With the stock market about 30% off its all-time highs as of this recording, and four-digit moves in the Dow Jones Industrial Average every day for more than a week, we were certain that our Industry Focus: Financials listeners had quite a few questions. And we were right!
In today's episode, host Jason Moser and Fool.com contributor Matt Frankel, CFP, spend nearly 50 minutes answering questions that our listeners asked about the downturn and how to invest during it.
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 March 16, 2020.
Jason Moser: It's Monday, March 16th. I'm your host Jason Moser, and on today's show, we're going to dive into some listener Q&A. You know, it's obviously a unique time right now with COVID-19 bringing everything to a virtual standstill. So, over the weekend we reached out on Twitter to see what questions you listeners have given everything that's going on? And we thought we'd dive into them today.
Joining me, as always, is Certified Financial Planner, Matt Frankel. Matt, how's everything going?
Matt Frankel: Pretty good. It's really weird talking to you face-to-face because normally we don't see each other while we're recording.
Moser: [laughs] Yeah, it's a little bit of a different time. And, for listeners, if you're wondering, if the audio is a little different, it is a little bit different. We, right now, have closed Fool HQ for nonessential stuff. And while I'm sure you all view your podcasts as essential, as we do as well, you know, we have technology on our side here to be able to record in trying times like these. And so, I'm actually at my house, Matt is at his house, but thanks to our man Austin Morgan, he's going to make all this work for us. And I think this ought to work out well.
So, Matt, let's just go ahead and jump right into it. The first question we have here on Twitter is from @RoseSelavy2, who asks, "Will the corona pandemic be the great paradigm shift to boost digital payments? And while the EU gets punched in the face, what's your view on Adyen?"
So, let's just go ahead and start that question of, first-and-foremost. It seems like the main question here is in regard to the shift toward digital payments. And I certainly do think this is another one of those periods in time where, it does seem like, logically speaking, it makes more sense to use less cash and rely more on digital payments in times like these. I was looking at some different takes here over the weekend, and there's no question you're looking at situations, they are talking about how pathogens and viruses can live on most surfaces for around 48 hours, but paper money can reportedly transport live flu virus for up to 17 days.
That just goes to say that paper money and even coins definitely can transmit those germs, those viruses. And I could see why that would prompt people to want to use less cash. And definitely physicians out there, the World Health Organization, have warned that the virus can be transmitted to customers via banknotes and coins. And so, regardless of your location, using cash is going to, in some cases, probably up the risk there and consequently I think we'll probably see more of the option of digital payments as time goes on. I don't know that this is something that we'll necessarily forget so quickly.
But in regard to Adyen, I did look into Adyen over the weekend and I had not looked at it before, it's a relatively new company on the market. But they call themselves a tech company trying to redefine the payments business. And so, it plays an interesting role in that value chain of payments, but I'd have to dig into it more to get a full understanding of what they view as their competitive advantage.
But there are a lot of things in its favor, strong balance sheet with more than $1 billion in cash. The Co-Founder, Pieter van der Does, is the CEO of the company. The value proposition seems to be that it's a single platform to serve from transaction, to initiation, to risk management, to processing. And they certainly are processing their fair share of currency. I mean, there's about €160 billion processed through Adyen networks in 2018. So, not making a call on the stock, but definitely one that I'm going to get on my radar to learn more about, because playing in this massive payment space, it does look like Adyen could be another way to do that. So, thanks for the question there.
Next question up, we have from @Namredla5, who asks, "When the market sells-off like this, what's the best way to differentiate between the business stock price just going down with the overall market or a business that might actually have its earnings and revenue take a hit in the coming quarters? Airlines are obvious, but others aren't."
Matt, you had a chance to take a look at this, what's your thinking there?
Frankel: Well, first of all, I want to make it perfectly clear, most businesses are likely to take a pretty big earnings hit because of this. There are a very few stocks I could point to that I would say are just going down because of the overall market, most businesses are going to be affected in one way or another. I mean, the U.S. economy is essentially ground to a halt, that's why we're both sitting in our houses right now instead of in offices. [laughs]
But having said that, I would focus the most on companies that have strong balance sheets, companies that have clear competitive advantages, lots of demand for their products. I mean, Apple is one that just immediately comes to mind, no one's going to stop buying iPhones after this. They might stop temporarily, but once the dust settles, you're going to see demand pick up. Their revenues and earnings are certainly going to take a hit, at least for the first few quarters of the year, but in the long run they're going to be just fine. They have a ton of cash, big brand name, competitive advantage. And those are the types of businesses I'm looking at, I'm not looking for businesses that aren't going to take an earnings hit, because you're fighting a losing battle there, so.
Moser: Yeah, it does really feel like. This is a true bear market. I mean, these event-driven bear markets. I mean, they just don't discriminate, and it's just amazing to see even a company, like, Apple selling off the way it has. And we've talked a lot about Apple, going into this year the stock has performed so well. And that's really been a function of multiple expansion, more than anything. It's not, like, the company is growing its profits at some breakneck speed, but the market is just giving it a lot of credit for the dominant company that it is, right?
Frankel: Right. And it's just that I would avoid companies that are really going to take a hit. I mean, airlines look really enticing right now, but I wouldn't go anywhere near them. Same with things like cruise lines, there's so many moving parts there. And if you think a stock like a major airline couldn't possibly go to $0, I can guarantee you that it's a possibility. It's happened before. [laughs]
Moser: Yeah, we've seen it before. And just because it goes down, doesn't mean it's necessarily going to come up. And it's always helpful to try to identify the catalyst that ultimately will bring it back up. With some companies, the catalyst is very obvious, and with others, it's not so obvious.
So, we have another question here from @deedubya78, who asks, "The online bankers, like, Axos Financial, shouldn't have coronavirus fears, but they dropped significantly as well. How do we evaluate them in comparison to banks that have brick-and-mortar components?" What say ye, Matt?
Frankel: I would say, you're thinking about it wrong. The banks aren't dropping because people don't want to go to branches and things like that. The banks are dropping for a couple of reasons. One, a big one, interest rates have plunged, especially if you look at the treasury yields, the 10-year treasury yield is roughly one-fourth of what it was at its peak not much more than a year ago. Banks make their money by loaning out to customers and getting paid interest, if they're charging less interest on loans, then they're going to make less money. No. 2, and probably more importantly in this scenario, if we do get a big global recession, which is looking increasingly likely, it's going to really decrease demand for loans, it's going to cause defaults to rise. And that's true whether you're an online bank or a brick-and-mortar bank. Online banks do have an inherent cost advantage, but they're not at all immune to the effects of a recession.
Moser: Yeah, that's a really good point. And I was thinking about another bank that lacks the bricks-and-mortar presence. And remember, not all that long ago, we had the President of Live Oak Bank, Huntley Garriott. We interviewed him for the show and we talked a little bit more about Live Oak Bank and what its value proposition was. Pretty much a bank built on technology and their focus is really on small business lending, and they don't have any physical branches either.
Another stock that has just gotten really trounced here in this sell-off, in this bear market, and yet to your point, I mean, hey, there is no physical presence to worry about, but is this "a baby with the bathwater" situation? It could be, particularly, if we think that maybe as we recover from this, banks like Live Oak are going to play a pivotal role in making sure a lot of these small businesses that really feel the pinch from this, making sure they actually are able to get back up on their feet. That remains to be seen.
I mean, I think that could be seen as potentially a catalyst for something like Live Oak, and that maybe starts the conversation of, is this a time to be looking at a company like that? But, yeah, to your point, it's just not discriminating, it's everything is getting hammered here. And that's just what happens with bear markets, and we've seen this before and we'll see it again.
A question here from @TMFBowman, who asks, "Will there be widespread bankruptcies, and what companies will go first?"
And, you know, I think that's an interesting question. I think the market right now, you know, what we're seeing, because we saw, obviously, the Fed drop rates to basically 0% here over the weekend and introducing new quantitative easing, trying to get more money into the system and free up the financial system. So, that access to funding is not so difficult. But it, kind of, feels like to me, they're missing the point.
The market, to me, wants reassurance, not rate cuts. And so, I think until it actually gets reassurance, we're going to see this thing going bonkers. And I mean, when I say reassurance, that's either going to come in the form of virus abatement later, which hopefully will happen at some point here sooner or later, or financial aid to support the millions of jobs and lives that are being put on hold here.
And I think that perhaps where we're not seeing enough done is actually the commitment to the financial aid to help people meet payrolls, to help people that are dealing with hiatus from employment, that hasn't really happened yet. Now, I know Congress is working on passing a bill here to help move things along, but we haven't gotten anything yet. And I imagine, once they get that passed, it's going to feel like we need more.
If companies do go bankrupt, I would suspect it would be the small and medium sized businesses first. I think the companies that just don't have the financial resources to deal with any kind of extended time like this, any kind of extended stretch, those are probably going to be the companies that do go first. I do feel like we will probably have somewhat of a safety net pulled in here that will keep bankruptcy still minimum, but there will likely be some.
Airlines I think is one of the markets we keep on talking about, Matt. And clearly, D.C. is already talking about ways to help keep the airlines propped up, because it does seem like the situation is only getting worse for them.
Frankel: Yeah, and I mean, like you said, if I were just to look at the numbers right now, you know, obviously, I would have to bet on airlines or cruise lines or something to that effect to go bankrupt, but there are so many moving parts here. We don't know what a bailout bill could look like. I mean, going into the financial crisis, you would have bet on the banks to go bankrupt but they got so much capital injected into them. And the system kind of propped them up that the big ones were all OK in the end. So, I think the same thing is going to happen here.
Moser: Yeah. And, you know, that's interesting, I'm glad you brought that example up, because I remember very vividly, back at that time, you remember Washington Mutual, and back in the time of the financial crisis Washington Mutual was one of the big players in the mortgage space. I mean, this was one of those companies that were kicking around, is this too big to fail? And then you have this conversation of, "Well, are they going to nationalize banks? If they do, what does that look like?" And at the end of the day, you saw some financial institutions go belly up but most didn't, but some did and Washington Mutual was one of them.
Frankel: Yeah, it's really too early to tell, I'd say another week or so, we'll have a lot more clarity from the legislative standpoint of it.
Moser: Yeah, I think that's a good point. And I do think, you know, this is one of these environments where after the dust all settles here, this is one of those situations where we're going to look back on this period of time here. And the strong really do get stronger in times like these. I mean, companies that go into bear markets, economic pullbacks like this, a crisis like this, the companies that go in here with the strength, the competitive advantage, they come out oftentimes a lot stronger. So, maybe that helps make some sense of what your watchlist should look like.
Frankel: Look at JPMorgan ...
Moser: Yeah, a good example. Very good example.
Frankel: ... before and after the financial crisis. They went from being, well, one of the big players, but to being, you know, the powerhouse in the industry. They were, I'd say, the strongest of the Big Four going into that.
Moser: Yep, absolutely. Okay, we have a question from @Sandeep and David who asks, "On which companies do you think Warren Buffett is spending his $120 billion?" Matt, I know you have a couple of thoughts here.
Frankel: [laughs] As much as he can get his hands on, I'm hoping. A few things I hope he's buying right now. I hope, first of all, he's buying a lot of Berkshire shares back because Berkshire's getting hit just like the regular market. It was down 10% this morning. I hope he's taking advantage. I mean, they bought shares back at about $218 last quarter, which remember, to buy back shares they have to, both him and Munger have to agree it's trading cheaply. And if they thought it was cheap at $218 then the $170s, I'm sure they really think it's cheap.
But beyond that, I hope they're buying some of their favorite bank stocks because financials have -- as we just mentioned a little while ago -- have really gotten hit. I hope they're adding to the positions like Goldman; Bank of America is another one that they own a lot of that they could buy some more; AmEx; our war-on-cash stocks, Visa (V 0.22%) and MasterCard (MA 0.25%), Buffett owns a little bit of. His energy stocks, Occidental is looking terrible. And as most people who speculated with the airlines, I would love to see Buffett take this opportunity to acquire a whole airline cheaply. But I honestly, as much as this is an unpopular opinion, I don't see that actually happening.
Moser: Yeah. I would be kind of surprised actually to see that. It does feel like he would buy a lot more Apple in a situation like this. And I'm just going to offer up my periodic reminder that McCormick is still looking really, really nice out there. Market cap is now pulled back below $17 billion. This could be a meaningful acquisition, you know, from that elephant gun perspective, without having to spend all your money in one place. And you know how I feel about McCormick, Matt.
Frankel: Yeah. I'd like to see Buffett acquire, that's a very Buffett business. It's a timeless business. I mean, they sell their products no matter what kind of economy is going on.
Moser: Yeah, that's right, good or bad, they still sell a lot of it. Okay. How about this question from @tara98333, she says, "Jemo, thanks for listening to us." You're welcome, Tara. "Analysis of fintech companies that will hurt versus benefit the most, also, who has enough cash and debt to survive this crisis?"
So, Matt, let's tackle the fintech companies that you think walk out of here looking better versus the ones that are going to have some trouble to deal with. What are some of the companies that you feel like are hurt more from a bear market like this?
Frankel: Well, most will hurt. The companies that are going to get hurt the most are the ones that, both, process payments and lend money. If you think of, like, a Visa and MasterCard, they're essentially the middleman. They get a small percentage of each transaction they process and in a recession the payment volume is going to drop but their risk is limited because they don't actually loan any money, they're just the middleman. Whereas when you think of a company that actually makes loans, like, I hate to say it, one of my favorites in the world, Square (SQ 2.14%).
Moser: [laughs] I was going to go to that one eventually.
Frankel: They not only are, kind of, a middleman processing payments, but they have a pretty substantial business lending program.
Moser: With Square Capital, you're talking ...
Frankel: ... With Square Capital. Now, having said that Square Capital is not your average loan program. I worry more about a company, like, an AmEx or a Discover in this environment with actual consumer lending exposure. But at the same time, the companies that do both sides of the fintech business, the loans and the processing are likely to feel a sting. But on a good note, most of our favorite fintechs really don't have a ton of debt, they're mostly cash-rich companies.
I mean, Square, PayPal, Visa, MasterCard, all of them have solid balance sheets. So, I don't see any of them getting hurt to the point where they're going to have to raise capital or shut down or anything like that. But they could get hurt in the short-term and it's really a question of how quickly this pandemic really works itself through the system and how quickly the economy rebounds afterwards that's really going to name the winners.
Moser: Yeah. And you know, I'm glad you brought up Square and its two-sided network there, because it does a lot. And on the one hand, it's nice it has that diversified business, but on the other, you can see its exposure to – I mean, most of its clients, most of its customers are the small- and medium-sized businesses that are really starting to feel the pain from this and will feel the pain for some time to come. And so, in the near-term, I can see that being a problem, obviously, it's going to result in fewer dollars flowing through that network and probably fewer customer signing up, because fewer businesses are starting in conditions like these.
However, I do also think that maybe this is a little bit of a light at the end of the tunnel here, but I do feel like with Square and Square Capital, they're going to be seen as part of the solution to this. I mean, this is going to be part of the solution and being able to help people recover. And we know how Jack Dorsey is, he's a good person, I think this is going to be something that really becomes central to his focus here in the coming year and beyond, is helping all of the small business customers get back on their feet and they'll use Square Capital to do that. And, perhaps, that expands their customer base, because they're seen as a way to work through what is, obviously, a big problem for a lot of small- and medium-sized businesses out there today.
Frankel: I'd agree. In tough times, I'd rather owe money to Jack Dorsey than to Bank of America or one of those. [laughs] It's just a better situation to be in.
Moser: Yeah. He seems to be a little bit more empathetic. [laughs] Alright. Well, let's take a look here at a question from @Chris63130109. Man, you got to get all those numbers out of that user ID, buddy, but anyway, here we go, "My brother works for a popular SaaS company. He gave everyone $15,000 worth of stock for Christmas." Damn! that's a nice brother. "We moved $4,000 out and diversified into other stocks, and we've been adding every two weeks since. Should I lower the SaaS position more? Is the portfolio still too weighted? Thanks for any help."
So, everybody's risk tolerance is going to be different. I mean, when you look at that on the numbers there, you're close to 33% there that you've only taken out of that $15,000 position. In other words, you kept essentially, it sounds like, about 65% or so of that position in that one company; if I'm reading that correctly. In any case, if you have that much exposure in your portfolio to one particular company, that's a lot. Now, I'm not saying, it's right or wrong, it's just you need to be aware of the fact that you've got a lot of eggs in one basket there.
Now, if this is just one part of your overall investment portfolio, Chris, I'm not sure. And I don't know what SaaS company this is, so take this with a grain of salt. My initial reaction here though, is that you probably would want to diversify that money out into some other holdings. I think that we've certainly seen the benefits of diversification over the last few weeks here as the market generally has been feeling so much pain. But, yeah, I would definitely at least look at that and see if there are not some other places for that money to go.
Next question here from @SherifMarcos, who asks, "What do you think about a company like Spirit Airlines (SAVE +0.00%), trading for less than cash-on-hand. $900 million market cap versus $1 billion in cash ... " That has changed since he asked the question; it is a little bit cheaper today, but " ... with gas where it's at and interest in debt being next to free, do you see a multi-bagger from here?"
And I would just say here, Sheriff, that while Spirit is a company that has been recommended in a couple of our Foolish services, you know it has not performed very well, unfortunately, and obviously, this is a very difficult time for a small airline. And you made a good point there, it's a small company that's less than $1 billion market cap now.
They do have a balance sheet rich with cash, however, in some instances, I don't count that cash in some cases. In the cases where I don't really count that cash are situations like this, where you know that airline is going to need that cash. It's going to be lucky if it can make it through without any assistance. Chances are it's probably going to need some type of a bailout, given what we know about the state of the airline industry right now. I mean, there's talk of putting all flights in the U.S. on hold, which is, I can't even fathom what that would look like. I mean, I know we had to harken back to the days of 9/11 when that feeling, I think, last existed.
But I look at Spirit today and I don't know that I would view that as a multi-bagger opportunity because of all of the headwinds on the horizon. And I wouldn't count that balance sheet as anything other than some cash that they're going to need and they're going to need more. So, I would not value the company based on that cash at all. I would instead try to understand a little bit better what moves the airline industry forward from this. We go back to talking about [how] the strongest survive. I don't know that Spirit Airlines is necessarily the strongest out there right now, and I'm not saying that it's going to go out of business, but I'm saying from an investor's perspective, I don't know that I would have this top on the list, and I certainly wouldn't be looking at that $1 billion on the balance sheet as really any type of an asset that investors would ultimately see.
Frankel: Right. And being an airline is a capital-intensive business, it costs a lot to put a plane in the air, it costs a lot to just own and maintain a plane. Airlines are set to lose billions of dollars from this. You've probably seen pictures being tweeted of flights with, like, three people in them, the airlines lose a ton of money when that happens.
Moser: Yeah. I mean I saw a flight. There was a video the other day, I'm assuming this is real, but it was a flight to France and there was, like, one guy on the entire plane. He was doing the worm up-and-down the aisle. [laughs] Which was just bizarre-looking. But, yeah, you just think the airlines are taking a bath on that, but that's just the situation that we're in right now.
Frankel: You'd be surprised how quickly an airline can run through $1 billion of cash when that happens.
Moser: Yeah, absolutely, it disappears in the blink of an eye. Okay, Matt, we have another question here from, I love this, @UnderdogIsHere1. Danny asks, "Any insights into the huge swings in Green Dot (GDOT 0.89%) the last couple of days? If you could add one company to the war-on-cash basket who would it be? Thanks for all that you both do."
Danny, thanks for the question and the kind words. And, Matt, I knew you were thrilled to see a question on Green Dot, so I'm going to let you take it.
Frankel: I am. I would actually put the second-half of that question to you, but we'll get to that. For Green Dot, my take on it is that Green Dot's core business of prepaid cards could get hit really hard in the recession. It's just a business that, No. 1, is just declining in general, but No. 2, it depends on consumer spending, like we've been talking about a lot of them.
And on the other hand, I think the market doesn't really know how to value the Banking-as-a-Service side of Green Dot's business, the infrastructure it sets up for companies like Apple and Intuit and Stash and things like that. And it's such a new concept to provide third-party banking services to other companies that I just don't really think the market knows what to do with that.
But it's worth mentioning that Green Dot is still after a 30% market drop, well off its lows. Today it's actually one of the better performers in the entire financial sector. Remember it dropped a lot a little while ago when the CEO announced his retirement unexpectedly. Green Dot is still about 30% higher than its low when we were talking about it last time. So, it's holding up pretty nicely. It's been pretty volatile, along with the rest of the financial sector, but it's actually been one of the better performers.
As far as a company to add to the war-on-cash basket, that's kind of your basket, so I was going to put that one over to you.
Moser: Well, I'll give you one name I would throw out there, and then to see if you have one too, I'm always interested in what you have to say. You know, for a long time, thought I would just go with MercadoLibre, but you know what the other company, I feel like I probably put in there before MercadoLibre, is Shopify. And really, just, you know, learning more about Shopify and the business opportunity that exists for a company like this, the Shopify payments part of the business, and they work in conjunction with Stripe to run a lot of money through their networks.
I think I might actually put Shopify in there over MercadoLibre, but it's a really close call there, I don't know, do you have one in mind?
Frankel: I mean, I don't disagree with that. Maybe AmEx is one that I would add to it just because I like a lot of what they're doing. Especially because they're a unique kind of credit card company in the sense that they're being interactive in embracing millennials and that sort of thing. Their Lounge network is obviously a play toward millennial travelers and things like that. And I think it's going to be a good opportunity to pick them up right now.
Moser: Yeah, I think you're right. And what we're seeing with American Express too is that they've been able to pivot, more or less, their business toward that younger demographic. They've been able to expand their product offering and change the whole perception of what it means to be an American Express cardholder. I mean, for the longest time you were a high-cut if you had an American Express card, but now it's really, it's a card for everyone. They've got a lot of different products out there that can fit a lot of different needs. And so, I do applaud them for being able to do such a good job with that. And I think the brand, obviously, there's tremendous amount of brand equity there that would be hard to overcome as a competitor.
Okay. Let's take a look here, another question from @BrockHBriggs, who asks, "Rates have continued to go lower over the last little bit and successful banks have found other ways to make money besides interest to continue their growth, is this sustainable for them over the long-term because the Fed seems to think lowering rates is the answer to everything?" [laughs]
You're right, Brock, they definitely do figure that is the answer to everything, as we've seen here over the weekend as well, but, Matt, what's your take here?
Frankel: And this question was posted before the Fed decided to chop interest rates to 0%. So, that was a happy coincidence there. But, yes, banks could definitely make money in a zero-interest rate environment, they're still going to charge interest on loans, you might see mortgage rates drop to 3% or even 2.5%. You know, it's the same with auto loans, personal loans and pretty much every other banking product. Like, for example, credit card interest rates are directly tied to the Federal funds rate, but this was just – I mean, I say, just, but this was a 100-basis point cut, meaning that, if your credit card was charging you 17% interest, it's now charging you 16%. So, banks are still making money, it's not like interest is being eliminated totally.
So, profit margins are definitely going to be squeezed when interest rates fall and the Fed lowers rates. I don't see the Fed going negative, despite what some people in the media have said. This is a not-so-bold prediction in my mind that the Fed is not going to even entertain the thought of negative interest rates despite what the President has said.
So, this will be a profitable environment for banks. In the long run, like you said, they'll come out of it, I think, even stronger than before because they're very financially sound. If you remember that since the financial crisis, banks have had to be stress-tested. So, we know that the big banks, especially, can really survive even a much more terrible downturn than even the worst-case scenario of this could be.
I forget the exact requirements for the stress testing, but it's something, like, 20% unemployment or something like that. So, the banks are fine. They're going to make money. It won't be as much money for a little while, but they're still going to be profitable.
And it's also worth mentioning, for all of the banks that have investment banking divisions, which is pretty much all of the big ones, volatility is actually usually a positive for trading revenue. I want to say, for Goldman Sachs, 2009 was its most profitable year ever and volatility is a big reason for it. So, you're right, they do have other ways to make money, interest rates are going to hurt profits but not by as much as you may think.
Moser: Okay. And let's piggyback on that discussion there into this next question from @TeddyMacGaron, and Teddy asks, "What should I think about banks in a zero-interest rate environment, which could come very soon?"
And clearly that day is today. But his question, kind of, gets to another important issue here, what about the differences between big banks and small regional banks: Buy, sell or hold? And so, I just wanted to talk a little bit with you about how you feel about big banks versus the smaller banks today. Because you and I both love the small banks. One that I talk about all the time, Ameris Bancorp (ABCB +1.08%), I found Ameris back in the depths of the financial crisis and the Great Recession back in 2010 or something like that, when it felt like the whole world was coming to an end there. And their stock had gotten hammered, but it was a well-run bank that kind of just kept on doing what it was doing and it recovered nicely.
But lo-and-behold, now, here in this bear market, Ameris is getting hit along with all of the other small banks; we talked about Live Oak just a little while ago. So, I see opportunity in both. I mean, it does feel like the leaders, the big dogs, come out of times like these in better positions, but that doesn't mean that smaller players, smaller regional banks can't come out of here looking better as well. Do you tilt toward one over the other in a time like this?
Frankel: I tend to agree. As far as my investment dollars go, I tend to gravitate toward the big banks in environments like this, just because they've been so stress-tested and so scrutinized that we know that they can make it through. It just seems like a little bit more of a safer play, I mean, a well-run regional bank can be a great investment in any environment. Like you said, Ameris, I don't think is anything to worry about. Just to kind of disclose one of mine, I bought Goldman Sachs about a week ago, after the downturn started, because I think it's a great value and because I think it can really make it through pretty much anything the market throws at it.
Moser: Yeah. And I'd tell you, I was looking at the sell-off in Ameris today and part of me was thinking, "Man! you know what, I really want to buy some more shares of this bank." Then the other part of me said, "You know what, I think we're probably going to talk about it on today's show, so I better hold off."
And for listeners who don't know, we do have trading guidelines here at The Fool, so whenever we talk about these businesses, we have periods of silence we need to maintain before and after we make any transactions buying or selling. So, anytime you don't hear us talking about something that may be why we're being silent in a period of heavy news.
But, yeah, I feel like Ameris, if this sell-off holds, this is one I own shares in today and I think I'd like to add to it, because you're right, I do think they are in a good position. They just finished that acquisition with Fidelity. Financially, in great shape. I mean, this is just one of those things that just, again, these bear markets don't discriminate.
Talking about bear markets, Brian here @bsc082 asks, "Can this current scenario be compared to anything in the past?"
The short answer is, yes, I think you can compare it to anything and everything, it's just a matter of trying to figure out what the similarities and what the differences are. And I came across some interesting research recently from Goldman Sachs that was talking about bear markets like the one we're in, event-driven bear markets, because there is a difference between an event-driven bear market or a secular bear market that's a bit more tied toward economic performance.
But these types of bear markets tend to result, on average, in 29% declines and take about 15 months to get back to their previous levels. And so, I mean, clearly, we're in that 29% range now. I think the Dow is down around 30% from its highs. And the 15-month thing, I mean, it's important to note too 15-months to get back to where they were, to where things were. So, you have to recognize that all along the way, getting back up to that point where it used to be, that also represents opportunity. I mean, you want to be buying all the way up. That's why investing in that 401(k) all along the way here is so important, because that recovery is also an opportunity. Don't you think, Matt?
Frankel: Oh, absolutely. And directly there's no comparison to this event, especially in the modern age. I think, in 1918, there was a big disease – don't quote me on that year – but it's happened before where a health outbreak has, kind of, rocked the nation, but not in the past hundred years or so.
Moser: No. And there was SARS, it wasn't that long ago when the SARS crisis hit, but that was so much smaller in comparison. I mean, that was a virus that ultimately was contained. Something that's very similar to the coronavirus, but the numbers there were just a fraction of the numbers that we're dealing with now. And so, it's difficult to compare.
I mean, the last time I felt like this in the market, it was back in '08-09 during the housing crisis and the Great Recession that followed. This is what feels about like I felt back then.
Frankel: Right. And I think I'm just going to avoid the market in March from here on out.
Moser: [laughs] Well, I mean, it's just these times are – they're tough to deal with, but by the same token, they can be a tremendous benefit, you can learn so much from them. And I've just, I've said it so much. I mean, going through that Great Recession, it was just a great educational tool as an investor. I pull back from that experience, all the time, lessons that I learned and ways to look at companies, how to invest. One thing I've kept on saying to people is, take it slow, now especially with no commission cost, you don't have to go in there and invest everything at once, you can invest slowly. There's just no reason to try to put everything to work at once, because as we can see, it's not something that just fixes itself overnight.
But, yeah, I mean you can compare and contrast, I think, to really anything, but it does feel like, this is a unique situation, I don't know that there's anything that I can pull from that really necessarily correlates, given the numbers that we know today.
So, here is another question from @Eric_Albee, who asks, "Are there any specific companies that you have changed your long-term, five-year-plus outlook on as a result of the past few weeks?"
And you know, Matt, when I read this question first, my inclination was to think, "Okay, what companies am I less bullish on now than I was before?" And then it started kind of striking me. You know what?! I don't know that there really are any companies that -- when I look at a five-year-plus time horizon -- there aren't companies that I've really changed my outlook on from that perspective, from a negative perspective. But I do feel like, on the upside, I do look at some of our favorite companies, and I think, you know what, they come out of situations like these a lot stronger, in a lot better position.
So, it actually does make me feel a little bit more optimistic about what the future holds for a business like Booking.com; I think I've used as an example on MarketFoolery before. Easy to see today why Booking.com is getting shellacked. I mean, travel is ground to a halt, people aren't going anywhere. But if you believe that in time this virus abates and we get back to life as normal, more people will eventually start traveling again and Booking.com is going to be still that massive network that has a global presence and a massive presence in the travel industry. It's going to be a stronger business, after all is said and done here. And that's one that kind of comes to mind from that question there from Eric.
I don't know, Matt, did you have any examples?
Frankel: Yeah, I'm not sure that my long-term thesis on any stocks that I liked have really changed, but you have to think of some of the things that this is kind of bringing out the use-case for. I mean, just to give one example that we could tell you all too well is Zoom. We're on a Zoom meeting right now. A lot of people thought their jobs weren't possible to do from home until this past couple of weeks. And it's really kind of – yeah, I think Zoom is going to see a nice uptick in business. Especially, I think that I read that Zoom was giving away their services to students who were at home.
Moser: I didn't read that, but that's distinctly possible, that certainly sounds like something Founder and CEO, Eric Yuan would do. A very, very strong culture there. And his focus, you know he always uses that word "Happy," he's just trying to make his customers happy. And I would imagine that he would look at something like this and say, "You know what, this is a time where we all need to band together and fight this thing as a team." And that will have a long-term impact on their business. The brand equity that comes from doing something like that is tremendous.
And speaking of Zoom, I was reading through a note here earlier on Teladoc Health (TDOC 1.09%), that was saying that they experienced a 50% spike in patient visit volume over the previous week. Times like these really, I think, make the argument for telemedicine, why virtual healthcare can work and why it should be a fundamental part of our healthcare system. And so, you see a company like Teladoc, I feel like they're going to come out of this even stronger.
Frankel: Right. And I mean that 50% is not going to be permanent. People are going to start going back to the doctor after this, but at the same time, it's a matter of getting your product in front of more eyeballs, which is what Teladoc and Zoom are doing right now.
Moser: Exactly, exactly. And I think, as a society, we're starting to buy into this notion that, "Hey, you know what, we can actually get a lot of work done at home," and "Hey, you know what, maybe logging into the app there and opening up my doctor's visit from my phone is the better first step to make, in some cases." And so, yeah, it was just interesting for me, I felt like it makes me more bullish on a lot of the companies that I love, but I don't know that there are any companies that I really feel are terribly threatened from this. But a good question, nonetheless.
And let's go ahead and wrap it up, we have one more question here from @WilliamWadbrant, and he asks, "When buying equities, especially in worried markets like this one, it's vital to own quality businesses, as they survive and flourish, while weaker ones fail. How do you evaluate that quality and determine if a business will be able to handle the difficult environment ahead?"
And that's a good question, it lines up with one we took a little bit earlier, "What are some of the qualities you look for in businesses? What makes a quality business to you?" And for me, Matt, one of the first things I go to is the balance sheet and financial resources. I mean, you see a company that has the financial resources to deal with an extended downturn like this, they're going to be the ones that you feel like are going to be in better shape, right?
Frankel: Yeah, that's definitely the first thing I'd look at. But finances being equal, I see which has the more valuable brand name, which one has the services that people can't live without? You mentioned Teladoc, that's a service that people need. Balance sheet aside, Square and PayPal, all our favorite war-on-cash stocks, that's a service that's needed. Visa and MasterCard are some of the most essential companies that I could think of. How many payment transactions would you say go through their system every day? Billions, right?
Moser: Yeah. You get to those absurd numbers like Apple's balance sheet and Facebook's users, the numbers are so big, it's almost difficult to comprehend at times.
Frankel: Right. And so, in things like that, I tend to gravitate toward the bigger companies, the sector leaders during these times as companies that have a better shot of making it through anything unscathed, like I mentioned, the big banks already. In the airlines, I would avoid the Spirit or one like the listener said. And if you were going to go with any, stick with the most financially sound and best brands, like, Southwest or Delta or something like that; not that I'm recommending any of those. But if I was going to pick an airline, it would probably be one of the bigger ones in the sector. So, yeah, you got to start with the financials, as you said.
Moser: Yeah. And I think, you know, another thing that I find helpful is, I like to look at who the company's customers are, and then further, who are the customers' customers. And the one that kind of came to mind was Square, thinking, well, Square's customers are, for the most part, small businesses, and then those small business customers are people like us. You can connect the dots there and see if there're going to be some problems there in the near-term that will impact that business. That doesn't necessarily make it a less quality business, but it shows you, at least, what you might expect here on the near-term horizon, the challenges the business may deal with.
And so, we like Square a lot. It has the financial resources to be able to deal with periods of time like this, and that's great, but it's also worth noting who the customers are. And then, I think, ultimately, look toward leadership as well. There are leaders that inspire, there are leaders that don't, there are leaders that we can look at and we think, "You know what, these are the smartest guys and girls in the room." And other ones, that you really kind of don't want to be around. And so, I think leadership is another one you can take a look at and that can help make some more sense of it.
Eric Yuan with Zoom. I mean, a leader that I feel like is a tremendous asset and certainly helps make the argument for the favor that Zoom is a quality business.
Okay, Matt, that wraps it up for the questions this week. I know that was a lot, but we feel like this is a unique time and a trying time, and one where we wanted to make sure our listeners knew that we were listening to you all as much as that you, thankfully, are listening to us. And we're very grateful for the questions that you threw out there on Twitter for us.
So, before we wrap it up this week, we do want to get back to our ones to watch. Matt, what is a stock that you're going to be watching this week?
Frankel: I am watching Berkshire. I think Buffett is about to do his biggest buying spree of all time, if it's not already under way, it very well may be.
Moser: [laughs] I like that. I like that a lot. I'm going to be keeping an eye on Globant (NASDAQ: GLOB), the ticker there for Globant is GLOB. But they are an IT consulting firm and what really is only becoming a more tech-driven world. And Globant has some really big-time customers in their network, including, Disney and Google [Alphabet,] and Electronic Arts.
For me, really, my interest was piqued on the augmented reality and the immersive technology side of things. And one of one of our colleagues, TJ Piquet had introduced me to this company. As a matter of fact, I think, back on an Industry Focus episode many, many months ago, he was one of the newer analysts at the time, when we had some of the new analysts on the show and interviewed them. And TJ got this on our radar. So, that's one I'll be watching this coming week as well.
But for now, I think that's going to do it for us this week. Folks, remember you can always reach out to us on Twitter @MFIndustryFocus or you can drop us an email at [email protected]. Let us know how things are going, let us know how you're coping with this time. We know it's not easy, but that's why we're here. Reach out to us on Twitter, let us know what stocks you're buying, ask any questions you have, that's why we're here folks.
So, as always, Matt, very, very happy to join you this week and I'm glad we were able to make all the tech work here. Maybe a few more weeks where we're doing this remotely, but it's good to know that we've got a process figured out.
Frankel: Yep. Always good to be here and I hope that you're enjoying the work-from-home stuff as much as I do.
Moser: [laughs] Well, you know it's got its good time, it's got its moments. Sometimes it's nice and other times you feel like you gotta get up and walk around and maybe get outside for a bit. But certainly, understand the situation and acting in an overabundance of caution is probably the right way to go. So, we'll be back up-and-running in the studio as soon as we're able to, that might be a little while, folks, but for now, we will stick to the remote and be thankful that we can at least deliver the podcast to you and thankful that you'll continue listening to them.
So, 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.
Thanks to Austin Morgan for taking his production skills to the next level during these trying times. We won't forget this, Austin. For Matt Frankel, I'm Jason Moser, thanks for listening and we'll see you next week.
