In this episode of MarketFoolery, host Chris Hill chats with Motley Fool analyst Bill Mann about the market's biggest pops and shifts. Delta Airlines (NYSE: DAL) is the rising tide that lifted all ships (well, planes) today, but should the market really reward, say, Southwest (NYSE: LUV) for Delta's good results?
Meanwhile, Lyft's (NASDAQ: LYFT) shiny new coat of paint took some 48 hours to wear off, and the market is selling shares big time. Hopefully Uber, set to go public later this month, can make some lemonade out of this sour news.
And the guys close out with a listener question -- what can you do with your cash on the sidelines while you're waiting to invest?
A full transcript follows the video.
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This video was recorded on April 2, 2019.
Chris Hill: It's Tuesday, April 2. Welcome to MarketFoolery! I'm Chris Hill. Joining me in studio today, the one and only Bill Mann. Thanks for being here!
Bill Mann: How are you, Chris?
Hill: I'm doing well! I'm doing well. We're going to depend on the Fool mailbag. We're going to talk airlines because there's a bunch of stuff going on in the airline industry -- or, I should say, one thing with a big ripple effect. We'll get to that. We'll get to Lyft.
But first, I should say a word about yesterday's episode.
Mann: You may want to review what has happened.
Hill: Yesterday was April 1, the day that is our national holiday here at The Motley Fool. It is the day when everyone's a Fool.
Mann: Fool nation.
Hill: Thank you to the dozens of listeners who tweeted at me, tweeted @MarketFoolery, who wrote in asking things like, "Hey, you talked about Roman Financial Services and I couldn't find the ticker." "What's the ticker for McClouskey Holdings? I could not find that." Not everyone was asking those questions.
Mann: You're not going to name names.
Hill: I'm not going to name names. Some people wrote in and said, "Hey, I was about seven minutes into the episode when it finally kicked in that everything you were talking about was fiction." And to that, we tip the jester cap to Tom Gardner and David Gardner, the co-founders of The Motley Fool, and I believe employee No. 1, Todd Etter. They're the creators of some of our oldest, and I would argue best, most effective, April Fool's pranks. Effective in that people get fooled and there is a financial lesson attached to them.
Mann: Yeah. Larry McCloskey, big fan of the show, CEO of McCloskey Industries, used to call in quite a bit.
Hill: Yes. Larry McCloskey was the straw man who would appear in different jokes from time to time. And Tom Etter would -- yes, on the original Motley Fool Radio show, it was a live three-hour show on Saturdays, coast to coast, David and Tom hosting that, every once in a while Larry McCloskey would call in.
Mann: Yeah, whether Tom and David were prepared or not. [laughs]
Hill: Yeah, that's right. All right, let's get to the airline industry. First quarter results for Delta Airlines are going to be reported next week. But this morning, Delta raised their guidance for the first quarter. Shares of Delta up 7%, and the ripple effect through all the airlines... I mean, all... they're not all up 7%, but they're all up. We'll get the Delta in a second. Should they all be up? It appears as though Delta's reasons for raising the guidance have to do with healthy demand among passengers, fuel costs in line with what they had thought, and maybe even they're going to save a little bit more money on fuel costs. Should investors just be assuming, "That's the case for Delta; therefore, it's the case for all of them."
Mann: I think so. It's certainly the case that Delta said that their revenues are going to be up 7%. They said that their fuel costs are lower than expected. You can't just take the raw pricing for fuel and assume that's what airlines are paying. They have forwards for everything. So, it may be the case that Delta's forward pricing is better than its competitor airlines. But they are all playing in the same market. You're talking about a commodity, and the fuel is definitely the largest expense for the airlines.
So, yeah, good news for them. After the last couple of weeks, with wondering who flies 737s and who doesn't, it's good for the airlines to have a little bit of good news to point to.
Hill: I'm glad you mentioned the 737. I shouldn't say every quarter, but frequently, it is the case where there is some sort of event that happens, and just around the office here, we'll say, "Hey, how many times on conference calls this quarter do you think we're going to hear the word or phrase -- ?" With earnings coming up for the airlines, how many times do you think we're going to hear the word Boeing on conference calls?
Mann: All of them.
Hill: [laughs] Yeah?
Mann: [laughs] Even the airlines that only fly Airbus or other air manufacturers' planes. They're still going to mention Boeing. If nothing else, just to say, [whispering] "By the way, we don't fly any Boeing planes!"
They're all going to mention it. Now, it is important to note that it doesn't really help any airlines to put the bug into the back of people's heads that occasionally, airplanes fall out of the sky, at all. So I don't think that there will be much in the way of schadenfreude. But there will be a lot of discussion about the 737 Max and whether the airlines have the proper safety protocols and safety equipment installed. It will come up.
Hill: After going decades with not only not owning airline stocks, but going out of his way to talk down the airline industry, Warren Buffett is now invested in, I believe, at least four of the major airlines.
Mann: Yeah, including Delta.
Hill: Well, good! I'm glad Berkshire Hathaway is having a good day today. I'm glad something finally worked out for them.
Mann: Yeah. Those guys, it's nice that they finally caught a break.
Hill: Do you own any airline stocks?
Mann: I do. I own a European carrier called Wizz Air.
Hill: That's really the name? Wizz Air?
Mann: It's really the name, yeah! They fly in Eastern Europe. They are, if anything, a cheaper version of Ryanair.
Hill: Wow, I didn't know that was possible.
Mann: Right? You bring your own seats on board -- not really.
Hill: This is the first time I've ever heard of Wizz Air. What is the thing that attracted you to them? Was it just, they've got ownership of a certain geography?
Mann: Yes. They're primarily flying from Western Europe into Eastern Europe, very much the same strategy as a Southwest Airlines, where they fly into the secondary or tertiary airports. They have the lowest cost structure by a lot of all their competitors. When you're talking about a commodity industry, which the airlines definitely are, even though they do specialize in one direction or the other, lowest cost ultimately wins. At some point in time, we will be in an environment that's not like this, where all the airlines are saying, "Wow, our fuel costs were much higher than we expected." At the those points in time, you want to be behind the airline that is creating the pressure for every other airline.
Hill: Let's move on to the stock in the spotlight for the past week, and that's Lyft.
Mann: Which isn't! [laughs]
Hill: Lyft down again today. This is a stock that goes public last Friday at $72. It immediately pops up to the mid $80s, comes back down. Yesterday, the story it was it was below the IPO price. It's now in the mid-to-high $60s. A firm has come out and not only put a sell rating on it, but put a price target of $42.
Mann: Oof! So, two things. One: it is very interesting, funny, to say that after 48 hours, Lyft is officially in a bear market.
Hill: That's true. That is technically true.
Mann: Yes. It's also, to me, a little bit of a sign of what an amazing job the underwriters did, in terms of getting it priced as high as possible. This is one of the few times that the company is really on the other side of the table with its prospective shareholders. An IPO is supposed to be a money-raising event for the company. Lyft has raised as much money as they possibly could by pricing it at a place that's perhaps not sustainable as a stock price. They priced into the enthusiasm. As a result, they're going to be able to subsidize our rides for even longer.
Hill: In the lead-up to this IPO, just talking to you and other analysts here at The Motley Fool, the common refrain I heard was, "Yes, I'm interested in this company. Hell, no, not at $72." By the way, 10 days prior to the IPO, when the range that was being reported for the IPO was $62 to $68, and there were people saying, "I'm not interested in this at $64 a share." Even more than interesting, at what point does this stock get priced in such a way where reasonable people look at it and go, "Well, that's just stupid, that it's that low"?
Hill: But we're not there yet.
Mann: No, we're not there yet. Eventually is not a number. I do think that you're talking about a company that is essentially in this country a duopoly with Uber. They compete quite well for a product or service that people want and would hurt very badly if it disappeared tomorrow, because we would have to do things like take cabs again, and nobody wants that.
But whenever I think about a company of this nature, I think about things like this -- when you read their S-1, they say, "We have a history of net losses, and we may not be able to achieve or maintain profitability in the future." To me, you want a company to be profitable. I mean, eventually. [laughs] If I'm thinking of going long, I'm definitely going to read that and then think about the price.
Hill: I was going to say, they didn't even put a time on that. I was not expecting a period after the word "future." I was thinking it was going to be "in the future five years."
Mann: Right. "It may not happen for us," is what they said.
Hill: You mentioned Uber, which is reportedly going public later this month. The last week, as we've seen it play out with Lyft, what does that do to Uber's IPO? Does that make not just mom-and-pop investors like you and me, but does that make professionals on Wall Street say, "Wait a minute, I'm not looking to bid this thing up"?
Mann: I'm going to make a guess that a lot of the enthusiasm about Lyft's IPO, and certainly once it came public, had to do with either forced buyers, people who were going to eventually have to put it into some sort of index, or mom-and-pop investors. They were the ones who got really excited about this. Obviously Lyft is the first of the unicorns to come public. It may actually impact not necessarily Uber, because Uber they could pull their IPO. You could do that right up until the time that it prices. They're probably committed at this point to do it. And the environment for them to do it isn't necessarily that bad based on what has happened with Lyft, although it's not great news for them.
Hill: Presumably, if you're Uber, part of the narrative that you're sharing when you do the roadshow is, "ways in which our business is different from Lyft."
Mann: [laughs] Right.
Hill: "We're not just domestic. We have Uber Eats," which I'm starting to see TV commercials for. So, presumably, they're going to be leaning harder on that part of the narrative now. As you said, you can't convince me that this is a plus for Uber.
Mann: No! But, it's a plus for a different narrative. The narrative isn't necessarily, "Hey, the market is great and wide open for this type of an IPO." The narrative is now, "By the way, we are a superior business."
Hill: Our email address is firstname.lastname@example.org. Question from Phil Silveira, who writes, "I often hear people talking about staying in cash until a stock comes into their buying range. My question is, what do you do with that cash while you're waiting? I'm invested in some equities that I love, but also have a significant amount of dry powder waiting for investment opportunities. Do you suggest leaving it in whatever money market account the brokers set you up with? Schwab, Fidelity, etc.? Or are there shorter-term things that you do? Do you buy CDs, invest in a treasury index? Or do you just leave it in cash? Thanks very much."
Mann: Phil, it's a super question! I guess it really depends on whether you are keeping the powder dry, if you've got a time determined that you're going to be investing, or if you're just waiting for an opportunity. If you're waiting for an opportunity, as we have seen with the stock market, for example, starting in November and ending at the end of December, when the opportunity comes, you have to be ready. And the opportunity might not stay there that long. What was the narrative of the market at the beginning of this year? "We're in a bear market." What is it now? "Steady as she goes." Companies are up 30%, 40%, 50% since then, and more. So, if you have a time indeterminate strategy with your cash, you're waiting for a buying opportunity, I wouldn't have it in anything that you couldn't sell in 20 seconds.
Hill: Right. It also seems like, beyond just being able to sell it in 20 seconds... I read Phil's question, and my gut instinct was, "Well, I'm lazy, so mine's in cash." It sounds exhausting, to be juggling -- even though it's not. That's just how it hit me on a gut level. Like, "No, I think I'd rather just leave it in cash." And I realized that, yeah, I'm out a couple of percentage points of gain, probably, depending on what short-term CD or TIP you're invested in.
Mann: If you're thinking of cash as a strategy or as an asset class, then yes, absolutely. TIPS actually are my favorite. If you're trying to remain neutral to the market, you also want to try and remain neutral to inflation.
Hill: I guess one other thing to consider there, and this is an argument against cash and more for CDs and Treasuries, is --
Mann: You hate cash, don't you?! Let's get Jason Moser in here! He hates cash!
Hill: I like to picture Phil at his computer, and next to him is just a stack of cash.
The argument in favor of TIPS or CDs is, well, what stocks are you invested in? If you're someone who's looking to balance out your risk, and not everyone is, but if you are and you don't have any of those classic blue chip dividend payers in your portfolio, then yeah, that might be a way to balance out your risk a little bit.
Mann: Yep. I think that's right. I think that's exactly right. Just keep in mind what it is that you're trying to do. Don't pretend that something that is low-risk is actually cash. Especially in the equity market, even things that seem like they're low-risk, they tend to move together.
Hill: Bill Mann, thanks for being here!
Mann: Thanks for having me, Chris!
Hill: 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. That's going to do it for this edition of MarketFoolery! The show is mixed by Austin Morgan. I'm Chris Hill. Thanks for listening! We'll see you tomorrow!
Bill Mann has no position in any of the stocks mentioned. Chris Hill has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Delta Air Lines, and Southwest Airlines. The Motley Fool recommends Charles Schwab. The Motley Fool has a disclosure policy.