Motley Fool Hidden Gems Investing - Don't Bet Against Behemoths

Episode Date: December 28, 2022

Disruption is not a given, nor is it easy. (0:21) Jason Moser discusses: - How Visa and Mastercard fared in a year dominated by crypto news - Why fortress balance sheets will be an even bigger asset in the new year - Leaders he's watching in 2023 Stocks mentioned: V, MA, MSFT, APPL, GOOG, GOOGL, HD, LOW Host: Chris Hill Guest: Jason Moser Engineer: Rick Engdahl 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. A wise man once said, when you come at the king, you best not miss. Motley Fool Money starts now. I'm Chris Hill. Joining me today, Motley Fool Senior Analyst, Jason Moser. Thanks for being here. Jason Moser. Happy to be here. Thanks for having me. I wanted to chat with you in part because of something that you had tweeted out a few weeks ago. Let me set this up. for folks listening. We were chatting about this right before we started recording. I do think we

are in a very interesting moment for stock investors. A few weeks ago, you had tweeted out a picture of a story that TechCrunch did almost exactly one year ago. It was December 31st, 2021. The headline was, Billionaire Chamath Palihapitiya says Visa and MasterCard will be the biggest business failures in 2022, losing out to altcoin linked projects. And as we're having this conversation, Visa and MasterCard are both down in the neighborhood of 7% year to date. That puts both stocks about, call it eight percentage points better than the overall market. And the point is not to single out Chamath and say, this guy got it wrong. It's really to talk about the part of disruption that doesn't get as much attention.

And it's this question of when companies say that they're going to disrupt an industry, I feel like we don't talk enough about the question, how do you think the companies that you're attempting to disrupt are going to react? Yeah, yeah. Yeah, well, I mean, that's a really good point. I mean, I did not tweet that out to single out Chamath so much. I mean, he has a penchant for making bold hyperbolic statements like that that can be taken for what it is, I guess. But that in particular caught my eye for a number of reasons. It feels clickbaity to an extent, but yeah, I think when you consider

a new market such as crypto and altcoin projects, and then you look at these very well-established businesses, these businesses in MasterCard and Visa, any business worth its salt is going to constantly be focused on their competition around the market that they serve, the competitive dynamics within that market, threats that could be coming down the pike. That's just any business worth its salt is going to do that. To think that MasterCard and Visa are not doing that is naive or just ignorant. I'm not calling him naive or ignorant, but maybe just spoke before he thought. To me, just look at some of the numbers here in regard to MasterCard and Visa, and you can see quickly, these are not businesses that are going to be

easily disrupted. If you look at fiscal 2022 for Visa, they did $11.6 trillion in payments volume, they processed 192.5 billion transactions. You look at MasterCard and it's more of the same, gross dollar volume of $7.7 trillion, transactions of 112.1 billion. These are not businesses that are going to be easily disrupted. I'm not saying they can't be, they certainly can be. I think any business can be disrupted. But you also have to consider the fact that businesses like these, regardless of where you stand on crypto, generally speaking, I would call myself a skeptic. I'm not really looking to invest in that space, but they're certainly making investments in that space to make sure they understand how it's evolving and how it could potentially be a

threat and also potentially an opportunity. I think that for me, you need to make sure you understand with these types of businesses that absolutely they are looking at the competitive threats. I think they're assessing that landscape on a constant basis. Chris Hill Well, and broadening it beyond the financial industry, it really does seem like in part because we're starting a new year and I think it's natural for us just to, whether it's with our personal health or the news cycle or finance or whatever, to start in January with essentially a fresh set of eyes. When I look through that lens, I look at large companies with fortress balance sheets like

Microsoft and Apple and Alphabet. I don't know what's going to happen in the stock market in 2023. I'm generally optimistic, but it seems like those companies are better situated than anybody. The behemoths just seem like they are in better shape. It's not that they don't have challenges, it's not that they're not dealing with the same macroeconomic conditions as everyone else. It's just that when you have a Fortress balance sheet, it buys you peace of mind that smaller upstart companies that are more dependent on a low interest rate environment don't have. 100%. Just like in our personal finances, having a rock-solid balance sheet can make the days just a lot easier and take a lot

stress off. Businesses that are putting themselves in this position as well, it puts them in a completely different mindset. I would totally agree with that. Businesses like MasterCard and Visa, I would include in that conversation. I don't know what the year is going to hold for the stock market either, but I'm pretty sure that the tailwinds that continue to develop in cashless transactions and in the digital movement of money, I think those tailwinds are going to continue to grow and that people are going to be spending money. Money has to get from point A to point B, that's not going to change either. You look at these businesses that have put themselves in a position either by just managing the business smartly or just possessing a product or a service

that people can't really go without. You look at Apple and smartphones, I think, are the lifeblood of much of what we do on a daily basis. While Apple doesn't own the smartphone market, they certainly control a big piece of it. I think that disrupting the iPhone is going to be a tall order and it's not anything that's going to happen anytime soon. Businesses that we talked about recently as well, like Home Depot and Lowe's. Home improvement is to be something that's just going to constantly exist. When you have this massive installed base of housing that we have here domestically, that stuff has to be maintained. I'm not looking through the lens of one year. These are businesses that you want to try to hang on to indefinitely.

you, of course, assess the state of the business every year, make sure that those competitive forces aren't eroding the potential that these businesses possess. But yeah, to me, owning these types of businesses, the behemoths, this was a great year to own those. You look back to the way Visa and MasterCard performed, I think you noted the performance there. MasterCard year-to-date down 4.9%, Visa year-to-date down 5.3% versus the market, which is down 19.8% right now as we're taping this. To me, it feels like owning those types of businesses make investing a lot easier. I like to say, investing is as easy or as difficult as you want to make it. It is pretty darn easy when you think about it. It doesn't take a lot. Just owning businesses like these

really make all the difference in the world, I think. It just makes it far easier to be an investor going through the difficult times owning these types of businesses along with perhaps the smaller, more speculative ideas that maybe are a little bit less certain. Later in the week, we're going to have our full preview for 2023. I know you're going to be there, Jason Moser. Always great talking to you. Thanks for being here. Thank you. 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.