In this episode of MarketFoolery, Motley Fool analysts Chris Hill and Jason Moser take us through some of today's headlines. We take a look at some of the pros and cons of using Robinhood. Next, we have three opportunistic buys to add to your watch list right now. Finally, we take a look at the Fool mailbag to answer listener questions and put into perspective Bob Iger's sudden departure from Disney (NYSE:DIS).
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This video was recorded on March 4, 2020.
Chris Hill: It's Wednesday, March 4th, welcome to MarketFoolery. I'm Chris Hill. With me in studio today, once again, it's Jason Moser. Thanks for being here.
Jason Moser: Thank you.
Hill: Let me start with this. We have no idea what's going to happen. Let me just start there, we have no idea what's going to happen. And you might think, I'm talking about the stock market, and I am on some level, but the reason I say that is because I'm talking about what's happening here at The Motley Fool, which to me, is a microcosm for what's happening in the stock market and business, in general, out there.
Yesterday on the show, I talked with Jim Gillies. I always love talking to Jim whenever he's in town. That was recorded on Monday afternoon, because on Tuesday our office was closed. And Fool Global Headquarters here in Alexandria, Virginia was closed, essentially as a way to test how our business operates when you have to close the office. Now that was just a one-day close, so it was easy for me to just say, "Well, we'll just record early and just, sort of, roll from there."
We've talked, and people listening have probably seen any number of very large companies out there that have done things like, restrict travel for their employees. Just today, we saw Starbucks come out and say, "Yeah, our annual meeting, later this month, which we were planning to hold in a 7,000-person venue, we're not doing that anymore and your meeting is now just going to be streamed."
So, all of this is prelude to -- there's a chance, because again, we have no idea what's going to happen -- there's a chance that Fool Headquarters might be closed for an extended period of time. And if that happens, our multimedia team is working on how we can keep the podcasts in production, so that we don't miss a beat. The audio quality will probably be different, because instead of being in a state-of-the-art audio studio, like we're in right now, we might be recording remotely.
Moser: Yeah, but you know, [laughs] given how many podcasts are out there these days and the sound quality isn't all that great on it seems like most of them, I feel like maybe the dozens of listeners would be willing to cut us a little bit of slack.
Hill: Yeah, just give us a little bit of a pass.
Moser: I'd also say, calling in with Zoom, I've been really impressed with the quality of Zoom as just time goes on. I mean, there's a lot more options. To your point about Starbucks, I saw Jack Dorsey was just saying how they just held their first fully virtual Twitter global all-hands meeting. Success, you know. I mean, ten years ago we wouldn't really have been able to do that.
Hill: Ten years ago, it would have been a conference call.
Moser: Sure. Yeah, exactly. And today, the tools that are at our disposal to be able to deal with situations like this, it really is a lovely thing. It obviously stinks why we have to do it, but it's nice to know there are options.
Hill: Let's get to some corporate news this morning, because we continue to have earnings reports. Shares of Campbell Soup (NYSE:CPB) are up about 8%, they had a good second quarter. Profits and revenue came in higher than expected; they raised guidance. I have to believe at least part of the rationale for people who are buying shares of Campbell Soup this morning and bidding it up is the belief that, "Hey, say what you want about Campbell Soup. They make soup in a can." [laughs] And if we're closing down grocery stores for a while or we just decide, I don't think I want to go out, here's something I know can sit on my shelf and be good a month from now when I open it up.
Moser: Better a can of Campbell Soup than a Jim Bakker 30-day fiesta bucket, right? I mean, that I think is where I draw the line. Listen, let's try to keep things somewhat on the level here. There are a lot of knee-jerk reactions going on out there right now in the stock market and just in life in general. And that is understandable to the extent that if you turn on the TV, if you turn on the radio, if you're listening to any type of live programming, it is coronavirus 24/7. And in the case, if it's not coronavirus then it's, you know, Super Tuesday election season related, and then they figure out a way to tie those two stories together.
And going back to how you started this show off today. With all of the talk and all of the chatter out there, the bottom-line is nobody knows anything, it is all just total speculation, people just don't know. And so, we have to at least understand that. And when you see these knee-jerk reactions, whether it's to the upside or the downside, in Campbell's case, that is a big move for a stock like that. It makes for a great headline, people are hunkering down, they are buying lots of soup and, you know, maybe they're buying those 30-day fiesta buckets, I don't know.
That's not sustainable. I've said for a while now, I feel like we need to come to terms with the fact that this coronavirus, the COVID-19, is something that it's not like in a month or in two months we're going to have this problem solved then it's going to be gone. I mean, we have to reach the point where we just figure out, "OK, let's figure out how we're managing life in a world where this exists on an ongoing basis." And that's just going to take time to get there. Time to come up with treatments. Time to come up with vaccines. Time to get more information. I mean, they talk about this mortality rate. That's, I think, a bit misleading because we're going to see more numbers come out as time goes on with people testing positive. So, it's not to say, "Don't take this seriously," but it's also to say, "Step back off the ledge for a second and don't overreact," because it is very easy to overreact in times like this when everywhere you turn, you see nothing but this topic and the chaos that's ensuing from it.
Hill: You know, what's not helpful for some investors out there?
Moser: What's that?
Hill: Robinhood's trading app being down for two days straight. That's not helping. [laughs]
Moser: OK, how can you say that?
Hill: Because we've talked for weeks now about, "Hey, look, there are great businesses out. There are some businesses out there that may be great one day, they hold some promise now, they're trading at insane valuations and now those valuations have come down, you can buy them for cheaper." I think, at some point, we're going to talk about a stock that you think is an absolutely great business that you have your eyes on. And there are those opportunities out there where it's like, "Hey, if you liked Starbucks at $88 a share, you're probably going to like it even better when it hits $75," you know, something like that. And so, there are investors out there like, "Yeah, I want to take advantage of this." And, yeah, not having a robust trading platform, not helping.
Moser: Yeah, and I really do wonder at this point. I mean, this is a bit tongue-in-cheek, but really in all honesty it is a legit question, particularly given that outage. Why does Robinhood even exist today? Why in the world does it even exist? It shouldn't, right, because the entire concept was based on this platform with zero commissions; and I guess fractional shares maybe. Everybody offers that now, like, everybody. And I'm telling you, from what I've seen -- I don't use Robinhood, I've seen it -- everybody's platform is better than theirs. That thing is as barebones as it gets. And, I mean, it's not to say that they didn't do a good thing in building it. It is to say, I don't know why it necessarily needs to exist today? And if it were me, I would be moving my money over to a reputable platform that has not only a better infrastructure but better information, better data, better liquidity, better everything. It just doesn't seem like Robinhood needs to exist today. Going out for two days, man, that could have been a fatal blow, actually.
Hill: Well, and to that point, I also don't use Robinhood, but I'm sure that anyone who does, and I've seen some of the anger on Twitter, and I'm not saying it's not justified, but what I am saying is that if you use Robinhood, now that we live in the age of everybody [laughs] has zero trading commissions, go ahead and call Schwab. Email Schwab, email Ameritrade, email them all at once and just be like, "Hi, this is who I am, I'm shopping around for someone new. Give me your best offer." You're going to hear back from them.
Moser: I would imagine so. I would imagine any trading platform out there today, any investment broker, is just going to look at this as a tremendous opportunity to siphon off, what ultimately will be valuable traffic over the course of time. And I do feel like, with Robinhood, there's another side to that coin, in that, it going down is not good, but that could protect people from themselves to a degree. I feel like Robinhood, the platform, caters probably more toward folks who are focused on trading and doing a lot of transactions, a lot of buying and selling.
Hill: I think there are probably some people like that, although based on what I've read and anecdotally around the office, they're also just people who are just younger and got in before Schwab, Ameritrade, everyone else went to zero trading commission. They said, "Look, I'm just starting out, this is an inexpensive way to dip my toe in the stock investing waters."
Moser: And that to me, that was a wonderful thing that happened. I really do, I applaud Robinhood for coming into existence for that, because I do feel like they really spearheaded this movement, more or less. I'm not saying that these brokerages wouldn't have eventually taken it down to zero, I'm sure they were. I think that Robinhood really kind of lit a fire under them and made them think twice about how they wanted to do this going forward. And so, I think that, you know, it becomes very obvious, the writing on the wall, let's get this thing down to zero as quickly as possible because zero is -- that's you can't go any lower; unless, you know, there are platforms out there that want to pay you for trading. And we are talking about negative interest rates, Chris, so anything is possible, I guess.
And so, from that perspective, I think that Robinhood has ultimately been a very good thing. And I don't want to come across like I'm badmouthing it, our job as analysts is to wonder why some businesses exist and some don't. And today is a much different situation than it was a year ago. And I look at Robinhood today and wonder why does it even have to exist given where we are with all of these other brokerages. And it very well may be that it doesn't need to exist, it very well may be that a team is out there right now looking to make an offer for Robinhood and all of their users, because at the end of the day, that's an easy acquisition to make because you're buying that traffic, you're buying those users, you're buying those account holders. It's, I'm certain, going to be much, much lower than the private valuations the company has been garnering today.
Hill: Going back to Campbell Soup for a second, because another company that sells well-known liquids reported this morning; that's Brown-Forman (NYSE:BF.A) (NYSE:BF.B). Their third-quarter report was kind of disappointing. Brown-Forman -- put that in the category of businesses where the brands they sell are much better known than the name Brown-Forman. Because they're in the alcohol business, Jack Daniels, they have a whole portfolio of scotch, bourbon, Irish whiskey, tequila, vodka, wine. This seems like a business that would do well in a time like this, almost a recession-proof or panic-proof business.
Although when I mentioned this to you this morning, you said three words to me that set off a lightbulb above my head, and I thought, "Oh, my gosh, you're absolutely right." You said, "No hard seltzer." For anyone who doubts what we've been talking about when we look at companies like Boston Beer and how hard seltzer sales are helping to drive their quarterly results higher. By the same token, Brown-Forman does not have hard seltzer in its portfolio and it's showing up in the latest results.
Moser: Yeah, well, as a beer drinker, it's a wonderful time to be alive because there is so much choice out there, but beer itself is witnessing a lot of headwinds growth-wise. And so, you're seeing companies like Boston Beer pivot over to hard seltzer. Hard seltzer is just on fire these days. And honestly, Boston Beer's recent success has been more based on the performance of its hard seltzer line than anything else. I mean, they're having a lot of trouble on the beer side.
Another company that has a pretty high cotton spirits portfolio, Diageo (NYSE:DEO). You look at Diageo, the same thing, year to date the stock is down; over the last year, it's been not very good. I mean, you look at these companies and think, "Man, I mean, people are going to be batting down the hatches and just preparing for extended periods of time inside. Well, man, I want to stream videos and I want to drink some alcohol."
Maybe we need to dig into some more of the heavier wine portfolios, but it is also very likely some flag there. We will see, I think as the year goes on, some interesting earnings reports with companies that are dealing with this better than others. You know, I would not put Diageo or Brown-Forman on the same level as like the cruise liners, for example. Obviously, you're going to see two different worlds there.
And Campbell's too. I mean, I would imagine, a lot of what you're seeing right now is a little bit of hype, a little knee-jerk reaction. I mean, let's get back to --
Hill: They had a good quarter and the guidance was good too, but I'm going to say, of this 8%, 2% of the rise is people just saying, "Well, that makes sense."
Moser: Well, yeah, and let's think about the guidance too. What's the guidance based on? The guidance is probably based on what kind of conditions we're seeing on the ground right now. I don't think this is going to last forever. I mean, it's not something that's going to be over anytime soon, but you know, a year from now, we will have better information and we'll be able to manage our lives a little bit better in a world where this exists. And maybe people's soup preferences goes back to a more normalized level.
You know, how we talk about adjusted earnings, Chris. Right now, maybe soup demand is a little bit adjusted, maybe we just have to account for that.
Hill: Before we get to the listener email, do you want to talk about the stock that you're keeping your eyes on?
Moser: Yeah. I mean, to me, it really is a fascinating time. And honestly, I feel like I have a hard time imagining that at the end of the year we're not looking back on this and thinking that we've hit at least a mild recession as a byproduct of all of this, because really, I mean, nothing is immune here, right, every business is being impacted in one way or another. And the travel industry is a really, really tough one right now. It's not an area where, I think, you need to be going and sifting through for bargains, because I do think things will get worse.
But when I look at the travel industry, a stock that I own, a stock that I am definitely going to be adding to on dips as the year continues, assuming that we do get some dips, Booking Holdings. I mean, recent quarter announcement, clearly, they're feeling some of the pressure here, the hotel room nights feeling some pressure there. It is primarily Booking Holdings, we know it as Priceline as well, but.
The business has been around for a long time. Tremendous global network with hundreds of thousands of hotels available on that network on that platform. Making investments into other ancillary areas of the travel industry, whether it's reservations with that OpenTable acquisition or elsewhere. I mean, they've got investments in ridesharing platforms in Asia as well.
Just a lot of reasons to like the business. And right now, the stock is down about 10%, I think, over the last month and a lot of that had to do with the earnings report and, obviously, what's going on right now. But the company just generates a ton, a ton of cash. I mean, $4.5 billion in free cash flow here on the trailing 12-month basis. That puts the stock at somewhere around 15-times free cash flow today. Which to my mind, you know, you're talking about a business that dominates its market; a business that is going to be, I don't want to say, impossible to disrupt, but it's going to be really, really difficult to disrupt this business, and I don't see that happening anytime soon.
So, when we're looking for opportunistic buys, look toward the markets where the opportunities are going to be a little bit more obvious, and then in those markets, find the winner, find the company that you think is the biggest, baddest -- you know, when you're going to get go stand up to a bully, you just go up and your dad tells you, "Just go hit him, find the biggest, toughest guy, just go knock him out." Find the biggest, baddest company in that space and go keep your eye on it and build a position in that, I think Booking.com is that one.
Hill: Our email address is MarketFoolery@fool.com. A question from Girish Shastri, who speaking of stocks that have dipped down below previous highs, he writes, "I wanted to add to my position in Disney, but the recent change of leadership and the timing of it makes me nervous. You and Jason always mention companies that push out bad news among a bunch of noise and this sounds similar to that. Disney chose the noise of the coronavirus to make their leadership news change public. What do you think about that?" He also adds, "PS. I bought Zoom Video based on one of your podcasts, and just like Teladoc -- which I don't own -- Zoom is killing it these days in bad times."
Moser: Well, Zoom earnings out later today after the market closes. Let's hope they have some of that Campbell Soup-style guidance. [laughs]
Hill: Yeah, exactly. How great would that be if they just came out, "This was a Campbell Soup kind of bounce for us." If they just deadpanned that, if Eric Yuan did that, that would be great. What do you think about this? Because when I first read this email, I thought, "Well, I hadn't thought of that. I hadn't really seen anyone push that out there." Now that said, it did strike me as sudden. Even though the retirement of Bob Iger has been a conversation for the past four years, it got pushed out, it was originally, I think, going to be in 2018, it got pushed out. But just, it did strike me as rather sudden, and I think it struck other people as rather sudden as well, I just don't know that I'm buying the conspiracy here.
Moser: So, it struck me as sudden; I do agree with that. I mean, given everything that led up to it, it was one extension after another, it seemed like. And I understood the extensions, because he really wanted to see this through, this whole transition into this over-the-top streaming offering with Disney+ and Hulu and ESPN+ and, kind of, how they were reshaping their media landscape. So, I definitely understood why and I understood why the Board wanted him there; because he's obviously got a tremendous track record with the company.
So, it was sudden. And I would be lying if I said the thought didn't cross my mind that there would be something more to this, I'm not convinced that there is. And I think the main reason is because, I think, I can actually, kind of, relate to what he's saying. At the end of the day, it feels like, really, he felt like the heavy-lifting has been done. He's built Disney+. They've got the infrastructure in place, the service works. It's been just a tremendous reception. It really, really is set up for success.
And there's one real key to its future success and that is, now, content. It needs to be fresh, new, constantly updating. Their library is only going to get them so far. And so, to see him say that, "You know what, listen, I don't need to be running this company all the time. I don't need to be running this company every day." That's a hard job, no question. And I think that he saw in Bob Chapek the obvious successor. And I think that he saw that that heavy-lifting had been done, and there was an avenue, an opportunity, for him to still be with the company, fulfill his obligation, still serve the company in a role, and really focus on something that he, at this point, in his life loves, in developing content for that new service.
So, initially, yes, it was sudden, it made me think twice about it. After listening to him, after understanding the rationale behind it all, I would not be digging into any conspiracy theories or anything other than the fact that he just felt like this timing was perfect more or less. I could be totally wrong. With that said, it certainly doesn't change my view on Disney as an investment. I think that Disney is just going to be a wonderful stock to own for essentially indefinitely.
And given the shellacking that the stock has taken here recently, I think, like, Booking.com, it's probably one that belongs high on everybody's watchlist right now.
Hill: 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 recommendations for or against, so don't buy or sell stocks based solely on what you hear.
That's going to do it for this edition of MarketFoolery. The show is mixed by Austin Morgan. I'm Chris Hill. Thanks for listening. I'll see you tomorrow.