In this episode of Market Foolery, Chris Hill chats with Motley Fool analyst Emily Flippen about the latest headlines and earnings reports from Wall Street. Moderna (MRNA +6.13%) enters a new phase in its COVID-19 vaccine trials. A popular toymaker's stock gets a steep cut. Finally, the hosts answer some listener questions about portfolio allocation and retail investment in a post-COVID-19 world.
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This video was recorded on July 27, 2020.
Chris Hill: It's Monday, July 27. Welcome to Market Foolery. I'm Chris Hill. With me today: the one and only Emily Flippen. Good to see you.
Emily Flippen: Hey, good to see you too, at least virtually.
Hill: [laughs] At least virtually, exactly. It's a Mailbag Monday. We're going to talk about allocation strategy; we're going to talk retail in a post-COVID world. We got a couple of headlines to get to. Let's start with Moderna, because shares of Moderna are up nearly 10% after the biotech company said it received an additional $472 million from the government to support the development of a potential vaccine. This comes on the same day that Moderna is beginning a phase 3 study of the vaccine; a much more robust study with 30,000 people.
Flippen: Yes, this study, which, as you mentioned, is 30,000 Americans, mostly in areas that have been highly impacted by the COVID pandemic. Half of those people are getting placebos; half are getting the vaccine. We'll see how this pans out. Obviously, everybody, including myself, are keeping their fingers crossed that we have some positive results from this phase 3 study, the first phase 3 study to be taking place here in the U.S.
But as you mentioned, Moderna, among a handful of other healthcare technology companies, are getting payments from the Federal government to help speed up the process of vaccine testing and vaccine development. I just want to caution investors: There's probably not [laughs] going to be a lot of pricing power on Moderna or whoever else eventually comes to market with a COVID vaccine. There's not going to be a lot of pricing power for those vaccines. They're going to be hard pressed to sell these vaccines for essentially no money down, for the purpose of, obviously, preventing more Americans and more people internationally from dying. So it's great news as a person, as a consumer, as an American, I'm very happy here. As an investor, it doesn't change my opinion about the company.
Hill: Is that how you feel about it -- because Moderna is not the only one working on a vaccine, is that sort of the expectations investors should have regardless of which company comes through?
Flippen: I do think so. And what's worth pointing out is that it's going to take more than one company to make a successful vaccine. A lot of experts have speculated that just based off the sheer number of vaccines that will need to be created to protect the world [laughs] against this pandemic, to vaccinate, essentially, the world, it's going to take way more than one company to be successful at creating a vaccine. So it's not a one-dog fight here. But it is worth being cautionary, not thinking to yourself they're going to be able to sell these vaccines for $1,000 a pop, right. That's not what's going to be happening here.
Hill: Second-quarter revenue for Hasbro (HAS +1.36%) fell 29%. The toymaker dealing with store closures, supply chain issues. I don't own Hasbro, but this was a tough quarter, because among other things, Emily, the demand appears to be there. They're just having trouble, for all of the obvious reasons, meeting that demand.
Flippen: Yeah, this is so interesting. I think there was a lot of speculation about how this quarter could shape up for Hasbro, simply because, as you alluded to, the amount of time that people and their families are spending at home would theoretically create demand for the games and toys and different entertainment products that Hasbro puts out. But in reality, Hasbro had to close down so many of their production facilities, not just in the United States but internationally as well, that they simply weren't able to meet that demand.
And while there were some retail store closures that, obviously, impacted their sales, it does seem like a majority of the impact, that 29% year-over-year decrease in sales, was largely because they just weren't able to get their products to market to meet that consumer demand. What I would say here is that there is a slight silver lining, which is to say, it's possible that some of the demand that they weren't able to meet will be pushed off to later quarters. They're expecting a really strong holiday season. As their production facilities come back online, they think the demand for a lot of their products are still going to be there. So while the pandemic brought demand forward, they weren't able to meet it. Hopefully that demand is still there in the next quarter, fourth quarter, especially looking at the holiday season.
Hill: Yeah, and if you're optimistic about the next 6 to 12 months for this business, never mind the years after that, today is probably [laughs] a good day to think about picking up a few shares, because the stock is down about 8% on this report.
Brian Goldner, the CEO, I watched an interview with him earlier this morning. He seems pretty optimistic about the second half of the year, although it was interesting, one of the things he talked about was the different levers that they're trying to pull, both on the production side but also on the cost side. Hasbro is tied into a number of movie and television franchises, and that was some spending they were able to, sort of, ratchet back, because of production schedules in Hollywood being essentially ground to a halt.
But it will be interesting to see where this goes for Hasbro, because this has been a business that has been, I don't want to say cyclical but pretty dependable in terms of its cycles. And when you think about the tie-ins that it has with movie franchises, television as well, over the next six quarters, this could be a pretty lumpy stock. I mean, it wouldn't surprise me if it had a little bit of a slingshot effect at some point in the next six months, but then again, being tied to those Hollywood production schedules, it could start to look pretty lumpy.
Flippen: And to further add to the lumpiness that you can expect to see, when you talk about bad timing for Hasbro, they actually, earlier this year, at the end of 2019, early 2020, made an acquisition of a Canadian television production company, Entertainment One. And Entertainment One was supposed to be a big boon for them heading into 2020. They produce movies and TV shows. And as you mentioned, spending and capital expenditures, as they apply to this acquisition, were pushed off. Meanwhile the charges related to restructuring were significant. And in fact, Hasbro was actually producing net losses for this quarter, in large part because of the restructuring charges they took with the acquisition of Entertainment One.
But despite the fact that that acquisition [laughs] was clearly poorly timed -- not that anybody at Hasbro could have predicted the current pandemic -- what's worth noting is that I still think that their pushes into production, especially as it applies to their really strong IP portfolio, is probably still a good move for the long term. So despite the lumpiness that we'll inevitably see over the next couple of quarters, I do think Hasbro is suited well for a postpandemic future.
Hill: Our email address is [email protected], question from David Moscovitch, who writes, "I'm 25 years old. I was introduced to The Motley Fool just under a year ago." Welcome, David; we're glad you made it. "I've been following all your advice very closely, and I've come to really love investing. 45% of my assets are allocated to my brokerage account. My portfolio is up 55% over the past 9 months. Two questions. First, what percentage of my money should be invested in the stock market? I'm inclined to say all of it, because of the long time horizon I have ahead of me, but I'm also considering buying a car and a home in the next five years. And my second question is, what should I do with all the other cash? I feel as though the money in my checking and savings accounts as well as the cash sitting on the sidelines in my brokerage account can be put to work in some way. I've been exploring municipal and corporate bond funds, but I was wondering if there was any other advice the Fool team can please provide."
A great question. We, obviously, have to walk that fine line, Emily, of not providing personal advice for David. But, you know, I read his email, and the one word that popped into my head in response [laughs] to his first question was "more." Like what percentage of my money should be in the stock market? You're 25 years old, and it's 45% right now? It should be more.
Flippen: I totally agree. And I love this question, because I am also 25, and I realize that a lot of people don't start asking themselves these important questions about how to manage their money, about how to invest, until they're much older. So the first step here has already been completed, which is getting invested in the first place, and everything from there on out is just fine tuning. But as a 25-year-old I can talk a bit about how I manage my money and how I think that that applies to people who are young, who are risk tolerant and have a long time horizon. And I agree. To the extent that you have money that you do not need for, say, a home purchase or a car purchase over the near term, which I define as the next five or so years, that money, in my mind, should be invested.
Now, there are some caveats with that. Obviously, not investing money that you need, but also ensuring that you have some emergency funds set up, just in a high-yield savings account or something, somewhere that's safe in case, you know, we're living in volatile times, you don't want to lose your job and have to pull out of your investment as a result. So saving money in a savings account is the first part.
But personally, as a 25-year-old, everything that's not saved for immediate expenditures, like a car, a home, or my emergency fund, is invested. And I'm lucky enough to be getting a regular paycheck. The moment I get that money, I invest it, regardless of what's happening in the market that day. So I quite literally have zero money sitting on the sidelines. And that is a more risky strategy, but when you have a very long time horizon, you can invest that without worrying about short-term market dips.
And in my mind, bonds, commodities, these are things that don't really provide a lot of long-term return. I'd say, when all else fails, if you're not a subscriber to one of The Motley Fool services that provide great equity investments, just buying a low-fee index fund that tracks the total market return is a perfectly acceptable strategy.
Hill: Yeah. You just reminded me, a few months back I was talking with Ron Gross, our colleague, and I just asked, I said, "W have you been buying lately? Like, what's the last thing you bought?" And I think it was, sort of, a version of that. I think he was buying ETFs that were either tied to the S&P 500 or the Russell 2000, sort of those broader-market ETFs and index funds. Again, as you said, low cost is so important, because just as the miracle of compounding works for stocks, it also works for the interest that we pay. So that little 1% difference in fees between two index funds that are giving you the same return, that does add up over time as well.
Flippen: Especially when you're 25 and you're investing for the next 40 years, a small difference in fees can be a significant change in, say, your retirement portfolio over the long term. There are a number of fee-free index funds that are available on the market today. Seek them out, they're great places to invest your money if you don't want to take an active approach.
Hill: Question from Ron in Arizona. "Last week on the show, a listener had a question about how to invest in retail in a post-COVID-19 world. I say Visa and MasterCard. My thinking is, to make an investment on the fact that everyone has to pay for their goods and services anyway, Visa and MasterCard are the best risk-free ways to cash in on that fact. And, yes, I do see the irony of cashing in on cashless payments."
I'm inclined to think that he's not wrong. [laughs] And I don't own shares of either Visa or MasterCard, to my detriment, but they're very high on my watch list, because it really does seem like trying to pick winners -- in specialty retail in particular, because if memory serves me, that's what we were talking about a week ago on the show; sort of those affordable luxury brands -- that seems like a longer putt than buying shares of Visa and MasterCard.
Flippen: I would even take it one step further, not against Visa and MasterCard, they're great investments, but look at the companies that are bringing payments in-house. For people who listen to Industry Focus, I host the Tuesday Consumer Goods show. And last week, I talked with Dan Kline about a lot of the permanent changes that are going to impact retail businesses as a result of the pandemic, and cashless payments was one of those long-term trends.
What's really interesting is that we see a number of really good companies -- I'm thinking Chipotle, Domino's, Starbucks -- they are bringing payments into their apps. So you, as a consumer, can go and you can purchase, and it's completely a touchless experience, without even your card, necessarily, because you're purchasing over the app. And clearly, you might use a Visa or a MasterCard to make those purchases, and that still, in my opinion, is a great testament to the fact that Visa and MasterCard and a lot of these payment processors have been great stores of value over the past decade, but it also says something for the technology and the integrations that companies have been actively seeking out.
What I would also point people to is companies like Square or Shopify, which then facilitate payments, especially for smaller businesses as they come online, as people continue to shop as a result of the pandemic in some areas easing up. There are so many ways to play a cashless society. And while we're not getting there immediately, I do think that's a long-term trend. I love those companies, and I also love the companies that are integrating more technology into their experiences.
Hill: Last but not least, email from Allen in British Columbia, Canada. He writes, "Would you please give a shout-out to my wife, Nicola, it's our 25 wedding anniversary on August 4. I love her very much and fancy her just as much today as I did the first day I set eyes on her. (Although I'd had a couple of beers or more on that day.)"
You know, as one does when one is meeting a future spouse of 25 years. So congrats to Allen and Nicola on their 25th. Hope you get a chance to celebrate a lovely, lovely [...] [laughs] You've got to love the honesty.
Flippen: [laughs] Maybe have a couple of beers.
Hill: Yeah. I mean, what better way to celebrate on your 25th. If that was it -- if that's how you're celebrating the day you met her, absolutely on the anniversary.
Emily Flippen, always good talking to you. Thanks for being here.
Flippen: Thanks for having me.
Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.
That's going to do it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.
