In this podcast, Motley Fool senior analyst Bill Mann discusses:
- How Top Gun: Maverick is the right movie at the right time.
- Ripple effects for studios, streamers, and more.
- Unilever's (ULVR +0.96%) stock popping 9% after the company added activist investor Nelson Peltz to the board.
- Why he's a fan of Peltz and his form of shareholder activism.
Motley Fool retirement expert Robert Brokamp talks with Motley Fool contributor Dan Caplinger about how investors can fight inflation and one common myth about how to hedge against rising prices.
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 May 31, 2022.
Chris Hill: What can a board member do for a company stock price? In the case of one business today the answer appears to be a nine percent bump. Details next, Motley Fool Money starts now. I'm Chris Hill and joining me today, Motley Fool Senior Analyst, Bill Mann. Thanks for being here.
Bill Mann: My voice is a little hoarse today, Chris. I went to go see Top Gun: Maverick last night, so I've got lots to talk about and no voice to do it.
Chris Hill: What a perfect combination.
Bill Mann: I'm not going to lie. There was crying in the theater. Not me, but embarrassed fan.
Chris Hill: I don't want you to spoil anything because I think I'm going to be seeing it on Thursday, but we're actually going to start with Top Gun: Maverick. The business ripple effects of this film are what I want to talk about. Now, not adjusted for inflation, 156 million at the Box Office, it's the biggest Memorial Day weekend opening ever. It's the biggest opening weekend for Tom Cruise, for any of his films ever. So I'm glad something finally good happened for him. [laughs] There is a lot of talk today about movie theaters stocks in particular AMC, which, sure if you're in AMC shareholder, you wanted this thing to be a hit. But I don't know. Am I wrong in thinking the potential ripple effects go beyond movie theaters stocks? Beyond the dollar figure, which is impressive, the number that struck me is 4,700 because that's how many theaters this movie opened in. This is an opening weekend that you would see pre-pandemic. I mean, more so than anything else in the entertainment industry that I've seen in the last couple of years, this to me was a signal of oh, wait, people actually will go into movies theaters if you give them a reason to.
Bill Mann: I think that's absolutely the case. It was estimated because the numbers aren't as clean going around the world, but it was 280 million worldwide on it's open. That's impressive even more so because it didn't open in China or in Russia. This was a huge open. It was a sign of a couple of things to me and I really don't want to talk about AMC, but it is a sign that theaters are back, that the we are at a point in which people are comfortable going to the movie theaters and they did so in huge numbers. It also, to me, not to become film credit, because I know you don't want that and I know you don't want me to spoil the ending, but it's a Top Gun movie so the ending really doesn't matter, it's the journey. But this was the least cynical movie that I've seen in a really long time. It was uncynical in the same way that Ted Lasso was uncynical and came at a perfect time. I wonder if one of the implications are that people, and by people I mean movie houses, will pay attention to the fact that this is something people want and when that happens, you tend to do see a bump.
Chris Hill: I also wonder how many of the people who went to see this film over the last four days, for them, it was their first-time back in a movie theater before the pandemic because we've seen this with travel and we've seen this in restaurants and of course we're going to see it in movie theaters as well that maybe there's a little trepidation going in. But if it's your first time since before the pandemic and you have a good experience, it puts you in a level of relief where you think, "Oh, OK, it took this blockbuster film to get me in the theater, but it's not going to take a blockbuster on this level to get me back in the theater and back out in the world."
Bill Mann: It's so funny that you say that and I hadn't really thought about it in these terms until you started going down this path. I think this was the perfect movie to really launch a reopening for the theaters because it is that type of a positive experience. I went with four other people yesterday and three of them had not been back into a movie theater since the beginning of the pandemic. This was the event that brought them there. It was something that was 100 percent going to feel good. Again, not giving away anything, they don't even name who is the enemy is in this movie. They're not going after any one, it's just there are mythical bad guys, you don't have to name them. There's just nothing about this movie where they're trying to outsmart the audience or trying to be ironic. It's just straight forward, action, fun, and you're exactly right, that's something people have craved and we'll go back for and did it to the tune of more than 100 million in Box Office revenues. I heard it said this morning someone was writing and that obviously the enemy that they were talking about, that they didn't name was Wakanda. [laughs]
Chris Hill: I thinking the bold choice really would've been Switzerland [laughs] just to mix it up. Great opening to the summer Box Office season and we will see where it goes from here because certainly there are other big ticket films coming. One more thing on this topic before we move on, I wonder what this does for businesses like Disney that have studios, but have a streaming service and if it makes their life easier or harder in terms of decisions up or what are we putting to the streaming service? Because I would think this is fodder for the people inside Disney, Paramount, which they had their own streaming service and they are the studio behind this film. I'm assuming this lands fodder for people who are saying, "No, we really do need to continue on a tentpole strategy. Get the revenue at the box office, and then move things to the streaming service."
Bill Mann: One hundred percent. Absolutely, that's the plan. You could even see it with this movie in that they were setting it up to move it into a franchise. You can absolutely see it. Again, it's harmless. You're perfectly allowing to have that happen to you but you know at the end of this movie what the next movie is and who the stars are. So absolutely, the streaming companies, and Paramount in this case, has their own streaming service, are setting this up so that movies maybe even video games and streaming services compliment and reinforce each other. Because this was an opening this last weekend also of Obi-Wan Kenobi for Disney. This is absolutely positively a reinforcement of that model.
Chris Hill: We're going to move to a very different industry, which is the consumer products industry. Unilever has over 400 global brands. The news today is that Unilever is getting a new board member, activist, investor Nelson Peltz, who runs Trian Fund Management, which owns one and a half percent of Unilever. Shares of Unilever are up nine percent on this news. [laughs] I don't mean any disrespect to Mr. Peltz, but I'm wondering what do some investors think he is going to do to improve Unilever's business [laughs] that warrants this kind of optimism?
Bill Mann: Ideally it's beam Hellmann's mayonnaise into a wall. [laughs]
Chris Hill: Or something with Ben & Jerry's, I'm not sure.
Bill Mann: Something with Ben and Jerry's. It was a really interesting transaction. Nelson Peltz and Trian, excuse me, came in and took a marginally hostile, but an activist position at Procter & Gamble in 2017 and they really made suggestions. I really respect Nelson Peltz because he's not an activist who comes in and says, "Okay, we are going to financially reengineer this company." He has actual structural suggestions and they really worked at Procter & Gamble, which is a pretty good proxy for Unilever.
Chris Hill: I would argue it's the best proxy [laughs] for Unilever.
Bill Mann: I guess the only difference being is that Unilever is a UK domiciled company as opposed to Procter & Gamble being a US one. Some of the corporate realities of the business are different. Procter & Gamble is up more than 90 percent since 2019. I don't know if you know this, but there was a really big supply chain issue or three in between those times. Procter & Gamble is running on all cylinders. Now, it's really overstating the point to suggest that Nelson Peltz came in and single-handedly turned around Procter & Gamble. But just like Procter & Gamble was at that time, it seems like Unilever's management is willing to listen and he is pushing them in the right direction.
Chris Hill: You're a fan of Peltz?
Bill Mann: I am. So many of these corporate activists really come in and they do a financial reengineering. Like, "Okay, let's take all of your properties and then you sell them and then rent them back." That's no restructuring. That's like financial engineering. With Procter & Gamble, for example, he said, "Basically you have an entire massive brands that you are trying to run centrally, why don't you organize them into groups and cohorts and have them run almost like separate companies from each other so that you might even be in a situation where two P & G brands are competing with each other for shelf space or things like that."
It really helped to revitalize, not just some of the brands and they figured out some things that they didn't want to own anymore. But that's happening with Unilever again and Unilever is also at the beginning of trying to figure out how to change what has been a fairly sleepy corporate culture. To me in some ways, Chris, having someone like Peltz come in gives management a little bit of cover to make hard decisions. They are like [inaudible], our hands are tied. This guy's coming in and we need to pay attention. In some cases, and I think that Peltz is among the best, having an activist investor coming in really helps a management team.
Chris Hill: Bill Mann, great talking to you. Thanks so much for being here.
Bill Mann: Hey, thanks Chris. Enjoy the movie.
Chris Hill: Last week, Certified Financial Planner, Robert Brokamp talked with Dan Caplinger about a couple of ways investors can fight inflation. Bro continues that conversation and dispels one common myth about how to hedge against the rising prices.
Robert Brokamp: A particular type of stock that has done well during inflationary periods in the past and paid an above-average dividend is a real estate investment trust or REIT. REITs have not done particularly well this year, but history suggests that REITs should still play a part in your portfolio, plus real estate investing, in general, could be a good inflation hedge, and we discussed why in our March 29th episode. But part of the reason is that tangible stuff, in general, can do well when prices spike, which brings us to our third inflation fighter, at least potentially, and that is commodities. Dan, tell us a little bit about putting commodities in your portfolio to fight inflation.
Dan Caplinger: Yeah, Bro. Commodities are something a lot of people think about when we're talking about inflation because commodities are the things that we're paying higher prices for. So in an inflationary environment, almost by definition, commodities seem like the thing to buy because their prices are going up. Sure enough, when you look at some commodity-based investments like the Invesco DB commodity tracking, ETF, it's up significantly this year. Thirty-five percent rise year-to-date here in 2022. That follows a 41 percent increase in 2021. It's pretty easy to understand why anecdotally we've heard all the stories and we're seeing the pain ourselves, whether it's paying more at the pump for gasoline, whether it is paying higher prices for the food that we buy at grocery stores and eating out at restaurants, whether it is sky-high airfares as we try to travel for the first time in several years, consumers are really seeing it. It is something that if you can cash in and say, how can I buy the things that go into making these higher-priced elements possible? How can I buy?
How can I get exposure to rising crop prices, rising energy prices, rising metals prices for the industrial needs that we have for the steel that goes into cars and aircraft, for aluminum, for nickel, for even the lithium that goes into electric vehicles. It's always a question, how can you cash in on that? The issue with commodity ETFs is that while they do a pretty good job in the short-run of matching movements in the commodity markets, the long-term trajectory that they've taken is far from great. When you look over, we mentioned that one commodity ETF and it's up over the past year, year-and-a-half or so, but it has not done particularly well over the past decade. It's been not very good at all actually.
Again, you can see why if you turn back the clock to the early 20-teens, you had record-high gold and silver prices, you had oil prices pushing up well into the triple digits. Then in the late 20-teens, you had a long period of cyclical decline, you saw those precious metals prices fall, you saw energy prices fall, we had our lowest gasoline prices in a long time in the late 20-teens, and then into 2020, we had a big energy disruption at the beginning of the COVID-19 pandemic. At that point, energy prices just fell all the way through the floor. That is one reason commodities you see great volatility and they look like great investments during up cycles, but as long term investments, you inevitably have to endure long downward cycles as well.
The other challenge with commodities is that investing in them is difficult. Most of us don't have a silo to put a bunch of weed in, even if we did, it wouldn't last more than a few months. Most of us don't have a bank vault to put a whole bunch of gold in, don't have mining capacity to dig up our own oil in our backyards or anything like that. We usually have to turn these investments that you can buy, they're tied to commodities, and are usually based not on actual commodities, but on futures contracts. When you do that, you open yourself up to the vagaries and idiosyncrasies of the futures markets.
I won't get into the big details because it's a complicated topic, but just to give you a sense, there was a period of time in April 2020 when futures contracts on crude oil were negative, a month that people in the futures markets were actually paying people to take oil off of their hands. Now, I don't know about you, but I did see those gas prices fall, but nobody was ever paid me to put gasoline in my car. That gives you a sense of just how uprooted futures market sometimes get. While conditions aren't usually that extreme, the overall trend for a lot of commodities markets makes ETFs that track them underperform the long-term price trends of the actual commodity. Before you go there, just be careful with it.
I'll just throw in one other thing. When you're talking about things like gold, gold is probably seen as the ultimate inflation hedge. We looked up a study from Duke University, some researchers there did some study and concluded that gold prices do in fact match up with inflationary trends as long as you have a century or more to invest. Now, that's a long time. We're big on long time horizons here at The Motley Fool, but a century or more is longer than even really the most optimistic of us out there. I think that there's probably better ways to protect against inflation than just having a big block of gold.
I will say I've got a couple of gold coins at home, but they're more for the coin value than anything else, we'll just leave it there. But commodities maybe make sense to a limited extent, but I like to get my commodity exposure not through the actual commodities, but rather through the stocks that actually generate them. Oil and gas companies for exposure to crude oil, mining companies for exposure to gold and silver, food products companies for crops exposure and that thing. The fact that these operating businesses make profits, often pay dividends, it gives them an advantage over just directly investing in the commodities markets in my view.
Robert Brokamp: Let's move on to inflation fighter number 4. It's your human capital, which is basically your ability to earn a growing and safe paycheck. I might wonder why we're talking about this, because we were talking about portfolios. Well, your portfolio is funded by your paycheck. In order to invest money, you first half to earn money. When Warren Buffet was asked how to deal with rising inflation at the Berkshire Hathaway meeting this year, he said the best thing you can do is to be exceptionally good at something. Later on he said whatever abilities you have can't be taken away from you, they can't actually be inflated away from you. What we're seeing now in these days of higher prices, we are seeing wage growth.
It's not keeping up with inflation for everyone, but it is still going up and it's going up more than we've seen in many years, in some cases, decades. Plus for some professions in higher-performance, if you're just doing really well at your job, compensation is outpacing inflation. In fact, over the long term for professionals, compensation rises about 2-4 percent above inflation over someone's career. What do you do? Well, it takes some time to think about your job performance in your career path and determine maybe what you can do to boost your income. As a reminder, in our April 26 episode, we discussed how to ask for a raise. A final thought on this topic, when prices go up, the cost of your financial goals go up. Add that to portfolios that are now work-less and many people might now be further behind in saving for retirement or whatever goals you have. The solution, of course, is to get more money into your 401(k), your IRA, your brokerage account, and it's a lot easier to do if your income is growing. Those are a few ways to fight inflation. Dan, do you have any final thoughts on inflation here for us?
Dan Caplinger: I do. The sentiment on inflation has really just gone to full spectrum in the past couple of years. At first, people saw inflation as being purely transitory, nothing to worry about whatsoever. Now we've gone into almost full-blown panic mode with everybody harking back to the 1970s and 1980s and thinking that we're going to have a full-blown stag-inflationary environment. In all likelihood, the real answer is somewhere in between. It doesn't mean you shouldn't be worried about it, it doesn't mean you shouldn't take some steps to deal with it, but don't make it the focus of your investing strategy, and don't let it take you away from the long-term strategy that has worked so well for so long, it will continue to work. Just consider these ideas as you position yourself in this inflationary environment.
Robert Brokamp: I'll just add, there's really not going to be any magic silver bullet to this. Like investing in general, some things will work better than others, some will work just as well as they did in the past, some will not. The wise thing to do is just take a multi-pronged approach to making sure that your portfolio keeps up with rising prices. With that, Dan, thanks for joining us.
Dan Caplinger: Thanks. I really like being here. Thanks, Bro.
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 them, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill, thanks for listening. We'll see you tomorrow.
