For the last couple of years, it's been easy to group the "Magnificent Seven" together. These massive companies have become the dominant tech players and have taken advantage of artificial intelligence (AI) like no other group of companies in the market.
But once President Donald Trump took office and enacted sweeping tariffs, the group began to diverge based on how tariffs impacted their supply chains and the types of products and services they sold.
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Microsoft (NASDAQ: MSFT) has been one of the strongest, most resilient performers in the group. Is it time to double down on Microsoft stock today?
While all the companies in the Magnificent Seven operate in the tech sector, most of them have been able to develop diversified revenue streams. Microsoft has many unique tech businesses, including cloud services, Microsoft Office 365 products, gaming, LinkedIn, search and advertising, and more.
Luckily for Microsoft, many of these businesses are services the company provides and therefore are less impacted by tariffs, which likely explains its strong performance in 2025 (as of June 3).
But a big reason for the company's strong performance is Azure, which falls under the company's cloud services and products category. Azure and other cloud services revenue in the company's third fiscal quarter of 2025 (quarter ended March 31, 2025) grew 35% year over year.
Azure is the foundation of Microsoft's artificial intelligence offerings and business. Launched in 2010, Azure started as a cloud computing network of data centers that companies could run their business on instead of maintaining their own infrastructure.
Since then, Azure has branched out to offer numerous other products, including in artificial intelligence. Through a partnership with OpenAI, Azure provides AI models that developers and businesses can leverage to build their own AI applications. Microsoft has also integrated AI tools from Azure into its own applications, such as Microsoft 365 Copilot, to automate repetitive tasks and improve efficiency.
Image source: Getty Images.
Many investors questioned Microsoft's significant capital expenditures (capex) on AI over the last two to three years, wondering when they would see a payoff, which has now started to play out. Interestingly, on the company's most recent earnings call, Microsoft CFO Amy Hood pointed out that it's getting harder to separate AI-related revenue from non-AI-related revenue, as the two are starting to feed off of one another.
Evercore analyst Kirk Materne raised his price target on Microsoft from $500 to $515 in late May and maintained a buy rating on the company. Materne said that not only is Microsoft all in on AI, but the more traditional cloud business also still has plenty of runway, considering only around 20% of information technology workloads run in the cloud today -- a number Materne thinks could eventually increase to 80%. And AI tools could be a way to bring more businesses onto the cloud. Materne estimates that Microsoft's AI revenue could reach upwards of $110 billion by fiscal year 2028.
There are several reasons to double down on Microsoft. For one, it is arguably the company least impacted by tariffs in the Magnificent Seven. As Morningstar points out, the company "has minimal risk exposure to retail, advertising spending, cyclical hardware, or physical supply chains." This should make it more resilient as the trade war continues to play out.
Microsoft's cloud and AI business is also starting to thrive. The company is reaping benefits from all the capex spending and is well-positioned to further grow revenue as the digital transformation of the business world continues to progress. Finally, Microsoft is one of just a few companies in the world to hold the highest possible credit rating from both Moody's and S&P Global. This makes it a source of stability throughout the economic cycle.
Before you buy stock in Microsoft, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Microsoft wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Moody's, Nvidia, S&P Global, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
In this podcast, Motley Fool analyst David Meier and host Ricky Mulvey discuss:
Then, Motley Fool personal finance expert Robert Brokamp joins Ricky to discuss why investors should consider buying individual bonds.
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A full transcript is below.
Before you buy stock in On Holding, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and On Holding wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $635,275!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $826,385!*
Now, it’s worth noting Stock Advisor’s total average return is 967% — a market-crushing outperformance compared to 171% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.
*Stock Advisor returns as of May 12, 2025
This podcast was recorded on May 12, 2025.
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Ricky Mulvey: Does Alphabet deserve a grocery store multiple? You're listening to Motley Fool Money.
I'm Ricky Mulvey, joined today by the smirking David Meier. David, thanks for being. What are you smirking about? What's so funny?
David Meier: Oh, it's all good today. All good.
Ricky Mulvey: Good. Just making sure I don't look funny or anything. That's why we do a audio only podcast for today. Politics keeps mixing with markets, and we have some earnings from a fast growing apparel later in this segment, Dylan and Ja-mo hit the trade deal-ish trade agreement question mark between the US and China yesterday. But there's another move from the White House that could have significant implications for markets. President Trump signing an executive order that Americans must get a "Most favored nation price for prescription drugs." David, when I saw this, my first reaction was sweet. You know what? I bet the big drug makers stocks are going to dive on this. They did not flinch. The US is where a lot of their profits come from. What's going on here?
David Meier: The reason they didn't flinch is because the market doesn't believe that those profits are going away. It's as simple as that. If we look a little bit under the hood at what the executive order actually says, it does lay out some cases where other countries around the world pay lower prices than we do in the US. Well, they negotiate differently. The market for drugs is way more open in the United States than it is in other countries. Governments tend to negotiate on behalf of their people because they're the ones making the purchases. They have some negotiating power. We here in the United States tend to let markets determine prices. There are other players. There's PBMs and things like that. But this is basically the market saying that the US markets will withstand higher prices. Basically, with the stocks not really moving on the news, the market says, Well, we look ahead and we don't see how you're going to do this. Basically, the other thing that the executive order said was, Health and Human Services Secretary, go out and put together a plan in 30 days for what you think the prices will be. There's a negotiation that's going to happen in between, so we'll see what happens, but as of right now, I think that's what the market is saying.
Ricky Mulvey: Well, the pharma lobbyists are saying something else, David, they're certainly sweating a little bit. According to Bloomberg, the brand drug lobby, PHRMA my old employer had an emergency call on Sunday and said that this could cost the pharma industry one trillion dollars over a decade. You look at a drug like Ozempic. This was mentioned in the press conference with President Trump, where a month of is almost $1,000 in the United States, about 60 bucks in Germany. That's not great if you need Ozempic. That's also a huge profit margin for Novo Nordisk. Novo Nordisk CEO trying to defend the practice in Congress a little while ago saying, don't look at me. Look at the pharmacy benefit managers. Those are the ones that are really screwing up prices here. The lobbyists are certainly concerned here, and is this a time where if you own stock in a drug maker, especially one making weight loss drugs, is this a time to revisit your thesis?
David Meier: The short answer is yes. Should you panic? I don't think so, but you should go back given how this all tends to work. Regulation does play a part in many industries, but in pharma specifically. The lobbyists are going to have to basically make the case to the HHS secretary to say this is why we think these drugs should be priced here. Again, this is about pricing power, this is about bargaining power. The lobbyist pharma is going to have to roll up their sleeves and do some work over the next 30 days and beyond that because if I read everything correctly, there's some other milestones at 180 days and a year out and multiple years out. This is going to take a while to play out. They're going to have to do some work to basically say, look, there's a reason that we one should be able to charge these prices, and two, there are benefits to our industry as a result. Because you got to remember, a lot of that gets plowed back into research and development of all kinds to bring the next generation of drugs and next generation of care. I don't think anybody would want higher prices just for the sake of higher prices. We should want our healthcare to be reasonably priced. But at the same time, we don't want to disrupt the long term innovation that happens here as a result.
Ricky Mulvey: I think the administration is saying and I would actually agree on this point. I've been accused of being too liberal and too conservative on this show, so we'll see what complaints I get this time. The administration would basically say, we don't want to stifle innovation necessarily, but it shouldn't be on Americans alone to fund that innovation when you have other developed countries in the European Union, Australia, for example, paying significantly less for the exact same drug coming out of the exact same factory.
David Meier: That makes sense. Then the question is, who's going to do the negotiating? Is our government going to step in and do the negotiating? That would be a big change to how our markets work today.
Ricky Mulvey: We'll see how it goes. I should also mention I've never worked for a brand name pharmaceutical lobbyist. I'm afraid of catching heat today, David. I don't know why. Let's move on to earnings. [laughs] Let's talk about earnings. Let's focus on the fastball here. On Holding the maker of comfortable shoes, where rocks and mulch often get stuck at the base of it, I enjoy wearing them still, they reported this morning sales up a blistering 40% from one year ago. That is on a constant currency basis because we're going Swiss francs to US dollars with this earnings report, getting us in some trouble. It's about $860 million in sales for the quarter. That's in US dollars. I'm looking at a retailer that is earning basically 40% more sales than one year ago. David, what is On getting right in this environment?
David Meier: They have the product that people want. I hope I don't sound glib when I say that, but that is true. Their products are very good and in demand all around the world. They had good growth in all of their geographical segments, and it's because they have taken the time and made the investments to put technology into their shoes that make them both comfortable, functional, whether you're running, whether you're working out, whether it's casual, all these things, but playing tennis can't forget about Roger Federer they have product that people want. As we saw here this quarter, more people wanted it, even as we're starting to get into a little bit of the impact of the tariffs.
Ricky Mulvey: On Clouds were one of my tariff panic purchases. Those included airpods for a birthday gift. I had to get some basketball shoes. Then I was like, my On Clouds have completely worn out at the bottom, where the rubber is gone, and I need to get these before the prices get jacked up by maybe 50-100%. I don't think that's going to happen now that we have the pods, but I do have some new On Clouds. I'm a big fan of the product. Is this something you own? Are you taking a lynchian look at this company?
David Meier: I don't own shares, but I was a bit of a sneaker guy. I have tried them, and also like them. You probably aren't the only one making a purchase ahead of what may have transpired, and you did it because you liked the product. It was their direct to consumer channel that actually had the best growth. I don't think you are in the minority in terms of maybe pulling a purchase forward. But to management's discredit, they actually said, we still see plenty of demand for the rest of the year. It's not a top line thing for them. What they are actually saying in terms of the tariff impact is maybe margins will get pinched a little bit. We're doing our best to figure out what those might be. We're not really knocking them down heavily, but we just want to let you know that it could be volatile. But on a top line basis, they say our product is in demand. We're making sure that all the places where we sell our shoes have plenty of product and good up to date products. I credit management for at least at the beginning handling this uncertainty pretty well.
Ricky Mulvey: Let's dig into the numbers a little bit more. Looking at operating margin here, I think there's a story because now On is about on par with Nike's historic average, about 10-ish, 11%. Nike dipped in a recent quarter, but we'll take that out to be nice to our friends at Nike. This is significant for a younger brand that you would think needs to spend more as a percentage of their sales on marketing or maybe have less negotiating power with shoe stores like Foot Locker and yet, there they are in an efficiency basis, pretty much on par with Nike, what story does that operating margin number tell investors?
David Meier: This is actually a fantastic question. Let's use the Nike and On Holding comparison. Both companies do sponsor athletes. But Nike, man, think about the suite of athletes that market their products. That's actually a huge expense for Nike, and they make the most of it by getting in terms of volume and pricing that they've been able to generate for their products over the years. Even though On does have, again, those sponsored athletes, it's less compared to what Nike spends. They have actually done a good job of again, creating a product that people want, creating a product where word of mouth marketing is probably more important than necessarily the sponsored marketing. Again, getting the products to consumers in the way that want to buy them. On has the advantage of having a consumer that is more apt to buy in a direct consumer channel, an online e-commerce type channel than Nike had when it was starting out.
The other thing I credit is, in addition to putting good technology into their products, they've actually done a good job of building their business from a supply chain management standpoint, from managing their marketing all these things, and figuring out where they can price their product in order to keep moving it at the volumes that they need. At the same time, they've been able to reinvest back into the company to say, hey, here's our latest technologies that we want to put in shoes. We want to expand into apparel. Hey, we need to open up a distribution center in Atlanta. I give management a lot of credit for not only creating a good product, an emerging brand, but they've created a very good business around this. This is something that's important for the long run because if you look at the history of Under Armour, Under Armour had a phenomenal brand, but they weren't the best operator. Eventually, that caught up with them as they tried to get bigger and bigger. Going forward, we'll see how all this plays out for On, but they've done a good job of balancing all the things that they need to balance in terms of creating a good long term business.
Ricky Mulvey: You don't think Elmo is getting Step Curry rates for those commercials?
David Meier: I don't know. Depends on how good Elmo's agent is.
Ricky Mulvey: That's a good question. They have the commercial with Elmo and Roger Federer. They're using Elmo quite a bit in their commercials. I think On looked at Adidas and saw the trouble they ran into with Kanye West and said, what is the opposite celebrity we can find? Then you get Elmo selling shoes for him.
David Meier: You asked about my smirk earlier. There is nothing but good entertainment value as well as educational value in what we're talking about today, because that is just awesome.
Ricky Mulvey: Let's close out with the story on Alphabet. We've gotten a few questions about this company from listeners. Because of its underperformance relative to the market and story line going into it, there's a Wall Street research report from an analyst named Gil Lurie. He would like to set the company on fire, basically saying the only way forward for Alphabet is a complete breakup that would allow investors to own the businesses they actually want, making the point that the entire business is valued on the worst multiple that investors can find. That's the search multiple. It's about 17 times. Before I get to your question on valuation, why do analysts need to assign the worst multiple to the whole business? There's a lot of smart people looking at Google, and I assume some of you can do math.
David Meier: [laughs] That is essentially the average. One way you could go about valuing Google/Alphabet is value the search business, which is by far the biggest business, generates the most cash flow, has the most uncertainty around it today. What is AI search going to bring in the uncertain macro environment? Is search going to go down? Is it a commodity now? There's all things facing the search business, but they have many other segments. What this analyst is basically saying is, hey, these other segments deserve higher multiples. Well, maybe that's true. As an analyst, you could do that yourself and say, YouTube is worth this. The Cloud business is worth that. The chip business is worth something else. If you think that as a whole, the business should be trading at maybe 24 times a weighted average multiple instead of 16, as an analyst, you can say that. The challenge, in my opinion, in breaking this up, is where do these companies get their capital from? All of them need investment capital in order to operate, and a lot of that comes from search. While I understand that breaking everybody up could unlock a lot of value, if you look at the most recent breakup of a very large company, go to GE. General Electric has split into GE Aero, GE Vernova which is the energy business and GE Healthcare.
That had a conglomerate discount, and it took years to divide that business up. Now, the sum of those parts is greater than the previous whole. But it's not necessarily easy for those companies to operate on their own. Again, the internal capital allocation process is taking a lot of cash flow that comes from search and putting it in new businesses, making new investments, making new moonshots. Is moonshots a thing still associated with Google?
Ricky Mulvey: We can count Waymo. They got self driving stuff going on.
David Meier: There's all sorts of stuff. While I understand breaking it up could unlock a lot of value, I also am sympathetic to the idea that, hey, most of the capital comes from search. If you put these businesses on their own, does that mean they have as much capital as they need in order to grow as fast as they want? I don't know the answer to that question. It's a risk to basically set all those free as individual companies in the market, and the market might say, well, this is great, but, Waymo, you need a lot of capital going forward.. Maybe I'm not going value you at the multiple that somebody else thought you were now that I can see all of your financials.
Ricky Mulvey: Let's close out with the question that introduced the show. There's some narratives going against Google right now. The search business is declining. You're doing nothing compared to ChatGPT. Your business there could become obliterated. For that, Mr. Market is assigning Alphabet a lower than average earnings multiple about 17 times. David, that is what Kroger trades at. A very mature grocery store business. Here, you have Google, which still dominates the search market. It's got a growing Cloud business. It owns YouTube, which is the biggest streaming service anywhere. It's free, but we can set that aside for now. I've got this company on my watch list. Should I pick up some shares while Alphabet's in value town? Are we looking at a falling knife here?
David Meier: Me personally, as someone who I've followed this company for a long time. I'm in agreement with you. I think shares are probably undervalued, but they're probably a little undervalued for a reason, and that's because there's a lot of risk and uncertainty that's ahead of the company in the short term. If you have a case where the lawsuits don't have a big impact, if there's not a call for a breakup by the FTC, if the other businesses that are growing, again, the ones we mentioned, YouTube, GCP, things like that. If they have all of the earnings power that this analyst thinks they do, eventually the market will be able to see through all of it and figure out what's the right multiple. I just personally think this is a phenomenal business generates significant cash flow. They have multiple ways that they can reinvest that cash flow. It's probably a little undervalued today. Even as a conglomerate.
Ricky Mulvey: We'll leave it there. David Meier, thank you for your time and your insight.
David Meier: Thank you so much, Ricky. This was a lot of fun.
Ricky Mulvey: Hey, Fools, we're going to take a quick break for a word from our sponsor for today's episode. Real estate. It has been the cornerstone of wealth building for generations, but it's also often been a major headache for investors with 3:00 AM maintenance calls, tenant disputes, and property taxes. A Fundrise Flagship Fund, a 1.1 billion dollar real estate portfolio with more than 4,000 single family homes in the Sunbelt communities, 3.3 million square feet of in-demand industrial facilities all professionally managed by an experienced team. The Flagship Fund taps into some of real estate's most attractive qualities, long-term appreciation potential, a hedge against inflation, and diversification beyond the stock market. Check, check, and check.
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Robert Brokamp: Yeah, and 2022 was probably the worst year for the stock market in US history. It was quite notable. The main cause of the declines has been the rise of interest rates. If you go back to 2020 in the middle of the pandemic, the 10 year treasury yielded an astounding 0.5%. But over the last few years, it has risen to almost 5%, reaching that in 2023. It's fallen down a bit back, but it's still at around 4.5%. When rates go up, the value of existing bonds go down. Why? Well, if you had bought a 10 year treasury back in 2020, that yielded 0.5%. It's now less attractive because after all, who would want 0.5% yield if 4.5% is now available? The price of the 0.5% treasury has to adjust downward. However, there's good news. The price of that bond will return to its par value as it gets closer to maturity as long as the issuer, in this case, uncle Sam, is still in business, so the price decline won't last forever.
Ricky Mulvey: Unfortunately, that same dynamic may not play out in a bond fund, which could hold hundreds or even thousands of bonds with different maturities and credit ratings that are constantly being bought and sold. But you can get varies with your 12 month trailing yield, your 30 day SEC yield, or your weighted average coupon rate. One solution is to buy individual bonds instead of bond funds. However, it's not as simple as it sounds, so Bro's got a few tips starting with invest enough to be diversified.
Robert Brokamp: There's one rule of thumb that says you shouldn't attempt to construct your own bond portfolio unless you have at least $50,000 to invest. That's because the issuers, whether it's corporations, municipalities, foreign governments, they can all go bankrupt and default on the debt. That doesn't mean you'll lose everything, actually. Investors typically recover 40% to 60% of the original value of the bonds after a company restructures, gets liquidated, but it usually takes a while for investors to get some money back. You want to spread your bond books around. When it comes to investing in stocks, we hear at the Fool generally say you shoul down at least 25 companies, and that's probably a good starting point for bonds as well. Though if you invest in really really safe bonds, you can get away with a smaller number. For example, you can feel more secure with a smaller bond portfolio or a smaller number of issuers if you invest primarily in US treasuries, which are still considered among the safest investments in the world.
Ricky Mulvey: Fledgling casino developers may not like this tip, but Number 2, stick to investment-grade bonds.
Robert Brokamp: To minimize the risk of buying bonds from a company that may go belly up, you want to stick with investment grade issuers, and those are rated Bbb or higher by standard and Poors or Baa or higher by Moody's. According to fidelity, here, the 10 year default rates on bonds of different ratings from 1970-2022 as rated by Moody's. Tripple A bonds have a default rate of only 0.34%, so pretty darn safe. Investment grade 2.23%. Speculative grade, high yield junk, whatever you want to call it, 29.81%. That's a high default rate, which is why they pay such high yields. But even if you stick with investment grade, there's still the risk of default. In fact, if you own individual bonds long enough, you probably will see a couple of defaults. It's still important to diversify your bond portfolio, but you can mitigate that whole default risk by choosing highly rated bonds.
Ricky Mulvey: Next up, find out whether the bond can be called.
Robert Brokamp: Every bond has a set maturity rate, but many can be called before then. What happens is that a company decides to pay off its bondholders before maturity. You bought, let's say, a 10 year bond, but then it got called five years in. Why did they do that? It's usually because interest rates have dropped or the bonds credit rating has improved. It allows the issuer to redeem the old bonds, issue new ones at lower rates. Unfortunately, that leaves investors left with having to reinvest the money at lower rates. You want to make sure you know beforehand whether the bond you're going to buy is callable, and if so, what the yield will be. You'll often see at the quotes, you'll see either the yield to call, YTC, or the yield to worst, YTW, and that's what you'd receive if it does get called. By the way, another benefit of treasuries is that they're not callable.
Ricky Mulvey: This next one gets a little tricky if you like owning investments in standard brokerage accounts, Bro, but pursue the primary market.
Robert Brokamp: When bonds are first sold to investors, what is known as the primary market, they're usually sold in $1,000 increments and will be worth $1,000 when they mature. This is known as their par value. But once a bond is issued, it trains on an exchange. This is known as the secondary market. At that point, a bond rarely trades for $1,000. The price is going to either be higher or lower, depending on changes in interest rates and what's going on with the company, maybe what's going on with the economy. If you buy a bond that is below or above its par value, this is going to add a layer of tax complexity because when the bond matures for $1,000, you're either going to receive less or more than you paid for it. This is a really complicated topic, but in most situations these days, investors are buying bonds at a discount, meaning they're paying, let's say, 950 bucks for a bond that will eventually mature in 10,000.
That $50 difference is going to be taxed as ordinary income in most situations, not as a capital gain. You can avoid all this tax complexity if you buy bonds right when they're issued in the primary market and then hold to maturity. That said, buying bonds in the primary market isn't easy. You're going to increase your chances by having an account with a brokerage that underwrites a lot of bond offerings. Some of the bigger discount brokers also have access to some primary offerings, but you might want to check with them beforehand to see how big that inventory is going to be.
Ricky Mulvey: If you want to play this game, you got to know what you're buying. Understand how bond prices and yields are quoted.
Robert Brokamp: Now, if you've never seen the quote for a bond, it's going to look a little interesting to you because despite being typically worth $1,000 at issue and at maturity, bond prices are quoted in a different way. You basically move the decimal point to the left. A quote for 99.616 for a bond indicates that the bond is being offered for $996 and 16 cents. You'll likely see both the coupon and the yield quoted. The coupon was the interest rate on the day the bond was issued. But once the bond begins trading and moving above or below its par value, the yield is a more accurate representation of what you'll actually receive as a percentage of what you paid for the bond. Then finally, most bonds pay interest twice a year. When you buy a bond in the secondary market, you'll owe accrued interest to the previous owner for the time she or he owned the bond in between payments, but then you'll get the full six months worth of interest during the next payment, even though you only owned the bond for maybe less than six months.
Ricky Mulvey: Bro, our engineer Rick Angol was asking for more excitement before we started recording in our segments. Really I think he's getting it with understanding how bond prices in yields are quoted. Let's keep going with the tip of buying directly from Uncle Sam.
Robert Brokamp: You can buy savings bonds, treasuries, I bonds, treasury inflation protected securities, otherwise known as tips, directly from the government, commission free @treasurydirect.gov. It's a really convenient way to buy treasuries. Unfortunately, it can only be done in taxable accounts because the government isn't set up to serve as a custodian for IRAs. But the consolation here might be that interest from treasuries is actually free of state and local income taxes, so that makes them somewhat more compelling. Also, in the case of treasuries and tips, you don't actually buy the security immediately, knowing the exact yield you'll receive, rather, you're basically signing up to participate in an upcoming auction. Once the auction is complete, you'll be informed of the rate you'll receive.
Ricky Mulvey: Finally, you can get the best of both worlds with defined maturity ETFs.
Robert Brokamp: If you've been listening so far, you can see that buying individual bonds requires more education and effort than just buying a bond fund. Fortunately, there's a type of bond ETF that offers most of the benefits of buying individual bonds. These are known as defined maturity or target maturity bond ETF. These are funds that only own bonds mature in the same year, and that year will be identified in the name of the ETF. Toward the end of that year, after all the bonds have matured, you'll just have a bunch of cash. The cash will be distributed to the shareholders and the ETF ceases to be. The two main issuers of this type of ETFs are Invesco, and they call them BulletShares or iShares, and they call them I-Bonds, but that's not to be confused with the inflation-adjusted bonds issued by Uncle Sam. You can use these ETFs to invest in all kinds of bonds, corporates, munis, TIPS, high yield bonds. Both the Invesco and iShares websites have tools that can help you build a bond ladder with these ETFs.
You have a certain amount coming due each year, probably particularly attractive to retirees. Like all bond funds, these ETFs are going to go up and down in value depending on what's going on with interest rates in the economy, but they should return close to their initial share price, that is the price of the ETF on its very first day once the fund matures. But there are no guarantees, and this is more likely if the ETF invests in safer bonds, less likely if you're choosing an ETF that invests in high-yield or junk bonds. But the bottom line is that with these ETFs, you can get the ease and diversification of a bond fund, yet a measure of the predictability about what the ETF will be in the future, similar to what you'd get from an individual bond, in other words, most of the best of both worlds.
Ricky Mulvey: As always, people on the program may have interests in the stocks they talk about in the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear personal finance content, follows Motley Fool editorial standards, and we not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only to see our full advertising disclosure, please check out our show notes. Motley Fool only picks products that it would personally recommend to friends like. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. David Meier has no position in any of the stocks mentioned. Ricky Mulvey has positions in Kroger. The Motley Fool has positions in and recommends Alphabet, Moody's, and Nike. The Motley Fool recommends GE Aerospace, Ge Vernova, Kroger, Novo Nordisk, On Holding, and Under Armour. The Motley Fool has a disclosure policy.
In this podcast, Motley Fool analyst Jason Moser and host Ricky Mulvey discuss:
Then, Motley Fool personal finance expert Robert Brokamp joins Ricky to discuss how to diversify your savings.
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A full transcript is below.
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This video was recorded on April 29, 2025
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Ricky Mulvey: The ships are slowing down. You're listening to Motley Fool Money. 'm Ricky Mulvey joined today by Jason Moser, the man who can do it all by himself. Jason, thanks for being here, man.
Jason Moser: Thank you for having me, Ricky. How's everything going?
Ricky Mulvey: It's going pretty well. I'm going to Casa Bonita tonight, which I feel like is a real introduction to Denver, and I will tell you about what that is maybe after the show, because we got a lot of news to break down.
Jason Moser: Yes, we do.
Ricky Mulvey: Let's get to this story. We have a lot of earnings going on, but I think this macro story is worthy of investors attention. Gene Seroka is the executive director of the Port of Los Angeles, and anytime you start getting port directors going on cable news, it's usually not a great sign for the economy, JMo. He went on CNBC's Squawk Box, and he said that he expects cargo volume to be down by more than a third next week, compared to last year, and that a number of major American retailers are stopping all shipments from China based on the tariffs. To lay out the law, who's getting hurt by this?
Jason Moser: Maybe the better question is, who isn't getting hurt by this? Because it does seem like something that is going to hurt an awful lot of folks covering the spectrum there. I think, generally speaking, small businesses stand out as ones getting a bit more hurt by this, at least in the near term. They tend to not have the same financial resources and are a little bit more dependent on imports and whatnot. I think large companies like Walmart, your Costcos of the world, they're able to shoulder the burden more just because of their scale. Now, with that said, I will say Walmart is particularly levered to China, for example. It's estimated that 60-70% of Walmart's globally sourced products actually come from China. Even more noteworthy, I think there is market research that suggests that figure could be closer to 70-80% for merchandise sold in the US so they're not immune, but they have the ability to shoulder that burden. They can handle it and bye their time as all of this tariff stuff plays out. I think ultimately that really points to the biggest question mark in regard to all of this is just when is this going to ultimately be resolved? And that is still just very unclear, but there's just no question, small businesses are going to feel the brunt of this very quickly.
Ricky Mulvey: Well, I think there will at least be an inflection point when these decreased shiploads lead to empty shelves in physical stores and on online stores like Amazon. I've noticed that these looming tariffs have absolutely impacted my shopping habits. Are you doing any pre tariff shopping in the Moser household right now?
Jason Moser: I have not yet, but it is still early. Now, when I start seeing Chewy telling me that our dog and cat food is out of stock and that shipment's not coming, then I know I've got serious problems because I have three dogs and a cat that won't stand for that, and I can't explain it to him either. But as of now, listen, I've got a garage full of toilet paper and paper towels so I think we at least have the necessities for now.
Ricky Mulvey: You've got a big yard, and you just might need to learn how to hunt in order to provide for your dogs. I've noticed it over here, I just bought a set of AirPods because I'm like, Oh, these are made in China and better get them while I can, first of all, get them and while they're on sale. I've been stocking up on clothes just because I don't know what's going to happen to the shelves. I don't know if my size is going to be impacted, but yeah, it's absolutely impacted my shopping habits, Apollo's chief economist Torsten Slok released a presentation earlier this month, and he laid out a timeline for tariffs, and there's a slide with the spicy title for a PowerPoint slide, the voluntary trade reset recession. Points out early mid May, that's when you start seeing those containerships come to a stop. Then in mid to late May, that's when trucking demand also comes to a halt a fewer trucks are taking things off containerships. Then right in that late May, early June window, that's when you're going to see empty shelves and companies responding to lower sales. What do you think about that timeline?
Jason Moser: I think it's certainly a potential outcome in theory. Now, if that happens, I think there will be massive political consequences. We have to look at this and say well, This is self inflicted. We started this, and it's a matter of trying to figure out, ultimately what the goal is here, and I think that is still unclear, and we're operating just on this day to day headline economy, so to speak. My hope is that this is a worst case scenario and that cooler heads prevail sooner rather than later. But listen, we're just getting ready to start May here, very soon so that's not far off and if that happens, clearly, the consumer will have their say.
Ricky Mulvey: Let's take a look at PayPal reported this morning, and JMo is an investor in this company. I'm pretty happy to own a company that's not making big moves on earnings right now. I'll take some stability that seems to be what PayPal is offering, revenue up 2% on a currency neutral basis. Transaction margin dollars, which is just direct transaction revenue minus transaction expenses. Think things like payment processing, and PayPal likes that is a core measure of its profitability. That was up 7% to about $3.7 billion. Free cash flow, and adjusted free cash flow, both down from last year by about 45% in a quarter respectively. There's some cash flow questions, some operating profitability targets happening. What are your big takeaways from the quarter?
Jason Moser: Yeah, I think it was an OK quarter. It was right in that meaty part of the curve, as George Costanza might say. Not showing off, not falling behind. It was their fifth consecutive quarter of profitable growth, which I think is really encouraging for Alex Chriss. As you mentioned, revenue growth was really non existent, but I wouldn't really look into that as much. I think what we're seeing with PayPal, they're doing a very good job of bringing things down to the bottom line. We saw GAAP earnings per share, up 56%, non GAP earnings per share, up 23%, and really just flew past the guidance that they offered from a quarter ago. I think when you look at the metrics that really matter for the business, things like total payment volume that was up 3%. $417 billion going through those networks there. This is up 4% currency neutral, payment transactions and payment transactions per active account saw a little bit of a decrease, but that's in regard to the payment service provider part of PayPal so, ultimately, those numbers actually excluding that payment service provider part of the business were up as well, and active accounts grew 2% to 436 million.
Remember, they went through just a period not too long ago of trying to call a lot of those inactive accounts that really aren't using the service, so to speak. But returned 1.5 billion dollar to shareholders with share repurchases, which I think was very encouraging. In regard to cash flow, I think the one thing with cash flow with PayPal, it's going to ebb and flow a little bit, particularly because of the buy now pay later side of the business, that fell a little bit, just because of some timing stuff between originating some European buy now pay later receivables and then the ultimate sale of those receivables so I wouldn't read too much into that. This is still a business that generates a ton of cash.
The one thing that stood out to me, though in the quarter that I just can't help but wonder what the future holds for this, because PayPal is building out this little ads part of the business right now, PayPal ads, and they're making some progress. I don't know is this a sneaky ad play? It could be, they're starting to introduce programmatic advertising, and they're starting to launch offsite ads, which ultimately those are ads that are generated from all of this data that PayPal and Venmo and those properties get. that's the beauty of this company. They generate a ton of data because of the consumers that use these services so it reminds me a little bit of Amazon back in the day. If you remember with Amazon, several years back, we knew they were getting into advertising, but didn't really know if it was going to be anything material so it was starting from nothing. But you fast forward to today, Amazon is generating they're on a $70 billion run rate for their advertising business alone. Now, I'm not saying that PayPal could get to that scale. But I do think PayPal could get to meaningful scale relative to its business, and that is very high margin revenue. I think that's going to be something fun to follow with this company as time goes on, particularly as they're launching this offsite advertising business.
Ricky Mulvey: I think one of my big questions then for PayPal's future is the buy now pay later initiative. You see here, Alex Chriss, touting the growth in that in that people are when they use buy now pay later, they're making more transactions. But if we're skidding into a self induced recession, there may be consequences for that, and on a personal level, I'm not super thrilled about buy now pay later. I understand it's part of the business. But speaking strictly as an investor is a growth lever. If you're looking at the growth in that and you're also seeing credit card delinquencies going up, maybe that's not a great thing for that part of PayPal's business.
Jason Moser: I think that's a very valid point. Buy now pay later is just credit card ultimately in another form and you have to count on the fact that some of those loans, so to speak, are not going to pan out, and they're going to write off delinquencies and non payments there. We are seeing consumers relying more and more on buy now pay later for. Buy now pay later, it's a clever product for things that maybe aren't necessities, but when you start seeing data that shows consumers are using buy now pay later for things like their groceries, that's where you start wondering what is the real condition or what is the real state of the consumer? And when you see consumers resorting to BNPL for necessities like groceries, that starts to raise at least some yellow flags in the near term.
Ricky Mulvey: What do you think about CEO Alex Chriss reaffirming the full year guidance? We talked about the macro pressures that will have an impact on this company. A lot of PayPal transactions are consumer spending. If you're in the office of the CEO, what are you telling him? Are you telling him to pool lower guidance? What's going on with that?
Jason Moser: I wouldn't tell him to pull guidance necessarily. I think that what we've seen with Chriss over the couple of years that he's been with the company at this point, he seems to at least like to underpromise and overdeliver I like that. Now, some people will call that sandbagging. I don't care, whatever you want to call it, it's fine on me. But he sets the bar fairly reasonably so he's not setting these super high aspirations, and we know how that works. You set the bar high, eventually, you miss it, and the market really punishes you. But if you set the bar just not low, but just right there in that mid range, that goldilocks range you can hit those targets, you can continue to grow at modest rates, and you're not disappointing the market in the near term. You're not really thrilling everybody in the near term either, but at least you're able to hit those targets and keep on moving the business in the direction that you intend. I don't mind them maintaining that guidance because it does seem like they are offering relatively modest expectations. But as we know, and we're seeing as the headlines change day to day, things can materialize very quickly so it'll be something to keep an eye on for sure.
Ricky Mulvey: Let's go to Spotify real quick. Monthly active users growing 10% for the company. Premium subs grew 12%, but the analysts did not like the user growth projections. That's why the stock is getting punished a little bit. CEO Daniel Ek quickly on the conference call saying we could be impacted by tariffs, but people still want to be entertained. They want to learn stuff they want to listen to music. Before we get into the meat of this conversation, JMo, we have a content partnership with Spotify. The Motley Fool actively recommends the stock, I own the stock. How's that for bias? I also want their algorithm to promote this podcast, as well. I'm speaking from a pretty biased perspective but still, in my view, a pretty strong company when you're looking into the actual business results, anything there stand out to you from Spotify's quarter.
Jason Moser: The stock has been on a heck of a run here recently so a little pullback is understandable. There was a bit of a miss on operating income there, and that was due to what they were calling social charge, what they call social charges, which are ultimately payroll taxes associated with employees salaries and benefits in other countries. But to me, this is still just such a strong business. You see the growth in the users, whether it's premium or ad supported. It's amazing to see what this business has become, and it's evolving so far beyond being like a music streaming app. I think that when you consider that you consider the fact that Spotify has such strong market share in the entertainment industry at large, to me I understand there are some macro concerns there in the near term, but I think when you look at it, at the end of the day, Spotify and things like Netflix, those are the subscriptions that consumers will probably cut last. The value-focused consumer is looking for value and understanding what are they getting for their dollar. That monthly charge for Spotify or for something like Netflix, given how much we all use those, they, I think, give this company a resiliency that probably more don't have.
Ricky Mulvey: We'll leave it there. Jason Moser, thanks for being here. Appreciate your time and your insight.
Jason Moser: Thank you.
Ricky Mulvey: Hey, it's Ricky, and I want to shout out another podcast called Radical Candor. Based on the New York Times best selling book, Radical Candor talks about how to be a great boss without losing your humanity. Kim Scott, Amy Sandler and Jason Rozov deliver actionable insights each week to help you improve your career and relationships. They have other business experts, including Guy Kawasaki and Steven Covery to stop in and share how they use Radical Candor concepts and their work. Their guidance will help you move beyond ineffective flattery and brutal criticism toward guidance that drives real growth and development. Listen every Wednesday for new episodes wherever you get your podcasts and see how you can apply Radical Candor in your life.
Are you feeling a little concentrated? Up next, Robert Brokamp joins me to discuss some ways to diversify your portfolio. This year has been a reminder that stocks can be volatile. In 2023 and 2024, investors were treated to 20% plus returns in the S&P 500. This year, both the NASDAQ and the Russell 2000 were in bear market territory, and the S&P 500 got pretty close. That's if we define a bear market is a drop of 20% or more from all time highs. A drop that in and of itself is the cost of doing business in the stock market, even if the reason this time is, well, you can decide for yourself. Still, it's a good time to ask some questions. If you're near retirement, are you too concentrated in tech stocks? This is a question that even indexers should ask since about one-third of the S&P 500's market value lies in just seven companies. Should I follow the lead of institutional investors spreading their bets outside of the United States, or even Berkshire Hathaway, which now has the most cash on the books of any company Bro ever? All of this is to say, how can I diversify my portfolio to take some of the bite out of bear markets?
Robert Brokamp: Well, there are plenty of investments that may add some balls to your portfolio, and we're going to talk about the most popular candidates. But I first want to talk a little bit about diversification in general. We're going to talk about what diversifies a portfolio for what I see as the typical Motley Fool investor who owns stocks primarily in the S&P 500, which, as you mentioned, Ricky, has a tilt toward growth leaning tech-oriented, tech adjacent companies, and a lot of our listeners also own those companies outright. That's the starting point here. I do want to emphasize that diversification is somewhat of a double-edged sword. You often have to own a diversifying asset through many stretches of, frankly, pretty mediocre ho-hum performance in order to eventually get the payoff. Then as I talk about these various things, I do think it's important that when you're looking for a diversifier, it's helpful to know how they perform basically during past market downturns, and over the last 25 years, there's been a good range of examples to see how investments perform during different types of bear markets. We had longer ones such as the dotcom crash and the Great Recession of 2007-2009. Market dropped more than 50% then. I took more than five years for the market to recover. But then we've also had shorter ones like the pandemic panick and 2022. With all that said, here are some diversifiers to consider, and I'm going to give each a letter grade.
Ricky Mulvey: What's the grade then for the dividend payers?
Robert Brokamp: I'm going to give dividend payers A, B, and here I'm talking about a diversified mix of companies that have paid a consistent and growing dividend for many years, and many have an above average yield. With the current yield on the S&P 500 being 1.3%, it doesn't take much to have an above average yield. It's not necessarily the dividends themselves that make these good diversifiers, though, getting a reliable stream of income is nice, especially since historically that stream will outpace inflation, it's that these types of companies tend to be more value-oriented, a little less volatile than the overall market, and score high on other factors such as quality, which is dined by different people in different ways. But basically comes down to a company that is profitable. The earnings growth is less volatile and they have a strong balance sheet, meaning not a lot of debt. I recently looked at the returns of the 10 biggest dividend focus ETFs, and they're all down this year, but not as much as the overall market. In 2022, when the S&P 500 was down almost 20%, NASDAQ was down more than 30%. The losses in these ETFs were in the single digits, and a couple actually made money. That's it. The diversification among dividend payers is important. During the Great Recession, some of the best dividend payers were financial stocks, and they got walloped. You definitely want a diversified portfolio of dividend payers.
Ricky Mulvey: Our colleagues, Matt Argersinger and Anthony Shavon, who run our dividend investing in service would also tell you that dividends are great for companies to pay because they make them a little bit more disciplined on capital allocation decisions when they're not maybe pursuing growth at all costs, and they have to return a little something to their shareholders. Another idea, international stocks, getting outside the United States. Bro, how are you feeling about these? What's the grade right now?
Robert Brokamp: I'm going to give them a C plus, which doesn't sound great, though, I think most people should have a little bit of international exposure. I'm giving them a C plus because, frankly, over the past 15 years, it's been tough to argue for international stocks. US stocks have outperformed them by some measure, it's a historical amount. But looking longer-term, there are many long-term periods, several years, even a decade or more, when international stocks outperform US stocks. You could saw it in parts of the '70s, the '80s, and the early 2000s, and looking very short-term, the total non-US stock market is actually up 8% so far this year, while US stocks are down, developed market stocks are doing even better, returning almost 11%. I do think there's something special about the American economy, and it explains why US stocks have outperformed the vast majority of other national stock markets over the last century or so, which is why I'm giving international stocks a C plus when it comes to diversification. But there's no question that there are long stretches when international stocks will do well, and they're certainly a lot cheaper these days than US stocks when you look at P/E or dividend yield or anything like that, which is why I personally have between 15 and 20% of my portfolio overseas.
Ricky Mulvey: The next one is a big one. We could be talking multifamily REITs, rental properties, office buildings. We could be talking about the Vanguard entire real estate index fund, but I'll make it easy for you, Bro. How are you feeling about real estate?
Robert Brokamp: As you hinted at, there are all real estate, so I'm going to give it a range of grades from C plus to B plus, depending on the type of real estate. A few weeks ago, we did an episode on what happens to different types of assets during a recession. We cited research which actually found that home prices actually hold up well. In fact, they tend to do better during bear markets and stocks than during bull markets with the very notable exception, of course, a 2007-2009 recession when both the economy, the stock market, and home prices collapsed. But usually, over the long-term, residential real estate, whether it's your own home or perhaps investing in rentals, can provide some excellent diversification. Now, you hinted at REITs, real estate investment trust. These are stocks and companies that own and operate real estate. It can be all real estate: apartment buildings, medical facilities, office facilities, storage, and they can be a good portfolio diversifier as well, though, like international stocks, man, they have lagged the S&P 500 for a good while now. Their diversification benefits can be mixed. They did very well during the dotcom crash and the ensuing recession, but also they were part of the real estate bubble, and boy, they got pummeled in 2008. As a starting point, I think it makes sense to have maybe a 5% allocation to REITs, and you can use that Vanguard ETF that you suggested. That's what I choose, especially if you're close to in retirement since they have above average yields, but they're still moderately to highly correlated to the overall stock market, so the diversification benefits are going to be mixed.
Ricky Mulvey: This next one has been on a run. Two investments over the past 12 months. One of these has returned about 7%. The one that I'm talking about now has returned 42%. Bro, this is the comparison between what the S&P 500 has done over the past year and gold.
Robert Brokamp: It's been quite remarkable. I'm going to give gold a diversifying grade of C plus, though I could easily be moved to a B minus on this. Gold has been in the news a lot lately because, as you pointed out, the return has been exceptional. It's up 26% so far this year, based on the performance of the SPDR Gold Shares ETF, and as you may have seen on social media, it's actually returned about the same as the S&P 500 over the past 20 years, almost identical. Why am I giving it a C plus? Well, first of all, part of it is just philosophical. We at the full believe in owning businesses with products, services, innovations, they generate a growing stream of cash. Gold, on the other hand, just a piece of metal, pass some decorative industrial uses, but mostly you're just betting that someone will be willing to pay a higher price for it in the future, not because it's going to be generating more cash in the future, but you're just hoping that there'll be more demand. Gold has gone through some really long stretches of lousy performance. It did really well in the 1970s due to the high inflation, peaked in 1980, went the other direction, and it took around 25 years to get back to its 1980 peak. All that said, it is true that gold has done well during bear market in stocks. We're seeing that this year, saw in 2022, 2008, and in two of the three bad years during the dotcom crash. It's fine to own some Gold as a hedge against bear markets, which is why I own little myself. I own some of that SPDR Gold Shares ETF.
Ricky Mulvey: By the time you notice it's outperforming, maybe that means you're a little late to the party on gold, Bro? It is you're betting on someone to pay more for it than you are today. However, gold has been around for thousands of years that people have been accepting it is a store of value. A little bit more of a track record there than something like crypto or even the tulip bulbs I was trying to sell you before we were recording. Let's get to crypto, because this is one that is interesting, and some investors still see it as a store of value. Let's talk for hours about Bitcoin as a digital gold in this economy we live in.
Robert Brokamp: We could talk for hours. In terms of a grade, I'm giving this one incomplete. I'm going back to my teaching days. I just feel like I can't give it a grade right now because it's just too soon to say what diversification benefit you're going to get from crypto. We'll talk mostly about Bitcoin, but as you know, there's so many varieties of it. It just doesn't have a long enough history for me. Bitcoin is flat for the year, which means it's doing better than in the stock market, so that's good news. But in 2022, it plummeted more than 60%. For me, the jury's still out. There's no question that it is gaining wider adoption, both in terms of by investors, by countries, and it's boosted by the availability of ETFs to make it easier to invest. I'm more comfortable investing in it than I would have been maybe three or four years ago. But the value of it as a diversifier is pretty much still unproven.
Ricky Mulvey: How about as a strategic reserve? Moving on. Let's get to alternatives, however you define them.
Robert Brokamp: This is a very broad category that can include really all investments that aren't commonly held by everyday investors. We're talking commodities, managed futures, currencies, hedge funds, private equity, and so on. For the most part, it's difficult or expensive for the regular investor to buy into these types of investments, and you're often not getting the cream of the crop. You're getting what's left over. Depending on how you invest in them, they keep illiquid and/or endure really long periods of bad or at least mediocre performance. For most people, I don't think they're necessary. However, I will add that the proponents of these types of investments do make some good points. Primarily, they say that a standard portfolio of stocks and bonds isn't as diversified as some people think because they often rely on a single factor like the overall economy or maybe just the movement of interest rates. We saw that in 2022 when interest rates skyrocketed and stocks and bonds fell. If you have the time and the inclination to research more about alternatives, you actually might find some things that strike your fancy. Just be prepared to pay higher fees to hold on to something that will behave very differently from a standard portfolio, which, I guess is the whole point.
Ricky Mulvey: The next one is Uncle Warren's one of his favorites right now, and that is just cash, Bro.
Robert Brokamp: Cash is boring, but I'm going to give it at an A, front of the class. I won't belabor this, cash is king or queen when times get tough. It's the only investment that you can feel reasonably sure won't drop in value. Just make sure you're putting in the effort to get the highest yields possible, which these days is close to or around 4%, and you're going to have to accept the fact that returns will never be great. When you invest in cash, you're making a trade-off. You're choosing lower return certainty over the unpredictable possibility, and you can even say historical probability that you'd earn a higher return in stocks given enough time. But for money you need in the next few years that you want to make sure holds up in value, it's hard to beat cash.
Ricky Mulvey: Another way you can take your money out of the stock market is to put it in bonds. Bro, there are some higher-yielding bond funds that look pretty attractive to me.
Robert Brokamp: This is why I'm giving this a range of grades, actually, from C minus to A. Because when it comes to bonds, the returns will depend on the issuer, the duration, meaning short or long-term, shorter-term bonds are going to be less volatile, longer-terms are much more volatile and how you own them, individual bonds versus bond funds. But let's start with the safest and move on to the riskiest. US treasuries are considered very safe, maybe not as safe as they were like five years ago, Fitch and S&P have downgraded them, and Moody's made some announcement recently about they might be doing some things as well, but they're still considered the safest investments in the world. Investment grade corporates are considered safe. Not super safe, but safe. Then you have below investment grade corporates, otherwise known as junk, and they're very risky. This is where you get the higher yields. You'll get much higher yields from junk bonds and somewhat higher yields from corporates, but you got to understand that they will often go down during recessions, and junk bonds really go down.
I'm going to talk about 20% or more during the tough times. Bonds are holding up pretty well this year, by the way, returning around 3%, but they've been disappointing over the past several years. In fact, it's really been one of the worst stretches for bonds in US history. I would say the future looks brighter, but if you want more certainty from bonds, explore investing in individual bonds because you know exactly how much interest you're going to get. How much you're going to get back when the bond matures at maturity date, assuming the issuer is still in business, of course. I would also explore what are known as either target date bond funds or defined maturity bond funds. These only owned bonds that mature in the same year. That way you have a little bit more certainty about what they'll be worth when that year arrives. The two biggest issuers of these ETFs are iShares and Invesco.
Ricky Mulvey: Bro, junk bonds are how I started my casino chain. Let's wrap it up with annuities.
Robert Brokamp: Yes, annuities. Not everyone's favorite topic, but let me explain. I'm going to give these an A for the right people. When I mean annuity, I'm saying anything that sends you a regular check in retirement for the rest of your life. In the original versions of annuities, you'd get that check or that payment every year. You'd get it annually, which is why they're called annuities. We all get some of this. By this, I'm talking about Social Security. Yes, Social Security is in trouble. People in their 50s and younger may not get everything they're promised, but you'll get most of what you're promised, and you'll get that check every month, regardless of what's happening in the stock and bond markets, it adjusts for inflation. It's partially tax-free. I think if you can maximize your Social Security benefit to some degree, that is a great diversifier in retirement. Same principle if you're getting a defined benefit pension, the traditional pension. If you can maximize that, that's good. Now, you can buy more, actually buying annuity from an insurance company. But the only annuity that appeals to me personally it's called a single premium Immediate annuity. You hand over a lump sum, say, $100,000, and you'll get $68,000 a year for the rest of your life. You give up a lot of liquidity, so don't do it without understanding the loss of liquidity when you do that. If you choose to go that way, you take that money from the portion of your portfolio that would otherwise have been taken from the bond part of your portfolio.
Ricky Mulvey: Very good. Robert Brokamp, appreciate being here. Thanks for your time and insight.
Robert Brokamp: My pleasure, Ricky.
Ricky Mulvey: As always, people on the program may have interests in the stocks they talk about in the Motley Fool may have formal recommendations for or against, don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and are not approved by advertisers. The Motley Fool only picks products that would personally recommend to friends like you. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jason Moser has positions in Amazon and PayPal. Ricky Mulvey has positions in Chewy, Netflix, PayPal, and Spotify Technology. Robert Brokamp has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, Bitcoin, Chewy, Costco Wholesale, Moody's, Netflix, PayPal, Spotify Technology, and Walmart. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short June 2025 $77.50 calls on PayPal. The Motley Fool has a disclosure policy.
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It's tough to break into high-paying companies.
Google is notorious for having a demanding interview process. Aside from putting job candidates through assessments, preliminary phone calls, and asking them to complete projects, the company also screens candidates through multiple rounds of interviews.
Typical interview questions range from open-ended behavioral ones like "tell me about a time that you went against the status quo" or "what does being 'Googley' mean to you?" to more technical ones.
At Nvidia, the chipmaking darling of the AI boom, candidates must also pass through rigorous rounds of assessments and interviews. "How would you describe __ technology to a non-technical person?" was a question a candidate interviewing for a job as a senior solutions architect shared on the career site Glassdoor last month. The candidate noted that they didn't receive an offer.
Tech giants top Glassdoor's list of the hardest companies to interview with. But tough questions show up across industries — from luxury carmakers like Rolls-Royce, where a candidate said they were asked to define "a single crystal," to Bacardi, where a market manager who cited a difficult interview, and no offer, recalled being asked, "If you were a cocktail what would you be and why?"
The digital PR agency Reboot Online analyzed Glassdoor data to determine which companies have the most challenging job interviews. They focused on "reputable companies" listed in the top 100 of Forbes' World's Best Employers list and examined 313,000 employee reviews on Glassdoor. For each company, they looked at the average interview difficulty rating as reported on Glassdoor.
Here's a list of the top 90 companies that put candidates through the ringer for a job, according to self-reported reviews on Glassdoor.
The latest quarterly update from Moody's (NYSE: MCO) delivered mixed signals for investors to interpret. For the period ended March 31, the financial services intelligence giant posted an 8% year-over-year increase in quarterly revenue, while adjusted earnings per share (EPS) were up 14% to $3.83, with both metrics surpassing Wall Street estimates.
On the other hand, a revision lower in the company's full-year profit guidance overshadowed the report, adding to a volatile start for the stock in 2025. Shares of Moody's are currently down about 19% from its 52-week high at the time of writing amid renewed economic uncertainties.
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Does the recent weakness offer investors a buy-the-dip opportunity, or could it signal the potential for more downside ahead? Let's discuss what to do with Moody's stock now.
Moody's is recognized for its financial analytics technology platform that includes credit ratings, investment research, and technical market data. The company has capitalized on a global trend as corporations, financial institutions, and government agencies increasingly outsource critical parts of their investing workflow as a more cost-effective approach.
The company has captured strong demand for its cloud-based subscriptions and data licensing agreements amid the bull market in financial assets in recent years. These high-level themes were evident as Moody's started fiscal 2025 with strong performance. The company kicked off the year on a high note.
Image source: Getty Images.
With record revenue and earnings in the first quarter, the Moody's Investor Service (MIS) segment, which issues credit ratings, has been a growth driver. Momentum in global bond issuances, alongside favorable market conditions between tight credit spreads and lower interest rates as the key indicator for ratings demand, propelled Q1 MIS revenue up by 8% year over year.
Additionally, results from the Moody's Analytics (MA) group have been solid with a 9% increase in annualized recurring revenue (ARR) at the end of Q1, coupled with a 93% retention rate, suggesting durable growth. Profitability is another highlight. Moody's adjusted operating margin reached 51.7%, up 100 basis points over the past year.
Strong free cash flow has allowed Moody's to hike its dividend by 11% to the new quarterly rate of $0.94 per share, yielding 0.9%. The company has also been active with stock buybacks, including $1.2 billion remaining under an existing authorization to repurchase shares. Overall, beyond the stock market turbulence, Moody's fundamentals remain solid.
While it was largely business as usual for Moody's at the start of the year, the company now faces the challenge of navigating a rapidly evolving operating environment. Recent changes to U.S. trade policy have rocked markets, with experts predicting disruptions to the economy, forcing some businesses to rethink their investment plans.
For Moody's, the concern is that a slowdown, particularly in global debt issuances, could directly impact its credit ratings business while limiting new growth opportunities. The company is taking these risks seriously and has tempered its full-year growth and earnings expectations.
Compared to a prior 2025 revenue growth estimate in the high single digits, Moody's now expects just a mid-single-digit percentage increase. Similarly, the full-year target for adjusted EPS guidance was lowered to a range of $13.25 to $14, from the prior $14 to $14.25 estimate issued earlier in the year.
| Metric | 2024 | 2025 Estimate |
|---|---|---|
| Revenue growth (YOY) | 20% | "mid single-digit" increase |
| Adjusted EPS | $12.47 | $13.25 to $14 |
| Adjusted EPS growth (YOY) | 26% | 6.3% to 12.3% |
| Free cash flow (in billions) | $2.5 | $2.3 to $2.5 |
Data source: Moody's Corp.
Despite Moody's overall solid fundamentals, including an outlook for continued profitable growth, the clear slowdown compared to stronger trends in 2024 has made it more difficult for investors to justify the stock's valuation premium. Even following the sharp sell-off from recent highs, shares of Moody's are trading at a price-to-earnings (P/E) ratio of 38, above the five-year average multiple of around 35. As such, the stock seems relatively expensive with room for the price to fall a bit further before standing out as a clear bargain.
MCO PE Ratio data by YCharts
I believe shares of Moody's are simply too pricey to buy today, considering its subdued outlook. There are likely enough strong points for current shareholders to continue holding, but investors watching from the sidelines may find more compelling opportunities elsewhere in the stock market that offer better value and greater upside potential.
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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Moody's. The Motley Fool has a disclosure policy.
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