In this episode of MarketFoolery, host Chris Hill is joined by Motley Fool analyst Bill Barker to discuss how the Senate elections in Georgia send ripple effects to the market, as cannabis and solar stocks pop. Walgreens (NASDAQ:WBA) sells its drug distribution business to AmerisourceBergen (NYSE:ABC) in a cash and stock deal worth $6.5 billion. Wyndham Destinations (NYSE:WYND) buys Travel & Leisure magazine from Meredith Corporation (NYSE:MDP), and announces a new corporate name and ticker symbol. Bill analyzes those stories and considers which ambassador post he would prefer under a Mann administration.
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This video was recorded on January 6, 2021.
Chris Hill: It's Wednesday, January 6th. Welcome to MarketFoolery, I'm Chris Hill. Joining me today, Mr. Bill Barker. Thanks for being here.
Bill Barker: Thanks for having me.
Hill: We have a couple of win-win deals that we are going to get to, but we're going to start with what's driving the market today. Let me just start here. This is a business show, long time listeners know that. This is a business show, we don't talk politics, and yet, we're also not blind to the obvious and the obvious is that the expected political outcomes from the Senate elections in Georgia are sending a couple of groups of stocks north. We're going to get to those and whatever your personal politics are, as always, check those at the door, because we're talking business. Let's start with the cannabis stocks because across the board, Tilray, Aurora Cannabis, even Constellation Brands, which is a liquor company, but has a stake in the cannabis world as well, all of these stocks up 5% to 15%. As I said, the expectation is that both of the Democratic candidates in Georgia will be declared the winners, and so the Democrats will control the Senate. When you look at the cannabis stocks moving the way they are, does it make sense to you?
Barker: Well, they've been so beaten down over the last couple of years that there is plenty of room on the upside. Whether they ever get back to the prices they attained a couple of years ago, I don't know. But I think that it is obviously a heavily regulated industry, to the extent that it is yet an industry. But the regulatory environment has been improving state-by-state for quite a while. Now, there's increased likelihood that the Federal regulations are going to permit wider distribution and use, especially for medical use to Federal level, I would think. It makes sense that things are going up. As to the long term for marijuana, I'm not sure it changes that much. The trend was toward increased legalization, this is going to speed up that trend a little bit.
Hill: Yeah. We've talked before in the past few years when Jeff Sessions was the Attorney General of the United States. He made no bones about the fact that there was no appetite whatsoever for legalization at the Federal level. I guess this makes sense in terms of, as you said, these are stocks that are beaten down. They're not up 30% to 40%, so a little bit of a pop makes sense particularly if you factor in that maybe some of this is short covering. I guess I just look at these businesses and think, even if in the next three, four years, we see Federal approval on medication, it doesn't wave a magic wand and make these businesses better.
Barker: These stocks could be doubling, say in the case of Tilray and just get back to where they were in January to give a little bit of perspective on where the stocks trade today versus where they traded 11, 12 months ago. One-day stock move is in part going to have a lot of the story of where the stock has been in the past to explain the magnitude of its one-day jump. I agree, I don't think that anything major changes here, but the long term trend is going to continue to be favorable toward increased use. The question as to how much money any individual company is going to make is just, one, how large is the market ultimately? Also, is there any real advantage that one company can gain over another through branding, possibly through scale? This is something that although mostly illegal, they're not everywhere. You can grow on your own, unlike many products, which you would have to buy. This is something that is not grown by many people, but it is possible to do so just to give an idea of where the moat is for this company. I can easily see a decade, two decades from now, marijuana being four times the size that it is now, five times the size in terms of domestic use. But it's not multiples, it's not like this might be used 100 times more in a decade than it is today, like some things.
Hill: I get that people can grow this on their own, but people can also make all their own meals, and yet people still go out to restaurants.
Barker: Yeah. You can make your own beer, and people do, but not to any degree that impacts the beer market. It's just an idea of where the economies of scale are. Of course, that's a regulated industry too, but most people are not going to grow their own. It's just an idea of how difficult this is to get in small quantities, which would be what most we would use it for. Not that hard, but there's a market there, it's a growing market. It's a market that has favorable regulatory trends, but I don't think that it is going to be a massively growing market.
Hill: What about solar stocks? Because we're seeing a similar move across the solar industry. Shares of First Solar, SolarEdge Technologies and others, all up in the neighborhood of 10% or more. Do you think the environment is more favorable -- clearly, we're seeing the same reaction today that we're seeing in the cannabis industry. Do you think the long-term trend for solar is stronger and better than it is for cannabis?
Barker: I think it's better. Because if you say, well, could solar be used at 100 or 1,000 times what it is today, at some point in the future, whether that's a decade, two decades, whatever? Yeah, it could be a massively more utilized technology. There are extremely good reasons, scientific reasons to pursue legislation that would make that so. The current administration was not interested in that pursuit and the next administration is very interested. When I say very interested in that pursuit, they have not signaled that they're going to do the things that would really satisfy the left wing of the Democratic party, like take on in a more significant way, fracking. I think supporting solar is an easy stop. Making the subsidies for the technological development there larger, more prevalent, is not going to come at the cost of jobs in the oil industry, which is given the importance of several states that have major oil production economies, something that I don't think that this administration is going to pursue in nearly the same way. I think it's all upside for solar.
Hill: Let's get to a couple of deals today. Walgreens is selling its drug distribution business to AmerisourceBergen. It's a cash and stock deal worth $6.5 billion. Shares of both Walgreens and AmerisourceBergen are up on the news, although Walgreens only up about 4%. This is a stock that over the past year is down more than 25%. If the reverse were true and it was up 25%,30% over the last year, I would see it. I'm a little surprised Walgreens isn't up more given the amount of money they're being handed.
Barker: Well, they are a company used to show that they deserve the long-term trust of investors. Stock has been basically cut in half over the last couple of years, negative returns over the last five years, so this getting out of the distribution or selling their majority stake in the distribution business to a trusted partner, AmerisourceBergen, they've worked with three-years, makes good business sense. Where does that money go? Does it go to expanding the company or does it go to paying down some of the very large debt that Walgreens has taken on over the last couple of years? They've got their work cut out for them, rationalizing the Rite Aid locations that they've acquired, the foreign stores which are struggling a little bit more than the Walgreens stores domestically. I don't know that this money goes to something that will be wildly productive, more so than paying down debt. Now, they want to get their debt rating backup. They were downgraded back in April. They needed to go out and take on some debt and found that they were downgraded as consequence. I think that they're in part looking to be able to borrow at cheaper rates by having a stronger balance sheet.
Hill: Yeah, they really need to get the balance sheet in order. This is, for all of their troubles, it's still about a $35 billion company. In that regard, it's maybe the saddest $35 billion company I've seen in a long time.
Barker: I was surprised that it was that small in terms of market capitalization. I would've thought, given the brand name, given the ubiquity, now they've been under pressure and will continue to be under pressure by the expanding sales of Amazon. Amazon moving into the pharmacy business may not compete that heavily with the higher-end subscriptions at Walgreens. But, I think that they've got a lot of competition and they could use a little money right now. It's a good day for shareholders, up 4%, but it's been a long three years really.
Hill: In 2018, Wyndham Hotels & Resorts spun off its timeshare business, Wyndham Destinations. Today, Wyndham Destinations is expanding with the acquisition of Travel and Leisure magazine from Meredith Corporation. To further distance itself from Wyndham Hotels and Resorts, Wyndham Destinations is going to be changing its name to Travel and Leisure. Next month, it's also going to change its ticker symbol, they will start trading under a new ticker TL. This is another win-win deal for both shares of Meredith Corp, which got the money for travel and leisure and Wyndham Destinations. They're both up today.
Barker: I think acquiring this brand opportunity works. How much they want the magazine, I don't know. I don't know what that business is worth these days. Meredith collects magazine brands that had shine in your past and their presence and futures appear to look. I think that being able to extract the brand value out of Travel and Leisure and discard the magazine and in the same package, that may be a win-win for them. If they can do that with some of their other brands, my hat would be off to them. Wyndham, it's a huge company, but not the strongest brand, I would say, to align your timeshare business around. They've got a lot of other hotel brands under the parent company and some of those are maybe better known.
Hill: I like the rebranding. I think it's just, I feel like it removes one small point of friction. Who doesn't like travel and leisure?
Barker: Speaks for itself. [laughs]
Hill: I don't know if that's why the stock is up, but that just seems like, you know me, I'm pretty judgmental when it comes to rebranding in new corporate names. I feel like this is a smart move by the people at Wyndham Destinations.
Barker: The market agrees with you. I don't think the loss of the Wyndham brand for that part of the business is something that anybody is really going to shed tears over. I agree that it looks like a good deal for both sides.
Hill: Before we wrap up, I want to bring together travel and circling back to the start of the show, politics, for just a second. I don't know what's been going on in your home over the last few months. In my home, one of the things that's been going on is some reorganization. I'm like, part of that is books, "Do we need all these books?" Let's go through the books. Maybe we can donate some of them, that kind of thing. One of the books I came across, which I hadn't read in a long time is a book by former Senator from New Jersey and former NBA star, Bill Bradley. It's a book called Life on the Run. Bradley wrote this book while he was playing for the New York Knicks. I was reminded of something which is that, even while he was playing for the Knicks, there was this assumption among his teammates, and even with his coach, Red Holzman, Hall of Fame Coach, that Bill Bradley was, after he was done playing pro basketball, that he was going to go into politics. It was just this given, like, "Oh, yeah. He's either going to move back to Missouri where he is from and he'll be governor or maybe he'll be a senator or something." It was just this, "Yeah, that's going to happen. That's 100% going to happen." To the point where at one point Red Holzman, and a guy named Danny Whelan, who's the trainer of the Knicks, are teasing Bradley while they're waiting for a flight. They're teasing him about, basically, when he's in politics, when he makes it big in politics, that he is going to give them really cushy jobs. Danny Whelan, the trainer is like, "Yeah, I can't wait for you to make big and politics. You're going to give me that ocean job, where I live in a little house by the ocean then you call me up every week and you say, 'Hey, Danny. Is the ocean still there?' I'm like, 'Yeah, it's still there. The water is still wet, yep." Of course they're joking but it just got me thinking, what if Bill Mann were president? Wouldn't you and I be in line for ambassadorships? Not important ones, not one where actual geopolitical skill is required, but the cushy ones where it's just like, "This is a nice place. Not a lot happens here." America could do worse than President Bill Mann. I've already thought of his campaign slogan, "A man for our times." But anyway, what are you picking? When president Otter comes to you and is like, " I can't give you anything," but where do you want to go?
Barker: Well, first I question the promise that if elected, Bill Mann would actually serve. Because I think he would then realize, "Oh, you know what I'd rather do, is be an ambassador," and just immediately take over some ambassadorship himself. You'll be able to test. Me and you have him on the show tomorrow?
Hill: Tomorrow, yeah.
Barker: Yeah. I believe I'm correct about that, that he would rather be an ambassador than a president.
Hill: It's too late. The people have spoken. He's in the White House.
Barker: Yeah, but then he goes, the Vice-President is like, "Yeah, it's your gig, how about --" It'll be some place that, I promise you, you would not have thought of that he would be like, "I've always wanted to be an ambassador there" kind of thing. Getting back to your question of, what is it? Where would I go, is that it?
Barker: I think the first mental stop on this tour of the world was Ireland. I'm not sure I should leave it, but I ultimately think that it would have to be Australia, for me and the family. Anybody who wouldn't have Australia very high on their list has to be, I think, questioned as to their rationality.
Hill: Don't you think Bermuda has to make the shortlist?
Barker: It depends on what you're looking for. I mean, I think a lot of what you can acquire from Bermuda can be, other than the proximity to the U.S., if that's one of the things that you most value in your ambassadorship, aside from an English speaking country and a beautiful place. I love Bermuda, but the ambassadorship there, there's not a lot to do. Not just in your daily life in Bermuda, but in terms of, hey, this is a real job, it probably comes further down on the list than -- why would you not be in Ireland?
Hill: Oh no, I'm absolutely choosing Ireland. There's [laughs] no way I'm not choosing Ireland. I'm just saying, if you take a moment's pause, and you're like, "Well, wait. What would Bermuda be like?"
Barker: Bermuda would be great, and the question I would have, how much would that differ from just taking a vacation there, being the ambassador there?
Hill: That's true, because I'm assuming if you're an ambassador, you can just call up ambassadors of other countries and you say, "Hey, I'm coming for a visit."
Barker: If you're in Ireland, obviously you've got proximity to a lot of other places you'd like to go as a traveler, same with Australia, and you've got more of a serious ambassador job to do. Like, the other ambassadors take you a little bit more seriously.
Hill: That's probably true. They shouldn't, but [laughs] I think you're right about that. 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 it tomorrow.