The War on Cash Plus Healthcare and Wealthcare in 2019

In this episode of MarketFoolery, Chris Hill chats with analyst Jason Moser about his stock baskets. Learn what companies make up the "war on cash" basket -- so named because it gets investors exposure to the digital payments space -- and the healthcare and wealthcare basket, which diversifies into biotech, pet healthcare, and more. Jason explains how these groupings have done since inception and throughout 2019. Also, the guys discuss what 2020 does and does not hold for Twitter (TWTR), how the role of social media has changed since the last round of U.S. presidential elections, and which gigantic company quietly returned about 80% in the last year. Tune in to hear more.

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This video was recorded on Dec. 23, 2019.

Chris Hill: It's Monday, December 23rd. Welcome to MarketFoolery! I'm Chris Hill. With me in studio, the one and only Jason Moser. Thanks for being here!

Jason Moser: Hey. 

Hill: We already recorded the year-in-review for Motley Fool Money.

Moser: Oh, yeah, that's right. 

Hill: We did, but I was thinking about it, it's not that things were left on the cutting room floor but there were things that we didn't get to.

Moser: There were things left unsaid.

Hill: There were things left unsaid, so I wanted to use this form to say them.

Moser: Why not?

Hill: So, yeah, Motley Fool Money coming later this week. It's our year-in-review episode.

Moser: Not necessarily the Apropos of Nothing. I mean, I'm not going to go Bill Barker on you and decry that you hate dogs. Yes, I did listen to that episode, Chris, and I don't believe that you hate dogs at all. 

Hill: I don't. I don't hate dogs.

Moser: For the record, I know Bill was playing. That was a funny show, though.

Hill: Can we check in on the baskets? We talked a little bit about baskets. I don't want to give anything away. But you've got the war on cash basket, you've got the health and wellness basket. How did those do in 2019?

Moser: I'm glad we can bring those up because these were baskets that were actually, I think, first revealed on MarketFoolery. So, hey, let's follow up for the dozens out there, right? 

The war on cash basket, which the date of inception actually goes back to July of 2017. So, if we look at how the basket has performed up and to this point -- as a reminder, the components of that basket are MasterCard, Visa, PayPal and Square, you own all four of those in equal amounts. But the basket itself, since its inception, is up 112% versus the market's 35.5%. So it's been a nice life for that war on cash basket. 

Now, 2019, it was a good year to be in that basket as well. If we look at the actual results for 2019, the basket itself is up 35.3% versus the market's just close to 30%. And so, again, outperformance for 2019. All four components were absolute positive returners. A couple of them, as of right now, are in fact trailing the market. And believe it or not, it's PayPal and Square that are trailing the market. Not by much, but by just enough for us to say, hmm, that's at least noteworthy. 

But I think all in all, it's less about choosing that one little isolated window in time and more about understanding the long-term vision of investing like this. It's about owning these stocks for long periods of time, and not picking one winner in a space where we feel like there's going to be multiple winners.

Hill: Do you think that's an indication of anything in particular, that those two are the ones that have trailed the market in 2019? It could be a valuation thing, or it could just be the continued dominance of Visa and MasterCard.

Moser: I think it's a little bit of both, probably. Visa and MasterCard certainly are very dominant businesses. I think Square, still very young, and essentially working its way to profitability still. Valuation's always a little bit squishy with something like Square.

With PayPal, it really has performed very well over long periods of time. As it gets bigger, they make more investments. They've spun some assets off. Perhaps that led to a little bit of underperformance. Now, when I say underperformance, I mean, let's still remember, the stock for PayPal, it's up 28% for the year. And Square is up about 15% based on this taping. So, it's not like the stocks have performed poorly, it's just, they've not quite held up to what the market has brought to the table. And it's been, obviously, a great year for the market.

Hill: What about the health and wellness basket?

Moser: I mean, we want to stay healthy, right?

Hill: We don't want to, but we feel like it's probably a good idea. 

Moser: It's probably the right thing to do. And so putting that healthcare and wealthcare basket together was the same idea behind that as was the war on cash. For the healthcare basket, it's UnitedHealth Group, Idexx Labs, which is in animal health, Teladoc, and Masimo. If we go back to date of inception there, it was February of 2018. The healthcare basket is up 80% versus the market's 27%, let's say. 

Hill: Remind me what Masimo does.

Moser: Their core business is in pulse oximetry, measuring the oxygen levels in the blood. When you go into the hospital, and they're attaching all those little devices that keep measurements on your body, one of those things they need to always measure is the oxygen levels in your blood. That's what Masimo does. It's a nice razor and blade model where they get the big equipment installed in the hospitals and then they sell those consumables that have to be replenished for each and every patient that comes through. And they've developed a lot of offerings beyond that. The founder there Joe Kiani, still the CEO, just a very innovative, forward-thinking guy, and he's just not taking his foot off the gas with this company. 

When we look at the overall performance, it's obviously done very well. If we look at just 2019, the healthcare basket has actually outperformed the war on cash basket, believe it or not, Chris. The healthcare basket is up 42% versus the market's 29-30% right now. Again, we're looking at absolute winners on all four accounts there. There is one company trailing the market, that's UnitedHealth Group. That's actually not that surprising, given the size of that business. But really, that's always been its competitive advantage, really, is its size and its ability to deal with all of these changes in healthcare legislation and the red tape that comes with it all.

Yeah, between the two baskets, great performance since its inception. Great performance for 2019. I'm excited to see what 2020 holds in store for them.

Hill: Nice. One thing I'll just add, because this didn't really get talked about at all when we did the year-in-review episode, is Apple. And it was brought to my attention by Aaron Bush, who tweeted something out about the performance of Apple's stock in 2019. It's up nearly 80%. That's astonishing when you consider how big that company is. 

The other thing is, I'm impressed by Tim Cook for a number of reasons, one of which is, he's now at the point, in terms of how he has led that company, that this kind of performance -- he's done well for so long that it's almost taken for granted like, "Oh, yeah, he's one of the best CEOs out there." And for all of the talk that we do about Warren Buffett's fiscal discipline in terms of, Berkshire Hathaway has all this cash on the balance sheet, they're not going to deploy it, Buffett is so disciplined -- I think Tim Cook's discipline, when it comes to capital allocation, doesn't really get talked about as much as maybe it should. Apple makes very quiet acquisitions here and there. Very little, very small, and very quietly. They don't make the big, splashy acquisitions, even though it gets thrown out there all the time because of how much cash they have, it's like, "They could do that." I just saw the cover of the magazine, The Hollywood Reporter, and it's their 2020 preview issue, and they've got bold predictions -- not reckless predictions like we do on Motley Fool Money. Just bold predictions, and one of them is, "Apple's going to buy Netflix." I just thought, oh, yeah, I think I've heard that prediction. 

Moser: We've been hearing that prediction for a long, long time.

Hill: Yeah. They could. They've got the cash. But anyway, I think what Apple has done this year is particularly impressive.

Moser: Well, I don't disagree. And I think what really is impressive is the stock's performance in the face of ultimately a company that isn't growing its profitability. I mean, if you look at their net income, net income isn't growing. It's actually shrinking a tad. And so, to your point about his ability to manage this business and pull the correct financial levers for investors as well as the company -- I mean, that's where the share repurchases come into play. That's where taking out more debt to raise cash on the balance sheet to do other things with comes into play. I think he understands the power of the company. The power of the investments they've made, the technology they have in the marketplace today. The potential of what they have in their pipeline. And then, being able to say, "You know what? We're not worried about trying to manage this business on a quarter-to-quarter basis for anyone. We're just going to do what we're going to do." And you've got a business that just has a tremendous competitive position from a number of angles. And the market's going to give a business like that a lot of credit. And we certainly saw that play out this year. And I honestly expect nothing but the same from them next year and beyond. I mean, I really am impressed with what Tim Cook has done with this business because when Steve Jobs passed away and Tim Cook took over, I mean, that was the ultimate question mark, right? It was like, "Oh, wow, now what? This is a bit of a different story." And he really has risen to the challenge. 

I appreciate his stance on privacy. I know some probably don't like this, but I really do like his open-mindedness when it comes to the White House. Whether you agree or disagree with what's going on in Washington D.C., I think Tim Cook's open-mindedness has benefited this business from a number of different angles. And so, for me, just the equanimity that he possesses, I feel like the business is really benefiting from that.

Hill: I want to get your thoughts before we wrap up, and we look ahead to 2020, something we didn't talk about on the show -- Twitter. I look at Twitter as a business set up for success in 2020 because of the fact that we're going to have a presidential election, we're going to have the Summer Olympics, we're going to have these big events that should increase activity and engagement on Twitter, and that should benefit them. I say all that. Then I went back and checked the numbers. How did Twitter do in 2016 versus subsequent years? 2016, the stock was down around 20%. 2017, up around 35%. Last year, up around 15%. What expectations if any do you have for Twitter as a business going into 2020?

Moser: This has always been a tricky one. I mean, for a long time, I thought there was a lot more potential than what they've really been able to unlock. Now, with that said, I do think that Jack Dorsey's done a good job since he came back. He's fulfilled his promises. He's gotten the business going back in the right direction. He's gotten the financial house in order. I think we're just in a different place now when it comes to social. It feels to me like the low-hanging fruit with social has been picked. And they have some serious questions to deliberate in regard to privacy and how information spreads on their platforms. I think Twitter is here to stay. I think it's a wonderful tool. It's extremely valuable. It's not perfect, but I mean, I think for what it does as an information network, it's tremendous. I think they have a lot of work still to do on the misinformation, the noise on the platform that doesn't really make anyone's experience better. I mean, there's always ways to make it better. I don't think looking at particular timelines where we're going to have the elections or the Olympics or whatever, I think we're beyond the point now where we look at those as short-term catalysts. We all know those are coming, and it's just going to be a matter of how the company monetizes. And I think what they've not been able to do is really figure out how to monetize beyond advertising. And I don't see anything in the near term that leads me to believe that they're going to be able to meaningfully monetize beyond the advertising model that it is today. 

I think the one thing they have going in their favor is, recently they pulled back on their targets for 2020. Remember, that's when the stock took a nice little hit here earlier in the year. Maybe they're sandbagging a little bit. I think it'll probably be a little bit better than they were leading us to believe. There's still this big question of whether Jack is going to even be in town here next year for like six months. He's talking about going to Africa or something. I don't know that that really bothers me one way or the other.

I'm kind of in this funny stage right now with Twitter. I've actually considered parting ways with my shares, taking the gains and investing in something else. To me, it feels like we've entered this new stage for social where the burden is just going to be that much higher for Twitter and Facebook and the like to really not only prove their case for investors, but to prove their case for the world that they really are as valuable as they say they are. 

Hill: Thanks for being here!

Moser: Thank you!

Hill: As always, people on the program may have interest in the stocks and 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'll do it for this edition of MarketFoolery. The show's mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow.