Virgin Galactic (SPCE -17.52%) shares pop on news of its test flight. L Brands (BBWI 8.88%) posts a strong first-quarter report and prepares to spin off Victoria's Secret. In this episode of MarketFoolery, Bill Mann with host Chris Hill analyzes those stories and shares his thoughts on the week's Bitcoin drama.
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This video was recorded on May 20, 2021.
Chris Hill: It's Thursday, May 20th. Welcome to MarketFoolery, I'm Chris Hill. With me today, Mr. Bill Mann. Good to see you, my friend.
Bill Mann: How are you, Chris? Thanks for having me on.
Hill: I am better for the sight of you. We're going to talk retail, we're going to talk space, outer space specifically. Can we talk about Bitcoin, which we almost never do on this show, but Bitcoin fell 30% on Wednesday.
Mann: It did a thing.
Hill: I am not a currency investor, but I don't recall the Euro or the U.S. Dollar ever falling 30% in a single day. I think we talked about Coinbase on this show when it went public. It's down about 30% from its IPO. I remember thinking at the time, and maybe I even said at the time, that Coinbase seems like an easier way to invest in Bitcoin if you're a selling client, because it's a platform. Take this in any direction you want, but I am curious what went through your mind when you saw one little part of the financial world on fire yesterday.
Mann: It's a bigger part than that. You're talking about hundreds of billions of dollars of notional value that were eliminated yesterday. A lot of people have pointed to Elon Musk coming out and saying that Tesla was no longer going to be accepting Bitcoin for environmental reasons. By the way, here's my prejudices, I side with Elon Musk on this. But whatever, it's an asset that's out there. Giving him credit for that it would be the same way as, remember that Volkswagen commercial where the kid thinks he's using the force to start the car?
Mann: That's Elon Musk. The person who's actually hitting the button is China. China decided this last week, they announced that they are no longer going to be allowing cryptocurrencies as the mode of exchange. That is a big deal, much bigger than Elon Musk doing the force thing. There are huge questions about what Bitcoin is, whether it is a store value. I suspect that it's a store of value in the same way that art and baseball cards are a store value. There's just not as much behind it as we think and it is definitely not a currency. You cannot tell me that something that moves that much is a valid currency. That is the Zimbabwe dollar level of volatility. That's not good.
Hill: No, that's definitely not good. I was one of those people, and I was not alone, when Musk came out and made the announcement, Bitcoin is not going to be accepted at Tesla as payment for our vehicles because of the environment. I just looked at that and I thought --
Mann: Where were you two months ago?
Hill: You knew that before.
Hill: Didn't you know that before? He's a smart guy.
Mann: It is really hard, and we know this Chris, to change your mind in public.
Mann: It's really hard to do. You can see Elon Musk has had a pretty significant blow back from the Bitcoin true believers. People say they were going to show Tesla some really weird stuff. It's hard to do. But yes, I do think that there was a little bit of rear guard figuring out things that I would have thought that someone who set out to do some big things including helping the environment would have researched before jumping on the Bitcoin bandwagon.
Hill: Let's move onto some earnings. This is in earnings, but we'll get to earnings. Shares of Virgin Galactic up 13% this morning after the space tourism company announced that its next space flight test is going to be on Saturday. Virgin Galactic is aiming to start commercial flights next year.
Hill: I have a couple of questions. I guess my first is --
Mann: Can I anticipate your next question?
Hill: Go for it.
Mann: Next Saturday? Like that?
Hill: Yeah. It seems like more prep would need to go into this and that.
Mann: It seems more prep would be involved.
Hill: Is this an industry that interests you as an investor?
Mann: I am a shareholder in Virgin Space or to make it fancy, call it Virgin "Space," we'll go Italian. But it is a revenue less company. This is by far the highest risk company in my portfolio because every bit of what you are betting on has yet to happen and may never happen in the way that they think it's going to. This isn't even competitive. This is taking tourists to space, among other aims that they wish to do. Yes, every single event like this saying we're going to test a rocket is big news for Virgin Galactic. You have to keep in mind when you're talking about companies, and there's a whole host of them. Companies that either don't really have operations, don't have revenues or don't have earnings.
One of the adventures that you're signing up for as an investor is that you're going to feel whipsawed. Things like this are going to make the stock move a lot in the way that they will never do if you're a shareholder of a company like Walmart. What's Walmart going to say that's going to cause the stock to move as much as Virgin Galactic has or does? It's part of the inventor. Obviously, I think this is great news for them. This is great news for us as shareholders. You would hope they'd be putting things up into space at some point since that's what they're supposed to be doing. The fact that they are saying now that they're doing it next week, that's so interesting to me. I know that's not a great radio, "Hey, this is interesting." It's a terrible word. But nine days later they're going to put a rocket up, I thought that took months.
Hill: Yeah. Also the idea that, "Hey, we're still testing the flights but we're looking to be commercial next year."
Hill: Look, there is absolutely an opportunity for business in outer space. I don't know what form it takes because part of me looks at Virgin Galactic, and you can put Bezos in there with Blue Origin and SpaceX. All of these commercial flights to space, part of me looks at them and says, I am not interested in commercial flights on earth. That's not historically a great profitable money churning machine for investors. If I'm not going to invest in Delta Air Lines, tell me why I should be investing in Virgin Galactic?
Mann: What was it that Warren Buffett said, as an investor he would have done the world of favor if someone had shot down the Wright Brothers plane.
Mann: Yes, that is absolutely positively true. Well, here is something else that's absolutely positively true about Virgin Galactic and anyone else who is trying to put something up into space. It's going to require a lot more capital. They are going to be raising more money. Again, it's one of those adventures. For me, of all of the stocks in my portfolio, this is the one that I have circled around it and have in red letters that flash could be a zero. But I am so excited about what they are doing. I'm willing to have a small amount of my portfolio in that speculation. For me, this is exciting. Chris, I expected this to happen. Everything is a plan.
Hill: Absolutely. Before we get to actual retail, just a reminder. As always, if you're looking for more stock ideas, you can check out Stock Advisor, which is our flagship service. You get stock recommendations, you get the best price, you get a lot if you're a Stock Advisor member for not a lot of money. You can go to stockideas.fool.com, you get a 50% discount for being one of the dozens of listeners. Again, stockideas.fool.com.
Strong first quarter for L Brands, revenue was higher than expected. Same store sales at Bath & Body Works was up 16%. Same store sales at Victoria's Secret up 25%. We were talking on the show earlier in the week about Walmart and Target and this is a nice reminder that it's not just the general retailers that are doing well right now.
Mann: People are buying some bras.
Hill: Some scented candles.
Mann: Some scented candles, yeah. A really good quarter for L Brands. I mean, obviously, when you look at what they did this year versus last year, it's almost not comparable because they are primarily mall-driven. I mean, they do some business online, but a lot of their stuff is fitted, so they very much were impacted by the retail apocalypse of the first half of 2020. I think some of what's happening here is people are now preparing to go back out into the world. We're beginning to see people who have put off these exact purchases. You're not living at your home necessarily in sweatpants everyday anymore. We here in the U.S. are lucky enough to be able to start getting out and about.
A lot of this trade I think is people who have put off delayed purchases, they're coming back to make them now. It was a really good quarter for them but Chris, it also speaks in 2021 of the most obvious statements. Whenever you hear an obvious statement in investing, you have to assume that it's priced in, was that retail was dead. That coronavirus was going to be the end of retail. We're not going to have enough time to talk about all of these, but Walmart turned in unbelievable earnings, Kohl's turned in unbelievable earnings, Costco is crushing it, L Brands, and as you said, it's a much more of a specialty retailer is crushing it. These are all doing very well. I don't think that in 2020 if you were to say, ''Hey, L Brands is going to be up 68% in the first half of 2021." That was something that many people would have bought.
Hill: I absolutely agree with that. You can look at the stock being down 4%, 5% today. Look, there are so many businesses that if you time the one-year chart correctly to late March or sometime in April, then yes the one-year chart looks amazing, but L Brands chart looks amazing even if you're just going back six months, so it's had this tremendous run-up. I've said this a couple of times this week in reference to guidance that we've seen some companies come out and they put up good numbers, but they're not offering guidance so the stock gets ding. I have said for a while now I think this is the quarter where people stopped getting the benefit of the doubt if they're not offering guidance. L Brands is not offering guidance, but to me it's perfectly valid. Why they are not doing that, it's because they're spinning off Victoria's Secret.
I believe they're aiming to do that by August so it makes perfect. My expectation is that once that happens though, the guidance will come back and it will be really interesting to see what Bath & Body Works does on its own because this for a few years now, for all the jokes that we've made about scented candles, the story of this [laughs] business has been, Bath & Body Works is getting it done. That's the business that's getting it done. It'll be interesting to see what it does as a stand-alone company.
Mann: Chris, you very much have been on top of this and it is easy. No, I am saying this straight up. You actually have been on top of Bath & Body Works doing much better as a brand and much better as a component of L Brands than people really would think. It feels like an old line retailer. They've done a really good job managing inventory. They've done a really good job with their stores and those investments that they made. You could see it now is really paying off.
Hill: It has also changed my perception of what I should be paying for a candle.
Mann: Let's get back to the candles because it's important.
Hill: I was just going to say a couple of months ago, I went into a total wine, and I was getting a couple of things and I saw this medium-sized candle and it's wine scented. I don't know what it was. It was like Cabernet, whatever.
Mann: Yesterday's beer scented. [laughs]
Hill: Stale beer. You know what, there are people who would buy a stale beer candle. No, but I picked it up. I looked at it and I thought, ''Oh OK." When I flipped it over and I looked at the price. I just thought, ''No, that's crazy, that's way too much, for a candle this size it needs to be half this price.'' Say what you want about Bath & Body Works, but yeah, you'll pay $25 for a candle. It's a big candle, it will last a long time.
Mann: I'm going to say something that may be a little bit personal, but candles are like having the scent in this house where we've been locked up for the last year, having things like that have been slightly joy making. It's made us a little bit happier, a little more relaxed. Yes, candle people get it done way beyond just what the inputs are and yet they are expensive.
Hill: Well, and to go back, because we started this show with cryptocurrency, we're ending with I think you referred to it just short like an old world type of business. [laughs] But to me that's one of the great things about investing. I was saying to someone the other day, "I think I need to buy a few shares of Sherwin-Williams." I was thinking of the conversation I had with Matt Argersinger about housing, and he's one of the smartest people I know about housing. He was laying out this case for this is why we are going to see this overheated market for a while now. Sherwin-Williams, for me the thesis all boils down to nobody buys a house and says, ''All these colors are great.'' [laughs] "I'm not changing a single one inside. It's like, you're always going to pay.
Mann: These shoe marks on the wall. I don't know how that happened, but I got to sort that out. I don't know if they had spaghetti explode, but we got to fix that. But yes, Sherwin-Williams does in fact cover everything.
Hill: Bill Mann, great talking to you. Thanks for being here.
Mann: Thanks for having me on, Chris. It's been fun.
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 on Monday.