Motley Fool Hidden Gems Investing - Hot Coffee & Cold Wings

Episode Date: October 30, 2015

Apple reports record earnings. Starbucks grinds out big profits. LinkedIn connects. And Buffalo Wild Wings goes cold. Our analysts discuss those stories and Yahoo! Finance markets correspondent Nicole Sinclair talks holiday retail. Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill, joining me in studio this week from Million Dollar Portfolio, Jason Moser and Matt Argersinger, and from Motley Fool Deep Value, Mr. Ron Gross. Good to see you as always, gentlemen. How are you doing? Earningspalooza rolls on. We will get a holiday retail forecast from Nicole Sinclair. And as always, we'll give you an inside look at the stocks on our radar. But before we get to some of the big earnings this week, let's just go around the table real quick. Ron Gross, I'll start with you. What is your headline for the week? A lot of macro stuff going on in my world. GDP came in for the third quarter a bit sluggish, 1.5%. That compares to 3.9% that we were all

excited about at the end of the second quarter. Not so great. I'd like to see it a bit higher. I'll also mention China cut interest rates for the sixth time since November to try to spur that economy along, hoping to see a spike in metal prices as a result. Did not see that. I was going to say, how's that working out? The first five didn't work, so six is going to be a charm. Jason, what about you? Yeah, this is coming as an investor and as a parent slash Santa Claus. I mean, I'm curious to kind of know how this holiday season is going to work out, because we've been talking about, at the beginning of the year, sort of, is this going to be a GoPro Christmas?

This is going to be an Apple Watch Christmas. I mean, as it stands right now after this earnings season, it doesn't seem like it's going to be either, right? And so now, what's really the big device? Because that's kind of how we're framing these holiday seasons now. I'm not sure there is really a big device. And so then, you've got to start wondering who are going to be the big winners when it comes to this holiday season. And based on the quarter that Amazon turned in this past earnings season, I have to believe that Amazon is certainly on tap to be one of the biggest winners this coming holiday season as well. O' Noticing two divergent themes, I think, with earnings season so far. If you

look at what's working, internet, technology, e-commerce, I'm thinking companies like Apple, Amazon, Alphabet, Microsoft, Baidu, Alibaba, LinkedIn, and the list goes on. What's not working though? Energy, industrial, transportation, manufacturing, basically nuts, bolts, and gas. Caterpillar, Cummins, UPS, Halliburton, SolarCity, which we'll talk about. I feel like, something is saying something about how the economy is. I'm not sure, it's really hard to tell. Alright, let's get to some of the companies, and we will start with the biggest one. Apple sold more than 48 million iPhones in the fourth quarter. And Jason, that's pretty

much all that matters at this point. Yeah, I mean, this is a phone story still, first and foremost. I hate to look at something like this and say it was a relatively ho-hum quarter, but that's kind of where we are right now with Apple. I mean, it was a good quarter. There wasn't anything that really stood out. I think that maybe is what stands out to me. I was hoping maybe we would see a little bit more on the Apple Music side or the Apple Watch side, possibly the Apple TV. Really, nothing is stepping up to the front of the pack here. It's still just a phone story. We're still seeing iPad sales falling. Given that this is very much a phone

story, I think investors need to at least keep their expectations in check when it comes to Apple. With that said, I take my hat off to management here in really standing by the capital return program that they set in place. If you look at their share account, just back in 2012, that share account stood at $6.6 billion. Today, it's closer to $5.6 billion. They are actually bringing that share account down. With tech companies, that's a pretty big deal, because they're usually known for letting that share account get away from them, even with buybacks. This is not one of those technology companies, though, if you want to call it that. That's price to perfection, though.

It's reasonably priced, because I think expectations are that this can't grow 20%, 30%, 40% like some of those high flyers. So, the P.E. stays reasonable, balance sheet's rock solid as always, and the stock remains reasonable as a result. Yeah, I totally agree. I mean, you hear people say it's cheap. I don't think it's really cheap. I think you have to sort of ratchet back your growth expectations. This is a much different story than it was just four or five years ago. We started off the show talking about the slowdown in China, but for Apple, that's definitely not happening. The iPhone business there has more than doubled, and Tim Cook was out there

saying they haven't seen any slowdown in customer traffic to the stores or iPhone demand. Again, an interesting view of what the economy might be doing in China or not. Let's stay in China. Baidu's third quarter profits fell 27%, but that was still better than Wall Street was expecting from the Chinese search giant, and shares up nearly 10% this week, Matty. O' Baidu's been in this transition, we've talked about it, where they're trying to move away from their core search business to what they're calling the O2O market, which is online-to-offline transactions, essentially turning search and maps into actual customer

transactions. That's what Robin Lee's been investing in. Baidu has spent a ton of money, and as a result, margins have really come down, and Baidu's stock's been hit. But I think this is the quarter that you can circle and say, you know what, maybe those investments are finally starting to pay off. Just one number that stands out to me, gross merchandise value of transactions across Baidu. $9.5 billion, that's up 119% year-over-year. Baidu Wallet, which is their mobile pay service, 45 million members of that now, up over 500%. It's working. I think it's absolutely working, and I think Baidu's made a major step into O2O. They're also doing a little bit of stock buyback of their own, right? A $2 billion

plan? That's right. They finished a $1 billion one last quarter and just launched a new $2 billion. They're certainly seeing value in the stock, and I'm seeing it as well. Starbucks' fourth quarter profits rose 16%, and global same-store sales were up 8%. This is a great quarter, Ron. It's a really great quarter. The street didn't love it, investors didn't love it, because guidance for the holiday season, the holiday quarter, was a little lower than expected. I would pretty much ignore that if I was a long-term investor. As you said, same-store sales plus 8% is really solid.

CEO Howard Schultz called that stunning, if he does say so himself. So he was clearly pleased. They're running some higher expenses for healthcare, higher hourly pay, their free college tuition plan. I applaud all those things. China is actually looking pretty good for them. China, Asia Pacific, 6% increase in traffic, 6% increase in comp sales. And they, I quote, there is no systemic slowdown in China for them, is what they're saying. So good to see that, because the opportunity for growth there is pretty significant. Is this a stock that is priced for perfection? I want to say it's like a 35 PE, 34, 35, if memory serves.

So, I mean, not cheap, but they keep putting up great numbers. Buffalo Wild Wings down 12% this week after third quarter profits came in much lower than expected. They also lowered guidance for the full fiscal year. Jason, this doesn't happen very often with Buffalo Wild Wings, but this was a big miss. Yeah. And I'd say, given sort of where they were at the beginning of the year to where they are now, it's deserved. I mean, they went from projecting 18% net earnings growth in the first quarter. They ratcheted that back to 13% last quarter. And then this quarter, now they're ratcheting back even further to just single digits net earnings growth. So,

they've really, really lowered the bar here. And the stock was priced for a lot of growth. And so, I mean, the sell-off isn't terribly shocking. Now, with that said, this is not some sort of fatal blow to this business here. I mean, this just brings the stock back into sort of more realistic territory, in line with maybe its growth expectations. But there is still a big market opportunity out there with these guys, because you have to look just beyond the Buffalo Wild Wings footprint and understand the fact that they have a strategy of becoming more than just one restaurant. They want to bring that Pizza Rev concept, the R Taco concept, and others under their umbrella as well. So, I mean, you're looking

at maybe 1,150 restaurants today, they have an aspiration of getting up to 3,000 restaurants here over the course of the next 10, 15, 20 years. So, there's a lot of growth opportunities still there, it's just the market doesn't seem to really have the patience right now for it, and so that's where we stand. And we talk all the time about management and how important management is, and it seems like this is one of those times where, if you're a shareholder of this company, you're all the more pleased that you have a very experienced CEO in Sally Smith. And I tell you, she's been with the business since 1996. They went public in 2003. If you're a shareholder that bought

in at that IPO and held on tight, you're sitting on 1,200% plus gains. As long as she's driving the bus here, I'm feeling pretty good about where this business is headed. That's actually probably my biggest risk when it comes to Buffalo Wild Wings, is who takes over when Sally leaves. She's 55, 56, 57 years old, somewhere around there. She has a family and I'm sure other things that she wants to do in life. That is one of those big question marks out there as a succession. Coming up, one restaurant company is bouncing back, and one solar company is getting burned. 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. Third quarter revenue for LinkedIn rose 37%. The company raised guidance, Matty, and the stock up more than 10% on Friday. Strong results across the board, Chris. Talent Solutions, which is their biggest business, up 46%. They're guiding for revenue in the current quarter for about $850 million, and that would be growth of 31%. LinkedIn is doing something. They just crossed the 400 million member milestone. It's a really sticky network. Here again is something that's actually working in China. They launched their China language version last year, and they're

already up to 13 million members, which is up 3X from earlier last year. So, something's working, it obviously is, and Jeff Wiener and team are doing a lot to innovate on the site, streamline things, and it's becoming a pretty good experience. You think back to earlier in the year when the stock took a dive, because they made that acquisition of Lynda.com, which is the online learning site, they paid $1.5 billion for that. There was some short-term pain, maybe it didn't go as smoothly initially, that's why the stock sold off. But you look at the results in this quarter, and that's really paying dividends. The only person in the financial media I can think of who was

championing that move was our man behind the glass, Steve Broido. Steve, you're not surprised. You use lynda.com, right? Steve Broido. He's a visionary. I love lynda.com. I use it all the time. What are a couple of the things that you use it for? We do photography stuff here, video stuff, audio training, recordings like this that we're doing right now, we try to get better them all the time. lynda.com teaches you how to do that very thing. O' Now, do you pay when you go do that?

It's a subscription fee. O' It is a subscription, okay. So, it's not a one-off. You've got to actually subscribe there. It's a monthly fee. O' It's a monthly fee. But if you're a paying member of LinkedIn now, you kind of get special access. So, they tag that in with a premium subscription. O' Yes, exactly. That sounds like a satisfied customer behind the glass. Big fan.

O' It was late last year that Panera Bread CEO Ron Shaikh compared the dining experience at his restaurants to being in a mosh pit. Shake unveiled an improvement plan dubbed Panera 2.0. Third quarter profits and revenue both higher than expected. Looks maybe like Panera 2.0 is paying off a little bit, Ron. It's paying off, and as you alluded to, their problem wasn't in the demand. People wanted to go in and eat there, but they weren't getting them out the door properly. The experience was poor, the food was poor, so they needed to go in, fix that, spend some money to hire more staff, update the kitchens, improve technology, and that's what they've done. So now they're

able to meet the demand, however, that comes with a cost, and the cost is eroding profit margins because your expenses are higher. But still, they needed to do that, and I think it will bear fruit down the road. They affirm their full year guidance, they're going to look to sell off 50 to 150 company-owned stores, they'll take the money in, they'll buy back $500 million worth of stock. I like that. I think that's a good idea at the current price. So, I think it's paying off, and they're doing a nice job. I just feel like maybe some of those restaurants didn't get the memo. I'm not seeing any change whatsoever. The ones I've gone into over the past year, it's still the

same jumbled experience. I like Panera. I think it's good food. The kids like it. I'd I like to be able to go there, but every time I go in there, I'm like, God, guys, you said you were going to fix it, you still haven't done it. But you've been to the one right across, the new one right across the street from full global headquarters here in Alexander. Full disclosure, Chris, I have not. I utilize it quite a bit. That is very much the streamlined experience.

And I love their, I forget what it's called, the rapid delivery concept, where you order online, and you get there, and your order's waiting for you on a shelf, and you just pick it up, and you walk out the door. It's really convenient. That's compelling. I feel like I need to do a little market research and catch up here. Third quarter profits for Boston Beer Company came in higher than expected, but the company lowered guidance for the full fiscal year, and the stock taking a hit down

more than 10% on Friday, Jason. Well, speaking of market research, I think I'm going to have to give a try to the new IPA, the grapefruit IPA they have coming out. That's something they're kind of following on Ballast Point's successes there. Right there with you, Jason. Right there with you. The number one problem for Boston Beer today is that it is a more competitive environment for them than ever before. This is not a function of a business problem. It's just a function of the environment, and it's something that they're going to have to deal with. But the

big news this quarter, to me at least, was the ratcheting back of depletions, which is the sale of beer from the distributors to the retailers. That just is the surefire sign of demand. They went from a range of 6.9% to a range of 3.6%. So that's potentially you know, a 200% revision, if you take the low and the high ends into consideration there. That's a big deal. And so, it's not surprising to see the stock sell off due to that. You know, they've also, we talked a lot about their success with cider and the other fermented, you know, alcoholic beverages besides beer, though they're seeing some slowdown there as well. So, I mean, this is a brand that is under fire. They're trying to figure out, you know,

new ways to sort of attract consumers. They're trying some new offerings out there. But they are stuck in this little bit of a Twilight Zone, and that they are not a craft brewer anymore. They're not going to be one of those big boys. It's kind of hard to see what the endgame is here right now. I'll say, this Twilight Zone, they kind of created this. If you think about it, Jim Cook, really a pioneer in the craft beer space, and really has been a benefactor for a lot of these smaller craft brewery outfits that are now competing with Boston Beer. But I have to say, I was down in Miami a few weeks ago, a bunch of Fools and I had a chance to

go to Concrete Beach Brewery, which is a small brewery just near Miami Beach. They're owned by Alchemy & Science, which of course is a subsidiary of Boston Beer. The brewmaster there couldn't have been happier, could not have been happier, to be part of the Boston Beer empire, as you will. He spends all his time just creating new beers, but they use Boston Beer's distribution facility and bottling facility in Cincinnati. They get all the free marketing they want for their Concrete Beach brews. It's almost as if he treated it as if Jim Cook is the Warren Buffett of beers, which I think is a stretch, but it's a good one. So, is that the path forward for Boston Beer Company? As you said, I look at this

company and I'm like you, I don't see them getting to the point where they ... certainly, they don't want to compete with the Anheuser-Busch and SAB Millers. They're not a behemoth like that. But with the rise of craft brew, and so many local craft brews, they've got more competition than they know what to do with. Sure. I see one of two things happening here. Either, Boston Beer is acquired. We know that Jim Cook has taken many offers through the years. Or, and this is the one I actually think is more likely, is that they continue to grow out that alchemy and science subsidiary to become a more substantial part of the business. Because that's the incubator

that gives them the opportunity to bring those smaller players in and help them grow. And to that point, I mentioned Ballast Point at the beginning of this. Ballast Point's just a little tiny craft brewery out in California that had less than $50 million in sales, and over half of those sales were levered to California. Ballast Point's actually filed to go public here later this year, which I thought was interesting. That seems to me, that would be another ideal sort of option, a little sort of bolt-on acquisition to bring under that alchemy and science wing. But I expect to see more of those as time goes on.

And I think that's the more practical way forward for this company. O' SolarCity lost even more money in the third quarter than Wall Street analysts were expecting, and shares sold off on Friday to the tune of a 25% drop. How bad is this, Matty? Because this looks really bad. That's his analysis right there. We laugh, but we're not happy. Christopher A. Hill, I have to say, I have been pounding the table on SolarCity for two years now, and it has not worked out. This was a really tough quarter for them,

they're hitting pretty much a new low. Here's the deal, they've been growing at an 80-90%, really an unsustainable clip over the last few years, just really pushing into new states and new regions, really blowing out the residential market for solar panels. And what Linden Rive now is deciding is, hey, you know what, it's time to focus on cash flow, it's time to get our costs in order, and guess what, we have this federal solar tax credit expiring at the end of next year, it's going to take the credit from 30% to 10%. In his view, that's going to create a lot of demand, but a lot of that demand is going to be from big commercial customers who can really take advantage of it. He wants to shift SolarCity's business

to that, but that means spending less on the residential rollout. Really, it's all about them ramping down growth, focusing on profits. The market's going to hate that in the short term, but I think by this time next year, they're going to be in pretty good shape. I feel like these are great businesses that are doing great things and changing our lives and our world. The problem, I feel like, is that they require such long-term outlooks. I mean, I think it's beyond even what the market can really deal with. It really makes for a tough public-style investment. I just can't help but wonder, if companies like SolarCity, even Tesla, would they not be better off as privately-held companies

that would face less scrutiny? You have to have a massive long-term investment horizon with these. You just can't focus on short-term. O' So, stock down 50% in the past three months. Is this a buying opportunity? I am absolutely holding my shares. I'm thinking about buying more. But again, I'm going to be really patient with this, and you have to be as well. Alright, Ron Gross, Jason Moser, Matt Argersinger, guys, we'll see you later in the show. Up next, Nicole Sinclair from Yahoo Finance offers a preview of what the holidays

will bring for retailers and consumers. Stay right here, you're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. The final two months of the year are the most important time for the retail industry. So what kind of holiday forecast can we expect, both for retailers and for consumers? Here to help us make sense of it all is Nicole Sinclair. She's covered Wall Street for CNBC and Bloomberg and is now markets correspondent for Yahoo Finance, and she joins me from New York City. Nicole, thanks for being here. Thank you so much for having me.

The last few holiday seasons, on balance, have been pretty good for retailers. What's the forecast looking like for 2015? Well, with what everyone's trying to figure out, we've seen a lot of mixed predictions. We did get a note out earlier this week that I parsed through from Deutsche Bank's Torsten Flock. He was highlighting a very strong outlook for retailers. He looked at this Gallup survey that showed consumers are going to spend about $812 on average on gifts, which is actually the highest level since 2007. So certainly an optimistic look.

But we've gotten a lot of mixed data from companies, and that's really what I dive into. And on conference calls, CEOs have been a bit more mixed on demand trends. Most recently, we heard from, of course, Walmart about a change of its whole strategy that might be case-specific, but we've heard that across a number of retailers, Macy's as an example, with a bit of a tepid outlook back in August. So we'll have to wait to see. Remember, we're at the tail end of earnings season for core companies, but we're going to be getting a whole slew of retail earnings data in the coming weeks, most of it coming in the middle of next month. So that will be even more of a tell. Also, one of the tells typically is the seasonal hiring that

the big retailers do. And if you just look at the three biggest, Walmart, Target, Amazon, as a group, I saw one report that as a group, the three of them will be hiring slightly more seasonal workers than they did last year. I know Walmart recently came out with the warning on what earnings are going to look like, not just for the rest of this year, but really for the next couple of years, but how much should we read into the seasonal hiring? Well, I think these companies are trying to figure things out, frankly, just as much as you and I are. So I don't think necessarily that the fact that they're hiring more necessarily means that sales will be better. Certainly, they're going to be more levered to a need for higher sales. But

certainly, they're going to be impacted not only by demand trends, but by shifting habits, people being online more, demographic shifts, people spending on different types of items like electronics versus, say, apparel. So there are a lot of different factors at work, some of which reflect or are emblematic of just underlying overall demand and confidence. But some of it is really just a preference issue and a type of spending issue. So yes, we are seeing some names higher more than last year. Macy's actually, while hiring quite a number of temporary workers, I think it's, I'll get the exact number for you, but it's actually less than last year. So sometimes when you see a really big kind of temporary worker hire number, it seems really

high. But when you compare it to what they've done in other years, actually not as impressive. You mentioned gadgets, and it seems like for the first time in a few years, there isn't really a must-have hot gadget out there. And I'm wondering, A, if that is in fact the case, and B, if it is the case, doesn't that also hurt retailers just a little bit? I mean, obviously, if you're the company that's making the gadget, that means good things for you. But just in terms of general buzz,

it seems like if there's a hot gadget with a high price tag, that that's generally good for retailers. I think that's a really good point. We've had Best Buy call out particular product upgrades or new products as a big driver for traffic when their results have been certainly fluctuating in recent years as we've seen a shift. We know Apple, we had the conference call just this week, highlighted that the S model is selling well but certainly doesn't do as well as a whole re-up cycle with a new number. So you're right, we don't really have a big driver in that way. Actually, just today we heard Nintendo is delaying its new game, which isn't well-timed. The stock was down quite significantly ahead of the holiday sale expectations for another cycle refresh.

But, again, I think that we are seeing a more, what's the word, I guess, interested consumer, I guess, an ADD consumer, a consumer that's intrigued by all different sorts of products across a lot of different categories. And I think that's a trend that we've kind of come to more recently over the years where you're right, a single product can get some traffic in there, but that's not necessarily what's driving the season. You're listening to Motley Fool Money, talking with Nicole Sinclair from Yahoo Finance as we dig through the holiday retail forecast. If it's going to be maybe a little rougher for retailers, does that mean good things for consumers in terms of deals? It should. That is a good takeaway. We are seeing a basically case where the winners in retail are the ones that are either going to have a very differentiated product that people with capital or with money to spend will pay up for, or alternatively, that have really good deals.

And certainly consumers will benefit from good deals. One concern that I have about the retailers right now is we've seen elevated inventory in recent quarters. What does that mean? It means the retailers have more stuff in their stores that they need to get rid of. And that usually means there will be discounts. So certainly while holiday time does come with special promotions, we might see that cadence elevated. I also think, though, that, again, this will be bifurcated. Again, the different types of consumers. So we are going to see a lot of sales at a lot of the mass retailers and maybe a little bit more of a specialty retail push for those consumers that have some money to spend on a product that they really care about.

For some people, holiday shopping translates into holiday shipping because they're doing their shopping online. And normally, that's good news for the likes of FedEx and UPS. But we're starting to see more and more evidence that Amazon is looking to control that so-called last mile. How much of a threat is Amazon to shippers like FedEx and UPS? Well, UPS and FedEx actually benefit to a large degree by an increase in e-commerce, by an increase in people buying their presents or their self-indulgent clothing purchases and be on online, because FedEx and UPS is actually handling the majority of those shipments. So certainly, I think the bigger concern for, say, FedEx is actually managing spikes in demand. This

was an issue for them last holiday season, where some of the peak days weren't really planned for appropriately, and it ended up impacting their earnings. So it's more of a planning concern. These companies are, UPS and FedEx, benefiting from low oil, benefiting from the continued secular shift to online. And it really is going to be a planning issue for them. We did hear that FedEx is one of those names that's upping its temporary worker hire plan for this season. And they actually just said this week they're expecting to handle 317 million shipments between Black Friday and Christmas Eve. So that's actually about 12 percent higher from last year. And actually, they reported in mid-September and they called out better expectations for consumer demand and particularly the holiday season, which is a big holiday season for them.

Fifty five thousand seasonal positions that are going to be coming on for them over the holidays. So you don't think as Amazon slowly, methodically starts to build out these logistics centers around the country and around the world, you don't think Jeff Bezos has it in the back of his head that five years from now, he's got his own fleet of Amazon branded trucks that's doing the delivery too? Oh, got it. So we have a near term versus longer term issue. Certainly longer term, this does pose a threat for this holiday season? Absolutely not. FedEx and UPS are fully in play. I think certainly the interest in Prime and Prime Now, which was really called out on Amazon's recent earnings, is something that is worth paying attention to because it shows that the Amazon

ecosystem could be a very powerful one. So certainly a longer term concern to be aware of, but not something really that should impact the stock of UPS and FedEx in the near term. I would note, though, that when we've gotten, for example, rollouts of new technology, such as Apple Pay and the payments industry, everyone was worried about the effect on Visa and MasterCard, and those names have continued to actually do quite well just because people are still transitioning over. So I think ultimately we still are seeing just a very large secular shift to e-commerce from the brick-and-mortar shopping experience, and that should really benefit all of the players in the space. Black Friday seems like it's always a spectacle every year, but pretty interesting to note a contrary play recently with REI, which is the outdoors and camping equipment type of retailer. REI announced it's closing its stores on Black Friday and encouraging people to get outside.

And I give them credit. I mean, the buzz has certainly been positive. They're getting a lot of free marketing, a lot of goodwill. When you first heard this news, what did you think? It's surprising. It certainly is counter to the trend that we've seen. That being said, we were just talking about e-commerce and cyber trends. it seems that Black Friday just doesn't matter nearly as much as Cyber Monday or really just

cyber that whole season. And ultimately, I think this is something we might see more of this backlash of the, you know, always on, always connected, always going, always responding to demand economy. I think certainly REI has gotten a lot of attention from it. It's been a nice press and marketing move, to say the least. But ultimately, will it really impact their sales? I don't know. People can go online. These retailers are building out their online presence. So I think that certainly it is a company taking a stand, but I don't think that ultimately it's as big of a deal in terms of the eventual results for that name or for the whole sector, as many are making out to be. That being said, certainly all of the other names that have

continued to stay open, not only on Black Friday, but we've seen more retailers open on Thanksgiving Day the whole day and beyond. I think that trend is unfortunately or fortunately, whatever way you want to look at it, here to stay. Do you think other niche retailers look at what REI did and think, well, we can do that too? Because I don't think there's anyone who looks at huge retailers, Walmart, Macy's, Target, et cetera, who can, this is not a move they can make. But I'm curious if other niche retailers can do this or if REI is really the only one who can pull this off. Well, I think certainly other niche retailers will be looking at it, I think, again, we have really a bifurcation in the retail world between that specialty retail

product you have to have group, and then the I got to get the good deal group. And Black Friday is known for its good deals. So if you're a specialty retailer offering a differentiated product, in the case of REI, oftentimes a very savvy product for a hiker or doing some sort of outdoor activity, those people coming into those stores often are willing to pay a premium. So they might have more of an ability to do that. And I think certainly a lot of the specialty retailers that have that sort of benefit might follow suit, particularly if they do have the online infrastructure to be able to keep sales going. But it is an important time of year. It does tend to make up the holiday season that is a very large portion of a volume and sales trend and brand

building. So it's not a decision to be made lightly. You can follow her on Twitter. You can read her analysis on Yahoo Finance. Nicole St. Clair, thank you so much for being here. Thank you for having me. It was great. Coming up next, we'll give you an inside look at the stocks on our radar. This is Motley Fool Money. Hello, boys and ghouls. This is Elvira, Mistress of the Dark. Please remember that the little devils on this show may own the stocks that they're talking about.

Don't buy or sell stocks based solely on what you hear. Do your homework and make your own decisions. And remember, if you still haven't come up with a Halloween costume, why not be me, Elvira, Mistress of the Dark? All you need is a black wig, a tight black dress, and a big set of... Okay, well, maybe it can't be Elvira. But, you know, happy Halloween anyway. Welcome back to Motley Fool Money.

I'm Chris Hill. Joining me in studio once again, Jason Moser, Matt Argersinger, and Ron Gross. And thank you to Elvira, Cassandra Peterson, a.k.a. Elvira, for doing the disclaimer this week. We love rolling that out every year. We had talked last week about how candy sales in the U.S. for Halloween are going to come in around $2.5 billion. I saw a stat this week that overall, Halloween spending, $6 billion. The rest of that is what? It's got to be costumes and decorations, I guess? Pumpkins.

O' Are you ... We decorate it at our house. Both daughters were like, hey, listen, you did this last year, we liked it, let's do it again. We have a bay window there, and we got that thing decked out like it's a retail store. O' I feel like it's changed. I think you go back decades, and it was always just about kids, it was neighborhoods. But now, I get four invitations to Halloween parties that people are having, and it's just ... I mean, it's adult-fest. You're a pretty popular guy, though.

O' You're like ... Well, it's mostly my wife, but ... Buffett's investment in the Oriental Trading Company has got to be paying off probably right about now. You feel like Halloween, these are the types of affairs that he's really feeling like, wow, that's just making money hand over fist. All right, let's get the stocks on our radar this week. We'll bring in our man Steve Broido from behind the glass to hit you with a question. Ron Gross, you're up first. What are you looking at this week?

All right, Steve. I've got a deep value radar stock, not a recommendation yet. It's Johnson Outdoors, J-O-U-T, a $200 million company, maker of outdoor recreational products, fishing, camping, hiking. Solidly profitable, $54 million in cash on the balance sheet, only $7.5 million in debt, five times EBITDA, 1.2 times book, looks really, really nice. Problem is, the Johnson family controls 77% of the company. Johnson family, you may know them from the SC Johnson, a family company, fame. So, it's real hard to unlock value in this company because it's so thinly traded, but it looks interesting. Steve Broido, question about Johnson Outdoors?

Is this a brand play, or a price play, or a product play? What do they specialize here at? The three Ps? I think it's a product play. It's a commodity product. There's plenty of people that make things like tents. But they make a quality product at a reasonable price, and they do a nice job. As I said, solidly profitable. Jason Moser? Sure. It's one I've talked about before. It's on our watch list on MDP. Ellie Mae, ticker is ELLI. They just reported here in another solid quarter. Just as a reminder,

this company provides on-demand software solutions and services for the U.S. residential mortgage industry. Primarily focuses on those more boutique and private lenders that are around the country. Getting some of those big banks involved as well, though, and just a recent partnership announced with Freddie Mac to further integrate their risk management system into Ellie's Encompass software system, I think, is just another sign that, really, there is not a loan in the country now that hasn't been touched in some way, shape or form by Ellie Mae. They make money via subscriptions, they also get transactions, and I think, really, This is one where it has continued to do very well. It is a very high-quality company. We're

waiting for some type of negative headline, whether it be rates ticking up, how that may affect purchase mortgages, whatnot. That maybe could help bring the stock back down to reality. But I own shares personally. I'd love to get it in the portfolio if we can. Just keeping an eye on it. Steve, question about Ellie Mae? We hear all the time about interest rates rising. If interest rates do rise, are people going to continue to refinance? I've already refinanced my house once. Yeah. The refinance volume is definitely drying up, and they've made note of that.

They've also made note that forecasts are showing that purchase mortgages are still forecast to grow. Now, that is something that we're keeping an eye on, because it does seem like with such a high volume of refinancing that we would see sort of a decrease in activity. And honestly, that's what we're kind of hoping for. If we see a headline like that, that could bring the stock back down to reality and give us a window of opportunity. Matt Argersinger? Well, you know, at the beginning of the show I said there are these old, stodgy industrial companies that really aren't working right now. Well, I'm going to go with one

of those. It's Cummins, ticker CMI. It's also on our MDP watchlist. It's a $20 billion company. It's the global leader in diesel engines and natural gas engines for trucks. They also build power systems. They're facing some serious speed bumps right now in their business. China has really slowed down. Brazil, which is a big market for them, has slowed down. But each time, I look at the management team that's been there for decades, and each time they've gone through one of these cycles. Cummins has come out stronger, more profitable, greater market share. I feel like it's setting up just like that again. And you get a 3.5% dividend yield to go with it.

Steve? I'm a shareholder of Cummins. What is the biggest engine you've seen produced by Cummins? They have an engine called the Hedgehog, which is about half the size of this studio, believe it or not. It's for massive mining machines and ships. I love that you had a great answer for that. Well done. Johnson Outdoors, LMA, Cummins, Steve, got one you like? I think I'd add to Cummins Engines.

There we go. All right. Ron Gross, Jason Moser, Matt Argus here. Guys, thanks for being here. Thank you, Chris. Thank you. Thanks to our guest, Nicole Sinclair. That's going to do it for this week's edition of Motley Fool Money.

Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.