What Baker Hughes and Kinder Morgan Told Investors

In this episode of MarketFoolery, host Chris hill is joined by Motley Fool analyst Bill Barker to discuss the latest news in the market. Travelers (TRV -0.25%) boosts the Dow Jones Industrial Average with a strong fourth-quarter report. Baker Hughes (BHI) and Kinder Morgan (KMI -0.64%) fall slightly despite better-than-expected earnings. United Airlines (UAL -1.25%) loses nearly $2 billion in the fourth quarter. Bill analyzes those stories, plus he and Chris discuss Jack Welch's tenure running General Electric (GE 0.68%).

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This video was recorded on January 21, 2021.

Chris Hill: It's Thursday, January 21st. Welcome to MarketFoolery. I'm Chris Hill. With me today: the one and only Bill Barker. Thanks for being here.

Bill Barker: Thanks for having me.

Hill: We've got airlines, we've got energy. We're going to start with insurance. Travelers' fourth-quarter profits came in higher than expected. Travelers' renewal premiums were up. Their catastrophe claims were down. This looks like one of those quarters where if you're a Travelers [laughs] shareholder, every number is going in the direction that you would want it to be going, although the stock isn't really popping in the way that would reflect that. It's up a couple of percentage points. It is helping to lift up the Dow Jones Industrial Average, but it's not shooting to the moon.

Barker: No, nor should it be shooting to the moon. Things got a little bit better over time on the whole for Travelers, but the earnings per share down this year, down against almost every one of the last five years. There's always a little bit of cyclicality in what the claims are going to be, and I think, as you mentioned, the net income on the investments was a good quarter. It was a great quarter for investments in the fourth quarter, so their float should've been performing pretty well. But really, Travelers is not earning as much money as they did five, six years ago. Why should the stock be setting new records under that scenario?

Hill: Is insurance an industry that interests you? Is it one of those industries that you look at and think, if you're an investor, not that you have to have exposure to the industry itself, but it certainly is worth looking at. Because I've got to say, in my investing life, never once have I thought to myself, I really need some exposure to the insurance industry.

Barker: No, other than your investment, which I'm guessing exists in Berkshire Hathaway, which is largely an insurance company. If you do own any stock in that.

Hill: I don't.

Barker: You don't. Have you ever?

Hill: No.

Barker: I'm prying now.

Hill: That's fine. [laughs] We've known each other long enough. You can pry.

Barker: Many people have. If you had owned some Berkshire Hathaway over the course of your investing lifetime, that wouldn't be a surprise. Even to you it wouldn't be a surprise, would it?

Hill: No, and now you're reminding me that it probably would be not only not a surprise, it would be a lucrative thing [laughs] to own shares at Berkshire Hathaway over, say, let's just call it the last 20 years.

Barker: But that's the entryway. There are some other insurance companies that have interested me as an investor over the years, but not really the larger ones, for the most part, other than Berkshire. It's a good dividend-paying company, in many cases, for the insurance industry. Travelers has done a good job of increasing their dividend every year. It's a steady business and one that I think somebody that's more in the retirement category can count on for income. But it doesn't turn out to be a great growth business.

Hill: A pair of energy companies out with fourth-quarter reports today. Baker Hughes, the oil field services business, revenue higher than expected, and the loss was smaller than feared. Kinder Morgan's profits were higher than expected, and the pipeline operators' revenue looked good as well. And yet when you look at shares of both Baker Hughes and Kinder Morgan, they are somewhere between treading water and down slightly, which maybe that says something about the low expectations that both probably had, as well as the overall state of this part of the energy industry.

Barker: It's, as it's always is, a bet on oil. The price of oil is going to have a lot more to do with these companies, for the most part, than quarterly earnings reports. Baker Hughes is basically, I think, at the same stock price that it was really in the '80s, which is not a good thing for long-term shareholders. I mean, you've pocketed some dividends over that time. But if you bought in 1987 for $24 a share, it's $22 a share now, so ouch.

Part of the problem here, other than the price of oil, which, to go back to that, is the main driver of where the stock price is going to move over periods of time in its cycle. It's a cyclical stock. It's captive to the price of oil. And Baker Hughes on top of that, had a, I would say, bungled merger operation with GE's oil business, and that didn't really play out the way it was advertised to. General Electric is no longer the main shareholder of Baker Hughes but still owns 36%, and I don't know if that's DNA that you value or not at this point -- General Electric contributions to your business.

Hill: Isn't it amazing what's happened to General Electric in the last 10 years? You could go back even further, and if you go back even further to when Jack Welch was running the business, and this was the gold standard of those blue chip Dow stocks. It is such a far cry from where it was back then.

Barker: Jack Welch had a hell of a ride, left at a good time, maybe not the perfect time for GE stock. Remembered for many things: the book he wrote, the carnage that he left to the financial condition of the company once it was all unraveled. But also, for saying, I think at the peak of the market in the late '90s, that GE stock could not be overvalued. That is that if the stock price went up dramatically, he could just use the price of the stock to acquire more companies and create value through that acquisition. That was a level of hubris that I think was unveiled subsequent to his departure, really.

Hill: Yeah. This gets at something that has been referred to a couple of times on this show over the past few weeks. When we've talked about it previously, it's come out in the form of guidance. Just like, whether I own shares of a company or not, I always appreciate when companies are straightforward with their guidance. I always think it is a good thing. All things being equal that executives underpromise and overdeliver, hubris almost never works out. It's one thing for a Wall Street analyst to talk about a growth stock on CNBC or Bloomberg and say, ''I would buy the stock at any price. There's no way to overvalue this stock.'' It's another thing when the CEO of the company says it, and it's never a good thing when that happens.

Barker: Yeah, and there was a happy marriage, I suppose, at the time between GE's ownership of NBC and CNBC and his ability to appear and have lavish praise bestowed upon him on the major distributor of business news. There were some synergies there, and GE has been in many of the wrong places ever since then. It just hasn't been the right economy for their business in a lot of ways. If they'd held onto their financial position, if they hadn't spun that off, things would've gone a little bit better. But it is a tough road that GE faces these days, and that includes their work with Baker Hughes.

Hill: We'll move on to earnings in just a second. But I would just add, by contrast, Comcast, which is now the owner of NBC Universal and therefore CNBC... I'm trying to remember the last time I saw Brian Roberts, CEO of Comcast, on CNBC. For whatever LC is doing running that business, he is clearly not following the Jack Welch playbook of, "Oh, I own this business news network. I think I will just show up there constantly."

Barker: He does not appear to be the media hound that Jack Welch was. Look, GE shareholders did great [laughs] during the Jack Welch era. He was able to legitimately take some victory laps there. But he may have taken more than he should have ultimately.

Hill: United Airlines lost nearly $2 billion in the fourth quarter, and there are other numbers as well, but I think I will just stop there. Shares of United Airlines are down about 6% today, and it has been cut in half over the past year.

Barker: To get back to cyclicals. It appeared, up to maybe 12 to 18 months ago, that airlines had departed from the cyclical nature of the business. I think that we are shown again that isn't the case there.

I mentioned in one of the podcasts a long time ago, when I asked a CEO to shadow for a week or month, that I would shadow United's CEO, just because of the variety of problems and opportunities that one would get to face. I think that the work that is being done there now is probably taking three steps back, as fascinating in terms of having to juggle so many different issues with employees, with customers, with the politics, with trying to get Congress to help your industry out, to make the case that saving however many employee jobs you can make the argument can be saved by directing money directly or indirectly toward the airlines. It is all fascinating.

But the fact that this is a fascinating business isn't necessarily one that translates into shareholder returns, because again and again and again, customers are faced with the question in their own minds, "Is it safe for me to fly?" Sometimes that's a crash, sometimes that's the issues with Boeing's MAX plane, today it's with something you couldn't have expected 18 months ago in terms of infectious disease, sometimes terrorism. Again and again and again, customers take a big break from using airlines because of their fear of using the service. That's where we are right now.

Airlines, I think at some level, have done a good job of making flights safe in terms of the transmissibility of COVID, but I'm not sure that they have succeeded in convincing enough people that they're doing a good job with it. What they need to do is an outstanding job of keeping those numbers at virtually zero. They're trying, but I don't think that most people think right now that it's safe to fly.

Hill: I'm tempted to say that there is an opportunity here for investors with a stock that's been cut in half, because at some point, we will see a return. That said, everything you mentioned, starting with your opening point of, "This is a cyclical business." It does seem like -- and I almost hesitate to say this -- it does seem like if you're looking to buy shares of United Airlines, you've got to time it right. As someone who has no interest whatsoever in trying to time the market, that alone keeps me away from United Airlines.

Because it's almost analogous to how we say, when a company goes public, you want to give them a couple of quarters to see how they do, because it's so much harder to be a public company than a private company. Yeah, maybe it takes off and you miss out on some early gains, but more often than not, there are bumps in the road those first couple of quarters. With the airline industry as a group, and obviously, specifically with United Airlines, I feel like it's the same thing. We need to see a couple of quarters of one encouraging sign after another before we can feel like, "Okay. Yeah, the airlines are on their way back." But if you're doing that, you're going to miss out on some gains.

Barker: At that point, it's too late. As you say, the stock has been cut in half over the last year, but it's also doubled since May, more than doubled. It was $19 a share, now it's $42. Of course, it was $85 or so a year ago. If we had the ability to either time cyclicals well or teach people a good method for timing cyclicals, we could all retire, because it's virtually impossible. If you wait around for those couple of quarters, then you've missed the big gains, but you've also protected yourself from the worst-case scenario. United was, I don't know, $3, $4, $5 a share back in the dregs of '08, '09. You could have ridden this stock from $3 to $90 from '09 to 2019. Then you could have seen the vast majority of that taken back away. Not because the airline itself was making any mistakes, but because of things really beyond its own control. I don't know that things will ever be enough in control of the airlines to prevent them from being cyclicals.

Hill: Before we wrap up, this weekend, the NFL Conference Championship games are happening. I'm curious if you have any thoughts on that. My one business-related thought to the NFL Championship games is, CBS has got to feel pretty good about the four teams that are remaining. Because even though the Super Bowl is not like any other major sports championship in America, where the television ratings depend, to a very large degree, on the teams involved.

You and I have said for years, if the television networks that have the World Series could wave a magic wand every year, most years, it would be the Yankees against the Dodgers. You throw the Cubs in there, the White Sox, the Mets, maybe the Anaheim Angels or whatever the name of that team is. The California Angels for people of a certain age. But for the most part, it's dependent on the teams involved. God bless the Baltimore Orioles and the Cincinnati Reds. But if those two teams are meeting in the World Series, the ratings just aren't going to be good. The Super Bowl, the ratings are almost team proof in terms of who's going to be there. And yet, again, the narratives, regardless of which teams make it, there's going to be a really good storyline for the Super Bowl. Do you have one in particular that you're rooting for, or any other related thoughts/predictions?

Barker: I guess I'm still onboard with Mahomes, and I would be rooting for the Chiefs. Andy Reid, who did a great job in Philadelphia and is still loved and respected -- love is a tough thing to achieve in Philadelphia, and they'll [laughs] hold for very long. But it's [laughs] my hometown, so I could say that about the sports trends there.

I was trying to, like, "Oh, who are you rooting for?" I did like a tiny bit of research on one aspect of one of these quarterbacks, and that was, are there points that people would give or take away today from Tom Brady about his relationship with the former President Trump? I'm not here to bestow or take away those points. What I did come across in looking at what the relationship had been was a moment when he talked to Howard Stern about his friendship with Trump. He's at a radio show, friendship with Trump as a guest. Trump had tried to get Stern to speak at the Republican convention, which was something I didn't know. Boy, I would love to see a reenactment, both of the negotiations there and maybe even, I guess, a creation of the Howard Stern speech at the Republican National Convention had it occurred. That's a miniseries I would watch.

Hill: That would be something to watch. One way or another, that would be [laughs] memorable.

Barker: I think there would be something in there for everybody.

Hill: [laughs] There probably would. To bring it back to the question at hand, I'm going to show my age once again. I'm rooting for good games, so there's not one team in particular that I'm rooting for. I'm just rooting for entertaining games. I do think the storyline of Green Bay against Kansas City, which are the two teams that met in the very first Super Bowl, there's something about that storyline that's tugging at my heart a little bit. I think that CBS would have a lot of fun promoting that.

But it reminded me of -- and this is something you can just search on YouTube, and for any NFL fan, [laughs] it's worth watching. Nowadays, it's common to have coaches mic'd up on the sidelines. On YouTube, you can find the very first time that happened in the Super Bowl. It wasn't the first Super Bowl, it was Super Bowl IV, which featured the Kansas City Chiefs against the Minnesota Vikings. The coach of the Chiefs is Hank Stram. First of all, wearing a coat and tie on the sideline, which is a great look and it'd be fantastic if some, particularly a younger coach in the NFL just decided, "Yeah, I'm doing that."

Barker: Probably with Tom Landry would be my guess.

Hill: Tom Landry or maybe Dan Reeves. I think Dan Reeves went coat and tie time for a long time. But Hank Stram, highly entertaining on the sidelines here. I think Packers, Chiefs go back to Super Bowl I, that's a pretty irresistible storyline.

Barker: If you follow Super 70s Sports on Twitter, the frequent thing they bring up is the picture of Len Dawson I think during the halftime of the Super Bowl in the locker room smoking. [laughs] One of the many reminders of how things change [laughs] over time.

Hill: Yes. In that very first Super Bowl, Max McGee, wide receiver for the Packers who caught two touchdown passes, Max McGee out drinking the night before. Basically woke up the morning of the Super Bowl hungover and then rolled out of bed, caught a couple of touchdown passes.

Barker: As one did. [laughs] I doubt, by the way, he was the last guy to show up at the Super Bowl with a hangover. But I think it's probably not done nearly as much these days.

Hill: Bill Barker, always good talking to you. Thanks for being here.

Barker: Thanks.

Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.

That's going to do it for this edition of MarketFoolery. This show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you on Monday.