Chris Hill: Let's talk stocks.
Ron, whether it's an industry or a specific stock, what do you think is poised for upside this year?
Ron Gross: An industry I’m looking at, it's a sector/ industry.
I’m not ready to call the big r-word yet, recession. I’m not freaking people out yet.
Hill: You are a little bit, by saying that.
Gross: I think it's important to have some allocation to some defensive stocks in the
environment that we may be approaching.
So, when I think of companies in those sectors, I would say some utilities might be a good bet right here.
Some of the discounters, in fact, discount retailers.
Costco, Dollar Tree, Walmart would be some nice stocks, defensive stocks to have as we
enter an economy that might not be as robust as it has been.
Hill: What about you, Jason?
Jason Moser: I don't want to time when a recession might hit, because really, that's bad for everybody,
but I do think we are entering a period where banks are going to have some
opportunities to boost their earnings a little bit as interest rates continue to nudge upward.
In particular, I’m looking more at small banks, and one we've talked about before, Ameris Bancorp.
This stock has a tremendous risk-reward scenario playing out here.
The stock is now trading around 15X earnings.
They recently announced this merger with Fidelity Bank in Georgia. It's about a $750 million deal.
Given that Ameris is about a $1.5 billion company, you can see, it means a lot.
The market rightly sold the stock off. There's some skepticism there.
That's rolling in a big acquisition. But they're two very similar cultures.
It gives Ameris tremendous exposure to the valuable Atlanta market.
It's also going to help grow that asset and deposit base, particularly in a period where
a lot of these banks are competing for getting those deposit bases.
So, to me, this could play out like the McCormick thing. Remember when McCormick acquired RB Foods?
The market thought, "Whoa, this is a big one to digest here," and they held off for a couple
of quarters to see how things worked out. Lo and behold, it worked out pretty well.
The stock recovered nicely.
I think we could be looking at the same thing here with Ameris if they execute this acquisition well.
Hill: Ron, if defensive stocks have you interested, what's at the other end of the spectrum?
What are you avoiding this year? Gross: Specifically, I have one stock in mind.
I come back to it often. It's Fitbit.
I've really never been excited and probably will never be excited about this one.
They entered the smartwatch market in 2018. I give it to them, they've done pretty well.
But this is a formidably competitive market, with the likes of Apple, for one, right there behind them.
You even have some Chinese upstarts that could be a problem, as well.
I don't see Fitbit being the company that is constantly able to innovate, either take
market share or defend market share. I'd be really careful about this one.
Hill: What about you, Jason?
Moser: Zillow.
I've changed my tone on this company over the past year.
I used to be excited about the potential there.
I feel like they've failed to convince me of the sustainability here.
They're yet to become meaningfully profitable at all.
Now, in this most recent quarter, they put in their shareholder letter that Zillow Group
has entered a period of transformational innovation.
To me, that's code for, "We're not going to be profitable any time soon."
For a company like this, a company that's been around for a while in such a big market
opportunity as our housing market, they should not be entering this period.
They should be coming out of this period.
I think that's what they were trying to do over these past few years.
This instant offers business, it's not up their alley.
Buying homes and renovating them and selling them, it's not scalable.
There are a lot of people out there doing it.
I don't know that they have any real advantage there.
Good will now represents essentially half of the total assets on the balance sheet.
It's not a bad company. I’m just disappointed in the way they've executed.
They still have a ways to go before they get to meaningful profitability.
Hill: One of the things that ties these two businesses together, Fitbit and Zillow,
is the word "optionality" has been used in connection to both of these businesses.
They were seen as, "They have options, in terms of where they can go."
Optionality is something we like to see as investors, but Ron, it almost seems like optionality
works better if you've got one dependable cash cow in your portfolio.
Gross: You nailed it. Optionality is great for additional upside.
Maybe you can't even see the different options that a company might have three to five years down the road.
But if they don't have that profitable cash flow producing segment of the company,
then you're relying on all of the value of that company being in the optionality category,
and that's just too much risk for me.