Motley Fool Hidden Gems Investing - Bull vs. Bear: Boston Beer Co.

Episode Date: October 6, 2022

Amazon is the latest to signal its intentions around holiday retail hiring. (0:21) Maria Gallagher discusses: - Amazon's announcement it will increase hourly pay and hire 150,000 seasonal workers - Data around consumer spending sentiment - Why she's watching how higher-end retailers will fare this year (8:53) You may enjoy a cold Sam Adams, Angry Orchard cider, or Truly hard seltzer, but does that make parent company Boston Beer Co. a good investment? Jason Hall and Travis Hoium engage in our latest bull vs. bear debate! Got questions about stocks? Call the Motley Fool Money Hotline at 703-254-1445. Stocks discussed: AMZN, UPS, TGT, WMT, LULU, SAM  Host: Chris Hill Guests: Maria Gallagher, Travis Hoium, Jason Hall Producer: Ricky Mulvey Engineers: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

Don't you wish you could just hit skip on the worst parts of your life? You know, the same way you can skip an ad? I get it. I'm Siaya and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out. Somehow things usually get worse before they get better. Apparently, that's how I roll.

So bundle up and come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem. Chris Hill. Hey, somebody call Bill Burr and Mark Wahlberg. We've got a bull versus bear debate over Boston beer. Motley Fool Money starts now. I'm Chris Hill and joining me from the financial capital of the United States of America, Motley Fool Senior Analyst Maria Gallagher. Thanks for being here. Thanks for having me. This morning, Amazon announced it is hiring 150,000 seasonal employees to help with the holiday rush. And this, it makes me feel better for a couple of reasons. The main one being that

this is kind of in line with what we've heard out of UPS and Target in terms of the seasonal workers that they're going to be hiring. Because earlier this fall, we had Walmart coming out and saying, hey, we're going to hire 40,000, which is far fewer than they did last year. When you saw this news, your reaction was what? So I actually think there are a couple different interesting things here. The first is the competition between the retailers to get and retain hourly employees, I think is pretty fascinating. So the retail industry alone hires around 500,000 temporary workers for the holiday season. Amazon, you're seeing, bumped its pay to $19 an hour from $18 an hour. They have sign-on bonuses ranging from $1,000 to

$3,000. UPS is hiring 100,000 seasonal workers with wages from $16 to $30 an hour. UPS is working on making its online hiring process really quick and really easy. It's done in 25 minutes. Most of the time. You don't even have to have an interview. Michael's, the craft store, is hiring 15,000 people and promising to give people more hours and more flexibility for them within the holiday season. So that's kind of the first thing I think is interesting. And then the second is the sentiment around holiday shopping from the consumer side. So this is obviously a pretty good sign that Amazon sees people spending a good amount of money. You see them having their prime early day sales in the next couple of weeks. Last year, Americans spent over a trillion dollars

during the holiday season. An average American spends about $942 on Christmas gifts. Two out of five respondents in a recent survey said that inflation is going to change how they shop for holidays. In the UK, British shoppers are expected to spend about 22% less. So I think there's kind of this interesting push and pull between companies needing to spend more to retain more employees for the holiday season, and also a little bit of trepidation around what the consuming habits for this holiday season are going to be. So I think both of those are really interesting data points. Let's stick with the consumer side for a second, because we've seen companies, Nike most recently, talk about their inventory problems. And

I don't know, Maria, I hear everything you're saying, and it makes me wonder if we're essentially setting up for not a showdown between consumers and retailers, but basically, if you're Nike, you're Target, you're any of these retailers that you have a backlog of inventory that you're looking to get rid of, and consumers are dealing with higher inflation across the board more so than they were a year ago, it's going to be very interesting to see what discounting levers retailers are willing to pull to get people into the stores or shopping online so that they can move this inventory out. Depending on the retailer you're talking about, the inventory problem ranges from average to flat-out serious. Yeah. I think we're going to continue

seeing a lot of these retailers who saw really strong promise in 2020, 2021 with higher consumer spending really need to offload a lot of that excess inventory. And I think discounting is going to be really popular. I think it's going to be interesting to kind of compare things like the Amazons, the Targets, the TJXs to some more of those high brand retailers like a Lululemon or a Tiffany's. Because I think at least anecdotally, people who say, oh, I don't want to shop on Amazon. I'm trying to shop smaller, shop local for this holiday season. A lot of people maybe don't have that option going into this holiday season with inflation, with stagnant wages, with all of those pressures. So I think it'll be interesting to see if there's more of a

shift to places like Amazon. So that's why I think looking at the prime early day sales of the next couple of weeks, they have that two-day sale. I think that's going to be pretty fascinating, especially depending on what delays look like for delivery for online shopping this year i wonder how that's going to impact the holiday season as well those supply chain issues so i think there's going to be a little bit of stress around this holiday season kind of for retailers for consumers all coming from different angles how much color do you think we're going to get from amazon next week after their two-day prime sale on the 11th and 12th, because historically, the company plays it pretty close to the vest, unless, of course, it's a screaming success, and then they

can't wait to tell you about it. Yeah. My answer was going to be, depends how well it goes. I think if it is positive, we'll hear a lot about it. If it's just okay, we won't hear as much about it. But after their success with Thursday Night Football, they were very vocal about how many Prime signups they had. So, I think it'll really depend on how popular it is. Yeah. I've said this before. The early success that they've had with Thursday Night Football surprises me a little bit, especially since I watched that first night. And the broadcast quality was good, but not amazing. it wasn't without its glitches. But certainly, Amazon is doing, I think, a pretty effective job

of just promoting everything it has at all times. So, if you go on the website, you're going to find promotions for Thursday Night Football. And if you're watching Thursday Night Football or just Amazon Prime, as I happened to be last night watching, I'll just give a random plug because I know you're a movie fan, a new documentary about music in James Bond films, which was very well done. Yeah, it was a very well done documentary. It moves along and interesting if you're in that sort of thing. But you turn on Amazon Prime streaming and they're promoting the heck out of this sales event next week. So, last thing before I let you go, what else are you watching to get a sense of how the economy is doing? Obviously, we're going to get a jobs report Friday morning.

As you think about going into the holiday season and how important that is for retailers, all of the data that you're talking about with consumers and the battle with inflation, What are you watching? I'm going to be definitely watching that difference between the more higher end retailers and seeing how many people are looking for. I feel like it's really interesting watching Lululemon roll out a subscription service and also a membership program and loyalty program. I think we're going to see a lot more higher end retailers looking at things like that to say, okay, we have to incentivize people to keep coming back, especially places with these higher price points. So I think I'm going to be looking at those pretty closely because I think

we can make some educated guesses on how well Target or Amazon or TJX are going to do. But I think those higher price point retailers are something I'm pretty fascinated to keep watching. Maria Gallagher, great talking to you. Thanks for being here. Thanks so much for having me. Friday, October 7th, is Fredtoberfest, the No. 1 beer festival in St. Charles, Missouri. We can't make it this year, but we can still celebrate with a bull versus bear debate over Boskin Beer Company, the business behind such brands as Sam Adams, Angry Orchard, and Truly hard seltzer. Ricky Mulvey has more. Welcome to Bear vs. Bull. We pick a company,

find some analysts, flip a coin, and then see which side they'll take today. The company is Boston Beer Company. And in the bull corner, we have Jason Hall. Jason, thanks for being here. Hey, man. Excited to be here and talk about one of my favorite companies. Oh, and on the bear side, talking about one of Jason's favorite companies, it is Travis Hoyum. Thank you for taking the bear side of the Boston Beer Company. I am a fan of the product. Maybe not a fan of the stock. We'll see if I can make it. Maybe, maybe change Jason's mind a little bit. It's going to be a heater. You know what? Let's just get started. Jason, you've got the bull side. Five minutes is yours. All right. So Boston Beer

Company is kind of the original craft brewer, so much so that they have actually changed the Craft Brewers Association has changed what a craft brewer is defined as and brought the revenue number up and up and up and up over the years to keep Boston Beer considered a craft brewer. It's a really interesting story. It's an American success. And it's dealing with some problems right now. And I think those problems are going to prove to be temporary. One of the things that Boston Beer was late with was the IPA craze. It was really late to get to that market and it was slow to innovate where so many micro brews and so many small craft brewers were. But a trend that it hit on that it absolutely was dominant in over the

past couple of years is Hard Seltzers with its Truly brand, which is one of a handful of the most popular brands. Now, right now, truly is a bit of an albatross. You look at its revenue, it's down about 10% from the peak. It's had to write off a ton of inventory. It's seeing some declines in some important metrics, a beer that's actually leaving its breweries and going into distributors and going to retail. Revenue is down about 10% from the peak, but the stock has absolutely been smashed. There's this expectation that the seltzer business is going to die. It's going to go the way of wine coolers and it's not going to be a thing. But the reality, I think, is it's going to prove very, very nascent and a temporary problem. And here's the reality.

You look at Boston Beer right now, it trades for about 29 times operating cash flow. Now, that looks kind of expensive, a little bit on the expensive side. But if you adjust that and look at where its cash flow was when it peaked a couple of years ago and look forward, once it kind of recovers from these expenses that are eating into its cash flows, it trades for about 20 times operating cash flow. And if you look back over the company's history, if you could pay 20 times cash flow for this business or less, you ended up owning a market-beating investment. This is a long-term success story, and I don't think that success is over just yet. I say buy the company at this price. I think you made a pretty good bear case there, because it's an expensive

stock, and revenue is actually on the decline right now. Margins are on the decline. I'm looking at the five-year chart of margins, just a steady tick downward year after year, they're facing tons of pressure from every brewery across the country. I mean, there are a dozen breweries within five miles of me right now. I don't know how many are close to you guys, but they're everywhere. And so despite the fact that craft brewing overall is growing, that doesn't mean that Boston Beer is going to be taking market share. And I want to cover what the beer market is overall, because I think the challenge right now is that the tailwinds are going to become headwinds, whether that's today or five years from now. Overall, beer consumption in the U.S.

was up 1% last year. Craft brewing was up 8%. Imports were up 8.5%. So we're still trending towards these kind of non-Miller Coors kind of brands. But Boston Beer as a brand is taking a smaller and smaller chunk of that craft segment. And I think that's really the challenge for them long term. And your point about seltzers, I think, really solidifies this for me because I think the mission is gone you you look at what boston beer was and sam adams i mean the fact that they should just call this the company sam adams because that was always what it was absolutely known for and now they're trying all kinds of other stuff they're trying teas there aren't they doing some sort of hard drinks or something with mountain dew i mean i can't keep track of

everything that they're trying to launch and i think that really takes their eye off the ball from a business perspective. And so that's what I would worry about is that you're paying, it's not as expensive as the stock was a year ago, but you're still paying a very high price for a company that doesn't necessarily have a lot of revenue growth ahead. Margins are coming down. I would worry that operating cash flows are not going to be growing at the same rate that they have for really two decades. And that's why I'm just not excited about the stock right now. This is the kind of company, if it was priced for no growth, I could be very excited about it, but we're still not at the point where it's priced for no growth.

Travis Hogan. Thank you for the bear case. Jason Hall. Thank you for the bull case on Sam Adams, Boston beer. It's the best beer you can get at a wedding probably. So you can decide who has made the better argument about today's company on Twitter at Motley full money is the winner of that poll will receive one drink ticket to the half moon saloon. Bring your leather jacket to one of central Florida's most popular, and least air conditioned biker bars rated two and a half stars on google the half moon saloon

has floridians buzzing about the room temperature beer and sticky floors enjoy raucous conversation with fellow bikers or game of pool with the saloon's friendly locals either way you'll hear guns and roses greatest hits over the loudspeaker this singular drink ticket could be yours if you win bear versus bull. 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.