In this episode of Market madness, Mac Greer and Tim Beyers, analyst at Motley Fool, present the latest market news. A promising vaccine for COVID-19 is expected to enter human trials later this year. They examine the details of the merger between two well-known defense companies. They also bring you an excellent defensive stock for these uncertain times and much more.
To see full episodes of all of The Motley Fool’s free podcasts, check out our podcast center. To start investing, check out our quick start guide to investing in stocks. A full transcript follows the video.
Editor’s note: Mac notes in another podcast that he made a mistake in this one. “… I mean mistakes were made, but I don’t think you have the right to say that if it was your mistake. I said United Technologies owns Sikorsky Helicopters, it’s incorrect, that’s wrong, it’s Now Lockheed Martin bought Sikorsky from United Technologies in 2015. So Lockheed Martin owns Sikorsky. So I apologize. Lockheed, I’m sorry. Lockheed owns Sikorsky. “
This video was recorded on March 30, 2020.
Mac Greer: It’s Monday March 30e. welcome to MarketFoolery. My name is Mac Greer and I’m from Colorado with Tim Beyers, an analyst at Motley Fool. Welcome, Tim. How are you doing over there now? How is the situation in Colorado?
Tim Beyers: You know, we take social distances here in Colorado, Mac. It’s a good morning, it’s going to be a little sunny today, always a little cooler, but I can’t wait for spring and going out and socializing, but maybe stretching a little legs.
Rig: Tim, you and me, social distance is also the word here in Virginia. In fact, I had to give my neighbor a cry, because a few minutes ago, I had to go out and ask him if he could stop eating weeds for a little while, because I was on the point of recording. So we are in a surreal era. I never thought I should ask someone to stop eating weeds.
Beyers: Yeah, the strange moments we live in. These are the signs of the apocalypse, hopefully not.
Rig: It is. It is. Well in today’s show we’re going to talk NOT A WORD (NYSE: JNJ), let’s talk about eggs, mergers, Dad johns (NASDAQ: PZZA) and Shaq. How is it for a Motley show?
But let’s start with the latest information on coronavirus. President Trump announced on Sunday that he was extending the social distancing guidelines until the end of April. Now, Tim, at the time of registration, more than 2,400 deaths in the United States, including more than 1,000 in New York State alone. And I know, I think I speak for you, as this crisis continues to unfold, it is really strange to even speak of stocks, to even speak of investing because of the human tragedy and the magnitude of everything that. It’s just like that, I don’t mean to hurt, but it’s really weird.
Beyers: 100% yes, it feels really weird. The human cost here is too much to bear, I think, and the human cost we are talking about in terms of what the President and his advisers have said is that we are trying to limit the number of deaths in the United States to less than 100 000, if we can or less than 200,000. These are staggering numbers that I don’t think we envisioned just a few weeks ago. So we are more concerned, obviously, for our families, for our friends, who do we know is affected by this. And we start to see in the news, Mac, we see obituaries. And it’s just that when the news is littered with obituaries, it’s just, it tells you what a heartbreaking time we are in.
So yeah, I mean, it’s our job, we’re going to keep talking about stocks, but that doesn’t mean it’s the first thing that concerns us, I think it’s probably the third or the fourth thing we think.
Rig: And, Tim, everyone’s thinking about a vaccine. So let’s talk about the race to find a vaccine against coronaviruses. Johnson & Johnson announced on Monday that they would begin human testing of a vaccine by September and prepare the vaccine for emergency use early next year in 2021. Now J&J CEO Alex Gorsky said: “The vaccine …” – and this is a quote and I want to get it right – “… has a high probability of succeeding against the COVID-19 virus.” Tim, what do you think?
Beyers: I hope he is right; I really, really hope he is right. Let’s keep a few things in mind that it usually takes a lot longer for vaccines to be developed and approved by the FDA, so we are really progressing at a pace that we have not seen. Good on J&J to get there. I hope he is right. Let’s not talk about the investment case here yet, but let’s just focus on science, if it’s right and we can put it into production, we can put it into service by January and start inoculating people, that would be amazing, because it’s typical – I mean, you wouldn’t be in the early winter, but you would be in the middle of winter, and the winter season is usually when we see a plus great impact of some viruses.
We really don’t know how deadly the coronavirus is in summer compared to winter, but so far it has really hit us during the winter season, the end of the winter season, and it was more than deadly. So having it at some point during the winter, I think, could be great.
So it could be just a real victory for humanity if he is right about it. My concern, Mac, is that if he’s wrong? Because it is unprecedented. And I know he says, is a high degree of success against the COVID-19 virus, and maybe he’s right, but the human trials are also aimed at figuring out what the cost of introducing this virus into our body, are we making people sicker by doing this? I mean, maybe it does an incredible job against COVID-19, but a vaccine, we need it to be safe. So if we inject it into humans, how safe is it and how will we know it? Are three months enough to say for sure? It’s just that there are a lot of unknowns here, so I want to warn people.
The stock has increased a lot today, the last time I checked it was almost 6%. I think this is good news, but I would not want anyone to get out of the truck and back up the stock just because of this news, because there is a lot of uncertainty here.
That said, Mac, J&J is a very good company, even if independent of that, generates a ton of cash, has a little too much debt, but a good balance sheet. It’s a good business, it would make it an even better business and it would make a real boy! it would be such an advantage for humanity, so I hope he is right.
Rig: So, Tim, you said that you would warn someone about rolling back the truck, but what about someone who listens to this and someone who reads J&J and this potential vaccine? How about someone who says to yourself, “You know what, I can buy some stocks based on that” or “I can buy stocks in another company that works on a vaccine” because as we know, there are a lot of companies working on vaccines?
Beyers: Yeah, you know what, I would use Jason Moser’s strategy. So, first, to your question. Yeah, buy some stocks? Sure. I mean, I just wouldn’t bet a significant part of your portfolio on this, but by buying a few stocks, yes, there’s nothing wrong with that. It’s a good deal to start with. But if you’re looking to take advantage of these vaccines or drugs that could benefit us as humans and you want to get involved and be part of it, then Jason does a very good job of assembling baskets of stocks that represent a trend, and you could do it with these companies, just buy a small part, invest a very small amount in, say, four or five different companies working on different vaccines. And it’s an interesting way to play the trend without jeopardizing your capital too much.
And don’t do it, by the way, if you’re retired or very close to retirement. I just don’t want anyone to say, “It’s a homerun and I’m going to put $ 30,000 in it from my $ 100,000 wallet.” I think it would be a mistake.
Rig: And it’s really amazing, when you look at the calendar here, Tim, reading the article on typical vaccines, I think between five and seven years of development. So we are really talking about an accelerated schedule, so this is something that we also need to keep in mind.
Beyers: Yes, that’s what accelerates the risk, in my mind. You know, when you start doing things that we have never seen before, you have to consider the risk that you cannot see. And so, I think if you buy J&J about the potential benefits of this vaccine, just recognize that you are making informed speculation and treat it as such, don’t put a lot of capital at risk. And hold on, knowing that you have actions of a good company that will continue to be a good company, no matter what happens with this vaccine.
Rig: Well, Tim, I don’t know the situation in Colorado, I guess it’s similar to what it is here in Virginia, because if you go to the grocery store, eggs are scarce. It turns out that the egg sector is booming. I don’t think we’ve ever talked about this business MarketFoolery or at least I haven’t, but a better than expected income Cal-Maine (NASDAQ: CALM). Cal-Maine is the largest producer and distributor of eggs in the United States.
Now, Tim, when I look at the Cal-Maine stock chart, in the past five years, he’s really lost to the S&P, nothing so great, but since the start of the year, the stock has been basically flat, and that obviously means he has crushed the S&P since the start of the year. So maybe more than one good defensive stock, right?
Beyers: Well, that’s how it is. Here’s the thing, I think there are a couple of things. So the eggs, you can keep them for a while. If you stock up on eggs, say, two or three dozen, you have some emergency food for a little while. So that makes it very interesting. And Cal-Maine, as you said, is the largest supplier of eggs here in the United States. But here’s the other thing that can have an impact on that, eggs are necessary, and in fact they are used – and it’s true, I swear I don’t invent anything, the United States has a national stock of ‘eggs – laying hens. It’s real. This is true because you need eggs to make vaccines. I know it seems silly that we have stored chicken in a secure place. We have stored chicken in a secure location. And that’s because we need eggs to make vaccines.
And so, I think there may be a rush for eggs here because it’s a healthy source of protein, but also because we need these things to make vaccines. So, yes, maybe an interesting defensive stock. It could be more short-term action, Mac, I mean, I don’t know what happens to this company after we’re on the other side of the crisis, but very interesting timing for this company.
Rig: Well, I’m pro-egg, maybe starting about five years ago. Every morning I eat two eggs, Tim, so I’m pro-egg. Yeah. And so far, I think my cholesterol is good, and the protein thing, it just works for me. It changed the game.
Beyers: Pleasant. I love this. You know, you’re the spokesperson for the National Egg Board.
Rig: [laughs] I can be the reason why Cal-Maine’s income is so high. Okay, let’s talk about a big problem that has just been approved. The Ministry of Justice approved the merger between United technologies and Raytheon. Now Raytheon, a huge defense company. United Technologies, people may not know this name, but I’m sure they know a lot about their companies. United Technologies owns Carrier heating and air conditioning, Otis elevators, Pratt & Whitney aircraft engines and Sikorsky Helicopters.
From now on, the new company will be called Raytheon Technologies. Tim, this is an agreement on all actions, and approval is conditional on Raytheon removing some of its activities.
Beyers: Yes, they need to get rid of the Otis elevator and Carrier air conditioning. And frankly, I’m more interested in these two spinoffs than the main company, but let’s just talk about the main company for a second. It makes a lot of sense, because Sikorsky is a big supplier of transport helicopters. It has been around for a very long time. So it makes sense to fold this piece, this defense piece, into the Raytheon business. Pratt & Whitney, the same thing. I mean, Pratt & Whitney is one of the largest manufacturers of aircraft engines in the world, not just commercial aircraft, but also military aircraft. It is therefore very logical to combine these two elements of the business.
But I’m fascinated to see what will happen once we look at the financial data for the Otis elevator and Carrier. And frankly, Carrier, you know it’s a bit on the nose and close to my home, because I have a graduate degree from Syracuse University. And Syracuse, New York is the home of Carrier air conditioning and I spent a lot of time in the Carrier Dome while I was in Syracuse.
So it’s a very interesting couple of companies. Of the two, however, as much as I love Carrier, and it sort of speaks to my past, you know, the one that really interests me the most is Otis, because Otis is that kind of business that is everywhere and you meet probably every day and you don’t even know it. Because you are probably using an Otis elevator if you work in an office building. I mean, maybe we don’t use them as much now, but in an apartment building, in an office building, these things are everywhere. And Otis actually has a fairly rich activity in terms of maintenance of these elevators, because the elevators must be certified and maintained, I think, every year. So, to me, it’s probably a better company than we really think. So I’m going to be curious to see what it looks like once it is derived.
Rig: Tim, I’m pretty sure I’ve done this joke before, and I really want to be better than that, so I’m –
Beyers: [laughs] But you’re no better than that, Mac. Let’s say it right away.
Rig: That is true. So I’m not, I’m not going to ask you, if Otis Elevators has its ups and downs?
Beyers: [laughs] I’m glad you didn’t do it.
Rig: That’s good, I remembered.
Beyers: I’m glad you didn’t do it. I would say, I hope, more ups than downs.
Rig: Yes, I hope more ups than downs. Well, speaking of more highs than lows, and perhaps more lows than highs now, Papa John’s and Shaquille O’Neal, well, could be heading for a divorce. Now Shaquille O’Neal joined the board a little over a year ago, and now the consulting firm, Institutional Shareholder Services, says that O’Neal has missed too many board meetings. administration at Papa John’s and should not be re-elected for a second term. O’Neal has attended less than 75% of board and committee meetings in the past year. Tim, what do you think?
Beyers: I really like this decision from the ISS. I am not sure. You know, I don’t have a strong opinion on whether to elect him or not. I think if you are committed to becoming a director, you should introduce yourself. So I fully understand the argument that the ISS makes. What I really like about it, however, is that the ISS makes this argument in the first place, because I think, by and large, we’ve seen corporate governance and advice from ‘administration fall asleep a bit over the past few years.
I mean, let’s just put that into perspective. Papa John’s is not WeWork, but WeWork would not have become WeWork, if it had a board of directors which acted as a true defender of the shareholders of this company, because they accepted everything that Adam Neumann wanted do it became an economic disaster, and it had fallout.
And we have seen, strangely enough, like, during this crisis, it’s how bad this business has been, that there are still WeWorks open, that goes to understand why it always happens, but apparently it is still the case.
But I think that when you have shareholder activism, I mean, real shareholder activism and you know that the shareholders get involved and hold a responsible board of directors, it’s good, it’s good for all of us . So I hope that this is the first of the many initiatives that we see in terms of more activist shareholders, more arguments in favor of real surveillance of companies.
So, yes, maybe Shaq should, frankly, put the boot here. I’m with ISS in mind, although I don’t know the details.
Rig: [laughs] Okay, I have two thoughts over there. First of all, at least for the near future, Shaq can’t he just Zoom , I mean how difficult is it to connect via Zoom, right?
Rig: And then here is my proposal. Are you a big basketball fan, Tim?
Beyers: Oh yes. Sure.
Rig: Okay, well, as you know – and if people are not basketball fans, they may not know that when he played, Shaq was an incredible player, but one of his heels Achilles was his free throw shot, just awful, he shot about 53% for his career from the line, it’s terrible. If you’re not a basketball fan, just be aware that the teams would intentionally foul Shaq in order to make him shoot free throws. They called it the Hack-a-Shaq OK.
So if I’m Shaquille O’Neal, I’m like, give me another chance, Papa John’s, and the deal is that my participation on the board will be higher than my free throw percentage. So I’ll –
Beyers: And apparently already there, Mac. Apparently it’s already there. If it’s 75%, he’s already beating the Mendoza line he had on his free throws.
Rig: Well, we don’t know exactly, they say he attended less than 75%.
Beyers: I see. I got you.
Rig: So we don’t know. So if I’m Shaquille O’Neal, I’m going to say, “You know what, I’m going to attend at least 53%. And I’m going to zoom in a lot.”
Beyers: Right. Low bar. But if he jumps over the low bar, he stays, okay.
Rig: Yeah. More seriously, I was excited when he joined the board a little over a year ago; I am not a shareholder. But, as you know, Papa John’s had real difficulties, real image problems, and it looks like he could be a real ambassador, but so far, it seems, maybe it doesn’t work too much well, huh?
Beyers: Yeah, not as good as the icy market, apparently.
Rig: [laughs] Okay. Well, let’s go to the desert island question, as we finish. You are on a desert island for the next five years and must have one of these stocks. What are you going with? We have Johnson & Johnson, we have Cal-Maine, we soon have Raytheon Technologies or Papa John’s?
Beyers: Here’s why I’m going to go with Raytheon Technologies, even though I’m very interested in J&J, because it’s such a good company and I don’t think it needs the vaccine to continue being a big company. The reason I am going with Raytheon is because, once this agreement is made, I will get shares of Otis and I will get shares of Carrier. And I am very interested in these two independent companies; Otis more than Carrier.
Rig: Okay. Well, here. [email protected] is our email, for your questions, for your comments. Tim Beyers of Motley Fool, Colorado, thank you for joining us.
Beyers: Thanks, Mac.
Rig: As always, people on the show may have an interest in the stocks they’re talking about, and The Motley Fool may have formal recommendations for and against, so don’t buy or sell stocks based on what you hear.
That’s all for this edition of MarketFoolery. The show is mixed by Dan Boyd, I’m Mac Greer, thanks for listening and we’ll see you tomorrow.