Motley Fool Hidden Gems Investing - Stocks To Buy No Matter Who Is President

Episode Date: November 2, 2024

When faced with the unknown, what’s a Fool to do? Oftentimes, the answer is simple: Just keep buying.  Ricky Mulvey talks with Fool 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. The note by Tom Engle that is read at the end of the show is also available here.  Companies mentioned: EPR, MELI, AMZN, SCHD, HD, BLK, CVX, TXN, LMT, VIG, V, MC Host: Ricky Mulvey Guest: Alicia Alfiere, Matt Argersinger Producer: Mary Long Engineers: Desiree Jones, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

It's not as if all these outside forces are going to have an outsized 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. i'm mary long and that's fool analyst matt arkersinger 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 Alfieri 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. Matt, we're 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. And usually when you're on edge, that's one of the worst times you can invest. You 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 their 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 unanxious, what can you do as an investor? Well, I am feeling those things myself, Ricky. But yeah, 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. And one thing that is helpful, I voted by mail a few days ago. So I feel like my vote's 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. And so I'm good with that. And then a friend of mine, 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 isn't going to help anyone over 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 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 this election's over, Rikki. Rikki asked Fool analyst Alicia Alfieri the same question. What behavioral stuff are you doing to calm yourself down in moments of high stress, uncertainty, frustration? Yeah, and I'm really glad that you've asked this question because we could definitely apply it to even after a company has a not so great earnings report, right?

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 kind of grounding. And 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. And 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 kind of investor you are, what your risk tolerance is, and be able to grow from there. And are you handwriting this? Are you putting it on a

computer? Does it make a difference? Yeah. Well, I mean, 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 in cursive. Whoa. You're a dividend investor. You focus on the business. Do politics matter at all to your style of investing? 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 could be a lack of consistency. And 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. So I think it's okay 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 you know, okay, 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 outsized 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. Alicia is not quite as focused on dividends as Mattie is, but she had a similar take to this question. So whenever we hear questions like this, broad questions, the answer is always, I think 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, again, 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. Before recording, Ricky asked both Maddie and Alicia for a stock they'd be buying no matter who wins the presidential election. 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. And 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? All right. So, Ricky, I'm looking at EPR Properties. The ticker is EPR. And EPR actually stands for Entertainment Properties Real Estate. Wow. How inventive is that?

But it's exactly what you were describing, which is a company that's kind of built on the experience economy about people going in, getting out of their 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. Topgolf is one of their largest tenants. It also owns several private schools and early childhood education slash daycare centers. And the company's in the process of reducing that part of the portfolio. But yeah, 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 like that. 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. And I think EPR is kind of right at the center of all that. So I think a lot of that is true. And one concern I have, if I'm going to concern troll this, is you mentioned movie theaters. And 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, and this is, I'm stealing a take from Matt Bellany 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. And post-pandemic, we're looking at about a $9 billion future state for 2025. They're hoping everything comes back. But EPR, it 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. That's right. So 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. And as you pointed out, if we're in a state where the box office, 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. And it has been. The good news is EPR is doing all it can to kind of reduce that exposure slowly, but steadily. They've sold off some of the theaters. They've kind of re-signed leases. They've kind of restructured leases. They've transformed many of their, 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. I would say there have been some pretty big blockbusters this year. Inside Out 2, I think, was the highest grossing animated 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-COVID box office. There's just too many options for the consumer these days, 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. So EPR is selling those theater assets down. It's refocusing on its best located theaters, its IMAX, its large screen formats. And I think theaters can still be a positive contribution to the business, even though it's shrinking. And what you mentioned were a lot of event movies, and it's good to see EPR leaning 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, Just 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? Right. It's a good question. So 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, okay, this company is paying a 50 cent 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, real estate, especially commercial real estate depreciates over time. And so it behooves us to kind of add back those, those costs, those depreciation costs to our earnings estimate. And 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 a REIT. And it's those cash flows that we use to measure a REITs payout ratio. So 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. And when we look at EPRs FFO per share, we're looking at about nine to 10 times. It pays out 7%, which would be a very high dividend stock. And 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? Yeah, I look at EPR's valuation, Ricky, and to me, it seems like it's a distressed valuation. When you're trading at nine to 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 dying or slowly dying. But no, and that's not the case though. I mean, EPR's dividend is, even though it's high at more than 7%, it's well covered by the company's FFO. So right now the current annual dividend is $3.42. EPR is guiding for about $4.80 in FFO per share this year. And they even raised the dividend earlier this year. So that doesn't

sound to me like a dividend that's in trouble. And 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. So 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's steadily become one of the largest positions in my own portfolio. So if you're feeling stressed,

we got a distressed valuation for you. Matt's strategy was to pick a REIT in a steady apolitical industry. Alicia took a slightly different approach. One thing we've asked you and Mattie to bring to the table is a company, a stock, a REIT, an ETF, something that you plan on continuing to be a long-term investor of, continuing to buy and hold no matter who wins on Tuesday. And the company that you have brought is a Latin American tech slash e-commerce giant MercadoLibre. Why is this the company that you're bringing to the table? Yeah. So in Latin America, for those who are unfamiliar, MercadoLibre is the leading e-commerce platform and a fintech leader as well. So quite simply as an international company,

MercadoLibre won't be impacted by who sits in the White House. And then what's the growth story from here? It's 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 MercadoLibre? Sure. So the growth story from here, first of all, let's just say MercadoLibre is known as the Amazon of Latin America, And it's still growing from here. So in the second quarter, which is the quarter it 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%. And 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. So it did kind of what Amazon did with AWS. It took something that was a cost center for the company. In MercadoLibre's case, like I said, a solution to their own payment processing needs, and it turned it into a profit center. And now its fintech business is fast growing. The fintech monthly average users grew 37% year over year. And there's still plenty of room for MercadoLibre to expand in both e-commerce and the fintech space. This company has a little bit of a wacky valuation where 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 20-ish times that. How do you think about valuation? How do you value, for a technical term, a rule breakery company like MercadoLibre. Yeah. And I'm glad that you brought up both of these indicators, right? Because we can see that sometimes traditional metrics can be kind of 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. And 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. So there's just an incredible amount of growth that some of these companies can experience. And then for investors watching this for the next three to five, let's stick it in the middle, right at four years. For investors watching MercadoLibre on a four-year term, what are some risks that they need to pay attention to? Sure. So there is growth priced into the stock here. So that can mean that the stock can see volatility if there are any bumps along the way. so far. MercadoLibre has been an impressive growth company, but keep in mind that expectations for

future growth are baked into the share price. And so 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. Matt is such a long-term investor that he decided to bring another option to the table, the Schwab U.S. Dividend Equity ETF. This is a steady state investment he turns to when the wider world's got him feeling stressed. Ricky asked Matt what other investors could get out of this fund. The Schwab Dividend Equity ETF. I think you're getting a nice balance between yield. It currently 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, very good dividend track records. So late last year, I'll tell a quick story. My wife, we were rolling over one of her old 401ks from her previous job and rolled it over to Schwab. And we were deciding kind of 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 a quick exposure to this fund because it's, again,

got a great track record. It's got dividends, growing dividends. And that was kind of what we decided to do with a really good chunk of our net worth. I'm sure you've looked into this. And so I actually, 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? There is. So yeah, 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 so for VIG, the yield 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 than the companies you'll find in the Schwab ETF, but you're getting companies that are growing their earnings a lot faster as well. So for example, in the VIG, you've got Apple, Microsoft, Broadcom, JP Morgan, Visa, MasterCard. So if you're someone looking to get 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. With that, Ricky only had one more question left for Matt and for Alicia. You got any plans for Tuesday? Like I said, probably turn off my phone and go take a walk outside. Alicia's plan was a bit more detailed. I think 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 kind of intensive meal that that takes me a lot of time while listening to music. And then I'm gonna, you know, settle down with popcorn and watch, 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 election. So I'm going to

I'm going to actually schedule time for myself in like five minute, a five minute block of time, maybe two or three times throughout the night to check election results, because, you know, it's going to be helpful for me to limit my time in those areas. 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 Engel. 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 this day for me for either the better or the worse. It is not in their power. So if a change in presidents saps my strength, well, the weakness is mine.

So far, no president had that type of power over me, and I hope they never will. But if they ever do, 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 weekend, fools. 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 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

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