Hurricane Stocks, Tariff-Troubled Manufacturers, and Reflections on the 2008 Bust

In this Market Foolery podcast, host Chris Hill and Motley Fool Asset Management's Bill Barker tackle some listener questions and hot topics. They lead off with the latest earnings report from popular Midwestern convenience store chain Casey's General Store (CASY 0.68%), then segue into a timely issue for investors: Recognizing that natural disasters are human disasters, it's not unreasonable for a stock-focused podcast to note that companies like Home Depot and Lowe's get sales boosts from such events.

Do Hurricane Florence and her peers change the investing thesis for some companies? Then, it's on to questions about Thor Industries and Treasury inflation-protected securities (TIPS), plus some Foolish reflections about the start of the stock market tumble of 2008 -- 10 years after it began.

A full transcript follows the video.

This video was recorded on Sept. 11, 2018.

Chris Hill: It's Tuesday, September 11. Welcome to Market Foolery! I'm Chris Hill. Joining me in studio, from Motley Fool Asset Management, Bill Barker. Thanks for being here!

Bill Barker: Thanks for having me!

Hill: We're going to dip into the Fool mailbag. We are going to look back 10 years ago at the financial crisis. And, yes, we're also going to talk about hurricane Florence. Let's start, though, with Casey's General Store. Good first quarter report for Casey's General. Profits look good. The stock up 8%. I don't know if Ron Gross would say they're firing on all cylinders, but this certainly seemed like an all-around really good report for them.

Barker: It's a good report. When you look at the stock movement, 8% today, you need to take a step back and look at the other places that it's been. The stock, even after today's rise, is still below where it's been in chunks of the last two years. It had sort of bottomed out around May of this year in the mid to low $90s. Now, it's up at $125. A nice run since then, but what they've achieved today in their report, I think, is to show that this productivity improvement model that they've adopted is beginning to find some traction. Combined with decent same-store sales, buying back some shares, opening some stores, doing a little bit of everything right, that's resulted in 8% today.

Hill: This is a retailer which is concentrated in the Midwest. I'm wondering, how big is the growth opportunity for Casey's General? It seems like, often is the case -- I'm not saying it's necessarily the case with Casey's -- we see retailers expanding a little too fast, and it ends up hurting their results. Do you think they've got the location footprint that they need to be successful? Or is there further growth from here?

Barker: There's further growth. There isn't rapid for their growth. If you're used to dealing with what really qualifies as growth stocks these days, things that you're seeing grow 20-40%... you talk about stocks that qualify on that all the time on the show. This is not that. They've got about 2,000 stores open. 2,073 at the beginning of the quarter. 2,085 at the end. They opened up 15, closed a few, so net 12 for the quarter. That's consistent with what they see for 2019, where they're going to acquire about 20, open about 60, that's 80. That's about 3-4% store growth. That's pretty manageable. That's the plan. That's a combination of new places and taking over competition that's a little bit less well run than Casey's is.

Hill: I was saying earlier today, we have an investing event coming up next month in Denver. We're going to do a podcast listener meetup in Denver at the end of October. More details coming on that. Selfishly, I'm really hoping we have an event in 2019 in the Midwest part of our country so that I have a really easy excuse to get to a Casey's General Store and also hit up a Culver's.

Barker: What should listeners bring to you at this meetup?

Hill: Nothing. If you're in Denver area -- 

Barker: A good joke, perhaps?

Hill: Just bring yourself.

Barker: A handmade card?

Hill: [laughs] No. Not a handmade card.

Barker: You'd appreciate that. It'd be a first. Ever gotten a handmade card from a grateful listener?

Hill: Only from my children, I think.

Barker: They're great when you come across them. You put them aside for a while, and then you find them and think, "This is better than any present that I would have actually been given."

Hill: Often is the case, particularly with my children. 

Barker: Yeah, it's not like they're giving you a whole lot of things that they've paid for. This is why I'm recommending that grateful listeners can get a lot of mileage by providing one to you.

Hill: Wow! We may have to -- and by "we," I mean I -- may have to employ producer Dan Boyd to do some rare editing on this episode, and just cut that right out. 

As you and I speak, Hurricane Florence continues to barrel her way toward the Carolinas. I'm curious, because, obviously, for where we are, we're in Northern Virginia -- South Carolina, North Carolina, Virginia, and Maryland, the governors of those four states have all declared a state of emergency. It's going to be far less damaging for us where we are than it's going to be for people certainly on the Outer Banks of North Carolina, where they've already started to be evacuated. But, I'm thinking right now, primarily, of listeners who are in the 46 other states -- and, for that matter, other countries. Look, there are going to be natural disasters. There are going to be hurricanes. Florence is coming now. It's going to be another named hurricane in the future. Why not try and make a little money off of Florence? When I think about hurricane stocks, the first two to leap to mind are Home Depot and Lowe's. Those seem like the obvious choices because damage is going to be done, and stuff's got to get fixed. 

Barker: Yeah. I guess I would say that I don't look at this or try to address this from the perspective of, "How do I make money off of this hurricane, and hopefully what will not be a tragedy in terms of human life, but damage to property," there's enough warning that hopefully people are receiving it and getting out of the way. But the property won't get out of the way. Some of it's going to be destroyed or damaged in other ways. So, how does the American economy replace that? And who gets that opportunity? 

In particular, I would say, look at it over the long-term. How do you think things are changing? If you believe that rising ocean temperatures are related to stronger hurricanes and possibly more frequent ones, then there may be a reason to take a long-term view on what is in the path of being able to serve the economy after the increasing damage that may be on the way. 

To that point, Home Depot's an obvious one, and Lowe's, as well. They get a lot of the headlines at times like this. Some of the other things you can look at -- I'm looking at it in particular because we own a few logistics companies -- the freight and logistics companies that are being employed by people that have to move product, get out of the way, for one thing. You have to move product from Florida to Maine. They were going to be driving through North and South Carolina. They have a schedule, they have to do that -- well, no. They're not going to be able to do that. They're going to have to get that product to the final destination in other ways. Companies like XPO Logistics, C. H. Robinson, they're benefiting. 

And then, the straight truck companies. There's a lot of increased price already. Capacity is very tight in the trucking industry. Old Dominion and J.B. Hunt. There are other companies that are making greater profits already prior to the storm off of just the increased freight prices. That's a thing to look at. 

Look, freight trucking is highly cyclical. Don't put too much money in something because it has a good quarter, even if these things have a little incremental business from the disruption here. Recall that they're highly cyclical industries. 

Hill: Our email address is [email protected]. Question from Eric in Pennsylvania, who writes: "I love camping. Thor Industries produces great equipment. They have slumped recently. What are your thoughts on picking up some shares now?" At the beginning of this year, Thor Industries was up around $155. It has definitely pulled back. It's around $95 today. 

Barker: Yeah, a couple of things. I'll tie this into the hurricane issue, as well. Thor is something that we own. It was one of the top holdings in the small and mid-cap growth fund that I help manage with Charly Travers. This is something we've owned for a long time and has made a lot of money for investors over the last six, seven years. A lot less so this year. In fact, it's the worst-performing company that we own in that portfolio. Down 34% for the year.

Now, why is that? One, more than anything, it's because of the tariffs, the steel and aluminum tariffs. 25% hikes in that. This has as really landed upon the RV industry. They're still at record high sales for units, and they're having a good year as an industry. They're benefiting from the tax cuts. But the margins have really been impacted by this. Not to the extent that they're not still making record profit. Thor is making record profits this year, and the suppliers like LCI, Patrick Industries, also. But they're not making the profits that they were expecting to make at the beginning of the year, before the tariffs were implemented. That is most of what explains the stock price. 

Additionally, the growth in the industry is not at the pace that it was last year. Again, it's at record highs for units, but it's growing more like 5-7% over last year's record high, rather than the 10-20% that it was growing in the previous two years. All of which is to say that my guidance on Thor -- which I won't give, it would be biased by the fact that we own it in the fund. But, we've also owned it for seven years and expect to own it for a lot longer.

Hill Great name, too!

Barker: Do you know why it's named Thor?

Hill: For the god of thunder?

Barker: No.

Hill: Oh. Is there another Thor?

Barker: The founders are named Thompson and Orthwein. It's the first two letters of Thompson and the first two letters of Orthwein.

Hill: They might want to consider telling people it's named for the god of thunder.

Barker: I think they let people assume that. And, they got there in their own creative way. Yes, it's a better name than Thompson-Orthwein would have been. 

Hill: Yeah, definitely. Well done, guys! Also, if you've got a smart speaker at home, you can catch any of The Motley Fool's podcasts, as well as our daily flash briefing if you just enable that, as well. 

One more email, this time from Rick Grazer, who asks, "In light of the recent news about wages increasing, is this a good time to buy TIPS? Do you have any comments on TIPS in general for those who are already required?" TIPS, Treasury inflation protected securities. Are you a fan of TIPS?

Barker: Yeah, I am. They're not going to provide you a lot of return. But they're very risk-friendly, incorporating, as they do, the effects of inflation. They'll give you a fairly predictable return, and are adjusted by inflation. You really know what you're going to get with TIPS, more than almost any other instrument, other than, I know, a CD or something. Even CDs can be affected heavily by inflation. Inflation is picking up. I would expect it to continue to do so. Not to any hugely dramatic extent. Maybe that's just hope talking there because a really dramatic increase in inflation would be bad for a lot of things. I hope that's not the case. They're not going to return a lot of money, but they're going to protect you if inflation does get bad.

Hill: Predictable.

Barker: Very predictable. 

Hill: If you're someone who does not like surprises, TIPS might be for you. 

Barker: Yes.

Hill: There was a moment of silence this morning at the New York Stock Exchange in honor of the victims of 9/11. Also, one of the things that we've seen recently -- you and I were chatting about this this morning -- are stories coming out over the last week or so, because this is the 10-year anniversary of the beginning of the financial crisis, with the collapse of Lehman and all that sort of thing. When you think back on that time, what stands out to you? 

Barker: What stands out to me is that I was making the transition from being on the writing side of this company to starting the Asset Management Company. And boy, was it a great time to get out of doing anything except on paper. 

Hill: [laughs] Good timing by you.

Barker: Well, it wasn't really by me, it was just kind of required that we make this transition and be separated from the newsletter side of the business in time to be ready for actual mutual fund management. And, in part because of what happened in September and October, the paperwork that we had in place got shoved toward the back of the pile. We did not get the approvals that are necessary to open the fund until June of 2009. So, we had a lot of time where we were just doing what we would do for real, but doing it on paper. There was a paper portfolio going for a while. So, if you lost, 7-9% of your paper portfolio in a week, that was not as painful as losing a real --

Hill: As actually losing it.

Barker: -- as actually losing that money. And, not as painful as being a newsletter adviser and having to help people with what was going on in the market. That was a very challenging job for everybody who had it at that time. This was a new experience. Even if you'd been through the dot-com bubble, which many of us had in this job, this was a different animal. Things were moving in crazy ways every day.

Hill: They really were. At that time, we didn't have a podcast. I was in the role that Alison Southwick does now, I was doing media relations and PR and that sort of things. It was either the first or second day that the market was really starting to tag. I remember an impromptu meeting. I think you were in the room for that. I think it was you, me, Bill Mann. I think Tim Hanson was in that, as well. There were a few of us who were really trying to get a grip on what was actually happening. And, as you said, you and I had both been through the dot-com era. At that point, it was... I don't want to say you get what you deserve. But, in a lot of cases, with the dot-com era, there were companies that didn't really have a great business plan. It was not the underpinnings of the U.S. economy. It was just like, "Oh, here's this fly by night dot-com company. They didn't really have a business plan. They're going south, so be it." Whereas this was this cascading ripple effect with the banks. As it unfolded ... I remember, at some point a few weeks in, thinking to myself, "How much worse is this going to get? Because it seems like it's going to get worse." And it did.

Barker: Yeah. It spent a long time getting worse. It was tough times for a lot of people. We finally got the fund started in June of 2009, which was a great time to have as your starting point. March would have been even better, but June was pretty good. So, when I'm talking to people, "We got started in 2009." "Oh, you were really smart!" or, "That was a good time!" We would have started in the fall of 2008 if we had had the paperwork approved. 

Hill: "No, we're not smart. We kind of just got lucky with the timing."

Barker: [laughs] We got very lucky. Then, the Madoff stuff came up. That increased the waiting time we had. I think the SEC got that much more cautious about the paperwork that was in front of them. So, there were a lot of things that affected what we were up to, and really prevented us from being able to get started on what we wanted to do. You had a lot more to do, like placing people on media. 

Hill: There was that. And then, the other thing I remember about the fall of 2008 is, David and Tom Gardner had a new book coming out in a few months, entitled The Million Dollar Portfolio. I want to say at the end of August, we had just gotten the initial proofs back. It's a hardcover book, but the initial proofs are in paperback. I think we still have a few copies of the initial proofs. 

Barker: I wrote a chapter of that.

Hill: Yeah, you did work on that, as did Bill Mann, as I think did Tim Hanson.

Barker: A lot of people worked on it. 

Hill: Yeah. What I remember about that book was, we had to go back to the publisher and say, "We need a new opening chapter to address what's happening in the market right now, and we need to change the subtitle." I don't remember off the top of my head what the original subtitle was. I think it was --

Barker: "Managing money in a booming time," or whatever.

Hill: I think it was something like, The Motley Fool Million Dollar Portfolio: Growing Your Own Seven-Figure Portfolio, something like that. And what the resulting subtitle ended up being was, How to Build and Grow a Panic-Proof Investment Portfolio. Coming out with a new book, I think it was January of '09, maybe that first week -- it was either December '08 or January '09. Whenever it came out, it was very important to be able to speak to what was happening in the market at the moment. We were able to make that work.

Barker: There must have been a lot of work, from the media requests for people to show up and be on everybody's show.

Hill: Absolutely, yeah. It was a crazy time. But, as we've said before, that's why there's coffee. 

Barker: [laughs] We've said that?

Hill: Yeah, we always say that. That's why there's coffee. You can read more from Bill Barker, Charly Travers, and the whole crew at Motley Fool Asset Management. Just go to foolfunds.com. Thanks for being here!

Barker: Thank you!

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 Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow!