Now's a Good Time to Buy Stocks

In this podcast, Motley Fool senior analyst Jason Moser discusses topics including:

• The importance of staying invested through bear markets.
• JPMorgan Chase going after the rental payment market.
• How much the big bank has been investing in technology.
• Wells Fargo issuing a "double downgrade" of Hanesbrands.

Plus, Motley Fool contributor Matt Frankel joins Jason to discuss four companies they bought shares of recently.

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 Oct. 31, 2022.

Chris Hill: We've got the latest in the war on cash as well as the stocks that we've been buying. Motley Fool Money starts now. I'm Chris Hill, joining me today, Motley Fool senior analyst Jason Moser. Happy Halloween.

Jason Moser: Happy Halloween, man, it is just flying right by.

Chris Hill: It is and before we get to the war on cash, because there's an interesting development in the war on cash. It's Halloween, it's the last day of the month. It's been a good month for the S&P 500, up 8% for the month. The Dow Jones Industrial Average, which we don't spend a lot of time focusing on. I would argue rightly so because it's an average of just 30 stocks, but the Dow is up 14% for the month. It reminds me of something we've talked about before, Jason of just make sure you have room in your portfolio for those steady performers. Because every once in a while they can be even more than steady. They can be in positive territory.

Jason Moser: Yeah, absolutely. I mean, we've talked a lot recently about how there have been just so many of the no-brainer ideas, the no-brainer companies out there that seem to be trading at, just seem to be valued at just very reasonable prices today in relation to their long-term prospects. I mean, we've talked before about how the market performs in bear markets. We've been in and out of bear market all year, it feels like and given all of the macroeconomic concerns that exist today, that really hasn't changed. The prospect of interest rates continuing their trek upward remains. The war in Ukraine remains. China's zero-COVID policy remains.

I mean, there are a lot of things going on out there that would be seen as headwinds to growth here in the near term, at least, and plenty of talk about recession 2023, a lot of people would argue that we already are in recession. It's nice to see the light at the end of the tunnel, even if it's just a very brief glimmer. It does speak to also the fact that the volatility that we see during these stretches is real. But it also speaks to why you don't want to trade in and out of these markets. Basically, I mean, history tells us that essentially over half of the S&P 500's best days occur during bear markets. I know that people feel like, "Well, that doesn't make any sense. It's a bear market." Well, what it speaks to, I think is really the psychology at play, in the volatility at play. It is something that exists. It's not an opinion, it's a fact and so it really does speak to why we encourage folks to stay the course and not try to time getting in and out of the market. Because it's impossible to do sustainably well.

Chris Hill: Let's move on to the war on cash, which if today's news is any indication, cash is not going quietly, or I should say, non-digital payments not going quietly. JPMorgan Chase is launching a platform that it created for the rental market, specifically for property owners and managers. The point of the platform is to automate the collection of rent payments. The stat that blew my mind, Jason, was 78% of people are still paying their monthly rent with checks and money orders. I haven't rented a place in a long time. I would not have guessed it was that high.

Jason Moser: Yeah. I'm with you. It feels like that number should be lower. I'm with you. I mean, I haven't rented a place in quite some time. But I mean, the fact remains that that data is out there and you've gotten more than 100 million Americans that pay a combined $500 billion annually in rent, according to JPMorgan's research. It absolutely makes sense that they would want to do this. I totally get it. It's also worth noting. I mean, they are not the only ones pursuing this space. When you and I were talking about this earlier this morning, the first thing that came to my mind reminding me a lot of a company that I had followed for a while several years back called RealPage. RealPage is a provider of on-demand software solutions for the rental housing industry. Their software is built for the owners and the managers of these rental properties to basically manage the entire process from start to finish. We're talking marketing, pricing, screening, leasing.

Accounting, purchasing, payments, anything you can imagine. That's what this platform is built for. RealPage, I always thought was actually a pretty, a pretty interesting opportunity in the public market because of the opportunity that it was pursuing. It turns out, I wasn't the only one, Chris, and Thoma Bravo acquired RealPage last year in an all-cash transaction that valued the company at an enterprise value of around $10 billion. Which, at the time I started following RealPage -- I mean, it was just a little small cap getting its feet underneath it. So you remember Thoma Bravo also acquired Ellie Mae not all that long ago. That was that big mortgage opportunity. The mortgage software that Ellie Mae has just distributed all over. I thought it was a really shrewd acquisition on Thoma Bravo's part that made a lot of sense to me and it makes a lot of sense to me that JPMorgan would want to do this ultimately trying to drive that digital experience.

I mean, I can't imagine as a landlord something more frustrating than having to deal with getting paper checks in the mail? I mean, that to me has just got to be -- it sounds like it would be one of the most frustrating things in the world. When you're a renter, sending that check and make sure it gets to your landlord on time, and then you got to wait for that check to clear. It's just this constant balancing act and it seems like it would be so much better managed on a digital platform and given the opportunity that we've seen developing in the space over the last several years, going back to that RealPage example, I absolutely understand what JPMorgan would want to get into this given the exposure that they have to lending to all of these property managers and owners. I mean, they have so much outstanding in mortgages with this space. I mean, this would be a very complementary opportunity to expand the economic value they can capture in that market.

Chris Hill: Last thing before we move on in terms of the overall business of JPMorgan Chase, what does this tell you? Because this seems like something that the bank has put a lot of thought into, a lot of research into and presumably a lot of money in terms of a technology investment?

Jason Moser: Yeah. I mean, a lot of money is right. I'm glad you brought that up because it is something that a lot of these big banks could be accused of maybe letting technology pass them by. We've seen so many of these fintech businesses that have built up and scaled in such a short period of time. The big banks, I think, could be seen as maybe dragging their feet a little bit. Jamie Dimon has just committed, JPMorgan is spending more than $12 billion a year on technology here in the coming years. If that sounds like a lot of money. I mean, it is. We've spent a good portion of last week dragging Meta and Mark Zuckerberg through the mud questioning how they can justify investing so much in the metaverse.

The difference here at least is that fintech technology is a bit more of a proven entity. I'm sure that some of that spending will absolutely result in acquisitions. But I mean, I think it is something really to keep an eye on in regard to this bank. Because I mean, I do appreciate that Dimon feels like they need to do that. But that is a lot of money. Shareholders are going to need to make sure they hold this team accountable. If they end up spending that capital, if they spent that level of money, they need to hold management accountable to make sure they're actually realizing a return on that investment. Because it is a lot of money and there are a lot of companies out there that can just keep on doing what they're doing. JPMorgan is still going to have to continue to play catch up to some degree. Not just JPMorgan, but the bigger banks in general.

Chris Hill: As we typically get on a Monday morning, there were a bunch of Wall Street analysts' upgrades and downgrades coming out this morning. The one that caught my attention, I think a lot of people's attention was Wells Fargo issued a downgrade of Hanesbrands. Now Hanesbrands is the apparel maker, namesake brand Hanes, but also other brands like Playtex and Champion. This analyst's -- this was a double downgrade.They cut Hanesbrands from overweight to underweight. Part of the note was just being very direct about the amount of debt this company has. Essentially saying, we don't think management can handle this. I guess my first question is, which to you is more damning? The fact that they were just blunt about the fact like, yeah, we don't think you guys can handle the debt that you've taken on or the fact that it's a double downgrade, which I don't remember the last time I saw one of these.

Jason Moser: Yeah. I don't know. We were kicking that around. I don't know that I can recall seeing a double downgrade or at least it phrased that way. It really catches one's attention and pretty quickly. I feel like it's something from Arrested Development. When they had the ratings there, there was like buy, sell, and then there was like Bluth or something like that. It just doesn't seem very good. I don't know that I share the same concerns on the debt side that Wells Fargo does. When you look at the business, let me just lead with this is not a stock I own and it is neither -- it's not a stock I will ever own. I will start with that. It's not, I think, a business that really, I find terribly attractive just from a fundamental perspective. But I mean, what does Hanesbrands do? They are apparel and it's innerwear. It's activewear. Innerwear is clearly the bigger part of the business. T-shirts, underwear, and whatnot. They've got 40% of revenue plus the international side of the business, which captured a lot of that innerwear market as well, tied to that innerwear.

They're selling a lot of underwear and they're selling a lot of T-shirts. There's a lot of competition out there these days for that stuff. If you look at the debt position of this company, they have around $4 billion in net debt. It is a lot, particularly when you consider that growth has hit a wall. The company has not grown revenue at all over the last five years and that's a problem. They've been able to maintain their gross margin line, but net margin remains challenged just due to costs and there's no real pricing power in this stuff. But when you look at the debt, their operating income covers net interest expense, close to six times over. That's -- that's not that bad. It's been relatively consistent through time. They don't have much of anything really on the debt side coming due until 2024. I don't know that I share necessarily the same concerns about debt. But when I look at a business like this and I think what's the opportunity to grow?

What's the opportunity for investors? It's going to be a slow grower at best. I think they're always going to be dealing with challenges on the cost side, you figure probably the biggest input for this business is cotton. They have to be very in touch with what the cotton markets are looking like. They did last quarter talk about some real near-term inventory challenges. Inventory got really bloated and they're going to have to deal with that over the next several quarters. Generally what that means is they're going to cut production and probably cut prices as well. I could see the concerns more there than necessarily on the debt side. I'm not saying $4 billion in net debt is good. But I don't know that it merits a double downgrade. Maybe a single downgrade on the debt, and then maybe a single downgrade on the inventory and there's your double downgrade, courtesy JMo.

Chris Hill: I've never seen a double upgrade. Like just as long as we're talking about the analysts category, never seen it before. We'll keep our eyes out. Jason Moser, always great talking to you. Thanks for being here.

Jason Moser: Thank you. Appreciate it.

Chris Hill: Jason Moser is sticking around because he doesn't just talk the talk about taking advantage of bear markets. He's been buying a few stocks lately and so has Matt Frankel. To share more about the four stocks they recently bought, here's Jason again.

Jason Moser: There are plenty of great businesses out there that are selling at far more attractive prices today than they were at the beginning of the year. I think that we've all been trying to take advantage of that to a degree. We want to talk a little bit about today, just some of the stocks that we've recently bought, some of the stuff that you and I have recently purchased ourselves. I'm going to go ahead and start with you. Let's talk about two of the stocks that you purchased most recently and go ahead and hit me -- what's the first?

Matt Frankel: It's tough to narrow down to two because I recently sold one of my biggest stock positions because they're getting bought out in STORE Capital. That left me with a lot of capital, no pun intended in order to reinvest. I took about half of it and I reinvested in one of my favorite stocks, Realty Income, which one of my favorite things to do when these companies get bought out. I was very sad to see STORE Capital go, but it's to -- because it's being bought out at a premium, so I'm rolling it into Realty Income, which is one of my favorites. That's a very similar business that's trading at a discount because of this market madness going on right now. I'm essentially getting a premium for one business and buying 90% the same business at a discount.

Jason Moser: What is Realty Income do? Is that a fund or is that an actual -- that's a REIT.

Matt Frankel: It's a REIT. It's ticker symbol is O. It's a real estate investment trust. They specialize in single-tenant properties, just like STORE Capital. Walgreens is a big tenant and BJ's Wholesale is a big tenant. They have a bunch of warehouse clubs in their portfolio. They're one of the big ones and they pay monthly dividends. They actually have a registered trademark on the term "The Monthly Dividend Company." They've paid over 600 consecutive monthly dividends.

Jason Moser: Wow.

Matt Frankel: They've raised the dividend over 100 times since they went public in 1994. They raised it essentially every quarter. It's a really interesting company and one of my favorite REITs, and I was really excited to be able to add to my position with unexpected money because STORE Capital got bought out.

Jason Moser: Yeah, that's a nice problem to have. Sometimes we run into that situation and it's always a good reminder that it can happen and it's always, and I think that's why it's so valuable to have that watch list. You always want to be prepared because those things do come up. It's nice to be able to go ahead and and act quickly when you can. What's another one that you recently purchased or added to?

Matt Frankel: Another one that I added to with that same bucket of money that I got from STORE Capital was Pinterest.

Jason Moser: Interesting.

Matt Frankel: Ticker symbol is PINS. Advertising businesses in general are getting crushed right now but Pinterest really isn't. Its recent earnings were in contrast to every other advertising business I've heard reports so far. Facebook, we all know what happened after Facebook's earnings or Meta or whatever it's called now. We know what happened after Alphabet's earnings. The stock took a dive because of weak advertising, especially in YouTube.

Jason Moser: Snap, too.

Matt Frankel: Pinterest is going the other direction. For one, they gained active users for the first time in over a year, which it's really encouraging that they're returning to earnings growth, and they're doing a much better job of monetizing in markets that they haven't been able to do that really. They started advertising in Latin America during the quarter in a few different countries which foreign monetization has been one of their biggest problems. They're doing a great job of moving in the right direction. The revenue was up 8% year over year, and this is an advertising business. The numbers are really moving in the right direction, and even though the stock popped after earnings, it's really encouraging. I still think it's a bargain just based on how beaten down it is and how well it's doing compared to a lot of other advertising stocks. Yes, those are my big two recent purchases. Jason what about you? What have you bought recently?

Jason Moser: Well, Matt, we're all getting older. I've spent all my life in "grow my wealth" mode. I still am to an extent, but I also have a goal over the coming decade really to build out the dividend presence in my retirement portfolio as well. I want to give myself that reliable income stream that can just do so much, and it can be so powerful, especially later on in life. Yeah, I've been looking for stocks that the longer you own them, the more they make sense. They're not going to be stocks that double overnight, not going to light the world on fire. But they're solid businesses with great prospects, big market opportunities, and most of all pay a reliable dividend, and so to that end, the beginning of this month, beginning of October, I did make two purchases. I added to two positions that I already had established. One was Home Depot, which I'm sure everybody is familiar with right? Home improvement.

They are the leader in a very large and growing market. When you look at the housing market writ large, that's a big opportunity and I think you've got to whittle that down to really get to the core focus of what Home Depot is all about. But you've got I think two interesting dynamics to the business not only in the do-it-yourself or me, but also the pro. I think whenever you have work done on your house, a lot of times those contractors are getting those supplies from either Home Depot or Lowe's. Those are really the two big obvious names in the space, and so Home Depot, I think they've done a really good job in catering to the pro customer over time. They also recently made this acquisition of HD Supply, which ultimately is just going to be integrating a massive distribution network for this business to really I think help capitalize on becoming more efficient and more omnipresent not only for the pro customer but really it's going to help serve the do-it-yourself customer at the end as well.

When you look at the bigger-picture dynamics or the macro picture there, half the homes in the U.S. now are 40 years or older which means they require work, they require upgrading even when you have a home that you feel you've got it just the way you want it. Boom. You want to do something else. Something else has to be done. It never ends, and so I feel this company they pay a reliable dividend. They've made effective share repurchases to put some context around that. Home Depot is not a Dividend Aristocrat, but if I counted it up and I believe they are now on 14 consecutive years growing their dividend, and so maybe they are working toward that Dividend Aristocrat status, the share count is down over 11.5% over the last five years. To me, just an easy one to just buy and just hold, you're not going to light the world on fire with it.

But the longer you own it, the more it makes sense. What I mean by that is the five-year total return on the Home Depot is 100%, we stretch that out to 10 years it's 512%. I think given just the market that it serves, given the demographic that it serves, its one that I feel very comfortable owning for long periods of time. Then the other one, a lot of people know that I'm a big fan of McCormick just as a consumer alone. I use a lot of their stuff. I do a lot of the cooking in our house. I enjoy it. I remember growing up with all that McCormick stuff in our house and we consequently have a lot of it in our house today. Again, another leader in its respective market. They've made some smart acquisitions recently to continue to gain share and expand that market opportunity out into beyond just spices. Now they're in flavors and sauces and they have Frank's RedHot, for example, and Cholula. You see that stuff everywhere. I like their value proposition.

They're responsible for 90% of the flavor and only 10% of the cost of the food that we're eating and the nice thing is that everybody's got to eat. Fairly reliable business, there are a lot of repeat purchases, very strong presence in both consumer and commercial markets. The consumer segment's responsible for about 65% of revenue. Flavor solutions, which is the industrial side, more like 35% of revenue, but then also the flavor solutions that industrial side, it's a little bit lower margin because they're selling more in bulk, so to speak. You see the consumer segment responsible for closer to 75% of operating income to 25% for the flavor solutions side. But again, another one of those businesses, the longer you own it, the more it makes sense. The five-year total return there, 75%, but you stretch that out to 10 years, 205%, and McCormick is a Dividend Aristocrat, which I suspect they'll want to keep that title for as long as they can. Another one where I feel comfortable owning it for very long periods of time, and I think the valuation's in today's market tumult make a lot of sense for long-term owners.

Matt Frankel: I like both of those because they're both beaten down, but they're timeless businesses. You're always going to need home renovations. Now, the consumer spending might ebb and flow over time, but business is always going to be in demand.

Jason Moser: Exactly. You said it, ebb and flow. It's never a straight line up, but you're looking for businesses that serve these big markets that have these big long-term opportunities. Owning these types of businesses that we've talked about today, too Matt, maybe not Pinterest as much, but when you own those more stable income-producing investments they really allow us to invest in. They allow us to stay in that "grow your wealth" mode and to do that with confidence and to be able to take that longer view because you're well diversified. You're not just targeting one particular sector of the market. I think that really speaks to being nicely diversified. The older you get, the better it feels.

Matt Frankel: I'm in that mode as well.

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, 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.