Which Companies Will Emerge Stronger

In this episode of MarketFoolery, host Mac Greer is joined by Motley Fool analyst Tim Beyers to take a look at today's big headlines. The Dow is down, but it could have been worse. The Fed announces additional measures to spur the economy. Tim shares some great tips on investing in today's environment. And learn how big tech is chipping in to find a solution for coronavirus and much more.

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 23, 2020.

Mac Greer: It's Monday, March 23rd. Welcome to MarketFoolery. I'm Mac Greer, and joining me from Colorado is Motley Fool analyst Tim Beyers. Tim, how are you doing during these very, very strange times?

Tim Beyers: It is an incredibly strange time, and I'm doing OK, Mac. I'm hanging in there. I miss seeing my Foolorado coworkers, but it's good to see you, buddy. You know, we're doing a lot of this connecting over Zoom. And I hope other people are getting that chance, too.

Greer: Yes, through the miracle of Zoom, I can see you, you can see me. Tim, it is a great day here in Virginia -- a little overcast. And as I have CNBC playing in the background, it looks like the Dow right now down around 5%, which, looking at the futures last night, looking at the futures this morning, could have been a lot worse; and yet, you know, still not great.

But the big news is, the Fed once again announcing additional measures. This time the Fed is announcing unlimited bond buying and a lending program for small- and medium-sized businesses; those are just a few of the highlights. And, Tim, of course, this is playing out as Congress continues to work on a stimulus package. What does it all mean for investors?

Beyers: It means a couple of things. The first is that the Fed is an anchor here, and the Fed is going to spend whatever it needs to spend. The way to think about this, I saw a quote that says, "Let's think of this is QE unlimited," I think that's right. So, when the Fed is buying --

Greer: So, QE would be quantitative easing, right?

Beyers: Right. And so, just defining this quickly. So, when the Fed does this, when the Fed goes into the process of buying assets, that's quantitative easing. And so, right now, the Fed has said, there is no limit, we will buy whatever we need to.

So, what this means for investors, it means a couple of things. The first is that the Fed is trying to put a floor on where we are as an economy and where we are as a stock market. They're trying to inject some level of confidence saying, "Look, whatever needs to be done, we will do it, we will spend whatever we have to do, we will buy as many corporate bonds as we need to." And the interesting thing here, Mac, it's still an X-factor, but that means, potentially, that the Fed could get into the process of buying stocks.

Now, I don't think when the Fed buys stocks, it's a little bit like Buffett buying stocks. If we go back and just look at our history a little bit, in 2008, when Warren Buffett took a big position in Goldman Sachs, and when one Carlos Slim, the Mexican billionaire, took a big position in New York Times company, those deals had strings. That was essentially preferred equity. And so, if the Fed comes in and starts buying up, say, airline stocks or starts buying up bank stocks, there will be strings there, they will be first in line. And so, they'll jump in front of common equity investors, and it may dilute things a little bit. So, there's a limit to which this is good news for investors. But overall, Mac, I'd say in the short-term, this is good news for investors.

Greer: You mentioned the stimulus, that as Congress and the Senate is trying to hammer out a [...]

Beyers: Right. I agree. And that side of the equation is meant to inject some confidence, because we are a consumer-driven economy, and so if consumers have no capital, if unemployment reaches 30% and consumers can't buy then the markets will react to that. And so, the stimulus package is meant to put some money into the pockets of average Americans and keep at least some of the buying going, because so much of our economy depends on you and me making purchases at the grocery store or making buys on Amazon (AMZN 1.30%); whatever it is. Consumer spending is a massive part of the American economy.

So, the stimulus package, if I understand it correctly, is meant to inject some direct buying power, like, literally mailing checks to average Americans in addition to creating some backup. So, like, very low interest or zero interest loans that can be forgiven for small businesses, local businesses, including some bigger businesses as well. It's just meant to provide some firmament here, a little bit of stability in an economy that's very, very shaky right now.

Greer: And, Tim, I want to bring it to the personal level here. As all of this is playing out, how do you think about your individual portfolio, how do you approach investing?

Beyers: Yeah, it's a great question. So, what I've been doing personally is being a buyer. Although, I'm really not going at it indiscriminately, I'm being pretty careful. And the reason I'm being careful is because there are so many unknowns. And when you don't know what you don't know, it's tough to be backing up the truck, as Peter Lynch, used to say, "You would just be a massive buyer of a stock at a certain price because it had fallen to a very attractive price." I'm not backing up the truck, but what I am doing is sort of creating a dream-list of stocks that I really want to own, like, five to ten that I would really love to get, and then I'm targeting those businesses and buying in very small chunks.

Like, literally, Mac, you know, when I've made buys, it's like a couple hundred bucks here, a couple hundred bucks there. And we can do that now, because every major brokerage is at zero commissions. So, when I put in a couple hundred bucks, I'm not paying for that, I'm just getting the shares. And so, I think as a common investor, if you're a common Foolish investor and you're looking to add, I would say, "Put little bits of capital to work at a time," "Have a dream-list and look to buy those stocks in small increments."

Greer: Tim, that is such a great reminder, because I think, sometimes we tend to fall into this binary trap of it's either all or nothing; I can invest or I cannot invest. And then we amp that up with this pressure of trying to time the bottom. Which, really, we have no idea on any given day, on any given week, if the market is going to go down more.

Beyers: Right. And what's our email address, Mac? if you can time the bottom, we want to hear from you at MarketFoolery --

Greer: [email protected]. Exactly. If you have figured that out. I suspect that if you figure out how to time the bottom, you may not be listening to our podcast right now.

Beyers: Yeah, I think so. You may be on an island somewhere and you may be thinking about the next island you're going to buy.

Greer: Exactly. Well, let's move on. Some big tech companies teaming up with the White House on COVID-19 research. On Sunday, President Trump announcing that IBM (IBM 0.16%), Amazon, Google [Alphabet] (GOOG 1.25%) (GOOGL 1.27%) and Microsoft (MSFT 1.65%) will provide computer firepower for COVID-19 research. Tim, you are well-versed in all things cloud computing, what do you think about this new initiative here?

Beyers: I love that the Mini-Me of cloud computing, which is IBM is the one that's leading this effort, because irony --

Greer: ... that is harsh. Now, why are they Mini-Me?

Beyers: They are lagging in cloud computing market share badly over the big rivals. So, Amazon is far-and-away the leader here. Microsoft is No. 2. And then, Google is really third. All of them are teaming up though. IBM is leading the effort, so there's irony here, and irony never disappoints. And yet, what does make this interesting and makes it very interesting to me personally as an investor is that, what IBM lacks in cloud computing market share, it makes up for in spades in terms of supercomputing power.

So, IBM still makes a lot of hardware, they still make mainframe computers, they make very high-end servers. And so, they can actually deliver very high-end machines that can do a lot of these calculations at very, very high speed. And combined, what this group, this conglomerate can do, is they can put more computing power to work on, sort of, deconstructing the COVID-19, this coronavirus, its structure, its RNA, all of these things. They can put more compute power than we had for deconstructing the human genome in battling this.

So, I think, these guys taking the war to the coronavirus is good news. And I think what we're going to see now is different research organizations, academic and otherwise, around the country and around the world tapping into this giant cloud computing consortium and just pumping in data: Here's what we know, here's what we know. And then you're going to see a lot of this data come together and you'll have data scientists and others, sort of, pouring over looking for patterns. And that can accelerate the race to some kind of solution, some kind of understanding of how we can combat this thing.

Greer: I love this story, Tim. It feels to me like it's the super friends, kind of, is it wonder powers activate, what was that whole deal?

Beyers: Yes, exactly. Yeah, the Wonder Twins, "Wonder Twin powers, activate!"

Greer: I love that. So, some good news potentially coming out of all this. And I want to come back to Amazon, because Amazon is an interesting story throughout all this, because Amazon -- one of the few companies right now, Tim, that is hiring. And not just hiring, but they are hiring a lot; and Walmart is hiring as well. And I'm curious, when you look at Amazon, when you look at Walmart, when you look at the fact that more and more people's consumer behavior is changing because of this virus, do you think those changes to retail, do you think those are lasting, do you think we're watching something play out where retail is forever changed or do you think when this settles out that we'll revert back to where we were?

Beyers: I don't think we'll revert back to where we were. And I also think part of the equation depends on how long this goes. However, I will say that the longer we get used to the idea of buying groceries, let's say, remotely from, say, a Walmart or from getting deliveries from Amazon, the more we do that, I think the more that becomes a habit. And what is it, it takes about 30 sustained days are up to 90 sustained days in order to build a habit. Once those habits are codified, I think it's going to be tough to go back.

So, there is, I think, some permanent disruption of things, like, local grocery stores, maybe local natural food stores, local retailers. And even more so, like, regional retailers; those small businesses that maybe are in a couple of states, but haven't really gained a lot of traction yet. To the degree that Amazon and Walmart suck up oxygen in the room, I think that's going to mean some dramatic changes in the retail landscape over the next year to three years.

Now, who is immune from this? I don't know that anybody's specifically immune from it, but there are sharp discount retailers like Dollar Tree, for example, is also hiring. I think Dollar Tree is one of those that may be more immune than others, because it just serves a niche that Amazon and Walmart just won't touch. That ultra-low discount retailer, I don't think those are going anywhere.

Greer: And, Tim, to wrap up here, when you and I were Slacking back-and-forth last night, you said that one of the storylines that you're watching and one of the big stories to you was what you called the return of the balance sheet. What do you mean by that? What do you mean by the return of the balance sheet?

Beyers: So, here's the thing, when you look back in history -- and we can go as far back as the Great Depression, so let's start there. The October 1929 crash in part was fueled by an enormous number of speculators borrowing money and companies that had borrowed money indiscriminately. And so, there was borrowing upon borrowing and as that leverage got unwound, we saw massive losses, massive selling, economic ruin for some people. Now, we're not back at that stage, but same thing if you go to, like, 2000-2001 crisis, the 2008 Great Recession, companies that just didn't have the balance sheet. Meaning, they had too much debt and not enough cash and they weren't producing cashflow to add to that balance sheet. Those companies were weakened, they just didn't have the resources to withstand this massive shock to the system and they ended up dying.

So, some of the dot-coms were the ones. Like, they grew very quickly, they just didn't have revenue, they didn't have resources to survive, so they died. In the 2008 Great Recession, companies that were vastly overleveraged, Lehman Brothers, Bear Stearns, they just went away because they didn't have the cash to survive this.

So, when I think of the return of the balance sheet, Mac, what I'm really talking about is companies that have billions upon billions of dollars, they have more cash than debt or they have access to a lot of liquid resources. And so the bank can't call somebody up, the CEOs office, and say, "Hey, you know what, that $10 billion loan you have with us right now, we're pulling it." And that could impair the business materially or kill it.

You know, companies that aren't in that kind of position are going to survive this and they're going to come out stronger on the other side of this crisis.

Greer: Okay. So, I want to follow-up on that, when you say, "They're going to come out stronger," any big acquisitions? You want to make a prediction about a company that you think might be well-suited in terms of a big acquisition?

Beyers: Yeah. So, what we're seeing, we talked about Amazon and their prowess in logistics and just delivery. Like, I've been out walking every day, and I would say, two out of three days when I go out walking, I see a prime truck it's just delivering. And whether they're delivering groceries or they're just delivering other packages, I don't know what they're delivering, but Amazon has a massive logistics business. I think they are going to eat every element of the delivery business including food delivery. I think they're going to acquire Grubhub (GRUB). I think Grubhub is getting cheaper, Grubhub is kind of the class of the food delivery business, Uber is getting out of Uber Eats, there's going to be a vacuum in that market and I think Amazon is prime positioned to make a lucrative bid for Grubhub, soak up that business and become the delivery mechanism of choice for just about everything that you could want ordered and delivered to your door.

Greer: Did you just say Amazon was in the prime position, Tim, was that intentional or --?

Beyers: That is an accidental pun, but I'll take credit for it anyway. [laughs]

Greer: [laughs] Okay. As we wrap-up then, with that in mind, with that bold prediction in mind, I'm going to hit you with a desert island question. This may hit a little too close to home right now, given our current circumstances, but you're on a desert island for the next five years, you can only own one of these stocks. Let's throw Grubhub in the mix, let's say, Grubhub, Amazon, IBM, Microsoft or Google?

Beyers: I'm going to take Amazon and the reason for that is -- by the way, I feel like I'm on a desert island sometimes with the, you know, the social isolation we're having to go through, and I think others feel the same way. Amazon wins this for a very specific reason, not because of logistics, even though I think logistics is an amazing business for them. I think if you do the math, Amazon Web Services, that core cloud computing business they've got, is worth at least $400 billion. So, that leaves about $600 billion for the greatest e-commerce business in the world that's also rolling up to be one of the greatest logistics businesses in the world. That is not a fair valuation, there's no way that's fair. Amazon is ridiculously undervalued right now. Amazon's my pick.

Greer: Okay, Tim. And I lied. Before we really wrap-up, I want to get one more tip from you. You now work out of our Colorado office, Foolorado, before the pandemic here. But for many years you worked from home, so we've got more and more people working from home right now, how about one tip for anyone who is new at working from home.

Beyers: That's a great question. So, for me, I think the No. 1 thing is make your space a space you want to go to. Like, it feels homey, it feels interesting, it has things that you want. That could be knick-knacks on your desk, it can be the right equipment that you need, it can be having the right books, space for books, if you like having CNBC on in the background, have a small TV that allows you to play CNBC in the background, make your space personal and make it a place you want to go to, because if it's a place that you tolerate, you will hate working at home after a couple of weeks.

Greer: I love that, I love that. Tim, well, I think I mentioned this recently, but my one thing is every day, for whatever reason, I feel like I need to put on a shirt with a collar and that's a win for me. If I put on a buttoned-down shirt, then I feel like, "Okay, time to work." It's like my uniforms.

Beyers: Yeah. And you know what? If you can get yourself into that mental space, where you're like, "Okay, here I am, I'm sitting down, I am ready to work." And you're not immediately tempted to procrastinate or goof-off, you will have success working at home. But if you don't have those routines, start working to develop them. The easiest way to do that is make your space enjoyable.

Greer: I love it. And if anyone has any tips on how to better work from home or if you have any thoughts or questions about anything that Tim and I have talked about, [email protected] is our email. [email protected] for all of your questions and your comments.

Tim Beyers from Colorado, thanks for joining us.

Beyers: Thanks, Mac, really appreciate it, great to be here.

Greer: As always, people on the show 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 it for this edition of MarketFoolery. The show is mixed by Dan Boyd. I'm Mac Greer. Thanks for listening and we see you tomorrow.