Coca-Cola (NYSE:KO) announces a deal and Trivago's (NASDAQ:TRVG) third-quarter results were much better than expected, but shares remained flat. Motley Fool analyst Jason Moser analyzes those stories and discusses the importance of setting expectations with stocks.

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This video was recorded on Nov. 1, 2021.

Chris Hill: It's Monday, November 1st. Welcome to Market Foolery. I'm Chris Hill. With me today. Jason Moser, happy post-Halloween.

Jason Moser: Gobble gobble, friend [laughs].

Chris Hill: That's right, thanksgiving just around the corner.

Jason Moser: This is a great time of year. I mean, it's three months of really good holidays, I think. Halloween's always fun. Still got plenty of candy in the house, but now I'm already starting to think about that turkey, Chris, I mean, I'm literally already in turkey mode.

Chris Hill: I thought you were referring to earnings season. But you are right about the holidays too. We've got consumer goods news, we've got the business of travel. We're going to start with the deal of the day. Back in 2018, Coca-Cola (NYSE:KO) took a 15 percent stake in BodyArmor, the sports drink company and I guess things went well because this morning Coke said they are buying the entire business. The price tag is $5.6 billion. BodyArmor now becomes Coke's largest brand acquisition ever. Shares of Coca-Cola are basically flat on this news. There are a couple of different ways we can go here. Where would you like to start? 

Jason Moser: Well, I think it's definitely a good move. I think they need to continue to diversify away from just the sugary sodas. They certainly have the benefit now of a track record with BodyArmor, they know that there is something there. When I saw this headline this morning, the first thing that came to mind for me and reminds me of Callaway Golf buying the rest of TopGolf clearly two different markets. But Callaway CEO Chip Brewer saw that potential in TopGolf. I mean they maintained a modest investment in TopGolf as TopGolf continued to come up and TopGolf, if you recall, had plans to actually go public then Callaway [laughs] took a step back, looked at the numbers, looked at the way golf was changing and the challenges in the traditional sense of the game and really TopGolf opening it up to a younger, newer generation and so going ahead in picking that out before they had a chance to go public. That made a lot of sense to me. This makes a lot of sense to me too. Clearly, Gatorade is the market share leader by a country mile when it comes to sports drinks. But Coca-Cola is slowly building up a nice little arsenal to be able to compete here so I think as makes a lot of sense.

Chris Hill: Am I right that BodyArmor's market share, and you're right about Gatorade and Pepsi they're so far ahead, it's ridiculous, but I think I'm right that BodyArmor is second? Or if they're not second they are, at least ahead of Powerade, which Coca-Cola also owns. One of my thoughts in reading over this story is boy, this has got to be deflating if you're working on the Powerade division of the Coca-Cola company.

Jason Moser: [laughs] I think you are correct. I think recently BodyArmor did surpass Powerade. That could be for a number of reasons. I don't know that Coca-Cola has really done a lot to promote Powerade or done as much as they really could. Ultimately you get BodyArmor in this portfolio or if you've got BodyArmor, Vitaminwater, SmartWater, you've got your Powerade. The one thing I like about Coca-Cola strategies here is they're building up a little portfolio of brands within their portfolio of brands. They are focusing on that one market opportunity, and maybe they're looking at it and thinking you know what, "it's not going to be just BodyArmor that does it. It's going to be a combination of a few things and to have that combination could give them some meaningful share. You hear about the aspirations of founders and owners of concepts like this. I think you look at the BodyArmor, president, I think his name is Brett Hastie maybe. There's the idea, this notion to overtake Gatorade. When you look at the numbers there, you think Gatorade got some of that 70 percent market share or something like that.

I mean, clearly, that's an audacious goal. It's not unachievable, but it's certainly, it's going to be a tough hill to climb. I appreciate the enthusiasm and I appreciate setting the bar high. I do want to [inaudible 00:04:36] , just to the days of Under Armour and Kevin Plank wanting to supplant Nike. That's all to say that this certainly can go south if leadership doesn't make good decisions. It's just something to keep in mind. I don't like that goal of, "we want to supplant Nike. We want to supplant Gatorade." Why don't you just go out there, do something really well and let things fall where they fall. Because I think if you want to supplant or replace something like a Gatorade, that's going to take a lot of work. It's going to take a lot of time. Instead of focusing on that goal, focus on having that really good product and take advantage of what is one of your biggest advantages, which is distribution.

Chris Hill: Before we move on, I want to go back to something you said. Because James Quincey, CEO of Coke I think he has been in the corner office for four years, has shown a willingness to shut down brands and I think that's smart. I think if you're Coca-Cola shareholders, that's what you want to see. You don't want to have every brand gets endless leash. By the same token, you've touched on, maybe Coca-Cola didn't support Powerade as much as they could have, or maybe they haven't marketed them as much. This is the biggest acquisition they've made on the brand side of things so they have to put money behind BodyArmor. Otherwise, this is just like lighting money on fire. Or I shouldn't say lighting money on fire this is a good brand. It has a decent market share. But if you're going to commit $5.5 billion then you better have a plan. I'm assuming Quincey and his team do have a plan, but they better have a plan for how they're going to grow this. Maybe that comes at the expense of Powerade, or maybe as you indicated, that comes in concert with Powerade and they grow both categories.

Jason Moser: It remains to be seen which way that goes. My first inclination here, and I don't know that they're necessarily going to try to phase out Powerade. I think Powerade probably sticks around in some form and maybe they just maintain it. But to me, it didn't just use a sports analogy and we talked about this a lot of investors, this to me is a good example of Coca-Cola just skating to where the puck is going. There are clear signs that BodyArmor is performing better than Powerade, and that was probably partly due to Coca-Cola's input there and being a part-owner of BodyArmor formerly. But I think that ultimately they see the writing on the wall. They see where the market is headed. They say, "Hey, OK, this is the brand that really is gaining resonance with athletes out there. It's modern, it's new. It's got a lot of popular athletes out there supporting the brand." Clearly, the late Koby Bryant was a big part of this company even being launched in the first place and when you look back at his history, Koby Bryant was one hell of an investor. I think that this is an example, maybe if Coca-Cola is seeing the writing on the wall and really focusing on adding to that winner, so to speak as David Gardner likes to say.

Chris Hill: Trivago posted a surprise profit in the third quarter. Revenue for the travel services company was also higher-than-expected. Trivago says that travel trends are improving with vaccinations continuing to rise. If only shares of Trivago we're also [laughs] on the rise because this seems like one of those opportunities for the stock to pop. This is not something trading at some insanely high valuation. This is not just on a pure dollar basis, this is not an expensive stock, and yet what is going on with this business, but the stock is flat after this news in this environment.

Jason Moser: It's been a fascinating story. Watching this unfold since they went public. I think most people know Trivago just from the commercials. Then most people probably within say, "wait a minute, you know I haven't seen one of those commercials for a while," and you're right. They pretty much just completely nixed that entire budget for all of 2020. I think for obvious reasons. To me, this Trivago has always felt like a business that can't really make it on its own. To me, this is a business that just needs to be a part of a bigger network. So whether it's Booking.com or Expedia. You could even look at a Tripadvisor perhaps. I don't know, but to me, this just doesn't seem like a very good stand-alone business. When you look at how they make their money, they make all of their revenue, and this is from their actual release here, they make all of their revenue when their websites and apps click on hotel on a combination offers or advertisements in their search results that are referred. This is essentially paying for clicks. The more clicks, the more money they are going to make. The problem is that you look at how they make their money, ultimately who their customers are. I mean, their money really is coming from the OTAs, the Booking.com, and Expedia. When I say it's coming from them with those two combined, it's like over 80 percent of their revenue. They're very dependent on Booking.com and Expedia, and I don't like that position in the value chain. They don't really get to call any of the shots. They don't really have any pricing power. They don't have the biggest network. Even as travel bounces back, this isn't a business that necessarily strikes me as one that's going to be leading the way, or at least this is obviously as something like a Booking.com or Expedia. Now, don't get me wrong, and is clearly a business been under a lot of pressure, and I think for a lot of reasons that are valid. I mean, if you just look at the company's top line, I think that tells you the story right there.

It just is not good. It's certainly possible they could witness a little bit of a bounce by a little bit of a snapback here as travel resumes, because I will tell you just, last week when I flew down to Moultrie to go see my folks, and man, it was busy. There are a lot of people traveling, which is nice to see. But I just don't know that it's just not fundamentally a very good business. Revenue was up 129 percent from a year ago, that's great. Revenue per qualified referral was up 85 percent from a year ago, that's great, but that's all expected. You expect that snapback from 2020. 2020 was a really tough year for this business, and going forward if you're looking at a return to travel, to me, it's not one of the top names that really benefits immediately.

Chris Hill: Yeah. We get this version of this question a lot, which is essentially, I'm looking at a given industry or a given trend, and I'm looking to buy a basket of stocks. What should I consider for my basket? If you're looking at reopening and travel, Trivago is just not going to be ahead of some of the other bigger more successful businesses. It's just not.

Jason Moser: I couldn't agree more and I think that just goes back to who this customer or who this company's customers really are. I think a lot of people would think that we individual or consumers are its customers, but the fact of the matter is, Booking.com and Expedia, that's their customer. That's where they're getting their money and that puts them in a tough spot.

Chris Hill: You got a question over the weekend from one of our listeners, Patrick Maher (phon) who said, I'm a huge fan of McCormick, I use it in my cooking. I love the business, but it seems stagnant. I know competition and stuff, we're coming out of the post COVID world, but I'm curious on your opinion on McCormick long term, which is a great question. I will just add as context. You go back to January 2020, shares of McCormick are $85. Today they're 80. Now they've visited different places in between. But you add that context and it's like, well, certainly the stock is treading water, as well.

Jason Moser: I think it's a very good question because it's the business clearly that I like a lot. It's a business that I own shares in and I've owned it for a while. I think ultimately you want to understand, or think about why you would own a business like this. Why would you want to own this stock? Because it is definitely, it's not a fast-grower, nor will it ever be. Organically, this is a company that's going to chalk up probably two, three percent annualized revenue growth for the most part. Now they're going to make some acquisitions along the way. But in this world of SaaS companies and hypergrowth opportunities, this is definitely not one of those. I think the market glosses over these stories sometimes and focuses on the shiny new toys out there. But again, going back to why you would own a business like this, it's because it's stable, it's because it's solid, it's because it's reliable. It's a dividend aristocrat. You can count on that dividend not only being there, but growing over time.

It's the market leader in its space. So it's really, we talk often about the protect your wealth versus grow your wealth stage of life. I think this is just one of those quintessential protect your wealth style investments. You want to be excited about owning the stock for literally decades if possible. You want to own this stock, the longer you own it, the more it make sense. When you look at the returns, no, it's not lighting the world on fire in the near-term. But if you stretch it out to over 10 years, then you start to see the potential there. You see the compounding and action. I think one thing also to keep in mind with McCormick and just go back to, I think it was 2017 when they made the acquisition of RB foods. Remember when that happened, that was a really big acquisition, something like 4.3 billion dollar acquisition, which was a big one, and the market took it with a healthy dose of skepticism, and the stock was stagnant for a while. It's sold off and it was stagnant for a while until the market was convinced that the deal was a good one. They also did just make a couple of recent acquisitions here for around total of $1.5 billion. It was Cholula, and then another spice and flavor company that they brought under their umbrella. We're continuing to see consolidation. I think that sometimes the market takes a look at that, and says you know what, show me, before I give you the credit for making these deals. It's not to say these deals are a no-brainer and they will succeed, but by the same token, McCormick has a pretty good track record of doing it, so I would remain confident there. Ultimately, I've said this before. Think about the things you will still be doing in 10-20 years. Ten to twenty years down the line. We're going to do a lot of things. We'll be doing a lot of things differently. But I mean, I think that I'm still going to be seasoning my food. I'm still going to be using salt and pepper, I'm still going to be thrown some rubs on barbecue on the grill. I think that's going to be something very difficult to disrupt. I don't know that tech necessarily disrupt that so much. It is very boring in that regard, but I think that's the idea really. To me, it is one where just again, the longer you own it, the more it makes sense. Honestly, it's one of those investments that you can hang onto. You sleep very well at night knowing you've got this type of exposure in your portfolio, so you don't have to worry necessarily about so much of that volatility. It comes with some of those highfliers.

Chris Hill: It's like we were talking earlier in the show about Coca-Cola and Pepsi. Those are two companies that, yes their stock is higher today than it was five years ago. Neither one of them is beating the S&P 500. But you throw in the dividends, and a lot of it comes down to expectations. That's something that I think often gets lost when we talk about allocation and how are you setting up your portfolio. You can't really have the exact same expect or you can have the same expectations for all your stocks. That's probably a pathway to disappointment though. [laughs] I think Coca-Cola, or McCormick. Yeah, I'm expecting the same from them, as I'm expecting from Atlassian or Cloudflare, those are [laughs] completely different businesses. What are you talking about?

Jason Moser: Yeah. It's like comparing a cybersecurity firm to a bank. They're two different animals altogether. It really does boil down to portfolio management. Everybody is going to be that differently I think. You are more than welcome to invest your entire portfolio in unprofitable SaaS companies and Cloud plays. I would volunteer that you might develop an [inaudible 00:17:41] from that, maybe not, I don't know. I've got a pretty high risk tolerance though, Chris, and I don't even do that. I want to bolster my portfolio with some of these no-brainer ideas that I could just set it and forget it. I know that I'm going to check in every year and it's going to be relatively the same story. You don't ignore it. You're right, you pay attention to what's going on. But it's not something that hinges on every quarterly report. That's just the idea behind this type of an investment.

Chris Hill: Jason Moser, great talking to you. Thanks for being here.

Jason Moser: Yeah, thank you.

Chris Hill: As always, people on the program may have interest in the stocks they talk about on the Motley Fool may have formal recommendations for or against. So don't buy yourself stocks based solely on what you hear. That's going to go for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. I'll see you tomorrow.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.