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News on Lemonade, Bill.com, and Payoneer's SPAC Deal

Several months ago, we did an episode of Industry Focus: Financials about two stocks we planned to add to our portfolios -- Bill.com (NYSE: BILL) and Lemonade (NYSE: LMND). Well, Bill.com just demolished earnings expectations and Lemonade has rolled out its new term life insurance product, so it's time for another look. Plus, we take a look at Payoneer, the latest fintech company to go public via a SPAC merger. We look at some of the most heavily shorted financial and real estate stocks, and tell listeners why General Motors (NYSE: GM) and Affirm (NASDAQ: AFRM) are on the top of a watch list this week.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

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This video was recorded on February 8, 2021.

Jason Moser: It's Monday, February 8th. I'm your host, Jason Moser. On this week's Financials show, we're talking Lemonade's latest product offering. Bill.com had another stellar earnings report. We've got another fintech SPAC offering in the pipeline, we've got some more heavily shorted names in the financial space, and of course we've got a couple of stocks for you to watch this coming week. Joining me this week, it's my man, Certified Financial Planner, Mr. Matt Frankel. Matt, how's everything?

Matt Frankel: It is a beautiful day here in South Carolina. Only one we're going to get this week, so it's a good day. [laughs]

Moser: Well, it must be contagious because it's a beautiful day up here in Northern Virginia. A little bit chilly, but it's nice and sunny. One out of two ain't bad.

Frankel: Yeah. Hope I get to come visit you guys sometimes soon. I've been saying that since last March.

Moser: Who knows? I mean, who knows? That's the best you're going to get out of me. [laughs] Nobody knows. Matt, let's open the show here. I want you to travel back in time with me to August 31st, 2020. That's when we did a show where we told our listeners these were the two stocks we personally each were getting ready to add to our portfolios. Those two stocks, as you probably know by now, were Lemonade and Bill.com. Matt, I am happy to say that since then and as of market close on Friday, your pick and your purchase Lemonade is up 147%. Now, not to be left out in the cold, my pick and my purchase Bill.com, it's up 87%. [laughs]

Frankel: That episode aged well.

Moser: It aged well like a fine wine. [laughs] Matt, we wanted to kick off the show today, talk about these two companies. We have some news in regard to both companies there. Well, let's go ahead and kick it off with Lemonade because it looks like they are going to be opening up a new product line here for their business. This is an insurance company. That is, they're really iterating and moving quickly and they've got a new product line here that they're getting ready to launch. Talk a little bit about that.

Frankel: Yeah. They're actually launching it. If you go on Lemonade's website right now, you can apply for it and buy term life insurance. It's up and running at this point, just happened. Lemonade has done a great job of bringing their AI machine learning-driven approach to insurance. But so far, they've concentrated on relatively small areas of the insurance business. Renters Insurance is the big one. Just to put this in perspective, Renters Insurance is about $3.8 billion market in the United States. They also do pet insurance, which is a $1.7 billion industry.

They do have a hand in the $100 billion homeowners insurance space, but Renters seems to be their bread and butter at this point. It's not a giant market. Life insurance in the United States alone, and remember, Lemonade is international. Life insurance alone is $730 billion market. The question in a lot of investors' minds, especially mine, is, will Lemonade be able to replicate the success they've had with the Renters Insurance market into term life insurance? Because it's a tougher market to underwrite. There's a reason that life insurance is such a pain to buy. [laughs] I don't know if you've bought term life insurance, Jason.

Moser: Well, I have some life insurance set up through my work.

Frankel: Well, they did you a favor.

Moser: Yeah, I've got something. But we've also worried, both my wife and I are working.

Frankel: Generally, the process involves a lot of paperwork, you have to meet with an agent, which is the salesperson. They're trying to sell you a more expensive product in a lot of the case, so you feel like auto sales pressure. You have to submit to a medical exam. When I got term life insurance, a nurse had to come to my house, and draw blood, and take my weight, and all kinds. It's an invasive process. It's an industry that's just begging to be disrupted, but it's going to be a tough one to crack into really. I'm curious to see because right now their application for term life is really easy, no medical exams, no nothing, and they do it all through their AI technology and just using the power of available information. For example, instead of actually doing a medical exam, they use my social security number to access my medical records and see what medications I'm on, things like that. So, if that really catches on, term life insurance, it's not only a big market, but it's one where the current players are not very user-friendly. So there's a lot of potential there.

I'm really excited to see in the next quarter or two now that there's a limited life button right on top of their website, I'm really curious to see how that plays out and how that is received by customers because that could be a game changer. Because when I got homeowner's insurance, and Jason, you're probably in the same boat, when I bought my house, I had to make a call and it took about 15 minutes, and then I had a quote and paperwork came in the mail. It really wasn't that painful. Lemonade does it better, but the existing way of getting homeowners isn't terrible. Life insurance is not a fun process, so I think it's going to be a really exciting. This will be a stepping stone to see if they could eventually disrupt things like auto insurance, umbrella insurance, and all these other little insurance markets that could really make them a major player. This is really their first big test, and I'm curious to see how it goes.

Moser: Don't you feel like in regard to insurance, I mean, it's funny disparity as investors, I mean, generally speaking, we like insurance a lot as investments because typically it's a product, it's a service that everybody needs in some capacity. Well-managed insurance companies, they're using that money to their advantage. They're typically good investors too. I mean, I think of Warren Buffett and Charlie Munger at Berkshire Hathaway. I mean, Tom Gayner with Markel. Those are two that really stand out to me immediately as good money managers and leaders have been able to grow those businesses through years by making shrewd investments in that portfolio using that float. I wonder with Lemonade, it feels like there's so much opportunity to disrupt the insurance business because so much of insurances, even customers, we have insurance and yet you still really don't fully know what you have because it's all so confusing. It really is. It's not something set up that's easy for the consumer to understand. It feels like it's a big opportunity for Lemonade to really clarify and simplify.

Frankel: Yeah, especially when it comes to the claims process.

Moser: Yeah.

Frankel: So you're in your house, heaven forbid, if your house flooded and you had to file an insurance claim, would you readily know what to do?

Moser: I mean, yeah, I would know to go straight to progressive.com and log into my account and then click the file a claim button. I know that's where I would start, but I would have to actually go through the documents and parse that language to figure out exactly what's covered, what we're on the hook for. Even then, it's not easy to fully understand.

Frankel: One thing I read, and this was a tweet, so this is like hearsay. But a customer who has pet insurance through Lemonade filed a claim, and guess how long it took the claim to be processed and paid.

Moser: Through Lemonade?

Frankel: Yeah.

Moser: I'm hoping 24 hours.

Frankel: Six seconds. [laughs] This means that that customer knew exactly what was covered, exactly what was needed, knew exactly what documents they had to produce. It's just a really transparent process. One cool thing about Lemonade's business model is they take any reasons to deny claims out of the equation. With most insurance companies, it's not in their best interest to pay our claims. If you file a $50,000 claim to your homeowner's insurance, that $50,000 will come out of your insurance pocket. With Lemonade, they pretty much lay off all the risk with reinsurance policies, so there's no reason to deny claims. It's not in their best interest to do so.

They take 75% of the premiums they collect, they buy reinsurance policies that will cover whatever claims come in, and the other 25% is their operating expenses and hopefully a profit. It's a really very consumer-friendly business model. Anything left out of that 75% doesn't go back to Lemonade, that gets donated to charity first of all, which really appeals to younger investors. It's not in any way Lemonade's best interest to deny legitimate claims or to drag out the claims process. Because remember, insurance companies make money the longer they keep that money sitting in their investments. It's in Lemonade's best interest to get the money out the doors to their customers as quickly as possible.

Moser: Yeah. That brings up good question, I think, because I used to work with Travelers Insurance long before I moved up here to start working with The Fool. For a little while, I worked in an auto claims department. The philosophy there was, let's do all the hard work on the frontend here, investigate these claims correctly, thoroughly, and let's pay what we owe. The idea was that we didn't want to leave these claims outstanding and we didn't want them to go to subrogation or where insurance companies start fighting each other because one insurance company says they owe something and the other says they don't.

Then you have this long drawn out subrogation process that involves attorneys and just inflates those costs, and ultimately those costs end up going back to the consumer in the form of either premium at some point or another. I wonder with Lemonade. Lemonade gets a claim, they pay that claim out, and ultimately that responsibility then goes onto a reinsurer. I guess I'm wondering out loud here. I'm just wondering what kind of recourse does that reinsurer have when it comes to Lemonade? If a reinsurer goes back to Lemonade and says, hey, Lemonade, you shouldn't have paid this claim out. Then what happens? I guess that's where really their AI comes into play here. That's where that secret source really benefits them.

Frankel: The AI doesn't just let them process applications and process claims quickly, it gives them an advantage when it comes to detecting unusual activity or fraud in cases. I don't know. I mean, I'm not AI apparently. [laughs]

Moser: Of course, you are not.

Frankel: They've put out a lot of cases on their website, where they've been able to detect situations of fraud that human insurance representatives were not able to detect. There's something to be said there. Anytime you're paying out claims quickly, there's going to be some element of fraud. They're doing a great job of detecting it and still getting people paid on time. It's a really disruptive model so far, and the early results have been really, really strong. If they can translate that to even 1% of the life insurance market, that would be a huge deal.

Moser: Yeah. I imagine that as time goes on, it's just the system gets smarter and smarter or something. Certainly, a lot of potential there. I can understand why they're trying to gain entry into those additional markets because really that can help them scale up and give them a lot of capability, and that ultimately brings more data into their model and makes their AI smarter. Matt, let me ask you a question here. On Friday, I don't know if you saw, did you? I'm going to give you a guess. What percentage do you think Bill.com shares finished up on the day on Friday?

Frankel: At one point, they were about 25% up.

Moser: Yes, they were. They closed 32% up. Those returns that I was talking about at the intro of the show, a lot of those returns came just on that one day. [laughs] But here, listen, I'm going to take them, whatever. The scorecard doesn't tell you how you got there, it just tells you how much.

Frankel: Most of the Lemonade gains came in December and January, so it doesn't matter when.

Moser: Yeah. Well, Bill.com, a business that we talked about of course, we've talked about it a lot on this show, we've talked about it even before on this show where we picked those two stocks. But they did release earnings for the most recent quarter here, and it was a very well-received quarter. For those who don't remember, who aren't familiar with Bill.com, they provide cloud-based software that ultimately digitizes and automates the back office of financial operations for small and midsize businesses, basically helps them to streamline payment operations, eliminate the paperwork, and bring it all into the digital age year.

Again, much like Lemonade, the key ingredient of Bill.com is still a special sauce as they say, and it's their AI-driven platform. The more data, the smarter it gets. The more customers they bring into the network, it becomes a self-fulfilling prophecy in a sense there. I think it was really just encouraging. The numbers that they reported here for the most recent quarter revenue was up 38%, subscription revenue was up 33%, transaction revenue was up 98%, payment volume up 40%, total number of transactions were up 11%, customer growth up 27%. But here's the kicker, they were guiding for 32% revenue growth in this current quarter now. Add all of that together, and yes, Bill.com is still not profitable. It's one of those highfliers that has a lot of potential, but it hasn't brought it all down to the bottom line yet. But that's no secret, that's no surprise.

I mean, we understand that's where this business is right now. I definitely am understanding the market's enthusiasm there and I was looking through the call and just a couple of additional points. They're capitalizing on the cross-border opportunity, which we've seen across all of the fintech space here lately that talked a cross-border. We'll talk a little bit more about cross-border here when we get to our next story here. But a cross-border opportunity continues to be a tremendous one. Then I thought it was really cool to see that they now have white-label offerings. They're providing the technology for these bigger customers to basically build on, and they've got these white-label offerings now with the top three banks in the U.S.: JPMorgan, Bank of America, and your stock for 2021, Wells Fargo. Wells Fargo is having a pretty good past couple of weeks too there.

Frankel: They just launched a new joint venture with Wells Fargo, I believe.

Moser: Yeah.

Frankel: A couple of points that I would add to what you said about Bill. Yes, they're losing money, but they're losing less. Let's put that in perspective. They lost $2.7 million on an adjusted basis for the quarter. That's about half what they lost a year ago. They raised a lot of capital this quarter. They raised $1.15 billion. Guess what interest rate they're paying.

Moser: It's got to be next to nothing.

Frankel: It is nothing. It's zero because they did it as convertible debt.

Moser: There you go.

Frankel: It's like the market has a huge appetite for future growth in tech so they're able to raise capital at no interest, which is pretty remarkable. I said they lost 2.7 million for their quarter, they got 1.7 billion in the bank. They're not really that worried about the $2.7 billion loss.

Moser: No, not at all.

Frankel: I took a listen to our show in May when we first talked about Bill.com. Remember what the IPO price was?

Moser: It's escaping me, but I feel like it was somewhere in the neighborhood of $35, maybe?

Frankel: $22.

Moser: Yeah.

Frankel: So at that time, they had 91,000 customers. They grew that, as you mentioned, by 27% year over year. They have 109,000 customers right now. There are 20 million small and medium-sized businesses in the USA, so that's still a lot of growth runway. It's really just been an impressive run since that, and that was in May. That wasn't even a year ago. They estimate their addressable market at $30 billion in size. Their last four quarters revenue are still less than $185 million, so they're just scratching the surface here. It's not a cheap stock. Their market cap is almost $15 billion right now as I'm talking.

Moser: To be fair, I mean, back in August we were saying even, it's not a cheap stock. It's $80-$90.

Frankel: It's not, but they're beating expectations. So now, it's even less of a cheap stock.

Moser: Yeah. That's a difficult one really to square sometimes. I mean, you look at some of these stocks, you say, wow, they look so expensive, but the market is just willing to give some of these businesses a little bit more wiggle room when they prove to really beyond something. I mean, it really does seem like Bill.com is onto something particularly when you see that they're able to form those relationships and provide those white-label services to such big financial institutions.

Frankel: Yeah. I mean, they're disrupting an industry that really wasn't very disrupted. If you remember when we first cover them in May, Bill.com said that 90% of small and medium-sized businesses in the U.S. still use paper checks in some capacity. Whether it comes to paying bills or paying their employees or whatever, they still use paper checks for some part of their business. It's like Lemonade, where it's like a first disruptor's advantage, and the more data and more network they build, the more that advantage become. They're very different companies obviously, but they've had some similar growth tailwinds going on.

Moser: Yeah, and definitely playing in that same AI opportunity as well. I mean, AI being a key driver for the success of these businesses. I would imagine that will continue. I mean, management teams see that, they know what's working. I mean, you double down on the things that are working. At least smart management team is doing it. It seems like these teams of Lemonade and Bill.com are doing just that. Matt, we have another SPAC offering in the mix here.

Frankel: Imagine that. [laughs]

Moser: It's just another day and another SPAC, right? This time, it is for a company we're talking about that cross-border opportunity, and this particular company that is going to go public via SPAC is one that may not be very familiar with a lot of folks. I haven't really looked much into it. But I mean, it's an interesting looking business. I'm just not really sure what to make of it yet, but Payoneer. I know you've done some digging into this company. Tell us what you found.

Frankel: First about the SPAC. It's being taken public by a company called FTAC Olympus Acquisition. That's quite a mouthful, but it's Betsy Cohen's SPAC. She is a financial sector heavyweight there. She founded the Jefferson Bank. She founded The Bancorp, which is a branches commercial bank, really innovative platform there. This is her fourth SPAC she's taken public. She was on SPACs before it was fashionable. [laughs] So we actually have some kind of a track record, which is really rare in the SPAC world. Just to run through the previous one, she took public CardConnect in 2015, which ended up being acquired by First Data, so shareholders made a good bit of money on that one.

The second one was a company called International Money Express, which still trades publicly that was in 2017. It's up about 60% from the SPAC's IPO price. Then Paya or Paya, I'm not sure exactly how it's pronounced just because I'm reading it, it was taken public in 2019 and they're up about 40% from the SPAC's IPO price. So she got a pretty good track record. This is No. 4. Now getting to Payoneer, I'm not a customer of Payoneer, but they specialize in cross-border transfers. They had $44 billion flow through their network last year. They're pretty big. Their customers include companies like Walmart, Airbnb, Amazon, Google. These companies use Payoneer to send money all over the world. Payoneer like a good application will be if you're an advertiser and your advertising somewhere that's not your home country. You would use something like Payoneer to send the money to its end destination.

They were founded 15 years ago. The company is being valued at $3.3 billion in this deal. Over a billion of that is new money. The SPAC raised over $800 million. There's a $300 million private investment coming alongside of it, so this company will have a good bit of cash to work with the growth. That's really one thing I like about the SPAC model is because it gives these companies a huge windfall in cash. That's more than Payoneer would likely get through a traditional IPO process. Usually, you don't increase your share count by 50% in an IPO to raise capital, but that's really what they're doing here. They're valued at 3.3 billion and 1.1 billion is new cash, so it's a lot of ammo to grow with. Their mission is to democratize access to financial services, which in cross-border is something that is sorely needed. It's an interesting SPAC, and the Payoneer's management is going to remain in place. But one of the good parts about the SPAC combinations is you can leverage the other person's or the other party's experience in other connections, which Betsy Cohen has a ton of. I like this arrangement. I think it's a huge amount of cash for a company like Payoneer to grow with, and I'm curious to see what they do with it in the years ahead.

Moser: Well, that'll be one we certainly keep up with here on the show as it goes public, and who knows? Maybe that'll be one we will consider featuring in our SPAC series that we have coming up here later on here on Industry Focus after earnings season is over, of course. But we're going to jump into some of these SPACs, talk about the good, the bad, and the ugly, everything else in between. But before we get there, Matt, listen. I mean, we were talking about this at the beginning of the show, GameStop, and short squeezes, and stuff like that. Short squeezes have taken front and center of the conversation here lately with everything that's been going on with Reddit, and GameStop, and AMC.

It's been a fascinating time. It really, I think, shows the power of network effects from a different angle. I mean, this shows the power of network effects and how we're always looking at that network effects as a potential competitive advantage for our investments, but this shows how investment or network effects can be an advantage for investors. In this case, it's had a material impact on a couple of companies, and GameStop, and AMC. Now, you've done some digging into the financial space however, and you found some companies in our space was a pretty high short interest. So I want to get into that, and before we do, real quickly just remind our listeners. For those who aren't familiar, remind our listeners what a short squeeze is.

Frankel: So first of all, short interest. It's a measure of a company's shares that are currently sold short as a%age of the float. The float means all the shares that are available to trade. There are lot of shares in a lot of companies that are not available for trade, like some owned by insiders and things like that that can be readily transacted. So if a company has 10 million shares of its float and five million are sold short, that would be a short interest of 50%.

Moser: That would be a lot too, and that's a lot.

Frankel: Yes. I generally consider anything over 10% to be elevated short interest. There's no set in stone rule. That's just my own rule of thumb. If I see a double-digit short interest, that means a lot of people are betting the other way. I mean, there's a million different ways it can occur and no one has ever seen anything like the Reddit squeeze before. But there's generally a few different steps of these happening, and this is no exception in this situation. Step No. 1, a lot of people bet against the stock. Usually when you see a big short interest, it means big investors are betting against it like hedge funds. For whatever reason, they're betting against it. Normally, it's a legitimate reason. They think it's overvalued, they think the business is going to be in decline. Like in AMC's case, they thought people might not going to see movies anymore. GameStop, a lot of hedge funds thought that no one's going to buy video games in stores anymore, and they have a point. For one reason or another, a lot of people are betting against the stock. No. 2, some of that happens where a lot of buyers flood into the stock. That could mean a lot of people on a Reddit thread ganging up, that could mean actual good news for the company like when AMC said that they were avoiding bankruptcy. That was actually good news. Or the COVID vaccine came out.

Moser: A good earnings report even.

Frankel: Sure, a good earnings report. The vaccine news created the short squeeze on a lot of the real estate stocks we cover when people realized that the pandemic wasn't going to last forever. Some good event happens that leads buyers to flood in. The people who haven't sold short are seeing their positions really declined in value, or the amount they owe to cover their shorts is really getting high. Either by choice or by force, if the losses get too bad, a broker will force them to cover. You'll see a lot of these big investors start to buy shares to cover their shorts, which in turn creates even more upward pressure on the stocks, and you just see this cascading domino effect, which is how a short squeeze push the stock like GameStop whose business is not worth anything close to $400 a share.

It's how it pushed that stock from $2 a share to over $400 a share in just a few days. It's because of that domino effect of one short sellers force to cover. Covering a short involves buying shares, so that adds more pressure and puts the price higher. The next short that really was holding out has to cover, and so on, and so on. I mean, the short sellers, not people, hedge funds lost billions of dollars on their shorts. That's the basics of how a short squeeze works. We'll get into some of the financials and real estate in a minute. But again, anything over 10% I consider to be a relatively high short interest. In GameStop's case, it was well over 100%, which is why that short squeeze got so bad.

Moser: Yeah. I mean, people say like, well have it be over 100%. I mean, that's just essentially the power of leverage. That's just essentially the way you would borrow more money than you have. I mean, it's the power of leverage, [laughs] borrowing to short more. Then all of a sudden, you see this buying. I mean, that's just Economics 101. I mean, it's just supply and demand. That demand continues to push that price up and up, and it just continues to create more demand to buy more and more, which pushes that price up and up and up. What you got to be really careful of in many cases, particularly with these companies where they have really high short interest, you'll see that metric days to cover.

That's essentially based on average volumes how many days of that buying activity is going to take to actually get all of that short interest cover, so then you can start to quantify how long that pain might last if you're short. [laughs] For me personally, if folks have asked me before, I mean, just as an individual investor, to me, shorting just seems like a lot of work for really not a lot of reward. I mean, I like to say the juice just didn't worth the squeeze. Because in theory, the most you can make is 100% on your investment. You can lose just essentially then the loss could, in theory, not stop until you close that short out. I mean, you could lose well over 100% of your money. For me, it just seem like an awful lot of work for not a lot of return, and that's why I never bothered with it. I don't think I ever will bother with it. I'm not sure how you approach shorting, if you see it the same way, or if you make shorting a part of your investment strategy.

Frankel: I have never directly shorted a stock. I've used the options positions to bet against the stock continuing to go up. The reason options are so much better is like you said, when you short a stock, your wallet's potential is unlimited. Options really limit your losses. The most you can lose is the cost to the option.

Moser: Yeah. You buy a click contract, you know what you paid for, and then that's that. If it works, great. If not, you know what your risking.

Frankel: Right. I've done that, but I've never actually shorted. But a lot of people do. You want to hear some of the financials in real estate stocks?

Moser: Yeah, let's get into that because there's some interesting names here in financials and real estate, where you've found these stocks have over 10% short interest. Now, let's be clear here for our listeners. We're not recommending that you go out and short these stocks or invest in these stocks with the thesis of a short squeeze. This is informational only. But I still think it's interesting to know these names and the level of short interest in these. So yeah, let's kick that off. What about these financials that you've found?

Frankel: These are the financials that the investors are betting against. This is a descending order. No. 1 is Rocket Mortgage (NYSE: RKT). Thirty-seven% shortages. 37% of the float is sold short right now. No. 2, Lemonade. [laughs] Our favorite insurance player here, over 22%.

Moser: 22? Wow.

Frankel: Over 22% is sold short. Like you said, there could be a legitimate short case to be made. I mean, Lemonade is not a cheap stock. Just like Bill.com they have a high valuations, so people might be betting against it. One important lesson I learned in investing is if you can't understand the other case, if you're a bull, if you can't understand the bear case of something, you haven't done enough research yet.

Moser: That's good.

Frankel: No. 3 is a company called Credit Acceptance (NYSE: CACC). Ticker symbol is CACC. They provide financing for auto dealerships. They're the subprime auto financer. Their short interest is about 19%. No. 4 is Voya Financial. I don't know if you're familiar with Voya, Jason.

Moser: I'm not.

Frankel: You remember a company called ING?

Moser: Yeah, absolutely.

Frankel: That's what ING turned into.

Moser: Okay, I got you.

Frankel: ING used to be at, where was it? Switzerland? I think it was based somewhere area in Europe. They spun off their North American operations into Voya. ING had a thing called ShareBuilder that was really popular. They were one of the original high-yield savings accounts online.

Moser: I do remember ShareBuilder very well.

Frankel: Yeah. Those still exist in one form or another under Voya's banner. All four of those are very heavily bet against. Rocket by far is No. 1.

Moser: Yeah, that seems a bit. Wow, that's such a big market opportunity, and Rocket seems to have such brand identity in that space. That seems to be a risky one. I mean, valuation is so squishy and so subjective. I mean, it is much art as it is science. Then what's that old saying? The market can remain irrational much longer than you can remain solvent.

Frankel: That's absolutely true. With Rocket, my gut feeling is that, like we said last week, the mortgage market has been extraordinarily great over the past year. Interest rates were low, everyone is refinancing, everyone is buying houses, home prices are going up. Maybe people are just betting that that's not going to last forever. Because all it would take is for interest rates to spike a little bit, your financing volume would drop to zero.

Moser: You would figure, you would figure.

Frankel: That's the financial side of it. We also cover real estate here, so I'll give you a couple of good real estate stocks that we've talked about before in a few cases. No. 1 is Macerich, ticker symbol MAC. They are a mall operator, they're a Simon competitor. Not quite as well to do financially as Simon is, which is why people are seen to be betting against it. Simon is not on the list. Macerich is 57% short interest. That's the highest of all these. Tanger Factory Outlet is No. 2, ticker symbol is SKT. Their short interest is 52.4% right now, so more than half the float is sold short. People do not have a positive outlook on the outlet industry going forward apparently.

Moser: Apparently not.

Frankel: No. 3 is Seritage Growth Properties, which we saw back off. I can understand why people are betting against them. I'm a shareholder. I completely understand the other side of the coin in that one. [laughs] It's a company that's losing money, which is really rare. Their whole business model is redevelopment that costs money. I always joke that they were designed to become a Sirius landlord, and even Sirius didn't want to be owned Sirius Properties at that point. [laughs] No. 4, this one actually surprised me is Iron Mountain.

Moser: Oh, yeah. The document management.

Frankel: The document management but they're slowly and quietly getting you to the data center space. Which is the most promising side of the business from a long-term perspective. But it's that legacy document storage business that I think is scaring a lot of investors away, and there's a 17.5%. A lot of people are bidding against some of these financial and real estate companies. We saw Tanger, and Seritage and Macerich. Those were really short squeezed during the GameStop thing. Tanger went up at 50% one day. The Short Squeeze went beyond GameStop, and AMC, I'll put it that way.

Moser: Yeah. I can imagine. Well, those are some really interesting names, and then some compelling [laughs] levels of short interest there. It just takes one little stream of good news. It can really still get to you, so you got to be careful in that line of what they think. Matt, let's wrap up things here real quick this week with our ones to watch. What's stock are you keeping your eye on this week?

Frankel: I am watching General Motors, GM. I know this is the financial show, but I'm watching GM for a good reason. They really blew expectations out of the water for earnings low last time in the third quarter when sales declined year over year. We got their fourth-quarter sales numbers, and they increase year-over-year surprisingly given what's going on. Domestic deliveries increased five% year-over-year in the fourth quarter. The biggest growth was in their highest profit vehicles, pickup trucks, full-size SUVs. Those are the ones that are growing at a double-digit rate. GM, I've said before, is the only electric vehicle play I would buy right now. They are investing heavily in electric vehicles. Their cruise automation subsidiary is a huge, overlooked, high-potential part of the business. Even after they are at an all-time high as I'm talking, I'm looking at their stock price, or [...] doubled in the past six months or so. Even after that, they trade for less than 10 times forward earnings.

Moser: Yeah. Just not a lot of credit [laughs].

Frankel: The market is really not appreciating the potential of this company long term and even in the near-term. I'm watching them. I think their fourth quarter earnings report is really going to surprise a lot of people. I'm curious as to whatever comments they make about their electric vehicle ambitions.

Moser: Absolutely. Yeah. I like that one. I'm going to take a look at a firm. I'm going to be watching a firm ticker, AFRM. We talked about the firm on the show here before but their earnings come out on Thursday after the market closes. This will be their first reported quarter up with the trading companies. Just interesting to see how they're dealing with life as a publicly traded company. I will also be interested to see if they have any language regarding PayPal's most recent quarter here.

PayPal really called that the buy now, pay later market as the offering that surprise than the most to the upside. They've seen a real positive response to their buy now, pay later offering. Of course, we know that the firm doesn't have nearly the size network that PayPal has but by the same token, it appears to be a very robust market opportunities, so maybe there is something there for a firm, and also looking to see if they are able to bring that reliance on Peloton down a bit. Then, they've said before it was responsible about 30% of their overall revenue. Hopefully, is that company continues to grow, that number will continue to come down, and they'll be less reliant on one big customer, but we will learn more on Thursday. But Matt, I think that's going to do it for us this week. As always, thank you so much for taking the time to jump on and teach us about all of this stuff.

Frankel: I learned just as much from you as you learned from me.

Moser: [laughs] Well, thanks my man. Remember, you can always reach out to us on Twitter @MFIndustryFocus, or you can drop us an email at industryfocus@fool.com. As always, people on the program 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. Thanks, as always, to Tim Sparks for putting the show together for us, for Matt Frankel, and Jason Moser. Thanks for listening, and we'll see you next week!

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jason Moser owns shares of Alphabet (C shares), Amazon, Bill.com Holdings, Inc., Markel, and PayPal Holdings. Matthew Frankel, CFP owns shares of Bank of America, Berkshire Hathaway (B shares), General Motors, Lemonade, Inc., Markel, Seritage Growth Properties (Class A), Simon Property Group, Tanger Factory Outlet Centers, and Wells Fargo. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Berkshire Hathaway (B shares), Lemonade, Inc., Markel, PayPal Holdings, Peloton Interactive, and Seritage Growth Properties (Class A). The Motley Fool recommends Airbnb, Inc. and Tanger Factory Outlet Centers and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short March 2021 $225 calls on Berkshire Hathaway (B shares), long January 2022 $1920 calls on Amazon, short January 2022 $1940 calls on Amazon, long January 2022 $75 calls on PayPal Holdings, and long January 2023 $200 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.


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