In early 2019, Industry Focus: Financials host Jason Moser and Fool.com contributor Matt Frankel, CFP, each picked a stock they were watching for 2019. Now that the year has wrapped up, it's time to take a look back and see how they did.
Then, Moser and Frankel share their picks for 2020 with listeners -- one mall owner and one of our favorite fintechs. Plus, hear our takes on Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) latest leadership shakeup, and the departure of Green Dot (NYSE:GDOT) CEO Steve Streit.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Jan. 6, 2020.
Jason Moser: It's Monday, January 6th. I'm your host, Jason Moser. Joining me today...he's not in the studio, he's not even on Skype today, folks, he's actually out in Las Vegas at the CES, Consumer Electronics Show. This thing is getting ready to just kick off. It's Mr. Matt Frankel. Matt, how's everything going?
Matt Frankel: Pretty good. I apologize in advance, I'm on my phone, but there's so much media here it clogs up the Wi-Fi.
Moser: I feel like if we set the table the right way, at least we're giving everybody the appropriate expectations. As we conclude today's show, we'll let people in on some of the stuff you're looking forward to this week. And then, of course, we will be following back up with you to get all of your takeaways from the show.
But let's go ahead and kick off today's show. We've got a couple of things to talk about here that have happened over the course of the holiday season. We've got a couple of leadership changes in particular. One is at Berkshire Hathaway's Geico insurance business. Todd Combs will be taking over there at Geico. We've got Steve Streit leaving Green Dot.
We've also got a look back at our "two stocks to watch" for 2019, and how they did. And you can't look back at how stocks did in 2019, Matt, without offering up to the listeners our stocks to watch for 2020. So we're going to have a couple of new ideas (or a couple of fresh ideas, at least) for you to check out, the stocks that we'll be keeping our eye on for 2020. We also, of course, have some more "last stock you bought and why." So, let's go ahead and kick it off right now, Matt.
First things first: Let's talk about this leadership change at Berkshire Hathaway's Geico business. Everybody knows Geico is the insurance business owned by Berkshire Hathaway. Todd Combs, who's been with the company for a number of years now, and he's served the role as managing, really, investments for Berkshire Hathaway, right? He manages around $14 billion of investments for Berkshire Hathaway today. But he is also going to be taking over as the CEO of Geico. Matt, what do you make of this move? Do they have the right guy here? Are they overloading him? Is that a little bit too much? Or, what can we expect here?
Frankel: Well, they do. Todd Combs is widely expected to be one of the main candidates to succeed Buffett as Berkshire's CEO. And the significant piece of information is that Buffett has repeatedly said that they want somebody who could be at the helm for decades. There's four main people [who] could take Buffett's place. There's Ajit Jain and Greg Abel, and then there's Ted Weschler and Todd Combs, who are the investment mentors. Combs is by far the youngest. He's only 48 -- the rest are either in their upper 50s or 60s -- so he's regarded as one of the top contenders to take over Buffett's spot.
And this could really be a test to see if he can handle being in charge of one of Berkshire's actual operating businesses, and handling some of the portfolio investments. So it's kind of adding responsibility. I see this as a very significant step in the succession plan. Like I said, he's the youngest by a pretty wide margin out of the four top contenders. I mean, if he lives as long as Buffett, he could conceivably be at the helm for 40 years or so. So, this is definitely a big development.
Moser: Yeah, and I feel like part of this news that maybe is overlooked by some, and maybe some people don't realize this, is Todd Combs actually has some work history with Progressive Insurance. I mean, he used to work at Progressive Insurance for a time. And Progressive, I think, is a pretty good comparable to Geico. You can look at both businesses, they do a lot of the same things, even down to their advertising campaigns. They've done a really good job of tying together some advertising campaigns that people have become very familiar with through the years. So it just kind of makes me wonder if he's not going to be able to pull from some experience there in whatever capacity, in helping lead the Geico business forward.
Frankel: Right. It's also important to mention that Geico is just one of Berkshire's insurance businesses. Berkshire has a big insurance division. The reinsurance business, General Re[insurance] in particular, is probably the biggest. Geico is just one component of the insurance business, which is headed up by somebody else as a whole. So this is not like he's in charge of Berkshire's entire insurance operations. It's just kind of an added responsibility. Not like Geico is something small. It's a big step. Out of the four people I mentioned, he's the only one who really has the combined responsibility of running an operating business and managing some of the portfolio, which is probably the most significant takeaway out of this.
Moser: Now, to change the conversation here a little bit with one CEO coming in: We have another CEO who is leaving, and this is a CEO that you are fairly familiar with, right? We've had him on our show before. Steve Streit with Green Dot is on the way out now, and it looks like that's something that is part of a greater leadership shake-up here as the company kicks off 2020. It wasn't the greatest year in 2019. Green Dot definitely has had some challenges. I mean, they've also had some really good headlines, and seemingly some good partnerships they've forged here over the past couple of years. But nevertheless, Steve Streit [has] now stepped down from Green Dot. Given what you know about this business, given what you know about Mr. Streit, what do you make of this move, and what can we look for from new leadership going forward?
Frankel: Well, this was sort of a planned retirement. In the press release, he said that he founded Green Dot almost exactly 20 years ago. He gave himself a 20-year timeline to run the business. If you notice, when the retirement was announced, the stock really didn't move all that much. Another one we follow a lot, Square, when CFO Sarah Friar announced she was leaving, the stock plunged like 30%. So, major leadership changes that are unexpected can really hurt a stock. This one wasn't that unexpected. He's kind of...I don't want to say going out while the company's on the bottom, but like you said, they've had a tough year. I think that having some new blood in there could be welcome. He's staying on as chief innovation officer, so he's not leaving entirely. This is a planned retirement. The banking-as-a-service business is definitely the future, which is not what he founded the company to do. It's the wave of the future. He founded it as a prepaid card company. So they need a new CEO who can compete in this new era of online virtual banking, [who] can really drive the banking-as-a-service business forward, and make the most out of the legacy prepaid business.
But it's not necessarily bad news. Like I said, it was a planned retirement. The company's had a really rough year. I think the stock lost about two-thirds of its value. I don't see this as a big negative development as much as I see it as an opportunity. We love founder-led businesses, but in this case, I think new blood is a good thing.
Moser: I'm going to put you on the spot here, then, because right now, Bill Jacobs, who's the chairman and interim CEO, this is not something that I think he intends to hang onto. I mean, Mr. Jacobs, I think, is coming up close to 80 years old. So I don't think that we would look to him to actually be the new CEO of the business. But given your points there on banking as a service, the new direction this business is taking -- as we sort of enter this new fintech world where all sorts of services and products are being offered, particularly for those who don't really have banking relationships or who've been left behind in our current banking environment here. Do you have any ideas as far as folks who might fit the role here for this new CEO position?
Frankel: I don't want to really speculate on that. I will say, regardless of who they pick, the choice of the new CEO is going to move the stock more than Streit's departure. It's crucial that they get the right person in there, someone young who really knows how to compete in this space. And the reason it's so tough to name any names is because banking as a service is still such a very new concept, so it's not like there's like a list of rock-star people who have a ton of experience in it. I'd like to see them take somebody like an executive of one of these up-and-coming online banks, like a SoFi or something to that effect. Not necessarily them, but a company of that effect. I'd like to see them look to one of the newer players in this space. I think that's what they're going to have to really adapt to to be successful.
Moser: The more I think about this, the more I look at it, it does feel like to me that this is going to have to be an external hire. I don't know, the goal is really to bring up someone from the inside, particularly given the pivot that this business has been making over the past couple of years.
Frankel: Right. I think if they do hire somebody internally, they're going to see maybe a negative reaction from the market. I think you're right. They do need to search outside, get some fresh ideas in there. Green Dot has a great base right now. They have the best banking-as-a-service technology, they have the best relationships. I mean, you can't really get better than companies like Apple and Uber when it comes to relationships.
Moser: That's true.
Frankel: So I want to see somebody who can really maximize that, and somebody who really embraces the evolution of banking technology.
Moser: OK, let's switch gears here. Let's talk about our stocks that we had chosen, our picks from 2019. These were the stocks we chose at the beginning of 2019. These are the stocks that we were watching, we thought had set up for some pretty good years. Matt, go ahead, I'll let you lead off here. Remind our listeners, what was your one to watch for 2019, and why -- and then, how, ultimately -- did that work out for you?
Frankel: Mine was Square. If you remember, in 2018 Square peaked at around $100 a share, until Sarah Friar announced her departure. And it ended the year just kind of beaten down. So I just thought the selling had been completely overdone. And it looks like I was somewhat right. Square was up about 10% for 2019, but that's about a third of the S&P 's total returns. The S&P was up about 30% for 2019. It's worth noting that Square was up about 45% in the middle of the year. When they announced they sold their Caviar business and reduced their guidance a little bit, the stock kind of fell back down to earth.
But I wouldn't say in any way that Square had a bad year. Revenue was up 40% year over year, from what we know so far through the first three quarters. The company's profitable. It's doing a great job of attracting larger sellers. It just rolled out its stock-trading feature on its Cash App. Speaking of the Cash App, it's just firing on all cylinders. In the third quarter, Cash App was a quarter of the company's total revenue. It was just a few quarters before that it was virtually nothing. And we should get a nice glimpse of how the Cash App's doing when their year-end earnings come out later this month. They only update Cash App's user base once a year; it was 7 million at the end of 2017, 15 million at the end of 2018. We'll see what it is at the end of 2019. I don't think you can make an argument that Square's business isn't doing well, it's just whether the stock valuation is justified that's kind of the big question. I don't want to repeat my pick because that doesn't make for very good podcasting, but I wouldn't be surprised if Square had a very good year in 2020 regardless of what the overall market does.
Moser: Yeah, yeah, I think you're right. Clearly, when you look at all the metrics, the business is doing really well. I mean, we never look at one-year windows as ultimate determiners of whether this is a good investment or a bad investment. And it didn't have a bad year; it returned better than 10%. But yeah, in the context of the market, obviously the market outperformed it. But, again, this is still a young business that's investing a lot in its future, and for me, I'm with you. This is one I still own, and I still expect big things from them.
I picked Ameris Bancorp, which is a company I'd spoken about before on this show. I've spoken before about it on Motley Fool Money as well. But, Ameris Bancorp, that little bank that's actually headquartered out of Jacksonville, Florida now, I believe. But ultimately, it was born and headquartered out of Moultrie, Georgia for a number of years. Ameris, this was all based on this idea that they announced this big Fidelity acquisition in 2019. And we had talked a lot about this throughout the year, consolidation in the banking sector, especially with interest rates so low, banks trying to scale up in order to combat, really, I think what's been a tough environment for them from a profitability perspective. So, yeah, so far, so good. I think they've integrated this acquisition nicely.
It was a good 2019 for Ameris shareholders. The stock was up 34% versus the market's 29%. So, if you owned Ameris shares, congratulations. I think you should feel very good about that. I do own shares, I'll continue to hang onto them. But all in all, I think it was really the acquisition that was the driver for the business in 2019, and I think we can look forward to a lot of opportunities to come for them in the coming years.
Moser: Now, as I mentioned, we've got our picks that we reviewed from 2019. Matt, we've got to give our listeners the stocks that we're watching for 2020. I'll let you lead off here. What is your one to watch for 2020, and why?
Frankel: I'm going to pivot to a real estate stock here. I'm looking at Simon Property Group, SPG. They're a massive real estate investment trust that focuses on malls. We actually walked through a Simon property to get where I'm sitting right now at this convention. There's at least two that I know of right on the Las Vegas Strip.
It should be no secret, retail's been under pressure lately. There's been bankruptcies, store closures all over the place. Forever 21 is the latest big bankruptcy. But Simon's malls are kind of in a class by themselves; anyone who lives near one knows that. I've talked about Simon on the show before. The stock's very close to its 52-week low. It's almost yielding 6% right now. And it's doing a great job of turning its malls into mixed-use properties. Some of them have hotels attached to them, for example; some have office spaces, entertainment venues, casinos. The one right by you guys has a casino in it. It's the biggest and most financially flexible mall operator. They have the money to do anything they want to to stay ahead of the curve. They have a dominant market share in outlet retail. Anything under the Premium Outlet[s] brand is a Simon property. And it's trading for less than 13 times its earnings. So I think Simon has the potential to really shine going forward, especially if retail starts to stabilize, which I think it will.
Moser: All right, Simon Properties. OK, well, I kind of went back and forth on this one, and ultimately, it was a recent headline that sort of sealed the deal for me on this one. I am going to go with PayPal for 2022, PYPL. Everybody out there, I'm sure, is probably shocked and flabbergasted that I would make such a bold and controversial pick. I know! I'm sorry, folks! Let me explain why.
Honestly, we've talked about PayPal and Square, companies like this, all the time on this show. Really, nothing has changed from the perspective of the business. We like it a lot for a lot of reasons. I mean, they're growing their top line at a compound annual growth rate of 18% over the last three years. It's a profitable business. It's cash flow positive. They've got an awesome balance sheet with $5 billion in net cash. CEO Dan Schulman has been at the helm since 2014, [and] continues to make good decisions to take this business in the right direction.
But one thing that stood out to me recently -- I don't know if you saw the headline here. Remember, probably midway through 2019, they made this big investment in MercadoLibre. As the year wrapped up here, they've expanded their relationship with MercadoLibre. Essentially, PayPal is now going to be made available as a payment option on Mercado Pago online checkout, for people in Brazil and Mexico. That ultimately opens the door. That brings the opportunity for those 300-million-plus users of PayPal's platforms to shop at all sorts of new merchants that have to do with that MercadoLibre ecosystem, more or less. And MercadoLibre has become as much of a payments company as a retail company, to be honest with you. I mean, when you look at some of the numbers here, they just recorded in the most recent quarter more payment volume in their off-MercadoLibre platforms than the on-MercadoLibre platforms. So they are facilitating payments at a rapid fire. I expect that to continue.
Now we're seeing PayPal and MercadoLibre getting a little bit closer. You're going to see Mercado Pago as a payment method offered at PayPal merchants around the world. They're going to be expanding Xoom's presence -- Xoom, the remittance company that PayPal acquired. So, these investments in cross-border payments, investments in growing the networks, these are win-win situations for both companies. I think PayPal is just in a very good position to keep on growing. And certainly, a long-term trend that we love here is that move toward cashless payments. PayPal is becoming a more holistic solution for a lot of folks out there, as is Mercado Pago, and the products and services that MercadoLibre offers. I just think it's really neat to see these companies getting a little bit closer. Two very big networks, I think with a lot of opportunity to grow in the coming years.
And PayPal did OK last year. It wasn't too bad. But it was even outpaced by the market a little bit in 2019 as well. Hopefully we'll see it outpacing the market in 2020. But regardless, it's a stock that I continue to own, a company I continue to like, and that's going to be my pick for 2020, Matt.
So, there you go. Let's jump on into some of the last stock you bought and why. Listeners out there, you never, ever cease to amaze me with all of these great stock ideas you keep coming up with here, on email and Twitter. You keep on letting us know the last stock you bought and why. We have this trail that we have to keep on reading because you guys just keep on sending them. We love it. So, if you have any more great ideas, the last stock you bought and why: Remember, you can get us on Twitter @MFIndustryFocus, or hit us up on email at firstname.lastname@example.org.
We'll start off here with an email we got. "The last stock I bought was Brookfield Asset Management, and, in fact, the Brookfield family of stocks (BIP, BEP, BPR, BAM) actually make up the core of my portfolio. I could list a half-dozen solid reasons why I'm so confident in Brookfield, from historically market-beating returns to the first-class management team, and all of those would be true. But at the end of the day, I suspect the real reason I'm so keen on the asset management space is actually just because of the monopoly, man. Because when you're 10 or 11 years old, your board-game understanding of business primarily consists of owning real estate, utilities, and railroads. With Bruce Flatt in Brookfield, I intend to pass "Go" many times over. I'm inclined to think this one is probably a forever stock. Cheers and warmest holiday wishes, Matthew Evans."
Matthew, I like the way you're thinking there. Matt, I bet you like the way Matt's thinking there, too, huh?
Frankel: Indeed, that's one of my favorites as well.
Moser: All right. Next up, Lisa Wharton, @ZhangWhart. She says, "I recently bought some Datadog a few weeks ago because I'd like to risk my money on another SaaS company per The Motley Fool's encouragement." Well, we do love our SaaS businesses here, Lisa. "I didn't buy Peloton because I don't like the business model. Expensive bike, expensive membership. They should give away the hardware." Yeah, I haven't bought into Peloton either yet, Matt.
But then, this was funny, because we got a follow-up from that tweet from @almost_noob, who said: "I love the SaaS names. I bought some Trade Desk yesterday. Peloton is a joke. It's the next meme stock after Beyond Meat." So, @almost_noob coming in there with some strong thoughts on Peloton and Beyond Meat. I don't know about meme stocks, but yeah, Matt, I don't know that I've bought into Peloton or Beyond Meat either, yet.
Frankel: Yeah, I wouldn't buy either of those. I love the Peloton product, but I wouldn't buy the stock.
Moser: Yeah. Well, speaking of the Peloton product, [the] Consumer Electronics Show is going on right now. You're out there in Las Vegas at the CES. Now, I know this is just getting started. And this is your first time out there. And so we're going to revisit once you get back, and tell our listeners about all the cool stuff you saw out there, particularly as it relates to fintech. But, tell us real quick before we sign off for the day, is there anything you've got on the schedule, something you're really looking forward to hitting out there, while you're in Vegas at CES?
Frankel: Well, Panasonic has some kind of big announcement taking place in about two minutes. We're going to head there in a second. And there's a big session about Libra tomorrow that I think I'll probably be talking about on this show after. There's a session called "The Libra Effect" tomorrow morning, and it's people from Facebook and some of the other partners. I'm looking forward to that one. I'll have some updates on Libra, which we've talked about several times, and not always in the most positive light.
Moser: [laughs] Yeah, well. Hey, listen: I'm nothing if not open-minded. Maybe they can sway us, Matt. But, man, take copious notes, and we will revisit when you get back. I'm going to let you get to that Panasonic presentation now. But Matt, thanks so much for taking the time to call in today. Have a great time out there in Las Vegas. Safe travels back.
Frankel: All right, Jason. I'll see you next time.
Moser: All right. 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. Today's show was produced by Austin Morgan. For Matt Frankel, I'm Jason Moser. Thanks for listening, and we'll see you next week.