In this episode of MarketFoolery, Chris Hill chats with Motley Fool analyst Bill Barker about the latest headlines and earning reports from Wall Street. The two big things driving the markets are the presidential election and promising results from a COVID-19 vaccine. They also get into plant-based burgers and talk about Alex Trebek's impact on people.
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This video was recorded on Nov. 9, 2020.
Chris Hill: It's Monday, November 9th. Welcome to MarketFoolery. I'm Chris Hill, with me today, Mr. Bill Barker. Thanks for being here.
Bill Barker: Thanks for having me.
Hill: It is a big day in the market. You know, it was already looking good Sunday night, the Dow futures were up on the news that, in case you missed it, while votes are still being counted, Joe Biden will become the 46th President of the United States. And that was Sunday night, things were looking good, and this morning [laughs] we got the news that Pfizer's COVID-19 vaccine, which is in Phase III trials is more than 90% effective in participants who were not previously infected. And I suppose that should be expected, that news has set off all kinds of ripple effects [laughs] across the market. The S&P 500 hit a new high this morning. Airline stocks, hotel and travel stocks, cruise lines, theme parks all up more than 10%. We're going to get to the stay-at-home stocks in a minute, but what do you see, like, what goes through your mind when you see all of these categories of stocks, broadly, as a group rising at once?
Barker: The first thing you see is a lot of stuff that's up dramatically today and then you need to go back and see how they've done over the whole course of the year, and to be reminded that up 20% today doesn't mean these things are close to, in some cases, getting back to where they started the year at before COVID was there. So, in terms of a quick snapshot, it may look like there's some overreaction, but in the longer term, I don't think so.
Hill: Just one of those stocks that I think fits that category of what you just described is AMC Entertainment (AMC +0.00%), which is the largest movie theater chain in the world. Shares are up 60% today. And you look at that and you think, oh, my goodness! And then you, as you indicated, you sort of back out a little bit and you say, oh, it's still down 50% for the year, which [laughs] in a normal year you'd think, oh, my goodness! What is happening to this stock?
Some of these moves, however, seem not crazy to me, they seem reasonable. Marriott, in particular, Marriott is just one of those hotel operators that has been, I don't know, I just sort of look at Marriott and even three months ago I thought to myself, I'm pretty sure Marriott is coming out of this OK on the other side, because at some point we get the vaccine. So, some of what I'm seeing in hotel and travel, Booking Holdings, Expedia, you know, the rise that we're seeing in those shares today makes sense to me.
The cruise lines, and I don't mean to pick on the cruise lines, but the cruise lines I'm less bullish on those as businesses than I am the airlines.
Barker: Okay, yeah. Well, they are less critical than the airlines. Now, unlike some of these things, I don't see the obvious competition over the long term to what cruises offer, i.e., the movie theater chains, and we've talked about this, there's really significant competition from what you can experience at home, the better, larger, clearer TV sets. The extremely good value proposition of what you're getting from something like Netflix versus going out to a movie theater and seeing one movie, especially, in a family. So, I think that AMC has, sort of, gotten partially up off of the floor, having been left for dead, it's got its last gasp, maybe better than that, maybe not, today. But you see where the competition is and has been for several years, and this sped things up, but the fact that it looks very good today that we'll have a vaccine and people will be able to go to theaters, doesn't change maybe the next 10-year trajectory for them.
Cruises, I would say, I don't see how they're going to be Netflix out of existence. Airlines, of course, are necessary, fundamental, don't have a great history of return to shareholders but certainly as soon as it is safe in everybody's mind to fly again, they're going to start flying, both to catch up on all the vacations that they wanted to be taking right now. I think a lot of work travel is going to go away to a degree that, you know, Zoom has replaced the need for a lot of that face-to-face stuff. So, different long-term projections, of course, for every single one of these industries, but they're all back to life today.
Hill: One more group that we haven't mentioned yet that's back to life, at least in terms of the stocks, mall-based retail, Macy's, Nordstrom, Kohl's, all up more than 10% today. Simon Property Group is going to report after the bell today, and the last time I looked this morning, the stock was up 20%.
Barker: This is not going to come fast enough to save a mall-based Christmas, i.e., the timeline for people actually having a vaccine under the best-case scenario, in large numbers, is going to be the second quarter of next year. But there will be a time in the middle of next year where I think that malls see significantly more traffic than they're seeing today. Again, I think it just falls into, hey, how was the future looking for malls 12 months ago? Not great. You know, more and more purchases are going online. That sped up. Malls will get to have a second act once people are gathering in large numbers indoors again, but the competition over the longer timeframe still you got to say malls have got a lot, a lot of competition coming at them.
Hill: On the flipside, some of the stay-at-home stocks, the ripple effect for them is, of course, a negative one, Zoom Video, Peloton, just two of the stocks down more than 10% today. Although, you know, I feel like the same thing is true just in the opposite form [laughs] of what you said, where it's like, OK, I get that Peloton and Zoom Video have had really good runs in 2020. I suppose, if I were a short-term trader, maybe I'll be making this trade too, do we really feel like the future for these two businesses is significantly darker than it was a day ago? I don't know, like, on some level, part of me looks at everything that's happening today and I'm not doing any transacting today, but one of my thoughts is, hey, everybody seems to be acting like it's a big surprise that there's a vaccine. It's like, didn't we all know they were working on a vaccine? Like, we knew this day was coming at some point, didn't we?
Barker: Yeah, we did know something was coming. And look, the data that is out so far today, and it's still incomplete, but it is better than even the optimists were hoping for in terms of 90%, better than 90%, they're actually rounding down to 90%, Pfizer is, from what I understand, based on not wanting to oversell this. So, it's maybe even beyond the high-end of what you could have optimistically been hoping for. The timeline was basically, comfortably in the optimistic, but realistic timeline. And there still may be some pickups in between now and when this all really goes away.
Look, there was the premarket 300 Dow point-ish Biden Presidency move that was expected, as of premarket late-last night. And then this is both the optimistic stuff we were hoping for, and the better than optimistic. So, it's all good today, isn't it?
Hill: Ironically though, shares of Pfizer up 5%, 6%. [laughs]
Barker: Sleepy year, get to work, guys, get to work, do something. [laughs] This stock has been flat for the year. It was $39.20 at the close of 2019, it's $39.70, $39.80, $39.90, something like that at the moment. Come on! What do you... get to work. [laughs]
Hill: [laughs] You're chastising people at Pfizer.
Barker: [laughs] Well, this is the problem. This is the problem with extracting stories from stock moves, at times, it's phenomenal work. They're taking cautious victory laps out there today, very thrilled with the data that they have in hand right now, while continuing to say that there are additional steps, and these are necessary and that the process is the way it is to, you know, have the safe outcomes that we expect out of our healthcare system. So, a great year for actual performance in terms of the stock, you know, it's not your best-performing stock [laughs] this year, but the stuff that is the best-performing stuff this year is having the weakest day today.
Hill: Let's move on to some of the earnings news. Shares of McDonald's (MCD +0.75%) hovering in the +1% or -1% today. McDonald's had a good third quarter report, profits were higher than expected, revenue looked good, same-store sales in the United States were up a little more than 4.5%. Not that I thought that these results were going to set the stock on fire, but I thought there'd be -- you know, this coupled with the news of the vaccine, I thought we'd see a little bit more boost in McDonald's shares this morning.
Barker: Well, yeah, maybe give it a little bit more than a day, as people are getting more excited about buying up the stuff that had been beaten down much more than McDonald's had been. So, in terms of, let's go value shopping today, it's not attracting quite the same amount of interest. But, yeah, very normal looking numbers. If this was a report that came out and you had not been around for any of 2020. So, you know, comps 4.6% in the U.S., weaker globally, but earnings pretty good. All the numbers, all the percentages, up-or-down look comfortably in what you're used to seeing in other contexts. It's not the +120% growth that most COVID-benefited stocks have seen. It's not -30% as some of the second quarter results were for some industries. So, longer term, the only interesting thing here is the McPlant news.
Hill: I was going to say, if there's not a big reaction in McDonald's shares, shares of Beyond Meat (BYND +3.69%) falling close to 10% this morning on the news that in 2021 McDonald's is coming out with a plant-based burger of their own.
Barker: Have you had any of these plant-based burgers?
Hill: Not burgers, no, I had the Dunkin' breakfast sandwich, the beyond sandwich.
Barker: Are you a buyer?
Hill: Well, I bought that one time. [laughs]
Barker: [laughs] Well, they've continued to offer it, have they not?
Hill: They have continued to offer it. I think I may have said on the show before that the problem -- so, the Beyond Sausage in the breakfast sandwich at Dunkin', very good, very tasty, good texture, like, pretty much everything I'm looking for [laughs] out of that ingredient. It was the rest of it, it was on this English muffin which was one of those things that reminds people like me that Dunkin' is really good at donuts, but when it comes to other bread-based, sort of, flour-based breakfast pastries and sandwiches that kind of think, yeah, they're not good with English muffins or the bagels, so. But the Beyond Sausage was good.
Barker: Throw that plant-based sausage between a couple of donuts, is that what you're saying, start with that one?
Hill: I'm saying, like, run out to the grocery store just [laughs] buy some English muffins and just let someone else do the work.
Barker: Well so, getting back to McDonald's, obviously, they've got an enormous base of sales that they're going to be able to deliver. And if they're producing their own McPlant, and not either requiring the ingredients from Beyond, and now offering a competition to Beyond, and ultimately maybe providing some of that to others. Yeah, not great news for beyond, although they've had a pretty good time of it, so it's their turn to get a little bit of a, you know, decline in their price.
Hill: Last Friday after the market closed, Berkshire Hathaway released its third quarter report. And for the second quarter in a row the headline is, Warren Buffett buying back his own stock. This time it was a record $9 billion worth of shares. And Berkshire Hathaway, that stock up 5%, 6% today.
Barker: Yeah, up 5%, 6%, like a lot of other things. So, I think buying back the shares, that comes out at a good time, but another, sort of, weak-ish year for the stock. They are going into the day, down almost 8%, so this gets you back to close to where the year started and underperforming the S&P, obviously, as it has for several years. They've got a lot of old economy industries in the conglomerate, and those are going to wake back up quite a bit more in a COVID vaccine era, but still there's not that terribly much to get excited about here. It's going to look more like the S&P 500 than not at most times.
Hill: Let me ask you a completely unfair question. [laughs] Do you think that Warren Buffett's lieutenants left to their own devices, and I know they have their own portfolios, but like, if they basically had complete control, do you think they're doing more buying of other stocks in the past three months than what we just saw from Buffett and Charlie Munger?
I know it's an unfair question, I'm asking you to speculate in a manner that is completely unreasonable, and yet, I asked it anyway.
Barker: Yeah. So, I agree with you that it's unfair and that any answer that I would give [laughs] is probably worthless. That said, I would hope so, right? I would hope that the guys that they've got in are looking at things with different eyes than Munger and Buffett. And that they have found people whose skills complement Buffett and Munger, because they've got their routines down, and Buffett's evolved somewhat, you know, having made the major purchases of Apple that he's made. But you would hope that they're not looking for clones of what they themselves have perfected in a different era.
Hill: All right. Let me ask you a much more reasonable and fair question, have you had any plant-based burgers? Like, I'm just trying to think ahead to 2021, you know, if I really wanted to go out of my way, I could find a Burger King and buy an Impossible Whopper or something like that, like, I don't know, I realize that people like me are the market and I'm not interested, but I'm curious if you've ever gone down this road before?
Barker: No. I mean, it's not something that I've taken a stand against, it's just never, and I see more and more of that choice in the grocery store next to the stuff that I'm actually buying. So, it's in eyesight more and more, and I'm sure I will try it within the next year or two. Why not? It might be good and it's probably going to be better in the near future than it is today. I haven't ever heard anybody tell me, oh, my God! You got to try this, it's just as good, right? Nobody has ever said that to me. And at the point at which that occurs, I might go full in. Because if I were allowed to eat all of the red meat that I want to eat, [laughs] well, I probably wouldn't be around for very long, so there's that. So, I'm hoping that there's a reason for me to hear that this is phenomenal and I have to eat all the plant-based burgers that I can, because I'll be there.
Hill: You and I have said this to one another for years that at some point down the road if the doctor comes to either one of us and says, you know, I'm sorry, there's nothing we can do at this point, you have three to six months and that's going to be it and we'll try to make you as comfortable as possible. One of our reactions is going to be, well, OK, [laughs] it's time to eat all the bacon I can get my hands on. And I bring this up because of the passing of someone who has been in our homes for +30 years and was a delight, and that's Alex Trebek, the passing of Alex Trebek. And if anyone missed any of the tributes over the weekend on social media or obituaries, just one of those things that reaffirms my faith in humanity, one of those, like, oh, he appears to be every bit as good a person by all accounts as was projected on the television screen. Although, among other things, it did give me the opportunity to explain to my teenagers the Saturday Night Live version of Jeopardy! where Alex Trebek, when it was Celebrity Jeopardy, he was just tolerating, just barely hanging on, Will Ferrell, [laughs] as Alex Trebek just tolerating really, really dumb guests, Burt Reynolds, Sean Connery and others.
Barker: Sean Connery also having passed in the last week or week-and-a-half, whatever it is now that -- yeah, I saw somebody connect those two dots on a Twitter post. And it is something that all children should be exposed to, the Saturday Night Live Jeopardy! and the Black Jeopardy! that they've done more recently, which is also a good comedy. And Trebek, yeah, people were falling all over themselves to bring up stories, if they had them, of personal interactions with him or knowledge of things that he had done or the effects that he had had on their lives. So, it was really nice to see that kind of universal acclaim for not just his work but his life.
Hill: Hopefully he, you know, just thought of Warren Zevon whose advice in the [laughs] last days of his life was to enjoy every sandwich. [laughs] So, hopefully Alex got to do that down the homestretch. Boy! This is a melancholy way to end the show. Sorry about that.
Barker: Yeah, go back to stock prices, they're up a billion points right now. [laughs] Everybody who own stocks is phenomenally happy at things, and many, many, many, many people are happy with the election results, including the market, which got, I think, the seemingly Republican Senate element of the outcome of the election, still to be determined by the runoffs in Georgia, but the odds are favorable that it'll either be a Republican majority. Even if it were to be a 50:50 split, I don't think that that would be the kind of mandate where the corporate tax increase that was part of the Biden tax proposal could really be likely pulled off. So, that's something that the market is kind of wallowing in as well today.
Hill: Well. And to go back to the stocks for a second, I mean, this is why we constantly talk about having a diversified portfolio, because if you've got Zoom Video in your portfolio and Peloton, and you also have Disney and Starbucks, it's like, all right, there have been points during the year where Peloton and Zoom Video were carrying the day for you, today it's the reverse, it's Disney and Starbucks that are boosting your portfolio, while stocks like Zoom Video on Peloton take a little bit of a haircut. But again, all the more reason to diversify as much as you can.
Barker: Yeah. No, it's a good day for value investors, and they have not had terribly many of them this year. But if you look at the, sort of, style box chart of returns, small caps is I think the first new high for Russell 2000, the best-known small cap index, in over two years. And so, you know, the number of new highs last year and this year for the Nasdaq and the S&P 500 is out of all proportion to the rest of the market. And that's nice that small cap investors have finally got their money back, if they put something down in August of 2018 there, they're back to even.
Hill: Bill Barker, always good talking to you. Thanks for being here.
Barker: Thanks for having me.
Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.
That's going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd, I'm Chris Hill, thanks for listening, we'll see you tomorrow.
