Motley Fool Hidden Gems Investing - Buffett’s Buy & Soda’s Steady Decline

Episode Date: March 27, 2015

Warren Buffett and 3G Capital team up again for the merger of Heinz and Kraft Foods.  Coke and Pepsi grapple with the same problem: diet soda sales falling year over year.  Wall Street’s most powerful woman takes a job with Google.  And McDonald’s rolls out a surprising new product line.  Our analysts discuss those stories and more, plus CPA Megan Brinfield offers tax tips for investors. Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill, joining me in studio this week from Million Dollar Portfolio, Jason Moser, Matt Argesinger, and Simon Erickson. Thanks for being here, guys. The trifecta, the empty trifecta. Let's get this show over with so you can get back to actually running the million-dollar portfolio service. We've got big news in the beverage industry, big stock buyback plans, and a potential game-changer for the biggest burger chain in the world. All that plus, as always, we'll give you an inside look at the stocks on our radar.

But we begin with the deal of the week. Kraft Foods is merging with Heinz. Kraft shareholders get 49% stake, plus some special cash dividends. Heinz gets 51% of the company. Matt, it's now the third largest food company in America. What did you think of this deal? Well, this is Warren Buffett's sort of new MO. He's always wanted to bag elephants. In this case, he's getting a big piece of an elephant. And it's the new model of him going after bigger companies and using 3G Capital, Jorge Palo-Lehman, who he has a great relationship with. They

partnered on Heinz. He likes their management style. He likes the way they cut costs. And so, So this is a way for Buffett to go after companies where he doesn't necessarily like the management, but he knows he's got the 3G guys in, bring them in, partner with them, and he gets the management and the stake in the business. It's a huge deal, it fits right into the MO right now. We've talked before the show, it begs the question, what other food companies could be in play? Companies like McCormick, Campbell Soup, Kellogg, General Mills, these are some substantial elephants out there that maybe 3G and Buffett are going to go after. Yeah, Jason, to Matt's point, you look over the last couple of years,

this is just the latest piece of a growing puzzle of mergers in the food industry when you consider Kellogg & Pringles, Hormel & Skippy's, General Mills, and Annie's. Yeah, I mean, I think this is an industry where scale is becoming more and more crucial as time goes on. I think there's relatively complementary brands that come together, and they'll be able to, you know, wring out the cost efficiencies there and, I think, make something of this. I was interested to see, if I read correctly, I think I saw that there weren't any real big investment banks involved with this deal. I think it was more or less just kind of a couple of guys in a handshake, more or less as you would expect from Buffett, really just trying to not make this any bigger of a deal than it really is.

But I think, you know, to your point, when you look at these other companies, like whether it be Campbell or McCormick, I mean, all of these companies need to be at least put on notice that scale is obviously a great advantage here. And I continue to believe that McCormick would make a wonderful, wholly-owned business under the Berkshire Hathaway umbrella. I guess that remains to be seen, but hopefully one of these days I'll be proven right there. And for the consumer, I mean, I think the biggest impact now is you look in your pantry and your mac and cheese and your ketchup is now owned by the same company.

Not a huge impact for us as consumers. Those go together all the time. Of course, right. Ketchup and mac and cheese. But, you know, can they be more efficient together? Probably. Can you cut out some overhead costs, cut some of the costs out of the business? I think it's actually better as a combined entity.

Well, yeah, they're expecting to save about $1.5 billion in costs over the next two years. So, it's a deal. The one small red flag I have about the deal, the Heinz deal, they paid about 20 times earnings for that one. With Kraft, if you peel it back and you account for the dividend and everything, Buffett and 3G are paying about 25 times earnings for Kraft, a company growing maybe 8% to 9% a year. here, just has me a little cautious. Maybe Buffett might be overpaying a little bit here. To that point, I think Matty does make a good point there. However, I will also say, I read where Buffett basically stated he plans on owning these shares literally

forever. He's definitely taking the approach here that this is a very long-term play. I think from that perspective, at least, he probably was able to justify the valuation a little bit, very much how we view things here, just from a much longer perspective. Since 2010, the two most popular soft drinks in the United States have been Coke and Diet Coke, but Pepsi has climbed into second place as sales of Diet Coke fell 6.5% last year. And Jason, they're probably not celebrating too much over at Pepsi because Diet Pepsi sales down more than 5% last year. Yeah, and that's just it. I don't think that the folks over at PepsiCo are necessarily dancing in the streets over this because it doesn't really eliminate any cause for concern when you consider the company's greater interests at hand here. And honestly, I mean, when you look at the diet beverages versus the non-diet beverages, I don't think it's really even an app comparison. It's almost apples to oranges, really.

We know that carbonated beverages are facing serious challenges regardless. And diet is even facing greater challenges. If you look at these diet beverages, I mean, the declines over the past 10 years or so has been pretty phenomenal. I mean, if you look at Diet Coke, it went from $4.4 billion in sales in 2005 to $3.2 billion in sales in 2014. Diet Pepsi went from $2.8 billion in 2005 to $1.8 billion in 2014. So this is not just a Coke-specific problem. It's not like Pepsi is leading the charge here and taking market share. I mean, these diet beverages are losing market share, and I think that you're seeing the trend towards juices, towards waters.

I mean, folks are a little bit more concerned about maybe the sweeteners that are in those diet beverages, and I think that makes sense. I mean, and this is coming from a big Diet Coke fan myself. I was going to say, a guy with a Diet Coke literally in front of him. I find myself more and more trying to cut my Diet Coke intake with things like seltzers throughout the day. So, you know, I think that's something that will continue. And we've seen Coke address this definitely with acquisitions like Honest Tea back in the day. And Honest Tea is now making things like Honest Fizz, which is a soda, but it's sugar-free, color-free. So I think we'll continue to see sort of moving in that direction.

And I don't think it really portends for great days ahead for these diet beverages. Yeah, and it's funny, loosely related, we were talking about it before the show, we're seeing the same thing happen in the beer market. So, lighter beers, which had been sort of the wave, the craze for the last 15, 20 years, I mean, they're at multi-year lows in terms of sales. Everyone's going to the full-bodied or craft beers, and it's interesting to see it play out in both markets. Shares of Lululemon Athletica up this week. Fourth quarter profits came in higher than expected for the maker of high-end yoga wear.

But, Simon, they lowered guidance, and they continue to struggle with inventory. Well, first of all, Chris, it's nice to see that Lululemon has turned things around a little bit. Because two years ago, this was probably one of the most hated companies out there in the market. Remember, they recalled 17% of their yoga pants because of the shearing. A lot of embarrassment in more ways than one from that. But they've really, I think, turned things around a lot more. The activewear market is actually growing four times faster than the retail clothing industry at large. So it's a very attractive niche, and it's getting some competition in there.

For example, we've seen Gap, you know, at the Atleta brand, kind of really going after the lower end of this market. And I think Lululemon, to differentiate themselves, is trying to expand their product line. They've got the Aviva brand for teens, and they've got the AndGo, which is kind of outside of the yoga studio. So when you do the one-offs like that, it brings some supply problems, and I think that's probably what's pushing those inventory issues. Do you think that this is growing pains for this company? Because, again, it seems like we're in year two or three of management itself calling out the fact that they're struggling with inventory. Yeah, I think maybe it is a little bit of growing pains, if you will. I think that they're still heading in the right direction. We saw direct consumer sales were up

20% year over year. So, people know this brand, and they're buying this stuff online. They're comfortable enough with Lululemon that they don't need to go into the stores. They can buy it over the internet. That has much higher margins, and I think that's actually a good sign for the company. A big week for stock buyback plans. AutoZone is buying back $750 million of its own stock. Pharmaceutical giant Merck buying back up to $10 billion of its own stock. And late in the week, Yahoo announced a buyback plan to the tune of $2 billion. And Jason, these are three very different businesses. But when you look at the stock, the story is the same. There's this little pop on the news, but all three shares down for the week. Yeah. And I mean, you chimed in on

something important there. These are three very different businesses and not all buybacks are created equal. It's important to understand the nature of the business to really understand kind of what the buybacks really mean. And so you look at something like Yahoo and definitely this is in line with what Marissa Meyer has been trying to do in returning cash to shareholders in one form or another. It does also seem to be a response, at least in part, to Starboard Value, which owns a little bit less than a 1% position in the company. But when I see a company like Yahoo, this to me is a bit concerning from the perspective that we could argue, at least, that Meyer perhaps is overpaid for some acquisitions. And Yahoo has really been unable to grow their core business

since she took over. There was a lot of fanfare when she took over, but I think you could go back a couple of years. And every time we spoke about this, we said, really, organic revenue growth is going to be the sign that she's been able to turn this company around. And that has not materialized. And so, for a tech company where innovation is really the key, and I mean, Yahoo is a tech company, they appear to not be innovating. And so then I wonder, well, these share buybacks, yes, it's bringing the share count down. But once the buybacks are done, then what's next, right? I mean, is this a tech company that I really want to own? And for me right now, I'm leaning towards no, because it doesn't seem to be that they're really innovating very much at

all. You look at something like AutoZone, it's a bit different. This is more, it's about operations, not innovations. And part of their strategy here is to continue buying back shares to return value to shareholders, and it's working. The five-year chart on this thing is almost absurd. Shares are up almost 300%. So, definitely, you have to pay attention to the businesses, but bottom line, we want to see them buying back shares when shares represent a great value. Yeah, and I'll just sound a real general alarm. We're seeing a lot of companies announce buybacks nowadays, and with the stock market at all-time highs. The last time there was a big buyback craze was back in 2007. Companies weren't exactly, to Jason's point,

buying stock at the right valuations. So, just something to watch out with. Buybacks aren't always a good thing. To Jason's point, some companies are better than others. AutoZone historically has done a very good job in terms of the way it's done its buyback plan. But my gut reaction to this is always, well, is that really your best move with your cash? If you're Merck, once upon a time the reason to invest in Merck was because they were one of the big leaders in the pharmaceutical research industry, now it seems like a big part,

or at least a significant part, of the bull case for Merck is, well, they're going to buy back their stock. Right. So earnings, you know, dilute share count should go down, earnings per share will go up, which is all well and good. But right, we want to see companies

investing in the business and in the future, and that's ultimately what creates revenue growth down the road. Coming up, why would the most powerful woman on Wall Street leave her job? We can think of a few million reasons. Details next. This is Motley Fool Money.

Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Matt Argesinger, and Simon Erickson. Shares of GameStop falling this week. Fourth quarter profit and revenue for the video game retailer were both lower than expected. Matty, how bad was the damage? Well, you know, on the surface, not terrible. Sales were down 6%. They missed earnings per share. They lowered their... Well, yeah, it was bad. The thing about this company is, you know, they're so dependent on video games. I mean, we know they just bought a bunch of Radio Shack stores. They're going to turn those into more GameStop stores, but also more technology products-related stores.

So, moving beyond video games and selling wireless technology, tablets, things like that. The problem with this company is that that's just the wrong direction to be going in. I mean, you're investing today probably in maybe a better run Glorified Radio Shack, which just went bankrupt recently. And this is a company that's so dependent on video games. And the latest consoles all enable gamers to download games and not buy the discs. And we know that the used game business for GameStop was just their bread and butter. It's really what makes most of their revenue and most of their operating profits.

And so, as much as you want to get excited about this company, and I love video games, as you guys know, So, this company's on a little bit of a slow train to nowhere. It's also a bigger company than I would have expected. We were talking before the show. This is much more international than I would have guessed. They do. They have over 6,000 stores, believe it or not. And they get about, I'd say, 30% of the revenue outside the U.S.

But, again, it's all 99% of the revenue, despite all the other things they're doing. 99% of the revenue still comes from video game business, which is kind of going away. It took Google all of two weeks to find a new chief financial officer. Ruth Porat, the CFO at Morgan Stanley, and she's been with the firm for nearly 30 years, is going to be leaving to join Google. Porat is getting a reported $70 million worth of restricted stock and bonuses. But you know what, Jason? This is a big-time hire, so I'm inclined to say she's worth every penny. Yeah, it's a big-time hire indeed. I think it's probably more difficult to be a CFO today

than any day in corporate history, because there are so many more factors at play. I mean, this is a much more globalized economy than ever before. I mean, tech companies certainly seem to have their fingers in a number of different pies. And it's just, you know, you look at with Google, I mean, we've had for a while here sort of these moonshots that management takes, and some pan out and some don't. And, you know, ultimately the core business is advertising, as we know it today. you wonder if this is going to be a situation where she gets to come in there and kind of help tighten the purse strings a little bit or is she making you know such a nice uh such such a nice

compensation package there to kind of go in there just more or less you know be a yes executive to kind of just continue keeping things rolling along and so uh given that she's 57 years old and given that a lot of this restricted stock doesn't really fully vest until 2019 i think we can expect her to be there for a while it certainly makes sense given her background making this move And I think, generally speaking, Silicon Valley has got to be a more exciting place right now than Wall Street banking. So, yeah, I think it's a great move for her. I think Google will benefit from it. Simon?

I think one of the things that she's going to have that's going to be a challenge or maybe an opportunity for her is the balance between margins and growth at Google right now. You've got some projects that don't require a whole lot of money for Google to focus on, like performance advertising. They've got all these different outlets like YouTube and stuff like that, for companies to show on different channels that Google owns on the internet. That's a low-cost but constrained market for Google that you could get a quicker bang for your buck. And then you've got other things like Project Loon, you know, getting internet wirelessly to the entire world, or Google Play, you know, these giant growth

projects that cost a lot of money. And it's kind of, I think, Ruth's call on how they allocate capital for these really big growth opportunities versus the margins that she's got to consider as well. Mattie, do you think there are others on Wall Street who are watching this exodus and think, oh, maybe I'm going to go on LinkedIn, update my profile, and see what's available out in California? I mean, it's a heck of a payday. And believe it or not, I probably never thought I'd say this, but I would actually think a job at Google, or generally a job at a big company

in Silicon Valley, is a lot more stable right now than a job with a big bank on Wall Street. One year ago, Taco Bell officially entered the breakfast wars with a menu including the AM Crunchwrap and the Waffle Taco. The company has now decided to kill off the Waffle Taco and replace it with a Biscuit Taco. Simon, I got to say, I'm a little bit more bullish on this than I am the Waffle Taco. I like this move. The Biscuit Taco is described as a warm, fluffy, buttery biscuit folded in the shape of a taco.

I've got to give him creativity points for this, Chris. With chicken and a little bit of jalapeno honey on top. Exactly. So, obviously, they're going after McDonald's Egg McMuffin, which is a boring, routine breakfast, and you can actually upgrade to the Biscuit Taco. Can you imagine the profound impact if they just took a page from the Book of Little Caesars and made a bacon taco? And I'm not talking about a taco with bacon in it. I'm talking about a shell made of bacon. You know what?

for all the fun we're having with the story, from a business standpoint, Taco Bell has grown their sales over the last four quarters as a direct result of introducing this breakfast menu. And if you're McDonald's, which once upon a time really owned breakfast in the fast food space, they weren't happy about this. They weren't happy to see Taco Bell come in here. And you know what? I give them points for trying. And four meals of the day, right? You've got breakfast, lunch, dinner, and then late night. And Taco Bell's hit three out of the four of those. It's time to hit the fourth.

Simon's a big late-night guy. He tells me all the time. After the club, he's 2 a.m., 3 a.m., he's getting his Taco Bell. You have kids. That fourth meal is going to be eliminated from your schedule. I just hope they serve the breakfast taco after midnight. You know, again, you look at what they did with the Doritos Locos taco, selling more than a billion of those things over the last couple of years.

And that's, I mean, there's innovation in the technology industry, but there's also innovation in the food space. There's also plenty of heart disease to go around in the United States of America. McDonald's has been struggling with sales lately, but the world's biggest burger chain has come up with something new and unexpected, a line of hamburger-themed clothing. This week at a fashion show in Stockholm, McDonald's unveiled a clothing line that includes thermal shirts, a raincoat, boots,

And yes, a coat for dogs. The thermal shirts retail for $495 Swedish kronor. Is that a lot? It's around $58. That's a lot. I just did the math in my head. From McDonald's. I got to feel like these things make you look fat.

No, well, I mean, the models that they picked for the fashion show were just young and incredibly- We were laughing a lot more about it because we really thought this was like, they're rolling this out. But it is just Sweden. And, of course, people in Sweden are generally slimmer and, of course, are using models to show things off. So it's not quite as funny as it was. But the pictures are amazing. Chris, they've got to give a discount at McDonald's if you come in wearing one of these, right? I think they absolutely have to.

We just got a few seconds left. Let's bring in Steve Broido from the other side of the glass. Steve, I know you're not going to be interested in this, but what if I told you that there was restaurant-themed clothing from your beloved Olive Garden? I would definitely subscribe to that. If that were available, I would take it. All right. Simon Erickson, Matt Argersinger, Jason Moser. Guys, we'll see you later in the show. Up next, what every investor needs to know about taxes. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. We are just days away from April 15th.

Time to talk taxes and investing. Joining me in studio is Megan Brinsfield. She's a certified financial planner and certified public accountant with Motley Fool Wealth Management. And she joins me now. Thank you for being here. Thank you for having me. I'm really excited because this is the two weeks of the year that I'm actually popular. Well, that's why I'm really grateful that you're here because I know this is your busy season. Let's talk taxes. And there are two types of people listening right now. There are people who have done their taxes and there are people who haven't done their taxes. And we're going to speak to both groups. Let's start with the latter. Give me a couple of last minute tips for people who have not yet completed their taxes.

So, there's not a lot that people can do after the year is over to go back and retroactively adjust their tax bill, but there are a few things, the first being IRA contributions. If you qualify to make an IRA contribution that's deductible, you can do that all the way up until April 15th and still get credit for it on last year's tax return. And you can do the same thing for a spouse, even if they're not working. One of the things that you've said before is that in all of the, you know, you look at the entire realm of taxes, you say that estate taxes are often the most overlooked. What should we be doing with estate taxes that we're not? And I use the collective way. I'm speaking for everybody.

You and others should consider that estate taxes are unified with gift taxes. They're all considered to transfer tax. And it's not just at death that you have to worry about these things. It's all during life. So you can give up to $14,000 per year to anyone, all people, if you want to, of your choosing. Well, I can't. But in theory, if someone has $14,000 lying around, they could. In theory, yes. And once you exceed that $14,000 per person threshold, that's when you have to start telling the IRS about it. And there's no tax until you actually go above your lifetime limit of $5.43 million. Wait a minute, wait a minute. Lifetime limit? So this is the first I've ever heard of this. So people refer to an exemption for the estate tax that also applies during your

life. So you could give $0 during your life and up to $5.43 million when you die, or you could give that $5.43 million all throughout your life. I know you weren't there when this decision was made. But how in the world did they come up with a number like $5.43 million as a lifetime limit? Well, it started at $5 million and got indexed for inflation. So, every year, it increases by an increment. Okay. All right. That makes sense to me. For people who have done their taxes already, and really, I guess, for any investor, if we start to look ahead to 2016, what are a couple of things we should keep in mind? What are a couple of things we should be doing. So people that have done their tax return know that

they either owed for last year or they got a big refund. And now's the time that you can get ahead of that for 2015 and start adjusting your withholding. There's an inverse relationship between the number of exemptions you claim and the amount of withholding there is. So if you owed money with your taxes, you would want to reduce your exemptions. And your payroll department or finance department can help with that. You're a member of the team at Motley Fool Wealth Management. What are common questions that you get this time of year? We're going to get to the unusual ones in a minute, but I'm curious about the most common questions you're getting. We're getting questions from people who are suddenly affected by the Medicare tax increases

that took effect in 2013. So those are additional Medicare taxes on earned income as well as unearned income. And those thresholds are not indexed for inflation. So, over time, more and more people will be affected by that. Are there any trends when it comes to taxes for investors that we should be watching or that you see that are sort of going on right now? When I think about taxes and investing, my brain automatically goes to just sort of the capital gains tax. And obviously, if you're an investor who has capital gains, that's always a good thing. But then there's the tax on top of that, it seems like that's a little bit of a political football that gets thrown

around every now and then, that it might get raised or lowered, depending on how the debate goes. But what trends are you seeing in taxes for investors? I think there's a lot of people that want to mitigate those additional taxes, the 3.8% tax on unearned income, looking at strategies to minimize that. Certainly, capital loss harvesting is one of those, and other losses that you can incorporate to offset your investing income so that you really don't have to capture that additional 3.8% tax. You're listening to Motley Fool Money, talking with Megan Brinsfield, CPA with Motley Fool Wealth Management. All right, let's get to the unusual. Let's get to the ridiculous. And throughout your career, what has been

maybe two or three just of the more ridiculous where your primary job was not to necessarily answer the person's question on, can I take a deduction on X? Your primary job was not to laugh at them when they asked it. Oh, these are tales of the weird, right? So I had a client at one point that wanted to deduct the cost of hiking up Mount Kilimanjaro as an advertising expense for their business. And their business was in no way related to hiking or mountains or outdoorsy in any way. So I had to kindly suggest that that was not appropriate. They said, basically, because I'm wearing a sign on my backpack that has the name of the company on it, it should be advertising. I'm not an accountant, and even I could have answered that one. It's a stretch.

it is a stretch um some other things that we see are like you know including um medical expenses for the family pet and uh of course when i see that i say who's fifi this a new child congratulations and they go oh no it's just our dog she had like knee surgery and of course um other personal expenses i've had there was a year where installing bocce ball courts was all the rage. Really? I missed that trend. Yeah, me too. And it's quite expensive. I had no idea how expensive installing a bocce ball court was, but people wanted to take a deduction for that expense of leveling the grass, their specific grass that needs to be used, and things like that. So this isn't a business saying, hey, we think it would be fun for our employees if we had a

bocce ball court. This is someone saying, I want one of these in my backyard, and oh, I'd like to deduct it? Exactly. So, it's not deductible, but you can add it to the basis of your house. So, eventually, when you sell your home, there's less of a gain to realize, but not deductible currently, unfortunately. Did you get anyone saying, yeah, but there are some people who take clients to play golf. I take clients, I invite them to my home to play bocce ball. Then is it deductible for them? Doubtful. I mean, the primary purpose would not be business, and it would be an entertainment expense at best. All right. Let me hit you with a few things. You tell me, and these are not in the realm of the

bocce ball court, but tell me whether or not this is deductible. If I have a gym membership, is that deductible? Typically, no. That's a personal expense, but there are certain cases where it is deductible as medical expense if your doctor has prescribed going to the gym as a treatment for some condition that you have. What about a membership to a club like Costco or Sam's Club or something like that? It depends on whether you're using that membership in conjunction with running a business. You're getting supplies or something like that from Costco.

Certainly that's related to a business and that's deductible. But if you're just using the Costco membership to buy household goods and groceries, then that's not deductible. Alright, I'm not going to say who my carrier is, but suffice to say, I'm paying a lot of money every month to a mobile phone carrier. In any way, shape, or form, is my cell phone bill deductible? Generally, no. Is it one of those? Hopefully, you'll still want to talk to me, Chris. Absolutely. No, no, no, no, no, no, no. Absolutely. I'm just thinking, it's just, I can't imagine I'm the only person who struggles

with their carrier and that monthly bill. When it comes to people who have their own business, because there are a lot of small businessmen and women out there, where is the line drawn when it comes to the types of things I referred back to, like playing golf? If you're taking a work colleague out to dinner, any sort of expense like that, is the line? I know there's not really a firmly drawn line, but where does it cross over into, yes, this will work, or no, I'm sorry, this isn't going to fly as a deduction? So, what the IRS uses as language for deductions is, is it ordinary and necessary to run your business? So, entertaining vendors or taking clients to dinner and discussing business matters

is ordinary for your line of business, then certainly that is a deductible expense. You have to track that and say, for any meal and entertainment expense, you have to say who was there and what really was the business purpose in order to justify that expense. But you look at the type of the business and what are other businesses in this industry doing? What is the standard. All right. Before we wrap up, last thing, because you do a lot of traveling and you've done something that's just, I don't know, a little bit more exciting than doing one's taxes. And that is, you've participated in the famous event, Running with the Bulls in Pamplona. Yes, I have.

Which I have not yet had the pleasure of doing. I don't know that that's necessarily on my bucket list. But for anyone who's thinking, you know what, I want to give that a shot. You've done it before, you're in good health. What's one tip for someone who's looking to run with the bulls in Pamplona and walk away unscathed? The key is the bulls want to stay in a pack. And when one gets separated, that's when things get dangerous. So you want to stay with the pack of bulls and run swiftly. Once you get to your final destination is the bullfighting ring, just get out of the way quickly. So if you see a rogue bull, that's when you want to just get out of the way exactly but as long as they're in a pack you're all right typically yes i don't want

to you know my i don't have expertise in in bull running i just did it once but um yeah in my experience everyone said you know when thing when the bulls get separated that's when things get really messy because they start to freak out about being alone see on this show we give you more than just tax tips megan brinsfield with motley fool wealth management thanks for being here thank you Tax is cow, tax is goat, tax is pants, tax is coat, tax is tie, tax is shirt, tax is words, tax is dirt. Coming up next, we'll give you an inside look at the stocks on our radar. Stay right here. You're listening to Motley Fool Money. On a greenback, greenback dollar bill.

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. Chris Hill here in studio once again with Jason Moser, Matt Argesinger, and Simon Erickson. Guys, happy news. I'd like to welcome a brand new radio station to the Motley Fool Money family, WDEL-FM 101.7 in Wilmington, Delaware. Radioatfool.com is our email address. That's radioatfool.com. Got a great email from Paul Zettler in Nashville, Tennessee. He writes, long-time listener of the program and big fan of Steve Broido, Behind the Glass.

Aren't we all, though? Indeed. Paul goes on to write, I thought you'd be interested in how I became interested in financial markets. I was four years old in 1991, and I was picked up from school by my mother, who had some news for me. She had just bought stock for everyone in the family. My older brother received shares of Walmart. My younger brother received Disney, and I received the greatest stock I could imagine at the time, Blockbuster Video. Movies and video games, what's not to love?

Over the years, I became fascinated and frustrated with the performance, and I remember reading the newspaper at a young age to try and find my ticker symbol in the financial section. Much to my chagrin, Blockbuster's performance was dismal, but it piqued my curiosity as to how financial markets work. I now have a degree from the University of Georgia, an MBA from Vanderbilt, and I run the financial side of a hospitality startup business here in Nashville. The entire path to where I am now started with that car ride where I learned I had received some Blockbuster stock.

So while Walmart ended up paying for my older brother's entire college tuition at a private school in South Carolina, and Disney ended up paying for a majority of my younger brother's education, Blockbuster ended up paying dividends in a non-tangible form. Education at a young age was incredibly important to me, and the work you do every week to inform and educate your listeners is fantastic. Love the show, guys. Keep it up. that's a great email. And frankly, I think we all know investors who have had that experience where

the first stock they buy basically goes to zero, and they have the opposite reaction. They say, I'm swearing off the market. Before we get to the stocks on our radar, let's just go down the line, Jason. What's one stock that maybe didn't give you huge gains, but you got an experience out of it that made you a better investor? Yeah. So, I mean, my father got me started investing when I was very young. And he would gift me stocks every Christmas, just one year I got shares of Dell, another year I got shares of Walgreens. And Dell was one where I learned a lot just from watching it go through that dot-com phase and seeing those highs along with the lows, and the entire time, me not really knowing why. It wasn't something where

it went to zero, but it piqued my interest in wanting to learn more as to why and how how it worked. That's ultimately what led me to study more major economics, and that's thankfully how I found The Fool, and that really is what piqued my interest in studying stocks and learning how this all works. O' Around the same time as the email, my mom bought me shares of Wang Laboratories, which is this Japanese conglomerate way back in the day. Huge in Boston. O' Early 90s. Oh yes, that's right, we were living there at the time. I watched

that thing. Same thing, I would check the Wall Street Journal, look for the ticker, and it just went to zero. But that alone really piqued my interest in stocks. Simon, what about you? I would say Hewlett Packard was one of the first to experience that in the stock market, which actually did very well at the time. Lucky timing, didn't know anything on my part of it. But another one that really got me into the stock market was Ellie Mae. I know this is one that JMO is a big fan of, too. But the stock price itself went nowhere for years, even as the business was improving steadily. And when you get kind of behind the curtain, you realize the

market's not always right, but if you see it operationally getting stronger, that's a great opportunity for a long-term investor. It's actually doubled in the last year, so it kind of turned the ship around, I suppose. Steve, what about you? Do you have a stock that gave you some good experience? When I was a kid, I remember loving Lasertag. There was this product out called Lasertag, and the company was Worlds of Wonder Entertainment. I remember telling my dad, this Lasertag thing is great. It's going to be huge. He went out and bought some shares and did terribly on them.

And he's hated you ever since. Hated me ever since. But, I did learn a lot about investing from that. Alright, let's get to the stocks on our radar this week. Simon Erickson, you're up first. What are you looking at? Chris, the one that I'm looking at right now is called Splunk, ticker SPLK. There's a lot of companies that interpret data out there. Oracle, HP, SAP, companies like this that look at structured, nicely organized data. Splunk likes to interpret messy data. is data that's called machine data that's coming from all over the place. Mobile phones, elevators,

airplanes, all sorts of stuff. And it's not easy to understand, but we're seeing computing more and more going into the mobile world. It's now kind of all over the place. And there's a lot of value for companies to interpret that stuff. Splunk's the platform to do it on. Steve, question about Splunk? What makes them special? What gives them the ability to do this? You mean other than their name? It's a good name. It is an awesome name. And I'd say that's a competitive advantage of nothing else right there. Machine data is something that the big companies haven't cracked yet. They've kind of had their stranglehold on whatever it is that they're interpreting as far as structured data sets. So it's not as easy as it might sound for somebody

that's been doing something for a certain number of decades to change the entire way that they interpret stuff. And Splunk's a step ahead right now. Matt Argersinger, what are you looking at? Sure. I'm going with Lowe's, ticker L. Now, this isn't the home improvement retailer or the theater chain. This is Lowe's, the conglomerate. And if you read Warren Buffett's annual letter this year, he spent about two pages talking about conglomerates and how they've really gotten a big discount to the market in recent decades, where there used to be a lot of love for them in previous decades. And so, Lowe's is one of those companies that, it's a pretty good, it's well-run, it's run by the Tisch family. It's got hotels, insurance businesses,

some energy companies. The Tisch family is also part owner of the New York Giants. But they've done a pretty good job running Lowe's, and I just think it's one of those beaten down conglomerates that it's piqued my interest. O' Steve, question about Lowe's? If I own a conglomerate, how do I know when things are going well? The best thing to do is watch the book value growth of the company, book value per share. If that's going up over time, generally they're creating value for the shareholders. O' Jason Moser, what are you looking at this week?

This is an oldie but a goodie, one everybody out there will probably be familiar with. It's Markel, ticker is MKL. O' Kind of a conglomerate, too? Matt, he was talking about letters to shareholders, and Markel's 2014 letter to shareholders just came out. This is one of a handful of letters that is really worth reading, and so I would recommend anyone to go out there and check it out. I'll just read you a quick passage from this year's edition. It says, quote, if you're reading this, it's probably because you already own Markel. This is your company. You own it, and we work for you, end quote. So when you

see a management team saying things like that, you know they get it. These guys are fools with a capital F, and that's why we love them so much. The stock is trading at 1.4 times book value, Not a screaming bargain by any means, but not too terribly expensive. It's one that you're going to basically hold indefinitely anyway. An exciting part of the business beyond just the core insurance operations and the portfolio that they hold is Markel Ventures. This is something that started in 2005 as just one little business they bought and $60 million in sales. Today, they're bringing in close to $850 million in sales with a collection of companies from baking equipment to manufactured housing and everywhere in between. So, very strong management team here, one that really sees the forest for the trees, and one I still like today.

Steve? I'm a shareholder. Could GEICO get into this business? Could they just spin off and make a mini Markel? GEICO, I guess in theory could, but I see that as virtually 0% chance happening, because GEICO is owned by Berkshire Hathaway, and that's one of Berkshire Hathaway's biggest cash cows. All right, we'll have to wrap it up there. Guys, thanks for being here. Thank you. That's going to do it for this week's show. The show is mixed by Rick Engdahl. Our engineer is Steve Broido. Our producer is Dr. Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.