Motley Fool Hidden Gems Investing - Facebook Soars, Disney Delivers

Episode Date: November 6, 2015

Facebook and Visa hit new highs. Disney's theme parks deliver while TripAdvisor loses some altitude. Our analysts discuss those stories and weigh in on stronger-than-expected jobs numbers. Plus, Motley Fool columnist Morgan Housel talks market volatility and shares some fatherly financial advice.   Learn more about your ad choices. Visit megaphone.fm/adchoices

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That's why they call it money. 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, from MDP and Motley Fool Rule Breaker, Simon Erickson, and from Motley Fool Deep Value, Ron Gross. Good to see you, as always, gentlemen. Hey, who? We've got the latest on real estate, restaurants, and industries that start with letters other

than R. We will dip into the Fool mailbag, and as always, we'll give you an inside look at the stocks on our radar. But we begin this week with the big macro. The October jobs report featured 271,000 jobs added and unemployment falling to a seven-year low, Ron Gross. This is a strong report. I fear I don't have anything negative to say, which really scares me. Strong report. I think the biggest thing besides that blockbuster number is the wage number. Average hourly earnings actually increased nine cents. Doesn't sound like a lot. Translates into an annualized growth rate of 2.5%, best since 2009. So we've got low unemployment at U6. Full unemployment

number we talk about down under 10% now at 9.8, best since May 2008. So we've got good job growth, we've got wage growth, finally. The only cynical thing I'll say is that probably means a rate hike is coming in December. At least it gives the Fed the ammunition it needs if it wants to do that. But overall, I really think this is a strong report. Yeah, but Jason, you're not worried about a quarter percent rate hike, are you? I don't mean to jump on Ron's case here, so I really won't. Then don't! But I do think that he does pose the dilemma here, is that we see all of this

good news, and it's trying to figure out, who is this actually good news for? It is good news for people out there who need a job, it's good news for the economy, yet we're kind of stifled here with this free money interest rate policy, and at some point we need to start bumping those rates up. Actually, bumping those rates up could be a good thing in the long term. It certainly would be a bit more indicative of a healthier economy. So it's just really interesting to see good news comes out, yet the market figures out a way to frame it in a pessimistic way. You have this dilemma, the Main Street versus Wall Street. I think that becomes a little bit more of the forefront here as we talk

more about these good jobs numbers. O' Wait, wait, wait. So, you're saying we don't get free money forever? Well, I mean, you know, we could talk after the show. Alright, let's get to some of the companies reporting earnings this week. Facebook's third quarter profits rose 11% and shares of the social network hitting an all-time high this week. Simon, if Apple is all about the iPhone, it kind of seems like Facebook is all about the mobile. The mobile, yes. Mobile was 78% of ad revenue this quarter, Chris. Continues to

be the foundation of this business. Facebook's now 1.55 billion monthly active users. I mean, this is a $300 billion company. We've talked before, I think it's going to be the first trillion-dollar company, as we've said on the show previously. But I don't think investors have missed the boat, even with the fantastic gains this company has seen. Facebook's on track to do about $16 billion of global ad revenue. That's about two-thirds of the global spend on social network advertising. But it's still only 4% of the total worldwide ad spend, but it's becoming more and more important over time. Jason, it's kind of hard to believe that once upon a time, there were legitimate

questions about whether or not Facebook could make money off of mobile. We all have them, and I think now we've completely hit the other end of the spectrum where they are starting to report these numbers that become mind-numbingly large. And so, I mean, I even posed this as just a Twitter poll. I wanted to get a quick feel of, like, which absurdly large number loses more meaning as the quarters go by, Apple's cash or Facebook's users? Now, it was actually pretty close. 56% said Apple's cash, 44% said Facebook's users.

But I do think it's interesting, just it is a pretty close little race there because you are at the point now where these numbers are so large. Show me something else here. Are they going to really be able to monetize? It's worth mentioning, Google still makes a heck of a lot more money than Facebook at this point. Granted, Facebook is growing faster, but that is a very large user base. We'll want to see them continue to grow those sales at a rapid clip. The network is very clearly in place for Facebook at this point. It doesn't matter if it's $1.55 or $1.7 billion. Now it's going back to advertising 101, which is figuring out who your demographic that you want to

advertised to is, and what kind of content you want to put in front of them. Facebook's building out some really cool tools, one of which being virtual reality, to expand on that latter part. Fourth quarter profits for the Walt Disney Company came in higher than expected. Jason, still a little bit of cord cutting going on in their cable business, but the theme park's looking pretty strong in this quarter. Theme park's looking strong. And I think that every quarter that goes by, we need to harp on the fact that there's so much strength in Disney's diversity. And really, that's

what this quarter shows again. Last quarter, remember, there was a lot of crisis in ESPN. What in the world is going to happen here? Cable subscribers are leaving. Iger on the call, Bob Iger, he may not have been defiant, but he certainly sounded very confident regarding ESPN. Honestly, I think that makes a lot of sense. I think there is a great opportunity for ESPN to get in front of more eyeballs than ever before with the over-the-top opportunities. More smartphones and tablets out there than there are TVs. Those are redefining what a TV altogether is, and beyond the parks. The studio entertainment segment there, operating income in the studio entertainment segment more than doubled, and it represented 15%

of the company's total operating income versus 9% a year ago. Now, that's thanks to success with Inside Out and Ant-Man versus the movies Guardians of the Galaxy and Maleficent from a year ago. So, either way you look at it, this year, last year, a lot of strong properties there, but I think that really shows you how well those movies performed this year. And, Ron, two words, Star Wars. That could be big. Is it priced into the stock yet? The conventional wisdom would say yes, but I think in reality we always end up finding that it actually is not the case. I always think this stock is one you can pretty much buy at any point in time, keep it as a core,

sock it away in your portfolio, and look at it 20, 30 years from now. We're about six weeks away from our year-in-review episode of Motley Fool Money, and I'm pretty confident that one of the things we'll be talking about is, at least in 2015, the duopoly that you have in the movie industry between Disney and Comcast, which owns Universal Pictures. Those two companies with nine of the top 10 grossing movies so far this year. It's pretty extraordinary. Zillow's third quarter revenue came in higher than expected, but shares still down more than 10% this week. This looked like a good report to me, Simon. What am I missing here? Well, the one that didn't really

make the headlines was 50-50, are the numbers to keep in mind. Third quarter adjusted EBITDA of $30 million was up 50% year over year, and it came in 50% over their own internal expectations. So, this is a more efficient platform now that you've got Zillow and Trulia together. The acquisition worked. And you're appealing now not only to home sellers, which is what Zillow is traditionally good at, but also home buyers, which was the Trulia piece of that, too. you. I think that this is now less about flooding agents onto this platform. You've got about 100,000 agents, but you're really appealing to the power users of this. 69% of total bookings came to existing advertisers, and the average monthly revenue per advertiser was up 20%

year-over-year. Look for the 80-20 rule to be in effect for the new Zillow. I got the sense from the conference call that Spencer Raskoff ... you were talking, Jason, about Bob Iger, what was he really trying to say. I got the sense that Spencer Raskoff was kind of trying to say, hey, look, just hold on for a couple more months. Just let's wait until we get into 2016. Then you're going to see money rolling in. He's always looking five, 10 years out for his business. It was something we love at The Motley Fool, too, and I think that's very representative of a CEO we like. Coming up, one stock hitting a four-year low, while another hits an all-time high. Stay

right here. You're listening to Motley Fool Money. Chris Hill. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Simon Erickson, and Ron Gross. Whole Foods' fourth quarter report featured the company's first decline in same-store sales in more than five years, and guidance for the next fiscal year was basically flat. Whole Foods co-founder John Mackey is a member of the Motley Fool's board of directors. Jason, you've got a bad quarter, you've got ho-hum guidance, And despite all of that, the stock was still up a couple of percentage points for the week. I'm wondering if this is sort of the bottom.

You know, so we were talking about this before Whole Foods announced. It was like, regardless of what they said, could it really get any worse? And the stock really has just had a very, very tough year. And I think that at least we're maybe seeing some element of that. I mean, the two big questions for Whole Foods investors right now revolve around comps and margins. And neither situation looks all that great here. at least in the near term. Management has certainly ratcheted back expectations in regard to both. We know that they're going to be challenged on the margin side, and comps are

very indicative of actual traffic. If your store's not getting traffic and you can't maintain some element of pricing because part of your competitive advantage is your brand equity, then you're going to run into problems. That's what we're seeing now. Now, I think the good here is that at least management has jumped out in front of here and they're owning this. They understand that this is a far more competitive environment than it was five years ago. They have nine points, nine initiatives they will be undertaking in order to try to address these challenges. Whether those actually all shake out or not, that's an entirely different story. But they will be attempting to return some capital

to shareholders in the time being, which is interesting with a debt-averse management company. They're going to take out about $1 billion in long-term debt. They're going to buy back about $1 billion in shares. But as Simon said, it's free money forever. It's free money forever. It's easy to pile on and say, hey, man, why would a company borrow money to buy back shares? Now, to their credit, it is a very low interest rate environment. And if they went with today's prices and bought those shares back, they could reduce the share count outstanding by close to 10%. The concern there is that with a business that's looking to double or even triple its store base, aren't there better uses for that money? And apparently

right now, it doesn't seem so. O' My question with them, they obviously have pricing challenges, and we see prices coming down. How low can they get? It's still a premium product. When I go in there, I'm still not getting out of there with a hit to the wallet. Is this ever going to come down to the point of where it even could compete with a Harris Teeter or something like that? So, based on what management said in the call, and I tend to take them at this, is they claim they are not going to get stuck in a race to the bottom. They intend on maintaining some element of pricing there because they continue to maintain that the quality of the food that they're selling is superior. For

the most part, that's correct. However, anybody who shops at Whole Foods and has done so over the past few years, you see that there is more 365 store brand stuff in there every week it seems like. So, they are certainly catering more towards the everyday shopper and that investment in price catch phrase that we see every quarter, that's just code before, hey, we're lowering prices and margins are going to take a hit. Hopefully, they can offset some of that with some growth in that $3.65 by Whole Foods' concept of smaller stores, but they are going up against a very competitive environment there with smaller concepts like Trader Joe's. So, a lot of uncertainty out there right now, and I think it's fair to

say that's why the market's not so keen on the stock right now. I would say what they have going for them with respect to the Trader Joe's competition is Trader Joe's is very weak on produce. O' Extremely. It's really tough to buy anything there, and Whole Foods is very strong. Yeah, absolutely. Shares of Visa hitting an all-time high this week after fourth quarter profits rose 12%, and payments volume growth for the quarter hit $1.3 trillion. That is trillion with a T, Ron.

Yeah, strong quarter. Visa having a good year, up 20% the stock so far. Global payment volume up 12%. Total transactions processed were up 8%. They authorized a new $5 billion repurchase program, and they had previously announced a 17% increase in the dividend, they're returning capital to shareholders, it's nice. So, pretty good quarter. The biggest news, however, is that they're going to actually buy Visa Europe for $23 billion. This has been discussed for quite some time. This is going to happen. The combined entities will have $2.9 billion cards in its network. It makes perfect sense to get the band back together. There used to be Becker in the earlier 2000s, one company. It makes perfect sense for Visa

really want to control their destiny in Europe and have that exposure. That's, to me, even bigger news than a solid quarter. Kind of like we were talking before, it's hard to remember that there were legitimate questions about Facebook making money off of mobile. You go back a few years, and there were a lot of people looking at Visa and MasterCard and saying, gosh, with mobile payment like PayPal and private companies like Square, etc., etc., boy, these guys might be in trouble. That hasn't played out at all. That hasn't played off at all. The business model is strong. This is one of those kind of companies that I just said before, where you can really buy this company and

just sock it away. Let it do its thing. It'll grow nicely over time. Won't knock the cover off the ball. It's not a technology company, but it's just a nice, solid company with a great business model. FireEye, the cybersecurity company, reported record revenue for the third quarter, but that was still below what analysts were expecting and the stock hit an all-time low this week. Simon, this is one of yours. What's going on, man. So, let's talk about those technology companies that can knock the ball out of the park. Or the park can knock the ball out of the park. This one, unfortunately, saw the other occurrence. FireEye set the bar too high for themselves

last quarter. They raised their forecast for billings and came up short this quarter. Market took the hammer to them. Stocks down 20% in the last couple of days, largely due to weakness in Europe. They also had a tough comp with last year's, too, when they had an eight-digit deal with the federal government. But the story for me on this one, Chris, is this shift from selling products to selling these recurring subscriptions now, which are higher margin, more profitable for investors. We saw a 59% growth in FireEye as a service revenue. About 50% of the top line is now coming from subscriptions, and they've got more than 90% renewal rates. Cybersecurity vendors are now providing a solution rather than just a product

for other customers. Let me spy you up with a quote from CEO Dave DeWalt from the conference call that's getting some attention. DeWalt on the call said, I believe this change in customer buying patterns is at least partly due to changes in the threat landscape in the wake of global cybersecurity agreements we've seen with China that is making headlines since September. That kind of sounds like he's saying, peace treaties are bad for this business. Fair point. I think that the other way to see that is, though, that cybersecurity is not something you look at as a six-month phenomenon. This is something that continues to go on. Even if you have peace treaties, or whatever you want to call them in the short

term, and there's a small decrease in a quarter-over-quarter macro market for this, there's still going to be cyberattacks out there. You're still going to have big companies that don't want to pay the $300 million like Target got hit with two years ago to clean up these data breaches. I think it's still a really big problem, and I think that you need innovation in this industry with companies like FireEye. Shares of TripAdvisor down 9% on Friday after a disappointing third quarter report. Jason, revenue is on the rise, but so are expenses. Yeah, and I'm going to push back a little bit on a disappointing quarter. I think if

you look into this, this is actually a pretty encouraging quarter. Investors appear to think otherwise. It depends on your level of patience here. I think the reason why they ratcheted back their guidance, though, is a good reason. It is this relationship with Priceline that was formed over the quarter. That is the reason why we're seeing an initial pullback in the sales growth here, because they're investing and accelerating this rollout of this instant booking product that they have, the partnership that they have with Priceline. Ultimately, that's going to do is bring a lot of inventory on a TripAdvisor's platform, which ultimately

should create plenty of traffic, plenty of commissions, and plenty of economic benefit for both companies. Now, with that said, it is certainly understandable that investors look at this and they say, wow, they missed on sales, they missed on earnings, well, let's get on out of here. But I think this is still something they haven't even lost, really. What we saw was the Priceline pop when that news was initially announced. What we have here is a business that is making investments today to ensure the long-term success of the business. Now, if we look here a year or two years down the road and we still see this sort of management team spinning its wheels and not really providing any real light at

the end of the tunnel, then I think it's fair for investors to say, OK, wait a minute, what's going on here? But for right now, this is a management team that's making good decisions to ensure the long-term success of the business. Jason, I haven't looked at the stock in a while. Is this one of those situations where it was priced to perfection, and the short-term guys are just going to sell out if the numbers don't come in as strong as they need them to be to support the valuation. I think that's a great observation. It's interesting to note that we haven't seen this stock sell off all the way back down to the levels where it stood when the Priceline

deal was announced. I think there was a lot of optimism going into this earnings announcement. Maybe that optimism, at least in the near-term, wasn't realized, and so you do see some bailing out on the stock today. But I think even the stock is coming back around a little bit. We're very encouraged over in MDP. It's a holding we have. We're constantly talking about adding to it. We've got about a minute left. You've traveled a lot, but what's No. 1 on your list of places you haven't been to yet? We'll go around the table real quick. Oh, wow. Places I haven't been. Hmm. That's a good question. You're well-traveled.

I feel like I've been to a number of places. Turks and Caicos, I guess, is one that I think would be interesting. Simon? Base camp of Mount Everest. That's not me. I'm going to Tuscany, and I've never been, and I may not come back once I get there. Yeah, but you can't get a village in Tuscany. They're all taken. That's true.

How about you, Chris? I think I'll hang out with Ron in Tuscany. Nothing personal, Simon, but I don't think the base camp is for me either. It's the bottom. That's not the top. All right. We'll see you later in the show. Columnist Morgan Housel is next.

Stay right here. This is Motley Fool Money. I've been having some hard traveling. I thought you knowed. I've been having some hard traveling way down the road I've been having some hard traveling, hard rambling, hard gambling Welcome back to Motley Fool Money. I'm Chris Hill.

Joining me in studio now, the one and only Morgan Housel. How you doing? I'm good. How are you doing? I'm all right. You getting some sleep? You're a new dad. I'm sleeping. I mean, a little.

A little bit. Less than before. We'll get to that. We'll get to that. But let's start with the last time you were on the show, it was sort of the middle of the spring, early May. The following couple of months, not particularly exciting for the stock market. The same cannot be said for the last few months we've had, where in late August, the market tanks. The bears, holy cow, the bears coming out in force and really banging the drum that this is the end of times as we know it. That's followed by October, where the market was up 9%. It's the single

best month the stock market has had in four years. When you think about that roller coaster, what goes through your mind? It had been almost four years since the stock market had declined 10%. The last time was in late 2011. That's a long time to go without a 10% decline. It was, I think, the third longest period in history that stocks have gone without falling 10%. So, I always hate to say you're overdue for something like this, because that's not really how markets work, but it had been so long since stocks fell 10%, I think people get complacent. And when they get complacent, you are setting up the odds of the market falling, become much higher. So, any sort of bad news that

hits the markets, whether it was trouble in Europe or trouble in China, which is some of the things we saw this summer, when the market is that complacent, it's been going up for so long, it's just more liable to fall. But also, people, it's really important the history of the stock market is that a 10% correction like that happens on average once a year. And when it occurs, it takes six to eight months for it to recover on average. So we almost made up all of the losses in one month in October. That recovery is faster than normal. But these sort of big events in the stock market will look like big events, I think are much more common than people think. So they really shouldn't worry investors.

But do you think that investors maybe get a little bit more worried, in part because there are so many ways to get financial information, and partly because, I mean, I don't want to just single out the bears. We have prognosticators on Wall Street who are bearish and are bullish, and they have any number of microphones available to them at any moment, whether it is to talk up or talked down a particular company, or just the market in general. So, it seems like, however prepared for volatility investors needed to be, say, 30 years ago, it almost feels like you have to really be even more prepared now, just because it feels like it's more likely now, even if it's not. What's definitely true in the media

is that fear sells much better than optimism. And not only does it sell more, it sounds more intelligent i think than optimism even if historically it's totally wrong historically you should be bullish that's what that's what history tells us we should do in the stock market be bullish over the long run but fear is always going to sound better than optimism because optimism it's easy to make optimism sound like you're complacent like like you're just saying oh everything's going to be great and everything's you know ignore sweep these problems under the rug that's what optimism can sound like whereas pessimism sounds like this guy knows something i don't. And people are much more likely to pay attention to that. It's rarely true, but

it gets people's attention. And I think that's why you have a summer like we did this summer when stocks fell 10% in August, something like that. People really start paying attention to the doom headlines and the doom opinions. It's almost always to their detriment, but people just fall into the snowballing trap of market falls and they pay attention to the doom headlines and that makes the market fall even more because people get scared and they sell, and they pay more attention to the doom. And it really kind of cascades into something, sometimes it cascades as far as something like we saw in 2008, where the doom story just goes so far that a lot of people end up believing it, and it kind of self-perpetuates.

We're in the middle of earnings season. Obviously, Apple, Microsoft, Google slash Alphabet. I still really can't get used to referring to Google as Alphabet. I don't ever want to do it. You're on the show, let's not play along. It's Google. I feel like that would be disrespectful to a really huge company. For now, I'll just go Google slash Alphabet. Do you know Microsoft used to be called Microsoftware? Way back in the day. Way back in the day? Way, way back in the day. Were you even alive when it was called Microsoftware?

No. Okay. But those companies, they're already way up there in market cap, but now we have, in the wake of their most recent earnings, we have Facebook and Amazon that have cleared the $300 billion market cap. Do you know Amazon is almost twice as large as Walmart now in market cap? Almost. Is that amazing? It kind of is. When you consider the decades-long run that Walmart had, I think that is. When Amazon was founded, Walmart was a multi-billion-dollar established company. And now, Amazon's market cap today was about $300 billion. Walmart's was, I think, about $180 billion. So, not quite double, but getting

close. It's crazy. Does the speed of Amazon's rise to $300 billion, and in particular Facebook's, which I think might be the fastest rise ever to that mark, does that surprise you? It's impressive. I don't know if it surprises me. So much of what goes on today in business is a winner-take-all society. A lot of that is because back in the day, if we're talking about 50 or 100 years ago, was much more local. Whereas today, everything is totally globalized. In that sense, it's really difficult to grow a steel company into a massive organization, because that's local. You have a steel plant in Kansas that supplies steel to Kansas and the surrounding areas.

It's a local business. But something like Facebook, where very quickly you can scale from a dorm room in Palo Alto, you can scale it to people in China and Africa. Scaling that quickly, it just creates a winner-take-all society where one company is going to dominate an industry and become very big. Warren Buffett has this example of, back in the day, each town had its own boxers and its own opera singers. And every town had one, and they weren't that good, but every town had their boxers, their opera singers that people went out and saw. And then, with TV and radio, there was going to be one or two nationwide known boxers, and a couple of opera singers that were incredibly good, because they could

broadcast themselves out to the world. So, their pace skyrocketed, because rather than there being hundreds of boxers across the country, professional boxers, there were only a few who captured everything at that moment. And I think that's becoming truer for companies too, that rather than localized small companies that capture their local market, it's a couple companies that capture the entire pond. How much of that do you think has to do with choice and just the number of choices that people have at their disposal and what we know about decision-making. And sometimes it's just a whole lot easier to go, you know what, I'm just going to go with that. I mean, people joke about that with Starbucks, but

there is a little something to that when, if you're traveling, you're looking for a Starbucks as opposed to, I'm going to roll the dice with this local coffee shop. Yeah, I think that's definitely true. People like familiarity. The whole business model of companies like Starbucks and McDonald's and Chipotle is, by and large, based on familiarity. You know that if you go to Chipotle in New York or LA or Seattle or Kansas, you're going to get the same product and people like that. As we discussed at the top, since the last time you were on the show, you and your wife are now parents. Congratulations, brand-new baby boy. You wrote a column right after he was born entitled, Financial Advice for My

Son, which got so much praise and just got circulated around the internet so many times. What are a couple of tips for anyone who has young children, a couple of things you'd like to share? Because it was essentially an open letter to your son that obviously he's not going to read for a long time. We're not taking anything away from him. What are a couple of things from that that stand out to you? One of the pieces of advice that I put in the article was to not assume that all success is earned, that so much of people's outcomes in life is luck, and it's easy to overlook that. Several years ago, we interviewed Robert Shiller, Yale economist who won the Nobel Prize. He said, people have to remember

that your own thoughts are not your own thoughts. And then I shook my head, what do you mean by that? And he said, everything you know is a product of the people you've met and the experiences you've had, and almost all of those are outside of your control. And to me, that was pretty powerful. So much of what job you have, what spouse you have, is all just luck and randomness. And people don't want to think about that, but I think it's really true. And so the advice that I gave in the article ... By the way, you didn't lead with that when you proposed to your wife, did you? No, I said, look, you just kind of got stuck with, you know, this is, you rolled the dice and this is what came up. This is what happened. And so the advice I put in the article was, you know, not all success is due to hard work and not all poverty is due to laziness. And keep that in mind when judging other people, including yourself.

You're a voracious reader. Not anymore. I mean, now I try to be a voracious sleeper. I was going to say, you were a voracious reader, but you know. You can read things in a book, that can only take you so far. You can read a book about skydiving, but until you jump out of an airplane with a parachute strapped to your back, you don't really know what it's like. I'm sure you read at least a book or two about parenting. Now that you're a parent, what's one or two things that you know that you didn't know previously just from having read a book? I've been impressed with our ability

to function on so little sleep i mean that's really i i feel like before before having a kid if you had a bad night's sleep i'd be a wreck the next day and now for whatever reason it's like you just you just get up and go on with it maybe it's just necessity but i've been we'll see how long we're only three weeks into it so maybe if you if i'm back on the show in another six weeks you'll hear a loud thud as i fall asleep hit the microphone but once you get past the first month it's really easy to sleep through the night. O' Is that true? No, that's not even true. You can follow him on Twitter, you can read his stuff.

He is without question my favorite financial columnist, Morgan Housel. Thanks for being here. O' Thanks, Chris. Coming up, we'll give you an inside look at the stocks on our radar. Stay right here, listening to 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 Ron Gross. Guys, before we get to the stocks on our radar, a couple more news items to get to. We'll also dip into the Fool mailbag. But let's start with Michael Kors and some surprising second quarter results, Ron, thanks to some strong numbers in China. E-commerce sales looking pretty good, too. Yeah, but I didn't think the report was that strong. It was just better than expected, one of those kind of situations. The stock is still down 42% on the year. Kate Spade, Coach, they're all kind of struggling, and just pick the month of which one is struggling more. Core has had a good run-up for quite some time, but this is not a great report, in my opinion.

Revenue was up about 6.9%, 12% if you exclude currency, but profits were down almost 7%, and again, that was better than expected. But they've been forced to lower guidance. They even blame tourism being weak as a result of the strong dollar, which hurt their business. There's a trend towards smaller handbags, and they're not positioned well at the moment. They're hoping to roll out a new line in the spring to combat that. Their licensing business was down 8.1%. Overall, I think they're experiencing some trouble here, and they're going to need to revamp their product line, much the way we've seen Coach have to pivot. It's going to be somewhat of an uphill battle, and we'll just have to wait and see.

Shares of Chipotle down this week after the company closed more than 40 restaurants in the Pacific Northwest due to an outbreak of E. coli food poisoning. Jason, it looks like the company moved fast on this one, but this is the type of thing that can cripple a restaurant chain. You know, I have to say, I had Chipotle one night, and then the very next morning saw this news break, and it made my tongue hurt just a little bit. But no, this is part and parcel of the restaurant business, right? They deal in food on an everyday basis. So, You see this happen. It's unfortunate, but it's just the nature of the beast. Now, I

think that if there is one management team in the world that you want dealing with something like this, then Chipotle's is it. In the context of years, when we look at this and we think this is an investment that we would love to hold for the next 5, 10, 15, even 20 years, in the context of years, this is just a blip. This is something that will be forgotten immediately unless it happens again. O' I was just going to say. That's the key, right? It's one thing if it happens once, it's another if you start seeing a pattern. So, that's really what we'll need to keep an eye on.

We saw a couple of smaller investment firms downgrading the stock. I think you're right to pivot off of that. I think if it happens again, and it doesn't have to happen again soon, it just needs to happen again, I would say, in the next three to five years, then you'll see probably some of the bigger firms coming out and downgrading the stock. Definitely, because it brings in a lot of questions regarding their supply chain. They are already facing a lot of questions regarding their supply chain, because they have such high standards. radioatfool.com is our email address. That's radioatfool.com. From Mario Zaccaratos, who

writes, hi, guys. I started listening to your show recently. Love the information and bantering. Just wanted to let you know that the Swagway is gaining popularity and may be a very hot item this Christmas season. It's like a Segway without the handlebar and vertical bar. I don't think it's produced by a publicly traded company. The website is swagway.com. Keep up to good work. Mario pivoting off of our conversation last week with Nicole Sinclair and the idea that there doesn't really seem to be a hot gadget this holiday season. And I checked out the website, Ron. I've never even stepped on a Segway, so I'm certainly not looking to jump on a Segway that doesn't have a bar I can hold onto.

I've been on a Segway a couple of times. It's very cool, very fun once you get the hang of it. I can't imagine even beginning to control this thing without any hand controls or anything like that. It seems really prone to accidents. Simon, you're the youngest person at the table. You can handle falling off one of these, can't you? I would like to know if it's illegal to text when you're driving one of these things. If it's not, then maybe this is a brilliant way to get around Alexandria. I played golf not long ago with a guy that actually used one of those in lieu of a cart or walking to get around the golf

course. He had his golf bag on and he'd just step on and just tootle up and down the golf on the car path and on the grass and everything. I've got to say, he was fine. Now, he was certainly half my age. So, to your point, I'm sure he could probably take a fall much better than I could. But it did pique my interest with a couple of kids. I can't help but think they may be wanting one of these at one point or another. Let's get to the important question, who won the round? Oh, well, I ... Alright, let's get to the stocks on our radar this week. Ron Gross, you're up first.

What are you looking at? got another deep value radar stock, not yet a recommendation. It's a small company called Haverty Furniture, HVT. They're a small furniture retailer, similar to maybe you've heard of Bassett Furniture, or even a Lazy Boy, Ethan Allen, maybe even a Pier One, that kind of a retailer. $500 million market cap, pretty small company, but solidly profitable, really strong balance sheet. The problem is, it's a tough, competitive business. Retail and general specialty retail, 3% profit margins. Really, really thin. So, I've got to dig in on that. 123 stores, mostly in the southern and midwestern U.S., Texas and Florida specifically.

Companies controlled by the Haverty family and the current CEO, another risk that I keep an eye on. But, looks awfully cheap. 1.5X book, 6X EBITDA, no growth whatsoever really baked into the current valuation. So, if they can continue to grow, even at a slow pace, could be an undervalued stock. O' Any kind of e-commerce presence for a business like this? I actually haven't looked into that. I would imagine there's some, but in the numbers I didn't see anything to any great extent. O' All right. Simon Erickson, what are you looking at?

Well, first of all, Ron, you had me at Texas and Lazy Boy. Nothing more to say. You've got my vote. I'm looking at Arista Networks, ticker ANET. This is a Rule Breakers recommendation. We're also looking at it right now for MDP. The company makes high-performance Ethernet switches using a cloud-based operating system to more efficiently move data around between data centers. And what does that mean in English? Well, why does this matter, right? There's a ton of data.

You lost me at data centers. It's a ton of data going all over the place these days. It started with high-speed trading. Now we've got genomic sequencing. We've got predictive analytics. And we're familiar with terabytes. Now we're getting into petabytes, exabytes, and chrysozettabytes now. So, you need to be able to have a provider that actually is able to do the switching

and make sure all that data gets around more efficiently. Up next is the WTF-a-byte. Jason Moser, what are you looking at? Yeah, these guys did not report any E. coli concerns, but the way the stock acted after the report, you would think they did. Buffalo Wild Wings, a Foolish favorite we have in a number of services here. Slowdown in comps traffic there, and really, a lot of ratcheted back guidance and earnings growth has sent this stock down to the basement here over the past few months. And I think, honestly, it's brought it back down to reality now.

It was priced for a lot of growth expectations, and those expectations have been brought back sort of down to earth, so to speak. But I think there are reasons to be optimistic. Still plenty of market opportunity out there to grow, even beyond the Buffalo Wild Wings concept to the Pizza Rev and the Art Taco concepts they have, not to mention any others that they may bring under that umbrella. And Sally Smith, really, the secret weapon there, CEO since 1996. She's taken the company public. Shareholders have certainly won with her at the helm there. My biggest question is, how long is she planning on staying? But this is one I brought over to the MDP watch list, and we continue to kick it around and see

if it's not one worth adding to the portfolio. What do we think about the quality of the wings? Let's get down to what really matters. I'm not a real wings aficionado. I'll do some market research every now and then, very selfless market research. Have you ever left saying, man, that was awesome? I've left saying, that was very good. But again, I'm not a guy with a lot of wings exposure. I think they're fine, and it's easy to go to if you're in the mood for wings, but I don't think they stand out. I think we know what our homework is this weekend. Done.

Ron Gross, Simon Erickson, Jason Moser. Guys, thanks for being here. Thanks for having us. That's going to do it for this week's edition of Motley Fool Money and Henry helping us out behind the glass this week. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.