In this episode of Market Foolery, Mac Greer and Motley Fool contributor Dan Kline go through some of today's business headlines. Congress debates a stimulus for businesses and Americans, and we explore some aspects of the package and our thoughts on that. Additional topics:
- Walmart (WMT -1.22%) hits an all-time high.
- What does the future hold for Boeing (BA 0.19%)?
- How bailout is a bad idea for some businesses
- How cruise lines are faring
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 March 18, 2020.
Mac Greer: It's Wednesday, March 18. Welcome to Market Foolery. I'm Mac Greer, and joining me is Motley Fool contributor Dan Kline. Dan, joining us from Florida; I'm at my home in Virginia. Dan, how are you doing?
Dan Kline: [laughs] Well, I was supposed to be in the office all week, but this is the next best thing.
Greer: Dan, I was supposed to be in the office all week.
Kline: [laughs] The circumstances are unusual, but thank you for having me on.
Greer: The circumstances are, in fact, unusual, and it's great to have you on, so let's get right to it. The Dow down around 6% at the time of our taping, so a familiar, familiar story. Dan, this is all playing out as Congress debates a $1 trillion stimulus. Now, that stimulus would include relief for small business and relief for some industries as well, as well as direct cash payments to Americans. What do you think a stimulus means for business, and what do you think it means for investors?
Kline: I think, for business it creates a backstop. It sort of says, OK, I'm going to have, whether it's a loan to draw on, the ability to not run out of money, at least in the next six to eight weeks. For investors, it gives you a little bit more confidence in riding this out. I mean, we can see who the winners and losers are right now, but we also know that some companies that are going to be losers, remain really strong companies.
I've talked about this before, but take Starbucks (SBUX 0.43%), they're going to take a huge sales hit, but they're still a great company, so can they pay employees during all this? You know, a stimulus will help that. And part of the discussion of the stimulus is sending every American somewhere between $1,000 and $2,000 with some income testing. And I have to say I have mixed feelings about that, because you and I, we're still working. And in fact, I would argue that for me, there's more opportunity to make money right now -- for very unfortunate reasons. So, I don't want a check from the government, I want it to go to the people who work in the restaurants I go to, the stores I shop at, not someone who's able to keep working through the crisis.
Greer: And so, along those lines, Dan, I know one of the suggestions that you made in Industry Focus, one of our other podcasts, yesterday is, with some of those restaurants that we frequent, if we can't go there in person or if they're losing our business, that one thing you can do right now is you can buy gift cards.
Kline: Yeah. I mean, we've still been doing takeout. My building has a setup, takeout can be dropped off, like, sort of, in the front of the building with no human contact, you go down to get it. You can wipe off the containers, if you're worried about that, because you can't leave it at my door, because delivery people aren't allowed past the lobby. And, yeah, you can buy gift cards. I mean, look, I'm going to call the person who cuts my hair and offer to pay for three in advance. I mean, you need to help the people in your world keep going.
Greer: And, Dan, let's talk about a business that is really, really struggling; Boeing. Shares of Boeing down around 17% at the time of our taping. Now, Boeing has lost around two-thirds of its value this year. And I apologize for our dog barking in the background, but that is appropriate for the Boeing story. Now, there are reports that Boeing may be asking the government for as much as $60 billion in assistance. What do you think the future looks like for Boeing?
Kline: So, I have very mixed feelings about this, because Boeing has not been a company -- they manage for shareholders, not employees, not to run the business. So, I would want any bailout to look like the auto industry bailout, where the government takes a stake in it that the company could maybe buy back at a higher price. This should be loans.
On the other hand, tens of thousands of people work there, and it's a backbone part of the U.S. industry. We need to be able to manufacture airplanes; that's important. So I do think that we should save Boeing, but we should demand some changes in how it's run, just like we did with the auto industry.
Greer: And let's move on to retail. A really interesting story here with Walmart today. Shares of Walmart hitting an all-time high. So, we have so many retailers struggling. We have a lot of big retailers that have closed their stores: Apple, Macy's, Nordstrom, and yet, Dan, Walmart hitting a new all-time high.
Kline: Yeah. Well, I think we're seeing the investments Walmart made in being omnichannel really paying off. They didn't have to change to offer curbside pickup; they had invested in curbside pickup. They didn't need to build on a supply chain to deliver; they already had it. So, there are some item shortages, just like Amazon is experiencing runs on toilet paper and some other things, but I know here in Florida, if you go to Walmart, which admittedly I haven't done in a few days, but I did over the weekend, Walmart had most things.
And they've spent billions of dollars, and there was a lot of debate within Walmart whether that was money well spent. And now it's very clear that however consumers are able to get stuff, Walmart is capable of getting it to them that way. And the same could be said of Target, the same could be said of Amazon. These are the companies that are winning because they have what people need, they can adjust their supply chain to have more water, toilet paper, rice; whatever it is people want, and that's going to take a few days, but shortages are going to abate. And that's a testament to how well this company has been built.
Greer: And when you talk about companies that are winning, I want to kind of flip that and ask you, when all of this shakes out, what do you think are some retailers that might have a hard time bouncing back?
Kline: Yeah. So, I think if we look at any sort of bailout, you need to look at whether the company was successful in the first place. I don't want to spend a dime bailing out, say, JCPenney or Pier 1 or even Bed Bath & Beyond, Sears definitely, because these were companies living on borrowed time anyway. I mean, all of those, I think JCPenney had a tiny percent chance of turning things around, but these are companies with very little cash on hand that need to make major changes and don't really have the ability to do that.
So I don't think at the end of this any of those four will exist, but I also would have told you that if I had to bet, if they'll still exist in 2021, I'd say "Probably no" anyway, so. And to use very unfortunate language, "This is going to cause the sick to die faster."
Greer: And, Dan, let's talk about a company that is having a really, really good day. Shares of Blue Apron (APRN) have more than doubled today. Yes, that is today. Now, Blue Apron delivers meal kits so you can make your meals at home. Blue Apron was struggling before the coronavirus and at one point was exploring strategic options. There was speculation that they might have to sell. Dan, when you look at a company like Blue Apron, do you think there will be a real change in consumer behavior over the long term, a change that could revive Blue Apron's business?
Kline: So, I think there'll be a mild change. I talked about this a little bit with Emily on Industry Focus yesterday. I think there's going to be some people, like my mother, who are somewhat tech savvy but hadn't used services like Instacart or Grubhub, that are going to get exposed to them, and they might become occasional users after. Do I think consumers are going to stop eating out and stop shopping for their own groceries in favor of massively buying from Blue Apron, as they might be doing right now? No. But in the short term, I think they are going to add new customers, and if those become occasional customers, and if they can bank some money and pay off some debt and be in a better financial position, they can slowly grow their user base. So this might be a blessing in disguise where they can maybe add 10%, 20% users for the long term, but also, sort of, do blockbuster business right now.
So, again, I don't think that, you know, we're not going to not go out to eat once this is over, but this is good news for a company that was right on the edge of disaster.
Greer: And, Dan, one of the things that I loved reading was a story you wrote about Whole Foods, and it just reminded me that there are some retailers taking some real creative approaches to this crisis. Whole Foods opening its U.S. stores an hour earlier to customers over the age of 60.
Kline: Yeah. And a lot of local regional grocers are doing the same thing. You're going to see Walmart and Target do the same thing. What they're doing is, they're opening an hour early at Whole Foods to let people 60 and over into the store at a time where they won't be around young people, there'll be less chance of them contracting coronavirus. It will also let older people shop at a time where they're not fighting with perhaps more able-bodied people for the same goods.
Whole Foods is also closing two hours earlier, and that's to facilitate restocking the shelves. Now, they're still going to be open for pick-up orders, they're still going to be delivering Amazon Prime orders during those two hours, but they're going to take the time to make sure that when they open in the morning, everything has been put on the shelves from the back room, that they're well positioned. There's really no reason to be open late hours, people are available, they don't have any place to go. And I think you're going to see more and more retailers adjusting and, sort of, doing these smart things.
Now, they haven't said if they're going to verify whether you're 60 years old. I'm guessing this is the honor system, but this does seem like a very smart thing. And no putting on a wig or doing anything, you know, no putting a little gray in your hair, like, let's keep this honest here.
Greer: Okay, Dan, you're in Florida, so of course, we've got to talk some Disney (DIS -0.89%). Disney has closed its parks, hotels, its cruise ships. Now, Disney says it will continue to pay its workers during the shutdown. What do you make of what's playing out with Disney?
Kline: Yeah. So, Disney bowed to public pressure. They were making every effort to stay open. I was actually at Epcot about, I think it's 11 days ago now, and the crowds were pretty good. And Disney had to balance, you know, people who spent their hard-earned money, they got on a plane, they're in the middle of a vacation, and are we going to shut down? So, eventually they made the right decision. You don't want to have big groups of people congregating together. And they say they're going to reopen at the end of the month, but I think we all know that it's probably going to extend longer than this.
Fortunately, for Disney, they're in a position where theme park revenues are only about a third of their revenue. So, obviously, they're going to have expenses and no revenue, but they are going to see a bump in other areas. There's going to be a lot more people signing up for Disney+. There's going to be more people renting movies. You can rent the latest Star Wars for $20 way ahead of schedule. Lots of people read the novelization of that movie.
So Disney is going to take a big hit here, there's no way to minimize that, but again, this is not going to change whether people want to go to Disney World. They're going to deal with a lot of deferred demand, especially with all the new rides they're opening and have opened and perhaps construction is continuing on those. It was, as of a couple of days ago with proper protocols in place. So this is bad for Disney, it's not great for Comcast and Universal Studios, but again, only a percentage of its revenues.
The one to really watch is SeaWorld. SeaWorld was not in great shape and had to close, had to extend passholders' passes that they've already paid for. So, that's a company that could come out of this in real financial trouble.
Greer: And I've got to ask you also about the cruise industry, because that is, obviously, such a big part of Florida's economy. And when we look at Carnival, when we look at Royal Caribbean, we look at Norwegian, they have seen their stocks plummet. And as of now, at least, it doesn't appear that the cruise industry is going to get a lot of relief from this stimulus, so what do you think about the future of the cruise industry?
Kline: The cruise industry -- which, look, I cruise roughly every six weeks. I live in Florida and I gamble, so I get comped a lot of cruises.
Greer: Every six weeks?
Kline: Something like that, because I can work from home. I'll do a little three-day gambling trip, work on Friday, take the weekend on the beach, you know, a really easy thing for me to do. So I love the industry; it's a great release for me. That said, they've made a decision to not be American based and not pay American wages. So the American government shouldn't be the ones to bail them out. The problem is, the places where their ships are flagged are not countries which have the ability to do that.
So you've already seen Royal Caribbean take an extra $0.5 billion on its credit lines, because there is no revenue coming in. What they've had to do, and the policies slightly vary by cruise line, but what Royal did, because I was supposed to leave two days from now on a trip with my son and my mother, is they offered you either your cash back, meaning they're taking cash off their balance sheet, or a 125% credit. Hopefully, for their case, people are taking the credit and will book new and sort of spread out the bookings. Optimistically, they're still taking bookings for even May, maybe even April.
I talked to the person I deal with at the cruise line and booked something for late June, which I thought was sort of optimistic in that. But, yeah, they're going to be dealing with either fulfilling orders that were already paid, so no new revenue coming in; charging less for the peak summer season, prices are very down when you look at bookings; and probably having to either mothball some ships or deal with -- they may face fallout for well longer than other industries. Because there's obviously a history of cruise lines and spreading illness due to the close quarters, not something I'm particularly worried about, given how aggressively they clean and, sort of, make people wash their hands on board, but something that could cause a hangover even if three weeks from now, miraculously, this is all gone and it's business back to normal -- which, of course, nobody expects.
Greer: Okay, Dan, I want to close with my desert island question. You're on a desert island for the next five years, and you can only own one of these stocks -- and we're just going to go back through and I'm going to present you with some of the stocks we discussed -- you can own either Boeing, Walmart, Blue Apron, or let's say one of the major pure-play cruise companies: Carnival, Royal Caribbean, Norwegian. What are you going with for the next five years?
Kline: So, I'll be going with Walmart. I believe that this will reinforce Walmart's commitment, which they appeared to be wavering on, getting rid of some of the Jet.com people, to omnichannel and investing in digital and supply chain. I think they see how important this is. That said, I am tempted to buy some Royal Caribbean stock and will probably keep monitoring that, because I do believe they have the cash reserves and they will survive this. But comeback might not be 5 years, that might take 10 years. And thankfully, my retirement horizon is probably 25 years, so, you know, I would have time. But if I could only own one of them for five years, it would definitely be Walmart.
Greer: Dan Kline joining us from Florida. Dan, thanks so much for joining us.
Kline: Thanks for having me.
Greer: [email protected] is our email. [email protected] for your questions and comments. And we got a great comment, that Jason Moser passed along, from one of our listeners, Sam, who is celebrating a birthday.
Sam writes, "I'm a pretty extreme extrovert, and the social distancing is hard. I'm an avid TMF listener to all podcasts since they all began and a subscriber to Stock Advisor since I was 16; I turned 31 today. Investing is a huge part of my life and something I get a lot of joy from."
Sam, we get a lot of joy from listeners like you. Thank you so much. We're lucky to have you, and we're lucky to have listeners like you. Happy 31st! And remember, when it comes to The Motley Fool and our Motley Fool podcasts, there is no social distancing, We will be here through the ups and the downs, through the Walmarts, the Blue Aprons, and through the Boeings.
So, as always, people on the show may have interests 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.
That's it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Mac Greer. Thanks for listening, and we will see you tomorrow.
