Which Companies Will Benefit When Americans Start Spending After the Pandemic?

Americans collectively have $1 trillion more in their checking accounts than a year ago. What will they spend that money on in a post-pandemic world and which companies stand to benefit? In this episode of MarketFoolery, host Chris Hill and analyst Jason Moser share why they're optimistic about Vail Resorts (MTN 1.74%), Airbnb (ABNB 1.20%), Etsy (ETSY 0.68%), Lowe's (LOW 0.91%), Chewy (CHWY 3.84%), and DraftKings (DKNG 3.43%).

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This video was recorded on January 25, 2021.

Chris Hill: It's Monday, January 25th. Welcome to MarketFoolery. I'm Chris Hill, with me today Mr. Jason Moser. Good to see you.

Jason Moser: Good to see you.

Hill: We're going to step back from the news of the day, and here's what we're going to do. We're going to have six stock ideas in the show, and here's how this is going to be set up, because I recently came across a data point I found very interesting. This comes courtesy of our friend Morgan Housel. He wrote a piece recently and referenced the fact that the personal savings rate in America spiked last year, and that's something we've talked about on this show before. But the data point blew my mind, and this comes from the Federal Reserve Bank of St. Louis. I knew that people, for one reason or another, were holding on to cash. I didn't realize the extent to which that was happening. The Federal Reserve Bank in St. Louis, one of the things they had tracked is the total amount that Americans collectively have in their checking accounts. It's not surprising that that amount has gone up, the degree to which it has gone up surprised me. As of the most recent quarter, there's just shy of $1.9 trillion collectively in American checking accounts.

Moser: Wow.

Hill: A year earlier, that number was $800 billion. American households collectively have $1 trillion more in their checking accounts than they did a year before, which is crazy.

So, that leads to this question. What's going to happen to that money when the majority of Americans have been vaccinated, and weddings that have been delayed are no longer delayed, and vacations that have been put on hold are no longer on hold? So, I thought it'd be interesting to take three buckets, one being travel, one being retail, and then the third essentially being a dealer's choice. Let's just go through, we can each come to the table with a stock in each category that we think stands to benefit from discretionary income being unleashed. Let's start with travel. What do you got?

Moser: Yeah. Probably a lot of people think you're going to go with the usual suspects out there and Booking.com or maybe Airbnb or something like that, and those are all very good ideas. I actually am going to take one that is probably a little bit lesser known for some folks out there, but Vail Resorts, ticker is MTN. As its name suggests, this is a company that's really focused on skiing primarily, a winter activity. So, Vail Resorts is actually the company that owns and runs all of these ski resorts primarily out West. Think Breckenridge, Vail, Keystone Park City. But in 2019, they also acquired 17 East Coast ski areas owned by Peak Resorts, including Mount Snow, and Hunter Mountain, and some resorts in New Hampshire, Pennsylvania, Ohio. So, it really has grown its reach, so it's not just going out West anymore. But as you can imagine, this company has felt the pinch here over the past year due to COVID restrictions and just the general sentiment to travel. But I think it is a company that is poised to really bounce back here soon. One of the main reasons why is, skiing, of course, is not for everyone, but the people who do it love it, they are die-hard about it, and they tend to want to go to a lot of these places that Vail Resorts is operating.

So, if you just look at some of these numbers, it's pretty impressive to see their presence in the market. There are approximately 770 ski areas in North America, with 475 of those in the U.S. If you look at this past year versus the previous year, so a COVID-impaired year versus a non-COVID-impaired year, in the 2019-2020 North American ski season, combined skier visits for all ski areas in North America were approximately 68.2 million, which was lower than historical levels, and compare that to the previous year where that number was 79.7 million. Now, Vail Resorts, their North American resorts had 12.4 million skier visits during the 2019-'20 ski season. That represented 18.2% of all North American skier visits. This is a company with a tremendous amount of market share and expertise in what they do.

Another neat thing is that it's not just winter sports anymore. They have summer seasons in a lot of these places that they are able to offer things like fishing and mountain biking, horseback riding and whatnot. Like we talked about before with Disney and Disney World, the parks and stuff like that, there's some operating leverage here they can realize once they get traffic back to normal levels. You have a lot of fixed costs that are involved with keeping those places open. So, the more traffic they can bring in, you start to recognize a lot more profitability on just incremental bumps in revenue, and they have some pricing power. They're able to push through increases in those lift passes and tickets and whatnot. So, it's a company with a lot going forward, understandable that it's witnessing a tough time right now. But tremendous brand awareness, tremendous portfolio properties, and I think a wonderful long-term investment.

Hill: There's only so much new competition coming down the pike. It's like there are any number of businesses you and I could start, if we wanted to. This is one of those businesses where you need a mountain.

Moser: Well, specifically, you really actually need a mountain. They have a tremendous competitive position in the market there. Yeah, like you said, the barriers to entry are just really high. They've just got so much of that hard work already done and out of the way.

Hill: I'm going to go with one that is pretty high on my watch list and you've already mentioned it. It's Airbnb. I know they've been public for about an hour and a half and I know the market cap is already over $100 billion. I just don't see the trend that Airbnb has helped push forward going away. For all the times we've talked about hotels, and it's not to say that a business like Marriott can't succeed, hotels have at least two challenges that Airbnb does not have. One is the pricing model for hotels really needs to get worked out, because the value proposition just isn't as clear as it is for Airbnb, and I believe business travel is coming back. I just think it's coming back slowly and not to the same level that it did pre-pandemic. The other is advertising. The degree to which Airbnb saves money by not having to advertise, just a word of mouth, they're already the verb. People just go to airbnb.com now. Again, it's high on my watch list and once I stopped talking about it and trading restrictions, for me, personally, I'm probably going to pull the trigger on that.

In terms of retail, it's such a broad category. There are so many directions you can go and we've already seen the gains that major retailers like Walmart and Target have made. Where are you going in the category of retail?

Moser: Yeah. This was an interesting one to think about because on the one hand, you want to look at maybe some down and out retailers that are poised to snap back after all of this. Maybe traffic picks up and people are more willing to go out to places than we are today. On the other hand, looking at these companies that are really dictating this new retail paradigm, so to speak, for me, it came down to let's water our flowers here and pull the weeds. Let's focus on the companies that are winning, that are continuing to change the retail landscape. One of the obvious winners to me is Etsy, ticker is ETSY. Obviously, it's had a wonderful past 12 months. Stock is up something like +300%. It's understandable why. As we've seen with retail, the big focus, clearly e-commerce is one part of it, omnichannel is another. I think a lot of companies that rely on that physical presence are doing a bang-up job with really that omnichannel strategy, and Etsy didn't really have to worry about that. At the end of the day, it's a network.

The neat thing, it's a two-sided network. It connects buyers and sellers, and they monetize both sides of that network. If you look at just some of the numbers that they've recorded here recently, it's just been a tremendous year. We look at this most recent quarter, the third quarter earnings that came out shortly ago, they have gross merchandise sales of $2.63 billion through their network, which resulted in revenue of $451 million. They have 3.7 million sellers. That was 2.6 million a year ago. They have 69.6 million buyers, that was 44.8 million a year ago. But really, what was telling in the call, CEO Josh Silverman, he's got this company really playing some offense right now. While a lot of companies, they're a little bit defensive right now, Etsy is taking the other side of the coin there. He calls this the perfect time to invest in marketing. If you look at some of the numbers here, in regard to their marketing spend, that's not lip service. In the quarter, consolidated marketing spend of $127 million was up 153% from a year ago. So, they clearly see this as a time to grow the network, to create that brand awareness, and bring more traffic to their network, both on the buyer and the seller side. With things like Etsy Payments, and Etsy Ads, there are just so many ways this company can win and I think it's going to keep on winning even long after all of this is said and done. I'm a shareholder myself, love owning these shares. I have no intention of doing anything other than just watching them occupy hopefully a larger space in my portfolio as time goes on.

Hill: That's another business that part of it for Etsy comes from events like weddings or bachelor or bachelorette parties, that sort of thing. Those personalized group gifts that had to have been scaled back in 2020. That's one section of Etsy's business that's probably poised to bounce back even bigger. For me, it's Lowe's. We talk about Home Depot and Lowe's all the time, in part because they typically report earnings one right after the other. Even though Lowe's has had a better run as a stock over certainly the last nine months or so, maybe even a little bit more than that, you look at Lowe's from a market cap standpoint, it's less than half the size of Home Depot. I think that combined with Marvin Ellison's leadership, that's why to me, I think, Lowe's is in a really good spot over the next few years. Because Ellison gets all that experience at Home Depot, he gets tapped around JCPenney, and I think he made some good moves at JCPenney. He ultimately left because he wasn't moving the stock price. He strikes me as one of the CEOs who is conscious of the stock price and his responsibility as a leader to move it higher, but he's not obsessed with it. Plus, home improvement, every now and then I think back to something that the home inspector told me, and this is back in the late '90s when we were buying the home that we have lived in ever since. He is inspecting the house and I spent a few hours walking around with him and he was very nice and indulged all my questions. When he was done, he said, "Do you have any questions?" I said, "Well, this is my first house I've ever bought. Do you have any advice for me?" He said, "It never ends."

Moser: [laughs] Amen to that.

Hill: I said, "What never ends?" He said, "There's always something that breaks that you need to fix, and when everything is fixed, you look around and there's something you want to change. So you're either fixing something or you're changing something, but it never ends." The two businesses that benefit from it never ending, Home Depot and Lowe's.

Moser: Truer words have never been spoken. I am very happy to be a homeowner, but that's absolutely right. There's always something to fix, and then when you've got a low, "Oh, hey you know what? We should replace the deck," or "Hey, how about some new gutters? What about some new windows?" There's always something going on.

Hill: How long have the walls been that color? Should we change that up? Last category, I just put it as a wildcard figure. You can go in any direction you want, anything where consumer spending shows up. What do you got?

Moser: Yeah. Well, so I was actually thinking about going with something like Square here, just because this idea that people are going to be back out spending more, and Square is just a company that is participating in that, flowing so many dollars through that network. But I'm not going to go with Square actually. Today, I am going to go with Chewy and the ticker CHWY. Everybody that listens to this show, you guys all know I'm a big animal fan. We have three dogs. [laughs] We have a horse now. I mean, it just talks about stuff that never ends. I mean, I can't imagine what we're going to get next. But for me, and as a happy Chewy customer, it really does feel like these guys are establishing themselves as the name in pet care. They're going to do more than $7 billion in sales for 2020. If you're viewing this as just some company that ships you your dog food, I just think you're looking at it the wrong way. You're not thinking big picture enough. If you just look at some of the overall market data, I mean, it's estimated $78 million dogs, 85.8 million cats are owned in the United States, approximately 44% of all households in the U.S. have a dog, 35% have a cat, and you've seen all over the news here over the last year, the data is clear, shelters all around the country are reporting an overwhelming number of adoption. It's really, I mean, that's a wonderful thing. A lot of pets that need homes have been finding homes.

The neat thing about having a pet, other than just the unconditional love, it's something that really does require a commitment. It's ongoing in nature. It makes me think about the razor and blade business model that we talk about so often. The dog is the razor, and then you got to keep on buying the blades in the form of food, and chew toys, and whatever else. So, Chewy really is establishing itself as this, I think, the name of the space there. It's worth knowing that Argos Holdings owns a bit more than 80% of the company, that's essentially PetSmart. It has a tiny float, only about 19% of the shares outstanding float. That means that sometimes you could see some demand there. The bid-ask spread could be a little wacky sometimes, but the stock has done tremendously since IPO-ing. Again, looking at some of these numbers that they just choke up, if you look at the most recent quarter and they reported in December, third quarter net sales up 45% from a year ago, auto ship net sales representing 69.2% now of total net sales. They added 1.2 million active customers in the quarter ending, the quarter was 17.8 million active customers now. You see that net sales per active customer, that number continues to go up incrementally. Gross margin, which is the number to pay attention to with these types of retailers, incrementally improving here as they continue to grow their service, their offerings.

When I talk about offerings, I mean, again, this isn't just a 'shipping you your dog food' company. I mean, they have relationships through veterinary services and pet hotel offerings. They've launched a virtual vet care offering, what I like to call 'teladog.' I'm giving you this, guys. Use it, teladog. I mean, it's a winner. You know it is. Except for maybe the cat people might not like it, since it's dog-centric, but still it works. But to me, it feels like this is a company that is poised for a lot of success. It's getting toward that profitability that we're looking for, and I think that the sky's the limit given the market opportunity with a company like it is. If it's too risky for you, Chris, hey, why don't you couple that with PetSmart, why don't you couple that Chewy with Zoetis. Zoetis is the company that develops, and manufactures, and commercializes all the animal health medicine and the vaccines, the diagnostic products that we're buying for those pets. Hey, listen, you can have your cake and eat it too there.

Hill: So to speak. I'm just going to throw DraftKings out there, which is not as high on my watch list as Airbnb, but it absolutely is on my watch list. Again, this is a stock up about 235% over the past year. So it's had a tremendous run, but it's hard for me to imagine the run doesn't continue. Again, this is happening against the backdrop of sports being either cut back dramatically or just gone altogether in the case of a lot of college sports. I think that combined with states like New York looking at sports betting and saying, ''Yeah, this is something we think we want to get involved in as well.'' Again, the trend lines to me are positive enough that it outweighs the very understandable and human investor sense of, "But look at the run attack." I feel that as much as anyone, I totally get it when people email us and say, ''I am thinking about this stock. I mean, it's up so much in the past year.'' It's like, "Yeah. No, I'm right there with you," but I think the trend lines for sports betting, I just don't see them reversing.

Moser: I agree with you totally. I think that we're just going to see it become more and more mainstream. I think there are a lot of tremendous offerings out there that let folks have fun and put a little money down on a game. I mean, it's entertainment really for a lot of folks. I mean, myself included. I mean, it can just make a ho-hum game where you don't really have a vested interest, it can make it more fun, it can make it more entertaining. Yes, as the legal barriers continue to come down. I mean, I think these companies are going to take advantage and we're already seeing it happen. I do not see, as they say, that toothpaste going back in the tube.

Hill: Jason Moser, always good talking to you. Thanks for being here.

Moser: Yes, sir. Thank you.

Hill: As always, people on the program may have interest in the stocks they talked 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 addition of MarketFoolery. The show is mixed by Dan Boyd. I'm Chris Hill, thanks for listening. We'll see you tomorrow.