Motley Fool Hidden Gems Investing - Disney's Surprise, Under Armour's Split

Episode Date: April 8, 2016

Disney shuffles its front office. Under Armour splits. Twitter bets on football. And Tesla accelerates. Plus, Motley Fool analyst Joe Magyer talks Amazon, China, and underappreciated Australian stocks.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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It's the Motley Fool Money radio show. I'm Chris Hill, and joining me in studio this week for Million Dollar Portfolio, Jason Moser, from MDP and Supernova, Simon Erickson, and from Motley Fool Hidden Gems, Chief Investment Officer Andy Cross. Good to see you, as always, gentlemen. Andy Cross. Howdy, Chris. We've got the latest headlines from Wall Street. We will head to Sydney to talk Australian investing with Joe Mager. And as always, we'll give you an inside look at the stocks on our radar. But we begin this week with surprising news out of the Magic Kingdom. Chief Operating

Officer Tom Staggs has worked for the Walt Disney Company for more than 25 years and was widely seen as the heir apparent to become CEO when Bob Iger steps down in two years. But that is now over. According to the New York Times, Iger met with Tom Staggs in mid-March and told him that the board of directors would be widening the search for the next CEO. And Staggs, Simon, decided to leave the company in early May. So now, Disney's got to find not just someone to be the next CEO in a couple of years, they've got to find a chief operating officer. And how do you replace Bob Iger, right, Chris? I mean, this is a guy that's a legend. Hail to the chief, great chief executive officer for Disney for the last decade.

Sarah Price has almost quadrupled under his tenure. And he's always been kind of thought of as the media juggernaut that is Disney, the acquisitions of Lucasfilm and Marvel and companies like this. But I think the transition, when and if this ever happens, is going to have to be from, hey, we've got a great media empire. We made some great acquisitions out there. I think the next phase for Disney is going to be digital distribution out there. You've got Netflix and Amazon that are broadcasting pretty good content over the internet now. And I think that Disney's got, they have that content, but I think that they're a step behind on figuring that part out. Jason, I like the fact that this is a show of strength by the board of directors.

As investors, we want to see our boards of directors, not just rubber stamping someone. Sure. By the same token, Tom Staggs is no slouch. I mean, there's a reason he was widely seen as the next CEO, and they've got a problem in the C-suite now. What was that in Caddyshack? Oh, come on, Judge, you're a tremendous slouch. Maybe he just really doesn't have what it takes, and maybe that's what they ascertain from this. And honestly, we've talked a lot about this, how do you follow in the footsteps of what Bob Iger has done? I mean, it has been really

phenomenal. Simon mentioned that trifecta of acquisitions that he's headed. It's not to say that nothing else will happen while he's still there, and I honestly think that shareholders will probably be OK with him sticking around for a little while longer. To your point, yeah, you never want to see a board rubber-stamping something like this. They do really need to figure out the strategy in regard to ESPN and this move to over-the-top distribution, because it is something that is going to come to fruition here at some point. They've mentioned it on a number of calls, and because ESPN is such a profitable part of the business, such an important part of the business, they've got all of their

other ducks in a row. This is the question mark that's still really out there. I think they just need to make sure that they have an executive that is going to be able to lead them forward in regard to this strategy. Andy, where do you think they go here? Do you think Iger stays on for another year or even longer? Yeah, I'm wondering if Tom Staggs is checking his LinkedIn profile, and who has endorsed me, what skills, and has Bob Iger taken away from him? Certainly, I think it extends the timeline of when Iger can hand over the baton, pass the baton to a leader and who that is. One conversation we were talking about, it was really interesting,

we were talking about earlier, is Steven Burke, who was over at NBC Universal, which is a subsidiary of Comcast. It was his father who, along with Tom Murphy, built Cap Cities. Steve Burke is president of a media division. He's in a company, Comcast, that is family-owned, run by the Roberts family. Probably not going to take the helm of that job anytime soon. Could be an interesting opportunity for him. I'm throwing Sheryl Sandberg in the hat as well, Chris. She is on the board of directors, so it wouldn't be the first time we saw someone move from the boardroom to the CEO's office. Shares of Under Armour in the spotlight on Friday

as the company split its stock two for one. Shareholders will get a new non-voting class of stock. Andy, we're seeing a little bit more of this move, aren't we? Yeah, especially among founding firms with founders who are still leading it like Google and Zillow, which you've seen recently in the past couple years. And now Under Armour, you split the stock essentially by getting a new class of shares. Those new class of shares don't have voting power. So essentially, you still have the same ownership that you had before in Under Armour. But this way, it just allows Kevin Plank to continue to maintain his ownership over Under Armour and run this strategy the way that he wants to long-term.

Sure thing. I mean, we've fielded a number of questions this morning on this, and the action that you need to take if you're an Under Armour shareholder is to take no action whatsoever. Just let this go. And as Andy mentioned, it's the same stock, same company as it was when you went to bed last night, and you still have that same vote, and Kevin Plank is still going to have his hold on the company. I think he's done a pretty good job to this point. I'm happy to stick on this ride and see how it works out. Yeah, I wouldn't be surprised if we see more of this. It allows these firms that are run by these visionary leaders who want to have control over their company. I wouldn't see

it continue in the future. This fall, network television is not the only place you can go to watch pro football on Thursday nights. Twitter has paid the NFL around $15 million for the right to stream games as well as the broadcast networks. I know this is good for the NFL, Jason, because they just got $15 million that they didn't have before. How will we know if this is a good move for Twitter, if this is money well spent? Yeah, I think it's going to take the football season really unfolding for us to be able to ascertain that. I think this is a very simple, relatively inexpensive bet

on Twitter's part, but it's a very important one, I think, because it is a way to exploit another potential use for the platform as we watch this new age of media unfold in properties like Facebook, Twitter, Snapchat, all of these new digital channels, these mobile channels where we're finding ways to get and consume content. This is going to be another way to to see how that maybe works out. It's worth noting that this is a global initiative, so it is something that Twitter users everywhere around the world will be able to watch these games for free. It is for the logged-in and the logged-out audience. While we know Wall Street tends to focus on that logged-in audience, the monthly active users, it's worth noting

that that total audience reached as well, because they are talking about ways that they monetize that audience, that there is value there. I think this is another way to show But I think it's encouraging that they have 10 games in total. That means that they'll be able to learn and iterate as the season goes on, and really see if they can't capitalize on this relationship. I suspect if they do, then we'll see more relationships like this shake out in the coming years. I was just reading something yesterday about Periscope and Major League Baseball. A year ago, Major League Baseball felt very threatened by Periscope. I think we even saw a story where the New York Yankees owner was saying, any Periscopes

going on in our stands, and we're going to confiscate your phones." And a year later, Major League Baseball is embracing Periscope, and it's become a very integral part of the experience this baseball season. So, it's just interesting to see this media age shaping up here. And I think that the businesses like Twitter, Facebook, Snapchat, they're all going to be a part of it. Shares of Tesla Motors on the rise this week in the wake of the company unveiling the new Model 3. Tesla accepted more than 300,000 orders at $1,000 a pop. So, pretty nice to have some additional working capital. Chris, do you know what the best-selling car in the United States was last year?

It was Ford, right? The F-150. For a vehicle, yes. The best-selling car was actually the Toyota Camry. Sold 361,000 units. Tesla has 300,000 pre-orders for the Model 3 already. And they've collected, of course, their working capital up front for the reservations. So, this is phenomenal. Elon Musk is saying the Gigafactory has the supply output to supply 500,000 vehicles every year. So, we're already in the conversation of best-selling vehicle potentially in America. And we haven't even gotten there. I mean, we don't expect the Model 3 to come out until the end of 2017, possibly 2018 already.

Do you know what the key difference is, though, there? Is that Toyota actually built and delivered all those cars. And to this point, Tesla Motors doesn't have a great track record of producing a lot of cars quickly. And they only sold 51,000 last year, which is, this is an amazing ramp-up if they're able to pull it off. Of course, we've talked on the MDP podcast a couple days ago about, you can never bet against Elon Musk. He always sets the bar really high, and people laugh at him at first, and then he delivers. And I think that this is going to be another phenomenal improvement for Tesla. Well, you can bet against him, it's just probably not a smart thing to do, long-term at least.

But I think one thing to remember, too, is that this is one of those businesses that a lot of people root for, right? I mean, we want to see something like this happen. Our current energy policy, we don't want to be driving around gas guzzlers forever. So, this is a really easy company to root for. And, hey, let them set the bar high, because someone's got to do it. It may not work out necessarily in the timeframe they set, but I have really no doubt in my mind that it will happen. I think this is just the first of many steps forward to many new options when it comes to transportation. It's interesting, there are 30 million shares, 32 million shares sold short of Tesla. So,

Clearly, many of us want him to succeed, but there are definitely many out there that are betting against him. See, and I'm on the sidelines. I'm not saying this is necessarily going to succeed, but not in a million years would you get me to bet against Elon Musk. Because I think that, among other things, people who look at this company and try to value it the way that they value a Ford motor or a Toyota are just not thinking about it the right way at all. Right. We're not even talking about solar system battery backup, or if they're selling batteries to other vehicles. We're just talking the Model 3 here. And to put some numbers behind

it really quickly, Chris, if they do sell 500,000 cars, say an average price of $40,000 a car, that's $20 billion of revenue, more than five times what Tesla's doing today. Well, and this cash gives them breathing room for having to go out and raise more money, too. Coming up, we've got food, beverages, and home goods. What more could you possibly need? This is Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Simon Erickson, and Andy Cross. The U.S. Labor Department has wrapped up some new regulations for financial advisors. Advisors who make recommendations for tax-advantaged

retirement savings plans like IRAs and 401ks must now act as a fiduciary, which is a fancy way of saying they have to put the client's best interests first, regardless of commission. Andy, they weren't already required to charge. Yeah, it was shocking. Many people may be surprised to think that their advisor was not doing that. And unfortunately, that is the case. I mean, this change in this regulation that the Department of Labor is putting forward could save, I mean, up to $40 billion in fees for investors over the next decade.

So it is a significant change. And it's just another piece of evidence that we need to make sure that we understand the fee structure, what our advisors who we are giving our money over to, how are they compensated and the fiduciary rule helps all of that. So, it's really powerful for investors. Shares of Bed Bath & Beyond popping on Thursday after fourth quarter profits came in higher than expected. Good quarter, Jason, but what caught my attention was, they're going to start paying a quarterly dividend. I don't think you make that move unless you feel like you can deliver on that.

Well, let's hope they can deliver on it. I think the market is kind of questioning that right now. Certainly, the market looks forward and I think is wondering really what the future holds for a business like this. Dividend certainly is a nice start. It's a fair question as to how much investors can expect that to grow over time. It's just an interesting sort of situation they're faced with, because Bed Bath & Beyond is a business that's done so well for so long because it served as sort of that place to go find those home furnishings. But as e-commerce has quickly taken over, the competitive landscape has changed significantly just in a short amount of time. But if you just sort of look at the

numbers here with Bed Bath & Beyond. The share count, they've done a good job buying back shares going back to 2011. They brought the share count down 36%. And this is while the share price hasn't really performed all that well either. So, in theory, they're getting a pretty decent value on the shares. At the same time, earnings per share have risen around 65%. So, that means that those buybacks are helping, at least in that regard. The problem is, it's not translating to a stock price. It's still garnering a multiple less than 10X earnings. That's not really a very optimistic situation for these guys. You would think the market might give it some credit and boost that multiple a little bit, but I think the

questions about its future are fair. It's not an impaired business, but I'm not actually convinced that it won't be bought out by private equity at some point here. Jason, it generates $1 billion in cash flow, spends $1 billion in buying shares every year, pays $300 million in capital expenditures. Where's the dividend? There are some concerns about how is their cash flow going to materialize, that cash flow hasn't really grown tremendously over the last five years. Do you think that at least part of what fueled the dividend was an attempt to appeal to institutional investors? Just thinking, you know what, if we start paying a dividend, there's a wider pool of institutional investors

who will at least kick the tires on our stock. Perhaps. I don't know that that would really be a selling point on the stock. I think really what they're trying to do is look at it. It's a relatively mature company, been around for a while. Generates a lot of cash flow. It's not like it's an insignificant business. They feel like maybe this is just a step in the right direction. We can become a little bit more of a stable, reliable company with a reputation if we are able to offer up a consistent and growing dividend over time. Constellation Brands hitting a new all-time high this week after the beverage giant wrapped up the year with strong fourth quarter results. Revenue and profits both

up double-digits, Simon. And speaking of dividends, they raised theirs. You know, this story made me raise a couple eyebrows. Two eyebrows. How about a glass? Do you have more than two? Do you have just one? So, they acquired Prisoner Wine, which was in addition to Ballast Point, which they acquired last year also. And all of these acquisitions they're making are immediately accretive to earnings, which looks great on the income statement. But it shouldn't be

that easy for a brewer to just go out and immediately make acquisitions that are immediately accretive to your income statement like this. You look at this, and there are brands to these beers, but they're also loading up the balance sheet with a whole lot of goodwill. When a company goes out and pays a price to acquire a company that's larger than the fair market value, you take goodwill on your balance sheet. That's an intangible asset. Goodwill is now 42% of the assets that are on Constellation's brand's balance sheet. I think there's a little bit of a risk to this strategy. It looks great from the income statement, and Wall Street applauded the news, but I'm a little wary.

Just for comparison's sake, Chris, is anything above 40%, I think that's where a lot of fundamental investors start to think, hmm, that may be a little bit too high. Yeah, we talk about goodwill a lot. I think we probably run Microsoft through the ringer on this once or twice. But the problem with goodwill, it sits on the balance sheet forever, hopefully, and it's not a problem. But if it becomes a problem and you have to a write-down on that goodwill. If it's suddenly deemed that those assets aren't worth what they maybe once were, then that flows through the income statement, it affects the company's earnings, and that's where the bad news starts coming in. So, it looks good now, it could

be a problem later on, and that's the problem investors have to take into consideration. But in general, this is the move of any beverage company, isn't it? It's, we're going to acquire, we've got better distribution. I mean, we've seen this with the soda companies, why not with an alcohol company? Well, it's in the brands. It's your perception of the brand and how successful that's going to be. There's a lot of play for Southern California, Ballast Point especially, that Constellation is betting big on the move that they're going to make and that this brand is going to be successful. If it is, then yes, this could be a great acquisition, but

I think we just need to be a little bit cautious of that, at least as investors. Darden Restaurants is the parent company of the Capital Grill, Longhorn Steakhouse, and of course, Steve Broido's beloved Olive Garden. Quarterly results look pretty good, And the same restaurant's sales looked pretty good, particularly at Olive Garden, Jason. Very good indeed. Perhaps this is one of those cases where shareholder activism has really helped the cause. I think it was maybe 18 months ago or so, Starboard Value got in there and really started making some waves about Darden having to streamline its operations, get rid of underperformers, so Red Lobster's no longer part of that operation.

They felt like a little bit more salt in the water and cooking the pasta was going to make a big difference. Too many breadsticks. Well, who knows? They felt like they were giving a lot of things away, weren't really running a very efficient operation. So, I think this maybe is a case where that activism has helped. As you mentioned, the same-store sales are performing very well. Olive Garden recorded the sixth consecutive quarter of same-store sales growth. That really is the crown jewel of this company at this point. That's a little bit more than 1,500 restaurants they have in total. Most of them, or more than half of them, are Olive Garden's. They're

all company-owned, or most all of them are company-owned stores. So, I think that they have taken the underperformers, streamlined the operations, really focusing on the strengths in Olive Garden, things like Longhorn Steakhouse, Capital Grill. And the successful restaurant companies are going to be the ones that are able to incorporate a number of different brands and concepts under their umbrella. And it seems like Darden has turned a corner here and could be brighter days ahead for shareholders. Let's bring in our man from the other side of the glass. Steve, in the last 18 months or so, have you noticed a positive difference in your Olive Garden experience?

Well, I'll tell you this, I've been sick as a dog. And this week, I did go to the Olive Garden in the middle of the day, and I ate my face off. And it was just tremendous. It's a good place to go. The meal was good. A lot of refills on my beverage. I had a good time there. Comfort food, I like to hear it. Well, that's a 5% boost to the stock right there. Up next, we're heading down under to talk investing in Australia with Joe Maeger. This is Motley Fool Money. Welcome back to Motley Fool Money.

I'm Chris Hill. Joe Maeger is the lead advisor at the Motley Fool's Real Money Portfolio Service in Australia. And he joins me now from Sydney. How are you, my friend? I'm great. Good morning. That's the beautiful thing about the planet we live on, where the time for you is very different from the time for me. I want to warn you in advance, it's possible my toddler might

wake up while we're having this conversation. So if anyone hears babies crying, that's the deal. There you go. That's the magic of live radio. I want to talk about Australia. I want to talk about some of the companies that you're watching there. But I want to start in China, because the last time you were on the show, you and Matt Joss, one of our top crack analysts down there in Australia with you, you guys had just gotten back from China. And we talked about a bunch of things, including how commodities are affecting Australia, and the ripple effect for the rest of the world, and also the housing market. I'm curious, here we are a year or so. A lot of dominoes right there.

Yeah, here we are a year or so later. How is China looking to you now? I'd say what we came away concerned about has played out and is continuing to play out. So when we were there, we were very concerned about the slowdown in construction. It was obvious just from seeing projects that were idle, but talking to 14 companies while there, and the huge majority of them had concerns about the economy. Some of them were very concerned about lending to other companies and credit was tightening up. It didn't take deep, profound insight to see these concerns. I mean, it was fairly obvious. And you combine that with all the other research we've done, and it was clear that there were some issues. And almost immediately from the time we've

left. The government has been on a spree of cutting reserve requirements, lowering interest rates, new stimulus projects, interfering with the stock market, arresting short sellers. So I think our instincts on that were pretty good. I think the underlying issues there remain. So namely, there's overcapacity. So the country has tried to solve recessions or what would have been recessions with more credit and more stimulus. And that works until it doesn't anymore. Because what you have to do is you have to keep adding disproportionately more stimulus every time you increase more capacity in the economy that doesn't need to be there. So for example, China has way too many steel mills now and they know it, but they don't want to pull the bandaid

off and let all these people walk away unemployed. So they talk a big game about shifting to services and cutting back on production. But the reality is that would mean, well, a lot of people lose their jobs. And, you know, when your government mandate is predicated on stability and growth, that is unattractive to you. So it's a dicey situation. I think the economy is much less stable than most give credit for. And I don't use the word bubble very often. I mean, you know me pretty well. I'm not a bubble guy, but there's definitely a credit bubble in China. And how it plays out and when is a very good question, but I think that's pretty clear. Well, that is my next question because here we are a year later and the thesis that you and Matt had at the time

has played out. So let's go forward to 2017. So what now? Yeah. What does a bubble bursting in China look like for the rest of the global economy? Yeah, so great question. One tricky thing is that you can't trust any of the government data from the Chinese government that they publish. It's the worst kept secret in the industry that no one really trusts that. In fact, the only people who talk about it seriously are financial groups that have a presence in China and they have to, you know, talk the talk so that they can stay and do business. But the rest of us who don't are able to talk about it freely. I think if you look at something like steel consumption, that's falling in China. So the government's saying the economy is growing north

of six percent, yet steel consumption is falling. You know, you tell me how that adds up and I'd love to hear about it, but that does not align. And I could find plenty of examples. But so at home in Australia, talking about just broader commodity markets, even though commodity companies have been slaughtered, I'm still not really interested in them today because what you're seeing is there's oversupply. So there was this huge boom in prices across the board from oil to iron ore to natural gas. I mean, you name the commodity, there's been too much production that's brought on. And at the time, we're now seeing falling demand. And China was the big incremental driver of demand. And I think it's going to get worse, probably much worse. So

you look at China, it's got falling consumption, despite, you know, talk of the economy doing well. And when we were in Beijing, you know, you hear estimates that something like a quarter of homes are empty. So the country is wildly overbuilt. So you look at that, what's basically an air pocket of demand for rural citizens moving into the cities. I'm very bearish on commodities. In terms of the credit bubble playing out, it's tricky because the country can paper over a lot and they can internalize a lot. But I think you can see things popping up like US companies or global companies that have operations in China, Yum Brands springs to mind, right? I mean, that's a company that had been killing it in China for years, and now it's kind of the other

way around. You could find plenty of examples that Western companies really struggling there right now. Any banks that have operations there I'd be concerned about should start seeing that flow through in credit numbers. And then in currency markets, I mean, there have been huge capital outflows in China from Chinese, wealthy Chinese and everyday Chinese who just really want to get their money out of the country for a variety of reasons. And because the U.S. dollar is appreciated so much, it's extremely costly for the Chinese government to maintain its currency peg. So I think odds are really good that they are going to and they've already used a lot of different tricks to help stem the tide of that.

But odds are very good that China is going to have to reduce the peg on its currency against the U.S. dollar, which I think would have some pretty tough to forecast. But it's like if you throw a brick in a swimming pool, I don't know exactly which way the waves are going to go, but I'm pretty sure they're going to be waves. And if China were to cut their currency peg by 15, 20 percent, there would be some shock waves. You're listening to Motley Fool Money, talking with Joe Mager, lead advisor for Motley Fool Australia. I want to get to the economy in Australia. But first,

I would be remiss if I didn't ask you about Amazon's annual shareholder letter, which came out earlier this week. I know that's a company you watch pretty closely. What were a couple of the highlights that struck you from Jeff Bezos' letter? Yeah, so it's solid gold, and I highly recommend it for anyone who can find 10, 15 minutes. It's much shorter than Buffett's letter, if that makes it any more attractive to people. I mean, Amazon's just an incredible success story. Fastest company ever to $100 billion in revenue. AWS, Amazon Web Services on their way to $10 billion this year.

I think everybody is fairly familiar with the success of the core marketplace business. I don't know that everyone is familiar with how well Prime is doing. So they've got tens of millions of customers now subscribing to Prime. Prime memberships were up 51% year over year, which when you're talking about tens of millions of customers, it's pretty incredible. I'm a Prime member. I kept my Prime membership even after I moved to Australia. So I don't even benefit from the shipping anymore. But I like all the video stuff and all the other perks that come with it.

And Bezos talks about how he tries to make it such a no-brainer that you'd be negligent to not have Prime. And I definitely think it's there. The part of Amazon I'm most excited about, though, is Amazon Web Services, AWS. So even though it's only about a tenth of the business in terms of sales, the margins out of this business look extremely attractive. bezos notes that you know where aws is today was bigger than what amazon.com was at 10 years old and it's growing at a faster rate i think a lot of people so a lot of people listening probably are like what the heck is amazon web services so basically amazon web services is a collection of it's a suite of services that amazon offers that allows a startup or a major tech company

to outsource a lot of core IT to someone else. So that can be data storage, management, it could be data warehousing. It's a lot of stuff that you used to have to pay a ton to have on site, but now you can distribute. And there are huge cost savings for companies and it gives them much more agility and ability to scale. So it's very attractive if you're a new startup,

very attractive if you're big. I think that market is massive and I think the best way to really line it up for someone who isn't a total nerd is to think about distributed electricity distributed power so if you think about computing as it's been done for a long time now you'd have your own data centers data warehouses servers for your own company in the same way that factories used to provide their own power you know they'd have a mill on site they'd burn something to generate electricity but eventually it made sense. And there was a switch in the cost of the systems where it made sense to have distributed electricity. You make it in one place, ship it over lines. That's the

shift that we're seeing towards AWS today. They are so much bigger than their rivals being Microsoft and Google way out in front. Pace of innovation is crazy. So I'm pretty excited about it. You might've picked up. We talked about housing in China. What's the housing market like in australia where you are frothy frothy so the the median frothy uh the median home price in sydney is now above a million australian dollars and there hasn't been a recession here in 24 years which i believe is a record of some kind but it's really it breeds a lot of confidence and i actually end up in discussions with people where we're not even talking about the odds of a housing bust or a crash, but a lot of Australians, they can't even see a glide path to a recession

happening. And I think that says a lot about the psyche, for better and worse, that a lot of Australians can't even picture what a recession looks like. And that's because you've got people in their early 40s, professional investors in their early 40s here, who haven't invested through a recession. So they don't think about risk in the same way as someone who lived through the financial crisis than the U.S. would. Housing, to frame it up, the median income against average house price in Sydney is 10. So that means if you're making 50 grand a year and you wanted to buy a house, you'd roughly be spending about 500K. So if you work that through, that means around 60% of your take-home pay would be going just towards paying your mortgage, right? And that's if you had

a typical mortgage. So that is not really sustainable for a society. And it's way out of whack with historical norms. It's out of whack with international norms. And it's just very it's a very excited market. I could give you a lot of anecdotes, but I think those data points really kind of grounded. Or, you know, if you had 100K salary and you owned a million dollar home, I mean, just think about the proportions on that mortgage and the median house price income now is six across the board in Australia, and it was about a third lower than that in the U.S. when it topped out. So it's frothy. A lot of Australians are very deft. They almost make a national pastime of arguing why housing prices won't fall, and they usually compare it to the U.S. And this

is a long topic that I'll just keep short. But I think the Australian housing market is very frothy very susceptible and when you look at consumer balance sheets are extremely stretched in australia so you know but i should just add by the way i know this all i sound really bearish talking about china and housing but i don't think the base case assumption should be that china implodes or that australian housing implodes i still think that it makes sense to have money invested in strong companies with good balance sheets. And we're 90% invested in Motley Fool Pro in Australia. So, lest I sound like a perma-bear, I mean, we're still finding companies that we're very excited about, with very bright futures and great

management teams. But I do think that there are risks out there that the rest of the market is not sizing up well. Yeah. Yeah, I'm not going to predict implosion for Australia either. I am, however, pretty confident that the 24-year winning streak of not having a recession, that's going to end at some point. I don't know when. I'm going to take the under on another 24. Yeah, definitely take the under. We just got a minute or so left. You said you're about 90% invested in Pro. Tell me about Bellamy's, which is not a particularly sexy business, as I understand it. But in terms of stock returns, it seems to have done well for you.

Yeah. So this is one that Matt and I worked up. It's roughly quadrupled over the last year for us, which has been pretty fun. It's an organic infant formula company. They don't even make, they don't own cows. They don't own the manufacturing. It's a brand owner and basically a logistics brand owner, marketer of logistics company. When we found it, we'd We come back from China, where pollution was just so awful, so terrible. Bellmeys is a Monceston, Tasmania-based company. They focus on organic infant formula, which is a booming market right now in China and Australia.

When we bought the shares, they've been growing at about 140% year-over-year, but they were only covered by one analyst, which is just crazy, but that's the kind of value you can find in small caps once you get outside the US. Wall caps are still the best place to look for in perceptions in the States, but you get outside and there's so many opportunities, but yeah, we're big fans of the business. It's asset light. It looks conventionally expensive selling for 50 times trailing earnings, but they grew profit 300% in the first half.

So you don't need too many halves like that for 50 times earnings to shrink pretty considerably. So yeah, we still own the shares and overall, I would just say it's a great example of how if you're willing to look abroad, you can find some really interesting opportunities. O' If you're looking for stock ideas down under and you want to read more from Joe Mager and his colleagues, just go to fool.com.au. That's fool.com.au. Joe Mager, thanks so much for being here, my friend. Joe Mager, Jr.: Always fun. Thanks for having me. O' 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, and joining me in studio once again, Jason Moser, Simon Erickson, and Andy Cross. Time to get the stocks on our radar this week. Simon Erickson, you're up first. What are you looking at? Chris, I'm looking at Illumina. The ticker is I-L-N-N, which is one of the leaders in genomic sequencing. You know, Chris, Ozzy Osbourne had his genome sequenced several years back, and they found out that he's actually able to metabolize alcohol significantly faster than the

average human being. I don't think any of us are surprised by that. So, if you're going round for round with Ozzy, you were going to lose, and there was a genetic reason for that. But medically, there's a lot of insights that people can get, especially if you're going to the hospital or being treated for a sickness that's really unlocking a lot of information that's really helpful for hospitals, and I like Illumina in this space. Steve, question about Illumina? Where did this industry go? Because 16 years ago, we were talking about this exact same thing, and it seems like 16 years later, we're still talking about the same thing.

It's the cost per genome that has really come down significantly, Steve, which has made it affordable to do this. It used to cost billions of dollars to sequence the human genome back in the 90s, and now it's under $1,000, which has really helped the adoption. Jason Moser, what are you looking at? Sure thing. Brought Nike, ticker NKE, over to the watch list in MDP from Tom's side of the Stock Advisor scorecard. It is obviously the swoosh that everybody knows. But you don't very often have a company where the competitive advantage could be its brand. I think in this case, Nike's brand is certainly a competitive advantage. They've spent a lot of time really

becoming the leader in the space, and that brand stands for a lot. Still a tremendous market opportunity out in the sporting world. There's a big enough sandbox there for Under Armour and Nike to play together. I don't think there's any problem at all if people want to own shares in both companies. They have a wonderful track record in growing sales, dividends, effective share buybacks. We can expect that to continue. I think, really, one of the keys with this company, financially speaking, it's just fiscally fit. There is no situation here, I can imagine, where they find themselves in financial trouble. It really all comes down to valuation. We've pegged around $50 a share right now, where we become really interested. So, we're going

to keep that and hope it comes back to us. Steve, question about Nike? What happened to the Just Do It campaign? Is that gone? I haven't seen that in a very long time. Just Do It. It seems like it's still out there, Steve. I don't know. Are you kind of unplugged? A little bit. Maybe.

Andy, we've got less than a minute left. What are you looking at? Ulta Salon Cosmetics and Fragrances, symbol is ULTA, just announced it will be added to the S&P 500, sent the stock up now to all-time highs above $200. Just an outstanding, perhaps one of the most outstanding quarters that I saw from a retailer that's not named Amazon recently, 12% comp growth. They just have a loyal user base of people who buy cosmetics through their membership business, and it's just doing really well. Steve, why would I go there and just not Amazon?

Because you can get the experience at Ulta through your different brands that you can't find at Amazon, and also through your consultants at Ulta. What do you like, Steve? I think Ulta sounds good. I may have to go this weekend. After you go to the Olive Garden. Absolutely. All right, guys.

Thanks for being here. Thanks. That's going to do it for this week's show. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. We'll see you next week.