5 Stocks We Just Bought on the Market Dip - YouTube

Chris Hill: It's Thursday, December 20th. Welcome to MarketFoolery! I'm Chris Hill.

Joining me in studio, the very dapper Matt Argersinger, decked out in a fabulous Christmas sweater.

Matt Argersinger: [laughs] Thank you!

Hill: Fabulous because it is a New England Patriots themed sweater. Which is a little subtle,

I have to say. And I get that this is an audio podcast, but the videos show up

on our YouTube channel. As holiday sweaters go, that's a good one!

Argersinger: The Patriots have some good Christmas colors. They have the red, white, things like that.

The blue is a little wrong. Hill: That's alright.

Argersinger: But, yeah, I have to support the hometown team.

Hill: Exactly. We're going to dip into the Fool mailbag. We're going to talk entertainment.

We are, however, going to start with the Fed. On Wednesday afternoon, the Federal Reserve

raised interest rates for the fourth time this year. They raised it by a quarter point.

For the life of me, I don't know why anyone was surprised by this, but you look at the coverage,

and it really seems like some people are saying, "I thought they were going to

go the other way!" Argersinger: Yes. No one should be surprised

that they raised the Fed funds rate again. I think what the market was hoping for was

maybe a meaningful shift in the language and the approach, moving away from this gradual

rise in interest rates towards, I don't know, a wait-and-see mode, because the market is volatile,

sentiment's gone bad. If you go back to the late 80s, I can see

why the market expects this. If you go back to the late 80s, Alan Greenspan becomes the

Fed chair, and there became this idea -- I think it happened around the time of the '87 crash.

The Fed stepped in with a lot of liquidity at that time. It became known as the Fed put.

I think it started out as the Greenspan put, but then it became the Fed put, then the Bernanke put.

The idea was, when markets go down, sentiment turns bearish, the Fed is there for the rescue,

is going to come in and maybe even lower rates in certain circumstances, or at least not

continue to raise any rates. The surprise, I think, for investors was that the Fed didn't

shift more to that mode. The Fed just said, "No, we're raising rates again." They did say,

"We might not raise it three times next year, maybe just two." But I think the investors

were really hoping, "They're going to pay attention to this market. They're going to

realize things have gotten volatile. They're going to become dovish." And they didn't.

And I think that's actually a good thing. Hill: I do, too. From a stock perspective,

we talked recently on Motley Fool Money about the investor day that Under Armour had,

and how the stock dropped off following that because Kevin Plank and his team were pretty conservative

in their guidance for the foreseeable future. That was one of those things where I actually

-- and I'm a shareholder who's dramatically underwater on that stock, but still, I looked

at that I said, "OK, that seems like the sensible move. I'm glad they're doing that." And that

was how I viewed this. I get that the market sold off, but I just thought, this seems like

the sensible move. Argersinger: That's right. The Fed should

be focused on the economy, employment, inflation, things like that. By all their measures,

it's time to continue raising rates. I like the fact that the Fed's not taking into account

the stock market or investor behavior. It shouldn't be doing those things. This is all

short-term volatility. You want the Fed in place to manage the economy over the long run.

I think that's exactly what they're doing. Hill: Right. To the history that you shared,

I don't know the exact number off the top of my head, but here's what I know about

the unemployment rate in 2008 and 1987 -- it was higher. It was definitely higher than

where it is today. Argersinger: Yes, much higher!

Hill: So, in terms of the volatility that you mentioned, in terms of this move by the Fed,

where do you find yourself looking for stocks? We've all gotten used to a wonderful,

generally upward trend over the last 10 years or so. That's been great. But now, I think

investors are thinking either "I would like to find some stocks to temper the volatility

that I see so I can sleep better at night," and there are others saying, "This volatility

is my friend. I've got cash on the sidelines, or cash that's been built up because of dividends,

and I want to do some shopping, volatility be damned."

Argersinger: Yeah. I'm a little bit on the latter. My approach is -- and I hope a lot

of our listeners approach it this way -- I've got my watchlist, I've got my buy list

on the side, companies that I know a little bit about. I've heard good things about,

companies I believe in and stocks I want to own more of and I want to buy when times are volatile.

The market right now as we tape is down another 1% on Thursday. The S&P is off about 15% from its high.

That's a pretty big move. That doesn't happen every year. It probably happens every

two to three years. So, this is one of those moments as an investor where you think,

"OK, sentiment has definitely changed. The stock market is off quite a bit. There's probably

a lot of bargains in stocks that I'm looking at."

I've done some buying the past few months. I started buying in October. I probably jumped

in a little too early, like all of us did, but I started buying in October. I bought

more over the last couple of months, as well. If you look at the stocks I bought --

I'll just list out a bunch of them. Vail Resorts, which is a company I've owned for a long time,

I know well. It's off about 25% from its high. In my view, it's one of the best hospitality

resort businesses in the world. I've love owning it and I've wanted to buy more. A company

like Axon Enterprise, formerly known as Taser. A company that specializes now more in body

cameras and their evidence.com platform. Doing a lot of things to help law enforcement be

less violent and more evidential in their practices.

Hill: And there's a subscription aspect of that business, isn't there?

Argersinger: That's right. It's cloud-based. Hill: It's not just, "We're selling you the equipment."

Argersinger: Right. There's the evidence.com

cloud platform where all these videos from police recordings are uploaded. Police forces,

lawyers, attorneys can access them and use them for court proceedings. It's become this

ecosystem around the criminal justice enterprise in the U.S. and hopefully beyond.

Here's a few more. This is an eclectic mix. Live Nation, one of the premier live concert

and events businesses in the world. How artists are moving towards nowadays away from

selling records and albums, which can't make money anymore, and doing more live performances.

Live Nation, with its Ticketmaster property, has almost a virtual monopoly in terms of

big concert events around the world.  Then, a couple of companies just because

I love David, and these are two of his favorites. Take-Two Interactive, a video game company

that I know David loves. And, Okta, which is a company I hadn't owned previously.

It's revolutionizing the way we manage our passwords and logins around so many different apps and

things that we use these days. Those are a few of the companies I bought.

I've also added to my position in Alphabet and Amazon. Amazon might be a surprise because

I've bought it so many times in the past. It's off 30% from its high, and this might

be one of the last times you get it below a $1 trillion market cap. So, I'm interested in that one.

Hill: You mentioned Okta. Just one thing on that.

We talk about Slack and how we use that at the office. We also use Okta at the office.

It's a fabulous platform because like you said, it keeps all your passwords in one place.

Argersinger: It's great! Hill: Given all of the different things that

we need passwords for, it's a phenomenal business. We were going back and forth on Slack. I don't know

if you want to pull back from this. You wrote, "I also have one stock idea that

I think is," and you put this in quotes, "is a 'can't lose' at its current price."

Now, look. We're not guaranteeing anything.

Argersinger: No.

Hill: And you haven't told me what it is. I'm curious. When you put that in quotes,

I take that to mean, "Look, I'm not saying this thing is a guarantee, but this thing

is so attractively priced right now." Argersinger: Yeah. I usually don't do this,

and it's rare that I think this about a company, but I do think this is a can't-lose, no-brainer investment,

and it's one we all know. Berkshire Hathaway. A company I'm sure a lot of our

listeners have owned at least at some point in their investing career.

If you look at Berkshire Hathaway, a couple of things really stand out to me.

One, there's this dynamic with Berkshire Hathaway that always gets undercounted in the market,

which is their look-through earnings. It's what Buffett calls his look-through earnings on

a lot of his stock investments. There's some math involved in there. Basically,

you can add about $5 a share in earnings -- I'm using the B shares -- to Berkshire's earnings per share

by looking through the earnings of its stock investments, its minority interests

in stocks like Wells Fargo, American Express, Apple. If you do that, you add that $5, Berkshire

is trading for about 12X earnings right now. Hill: That's if you add the $5?

Argersinger: If you add the $5. That's significantly below the market multiple right now.

Here's an even better reason to be excited about Berkshire Hathaway. We know Warren Buffett's

had this policy in place for a while where he's repurchasing Berkshire shares at about

1.2X Berkshire's book value. He modified that proposal a little bit last August when he said,

"We're actually buying shares today because we've modified our book value approach

to be more of an intrinsic value approach. We're looking at the intrinsic value of the company.

We think it's attractive. We're buying shares today." That was back in August.

If you look at the book value multiple at that point, it was about 1.3X or 1.4X book value.

So, if I use 1.3X book value, that puts Berkshire's book value per share on the B shares at $198.

It's trading right now $193 as we tape. So, I have no doubt that Warren Buffett's out

there buying back Berkshire Hathaway stock right now.

You take that into account, you've got Buffett buying, he thinks it's attractive.

And, you have a business that's probably going to grow earnings 8% or 9% a year.

I think, if you buy Berkshire today -- full disclosure, I have -- you can earn 10% a year annualized.

It's a no-brainer, it really is. Like all stocks, Berkshire Hathaway

has been hit in this market volatility. But it's one, if you're a little nervous about the volatility

and you want something that's a little more conservative, but still offers pretty great upside,

I think Berkshire Hathaway's one to look at.

Hill: Buffett is famous in recent years for talking about the amount of cash that they have,

his appetite for acquisitions. Her refers to it as his elephant gun. He wants to go out

and buy something. I remember it was maybe six or seven years ago, the announcement you

mentioned from Buffett. That's when he was talking about, "Here's the pathway for us

buying back our own shares, if it's 1.2X book." Do you suppose at some point in the last couple of years,

because they haven't really made a big acquisition, that his good friend and colleague,

Charlie Munger, barked at him one day --

Argersinger: Gets him in a room and just -- Hill: And just says, "Look, man, get off the 1.2X book.

Why don't you just buy some more of our shares?"

Argersinger: I totally think you're right about that. He's probably looked at the market

over the last several years, we've had this relentless bull market, a lot of valuations

in the market not friendly to where Buffett and Munger like to buy. What's been the best investment?

Berkshire stock.

Hill: Quick shout-out to Sam Muffley, our man in Queens, New York. Sam is helping out

with a fundraiser today at Hassenfeld Children's Hospital, NYU.

They're having their first annual Radiothon.

If you're in the Greater New York City area, tune into 106.7 FM at some point today.

They're trying to raise a little money. Actually, even if you're not

in the Greater New York City area, because a lot of children's hospitals across the country

do these types of Radiothons at some point.

Also, shout-out to Isaac Mellon, our man in Wausau, Wisconsin.

It's his birthday today! Argersinger: Hey!

Hill: Happy 25th to Isaac! Argersinger: Happy birthday!

Hill: Isaac, you can thank Sarah for dropping us a note. She's definitely on the shortlist

for the title of coolest wife ever.  Our e-mail address is [email protected].

You can hit us up on Twitter @MarketFoolery. Question from Vikus, who writes, "iQiyi went

public at $18 a share. It went up to $46. Now, it's down to $15. What are your thoughts?"

Perfect question for Matt Argersinger, who probably watches iQiyi, aka the Netflix of

China, more closely than most anyone in this building.

Before you share your thoughts, I'll tell you my thoughts, as someone who's not a shareholder

but I do have this stock on my watchlist: boy, this looks cheap! [laughs] $15 looks

really enticing! Argersinger: Vikus, my first response is,

I'm right there with you if you've owned it. I bought the shares the day of the IPO, actually.

It IPO-ed around $18, it fell a little bit below $18 on its first day. I rode it

all the way up to $46, and I've ridden it all the way back down. In fact, now, it's below

my cost basis at $15. All I can say is, I just think with iQiyi,

with a lot of the foreign-listed Chinese companies, the sentiment really couldn't be worse.

It's probably as negative as I've seen in the years I've been following Chinese companies. I can't

remember a time when it was worse. Couple it with, now, we're seeing all this volatility

in our own market in the U.S., where a lot of these companies are listed. Pounding more

on the downside, it's been really rough. iQiyi, you're still talking about a platform

that crossed 80 million subscribers at the end of September. That's up almost 90%

year over year. You've got subscription revenue growing faster than content costs, which is

something Netflix can't even claim most of the time. You've got some of the most watched

shows in China. It is China's leading streaming company. I don't think it's done anything

to deserve falling 60% from its high. It also probably didn't deserve to be at $46 share, either.

There's somewhere in the middle where I think iQiyi is probably going to land.

But, Chris, to your last point, good for you if you've had this on your watchlist.

This business has only grown bigger. There's no doubt, within next few months, they cross

100 million subscribers, which is extraordinary given where they started from. At $15 a share,

I'd say yes, if you've got a sleeve in the risk side of your portfolio, for riskier,

growthier companies, definitely give iQiyi a look.

Hill: Seth Jayson and I were talking about this the other day, the idea of,

you look at your portfolio in terms of how you're allocating your money. If you've got the appetite for it,

you can start small. I did that. At some point years ago, I took what amounted to

1-2% of my portfolio and said, "I'm going to take a flyer on something, knowing full well this

may go to zero." And for me, that mentality helped. Same sort of thing -- watch this stock

go up, watch it go down. It's just like, "OK! I'm just watching it! I'm not counting on it!"

Yeah, at $15 I may have to...

Argersinger: Take a flyer. Take another flyer. Hill: May have to take a flyer.

Programming note. This is the last full week of 2018 for us here at MarketFoolery.

We're going to have a couple of episodes next week because Christmas. Then, we'll have a couple

the week after that because New Year's Day. Then, the first full week of January,

we'll be back at it. That will actually mark our eighth anniversary for this podcast.

Argersinger: Alright, congratulations! Hill: Maybe we'll have cake or something,

I don't know. We'll see. Matt Argersinger, thanks for being here!

Argersinger: Thank you! 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 on Monday!