Is FedEx's Relationship With the NRA Going to Change Its Investment Thesis?

In this segment from the MarketFoolery podcast, host Chris Hill, Million Dollar Portfolio's Jason Moser, and Stock Advisor Canada's Taylor Muckerman weigh in on the decision of shipping titan Federal Express (FDX -0.40%) to stick to its literal guns and keep its partnership program with the National Rifle Association going.

Quite a few other major companies have concluded in the wake of the latest school mass shooting that it was time to cut ties with the group, which is turning FedEx into something of an outlier. With public anger over the easy accessibility of guns intensifying, and the word "boycott" being tossed around, how big of an impact might this lack of a move have on its revenue, profits, and investors' willingness to hold the stock? And, in a broader sense, what can investors and consumers really do to make their opinions felt when a large company acts in ways they disapprove of?

A full transcript follows the video.

This video was recorded on Feb. 26, 2018.

Chris Hill: Interesting weekend, and coming into this week, I think FedEx becomes a company to watch, because one of the things we saw over the weekend in terms of businesses, and certainly, if you're on Twitter, you probably saw this playing out, it has to do with, in the wake of the shootings at the high school in Florida and the backlash that the National Rifle Association is getting. There were a number of businesses, particularly when it came to airlines and rental car companies who offer discounts to NRA members in the same way that AARP gets discounts. Actually, that's a reminder that I need to join the AARP, because I am of a certain age. I'm not retiring anytime soon, but I do need to join AARP and start getting some of those discounts.

Anyway, some of these companies looked at the backlash and decided, "This isn't worth it to us anymore, the pressure that we're getting from other customers who are not involved with the NRA." And the largest company, to my knowledge, that is still offering that discount, is FedEx. And I'm wondering, Jason, if you think this now becomes something, if not necessarily a part of the thesis for investing in FedEx or perhaps a competitor like UPS, or if nothing else, it just becomes one more factor to watch? Because it really does seem like, in the same way that Home Depot and Lowe's have kind of tracked each other as stocks when it comes to home improvement, and for years, however Home Depot does, you can look at Lowe's and go, "They're probably going to do about the same but not quite as good," that's kind of been the story with FedEx and UPS, certainly over the last few years. But I'm wondering if FedEx now has an added risk factor here.

Jason Moser: I think it could. I tweeted a few days back that, just looking at the Bezos-Buffett-Dimon healthcare initiative, for example, I think this is a sign of things to come. Given the dysfunction in Washington D.C. today, and the fact that really, it's almost impossible for politicians to make anything happen anymore, I think that our brightest business leaders can. And I think we're starting to see more and more that they're trying to impart change, or at least throw some ideas on how to do things, perhaps, differently. And once you get that ball rolling, you don't have the red tape and the lobbies that you ultimately have to deal with in the political side of things. That can certainly bring change down the line. I think, when you look at this particular situation, there are far more people who are not members of the NRA than are. And I'd be willing to bet that there are a lot of people out there who are proponents of the Second Amendment but not members of the NRA.

Now, with that said, because there is a Pepsi to FedEx's Coke, I think it could be something that makes a difference. You have a very good alternative out there. And for people who really care about this, and we know there are a lot of them that do, I think that's a situation where it certainly could play out and affect FedEx's business. That's going to be something that, their leadership is going to have to make that decision on their own, what they stand for.

As investors, we talk about it all the time, you kind of have to dictate that line, what matters the most to you. If you looked at it from the perspective of something like Google, people are going to use Google no matter what. You use it sort of unconsciously. You don't even think you're doing it. But I think in the case of a lot of these businesses, they're making this decision because it's ultimately in line with how they want to approach the world, it's sort of their worldview. And I think we're going to see more and more of this type of stuff, not just NRA but in all sorts of issues. So, I think FedEx is going to have to think about this long and hard, because there's a very good alternative out there that does the same exact thing they do, and they do it pretty darn well.

Taylor Muckerman: I would just worry, maybe it'll affect them from an individual user, an individual shipper. But if you're a small, medium-sized business or a large business that already has a relationship with FedEx, it would be pretty sticky to change that. You might already be getting your own discounts from being such a loyal customer and shipping X amount of volume. So, there could be some issue there on the individual shipper side of things, but I don't know if it's going to make the biggest dent in the world.

If you look at, a lot of times, when these PR fiascos come out, and the companies come under fire for something that they didn't necessarily have anything to do with, but there's the opinion out there that you want to fall in line, it kind of blows over after a little while. So, I don't know if it's necessarily an investing thesis, but it's certainly something that the company is going to continue to have to consider internally.

Hill: And just as companies that have large accounts are more meaningful than individual customers are, it's the same for investing, institutional investors vs. individual investors. And that was one of the stories I saw over the weekend, I think in the Journal about BlackRock --

Moser: BlackRock, yeah. I read the same thing.

Hill: -- which owns, I think it's maybe the largest institutional shareholder of a couple of the gun manufacturers. And the comment out of BlackRock was, "Yeah, we have some questions for them, and we're going to have those conversations and we're going to proceed accordingly." So, same sort of thing. Individual investors who say, "I don't want to own cigarette maker stock, I don't want to own gun manufacturers," and that's totally fine. You can do that. That's one of the great things about investing, it can be a reflection of who you are. But it means a whole lot more when it's an institution like BlackRock that owns millions of shares.

Moser: And you have to be careful how granular you want to go with this. There are people, I'm sure, who owned shares in companies that had relationships with the NRA before and now they don't. It's very easy to get on your soapbox because it's convenient. As an investor, you have to be able to determine that line. You have to recognize how far you're willing to go with any of these issues that happen to come up.

Muckerman: I think, even, someone discovered that the Florida teachers' pension plan owned shares of gun manufacturers when this happened. I think they've since sold. It was a small stake, but still, it's just a broad market portfolio, you get caught up in it.

Moser: Yeah, a lot of times, we talk about the direct ownership vs. the indirect. If you have a 401(K), you probably don't, really, know what most of those dollars are invested in. But chances are, you probably have some exposure to companies that you might not be necessarily in line with.

Hill: I remember, and this is going back on last 20 years, doing an interview with a student newspaper, the student newspaper at Yale University. And at the time, the big issue on campus was the Yale endowment's ownership of cigarettes stocks, in particular Philip Morris, now Altria, then Philip Morris. And I was talking with the student reporter and trying to get across the point that -- because, students were pushing for the endowment to ditch the cigarette stocks, and the point I was trying to get across this guy was, "Look, you can do that, you can push for that. But what's going to be more meaningful, if you're trying to hurt Philip Morris, the move you want to make here is to find out what's being sold on campus."

And at the time, Philip Morris owned consumer goods like foods, packaged foods, all this sort of thing. And I said, "Let me ask you a few questions," and I ticked off a few of the items, which included, I think, beer, as well, and I just said, "Are these sold on campus? Can I go into a Yale cafeteria and buy these things?" And he said, "Yeah." And I said, "OK, well, then, you can sell the stock. Someone else is going to buy it. That's not really going to hurt Philip Morris' bottom line. If you really want to affect some change, get the school to stop selling those products."

Moser: Yeah. And your owning their stock doesn't really benefit that company whatsoever. You have a little ownership in them, but you bought that share of stock from someone else, not the company itself. You have to take an inventory of how far you're willing to go with this, because the one thing that we've seen with social media, it's just the high horse generation, man. It gives everybody the ability, you just get up on your high horse and say what you think. And that's fine. But there's always going to be someone out there who can counter it with something fairly compelling as well. It's a different time now, for sure.