Moser: I've always found Lowe's and Home Depot to be like the drugstore space, like the CVS and Walgreens , to the extent that they always seem to be near each other, and you go to whichever one is more convenient. A lot of that is because the service is better. They have more stuff. I always know I can get what I'm looking for there. For me, it's no secret why Home Depot has been so successful for so long. I think that Lowe's probably can continue to do just fine.
As we've talked about before, they've latched on to this terrific market opportunity that appears to be pretty Amazon-resistant. And as they continue to grow out that internet business, even incremental improvements can ultimately result in gold for shareholders. Greer: As we wrap up here, let's talk about a few of the numbers. Home Depot is much more profitable. When you look at the two stocks, they have both beaten the market over the last 10 years.
Home Depot especially has crushed the market. How about going forward? What do you think about the two stocks? Do you have a favorite? Flippen: Home Depot definitely has a premium applied to it right now. The change in market cap there on a sales basis is pretty extreme. But, I think it's the better company when you look at how it's performed, when you look at the management, and when you look at some of the incentives that they put in place for customers to be return customers.
They've done a better job pushing a Pro program, customer loyalty, pushing online sales. For me, that's a hands-down Home Depot. But, it doesn't make me necessarily believe Lowe's will be a bad investment. I would just choose Home Depot between the two. Moser: We were talking about the basement project that we had done in our house. The company that came in and did it got all of their stuff from Home Depot. I was astounded. And they speak very highly of it.
Their Pro program is something they use consistently. I feel like, yeah, Home Depot is the obvious winner in the space. With that said, I think there's the opportunity for Lowe's to perhaps outperform if the changes they make take. If they're really able to become a bit more like Home Depot, really, is what they ultimately have to do, if they can do that, perhaps there is the opportunity for that stock to outperform.
But I feel like Home Depot is the no-brainer. Greer: Our final story, this is one that I was not expecting to talk about today. SeaWorld reporting better than expected quarterly earnings. Blackfish was a very critical documentary about SeaWorld and their whales in captivity. It came out in July So, SeaWorld appears to be coming back and overcoming some of that.
You probably want to be cautiously optimistic here. It has been a tremendous turnaround. With that said, I look at SeaWorld and I feel like, when you look at that park space, we talked about Home Depot and Lowe's, going with the obvious one there. Why aren't you just going with Disney in that case?
And chances are, probably most people are. My problem with SeaWorld is, while it's unique -- and, I think they managed their way around that Blackfish crisis well enough. Greer: You think so? That documentary was so jarring. Moser: I don't blame you for that. I think I've been to SeaWorld once in my life. When we were down there with our girls in Florida, it never even came up on our radar.
It just wasn't something they wanted to go to. But clearly, people are going to SeaWorld, and their owned properties. It's not just SeaWorld. They own Busch Gardens and other parks around the country. With that said, I don't think that they possess the ability to raise prices on those tickets like something like Disney.
Remember, when we talked about Disney back in the time of the Great Recession, even Disney had to resort to cutting ticket prices a little bit to get traffic in the door. That's really the most important part of it all, getting people in that door.
SeaWorld, I just don't think they possess the same ability to raise ticket prices when economic conditions allow for it. Disney has been taking advantage of that every year. SeaWorld doesn't have that same ability. That has to be concerning, particularly when you look at their balance sheet, which has a pretty healthy slug of debt on it and a coverage ratio of just about two. You want that number to be a lot higher. There are a lot of hurdles for them to clear. Greer: I should add, they have said that they're phasing out the killer whales in captivity.
But that brings up another point. That's in part what they were known for. If they don't have pricing power, and the killer whales are going away -- and I think a lot of us think that's a good thing, especially if you see Blackfish. It is brutal. I'll just tell you, there's a scene where a mother gets separated from her calf, and I'm like, wow!
Greer: It's brutal! So, if you if you take the whales out of the equation, and to your point, Jason, they don't have pricing power. What is SeaWorld? Flippen: I like to think about these types of things split into two. There's experiences and there's activities. Disney is undoubtedly an experience. It's an experience. SeaWorld used to be an experience. It used to be an experience because of the Orca shows.
That was, in itself, an experience that was quintessential when you were growing up as a kid, getting splashed by the Orca tail. I think with Blackfish and phasing out the Orca program, you're looking at something that is now an activity. That doesn't necessarily mean it's bad. But, I agree, it doesn't have the pricing power that an experience has. Theme parks are activities, fairs are activities.
SeaWorld now is an activity. I don't think we'll ever go back to the glory days of SeaWorld being that quintessential, once in a lifetime experience that you get when you look at a park like Disney. For me, it lost a lot of its power because of that. Of course, ethically, that's a good thing for people. After seeing Blackfish , I'm sure people are like, "I'm never going back to SeaWorld because of that.
Moser: The stock has made a tremendous come back from the lows where it was. But investing, as we know, is all about the future. When you look at a business like this, I question its pricing power. It's going to cost a lot of money to maintain these assets. It means the balance sheet becomes more and more of a liability as time goes on. In the face of questionable revenue growth, it's just not the kind of business I'd personally want to invest in.
What if I told you, to Emily's point, in trying to reinject that experience element, what if I told you -- work with me for a minute -- SeaWorld, you add that show where the monkey rides the dog? Have you ever seen that, where the monkey rides the dog and the monkey wears a cowboy hat and bandana?
Do they have the brand permission to do that? And I want to make sure the monkeys are treated ethically and not separated from their mothers and all that. Moser: In this age of technology, perhaps the answer really is something more along the virtual or augmented reality side. Instead of actual orcas, perhaps they just have a hologram of an orca that splashes on you, but doesn't really.
You sit in those theaters at Universal. Greer: How about if we pair virtual killer whales with very real monkeys riding dogs? Greer: That's true. And you'd have to retrofit the parks, and if they got out, there's liability. I haven't really thought through this. I apologize. I take it back. Moser: Didn't a monkey steal something from Joe Magyer on his honeymoon? Joe, reach out to us, tell us that story again, if you can. Greer: They're crafty.
I was in Gibraltar traveling. They warn you, "If you have ice cream, if you have any food items, the monkeys will come and take it. Greer: They're cagey. As we wrap things up here, I want to give you my desert island poll again. If you've never heard this, you should never invest this way.
It's completely arbitrary. It's just kind of a fun conversation topic. You're on a desert island for the next five years. What do you think? Flippen: SeaWorld for me is immediately out of the question, being a socially conscious investor, for better or worse.
So, for me, that question comes down to Home Depot vs. And they're so similar, but so different. I think I'll have to go with Berkshire on that. But I definitely think Home Depot is a close second. Moser: I used to actually own Berkshire Hathaway. I don't anymore. I think I'd go with Home Depot, actually. I'm a big fan of that market, as someone who likes to do that work at our house, I think they'll be getting a lot of my dollars for hopefully the next 30 or 40 years.
Let's go Home Depot. Greer: Jason, Emily, thanks for joining me! If you have questions, if you have comments, if you have any ideas on how SeaWorld can improve their experience or their activities, let us know. Thanks for joining us! As always, people on the show 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 it for this edition of MarketFoolery. The show is mixed by Dan Boyd. Thanks for listening! We will see you tomorrow! Cost basis and return based on previous market day close. Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of Discounted offers are only available to new members.
Calculated by Time-Weighted Return since Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns. Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. Premium Services. Stock Advisor. View Our Services. Our Purpose:. Notice that in Friedrich had a buy rating on AXP. The stock has had a couple of off years since but overall it has provided an excellent compound return over time.
Phillips 66 PSX. We will wait for the company to generate organic revenue growth before considering for purchase. Moody's MCO. Moody's was rated a buy by Friedrich from through and has performed admirably ever since the initial buy rating. Delta Airlines DAL. ADM was rated a buy by Friedrich in and again in It has more than quadrupled since the first buy rating. Goldman Sachs GS.
Southwest Airlines LUV. General Motors GM. Here is an example of a Friedrich Datafile that we produce for each stock that will give you some idea of the amount of work that Friedrich does in seconds that would take an analyst weeks to emulate by hand. Friedrich performs calculations for each year analyzed. Friedrich also uses GAAP accounting, so you will always get the real story, not adjusted for Pro Forma or one time events. Please notice that GM received a buy rating from Friedrich only in and that all of the gain since came in the following year.
American Airlines AAL. DVA has not been rated a buy by Friedrich in the last ten years but with the recent improvements in the fundamentals combined with a pull back in price it is nearing our buy price. The next three stocks had one time events that skewed their results. Once the one-time events are no longer included in the TTM trailing twelve month results, normality of ratios generally returns.
Verisign VRSN. VISA V. This is a long term holding of Friedrich Global Research. Monsanto MON. MasterCard MA. MasterCard was rated a buy for much of the chart and only slightly above our buy price in the last three years. This is one of Buffett's best ideas in our estimation and is also one of our portfolio holdings as well. Synchrony Financial SYF. Restaurant Brands QSR.
Torchmark TMK. Sanofi SNY. SFY had a buy rating from through from Friedrich. The dividend is variable but adequate. FRSK received a buy rating only in but has performed extremely well since then. Wal-Mart WMT. Graham Holdings GHC. JNJ was rated a buy only in but the appreciation and dividends since have been excellent. PG came close to a buy rating and probably dipped below our buy price during as did many other quality companies that year.
Verizon Communications VZ. Well there you have it, a simple to follow analysis of the complete Berkshire Hathaway holdings for the most recent reported quarter. You can clearly see why Mr. There just is nothing to buy. The great majority of stocks globally within the 36 countries for which we provide analysis are overbought primarily because we are in year nine of the current Bull Market.
Friedrich which analyzes Main Street operations of each of the 17, companies that we track is simply and objectively telling us that Main Street is still struggling even though Wall Street is still in a buying mood. At times, markets may continue to go up for years even when they are overbought resulting get extremes.
It appears that his may be one of those times. We believe that the markets are pricing in some form of tax cut for corporations which would result in an immediate improvement to earnings. And yet, if the tax cut actually happens which is beginning to look more real each week we also expect a positive reaction by Wall Street and the continuation of this aging bull market.
Berkshire Hathaway itself is overbought but Friedrich is not able to incorporate the Buffett and Munger premium, which has always been there with the Woodstock for Capitalists. But when the great majority of Berkshire Hathaway's holdings are overbought it is easy to understand why Friedrich comes up with this result for BRK.
As Berkshire Hathaway's second-largest position, Bank of America especially stands out because Buffett has reduced the positions of most of his bank stocks in recent quarters. The financial services leader continues to benefit from its investments in technology , including mobile apps. While it can certainly be interesting to keep track of what Buffett and other billionaire investors are buying and selling, it's never a smart idea to jump into a stock just because someone else does, even if that someone else is the Oracle of Omaha.
Having said that, looking at Berkshire Hathaway's stock portfolio can give you plenty of stock ideas to investigate further and determine what is suitable for your portfolio based on your own risk tolerance and investment objectives. Discounted offers are only available to new members. Stock Advisor will renew at the then current list price.
Average returns of all recommendations since inception. Cost basis and return based on previous market day close. Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. Premium Services. Stock Advisor. View Our Services. Our Purpose:. Latest Stock Picks. Updated: May 17, at PM. Author Bio Keith began writing for the Fool in and focuses primarily on healthcare investing topics. His background includes serving in management and consulting for the healthcare technology, health insurance, medical device, and pharmacy benefits management industries.
Follow keithspeights. Image source: The Motley Fool. Join Stock Advisor Discounted offers are only available to new members. Stock Advisor launched in February of A Berkshire Hathaway Inc. B Berkshire Hathaway Inc. VZ Verizon Communications Inc. KR The Kroger Co. USB U. V Visa Inc. NYSE: V. NU Nu Holdings Ltd. Finally, trading activity is the enemy of investment returns. Constantly buying and selling stocks eats away at returns in the form of taxes and trading commissions.
In my view, individual investors gain most of the benefits of diversification when they own between 20 and 60 stocks across a number of different industries. However, many mutual funds own hundreds of stocks in a portfolio. Warren Buffett is the exact opposite. Simply put, Warren Buffett invests with conviction behind his best ideas and realizes that the market rarely offers up great companies at reasonable prices. Owning stocks makes it virtually impossible for an investor to keep tabs on current events impacting their companies.
Excessive diversification also means that a portfolio is likely invested in a number of mediocre businesses, diluting the impact from its high quality holdings. How many stocks do you own? If the answer is more than 60, you might seriously consider slimming down your portfolio to focus on your highest quality holdings. There is no shortage of financial news hitting my inbox each day. While I am a notorious headline reader, I brush off almost all of the information pushed my way.
Most of the news headlines and conversations on TV are there to generate buzz and trigger our emotions to do something — anything! The companies I focus on investing in have thus far withstood the test of time. Many have been in business for more than years and faced virtually every unexpected challenge imaginable. However, they are still standing.
Financial news outlets also need to blow up these issues to remain in business. If the answer is no, we should probably do the opposite of whatever the market is doing e. The stock market is an unpredictable, dynamic force.
We need to be very selective with the news we choose to listen to, much less act on. In my opinion, this is one of the most important pieces of investment advice. Perhaps one of the greatest misconceptions about investing is that only sophisticated people can successfully pick stocks.
However, raw intelligence is arguably one of the least predictive factors of investment success. Anyone proclaiming to possess such a system for the sake of drumming up business is either very naive or no better than a snake oil salesman in my book. Stock prices are pushed at us nonstop. For some reason, investors love to fixate on ticker quotes running across the screen.
However, stock prices are inherently more volatile than underlying business fundamentals in most cases. In other words, there can be periods of time in the market where stock prices have zero correlation with the longer term outlook for a company. Many bargains were available during the financial crisis because investors were quick to sell off all companies — regardless of their business quality and long-term earnings potential.
Many firms continued to strengthen their competitive advantages during the downturn and emerged from the crisis with even brighter futures. Investors need to distinguish between price and value, concentrating their efforts on high quality companies trading at the most reasonable prices today.
If anything, I believe the stock market is best meant to moderately grow our existing capital over long periods of time. Investing is not meant to be exciting, and dividend growth investing in particular is a conservative strategy. Rather than try to find the next major winner in an emerging industry, it is often better to invest in companies that have already proven their worth. After all, the goal is to find quality businesses that will compound in value over the course of many years.
Many companies that boast long and successful corporate lives provide basic products and services — snacks, beverages, toothpaste, medicine, convenience stores, etc. While not the most exciting businesses, a slow pace of industry change often protects industry leaders. Many companies in the Dividend Aristocrats Index and Dividend Kings list have benefited from this phenomenon.
There is no need to try and be a hero or impress anyone with our investments. Boring can be beautiful. Did you know that most investors fail to beat the market — and often by a wide margin? We hurt our performance in many different ways — trying to time the market, taking excessive risks, trading on emotions, venturing outside our circle of competence, and more.
Even worse, many actively managed investment funds charge excessive fees that eat away returns and dividend income. Despite his status as arguably the most prolific stock picker of all-time, Warren Buffett advocates for passive index funds in his shareholder letter. Low-cost, passive indexing can be a great strategy for many investors to consider, especially if they are not concerned about generating stable dividend income ETF dividends tend to be lumpy and more susceptible to cuts during bear markets.
Most stock pickers fail to generate performance that justifies their higher fees. Throughout his shareholder letters and occasional interviews, Warren Buffett emphasizes the importance of only investing in trustworthy, competent management teams.