Inflation, Acquisitions, and More Market Talk

In this podcast, Motley Fool senior analyst Bill Mann discusses topics including:

• How the cost of power is putting English pubs in danger.
• The specific type of acquisition he expects to see more of.
• Deals in the market.
• Takeaways from an interview with venture capital investor Jenny Abramson, founder of Rethink Impact.

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 August 29, 2022.

Chris Hill: Live from FoolFest, Motley Fool Money starts now. I'm Chris Hill coming to you from the Grand Hyatt Hotel in Washington, DC downtown. I'm very happy to be joined by Motley Fool Senior Analyst Bill Mann and several hundreds of our closest friends.

Bill Mann: They're making some noise. I feel like we are one of those booths trying to sell credit cards [laughs] at the airport. Hey, can I interest you in?

Chris Hill: Hopefully, we're going to be slightly more enticing for the dozens of listeners than the folks trying to [inaudible 00:00:38].

Bill Mann: For not losing one or two as we go.

Chris Hill: As I've been hyping this event for weeks on the podcast, it is officially Day 2 for FoolFest. We started Sunday evening with the reception. We are halfway through the day at a great amount of programming. I wanted to hit some of the highlights because I know some of the people listening are Motley Fool members, maybe they've been watching it over the live stream, maybe they're going to consume it later at their own pace, but for folks who aren't the members, I thought it'd be good to provide a few highlights to some of the things we've been talking about on the main stage. Let's start with the opening panel, which was you, me, and Maria Gallagher, really trying to lay the foundation, helping folks make sense of the market. One of the things we talked about was inflation. It's one of the reasons I love having you on this podcast and just in venues like this as well because you almost always surprised me with something and you made a point about inflation. I'll just tell you right now and then I'll let you make the point for folks listening. You made a point about inflation, and the first thought that went through my head was, holy cow, [laughs] and the second thought I had was there's no doubt in my mind that this is true.

Bill Mann: You didn't go with Bill's probably making this up?

Chris Hill: No. I know one of our colleagues who will remain unnamed did think you were making it up, but when you said it, I was like, I'm sure this is true. This is something about inflation in all seriousness that has real-world consequences.

Bill Mann: We are actually talking about an institution that is near and dear to both of our hearts, which is bars.

Chris Hill: Yes.

Bill Mann: About 70 percent of all of the pubs in England are believed to be at risk of going bankrupt due to the rise in cost, especially energy costs, but across the board that they don't have the pricing power to keep up with just untrammelled cost increases that they are dealing with. Chris, one of the things that we've talked about on the panel is that some of that is actually a bit of catch-up. We've gone a decade without inflation, and because of that, inflation seems like a complete crisis now. But there are actually places where inflation is causing problems that may be foundational for certain types of companies.

Chris Hill: Well, the obvious example when it comes to power and energy is the cost of gasoline in America, and that hits anyone who drives a car at the pump, that certainly that's gotten better over time. Small businesses in particular are dealing with power issues and inflation rising. I want to get to one other point. Maria Gallagher made this point and you chimed in as well. Just the idea that in the stock market, you both expect us to see a lot more acquisitions over the next 6-12 months. As you pointed out, you think there's a very particular way that these acquisitions are going to come about.

Bill Mann: My favourite types of acquisitions and I do think that we're going to see a lot of them going forward simply because prices have come down so much for companies across the board, the companies that we would consider to be great have not necessarily been spared from the real pain in the stock market. But you're going to see the companies that are really truly building something for the future go out and start acquiring now and they're going to do it with cash. I think that that is a way that really shows confidence on behalf of the management of the acquiring company, that they are using a currency that they really, really need to have. When I see that from companies, I think this is a company with some real confidence.

Chris Hill: Although you also used an example that I think is something we're going to see as well. The example you used was Starbucks, but the larger point you were making was, look, there are companies that are going to gain a competitive advantage over the next 12 months or so, simply by keeping business going as usual and the way they will gain in advantages, their smaller competitors are not going to be able to keep up. They're going to lose market share because of their decreasing ability to compete.

Bill Mann: Yes, it's not even smaller competitors, you just think about ones that are less well-capitalized. We used the Starbucks example on stage but think about Domino's Pizza for example, that has an absolute focus on their cost structure. They have a wonderful balance sheet. The restaurant industry, I don't know if you know this, but it's hard in razor-thin margins. You are looking at the more powerful companies, the better-capitalized companies having a true advantage because the economy is hard, because there isn't money being thrown at their weaker competitors now. I really do expect to see some real consolidation in certain segments of the economy. We always talk about the market, but really, the market is representative of the economy itself.

Chris Hill: Andy Cross, the Chief Investment Officer at The Motley Fool, led a discussion with some of the folks on the investing team about deals in the market today, one of the examples that they highlighted was Alphabet, laying out the case that when you looked at Alphabet.

Bill Mann: I call him Google.

Chris Hill: You and me both. That this is a business that represents a nice opportunity today. I know you are not a part of that panel, but I'm sure there are businesses that you'd look at and you think, boy, if you're asking me to name something that looks like a nice opportunity, this is what I'd go with.

Bill Mann: Salesforce is another. If you think about the SaaS companies, a lot of them have been set up. You could almost call them SaaS apps, software-as-a-service. Some of the very likely purchasers of companies like that, Alphabet, once again, Salesforce.com, I think you're going to see an awful lot of this. I think you may see some consolidation in the retail segment as well, where you have companies with cost structures that are just completely out of whack just throwing their hands up and moving in joining a better-capitalized competitor.

Chris Hill: I know you're not in the room for this conversation, but I want to spot you up with something that Jenny Abramson said. She is a venture capitalist, who started a VC firm called Rethink Impact. Ollen Douglass from Motley Fool Ventures interviewed her onstage, great conversation. She had a stat that [laughs] blew my mind. I'm paraphrasing, but she said we look at 600 deals a year and we pick four or five. The rigour of that process is impressive, to say the least. Are there analogies there, can you draw a line for individual investors as well? Because that's where my brain immediately went, where I just thought, wait, as an individual investor, should I be researching hundreds of stocks and really only pulling the trigger four or five times? I don't have that time. [laughs] Just in terms of that number, like you're nodding. As I said, that syncs up for you. If you're in the VC game, that's really what it should be like.

Bill Mann: Sure. Now, I'm not going to speak for Jenny Abramson, but I will say when she says 600 companies probably let's just throw a number out there, 200 of them, they got to the front page and said this isn't for us, which you can do with stocks all the time. You'd probably intuitively do it. The last time you went and put gas in your car, you went to an Exxon, let's say. You know that Exxon is a publicly traded company, but there's either an interest or a non-interest for you. We actually do this all the time. I think what becomes powerful for people is when they become intentional about it. Wherever you are, just ask yourself that question, hey, I'm interested in this product or I'm interested in this service, I wonder who provides it? I wonder where this is coming from because this seems like the thing where I might be interested in, there may be an investing case. What she's talking about is a formalized process. For individual investors, formalizing your process just a little bit will help you broaden your horizons.

Chris Hill: Before we get in line to get some lunch because I'm hungry. If you could share a little bit of the colour for folks who have not been to one of these events. You and I were talking earlier, this is the first in-person event we've had in three years, it's so great to be with members. Some of them, it's their first time here, others, they're absolutely familiar faces to us. But I would say to you, the thing that always happens to me at these events has not happened yet, but I expect it will maybe be later today at the post-event reception.

Bill Mann: You leave your key in the room, was that it? Every time for me.

Chris Hill: Every hotel. It's someone pitching me in stock, which I love. I love that it just shows the curiosity that members have, the active minds, and I love the, "Hey, have you thought about taking a look at this?"

Bill Mann: I love it as well. Just to show how powerful it is, remember one of the greatest investments that have ever come across the pie at The Motley Fool was Marvel, and that was pitched to us at one of these events by a member. A member walked up to David Gardner and said, have you ever looked at Marvel, which is now part of Disney? This happens all the time and I think this is a really powerful thing about these types of events where you can get together, and you have people who are thinking about the market in different ways, they have different interests, they have different types of expertise. Yes, absolutely positively, everyone who is a Motley Fool member and everyone who is listening to this radio show should know that that interaction is actually a really, really powerful advantage for us. I hope everyone gets a chance to come to a FoolFest at some point because it is a wonderful event.

Chris Hill: Also just great to meet people who have travelled from across the country. Just hearing about flights and driving literally all over the continental United States.

Bill Mann: I'll just be glad to be led out of my basement.

Chris Hill: [laughs] Bill Mann, always great talking to you. Thanks for being here.

Bill Mann: Thanks, Chris.

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. Don't buy or sell stocks based solely on what you hear. I'm Chris Hill, thanks for listening. We'll see you tomorrow.