Motley Fool Hidden Gems Investing - Earnings-Palooza!

Episode Date: February 2, 2018

Amazon, Alphabet, Apple, eBay, Facebook, McDonald’s, Microsoft, and PayPal report earnings. And Hostess takes the cake with its new bonus plan. Our analysts weigh in on those stories and share some stocks on their radar. Thanks to LegalZoom for supporting The Motley Fool.  Get special savings by going to LegalZoom.com and use Fool at checkout. Learn more about your ad choices. Visit megaphone.fm/adchoices

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They're not a law firm, but their network of independent attorneys can help keep you on track. For special savings, go to LegalZoom.com and enter the promo code FOOL at checkout. That's LegalZoom.com. Everybody needs money. That's why they call it money. The best things in life are free. But you can give them to the birds and bees. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show. I'm Chris Hill, and joining me in studio this week,

from Million Dollar Portfolio, Jason Moser and Matt Argersinger, and from Hidden Gems in Canada, David Kretzmann. Good to see you, as always, gentlemen. Hey, Chris. It is earnings palooza. We've got so many big companies with earnings this week, we didn't even schedule a guest. But as always, we'll give you an inside look at the stocks on our radar. AAA kicking things off. Alphabet, Apple. Let's start with Amazon. Fourth quarter profits for Amazon came in at a record $1.9 billion. Good enough to send the stock up 5% on Friday, Jason, hitting another, but probably not the last, all-time high.

Not too shabby, right? I'd venture to guess that every single person in this studio put Amazon to work this holiday season. And I think perhaps the disconnect today between perhaps Amazon bears and the stock price, I think it centers around the opportunity that still exists. And so, if we look at this in context of competition out there, Amazon just chalked up sales of close to $180 billion for the year. And that sounds great. I mean, we're all very happy about that. But when you look at Walmart, which is its fellow competitor in the space, and making good moves, I might add, as well, Walmart's trailing 12-month revenue is $495 billion. So, significantly higher than that of Amazon, which I think just tells us

how much opportunity is still out there for Amazon to capture. And let's remember, too, I don't think there is a Walmart web services side of the business. So, when we think about AWS and how much success they've had in such a short period of time, I think that's what really has investors so excited about the future of this company today. Yeah, what's really staggering is they dramatically accelerated their growth this quarter compared to the same quarter in 2016. So, in the fourth quarter of 2016, Amazon grew sales 22%. This quarter, 42%, as J-Mo mentioned. I'd say if there's one potential yellow flag or thing we want to watch going forward is free cash flow production dropped a good amount this year. Obviously, with Amazon, as patient,

long-term investors, we're happy with them foregoing earnings to reinvest back in the business. But along the way, free cash flow has generally steadily increased. But in 2017, free cash flow was $6.5 billion. That's down from almost $10 billion in 2016. So, something to watch there. I think Amazon sealed the deal today. I think this is going to be the first publicly traded $1 trillion company. Really? Yeah, I think it is. I mean, I know we're going to talk about other companies today

that are in the mix, but I just think they did it today. They've set the stage. The way the growth is accelerating, as Jason and David are talking about, the momentum is there. See, I think they're not the first to $1 trillion. I think they're the first to $2 trillion. That might be the safer bet. That could probably be the safer bet, because, yeah, Apple is so close already. But, I mean, listen, this quarter, North American retail operating margin was 4.5%, which, that is great. I mean, they have not touched that level in some time, if ever, really. And it really just shines a light on how efficiently the business runs, how good of an operator this team is.

And I think that we're going to see that play out in the international segment here over the coming decade as well. They're chalking up losses right now, but this is a very long-term focus management team. And then Amazon Web Services operating margin up 30 basis points from a year ago. This is the one that retail segments can't ever attain these margins, but that's going to be a big contributor to the business as well. Apple sold 77 million iPhones in the fourth quarter, and that's actually a bit lower than it was a year ago, and shares of Apple falling a bit on Friday, despite the fact, Matty, that as impressive as the nearly $2 billion in profit that Amazon put up, Apple's profit is a whole lot higher than that. Yeah, this is a totally different business.

And we're talking about $20 billion in profit. So, with 10X on Amazon, I still think Amazon's going to be a bigger company, believe it or not. But, yeah, you mentioned the number of iPhone sold was down, it's $77 million, still a staggering number, by the way. But actually, if you look at the quarter, there was one less week in this quarter in 2017 than there was a year ago. And you have to remember, the iPhone X, it didn't come out until early November. Previous new iterations of the iPhone have come out earlier in the year. So, I think there's some catch-up there. So, I'm not too worried about that down 1% number in terms of iPhone sold. Revenue was still up 13%, $88 billion. They did $239 billion in revenue

for the full year. That's just an impressive number. I'd be remiss if I didn't say that they have $285 billion in gross cash on the balance sheet. Just to put that in a little bit of context, Apple could buy Disney and Netflix and still have cash left over. Disney, Netflix, hint, hint. The numbers here are obviously staggering. I'm going to go out on a limb here. Even though they didn't sell as many iPhones as analysts were expecting, I think Apple's going to be okay. I think this is a case where Apple didn't miss expectations. The analysts missed. They misunderstood Apple. They underestimated the company. But with Apple, something else to keep in mind is the CFO mentioned that they're looking

to bring their net cash position down to a neutral level. So, that means in the coming years, presumably, they'll be investing over $100 billion, whether it's in acquisitions, maybe Netflix, maybe Disney, stock buybacks, increasing the dividends. So, a lot of opportunity there. Yeah, one more really positive number I want to point out is just the services revenue side of the business, which we've talked about. Services revenue climbed 18% to $8.5 billion, over $31 billion for the full year. Now it accounts for about 15% of Apple's total revenue. They also have 240 million paid subscribers for various services in the Apple ecosystem. I just think that is a key number to watch. I mean, we know the iPhone is still the main

thrust of the business, but as long as that services business keeps growing, the number of paid subscribers keeps growing, that shows you how sticky the platform is. Here's how high expectations have gotten for Alphabet. Fourth quarter revenue was up 24%. That is the 32nd straight quarter of double-digit revenue growth. Shares of Alphabet falling 5% on Friday. Eight years, David? Eight years of double-digit revenue growth? That's not enough? I don't know what else Alphabet can do. This was an incredible quarter, as we've come to expect with the company. Revenue up 24%, net income of $7 billion or so for the quarter. And that growth is really coming

across the world, whether it's here in the U.S., the Americas as a whole, Asia, Europe, all of those regions are growing 20% plus. They continue to see the headwinds of their search traffic costs, or essentially, customer acquisition costs, increasing a bit, and that's primarily because mobile search is more expensive than desktop search. That's nothing new. You saw total paid clicks across their properties up 43%, but the cost per click, the revenue they're getting per click, down 16%. But a lot of incredible things here with the business still making about 85% of the business from advertising, so that's the main revenue driver. But when you're looking at Google Cloud, their hardware business with more and more devices,

YouTube, there's a lot to like. When Facebook reports earnings, there are a lot of metrics that Wall Street likes to look at. Here's one that seems relevant. The price that Facebook charged for ads in the fourth quarter increased by 43%. Jason, that seems pretty good, especially when you're an advertising business. It's not bad at all. And I mean, I think that Facebook, ultimately, Facebook just seems like it's bulletproof, right? I mean, we were going into this quarter thinking there were going to be some concerns in regard to the fact that they were starting to push advertisements and content for publishers down on the timeline to sort of help bubble up more of the personal

connections and whatnot, kind of get back to the core purpose of Facebook's existence. I don't know that that necessarily is going to be as big of a problem as some may think. I think that this is a testament, really, to the size of a network being such a great competitive advantage. And that's really where Facebook is just executing so well. There's so many people participating on those platforms, whether it's Facebook or Instagram or WhatsApp or Messenger. A couple of big question marks there, I think, still with WhatsApp and Messenger, how they're going to really monetize those. But to me, I mean, this all goes back to Mark Zuckerberg saying that helping people connect ultimately is more important for him than maximizing the time they spend on Facebook.

I think he's genuine when he says that. And I think he's got kind of a nice balance there with Sheryl Sandberg helping run the business side to sort of marry the business along with his visions of what Facebook can do for the future. Last fall, we had David Kirkpatrick on the show. He is the author of the bestselling book, The Facebook Effect. He got a lot of access to Facebook years ago. And part of what you said, Jason, some of the media coverage this week about Zuckerberg in particular

reminded me of something that Kirkpatrick said on our show. His North Star does not have to do with profit. And that's something that you have to be extremely cautious about as an investor, is that Zuckerberg did not do this for the money. in the end, in my opinion, he cares more about Facebook having a positive impact on the world than on it having a positive impact on the pocketbooks of his shareholders. And that's one of the things he went on to say, sort of echoed your point, Jason, about Sheryl Sandberg is there really to focus on the business. But Matty, anyone who thinks

that Zuckerberg is going to do anything for an extra dollar of profit probably isn't paying attention. I totally agree. I think as foolish investors, we like to see the grander vision lead the business as opposed to the profit vision. And honestly, we see that with Amazon. I think Jeff Bezos didn't set out, I mean, he likes making money, as all of us do. He didn't set out, I think, to make billions of dollars and become the richest man in the world, which he now is. I think he said, I want to build a company that's the most customer-centric company in the world. And he's accomplishing that. And that's always been the driving force. And I think that was a great comparison there with Amazon. I had actually made note of the

same thing. I think that Facebook stock gets a similar pass. I mean, we know that in the near term, expenses are ramping up for these guys. They're going to spend more money on trying to make the platform better and safer. That means hiring a lot of people to get in there and actually sift around and weed out that nasty content. And we saw already, they're completely eliminating Bitcoin and cryptocurrency advertising from that platform altogether. So, I think, yes, the market gives them a little bit of a pass because of the size of that network and the possibilities that the future holds for something like this. Yeah, I think over the long-term, serving society or having a platform that is a net

benefit to society and generating profits, those aren't mutually exclusive things. A lot of us here at The Fool, we follow conscious capitalism, the idea that you can do good and make money at the same time. So, over the long-term, I think this is a net positive for Facebook. More earnings from tech, gaming, restaurants, and more. Stay right here, you're listening. to Motley Fool Money. Thanks to Eero for supporting this episode of Motley Fool Money. Eero, E-E-R-O, never think about home Wi-Fi again. They just introduced the second generation Eero

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and at checkout, select Overnight Shipping and then enter the promo code FOOL to make it free. Thanks to Eero for their support. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Matt Argersinger, and David Kretzmann. Microsoft's third quarter profits and revenue came in higher than expected. David, Microsoft's cloud computing division continuing to get it done. Yeah, the big driver there is their Azure business, which has generated 90% plus growth for 10 straight quarters. It was up 98% this quarter. Microsoft, though, is still growing overall sales much slower compared to some of the

other tech giants that we've talked about today. So their overall revenue this quarter was up 12%. That's because their Windows and personal computing division, which still makes up the bulk of their revenue, only grew 2%. But you're seeing a lot of growth with that office and productivity segment, the cloud segment, as you mentioned. LinkedIn becoming a net positive addition to, obviously, sales and increasingly earnings. They've done a lot with the news feed there, allowing users to upload videos, different things like that, to increase engagement, which seems to be clicking. So, yeah, a lot of nice things to like here. And as the cloud and the productivity segments continue to become a larger portion of overall sales, I think you'll see

ongoing sales growth. Third quarter profits for Alibaba rose 35%, but that was not enough to keep shares of China's biggest e-commerce company falling 8% this week. That seems a little bit like an overreaction. It does, because it's interesting that it doesn't seem like Alibaba is getting the same pass that Amazon would in terms of, hey, we're going to sacrifice short-term profits for long-term gains. And that's kind of what Alibaba is doing. They're investing a lot in brick-and-mortar and grocery logistics operations. They're kind of following the Amazon blueprint a little bit, investing a a lot of capex and a lot of R&D right now into expanding the platform. But on the top

line, everything's roses, right? Revenue was up 56%, $12.78 billion. That beat expectations. The core commerce business was up 57%. Digital media, entertainment grew nicely. And cloud computing business, which we see with all these companies, more than doubled. So, obviously, a lot of great things happening there. They also took a 33% stake in Ant Financial, which runs Alipay, which used to be part of Alibaba, but has now become kind of a PayPal-like business. It was separated from the company when Alibaba went public. They're reacquiring a stake in that and foregoing some royalty payments. And that's the idea of, you know, we want to be more involved with payments going forward. Although I have to mention that Ant Financial, Alipay, they've been

losing market share to Tencent and other competitors. So, who knows if that turns out to be a good business. If you like Chinese e-commerce, I would recommend looking at JD.com instead of Alibaba. Alibaba has got so many moving parts. Jack Ma is a little bit of a, I don't know, rock star. So, go to JD. It's more of an Amazon-like business. They've already built out this impressive fulfillment center network throughout China. A little bit of a safer play, in my bet. Is it more focused? Because as you said, Jack Ma, Alibaba, they're doing a lot of things. Right, exactly. JD is really just, hey, we just want to be the Amazon of China. We don't want to do anything else. McDonald's put up some impressive

same-store sales numbers in the fourth quarter, 4.5% growth in the U.S., and even better globally, Jason. Shares down this week, nevertheless. It really does feel like there's been a shift with McDonald's in terms of the expectations. Because a few years ago, people would have done handstands and cartwheels if they had put up these kind of comps. Yeah, I mean, we talk about this with restaurants. Eventually, you become a victim of your own success. And I think McDonald's has hit this point. Now, with that said, I I think CEO Steve Easterbrook is all right with that. I think the story is really boiled down to taking a worldwide brand, modernizing it, and bringing it along with that vision

of Easterbrook's as a modern, progressive burger company. And so, we've seen investments in delivery and digital and this thing they call the experience of the future. Something's working because comps are up, traffic's up, operating profit's up, the re-franchising efforts have paid off here. And now, you've got a business where franchises represent 92% of the total store base versus 81% just three years ago. And so, that's a lot of overhead they eliminate while still being able to participate on the profitability side. So, all in all, this is a business that continues to do very well. And of course, people who have followed McDonald's for a long time know that McDonald's

is kind of a real estate business as much as it is a restaurant. And so, the fascinating to me is, even though now more than 90% of their stores are franchises, in most cases, McDonald's still owns those buildings, still collects rent in addition to the franchise fees for all its franchisees. So, the margins for this business are now through the roof. Anyone in here been to a McDonald's in the last year? Not lately. It's weird. All this traffic, and yet, in the room, we're just a bunch of no's. Oh, I see Mac behind the glass, or carbon is fit.

Producer Mac Greer. And you don't even need to go into the restaurants. Now, they've rolled out delivery in, I think, over 10,000 locations, so you can just conveniently have it delivered. Quick question, Jason. It seems like a couple of years ago, the big story inside the restaurants for McDonald's was, they were testing out a higher-end burger concept, along with the kiosk ordering, that sort of thing. I don't really hear any talk about that anymore. I'm wondering if Easterbrook has just shuttered that project. Well, that's not right up their alley. I think what they're trying to do is figure out a way to invest in higher quality ingredients,

sort of eliminate maybe the frozen nature of a lot of that supply chain. But as we've seen from Chipotle's troubles over the past, like, 20 years it seems now, I'm not going to say it's been that long, but it is just really difficult actually to marry the fast food side of things with high-quality, locally-sourced ingredients. Shares of Electronic Arts up 10% this week and hitting a new high after third-quarter results. David, their third quarter, they posted a loss of nearly $200 million. That's tax stuff, right? Yeah, mainly tax stuff.

And the results for this quarter were actually a little bit below what management had guided for, mainly because of the backlash they had with Star Wars Battlefront II. There was a lot of backlash when that game was launched in November about the high cost of credits that players needed to unlock key characters like Luke Skywalker, Darth Vader, essentially would have to play the game for some estimated 40 hours, or pay up and buy those credits to play those hallmark characters of the franchise. So, they faced some backlash for that, they sold about a million less units as a result. At the end of the day, that didn't really matter, primarily because of the live services business, which grew nearly 40% to

about $800 million in net bookings for the quarter. That's the stuff like the in-game microtransactions, live competitions with other players online. And they ended up raising their guidance going forward because of the strength of that live services business. So, you're just seeing that digital component, that microtransactions and live competitions component become a huge driver of the business. Yeah. I just wonder, though, if we're getting closer to a tipping point. Because if you go back, microtransactions was kind of a nascent thing that all these video game companies did. You pay a reasonable cost to play the game, and then you'd buy a map or you'd buy a character for some nominal fee.

But now, I think it's actually become the business model for Electronic Arts, Activision, Blizzard. And I just worry that the backlash to Battlefront 2 could be like that point where, OK, we've got too many microtransactions, we're asking too much of our players to pay additional money, and maybe that changes a little bit. Yeah, it's definitely a thing to watch. There was a legislator in Hawaii who basically had a press conference after this backlash with Battlefront 2 saying maybe we should look at regulating this similar to online gambling. More earnings coming up. This is Motley Fool Money.

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Write your 2018 story now at LegalZoom.com and get special savings. That's LegalZoom.com. LegalZoom, where life meets legal. LegalZoom.com and enter the promo code FOOL. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Matt Argesinger, and David Kretzmann. Strong fourth quarter for eBay. Revenue for the holidays up 9%, and the stock, Matty, was up more than that. It was a strong quarter. I have to admit, after eBay spun off PayPal a few years ago, I started ignoring eBay just because they had, revenue had kind of flattened out. I knew they were losing a lot of users. You're not the only one, don't feel bad.

Okay, well, good. But, you know, just catching up with the company now, it's very impressive. As you mentioned, revenue up 9%. Active buyers across all of eBay's platforms up 5% to $170 million. I didn't even know that number was that high! And then, marketplace gross merchandise volume, key figure for eBay, climbed 9% to $23 billion. StubHub gross merchandise volume up 16%. I think eBay has always been a highly profitable business. They generated almost a billion dollars in operating cash flow, of course, buying back a ton of stock. I know that eBay seeded the e-commerce throne to Amazon many years ago, but I have to say, it's impressive to see the business growing this nicely, the users they have, the cash they're generating.

I'd be permissive if I didn't mention this, though. I know where he's going with this. Oh, I know where I'm going. Well, back in October 2016, so let's say 16 months ago, They sold their 18% stake in MercadoLibre for around $168 a share. How did that work out? Last I checked, MercadoLibre shares are around $375. No bueno, Chris. No bueno. That decision alone cost eBay, at this point, about $1.5 billion and climbing, not to mention a foothold in Latin America, which I think could have been a nice growth

market for eBay. That kind of always casts a pall when I start looking at eBay. I think you have to look at eBay as a slower and steady business. They have a pretty decent core business, as Matt highlighted. Last year, they generated about $2.5 billion in free cash flow. But part of me wonders how long eBay will be an independent company. I think this could be an attractive acquisition target for Alibaba, which is just swimming in cash at this point, might be looking to make a bigger push into the U.S. and North America. And that would be some sweet vindication on Alibaba's part, because they really had some fierce competition with eBay in China last decade. So, that would be kind of a coming

full circle competition there. Yeah, I think that's a great point. I think Alibaba is looking to make inroads, and that would be a natural fit for Alibaba's business. Shares of PayPal fell 10% on Thursday after fourth quarter results were followed by lowered guidance for 2018. Help me out, Jason. The quarter was good, and they lowered guidance by the tiniest amount. How much of an overreaction was this? Well, I was just thinking about what David said, swimming in cash. I mean, that just paints a nice picture. It's a bucket list thing, man. I like swimming in cash all day. Plus, I think PayPal's network and utility extent, they extend so far beyond eBay at this point

that I wouldn't really put much concern in this at all. COO Bill Reddy. Yeah, this was part of eBay's announcement that, oh, by the way, PayPal is no longer the go-to. It's still on our platform. It's no longer the go-to payment on our platform. Exactly. And this wasn't a surprise either. And it's something that is occurring over time. It's not like tomorrow, they're just going to hit a switch. But COO Bill Reddy noted also, and this is a good point, retail partners tend to have multiple payment providers. And that's not going to change. PayPal is typically one of those payment providers. And interestingly enough, because of the network, because of the data, because of this fact, this is a trusted brand

that many people use, the conversion with PayPal clients tends to be twice that of the other providers that are jumping into the space. All in all, it's just to say that PayPal users tend to make these businesses more money. Therefore, PayPal remains an attractive partner. This volume was going to come down over time just as PayPal grows. Just to put it into context, payment volume tied to eBay this quarter was 13% versus a year ago at 16%. That number is going to keep on coming down. But the network, they have 227 million active accounts now, engagements up, meaning more payments going through on a yearly basis per active account. And I think, most importantly, PayPal has earned a reputation of trust in

this business, which I think is crucial. Yeah. I mean, if this would have happened a couple of years ago, I'd say it's a little bit more worrisome for PayPal. But even if you look at the tens of millions of sellers on eBay who now have this other option, they're probably selling stuff at other sites where they're using PayPal. And so, the fact that it's now kind of a default option. I don't think that takes too much share from PayPal on eBay. Fractional. Don't you think part of what we saw with some of the stocks dropping this week is people taking profits? Because here are three very different businesses. PayPal, which stock has doubled in the last year. Microsoft shares

up 50% in the last year. McDonald's shares up more than 40% in the last year. All putting up really good numbers. I don't begrudge anyone for maybe taking a little money off the table, but that has to be at least part of what we're seeing in these cases, isn't it? I think it definitely is. I mean, in PayPal's instance, I think that if we even consider about a $1 billion tailwind, they're going to feel on the free cash flow side with this synchrony deal. Even with that accounted for, the stock was trading at somewhere in the neighborhood of 35 times free cash flow. That's expensive. There's no question about it. So, this sell-off, not a terribly big deal, and it really just kind of brings the stock back to reality.

Yeah, in most cases, a lot of these companies, they've run up so much that even with this week's sell-off in a lot of these companies, they're back to where they were maybe a month or two ago. Don't worry, Chris, the war on cash continues. In the wake of the new tax laws, some companies have been handing out $1,000 bonuses to their employees. This week, Hostess Brands raised the bar. Hostess announced the following one-time bonuses for employees. $750 in cash, a $500 contribution to their 401 plan, and, wait for it, a year's supply of snacks. Every week this year, a representative from one of the company's bakeries will choose a different product which employees will take

home in multi-packs. Let's put the snacks aside for a second. Those first two, that's fantastic. And I personally love the way that they did it, where it's like, here's some cash, and just the encouragement of a 401k contribution. I love that. I was reading that article. I was really impressed by that as well, because I haven't noticed in any of these other bonus press releases that companies were doing that. And over the course of the last week, I was thinking, man, you know what would be cool is if companies would offer a choice between the cash bonus or maybe even a little bit more of an attractive restricted stock award that vests over two, three, or four years. And you could

really encourage people to kind of think maybe a bit more long-term and think a little bit more about accumulating wealth, as opposed to a bonus that more than likely just leaves the checking account faster than it got in there. Part of me just wonders, if you're working at Hostess, especially if you're on the Twinkie assembly line or whatever they have, aren't you already just snagging some of those when no one's looking? Just, oh, I'm going to grab one of these. So, I don't know how much of a bonus this really is. I thought you were more ethical than that, if that's your mindset.

I mean, let's be realistic. It's a temptation just going right by you all day. So, I love the way they're doing the snack part of this, because it's not just, ah, here's your allotment, just take whatever you want. It's like, they've got a bunch of different snacks, and it's like, hey, this week it's Twinkies, take your multi-pack, this week it's Ho-Hos. Are you up for that, Matty? You know, if they were going to make a comparable contribution to my healthcare benefits, maybe I'd be interested in doing that.

I wonder if they're taking that into account. Free cholesterol test, along with the snacks. Let's go to our man behind the glass, Steve Broido, to get him to weigh in on this one. Steve, you're an experienced investor. Surely, you applaud the way Hostess is doing the financial contributions here. Absolutely. And all I can say is, zingers. So, that leads to my second question, which is, Twinkies. So, you're just saying, oh, it's Twinkies this week? No, thanks. I'll take the zingers. That's what I'm saying, I'll take the zingers each week. Don't you think this raises the very

real prospect of a secondary market? Because Steve's not the only one who has a certain preference. There can't be every employee at the Hostess Brands Company loves every snack. They've got their preferences. So, doesn't it lead to a black market style trading center? Even better, Chris, it leads to a crypto market. So, we're going to have Zinger coins, HoHo coins, Hostess tokens. Alright, Steve's going Zingers. I'm going HoHos. What about you, Jason? Oh, it's Ding Dongs all day.

Wait, Twinkie? Come on, man. Ding Dongs like the cupcake with the cream and chocolate. Is it worth even asking the healthiest person in this room, David Kretzmann, what his preference is on Hostess snack cakes? Well, I can't even eat gluten because I have celiac disease. Does Hostess actually make anything that you could possibly eat? It's pretty much package poison for me. I'll go with Twinkies because if I'm dying and I want to try one of their products, which I haven't done at this point, I'll go with the Twinkies. Go with Twinkies and sell them to Matty. There you go.

Can't go wrong. Coming up, we're going to dip into the Fool mailbag and we'll share a few stocks on our radar. Stay right here. 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.

Chris Hill here in studio with Jason Moser, Matt Argesinger, and David Kretzmann. A couple of housekeeping notes, guys. You can check out past episodes of Motley Fool Money and all of the Motley Fool's podcasts by going to podcasts.fool.com. And if you listen to the show on Apple Podcasts or Stitcher and you feel like leaving us a review, we'd appreciate that, especially if it's a nice review. So, thanks. Earlier in the week on our Market Foolery podcast, we talked about the Fool 100 Index. And if you'd like more information on that, just go to Fool100.com. That's Fool and the number 100, Fool100.com. Before we dip into the Fool mailbag, guys, some stocks hitting all-time highs this week.

And a question that we get pretty steadily, certainly over the years throughout this bull market, has been from individual investors who feel a little bit of trepidation about buying stocks at an all-time high. And just, Matty, on a gut level, I totally understand that. Because who wants to buy it? That goes against the first thing we all heard about the stock market, which is, buy low and sell high. Right. We all love David Gardner, of course, and his mantra has always been, buy high or buy higher. Buy great companies, hold them. And you know what? If a company is doing well, as a lot of these companies are, reporting record results and hitting record stock prices, that's usually the time,

if you believe in the company long-term, to add to your position. It feels wrong. It feels wrong every time I do it. But really, the best winners I've had in my lifetime, in my portfolio, are the ones where I bought early and bought them again much higher than they were when I first bought them. And also, think about it just this way. You may not actually go out there and purchase an individual stock, but if you're working and you have a 401 like we do, I mean, we're buying stocks every couple of weeks, right? I mean, every pay period, you have a little bit more money going into that market. And that's the point, really. You're buying the good times, you're buying the bad times,

because you can't really predict when they're going to happen. But over long periods of time, the results work out. Well, and the other thing, Jason, is, I mean, some of these stocks that we've already talked about hitting all-time highs, it's not like, as Ron Gross would say, they're firing on all cylinders. Like, Facebook, for as great as Facebook is, there are still parts of that business that you can look at and say, boy, you've got room for improvement. Yeah, they're not scoring perfect 10s. I mean, I think with Facebook, it's a funny disconnect. I'm amazed by the business. I really don't use the product. I'm not a Facebook platform fan. I don't have an Instagram account. I get how those are monetized. But man, they shelled over a lot of cash for WhatsApp. And I

have not heard yet even a sniff of a compelling idea to monetize that business at a meaningful scale yet. I can't help but wonder what's going on with WhatsApp. And Messenger, I don't know that the advertising model works as well for text messaging. It just seems to be very intrusive. So, I'm not all that optimistic, but they just split that out. But the WhatsApp thing, that's still a big question mark for me. Well, and David, same thing with Microsoft. I mean, great quarter, stock hits an all-time high. There are still big parts of Microsoft business that they could do better at. Yeah, I think with Microsoft, their core PC business only grew 2% this last quarter,

as we mentioned at the top of the show. That's become a drag on overall sales growth. And they have two other segments that are, for now, growing at a nice pace. But if they want to keep up with these other tech giants, they need to figure out how to revamp that PC growth. Matty, when it comes to Amazon, is there a part of that business? I mean, to Jason's point about WhatsApp, I feel the same way. I look at that and I think, I know you're doing well, I know you're making a lot of cash, you still spent $19 billion on WhatsApp and we haven't heard what you're going to do with it. Is there a part of Amazon's business that you look at and you kind of scratch your head a little bit?

Not really, because it seems like everything's going well. But if I had to pinpoint one thing, a recent thing, is that Amazon's big jump into grocery, especially after the acquisition of Whole Foods, traditionally a very tough, highly competitive, very low-margin business. And they're investing a lot into it. It might work out, it might work great, but history is not kind to big grocery companies. And so, this could end up being a place where Amazon pours a lot of capital in, it doesn't get a great return for shareholders. Well, and that grocery store that they struggled with in Seattle, that they finally opened to the public. It's going to be really interesting to see in the next 12 to 24 months how successful

that automated grocery store is, and the extent to which, if any, they decide to roll that out across America. Exactly. Our email address is radioatfool.com. From Sam Kater, Sam asks, what is the best account to buy stocks for my kids? I looked at the custodial account and noticed that the rules and regulations are kind of cumbersome. Is it a good idea to buy under my name and then gift it to my kids when they become adults. Thanks and keep up the good work. What do you think, David? Well, as someone who's been the recipient of a custodial account, that's the type of account I started using when I was 12. My dad and I set up a

custodial account. So I had access to the account, but it was in my dad's name. So you can set up where a parent or guardian has control of the account, but the minor can also be involved. So similar to setting up a custodial saving account, pretty similar process there. Then And really, once I turned 18 or 19, I was ready to take control of the account. We basically just called up the brokerage, and it was a pretty straightforward process. I think as the parent or the guardian, you will have to deal with the tax implications. But for getting young people involved, ideally, either you're investing for your kids or maybe helping loop them into the process and get familiar with buying and selling stocks.

So, a custodial account, I think, is a pretty straightforward and easy way to go. Or maybe if things go sideways with your kids, maybe you stick them with the tax bill. Why not? I like that solution either way. Jason, broadly, when it comes to buying stocks for your kids, to the extent that you can get them involved, how do you like to approach that? Because I know you've done that with your daughters. Yeah. We really just talk about the things that they experience in their everyday life, the things that they're using, the trends that they're seeing at school, being able to look at life as they see it, and then recognizing

the opportunities that are out there. I mean, sometimes they'll not realize that maybe a company owns something that all of their friends use, or there's this big opportunity that's up and coming. So, it's really just about seeing the world through their eyes. So, maybe not Boeing. For as great as Boeing has done in the last six weeks as a stock, maybe not Boeing. Well, we all jump on planes, Chris, but that doesn't mean I want to invest in one. Alright, let's get to the stocks on our radar. And our man behind the glass, Steve Broido, will hit you with a question. David Kretzmann, you're up first. What are you looking at this week?

Well, speaking of possible stocks for kids, the stock on my radar is Hasbro, ticker H-A-S, the company with a lot of dominant toy brands and characters that we're all familiar with. They also have the licensing deals with companies like Disney, with the Princesses, and Marvel, and Star Wars, all those different properties. Mattel just recently reported another so-so quarter. That company's been in a steady decline the past few years. And Hasbro, to its credit, has really taken advantage and is clearly the dominant player in the American market, certainly. And they're just a slow, steady, reliable business. Free cash flow continues to tick up over time. The stock's trading at a reasonable 20 times trailing earnings

valuation, 2.4% dividend yield. They're very reliable, raising that dividend over time. So, I think there's a lot to like here. Steve, question about Hasbro? What percentage of their business is digital in apps and games and things like that? Well, I don't know off the top of my head. I haven't looked at the latest quarter. But ballpark, it's between 15% to 20%. With some of these brands, they'll have some digital games, they have the movies, but altogether, I think that 15% to 20% number is what comes from digital. Jason Moser, what are you looking at this week?

Well, Chris, this week in stocks I would avoid, I'm taking a look at Snap. Ticker is S-N-A-P. Earnings are coming out Tuesday, or lack thereof, rather. I have a really hard time understanding why the market is still paying up so much money for this company, as it seems like more red flags come up. It seems to me that, if anything, the platform is becoming a little bit less relevant, and I think you could see that from the move to attempt to share content across other social platforms. It seems like, from the initial commentary, that this redesign that they put a lot of work into is not being received very well by users. I really have a hard time understanding why this stock doesn't get cut in half, even from today's levels.

Steve, question about Snap? We talked about your kids earlier. Are they on Snapchat and turning themselves into little animals and whatever you do there? I can proudly say that neither of our two daughters is on Snapchat, and that's because we won't let them on Snapchat. Matty, what are you looking at this week? Well, a few times on the show recently, I've talked about real estate investment trusts, REITs. If you look at REITs, they've just really underperformed the market over the last 18 months. It has a lot to do with the rise in bond yields that we've seen, which kind of act as competition to REITs. But if you go back over the last 40 years, and I'm

actually going to be sharing a lot of this data with some of our members in San Francisco next week, but REITs have generally outperformed the market with less volatility. And so, rather than throwing out just an individual stock I like, I'd just say, if you want to bet on REITs, and maybe a rebound here, I would look at the Vanguard REIT ETF, the ticker is VNQ, extremely low-cost fund, as all Vanguard funds are, and it yields over 4%, a great conservative way to play REITs. Steve? Hypothetical. If electric cars take off in, let's say, 20 years, and people don't have to worry about traffic, they can live further out, do REITs get hurt by that or helped?

Tricky. It depends on what kind of REIT you're talking about. Maybe multifamily apartment REITs would get hurt, because, yeah, there'd be less desire to live in closed-in urban centers. But I'd say, overall, REITs should do just fine. Steve, three very different stocks. You got one you want to add to your watch list? I think I'm going with REITs. Yes! Really? Jason didn't tempt you with his endorsement of Snap? Not so much.

How grown up of you, Steve! All right, Jason Moser, Matt Argesinger, David Cressman, guys, thanks so much for being here. Thank you. That's going to do it for this week's edition of Motley Fool Money. Our engineer is Steve Broido, our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.