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Why Chapter 11 Is Not the End of Line

By Alison Southwick and Robert Brokamp, CFP(R) – May 21, 2020 at 11:45AM

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Discover what goes on in a Chapter 11 bankruptcy filing and what it means for stakeholders.

In this episode of Motley Fool Answers, Alison Southwick chats with Motley Fool personal finance expert Robert Brokamp and contributor Dan Kline about the latest headlines from Wall Street. They talk about some labor statistics and some companies that seem least likely to survive the financial fallout from the coronavirus and much more.

Also, watch out for their weekly recommendations to take your mind off all the craziness.

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 May 12, 2020.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick, and I'm joined, as always, by Robert Brokamp, Personal Finance Expert, here at The Motley Fool. Hello, Robert.

Robert Brokamp: Hello, Alison.

Southwick: Joining us this week is Dan Kline. He's going to talk about which companies are least likely to survive the financial fallout from the coronavirus and Bro recounts yet another painful and baffling week in the global economy and stock market. All that and more on this week's episode of Motley Fool Answers.

So, Bro, what's up?

Brokamp: The stock market, of course.

Southwick: Nothing makes any sense!

Brokamp: Well, let's review what happened during the first week of May, ending on May 8th. So, the S&P 500 was up 3.5% for the week; so, at this point it's only down 9.3% for the year. Nasdaq, even better, up 6% for the week. That puts it into positive territory for the year. So, during one of the worst economic downturns ever, the Nasdaq is up almost 2%. Small caps also had a good week, 5.7%, but they're still down 16% for the year. International stocks up 3%, but down 18% for the year. And boring, old bonds are down slightly last week, but up 5% for the year.

So, if you're looking at your portfolio, it's mostly all good news.

The bad news from last week came from the monthly employment report. So, we've been talking every week about job losses. Those are actually figures of the number of Americans filing for unemployment with the states. Last Friday, the U.S. Bureau of Labor Statistics, otherwise known as the BLS, announced the official employment numbers for April; and these figures are based on surveys of tens of thousands of households and employers, just to get an idea of how many people are working, how many people are not working. And let me tell you, it isn't pretty.

For the month, more than 20 million Americans lost their jobs, driving the unemployment rate up to 14.7%. At least, that's the figure you probably saw if you pay attention to the financial media. However, BLS actually releases six unemployment rates every month. The one that most of us hear about in the media, that 14.7% in April, is technically known as the U-3. It measures the number of people out of work and the people looking for a job. But think about that second part and ask yourself, "How many unemployed people are looking for a job right now?" The fact of the matter is millions of Americans have put their job searches on hold, because they know they probably wouldn't be able to find a job or they don't feel like it's safe to look for a job.

And then there are the Americans who've had their hours cut back. So, essentially there are millions of Americans who are working part-time, they wish they could work full-time but they can't. Actually, Uncle Sam has a number that captures all of these people as well, it's known as the U-6, and it leapt to 22.8% last month. So, it's just about the highest ever. When you look back at the Great Recession of 2000-2009, [2007-2009] (sic) the highest rate was just 17.6%, and it took more than a year to get there, yet during this pandemic panic, it only took us two months to get there. And it's really the worst we've seen since the Great Depression.

Add to that, another 5% of the workforce that was categorized as "employed but absent from work," and some people are furloughed, but some of those people probably should have been considered unemployed, you add that in and you can see why Treasury Secretary, Steven Mnuchin, said on Fox News this weekend that the real unemployment rate is likely closer to 25%, and it's probably going to be even higher in May.

So, if you dig a little bit more into the report, every major sector lost jobs with the heaviest losses coming from leisure and hospitality where 47% of the people are laid off. That wipes out all the jobs created in that industry since 1988, according to The Washington Post.

The sector that fared the best were utilities, which just lost a few thousand jobs. So, if you want job security, go contact the water company or the electric company or something like that.

There was some good news, at least seemingly good news on the surface, in the report, and that was average hourly earnings increased 5%; believe it or not, people are making more money. But the report pointed out the reason that is true is because most of the people who are losing their jobs and not calculating that are lower income employees. So, the reason earnings went up is because it took out all the lower income folks or at least lower income folks who lost their jobs.

How are American households reacting to all this gloomy employment news? Well, actually there is some genuine good news. In March, the personal savings rate jumped to 13.1%; that is the highest rate since the 1980s. Americans are borrowing less. According to the Federal Reserve total consumer credit fell 3.4% on an annualized rate; that's the first decline since 2011. So, good job America, doing the smart thing.

And then finally, despite the downturn in the economy, Goldman Sachs actually predicts that disposable income will go up this year, thanks in large part to the government stepping in to make up for what many people have lost. So, from their research report "Combining our forecast of labor income, corporate dividends, proprietors' income, interest rental income and tax cuts and government payments, we project that total disposable personal income will increase by 0.5% in 2020," which is pretty remarkable when you think about it.

And that, Alison, is what's up.

Southwick: The global pandemic is requiring everyone to stay at home, and it's hitting some industries hard. So, for example, from Fortune, of the 125 restaurant or retail companies tracked by S&P Global Ratings, about 30% now have a credit rating that indicates they have a one-in-two chance of defaulting on their debts, which is often a precursor to bankruptcy or liquidation.

So, joining us to talk about the companies that likely won't survive the financial fallout from the pandemic is Dan Kline. He is a contributing analyst for The Motley Fool. Hi, Dan!

Dan Kline: Hey there, Alison; hey there, Bro. Wow! so you picked a very downbeat reason to have me on. I am probably the most upbeat guy [laughs] at The Motley Fool and you have picked a [laughs] very, very sad reason. It is hard to be optimistic about companies declaring Chapter 11 or sometimes even worse.

Southwick: Yeah, no, you know what, to say that you're the most optimistic person at The Fool is really saying something, because this is a company of optimists, if you can out-optimist Tom and David Gardner, that would be pretty remarkable.

Kline: That would be one heck of a show where we actually just try to spend an hour out-optimizing each other. [laughs] So, I will pitch that one.

Southwick: [laughs] You're like, a puppy, puppies in a basket, puppies in a basket with a bow.

Kline: I've actually been sending my wife videos of kittens in a basket, that is what we have come to.

Southwick: Yeah. I'm sure she needs them. I'm sure we all do.

Kline: She does.

Southwick: Yeah. So, Dan, why don't you tell us a little bit more about yourself. I know you are in Florida; are you from Florida?

Kline: Yeah. So, I'm not from Florida, I'm from, I always say, Boston, but I'm from Swampscott, Massachusetts. So, about 20 minutes North of Boston. I lived in New York, then Connecticut. I was in Connecticut for basically 15 years. And then we moved to West Palm Beach, Florida three years ago. I had told my wife, I work from home, there is no reason we should be living someplace where I have to shovel snow; this makes absolutely no sense.

So, our main house is downtown in West Palm Beach, Florida, which is usually a nice advantage, you can walk to all sorts of stuff. Now, you don't want to do that; [laughs] many of those things are open, but Florida, as you know, is a state that has people who perhaps don't have full regard for the rules. I'm trying to be a little bit careful. But I definitely have neighbors that will, like, sneeze on you just to, like, show their liberty [laughs] or whatever it is. So, I have perhaps not gone downtown.

And then we also actually own a property near Disney World. So, I have lots of exposure to what's going on right now. And many Fools, including Maurie Backman, who has been on this program, have used or stayed at my house in Disney. So, sort of a communal property.

And at Motley Fool, I do a lot of things. So, I started as a writer, and I don't even know if I would primarily define myself as a writer anymore. Since the pandemic started, I've been spending three or four hours a day as a host on Motley Fool Live, which is unbelievably rewarding and exciting and I've gotten to meet all sorts of great Fools, talk to our listeners, talk to our members, and it's really exciting. And I am actually one of the editors at, our personal finance network, which is sort of a slow growth period at the moment, given it's a new property, but I actually manage the freelance writers there. So, I do all sorts of things across Fooldom, mentor new Fools, try to really just share the experience as someone who works remotely or, like, how to make that work; which is not always the easiest. Though, hey, you're all doing it now.

Southwick: Yeah. Dan, I don't think I realized just how much you do at The Motley Fool. [laughs] I had no idea.

Kline: Yeah, I'm not great at saying "no." And it's also one of those things. and this can be a work-remote lesson for everybody. So, I work remotely, but I choose to visit headquarters once-a-month. Now, not everyone is going to be welcome to visit headquarters that often, but when I do, I try to meet people. My first visit in and I wasn't even a contractor yet, you actually took me to the studio and I didn't want to meet Chris Hill, I was nervous to meet Chris Hill. And now I regularly do MarketFoolery, you know, which is absolutely -- and I'm the only writer who does that. So, very excited, and you grow in it.

But what I find is, when you work remotely, facetime is important, because people get to know you, people see you, they remember what you could do, they're like, "Oh, yeah, that's Dan Kline, he's pretty good, I bet he'd be good on air."

And the first time I actually got to do MarketFoolery was because it was a snowstorm, you had half-an-inch of snow, Alexandria was shut down, and I was literally the only person in the office. And Chris always says, "Oh, I was going to have you on anyway," that is no way true. [laughs] I was the only available body to do the show. And when you get the opportunity, you know, obviously, do a good job, be prepared. What's really fun for me at Motley Fool was there are so many opportunities and we'll see, post pandemic, I'm not going to be working 14-hour days. So, we will see, sort of, where things shake out, but it is really exciting to get to be, as Dylan Lewis calls me, sort of, the Jack of all trades here. He never mentions that the second-half of that is master of none. But I guess, I'm a utility infielder here at The Fool.

Southwick: Well, let's get into it, shall we? Dan, let's start by talking about retail. Here is a fun headline from, The 2020 retail apocalypse will claim more than 100 of your favorite stores -- and it's only getting worse. So, J.Crew and Neiman Marcus have filed for Chapter 11 bankruptcy in the first week of May. So, we know they're on the ropes, but that doesn't necessarily mean they're down for the count. Can you tell us a bit about the path that a company takes when it entirely shuts down, because not all chapters of bankruptcy are the same?

Kline: Yeah. So, when you file Chapter 11, the goal is to reorganize. Sometimes, like in the case of J.Crew, they actually had financing in place. They had an agreement, turning about $1.6 billion in debt into equity. That is a really strong Chapter 11, because they're coming out of this with significantly less debt. Not great for shareholders. Actually, they're not a publicly traded company anyway, so it doesn't matter. But if there were shareholders, that would be dilutive.

Bankruptcy is generally always bad for public companies, because the shareholder has no protected assets. So, they will either get wiped out or be pretty close to wiped out. But sometimes when you file a Chapter 11, your goal is to reorganize but you go to banks and say, "Here's our plan," and the banks go, like, "Oh, we're not giving you any money." And sometimes there's other ways, like, Sears has stayed in business because basically Eddie Lampert, who was the CEO of Sears, who is the Chairman of Seritage, which is the one plundering Sears. They are a Real Estate Investment Trust that's redeveloping former Sears properties, he's found different ways to loan the company money or give the company money, so he could come out and control it.

But it is possible, you go into a Chapter 11, and some companies go into Chapter 11 more than once, and there's just no money for you and eventually you have to declare bankruptcy. That is sort of what happened with Modell, which is a privately held company. They did not actually go into Chapter 11, but they very publicly said, here's where we are and here's where it's coming to, will anyone loan us any money? They literally, like, went to the public and were like, you know, hey, could we do a GoFundMe more or less. And that's a very sad case; family owned business.

But in the case of most of these businesses, it's important to remember J.Crew was not healthy before this. The vast majority of these, this isn't the cruise lines which are multibillion-dollar profitable businesses that are facing something absolutely unique. Most of these retailers were in really rough shape heading into this, and this accelerated their bankruptcy process and might force their bankruptcy process to not be able to exit; that's actually possible.

Southwick: So, then a company is, like, "Oh, man! we're in trouble, we're going to declare a Chapter 11 bankruptcy," which basically is saying, "Hey, we're in trouble, help us out and we're not dissolving the company, we're just ... "

Kline: It's saying, you don't have enough money to meet your obligations. So, one that's being talked about right now is Hertz. Hertz actually missed a debt payment, and they're obligated to make that debt payment. And they went to their creditors and they said, well, we don't want to file Chapter 11 just yet, could you extend our terms on that debt? And they did. And I'll make this joke a lot, but the people who Hertz owes money, they don't want those assets, they don't want a whole bunch of cars right now. There's not another buyer in the space that would want to run Hertz. So, in that case, they're going to be more flexible.

I'll mention the cruise lines again. No bank is like, "Hey, you know what that big cruise ship would be good for? It could be a bank, it could be an ATM." So, in a lot of cases there's going to be negotiating, but when you file, a judge gets some control. There is the ability for outside money to come in and say, like, "You know what, that deal that J.Crew made, like, we could do better than that for those assets." So, if you go in and it's already arranged, you're more likely to get it through. And then you come out of it, and you maybe have less bills, maybe you got some deferments on your leases, maybe you got some concessions from your vendors. It's not a great thing as a retailer, because, you know, I ran a store, this has been talked about in many cases, I used to run a giant toy store. And if I didn't pay my bill the company that sends me, I don't know, whatever, model train parts, would say, like, "Well, we're not sending you anymore model train parts." If they don't send me more model train parts, I can't sell more model train parts, and then eventually you're in real trouble. You're seeing that play out across a lot of retail right now where -- you know, JCPenney brags about it in their earnings call. We got our inventory down $1.8 billion. Now, if everything they had in their stores was exactly what they needed, maybe that would make sense. But if you go to JCPenney and I go to JCPenney, this shirt I actually think was from Kohl's, but I have a variation of this shirt from JCPenney. I'm Fred Flintstone, I dress one thing every day. I have two outfits, more or less. [laughs]

So, this is a scenario where if I go to JCPenney to buy this shirt in extra-large, and all they have is a small, and they have racks of that suit that looks like dollar bills that I don't know who is buying that, but they did, they had two big racks of it. That doesn't mean that JCPenney having less inventory is a good thing, because in theory, inventory turns into a sale which turns into cash, you know, which turns into a profit. So, yes, a company can manage its inventory well, but that likely means that vendors are saying to them, "Yeah, we'd like some money upfront," or "Geesh! We want this size order before we're willing to send that to you."

Inventory management is really tricky anyway, especially across a whole chain that hasn't invested -- many of these companies, you're going to hear the term "retail apocalypse." Retail apocalypse is a fallacy, retail apocalypse is this idea that the internet has somehow ruined business. Businesses are ruining businesses.

Toys "R" Us, I'll give you an example. Toys "R" Us went bankrupt, went out of business, was a leveraged buyout, they had $6 billion in debt that they had to service. I could walk in and tell Toys "R" Us how to run a profitable toy store, I did it. They knew the answer. They knew making it interactive and a place to go and give kids a place to play Pokémon and Magic: The Gathering, and you're going to sell off a lot of candy bars and a lot of Pokémon cards and all that stuff. They knew those answers, they just didn't have the money to do it.

JCPenney right now has a brilliant CEO, Jill Soltau has an absolute plan that makes sense, but she doesn't have the money to do it. That's not Amazon's fault, that's the bad decisions [laughs] these companies have made.

Alison, I'll throw in a trivia question. Do you know what percentage of sales last year were digital? And this was actually a question Dylan and I used on a game show we do on Fool Live called Fool Me Once, where the goal is for everyone to get it wrong.

Southwick: Well, I know that when it comes to Christmas shopping, online sales are still way lower than in-store sales. So, it's actually not -- I'm sorry, I don't think you're going to fool me on this, but I think online sales is still only, like, 15% or something like that.

Kline: It's 11.4%. And you got way closer, The Fools, actually, and there were thousands watching, actually guessed 50%.

Southwick: Well, I mean, I'm not your average Fool. I'm the one who hosts the podcast, so.

Kline: [laughs] Yeah, they don't just give these podcasts out.

Brokamp: Oh, wait! They do.

Southwick: ... they do. [laughs]

Kline: No, I don't really think they do, you know, it's not like we've launched a lot of new podcasts at any point. This is a fixed inventory of podcasts.

Southwick: Yeah, they stopped, they stopped after ours, they said, that's it, not just anyone can have a podcast, because these Answers people, I don't know what they're doing.

Kline: I was going to say, there's a reason they only let me guest, like, you know.

So, this is one of those things where a Chapter 11 doesn't mean your favorite store is going away, and it's often reported like that. In many cases, it's a chance to reorganize, redo finances. Retail mall owners and other places that hold the leases, they're going to be a little bit more flexible right now. Because if Brio and the parent company of Brio have filed Chapter 11. There is a Brio ...

Southwick: ... Brio is a restaurant.

Kline: Brio is an Italian restaurant, and they also own Bravo!, which I think is a similar Italian restaurant, which seems bizarre to me, but I've never seen a Bravo! I have a Brio about a half-mile from my house. My son doesn't like it, so we don't go there that often, but I like it and my wife likes it, so we do occasionally eat there. It's sort of like a weird mid, but not that mid-priced Italian place. And if that closes ...

Southwick: ... you had me at weird. [laughs]

Kline: Yeah, it's a Mediterranean take on Italian. But it's a little expensive for some people, they probably need to revamp the menu, they probably need to make it a little bit more accessible. But the mall it's in, which is sort of a mixed-use property, called Rosemary Square about a mile from my house. They don't want Brio to close, because it's big. What are they going to fill it with? Like, right now who's looking to open stores?

So, there's going to be a lot of leeway. One of the things you'll see is Cheesecake Factory didn't pay its rent in April. Cheesecake Factory didn't pay its rent, because -- have either of you been to a Cheesecake Factory?

Southwick: Talk about weird.

Kline: So, basically Cheesecake Factory is saying to its landlords, what are you going to do with this? Like, this is like when an old-school IHOP becomes like an insurance agency and it's still clearly an IHOP. Nobody wants to rent a Cheesecake Factory. So, they're actually in a pretty decent cash position, and what they're saying is, you know, negotiate with us, we'll tack this onto the end of the lease when we're operating, maybe we'll pay you more per month when things are normal.

So, there's a lot of this positioning going on. And many mall operators and other people are working with retailers to avoid Chapter 11, because when you see Chapter 11, it makes you think, "Oh, no, that store I like at the mall, is it going to be gone, do I still have to go to the mall? So, it's sort of a very long dance with retail right now. But obviously, there's an acceleration of wounded companies that are in real trouble and have already filed or in danger of filing.

Southwick: Yeah. Well, what's funny about that MSN headline that I said, you know, 2020 retail apocalypse will claim more than one hundred of your favorite stores, and then it goes on to list things that are no one's favorite store. That's like, here is our slideshow, and it's like, OK, Kmart and Macy's. I mean, if these were people's favorite stores then they wouldn't be a victim of the retail apocalypse.

Kline: Yeah. And Macy's is also one that, like, you have to put them on the list, but Macy's is actually still profitable. [laughs] So, obviously, not right now because Macy's is -- they're opening a few stores, but they're largely closed except for online. But what this has done for Macy's is, it's shortened their runway, it's made them burn cash that they could have used to try out new ideas. So, whatever they do next, they're going to have to be right or else they may get into real -- but Macy's does still have some levers they can pull.

And we do slideshows, I will point out that one of the many things I do for Motley Fool is actually help organize our slideshows for MSN. And we try to not be particularly sensational in ours, that is not always the case. It is a little irresponsible sometimes to say, Macy's is going out of business. That's a company that's still in pretty good shape. But a lot of companies that were otherwise in good shape, Dave & Buster's is an example. They were doing OK but they are not a business that's going to work well with social distancing, they are also not a food product, nobody goes to Dave & Buster's, like, "Oh, I don't even play games, I'm just here for the wings," like, no, their food is bad. [laughs] Well, not bad, it's secondary. It's not a Buffalo Wild Wings, that there are some diehard fans of its wings, you're eating at a Dave & Buster's or buying a drink at Dave & Buster's because you've gone there for another reason and that reason is going to be really tricky with social distancing rules.

Southwick: Yeah. Alright, let's move on and talk about travel, because obviously they are getting hit as well. Apparently, Avianca Holdings, one of the biggest carriers in Latin America, has just filed for Chapter 11 bankruptcy. So, I guess, this is maybe the start of many more.

Kline: There's going to be a lot. And one of the questions people ask me all the time is, should I be investing in airlines, the price is so low? And of course, they're too big to fail. And I agree, there will be an airline named Delta flying; an airline named United flying; there will be a Southwest, the best position of any of the companies, so I hate lumping them in. Southwest is 57 straight years of profitability, will probably be broken this year through no fault of their own. They planned for a rainy-day way better than the other airlines.

But just because the U.S. government will say, yeah, we can't afford to have United go out of business and we'll prop them up, does not mean there won't be a bankruptcy, doesn't mean that shareholders won't get heavily diluted or wiped out. And it's happened over and over in the airline industry. So, too big to fail means too big to not exist, not too big to protect your equity.

And then the other space people always ask me about is the cruise line. And it is widely known I take a cruise a month pretty much. I live in South Florida, I am a casino gambler, they comp me. So, I often go on, like, a three-day weekend by myself. I've made lots of friends on ships. People who work on ships have actually been running concerts on Saturday nights with musicians that are out of work, you know, to entertain my friends. So, it's something I like.

And people say, well, look at all the moves. Carnival has raised $9 billion. They raised $9 billion, $4 billion of it at 11.5%. 11.5% is like leg-breaker territory, that is not where you want to be. And it is very possible that all of those companies used Chapter 11 as a way to restructure debt, doesn't mean they don't have the cash to survive, they all do have the cash to survive, but they could start just defaulting on payments and say, yeah, OK company that has financed our ship, come take Oasis of the Seas. It sleeps 6,000 people, it has 19 specialty restaurants and 3 water slides, yeah, bring it over to your house. Like, what are you going to do with it?

So, in any of these areas you have to be very careful as an investor. I would probably make a small investment in cruise lines, but I joked to you about this before, I would do that as a fan, I would do that, like, the way you buy the terrible cub scout or boy scout popcorn, that's like 4X the price of popcorn, because girl scouts have cookies and boy scouts couldn't come up with cupcakes. Cupcakes would have been better or brownies [laughs] instead, it's overpriced popcorn.

Southwick: Oh, it's severely overpriced popcorn, by the way, not just slightly overpriced, it's insanely overpriced popcorn.

Kline: But have we all bought it? Bro, have you bought some?

Brokamp: I have. And I should add I've also been on Oasis of the Seas, so.

Kline: [laughs] I have not, I don't know why I picked that as an example. I actually have most often been on Navigator and Independence, because they do short itineraries out of here, which tend to be free. I will also point out, if you're cruising, I would love to hear about that experience at some point, not on air. Prices are rock-bottom. So, this is a bit of advice. If you have the money for deposit and you don't need it, book a cruise for 18 months from now. 18 months from now, we probably won't be dealing with coronavirus. 6 months from now, I'm guessing, we'll have methods in place, but who knows. But I know that I have done, I've booked travel that I just hope happens. I've booked some Vegas trips, I've booked some office trips for the Fall, for as long as they'll let me book them out, because Southwest flights and any cruise. Emily Flippen told me that there's a cruise she wants to do to Antarctica and it's normally $10,000. And they offered it to her for $1,100. So, you don't need status, right now they just want to show that people are booking.

You know, I've been offered, like, I have a guy at the casino and he calls and he's like, "Well, when we get back, you know, you can go, there will be, like, ten people on the ship. [laughs] We need pictures of people having fun in a cruise ship." And I'm like, "Well, I'll talk to my doctor about that, [laughs] you know, let's see what the right idea is?" But I get it.

Because one of the reasons, like, a Disney World is reopening at a low capacity is they can actually make money at 25%, because they said they weren't going to do it if they couldn't make money. My guess is, they really can't because they're not making additional money from passholders, but maybe I'm wrong. But a cruise ship that's 25% full is a money loser, but there's going to be a lot of those for a while, just to convince people who don't do this as often, "Hey, this is safe, you're not going to die, you're not going to get stuck in the ship for three months." And that kind of thing has happened as well.

So, any of these; airlines, cruise lines, hotels, casinos, there's a little bit of a danger there. Again, casinos, I have a story on today about how there's a plan to reopen, and that plan is kind of bleak. It's 50% capacity, you can only play poker with four people. Poker is not profitable for the casino at four people, it is also not profitable for players generally. Blackjack with three people is a little bit different, you can play Blackjack, it doesn't matter if it's just you with the dealer.

So, the world is going to look a little bit different, and, you know, low prices don't make something investable. The example I always give is, a day-old bagel at half price is a good value; 90% off a month-old bagel is not a great deal. And you need to be really careful that you're not buying a month-old bagel.

Southwick: What's your parting advice for people who are tempted to invest in some of these companies that are maybe a little cheaper because maybe they're not doing so hot?

Kline: Be a little careful when you're watching the bankruptcy news, look at where the company was before this. I have a list in front of me of companies that might go bankrupt, and like, does it really shock you that Sears might go bankrupt again or Guitar Center is in trouble? Guitar Center has been in trouble for a really long time. The company L Brands, that owns Victoria's Secret and Bath & Body, was about to sell Victoria's Secret to private equity and that deal fell through. It is very possible that Victoria's Secret, which is not a particularly popular product line right now, has fallen out of fashion, just sort of, you know, drags them down. But that was in motion before this. So, tune out a little bit of the noise, if you can.

Southwick: Alright. Dan, before we go, you're an optimist, how about a stock that you do like right now?

Kline: I love Costco. So, no company ...

Southwick: [laughs] You sound like my dad. He says that maybe 20 times a day, "I love Costco. They have the best stuff there."

Kline: I'm not actually a Costco member, because we live in a 1,300 square foot downtown condo. So, I don't really have the place to put, like, a palette of croissants or whatever it is you buy in quantity at Costco. I am a fan of, not in these times, Costco as entertainment. I used to take my kid there all the time. The price of a churro or a slice of pizza, and you know, you go sit with the 8-foot teddy bear, you go look and see what they're sampling, you know, maybe you find something you buy, maybe you don't.

But as a company, and when you look at Costco, don't look at sales. Same-store sales tend to be the lead when any retailer, the important numbers for Costco are membership growth, and they grow slow-and-steady, and retention; and their retention average is about 91% across the world. It's a little higher in the U.S. that drives things up than it is in the rest of the world with them, but most of their exposure is North America. So, this is a company that can operate under any conditions, but it's not a fast-growing stock, this isn't like the latest gizmo or what not that might rocket to the moon. This is a plodding retail chain, this is investing in an elephant, you know the elephant is going to get there, but you know you have a better chance on a motorcycle. It's going to go up slowly.

And that to me, right now in this environment, if you're looking to put a toe in the water, if you're looking to be careful, that is where you look. So, you look at your Costcos, you look at your Walmarts, you look at your Amazons, and you stop looking at the daily stock price, because it doesn't matter, look at it for the long-term.

Southwick: Dan, thank you so much. So, where can Fools who are listening get more Dan Kline? Because you said you're on Fool Live, so that's our sort of daily broadcast that we have going for Fool members to access, but I think you also help out on Industry Focus, that podcast too?

Kline: Yeah. So, most weeks I'm somewhere on the Industry Focus dial. I'm going to be on Consumer Goods tomorrow. I have, since this crisis, I've gone from being on MarketFoolery once-a-month to being on pretty often. So, we just don't have -- you know, we're all pressed into a lot of duty right now.

So. Yeah, this I joked to you earlier, I've hit the Fool podcast grand slam. I've been on all the Industry Focuses, this, and on MarketFoolery. So, as I've said, David Gardner, I'm waiting for an invitation here. [laughs] I don't know that I could bring much to Rule Breakers, that is actually a joke.

But yeah, I am easy to find and you can follow me on Twitter @worstideas.

Southwick: Great. Thank you, Dan. Actually, Dan, before we let you go, we want to have you take part in our weekly recommendation where we offer something for our listeners that isn't horrible, depressing news. So, Dan, would you like to go first?

Kline: Yeah, absolutely. I have been watching the Harley Quinn comic series, it's animated, it is not for kids. [laughs] It is a DC animated show but it is very adult. The language is very adult. A buddy of mine from high school does the music for it, and I tuned in for an episode. And it's actually, like, really smart -- you have to like superheroes and that whole universe. And they've begun airing them on Syfy, so you don't have to be a DC Unlimited, I think it's called, whatever the DC streaming service is. It's actually airing fairly late at night, so set it for your DVR.

And if you're someone who likes, say, The Avengers and is OK with hearing, you know, a little bit of off-color humor, it's definitely an R rated show. But I know that late at night my wife has gone to bed, I want to be watching the most mindless fun stuff possible. I have been watching Watchmen, I have a couple of episodes left; Watchmen is a little heavy.

Southwick: Watchmen is good, though.

Kline: It's great. But I, kind of, right now want to watch things that are just like loose-and-fun. That time of night, I'll finish Watchmen, I think it's two, maybe I only have one. So, that's it. I think it's actually called Harley Quinn and it's animated, but it is absolutely for adults.

Southwick: Okay. Rick or Bro, would you like to go next?

Rick Engdahl: I have one thing that I think is really great for this condition that we find ourselves in, but it's not for everybody because it's not cheap. So, I don't know if these are all supposed to be cheap recommendations; this is not a cheap recommendation. But I recently picked up an Oculus Quest VR All-In-One headset thing. And I can't think of a better time to take on VR, you're sitting around the house all the time, it just gives you access to a whole new world.

I was able to bring it over to my dad's house and take him fishing. He got to sit on his back porch, put on the VR, and I have the cutest video of him, like, casting out, like, pulling a fish in and juggling it in his hands and he's ... so, it's not for everybody, it's not a cheap thing to jump into, but I've found that it's totally worth it and what better way to escape.

Southwick: So, I took Andy Cross' advice to read more books. And so, I just want to recommend looking into your local library and figuring out if they have a way for you to download books onto your phone or your device and check them out that way. Have I already recommended this, because it's a pretty pro tip?

So, our local library, Alexandria, uses an app called Libby. And you can just go through and browse what books are available and then just when you see one you like, just download it or put a hold on it, if for whatever reason there aren't enough virtual copies; I'm not going to overthink that. But anyway, it's great, because you can't go to the bookstore and maybe you're tired of buying books. But anyway, just go rent them, "Rent them?" [laughs] That's not what we call it, we call it checking out books, whatever.

Kline: ... or borrow.

Southwick: Borrow book. So, yeah, look into your local library and see what ways they have for you to download and borrow books.

Brokamp: So, my idea comes from the kids, and my wife sitting around trying to look for something on Netflix to watch, and we stumbled upon Bob Ross, which as you may know, is kind of a cool guy with the kids these days. So, they loved watching Bob Ross. So, we haven't done this yet, but we are all going to take an art class of some kind. So, have family art night, and then what we're also going to try to do is do individual things with the kids. So, my middle daughter, Noelle, and I are going to take a photography class online. My son is more interested in hiking. So, especially now that his classes at Virginia Tech are over, his online classes, we're going to be doing morning hiking. But my wife and I are going to try to pair up and try to do some more one-on-one activities for the kids, so they're not spending so much time just sitting around looking at their phones.

Southwick: Great. Dan, thank you so much for joining us, again, on the show. Do you want to come back some day?

Kline: I will come back whenever you like. I didn't over talk? I feel like I talked too much there.

Brokamp: No, that's why we brought you on.

Southwick: [laughs] ... that's what we do, we talk. Before we go, I should probably offer up a disclaimer.

As always, The Motley Fool may have formal recommendations for or against the stocks we talked about on the show, don't buy and sell stocks based solely on what you heard here.

Alright. Well, that's a show. It is edited, lovingly, by Rick Engdahl. Our email is [email protected] For Robert Brokamp, I'm Alison Southwick, stay Foolish, everybody.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Alison Southwick owns shares of Amazon and Walt Disney. Daniel B. Kline owns shares of Walt Disney. Rick Engdahl owns shares of Amazon, Costco Wholesale, and Walt Disney. Robert Brokamp, CFP owns shares of Walt Disney. The Motley Fool owns shares of and recommends Amazon, Seritage Growth Properties (Class A), Twitter, and Walt Disney. The Motley Fool recommends Carnival, Costco Wholesale, Dave & Buster's Entertainment, Delta Air Lines, and Southwest Airlines and recommends the following options: long January 2021 $60 calls on Walt Disney, short January 2022 $1940 calls on Amazon, long January 2022 $1920 calls on Amazon, and short July 2020 $115 calls on Walt Disney. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Goldman Sachs Group, Inc. Stock Quote
The Goldman Sachs Group, Inc.
$294.62 (-2.43%) $-7.35
The Walt Disney Company Stock Quote
The Walt Disney Company
$98.12 (-1.39%) $-1.38
J. C. Penney Company, Inc. Stock Quote
J. C. Penney Company, Inc.
JCPN.Q, Inc. Stock Quote, Inc.
$115.15 (1.20%) $1.37
Walmart Stock Quote
$131.31 (0.96%) $1.25
Carnival Corporation Stock Quote
Carnival Corporation
$8.90 (-0.56%) $0.05
Macy's, Inc. Stock Quote
Macy's, Inc.
$15.21 (-3.24%) $0.51
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
$480.30 (2.98%) $13.90
Sears Holdings Corporation Stock Quote
Sears Holdings Corporation
Southwest Airlines Co. Stock Quote
Southwest Airlines Co.
$31.37 (-2.12%) $0.68
United Airlines Holdings, Inc. Stock Quote
United Airlines Holdings, Inc.
$31.90 (-3.54%) $-1.17
Bath & Body Works, Inc. Stock Quote
Bath & Body Works, Inc.
$34.75 (-2.69%) $0.96
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
$28.02 (-3.45%) $-1.00
Kohl's Corporation Stock Quote
Kohl's Corporation
$25.54 (-2.89%) $0.76
S&P Global Inc. Stock Quote
S&P Global Inc.
$315.43 (-0.76%) $-2.43
Hertz Global Holdings, Inc. Stock Quote
Hertz Global Holdings, Inc.
Carnival Corporation Stock Quote
Carnival Corporation
$7.77 (-1.15%) $0.09
The Cheesecake Factory Incorporated Stock Quote
The Cheesecake Factory Incorporated
$28.56 (0.46%) $0.13
Twitter, Inc. Stock Quote
Twitter, Inc.
$41.52 (-0.14%) $0.06
Avianca Holdings S.A. Stock Quote
Avianca Holdings S.A.
Dave & Buster's Entertainment, Inc. Stock Quote
Dave & Buster's Entertainment, Inc.
$30.79 (-4.50%) $-1.45
Seritage Growth Properties Stock Quote
Seritage Growth Properties
$8.73 (-4.80%) $0.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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