In this segment of the Motley Fool Money radio show, host Chris Hill asks Million Dollar Portfolio‘s Jason Moser and Matt Argersinger and Supernova and Rule Breakers‘ David Kretzmann to tell us about the companies they have their eyes on this week and why: web-based real estate database and brokerage Redfin (NASDAQ:RDFN); mortgage origination automator Ellie Mae (NYSE:ELLI); and Arcos Dorados (NYSE:ARCO), the franchiser of McDonald’s in most of Latin America.
A full transcript follows the video.
This video was recorded on July 28, 2017.
Chris Hill: We have a little time to get to the stocks on our radar this week. Steve will hit you with a question. Do you know what? We have the time, you can hit him back with a question about the stock, or life in general, if you want. David Kretzmann, you’re up first. What are you looking at this week?
David Kretzmann: I’m looking at a brand new IPO, Redfin, ticker RDFN, that just went public today. This is a web-based real estate database and brokerage operating in 84 cities in the U.S. Over the past year, they’ve generated $285 million in sales. They have a slightly disruptive model to the traditional real estate brokerage model. Redfin pays their agents a base salary, so they’re not just on commission like traditional real estate agents. So, they’re able to charge lower commissions to buyers and sellers. They’re going after that massive $75 billion real estate commissions market in the U.S. There’s a big market opportunity, they’re going after a bigger market than someone like Zillow, and I think in a more disruptive way. The stock is up 40% today, its first day public, but the market cap is still $1.6 billion, and I could see this being a lot bigger of a company down the road.
Hill: Steve, question about Redfin?
Steve Broido: First off, I love Redfin. I think they have the best real estate search engine out there. If you go to redfin.com and search around your area, it’s just amazing. They’ve done a terrific job with finding homes and looking at them, it’s just terrific. The problem I have with Redfin is, what if Redfin doesn’t serve your area? You can search and it’s like, they’re not in Michigan, what’s up?
Kretzmann: Yeah, that’s a bummer for them. They’re in the major metro markets, and they are starting to expand into those smaller towns and cities. But, yeah, that’s still an issue for them as they expand. Have you used Redfin to actually buy or sell a home, Steve? Would you?
Broido: Would I, yes, I would. I have not used them, but I use them to research homes all the time.
Hill: Jason Moser, what you looking at?
Jason Moser: I’ll stick with DK’s housing here, Ellie Mae, ticker ELLI. Oh man, this stock got pummeled on earnings this week, Chris. Actually, this could work out pretty well for investors. But it’s a big whiff, a big guide down on lower mortgage volumes. As we know, Ellie Mae is the mortgage software provider. Fannie and Freddie typically forecast mortgage volume, and as we move from refinancing to a purchase dominated market, Fannie and Freddie forecasts are for those volumes to decline about 17% from 2016. We’ve been really paying close attention to this one in MDP. We own a small position in it right now, a winning position. We’ve been waiting for a pullback on the stock and we’ve identified it at a $90 price target. This may actually open up a window of opportunity, because it looks like the business is performing very well, it’s just at a tough part of the cycle. So, Ellie Mae.
Hill: Steve, question about Ellie Mae?
Broido: Housing appears to be very expensive where we live in the metro D.C. area, but I’m hearing that homeownership is still at record lows. How can that be? How does that get resolved?
Moser: It is, at this point in time, very low inventory levels, which is keeping a lot of prospective buyers on the sidelines. The ones who are going in there are typically offering cash up front to make the best offer, which is one way those prices get artificially pushed up. Steve, I just got a text message from my daughter. Apparently our dog ate the pink highlighter in our house. Of course, it was in a room with carpet. So, my question is, do you have any tips on how I can get pink highlighter out of the carpet before my wife gets home?
Hill: Matt Argersinger, what are you looking at?
Matt Argersinger: I’m looking at Arcos Dorados, ticker ARCO. If you know Spanish, that translates to golden arches, which might give you a little bit of a hint as to what this company does. We talked about McDonald’s earlier in the show. It’s amazing the Renaissance the company is having under Easterbrook. If you like McDonald’s, consider investing in Arcos Dorados, which is the company that has the exclusive right to own, operate, and franchise McDonald’s stores in most of Latin America, including Brazil, Mexico, Columbia, Argentina and most of the Caribbean. They operate or franchise nearly 2,200 restaurants. Been a tough couple of years for Arcos Dorados, with same-store sales, with the economic situation in Brazil and elsewhere, but same-store sales have just started to turn around. I think this could be the company, the stock at the beginning of an inflection point.
Broido: I think of McDonald’s as being the quintessential American fast food. Is there a quintessential fast food in Latin America? Is there an analog here?
Argersinger: Outside of tacos, which McDonald’s doesn’t to, I don’t think so. But, they have some very specific things within the Arcos Dorados restaurants that are native to the region, that you can get there that you can’t get the United States. So, they are appealing to the region.
Hill: Three stocks. Steve, do you have one you want to add to your watchlist?
Broido: I’m looking at Redfin. I didn’t know they were going public. I’m learning something every day here.
Kretzmann: Hey, that’s what we’re here for.