Motley Fool Money - Chipotle’s Special Sauce, Netflix’s Big Number, DraftKings’ Latest Bet

Episode Date: April 24, 2020

More than 4.4 million Americans file for unemployment as the total number of unemployed climbs to 26 million. Netflix adds 16 million subscribers for the quarter. Verizon loses subscribers and withdraws guidance. Chipotle gets a big boost from digital sales. DraftKings makes its Wall Street debut. Snap surges on surprising growth. Coca-Cola falls on concerns over declining volume. And Domino’s delivers. Motley Fool analysts Ron Gross and Jason Moser discuss those stories and share a couple of stocks on their radar: Masimo and Roku. Plus, Time Value of Money Fund manager Michael Shearn talks about what he looks for in leadership and shares some of his favorite stocks. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, I'm Charlie Cox. Join us on Disney Plus as we talk with the cast and crew of Marvel Television's Daredevil Born Again. What haven't you gotten to do as Daredevil? Being the Avengers. Charlie and Vincent came to play. I get emotional when I think about it. One of the great finale of any episode we've ever done. We are going to play Truth or Daredevil.

What? Oh boy. Fantastic. You guys go hard. Daredevil Born Again official podcast Tuesdays and stream Season 2 of Marvel Television's Daredevil Born Again on Disney Plus. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Full Money radio show. I'm Chris Held, joining me this week, Jason Moser and Ron Gross.

Good to see you, as always, gentlemen. Hey, hey. We've got the latest headlines from Wall Street. Fund manager Michael Sheeran is our guest, and as always, we've got some stocks on our radar. But we begin, once again, with the big macro. Another four and a half million Americans filed for unemployment. this week. That brings the total over the last five weeks to 26 million unemployed. And yet, Ron, when you look at the market rebounding off the lows in late March, and

it feels weird to say this, but technically we are in a new bull market. Yeah, really weird. Only down 13% for the year at this point. Only down 17% from an all-time high. And I will remind everyone that the market was up 30% in 2019. So is there a disconnect? Is the more? market looking forward, do we see a light at the end of the tunnel with some states starting to think about opening up, which actually gets me a little bit nervous because I think that's premature, but I am not a scientist, so we'll wait and see how this plays out. What I did like to see is that Congress passed the $484 billion second stage of the small business bailout package, which I think

is essential as a bridge to get us to the point of where one day we do actually somewhat open up our economy, whether it's staggered or in stages or state. by state. That was essential. I hope the market like that. I don't know if that's going to be it. We still may have to go back to the well a little bit for more stimulus, which is fascinating to say because we're approaching about $3 trillion in total stimulus right now, which one day we're going to have to pay the Piper. But for now, we need to do this until our economy gets back up and running. Jason?

Yeah. You're right. At some point, it feels like we'll have to pay the Piper. But we also, we've been saying that since the last great financial crisis from 2007, 8, 9. You know what I mean? Maybe part of it is due to the fact that we've got our politicians in D.C. who are basically going to pull out every tool in the toolbox here to try to help us handle this. And maybe it's because we're all kind of in the same boat, right? I mean, we're all facing the same challenge together. So it's not really isolated to one particular market or one particular section of business. And so maybe that's where some of the optimism comes from.

But you do feel like at some point, I mean, we are going to have to clean up the mess that we've created from all of this liquidity. That being said, I fully agree. I mean, this is the response. I mean, this is when we need our government most to be able to step in here and utilize every tool in the toolbox to help make it through this time. And yeah, I mean, there is certainty in the sense that at some point or another, we will get past this, right? We will have treatments. We will have vaccines. It's going to take time. It's going to be a while until we get there. But perhaps that there is a finish line somewhere in the near future is leading the market to think,

you know what? Hey, this is going to be a bit of a lost year for everyone to a certain degree. And if we can look past that, these businesses were fundamentally in great shape before this started. It's not like these were impaired businesses. This is just one of those Black Swan type of events. I mean, it's like a hurricane hit the entire world all at once. And so we're all going to have to try to recover together. And as we've said, it's not going to be a flip of a switch. Everything's not going to go back online all at once quickly. And even when things do ultimately get back online,

I just don't think there's going to be as many retailers out there. I don't think there's going to be as many restaurants out there, which doesn't bode well for employment. I don't think. I don't think we get back down to the lows of what we saw before this started. Unless those workers find work elsewhere, maybe the restaurants that survive or the retailers that survive end up opening up more locations or have more online robust businesses and hire people.

But I think for a while here, unemployment is going to be a little bit messy. To that point, I mean, there are going to be businesses that actually flourish in this time, right? There are going to be businesses clearly that don't make it. as we move more and more towards this digital economy, there are going to be companies that not only are keeping their heads above water, but they're actually flourishing in this time. So we do have to keep that in mind. There are going to be a lot of businesses that go into this and they come out on the other

side a lot stronger. Let's get to some of the earnings from the week, and we'll start with Netflix. Netflix added 16 million global subscribers in the first quarter. Jason, the stock is basically flat over the past week, but that might be because it's already close to an all-time high. Yeah. Well, I mean, this is a business that just continues to perform very well. This was, I think, a bit of a tale of two earnings reports in that, as you mentioned, user growth was tremendous. I mean, that was more than double, I think what they internally forecast. Now, with that

said, financials were a little bit less impressive. And I think most of that is due to the fact that this is really a global business now. There's some currency effects to consider. But, you know, we view those currency effects through the long-term lens here at the Fool is a net news. We're not going to hold it against them that they're a successful global business. I mean, we're actually very happy to see that. But with that said, they definitely pulled some of that future growth forward. So it does paint a picture, I think, of a company that's likely going to see more modest user growth in the coming quarters, and maybe that cash flow number that looked pretty good

this quarter, or at least better than normal, most of that was because the spending on content has more or less been halted. And so they're going to get back to spending that money, which means those cash flow numbers aren't going to look as good in the coming quarters in years. It's going to take a while for them to get to that sustainable free cash flow status that they're looking for. But I do think you get a business here that's set up for a lot of success, right? They are global.

They have more subscribers outside of the United States than inside. I thought it was really interesting on the call. Management was really clear. This is not the time to be talking about price increases. So that's not something I expect to hear coming. coming out from them for the rest of the year. And that's something to at least keep in mind, because they do still have close to $20 billion in streaming obligations. But as long as they can keep the focus more on that subscriber growth and less on the obligations and content,

I think the market will continue to receive this stock fairly well. It's still a growth story. And I think it's a main staple at this point for the consumer's household. I mean, this is really one of the primary entertainment services that consumers are relying on. And I don't see that changing. Verizon lost nearly 70,000 phone subscribers in the first quarter and the company withdrew guidance for the full year. Although, Ron, Verizon has a lot of company when it comes to withdrawing guidance for the full year. Yeah, this actually wasn't too bad and they've held up pretty well.

Stock is only down about 7 or 8 percent from its all-time high. So that's pretty impressive. It's too hard to look out. So they did, they withdrew their revenue guidance and they reduced their earnings guidance. now see between a 2% reduction to potentially 2% growth. So, relatively anemic, no matter where they end up in that range. But not that surprising when they have 70% of their stores closed, the equipment sales were significantly impacted as a result. And you see the consumer business revenue down 1.7%. Business and wireless revenue held up a little bit better down

fractionally at only 0.5% for both of those segments. And you actually saw, I just earnings actually increase at about 5%. So, overall, this could be way worse, and they're holding up pretty well. They said their 5G rollout will continue. Their CAPX program will continue. They're actually on track to achieve their $10 billion in cost savings by the end of 2021. They've racked up about $6 billion in savings so far. And hey, 4.3% yield for Verizon.

That's a nice yield. It absolutely is. They're a huge company. They got a lot of cash. I am wondering, though, I mean, this is a business. that has made a number of acquisitions over the past decade, some of them questionable. And I'm wondering if you think they're going to be sort of scaling back on acquisitions, at least over the next couple of years.

Well, their pure CapEx program, they're saying is intact for now, but they should be, I think, and probably will be more conservative on the acquisition front. This 5G thing, whatever you want to call it, is going to really be interesting to watch because is it more hype than reality and a lot of money is going into it. A lot of people are relying on it, changing things in the world of connectivity. So it'll be a really interesting part of their business to watch. Shares of Chipotle up this week, thanks to digital sales in the first quarter rising more than 80%. Jason, the investments that Chipotle has been making in mobile ordering and the second kitchen concept, they really showed up in this report. Well, I mean, I would like to say that

My family and I, we've certainly contributed to that digital sales growth this quarter. I think that Chipotle is one of the handful of restaurant businesses that is actually set up to thrive as the consumer adapts to this new COVID-19 paradigm. I think that's due to its casual nature and those early investments in technology, like you noted there. As a consumer, it's a breeze to order on the app, drop by there and pick it up. Or they've partnered with Uber Eats, you can have it delivered. You look at the numbers there, digital sales up 81 percent, that accounted for 26.3 percent

of sales for the quarter. But interestingly, in the month of March, alone, digital sales grew 102.6 percent and represented 37.6 percent of sales. So clearly, the investments in technology have paid off. And I think that is only going to continue to be the case now. They've got 11.5 million loyalty members, and I think being a part of that loyalty program is important because you do actually get bonuses and free food from doing that, and it's well integrated into the app there. When you look at their footprint, right, around 2,600

stores, only about 100 restaurants are actually temporarily closed, and most of those are in malls. And then management laid out very clearly in the call that they have more than enough liquidity to be able to handle what's going on right now for the foreseeable future. You're looking at a business between 12 and 18 months out. There are zero liquidity. concerns, and even if they get past that 18 months, they have more levers they can pull. And so they're not going to be buying back any shares. They're going to continue to invest in that digital presence. I think they've done a really good job since the health, since that health scare of a few years ago, they've done a good job of not only bringing in, you know,

former loyal Chipotle customers, but also bringing in new Chipotle customers that had never tried it before. And remember, that was something we were really focused on during the time of those bad headlines, right? New customers who might consider going to Chipotle probably would have put it off because of that health scare. Well, they're doing a good job of bringing those consumers in now, and they've been able to grow that customer base. I suspect we'll continue to see the market receiving this stock as it is today. Jason, that's all well and good, but do you have firsthand knowledge of whether they got the Caso Blanco, right, or not? I do not yet. I was really close to ordering the Casablanco, but you know what, Ron,

Every time I prepare to do that, that guacamole is just staring me in the face that I can't turn it down. Coming up, we had an IPO this week, just not the kind we typically have. We'll explain after the break. Stay right here. This is Motley Full Money. Welcome back to Motley Full Money. Chris Hill here with Jason Moser and Ron Gross.

Draft Kings made its public market debut on Friday. The sports betting company went public through a reverse merger with another public company called Diamond Eagle Acquisition. Ron Gross, what is this? All right, follow me here. Last May, Diamond Eagle went public as a special purpose acquisition company, typically known as a SPAC. And they raised $400 million with no business. The idea was that they were going to go out and acquire a business or merge with the business. And lo and behold, here we have it. Draf Kings merges with that public shell, that public SPAC, and becomes, as a result, a public company in its own right. Diamond, as I said, had $400 million. Jeff King's had another

about $100 million. So now you have a company with $500 million of cash. A company called SB Tech is also part of this. They're a back-end technology provider. You also have investments from Capital Research, Wellington, Franklin Templeton, wanting to get in on the sports betting trend. Company has greater than a $3 billion value now, I believe. Stock's actually up on its first day of trading. And there you have it. a brand new public company. But there's no sports, Ron. How is there sports betting?

Why would I invest in a business of sports betting when there's no sports? As you might imagine, the CEO has addressed this as a temporary problem. And one day, we will be back and hopefully sports will be here in full and business will resume. And right now, quite frankly, this is the only way to get a company public right now. You're not doing a regular IPO. backing into a shell or a spec is pretty good idea, actually. Shares of SNAP up more than 20 percent this week after a first quarter report that showed a lot of growth, Jason, daily active users, revenue per user. I mean, Snap delivered.

Yeah, I mean, given the state of things, I thought this was really an encouraging quarter for them. I mean, you remember last quarter, it seemed like a pretty encouraging quarter as well. And yet the market did not receive it very well, right? The stock tanked from around $19 per share at the time. So, they still have a lot of ground to make up there. But to your point about user growth, I think that was really encouraging. And it makes sense at this point in time. I think we're going to see this out of these social network platforms, a strong user engagement, which is a good thing.

But unfortunately, they are not immune to the fall off and spend. March was a tough month for them. And to put that in the context in January, February, that growth was 58%. In March, it fell to 25%. So it's still growing, no question there. And I think, interestingly, because Snap doesn't have, because it's not as big of a network, it doesn't have that same exposure to a lot of the small businesses that are going to be found on Facebook or Instagram.

And so, those small businesses are obviously being impacted a little bit more so than others at this point in time. So they have a little bit of an immunity there to that. But the two questions I really have for this business longer term is, are users going to age out of this platform because it does seem to skew to have a very much. very young demographic. And then also, will the next generation of prospective users be using Snapchat or will they be using another platform, something like a TikTok or something that hasn't even really been developed yet? And so I think what we need to see for Snap to become

a compelling investment idea, at least, is to become something more than just Snapchat. I have to believe that management is at least thinking about that. And then finally, I mean, stock-based compensation is still just absurdly high. I mean, it's 38% of trailing revenue. They've got to get that taken care of. You remember, we held Twitter's feet to the fire on that for a while. And I think the market will continue to keep a good focus on that as well until that number starts coming down. Coca-Cola's first quarter profits and revenue came in higher than expected, but shares down this week, Ron, because if you didn't realize just how important the away-from-home

channel is for Coca-Cola, you do now. Yeah. You know, the quarter was fine under the circumstances. Net revenue down only about 1 percent, strength in North America and Latin America, weakness basically everywhere else. But operating margins were up, good cost controls there, and adjusted earnings were actually up 8%. So the quarter was fine, but now look forward to Q2 and beyond, and we've got a problem. Management came out and said there's been a 25% volume decline since the beginning of April. That's a big number.

They say impact to Q2 will be material. That could be an understatement of the quarter. That seems like it's going to get pretty hairy there. They suspended guidance for 2020, no way they can see forward to any real extent. And so we'll have to keep an eye on this. This will probably be a 2020, perhaps first half of 2021 issue. It's not going to permanently impair this business. Stocks down 25% from its all-time high.

So the market's telling you that things are not good and it hasn't rebound perhaps as much as some other companies. 3.6% yield, though. So if you believe in the future of Coke, not a bad yield to scoop up. Shares of Domino's pizza basically flat this week, despite a first quarter report where everything was up, including same store sales, Jason. That is not easy to do in this environment. No, not at all. But I've got two words for you guys. Pizza pedestal. Have you heard of this pizza pedestal? Don't tell me that Domino's doesn't innovate, okay? This is an innovation. They came up for contactless delivery, right? I mean, the guy or a girl who's delivering you,

your pizza will actually set your pizza down on a pizza pedestal. So, that's a good So they don't put it on the ground or your porch where something may not necessarily have been cleaned. It's environmentally sustainable, right? It's just a piece of cardboard, but the pizza pedestal. Keep an eye on that. We talk about businesses that should hold their own in a time like this. I think Domino's is another one of them.

And to your point there, U.S. same-store sales and international same-store sales both grew in that 1.5% range. It marked the 105th consecutive quarter of international same-store sales growth, 36 consecutive quarter of U.S. same-store sales growth. in the US business comps were up 7.1% during the first four weeks of quarter two. And so they did pull back on guidance, right? They yank guidance as most companies are doing, but they still have lofty goals of 15 billion, or I'm sorry, 25 billion in retail sales by 2025.

And I think they can get there as long as they keep doing what we do. All right, guys. We'll see you later in the show. Up next, a conversation with fund manager Michael Sheeraner. Stay right here. You're listening to Motley Full Money. Welcome back to Motley Fool Money. I'm Chris Hill. Earlier this week, Motley Fool analyst Tim Byers talked with Michael Shearn, founder of the Time Value of Money Fund, a private investment firm based in Austin, Texas. They discussed what to look for in leadership, the most underrated quality of outstanding businesses, and Shearne kicked things off by talking about how he approaches investing. We invest in what we now call. We stole the term from David Gardner.

came from the Fool, a Mount Rushmore leaders, which are kind of these best of the best leaders, these founder types that stay at businesses forever. They're not serial entrepreneurs. They're not intending to move to another company. If it's a great business model without the leader, we pass. And we just kind of wait for the market to give us the opportunity to buy into a business at what we think we can earn a good return. So super concentrated.

We generally, you know, I've had a lot of cash on. in our fund for a while because of a lack of opportunities. And so, yeah, hopefully that gives you a little bit of a background. You have, I am liberally calling this a resiliency framework. This is not what you called it in your letter. But you cited three things, three things that you're looking for in investing, solve important customer problems, which makes them a must-have business. They help customers cut costs, which is essential in a recession,

and they're poised to grow through the recession and come out stronger because they have strong balance sheets, which allow them to be opportunistic. That was your, I'm sort of defining that as your definition of resilient in the era we're in right now. That does not sound like a lot of businesses, Michael. I think that's a small minority of businesses. In your research right now, are you finding more of those businesses? Yeah, like you said, there's not many. There's a reason we only have maybe five holdings right now. So if you think about it, like one of our holdings is Brookfield asset management.

You know, not only they've been preparing for this type of scenario for many years now, even buying oak tree earlier. Actually, it was early 2019. So they're set up to actually succeed in a recessionary type environment. some of their existing assets are going to get hit, but not as much as people think. And so, you know, that's a good example of one. You've got companies like Shopify, which are growing, will grow. More people will go online kind of through this recession. And, you know, they'll be forced in that direction.

You know, risk to networks, of course. You know, as we're on the Zoom call, we're taking up lots of data. And they're definitely going to be with positive industry tailwinds behind them. And so, you know, there's not many, but there are some that will be able to grow through this, actually, or come out stronger at least. Well, and I was going to ask you what you thought the most underrated quality is of an outstanding business. Yeah, the biggest wake-up call for me has been that remarkable things, remarkable companies, come from unremarkable places.

When I meet with a lot of these Rushmore CEOs at private companies and public companies, you know, a lot of times, you know, I'll ask them, how do you do it? And it's just, you know, well, we just hire good people and treat our customers right, you know, and it's kind of like, okay, but yeah, what more do you have to say about that? You know, and it's like, that's about it, and that's pretty hard to pull off. You know, ask a great chef. You know, I consistently, you know, cook good meals. Okay, but yeah, what else do you do?

You know, and it's like, that's, it's kind of hard to be consistent, buddy, you know. And so what happens is that the stories get rewritten about successes of companies. And so, you know, for example, you know, you'll get a Harvard business review case and they'll point to the success of a company such as a Google that it was their strategic vision. Well, quite frankly, at the time, the CEO did not have a strategic vision. It had nothing to do with the success. What happened is that they were focused very much on an algorithm that brought the best search results to the top. Everybody else was not doing that, and that's pretty much it. But everybody wants a story.

Everybody wants the shiny new thing. People are drawn to charismatic leaders. They believe that there's this grand vision that companies have, but they actually stumble into things. But what happens is the story gets rewritten even by the same CEOs. I was listening to the founder of Trader Joe's talk about when he had two stores that he saw this demographic change in the United States that because people were traveling a lot. And I was listening to that going, if you open two stores, you're not thinking about the broader global implications of Pan Am opening up new markets.

And so it's like, so it's really kind of these really, what happens is the stories make it more remarkable later. So I look for the unremarkable. There's companies like Brookfield are quite boring. You know, they own boring assets. You attend their or you can watch it online. Their annual meeting day and they're just saying, you know, we've compounded at 15 percent and, you know, we just wait to buy assets at the right price and we hire people that can manage those assets. I mean, there's really nothing exciting about that. And so what happens is everybody's drawn to the shiny new strategy, you know, whether it was Jack Well, in the 80s, you know, the top grading and get rid of your lower level employees and

only focus on your number one or two product. So they focus on these things that really don't create the value. What creates a value is just being consistent, serving your customers well, making sure your employees can serve your customers well, you know, making sure you don't create a bureaucracy for them, making sure you train them correctly. But it's not very exciting. And so what happens is I'm now looking for very unexciting stories. Andy Bechtel A big holding of mine is Arista Networks is very unexciting. You know, he's got three lectures online. I think the most views he has is 20,000 people.

And he's actually one of the best startup investors out there. This is going to Andresen Horowitz, he's got a way better record than they do. And yet nobody's following Andy Bechtelstein because he's saying things like, you know, I wait for the right time to invest in technology. Oh, well, I can't be that simple. And it's like, it kind of is, you know, certain things. And so I think people kind of gravitate. They like the story.

They like the Flash. You know, they like the Peloton company that, wow, they're growing like crazy. But it's like, why are you spending so much in sales and marketing if you have such a great product? Like, I know a lot of Peloton customers. They're happy. You know, why isn't word of mouth helping your company grow? I don't understand. You know, why do you have to constantly sell it?

And so I'm cautious with those companies. I would just go back to remarkable things come from unremarkable places. I mean, even Apple, everybody thinks Apple innovated the iPhone. It's not true. It's a company called General Magic. There's a documentary about it. It was a public company. Sure.

And it was decades before. But it was the iPhone. I mean, this is not like a conspiracy. You can watch the documentary. But the timing for the technology was wrong. And then Tony Fidel went to go work, that worked at General Magic, you know, the one who came up with the iPod, went to go work at Apple and said, hey, let's turn this into a phone like we tried to do at General Magic. So I think people kind of start putting these, like Apple's

this innovation machine that invented it, but really the innovation came from someone prior. And so I think I'm very careful to stay away from those stories. Is there something that you're looking for from leaders? And maybe this is even a screener, like as you're going out and looking for new companies, does this crisis, you know, reveal something that you want to see? And then you'll say, you know what? I want to add that, you know, leader, that company to our portfolio. What are you looking for in this crisis?

Well, I think we've already identified a lot of good leaders to, but we are watching how they act. So a lot of quarterly conference calls having come out. So we'll be listening to those very carefully. And we want to see if the leader is very transparent about the current situation or if they are instead saying, you know, the first two months, you know, if they keep focusing on the past, like 2019 was good, you know, so the quarters aren't going to be awful, right, because January and February weren't awful, marches. Right, right.

So any leader that we see that starts saying that, you know, referring the past, the good news is someone that we're not going to be interested in. We prefer somebody to say, yeah, it's bad. Or, you know, Eric, Ewan, do I get his name right? from Zoom. You know, they screwed up, right? And most companies, he apologized. Most companies would have said something like, you know, this was a snafu or they would have PR'd it. But he just came out and said, yeah, we screwed up. I mean, there's nothing more to say than that. We're going to fix it. And so I'm going to be looking at what they emphasize in their communications. And whether

they're talking about the customer on helping their own customers, you know, what are they doing to respond to this? How are they treating employees? If they fire employees, talk about why you fired them. Don't just say, well, we needed to save costs. Talk about how they made that decision. I don't think a lot of our companies will be in that position, but others that maybe we're looking at will. So I want them to be giving me the full picture, being transparent. Right now is not the time to BS me. Tell me the truth. What's going on? How are you reacting to it? How much did you lose? How much are you losing right now? But again, I think the tell, like the poker tell, will be if they, if they kind of try to gloss over by saying, hey, we've got, you know, the corner was good.

You know, it's like, yeah, but it's not going to be good for the next three months. But I wonder if you think that there are businesses right now coming out of this pandemic and maybe industries or businesses, either one that you think are structurally impaired and are just going to be eliminated from your list of potential candidates, at least for a while? You know, I think it goes to balance sheet. So the way I look at a balance sheet is that a balance sheet allows you to be opportunistic. So one of my one of my sayings right now is find companies that can survive and thrive. So if you have a balance sheet with lots of debt, all you can do is focus on surviving. I mean, you can't thrive.

but if you have cash on your balance sheet, you're in a position where you can thrive. And so I want the combination of survive and thrive. It's impossible to just be thriving in this environment. So really it comes down to balance sheet. The less debt you have, the more you have that ability to pay attention to customers, to help your employees. But if you're worried about your next interest payment, then you really have a very narrow view of what you can do next.

I mean, you don't have many options. So it's like a lot of us are stuck at home right now. You know, some people got a month of food, right? So they don't have to go to the grocery store every week. And so it's the same thing with a business. If you have lots of cash, you don't have to go out to the market to try to get financing and rely on the kindness of strangers, you know? So when you go do your grocery run, you may or may not find toilet paper that week.

And so the same thing with bankers. When you go run to the banker, you may or may not find financing. And so I think for me, I'm looking very much at balance sheet. And so we did buy Hyatt in March, but we ended up selling it because it went up and priced quite a bit to our fair value. But in that situation, we asked the question, if they have a 20% occupancy averaged out over the next two years, you know, could they survive on their balance sheet? And how long could they just make it the next two years? That's all I need them to do is make it for two years. And so we've run that scenario as well with all of our companies.

We took their 2019 total cost structure, their SG&A, their general administrative, operating expenses, all the expenses. And we just asked a simple question, how long can they survive based on the cash on their balance sheet? And most of the companies I'm invested in except for Brookfield don't have debt. So Shopify was two and a half years. Oh, and then we ran the scenario if they lost half of their sales. like permanently lost half of their sales. How long can they last? Shopify, two and a half years.

We ended up owning Slack and also selling it, but there were a year. Appians a year, but I think they're a little bit, you know, most of their expenses are not. They're very variable. They can cut them very quickly and they're more like investments in that case than they are expenses. And so they could survive a year just running it off the scenario just without having knowledge about Appian.

But the strongest company, for example, was ERISA. We had to decrease their sales 70%. So we said if they lost 70% of their sales permanently, permanently lost, just went away, poof. They could survive 10 years using their existing cost structure from 2019 for 10 years. And so for me, it's like I'd rather be on the thrive side. And in order to be there, I have to have a strong balance sheet. So the companies that aren't going to make it are the ones that even if they have good intentions,

it doesn't matter if you talked about culture and treating your employees right when you don't have cash flow. All that stuff goes out the door. And I'm seeing that with a lot of private business owners. They spend a lot of time coming up with values and mission and purpose and talking and training their employees. But none of that matters when you can't pay them. So maybe they got too much debt.

They didn't foresee. Nobody foresaw this coming. but they don't have that option. So they can't thrive. So all that stuff they did in the past doesn't matter. So I would avoid those companies in this time. At least for us, you know, I avoid those. Coming up, we've got a couple of stocks you can add to your watch list.

Stay right here. You're listening to Motley Fool Money. 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 yourself stocks based solely on what you're here. Welcome back to Motley Full Money. Chris Hill here once again with Jason Moser and Ron Gross. Our email address is Radio at Fool.com.

Question from Bill Davis, who writes, individuals are often advised to establish and maintain at least six months of expenses as their emergency fund. Is there a similar guideline that companies should be trying to observe so they can meet emergencies like this one? It's a good question, Ron, because a lot of companies need cash. Especially when things get tough, for sure. Companies are not dissimilar to individuals. It's recommended that companies have three days.

to six months of operating expenses in cash. So if they need to, they can withstand a certain short-term storm. There's also a couple ratios that companies and investors can look at. Current ratio is current assets to current liabilities. You want that to be greater than two. Quick ratio is liquid current assets divided by current liabilities. And you want that to be greater than one. And those are indications that companies can meet their short-term liabilities. Boy, nothing like a lot of ratios to make some audio gold. All right, let's get to the stocks on our radar. Our man, Dan Boyd, is going to hit you with a question.

Jason, you're up first. What are you looking at this week? Yeah, keeping an eye on Massimo, ticker is MASI. This is a medical device company focused on non-invasive monitoring technologies and hospital automation solutions. So pulse oxymetry, which is one of their fortays. They're measuring the oxygen levels in the blood. That's an example of what they do.

The stock has had a tremendous year to date up 30%. And ultimately, I think that's because the hospitals need their equipment to do their job. They have a great razor and blade model where they get these machines into the hospitals and then they have the consumables that they keep on selling. And so I'm going to be very interested to hear their earnings come out next week on the 28th. I'm going to be very interested to hear their take on hospitals' demand during this crisis, particularly as we see, you know, the pressure relieved a little bit as, as, you know, COVID admissions start to fall down. Seeing some investments made in telemedicine and remote health care as well, they are calling for their first $1 billion revenue year this year in 2020.

I want to see if they're still holding to that when they report earnings. Dan, question about Massimo. Yeah, so when I was first told that we were going to be looking at Massimo, I thought we were looking at Massimo, the target-level fashion brand. of which I have a couple of pieces here at home. So, Jason, my question to you is, who you got for the future, these health care companies or mid-level retail fashion brands? Well, you know, listen, I love me some mid-level fashion retail, Dan, but I'm going to healthcare all the way.

Masimo's a stock I own and I might buy a little bit more. Ron Gross, I shouldn't have made fun of you for the ratio thing you said. That was very helpful, so I appreciate you. No, no, I'm a bigger nerd as the next guy. What are you looking at this week? A stock I recently started to look at, and it's basically because I've been watching a lot of TV, quite frankly, is Roku ROKU, aggregator of streaming services. Active accounts recently up 37 percent, streaming hours up 49 percent. Now, the advertising side of this business is really important, and that's what I need to understand more to determine if I want to make an investment here.

They get a percentage of the advertising placed on their hosted channels. They get all of the advertising revenue on their own Roku channel, but the CEO said, obviously, in this market, there could be some marketing spend disruptions. So I want to understand that a bit off about 30 percent from its high, but it's been on fire since its 2017 IPO, where it would probably get 14 and now stands at 124. Dan, question about Roku. Ron, can I watch live sports when they come back, of course, on a Roku without having to worry about blackout restrictions?

You would think I would know that, but I don't quite know that. yet. I think there's always blackout restrictions in some areas. And that's just the nature of the game. But that is one thing I will look into as I'm looking at the advertising, Dan. What do you want to add to your watch list, Dan? Well, I'm certainly not adding Roku after Ron's complete lack of just a radar stock, my friend. Not a recommendation. As much as I like cheap T-shirts, I'm going with Mossimo. Well, that's back to back. Hey, now. All right, Jason knows are Ron Gross. Guys, thanks for being here. Thanks, Chris. Thank you.

That's going to do it for this week's edition of Montyful Money. I'm Chris Hill. Thanks for listening. We'll see you next week.