Motley Fool Hidden Gems Investing - Amazon's Wild Growth

Episode Date: April 29, 2016

Amazon reports its most profitable quarter in history. Facebook connects. Apple slips. And Comcast makes a big buy. Plus, Thomson Reuters transportation editor Joe White kicks the tires on driverless cars.     Learn more about your ad choices. Visit megaphone.fm/adchoices

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to speak to an advisor free of charge. BetMGM operates pursuant to an operating agreement with iGaming Ontario. Motley Fool Pro and Options, Jeff Fischer. And from Motley Fool Deep Value, Ron Gross. Good to see you as always, gentlemen. Ron Gross. Hey, hey, hey! How you doing? Earningspalooza rolls on. We will get to the latest results from Wall Street. We will dig into the automotive industry with Joe White from Thomson Reuters. And as always, we'll give you an inside look at the stocks

on our radar. But we begin with the retailer that's only getting bigger. Amazon's first quarter revenue up 28% as the company posted its most profitable quarter ever, Matty. This was a really big quarter. I don't even know where to begin, but let's start with that revenue number up 28%. I look back, that is the fastest year-over-year growth for Amazon since 2012. So, over four years in a much, much larger company, they're getting their fastest growth rate year-over-year in a long time. And if you get into the details, it's even more impressive. Of course, Amazon Web Services is getting all the headlines, deservedly so. Revenue there was up 64%, operating

profits up over 200% to $600 million. But there were two things that really stood out to me that aren't getting a lot of press, and that is, if you look at the international side segment for Amazon, sales there were up 24%. In just recent quarters, Amazon's really reported no growth in that segment, and here they are, up 24%. And then, we talk a lot about Amazon Video, all the digital things the company's doing, Amazon Web Services, but if we get to the meat and potatoes of this business, and you look at ... Selling stuff? Selling stuff. The electronics and general merchandise is how they break it out.

Normal, everyday stuff, up 32% in North America, 31% internationally. And that right there, to me, is clear evidence that Amazon continues to steal massive share from domestic retailers. Did they turn off the spending spigot here a bit to juice those earnings, or are they just spending as much as they always do? No, spending didn't drop off that much at all. So, I think they're just getting, I mean, Amazon Web Services is higher margin, more cash is dropping to the bottom line there, there, but it's so impressive. Amazon Web Services is on pace right now to do about $10 billion in revenue in one year. There are some analysts out there who say, if you just break out this business

on its own, it's a $100 billion business. Jeff, it's a $300 billion company. Is Amazon Web Services really worth one-third of this overall company? I get that it's valuable, that just seems a little pricey. Well, it's exciting right now, Chris, is growing so rapidly, and it's reportedly a high-margin business. But over time, there will be more competition, the growth rate will of course slow, the prices will probably come down. So, I wouldn't put an excessive amount of weighting to this business. When I look at Amazon as a whole, I think in the long run, the retail business will be the majority of the value there.

Right. And I would say, with Amazon Web Services, we don't really know to what extent they're going to get pricing power, Jeff, over time, as you said, or how sticky that's really going to be if there's so many competitors getting into that space. But I think it's all to them. For Amazon, it's really about prime. So, we assign all these really, really high growth rates or high valuations to Amazon, but really, it comes down to how many primaries the members can get, because I think that's where the business is the most sticky. When you look at the stock price, it's not at an all-time high, but up about 10% this week in the weight loss report.

Pretty close, though, Chris. Yeah, it's closing in on it. How pricey does it look to you right now, Matt? It always looks pricey. But here, if you just look at the consensus estimates, five years out, 2020, less than five years out, the estimates are guiding for almost $30 per share in earnings. Whether or not Amazon actually delivers that on the bottom line, but if they think that kind of earnings power is there for Amazon, you apply a 30 multiple of that or even a higher multiple of that, it doesn't look that expensive today. There were a lot of numbers in Facebook's first quarter report, and all of them, Jeff, appeared to be up. Revenue,

profits, monthly active users, this was another monster quarter for the social network. Share count up as well. Anyway, Chris, like with Amazon, year-over-year growth rates accelerated at Facebook to the highest rate since late 2014. They had a really strong 2015 as well, but they're now growing more quickly than they were last year, at least in this quarter. Margins also went higher. And it's still believed that they only have about 12% market share, according to eMarketer, of the total digital marketing ad spend right now, which is about nearly a $200 billion market. Alphabet, in contrast, has about 30% market share. So, 12% market share, and yet they have the most traffic and the most engaged

audience. And so, they're going to keep getting more and more of that advertising market share. So the thing to keep in mind is, consumers have really driven everything onto mobile platforms and businesses are well behind. They're still catching up and learning how to monetize all that audience. You mentioned the share count. Yeah, they also announced a new class of shares, C shares, with no voting rights. A new trend. Just in case anyone was wondering whether or not this is Mark Zuckerberg's company, it is. Yeah, who votes anyway? Well, not to be blasé about it. It makes more sense in this case

than it may have with Google or Under Armour, in that Mark and his wife Priscilla want to give away 99% of their shares over their lifetimes, but as they give away shares year by year, they want to maintain control of the company. And so, you can look at this positively or negatively or be neutral on it. I kind of fall neutral. So, you can do it all three. Yeah, you could. So, what a universe. All these variations you can take. I view it as neutral. As long as the business is growing, and I agree with the direction they're taking it, I'll be a shareholder. And that's where it can get tricky.

If it starts to not go well, or people start to not like what he's doing, then you can't get an activist investor coming in, you can't vote him out, because he maintains control. So while everything's great, that structure is fine. Yeah, you vote with your feet. If it isn't great, then you sell. Well, it went public four years ago, and today it's the fifth largest public company in the world. O' So you're saying it's going well. So far it appears to be going well.

O' Yeah, Chris, I'll add that margins at Facebook are higher than Google's were when it was this size in 2008, and much higher than Google's right now, Alphabet I should say. And 3 million businesses advertise on Facebook, but there are more than 50 million businesses with an active Facebook page, so much more room to grow there. And like Amazon, The P.E. is in the mid-30s on estimated earnings a year out. The company's growing much more quickly than that, so the price still looks reasonable. O' Apple sold 51 million iPhones in the second quarter, and that was not nearly enough. Shares down 11% this week.

Where do I get the bad company? O' The best company ever that had a bad week. Was it really that bad, or is this an overreaction? They're up against tough comparisons, because last year was so strong. But there is no denying that this is the first time Apple reported declining revenue in 13 years. First quarter with declining iPhone sales since they were introduced in 2007. So, there is fear going on about slowing growth, negative growth. China's a big part of that. We saw Carl Icahn has exited his entire position, mostly out of fear of China, I believe. Although

he did make comments that he still thought it was a great business and probably undervalued. What a chicken. Tuck that on both sides. But all those things are true. And again, I always say we're not cheerleaders, we're analysts. So you have to look at all the good and the bad. Even with these results, they've still put up $11.6 billion of operating cash flow during the quarter and returned $10 billion to shareholders via dividends and buybacks, have increased once again their buyback program, have increased their dividend rate. So they continue to return so much money to shareholders. The stock's only at 10.5 times earnings. Now, if they're a company

that has declining revenue into the future, well, I guess that makes sense. But if the iPhone 7 is strong, and then it continues to be an innovative company, to me, that says that's an awfully cheap stock. O' One number, though. $233 billion. That's cash, long-term securities. Now, I know a lot of that's overseas, and they're going to pay a hefty tax bill if they bring it back. I could have said this a month ago and I've been dead wrong. I just can't believe there's any downside to this business, given their dominant position and given the balance sheet. But, hey, I've been wrong so far. Yeah. Ron really hit it on the head, though, when he said the iPhone 7 has to be a hit,

of course, and then the 8, the rumored 8, which has many advances, supposedly, including virtual reality to some extent. Those both have to do really well. But really, it's the iPhone 7 this fall, it has to do well enough, because this next quarter they forecast to be even weaker than the last one, with quite a drop in iPhone sales again. One concern I have is, Apple's put out so many different phone models lately, which they kind of have to, they have such a giant consumer base. But it does kind of dilute the message of what they're selling. Shares of Comcast up earlier this week after a strong first quarter report, but the stock gave back those gains and more after

the company agreed to buy DreamWorks Animation for $3.8 billion. I don't know, Matt. First of all, they got the money, and it seems like a pretty smart bet for them. It might be, but there's a hint of desperation here with this deal, I think. And I think that's what the market's saying. I mean, if you look at $3.8 billion for DreamWorks, that's almost the same that Disney paid $4 billion each for Marvel and Lucasfilm. Now, I don't know kung fu kung fu panda versus star wars or you know the avengers i don't know i just feel like the intellectual property with marvel lucasfilm much stronger so i think this is a you know comcast's best bet to try to really kind of go after that kind of really bolster their film

slate uh i to me it's just a bigger signal about the overall entertainment space i think we're going to see a lot of consolidation there uh lions gate for is another one that's kind of been the target of other larger companies and so there's a big grab i think for franchises that have timeless qualities. Kung Fu Panda, Shrek, How to Train Your Dragon, I don't know if those are really ones with timeless qualities, but they're certainly valuable properties. Nice week for DreamWorks shareholders, though. Very nice. Coming up, a reminder that just because you're giving away money

doesn't mean people are going to buy your stock. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in studio with Matt Argersinger, Jeff Fischer and Ron Gross. Gilead Sciences increased its quarterly dividend, and that was pretty much the only positive news in its first quarter report. Their revenue was light, Jeff. Their profits were down. How much pressure is there on this company right now? A lot of pressure. Gilead is like the apple of the biotech industry. It had such a big hit in its hepatitis C drugs just a couple years ago that drove billions of dollars in

new revenue. And now that revenue has flattened out, and this quarter it actually declined a bit, just like the iPhone. Investors are wondering, how do you grow from here? You've done so well, what's next? They had more hepatitis C patients this past quarter, and yet revenue from the drug went down because there's more competition and they're giving price concessions, discounts. They also had, though, a positive note, a really good thing, of course, more government buying of the hepatitis C drug, Veterans Affairs treating veterans. It's good. 700,000 people, approximately, have been cured of hepatitis C in this country alone, thanks to Gilead's drugs. And they maintain 90-ish percent market share across most markets,

but they are cutting prices to maintain that share, and that hit the bottom line. I think the stock's sell-off, which was big on Friday, is overdone. Shares look really cheap, seven, eight times earnings, especially because management said they stand by their guidance for the full year that they gave last quarter. So, they did not lower guidance despite a kind of soft quarter. LinkedIn's first quarter profits came in higher than expected. The company also raised guidance for the full fiscal year. Normally, that's what we like to see, Ron. There really wasn't a big reaction with the stock, though.

They revised the guidance upwards less than people thought they would, based on the strength of this quarter, which indicates perhaps some slowing growth later on in the But they did put up a good quarter, so you've got to give it to them. 35% sales growth and a 39% growth in EBITDA. Now, the stock has been decimated. It's down 50% over the last year or so, so they needed to put up some exciting numbers. They stand at 433 million members at last count. That's good. Their biggest business unit, the Talent Solutions division, was up 41%. So, they did put up a nice quarter, and they should be applauded for it. When you look at the stock, we're around 40 times 2016 guidance, and that's

if you don't count stock compensation expense as an expense, which I think you should. Once you factor that in, then valuation really goes out the door and there's really no way to think about it unless you just believe in the future and believe that they'll continue to put up strong growth. So, this was a quarterly report that need to repeat in three months, and then three months after that. Yes, but based on that guidance going forward, I think they signaled to the market that it's not going to be as strong as this quarter. Chipotle reported its first quarterly loss ever, as same-store sales fell nearly

30%. I mean, I guess that's to be expected, Matty. We knew it was going to be an ugly quarter. That 30% number, it's bad. It's not as bad as the number might suggest. If you look at transactions, so essentially people coming in and actually getting food, that was down 21%. It's still bad, but obviously much better than the 30% number, because a lot of people, including me, are using those free coupons to get free burritos and tacos. The silver lining, April is showing a lot of improvement. Comps so far this month are down 20%, which is a big improvement from the down 36% we saw in January. Hopefully, that trend continues. The real story here,

though, is if you look at the food and labor costs as a percentage of sales, pretty much the highest they've ever been. Much higher, obviously, with all the new safety procedures they're putting in and training employees to handle the food differently. The question is, do those lower margins stick around? Can they get some of those expenses lowered over time and get back closer to historical levels? That is the big question to me. You really want to watch Chipotle's margins. I expect this time next year, we'll be talking about pretty good comps. Obviously, the comparisons will be a lot easier. Traffic will be back. But how profitable is every store now going forward? That's the big question.

You know what another restaurant company has done to make their stores more profitable? All-day breakfast. And I'm wondering if Chipotle needs to look at what McDonald's is doing, which seems in some ways absurd to suggest, given that for years people were like, McDonald's should try and be more like Chipotle. I don't know. I look at the success they're having, and I think, why aren't they serving breakfast at Chipotle? I love a good breakfast burrito like anyone else. The question is, to me, it must be an operational thing. Adding that tweak to the menu, whether they do it all day or at certain periods in the morning, is probably something that's going to add a lot of cost, and they

haven't figured out a smart way to do it. McDonald's is the company I would point to, to have hope for Chipotle again. Because if McDonald's can turn it around and become a vibrant brand, or at least business again, then certainly Chipotle can, I would think. Last question, Matty. Any color from the management regarding the other brands in the Chipotle portfolio, in terms of expanding, ShopHouse, Pizzeria Leocali, any plans to speed that up? Very little. They just keep saying these are the aspirational new big franchises for us, and growth is slow. We're being very

experimental with new markets, but not, obviously, very nascent still. Since Chipotle has a black eye right now, they could just take down those signs and switch them over to a different store. Make them each a pizza place. I'm not a lawyer, but that sounds illegal. First quarter profits for Panera Bread up 26%. The company also raised guidance. This is kind of like LinkedIn. This is a good quarter. Kind of like LinkedIn, but yet so different. Well, just in terms of the basic results, the raising of guidance.

That's like comparing iPhones to Hep C drugs, which I did, successfully, I think. And yet, no love for the stock. What's going on? No, well, the stock has had a lot of love, though, Chris, lately, in the past year or so. It's done pretty well, and the past five years, too. The past three years have been a little rocky, because in 2014, they were going through some troubles, and then they announced Panera 2.0 almost exactly two years ago to the day. The mosh pit comment from CEO Longshake. That's one we'll be talking about indefinitely, I think.

So, 2.0 to improve the throughput of customers, to go digital, to amp up their catering services and their dining options. And it's really working. So, same-store sales were up strongly, revenues growing again, earnings per share grew strong double digits. And they believe they're setting up a business that will be able to deliver these higher-than-average earnings per share growth numbers for a long time to come. They've only turned about 200, or I'm sorry, 400 of their 900 or so locations into Panera 2.0 so far. So, plenty of room to keep improving. I don't know, Matty. Based on the ones that we've seen close to our office, they look pretty promising.

Anecdotally, the experience at Panera now, at these stores, is much better than it has been in the past. It's easy, it's seamless. Great. The rapid pickup is just priceless. It's brilliant. It is. It's great. Let's bring in our man Steve Broido in from the other side of the glass. Steve, it's no Olive Garden, of course, but have you tried out the Panera 2.0 across the street from our office? I did not realize that eating was a digital experience, but it now is for me, and I'm embracing it.

But the ordering process, the fact that you can just order on your laptop, walk over, pick it up, and not have to interact with anyone? I have to tell you, I still go over there, and I just pay with a credit card. Do you? I do. It's just a lot. It's just go across the street, the people in line, I'm just there, and I buy what I need to buy. You like the human touch. I do. I love it. You're missing out on, do you want a cookie? Would you like a beverage? True.

You know what? Sometimes Steve wants a cookie, and he deserves it. I love it. I feel like I'm ripping the place off when I just walk in there, pick up my bag of food, and walk out. I have to look around, make sure it's okay. I feel great when I do that. I don't know. All right, guys. We'll see you later in the show. Up next, we're heading to the Motor City to talk to Joe White. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill.

A lot going on in the automotive industry, and here to help us make sense of it all is Joe White, transportation editor for Thompson Reuters. He joins me now from Detroit. Joe, thanks for being here. Sure. Last time we talked, it was in the wake of the Volkswagen emissions scandal. And I wanted to bring listeners up to speed on that. At the time, they had set aside around $7 billion to deal with the damages. They have now upped that to around $17 billion. And in the annual report, Volkswagen said it could face further significant financial liabilities and that they may need to sell some assets. This is the biggest, it's the biggest automaker in the world. In concrete terms, what do you think that looks like if they start selling assets?

Well, that's what's not clear. I mean, they did say that. And then again, they said, well, they kind of listed a whole bunch of things that aren't going to be for sale, such as various of their brands. It could be that they have other assets to sell, be it real estate or supposedly possibly truck brands, so the commercial truck brands that they have, Mon and Scania. It's just not clear what they're going to do.

But $18 billion roughly is what they had to set aside, and it's not at all clear that that's the end of it. And they have to keep their options open. It's a huge financial drag, even for a company as big as Volkswagen. And, um, and they're going to have to dig deep and they're going to have to dig deep to deal with this. And not just one time, but probably many times because they have problems elsewhere, including specifically in Europe, uh, where there are millions of cars that didn't comply with the local regulations there. And they're going to have to deal with that problem. I don't know to what extent, if any, the automakers in Detroit are engaging in schadenfreude. The people that you talk to, are they quietly gleeful about this, or are they just thinking, you know what, they're but for the grace of God, go I?

A little bit more, I would say a little bit more of the latter, but for the grace of God, go I. I mean, first of all, most Volkswagen's rivals have said that they didn't engage in this kind of behavior. But then again, in the last few days, particularly in Europe, authorities over there have said, well, wait a minute, a number of companies have vehicles that, when you test them in the field, emit much more than allowed under our rules and much more than they emitted when they were up on the test bench. Daimler or Mercedes-Benz has admitted, has said that the Justice Department in the United States is looking into whether its vehicles don't comply with U.S. laws, its diesel vehicles. So to the extent that, sure, I think there is some schadenfreude, but really what I think the wiser response to the Volkswagen problem is there but for the grace of God, go we. And what's the future? Because if regulators are no longer going to let car companies have a pass on these emission standards,

but instead more rigorously enforce the emission standards, that means everybody's going to have to tighten up, and tightening up in this year costs money. So we'll just have to see how that plays out and how the companies respond to that, and whether certain kinds of vehicles such as diesel vehicles, diesel SUVs and diesel cars can survive in the United States. All right, let's move away from emissions, and that'll take us to Tesla Motors, which recently unveiled the Model 3. What's been the reaction in Detroit to Tesla's attempt to move downstream to a less expensive vehicle? Well, first of all, the Model 3 is not going to be an inexpensive vehicle.

And Tesla has made that fairly clear. This is a vehicle that's got a starting price of around $35,000. It's likely to sell for more like $40,000 to maybe even $50,000. That makes it a competitor to something like a BMW 3 Series or an Audi A4 or a Cadillac ATS or CTS. That said, the enthusiasm that's been shown for the Model 3, hundreds of thousands, I think we're up close to 400,000 now, reservations, according to Tesla, have been taken for the Model 3. that's a lot of enthusiasm and i think that all the detroit companies are going to need to look at their electric vehicle strategies and ask the question uh is that what we ought to be doing as

well bringing bringing out a vehicle that can go 200 plus miles on a charge which the chevrolet bolt for instance is supposed to be able to do but which also looks like a a near luxury or an entry-level luxury car which the bolt does not the bolt looks like a very practical kind of city car I think Elon Musk has proven beyond reasonable doubt that if you want to sell an electric car, you need to make the thing look hot. And offering practical sort of pod cars and city cars like a BMW i3 doesn't do it. You just wrote something recently entitled How Google is Shaping the Rules of the Driverless Road. And we've talked before about Google's technology, but it sounds like they're doing a decent amount of good old-fashioned political lobbying as well. Well, yeah. In fact, yes, we did. We did do that at Reuters. We had a big report by several of my colleagues on that. What's interesting is that earlier this week, Google and several other companies announced that they are basically forming a lobbying group to advocate, among other things, for federal standards as opposed to state-by-state standards to govern autonomous cars.

So, yeah, it's interesting to see Google and other companies really start to step up the pace, not just of technology development, but of trying to sort of set the rules of the road. And you have to have rules so you can design the cars and design the software and the system and know what you have to do. So it seems to me pretty clear that the car companies, Ford, Daimler, Audi, Volkswagen, Audi, other companies, General Motors, are all moving into a phase where the questions aren't, can we do this? The questions are, what standards do we have to meet in order to market services or market vehicles that depend on cars that can drive themselves? And we're in a new world now. And what Google's been doing just kind of brings that very much to light. What should we be looking for in terms of significant events or almost markers of a sort to know that autonomous cars are about to go mainstream?

Is it legislation from the federal government? Is it that they start showing up on the lot? Well, I think before you see fully autonomous cars being sold on lots, my guess, and this is a guess that I've formed from talking to people about the possibilities. And the first thing is the government, the federal government, for sure, and state governments perhaps as well, are going to have to come up with a clear set of rules to govern a lot of different variables, including, you know, what kinds of redundant or fail-safe systems do the cars need to have? For instance, Google has suggested pretty clearly that if it was their preferences, an autonomous car would have no steering wheel. Well, is that going to be okay or not? I think Google would like to know the answer. Who gets sued if an autonomous car hits something?

I think there's going to be a desire by the industry to have clear guidelines for the answer to that question. Once that's in place, and that might take a little while, but I think the work on that is underway, then the question will be, do autonomous vehicles first appear not as the car that you go down and buy on the lot, but as a service that you access when you go to, say, Mountain View, California, or Austin, Texas, or Ann Arbor, Michigan? And there's a lot of discussion around offering fleets of autonomous cars within kind of defined areas. It can be easily mapped and basically offered as a service, replacing, say, a taxi cab. And if I had to bet $20, I would go with that bet. We'll see them that way first.

There's a fleet that the car companies can control and monitor and watch. And then who knows where it goes from there. Knowing what you know about autonomous cars, how safe would you feel getting in one right now? It's funny. I was thinking about that just yesterday because I took a very, very long drive from Detroit to New York City. and uh and um and i've done that a lot and i thought to myself because you know a lot of time to think i thought to myself how comfortable would i be going 70 75 miles an hour um on a freeway um in a car with my hands off the wheel would i be comfortable enough to sleep would i

be comfortable enough to take my eyes off the road for a long period of time would that be disorienting to me would i you know would i get motion sickness or whatever because i'm i'm not I'm just disconnected from the vehicle and yet traveling very rapidly over an open road. And I've got to tell you, I couldn't answer that question easily. I'm not sure how ready I am for that experience. Maybe my kids are ready for it, but I'm not sure how ready I am just physically and emotionally for that experience of zipping along a highway without actually being in control. I think it's going to take a little more work than maybe some people think.

You touched on the car-sharing industry, and I want to ask you about that because you've got Zipcar, certainly you've got taxicabs, you've got Uber, and now BMW launching a car-sharing service in Seattle. How serious is BMW about this? I think all the major car companies are serious about it, and they have a good reason to be serious about it. Because as you look at big, big cities, San Francisco certainly qualifies one. Beijing and Shanghai absolutely would qualify. The possibility that either because consumers want it or because government regulators demand it, that access to center cities in personal cars will be limited is high. There's a high possibility of that. I mean, it's already happening in European cities and elsewhere. So if you're going to participate in the business of giving people rides and then moving on to the next ride, you have to start now. In fact, you could probably argue that car companies are late because obviously Uber and Lyft are already there. But the chance that giving rides and offering ride sharing will be a very big business, maybe even bigger someday than selling cars in traditional transactions, is pretty high. And I think the car companies are realizing they need to get into this game, they need to hedge their bets, they need to understand the business and see how they fit in. All right, last question, then I'll let you go. You mentioned driving from Detroit to New York City. What are you driving these days? I'm driving a 2014 Ford Escape. Nothing very exotic. It suited my needs. And I'll tell you, I mean, just quickly, I'll say that there's a reason why, at least in the United States, sport utility vehicles, particularly compact sport utility vehicles like that one, are so popular.

They're kind of Swiss Army knives. You know, if you go to Home Depot, you carry stuff around, you go camping the way we do sometimes. Boy, it's kind of nice having that space, but you don't need it in a giant package. And a compact SUV will basically do the job for a lot of people. And there's a reason why that segment is booming in sales. And there you have it. They're super practical and flexible and meet just about every need. He's the transportation editor for Thomson Reuters.

You can read him online, follow him on Twitter. Joe White, thank you so much for being here. Anytime, thanks. Coming up next, we'll give you an inside look at the stocks on our radar. This is Motley Fool Money. 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. Welcome back to Motley Fool Money. I'm Chris Hill, joined

in studio once again by Matt Argersinger, Jeff Fischer, and Ron Gross. We've got a little bit of time before we get to the stocks on our radar, so let's hit one more earnings story. Coach is in the middle of a turnaround. Looks like it's going pretty well, Ron. Third quarter report showed profit growth for the first time in three years. O' Are you telling me Coach had sales increase of 13% excluding currency? How about that? O' You're right. Turnaround continues. Renovating stores, improving the brand, refreshing designs. North America, which has been a disaster, seems to have stabilized.

International continues to be the bright spot. EPS earnings per share up 25%, includes the Stuart Weitzman acquisition, which helps. But still, things definitely seem to be turning. going to try to cut another $65 to $80 million of costs to get their operating margins up to 20%, currently stand at 13%. So, that's a pretty lofty goal. If I was thinking about this stock, I'm not sure I'd give them credit for that entire move, but you probably will see some widening margins. 12 times EBITDA right now. If you believe the turnaround continues, probably not a terrible entry point. For me, I would continue to watch. Any sense of how they're going to cut those costs? Is it closing stores? Cutting

jobs? It's staffing, to a large extent. Good turnaround, but tough, or much easier comparisons, yes? Absolutely. So, that'll help Chipotle next year, too. So, if your company's not doing well, just remember, there's always next year. There's always a bright lining. Burritos and handbags, another apt comparison. A couple of housekeeping notes before we get to the stocks on our radar. I'd like to welcome a brand new station, KNews 107.3 FM Reno, Nevada. This is our first station in Nevada.

Oh, no kidding. They're going to have an NFL team maybe next year. There you go. All the more reason to hit the road. Also, if you're interested in past episodes of Motley Fool Money or any of our shows here at The Motley Fool, check out our brand spanking new podcast center. Go to podcast.fool.com. Any of our podcasts, including a recent episode of Motley Fool Answers, one of our weekly podcasts hosted by Alison Southwick and Robert Brokamp. The guest star of that episode, one Steve Broido. Steve, what the hell? I mean, for us, you're the man behind the glass. But on a recent episode of Motley Fool Answers, you're here in the studio. How was it? It was weird. I don't know how you guys

do it. It's so quiet in there and peaceful and calm and there's nothing blinking. It's great. All right, let's get to the stocks on our radar. And Steve, I'll hit you with a question. Ron Gross, you're up first. What are you looking at? Alright, Steve. I've got Amco Pittsburgh, ticker symbol AP, a little tiny company, $228 million market cap. They make forged, hardened steel rolls. I know you know what that is. Let me explain. They're large rolling pins that are used to form steel into different shapes. The stock's up 83% this year. We hold it in the deep value portfolio, but we've actually had it on hold because the steel business is a mess right now. The new CEO

is diversifying through acquisition, cutting costs, trying to turn this business. If he continues to do it successfully, stocks is cheap from here. But it's by no means a guarantee. That's why we've had it on hold. I'm taking another look to see if we want to increase our position after the nice turnaround so far. O' Steve, question about Amco Pittsburgh? How would an investor like me find a company, even just find this company? Where would I go to even learn about this? Is it a search? Am I searching for numbers? What am I looking for? You would probably be searching for

small, we call them micro-cap companies, companies under $500 million, plenty of different ways to search for companies, screening tools out there. And these are often companies that are just under-followed, unloved, and sometimes, if you're careful, you can find a bargain. O' Or you could subscribe to a mountain full of service. There we go. O' Why didn't I think of that? Matt Argersinger, what are you looking at? Going with a company that's on our watch list in Million Dollar Portfolio. It's

called Illumina, ticker ILMN. It leads the market for genomic sequencing machines, which are vital for biotech companies, cancer research, large hospitals. It's got a very compelling Razor, Razor Blade business model. Stock's down about 40% from its high. It really is a dominant in its markets, and it's a company we're taking a very close look at. I think it's a great way to play biotechs without actually investing in biotechs. Steve, question about Illumina? Will genomic sequencing cure cancer in the next 50 years? In the next 50? Absolutely, it will. I think that could happen in 10 years, the way the technology's improving.

Wow. And Jeff Fischer, what are you looking at? Well, I was going to go with Cabela's, because it appears that Bass Pro Shops is trying to buy them out, and I keep trying to talk about companies that are possibly being acquired here. But I just got a text from my brother that my sister-in-law is in labor. So I'm going to do an about face in honor of that, and I'll go with Carter's. Ticker is C-R-I. Carter's, of course, makes clothing apparel for babies and young children in the U.S. It's U.S.-based only. And it's been a great stock the past five years and longer. It's a Motley Fool recommendation, as well.

What size company is that? Sorry, Steve. It's a $5 billion market value. Wow. Steve, question about Carter's? The always-on-sale thing, I bought stuff at Carter's for my kids, it seems like there's always this great sale going on. Does that help them or hurt them? It appears to be helping. You're shopping there, so I mean, it's ... Good point. I am definitely shopping there because of the sales.

Isn't everything always on sale now, everywhere? A coupon or a discount? Unless we're talking about Tiffany's, which really has just made a lot of hay out of the, nope, we're never going down market. I find it interesting that Carter's is a standalone company. To me, it sounds like a brand that would be part of a larger consumer brand. Like a steel company? Yeah, like Amco Pittsburgh, for example.

That could make sense, Ron. Carter's and Oshkosh, both good brands that could be rolled into some larger apparel company. You heard it here first. There you go. Steve, three very different businesses. Illumina, Carters, Amco, Pittsburgh. Any one of those three you feel like adding to your watch list? I'd like to look at Illumina. That sounds very interesting to me. There you go, Steve-o. Fixed. Really? All the money you're spending at Carters?

They are growing. Cancer or Steve's kids? Cancer! All right. Ron Gross, Matt Argesinger, Jeff Fischer. Guys, thanks so much for being here. Thanks, Chris. Chris. Thank you to Joe White from Thompson Reuters, our guest this week. Go to podcast.fool.com to check out past episodes of Motley Fool Money. Our engineer is Steve Reuter. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.