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Inflation Concerns and a Very Large SPAC Deal

By Matthew Frankel, CFP® - Jun 28, 2021 at 6:31PM

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Here are some of the top stories around the financial sector today.

Billionaire investor Bill Ackman recently announced that the megadeal is now official in which special-purpose acquisition company (SPAC) Pershing Square Tontine Holdings (PSTH) is acquiring 10% of Universal Music. We also have some new details. And after a volatile week in the markets triggered by the Federal Reserve meeting, many investors are concerned about inflation. In this week's Industry Focus: Financials, Matt Frankel and Jason Moser break down the inflation numbers, what's causing it, and how it could affect your investments.

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.

This video was recorded on June 21, 2021.

Jason Moser: It's Monday, June 21. I'm your host, Jason Moser, and on this week's financial show, we get the latest from Bill SPACman. That's right, Bill SPACman. What should investors make of all of this inflation talk and how are the banks, how is the Fed, how are they dealing with it all? We'll also wrap up the show with a couple of stocks to watch, as always. Joining me this week, it's Certified Financial Planner and hey, he's found this Saturday he's not the biggest Star Wars guy and that's OK. It's Matt Frankel. Matt, how's everything going?

Matt Frankel: Pretty good. It's a beautiful day in South Carolina. How are you doing today?

Moser: No complaints. Back at it after a lovely Father's Day. It's lovely weather here in Virginia. Very hot, very sunny, but it does feel like things are pretty much back to normal. You get outside, and you can see people out doing stuff left and right. It's nice, so a good day.

Matt, we were talking about last week, really leading up to last week, the ongoing, I don't want to say saga, but it's really an interesting story, I think with Bill Ackman. I love to call him Bill SPACman now because the reason why this matters with Tontine, it was the biggest SPAC ever when it raised $4 billion for its IPOs. I think that this is a story worth following, but Bill Ackman's SPAC has officially signed, I think this is a really big deal in a market that is going to remain relevant, I suspect at the very least the rest of our lifetimes.

Frankel: Yeah. It's not only a very relevant deal, but it's a very complex one. I think actually it was so complex that the title of our last episode on Industry Focus was a very complex SPAC deal when we discussed this. We learned a little bit more over the weekend about this. Bill Ackman, a little after 1 o'clock, he tweeted out, "Happy Father's Day," and then at 2 o'clock he tweeted out an updated press release that said the deal had been finalized. If not long enough of a show for me to go through the complex deal again. [laughs] Going through the new points, but there's three points to the deal. I want to briefly just discuss the new stuff we learned, if that's OK.

Moser: Sure.

Frankel: And see what Jason has to say about this.

Moser: Sure.

Frankel: First, the Universal Music business in general, which is not taking up all of the SPAC's money, but it's the primary focus of the deal. They are buying the 10% stake. They're going to distribute those shares to investors. We already knew all that. We got a few more details about Universal's business. According to the press release, Universal has a 32% share of the worldwide music market. That's pretty big. About a third of the music market is Universal. They have all of the top 10 artists in the world. All 10 are Universal recording artists. Not only is it a valuable business generating revenue; they're building up some of the most valuable intellectual property in the industry. They've grown revenue at about a 10% annual rate recently. It was down to 5% last year because of COVID, which is to be expected. The music business wasn't having a good year in a year when no one could do anything. The businesses were running at a pretty impressive 19% operating margin. The bottom-line operating margin, 19%, is pretty impressive.

Moser: Particularly, when you look at the economics of the music business. Generally speaking, it is a business that seems fraught with red tape, but then also probably most investors out there when they think about the music business, they're thinking about Spotify or Apple Music. Really, Spotify and Apple Music, are the ones that are licensing that music from Universal, aren't they?

Frankel: Yeah. Universal is considered like a legacy player. That's the margin a tech company would like to get. Roughly 20% bottom-line operating margin. That's pretty impressive for any company. That's what we learned about Universal; that's the big part of the deal, money-wise. Then you have the remaining SPAC. Pershing Square Tontine Holdings is still going to be trading under PSTH. We had a few new details about that. Ackman gave a lot of new details about what happens with the warrants. Remember, all SPACs were issued with warrants as well. He gave us some color on them. That was a big unanswered question from the original press release.

Some time after the deal starts going, they're going to have a warrant exchange period, where current warrant holders can just exchange their awards for a certain amount of shares. There's a whole table that says what exchanges are going to be, and the Tontine part of it, it means a community aspect of those. Ackman wants this to be like the most shareholder-friendly SPAC. So, the units of the SPAC originally came with one-third of a warrant. Only one-ninth of a warrant was distributed to shareholders. The other two-ninths are still attached to their shares, and it's only given to people who hold through the business combination. As an incentive to not sell.

Moser: I like that.

Frankel: Those are called the Tontine warrants in the presentation.

Moser: That does sound like a Star Wars sequel or something. I'm just saying. You can go on.

Frankel: Yes, it does. For every nine shares you own, you'll get two of those Tontine warrants upon the business combination. They will be adjusted in price because about three-quarters of the SPAC's assets are going to buy the Universal stake. The remaining shares will be worth like $5. I think it was $5.50 or so that is going to be remaining in asset value. The exercise price will be adjusted downwards. It will no longer be a SPAC, which means now they have a total of almost $3 billion to find another business acquisition, which Ackman specifically said it's going to be an acquisition, not something like the Universal deal when they're buying a stake.

Moser: So full-on acquisition?

Frankel: Full-on SPAC acquisition.

Moser: Gotcha. OK.

Frankel: But it's no longer a SPAC now because it already did the Universal deal, which means that they no longer have that two-year time frame working against them. They have a $3 billion war chess and they can pick and choose their spot. They can work on whatever timeline works best for their shareholders, which is nice. That's what we learned about the remaining assets and immediately after that, they undergo a four for one reverse split or one for four reverse split. Because like I said, their shares are going to be like five dollars after Universal comes out. He wants to bring it up to a $22 net asset value per share in the remaining SPAC.

Moser: That's interesting. It does go to show you, and I always like to say this, but investing is as easy or as difficult as you want to make it. It does feel like that's a pretty complicated process. This has been going through.

Frankel: We're not done yet.

Moser: OK. Well, go on.

Frankel: That was part two of the three. Then you have the SPARC, which is like the new SPAC.

Moser: That's right.

Frankel: I discussed what the SPARC was. Essentially, it's a blank-check company that's not raising any money initially. They don't raise money until they actually find an acquisition target. It's a cross between a SPAC and the traditional IPO. By the time they're raising money, investors know what they are buying. For every share of Pershing Square Tontine Holdings you own, you'll get one of these SPARC warrants that will allow you to participate in whatever the eventual business combination is, at an exercise price of $20. This SPARC will have up to $10.6 billion, which is a lot more than Pershing Square Tontine had even, to pursue a mega-acquisition, and they have a 10 year time frame, which is a big competitive advantage over a SPAC. If one of these big companies says, we're not quite ready to go public yet, but give us five years, Ackman can wait for that. Other SPACs can't.

That's a big competitive advantage here. Everyone's getting one of these warrants, which I think is probably the most underappreciated part of this transaction. The Universal part alone is worth about what the shares are trading for today. Then you are getting that remaining part of the company, then you're getting that SPARC warrant, which the Pershing Square Tontine SPAC warrants trade for like $7 right now and they have a higher $23 exercise price. They are about to be forced to be exercised. These could be worth more than that and you're getting one for every share you own. I like the value in this deal a lot. I have actually increased my position since they announced it. Now, because I know what the deal is, I call this a lot more of a value investment than a growth investment, especially since Universal is a big established company. The SPARC warrants are very investor friendly. I would actually call this a lot more of a value investment than a growth investment at this point. I actually bought some in my retirement account.

Moser: For an investor, obviously he's a very smart man. He clearly knows what he's doing and the financial media loves to have fun with him when something goes south. But the fact of the matter is he's had a lot of successes as an investor, and while this is clearly a complicated deal, it does seem like it's something very intentional. It seems like he's going into this with something in mind, to be honest with you, it seems like he's going into this. Do you feel like he has in mind that next acquisition he's looking to bring in?

Frankel: It feels like he does for the remaining SPAC not for the SPARC, not for that new big $10 billion company, but for the roughly $3 billion he'll have to play within Pershing Square Tontine. It sounds like you have something in mind. I don't know that for a fact that's just my opinion from reading this, and by the way, I didn't go over the new information we learned, it's not that long of a show. [laughs] If you look at Bill Ackman's Twitter handle, all these press releases are right there. There is a link to the website with the press release. If you want to read through it. It's a heavy read. The other thing is we're having an Investor Day on Wednesday so they're going to have a hopefully more easily digestible investor presentation that you can view on Wednesday on their website.

Moser: Absolutely, that'll be well worth turning into. If nothing else you should learn something from it. But also it will be fascinating to see where this goes. Because one thing I do know about Bill Ackman and this is just through interviews I've seen with him through the years, he's a big fan of the restaurant business. He does like the restaurant business a lot, and I get that, when you find a good operator, hey, everybody has got to eat and it does feel like in this day and age, more and more folks are relying on restaurants than ever before, and hey, there's always going to be that opportunity and the attraction there of those repeat sales. I think, because he was talking about an investment in Domino's he made recently that he was really fond of because it is such a good operator.

Frankel: Remember, on our show a while ago we went over the list of the rumor mill for projects of Tontine and Subway was one of the top picks. That's a big private company, while I was in another one.

Moser: A lot of people didn't realize, this has been the case for a while, but Subway being the largest restaurant company, I think in the world.

Frankel: Yeah, and it's private.

Moser: Yeah and folks would think, well, it was McDonald's and the fact of the matter was the Subway is larger, which is just amazing to think about. But then when you take note of wherever you are, it does feel like there's a Subway everywhere.

Frankel: Yes, sir. I think there's three within walking distance of where I'm standing right now.

Moser: I totally believe it. Well, this will be a fascinating one to follow up. Complicated, yes, but I appreciate you digging into that.

Matt, let's pivot here a little bit. Talk about some more big picture stuff and really, we've heard more and more about inflation here over the past several weeks than probably we have over the last decade. I think the conversation over the last decade was well, inflation and interest rates will stay low and moving on, and now we're at a point where inflation is starting to become a bit more of a concern and we've seen the Fed is accelerating its timeline a little bit. We're seeing how banks are going into this period of time, how they are preparing themselves. It just seems like there's a lot to discuss in regard to this. Let's just start it off with the Fed meeting from last week. I personally wasn't terribly surprised to see the headlines that they are essentially accelerating their timeframe on when they plan to raise interest rates next, it's been so long. The status quo, at some point or another, you got to start having that other conversation and it sounds like the Fed is accelerating that timeframe. What do you think there?

Frankel: Yes. We're not used to being in this type of situation where there's real inflation happening. Do you remember the last time we were in a real inflationary environment? It had to be in the '90s.

Moser: I would imagine that was it. It certainly didn't feel like it's been anything over the last couple of decades.

Frankel: In the last decade, since the financial crisis. The Fed has tried. They can't buy an inflation rate. They tried to. Remember, they've had this 2% target for 12 years now and they just can't get there. They've edged up against that once or twice, but they just can't get there, and now we're seeing, I just run through some of the numbers, the CPI is up 5% year over year, as at the latest data. The PPI, the Producer Price Index, is up 6.6% year over year. These are the highest inflation numbers in about 30 years. Core inflation is up 3.8% when you back out things like energy, which tends to be the most volatile part of it.

Moser: Sure.

Frankel: We talked about this a few shows ago that inflation is generally bad for stocks, right?

Moser: Yes and no. Yes, but by the same token, one less than we've always used with our Fool School, and when we're teaching younger folks the value of investing, and teaching them the dangers of inflation. If you just put that money in a piggy bank, overtime, it ultimately really is losing value. Whereas if you're invested, you've diversified, you do it in the good times and the bad, that is really going to be one of the greatest ways, one of the best ways to counter that inflation, but go on.

Frankel: I'm glad you brought up that your money is losing value just sitting there. Investors, it's important to focus on real returns. Real returns are the difference, of course, between your actual investment returns in the inflation rate. If inflation is at 3% a year and your portfolio went up by 3%, your real return was 4%, the difference between them. Historically, the sweet spot is a 2%-3% inflation, which is why the Fed targets that range. Stocks have generally produced the best of real returns in periods where inflation is between 2% and 3%, if you go back 50 years. We're a little above that now, which is scaring investors. That's why we're having this whole conversation. Just a couple of things, and then I'll get into some specifics on why we're seeing all this inflation and all that.

Generally, value stocks tend to outperform growth stocks, which is great for us at the financial show. You want to focus on stocks that have pricing power. Some stocks have the ability to raise prices along with inflation without losing any demand whatsoever. Utilities are a great example. If my electric company raised rates by 5%, I would still be turning my lights on as much as I am now. That's a perfect example of a company with pricing power. Financials that we've talked about to some degree, they don't do great in a hyperinflationary environment. But when inflation is a little high, they get to raise rates, and they make more money on loans, things like that. Why are we seeing all this inflation? I can narrow down to five reasons if we can go into those.

Moser: Absolutely, let's do it.

Frankel: Everyone blames it on the Fed. That's reason No. 1 out of five. The Fed has the mandate to control inflation. That's one of the reasons we have the Fed, or at least the policy-making guard, the FOMC. The Fed's monetary policy is very loose and guided even more so after the COVID pandemic hit. They're doing their quantitative easing, which means they're buying bonds at a rate of $120 billion a month to inject more capital into the system. Interest rates are at or near zero levels. We had just really been in the middle of a rate hike increase from the rate hike cycle when COVID hit, and now we're back to zero.

When money is cheap and they are just injecting liquidity into the system, that is going to produce some inflationary pressure. That's not the only reason we're seeing inflation, so that's one. No. 2 is all the stimulus we've been seeing. This is separate from the Fed. All the CARES Act with the stimulus checks, we've had three rounds of stimulus checks now. People are about to start getting monthly checks for an increased child tax credit. The second half of the year, we had the PPP, which injected billions of dollars into the system. A lot of stimulus creates a lot of inflationary pressure. That's another thing that I'd have to call the No. 2 that people blame this on. Everyone is going out and spending their stimulus checks, they're just thinking about this inflation. Jason didn't take his family to the stables and I didn't take my family to Disney World a month ago because we got stimulus checks, it's because we wanted to get out. That really brings me to No. 3, demand. Inflation is really supply and demand driven when you get outside of the policy sphere. Too many people want something and there isn't enough of it, the price is going to go up.

If anyone has tried to book a plane ticket or a hotel in the past month or two, it got a whole lot more expensive. The reason is supply and demand, demand has just gone through the roof lately. In a lot of ways, the reopening is tougher on the economy than shutting down, because of the big spike in demand.

Moser: I'm glad you said that, because I know that probably grinds someone's gears but there is some truth to that. You are right that when you have all of this money chasing a somewhat limited amount of goods, the impact is obvious. Now, I guess then the question is, we hear this word "transitory" mentioned and we'll get into that. But it does make you wonder, is this something that's lasting or is it something that is just a temporary blip?

Frankel: Right. A lot of it depends on the Fed. That's, I guess, the most control you could have out of any of these factors. You can't tell people to stop taking vacations. You can't tell people to stop going to the store. But the Fed can adjust monetary policy to control inflation.

Those are three. Going further, the supply chain disruptions. That's another temporary one, like the transitory factors you're just watching. I don't know. Have you driven by any new car dealerships in the past few months?

Moser: Not where I've paid any attention, no.

Frankel: Next time you do, pay attention. The big Nissan dealership near my house normally has 300 or so new cars on the lot. You know how many they have right now?

Moser: No, I don't.

Frankel: Seven.

Moser: Really? I was going to say 50. I'd have been way off even with that.

Frankel: The Chevy dealership near me normally has a few hundred cars. They have some trucks. Do you know how many actual cars they have, like sedans? Zero. There is not one new Chevy car in the Columbia, South Carolina dealership. That's a big supply chain disruption. That's led to used car values, which are part of inflation, really spiking. My Ford SUV that I bought two years ago is worth more now than I paid for it new.

Moser: That's just insane to even think about.

Frankel: I will go sell it to the dealership but then I have to buy another inflated car, so it's a paper gain.

Moser: It's the same thing with the inflated home value. You can sell your house for twice what you bought it. That sounds great, but then I got to go buy another house. Unless you know that you're going to be moving somewhere where it's just substantially lower cost of living, listen, that's a lot of work for probably not a lot of gain.

Frankel: There are a lot of supply chain disruptions going on in food service right now. You can't get chicken wings in a lot of places. That's a big supply chain thing.

Moser: It's the chicken wars.

Frankel: We went out to dinner for Father's Day with my wife, who wanted wings. They didn't have any because it was Sunday and they ran out. It was a supply chain thing. My Costco was out of wings. When I walked into Chipotle, there was a big sign that said, "Due to supply chain limitations, we're out of several items. Apologies for the inconvenience." That is driving prices in a lot of cases. Not just the cars. That's just a really visible example. Most people don't notice. But if you drive by a new-car dealership, you'll see a lot of empty parking lots these days. The high-end models are going crazy too. The Range Rover dealership near me, it's right on the interstate, so you can see right into it. Empty showroom. There's three spots for cars. There's not one in the showroom, not one.

Moser: That's amazing.

Frankel: That's four. I'd say probably the more controversial of the five is wage pressure. Right now, you've probably heard there's a worker shortage. American Airlines have been canceling flights for this very reason.

Moser: I have heard.

Frankel: That's very real. The question is, what's causing it? Everyone blames it on the unemployment benefit boost. But whatever the reason is, the companies, especially in the food service and retail industries, are really having to raise wages to compete and to get employees. I know a restaurant owner here who had to close Mondays and Tuesdays because they didn't have enough staff. He said he raised their starting wage by $3 an hour and now he has too many applications.

Moser: Well, this is supply and demand. It's economics at work. At least we know that the world hasn't gone completely crazy.

Frankel: That $3 an hour he raised it. Who's going to pay for that?

Moser: Oh, yeah. I know what you mean. Someone has got to pay for it.

Frankel: Whatever the cause, there's a bunch of causes. It's not just unemployment. A lot of parents don't have child care and can't work right now. A lot of daycares haven't reopened since the pandemic in some places. Or they're just getting ramped back up. There are a bunch of reasons why. But the fact of the matter is, companies are raising wages. Chipotle, I mentioned already; they just announced they're raising their prices by 5% in order to raise wages to be more competitive and get staff. There's an hour wait for burritos at the Chipotle by me because they don't have staff.

Moser: Man.

Frankel: I didn't wait there. I left. I left and just went home and ate. The wage pressure is very real and that is always passed onto the consumer. Companies cannot just take it to their profit margin. That's always passed on to the consumer.

Moser: No. But by the same token, you do see one thing to look for and it is nice to see companies that do take that longer view and maybe don't necessarily view putting at all on the consumer. Maybe stepping back a little bit and realizing that, hey, they've got a good thing going and even if we take a little bit of short-term pain in this price increase, it can still ultimately work out in favor in the long run.

Frankel: I feel like the retailers really won that part of the game. Costco, Target, the big-box retailers, really won that battle, I guess you'd say. Which is really contributing to why the restaurants are having such trouble right now. Costco's minimum wage, right by me, I don't know what it is, but it is an even higher cost area, in Columbia, South Carolina at $17, Target at $15. The restaurant minimum wage here is still $2.13 an hour plus tips. I come from the restaurant industry. I ran a restaurant for several years in a previous lifetime, but it's not an easy job to work at a restaurant. These workers are saying, I can go work at Costco and make $17 an hour, what am I going to do with $2.13 plus tips?

Moser: Well, you also remember that the tip environment is certainly far different than it used to be. That word "tip" used to mean something much different than it means today.

Frankel: It used to be you left with cash every day. That's not the case anymore.

Moser: Yeah. But I mean, the way we order our food even now, whether we go to a restaurant or have it delivered, tips are a little bit of a different thing now than they were just several years ago.

Frankel: Like I said, the big-box retailers really just won the race by paying fair wages I guess you'd say. I wouldn't say one. It's not over yet. Walmart I think is still not at $15. But have done such a better job of making their starting pay much higher than minimum wage.

Moser: Yeah. We had on Twitter here earlier today, and I think this guy must have been channeling what you and I were talking about as far as the show, because Gus Pendergrass, on Twitter, asked us a question for today's show, will the rising cost of homes and autos end up being good for banking stocks? Higher loan amounts and increasing length of loans. I think you and I had this discussion to an extent, I believe it was last week, but you do see in these types of times with home prices on the rise, automobile prices on the rise, ultimately, that kind of stuff, interest rates on the way up, that is good for banks.

Frankel: On the home side, absolutely. Not just because they're going to see higher mortgage amounts; it's because the existing homeowners have so much more equity in their home right now to borrow against. I read that home equity in the United States is up by $2 trillion this year alone.

Moser: It's a lot.

Frankel: That's money that people can borrow against. If you refinance, you could borrow and take some of that money out. That's where you really get to see the banks making bigger and bigger loans. It's not necessarily the purchase market, right now home inventories are very low despite the rise in prices. It doesn't really matter if prices are up by 20% if inventory is 50% lower than it normally is. That's not a good thing for banks. Where it's good is people who are holding onto their houses and have appreciated in value, and now can use that money to borrow against. I've mentioned the supply chain disruptions. If auto prices are going through the roof but you can't get a car, it doesn't really matter how much they cost the banks; they're not doing a loan on a car that isn't on the lot.

Wells Fargo is one of the biggest new car lenders. If new car dealerships don't have inventory, it doesn't matter what the price is, and how much demand has driven up the price, if there is no inventory, then they're not making loans. I think the refinancing thing is really what's the big news for banks right here.

Moser: That makes sense. It was just very interesting too to see recently JP Morgan CEO Jamie Dimon talking about his belief that inflation to a degree may be more than transitory. He said the bank is hoarding cash, because he believes there's going to be an opportunity to take advantage of that here soon.

Frankel: He said JP Morgan has $500 billion of cash on its balance sheet. I didn't just misspeak, $500 billion. That's not cash that they can spend, just to be clear. When we say that a bank has cash on its balance sheet, it's different from saying Apple has cash. But this is cash that they could loan, this is cash that they can invest in, treasury bonds, or something to that effect, or treasury notes, or the short-term. They don't want to right now, because they think rates are low and they're going to go up. They think the Fed is going to be forced to raise rates. The big news out of the Fed meeting was that it was originally projected, the last time the Fed made their projections, they weren't going to start raising rates till after 2023. First, rate hikes would be in 2024 rather. The latest projections that just came out said now we're calling for two rate hikes in 2023. The market consensus, based on the futures market, is that they are going to have to hike rates in 2022, a year earlier than even they think, and there are going to be at least four rate increases by 2023. The expectations keep getting higher and higher for interest rate increases. If inflation stays where it is now, they're going to get even more. Jamie Dimon is saying that as these rates rise, there are going to be exponentially better places for them to put that cash than there are right now. That's a bold projection. He could be wrong.

Moser: He could be. But I feel like it seems like a reasonable bet.

Frankel: I don't think he's being unreasonable, and I could see other banks following him into this. But they are definitely stockpiling some cash right now. If consumer demand goes through the roof, let's say the automakers get their act together and get the supply chain things worked out, now all of a sudden there's a ton of new cars to buy, people are going to need loans. Let's say that people decide to sell their house in large numbers in June and July, which historically the summer is the selling season.

Moser: Yeah, it is.

Frankel: It could be wise not just for investment purposes and treasuries and stuff, but just for consumer demand reasons, it could be a good idea to keep some cash on the sidelines.

Moser: It feels like at least with this automobile supply chain issue, there have been all sorts of reasons for this, there's the pandemic, there are physical issues in regard to barriers, blockades, ways to actually physically move things from point A to point B. But then we've also been talking a lot about the semiconductor shortage, it's clearly something that's still playing out right now. Most of these companies that really run this space, the biggest names in the space, see that pressure abating a little bit here in the back half of 2021, but until it happens, it hasn't happened, and clearly that's been a big cause of the automobile shortage, cars are just rolling computers now. We've seen that semiconductor shortage just play out in all sorts of different markets. It's been a little bit of an issue. But again, that goes back to that, well, it's not a permanent thing. It doesn't look like it's something that should be permanent, therefore if we can see at least a little bit of easing on that front, that might help the cause.

Frankel: I'm not saying that's the automakers' fault, but it's definitely a disruption, and as these supply chain disruptions get worked out, the supply starts to normalize, not just in the auto industry, but like you said, a bunch of industries that are being affected, we could see even more pent-up demand. We're seeing consumers spending up 20% from pre-pandemic levels right now, and that's with all these supply chain disruptions going on.

Moser: We talked about that last week with Bank of America, and Brian Moynihan recent comments.

Frankel: It's an interesting time.

Moser: Indeed. Well, before we take off, Matt, we've got some stocks for our listeners to keep their eyes on this week. What is a stock that you'll be watching this week?

Frankel: General Motors.

Moser: Speaking of autos.

Frankel: I've mentioned that a few times. I think you're going to see a lot of consumer demand when the supply chain issues get worked out that are going on right now. They recently upped their investment spending plan in electric vehicles, from I think $27 to $35 billion by 2025. They are spending heavily on EVs. They're partnering for hydrogen fuel cell technology, things like that. I think they are not only one of the most underappreciated opportunities in electric vehicles, but in the entire stock market. I think GM has 10X potential over the next decade. They're not only going after the passenger market, they're going after delivery, they're going after air transport, they're going after commercial vehicles. They're trying to just go into everything and they're willing to spend the money to do it right. They have the know-how. Their crew subsidiary itself could be worth more than GM is worth today.

They see the autonomous transportation industry as a $7 trillion opportunity, when you talk about an automated version of Uber that they could eventually make, or something to that effect. I think that's one of the most overlooked stocks in the market. I am heavily invested in GM, and people give me a hard time about that, because it's seen as a legacy company. It's seen as a boring automaker. But I think in a decade you're going to look back and say that it was not so boring.

Moser: Sometimes you gotta be able to get over that legacy opinion because, well, not all companies are able to make that pivot, some are. You've got to make sure to follow that. I'm sure every listener just heard GM and 10X and did a double-take, but we'll definitely be keeping an eye on that one. That's a good one. Sometimes you gotta get out there. Sometimes you gotta put yourself out there, Matt. You're doing that. I love it.

I'm going to keep an eye on Nike this week talking about companies with pricing power, companies that could be impacted by inflation or supply chain concerns. Everybody knows what Nike is. They've got earnings coming out on Thursday, after the market closes. They've had a really good last 12 months given everything that's going on, it basically matched the market over the last 12 months. But year-to-date, the stock is down almost 10%, and that could be because it was a company that recovered a little bit earlier from the pandemic concerns. But given everything that we've talked about on today's show with inflation, with supply chain constraints, I'm just going to be interested to hear management's take on those concerns on Thursday during the earnings call. So I'll be keeping an eye on Nike and earnings on Thursday. But Matt, I think that is going to do it for us this week. Thanks so much for taking the time to join.

Remember, folks, you can always reach out to us on Twitter @MFIndustryFocus, or you can drop us an email at industryfocus@fool.com. 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. Thanks as always to Tim Sparks for putting the show together for us, for Matt Frankel, and I'm Jason Moser. Thanks for listening, and we'll see you next week.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Jason Moser owns shares of Apple, Nike, and Walt Disney. Matthew Frankel, CFP owns shares of Apple, Bank of America, General Motors, Pershing Square Tontine Holdings, Ltd., Walt Disney, and Wells Fargo and is short shares of Apple. The Motley Fool owns shares of and recommends Apple, Nike, Spotify Technology, and Walt Disney. The Motley Fool recommends Domino's Pizza and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Pershing Square Tontine Holdings, Ltd. Stock Quote
Pershing Square Tontine Holdings, Ltd.
PSTH
Bank of America Corporation Stock Quote
Bank of America Corporation
BAC
$36.02 (-1.08%) $0.40
Apple Inc. Stock Quote
Apple Inc.
AAPL
$173.94 (-0.35%) $0.61
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
JPM
$120.77 (-1.49%) $-1.82
The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$122.26 (-0.45%) $0.55
McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$266.20 (-0.23%) $0.62
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$138.75 (-0.56%) $0.78
Wells Fargo & Company Stock Quote
Wells Fargo & Company
WFC
$45.83 (-0.68%) $0.32
Target Corporation Stock Quote
Target Corporation
TGT
$171.75 (-2.05%) $-3.60
General Motors Company Stock Quote
General Motors Company
GM
$38.48 (0.22%) $0.09
NIKE, Inc. Stock Quote
NIKE, Inc.
NKE
$116.02 (-0.87%) $-1.02
Domino's Pizza, Inc. Stock Quote
Domino's Pizza, Inc.
DPZ
$413.67 (0.41%) $1.68
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
AAL
$14.75 (-1.40%) $0.21
Spotify Stock Quote
Spotify
SPOT
$114.17 (0.02%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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