The Economic Mood Brightens

Summary

Motley Fool Money: Episode Summary – "The Economic Mood Brightens" (May 30, 2025)

Hosted by Dylan Lewis, Ricky Mulvey, and Mary Long

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1. Introduction and Macro Outlook

The episode opens with Ricky Mulvey welcoming listeners to the "Motley Fool Money" radio show, introducing senior analysts Asit Sharma and David Meyer. The primary focus centers on the improving economic sentiment amidst evolving trade policies and corporate activities.

2. Consumer Confidence and Economic Optimism

Ricky Mulvey highlights a significant boost in consumer sentiment, noting, “Consumer sentiment has rebounded in the latest survey, the first note of optimism in 5 months” (01:21). Asit Sharma delves deeper into this uplift, stating, “The conference board showed that consumer confidence via their index increased about 12 percentage points to a reading of 98.0 this month” (01:44). He emphasizes the resilience of U.S. consumers, adding, “Don't ever underestimate the optimism of the US Consumer” (02:05).

However, Asit cautions that this optimism might be fragile due to global fiscal challenges. He points to Japan’s high debt-to-GDP ratio as a potential warning sign, suggesting, “The bank of Japan is having to raise interest rates... which is a situation that we could find ourselves in... if we don't get our fiscal house in order here in the US” (02:40).

3. Tariffs and Trade Policy Impacts

The discussion shifts to trade policies, with President Donald Trump pausing 50% retaliatory tariffs on the European Union until July 9. David Meyer observes a sharp decline in recession odds, dropping from nearly 70% to about 40% on the prediction market Kalshi (03:16). David suggests that while the short-term outlook appears optimistic, uncertainties remain once the tariff pauses expire. He speculates, “There's probably a 50% chance that there will be some tariff on Chinese goods when that pause gets lifted” (03:37).

Asit Sharma adds, “Concerns over our debt are going to just grow this year as these big spending bills wend their way through the Senate” (02:50), underscoring the broader fiscal challenges facing the economy.

4. Salesforce's Acquisition of Informatica

Ricky Mulvey transitions to corporate news, discussing Salesforce’s recent agreement to acquire Informatica for approximately $8 billion. Asit Sharma explains, “Informatica is very much into looking at where data originates... It can keep up with lots of tags about different data that flows through an enterprise” (05:45). He elaborates on the strategic importance of the acquisition in enhancing Salesforce’s AI capabilities, stating, “This is sort of a crucial step to undergird what Salesforce is already sort of good at with its AI agents” (06:15).

David Meyer supports the acquisition, noting its integration with Salesforce’s other data-centric assets like Data Cloud, Mulesoft, and Tableau (07:04). He views the deal as a positive move to bolster Salesforce’s competitive edge in the AI domain.

Ricky probes the impact on shareholders, to which Asit responds positively: “I think they should feel pretty good... this makes a lot of sense if you're a Salesforce shareholder” (07:40). However, he adds a note of caution, emphasizing the need for the acquisition to translate into revenue growth and improved operating margins.

5. Okta's Earnings and Market Reactions

The conversation shifts to Okta’s recent earnings report. Despite beating estimates and maintaining guidance, shareholders reacted negatively. David Meyer explains, “Investors are fussing over three things: near term growth, near term growth, and near term growth” (08:54). He notes that while Okta had a strong start to the year, the revised full-year revenue growth guidance raised investor concerns about sustained performance.

Ricky highlights Okta’s strong fundamentals, mentioning, “GAAP gross margin... is 77%. Net revenue retention rate... is 106%” (09:07). David views the stock as an opportunity, especially given its valuation at six times forward sales, which is near its 52-week low (10:39).

6. Retail Stocks Analysis

a. Abercrombie & Fitch (ANF)

Abercrombie & Fitch reported better-than-expected results, leading to a positive market reaction. David Meyer observes, “Sales and earnings came in stronger than expected... management actually raised their guidance for the full year slightly” (11:20). Ricky commends the company’s strategic move to repurchase about 5% of their stock, praising the management’s opportunistic approach during stock price lows (12:19).

Asit adds, “They have a lot of discipline in their global buying teams... solid balance sheet, great brands under its umbrella” (18:08), recommending TJX Companies (TJX) as another retail stock with strong fundamentals.

b. Pinduoduo (Parent Company of Temu)

Pinduoduo faced challenges with a 47% drop in net profit, attributed to the ongoing trade war. Asit Sharma outlines several headwinds, including increased tariffs and intensified competition from rivals like JD.com and Alibaba (14:14). He notes, “It's going to be really hard for Pinduoduo to sell these cheap goods into the US through Temu” (15:00), but remains cautiously optimistic about future consumer spending adjustments in China.

c. Other Retail Opportunities

David Meyer suggests Best Buy as a stock to watch, especially with its upcoming earnings report on May 29, which could shed light on tariff impacts (17:33). Asit recommends TJX Companies for its resilient buying strategies and robust brand portfolio (18:08).

7. Interview with Klaus Kleinfeld on Turnarounds

Former CEO of Siemens and Alcoa, Klaus Kleinfeld, discusses his book Leading to Thrive and shares insights on managing energy and executing successful turnarounds. He emphasizes the importance of understanding energy management over mere time management, stating, “You have to recharge [your energy], and then comes the question, how do I get energy?” (20:27).

Kleinfeld highlights three critical dimensions for sustainable turnarounds:

1. Customer Value: “You either do something for them that increases their revenues or decreases their costs” (26:43).
2. People: The quality and cohesion of the team as the true competitive advantage.
3. Cash Flow: Prioritizing cash flow over EBITDA metrics.

He advises investors to engage directly with companies by attending investor days, seeking facility visits, and interacting with frontline management to assess the sustainability of a company’s competitive advantages.

8. Stock Radar: Soundhound AI and Sentinel1

a. Soundhound AI (SOUN)

Asit Sharma introduces Soundhound AI, a company specializing in voice technology with a proprietary foundational AI model. He notes, “Revenue was only $29 million this past quarter, but that was up 151%” (35:16). Despite expected losses for the next few years, Asit views Soundhound as having a unique value proposition in the AI space, particularly with its applications in drive-thrus and mobile apps.

b. Sentinel1 (S)

David Meyer spots Sentinel1, a cybersecurity firm focused on Endpoint Security, which protects individual devices connecting to networks. He points out, “It's been marketing its AI capabilities since before its IPO in June 2021” (37:15). Despite a pullback since its IPO, Sentinel1 maintains a strong growth outlook with expected 20% annual sales growth and recently turned cash flow positive in fiscal year 2025. David sees potential in its niche focus and improving AI capabilities enhancing its market position.

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Conclusion

"The Economic Mood Brightens" episode of Motley Fool Money provides a comprehensive analysis of the current economic landscape, highlighting rising consumer confidence, strategic corporate acquisitions, and the nuanced performance of retail stocks amidst global trade tensions. Insights from senior analysts and industry experts like Klaus Kleinfeld offer listeners valuable perspectives on sustainable investing and identifying growth opportunities in a fluctuating market.

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Note: All timestamps reference the provided transcript segments.

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Timestamps

• 01:21 Ricky Mulvey on consumer sentiment rebound
• 01:44 Asit Sharma discusses consumer confidence index
• 02:05 Asit on US consumer optimism
• 02:40 Asit warns about fiscal challenges
• 03:16 David Meyer on recession odds
• 03:37 David on tariff pause implications
• 05:45 Asit on Salesforce's acquisition of Informatica
• 06:15 Asit on enhancing AI capabilities
• 07:04 David supports Salesforce deal
• 07:40 Asit on shareholder sentiment
• 08:54 David on Okta's investor concerns
• 09:07 Ricky on Okta’s strong fundamentals
• 10:39 David views Okta as an opportunity
• 11:20 David on Abercrombie & Fitch's performance
• 12:19 Asit praises ANF's stock repurchase strategy
• 14:14 Asit on Pinduoduo’s challenges
• 15:00 Asit on Pinduoduo’s US sales difficulties
• 17:33 David on Best Buy as a watch stock
• 18:08 Asit recommends TJX Companies
• 20:27 Klaus on energy management in leadership
• 26:43 Klaus on sustainable turnarounds
• 35:16 Asit introduces Soundhound AI
• 37:15 David spots Sentinel1

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This summary is intended for informational purposes and does not constitute financial advice. Always conduct your own research or consult with a financial advisor before making investment decisions.

Transcript

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[Ricky Mulvey]

It'S tough to be a retailer. This week's Motley Fool Money radio show starts now.

[Asit Sharma]

Everybody needs money.

[GMC Advertisement]

That's why they call it money.

[David Meyer]

But you can give them to the present bees.

[Motley Fool Introduction]

From Fool Global headquarters, this is Motley Fool Money.

[Ricky Mulvey]

It's the Motley Fool Money radio show. I'm Ricky Mulvey. Joining me on the Internet today, it's Motley fool senior analysts Asit Sharma and David Meyer. Fools. Great to have you both here.

[Guest Analyst]

Hey Ricky, it's great to be here. Thank you.

[Ricky Mulvey]

We've got a retail rundown, a slowdown for a leader in cybersecurity. But let us start with the big macro. President Donald Trump has paused 50% retaliatory tariffs on the European Union until July 9. Consumer sentiment has rebounded in the latest survey, the first note of optimism in 5 months asit makes sense. The tea leaves. What are you seeing in the big macro?

[Asit Sharma]

Well, you're right, Ricky. The conference board showed that consumer confidence via their index increased about 12 percentage points to a reading of 98.0 this month. That's pretty confident. What do I read into this? Well, you know, as you also pointed out, we've had five straight months of declining consumer confidence. So I think consumers are ready for a sign, any sign that they can go out and spend again. Don't ever underestimate the optimism of the US Consumer. That's what I've learned in many years of doing this gig. Now, what am I looking at beyond that? Because truth be told, maybe that confidence is a little fragile given the fragment fluctuating and volatile times we live in. I'm looking over at Japan. Some stirrings in the long term bond market there may have a lesson for the rest of the world. Japan notoriously has a very high ratio of outstanding debt to its annual gdp. Its gross domestic output, we do too. Not quite as bad as Japan's, but they're seeing a little bit less demand for their debt. Which means that the bank of Japan is having to raise interest rates. The government is having to raise interest rates to attract borrowers. That's a situation that we could find ourselves in in the not too distant future if we don't get our fiscal house in order here in the US And I think maybe concerns over our debt are going to just grow this year as these big spending bills wend their way through the Senate after the House. So this is something I'm looking for as a sort of summer conversation that we'll likely be having right here.

[Ricky Mulvey]

RICKY so consumer confidence up. Keep an eye on those interest rates. DAVID the odds of a recession in the US Happening this year have fallen precipitously on prediction market Kalshi from almost 70% at the start of the month to about 40% right now. 70 to 40, that's quite the drop. Do you think this optimism is warranted?

[Guest Analyst]

Maybe in the short term, after all, there's another pause on the tariffs. So what does that mean? It means that there's not going to be a big shock to our economic system at least for another 60 to 90 days. So yeah, you can be happy about that, that in the short term. But you know, we don't know what's going to happen once these deadlines hit for all the pauses that are out there. And my guess is that there's probably a 50% chance that there will be some tariff on Chinese goods when that pause gets lifted. And we'll, we'll see what happens, you know, with European tariffs. But yeah, you know, consumers and investors are happy to quote, unquote, kick the can down the road. Consumer confidence is up, the market continues to grind higher. But let's revisit these risks in in the second quarter earnings in July.

[Ricky Mulvey]

DAVID if you ever need a good comeback for someone, you can be happy about that in the short term is a great one to use. ASIT before we get to the business stories, what is all this macro data that we've been talking about for the first few minutes? Does it mean anything for the type of investing we do here at the Fool?

[Asit Sharma]

Yeah, I think it means something. RICKY Foolish investors are sort of spongy. We like to absorb information that doesn't mean that we're going to act. And as a sponge myself, I'm not looking for someone to come wring all this information out of me. But you have to keep apprised of the data. Doesn't change your focus on businesses staying invested for the long term, finding great companies, trying to hold those companies over a long time. But you have to be aware sometimes the big picture does change enough that you have to start making changes around the edges. So just ingest it, don't necessarily have to act on it completely.

[Guest Analyst]

Agree. You need to be aware.

[Ricky Mulvey]

Let's stick with our sponge. Asit Sharma. Assit Salesforce agreeing to buy informatica for about $8 billion earlier this week. This is a deal that Salesforce has wanted to do for some time now. Informatica is a data management company. One example is if you're a large company with customer data across a bunch of systems, Informatica will help you consolidate it and give you one view of that. So that's what Informatica does. Why does Salesforce want this business for $8 billion?

[Asit Sharma]

Ricky, I like the way you describe that. That's an apt description of what this company brings to the table. It is very much into looking at where data originates, sort of tracing it, making these maps of where the data is. It's also good at something called metadata cataloging. So in other words, the ITS systems can understand after a while. If you, Ricky, are a customer in a process flow and maybe I'm on the other end of the transaction, it can keep up with lots of tags about different data that flows through an enterprise. Now why is this important? Why would Salesforce care about this? Well, we all have heard how much Salesforce is into the AI agents game. It wants to put AI agents at your fingertips. You enterprise workers, knowledge workers who are out there listening today, how can they do this better is if they swallow up a smaller company like Informatica, which helps those agents act with better transparency, get to the data they need, show that that's traceable and in general be more confident with the information they're passing back to you, information worker. So this is sort of a crucial step to undergird what Salesforce is already sort of good at with its AI agents. And I think there's something here for the investing community to give, you know, a decent grade. It's a strategic acquisition, that's for sure.

[Guest Analyst]

I think one thing this does is it actually integrates well with some of the other data centric companies that it's bought. Data Cloud, Mulesoft, Tableau assets, spot on. This is all about making its agents as productive as it can for its customers. And I think this is a good, I think this is a good acquisition for them.

[Ricky Mulvey]

David likes it and I spoke with our colleague Tim Byers about this acquisition earlier this week and he was bullish. He liked that this acquisition is all cash and the valuation is a little bit less than when Salesforce first pursued it. Asit, how do you think Salesforce shareholders should feel about this one?

[Asit Sharma]

I think they should feel pretty good, Ricky, because as Dave mentioned, it fits well with other pieces. And you can criticize Salesforce for having so much of acquisitions that it's undertaken just to grow. I mean, it's got $51 billion of goodwill on its books versus total assets of about 103 billion. So that's a lot of intellectual property they've paid or overpaid for over the years. But I think this one should make you feel like they can remain competitive in this AI space where it'll become increasingly difficult to be differentiated from your competitors. So what gives you that differentiation in today's world is having access to data or being able to do great things with that data that competitors can't. So this makes a lot of sense if you're a Salesforce shareholder. But again, proof is in the pudding. You need to have this help you grow revenues in that all important operating market margin that Salesforce has been improving over the last three years.

[Ricky Mulvey]

Let's move to earnings. Shareholders were displeased with Okta. David, the identity management company that likes to make me do two factor authentication at inconvenient times. That's what they do for money. This is a company that beat estimates and maintained guidance. Little bit of tariff pullback, but what are investors so fussy about here?

[Guest Analyst]

I think investors are fussing over three things. Near term growth, near term growth and near term growth. In all seriousness, it was a strong start to the year, but analysts questioned why the full year revenue growth guidance and why its current remaining performance obligation growth weren't higher. I mean, if you started off the year strong, why, why, you know, why pull that down a little bit or maybe why not make it as high as investors might want to see? It's a valid question because the guidance actually implies that growth is going to slow in the second half of the year after such a good start. But management stuck to their story. They're saying, hey, there's just too much uncertainty for us to make a stronger forecast right now.

[Ricky Mulvey]

So this is a company, I think, with some strong fundamentals. When you look at that GAAP gross margin, the gross margin that accountants like, it's 77% 7 7. Net revenue retention rate while that's slowing is 106%. That means that existing customers are doing more business with Okta. But yes, that rate of growth is decreasing a little bit. When you were looking at the results, are there things in here that the long term foolish investors should be concerned about or maybe more green shoots to focus on.

[Guest Analyst]

So I think we need, the first thing we need to do is understand that Okta is actually the leader in identity management and that market continues to be a critical part of cybersecurity and it's growing. Its new products are gaining traction as we're starting to see. The company is starting to scale, margins are expanding, cash flow generation is solid. And frankly, at six times forward sales, this is a very reasonable multiple for a stock which is still near its 52 week highs even after the pullback. I see this as an opportunity.

[Ricky Mulvey]

After the break, we're looking at retail stocks and seeing if there's any deals on the rack. Stay right here. This is Motley Fool Money. Yeah. Welcome back to Motley Fool Money. I'm Ricky Mulvey here with assetstrama David Meyer. Right now we're going to focus on retail stocks starting with Abercrombie and Fitch. Abercrombie posted Wednesday morning and the results were not as bad as investors feared. Yes, David, there was a slight decrease in operating margin outlook. Shout out to the tariffs and oh no. But ANF in total is still posting comparable sales outlook. David, what'd you see in the results here?

[Guest Analyst]

Yeah, I see a company that is performing better than the market was anticipating, hence the, the nice jump today. Look, sales and earnings came in stronger than expected for the quarter and management actually raised their guidance for the full year slightly, which was not anticipated by analysts and clearly not by the market. So as we've said before, there's a lot of macro uncertainty out there and lots of companies are calling, calling it out. So in today's environment, that's about as good as a company can do.

[Ricky Mulvey]

So I worked out a thesis for Abercrombie and Fitch about a month and a half ago with Jim Gillies. And yes, I did it here on Motley Fool Money. And one thing I mentioned was the buybacks. You like to see management buying back stock when multiples are down. And Abercrombie took out about 5% worth of their stock in this quarter. And yes, they had the cash to do it. They didn't take out debt. When you look at that, is that a smart allocation move? Can I take a victory lap here on the show?

[Guest Analyst]

Dude, you should be running around that track with a big old flag saying victory. Yes, that was well done. Kudos to management for being very opportunistic with their repurchases because that's not something that every company does well. The stock was significantly lower in the first quarter and they took advantage of it. And the other thing it does, it's another valuable lesson about having a strong balance sheet. It gives companies optionality.

[Ricky Mulvey]

I had to do some AI work with Abercrombie and Fitch, especially looking at their supply chain. They got factories all over the world. 5% of their workers are in China, which is really the center of the trade war. They've got more factories over in Southeast Asia. And that's something I liked was seeing that distributed supply chain. For investors looking at retailers, you know, how should they be thinking about supply chains right now?

[Guest Analyst]

So I think you're spot on. You need to find out where they are because that information is available. And then the other thing I think we need to do is to pay attention to any company that gives an estimate for what they think tariffs are going to cost. We've recently saw that from Deckers Outdoor, the maker of Uggs and Hoka shoes. And now we see Abercrombie saying, hey, we think it's going to be about 50 million for their business. Look, any piece of information like this helps analysts model the future. And again, with uncertainty, all that information helps.

[Ricky Mulvey]

Let's move to Pinduoduo asset. I'm giving you a stock that investors were a little more sour on than Abercrombie and Fitch here. This is the parent company of Temu where our engineer and colleague Dan Boyd loves to shop, shop, shop. Boy, oh boy, does he like to buy little shiny things at very cheap prices. And then who knows what he's going to do with them. But man, Dan loves temu. Sales still growing for this company, but net profit falling 47%. Yikes. That's the trade war in action asset. What'd you see in the results?

[Asit Sharma]

Yes, it is, Ricky. So the results show me a few things. One is that the and again, off again, trade war is really starting to hurt confidence in management. Management here has a few headwinds that it's trying to work through. One is that competitors like JD.com and Alibaba are fighting back after just a really good run by Temu, for example, is a great part of Pinduoduo. And then what we have is the de minimis exemption, which went away. So in the first part of this trade war, the Trump administration sort of took away the ability of companies like Pinduoduo to send goods of small value into the US without the imposition of tariffs. Now, after repealing that, they imposed a tariff which was pretty high. And then again, long story with anything you talk about in tariffs, those are now down to a not so blistering 54% which simply means that it's going to be really hard for Pinduoduo to sell these cheap goods into the US through Temu. Now on the other hand, you've got some subsidization going on from the Chinese government to spur consumer spending and that benefits more its rivals than it does Pinduoduo, which operates something of a third party platform in China. So it can't directly participate in those subsidies and, and it's having to keep its merchants happy who have always felt that they're sort of squeezed by Pinduoduo. So it's having to invest in those merchants. You add all this up together and you have this drastic decrease in net income. So I'm not surprised on what level, but I think that, you know, going forward it's probably going to even out among all the Chinese retailers as the consumer in China begins to adjust and I think they'll spend a little bit more next year. So not out of the woods, but not terminal either.

[Ricky Mulvey]

Austin, have you ever bought anything on temu?

[Asit Sharma]

No, I'm no Dan Boyd. I have many times thought that I should. I'm a thrifty guy by nature. I buy books and pencils and most of the times I get those locally.

[Ricky Mulvey]

Advice for investors who want to dip into a category like this because a Chinese retailer that is at the heart of a lot of this tariff war trade negotiations, this is a hated category. The PE ratio has been depressed quite a bit. So some investors may look at that and see a company that's still growing sales taking a hit on the margin and think maybe I want to take a dip into this hated category right now. Be a contrarian. What say you to them?

[Asit Sharma]

Yeah, I wouldn't discourage that. I would almost say look more towards Alibaba. So the Chinese big conglomerates are really good at doing tech as well as retail. Alibaba has its hands in so many tech investments. Tencent is sort of similar, although it's not really as much of a retailer. So if you're looking for something that is getting beaten down on the retail side, why not stick with an Alibaba? You have more chances to win in the long term.

[Ricky Mulvey]

And then while retail indexes have recovered since a rough start to the year, not all of the valuations have recovered. Maybe there's some deals still out there. We'll start with David. Are there any retail stocks in the bargain bin that you think are worth investors attention or maybe maybe even a full price company, something like an on holdings where you're not getting any discount on the shares but still a strong company to hold for the long term.

[Guest Analyst]

One company that I'm looking at is going to be Best Buy which actually will report earnings on Thursday, May 29. And the reason is, is because I want to actually get more info about the environment and if there was ever a company that was going to give me more information about the impact of tariffs, it's going to be be it's going to be Best Buy. So I'm looking there first for information and then, and then I'll start looking to see if there's any others in the, in the, in the retail bargain bin.

[Ricky Mulvey]

Asit how about you Ricky?

[Asit Sharma]

I think investors can still get the max for the minimum at TJ Maxx or its parent company rather TJX Companies. This is a business that has a lot of discipline in its global buying teams. They're great at buying through all kinds of environments. So surprisingly the tariff environment isn't affecting them as much as you might think. Solid run company, great balance sheet, great brands under its umbrella. So I might look there symbol tjx.

[Ricky Mulvey]

Fellas, we're going to see you a little bit later in the show. But up next we've got Klaus Kleinfeld. He's the former CEO of Siemens, talking about what investors should look for in turnaround stories.

[David Meyer]

Come to me wild and wild.

[Guest Analyst]

Will.

[David Meyer]

You come to me? Give me everything I need. Give me a lifetime promises and a world dream. Speak a language love like you know what it means and it can't be wrong. Take my heart and make it strong. You're simply the best.

[Ricky Mulvey]

Welcome back. Welcome back to Motley Fool Money. I'm Ricky Mulvey. Klaus Kleinfeld is the former CEO of Siemens and Alcoa. And when you're the leader of a multinational company, you've got to learn how to manage your energy. Kleinfeld is also the author of Leading to Thrive, Mastering Strategies for Sustainable Success in Business and Life. We talk about his book in how to look for Companies with Sustainable Competitive Advantages.

[Klaus Kleinfeld]

Much of your book is focused around this idea of energy management and many people think about just time management. We've talked about energy management a bit on the show in previous conversations. But when you were leading multinational companies.

[Ricky Mulvey]

Is there anything you wish you knew.

[Klaus Kleinfeld]

At that time about energy management that you know now?

[Motley Fool Introduction]

Well, fortunately I learned early enough, but still late in my career about energy management so I could apply that and in a good part of a good part of my business life, at least in the last 10, 15 years, you know, so. But I was an addict of efficient time management before, as somebody who was born and raised in Germany, you know, so used to, used to discipline use of time, you know, so, yeah, I think energy management is a very important concept, you know, and that what. Which was one of the reasons why I wrote the book, because the question is, how does that work with energy? And you wake up in the morning and hopefully you have a lot of energy, you know, but it burns through during the course of the day, you know, and every time you have to use willpower, you actually use some of the energy resources. And so that's one thing that I think most people don't fully understand. You have to recharge it, you know, and then comes the question, how do I get energy? What is energy? And it goes back to the simple things like body, mind and soul, you know, and I distinguish in the mind between the emotion and the mental side of things, you know, and the body part, the physical energy part is relatively well understood. But there are concepts like breathing, sleep, you know, that are not so well understood, you know, but on the emotional side, many people think, you know, the emotions are brought onto you by somebody else not realizing that you yourself allow an emotion to be created in you. And you can learn a lot of tricks also from the high performance world, how you can control it. Same thing on the mental side. Mental is all about focus. And how many times have we seen that great leaders see an opportunity when others see a challenge. And there's tons of those stories. And then comes this thing that we almost never talk about in the business world, it's the spiritual side. And I don't know whether you have in your friendship group, I do. People who actually have realized at some point in time that they feel very empty and they are lost in a certain way, you know, And I was most surprised that in the business world people burn out much earlier, whereas in the sports world you see people basically being at the very top for much, much longer. You know, I personally love tennis, you know, and if you look at tennis, I mean, how this has changed over the last 20 years, the top players are way, way older than they ever were, you know, but when you look at the 10 year old CEOs, it's come way down.

[Klaus Kleinfeld]

Something surprising in your book as well is that as a leader, you are actually looking for people who are quietly cynical in meetings, making a cynical remark and making other people laugh. And you know, there's a read on that, which is that leaders want cheerleaders and people who are positive about the mission going on. And I'm sure there's a story there as well. If you're in a meeting with people, why are you looking for someone who's quietly making cynical remarks?

[Motley Fool Introduction]

It's not that I'm directly looking for those, but I have had the pleasure to heavily involved in many, many turnarounds, you know, and so you get injected in this. It's usually combined with a ton of changes that are there to happen. You are the new kid in town, you know, and you go into a meeting, you describe what you think needs to happen, you know, and you suddenly realize that you hear some kind of giggling in the background, you know, and that's usually. And you realize that there's one person who probably had said something that made everybody else giggle, you know, so why am I looking at. Typically what I have learned is I then go seek this person out and say, hey, look, I want to introduce myself, you know, blah, blah, blah. Just want to hear what were your thoughts on what I was talking about? Because what I had realized in people who are cynical, this are very often people who are very knowledgeable in the organization, you know, because to be intelligently cynical, you need intelligence to make other people laugh, you know, so usually the dumb jokes don't have that much of an impact on people, and people say, you're just an idiot, you know. But somebody who can make a good cynical comment typically understands the industry, often understands the business, and you can learn from it. So I try to involve the person in a conversation and just learn. And what happens is that very often I do learn from the person, for instance, that things like that have been tried out before failed. And then I can get into a conversation, why did they fail? What can we do different to have it not fail? Or are there other approaches? Number one, I learned something. Number two also is if you then can involve the person and say, here are the reasons why I think we should do it, and this is how I would do it, which avoids the issues that you are implying you can win the person over. The moment you win the person over, this person has a followership and as known as somebody else who's sinning. If this person changes in a change environment, the followership that that person brings you is enormous. Because people around there know this is not somebody who would kiss the new boss's ass, you know, this is somebody who usually stands up against the person quietly though, you know, so the impact of winning a larger crowd over to basically be behind this also with their not just with their head on with it, but also with their heart hard.

[Klaus Kleinfeld]

That's a look sort of behind the scenes at turnarounds. We were talking from the investing side about how difficult it is for investors to get into turnarounds, often because in the financial media, people get excited about them as soon as you hear about a CEO change. So Starbucks is a recent example of that. We were also talking about Nike and the troubles going on at Nike where they have to win back their distribution partners after sort of shutting them off to pursue their own strategy. And one of the themes of it, as I was talking to my colleague Jim Gillies about this, is it takes much longer than many investors want to believe that a turnaround story is going to take, having been in the middle of it. Is there any, you know, is there anything you think investors should know, especially.

[Ricky Mulvey]

On the retail side?

[Klaus Kleinfeld]

We're talking to people who are investing a few hundred bucks a month in the stock market that they should know if they're looking at a turnaround story in the market.

[Motley Fool Introduction]

You know, what do you need for a good turnaround? And I mean, yes, if you, you, you can say, I have a short term turnaround. You, I need a big gun. And I tell them, hey, you know what, you follow my orders or else. But if you want a sustainable turnaround, that's usually not how it works. You pretty much have to start from what value do I create for the customers? And the value for customers is relatively simple. You have two dimensions. You either do something for them that increases their revenues or decreases their costs because in the end they all want a higher profitability. So you really have to understand as well as possible what is the offering, how can the offering be improved? That's one thing. The second thing is you also need to understand what is the motivation of the team, how good is the team, the quality of the team, and how do they work together? Because in the end, I have seen again and again and again, the only sustainable competitive advantage you have in a business is the talent and the way they work together. Both of these things. This is the magic. And the third thing is you just have to take a look at the cash flow. Don't trust any EBITDA numbers. In the end, it's cash. And I think with those three dimension, customer, people and cash, I would always look at that as my first true north to understand does that work or does it not work? And I would not fall, by the way. One other thing that I've seen again and again, that investors fall for the great Storytellers and I've seen many, many times a great visionary. So to say that a great vision is only as good as the implementation, you know, and a great vision, if it's not translating into success for the customer basically burns the people out and people will not follow anymore. You know, they follow for a first moment, but then they lose interest because they see we are not winning. The moment people see we are winning, they will follow, follow.

[Klaus Kleinfeld]

You mentioned people is a sustainable competitive advantage for our audience. That's, that's pretty tough to identify. You can look at glassdoor reviews sometimes those can be gamed a little bit.

[Ricky Mulvey]

Let's say.

[Klaus Kleinfeld]

It'S incredibly difficult for us to, for, for us investors to, to know what's going on inside of a company. Especially we don't have research teams. We're, we're kind of in it on our own. And it's, it's still important to find sustainable competitive advantages. How do you, how do you think about those?

[Ricky Mulvey]

How, how are, what are some ways.

[Klaus Kleinfeld]

That our listeners with sustainable competitive advantages?

[Motley Fool Introduction]

Well, I started with customer advantage. That's pretty easy for investors also to figure out. Number one, many of the investors have knowledge about the industry and understand what does the industry need and how do the offerings today and in the future fit this. So it starts with that I can highly advise the better you become with evaluating that and checking the box on that, the better off you are. And then you can, I mean I would always talk to some customers and also some competitors. They also have good information about that. So that's one thing. The other thing is on the people side. I mean most companies these days have investor days or invite investors. And typically it's not just a CEO, but definitely also the CFO and CTO and some of the top leaders. I think I would not be shy, first of all, attend those meetings and secondly, I will not be shy as an investor to say I would encourage the leadership in the next investor meeting to bring on your first line management. And before that I'd like to have probably a better cv and I've seen many people do that. But if you feel that they don't do it, then you can ask for it. The third thing is, which I personally as a CEO have always done is factory visits, facility visits, factory and just walkthroughs. And it's very interesting. I think it's hard to fake a good walkthrough because you can see how people look from the shop floor. Look at the leaders, do they look away? Do they wave at them? Does the leader know anything about them? How does the leader deal with the others? So I think if there's an offer to visit some facilities, I would always hop on it and potentially even ask for it and say, hey, you know what? Is there a chance to visit some of your facilities? You've been talking about that. These great things, you know, can we see those? Can we, you know, and, you know, just invite a few, few folks, 10, 20 folks, I'll pay for my flight myself, you know, I'll come, you know, So I think most companies actually would enjoy investors doing that because it also makes the conversation between investors and the company much better.

[Ricky Mulvey]

As always, people on the program may have interests and the stocks they talk about in the monthly fool may have formal recommendations for Again, so don't buy or sell stocks based solely on what you hear. Personal finance content follows Motley fool editorial standards and are not approved by advertisers. Advertisements are sponsored content provided for informational purposes only. See our full advertising disclosure. Please check out our show notes in our podcast description. All right, up next, we've got Radar stocks. You're listening to Motley Fool Money. I'm Ricky Morvi, joined again by Asit.

[Klaus Kleinfeld]

Sharma and David Meyer.

[Ricky Mulvey]

Fools, a momentous thing happened this week, and that is that Southwest has officially ended its two bags fly free policy. Unless you've got the right status or the right credit card, it's now $35 for your first bag and $45 for your second bag. I know how I feel about this as a consumer, but we'll keep it on the investing angle since this is an investing show. Osit, good idea, bad idea for Southwest.

[Asit Sharma]

Long term, bad idea. So, Ricky, I discussed this at length with Dylan a few months ago, and we talked about unit costs and all kinds of metrics in this industry. And maybe Southwest had to do this. But the more that I've sat on it, the more I thought, look, guys, cut your costs somewhere else. You have something that's inextricably tied to your brand. That's why people fly Southwest. What are you doing to this brand? So I've actually landed on the other side, from it's ambiguous to no, this. This wasn't a great idea.

[Ricky Mulvey]

You've made me a brand promise and now you're breaking it. David, do you feel the same way or are you looking at those baggage fees and thinking, man, they need to get that cheddar for the shareholders?

[Guest Analyst]

No. So I frequently fly Southwest and they can put whatever baggage fee they want inside the price of their ticket. That's what they already do. It makes me feel good as a traveler to know that my big old snowboard on the way to Denver doesn't cost me any. Anything, even if it does cost me something already. So this is. I do not think this is good for their brand. I think this is just a money grab and frankly, I don't. Why would you want somebody to now try to be a price shopper when you usually have very good prices to begin with? I don't understand this.

[Ricky Mulvey]

And then quickly, before we get to radar stocks, because rehearsals in airplanes are hot in the streets right now. Asset open seating that's going to be gone from Southwest in a little bit, but quick, quickly. In the meantime, while Southwest does have open seating, how are you going to keep someone from sitting next to you on your next Southwest flight?

[Asit Sharma]

Yeah, so it's real simple, Ricky. Just look six seats ahead of me when I'm seated. So everyone who's coming towards me, smile at him really big from six seats away. They look away. They look back at you. The sky's still smiling at me. What is going on here? I usually can just curl up on the next two seats when I do that.

[Ricky Mulvey]

All right, let's get to stocks on our radar. Our man behind the glass, Mr. Dan Boyd, is going to hit you you with a question asit. We'll keep it on you. You're up first. What are you looking at this week?

[Asit Sharma]

So, Ricky, I am putting a tiny company called Soundhound, AI symbol S O U N on my radar screen. This is an AI stock that briefly had sort of meme status. What it does is it provides voice technology. And I think what's so interesting to me about Soundhound is that they've got their own foundational model for AI so in house, they've built this great model which can articulate human speech. It can really analyze voice patterns. The technology is so good that they're using it now in drive thrus. So some major quick service restaurant chains are using it. They're selling this to original equipment manufacturers in the auto industry. So companies that could work with these great big tech companies are choosing to work with Soundhound because their technology is so good. You can also use it on your phone as an app to identify like sounds and music in particular. I find that a lot of fun to hear a song and try to figure out where it's from just by opening this app. Sort of shazam. Like, in that sense, this is a company that's again, very tiny. Revenue was only 29 million this past quarter, but that was up 151%. This company is going to have losses for a while, for at least the next three to four years. But it is one of the companies that I've seen that seems to have its own unique value proposition out in AI land.

[Ricky Mulvey]

So it's worth following Dan, I think I heard AI there four or five times. That better get your attention. Maybe a question about Soundhound.

[Asit Sharma]

Yeah, losses for the next three to four years sure does sound good, Ricky. You love to hear that. Can't wait for yet another product out in the market that can't understand me when I shout into my phone agent.

[Ricky Mulvey]

Awesome. A response to Dan's insult. Not really a question about Soundhound.

[Asit Sharma]

Valid. I mean I have this experience myself with so much of the tech I use use. So I'm not going to be disingenuous here and try to get all used car salesmen on Dan. Time will tell.

[Ricky Mulvey]

David, what you got this week.

[Guest Analyst]

So the stock on my radar is sentinel1. The ticker symbol is S. This is an almost $7 billion company that continues to gain traction in the cybersecurity market. Its specialty is Endpoint Security, which is the protection of individual devices that connect to network works. The thing about one of the interesting things about this company is it's been marketing its AI capabilities since before its IPO in June 2021, before AI was seriously hot. The stock has pulled back since its high flying IPO and the company still expects to generate about 20% annual sales growth and recently turned cash flow positive in fiscal year 2025. So it also reports earnings on May 28th. And I want to revisit the company to hear what management has in terms of its vision for the future. And that's because it trades at a much more reasonable valuation at just under six times forward sales, which is close to its 52 week low.

[Ricky Mulvey]

Dan, a question, comment, or even a backhanded compliment about Sentinel 1.

[Asit Sharma]

I mean it's a cyber security firm. Like there's not exactly, I don't know, a whole lot of shine on that apple. It's just nuts and bolts to me personally. But hey, they're located in Mountain View, California, which is a nice part of the United States. So I can't hate that.

[Ricky Mulvey]

David, not enough shine on the apple for you?

[Guest Analyst]

You're exactly right that cybersecurity is a very competitive market. But the interesting thing is that means there's room for all sorts of competitors. And with Sentinel 1 focusing on the endpoint, they have carved themselves out a nice little niche. And as they continue to gather more data from the customer, customers that it has, as well as data from the new customers, its AI capabilities only get stronger.

[Ricky Mulvey]

Dan Boyd, not a lot of room on your watch list. What's going on the watch list this week?

[Asit Sharma]

Let's go. Sentinel 1.

[Ricky Mulvey]

Ricky. That's going to do it. For this week's radio show, I'm Ricky Mulvey. This show is mixed by Dan Boyd. Thanks for listening.