Motley Fool Hidden Gems Investing - Stocks for the Big Game

Episode Date: February 10, 2024

Before the Kansas City Chiefs face off against the San Francisco 49ers, we’ve got a look at the companies sponsoring the game, and a look at gambling history. Mary Long caught up with Motley Fool Senior Analyst Jason Moser for conversation about the publicly traded companies associated with the game, and find out if any are worth an investor’s attention. Plus, Mary interviews Dave Schwartz, Ombuds at the University of Nevada, Las Vegas and a student of gambling history. Companies discussed: UAL, BA, ALGT, CPB, PEP, PARA, NFLX Host: Mary Long Guests: Jason Moser, Dave Schwartz Producer: Ricky Mulvey Engineers: Tim Sparks, Annie Pope Learn more about your ad choices. Visit megaphone.fm/adchoices

Where some see heroes and others see egos, Bloomberg sees the era of billionaire athletes. While others follow the noise, we follow the money. Learn more at Bloomberg.com. Traditionally, the NFL thought that gambling was terrible. Las Vegas was even worse than gambling. And, you know, not without reason, because there had been gambling scandals and cheating scandals in the past in football and baseball and other other sports professional amateur so it kind of makes sense they want to keep it at arm's length but they continue to have this policy long after gambling had become more mainstream in the United States long after we have casinos all across the country they

continue to have this and it's kind of interesting that as the national prohibition on the spread of sports gambling fell the league's policy change. I'm Mary Long, and that's Dave Schwartz, ombuds at the University of Nevada, Las Vegas, and a student of gambling history. I caught up with Schwartz for a look at the history of sports betting and what it means today. But first, I talked with Jason Moser about four publicly traded companies with ties to the Super Bowl to see if any of them are worth investors' attention. tomorrow the Kansas City Chiefs face off against the San Francisco 49ers in Las Vegas Nevada it's a Super Bowl and you know what they say if you can't go to the Super Bowl make your own Super

Bowl so that's what we've done Jason excited to be here with you happy to be here Mary thanks for the invite so we've got four stocks each representing a different element of Sunday's Super Bowl game we're going to talk through each of these teams and at the end I'll ask you which stock is the winner in your mind. Let the games begin. In one corner, repping the San Francisco 49ers, we've got United Airlines. United is the presenting sponsor of the 49ers. It's also the official airline for both teams, but for our purposes, we're going to put United solely with San Francisco. The airline industry uses some metrics that might be kind of unfamiliar to investors who are newer to the industry or just kind of exploring it. How do you grade airline

stocks and where on that scale would you put United? Well, so in grading airline stocks, I will say, first and foremost, I've just never been an investor in airlines personally. Like I just to me, it's not the most attractive long term type holding in the capital requirements, the constant fuel hedging. It's certainly an industry where size does matter. But whenever I hear about investing in airlines, it just takes me back to that Warren Buffett quote from 2007, where he wrote in a Berkshire letter, he said, I quote, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down, end quote. So, I mean, obviously he's kidding. And he even had a little bit of a turnaround there

and tried some airline investments as well. It didn't work out so great. But when you look at the data from this industry, data I found compiled by Airlines for America, since 1978, there have been over 100 bankruptcy filings in the airlines industry. Now, they've not all resulted in liquidation, but this is just an industry rife with bankruptcies. And that's obviously not a good thing. But like I said, size does matter. So, you look really to, I think, the big players in the space as the ones that probably stand the best chance. United absolutely stands out in that way. I mean, as far as metrics, I mean, I think one that stands out to me, the load factor, right? That's something that ultimately measures the percentage of available

seating capacity that's been filled with passengers. So higher means that an airline has sold most of its available seats. And so I think that can give you an idea, at least as to to the health and consistency of any given airline. But it's absolutely a difficult space to invest in. So there's a difficult aspect of the space because the bankruptcies, like you mentioned, just massive upfront costs. But also kind of more recently, we've seen shorter term issues also plague the industry. I feel like you can't talk about airlines today without talking about many issues, not least of which is Boeing's chaos that's happening. How is that in particular affecting United's operations?

Yeah, well, with United, the short answer is it's kind of a big deal. United has plenty of exposure to this particular plane. And if you go back to the earnings call recently, they noted as of Saturday, January 6th, the MAX 9 aircraft had been grounded. And they noted in the call, they're the largest operator of the Boeing MAX 9. And that represents approximately 8% of their capacity from the first quarter. So clearly, that's something that matters a lot for United. And that speaks to, I think, one of the short-term challenges that they've been witnessing.

It's absolutely playing out in their guidance looking towards 2024. Their spending in particular, they're expecting reduction in orders and deliveries from Boeing all the way out into 2025. And that ultimately requires them to go in there and rework their fleet plan and exactly how they're going to manage this. So one of those near-term headwinds that's absolutely going to impact United more so than others, something investors definitely want to keep in mind. Playing on behalf of Kansas City, we've got the official soup sponsor of the Chiefs, none other than the Campbell Soup Company, ticker CPP. Despite the name, it's not just soup that Campbell sells. They also own Pepperidge Farm of Goldfish fame, Pop Secret Popcorn, Cape Cod potato chips. Lots of snacks, basically.

And Campbell's breaks down their revenue into two different segments, meals and beverages as one and then snacks as another. That snack segment has accounted for an operating profit of $640 million in fiscal 2023. That's 42% of its total profits. Even in the age of Ozempic, are snacks big business? Absolutely, they're big business. We love snacks, right? Remember, we all love our snacks, whether it's sweet, salty, a mix of the two. snacks are very big business in it. It's absolutely been a driver for Campbell.

If you look at the data out there, Statista data actually says that revenue for the U.S. snack food market is set to hit one hundred fourteen billion dollars a year in twenty twenty four. And it's expected to grow annually close to four percent through twenty twenty eight. So, I mean, that's not mind bending growth, but it is pretty reliable and pretty steady. And then when you look at another, I think, shining snack example out there in the market, Pepsi. Pepsi, I think, is a great example of a company that has benefited through the years by building out their snack side. And just to put that into context, their Frito-Lay business went from $15.8 billion in revenue in 2017 to $23.3 billion in 2022. Talking about

going to the numbers because they tell the tale. Mary, I think those numbers tell us a lot. Over the past 10 years, you look at Campbell's stock price and it hasn't moved too much. There's ups and downs, but it's kind of like leveled out over time. Neither has its operating income. What needs to happen for Campbell to not just beat its competitors in this fool bowl that we're playing today, but in the market? It's going to be difficult. I think that what we're seeing with Campbell is that they are trying to really hone their portfolio of offerings for where the future of food is going ultimately. And part of that is in packaged foods. I think part of that is we're going to see some acquisitions from this company going forward as well, though. They just acquired

Sovos Brands, which gives them Rao's, right? I think that's how you pronounce it, Rao's, the pasta sauce, and a number of other ancillary brands and prepared meals. So that's where they see a lot of opportunity there. But I mean, you're right, the growth that this company's lobbed up, it's nothing to write home about. I mean, it's not been a winning stock for investors just based on returns. And ultimately, when organic growth runs dry, right, when the company has trouble just growing on its own, then they start leaning on some of those acquisitions in that consolidation. So I understand that strategy, but acquisitions do come with their share of risk. It's going to take a number of different efforts, I think, for this to ultimately

be a market beating stock going forward. So growth's not the story here, but Campbell has a decent defensive line, we might say. Stock pays a 3.44% dividend. That dividend has been around for several decades and with few exceptions has increased relatively regularly. Does that make this a more compelling case for a portfolio? I think it certainly makes for a better argument in holding the stock. I think anytime you're getting a 3% or better yield on a dividend paying stock, I mean, that's a good thing, right? That's a healthy yield and we like to see that. Now, if we look at the total return for this company over time, I mean, over the last 10 years, the total return for Campbell shareholders has been close to 50% versus the market's 180%

or so. So, I mean, this is clearly a company that has lagged the market significantly. And again, I think dividends are great. I want them. I'm getting older and I'm moving more of my portfolio over towards income-bearing investments there. But this doesn't really look like the best income idea out there. It's not a dividend aristocrat. It's not a dividend king. It's not to say it can't be one day. But, you know, those are the companies I think we want to look more towards when we're looking for really reliable dividend payers. Those companies that have grown their dividends annually for at least 25 consecutive years or if you're a king status in that 50 years. I mean, that really tells you that dividend is a priority. And once those companies achieve that status,

they really do everything in their power to not relinquish it because investors really do care about it. Playing on behalf of Las Vegas and Allegiant Stadium, we've got Allegiant Travel, which is not your typical airline. It seeks to be an integrated travel company. So in addition to running Allegiant Airlines, the company officially opened Sunseeker Resort in Florida in mid-December of last year. They've also acquired a golf course management software company called T-Snap. They're looking to launch a family gaming center that has laser tag, go-karts, bowling, you name We talked about airlines already. Seems like that's a hectic enough, expensive enough business to be a part of. Why take on even more? Is that something that like differentiates Allegiant or does it diversify it? It could be maybe a little bit of both. Right. I think it absolutely differentiates it because, you know, we're talking before before we before we started recording.

And then that was the one of the things with the Legion that makes it kind of stand out. It's not it's not just one of those discount airlines. It's more. And that could potentially be a good thing. Now, it absolutely could be it could run that risk of diversification. Right. Just kind of trying to do too many things and not really doing anything well. But I think it's compelling. It makes me want to look at Allegiant a little bit more closely, because when you consider the size of the travel and experience market altogether, I mean, they really are focusing on not just the travel, but the experience and entertainment side of it as well.

That can be very powerful, assuming that they do it well. The company IPO back in 2006, it's still a true small cap. I mean, one and a half billion dollars. So market market capitalization. And so it is it is not a company that has grown by leaps and bounds, but it does seem like they're they're taking these steps in order in order to try to be able to to grow here in the coming years. Time will tell whether that actually works or not. But listen, I respect the effort. Allegiance pulled a bit of a Disney in the past year.

Former CEO Maury Gallagher is now CEO once more. He replaced John Redmond this past fall after Redmond had been in the spot for less than a year. Redmond resigned. We don't really know why, but Gallagher had been with the company for a while. He's been a majority owner and board member of Allegiant since 2001, basically like brought Allegiant from being one plane to a fleet of over 100, and he's played a role in several low-cost airlines. Unlike other airlines, Allegiant's stock peaked mid-pandemic in 2021, but today it's still

off about 70% from those highs. Is Gallagher's return the beginning of a turnaround story? Well, I hope. I mean, it seems like that's the guy that could probably make it happen, given his track record. I mean, you know, bringing an airline out of bankruptcy. And obviously, we talked about that earlier with United. I mean, bankruptcy was just a common word in this space. But that also can present opportunities. And it seems like Mr. Gallagher is certainly trying to take advantage of that opportunity. Looking through their most recent earnings call, I mean, they seem very optimistic with the strategy. They are getting some headwinds in regard to pilot negotiation issues behind them. And I think that'll be a load off of the business. Right now, today, 75% of their routes don't have any direct competition at all.

So they do stand out a little bit in that way. And I think that's one of the things that's most interesting about this company is they know what they are and what they're trying to be, right? They're not out there trying to compete with the bigs in those big cities and networks where all of the money is. They're really trying to sort of do their own thing, right? They said in a call, I thought this was a pretty interesting way to put it. He said, I quote, we've created our own private swim lane and are proud to be in it, end quote. So they really are a company focused on their identity, doing things their way and focusing on that particular market opportunity. And hey, listen, I like that.

If you're not at Allegiant Stadium to watch the game, you're probably watching the Super Bowl on a screen, in which case you've got Paramount Plus to thank. The streaming business is not awesome if you're not Netflix. Where does Paramount Plus fit into that picture? Well, if you look back at their earnings call in November of last year, Paramount Plus, the streaming offering, crossed 63 million subscribers. I was actually surprised to see that number that high. This is not a company that I that I have followed very closely because, like you said, streaming streaming kind of sucks unless you're Netflix. I think that really speaks to a lot of things Netflix did right early on in the in the in their efforts there. But, you know, Paramount Plus, 63 million subscribers.

They deliver 38 percent direct to consumer revenue growth. They were able to increase prices a little bit. That's that's all very encouraging. Now, it all does come at a cost, right? I mean, that content just continues to get more and more expensive to me. I mean, I think this is just a space that is going to witness a lot of consolidation in the in the coming quarters and in years. If I'm a betting if I'm a betting man, I think that Paramount probably ends up being a part of something bigger there. But there's no doubt they have a portfolio of content that a lot of viewers really place a lot of value in because 63 million subscribers, that is nothing to seize at.

Yeah, consolidation seems like that will be a likely story for Paramount moving forward. Even earlier this week, news broke that media mogul Byron Allen, who owns the Weather Channel, among other local TV stations, made a $14.3 billion offer to acquire Paramount Global. Alan's deal offers shareholders a 50 percent premium on the current share price. If you are a shareholder, are you praying that this deal goes through or are you holding out and hoping for a kind of realistic, larger growth story beyond being bought? I personally would be kind of hoping for an acquisition, just kind of get out of this thing and go for now. I don't own Paramount shares and I don't think that I will. But but for me, again, just streaming in particular, it is just a very difficult space. And speaking to that consolidation theme, I mean, it is we're just seeing it.

We're just seeing it all over the place. Right. Paramount Plus even recently, you know, they incorporated Showtime into that offering. So like with the price points there you have, you could just you could do Paramount Plus Essential, which is like the six dollar a month. Or if you want to do Paramount Plus Plus Showtime, that's essentially double the cost. But even just there's a little consolidation going on even in their own universe. And then we saw also this recent announcement just the other day, ESPN, Fox and Warner Brothers Discovery teaming up for a new sports streaming service. Right. And Disney trying to figure out exactly how to move forward with that ESPN strategy. So to me, you know, Netflix has taught us a lot. They taught us that the economics of streaming are really, really difficult and that being early to the game for them made a really big difference.

Now, it feels like when a new streaming service is announced, people get a little bit more fed up with the whole thing. Right. And remember, we talked about Zoom exhaustion before. That's totally a thing. And I think there's a similar dynamic that's now playing out with all of these streaming services. So they have to be very thoughtful in the new services they announce, in how exactly, how much they're going to be charging for them, because consumers are getting close to having had enough. Okay, Jason, we've talked airlines, we've talked soup and snacks, we've talked integrated travel and streaming. Which of these teams has your bet to win Fool Bowl 2024? for? Well, if you look at the track record of all four, none of these four has really lit the world on fire, so to speak. Let's assume Paramount is going to ultimately be acquired. I think that's more than likely a given. Even if it weren't going to be acquired, to me, I think actually I'd like to learn a little bit more about Allegiant. I still don't have much of a desire

to invest in a pure play airline, but to me with Allegiant, I mean, this is more a travel company, an entertainment company, which could be a little bit more compelling. I like that they know their customer and they seem to be laser focused on that particular opportunity as opposed to doing other things that they may not really be able to compete so effectively on. So I don't know. I'm going to be keeping my eye on a legion here. Yeah. Unlike the Super Bowl, we won't know who wins out tonight or tomorrow, but we'll keep our eyes posted on what happens in the long term. Oh, we just have to revisit it next Super Bowl, right? Yeah. Bingo. Fool Bowl 2024. That's hard to say. I did not do myself a favor with that one.

Up next is my conversation with Dave Schwartz, ombuds at the University of Nevada, Las Vegas, and a student of gambling history. So I wanted to talk to you because our relationship with the nation as gambling has changed a lot in recent years. Before the 80s, you could really only bet in two places, Nevada, and Atlantic City. Today, sports betting is legal in 38 states plus D.C., and we all walk around with virtual casinos in our pockets. How did gambling go from being mostly illegal and mostly stigmatized to mostly everywhere? Well, it's been an interesting process, and a lot of it was driven by money. I guess not

surprising because it's gambling. Basically, casino-style gambling for many years was only legal in Nevada. New Jersey rolled the dice in it, legalized it in 76, it started in 78. And other states and the federal government saw, you know, this can be used to make some money that could help, you know, Atlantic City, it was for urban redevelopment. Tribal gaming, of course, was also recognized and came along in the 80s and 90s. And a lot of states legalized gambling. And mostly the idea was, look, people are going to be doing this anyway. But if we legalize it, we can gain some benefit from it. So I want to hone in on kind of one organization's role in this changing relationship with gambling in particular. Super Bowl Sunday is coming up.

The NFL used to pretty strongly oppose not just sports betting, but Las Vegas in particular. In 2003, the Las Vegas Convention and Visitors Authority attempted to buy airtime for a Super Bowl commercial. They were flat out denied. So there's kind of been like this firewall of sorts between the league and Las Vegas. This year, the Super Bowl is in Las Vegas. How did the NFL in particular come to embrace Sin City? I have a feeling that three quarters of a billion dollars in public funding really helped change that relationship. You know, that, of course, is what was guaranteed for the stadium. It was built for the Raiders when they moved here. You see, you know, traditionally, the NFL thought that gambling was terrible. Las Vegas was even

worse than gambling. And not without reason, because there had been gambling scandals and cheating scandals in the past in football and baseball and other sports, professional and amateur. So it kind of makes sense. They wanted to keep it at arm's length. But they continue to have this policy long after gambling had become more mainstream in the United States, long after we had casinos all across the country, they continue to have this. And it's kind of interesting that as the national prohibition on the spread of sports gambling fell, the league's policy changed and they seem to be much more gambling friendly. How did the NFL's relationship with sports betting and like their embrace of that compared

to the pace at which other sports leagues embraced it? NFL seemed to be a little bit behind. You know, you had NBA was probably one of the more proactive ones, but in general, most of the other sports really started to embrace it once, you know, after 2018, when the Supreme Court struck down the Professional Amateur Sports Protection Act, more states started to legalize it, it became more mainstream. The other sports then, you know, I don't want to say jumped on the bandwagon, but became a lot friendlier towards it. In 2018, Americans wagered $4.6 billion on sports betting. 2023, they bet $104 billion. How much of that growth comes from previously

illegal wagering that's now been brought into the public light? Or is that just all new money coming into this? That's a really good question. And you've got to imagine that a lot of it was the previously illegal gambling that came in. You also have, as there's advertising for it, and it's more mainstream and it's more accessible, it becomes less stigmatized. So it's easier for people to bet. So they'll get into it a little bit more. So I think it's probably a combination of both where they're maybe taking some of the business away from the illegal gambling, but also maybe people are learning more about it for the first time. Seems safe to bet too that that number of dollars wagered each year will only grow more in

the future. So as we enter into an era when gambling maybe becomes a larger part of everyday life, you know, we talked about like mini casinos in your pocket. Are there lessons from history that we as a society should keep in mind? Yeah, I mean, there's there are certainly some lessons. You know, I think number one, people have gambled throughout all of human history. You know, some societies have been a little bit more on the prohibitionist side where they don't allow legal gambling. But pretty much, you know, if you look at the history of humanity, somebody was gambling somewhere. So it seems like that's a universal impulse. What makes it interesting is the way people gamble change. So, you know, we're no longer betting, you know, back in Egyptian times,

people bet in a game that was a lot like backgammon that's not such a big deal now you know we've got craps and blackjack and especially slot machines you know slot machines is another great thing if we went back to 1850 and said people are going to be gambling in machines they would say what how could that be you know that's a big deal now you know so basically gambling tends to evolve as the technology evolves and it's interesting if you kind of look back you know going all the way back to history. You have the shift to brownstone technology from flakestone technology back in the Stone Age. You start seeing cubicle dice, which are polished instead of the animal bone dice. You have the rise of block printing, and you see the proliferation of playing cards.

In the 19th century, you have the telegraph being used, and what's one of the things that people use it for? To gamble by sending horse racing results across the country. So if you look at every technological change, it seems like people have found a way to make it about gambling. So I'm not surprised that we're still doing that. There are a lot of threads, I think, between this trend, the rise of sports betting, and yes, social media, and this need for constant stimulation, but also maybe an inclination, particularly among young people, towards financial nihilism.

And you want to shoot your shot, you want to get rich quick, you want to beat the house. I think that that fascination with chance is very natural and very human. But in your research, do we tend to see increased interest in gambling at times of social, cultural, economic discontent? Or is it just kind of a constant throughout any type of period in history? It definitely ebbs and flows. So, for example, in Western Europe, you saw a real boom in gambling from about 1500, 1600 to about 1800. As there was a lot of changes going on, you had a lot more cash and money economies developing, things like that.

You also have the rise of things like insurance, which originally was considered a form of gambling. Basically, you take out insurance on a ship, you're betting that your ship is going to sink. That was one of the first areas of insurance. You also have the rise of joint stock companies, splitting the risk, things like that. So you kind of have also the rise of probably the theory of probability where you can even do that.

So we see that boom. Then in the 19th century, it declines. That's when you have a rise in middle class. You've got what the historians call market economy, kind of, and this is Max Weber's Protestant work ethic, you know, where, hey, work hard, save money. Gambling is subversive to that because you can go from rich to poor overnight. There's kind of a crackdown against gambling and pretty much, United States at least, which is where I studied most of my history, there's a shift from a more subsistence-style economy to more market-style economy.

More people are getting pulled into that. There's a lot more speculation and a lot more importance for discipline, people working hard, saving their money. So you see a turn against gambling. You know, then getting into the 20th century, people are still gambling and there's the idea that, hey, wait, we can actually use this to fund some stuff for the government, which means we don't have to raise taxes. You know, and that's one thing. I don't know if any politicians ever get popular for raising taxes. I don't think that ever gets, maybe it does, I don't know. So it's very popular because, hey, we can raise money without raising taxes and let people bet. So I think that's how that's played out in the past.

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 mary long thanks for listening enjoy the game tomorrow if you're watching and whether you are or not we'll still have an episode here for you see you then Thank you.