Jason Moser: Welcome to Industry Focus, the podcast that dives into a different sector
of the stock market each day. It's Monday, January 28th, which means we're talking Financials.
I'm your host, Jason Moser. Joining me in the studio via Skype, as usual,
we're always happy to have him here, Certified Financial Planner, Matt Frankel.
Matt, how's it going?
Matt Frankel: Pretty good. It's been an interesting Monday.
Moser: [laughs] Yeah. Care to share just a little bit of that with our listeners?
I don't want to overstep my bounds here, but as a parent, I was feeling for you.
Frankel: [laughs] Well, my three-year-old daughter at her preschool class, she tripped
over the stool for the toilet and wound up whacking her head on it. Whenever that happens,
whenever it's a head injury, they have to have a parent come in and take a look.
So, we're recording this a little bit later than usual, but she's totally fine. She was running around giggling.
Other than a little bit of a goose egg on her forehead,
you wouldn't even know anything happened. Moser: Yeah, I've gone through that once or
five times with my kids growing up. I appreciate that they have that policy. It doesn't make it
any easier. Big shout-out to Austin for being so flexible to change his schedule,
as well, so we're able to get you guys the show.
Speaking of the show, we've got a big one today. We're going to talk about the latest
in the developments with Synchrony and Walmart. It looks like Square has a new business debit card.
We've got a listener e-mail to get to. We'll tap into Twitter. We'll give you One to Watch.
We're going to begin the week with the winners
and losers so far this earnings season with the big banks. Matt, we'd talked about a lot
of these big banks a couple of weeks ago. We were looking at some of the opportunities
and the challenges in the quarter they're reporting. You've gone through these releases,
you've seen some of the winners, you've seen some of the losers. Tell our listeners
what you found. Frankel: For the most part,
there weren't too many big surprises. Banks, as a rule, are a generally predictable industry,
especially commercial banks. Having said that, there were a couple that stood out. Bank of America was,
I think, the best out of the big four banks. They just keep improving and keep getting
better and better. They're really doing a good job of putting their pre-financial crisis
self well in the rearview mirror. If I'd told you in, say, 2010, 2011, that Bank of America
was going to be probably the best-looking out of the big four banks, you would have
told me I was crazy. Moser: I know I would have. Just a year ago,
it seemed like Brian Moynihan and Bank of America were stepping in something new on
a daily basis. Now, it seems like they've passed that torch on to Wells Fargo, huh?
Frankel: Right. And a few years ago, if I had told you that anyone but Wells Fargo was
the best-run bank out of the big four, you would have called me crazy. Times have certainly
changed in that regard. The biggest surprise in my mind to earnings
were the two big investment banks, which are generally less easy to predict.
So, if there's a surprise, a lot of times that's where you're going to find it. Goldman Sachs had a blowout quarter.
Goldman had been one of the worst-performing bank stocks because of the drama related to
the Malaysia bond fund gone bad. That's still definitely an overhang on the stock,
which is why it's trading for significantly less than book value. But the bank, its earnings
were excellent. Lending and investing revenue, which includes the Marcus division,
was up by 56% year over year. That's huge, and Marcus is still a very small
component of the business. They just announced recently at the Money20/20 conference I was at
that they're expanding into wealth management. They've already expanded into personal loans and
savings products for Main Street, so now this will bring even more people into their ecosystem.
Historically, Goldman's been a wealth manager for the 0.01%, so this is really
opening new doors for them. It's been successful so far, plain and simple.
They made their first personal loan, just for example, in October 2016. Two years later, they hit $4 billion
in personal loans, which is a drop in the bucket in terms of a big bank but is
quicker than Lending Club even got to that level. It's impressive growth so far,
and tons more room to grow. CEO David Solomon at a recent presentation
said that possible avenues include mortgages, auto loans, insurance products, checking accounts
offered online that pay nice interest rates. There's a ton of room to expand this.
I've said it before, but I don't think the market appreciates what a big force in commercial
banking Goldman Sachs could become. It's got a phenomenal brand name and it doesn't
have any of that legacy infrastructure that weighs on profits that any of the other big
banks have. It doesn't have branches or anything like that. It has this great opportunity to grow,
and it's really been reflected in their earnings.
On the other side of the aisle, Morgan Stanley, their fourth quarter was a big disappointment.
It was a standout, one, because bank earnings generally were good. Everyone pretty much
beat earnings estimates, beat revenue estimates. Morgan Stanley did not. They missed on both
the top and bottom line. Trading revenue was particularly weak. Morgan Stanley's fixed
income trading was down 30%. I think Goldman's and a few of the others' were down 18%.
So, while trading revenue was pretty weak across the board, it was weaker than peers,
which is always a bad sign. If a certain metric is generally terrible and equally terrible,
it's not necessarily a bad sign for a company; but when you're underperforming your peers,
that's when you want to watch out. That's what happened with Morgan Stanley.
Wealth management business missed expectations, as well.
All in all, it just was not a great quarter. When you miss on the top and bottom lines,
there's usually a reason for it. There was, it's their trading. Like I said,
that's the most unpredictable part of banking, in my opinion, is trading revenue.
Don't read too much into one quarter's trading revenue. But all in all, Morgan Stanley was the disappointment,
and Goldman Sachs was the winner. Over the past couple of weeks since earnings,
you've seen a lot of price divergence between the two.
Moser: Sure. Really quick, going back to Goldman Sachs for a second, it made me think of
something I'd like to get your opinion on. Do you feel like Goldman Sachs, given the move to open up
their lending to a bigger audience, pursuing Main Street, given Goldman Sachs' reputation,
the brand, the aspirational, maybe, nature of that brand from your everyday Main-Streeter,
do you think there's a parallel with what they're doing with what American Express had
to do a little while back in opening their product suite up to more customers,
taking that brand that they've had, that they've done so well over so long nurturing,
a bit of an aspirational brand, opening that up to more clients with more products? Do you
feel like Goldman Sachs benefits from that kind of boost at all?
Frankel: Sure. That's actually a great comparison!
Moser: Why, thank you!
Frankel: For those who aren't familiar, American Express was a credit card for rich people up
until a decade ago or something. Moser: Exactly! I feel like most people on
Main Street probably feel like, "Oh, forget about Goldman Sachs, that's just for rich people."
But apparently, not so anymore, right? Frankel: Right. And now, anybody with $20
can walk into a Walmart and get a prepaid Amex card. That's the extreme end of their
product line, but they've become a credit card company for Main Street. They still have
their high-end products. And in my opinion, they're the best in the business at high-end
credit cards. The Amex Platinum is, in my opinion, the best credit card product on the market.
It's in my wallet right now. But, they've done a great job of opening their
business up. It's leveraging their brand name. Goldman Sachs actually has, in my mind,
a unique advantage over peers. Not just the brand name. Bank of America, Wells Fargo,
these are all good brand names, too. But, they hall have this big legacy branch infrastructure
overhanging their heads. Pretty much all of them are reducing their branch count
over the past few years and continue to do so because it's really eating into their costs and eating
into their ability to be competitive. If you see Goldman Sachs right now, their Marcus
savings account pays 2.25%. Bank of America and Wells Fargo pay about 0.1%. And the reason
that they can afford to do that is because they're not paying all these costs associated
with branches. Not just the physical buildings, but paper costs, employment costs.
There's a ton of costs involved in opening a branch, and Goldman doesn't have to worry about any of that.
That, I think, is going to be even more of a competitive advantage than its brand name.
Hill: Earnings season is just getting underway.
I'm sure we have more banks coming, but it's definitely been an interesting few weeks thus far.
Let's take a look at this. Back in November,
Matt, we took a listener question from @BTCapital12 on Twitter. There was a situation brewing
with Synchrony and Walmart and litigation that the massive retailer was threatening.
Matt, I'll let you take a little bit of a victory lap here. I'm going to go ahead and
hand it to you. Explain away.
Frankel: Thank you for giving me my I-told-you-so moment.
In the middle of last year, over the summer, Walmart announced they were dropping
Synchrony as their co-branding partner. Big account. I liken this to, using another
Amex comparison, when Amex lost Costco. It's to that magnitude. It's a big deal to them.
But the real drama came a little bit later. One, as everyone knows, Walmart and Sam's
Club are the same company, but they're two different credit card products, in terms of
Synchrony's line of products. There was a big question mark as to what this meant for
their Sam's Club business, which is also a huge part of Synchrony's business.
Do they keep that? Does that go to Capital One, where Walmart's going? Two, Walmart announced that
they were suing Synchrony for $800 million related to losses on their credit card portfolio.
They said Synchrony didn't do a good job of analyzing credit risk, and there were bigger
losses than expected, and they weren't making as much money as a result. That was a big
question overhanging. I forget my exact words, but I said that it
was somewhat of a negotiation tactic, because Synchrony had to decide whether it wanted
to keep the Walmart loan portfolio, sell it to Capital One or somebody else.
There were a few things that needed to happen before the relationship could be completely dissolved.
Just recently -- this was also a big surprise of earnings season -- not only did Synchrony
have a great quarter, but they pretty much said the two things investors really,
really wanted to hear: that they're keeping the Sam's Club business, the Sam's Club credit card
will remain a Synchrony product. That's a big deal. And, even bigger, Walmart is completely
dropping its lawsuit against Synchrony. An $800 million weight off their shoulders
is a very nice late Christmas present for Synchrony investors.
The market hates uncertainty. Uncertainty has been lifted in regard to the litigation risk.
Sam's Club is still a Synchrony product, so the hit they took from the Walmart loss
is now just confined to their Walmart product. This is a big win for Synchrony shareholders,
which we're seeing reflected in the share price, but Synchrony still trades for very
cheap multiple. They're a very economically-sensitive business.
Store credit card default rates
tend to really move with recessions and things like that. But their profit margin is so great
that it would literally take another Great Recession to really put them in the red.
So, I think the market's fears in that regard are overblown. We just got some great relief.
The business did really, really well this past quarter and this past year. I still
love Synchrony as a stock. Shareholders who listened to me last year got handsomely rewarded
this past week. Moser: Hey, now, everybody!
Frankel: I wish I would have shut up about it and bought some myself.
Unfortunately, that wasn't the case. Moser: [laughs] Yeah, that's not our job,
I guess. But hey, it sounds like all's well that ends well. Good call. I remember the show,
talking about that. For listeners, for posterity, go back to that November show,
listen to what Matt said because he nailed this one. Good job, Matt!
Let's pivot over to our favorite little payment processor, merchant provider, Square. It seems
like they're always in the news. They're apparently in the business of not sitting still, Matt.
Last week, the company just released another product to their merchants. This time,
it's a business debit card, they're calling it Square Card. It's going to help businesses
manage their cash flow by essentially eliminating the time between making the sale and having
the funds available. Really, what we've seen, as cash becomes a smaller portion of the money
that's being spent, not only here domestically but globally, a lot of this boils down to
time and making the funds available. The quicker you can do that, the better off you're going to be.
These tech companies are able to build out pretty robust risk profiles that
allow them to do that. I thought that it was pretty interesting.
This partnership is actually with MasterCard. You look at Square Cash, that's with Visa, right?
Frankel: Yes, correct. Moser: What do you think about this debit card?
Frankel: Square's strategy generally seems to be to build their ecosystem as strongly
as possible, which is a great business model. It worked really well for Apple.
Square's definitely trying to build its ecosystem. The thing that I found the most interesting
is that this card offers Square sellers instant access to their money. If, say, a coffee shop
uses Square to accept payments. If somebody swipes for a $5 cup of coffee, that $5 is
instantly available to the seller through this debit card. They can either spend the
money anywhere MasterCard is accepted or access it through an ATM. That's instantly available,
which is a big deal. But the thing that really stuck out to me is that Square is offering
users of this card a 2.75% discount at any other Square seller. They're incentivizing
their own merchants to use other Square sellers to keep the money in the family. That's really
a unique way to strengthen the ecosystem. I think "unique" is my key word when it comes
to Square. Like you said, they're in the news seemingly almost every week with some new product,
new offering, whatever. All of the things they're using to strengthen their ecosystem
are really unique, meaning that no one else is doing this. I don't think the PayPal credit
card gives you a discount for using another seller that accepts PayPal, just to name
one example. Visa doesn't give you a discount for using your card anywhere else Visa's accepted,
for example. It's a really unique and innovative way to strengthen their ecosystem.
Competitive risk is everybody's biggest concern when it comes to the Square. Is PayPal going
to steal their market share? Is somebody else going to come up with a cost-effective way
for small businesses to accept credit cards? What's to prevent that from taking Square's business?
And the answer is, things like this are what's going to prevent it from taking
Square's business. I love this product. I think it's a lot more significant than the market is
giving it credit for right now. Moser: Yeah, a lot of value in the network.
That's what we continue to talk about with Square. They've built out a very, very robust network,
and they continue to solicit, from their merchant partners, what their merchant
partners want the most. They're asking their customers what they want. They get that feedback
and they start to build and offer these new products.
I tell you, I was only half-kidding when I said it seems like Square's in the business
of not sitting still. In this space, in the payments space as a tech company like that,
you need to be innovating and bringing new products to market at a rapid pace. It certainly
seems like they're doing that. Furthermore, it seems like they're doing it well. It seems
like they're bringing products that people really like. It seems like this is a company
that's just continuing to do what we've hoped it would do. I suspect that shareholders like us
and our listeners feel pretty good about the fact that we all own shares today.
Frankel: Definitely. I still call that the best investment I ever made.
Moser: [laughs] It's not a bad one. Frankel: The worst investment I ever made
was not buying more. Moser: You have to at least diversify a little bit, right?
Frankel: That's true. Moser: There's no such thing as a sure thing.
But, hey, let them just keep on doing what
they're doing and I'll be happy with it. Let's take a look over Twitter really quick.
I just wanted to call out a couple of tweets that came in over the past couple of weeks.
Nothing that we really need to respond to, I just thought there were some pretty good
pieces of advice worth reiterating for our listeners out there today.
First one here from @MattLazwell. He says, "Remember, being truly diversified means there's
always something doing badly, so don't freak out about it." Matt, that's exactly right.
That's the whole point of being diversified. If you have enough diversification in your portfolio,
there's always going to be something that's missing the mark. But when you're well-diversified,
you don't care because you have other winners to pull up the slack there. Good tweet there, Matt!
From @MiloMcMahon -- I'm hoping I'm saying that right,
McMahon, because I had a roommate in college, Matt MacMahon, but I think this is
Milo McMahon. Milo says, "I'm a firm believer in the theory that retail investors have
two key advantages over fund managers. No. 1, we're not under pressure from anyone to do
something clever on a day-to-day basis. No. 2, we have a much longer time horizon because
our livelihood doesn't hinge on quarter-to-quarter results." I think that is very well said.
That's very much in line with how we invest here at the Fool and what we try to talk about
all the time on our shows. A good, good point there, and I wanted to make sure
to shine a light on those two tweets because I liked them.
Frankel: I think the second one might have actually been from Peter Lynch under an alias.
Moser: Ah, that's possible! There's a lot of good stuff that Lynch left out there for
us, for sure. Alright, Matt, we wanted to jump in here and
answer an e-mail. There's an e-mail that we received while we were away. This e-mail came
from Petey in Utah. Basically, he's asking us about Zelle. This was the situation.
"My wife was going to Vegas for a birthday party with her friend. She owes money to the one
that got it all set up. Her friend requested that she Venmo her the funds." His immediate
response was, "Hey, just use Zelle," because his wife wasn't using Venmo. Long story short,
she used Zelle to transfer the funds. No fees, easy to do. You don't have to download another app.
"Can you speak to how Zelle can affect the War on Cash basket?"
It was a good question. I think it's something worth noting, anybody who has a bank account
with Wells or Bank of America or any of the big banks probably has access to Zelle.
I know I'm a Bank of America account holder and I have access to Zelle. Now, with that said,
I've never used it. His question keys in on something that's worth noting --
my initial response to that is that while Zelle is something out there, it's a nice value-add
for people who have those accounts, when you look at companies like PayPal and Square and
the services they offer like Venmo and Xoom and whatnot, those are services that are being
built more for the younger users in mind who are coming up into the banking world as they're
growing up. I look at my kids, for example,
at 14 and 12.5 years old. They're a little bit more of that Venmo target vs. something like Zelle
is with a Bank of America account. That's not to say that Zelle is not a threat.
I think Zelle absolutely is going to continue to hold its own. But, it's a very big market opportunity,
and I don't think Zelle is something that necessarily threatens smaller companies like
PayPal or Square. I do think it probably keeps them on their toes. What do you think about it, Matt?
Frankel: I think the one thing to keep in mind
is just how many resources the people behind Zelle have. If you're not familiar,
Zelle is a project that was funded by a bunch of the big banks all together. The banks that
funded Zelle have something like, $4 trillion or $5 trillion in assets, a ton of resources
at their disposal. I think Square is an extremely innovative company, same could be said for PayPal,
with Cash and Venmo. Not that it's a threat to Square or Venmo, but it has to
keep them on their toes. You think Square is a big company? Square is tiny compared
to these banks, same with PayPal. So, it's a question of resources in my mind,
when it comes to how much you have to worry about a certain competitive threat. Square and Venmo
were the first movers. Venmo, especially, was the first mover there. But I think they still
should strive to innovate and one-up the banks and beat them at their own game
because the banks have a lot of resources they could throw at building competitive infrastructure
if they really wanted to. Moser: Yeah, you're right. Banks do have
a lot of resources there that they can do a lot of things with. That always makes me
go back to that idea that, just because a company has the resources doesn't necessarily
mean they can execute. You have to be able to actually execute with the resources that
you have. I think Zelle is something that's here to stay. We were actually reading through
an article here earlier in regard to PayPal and MasterCard executives who are talking
about this space and seeing it as such a great time for collaboration with all of these parties involved,
big and small. They have opportunities to bring new products and relationships to
market for banking customers of all ages. It's interesting when you see the executives
from companies like PayPal and MasterCard saying that. Those are obviously two very big
and important companies that are doing a lot on their own out there. When you talk about
the opportunity to collaborate and do more, they're certainly not viewing this as
a zero-sum game. They're not viewing this as win or lose. This is something where it's
a big enough market opportunity that there are a lot of different ways these companies
can all succeed. I think that's ultimately the way we look at it. We've talked before, certainly,
about the war on cash. I could have probably thrown five more companies
in that basket if I wanted, I just drew the line at four.
Anyways, a very good question from Petey in Utah. We enjoyed having the chance to talk
about it a little bit. Thanks, Petey from Utah for e-mailing us that question!
And, hey, listeners out there, remember you can always e-mail us any questions at industryfocus@fool.com.
You can hit us on Twitter @MFIndustryFocus. Before we wrap things up here, Matt,
let's get to One to Watch. Earnings season really kicking in now here, shouldn't be very hard
to find something to keep on your radar for the coming week. What's your One to Watch?
Frankel: Now that the big banks have already reported, I'm looking at a smaller one,
Axos Financial, AX, which a lot of our listeners know better as BofI or Bank of Internet.
They report tomorrow. Their stock has really underperformed the sector recently. A lot of questions
about whether they're going to be able to maintain profitability and all their competitive advantages
going forward. I'm looking at their earnings report to see how they're doing growth-wise,
what their plans coming up are. I know they've made a few big acquisitions like a Nationwide
financials deposit portfolio, and how they're planning on implementing that. It's going
to be a really interesting earnings report to watch because the stock has gotten so much
cheaper lately. I'm a shareholder and I wouldn't be opposed
to adding more if I get some really good growth figures from the company when I see it tomorrow.
So, that's what I'm watching this week. Moser: OK, and what's the ticker?
Frankel: AX. Moser: Alrighty. Well, I'm going to be focusing
on a little company called Apple, AAPL. Apple earnings are also out tomorrow, Tuesday,
after the market closes. With all of the noise about iPhones and missing iPhone targets and whatnot,
it seems to me to be missing the mark a little bit. Listen, as iPhones get better, they should
last longer, so I'm not sure what everybody is so upset about this for.
I think that with a company that's focusing on moving more towards Services revenue,
one of those avenues, one of those drivers, is going to be Apple Pay. I'd love to hear more
about Apple Pay on the call. My hope is that going forward, we will hear more about Apple Pay,
particularly as we see this move towards cashless gaining traction. That's going to be
what I'm focusing on with Apple earnings tomorrow.
OK, listen, Matt, I think that's going to do it for us this week. As always, it's great
talking with you! I'm glad we were able to make this happen today!
Frankel: Yeah, feels like a while since I've Skyped one in. We were off for a week,
and I did one in person. It's been a while since I've been on this end.
Moser: Absolutely. Just a quick reminder for our listeners, I wanted to let you know that
we have an interview with Ameris Bancorp CEO Dennis Zember
that will be hitting next week's show.
We're going to drop part one of the interview on next week's show, then we'll drop part two
of this interview on the following week's show. Listeners would know Ameris Bancorp,
it's a company I've talked about a lot. It's one where I have a lot of optimism in what
they're doing. Dennis and I spoke for a little bit about the things that they're doing.
He told some stories about the financial crisis. A really fun interview, I think you'll get
a lot out of it. Look for part one of that interview to drop next week, and then part
two the following week. 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. For Matt Frankel,
I'm Jason Moser. Thanks for tuning in! We'll see you next week!
For more infomation >> Kelsey Grammer Is Gore Bellows | Season 1 | PROVEN INNOCENT - Duration: 1:40. 
For more infomation >> Pronóstico del tiempo bajo frente ártico | Noticias Telemundo - Duration: 1:08. 
For more infomation >> Italien: Häftlinge werden eingesetzt, um Roms Schlaglöcher zu reparieren - Duration: 3:18. 
For more infomation >> Controle Multilaser para PS2/PS3 e PC - Duration: 0:40. 
For more infomation >> Imad's late blitz in Pakistan vs South Africa 5th ODI | Pakistan Cricket | PCB - Duration: 1:45. 
For more infomation >> BRAWL STARS ZOMBİ MOD!/ÇOK EFSANE OLDU! - Duration: 6:01. 
For more infomation >> Meat Vs Plants - The Omega 3 Dilemma - Duration: 6:50. 
Không có nhận xét nào:
Đăng nhận xét