Motley Fool Hidden Gems Investing - Hot Toys for 2017

Episode Date: December 1, 2017

Costco hits an all-time high. Chipotle makes a change at the top. Buffalo Wild Wings goes private as Applebee’s offers a surprising promotion. Ron Gross, Matt Argersinger, and David Kretzmann analyze the retail landscape and much more. Plus, toy industry expert Chris Byrne talks about this year’s hot toys. Thanks to Slack for supporting The Motley Fool. Slack: Where work happens. Find out why at slack.com. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Go to slack.com to learn more. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's a Motley Fool Money radio show. I'm Chris Hill, and joining me in studio this week from Million Dollar Portfolio, Matt Argersinger from Supernova, David Kretzmann, and from Total Income, Ron Gross. Good to see you as

always, gentlemen. Hey, Chris. We've got the latest headlines from Wall Street. We'll get a jump on the holidays with toy expert Chris Byrne. And as always, we'll give you an inside look at the stocks on our radar. As of this taping, though, between the fate of the tax bill in the Senate and the former National Security Advisor pleading guilty to lying to the FBI, I think it's safe to say, guys, that there is some market uncertainty that is roiling, well, the markets. We love a little intrigue. No comment, no comment.

Let's start with the retail landscape. We are a week removed from Black Friday. Things have settled down. Ron, I'll just start with you. I don't want to jinx us, but it really does seem like things are shaping up across the board for a good month for the retail industry. I am sure I'm going to regret this. I think the holiday season looks pretty good, as you indicated. Black Friday, Cyber Monday they were certainly solid online, stronger than brick and mortar, not surprising. Amazon being the biggest beneficiary of that, at about half of the sales done online, pretty incredible. But you know what? Even the department stores, remember the department stores? I

know you remember them. They were actually not too bad either. So, I think there's signs of optimism, and I think it's going to carry through. Yeah, it's interesting, when you take a step back and go back to June, when Amazon announced that it was acquiring Whole Foods, I think the market took a couple of weeks to digest, like, okay, is Amazon literally swallowing up the entire retail space, and do any of these retailers have a shot? But since early July, Costco's up 14%, AutoZone up 20%, Tractor Supply up 26%, Walmart up 28%. So, I think people are coming to grips with the fact that...

O'Reilly. People buying tractors for the holidays? Oh, you know, got to load up. Black Friday sale, right? Maybe Cyber Monday sale, too, for your tractor. But anyway, I think it's becoming clear that if you're a quality operator in this retail environment, sure, competing against Amazon is not easy, but it can be done. I think the market got way too pessimistic. The stock market tends to overshoot on the upside, and it tends to overshoot on the downside. I think that's exactly right. With the Amazon news from the summer and everything they've done in e-commerce, we've got way

too pessimistic and cynical about the traditional retailer. On any glint of positive news, which a lot of these retailers have had, and especially, as Ron predicted, they're going to have a great holiday season. The valuations got to a point where they're cheap, historically, and absolutely. And so, why not bid them higher if the news is better? Well, and you look at a company like Five Below, which is a discount retailer, that's a stock, they came out with their latest earnings report, that's a stock in 2017, it's up about 45%. Are they just doing that good a job of operating, or is that a stock that just got way too much pessimism attached to it? I think they're selling a wide range

of products at, obviously, a fair price of below $5, and that's resonating with consumers. Even though the stock market is high, and even though unemployment is low, and even though we have GDP growth that appears to be above 3%, things are kind of humming along, still are hurting out there, people still need a bargain, like a bargain, and when you see results from Five Below, same-store sales up 8.5% for this latest quarter. Very, very impressive. Didn't Costco just put up same-store sales north of that for the first time in forever? Absolutely. They were helped a little bit by the calendar, the holiday season being in this period versus last year. It was not, but still, that only was responsible

for about 1.5% of their 11-ish and change, same-star sales comps. So, really, really great numbers. Yeah, their e-commerce is up 39% as well for the month. So, Costco really clicking in a lot of different areas. Matty, is there a limit to how much upside, how much optimism we can attach to any single quarter? And I'm thinking primarily of Sears, which just lost more than half a billion dollars in their latest quarter. And at least for a while, in the early hours after that report came out, the stock was up. Just because, even though they lost, again, more than half a billion dollars, that was still better than expected.

Better than expected, that's the key. If you can do that, you'll probably get a higher bid in the market. But I think the points that Ron and David made, it's really about certain retailers who have big customer traffic and quality and specialties, those going to do well. The Sears of the world, the JCPenney's of the world, I think they might have a dead cap bounce here or two, but long-term, there's really not a lot of hope for a lot of those companies. Over the past year, Sears has burned $2 billion in cash, and they have $4.5 billion in net debt. So, I wouldn't put them in that quality operator bucket. JCPenney is another

one I'd probably stay away from. And even the department stores, they might be seeing a little bit of a resurgence, but those are companies that have really been poor cash allocators. They have growing debt balances, cash production is often going down. So, those are ones I'd stay away from. Yeah. And I think we have to also be very careful about looking at what Walmart has done and Costco has done in terms of e-commerce and saying, look at their e-commerce business. You have to remember, those are still such small fractions of their overall revenue. And so, it's going to take a lot of continued growth. You're going to have to see 30%, 40%, 50% continued year-over-year growth before

it even starts to move the needle for those companies a few years from now, just given the store account where they get most of their revenue from. So, fast-forward about five weeks or so, early to mid-January, we'll start to get report cards for all of these companies. And of course, at that time, we'll realize, you know what, Ron Gross was right all along. It really was that great. From your mouth. But what is maybe one or two metrics that we should be looking for in January, beyond just how they did over the holidays? We'll put aside Sears, and at the other end of the spectrum, we'll put aside Amazon.

But for just sort of the general retailer, what should we be looking for? For the general retailer, meaning brick and mortar, I would look for guidance as to what are they thinking in terms of, are they going to increase their store count, or are they looking optimistically toward the future and they want to build, or are they looking to cut costs and close stores and kind of contract their footprint? I think a lot of these stores, the traditional retailers, are going to succeed this holiday season because they're going to be heavily discounting a lot of things to get customers in the stores. The question is, what do their gross margins look like? If they're strong,

then I'd say, OK, well, not only did customers come shop at their stores, but they didn't come for the discounts. They came because they wanted to come and shop at that store. And I think that would be a strong sign that maybe they've turned the corner. Shares of Ulta Beauty getting hit on Friday. Third quarter profits looked pretty good, David, but guidance for Ulta Beauty's fourth quarter had some investors heading for the exits. Well, I mean, they maintain the same guidance. So, I think some investors might have been expecting them to raise their guidance. But I mean, take a step back and look here. Sales

up 19%, same-store sales up 10.3%, e-commerce up 63%, earnings per share up 21%. The number of reward members grew 21% to over 26 million members. So, as far as retailers go, it's hard to find better numbers than what Ulta has put up pretty consistently over the past several years. I think Wall Street, a lot of investors were looking for something bad in this report. If there's one yellow flag in the report, the gross margin dropped year over year just slightly, about one percentage point. So, perhaps some discounting there. You see some department stores like Macy's and Kohl's offering more discounting with makeup and cosmetics, which is obviously Ulta's bread and butter. But looking at 2014 to 2015,

essentially had the same thing happen in the same third quarter period at Ulta. And since that point, obviously, the company has done just fine. So, I wouldn't get too worried now. Obviously, if it became a trend over the next few quarters, maybe something to worry about. But at this point, the company is just clicking in all the right places. Yeah, but I would be careful. When you see a company, I want to say they're trading at around 40X trailing earnings. No, it's actually down to $26X or $27X. So, that's not that bad. Still a premium, but not nearly around $40. So, that's good to know. But again, this is not a high-tech company that's changing the

world, it's a retailer. And the second they start to put up either weaker gross margins or slower store count or guidance starts to trail down, the stock is going to get sold off. So, you just have to be careful. Well, and the stock has been sold off. It's down about 20% year-to-date. So, even with the metrics you mentioned, David, is this a buying opportunity or do you want to see one more quarter to see if what we just saw was a little bit of a speed bump or a trend? I lean toward this being a buying opportunity. I think given the numbers that they're putting up, it is worth the premium valuation. But the valuation is still above the market multiple. And for a retailer, that is lofty. So expect

volatility. But I think over the next three to five years, this beats the market. Coming up, we'll dip into the Fool mailbag. Stay right here. You're listening to Motley Fool Money. Thanks again to our friends at MyIDCare. It's the holidays, and that means more online transactions and more opportunities for cyber criminals to take a piece of the action. So you want to protect yourself. And MyIDCare covers all types of identity theft, from medical ID theft to child identity theft. They've got you covered. You get 24-7 credit monitoring, dark web monitoring, and a 100% success rate restoring identities. Look, it's the holidays. You want to be enjoying yourself instead of worrying about this stuff. You want peace of mind. So for our dozens of listeners, you can get a 15% discount if you sign up today.

Join the more than 25 million Americans who depend on MyIDCare for protection. Go to MyIDCare.com slash fool. Welcome back to Motley Fool Money. Chris Hill here in studio with David Kretzmann, Matt Argersinger, and Ron Gross. Our email address is radioatfool.com. From Nick Schwake, who asks, do you think there'll be an uptick in crime against autonomous vehicles since there will no longer be a driver? And if so, how much will it impact a company's profits? I like this question for a lot of reasons, and one of them is, I'm envisioning pulling off a crime against a truck. Really? That's where you go?

That's where I immediately went. Like a Brinks truck or like a Honda Pilot? I don't think Brinks trucks are necessarily going to be the leaders in autonomous vehicles, but I thought, All right, Ben and Jerry's, if they want to roll an autonomous truck down the highway, yeah, I'm absolutely thinking about how I could rob that. But, anyway, to that question, what do we think about this? I think it's such a provocative question, because we envision this future of autonomous vehicles, we're like, this is going to be great, the ride-sharing revolution, the mobility transportation revolution, not having less accidents, less traffic on the road, but God,

you're right. There's going to be people, and we always think of hackers and stuff, but no. Like what we were talking about before the show, it's like, now I'm going to step in front of an autonomous truck, because it's going to break, because it's not going to run me over, because it's smart and autonomous, and I'm just going to rob that truck, hopefully. Maybe we put David out there. It's still illegal. Just because it's possible doesn't make it right. So, how much is this a concern? Honestly, to go back to the Brinks truck example, if I'm Walmart, if I'm any major company that is shipping a lot of stuff across the country,

I don't want to be first on this. I'm happy to be second or third, because I think Nick's right. I think there are absolutely going to be people trying this. I think there's an opportunity for the insurance companies here to write another level of insurance to protect folks like Walmart against this kind of stuff. That may be a bit premature. I was thinking it from the police perspective, the other side, where there's going to be less traffic stops, less drunk driving stops, maybe none at some point, if we're really all just abiding by the law because our cars tell us to. So, the police will have plenty of time to go catch your Walmart and Ben & Jerry's.

O' They can try. They can try. I think questions like this just reiterate to me that full autonomous vehicles is probably further away than a lot of people might think. Some people will say, oh, just two or three years out, we're going to have self-driving vehicles out on the road. But I think we'll still need some form of human control over the vehicles, whether it's remote operators overseeing these semi-trucks that are, for the most part, autonomous, but

have these remote operators who can take control when they need to. I think there are just a lot of other questions and issues that need to be worked out, and it'll take more than a couple years to get there. Another restaurant chain taken private this week. Roark Capital Group, a private equity firm that appears to specialize in restaurants, is buying Buffalo Wild Wings for, let's call it $2.5 billion. What did you think? I think, yeah, something had to give here. Mercado Capital, an activist investor, was really putting the pressure on. They had gained some board seats. They wanted them to re-franchise

the whole business. Sally Smith had been forced out, the longtime CEO of BeWild. So, something had to give, and I think this makes sense. I actually think it is a relatively fair price at $157 in cash. The board has voted unanimously in favor of it, and another mediocre chicken wing bites the dust. Let's not give too much credit to Mercado Capital, because they were putting pressure on Sally Smith last summer when it was 167 a share. That's true. They voted in favor of it, so they're not fighting it and trying to get more money out of it, but I'm sure it's not where they wanted it to be. Between this and Panera Bread and Ruby

Tuesday, Krispy Kreme, these restaurants being taken private, is this now time just ... If you're an investor, is this an industry that you maybe just want to put to the side for the foreseeable future, or are there still opportunities here? Well, for me, it's also a little bit of a sign that we might be in a little bit in the later stages of a bull market, because there's still a lot of cheap money flushing around there, but the returns have been tough to get by. You look at restaurant companies where there's obvious franchising opportunities, obvious opportunities to load on some debt, pay out a dividend to private equity investors, things like that. I wouldn't be surprised

if it keeps happening. I think if you're a strong brand in that space and you have a cheaper valuation, you're definitely a target. Some of the private equity deals, specifically in the restaurant space, where there was real estate as part of the valuation scenario, makes more sense to me. Be while you don't really see that specifically. So, you're really betting on being able to turn the business and to make a return by really improving the business. Shares of Chipotle up more than 8% this week on the news that CEO Steve Ells is leaving the corner office. He will remain as Chipotle's chairman of the board. In a written statement, Ells said, we need to move faster and execute better, which is interesting, Matty, because

Steve Ells was the person in charge this whole time. Yes. Well, I think with Steve Ells is you have the founder, the original innovator behind the concept, the brand. But when Chipotle was trying to grow too fast, opening 200, 250 stores a year, trying to expand across the nation, and not really focusing on things you need to do, like your supply chain, to do that, and marketing. I think that's where he probably fell short. Of course, Chipotle, we know, the last two years have been just about as disastrous for any company as ever. But I think it's the right move. For one, and I was surprised to relearn this, but Steve Ells owns less than 1% of the shares

of Chipotle, which is surprising to me. Chipotle's not a massive company. He did found it. Yet, he owns about 0.7% of the outstanding shares. So, he's not going to be a person who's going to get in a way, I think, of a new CEO or a new team to come in and try to reinvigorate the brand. So, I'm not surprised the stock is up. I think some new blood at the CEO level makes sense. They've brought in some other new executives from Arby's and young brands to oversee operations and communications, some areas where Chipotle has clearly struggled over the past couple of years. But I think the issues that Chipotle is facing, they are fixable. The company has over half a billion

dollars in cash, no debt, free cash flow production and margins. Still not where they were a few years ago at the peak, but they are taking the right direction. So, I like the steps that they're taking, and I think it's worth a look at these levels. Regardless of who the next CEO is, how quickly does that person pull the trigger on breakfast at Chipotle? Because it seems like- Right after they kill the burger concept that they announced a couple of years ago. Breakfast is right after that. I hope the pizza concept rolls out. I'm ready for that. Dine Equity is the parent company of IHOP and Applebee's. Shares of Dine Equity are up this week, and I think I know why, guys. New promotion at Applebee's for the entire month of December,

Long Island iced teas are only $1. That's a fabulous time-honored strategy, Ron. Get your diners drunk. I'm in. Let's go. The good chicken fingers, a little mac cheese, and an iced tea? We're going to have to have a heat map around all these Applebee's locations for accidents and pedestrian accidents, you know, once they roll this thing out. I don't know. Long Island iced teas are dangerous, especially for a dollar. The fact that they're doing it for the entire month intrigues me. And we always say that alcohol is high margin for restaurants, and it is. The fact that they're willing to sacrifice

those margins and hopefully get people to stay longer, eat more food, we'll see. What's fascinating is, at a dollar, they might not even lose money because the markups are so high. They could just maybe break even. Let's go to our man behind the glass, Steve Broido. And I have to pause and say, you know, long-time listeners know Steve's love of Olive Garden, which has led to many listeners emailing over the last few weeks. Steve, did you see the story about the couple with the brand new baby girl? Their last name is Garten, and they named her Olivia? I did. Someone emailed it to us, and I was very, very happy that they did. I was delighted. I think there was genuine confusion

of whether or not it was you. There were people saying, is Steve doing this? Are he and his wife thinking about this ... We're not having another child, but if we were, that is what we would name our daughter. How do you feel about the Applebee's move here? I mean, you're a savvy investor. Do you like this move for DynEquity? I mean, it's always great when you've got a company in the news like this. The news may have paid for all of this itself. They're on our show now. We're talking about Applebee's, right? Savvy point. You think that was their goal? Like, how do we get on Motley Fool money?

You never know. Why not? Reach the dozens. David Kretzmann, Matt Argesinger, Ron Gross. We'll see you a little bit later in the show. What is the hot toy for 2017? We're going to discuss that and more with Chris Byrne. The Toy Guy is next. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Black Friday and Cyber Monday are behind us, but there is still a lot of holiday shopping to go. So what is the hot toy for 2017? To answer that question and more, we turn, of course, to Chris Byrne. He is a 30-year veteran of the toy

industry, and he's the content director for TTPM, a leading product review site for toys, tots, pets, and more. Chris, always good to talk to you. Thank you. Happy holidays. And to you as well, what is the hot toy this year? Well, you know, there's a lot of really hot toys, and one of the things that we love is the fact that there isn't one that people are going crazy for this year. certainly things like the Fingerlings, which are these little mechanical monkeys that fit on your finger. They're very hot. We do a list of about 18 to 20 toys every year. And there's a lot of different things for different kids. So I was looking at your list, and I was stunned to see Teddy Ruxpin. I remember Teddy Ruxpin from when I was growing up. So for those who were not around

in the early 1980s, what kind of upgrade did this toy get? Well, Teddy Ruxpin was a groundbreaking phenomenon when it came out. It was basically a stuffed toy wrapped around a tape recorder, and he told stories, and his mouth moved as he told stories. Well, basically he's the same, but it's all run by an app and by electronics, and he's got eyes that are interactive. They're sort of LEDs or animated eyes, rather. And, you know, the great thing is that the play is still the same.

Your toy is telling you a story, and that's the thing that, you know, that doesn't really get old. I'll get back to the list on the TTPM website in a second. But first, to the extent, I'm not going to ask you to divulge any sort of industry secrets here, but how do you and your colleagues determine what constitutes a hot toy? Is it pre-orders? Is there some sort of trend data that you're looking for in particular? Well, it's a combination of things. First of all, we try to stay very close in touch with what kids are playing with, rather than what's being foisted on them, for want of a better word.

We stay in touch with retailers. We find out what people are ordering. We certainly talk to the manufacturers, and we do talk to retailers to see what are they getting behind. It's a little bit different than it was in the 60s and 70s when there were only three channels and toy makers would say, hey, we're going to make this, you're going to buy it, and we're going to put it on TV and kids are going to want it. So the market is much more fragmented, so it's harder to figure out what's going to be hot, but it definitely goes to how are kids playing, what are they playing with, and what are the trends we see emerging over the year.

Are you ever bewildered by something that really catches lightning in a bottle? Is there ever a time where you and your team just sort of look and say, I don't really understand the appeal of this toy, but it's moving like hotcakes anyway? Well, sometimes we do. I mean, I think the fingerlings are a great example. You know, to an adult's eyes, it's a mechanical monkey that sits on your finger and goes, you know, makes little noises and turns its head. But we really try to look at it from how is a child perceiving this. And for kids, it's collectible. It's social.

It's got just enough technology to be silly and bring it to life. So, yes, every once in a while we scratch our heads and go, why is that working? But then we put on our kid hats and look at it and say, oh, yeah, I see how that could work. You read my mind. I was totally thinking of the Fingerlings because those things just kind of creep me out. I know. And you know what? That's because you're a grown-up.

Maybe not a surprise that a few of the things on the hot list on your website this year are connected to Star Wars. And of course, we're just days away from the new movie coming out. Is Star Wars just a goldmine for the toy industry? I mean, obviously, the Disney company is going to make their money, but are toy makers just rooting for an endless supply of Star Wars movies for the next 20 years? Well, you know, that's a great question. I'm not sure. Obviously, Star Wars does very well, but in a year when there are three, you know, it's the third movie year, third consecutive movie year, how many lightsabers can you sell? So the toys that are really moving are the ones that are really breakthrough, like the Little Bits

droid inventor kit that's taken this this wonderful sort of stem learning system which is a little esoteric for kids when you open a box and it's just a bunch of electronic bits but when they put it in the context of building your own r2d2 or another robot it becomes a real active play experience and it has the star wars theme so it gets it gets a sort of relevance from that but it really is sort of an independent play experience and i think it's that kind of innovation or something like the Star Wars droid from Spin Master that's actually about 19, 20 inches tall and will follow you around. I mean, that's sort of, when they can get that kind of magic into a toy, I think that that's going to really help it break through. Let me ask you

about a couple of the companies that are front and center in the toy industry because they've been making headlines above and beyond whatever are the hot products this season. And let me start with Toys R Us and the bankruptcy there. What did that mean for the toy industry? How much of a ripple effect did that cause? Well, I think from a financial standpoint, the ripple effect is not going to be that dire for a lot of the people. The preferred vendors are going to get their money. There's insurance. People had insured orders. I think that the larger sense is that Toys R Us is really important for the breadth of the toy industry for showcasing more than just what you would find online or for giving that sort of supermarket shopping kind of experience for

people to go and find out about toys when they see them on the shelf that they might not see otherwise. What's happened is a lot of that has shifted online as people are researching toys online from YouTube or our site or other places. So that shopping experience has changed. But I think that Toys R Us has been a dominant player for so long in terms of just the sort of wealth of the toy industry. It would be a shame to lose that. Reports recently that Hasbro is interested in buying Mattel. Mattel has fended that off so far. If you're a toy maker, are you rooting for that merger or does that consolidate too much power in the hands of one company? Well, I think it would consolidate too much power in one company. And I think the SEC would probably

have something to say about it, because between them, that would be certainly a significant portion of the toy industry. But the toy industry is not like any other industry, because it is a product-driven business. So you can be the biggest toy company in the world, and if you don't have the hot property or the hot product that people want, it doesn't really mean that much in terms of you're not dominating a sort of a commodity product. You're dominating in a very, very item-driven business when it's an eight-year-old who decides how your company's going to do. When it comes to the toys themselves, increasingly over the past couple of decades, we see electronics becoming more and more vital to the success of a toy, not just video games,

although that's certainly an industry unto itself. But when you look at the toy industry and sort of the battle between video-related games, games and toys that involve a screen of some sort, versus the quote-unquote classic toys, are there classic toys that are immune, that no matter how many video screens get thrown, a kid is going to go back to that classic toy, even though it doesn't have a big electronic component to it? Oh, absolutely. I think the crayon, the colored crayon, which Crayola launched in 1903, is still going strong. That arts and crafts sector has actually exploded and grown very, very, very fast,

even in light of all the technology. And I think that today's kids are different from kids a few years ago because they've never lived in a world without a smartphone. So it's like you and me never living in a world without a television. It changes how they perceive it because the technology alone isn't magical. So it's things like the Pikmi Pops, which are stuffed animals, you know, packed in a lollipop-shaped package. These are huge. LOL Surprise, which are tiny collectibles.

None of these have any technology in it. And if you look at what drove the summer, it was really slime and spinners. And both of those kind of cannibalized other sort of toy sales from major manufacturers because kids were happy with that. And parents told us, my kid's happy making slime. Why am I going to spend money on anything else? So Lego made headlines earlier this year when, for the first time possibly ever, the company struggled a little bit financially. It's not a publicly traded company, but it's certainly a very large, dominant company. I think they had a round of layoffs as well.

And that was one of those stories that sort of made me sit up and take notice, because Lego, for a very long time, seemed like it was completely immune in terms of video-related games. Is that still the case? Or, as a company, has Lego come to depend not just on sort of the toys themselves, but also on their properties as they move into the movie business? Well, I think they've definitely banked a lot on their movie properties, and I think the Lego movie, the original Lego movie, was very good for them. I think they didn't quite get the results they wanted from Lego Batman or Lego Ninjago,

so I don't know what that means for the future. But when I look at Lego, they had such exponential growth for several years that that's hard to maintain because the market for them or their sales have continued to be strong with their fans, but the market hasn't expanded at the rate that they grew. So it wasn't possible to keep growing at that speed. They would have to plateau at some point, and I think that's what's happened. They still have a very strong line, and they've got a really nice entry this year in the Lego Boost, which is sort of, if you know the Mindstorms, which is a sophisticated sort of robotics kit,

the Lego Boost is for like kids 7 to 12, and that's really a more simplistic one. But it combines all that coding and STEM and Lego building with a great character as well. You mentioned the fidget spinners sort of taking off earlier this year, and when I really began to notice them was when I saw adults playing with them, like adults here at this company sitting in a meeting across the table from them and they're playing with fidget spinners are there toy makers who are specifically designing things to have crossover appeal for adults or is it just all about the kids and if they get the adults that's a bonus i think when the case of the fidget spinners if they get the adults that's a bonus

there is there is a a small company out of portland called called zing and they've kind of capitalized on that with with certain things they they they made a couple of spinners and they've done other types of things that are the kind of pocket toys that you and i might have spent our allowance on um but and adults like to fiddle with them too because adults like to fiddle i mean there's been desk toys for years that people like to fiddle with or or just flipping a pen uh so but but it's definitely targeted most to kids and if the adults pick them up too well well that's just gravy. All right, before we wrap up, what's one toy, maybe two toys that are a little bit under the radar that aren't going to get the attention of anything sort of Star Wars related, that sort

of thing? What's something that if we want something a little unusual for our kids that we should keep an eye out for this holiday season? Well, one I really like because I've always been sort of a little bit of a history wonk um and playmobil which is a wonderful company out of out of germany they have a thing called pharaoh's pyramid which is a which is a pyramid play set that's really really a lot of fun to play with it it's got it it looks like a real pyramid it's it's about stands about two feet tall it's square the sides come apart it's got different chambers so it's a combination of kids who are learning about history uh but also have a little bit of adventure built into it as well, and with the recent discovery of that other chamber in the real

pyramid, I think it's interesting that they sort of are on top of that for kids who love that kind of narrative-based play, and that's really what it inspires, is really the narrative-based play. And probably the other one that I think is not getting as much attention as it should is a small company that came over from Holland called Yulu, and they've taken the whole escape room concept and turned it into a series of games. So they're just different activities. So, again, it's a good party game.

This is a really good year for games. And it's a small company that I think is going to do big things. If you want to make your workplace more fun, check out Chris Byrne's book entitled Funny Business, Harnessing the Power of Play to Give Your Company a Competitive Advantage. Chris, it's your busy time of year. I really appreciate you taking the time to talk. Oh, thank you, guys. It's always a pleasure.

Coming up, we'll give you an inside look at the stocks on our radar. This is Motley Fool Money. I want to say thanks again to Slack for supporting this week's episode of Motley Fool Money. Slack is a messaging app that brings together all of your team's communication in one place. and it gives everyone a shared workspace where conversations are organized and accessible. We've been using Slack at The Motley Fool for years and it saves so much time and it has really done wonders for productivity. It's also done wonders for cutting down on internal email. With Slack, you don't have to keep searching through email for that one follow-up or searching

through multiple systems to find what you're looking for. You can drag and drop file sharing that works with all the apps you already use, like Zendesk, Google Drive. Plus, you can tailor Slack to your work with more than 1,000 apps. It's fantastic. And with mobile apps for iOS and Android that sync seamlessly, you can always pick up where you left off, no matter where you are. Slack, where work happens. Find out why at slack.com. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in studio

once again with David Kretzmann, Matt Argersinger, and Ron Gross. We're going to get to the radar stocks in just a minute with our man behind the glass, Steve Broido. But also on the other side of the glass this week, some special guests from the Robert B. Smith School of Business at the University of Maryland, Shea Holmes and Brittany Radsky hanging out with us. Thank you for joining us. Thanks for hanging out. Special note for listeners in the D.C. area, next Friday, December 8th, we're going to be taping Motley Fool Money at Chatter in Washington, D.C. Chatter is a restaurant owned by a group of individuals, one of whom is Tony Kornheiser of Pardon the Interruption fame on ESPN. It's at 5247 Wisconsin

Avenue. It's at the corner of Wisconsin and Jennifer Street. So, come on out and join It's Friday, December 8th, 11.30 a.m. We're going to tape Motley Fool Money, and then we're going to have a bite to eat. Maybe a Long Island iced tea. I don't think they're selling for a dollar in chatter, but we'll see what the price is. But yeah, so come join us at Chatter on Friday, December 8th. Let's get to the stocks on our radar this week, and our man behind the glass, Steve Reuter, will hit you with a question.

Ron Gross, you're up first. What are you looking at? I'm going back to Sherwin-Williams, the paint retailer that I think is relatively ubiquitous. Yes. Really strong management team, strong retail distribution system, over 4,000 stores. They just acquired Valspar Paint for $11 billion to accelerate their global growth, which is an exciting move to me. I think that makes good sense. Hurricanes have hurt results recently, but that's just a short-term blip, nothing to worry about. The stock has done so well, it's up 160% over the last five years, that the dividend has actually now dipped under

percent. I do like it for the dividend, though, because they have increased that dividend for 37 consecutive years, and I think they'll continue to do so. And the ticker? The ticker is … You're going to look that up. Steve, question about Sherwin-Williams? Steve, what's the ticker? SHW. Thank you very much. My question is, Ron, how often should I be repainting the interior of my home? I'm not a paint expert, but I would like to say every three to five years, Steve. Have you done that, Ron?

Recently, we repainted our whole home within the last three months. We sure were in William Paints, I hope. For sure, and I was in the store, yes. Good. I was really hoping Steve's question was going to be, what's the ticker symbol? David Kretzmann, what are you looking at this week? I'm going with AppFolio, not a household name. The ticker is APPF, came prepared.

Show off. Do what I do, it's why we make the big bucks. This is a software-as-a-service provider for small, mid-sized businesses in niche verticals. They primarily serve property management companies today, and they also serve small law firms. Property managers are their bread and butter at this point. Those are actually multi-billion-dollar addressable markets. Management basically wants to expand into other niche verticals down the road, but for now, still a large opportunity with those two markets. This is a company growing revenue above a 30% clip. They're now profitable and free cash flow

positive as they scale. And the two co-founders are still involved, and they own over 18% of the company. So, a lot of things to like here. O'Reilly. One more time, the name of the company? Steve. O'Reilly. Appfolio. O'Reilly. Steve, can you explain what a vertical is? That one always gets me. I mean, I just think of it as an industry. So, you have one vertical is the law firms, one vertical is property managers. That's my definition. But go to Webster's, Steve.

Matt Argersinger, what are you looking at this week? I'm going with a Warren Buffett favorite, and that's Moody's, ticker MCO. We own it in Million Dollar Portfolio, and we just actually added it to our Best Buys Now. It's not the cheapest of stocks, but basically you have an oligopoly business that has tremendous margins, great returns on capital. As world financial markets continue to develop, and banks get disintermediated, and corporations go out to the credit markets for debt, I think Moody's volume is just going to continue to grow, and that's going to give more cash flow for Moody's management to buy back more stock, raise a dividend. And so, I think double-digit

returns buying Moody's today is a cinch. Steve, question about Moody's? Explain a world without ratings. So, if Moody's didn't exist, what does that world look like? There's no ratings on companies, there are none. Well, I think what you would have is a situation where debt would be a lot more expensive, because the Moody's AA, AAA rating is what really satisfies investors and enables yields to be so low. I hope to never live in that world. I was going to say, first and foremost, a world without ratings means

chaos at the movie theaters. That's right. Total chaos. Moody's, Appfolio, Sherwin-Williams, three very different businesses. Steve, you got one you want to add to your watch list? I'm going SHW. Nice. Steve, do you have a particular paint color

you want to go with the next time your house needs a touch-up? All of them. We need to repaint. You've got to go neutral for resale value. I recommend an egg shell. I'm not selling, though, so I can go crazy. Everyone sells eventually, Steve. But then the buyer repaints it, too. They say taupe is very soothing.

Ryan Gross, David Kretzmann, Matt Argersinger. Guys, thanks so much for being here. Thanks, Chris. 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.