In this episode of MarketFoolery, host Chris Hill talks with senior analyst Jason Moser about some recent business news. John Legere is leaving T-Mobile (NASDAQ:TMUS) -- apparently not for WeWork like the rumors were suggesting last week, but the turnaround dynamo's next move is still a mystery. Dunkin' Brands (NASDAQ:DNKN) shakes up Styrofoam culture in New England, but its marketing approach seems to be softening what could have been a harder blow to some tired morning rush customers. And, some lighthearted listener mail -- adding Cheerwine to the Dr. Pepper vs. Mr. Pibb battleground, and an update on the Fool swag shop. Tune in to hear more!
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This video was recorded on Nov. 18, 2019.
Chris Hill: It's Monday, November 18th. Welcome to MarketFoolery. I'm Chris Hill. With me in studio today, he's back, we're both back, from The Motley Fool's annual meeting. It's Jason Moser. Thanks for being here!
Jason Moser: Hey, hey!
Hill: Good time at Foolapalooza!
Moser: Yeah, it always is! You try to have a good time and still get some rest because it's a full day of stuff between meetings and food and fun and libations and everything in between. It's a lot!
Hill: Libations, nice. Good 50-cent word. We've got restaurant news. We have a large pile of cash to discuss. And we've got some boots-on-the-ground research to share.
But we're going to start with John Legere, who's stepping down as CEO of T-Mobile. This will not happen until May 1st, 2020. Mike Sievert, who's the chief operating officer at T-Mobile, will take over the corner office. I think it's safe to say Sievert has a tough act to follow.
Moser: Yeah. I'd say so. I think that anytime you follow a CEO like John Legere -- an outspoken, out there kind of guy who wears his heart on his sleeve, I guess is the best way to put it. He took in T-Mobile, a business that was perpetually facing against the odds, more or less. When you're competing against Verizons and AT&Ts of the world, it's a very difficult go of it. But, I tell you, just 24/7, he seemed like he was just screaming it from the mountaintop. And T-Mobile all along the way more or less benefited from it. Whether it was Netflix On Us, for example, figuring out ways to saddle up with other bigger media partners, or even his social media presence, the slow cooker Sunday just tugs at my heartstrings all the time. We've talked about this before, I like to do a little bit of cooking. So, to see him embracing that side... I think he was a great ambassador for the T-Mobile brand. I think we'll probably always see him that way. But by the same token, you have T-Mobile and Sprint basically coming together. You're going to have SoftBank owning around 30% of that total interest there. Like Mr. Legere was saying, it's time. The neat thing is, you have to figure this is just the beginning for him, right? It's the end of one thing, but man, he seems like he still has a lot left to do.
Hill: So, yes, on Sundays, he would have slow cooker Sunday. He was also great on Twitter for trolling the competition, particularly leading into conference calls. But, John Legere as CEO of T-Mobile was -- and this is a phrase that most often gets used in the world of politics -- a happy warrior. He was constantly upbeat. As you mentioned, a tremendous brand ambassador for T-Mobile. If you're a shareholder during his tenure, good for you. He took over as CEO at the end of 2012. The stock's up nearly 400% to date, at a time where the market was up not nearly that much. The market's more than doubled in that time, but T-Mobile shares have significantly outpaced the market in general while Legere was CEO. Again, good luck to Mike Sievert!
Moser: The thing about Legere, he's always had this humility about him. It's rare that you see someone who is, I guess extroverted is probably a fair word, but he's very humble by the same token. That's always been a nice, refreshing combination. That's the kind of leader you really love to see. A friend of mine over at Cheddar, Hope King, she had some great coverage on John and this transition here earlier on Twitter. He was talking about reports of him taking over at WeWork. Essentially, he was never having those discussions. It doesn't sound like that was something that ever was going to materialize. But by the same token, he said, "I'm not retiring." He has 30 to 40 years left, and five acts in him left, to help companies that are in need of cultural transformations. So, of course, my mind starts wandering. It's like, alright, Chris, let's talk about this for a second. What companies, what entities out there are in dire need of cultural transformation? A couple that came to mind, in our sandbox, publicly traded companies. You look at something like Under Armour. I think Under Armour is pretty fair there. It seems like they need a little bit of a cultural transformation. I would argue, and maybe some would disagree, I think Facebook is in dire need of a cultural transformation. I think, for all that they have going for them, I feel like maybe leadership is a little bit tone deaf at this point. And then, let's step outside of the publicly traded company sandbox there, and listen, the Washington Redskins, that's an organization in dire need of a cultural transformation. I mean, anytime you have your home, one-fifth-filled stadium, and out of that one-fifth, probably 75% are rooting for the visiting team, and they're chanting telling you to sell your team, man, I'll bet you a Redskins fans would love to have some guy like that come in here and shift things around.
Hill: When you started to suggest companies that he could change the culture of, and you referenced our space, I thought you were going to say finance. I thought you were going to say Wells Fargo. And by the way, I would love to see that!
Moser: That's a good one!
Hill: If only so we can get video of him meeting with Buffett.
Moser: [laughs] That would be good! Now, I feel like we at least have to give newly installed leadership at Wells Fargo a chance. I do applaud them for going outside of the organization and bringing someone in from the outside with a little bit of a different perspective on things. But, yeah, finance, banking that's always one right there in dire need of cultural transformation.
Hill: More than half of wealthy investors are preparing themselves for a significant drop in stocks in the next year. This is according to a survey by UBS Wealth Management, a survey of 3,400 high-net-worth investors, people with at least $1 million in assets. I think you and I were both struck by the same thing in this survey, which is the data point that these individuals, 25% of their portfolios are in cash. UBS went out of their way to say, "We advise our clients to keep about 5% in cash." 25% seems like a really high percentage to keep in cash.
Moser: It does. It's something that we've talked a lot about recently, we've had listener questions, and we talked about the general idea of, what's a reasonable amount of cash to have in your portfolio at any given point in time. You typically hear the same old 5% to 10%, whatever makes you feel comfortable. But when you look at high net worth investors, as you as you defined, these are investors with at least $1 million in assets. It was a cohort polled of 3,400 of these investors. That's noteworthy for a couple of reasons, given what we've talked about. You have to look at, why is the market where it is today? It, obviously, is hitting new highs, and everything seems to be going well. But if you look at some of the FactSet data out there, it makes you wonder when, maybe, this rise up is going to pause. If you look at this third quarter of 2019, with almost all of the companies in the S&P 500 reporting, 75% of the S&P 500 companies have reported a positive earnings per share surprise. 60% reported a positive revenue surprise. That's good. However, if you look at the blended earnings decline for the S&P 500, right now, it's negative 2.3%. If that holds, then it's going to be the first time that the index has reported three straight quarters of year over year earnings declines since the fourth quarter of 2015 through the second quarter of 2016. It does make you wonder, at what point do we have to take a pause? And then, when you look at the valuations here, the forward P/E ratio for the S&P 500 is 17.5X. That is above the five-year average and above the 10-year average. You could argue that the market is maybe overvalued. There are certainly pockets where it seems more overvalued than others.
I think the big wildcard right now is the election. 2020 is going to be chaotic for a number of reasons. Ultimately, I think who wins the election is going to dictate what this market does over the coming, at least several quarters, just because it does seem to be very polarizing in what both sides want to accomplish. We know that the president only has so much power, and the president can't just snap a finger and make anything happen. But there's going to be perception there. Whoever does end up winning, you're going to be hearing about that agenda for the following four years. That will likely play out on investors' enthusiasm or lack thereof.
Hill: Yeah, it still seems high. 25%. I hear all that, it all makes sense to me, the 25% just seems -- why wouldn't you deploy at least some of it into something? If you feel like, "Stocks are going to drop, it's going to be a volatile year, I don't want to deal with that," that's fine. Why wouldn't you find, even if it's something really safe, and it's going to earn you 1-3%, something like that?
Moser: There are plenty of ideas out there on the dividend front that can accomplish that for you. Also, this data is noteworthy when you consider what Goldman Sachs is publishing today, where they feel like we're setting up for a stronger 2020. They feel like, whether it's going to be the resolution of this trade deal, whether it is the economy continuing to recover, we've seen cyclicals perform very well over the last three months compared to the greater market. Typically, cyclicals are going to follow a healthier economy. If we have a healthier economy, then maybe there are pockets in that cyclical space where you can find some outsized gains there. That's the beauty of the market, right? It is ultimately, at the end of the day, one big disagreement, and we're all trying to find where we want to be. I agree with you, 25% sounds like an awful lot. I don't know that I've ever had that big of a cash position, ever. This type of data doesn't make me think, "Oh, man, I'm way behind here. I need to start raising some cash." That doesn't change my mind, particularly when you can see data that argues both sides of the coin there. But, it will be very interesting to see how it all shakes out. I think regardless, 2020 is going to be volatile, to say the least.
Hill: Dunkin' Brands is getting rid of Styrofoam coffee cups, which is good news for the environment, but there are absolutely longtime customers in New England who are not happy with this move. I think Dunkin' is being very, very smart about this because they're putting a marketing spend behind this effort, talking about this thing that, maybe this only happens in a significant way in their New England locations, but it's double cupping, where people will get maybe an iced coffee in the summer and then they'll get a Styrofoam cup to basically go around at the plastic cup to keep it insulated. Dunkin' said, "Not only are we getting rid of the Styrofoam cups, we're not supporting your double cupping habit anymore." I have to say, it's pretty humorous to see some of the coverage in New England, where people are... it's a little bit of a shock to the system. This is part of their daily routine. Dunkin' recognizes that this is a change that messes with people's daily routine.
Moser: Are you kidding? I love double-cupping! Let's double-cup! Listen, I've never double-cupped. I wasn't entirely certain what double-cupping was until this came out. My initial reaction was, "Oh, double-cupping must be because you've got this crappy Styrofoam, maybe you're putting an extra Styrofoam cup underneath there so that your coffee doesn't leak," because Styrofoam is easy to puncture. But no. No, this is all about comfort, Chris. This is about making sure that you have your beverage at your preferred temperature. Listen, man, I'm all for getting what you want and customer-centricity and all that good stuff, man. I don't know why it took Dunkin' so long to get rid of Styrofoam cups to begin with. I applaud them for that effort. I double applaud them for this double-cupping effort. But holy cow, this seems a little bit late to the game. Now, to your point, I think they've done a wonderful job in doing this a little tongue in cheek, making fun of themselves a little bit. I think that customers will accept this in short order, and life will go on as we know it.
Hill: By the way, I had said when they announced earlier this year that they were partnering up with Beyond Meat to have the Beyond Sausage breakfast sandwich -- they were testing that in New York, I said, "If they get this at the one across the street from The Fool, I'll try that."
Hill: Tried it this morning. I have to say, it was very tasty. The Beyond Sausage was very tasty. Good texture, all that sort of thing. I don't know that I'm necessarily going to get it again, though, because the problem is, the English muffin, or what they're passing off as an English muffin -- the bread part. The bread part just wasn't working for me.
Moser: Wasn't working? Is it gluten-free?
Hill: It's not that.
Moser: Cauliflower mash?
Hill: It's incredibly bland. It's fine. Again, the Beyond Sausage part, they got that part up.
Moser: See, that's in line with my thinking here. I think fast food is the industry where these meatless options make the most sense, because, again, it's one thing if we're going to my house and I'm grilling you a burger on my grill. You're going to taste that difference. I don't think you're going to be nearly as picky when you're getting something from a fast food restaurant. I think it'd be very easy to make that substitute. And frankly, I think you could probably could just blindly do this across the country, substitute, whether it's a sausage patty or a Beyond Meat hamburger patty. I think you could substitute those things in there. Half your audience probably wouldn't know the difference anyway. So, then, if it's better for you, and it's better for the environment, and I guess those discussions are all still being sorted out. It seems to me like the fast food industry is the first place where this makes the biggest impact.
Hill: Our email address is email@example.com. From Tom Sikorsky, who emailed, "I'm finishing up a week in India. Wanted to let that many places, including the Taj Mahal, give 50 rupee off for credit cards over the cash price. The war on cash, alive and well in India."
Moser: Fighting the good fight.
Hill: You can also follow us on Twitter. @MarketFoolery is our Twitter handle. A couple of tweets to get to. First, from our friend Toby Bordalone, who tweeted, "I'm a little behind on my MarketFoolery listening. Question from the October 7th episode. How do you debate Dr. Pepper vs. Mr. Pibb and not bringing Cheerwine?" I don't think I was on that episode.
Moser: I do recall, that was definitely me. Austin, I think, was behind the glass there. And it was Mac. I do vividly recall that. There were some strong opinions, and some things were said. Now, Toby, I appreciate you bringing up Cheerwine. To me, Cheerwine is in a class all by itself.
Hill: I don't even think of it as a direct competitor taste-wise to Dr. Pepper and Mr. Pibb.
Moser: No. If you say, "Hey, Jason, you can have either a Cheerwine or a Dr. Pepper or a Mr. Pibb, take your pick," I'm going Cheerwine 10 times out of 10. That's how I feel about Cheerwine, Chris. Listen, my good buddy here Chad Dukes, local guy, has a story here at Commonwealth Dry Goods, you don't find Cheerwine all that many places around Northern Virginia. He's got religion when it comes to Cheerwine. Not only does he do Cheerwine, but come the holiday season, he gets the holiday punch Cheerwine, and he starts raffling it off. There is a feeling up in this area here when this time of year comes around because you don't get that stuff very often around here. To me, Cheerwine, growing up in South Carolina, vacationing a lot in North Carolina, it was a staple in our house, and I still love it today.
Hill: I'd never encountered Cheerwine until, I'm going to say 10 years ago, maybe longer. Bill Mann, native of North Carolina, had gone home to visit his folks. Came back, and he had a couple of cases of this stuff on his desk. I was like, "What is this?" Obviously, I could tell from the box. But that's when he was telling me, he said, "I get it every time I go to North Carolina because you can't get it around here," which struck me as odd. Austin Morgan, you have thoughts?
Austin Morgan: Yeah. If you're asking me if I want Dr. Pepper, Mr. Pibb, or Cheerwine, I'm not drinking any of them. I don't like any of them.
Morgan: I don't like cherry sodas.
Hill: Are you not a soda person?
Morgan: No, I like soda. But I don't like cherry sodas.
Hill: What can we get you instead of a Dr. Pepper, Mr. Pibb, or Cheerwine?
Morgan: Classic Coke? Mountain Dew?
Moser: I knew he was a Mountain Dew guy. I think the one thing that Cheerwine pulled off nicely, to me, it's all about the diet version of the beverage. Diet Cheerwine holds its own. When you find a good diet version of the beverage, you know they're really serious about it. Cheerwine pulled that one off.
Hill: Question from longtime listener Marc Fitzgerald on Twitter. He asks, "Is The Motley Fool swag shop gone? Please say no. I need to replace my travel mug and I can't find the swag shop online."
My apologies, Marc. I responded on Twitter. What I wrote to Mark was, "What I should have done was put up one of those 'pardon our dust' signs." The swag shop is under renovation. I'm happy to say that in early 2020, we will be unveiling a bigger, better and much more robust swag shop. So, thank you, Marc! Please be patient. The swag shop will be better than ever in early 2020.
Moser: Think about all of those "it's that time of year" to come, where you have that swag shop at your disposal because I know I personally am going to be buying a few things from said swag shop, Chris. That's good news to hear!
Hill: Jason Moser, thanks for being here!
Moser: Thank you!
Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendation for or against, so don't buy or sell stocks based solely on what you hear. That'll do it for this edition of MarketFoolery! The show's mixed by Austin Morgan. I'm Chris Hill. Thanks for listening! We'll see you tomorrow!