In this episode of MarketFoolery, Chris Hill chats with Motley Fool analyst Bill Barker about the latest news from Wall Street. They talk about the tool in airlines' arsenal to combat COVID-19 and what movie theaters are planning in order to reopen safely. Finally, they answer listeners' questions about portfolio management and much more.
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This video was recorded on August 24, 2020.
Chris Hill: It's Monday, August 24th. Welcome to MarketFoolery. I'm Chris Hill. With me today kicking off the week, it's Bill Barker. Thanks for being here.
Bill Barker: Thanks for having me.
Hill: We are going to dip into the Fool mailbag, but we're going to talk about the business of safety, and we're going to start with air travel.
The airline stocks are up this morning, because the EPA has given American Airlines (NASDAQ: AAL) the green light to use a new surface coating that kills the coronavirus. EPA officials say the coating inactivates viruses and bacteria within two hours and is effective for up to seven days. This comes on the heels of a Sunday, which according to the TSA, was the second-most traveled day since the pandemic began. Still down more than 60% year-over-year, but trending upward. And this makes sense to me that American Airlines, Southwest Airlines (NYSE: LUV), Delta, they're all up 5% or more.
Barker: Yeah. I think it's probably more on the basis of the data on how many people are flying than this EPA announcement possibly. That having only been granted to American Airlines. And it raises some questions, in that, American Airlines is allowed to use this in the state of Texas; that's who has been granted the exemption. And so, they're not allowed to apply it outside of Texas. And you know, I just don't know that there's enough detail on what this is to get that excited about it, specifically. It is in the news; hopefully it's a safe thing to apply. But the fact that it's only being granted to Texas makes one ask a few questions about just why is that? So, anyway, good news for airlines that more people are choosing to fly.
And I think that as people get more comfortable with the safety protocols that the airline is mandating, and, you know, all use them, that will lead to more travelers.
Hill: You have to assume though, that some sort of parameters will be set up in terms of testing, whether it's expanding American Airlines ability to do this outside of Texas or, I mean, you know, if it's just being done in Texas. I have to believe Southwest Airlines is calling up the EPA, because they do a fair amount of business in Texas as well.
Barker: And Delta. Yeah. Well, I think that if it's a useful thing and it's, I think, being used to clean some of the public spaces in the airports as well as used on the planes, then if it's something which should be applied in those circumstances than it might have greater application elsewhere as well. Of course, the perception and the reality of what is known about the transmission of COVID evolves. And I think my experience is to be more concerned with things that you can breathe and the things that you touch. And I think that's consistent with what's out there.
There are still, I think, CDC evaluations that it may be possible to contract it by touching something and then touching your mouth, but it's far more difficult to get it that way. I think it's really the breathing on their airlines that's the greatest concern, and will continue to be.
Hill: I agree with that. Although, I do think that, for lack of a better term, there's a social pressure at work here. So, the extent to which people are reluctant to wear a mask all the time, it seems like this is one of those things that to the extent that they see how seriously the airlines themselves are taking this, they see the cleaning happening in the airports and on the planes. Yeah, this is something that is contracted much more through breathing and moisture than it is through surface contact, but it seems like it can -- I don't want to say, it can only help, but it seems 99%, like, [laughs] one of those things that can only help.
Barker: Yeah, I think part of the messaging will continue to be look at how seriously we're taking this. As the rapid tests become available, I'm sure airlines would be one of the places that get their hands on that quickly. So, better days ahead, but still -- you know, have you flown, have you made plans to fly?
Hill: No. But I am probably going to be making plans to fly in the near future. Heading up to Massachusetts to see my family.
Barker: Is that in the near future you're going to see them or near future make the reservation?
Hill: I'll let you know how it goes. [laughs]
Barker: [laughs] All right. I'll be going up to Massachusetts next week, but I'll be driving, so...
Hill: I'll get there before you. [laughs]
Barker: That's because I got to move a child to college, so there is stuff.
Hill: Ah, that's true. Yeah.
Hill: Yeah, it's just going to be me traveling; so not as much stuff. Let's move on to the entertainment industry. The three largest movie theater chains in America; AMC, Cinemark and Cineworld have teamed up to create a health initiative called Cinema Safe. This initiative follows guidelines from the CDC and the plan includes mandatory mask-wearing in the theaters, social distancing, reduced seating capacity in the theaters. And this is their plan to open theaters back up. And I'm hard-pressed to see a misstep here; at least in terms of the steps that the movie theater chains are taking. They seem to be, again, very serious about this, very thoughtful about this.
And as they look to expand opening up this coming weekend, this past weekend, they got an encouraging sign in terms of the new Russell Crowe movie and, sort of, how that did at the box office.
Barker: So, the theaters, in contrast to the airlines -- and this is, sort of, you know, another version of the same story of what people are looking forward to going back to and what steps are necessary. The last misstep by the theaters, I can't remember which one it was, going to have optional, but encouraged mask-wearing, and then reversed course on that pretty quickly. So, the long term, you look at the long-term charts for the theaters, it's down and to the right. As time goes by, the stocks go further and further down as, really, you know, streaming and Netflix and large screens in the home become more and more persuasive competitors to theaters. And that trend is going to continue this.
If you look at the airline stocks, it's highly cyclical. They go way up, they go way down, when there's -- you know, after 9/11, after the last recession, they go down perhaps to zero, in the case of American Airlines, which went bankrupt. We're in another one of those cycles with airlines. And so, it's true that American Airlines you could've got for $13 back in the 80s, and you can get it for $13 today, but it's visited some more fascinating high points in between, and more disastrous low points, whereas the theaters are just, sort of, on the way down over the long term.
And these are difficult times for them, but I think that the resurgence, if there is one, in people going in the near term will be, you know, a pause in what is going to continue to be an almost impossible competition with the home. I say that knowing how much that hurts you, because you are -- [laughs] whereas, I think, in our youth, it was probably a fair fight as to who went to more movies; today you're destroying me. And for the last number of years.
Hill: I hear everything you're saying about, sort of, the -- and I'm not using this as a, hey, let's rush out and buy shares of AMC Entertainment or Cinemark. That being said, if you're the studios, if you're Disney, if you're Sony, if you're Paramount, you want this business to come back, you like the business model that you have right now of, we pay to make these movies, they go to theaters for some amount of time, you know, that we get several bites at the apple.
Also, this past weekend we had -- there was, like, the DC Comic fan event. So, we got new trailers for the Wonder Woman sequel, for the Batman movie which is coming next year. So, there is excitement building, I think, when it comes to going back to theaters. I think, as we've said about other companies in other industries in the past, this can be a profitable business, it may just end up being a smaller business. We've seen this with retail. You know, this was the story for basically forever with Barnes & Noble, you look at the Barnes & Noble business. And you look at their locations, some of their locations are insanely profitable, but a lot of them weren't. And so, you know, that was the thing that was said about Barnes & Noble for many years. Like, well, this could be a profitable business and a good stock to hold, it would just be a smaller company. I think that's where we're probably headed with movie theaters, because I just don't think, you know, as big as your screen can get in your home, nothing is going to replace an IMAX screen or even just like a basic movie theater screen.
Barker: Did you see the preview for the Batman movie?
Hill: I did, yes.
Barker: Yeah, we are getting back to a little bit of the ultraviolence in this one it looks like.
Hill: [laughs] It had a little Clockwork Orange flavor to it, yeah, it kind of did.
Barker: [laughs] And there a lot of Batman fans that are, you know, you've got your 1966 Batman show, that's a great Batman. But a Batman who's slugging somebody in the face repeatedly, who's probably already unconscious, there are fans for that Batman, too. And [laughs] they're going to be able, hopefully in the theaters, and if not in the theaters on their big screens at home, be able to appreciate that version of Batman who is on his way. Yeah, I think these are the movies that we now think of as having the future in the theater.
Because if you're like, hey, I don't know what to do, let's just go to the movie theater and see what's playing there, and what's playing there is some Russell Crowe movie that I've never heard of, this week. I'm a big fan of Russell Crowe, but I don't know anything about this movie. I don't know how many of those movies are going to have great lives in theaters. The big tentpole movies still -- it feels like that destination of thing, communal act, opening night, opening week, to go to the -- you know, they're largely owned by Disney; Star Wars and Marvel, DC has also got some of them, and Nolan with the Tenet, there's still room for a few other franchises, but the romcoms and things are mostly going to have their lives on Netflix I would imagine.
Hill: I think that's probably right. Our email address is MarketFoolery@Fool.com. Question from Alex in California. He writes, "I started following The Motley Fool back in 2016, which gave me the confidence to dip my toes into the market. One of the first stocks I bought was Tesla at around $300/share. As Tesla's meteoric run continues, I've seen this initially small position grow to over 40% of my portfolio. While I, obviously, love the returns on my initial investment and think the pending stock split will only fuel the stock to go higher, I wonder if I should think about realizing some of these gains and trimming my position a bit? I definitely don't want to get off the great Tesla ride altogether, but I do think 40% of my total portfolio in one stock is very foolish. What do you think?"
Barker: With the immediate caveat, we don't really give individual advice here, etc., etc., etc. Yeah, have a plan. What is your plan? The Tesla stock started the year at $400-and-change. I think one thing that investors have today that they didn't have at the beginning of the year, other than much higher stock prices on some stocks like Tesla, is also the personal experience of having gone through March and knowing a little bit more about their risk tolerance. I would say that if you made it through March and you know your risk tolerance better, it doesn't mean that you really have seen the biggest market decline you're likely to see in the next few years, because the recovery was so rapid and the turnaround so dramatic that you shouldn't expect it being able to ride out a month or two, which is what happened in this case, is the only thing that's going to happen in the future.
Now, Tesla was $430, give yourself 50% returns on that stock for the year; that's a great year for a stock. The stock could finish the year at $650/share and have had a great year, up 50%. Well, that's losing two-thirds of your return, you know, is that something, just mentally, that stock, any stock, you know, if you lose two-thirds of it, are you going to cherish the 50% you made during the year, are you going to be kicking yourself, you're going to say, I knew that could happen? I can't tell you whether Tesla is going to ever go back down to some $600 a share, but I think certainly, it's been such a good ride, you know, if you don't want to take on the risk of losing 20% of your portfolio in a not-hard-to-imagine situation of Tesla being cut in half -- cut in half, it's $1,000. It's still up 100% for the year, you know, just work through your mental risk tolerance. I think it's a great question, great time to be able to sell something that you may have gotten more returns from than you ever thought you were going to in one year.
Hill: Yeah, I think my two questions for Alex or anyone in this position; and thank you for pointing out, we could be talking about any stock here. The question is about Tesla, but certainly there are plenty of stocks that have had this type of run, and this type of journey in 2020. I think my two questions for anyone in this position are, how are you sleeping? Because [laughs] if you're legitimately losing sleep over this, there's probably an indication. But then the second question is, what are you buying? What are you doing with that if you decide, you know what, I'm going to take, I'm going to trim my position in this stock? Maybe you're just parking it in cash, maybe you actually have a watchlist of other stocks that you're looking to start a position in. But you want to be able to answer both those questions; and particularly the second one.
Barker: Yeah, I think it's, have a plan. If you didn't come into this year, didn't come into today, whatever it is, with a plan, just have a plan. If your plan was, I want to see what can grow to be 50%, 80% of my portfolio, then stick to your plan. I wouldn't recommend that plan, but if objectively you're thinking like, I would never let something grow to be greater than a certain percent of my portfolio, then that's a very, very typical plan to trim something when it gets to be larger than whatever percent you designate. Now, the Tesla story may have changed so much during the year, you never thought things were going to be this good, I don't know that that's the case with the operation of the company, it's having a good year, but I don't know that its fundamental story has changed as much as the stock price has changed.
Hill: Bill Barker, always good talking to you; thanks for being here.
Barker: 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 MarketFoolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.
Bill Barker owns shares of Walt Disney. Bill Barker is an employee of Motley Fool Asset Management, a separate, sister company of The Motley Fool, LLC. The views of Bill Barker and Motley Fool Asset Management are not the views of The Motley Fool, LLC and should not be taken as such. Chris Hill owns shares of Walt Disney. The Motley Fool owns shares of and recommends Netflix, Tesla, and Walt Disney. The Motley Fool recommends Delta Air Lines and Southwest Airlines and recommends the following options: long January 2021 $60 calls on Walt Disney and short October 2020 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.