A Tale of 2 Banks

In this episode of MarketFoolery, host Mac Greer talks with analysts Ron Gross and Emily Flippen about some recent business news. JPMorgan (JPM -0.19%) is up big on earnings, while Goldman (GS -1.21%) shares fell on the bank's report. What was so different about these two big bank earnings reports? Meanwhile, UnitedHealth (UNH 1.29%) put out a healthy quarter, but the company's long-term future is less certain than investors would like. Also, Walmart (WMT 0.39%) is playing an interesting gambit in the delivery game, offering to haul your groceries not just to your door, but directly into your fridge. Who is this for, and what does it do for Walmart? Tune in to find out more.

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This video was recorded on Oct. 15, 2019. 

Mac Greer: It's Tuesday, October 15th. Welcome to MarketFoolery! I'm Mac Greer and I am joined in studio by Motley Fool analysts Emily Flippen and Ron Gross. How are we doing? 

Emily Flippen: All right!

Ron Gross: How are you doing, Mac?

Greer: Doing good!

Gross: It's great to be here!

Greer: It's good to have you! UnitedHealth doing well also. Some healthy earnings. See what I did there? 

Gross: [laughs] You're so clever. Clever, clever, clever!

Greer: So clever. It's a free show, people! We're also going to talk Walmart. They want to deliver right to your refrigerator. 

Gross: What could go wrong? 

Greer: What could go wrong? We're going to talk about that, because maybe something could go right as well. 

But we're going to begin with the tale of two banks. JPMorgan Chase shares up big. Record revenue and better-than-expected earnings. That's the good news. And, we have Goldman Sachs down on disappointing revenues. Emily Flippen, what's going on here? 

Flippen: I think, for the average consumer, maybe the two banks are interchangeable. So it might be strange to have one doing well for a quarter that the other one didn't do quite so well. But when you get down to the nitty-gritty, banks are actually very different in their business lines. JPMorgan Chase actually had a great quarter. They had record revenue. Over $9 billion for the quarter. That was significantly above expectations. An 8% increase year over year, largely attributable to their consumer segment. Jamie Dimon coming out and saying, "It's actually a really healthy American consumer. More home loans, more auto loans, more credit cards," these are all the things that are driving revenue growth. 

Then, you have Goldman Sachs actually missing estimates. Their profit of near $1.9 billion for the quarter was below expectations. That's just because they don't have the same exposure to that consumer market. They've been trying to build it up, but unfortunately, with the macro environment we're in right now, they're so business-focused, it's really hurt them this quarter.

Gross: You say that with such disdain!

Flippen: [laughs] Normally it's a good thing!

Gross: That is true, Goldman, much more focused on investing, trading, investment banking. JPMorgan has a much stronger consumer business. Both banks probably worried about a lower interest rate environment. But JPMorgan seems to be able to weather that storm a little bit better.

Greer: Ron, let's talk a little more JPMorgan. The CEO, Jamie Dimon, he's become this wise sage. When we talk JPMorgan, we're not just talking about the company's earnings. We're also talking about Jamie Dimon's opinion on the U.S. economy. As Emily mentioned, he says consumers are still spending, but the trade war with China is weighing on corporate sentiment. He went on to say that it's too soon to say if that trade war and those tensions will lead to a recession. What do you make of that?

Gross: He basically didn't say anything. [laughs] He said it's too soon. You are correct about the sage that he has become. I think it's because of the white hair, personally. If he had dark brown hair, I don't think he would sell it as well.

Greer: That doesn't work for me, though.

Gross: [laughs] I get it from time to time. It helps. But, no, he speaks plain English, right? He's a highly talented banker, but he can speak to the folks, and give his thoughts on the economy or the banking industry in general. He chimes in about politics. He's even threatened to run, I believe, now and again. He has become this person who likes to opine on the bigger picture. As I said, I think he makes good sense most of the time.

Greer: One bright spot for Goldman Sachs, the CEO says the Apple Card -- Apple's credit card -- is the most successful credit card launch ever. Are we surprised by that?

Flippen: Yeah. Do they mean their most successful credit card launch ever? I mean, that's an impressive metric if true. That would be a big move for Goldman. Talk about getting into the consumer market. Consumers love credit cards. Apple, with the wide reach that they have...I guess I'm surprised to hear that, but when you think about how many people own Apple devices, maybe I shouldn't be so surprised.

Greer: Let's move onto health. A good day for the country's biggest health insurance provider. UnitedHealth Group up on stronger-than-expected third-quarter earnings. Now, Ron, they also boosted their full-year forecast. That all sounds pretty darn good.

Gross: Pretty darn good. Raised 2019 earnings for the third time this year. That's not bad. Interestingly -- tell me if you make sense of this -- the stock is down year to date. They have consistently raised their guidance, but the stock is trading down about 5%. Now, over the last five years, it's crushed the market, up 155%. Pull back and look at the longer trend. But, that's interesting to me. In this particular case, higher revenue at the pharmacy benefits unit. Optum, its core health insurance business, really strong. 415,000 more customers over the past year in their insurance business. Things do look good. Overall revenue up about 7%. Earnings up about 13%. 

One negative, which may be weighing on the stock this past year, is that their medical care ratio, which is the percentage of premiums paid out for medical services, ticked higher at around 82.4%. You want that to go down. You want them to pay less -- if you're a shareholder, anyway.

You want that to go down. It was 82% vs. 81%. You would like to see that reverse. Some other reasons, perhaps, why the stock has been a bit shaky, is because, let's face it, healthcare is in the political news every moment, whether it's the bigger picture of healthcare, or drug pricing, which impacts a company like UnitedHealth because of their pharmacy benefits business. A lot of political things going on, too, that could affect the stock.

Flippen: We just talked about Chase, and Jamie Dimon. You also have the news of Jamie Dimon and Chase hooking up with Bezos and Buffett to change American healthcare. The question of, UnitedHealth is obviously a behemoth in this space, but is it a legacy player? Are they doing enough to innovate in healthcare, especially at such a tumultuous environment? [laughs]

Greer: Our final story. Starting today, Walmart will deliver groceries straight to your fridge if you live in Kansas City, Pittsburgh, or Vero Beach, Florida. Yeah, Walmart is rolling out this pilot program. The introductory price: $19.95 a month. The shopper must buy a $49.95 smart door lock kit, or smart garage door kit. That comes with free installation and one month of free delivery for the groceries. Employees have to have at least one year of service with a company, background checks, motor vehicle record checks, and extensive training. 

Ron Gross, how do you feel about the idea of Walmart delivering groceries right to your fridge?

Gross: I feel concerned. [laughs] They don't know where I like my stuff in my fridge! I have very specific needs!

Greer: But you can rearrange it.

Gross: Then it defeats the whole purpose. No, I can see the utility here. Obviously, elderly, disabled, folks who are just lazy. Anything like that. That makes perfect sense, to have someone deliver as close to -- [laughs] do they put the food in your mouth, too? No, no, it does make sense. But obviously, there are concerns. Having a stranger in your house who's only worked at Walmart a year...it feels a little bit creepy to me. Now, if your refrigerator is in your garage, that could be interesting. I would lock the door between my garage and my home, perhaps. But, it does feel a little creepy to me. I don't know if there's insurance issues here. Are they bonded? I'm not sure this is going to work.

Greer: Cautious?

Gross: Cautious, yes. 

Greer: In fairness to Walmart, they have to have at least a year of service; it doesn't mean they only worked at Walmart for a year.

Gross: No, of course.

Greer: OK. Emily, what do you think?

Flippen: I just wonder, Ron, at what year of service do you start letting Walmart employees into your house? What is the appropriate --

Gross: [laughs] 25 years!

Flippen: [laughs] I actually kind of like it. We saw Amazon do something similar. I'm not sure if the market is that big. I'm not sure if it's a huge needle-mover. But, for the right customer, it's probably a valuable service. 

My bigger concern is the Walmart employee judging what's in my fridge. Friday's leftover pizza, the box of wine, all of these things that they're going to see on a weekly basis!

Gross: [laughs] The "box." It's like cleaning for the cleaning lady. You would have to clean out your refrigerator beforehand.

Flippen: Exactly!

Gross: That's a good point.

Greer: I like that. Between those two, would you be more concerned that the Walmart employee would judge you for the leftover pizza, or the box of wine? I have my answer.

Flippen: Depends on the employee.

Gross: [laughs] A box that just says "White Wine." No grape associated, just "White."

Greer: I like that. When you look at this, is this more of a response to Amazon? Or is it more of a response to Target and the rest of the competitive landscape? Who is their primary threat?

Gross: You're just getting close to the consumer. It was two-day delivery, then one-day delivery, then same-day delivery, then drones, then we come into your home. They're just trying to get as close to the consumer as possible. It's in response to all those things. I'm not sure, this might just go a little too far. 

Greer: If you could tell them exactly what where to put things in your fridge, would that change your mind?

Gross: [laughs] I would have to draw a map.

Greer: OK, let's conclude with the desert island question. You're on a desert island. For some reason -- I don't know, it's just a question -- you're going to invest in one of these stocks for the next five years. What are you going with? JPMorgan Chase, Goldman Sachs, UnitedHealth, or Walmart?

Gross: I've never been a big bank investor. I do it through ETFs, not individual banks, because they're a little too difficult for me from a balance sheet perspective. I don't know what I don't know. I tend to stay away. UnitedHealth, with what's going on in politics right now, I don't know how that's going to shake out, so I would probably stay away from that, too. Walmart, I like what they've been doing. U.S. business just got a new CEO. We'll give him some time to work things out. But I like that business, I'm going Walmart.

Greer: That was a really thoughtful answer. 

Gross: Thank you! I went the extra mile.

Greer: You put some meat on the bone for each one, I appreciate that. 

Flippen: [laughs] I like the home delivery idea so I'm also going with Walmart. The less-informed answer to your question.

Greer: OK! Well, as always, people on the show may have interests 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. Emily and Ron, thanks for joining me!

Gross: Thanks, Mac!

Flippen: Thanks!

Greer: That's it for this edition of MarketFoolery! The show is mixed by Dan Boyd. I'm Mac Greer. Thanks for listening! And we will see you tomorrow!