Do you invest in real estate? In this episode of Industry Focus: Financials, host Jason Moser sits down with The Fool's own Matt Argersinger to talk about why this asset class can be a smart addition to investors' portfolios.
Finally, it's been a rocky month or so for our "War on Cash" basket of stocks, but that doesn't mean there's anything wrong with these companies business-wise.
A full transcript follows the video.
This video was recorded on Nov. 19, 2018.
Jason Moser: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market each day. It's Monday, November 19th. I'm your host, Jason Moser. On today's show, we're going to talk about Berkshire's 13-F, their latest buys. This quarter shows a big fondness for banks, apparently. Matt will get into that for us. We'll recap the war on cash for this most recent earnings season, talk about the good, the bad, and what's to come. We'll tap into Twitter, of course and, as always, give you One to Watch.
We begin this week with another installment of Between Two Fools. Matty Argersinger has been investing here at The Motley Fool now for over ten years and has established quite the track record along the way. This week on Between Two Fools, Matty and I caught up on the subject of real estate, why it should matter to Foolish investors, and how he and his team are getting ready to help you become smarter, happier, and richer.
Hey, Matt. Why should investor-focused listeners be interested in real estate?
Matt Argersinger: That's a great question. Real estate is the third largest asset class behind bonds and stocks. It's a massive market. In fact, if you look at Zillow's number of the value of U.S. residential real estate, it's about $32 trillion, which is actually bigger than the market capitalization of the U.S. stock market. The value of the U.S. housing market is bigger than the stock market. There's that. And, I was looking at something the other day, a prediction for 2019 that there's going to be $600 billion, thereabouts, in rental and leasing revenue for real estate. That's about half the revenue of the S&P 500. Just to give you some idea about the size of the real estate market.
But the reason I think investors should really look at the asset class, one, it's something we haven't looked at a lot at The Motley Fool. We're obviously very stock-focused. We've been taught for years, decades, and most of us still fully believe this -- I really believed this up until just recently --that stocks deliver, historically, the best returns. It's the best returns you can get as an individual investor. Well, that's been turned on its head a little bit. There was a study that came out in 2017 by the National Bureau of Economic Research that, for the first time, went back and looked at the returns of all these asset classes from roughly 16 developed countries, including the United States. They actually concluded that real estate, believe it or not, offered a slightly better return than stocks. This data went back to 1870, it's about 150 years of data. Real estate actually outperformed stocks a little bit. And, as you might expect, real estate had less than half the volatility of the stock market.
Moser: All right, but we can at least agree that stocks are more liquid, right? [laughs]
Argersinger: Yes. Of course. No doubt about that one.
Moser: I like that point, though! In our lifetime, our context is very much real estate, more or less, the rule of thumb, it tracks inflation. If you look at it, the chart pretty much tells you, with the exception of that anomaly back in 2001-2005, generally speaking, it tracks inflation. But it sounds like, if you have a bit of a longer timeline in mind, there could certainly be some rewards.
Speaking of rewards, because that's ultimately why we invest -- Matt, we work with each other every day. We talk about real estate stocks, all this stuff. You know that I moved up here from Georgia. I kept my house down there for seven years after. We rented it out. I was a landlord. It was a scary time, I was waiting to get sued every day. With that said, we sold our house down there, we sold our house up here. We recognized some nice gains that allowed us to move into a bigger home. So it goes. But if we're talking about our listeners, investors, what are some of the ways they can invest in real estate? Do they have to be landlords? Or are there other ways to go about this?
Argersinger: You can certainly go the landlord route. You and I have done it. You just mentioned it. I also still own some income properties here in Washington, D.C. I know all about being a landlord. Sometimes it is not fun.
But the nice thing is, there are so many ways to invest in real estate. One way I'm sure we're all familiar with is, you can do it through the stock market. You can do it through REITs, real estate investment trusts. They've been around for over 50 years, very liquid, basically mutual funds of real estate. You can go in and invest. You can find a hotel REIT that owns hundreds of hotel properties. You can find an office REIT that owns nothing but office buildings. There are many ways to do it.
There's also traditional equities that are really real-estate-focused. For example, Vail Resorts, a company that you and I follow, ticker MTN. That's pretty much a real estate business. They own hospitality properties and some of the greatest ski mountains in the world. It's a wonderful company.
But really exciting is that nowadays -- and this is all thanks to the rise of crowdfunding -- even individual investors can tap into the private commercial real estate market. For a long time, for many decades, that was this thing off on the periphery, where you couldn't get in unless you were wealthy, you had a rich uncle, or a membership at your local golf club where you would rub shoulders with investors. But it's really accessible now. If you're an investor who's thinking about, I don't know, investing in a hotel in Nashville, Tennessee, or an office building in Chicago, or an apartment building in San Francisco, just to use weird examples, you can actually do that through crowdfunding. It's really accessible, you don't even need that much money. In some cases, you can put up as little as $10,000 and invest directly in commercial real estate.
Moser: Just speaking as a homeowner, and that's about the extent of our real estate exposure thus far, it is amazing the doors that it can open. There's a lot to be said for it. With that in mind, we talk about stocks all the time, and the stock market. We look at periods where we feel like the market is overvalued, or undervalued, these stocks are buys, these stocks are sells. My point is, we look at a lot of metrics to try to gauge where we should be involved in the market. When it comes to real estate, it feels like it can be a little bit trickier. Certainly, real estate, from the personal perspective, you always hear that it's location, location, location. It's different everywhere you go. But as an investor, what are some of the key metrics, and furthermore, some of the risks, that you are looking for when you're considering investing in real estate?
Argersinger: The nice thing is, you can apply a lot of what you've learned in the stock market to real estate. We're all looking for good balance sheets, good management teams, reasonable profit margins. Those same metrics exist in the real estate market. They might have different names. For example, in the real estate market, you'll often hear a term called "net operating income." We use that in stocks, too. Net operating income means, essentially, your rental revenue minus all your operating expenses to manage the property. That gives you your net operating income. That's a very fundamental view of the income of a property. Another term you'll hear often is "cap rate," or "capitalization rate." That's essentially the net operating income divided by the value of the property. Generally, when buying a property, you're aiming to pay a high cap rate. You're looking for a property that kicks off a lot of income relative to your purchase price. When you're looking to sell, you're looking for a lower cap rate, because you want to sell at a high value relative to your net operating income.
There are those things. The debt structure is obviously is really important when it comes to looking at real estate. The track record. We talk about track record all the time with CEOs. You want to know that with your real estate developer, too. What kind of track records do they have? When it comes to REITs, something you look at is simply the track record of the stock. How has this REIT performed while this management team has been in place? Also, when you're looking at crowdfunded properties, you can dive in and figure out, how has the sponsor -- that's what developers are called in the crowdfunding world -- how has the sponsor done in the crowdfunding world? How has this sponsor done with previous listings, previous crowdfunding deals? You can find that information.
Again, balance sheet, income, management, it all applies, just in different ways in the real estate market.
Moser: If you're going to go into a diverse play that has real estate holdings in a lot of different places, understanding the economies in those places could make a big difference.
Argersinger: You said it -- location, location, location. That's so key. If you're focusing on single asset properties, like a single hotel somewhere, a single office building, a single apartment building, obviously, the local demographics make a huge difference. Is it a place where there are a lot of customers or potential renters moving to or living? If you're an office building, do you have access to good talent or to your customers? All of that is special sauce when it comes to real estate.
Moser: It reminds me of a statistic I read the other week. You look at a lot of these companies that we follow. CVS is one. An interesting business from a number of different perspectives. I read something where they said that they have a store within five miles of 75% of the entire U.S. population. I don't think that was an accident.
Clearly, they have people who have been thinking a little bit forward in that regard. Another company that we cover, and I certainly cover, is HCA. I know there are some strong opinions out there regarding corporate medicine, but the fact of the matter is that HCA is a pretty strong business. They do a lot of good work with this big base of hospitals that they have. Those are a couple of real estate ideas that I've always paid attention to. My point was, you can think of it a number of different ways. It's not like you're just buying and selling houses.
But when we talk about buying and selling houses, or buying and investing in stocks, whatever it may be, I'm excited for you because we have something new coming down the pike here soon in regard to The Motley Fool and services that we're offering our members. I'm excited because #1, I know I'm going to learn a lot more; also, #2, I don't think we could have put a more appropriate person in the place for it.
Tell me a little bit about what we have in store for our listeners, for our members, for people around the world, what we're going to do to make them smarter, happier, richer. What? Tell me.
Argersinger: Thanks, Jason. It's really exciting. We're hoping that by February, maybe March, but if everything works right, maybe February, we're going to launch our first real estate product here at The Motley Fool. We're going to do something really different, which is exciting. You think, "The Motley Fool's launching a real estate product. What, it's going to be recommending REITs? Equities?" Well, yes, we're going to be recommending those. But we're also going to be, for the first time, enabling members who join the service to invest directly in commercial real estate like I was talking about earlier.
We're going to be featuring deals from around the country, deals that enable members to own minority interest in commercial real estate developments or assets. Think apartment complexes in Dallas, Texas. One deal I was looking at the other day is a new resort that's going up in Stowe, Vermont, and great ski resort up there. These are real deals in the marketplace, and we're looking to enable members to buy interest in them. We're going to be recommending them and, of course, talking about some of the risks, providing a lot of additional resources to help members understand the real estate market, the nuances of it, the different asset classes within it, and how we think you can earn a great return.
Moser: A little birdie told me, as well, that you may be working with someone on this service, someone individual members may be familiar with.
Argersinger: Yeah. Your partner in crime on this podcast, Matt Frankel. He's focused on real estate really extensively for Fool.com. I was just reading a few weeks ago a great primer on REITs that he wrote for Fool.com recently, which was fantastic. He's going to be joining us on the service and contributing content and recommendations on REITs. We're really excited to have him.
Moser: I'm going to give you one last chance. Anything else you can tell us about the forthcoming product?
Argersinger: I'll just say, we haven't named it yet.
Moser: Is there a listener contest? [laughs]
Argersinger: Maybe! [laughs] We're looking for names, but we have a few ideas. Just, pay attention, listen to our podcasts for the next few weeks and months. We'll be sharing more about it. I couldn't be more excited about starting a new vertical here at The Fool, a new asset class we haven't really explored yet.
Moser: Sounds cool. Good luck. and thanks for coming on this week.
Argersinger: Thanks, Jason.
Moser: As always, joining me in the studio this week via Skype is certified financial planner Mr. Matt Frankel. Matt, how was your weekend?
Matt Frankel: Pretty good! My football team won, but it wasn't a very big game. I took my daughter to our first basketball game last night. That was a lot of fun. Our women's basketball team is excellent.
Moser: Beautiful! You took her to a Gamecocks basketball game?
Frankel: I did!
Moser: Oh, terrific! Man, how was that?
Frankel: It was great. Like I said, our women's team is one of the best in the country. We lost last night, and it was a big game. She loved it.
Moser: That's the most fun in the world as a parent, doing all of that kind of stuff. Enjoy it, because it goes by very, very quickly. You hit a point sooner or later where they're trying to figure out how not to be around you so much. Enjoy why you got it. [laughs]
Frankel: [laughs] I've heard.
Moser: Before we get going today, I do want to take just a moment here. I want to say thanks to the good folks at Wofford College in Spartanburg, South Carolina for having me last week. Listeners may remember, I mentioned I was going down there to speak with some students and professors about investing, about The Fool, and all sorts of good stuff. Calhoun Kennedy in the Office of Advancement, professors Philip Swicegood and Andrew Green, were gracious hosts. I had a wonderful time there. They are really doing some cool stuff down there, particularly with their student-run James fund. I'm really looking forward to having Dr. Swicegood on the show here soon for Between Two Fools, so he can shine a light on some of the great things they're doing down there with the James fund. For me, it was a real treat to get back there. I hope to get back down there real soon. I wanted to extend my appreciation to everyone down there in Spartanburg again.
Matt, big news here, as is with every quarter. Berkshire Hathaway's 13-F came out. That's the SEC form that gives us an idea of what they are buying, what they're selling. You wrote an article here recently on fool.com that gave us some great insight there. Talk to me a little bit about Berkshire's 13-F, and what stood out to you.
Frankel: We knew this was a fairly active quarter for Berkshire. In its earnings report, we saw that it spent something like $14 billion on stocks. But there were a few things that really stood out. One, Berkshire invested in Oracle, which was a new position, and shows how Berkshire's embracing technology recently.
Moser: Embracing his own brand, too, right? He's the oracle of Omaha. He may as well own some Oracle.
Frankel: [laughs] I wonder if that had anything to do with it. The other big thing that stood out was bank stocks. Not just that Berkshire bought one bank, they initiated a $4 billion position in JP Morgan, but Berkshire upped its position in pretty much every major bank stock it owns, with the exception of Wells Fargo. It bought almost 200 million more shares of Bank of America, 24 million shares of US Bank, another 5 million shares of Goldman, which was its biggest percentage increase for the quarter. It increased its Goldman stake by 38%. Bank of New York Mellon.
There are a couple of things to take from this. #1, Berkshire can't own any more than 10% of a bank, which is why he's branching out into new big bank positions like JP Morgan and selling a little of his Wells Fargo every quarter. He needs to maintain that stake a little under 10%, which it is. Bank of America now is very close to being a 10% stake. Goldman's not quite there yet. But some of the smaller ones are. JP Morgan's one that he could buy another $20 billion worth and not be close to the cap yet. In my opinion, that's why he decided to buy JP Morgan. It's a very well-run bank, and he has a lot of room to expand his position. And Berkshire really needs to spend billions of dollars to move the needle. But, just the general theme of buying bank stocks. In all, we don't know the exact price Buffett paid for all these, but he spent close to $15 billion on bank stocks during the quarter. He already had an overweight position in banks.
So, why is Buffett buying so many banks? One, it's been a big underperformer of the S&P. Banks were a huge beneficiary of tax reform. A lot of the banks, when we've discussed their earnings, have earnings up 40-40% year over year. And the main reason for that is tax reform. Banks paid pretty much the maximum corporate tax rate. And banks have yet to realize the benefit of the rising rate environment. We mentioned that the profit margins for banks go up as interest rates go up, which tends to happen. But so far, the Fed's raised rates about eight times. We're yet to see that kind of rate movement on the long end of the yield curve, meaning on mortgage rates and things like that. So, banks are yet to realize the profit potential from that.
It's still generally a deregulated banking environment, a business-friendly banking environment. Even though the Democrats took back the house, we're not likely to see any significant new banking regulations come to be with a Republican in the White House and a Republican-controlled Senate. Pretty neutral regulatory environment. It should be a very nice climate for growth, given how well the economy is doing. Most banks are posting very good loan and deposit growth, great numbers when it comes to defaults and charge-offs. Asset quality is looking really good. It's a really great growth environment for banks, and the market hasn't really given banks the credit for it to be a great growth environment.
It looks like Buffett sees some unlocked and unrealized value in the sector, and that's what he's betting his money on.
Moser: It makes sense. We have an economy that is very credit-driven. When that's the case, these are the big banks that are out there helping a lot of that money move around in one way, shape, or form. To your point about JPMorgan Chase -- we're big fans of that company, obviously. One of the bigger banks out there doing more and more with the capital it's able to gather. I think Jamie Dimon has proven to be a very forward-thinking CEO. Not only that, but Buffett and Dimon, along with Bezos, working together on that healthcare initiative to try to help cut costs and improve healthcare within their own companies, and hopefully bring some of those learnings that to the greater corporate society. I think that all makes sense.
I did want to follow up with you on one thing here, with the Wells Fargo position. We've been very critical of Wells Fargo for some time here now. The cutting of the Wells Fargo position there, you think that really is more related to not hitting that 10% mark, as opposed to throwing down the gauntlet and saying, "We're sick and tired of your culture problems there. Fix it or we're going to start weaning our way off of your position in our portfolio?"
Frankel: That's a very good question. A couple of points. First of all, Buffett came out about a year ago and said, "We have no intention of getting rid of Wells Fargo. We are going to start selling to keep our stake under 10%." Berkshire's stake is a little over 9%. Buffett also owns some Wells Fargo in his personal portfolio. Combined, he has to be very careful that it doesn't give them 10% control. Second, Wells Fargo, because it has been a big underperformer, is buying back its stock very aggressively, which is making Buffett's stake naturally go up over time. Each quarter for the past few quarters, Buffett's had to sell a small percentage. I think it was a little under 2% of the Wells Fargo stake that he sold this quarter. But, a small percentage each quarter. Each time it happens, a few weeks later, Buffett has come out and said, "We believe in Wells Fargo. They made a mistake." Last quarter, he actually said he believes Wells Fargo will be the best-performing of the big four over the next ten years. So, he's come out in support of Wells Fargo many times as a long-term investment. He's said he has no intention of getting rid of it from the portfolio. And we've seen this consistent pattern of selling to maintain the stake at a certain level over the past three or four quarters now.
Moser: All right. We will wait until next quarter to see what the trends look like there.
Matt, it's that time of the quarter. Earnings season is wrapping up here. Listeners know that we talk a lot about the payments space, the War on Cash basket that we've enjoyed covering here. That is a PayPal, Square, Visa, and MasterCard. We wanted to go ahead and give our quarterly review with the War on Cash basket, see where these companies stand after this most recent earnings season. To give the listeners a quick update on this basket and where it stands from a returns perspective, since the date of inception, July 24, 2017, the War on Cash basket is up 65.2% versus the market's 9.1%. Those numbers are good as of about 1 PM Monday afternoon here on November 19th. I wanted to make sure to get those as updated as possible, Matt, because there's a lot of blood on the streets out there today in the market. Some of these names, it looks like they might be on sale, huh?
Frankel: Yeah, pretty much anything involving tech has been getting hammered. Not happy about it from watching my portfolio every day, but hopefully, we'll be able to shut up about these one of these days and we can all buy a few more and take advantage.
Moser: That's a nice part about the holiday season. We have a couple of days off here and there, so we can be quiet. Let's kick it off here with PayPal really quick, to give you an idea of what was going on with PayPal for the quarter. Total payment volume was up 24% to $143 billion. Transactions, which is engagement, grew 9.5% on a trailing 12-month basis. Another encouraging metric, mobile payment volume was $57 billion, up 45% for the quarter.
All in all, PayPal is doing a lot of what we continue to see it do quarter in and quarter out. What I want to keep an eye on is Venmo. Venmo is bringing in good numbers, the results are there. $17 billion flowed through that Venmo network for the quarter. 24% of users are now participating in monetizable action. But it's also worth noting that this quarter didn't reflect the price increase that users of Venmo are going to start feeling here in the coming quarters, in regard to the instant funding aspect of the network there.
As encouraged as I am by that part of the business, it's also worth noting that PayPal on its own is doing quite well. Let's keep Venmo on our radar, make sure that they're not rushing to monetization here. You don't want to scare those users away. But all in all, I felt like it was an encouraging quarter for PayPal. Matt, tell us really quick, what were your takeaways for Square's most recent quarter?
Frankel: Square, doing great, just by the numbers. Looking at adjusted revenue, up over 60% year over year. Subscription revenue, if you back out acquisitions, almost doubled. That's without the impact of acquisitions. The thing that stood out to me most is that their margins continue to expand year over year. Looking at the numbers, the adjusted margin is 16% this past quarter, compared to 13% a year ago. In their core payment processing business, the profit margin on those transactions has gone up to 1.07% from 1.05%. Two basis points might not sound like a lot of margin, but it is when you're talking about pennies per transaction, like a 1% margin.
Square is doing great. The stock has been absolutely hammered lately. They're down 35% since just the end of the quarter. It's all because of things that are likely to be very temporary headwinds, have nothing to do with the growth story. The CFO, Sarah Friar, left. They just announced she's leaving earlier than planned. She actually left last Friday. Jack Dorsey sold some stock. The market's not that happy that Square's getting into the personal credit business. But this is a company with tremendous potential for growth, and they're achieving that potential. The growth has been sustained for a long time now, even accelerating in many ways.
Warren Buffett made his bold prediction about Wells Fargo. My bold prediction is that in a decade from now, Square is going to be the most valuable of all of the War on Cash basket stocks.
Moser: That's a bold statement. I like it!
Frankel: It's time to be bold here.
Moser: Listen, Square is by far and away the highest-risk holding of the four in the War on Cash. And really, that was the point behind the War on Cash basket, to have a little bit of exposure to all areas of risk there. Square gives you the higher risk.
We talk about our market leaders in that basket. Visa is certainly one of them. Not much to say here. It's relatively status quo for the largest card company out there. Everybody, I think, has a Visa card in their wallet at this point. Payments continue to grow nicely. The company is immensely profitable. The only real criticism that I have with Visa was in regard to the dividend. They raised their dividend recently, but it was a very, very modest amount. I feel like Visa and MasterCard could probably do a little bit better on that cash in the pocket for shareholders. They continue to repurchase shares. Share count is down more than 12% since 2013. But you look at the company's payout ratio, and I think these numbers are fairly memorable here. Their payout ratio is around 19%. Since 2013, it hasn't exceeded 23.6%. That's all to say that they can absolutely afford that dividend, and they can afford to grow that dividend.
Again, nothing terribly surprising with the quarter. It was a good quarter. I just, frankly, would love to see them raise that dividend a little bit more for shareholders. Maybe that will happen in time. What was your takeaway with MasterCard?
Frankel: I could say the same thing. Neither Visa or MasterCard is a high dividend stock.
Moser: It feels like they should be.
Frankel: They should be. I think they will. Right now, we're in the second or third inning of the war on cash. Once we're in the seventh or eighth inning, I think we're going to see them become actual high dividend stocks. I like that they're buying back shares. MasterCard spent over $1 billion on repurchases in the third quarter alone and bought a bunch more in the first little bit of October to take advantage of the weakness. I'm definitely a fan of when companies take advantage of price drops by using buybacks.
I have mixed feelings about it. I would love to see them pay a little bit more of a dividend. But at the same time, I understand, one, the importance of investing cash back into the business; and two, of buying stock, especially when the market's volatile like this. So, just like Visa, MasterCard's business looks great. Everything's growing at pretty much a double-digit rate. Revenue is growing faster than expenses, which is really nice to see. International revenue is really taking off. Cross-border transactions up 17% year over year.
These companies are growing. There's definitely an argument to be made that the money they're investing back into their business and not paying out as dividends is being well-spent. Like I said, I have mixed feelings. I think within the next five years or so, you're going to see them prioritize dividend increases as they grow into the new cashless society.
Moser: That's a very Buffett-esque quality. They feel like they can do more with that money right now as opposed to paying it out in the form of dividends. From that perspective, I agree. I think that makes a lot of sense. At least that's encouraging. It's a glass-half-full way to look at it, man. Thanks.
Frankel: It's tough to argue with that logic when they're producing double-digit growth rates.
Moser: Yeah, listen, I'm a happy shareholder either way. Don't misunderstand me. [laughs]
All right, guys, let's tap into Twitter really quick, just to take a look at what's going on throughout the week. A little bit of a quiet week. @CamCaine3 wanted to chime in and say, "I really enjoyed hearing about the Square earnings." Cam, you're welcome. Thank you for listening. Thank you for saying that. We'll keep on doing what we can to keep you listening. If you ever have any questions, if we're not covering companies that you guys want us to cover, give us a shout, let us know.
@JamonandReason, in response to the story we talked about last week, Matt, in regard to millennials lacking the confidence to invest, and in response to a statement I had made earlier about millennials, and it not necessarily being their fault that they hadn't learned about some of that stuff. Jamon replies, "I disagree that it's not their fault. Every individual must take it upon themselves to get educated or suffer the consequences of ignorance." Actually, I do agree with this, to an extent. I want to make sure I'm very clear here. I don't mean that if you're an adult, or even an adolescent, that you should consider yourself ignorant if you haven't learned about financial literacy at that point. But clearly, as a country, we have not done a good job in educating our kids as they go through school in regard to financial literacy and whatnot. That's where I'm going. We need to at least give everyone the base knowledge. It's one thing for adults to make bad decisions, even if they have the education. If you've got that base of knowledge, and you still make bad decisions, that's on you. Unfortunately, a lot of people just don't have that knowledge yet because we're not doing a very good job in our schools around the country teaching a lot of these kids. And if you're not learning it, you're not born with that knowledge. It's a tough cycle to break. So, I appreciate you, Jamon, getting in there. Do you have anything you want to offer there, Matt?
Frankel: I think it's a matter of making the education readily available. I definitely am a fan of personal responsibility as a teacher, myself. I taught high school for years. It's sad to see the educational opportunities going to waste. But if you're not offering the opportunities in a readily accessible format -- like teaching in a high school course, or, a lot of colleges have a university 101 class, that would be a great place to put some personal finance in. If we're not making it readily available, you really can't blame the public for ignorance, when so many other countries are doing a much better job than we are made of educating their population on personal finance matters.
Moser: Yep. If you don't know, you don't know. You've got to start somewhere. Let's go ahead and wrap this up with our One to Watch this week. Matt, you have an interesting take for listeners, based on what we've been talking about today. What is your One to Watch this week?
Frankel: I'm a big fan of Buffett's banking investments. I've been talking about the value in banks like Bank of America and Goldman Sachs for some time now. Other people on the show have talked about JP Morgan as a big value play, Wells Fargo. But it's not practical for most people to own ten different bank stocks. so, I'm watching the financial sector SPDR ETF (NYSEMKT:XLF), ticker XLF. It's a great way to invest in a bunch of bank stocks and Berkshire itself. Don't forget, Berkshire at its core is a financial sector stock, and is actually the ETF's top holding. Other than that, it owns a lot of JP Morgan, Bank of America, Wells Fargo. Pretty much the Buffett banking portfolio, you can buy all in one stock.
Moser: Good deal.
Frankel: And it's a very low-cost index fund. It's a great way, if people feel like I do, that the banking sector as a whole has a lot of potential and is very undervalued right now.
Moser: What's the ticker for that fund?
Frankel: It's XLF.
Moser: I like that. Like you, I'm going to honor Buffett and Berkshire here. I'm going to go with Travelers (NYSE:TRV), ticker TRV, in honor of Berkshire adding to Travelers during the quarter. Insurance is one of those things. Everybody needs it. You don't know when it's going to come in handy, but that's the whole point, really. Travelers is a very well-known brand within the insurance industry. Net premiums for the most recent quarter were up 6%, which is encouraging. They continue to maintain attractive combined ratios. The underlying combined ratio this year chalked up at 93%. That means they're writing good business, and I think you can assume that they will continue to do that. The philosophy with Travelers -- certainly when I was there, and it doesn't appear to have changed -- they want to pay what they owe and move on, try to eliminate as much of those frictional costs that can string out business for a long period of time in the form of subrogation and whatnot.
I think it's also really neat to see Travelers saddling up with Amazon here, coming up with some new home insurance products. They're using some of that technology that Amazon's coming out with, rolling that into its Travelers insurance products, and giving homeowners a new way to view purchasing home insurance, which is, of course, a requirement if you're going to own your home.
So, for me, Travelers. It seems like it's never been a bad time to own the stock. And apparently, Uncle Warren agrees.
A reminder for everybody, you can always send us your emails. We love it when you send us your emails. You can send us your emails at firstname.lastname@example.org. You can follow us on Twitter @MFIndustryFocus and ask your questions there. I will do our best to bring them into the show. If we can't bring it to the show, we'll respond. Don't you worry, we're good like that.
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. This show was produced by Austin Morgan. For Matt Frankel and Matty Argersinger, I'm Jason Moser, thanks for listening, happy Thanksgiving, everybody. We'll see you next week.
Jason Moser owns shares of Mastercard, PayPal Holdings, Square, Twitter, and Visa. Matthew Argersinger owns shares of Square, Twitter, Vail Resorts, and Zillow Group (A shares) and has the following options: long January 2019 $15 calls on Twitter. Matthew Frankel, CFP owns shares of Bank of America, Berkshire Hathaway (B shares), and Square. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Mastercard, PayPal Holdings, Square, Twitter, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool owns shares of Oracle and Visa and has the following options: short December 2018 $52 calls on Oracle, long January 2020 $30 calls on Oracle, short January 2019 $82 calls on PayPal Holdings, and short January 2019 $80 calls on Square. The Motley Fool recommends CVS Health, HCA Healthcare, and Vail Resorts. The Motley Fool has a disclosure policy.