In this episode of MarketFoolery, host Chris Hill and Motley Fool Chief Investment Officer Andy Cross discuss Jamie Dimon's annual letter to shareholders, which shows just how bullish he is on the U.S. economy. Also, Plaid's latest fundraising round points to a valuation of more than $13 billion for the fintech. Plus, we dip into the Fool mailbag to consider the relative attractiveness of value stocks and discuss some stocks we bought recently.
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.
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This video was recorded on April 7, 2021.
Chris Hill: It's Wednesday, April 7. Welcome to MarketFoolery. I'm Chris Hill. With me today, the chief investment officer -- Andy Cross. Thanks for being here.
Andy Cross: Hey, thanks, Chris. Thanks for having me. It's always a pleasure to be back on MarketFoolery.
Hill: We have fintech news. We're going to talk about the last stocks that you and I purchased. But we're going to start today with a letter from Mr. Dimon. JPMorgan Chase (JPM 0.39%) Chairman and CEO Jamie Dimon is out with his annual letter to shareholders. There are a lot of things in the letter. [laughs] It's a very long letter. But the headline, I think it's fair to say, Andy, that the headline is, Jamie Dimon is very bullish on the U.S. economy for the next few years. He went so far as to basically spell out, and I'm quoting here, "I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE, a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the U.S. economy will likely boom. This boom could easily run into 2023 because all the spending could extend well into 2023."
Cross: I think that was a little bit different theme than he was talking last year where he was much more pessimistic talking about the impact of the COVID pandemic, the quarantines, the lockdowns on the economy, and what that may mean, obviously for his bank. Since then, it's been really bullish, taking a switch for Jamie Dimon, one of the more respected, if not the most respected banking CEOs out there. He runs the largest bank out there, $470 billion worth for JPMorgan. His letters are always a really interesting read. It is extensive. It goes on and on and on. Mr. Dimon, not one for brevity here. He is trying to pack a lot in here, but I think that is one of the themes, Chris, when you look through what he has written, is that looking at the massive amounts of stimulus coming, the efficiencies of businesses, the investments they're making in his own business, what they are seeing in the consumer side, he talks a lot about the shareholder and the consumer and the bank's influence across the globe, but really at the consumer level --throughout this letter, he mentions that.
And I think he sees all of those factors, the employment numbers better than probably expected. Talk about high-frequency data that they have at their hands -- if they're tapping into that, which I imagine they are -- they are hiring a lot of different people, different roles including technology that's going to play into what he is seeing in the markets. And he has seen some very positive and good news, and that's reflected in this more optimistic tone of the markets this year versus last year.
Hill: It is helpful because there are a lot of people out there -- I know I'm getting this question and I'm seeing a pop-up in the financial news ... I'm not saying it's illegitimate, it's perfectly legitimate to ask the question of: Wait, what is the strength of the economy with all of the stimulus spending, with people looking at the deficit that is being run up in the United States? So it is helpful to have Dimon come out and say this because to your point, when you think about annual letters -- and every company puts out an annual letter, but Jamie Dimon's on the shortlist of, I would argue the most important letters. I would put Jeff Bezos on that list. I'd put Warren Buffett on that list. You could throw Larry Fink from BlackRock in there as well. People will argue for others. But for Dimon, someone of his stature experience to come out and say, "This is what I'm seeing and this is how I think things are going to go over the next couple of years." That absolutely helps.
Cross: Yeah, I think so, Chris. There are a lot of great letters and more and more CEOs are writing and spending a lot of time through these letters. I don't know how long it took Jamie to write this, and his team to write this. But there are lots of great letters, the Pinterest letter, the Atlassian letter. There's some great technology letters out there, really talking about their business and what they are seeing in their markets. Jamie Dimon, because the bank is so large, because it touches on so many different parts of the environment and the way that the bank and the financial markets have been shifting and changing over the last two or three years, and really over last year, I think it warrants some attention to hear what he is saying and what his team has seen, and how that gets reflected and communicated to shareholders. It starts off as a letter really for shareholders. It talks directly to shareholders -- and consumers too. But then it gets into the more of the details, and he talks about the COVID and he has it broken down into different sections.
Section five is COVID-19 and the economy, he talks about bold action by the Fed and the U.S. government, effectively reversing the financial panic. Banks entering the crisis in much better shape, and then [they] were part of the solution coming out and some of what they have done in the banking industry and its investment it's made throughout all the different ventures that have been tied to the federal government helping support consumers around the U.S. That's a much different spot than what they would've been in 2007, going into 2008, a financial crisis that bled into 2009. He just lays these out. The confusing interplay of monetary, fiscal, and regulatory policy continues throughout recession. He just lays out these thoughts and principles, and how that impacts JPMorgan's business. It's very insightful and gives a very broad look at what someone like JPMorgan and some companies their size with their reach, are thinking about and how they are impacted by the environment today versus where it was maybe a year and three, four, five, 10 years ago.
Hill: One of the other things he said with respect to the banking sector is how the banking industry should be scared of fintech, which leads us to our next story. Big news from Plaid. The fintech company announced it has raised $425 million in its latest round of financing. This puts Plaid's valuation at $13.4 billion. Keep in mind, it was back in January of 2020 that Visa (V -1.22%) agreed to buy Plaid for $5.3 billion. The deal was called off earlier this year due to regulatory concerns. I know there were a lot of people bullish on Plaid. This is an astonishing rise in valuation in a relatively short amount of time.
Cross: It's quite an incredible story, Chris. You think about Plaid and Visa, and they heard the platitudes out there in the press releases in January of 2020. So really before the pandemic really started to hit. They had agreed to an acquisition -- Visa acquiring Plaid for a little more than $5 billion around there. What that meant for a fintech and what that meant for Visa and the like. Then, throughout the summer and in the fall, the Department of Justice and other regulatory bodies started talking about how they are investigating this, looking into it, and worries about the anti-competitive behavior that Visa might be undertaking to basically take out a potential very powerful, growing, emerging competitive threat in Plaid. Considering all of that was going on in January of this year, they pulled the plug, as you mentioned. Just that quick little recap, and what's fascinating to me is, as you mentioned, during that time, Plaid has had an enormous growth in their business, and they talked about this, and talked about how their business has really evolved and changed over as many fintech companies have and how it's been revolutionary.
There's also stories and articles and reports from Plaid former employees and what they are seeing in the business, and talking about perhaps fundraising and increasing their rounds, and what it meant for the valuation as early as January or February of this year before this news actually broke. That number was somewhere even north of $13.5 billion, $14 billion, $15 billion. You start to see, "Wow, this has really changed." Then Plaid's like, "Hey, this is now a chance for us to be able to go out there, raise some capital, and boost our valuation."
As you mentioned, it's 2.5 times what the valuation was in January. It gets to the fact that Plaid's had this user base that's growing more than 60%. They now have a very, very deeper reach they grow their customers base, their customer pay, and they now serve more than 11,000 different financial institutions, connect all of these financial institutions and consumers to make the integration of finance and the transfer of money, and the sharing of data, much more seamless, much easier, and that solves a real problem in finance. And Plaid has long talked about how they are trying to essentially democratize the financial transaction landscape around the world. Visa saw this, obviously, and then it backed off for the reasons we just talked about. Now, here you have a company that's had a real healthy 2020, and now it's showing up in the valuation, and pretty impressive valuation growth for Plaid and its shareholders.
Hill: This has to end with Plaid going public at some point, right? There were people a year ago January who thought Visa was paying up at $5.3 billion to buy Plaid. There were people like, "Well, it's a good acquisition, but boy, they are really paying for it." It would take $20 billion to buy them now, at least. Whether it's later this year or sometime in 2022 or beyond, doesn't this end with Plaid going public?
Cross: Well, Zach Perret, the CEO, said that it's on their mind, they don't have any immediate plans, that kind of platitudes, and you see that a lot of different CEOs on this spot. I think there is a very strong competitive position in growing their business quite well. I think the reports of them having about $100 million in revenue back when they had that valuation, and assuming that their customer account grew by 60% in 2020, the revenues probably far higher. Even give them at $400 million in revenue more or less, really juice that up compared to the $100 million in revenue, and you'll start to see a company that is valued at more than 30 times sales. You have these valuations that from a metric perspective, a price-to-sales perspective that we've seen over the last year or so really start to expand, and Plaid's benefiting from that clearly.
Now would someone want to come in? I just think the problem with Plaid is they are integrated in so many different financial institutions, and have such a wide reach, and they are growing that influence, that it's going to be very hard from a regulatory perspective for someone to come in and buy them who's tied to the financial landscape. It would almost have to be another tech company. Even then, we know tech companies -- someone who's going to splash out this money to buy Plaid would face their own regulatory scrutiny probably. Yes, it probably leads down the road, I would think maybe in the next year or so, to them going public and satisfying these initial shareholders who now, like you said, are spending more than $400 million to invest in Plaid, and they're going to want to return that money, I imagine fairly quickly too.
Hill: We've got a lot of great questions that have been coming in lately from listeners. We'll get to those in a second. I just wanted to throw out two quick podcast episode recommendations. The first is a show called SmartLess, which doesn't need me to promote it, it's one of the most popular podcasts out there. This is a weekly show with Jason Bateman, Will Arnet, and Shawn Hayes. They are friends, and the setup of the show is that one of them brings on a guest for the three of them to talk to, but the other two don't know who it is. The most recent episode of SmartLess -- and usually, it's an actor or comedian or that sort of thing -- the most recent guest is Ted Sarandos, the co-CEO of Netflix, and I cannot recommend this episode enough.
Cross: Who brought him on, Chris?
Hill: Jason Bateman brought him on.
Cross: Jason Bateman, yeah.
Hill: Because he's just got the Ozark show. Although they talk about Arrested Development. As someone who admires the company and doesn't know a lot about Ted Sarandos, I found it fascinating. It's one of those things, like if you're a Netflix shareholder, you're going to want to listen to this because it's great stuff. The other episode, I will just throw out there. The Tech Money podcast with Malcolm Ethridge. Malcolm is a certified financial planner in Washington, D.C. We actually had him on MarketFoolery about five years ago or so. Really smart guy, very thoughtful, very Foolish. He invited me to come on his show. We talked for about 35 minutes about the Motley Fool, about retail investing, the mindset, the origin story for the Fool podcasts. I had a great time talking with him. If anyone's interested in that, you can check out the Tech Money podcast.
With that, let's get to the email -- [email protected] is our email address.
First up from Aaron Burton. He writes, "My investment strategy has been focused on finding attractive growth stocks mainly in technology, but interest rates have been rising. I'm starting to think that as the economy exits the pandemic, higher inflation, higher taxes, and higher interest rates may be on the horizon. What is your advice for investing under these types of conditions?" Are value stocks are a good option.
Cross: Well, certainly not alone. We've seen that certainly over the last two months as people start to do that, done what's called the rotation trade -- when I say people, I mean, it's mostly large institutions, and then momentum traders that are getting into that mix depending on how those flows are going. You're starting to see that as interest rates are starting to shift and change, and maybe investors think the more cyclical stocks will have a better chance coming out of this recession. And oh, by the way, large-growth tech stocks and well, even small-growth tech stocks, have done so well in 2020 and throughout the rebounding from the pandemic, and thinking, "Wow, that that market has played out, now I'm making the shift." So he's certainly not alone, there are people thinking about that.
I think you have to be a little bit careful because those cyclical companies -- I'm talking like energy companies, maybe even some financial companies, industrial companies, manufacturers -- they just might not have the long tailwinds that so many great growth tech companies have, because the world is becoming more and more integrated, more and more technology-savvy, and all companies are now focused on technology. I can certainly understand that thinking. There's no harm in that. Rebalancing your portfolio or just starting to think, "I may be a little bit too concentrated in this one area, and that's never a super-healthy thing." You want some diversification, so that's fine to do that. I would just be careful about going all-in or all-out of certain sectors or certain stocks because if you are investing for the next three, five, 10 years, you will still want to have exposure to the higher-growth parts of the market, and that tends to be consumer-facing technology and technology companies in general. Not exclusively, but definitely don't abandon that strategy.
Hill: At the end of the day, you want it to be a good business. Because there are absolutely people who go value hunting and it's just numbers-based and it doesn't matter what the underlying business is. To me, it's like "No, I think you really want to focus on finding a good business, and then look at it. and say, 'Well, if you're going to sell me this good business at that price, yeah, I'm in.'"
Cross: Yeah. There's a difference between going shopping for a company like Disney when it was getting hit over the concerns of the pandemic influence, their cruise business, going to movies, all this, even really before they launched Disney+ (and we've seen the massive success of that), and financials being hit and some other of those that have really strong businesses. Than going very cyclical, dumpster diving. Stocks are down 80% or 70% or 50%, now they're rebounding a little bit. There is a difference in that, Chris, and it's a very good point. We love shopping, and buying, and owning those great businesses. Really focusing on the business quality. JPMorgan is one example. It's a large company from an earnings-multiple perspective -- sales are cheaper than the S&P 500. It's not going to double overnight and it's not going to be a huge growth driver, but it's a very steady, probably low-volatile company to own. Some people may want to shift a little bit into that to be able to balance out some of the growth exposure in their portfolios.
Hill: Finally, from Jennifer in Florida who writes, "What is the last stock you bought, and why did you buy it?" I like that question.
Cross: Yes, I love that question too. Jennifer, I'm still under some restrictions from Motley Fool, so I can't talk about the exact last stock I bought. But I will tell you about one that I've bought in the past week or so, and that's Redfin. Speaking about a company that was hit pretty dramatically hard during 2020. The innovative real estate home buying and Realtor in the United States. $7 billion market cap, now at I think it was $10 billion or $11 billion, so it's dropped over the last couple of months with some of the changes in the market dynamics after rebounding from its lows last spring.
I just like the spot that they are playing in. I like how they run their business. Glenn Kelman founded the business. The CEO is, I think, very astute and has a really great vision for the real estate markets. Obviously, a very competitive business, but it's also very fragmented, Chris. They charge a far lower commission, using technology to their advantage, expanding their reach, growing into what is a large and growing and now very challenged market, because there's just not enough supply of houses. We have a lot of interest in buying houses.
They are investing heavily into their real estate agents, those agents tied to the Redfin network. That's perhaps maybe going to hurt a little bit of their profitability as they may have implied and talked about in the recent call, hitting their stock price in the near term. But again, looking out over the next three to five years, I see Redfin as a larger company. I think the stock will do well. That's one that I recently bought.
Hill: I will just add the most recent stocks I bought. I looked at my portfolio and realized I don't really have enough growth in here. I would like to have some more exposure to growth stocks. So I bought some companies that I am very bullish on over the next 10 years. Which is a good thing, because from the time that I bought them till today, they're all down. It includes companies like DocuSign and Match Group and Okta, stocks we've talked a lot about. Again, it's not great to look down and see the red. But I'm very confident that 10 years from now, I will be glad that I bought them even with the short-term pain.
Cross: I don't mean to laugh to be dismissive certainly. We make jokes: "Oh gosh, I bought Redfin, that's almost a guarantee that in the next three months, it's going to go down." We make jokes among our team that our timing, because we don't time our purchases necessarily. We just see value, we see where the long-term value is and the prices may be attractive one way or the other, maybe that's because the stock is going up or down. But we make the internal joke, so again, I don't mean to be dismissive because I know there are a lot of newer investors into the market who maybe over the last three months or so have bought some high-tech stocks, and they're seeing that red on those purchases, as am I. I have done the same thing.
But again, like you said, looking at the long-term prospects, and the leadership teams, the markets they're serving, the solutions they're creating. You think about a business like Plaid that is really trying to solve a very difficult and trying problem for so many of us, which is integrating our financial accounts, the back-end part to that, and all that technology, and how that works, and security, loads and loads of very serious challenges. They're trying to solve that very complex problem. A lot of the companies that we're looking at and that we invest in and recommend are trying to solve those very complex and very consumer-facing problems that we want to have solutions for. Those are the kinds of businesses that ultimately, over the next five to 10 years, you want to be owning, because they're the ones that are going to drive the highest revenue growth and the best profit picture probably long term.
Hill: Andy Cross, always great talking to you. Thanks for being here.
Cross: Yes, thanks, Chris.
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 MotleyFoolery. This show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you tomorrow!