money to buy a ticket to go the show we're cool with that. But if you become a big business and you bring a truck to a show and you set up a tent or you're selling mail order, then we want to get paid and we will officially license your merchandise. Even today, there's hundreds of officially licensed Grateful Dead merchants out there who are selling many millions of dollars worth of Grateful Dead logoed gear and all different things. That's generating revenue for the band, of course now, when they do that official licensed, but they're also getting that logo out, so people see it. They're still allowing very small-time people to sell a few things at a share with no problem at all.

Alex Friedman: When you think about the band and their partnerships and creating affiliate merchandise, are there any other partnerships that other businesses have developed in a way that's kind of a similar playbook from the dead?

David Scott: It was interesting because the Grateful Dead had this amazing logo and they wanted people to get it out there. They created these partnerships to do that. There's a number of companies that have programs like Amazon comes to mind where you can sell merchandise through Amazon as an official partner and Amazon of course, takes a cut and you have to follow their rules. That comes to mind I also think of the Apple ecosystem where there's all of those apps and other companies are doing that model as well, where you're not part of Apple in the sense that you're not part of the Apple as the company, but you can become an affiliate, and you can sell your app through the app store and it's kind of a similar model. I think that's interesting that many of these things at the Grateful Dead did back in the day in an analog world, are now pointing to how in a digital world we do sales and marketing. That's fascinating to me because I love this idea of digital marketing and digital promotion and digital sales and many of the things Grateful Dead pioneered or things that we are doing today in the digital world.

Alex Friedman: I know HubSpot, that's a company that a lot of us here at the Fool really admire. You wrote your book marketing lessons from the Grateful Dead with your friend and co-founder of HubSpot, Brian Halligan. I'm curious as somebody who's been able to watch HubSpot evolve over the years, are there any clear ways that Brian and HubSpot have been able to take inspiration from the dead?

David Scott: Lots of them, yes. I've been on the HubSpot Board of Advisors since 2007. I was the initial, very first advisor to the company and still am involved with it. Super great. I think one of the most important things that Brian did and Brian's done many of the things that we wrote about in our book. But one of the most important things that Brian did was initially to carve out a new niche in the software space because prior to HubSpot, there wasn't a great way that small-to-medium-sized businesses could manage their marketing. Initially it was marketing. Now they're doing sales and customer support and other things. But initially with marketing and Brian said, well no we're going to create something new. We are going to create something brand new, just like the Grateful Dead did and then they marketed that through content. Just like the Grateful Dead allowed fans to record their concerts and the content of those concert in the form of cassette tapes grew the Grateful Dead's business, HubSpot did a fabulous job and still are by the way, 17 or 18 years, whatever it is later doing a fabulous job to create the content that will generate fans first. Then maybe some of those fans will want to buy something.

Again, that's what the Grateful Dead did. You can listen to cassette tapes and never have to spend a penny with the Grateful Dead and be perfectly happy listening to the cassette tapes that your friends gave you. But maybe over time you wanted to go see a show and then you bought a concert ticket. The same with HubSpot is they had so much great content in the form of blogs, YouTube videos. They have HubSpot Academy where you can take free courses about marketing and other subjects and all of that free content built fans for HubSpot. There's millions and millions of people who have been exposed to that content, most of them didn't become clients. But if you decided, I think I need some marketing software that will help me to run my business then, well, of course I'm going to go with HubSpot because they're the company been providing me with all of this great content.

Dylan Lewis: Free content for people who are interested in what you do. What an amazing idea. A reminder that Motley Fool Money is also available daily wherever you listen to podcasts. If you're looking for stock ideas, we do that too. You can get information about our flagship investing service and five-stock picks, totally free. I go to fool.com/report. You get David Scott's book, Marketing Lessons from the Grateful Dead on Amazon and elsewhere online. We'll be back with stocks on our radar in just a minute. 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. I'm Dylan Lewis, joined again by Andy Cross and Ron Gross. We're going to get over to stocks on our radar in a minute. But this is my first time talking with both you guys during earnings season, we've touched on some of the themes that are visible already. Hot travel market, consumer spending holding up so far. But something for us to be keeping an eye on. Ron, what's on your radar this earnings season?

Ron Gross: Probably the same thing that's always on my radar. I'm looking at earnings growth for the companies that I'm most interested in and management's forward guidance. I'm looking for clues as to the health of the consumer and for companies willingness to spend, which may help me form an opinion as to the likelihood of a recession either later this year or in 2024. I'm hoping there won't be or and if there is one, it will be shallow and short. I'm also looking to see if the rally that we've been experiencing in the S&P 500 broadens out. So far it's really been because of the performance of five or ten very large cap tech stocks, Apple, Microsoft, Nvidia, Tesla. But the equal-weighted S&P 500 index is only up about 9.5% versus the regular S&P 500 up 19%. The rally has not been broad. If it does broaden out and we start to see the other 490 stocks and the index start to rally, we could have a very interesting back half of the year.

Dylan Lewis: Andy, what about you? What are you watching this earnings season?

Andy Cross: The equal-weight, it's hard to catch up, Ron. We're starting to see a little bit of progress, which is great, but I agree with you, we need to see some broadening out. For me a lot of it to echo Ron's on the consumer side, a lot in the pipeline from the enterprise spending on the tech side, we saw a lot of commentary over the past couple of conference call quarters about some of the enterprise customers lengthening out their sales cycle, pushing out some orders. The second half of the year, a little bit cautious. That impacted a little bit Ford's growth rates and the expectations and at the enterprise level for some of those large clients, that can be very profitable growth for the companies providing that like cybersecurity, whatever you may have. I'm looking to see commentary from that about are they starting to see more interests in the pipeline and the activity that they saw got pushed out or maybe cautious come back into the fold.

Dylan Lewis: All right, Let's get over to stocks on our radar. Our man behind the glass, Rick Engdahl is going to hit you with a question. Ron, you're at first, what are you watching this week?

Ron Gross: I'm watching Toro TTC, leading outdoor equipment company with brands and equipments such as lawnmowers, professional turf equipment, irrigation systems, snow removers. They serve both residential and professional markets. Nowadays, more than three-quarters of their sales are to professional customers, including landscaping companies, golf courses, and stadiums. Their net sales have more than tripled over the last 10 years. Selected acquisitions have helped that. The business is less seasonal than it used to be. We've got a lot of large government spending programs that are going to help this company going forward. They have strong operating cash flow, raised their dividends for 14 consecutive years, 1.3% yield only, but that should continue to keep growing. I think it's worth looking at Toro.

Dylan Lewis: Rick, a question about Toro.

Rick Engdahl: Who would win in a fight, a self-driving lawnmower or a self-driving Tesla.

Ron Gross: [laughs] I got to give it to Tesla. Come on.

Dylan Lewis: I'd like to point out, by the way that Ron and Matt Argersinger our colleague, might slowly be becoming the same person.

Ron Gross: This is a mad company by the way. This is a recommendation in our dividend investor service which Matt runs.

Dylan Lewis: [laughs] Andy, what is on your radar this week?

Andy Cross: I'm looking at Mueller Industries, symbol MLI. It's a five billion dollars industrial manufacturer of copper, brass, aluminium, and plastic products that targets the plumbing, the air conditioning, the heating, and the refrigeration markets. Dylan, I don't know if you've been outside recently, but it's quite hot and it's unfortunately climate change is real as we've seen over the past couple of years and this company helps provide, so building solutions and products that target refrigeration markets. Then like I mentioned, the air conditioning markets, industrial plumbing, and they've been around since 1917. They've grown revenues over the past five years by 11% per-year and profits by more than 50% well more, but the long-term growth targets of 10% growth in operating income. It's very profitable, it generates high returns on capital. Boosted their dividend by 20% recently, now yields 1.3%. It is a cyclical company the stocks up more than 50% year-to-date. We are seeing a lot of excitement in this company, especially around some of the issues that they are helping to solve and with their tubing and their products. I'm looking for a little bit of a pullback before I get too excited to Mueller Industries, but boy, it's been a long-term winner and very exciting to see how they are growing the business, MLI.

Dylan Lewis: You're dead on. I'm a huge fan of central air, even if I have [laughs] to turn it off while we're recording to avoid that low hum in our audio. Rick, a question about Mueller Industries.

Rick Engdahl: Not a question just to comment that as side-hustles good, Jim Mueller is really he's firing all soldiers here.

Rick Engdahl: His hand in other parts there. Rick, which company is going on your watchlist this week?

Rick Engdahl: I'm going to go with Toro just because I want to see that fight.

Dylan Lewis: That'll be a future debate. We'll have Ron Gross and we'll have Matt Argersinger to debate the merits of Toro agreeing with each other. Rick, thank you so much for joining us for this segment. Andy, Ron, thanks so much for joining me for today's episode.

Ron Gross: Thanks, Dylan.

Andy Cross: Thanks, Dylan.

Dylan Lewis: That's going to do it for this week's Motley Fool Money radio show. The show is mixed by Rick Engdahl. Thanks for listening. We'll see you next time.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. American Express is an advertising partner of The Ascent, a Motley Fool company. Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Alex Friedman has positions in Apple, HubSpot, Netflix, and Nvidia. Andy Cross has positions in Amazon.com, Johnson & Johnson, Microsoft, Netflix, Nvidia, and Tesla. Dylan Lewis has no position in any of the stocks mentioned. Rick Engdahl has positions in Amazon.com, Apple, Microsoft, Netflix, Nvidia, and Tesla. Ron Gross has positions in Amazon.com, Apple, HubSpot, and Microsoft. The Motley Fool has positions in and recommends Amazon.com, Apple, HubSpot, Microsoft, Netflix, Nvidia, and Tesla. The Motley Fool recommends Discover Financial Services and Johnson & Johnson. The Motley Fool has a disclosure policy.