Motley Fool Hidden Gems Investing - Google's Switch & Buffett's Big Buy

Episode Date: August 14, 2015

Google restructures. Shake Shack slips. And Warren Buffett makes a big buy. Our analysts discuss those stories and share some stocks on their radar. And Motley Fool Asset Management portfolio manager Bill Mann talks about what the volatility in China means for investors. Learn more about your ad choices. Visit megaphone.fm/adchoices

Don't you wish you could just hit skip on the worst parts of your life? You know, the same way you can skip an ad? I get it. I'm Siaya and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out. Somehow things usually get worse before they get better. Apparently, that's how I roll.

So bundle up and come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem. everybody needs money 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 and matt argersinger and for motley fool deep value mr ron gross good to see you as always gentlemen We've got the latest earnings from Wall Street. We will go around the world of investing with portfolio manager Bill Mann. And as always, we'll give you an inside look at the stocks

on our radar. But we begin this week with Google, or should I say, Alphabet. Google announced a new corporate structure and revealed the company will be renamed, yes, Alphabet. There will be two divisions, Matty. Basically, one is Google stuff, Google Search, Maps, YouTube, etc. And the other division is going to be the moonshots, the driverless cars. O' Excellent, adventures, life sciences. The things that don't make money yet. We were talking about this earlier. I really did think, when I first saw this story, I thought it was a joke. And I'm still wrapping my head around why they would remake their structure.

Right. All of us, I think, had a pretty visceral reaction to this name announcement. In fact, Larry Page, in the letter where he described the restructuring, he said, don't worry, we're still getting used to the name, too. I think there are a lot of people getting used to the name. The restructuring makes sense on a few levels. I think there's this idea that Google is trying to build a forest instead of one tall tree. A lot of people have used that to describe Berkshire Hathaway and other conglomerates. I think even Buffett himself might have described Berkshire at some point like that. And a lot of people have applied that metaphor to Google. I don't think it's fair, because I think this

This isn't necessarily a conglomerate. This is a company, I think, that's refocusing itself. It realizes that it's got a very powerful business in Google, this business of search, the business of online advertising, and now mobile advertising. But it's got all these other things. It's got all these ventures that people have no idea how much cash has been put into them over the years, no idea what kind of revenue is being generated or any cash flows. This is a chance for, I think, the company strategically to say, we've got this incredible business in Google, we're going to put a lot of effort behind that, going to be standalone, and then we've got all these other businesses that are going

to be under this one umbrella company. It makes a lot of sense. My concern is that it almost gives them the license here to go spend more and more cash than they even would have, because they can break it out and say, no, no, no, Google's good, we've got it here, but over here is where we're spending all this ridiculous cash, so don't worry. That's what I said precisely earlier in the week, in that I think this is one of those things that it will ultimately give Page and Brin that opportunity to spend more with less scrutiny from Wall Street or from investors. And maybe that's a good thing. Maybe it gives them the freedom to really

try some of those moonshots that will pan out. But to Matty's point there, you have this umbrella where it's going to be, OK, well, we have Google, and then we have this ... the reporting, I can just see it now. This is other cool stuff that just doesn't make money yet. And who knows how that's really going to pan out. I don't think it's necessarily a bad move. But I also think the comparison to Berkshire Hathaway, well, I've made my feeling is very clear on that, Chris. I think earlier in the week, I called it something along the lines of dumb or a cop-out. I stand by that. Let's be very clear here, Matty made the point that Berkshire Hathaway is acquiring and rolling up all these great businesses

under their umbrella, and then Warren Buffett is really giving those CEOs all of the freedom in the world to run those businesses. I have a hard time believing that Larry Page and Sergey Brin would ever give their CEOs that same kind of leeway. Well, I think the best way to look at this, and I've said this earlier in the too is that it's basically a big venture capital fund. It's a big venture capital fund that has made two extremely great investments so far, Google and, I'd say, YouTube. Everything else are just bets right now, and they're bets that may or may not pay off. And so, I think, if you're an investor looking at Google now and looking at Alphabet, that's

the way to think about it. It's a way, if I can get this massive venture capital-type fund in my portfolio, maybe that's the way to look at it. What if they spin off the venture business, and then we just have a Google standalone? Oh, boy. We're kind of back to where we started, right? We're just another company. They clearly wanted to get this out the door this week, because they did not secure the URL alphabet.com, and congratulations to Chris Andrikanich of Cleveland, Ohio, who is a dad, husband, and self-proclaimed geek, because back in 2007, when he went on Twitter, he secured the at alphabet Twitter handle, so congrats to him, because I'm pretty sure a

check is coming his way. O' And BMW owns TheAlphabet.com, right? Is that where we are? Maybe they would have been more clever in doing Alphabet, A-L-F-A-B-E-T, who knows? O' Alph! Alph! River Alph! We'll have to investigate if that's ... I do! I was going to say, this name, Alphabet, it just makes me think of Fraggle Rock, for whatever reason, I don't know why. O' One thing I do like about the name, and Larry Page kind of finished his letter by saying this, is that if you break it apart, alpha, bet, it's a bet that's supposed to

beat some kind of benchmark. Ron, I like it from this perspective, is that, in this the sense that, hopefully, we're going to make bets, they're going to beat some kind of benchmark. Maybe that's the S&P 500, maybe it's something else, but at least it's about beating something, and maybe there's a way to measure them. That's why Buffett never changed the name Berkshire Hathaway to something a little bit more sexy. Speaking of which, earlier in the week, Warren Buffett finally used his elephant gun, Berkshire Hathaway, buying Precision Cast Parts, the aviation and energy industry parts maker, for more than $37 billion in cash.

deal ever for Berkshire Hathaway. Ron, do you like it? I like it, and my first sentence I jotted down here, it said, time to reload the elephant guns. I do like it. He paid up a little bit, but that's because there's a portion of this business that's related to the energy industry, and things have been weak there, so the multiple looks a little bit high. Stock has actually come down over the course of this year, so I think he swooped in and did get a fine price. He'll spend $23 dollars of his cash. He'll be left with still $40 billion, but as he says, that's really not enough. He wants more. The big elephant-gun deals are off the table for the next 12 months

as they replenish their cash hoard, which won't be too hard for them to do. And then, maybe down the road, a year or two from now, we'll see another big one. They may continue to make some little tuck-in acquisitions along the way. But this is the kind of business that he likes, an industrial business, well-run. CEO Mark Donegan will continue to run the business, it'll stay in Oregon, and I think this is a nice deal. You think back a few years to when they bought Burlington Northern Railroad for somewhere in the neighborhood of $26 billion. That was seen as a huge acquisition at the time. That has certainly paid off well. Five years from now, do you think we're going to be looking

back at Precision Cast Parts and thinking it paid off just as well as the Burlington Northern deal did? Well, obviously, Mr. Buffett thinks so, and it's certainly a bet on the aerospace industry, the airline industry, which as we know has been consolidating. There are a lot of orders out there. Customers like Airbus and Boeing and GE are placing lots of orders for aerospace parts, so I think this will turn out well. A little foolish inside story here, I think this is interesting. This is a shout out to our Stock Advisor team here at The Fool. Several years ago, they recommended Precision Cast Parts and a company called

Titanium Metals, and they recommended them the same day. A few years later, Precision Cast Parts bought Titanium Metals, and then, of course, now Berkshire Hathaway, which is also a Stock Advisor recommendation, is buying Precision Castparts. I think that's kind of cool. Wayfair, the online seller of home furnishings and decor, lost money in the second quarter, but overall sales were up more than 65% compared to a year ago, and the stock up more than 40% this week, Jason. Is it that good, or are expectations that low? Well, I think, No. 1, if there was any question as to whether Wayfair actually came to play here and is a serious business, those questions have been answered. Because

by every metric that really matters. This company is performing very well. They continue to grow sales, they continue to grow repeat customers. As Ron might say, they're firing on all cylinders. Gross margin is expanding. I think part of this is short covering. They have a low float on the market as it stands, and there was about a 34% short interest going into this release. I think with this earnings release, there are some shorts covering, which which would explain that huge pop it's witnessed over the week. But, by the same token, again, that's not to take anything away from what this business is doing. It's a very quality business, founder-led. Again, I referred back to the repeat purchases, and I think that's

crucial for this business. Ultimately, I think people look at Wayfair and they see e-commerce. And honestly, what this is, truthfully, it's a logistics-slash-customer service company. They don't maintain any inventory on their balance sheet, so to speak, maybe $20 million inventory at the most. And what they do, more or less, is they connect those suppliers all around the country with customers, and they basically arrange to have those goods delivered to the customers. And so, it's a great value for the suppliers, because it all of a sudden opens this mom-and-pop shop up to virtually the entire country. And then, obviously, it's helpful for Wayfair, because they get to grow their presence around the entire country,

and that's what they continue to do. And then, the key part, really, is growing that repeat customer base. Now, they had better than 56% repeat customers this quarter. And that's important, because that means they don't have to go out and acquire those customers. They've already acquired them. And ultimately, the long-term strategy is to be able to ratchet back those acquisition costs, ratchet back those SG&A costs, the marketing, the advertising, which will really help expose the true profitability of this model. And I like where they're headed. I think the real question is, can I trademark that firing in all cylinders thing? I think you probably can.

I'm leaving money on the table somehow. Last week, we- Twice, I wasn't even here. You were here, you weren't here, and you were here. Yeah, I think we'll have to pay a little something on the side. Radio at Fool.com is our email address. Question from Brian in Nebraska. Do you see Wayfair getting bought out by Amazon,

or are they just a smaller company enjoying their carved-out niche in the marketplace? I saw Wayfair getting bought out by Amazon before they went public. That was honestly what I thought was going to happen. And I remember putting an article out on Fool.com saying as much, because they had about a year before the IPO. I think that time has passed, though. I don't believe that Amazon would jump in there and acquire them at this point, because I don't think Wayfair wants to be acquired. I think that because they are founder-led,

they are calling all the shots in the business, and I think they really want to grow this thing for the long-term. Alibaba's second quarter revenue up 28%, but that was lower than expected. And, Matty, we're coming up on the one-year anniversary of the Chinese e-commerce giant going public, and this week the stock hit a new low. Amazingly. Yeah, it's just slightly above its IPO price. Of course, we know it skyrocketed after its IPO. It's down 30% this year. By the way, I want to point out that with Alibaba's fall, they are now trading a lower market cap than Amazon. That was not the case last November. Bigger than Amazon, bigger than Walmart.

There was a world-killer aspect to this company when it went IPO last year. I just feel like, well, good luck with that now. I think Amazon is certainly, rightfully, the king of e-commerce. But there's a lot of issues going on with the Chinese economy, a lot of macro concerns. I don't think this is a business, I feel like this is a business that's not very focused right now. They had a U.S. business that they've pulled back on. They're trying to increase their international transactions. It doesn't seem like that's working out so well. Still, they account for 80% of e-commerce in China. You cannot ignore this company. They also announced a $4 billion buyback, which is pretty big. But I do see a company

that's trading at 15X sales, and if I'm looking at a growth rate now of 30% or less that's and declining. And by the way, that growth rate, a year ago when they IPO'd, their year-over-year growth rate was 60%. So, that's quite a deceleration. So, if I'm going to pay 15 times sales for Alibaba, that kind of growth, I'd rather pay 2.5 times sales for Amazon, and I'd make growth over 20%. Up next, retail, restaurants, and a surprising stock offering. Stay right here, this is Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Matt

Argersinger, and Ron Gross. Time for a tale of two retailers. Second quarter profits for Nordstrom came in higher than expected. JCPenney lost nearly $140 million in the second quarter, but that was still better than analysts were expecting, Ron, and both stocks up on Friday. Yeah, tale of two companies. Don't let the fact that both stocks are up fool you. Nordstrom doing a great job. We saw a 20% growth in Nordstrom.com, and Comstales are up 4.9%. Their recent anniversary sale did really well, thanks to my wife, I'm sure. So, thank you, honey. And the business continues to do really well, focusing on what they do best, which is great customer service, opening plenty of new stores, moving it to Canada. We hope

they fare better than our friend's Target did. But there's plenty of expansion there. JCPenney, on the other hand, all right, making progress. Okay, I'll give it to them. Smaller loss, but still losing money. Comstar sales were up 4.1%, but the comps from last year were not so impressive. That's not such a hard thing to do. Sephora division was their one piece of strength. So, let's see if they keep on the right track, but guess what? They've got to start making money. Just smaller losses isn't going to cut it. I feel like Mike Ullman did a very smart thing. He came in after the Ron Johnson debacle. Mike Ullman, you could argue, turns JCPenney's business around, basically by reversing

almost everything Johnson did. And earlier this month- O' Then he dropped the mic. Yeah, he dropped the mic. He handed the CEO office over to Marvin Ellison and basically said, hey, look, man, the stock's up more than 30% year-to-date. Good luck with this. Yeah. And they are raising expectations. As I said, they're not profitable yet. So, we look mostly at an EBITDA measure, a measure of a cash flow metric. And they're raising expectations for that. Gross margins were up a bit. So, okay, let's see how this goes. On last week's conference call, Tesla Motors CEO Elon Musk said the company has no need

to raise capital. So, it was a little bit of a surprise this week when the company announced an additional offering of stock to the tune of more than $500 million. Matty, I thought they didn't need the money! I know. I expected this at some point, I just didn't expect this fast. A week after he said it? Of course, which was a big surprise to me. I can defend this by a lot, because it amounts to about 2% of Tesla's outstanding shares. Elon Musk has come out and said he's going to buy $20 million in the offering, which is nice. More importantly, when your

stock is trading where Tesla's is, it can often make sense to issue stock, and I think it makes sense. Sometimes, you don't always need the cash, but it can be strategically a good time to raise cash. So, I think they said, you know what, we've got a lot going on in the next six months. Gigafactory is being produced. Model X is coming out. They've had a lot of production issues there. Let's resolve some long-term risk by issuing shares right now with our stock pretty high. I think it's a smart move. Shake Shack's second quarter profit was higher than expected, revenue up 75%, and they raised guidance. All of that sounds good, Jason, on the surface, but Wall Street seems

unimpressed because, holy cow, the stock took a dive this week, down more than 20%. Well, and secondary offerings that aren't working out so well. I think that maybe Shake Shack has won. It was a good quarter. Same-store sales were up almost 13% for the quarter, and that was versus 4.5% growth the same quarter last year. They are growing the top line at a very respectable level. So, the business is performing well. I think that What many of us have questioned here is, generally speaking, just the overall market opportunity, because it is, after all, just a burger place. There are plenty of those around the country. If you go all the way out to the West Coast and you have your In-N-Out burger there, I

would argue probably the same as, how well does that translate over here? I'm not sure how well Shake Shack translates further West. Well, I guess we'll find out soon enough, because they are opening some stores out there to get a feel for it. But then, I think some of the news that really ... I'm not convinced, maybe, that MarketFoolery didn't leak early that day, because we were sitting here talking about this, and the stock was just up, it was doing well, and then right after we got done taping, man, that's when the bottom fell out. We've seen this type of thing happen over and over this earnings period. It's really sort of weird, the initial reaction to a stock,

because initially, when Shake Shack reported, the stock popped, and it was going in that direction for a few hours, and then it seems like over time, more questions get asked, and whether it's Shake Shack or some other company, we're really seeing ... I don't know, it's really odd, Ron. I've seen it several times this quarter, where, as you said, either after hours or before the market opens, stock is strong. But then when the conference call comes, usually at 9, 10, sometimes even at 11 a.m., and we hear a little bit more, we hear about expectations going forward, analysts get to ask questions, see the stock reverse one way or the other. And keep in mind, Shake Shack has

a very narrow float right now. They're issuing shares, but that's mostly so insiders can cash out. As we were talking over the past week, this is a company with a ... the market valuation on this company, if you look at the per-store valuation of over $35 million, and normally that would be reserved for companies that are growing very, very fast. Now, the same-store sale growth is nice, but this is a company that's going to open maybe 12 restaurants over the next 12 months. It's not growing at very high rates. I don't see how they can hold onto this valuation. Put that in the context of Chipotle. Chipotle is going to open 170, 180, 190

stores in a year, versus Shake Shack's 12 to 14. To the point about the secondary offering, this is a secondary offering, and precisely as Matty just said there, it's for insiders to cash out. The company is getting none of this money. That could be a sign there that insiders are feeling like, hey, this is a pretty decent valuation, we want to go ahead and cash out. And because of that low flow, your average retail investor is probably thinking, hey, what in the world? Maybe this isn't really all that's cracked up. I would never want to participate in an IPO or a secondary or follow-on offering where the insiders, where the prime motivation was for insiders to get.

They own 50% of the company. It's like, why would I be left holding their bag? No, thank you, that just doesn't make sense. Big red flags. And they're all company-owned, right? Should they seriously ... No, they're not all company-owned, actually. A lot of them, obviously, the international locations, which they have a number of, are licensed. And so, they aren't all company-owned. And I think that's one thing we've seen before with Jerry Murrell, for example, Five Guys. He was very much, if he could buy all those licensed stores back, he would, because they are cash

machines. But it's just a way for companies to grow quickly, to license those stores, especially if they're going to expand internationally, that they're just not going to be able to really own those stores. All right, guys, we'll see you later in the show. Coming up after the break, a conversation with Bill Mann about what's been happening in China and what it means for U.S. investors. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Bill Mann is the Portfolio Manager at Motley Fool Funds, and he joins me in the studio now. Thanks for being here. Hey, Chris. How are you?

I'm doing well. I'm doing well. There's a lot going on in the world of investing, the global world of investing. So, let's start with China, because the last time you were on the show, that's where we started. We'll start there again, because earlier this week, the good people at the Central Bank in China, devalued its currency. I think it's fair to say that sent a little bit of a shockwave through their markets. But it also sent this signal that ... Hey, guess what? Things aren't so great. Yeah. Am I wrong? That was the first ... Do you remember a few years ago when people were trying to set up Chinese renminbi bank accounts here? Yeah.

And now you have the central bank essentially sending the signal, we think this economy is sputtering. Yeah. Well, I mean, if you look at any country that is commodity-driven, they could have told you that a long time ago. In fact, they did tell you that a long time ago. So, I just literally think that China makes up its own statistics, and they're just making up these moves as they go they are if they're not panicking they are making a very good show of panicking between the moves that they've made with the market with their stock market where they literally on the on the five o'clock news i don't know if it's actually on at five but

you know the the state-run media for the last year and a half has been hyping the stock market so people have been pushing their way in it doubled almost tripled and then fell 35 percent which if you look is still pretty good right and it's somehow a crisis i and they've panicked they've said okay if you own more than five percent of a company you can't sell it we're going after these vicious short sellers who are also known as people who are just trying to sell the next thing that they could just do is like just make up closing prices okay we want this to be seven so it's seven right like it's it's it is amazing what is happening there it's not a market well and the last time you were on, one of the things we talked about was, if you're a U.S. investor,

rather than look to just sort of jump into the Chinese market with both feet, maybe look at U.S. companies that do a lot of business in China. But now, you look at companies, and let me just list a few across a range of industries, Qualcomm, Yum! Brands, Texas Instruments, Wynn Resorts, these are all companies, U.S.-based companies, who are making more than 40% of their revenue from China, and looking at what happened this week, how much trouble are these businesses in right now? I mean, it kind of depends. In a lot of ways, those companies, all their contracts are dollar-denominated. So, in some ways, it might be good for them if they've got labor there, because their labor costs in Chinese

currency in yen has dropped. But if you're Apple, and you're thinking about how many more iPhones you can sell in China, the fact that the economy is slowing down. I don't think it's good for anybody. I really don't. It just goes to show that sometimes rampant bull markets, and define that as you will, but a long-running bull market hides a great deal of rot. And so, when it pulls back just a little bit, that rot is exposed. And I think that the Chinese government, and I don't know that they did this on purpose, where they you know where they literally managed to incite a riot and get everyone to put money into stocks but i think they did themselves no favors by really fomenting for the market to go up

that fast because nobody could adjust right so you have a market that's essentially doubled in this in the past year and it's a disaster and people are selling their prized llamas in the streets you know to try and raise money and that's actually true there's a story about a guy trying to sell his prized llama, but maybe for another show. No, no, no. Let's stick with the prized llama. Why is he selling his prized llama? Because he needs money. It's his llama or it's his house. I mean, he poured money into the stock market into these garbage quality companies because they were going up. I mean, it's not a sophisticated market.

Well, and there are garbage companies, and then there are also massive, on the surface of it, stable companies like PetroChina, which is a huge energy company. And when you think about big energy companies, one of the things you think about in terms of the stock is its stability or what should be its stability. It is now one of the most volatile large company stocks in the world. Yeah, it's as volatile as some of the pink-sheet stocks here in the U.S. I mean, it is really remarkable what's happening there. And people are panicking. And they probably but it's you know it is the downside of a market that's gone up that fast and yeah i mean companies

like petrochina i mean obviously it's in the oil sector so it's got you know it it has you know it's been hit by you know some commodity prices and things of that nature but a 300 billion dollar market cap company should not move i mean it's having swings of 100 billion dollars over you in market cap over short periods of time, which is unreal when you think about it. You're listening to Motley Fool Money, talking with Bill Mann, the portfolio manager at Motley Fool Funds, which, as of the latest public filing, had more than $730 million under management. Let's bring it back to the United States. Earlier this week, Berkshire Hathaway very much in the headlines with a more than $37 billion acquisition of Precision

Cast Parts. Yeah. They spent some money. They spent some money. And I know you are a fan of Warren Buffett, but I get the sense that you are not a fan of this deal. Oh, no, no, no. Actually, I think that the deal is good. And Precision Cast Parts is a fine company. I think it's probably from having been brought up as an investor looking at message boards you know at you know at the fool and elsewhere and the berkshire fanatics have a very very strange way of loving every deal that buffett has you know has ever done instantly and and and i think and you and i were talking about the this off you know off air before we were taping there actually are some people you know

who are who are not that happy about the deal who would prefer that he hold cash you think that he paid too much. But it's just always amazing to me because people and Buffett, I think, deserves the benefit of the doubt more than perhaps any investor alive. But, you know, immediately when he does something, it's automatically in their eyes brilliant. And I just think that it's, you know, it's it's a commentary on, you know, on on, you know, people's willingness to trust the master, if you will. I think that the deal I think it's a great deal for Berkshire. I saw commentary the other day that this deal signaled the end of Berkshire Hathaway as a mutual fund proxy. And I've never really liked it when people have called

Berkshire a mutual fund, because it fundamentally isn't. But I think that that's an apt description of what's happening with this deal. I was kind of heartened by the reaction, because, and I'm not a Berkshire shareholder, but just like last week where we saw Planet Fitness going public and the market just sort of collectively yawned, and I thought, well, it's nice that we're not just going to automatically throw a parade for every company that goes public. I like that this deal was scrutinized in a way that said, you know what, we're going to give you a standing ovation for the Heinz deal maybe, but we're not so sure about this. Yeah, there were people who were talking about how much they paid for the Heinz deal,

which in hindsight, I mean, was Buffett-esque. You know, it was genius. But I just think it's funny. I mean, you know, Buffett could come out and, you know, announce that they've bought, you know, any type of, you know, any type of company here, and people would cheer. Radio at Fool.com is our email address. A couple of internationally flavored emails.

First, from T.C. Hogan in North Andover, Massachusetts. That's part of this country, by the way. I know, that's part of it. That's not international. T.C.'s question is not about that, but you're well familiar with North Andover. I was in North Andover, Massachusetts, 48 hours ago at a place called Harrison's Roast Beef, which when I was in high school ... Yeah, so T.C. right now is nodding, because Harrison's Roast Beef is awesome. We used to call it the promised land when we were in high school.

Is it still the promised land? Oh, God. So T.C.'s email, the subject line is, what's the deal with Chile? and I won't read the entire thing, but he basically gets at his interest in the San Diego stock market and looking at the data there and trying to make sense of how, here's an international market, which, depending on which source you're looking at, whether it's the Wall Street Journal or Yahoo Finance or someone, you're getting different sets of data. Super different numbers.

So, first and foremost, I know you look at a lot of different markets. When you look at Chile, what's the thesis for investing in Chile? So, Chile is one of the cheaper markets in the world right now, simply because it is a market that is dominated by natural resources, primarily copper, which is more of an industrial metal, and copper prices have fallen through the floor. So, for a country like Chile, a A lot of times, people are going to look at these commodity prices, and they're going to extrapolate onto every other company in the market. They're going to say, well, we need to get out of Chile, because we don't think the price of copper is going to go up

anytime soon. But there are great companies in Chile. There's Vina Conchiturro, which is one of the world's largest winemakers. It's a fabulous company. How do you square the data? I think it's great that he's looking at a market outside the U.S., and I think for anyone who's looking outside, we talk about trying to trust the data from China, but let's set that aside for a moment. When you're looking at any international market, how do you figure out a way to square two sets of data from two seemingly reputable sources? Yes. Well, I think if you look, and one of the places that is readily and freely

available online that I look at is Bloomberg, and they've got market data. And if you click down on the countries, you'll notice something. And you can think about this intuitively in the United States, and it makes sense. We tend to think of Japan as being the Nikkei, or we think of Germany as being the DAX. But every country has a number of indices. And I looked this morning, and there are three or four listed for Chile alone. And there's the select, there's the general, which is a broader set of indices. But then there's also ones that are dividend and not dividend adjusted. So the data actually squares, and sometimes they're wildly different. But I think that the aggregator sources, and Yahoo would be one of them, and I think that was one

that he mentioned, sometimes are a little bit fast and loose about the description of what they're displaying. Is it impacted by dividends? Are they reinvested? I would look at Bloomberg. I would say, in a lot of ways, we don't spend too much time looking at the indices in that close of a fashion. Question from Richard Anderson, a listener in Sweden, who asks, what should international investors consider before investing in the U.S. stock market. I like this. It's the exact opposite of the question that we get. Yeah. Do you trust the United States market? So, I would say that the United States market has, in some ways, you know when you go to the bowling alley and there are the kids' alleys

where they put the buffers up so the bowling ball can't go into the gutter? I love that. That's the only way I bowl. Right. Exactly. Exactly. Crushed it. No gutter balls for me. The U.S. market has those, you know, because it is such a diverse market and it has such a strong regulatory oversight, it's kind of like that market in the world. I mean, China is the exact opposite. It's all gutter, you know, like gutter, right? Dental floss going down the middle. If you can hit that, you might hit a pin. The U.S. is a very, very safe market. It is the most diverse economy in the world.

there's the broadest range of types of companies and industries. The thing that I would say about the United States, and this will seem a little bit odd, but you've seen the thing where the SEC is now coming out and showing what the salary of the CEO is versus the average worker. These types of corporate governance issues, I think, are deeply inferior in the U.S. than they are in Europe, and you should really be careful about the managements that you invest in. I would say that in Europe, let's take Sweden since that's where he's from, you're going to find managers who are much closer to the middle. In the United States, you will find all types. So, I would be careful about corporate governance issues and buy stocks with management

teams who seem to be aligned with their shareholders. You can sign up for declarations. It is the free monthly newsletter from Motley Fool Funds. Just go to foolfunds.com and you can sign up for declarations. Portfolio manager at Motley Fool Funds, Bill Mann. Thank you for being here, my friend. Good to see you, Chris. 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, Matt Argersinger, and Ron Gross. Guys, before we get to the stocks on our radar, one more earnings story of note. On Friday, shares of El Pollo Loco got roasted. Second quarter revenue came in lower than expected. Same store sales up just 1.3%, Jason, and the stock taking a dive down more than 20% on Friday. Right. And we talk about concerns of the market opportunity with something like Shake Shack, and I think that same dynamic is in play here with El Pollo Loco, because they have such a Western presence. We're not really sure how well that translates to the East. In their

This one, they stated they see a market opportunity around 2,300 stores versus about 415 that they have today. It's interesting to note that you mentioned that same-store sales number, that's system-wide. If you look at the company-owned same-store sales, those were actually down a half a percent, and that's a red flag. Whenever we see those company-owned stores do worse than the franchise stores, that's got to raise a big question mark right there. I think between the actual growth numbers this company's lobbing up, along with the fact that we've ... I just think the question of the market opportunity is a very valid one. I think the sell-off in the stock was very warranted, and I'm not really sure this is one that would even look

attractive today. Alright, let's get to the stocks on our radar. We'll bring in our man Steve Broido from the other side of the glass to hit you with a question. Matt Argersinger, you're up first. What are you looking at? I'm looking at a stodgy value company today. I'm looking at American Express. Yes, finally! I'm there, Father, I'm there. Ticker AXP for American Express. It's a company that's on our $1 million portfolio watch list. We haven't bought it for the portfolio yet,

but it's something that certainly I'm paying attention to. It's come down a lot over the past 12 months related to the Costco deal. They've lost that exclusivity there. But you're paying only 14 times earnings for American Express today. That's half the multiple of Visa, MasterCard. For that kind of business, for the quality of the business at American Express, this is the brand, I just think it's a great price right now. O' And the ticker? AXP. O' Steve, question about American Express?

You bet. I'm a current shareholder, and I have an Amex card, which I'm about to cancel, I think, because of the Costco deal. And because I'm getting so much a better deal through Amazon.com, they've got a great thing. Convince me not to cancel this card. I mean, I can't. It sounds like if you love Costco and you prefer Amazon, the American Express might not be the place anymore. I hope it is for millions more other people, though, as well. Jason Moser, what are you looking at? Well, I'm going to dip into another blue chipper here, going with Walt Disney, ticker DIS. These shares have been shellacked this week, down almost 12% since the earnings

came out. There are concerns of subscriber headwinds in regard to the ESPN property and their cable networks in general. I think those are a bit short-sighted. I think there's sort of the question of the brand and whether there's a weakness there. I don't think it's a question of the brand. I think it's a question on the distribution side, which is still a bit of an unknown. And I think that management has recognized this, and that's something that they'll be attacking here in the next five to 10 years. I actually think this is an opportunity for them to get ESPN in front of even more eyeballs, thanks to the proliferation of mobile devices all over the world, and the fact that sports translates everywhere. So, I actually

encourage there. And then, when you look at the shorter-term catalysts on the horizon, Star Wars and Disney Shanghai, I just think there's too much to look forward to with this business. And if you're looking for one to buy and hang on to for years to come, this is a great one. Steve, question about Walt Disney? My question is, the new Star Wars, are you as excited as I am? Well, how excited are you? I'm very excited. I hope there's no Jar Jar Binks. I would say I'm doubly excited, Steve. Doubly.

What an easy question. I mean, look what I got. Oh, my goodness. All right, Ron Gross, what are you looking at? I got Graham Corporation, GHM, a new deep value watch list stock for me. Not a recommendation. They make vacuum and heat transfer equipment for energy, defense, and chemical industries. U.S. Navy's a large customer. Only $180 million market cap here.

profitable. Great balance sheet. Because of the weakness in the energy sector, stock has come down quite a bit, trading near its 52-week low. We've got less than two times tangible book, four and a half times EBITDA. As I said, tons of cash, almost no debt. Stock is probably worth 10% to 15% more based on normalized earnings, not counting any future growth going forward. I need to dive in a little bit to the competition here, but it looks really interesting to me. O' Steve, question about Graham Holdings? How did you find this company, Ron? Well, I run a series of screens on some software we have here where I put in some criteria that I'm looking for.

It spits back a couple dozen, and I spend my days sifting through them. Is one of the tabs you click unsexy? Because when you describe that business. Boring is good, my friend. All right, Steve. Graham Holdings, Walt Disney, American Express. Anything of interest to you there? I don't know.

Graham Holdings sounds pretty interesting. I like companies like that. I just want to know where Ron's finding them. Alright, Ron Gross, Jason Moser, Matt Argersinger, guys, thanks for being here. Thanks, Chris. That is going to do it for this week's edition of Motley Fool Money. Our engineer is Steve Broido, our producer is Mac Greer. I'm Chris Hill, thanks for listening. We'll see you next week when our guest will be Tess Vigeland, the former host of Marketplace Money.