Motley Fool Hidden Gems Investing - Hello Kitty!

Episode Date: March 4, 2016

Valeant tumbles on news of an SEC investigation. Ambarella reports a big drop in profits. Kate Spade rises. And HP Enterprise surprises. Our analysts discuss those stories and delve into the latest employment numbers. And Motley Fool Asset Management Portfolio Manager Bill Mann talks China, Japan, and the big business of Hello Kitty. To check out a highlight reel from our recent investing conference in San Diego, go to digitalpass.fool.com .  Learn more about your ad choices. Visit megaphone.fm/adchoices

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You want more? I'll give you more! Mobland, new season hits September 18th on Paramount+. Chris Hill. 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 Argesinger. And from Million Dollar Portfolio and supernova, Simon Erickson. Good to see you as always, gentlemen. Simon Erickson. Hey, hey!

We've got the latest earnings from Wall Street. 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. February jobs report showed nearly 250,000 jobs added, with the unemployment rate holding steady at 4.9%. Looks good on the surface, Matty. Great on the surface. And, you know, guys, we're not a political show, and I'm not making any kind of political call here. But I really do think there's a bit of a false narrative about the economy, about the country, being spouted by certain presidential candidates. They won't be named here.

O' All of them? Probably all of them. I understand that. It definitely supports their narrative. I just think reports like this job figure tend to dispel a lot of that. If you go back seven years ago, we were in the middle of the deepest recession in a generation. Unemployment was around 10%. Gas prices were above $3 a gallon. Housing prices were crashing. The stock market was at a 10-year low. And look where we are today. Unemployment is below 5%. You have gas prices under $2. Home prices are hitting records in a lot of cities. Yes, and even though it's been volatile, the stock market is really close to an all-time high.

And so, I just, in this report, just as another indication of how strong and resilient our country and the U.S. economy is. And I just, I wish that was being touted a little more in the political discourse that's flying across this country right now. You said it right there, Matty. This is a double whammy. It's both good news for the stock market. You've got a strong economy. You've got companies adding jobs and hiring at a good pace. But then, on top of that, the Fed is also hesitant to raise interest rates, which pushes down discount rates and rises stock market valuations. I think the market is correctly responding to the double threat of good news there.

Yeah. To me, the jobs report, to me, is less about the numbers that are presented the day of the report, and more about the revisions that come from that report, because to me, there are always going to be revisions, and to me, they're more telling, because they in theory should be more accurate, because they're revisions, right? You following my logic there? O' More time, more data. This report, revisions actually show that there are more jobs than initially reported. That is all good. I think we need to continue to look for wage growth, because I think wage

growth is going to be pivotal here. Not such a big deal right now, with energy prices so low. When energy prices start coming back around, some of us start regretting maybe those SUV purchases that we made over the last year. That'll be a bit more telling. That's another thing. Look at auto sales over the last few years, just through the roof. Of course, that has a lot to do with the energy prices. But overall, inflation, by most metrics, very subdued. Interest rates, very low, as Simon mentioned. It's a great time to be an investor. I know a lot of people don't have jobs, but if you have a job, I I think you're in a pretty good position with the economy right now.

Well, and you just reminded me of something our colleague Morgan Housel said last year, which is, if there's one thing we know about the jobs report, it's that it's wrong. That's an astute observation, really. Wouldn't it be amazing if at some point in the future we had a jobs report and they said, and there are no revisions? I think that would be the headline, wouldn't it? That would be. All right, let's get to some of the earnings.

For the first time in a year, Costco put up positive same-store sales, but second-quarter profits came in a little bit on the light side, Jason. Yeah, I think that with Costco, this is becoming just a question of how much gas they have left in the tank. Because we know how this story has unfolded, at least here domestically. They've done a wonderful job building out this big store presence here in the United States, Canada even. They are building more international stores, and that will continue the question for us. and we talk about this a lot at MDP, is how much of that opportunity still exists, internationally speaking. Will they be able to match that same domestic opportunity? I'm not necessarily

sure that they can, but that may not actually really matter. I think that with the subscribers, the members that they have right now, they get these tremendous renewal rates, because the members that they have really enjoy the experience and the low prices and the customer service that they get from Costco. And that's not going to change. So I think they have sort of this great membership base that will last for some time to come. Really, the question is future generations, our kids. Are our kids going to be looking at Costco the same way maybe our parents did or we do? And I'm not necessarily sure they will. And I think that's going to be sort of the big point they need to address here

with online concepts like Jet.com and Boxed.com. I think it's going to be interesting to see here in the coming years, if they forge any deeper relationships with companies like these, they are working with Box.com to a degree as a supplier. And I think that's something that they should probably work to continue to exploit. I imagine they will, because I think that that will give them an opportunity to grow that e-commerce side of the business that really is only about 3% of the overall business right now. Yeah, I'd say we've talked a lot about it. As Jason mentioned, Costco and Million Dollar Portfolio, it's a big position in the portfolio. And I think the fear with that is, if you

you look at Costco's growth, Costco's been awarded a great earnings multiple for a long time, for good reason. It's a great business, great management team. But there's a strong possibility that what happened to Walmart could happen to Costco, where all of a sudden, investors aren't willing to pay 25-plus times earnings for Costco, and maybe that comes down to 20 times or 15 times. And then you're looking at a much lower stock price. That's kind of what happened to Walmart the last few years. It certainly happened to Best Buy a while ago. That's a big worry. Just an interesting point here to, I think, their resilience is, my wife and kids

and I were driving by one of the local Costcos here on the way to dinner the other night, and saw the lines for people wanting to get gas there at Costco. Now, I can understand in an environment where gas prices are higher, and they're going to Costco because that's going to be typically the lowest cost provider there, but even in the face of very low energy prices and gas prices, people are still going to Costco to get their gas and willing to wait in line to get it there, which is just, I think, a testament to really the loyalty that the typical Costco consumer still has. Hewlett-Packard Enterprise issued its first quarterly report as a stand-alone

public company, and it looked like a pretty good one, Simon. Profits and revenue both slightly higher than expected, and the stock up 15% on Friday. Well, and a reminder now that Hewlett-Packard is split into two different companies. You've got the legacy business, which is Hewlett-Packard Incorporated, ticker is HPQ, and then the one you just mentioned that just reported, Chris, Hewlett Packard Enterprise, HPE. I think Matty was just talking about compressing stock valuation multiples. And I think that right now, the question between both Hewlett Packard businesses, which stock is just too cheap to ignore right now? The legacy business saw about a 12% drop in revenue. This is a company that sells printers

and PCs, declining businesses. And with the 12% drop in revenue, it's now selling at about a 5 PE multiple. I mean, this is a business that's just continually declined. They're calling enterprise the growth driver of the business, and that saw revenue drop 2.5%, selling at a PE of about 12 right now. Both of these businesses are tough slugs and really tough markets to compete in. Hewlett-Packard's trying to go after scale in a declining market for both of them. But Meg Whitman was the CEO of Hewlett-Packard. She got to pick which one she wanted to run, and she chose enterprise. Doesn't that tell us which one at least she thinks has the brighter

future? Well, that's right. In data centers, co-locations of data centers are expected to grow about 63% in the next year and a half. Hewlett-Packard is going to be fighting for the servers that are going to be provided as hardware for those data centers. I think that Meg Whitman, who's also staying as chairman of Hewlett-Packard Incorporated, too, has a better handle of where that business is going to go. Shares of Valiant Pharmaceuticals down more than 15% this week. The Canadian drugmaker is being investigated by the SEC with questions surrounding their accounting practices. Jason,

And I don't know if there's fire, but there sure does seem to be a lot of smoke. Well, Alan, we talked a lot about this throughout the week and even in our production meeting. I think that we were all in agreement that typically where there is smoke, there is fire, particularly when you're talking about accounting issues and questions of leadership like that. Bottom line for me with this one, and I've said it before, to me, there are smarter people out there with more money and more information than we could possibly have as individual investors regarding this situation. So there are enough red flags with a business like this for me to say, thanks, I'll just look the other way

and try to find other ways to make money. This is a business that grows via acquisition. And so when you have a business that grows via acquisition like this, if the business model starts coming into question or leadership starts coming to question, the stock price starts feeling that pressure. It's not like they have this balance sheet stacked with cash. The debt-to-equity here is out of control, and they're faced with some really, really tough headlines to get through right now. Share count, it's up almost 13% since 2010. Not surprising because of the acquisition strategy, but they're not going to be able to use those shares as currency for much longer, I don't think. So, a lot of red flags here. I think if you're invested

in Valiant, you need to be digging deep and trying to figure out whether you want to stay invested with them. If you're not, I'd keep on walking by. That's what I was going to say. Even though the stock is down some 60% from its high, a lot of investors out there are probably saying, wow, this looks like a bargain. This is a company that's recommended in a couple of our services here at The Motley Fool, but I'd say, exactly right. When there's smoke, there's fire, and this could get a lot worse before it gets better. And there might not be any more strategy with this company, especially if they're not able to make the acquisitions and do the kinds of financial accounting tricks

maybe not tricks, but strategies. O' Alleged tricks. Alleged tricks that they've been using in the past, and this is just one you want to avoid. Before we go to break, I think we need to touch on what is, for me anyway, the most bizarre story in all the years we have done this show, and that is the case of Aubrey McClendon. McClendon is the former CEO of Chesapeake Energy. He was indicted on Tuesday. The Justice Department charged him with conspiring to rig bids to buy oil and natural gas leases in Oklahoma. And then Wednesday morning, McClendon was killed when the SUV he was driving ran directly into a highway overpass at a high

rate of speed. Oklahoma City Police are still investigating that accident. This was stunning, guys, because this is certainly a CEO we've talked about in the past, as much as anyone known for, or certainly being associated with the rise of natural gas over the years, but also a controversial CEO, known for not being shareholder-friendly. Probably the most famous incident is when he took his collection of antique maps and sold it back to the corporation for $12 million so that he could cover a margin call. But really, just a bizarre end to McClendon. Bizarre, yes. And while I've never met him, don't know him, we know basically what we'd research. We all know the adage, don't do it if you think it's going to end

up in the headlines the next day. And I think for better and worse, McClendon probably didn't do that very well. He was in the headlines an awful lot, and it was unfortunate that it had to end this way. Yeah, I agree. It's a troubling story, Chris. I think that the root of it, though, goes down to corporate governments, though. We look at a lot of companies, and there's a line between what's progressive and what's illegal out there. Typically, when you start exposing stuff that maybe or may didn't cross the line, it tends to expose bigger problems. Yeah. I would say, this was a person who was so successful and revered, really,

in the industry. So many times, that can get to someone's head. I think, at some point, he really thought he could do no wrong, like a lot of CEOs do. It came back to haunt him in a big way. Well, and certainly a complex guy, because for the incidents with shareholders, on the flip side, this is someone who donated tens of millions of dollars to higher institutions like Duke University and the University of Oklahoma, doing charitable work in Oklahoma City. So, our thoughts are with his wife and children. We will be back after the break. This is Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser,

Simon Erickson, and Matt Argersinger. Tough fourth quarter for Staples. Profits and revenue both came in lower than expected. Same store sales fell. Is there any silver lining here, Matty? I don't think there is, Chris. I'm sorry. I've been talking about this industry for a little while. The office supply industry is really in trouble. If you look at Staples, their sales were down 7%. But if you exclude the store closures, which they've had many, they've closed actually 242 stores over the last two years, their sales were still down 0.6%. So, it's not a disaster by any means, but this is a concept, I think, that's kind of lived its day and it's not really growing anymore. And of course, they've got this merger deal with Office Depot

that they've been working on for more than a year now. Well, the FTC is suing to block the deal. They think it creates unfair competition in the industry, which, I mean, of a dying industry, that's interesting. European regulators have actually approved the deal, but, of course, there are a lot less staples and office depots in Europe. I just think this is a business that's headed for the brink. I mean, if you look at what drove this business for years, I mean, it was computer sales, printers, ink cartridges, printer paper. Look, we're buying computers online or at the Apple Store, and we're just not printing as many things as we used to. So, I don't think they can reinvent themselves. And even if this merger goes through, I still think it's a dead man walking business.

I think the concern over an unfair competitive advantage there, that assumes that someone would actually want to get into this market and compete. I mean, it's a dying industry, more or less. I mean, don't you want to do whatever you can to help keep these guys afloat? Well, it also assumes that customers are going to be hurt in a certain way. But if you look at the options that customers have these days, whether it's Walmart, Target, or buying printer paper on Amazon.com, there's so many different places to get things these days. So, I don't see how it's unfair competition. Fourth quarter profits for chipmaker Ambarella fell 71%. And yet, somehow, Simon,

that was better than expected. How low were the expectations for this quarter? Well, you know, Chris, they also had a one-time write-down of a deferred tax asset. So, if you pull that out, actually, the earnings per share on an adjusted basis were $0.64 versus $0.68 since last year. So, not maybe as dramatic as the headlines might initially indicate. But Ambarella is in a tough spot right now, because their largest customer is GoPro, of course, a favorite of many sports enthusiasts, action sports cameras. We've had two terrible quarterly reports from GoPro, and Ambarella sees their largest customers sitting on large amounts of their inventory. So, the question on this company now becomes,

can the other markets that Ambarella is selling to pick up the slack for falling sales at GoPro? We're starting to see a lot of developments in IP security cameras, in flying cameras also known as the drones market, and then also automotive cameras. I think all of these are very interesting. It's going to be interesting to watch, one, the top-line growth of those, but also the margins that they're capturing for Amarillo as well. Shares of Kate Spade up big this week after fourth quarter same-store sales came in at 14%. That's a pretty strong holiday, Matty. It was. It was a good season for them. They did miss expectations overall on sales and

earnings, but up 14% there, and even up 9% even if you take out e-commerce sales, which were pretty strong. Again, though, we were talking before the show, fashion apparel is such a hard category. You've got Kate Spade up 20%, but this was a stock that was trading near $40 a share a couple of years ago. Six months from now, we could be talking about Michael Kors being up 20%, or Limited Brands being up 20%, or look what American Eagle has done over the past year. It's such a tough business. My advice to any investor is, unless you really like fashion apparel, you know something specific about the industry, I'd stay away as much as you can. Sure. I think we talked about this

earlier in the week, too, with American Eagle, looked at Crocs, all of which, you're just looking at fashion retail in any kind of a degree there, very much a valuation-based investing style. I think you really need to be focused on the valuations of the stocks there, and then you have to be prepared to pull the trigger and sell when you feel like you've gotten something out of it. I was just going to say, it seems like more so than other industries, fashion apparel timing becomes more crucial. Because any one of these companies we've mentioned has had a good run in a short-term period.

Absolutely. And energy, too. I think we could say the same thing about oil and natural gas. Great opportunities out there. You've just got to know when to get in and get out. You're not buying a whole blindly. Exactly. You don't really think about fashion apparel as a cyclical industry. And we don't talk about it much, but it certainly is, if you think about it. High valuations, time to get out. Guys, before we go to break, a nice reminder that fascination with burgers is not limited to Americans. A London man, formerly known as Sam Smith, has legally changed his name

to Bacon Double Cheeseburger. The 33-year-old man said he applied for the name change after being out with his friends. Quote, it was the culmination of probably too many drinks in the pub where there was a conversation about names, Mr. Cheeseburger said in the interview. He went on to say, quote, my fiance is fairly reluctant about marrying a cheeseburger. This is something we are discussing a lot. Let's bring in our man, Steve Broido, in from the other side of the glass. Steve, I'm not going to ask you for marital advice for Mr. Cheeseburger, although certainly he may need some. But if you had to change your name to something food-related? Where would you at least be looking, if not the burgers?

Hospitaliano. What is that? Olive Garden, my friend. Hospitaliano, that's the deal. Well, it could have been worse for that lady. He changes his name to Sloppy Joe. We're having a different conversation here. Completely different. All right, up next, we will head to Japan for a report on international markets. 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. He joins me now from Tokyo, Japan. How are you, my friend? Yeah, I think you answered the question, where am I? I'm doing great. I'm 14 hours ahead of you. What's it like in the future?

Yeah, exactly. It's beautiful, man. what uh i'm assuming you were at an investment conference of some sort what uh is is there a headline so far for what you've experienced and some of the presentations you've taken in oh so uh yeah so daewoo is uh a japanese broker and they they they handle a lot of our trading in asia and they have a japanese and asian equities conference and so it's a really good opportunity for us to come and meet with a bunch of companies, some we own, some, you know, some we're interested in, some we're learning about. It's a very efficient way to do it. And at these

conferences, they also bring in, you know, a lot of academics. They'll bring in folks from the finance ministry here in Japan. And so, you know, a lot of the topic here has been about the reasons for the negative interest rates that are, you know, that the Japanese central bank has, you know, has applied. And, you know, this is a long time ago when I was, you know, I had written that there are four kinds of countries in the world. There's developed countries, there's developing countries, there's Argentina, and then there's Japan. And there's so much about this place just doesn't make a whole lot of sense. So, for a very long time, the Japanese stock market was flat to terrible. Flat would have been a great improvement. Right. I mean, depending on

what time period you want to look at. But for those who don't follow it very closely, where is Japan right now in terms of its stock market? And for investors, where, if anywhere, are the opportunities in Japan? Yeah, so Japan for 20 years was a market essentially in decline. And the decline was based on two things. One, a massive bubble in the late 80s and early 90s. And then, two, Japan is almost singularly horrible at generating returns on capital based on some really bad, frankly, bad corporate governance. But that's improving. Japan was one of the best-performing stock markets in 2015 on basically the country throwing every fiscal and monetary trick at the book and trying to make inflation increase. There are some really good Japanese consumer companies.

There are a lot of people here who – there are a lot of people who I've talked to who like the banks. I'm not sure that I agree, basically, because until a couple of years ago, a negative interest rate environment was something that was just spoken of as, you know, almost like a unicorn. Like, it's something that doesn't really exist, but, you know, it's theoretical. Yeah, so, you know, I would say on the consumer side, you know, there are a number of things that are pretty interesting. And the thing to remember about Japan, and it's always been the case, is that its electronics industry is probably the most robust in the world. And if you're willing to do the work, you can find some really interesting ideas there as well. I know that you're taking in general sessions, as you said, with academics, with investing leaders. But based on your Twitter feed that I follow, I know that you had some one-on-one meetings as well, including, do I have this right, with Hello Kitty?

That's right. Can I invest? Can I buy shares of Hello Kitty? You absolutely can. The company is called Sanrio, and you would almost call it similar to Marvel, except not nearly as powerful of a company as Marvel was before it was taken out. But yeah, most of their properties is Hello Kitty. They also own Mr. Man. I don't know if you ever read those to your kids. You have Mr. Tickle and Mr. Happy and those titles.

And so they own a bunch of different characters that they essentially licensed out. It ought to be a great business. I wish they were better at it. I want to bring it back to the U.S. market in a moment, but I would be remiss if I did not get your thoughts on where China is right now. I know you had written recently that many Chinese stocks lack the type of governance that you need to be willing to invest? And I'm curious, beyond just sort of your thoughts on China's market, what do you look for? What do you need in terms of assurances before investing in

Chinese stocks? Well, you know, for example, you want to be invested in countries at the top where there is a culture of protecting minority investors. Because no matter where we go, we would be not only a minority investor, but a foreign minority investor. And so we would in some ways be the easiest scapegoat there is, you know, in a time of problem, you know, the foreign investors want us to do this or that. You know, so from our standpoint, there really is, you know, a minimal culture in China for protecting or even thinking about minority shareholders as having rights to the companies themselves. Most big companies in China are really organs of state policy. They are political as opposed to being economic entities, and that just doesn't hold

any interest for us. We look and look and look for small companies in China that would fit our criteria. But it is just, it is simply so hard to find any at this point that sort of tick off all the boxes for us, having a good valuation, having a good management team, and having those types of corporate governance culture in place, because they really almost have to do it in spite of the fact that in China, it is generally the opposite. So we'll keep looking. I talk about China a lot. And I think that in a lot of ways, they generated one of the cutest crises in history last year with their stock market, which they talked up and tripled, and then it came down by half. And so they had a market that was, you know, by the end, it was up 30%, and yet it was a

disaster. So we'll keep looking in China, but it is a very, very hard market to get comfortable with. You're listening to Motley Fool Money, talking with Bill Mann, Portfolio Manager at Motley Fool Funds. Here in the U.S., the S&P 500 has bounced back from its lows in February, still down so far for 2016. I'm assuming for someone like you who is a value investor at heart, you look at the market in the U.S. and you don't see a market that's down. You see a market with increasing opportunities. Is that safe to assume? That's exactly right. Well, and I would say that the markets in the United States, if you were to go by the indices, the indices kind of lied to you in 2015, because if you took out the 10 biggest companies on the S&P 500, the S&P 500 was solidly

negative in 2015. You know, people talk about the FANG companies, but literally you just take the top 10 by market cap. And they generated almost, in fact, they generated all of the return for the S&P 500. You go even smaller, you go to the mid caps in the US, they performed more poorly. You go to the small caps in 2015 was a terrible year, on top of most of 2014 being a terrible year. So yeah, the fact that people finally freaked out in the beginning of 2016, to me, had to do with the fact that the Big Ten finally broke a little bit. And we've been finding incredible opportunities in small cap companies. We're not going, for example, into the oil services industry, because I think you have to have some knowledge of where the price of oil is going.

And that's a place where there's been an enormous amount of pain. But in a lot of other in a lot of other segments in the small and mid-caps, yeah, we're finding lots of stuff that's very, very attractive. And it's been attractive for a while, but the fact that people freaked out across the board provided some real opportunities for us. It was a week ago that Warren Buffett came out with his annual letter to shareholders. This is must-reading for lots of investors out there. And I wanted to get your thoughts on something, because one of the things Buffett addressed in the letter was what is referred to as the big four in terms of the Berkshire Hathaway holdings, and that's Coca-Cola, American Express, Wells Fargo, and IBM.

And these are four stocks that over time have done well for Warren Buffett and Berkshire Hathaway, but recently none of them are lighting the world on fire. And when it came to IBM, Buffett— They're lighting shareholders on fire. Yeah, exactly. And when it came to IBM, Buffett was very upfront, as he typically is, saying, look, I'm confident about IBM making a turnaround, but I could be wrong. And for the first time that I can remember, and you watch these guys more closely than I do, but for the first time that I can remember, Charlie Munger, his right-hand man, basically said, yeah, I'm not seeing it with IBM. And I think if it were put to a – I'm sure he supports Buffett 100%, but I feel like if it was put to a vote, Charlie Munger's voting thumbs down on IBM, and I'm wondering what you made of all that. You know, I think it's great, and I think it really shows what an awesome culture that Berkshire Hathaway has.

I mean, there are also a number of disclosures that he's come out because people get so excited when Berkshire buys anything, and people forget that there are multiple people investing for Berkshire now. And so Buffett will come out and say, yeah, that wasn't me. So they have a great culture of trusting each other. So the fact that Charlie was not able to come on board and agree that IBM was a good opportunity, it just really shows how these guys respect each other because he's not angry about it. I mean, if you were to ask Charlie Mugger, he would have voted no on IDM. But if you were to ask him, he also would vote that he hopes that Warren is the one who's right. I mean, they're not playing the game of I'm right, you're wrong.

They're playing the game of, okay, this is your call. I hope that you are right, and I think that you are wrong. And that's a really, really healthy process when you think about it. All right, last question, and then I'll let you get back to work. I'm giving you a choice. you can spend one hour talking with Warren Buffett at a Dairy Queen, or you can spend one hour talking with Charlie Munger at a bar. Two great investors. You get to pick their brain for an hour, but you can only do it with one of them. Which one are you picking? Good gosh. I think the

setting question makes that very interesting. I think you've got to go Munger at the bar. That's the correct answer. I mean, he could cause a fist fight. He's probably not going to get into a fist fight now. I really think that you've got to go Munger in the bar with, like, Jameson's. Like, it can't be super top-shelf liquor. It's got to be hard drinking. And, yeah, I think that's exactly how you go.

Although, the other sounds pretty great, too. They both sound good. me a blizzard. But you did make the right choice. You can go to fullfunds.com and sign up for declarations. It is the free monthly newsletter from Bill Mann and his colleagues at Motley Full Funds. Thanks for being here. Get home safe, my friend. Thank you. Take care, 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 Hillen joined in studio once again by Jason Moser, Simon Erickson, and Matt Argersinger. Guys, a couple of quick items before we get to the stocks on our radar. March is here, which means the big South by Southwest Festival is just around the corner, and we are sending a team of fools to Austin, Texas, including me, Simon, Matty. I'm looking forward to the trip. Oh, yeah. We're going to be doing our MarketFoolery podcast from South by Southwest all week,

so if you're going to be at the festival or you live in the Austin area, drop us an email, radioatfool.com. We're trying to put together a small gathering of Fools. Also, for the first time ever, we are offering a digital pass to our recent investing conference in San Diego. We've got a three-minute highlight reel of the keynote speeches and breakout sessions. You can check it out by going to digitalpass.fool.com. That's digitalpass.fool.com. email from someone who identifies himself or herself by the name Jester Bobbity. Let's just assume that that's not the given name from the parents. But anyway, Jester Bobbity writes, I always get a little excited when I hear Chris say, coming up, we'll give you a look at the

stocks on our radar. I listen to the pros and cons and the question from Steve Broido. And then, well, nothing really happens after that. I know I should research, but I don't know what the next step is after that. What is the process for researching a company before you buy the stock? Great question. We could probably spend a whole hour on this, but instead, Jason, let's just go around the table. What's a stock on your radar, and what's one thing you would advise in terms of researching either the company or the industry? Yeah, good. Airbnb and the sharing economy are getting all of the attention dollars here lately. But that does not mean, I don't think, that there is not plenty of room for traditional

hoteliers to make their hay. And I'm putting Marriott, ticker MAR, on the watch list. Bring it over to the watch list and MDP. Neat business in that they primarily manage the hotels as opposed to actually owning or leasing the property. Takes a lot of the expense out of their business model to make healthy margins there. And a big item coming up here with the recent announcement that they're going to acquire Starwood. This is going to create the world's largest hotel company in an industry where scale really is a competitive advantage. Definitely one I'm looking further into. As far as how you could take your research here to the next level, try to understand some of the metrics that you want to pay attention

to in regard to this business. What are the metrics that indicate success? One of those metrics here is revenue per available room. If you can see that that metric is growing, if it's growing faster than the industry average, then that means they're gaining share and leading the way. Heads on beds. That's what it's all about in the hotel industry. Heads on beds. Steve Broido, question about Marriott? How do I know if I'm getting a good price on a Marriott room? It seems like there's so many sites out there, all these coupon codes, and I have no idea. I book a room, I have no idea.

You know, Steve, I am so glad you asked that question, because I'm going to push another MDP holding that we love, TripAdvisor. Marriott and Starwater both on TripAdvisor's instant booking platform, where you will, in fact, get the best price for your stay. So, make sure to check TripAdvisor, their instant booking platform. They won't let you down. Simon Erickson, what are you looking at? Nicely done, first of all, JMO. Two picks for the price of one. Hey, now. Jester Bobbity. I would also say what JMO says, also. Look at operational metrics that

companies are reporting, and what really makes these companies tick. A lot of financial reporting is just the earnings and the revenue and stuff like that. We need to get to the second layer of what's really driving that, and why are these companies actually performing as well or not as well as they are. The company on my radar is actually Disney, ticker DIS. We recently purchased this in a million-dollar portfolio. It's been selling off lately because of a lot of fears from analysts on cord cutting and declining subscribers from ESPN. But I don't think that's as big of a concern as maybe a lot of the media is portraying it as right now. ESPN, of course, wholly owned by Disney, has got some of the highest fees

that they're getting from subscribers each month, from the cable networks. That continues to stay strong. And live sports still accounts for 93 of the 100 largest TV programs of last year. I think Disney's still a winner going forward. Steve, question about Disney? Was Star Wars a win, a huge win, an okay win, or not a win at all? Yes, it was a huge win. I think it's still going to manifest for years, too.

After you get past the studio networks, you've got merchandising and media networks and everything that's going to come from that, too. So, thumbs up in my book, Steve. Matty? Don't call to come back, but I'm liking Zillow, ticker ZG. You know, we're heading into that strong spring home-buying season, but that's not really why I'm liking Zillow right now. CEO Spencer Raskoff was on CNBC last month, and he was asked about guidance or some minutiae with the company's earnings, but his response was great. He said, you know,

I'm not really thinking about that, I'm thinking about how to grow Zillow into a $5 billion or $10 billion annual revenue business, and I think I know how to get us there. With Zillow, really pay attention to operating cash flow, less stock-based compensation. A lot of companies, of course, report great cash flow, but it's because they're adding back a lot of stock-based compensation. With Zillow, I know we're digging the details here, but look at their operating cash flow profitability, add back the stock-based compensation, still see if they're profitable. That's what you want to do with a company like Zillow. Steve?

At the end of the day, is Zillow just trying to blow up the housing market in terms of how transactions are done? Just trying to kill off the model of 3% goes here, 3% goes there? Exactly. Really, with Zillow, it's not so much about killing the middleman, but connecting the middleman to more buyers and sellers. That's what Zillow's trying to do. You got one you like, Steve? Marriott, I don't know. Marriott sounds kind of cool.

I don't know much about hotels, but I've stayed at some. They seem awfully nice. All right. Thanks for being here, guys. That's going to do it for this week's Motley Fool Money. We will see you next week.