In this podcast, Motley Fool host Ricky Mulvey talks with analysts Matt Argersinger and Alicia Alfiere about:
- What to do when you're on edge -- about investments and life.
- Whether politics matter in investing.
- Stocks they're buying regardless of who's in the White House.
Note: This podcast was recorded before Election Day.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our beginner's guide to investing in stocks. A full transcript follows the video.
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Matt Argersinger: It's not as if all these outside forces are going to have an outsize impact on this business, but it just behooves me to understand what the possibilities are, what the risks may be. That makes me feel better, maybe about owning a company, just knowing what the political landscape is like, even though I know it's probably only going to have a very minimal effect on the business and the share valuation.
Mary Long: I'm Mary Long, and that's Fool analyst Matt Argersinger. There's a presidential election coming up in just a few days, and it's a close one. Nobody knows who will win. A lot of people are nervous about the outcome, worried about what the days and years to follow will look like. We can't tell you who will win, and we certainly aren't going to tell you who to vote for. But we did want to chat with a few Fools about how they approach uncertainty as investors. My colleague Ricky Mulvey talked with Fool analysts Alicia Alfiere and Matt Argersinger about what they do to counter the unknown with calm, how politics affects investments, and some stocks they'll be buying no matter who wins on Tuesday.
Ricky Mulvey: Matt, were a few days before the election. I don't know if you've noticed this in your own life, but I'm seeing a lot of people on edge right now. People are edgy, people are antsy, people want to start something. Usually when you're on edge, that's one of the worst times you can invest, get a little trigger finger, you get a little itchy to do something, and people want to do something with information, especially when they feel powerless to the situation that they're in. What are some behavioral things you'd recommend to someone? Just for the investing side of their life. We're not getting to any other side of their life, but just for the investing side, when you feel itchy, when you feel on edge, when you feel on anxious, what can you do as an investor?
Matt Argersinger: Well, I am feeling those things myself, Ricky. But there's really not a lot any one of us individually can do, and there's a lot of anxiety about what's going to happen with this election, and I think I'm feeling the heartburn like a lot of people are. But I think the best thing to do, and I've done this actually over the last few days, it's tough with my job. But I've tried to turn off the news as much as I can. I actually turned off all the news notifications on my phone, so I'm not getting buzzed with just this is happening, that is happening, and I need to read this, and I need to understand what's happening. One thing that is helpful, I voted by mail a few days ago, I feel like my votes in, I'm not paying attention to the news, I'm just going to wait to see what happens and know that there's not really a lot I can do up until then to affect anything. I'm good with that.
I was having a conversation with a friend who made a great suggestion. He said, you know what, you need to take one day and this is going to help anyone in the next few days, but take one day out of the month, maybe two, if you can. Where you don't look at your phone the entire day. Maybe you even leave it at home, and you go do something with your family, you go on a hike, connect with nature. We all need to do that. I really like that advice, and I think I'm definitely going to do that as soon as the selection is over, Ricky.
Mary Long: Ricky asked Fool analyst Alicia Alfiere the same question. What behavioral stuff are you doing to calm yourself down in moments of high stress, uncertainty, frustration?
Alicia Alfiere: I'm really glad that you've asked this question because we could definitely apply it even after a company has a not so great earnings report. Something that I like to do is I like to do something active, whether that's walking, taking care of the leaves that are outside, just something in nature to get some grounding. Then the second thing that I'll do after I've calmed down a bit is I'll take out my journal and I'll write about my feelings, about the actions I've taken and why. There are a few reasons for that. I think journaling helps you slow down your thought process and be a little bit more intentional with those actions. But also it leaves a record behind so that you could come back later, learn what you've done, see what investor you are, what your risk tolerance is, and be able to grow from there.
Ricky Mulvey: Are you handwriting this? Are you putting it on a computer? Does it make a difference?
Alicia Alfiere: Well, you can use any medium that you would like. For me, I'm old school. I use a journal, I've got tons of journals, and I'm extra fancy. I will write incursive. [Laughs]
Ricky Mulvey: You're a dividend investor, you focus on the business. Do politics matter at all to your style of investing?
Matt Argersinger: Not really except maybe to this very small extent. I think as investors, we pay a very high premium for certainty, and I'm not going to name names, but I think certain politicians can be a little unpredictable in their policies. They can really zero in on specific companies, industries, and whether it's regulation or tax policy. There can be a lack of consistency. I think sometimes we can see things come way out of left field, and that adds a lot of uncertainty, it adds a lot of risk and volatility, it also creates opportunity though. I think it's OK to have at least a basic, even minimal understanding of how a particular administration or a particular congress can impact the companies or industries in your portfolio. It can be a little empowering because this is now the landscape for this business that I really like.
It's not as if all these outside forces are going to have an outsize impact on this business, but it just behooves me to understand what the possibilities are, what the risks may be, and that makes me feel better, maybe about owning a company, just knowing what the political landscape is like, even though I know It's probably only going to have a very minimal effect on the business and the share valuation.
Mary Long: Alicia is not quite as focused on dividends as Matty is, but she had a similar take to this question.
Alicia Alfiere: Whenever we hear questions like this, broad questions, the answer is always, it depends on the situation, the type of industry you're looking at, the company that you're looking at, in general, though, for me, macro factors, so that's politics, the economy, who's sitting in the White House? You could see some fluctuations in the short term, but it usually isn't as important over the long term. That said, you still need to be aware of different regulations that could happen in the industry that your company is operating in.
Mary Long: Before recording, Ricky asked both Matty and Alicia for a stock they'd be buying no matter who wins the presidential election.
Ricky Mulvey: There are some broader trends that are going to continue despite who wins on Tuesday or possibly later this week or possibly later this month. One of those trends is that people want experiences more. Pandemic has been over for a long time now, and yet this company, at least on a valuation basis, has not returned to its pre-pandemic highs, but you think it still has some things going for it. This is a company in the theme of things we're buying no matter who wins on Tuesday, what you got?
Matt Argersinger: Ricky, I'm looking at EPR Properties, the Tickers EPR, and EPR actually stands for entertainment properties real estate. How inventive is that? But it's exactly what you were describing, which is a company that's built on the experience economy about people getting out of the house, going out to eat, going to the movies, going to be entertained. It owns 284 properties across the country. It's technically a retail real estate investment trust. But if you look at the portfolio, it's movie theaters, restaurants, amusement parks, ski resorts, lodging, fitness centers, even has some casinos. Top golf is one of their largest tenets. It also owns several private schools and early childhood education slash day care centers, and the company's in the process of reducing that part of the portfolio.
But, it's really focused on that experience economy. Their tenants are companies or venues where people want to come, hang out, get food, be entertained. I think it's a strong trend. I think there are many studies, particularly of the Millennial generation, Ricky, which I think you're a part of, where a larger share of that wallet spending is going to experiences rather than things. I think that's a secular trend among the younger generations. I think EPR is right at the center of all that.
Ricky Mulvey: I think a lot of that is true. One concern I have, I'm going to control this is you mentioned movie theaters. While people want more experiences, people want to get out of their house, that's not necessarily true for going to the movies, I think. Pre pandemic, I'm stealing a take from Matt Belloni in his podcast, The Town, he's got a great newsletter in Puck. But he's pointed out that pre pandemic movies did about $12 billion a year. Post pandemic, we're looking at about a nine billion dollar future state for 2025, they're hoping everything comes back. But EPR does have a lot of these movie theater properties, which could contract a little bit more, and a lot of these movie theaters got to talk to their landlords and figure out what their business looks like in this streaming landscape.
Matt Argersinger: That's right. Movie theaters are still the largest part of EPR's portfolio. They make up about 37% of the company's pre-tax profit. It's a big contributor to EPR's business. As you pointed out, if we're at a state where the annual box office is going to be 25% lower than it was, pre-pandemic, that's going to put it on a struggle bus. It has been. The good news is, EPR is doing all it can to reduce that exposure slowly but steadily. They've sold off some of the theaters. They've resigned leases, they've restructured leases. They've transformed many, in the process of transforming a lot of those theaters into other uses. But no doubt, that part of the company is still going to struggle. There have been some pretty big blockbusters this year. Inside Out 2, I think was the highest grossing anime film ever. I didn't see it, but Deadpool versus Wolverine was also a pretty big hit. But you're right, we're never going to get back to pre cot box office. There's just too many options for the consumer these days with streaming, as you said, and a lot of big movies, which normally would have gone to theater in the past, they're going right to Netflix, they're going right to Amazon Prime. They're never even hitting the theaters. EPR is selling those the ass down, it's refocusing on its best located theaters, its IMAX, its large screen formats. I think theaters can still be a positive contribution to the business, even though it's shrinking.
Ricky Mulvey: What you mentioned were a lot of event movies, and it's good to see EPR leading into that with the IMAX screens. Before we get to the payout that EPR offers, especially as we compare it to the ETF we're going to talk about, for those who are less familiar with REITs real estate investment trusts, we're going to talk about the yield on this thing, but how is a REIT payout different from a dividend payout?
Matt Argersinger: Good question. When we look at a normal company that's paying a dividend, we'll tend to look at the earnings per share. We'll say, this company is paying a 50% annual dividend, its earnings per share are going to be a dollar, so we have a 50% payout ratio for this business. It's a little trickier with REITs because with REITs, a huge portion of their expenses, are due to depreciation. Because of course, it's in the business of owning real estate, especially commercial estate, depreciates over time. It behooves us to add back those depreciation costs to our earnings estimate. We do that and we end up with something called funds from operations, FFO, as it's popularly called, and that is a better measure of the cash flows for REIT. It's those cash flows that we use to measure a REIT payout ratio. Instead of earnings per share, we're looking at FFO per share, and that gives us the better idea about what a REITs payout ratio is.
Ricky Mulvey: When we look at EPR's FFO per share, we're looking at about 9-10 times. It pays out 7%, which would be a very high dividend stock. This funds from operation per share is a lower valuation than it was pre-pandemic. Any thoughts here on the valuation of EPR, and maybe why it still hasn't been able to get over that pandemic hangover.
Matt Argersinger: I look at EPR's valuation, Ricky, and to me, it seems like it's a distressed valuation. When you're trading at 9-10 times FFO per share and offering a north of 7% dividend yield, as you pointed out, that to me seems like this is a business the market assumes is slowly dying. But that's not the case though. EPR's dividend, even though it's high more than 7%, it's well covered by the company's FFO. Right now, the current annual dividend is $3.42. EPR is guiding for about $4.80 in FFO per share this year. They even raised the dividend earlier this year. That doesn't sound to me like a dividend that's in trouble. You have a REIT with 99% occupancy, it's growing its FFO per share. It's diversifying as we talked about into non theater properties, it has plenty of access to liquidity. Interest rates are likely to trend down over the next few years.
Even though I think EPR might be a little more sensitive to changes in the economy, it still has the movie theater overhang. I can't help but look at the stock price and conclude that this is just a real bargain. It's really priced in a lot of these risks, and then some, and it should be trading at a much higher valuation to me, and that's why it steadily become one of the largest positions in my own portfolio.
Ricky Mulvey: If you're feeling stressed, we got a distressed valuation for you.
Mary Long: My strategy was to pick a REIT in a steady political industry. Alicia took a slightly different approach.
Ricky Mulvey: One thing we've asked you and Matty A to bring to the table is a company, a stock, a REIT, and ETFs, something that you plan on continuing to be a long term investor of, continuing to buy and hold, no matter who wins on Tuesday. The company that you have brought is a Latin American Tech/E-Commerce Giant MercadoLibre. Why is this the company that you're bringing to the table?
Alicia Alfiere: In Latin America, for those who are unfamiliar, Mercado Libre is the leading E-Commerce platform and a Fintech leader as well. Quite simply as an international company, Mercado Libre won't be impacted by who sits in the White House.
Ricky Mulvey: Then what's the growth story from here? It has had a tremendous rise lately, and this is a company I'm less familiar with. I know it's big in the Rule Breaker universe, but what is the growth story for Mercado Libre?
Alicia Alfiere: First of all, let's just say, Mercado Libre is known as the Amazon of Latin America, and it's still growing from here. In the second quarter, which is the quarter most recently reported, gross merchandise volume, which is the total dollar value of what happens within its marketplace that grew 20%, number of buyers on its platform grew 19%. One of the things that's fascinating about this company is that its fintech business started with a digital payment solution for managing payments within its own marketplace. It did what Amazon did with AWS. It took something that was a cost center for the company. Mercado Libre's case, like I said, a solution to their own payment processing needs, and it turned it into a profit center. Now it's Fintech business is fast growing. The Fintech monthly average users grew 37% year for year, and there's still plenty of room for Mercado Libre to expand in both E-Commerce and the Fintech space.
Ricky Mulvey: This company has a little bit of a wacky valuation or it's got a really high price to earnings multiple, which is not a bad sign for a Rule Breaker type company. It's also got a lower price to free cash flow number. The cash that it's bringing in trades at about 20ish times that. How do you think about valuation? How do you value for a technical term, a Rule Breakery company like Mercado Libre?
Alicia Alfiere: I'm glad that you brought up both of these indicators, because we can see that sometimes traditional metrics can be high for a company like this. As you said, the price to free cash flow, it's not bad, but it's also not jaw droppingly inexpensive, either. But the important thing to remember with Rule Breakery type of companies is that some companies have the ability to grow faster and for a longer period of time than you might expect. This happens when companies are innovative, expand into new geographies, enter new markets, or like we talked about earlier, they do something like taking a solution that's a cost center for them and turning it into a profit center. There's just an incredible amount of growth that some of these companies can experience.
Ricky Mulvey: Then for investors watching this for the next 3-5, let's stick it in the middle, right at four years. For investors watching Mercado Libre on a four-year term, what are some risks that they need to pay attention to?
Alicia Alfiere: There is growth priced into the stock here. That can mean that the stock can see volatility if there are any bumps along the way. Mercado Libre has been an impressive growth company, but keep in mind that expectations for future growth are baked into the share price. It's always important to understand the ride that you're getting onto. Also, as with most companies, there's competition as well in the E-Commerce and the Fintech space.
Mary Long: Matt is such a long term investor that he decided to bring another option to the table, the Schwab US Dividend Equity ETF. This is a steady state investment he turns to when the wider world got him feeling stressed. Ricky asked Matt what other investors could get out of this fund.
Matt Argersinger: The Schwab dividend equity ETF. I think you're getting a nice balance between yield. Current yields about 3.5%, which is about 150% higher than the current yield on the S&P 500, and I think you're getting exposure to companies that are also growing their dividends at pretty healthy rates. I look at the top holdings in the fund. I love a lot of these companies. You've got the Home Depot, BlackRock, Texas Instruments, Chevron, Lockheed Martin. These are companies with tremendous competitive advantages, but also very good dividend track records. Late last year, I'll tell a quick story. My wife, we were rolling over one of her old 401(k)s from a previous job and rolled it over to Schwab, and we were deciding what to do with the proceeds, and we went ahead and decided to put 50% of that into SCHD into the Schwab Dividend Equity, ETF. We wanted to get her quick exposure to this fund because it's a great track record, it's got growing dividends, and that was what we decided to do with a really good chunk of our net worth.
Ricky Mulvey: I'm sure you've looked into this. I own both of these ETFs that we're talking about. There is another big dividend fund, it is the Vanguard Dividend Appreciation Index Fund. I'm sure when you're putting half of your wife's rollover money into a dividend ETF, you're looking closely at these things. Is there a meaningful difference between these ETFs?
Matt Argersinger: There is. You're talking about the VIG, which I think is also a great dividend ETF. We also own it in one of our other retirement accounts. But for VIG, the deal is much lower, it's about 1.7%, still higher than what you're getting in the overall market. But what you're getting with the Vanguard Dividend Appreciation Fund is you're getting exposure to companies that aren't just growing their dividends at a lot faster rates, then the companies you'll find in the Schwab ETF, but you're getting companies that are growing their earnings a lot faster as well. For example, in the VIG, you've got Apple, Microsoft, Broadcom, JP Morgan, Visa, Mastercard. If you're looking to Instant exposure, I think to the dividend side of the market, I think with the Schwab fund and the Vanguard Fund, you've got a really good mix between yield and growth, and I don't think you can go wrong owning both. I certainly do.
Mary Long: With that, Ricky only had one more question left for Matt and for Alicia.
Ricky Mulvey: You got any plans for Tuesday?
Matt Argersinger: Like I said, probably turn off my phone and go take a walk outside.
Mary Long: Alicia's plan was a bit more detailed.
Alicia Alfiere: I'm going to try to make it as normal as a Tuesday as possible. I'm going to go to the gym, make some intensive meal that takes me a lot of time while listening to music. Then I'm going to settle down with popcorn and watch a movie. I was thinking Paddington or Paddington 2. I've heard really good things about those movies. But at the same time, I know that it's going to be hard not to check in at all with the elections. I'm going to actually schedule time for myself. Like five minute block of time, maybe two or three times throughout the night to check election results because, it's going to be helpful for me to limit my time in those areas.
Mary Long: One final thought before we go Fools. This one was originally shared in 2016, on the platform then known as Twitter. It's a post from Motley Fool Co-Founder and Chief Rule Breaker, David Gardner, who shared these words, written by Tom Engle.
Tom writes, I have one big rule. I never worry, about anything. There is no point to it. Some things are just not in our control. I always felt it is within all of us to win regardless of the circumstances. A man can win even with terminal cancer, if he doesn't succumb to fear and pain and dies with dignity. Not always easy, but for those not facing death, to worry is just energy wasting. I have lived through many different presidents. None of them changed my life for the better or the worse. I just stepped outside, admiring the fall colors, fresh air, cool temperatures.
Neither Clinton nor Trump could ever change the stay for me for either the better or the worse. It is not in their power. If a change in presidents saps my strength, well, the weakness is mine. No president had that type of power over me. I hope they never will, it is my weakness. I strive to make the world a better place every day of my life, and that is all any of us can do. Enjoy the fall colors, the fresh air, and the cool temperatures. Enjoy it all, and strive to make the world a bit better each day.
I'm Mary Long. Thanks for listening. We'll see you tomorrow.
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. All personal finance content follows Motley Fool editorial standards and are not approved by advertisers. We only pick products that we personally recommend to friends like you.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of Motley Fool Money. Alicia Alfiere has positions in Apple and Microsoft. Mary Long has no position in any of the stocks mentioned. Matthew Argersinger has positions in Amazon, Chevron, EPR Properties, Hershey, Home Depot, Mastercard, MercadoLibre, Netflix, Schwab U.S. Dividend Equity ETF, Texas Instruments, and Visa and has the following options: long January 2026 $75 calls on Schwab U.S. Dividend Equity ETF, short December 2024 $190 puts on Texas Instruments, short December 2024 $210 calls on Texas Instruments, short December 2024 $390 calls on Home Depot, short December 2024 $390 puts on Home Depot, short January 2025 $175 puts on Hershey, and short January 2026 $75 puts on Schwab U.S. Dividend Equity ETF. Ricky Mulvey has positions in Hershey, Home Depot, Netflix, Schwab U.S. Dividend Equity ETF, and Texas Instruments. The Motley Fool has positions in and recommends Amazon, Apple, Chevron, Hershey, Home Depot, JPMorgan Chase, Mastercard, MercadoLibre, Microsoft, Netflix, Texas Instruments, and Visa. The Motley Fool recommends Broadcom, EPR Properties, and Lockheed Martin and recommends the following options: long January 2025 $370 calls on Mastercard, long January 2026 $395 calls on Microsoft, short January 2025 $380 calls on Mastercard, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
