Motley Fool Hidden Gems Investing - Motley Fool Money: 01.11.2013

Episode Date: January 11, 2013

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Welcome to Motley Fool Money. Thanks for being here. I'm your host, Chris Hill. Joining me in studio this week from Motley Fool Inside Value, Joe Mager. From Motley Fool Income investor James Early, and from Million Dollar Portfolio, Charlie Travers. Good to see you guys. Howdy. Good to see you, Chris. We have got some big numbers in the smartphone industry. We will head to Sin City for a report from the Consumer Electronics Show. And as always, we've got a few stocks on our radar to share. But we begin this week with earnings season, which officially kicked off. Wells Fargo was the first big Wall Street bank to report fourth quarter profit up 24% due to gains in the mortgage division. Joe, I know this is a bank that you watch closely.

The headline looks good, and yet the shares were down a little bit on the news. What's going on? Yeah, well, there are a lot of moving parts to any big bank, including Wells. And the market right now is concerned that net interest margins are falling. And so interest rates are low, and the spreads that banks make on loans are very lean right now. Now, that said, the plus side is that they're writing a lot more mortgages. So a lot of people have gone out and take advantage of that. Now, that's starting to fall as rates are starting to tick back up. A lot of people have already refied. Charlie's desperately trying to get his refied. The clock is ticking. Five months and counting. Yeah. But ultimately, I think the stock is pretty cheap and that a lot of these

concerns are priced in at this point. And there's kind of a seesaw with rates. So when interest rates do come back up, the downside is there'll be fewer mortgage applications in the processing. But the flip side is interest margins will go up. So there is kind of a natural built-in hedge in the business, and I think the market's probably overthinking this one. James, what do you think? Joe says it well, as he usually does. When rates are low, banks are supposed to be making up for the interest margin issue on volume. In other words, they should have a lot of loans.

Now, if you're not an impassioned bank follower like we are, know that banks basically pay out money at the short-term rate and receive money from the loans they make at the long-term rate. So when those rates don't leave a big spread, in other words, the rates are fairly similar, they don't make much money, and particularly after Dodd-Frank legislation removed or is starting to remove all these obnoxious fees that banks were relying on, in fact, they were making the majority of their money from these fees, but now these are going away, net interest margin is now more important. Charlie, do I have this right, that Wells Fargo is doing so much refinancing business that your refi is taking five months? Yeah, the backlog must be huge or they're, you know, just playing Xbox all day. I don't know. Joe, you've got to feel good about the fact that Charlie's Refi is taking that long because, I mean – As a Wells Fargo shareholder, I want to say we do value your business. Next week, Wednesday and Thursday, we're going to see most of the other big banks reporting.

To what extent, if any, can we sort of extrapolate out the results of Wells Fargo into expectations for the other big banks? Yeah, you can on certain spots. I think you're going to see a slowdown in mortgage originations, which is going to hurt like your JP Morgans, which are pretty active there. But net charge-offs are still really low, which is a good sign for all the banks. And ultimately, I think the numbers are overall favorable. I do think you're going to see the big story being net interest margins staying low, and that's where analysts are going to be concerned over the next few quarters.

Shares of Nokia were up more than 15% on Thursday after the company pre-announced quarterly earnings. 4.4 million Lumia phones sold. And, Charlie, while that is not necessarily a huge number in the smartphone industry, it was certainly more than people were expecting. And it's more than the company itself was even expecting, Chris. So when Windows Phone 8 came out in November, I think everybody was holding their breath. This is a completely unproven ecosystem.

Nokia bet their entire company on it. And so far, it looks like there's signs that this bet is paying off. And that's a good thing because if it didn't, it'd be game over for them. But we have to put this in a little bit of context here. The 4.4 million Lumias they sold, while that's a good start for Nokia, it's still a fraction of what the Samsung Galaxy S3 sells and the iPhone sell in a given quarter. So I would not say that Nokia is out of the woods by any stretch of the imagination, but they have a foundation to build upon as they go through this year.

Yeah, Joe, I was going to say, Samsung earlier in the week shared that they sold 62 million phones. Always one-upping people. To what extent do you think that if not actually being scared, Apple and Samsung are maybe sitting up and paying a little bit more attention to Nokia? Yeah, well, I think where Nokia has really had success is in emerging markets, and that's a spot where Apple in particular has kind of struggled. You know, they haven't got a lot of penetration in China, and Tim Cook's actually been over in China this week, had a meeting with China Mobile, really trying to expand their presence there. But it's going to be difficult when they're chasing the high end in the smartphone market. And Nokia, which has been more aggressive on the low end, more reasonably priced phones, has been doing well over there. And, you know, this could be the catalyst for continued mojo.

I'm still pretty skeptical. It's a very difficult market to compete in, especially at the low end. But, you know, hats off to them. It's a solid phone, the Lumion. It's off to a good start. James? Well, when you're starving, Chris, even the worst food tastes good. And I'm looking at a graph, and unfortunately I wish everyone listening could be here because it's hard to convey a graph on the radio,

but the graph from the Wall Street Journal showing Nokia's smartphone shipments from 2010 to present, it basically took a nosedive, like a roller coaster going down, and now it just barely blipped up. Now, a blip up is better than not. It's better than a continued dive. But, you know, this could be good. I don't want to knock it, but I think we'll need a lot more to really kind of get our yanks going here in terms of excitement. Charlie, to James's point, fortunately, when you look at the results from Nokia, it's not just the – I know the Lumia phones got the headline,

but also their networking business seems like it's improving as well. Right. The Nokia-Siemens Network joint venture was a huge anchor around their neck for many years. They've been restructuring that ever since Stephen Elop came on board, and profitability in that division will really help them out. One other thing in the smartphone industry that I should mention that got some attention this week, The Wall Street Journal reported that Apple is working on a lower-end iPhone. Apple did not confirm that. They wouldn't comment on the story.

And it was even written in such a way that said this is something that Apple's been kicking around for a few years, and they could still pull the plug on it. But if it happens, it's going to happen probably later this year. What do you think of that just as an idea, Joe? Is that a smart move for them, or should they just remain in the space they are? Yeah, I think they should keep doing what they're doing now, which is focusing on making the best phone possible. I think when you start going down market, you're kind of diluting the brand and what it stands for, not to mention you're hurting margins. And, you know, I don't know that Apple has a lot to gain in terms of, you know, accelerating price competition. Ultimately, that's going to come back to hurt them.

I think what they're worried about by making a more affordable phone is the market share losses to Android. And instead of focusing on the profitability of like an iPhone 5, they're worried that their ecosystem as a whole is not as valuable if they're not getting as many people in the door. And so maybe this is a way to do that. But they have to – it's a fine line to walk to not cannibalize where they make their money on the iPhone 5. Right, because the – I completely agree. But the trouble is the ecosystem is what sells the phone, right? And if they make their money selling the phone, it's a difficult victory there when you're chasing the low end. Just to bring it back to Nokia, Charlie, when you look at the stock, it's also, to refer back to James' graph, and nothing says great radio like a graph.

It's blue with bars. Nokia's stock really has taken something of a nosedive over the last couple of years. But you look at it bouncing off of its lows, it's more than doubled off of its lows so far. What do you think of the valuation of the stock right now? And if you are hearing this news and thinking about Nokia, what is the next thing you should be watching? I think it's a good buy here. I do own the shares myself. And what you have to watch for is the next generation phone that they're going to launch and how that stacks up to what Apple's going to come out with later this year, what Samsung's going to come out with later this year.

And you want to make sure they are at least competitive and they can keep the momentum going that they've built up so far. Nine months ago, Ford Motor started paying a dividend after taking more than five years off from paying a dividend. This week, Ford announced it's doubling the quarterly dividend, James, from $0.05 to $0.10. I guess you could look at it as it's just a nickel, or you could look at it as, hey, it's 100% more. Well, Chris, it's yielding roughly 3% now. So that's pretty good. And as a dividend investor, I actually might be interested if Ford made something other than American cars. To channel – I'm kidding.

But actually, there's a really good story here. Our channel, Ron Gross, who is sick with the flu today, Ford is really firing on all cylinders. And it's doing it without the help of a bailout, which is kind of, I guess an analogy might be, if you're running a race with another kid and he gets tired and his dad picks him up and drives him along next to you and loads him up with Gatorade and then drops him off, you know, you're still kind of winning the race. So Ford must feel really good, but it's a frustrating good in a weird sense. But, yeah, they're at a 52-week high. They hired, I think, 8,100 employees this year, another 2,000 to go.

So a lot of good for this company. And it's kind of, I doubted Ford, but I'm regretting it. It's a lot better story than I realized. What do you think, Joe? Well, I think a lot of that is good. I don't think that, I mean, not being bailed out as a taxpayer, I certainly appreciate that. But they did issue a lot of shares to make that happen. And the balance sheet is pretty hairy these days.

So I'm a little surprised that they're pushing forward with the dividend like that. And, you know, it's a cyclical business. You got a lot of debt. I think the dividend they had was just fine. Charlie, when you look at dividend increases in general, whether it's Ford or just any company, how do you view those as an investor? Is it automatically a good thing or is it – I guess some could look at this in Ford's case and say, you know what? They wouldn't be doubling the dividend unless they felt really good about their financial strength. Or if they're just delusional, to Joe's point.

A one-off dividend increase doesn't get me all that excited. But if you see a pattern of dividend increases over five or ten years or even more, like some of the best blue-chip companies in the world, I do think that's an indicator of financial strength. This is called the I'm-not-dead dividend increase. Basically, Ford knows that people will think if they raise their dividend, Ford must not be dead. Ford must have life left. So they're trying to capitalize on that regardless of the finances. Coming up, the holiday retail numbers are starting to come in. And for some companies, the news ain't pretty.

More after this. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in the studio with Joe Mager, James Early, and Charlie Travers. On Friday, guys, the FAA formally opened a full review of the new Boeing 787 Dreamliner jet. There have been several incidences in just the past few months, including one earlier this week that caught on fire on the ground at Boston's Logan Airport. I guess the headline risk sort of outweighs the actual risk, but this just seems like one of those things where when I look at the news and I look at Boeing stock only down a couple percent, still within shouting distance of a 52-week high, I'm just a little surprised that Boeing is not trading lower. Yeah, well, behold the power of low expectations. In this case, it helps to kind of look through the numbers a little bit. So, only about half of Boeing's total revenue comes from commercial airlines. The rest of it's related to defense. And within commercial airplanes, they've also got all the other 747 and less dreamy liners that they have, aftermarket parts and whatnot.

And so, it's a more diverse business than just the Dreamliner. I mean, whereas if you look at a Nokia, there's quite a bit more hanging on the life of, say, the Lumia phone. Obviously, they need the Dreamliner to work out. They've invested many billions of dollars. The plus side is there's huge demand for it. People are waiting for this plane because it can go farther, burns less fuel. So, airlines are excited. I was going to say, not when it's on fire.

Charlie, what do you think? I think the stock's holding up so well because it's not like there's a million other companies in the world that can build commercial aircraft. It's like Airbus, Boeing, Embraer, and that's about it. So, yeah, they'll have to work out these kinks, but it's kind of like it's our game and we're going to play it. It's ironic. The plane itself was three and a half years late to production, if I recall. And now it catches fire. But you're right.

What else are they going to do? And these are electrical and, I think, battery-related things. They can probably, compared to the whole cost of the plane, the fixing costs, I imagine, are not as expensive as we would think. On the flip side, Joe, if they come out of this FAA inquiry with a clean bill of health, does that mean that on the upside there's going to be very little in the way that we're going to see the stock boosted? I am not actually all that worried about the FAA thing. I'm more concerned about their ability to just fix all these problems. And if they can do that, I think the next few years are going to be very good to them.

Some bricks-and-mortar retailers had a tough end to 2012, but Best Buy apparently was not one of them. Shares of Best Buy up more than 10% on Friday after reporting that same-store sales during the holiday season were flat. So, Charlie, if I'm doing the math here, flat comps means awesome news, apparently. When you're Best Buy, it does. Considering that they're competing with Amazon and Target and Walmart, consumer electronics has not been a good place to be for bricks-and-mortar retailers in recent years. And they cite that better employee training to help people out with their decision-making and price matching online, which is key because these spend long a showroom for people to come and see $600 TV and then buy it cheaper online. But they've decided to match prices and keep those sales at the expense of margin. But I don't really see long-term optimism here for Best Buy.

I think the competitive environment is not in their favor. We also saw Target earlier in the week coming out with a similar – they had had an online price matching program that they had set up in October. They came out this week and said, hey, we're just going to extend that through the end of the year. What do you think of that, Joe? Because it seems like Target's doing well on its own and this seems like – almost like they're baiting Amazon. Yeah, it's a little gimmicky. I mean, Target cannot win a price war with Amazon over the long term, and they know that. And what's funny is when you look into the fine print with this offer, it doesn't apply to third-party sellers on Amazon.

Well, 40% of the volume on Amazon is third-party sellers. So 40% of the people who show up and try and claim this are going to get stiff-armed, and I'm sure they're not going to appreciate that. We're going to see more results as more retailers come out with sales figures and obviously earnings for the quarter as well. But, you know, it was not great news in general for retailers this week. We saw, you know, apparel retailers like Aeropostale coming out and cutting their guidance. And, you know, even Tiffany, which has been doing well of late, their sales came in at the low end of the quarter. What do you make of this, James, when you see, on average, more retailers than not that are struggling in the holiday season, which is so crucial for so many of them? Well, a lot of this stuff is not the most necessary retail in the first place, and that's going to be showing more softness right now.

I think our retail has been saturated. I think we're seeing the results of probably a decade-plus long megatrend, Chris, versus a quarterly issue. I think we have just so much retail, and the pullback is just more indicative of people's decisions. Consumer spending is, what, two-thirds of the economy. So it's not really surprising. I feel it's a good sign, actually. How do you guys differentiate between a retailer that is in trouble, that is genuinely struggling, and to James' point, just sort of like a quarterly blip, just sort of this whole notion of like, oh, look, they just had a little bit of a hiccup and instead of them being in trouble, the stock is just on sale. I kind of go like this. Are they eBay or Amazon? Yes? Then they're not in trouble. Are they not? Oh, well, then they might have some issues. And there are a couple exceptions to that. Costco, I think, being the all-star membership model, great customer service, great prices. But for the most part, brick-and-mortar retailers are just really going to struggle to compete with online, which offers better price transparency and better selection.

The other exception I'll make is companies with phenomenal brands that can transplant them overseas and avoid some of the saturation issues domestically that James was talking about. If you think of companies like Starbucks or Coach or Yum! Brands that are going into Asia and Latin America and doing very well down there. Retail is like a radio show marketer. You know, you have these, the cool radio channel doesn't last very long. There's something else after a year or two. Once the market turns on you, it's a tough business. After four years as Secretary of the U.S. Treasury, Tim Geithner is stepping down. And in his place, President Obama has nominated White House Chief of Staff Jack Lew.

What's most distinctive about Jack Lew, he does have business experience. He was an executive at Citigroup. But what's getting all the headlines, James, is his signature. What a relief. Hopefully it will bring that great city experience over. His signature is getting all the headlines. It's this series of loops. You're sort of an amateur evaluator of signatures.

What do you think of this? It is fascinating, Chris. You know, high school, I got really into graphology, which is the science, if you can call it a science. It's not really a science of analyzing handwriting, and I would analyze all my friends' signatures. And there are some people, there's a certain body of evidence in graphology that says that loopy sort of notions are indicative of sexual deviancy. Now, this is not some, I'm not diagnosing anything. I don't know. I'm just representing that news here.

But it is certainly a very interesting signature, Chris. It looks like your pen's not working, and you're just squiggling it around on the paper to get it to work, and that's what his signature looks like. Hopefully, by the time he becomes secretary and his signature's actually on the currency, that'll get cleaned up. Joe Mager, Charlie Travers, James Early. Guys, thanks. We'll see you later in the show. Up next, we head to Las Vegas for a report on the Consumer Electronics Show. Stay right here.

This is Motley Fool Money. You got no window holder, no window for... Welcome back to Motley Fool Money. I'm Chris Hill. This week, more than 150,000 people descended upon Las Vegas for the Consumer Electronics Show, the largest consumer technology trade show in the world. Technology writer Rob Pegoraro is one of those 150,000, and he joins me now from Sin City. Rob, always good to talk to you.

Thanks. You too. So, Rob, during the week, there are always news stories coming out of CES. There are companies putting out press releases, trying to get attention. But it seems like so far one of the big headlines is this notion of Ultra HD TV, sort of four times the resolution of normal HD TV. That's at least one of the big headlines. But you're there. You're walking around the exhibit halls. What's your headline for the week so far?

I would say Ultra HD or UHD or 4K, pick your own abbreviation, looks kind of like a boondoggle to me. The biggest problem you have is that to actually see these extra pixels, you need a really large set. If, like me, you have a 40-inch TV, you're watching from your couch five feet away, you already can't see the individual picture elements. You have a retina display in your living room. So we're talking 60 to 84-inch screens, which weren't that cheap in HD form. And you have four times the pixels. Prices get into five significant digits to the left of the decimal point.

That is not a consumer-friendly price point. then you have the problem that there's just about nothing to watch. So what are a couple of things that you've seen that have really impressed you, either for just how cool they are or for the fact that you think that this is a gadget or a product or a service that has a great market opportunity? In a word, I would say sensors. You know, it's gotten so cheap and easy to put in some kind of widget on a gadget that will measure your acceleration or your heart rates or the temperature,

all this other data that's been sitting around waiting to get collected, but traditionally requires, you know, costlier equipment. You combine that with how cheap it's gone to add Wi-Fi or Bluetooth, so suddenly you can make all these devices. Maybe it's some home automation module you plug into a power outlet or a little key fob thing you wear while you're walking around that synchronizes with your phone or your tablet. So, you have all this data you can make use of

and have all your other connected devices respond to that somehow. It's sure sci-fi. I think a lot of this stuff will turn out to be difficult to use or not all that practical, but I think you're going to see some neat innovation happening. Just to judge from all the tiny companies that don't have the huge exhibits on the show floor, but have a little table booked in some far-off corner.

There's some interesting stuff going on in that area. I am curious because at CES every year there are certainly amazing products, really cool products, but there are also things that are just flat-out weird or strange. I saw one news item this week about a company called NeuroSky, which is modeling mind-controlled helicopters. Now, these are miniature helicopters that you would use as a toy, But I'm just curious, when you walk around the exhibit halls at the Consumer Electronics Show, what is the strangest device or product that you've seen?

That's a very easy answer for me. Another sort of brainwave-connected device. There's a company called Necomimi, I think. I'm not sure of the pronunciation. They make a set of brainwave cat ears, basically. A set of what? You put the headset on. Brainwave cat ears.

So there's the sort of sensor pod that picks up your neurons, electrical impulses from your forehead. It just rests there. You don't need to take it in place or anything. And that is connected to a couple of servo motors that make these pretty realistic-looking cat ears move accordingly. So if you have feelings of interest, they start to wiggle. I tested this the other night.

I first put them on. They didn't really do anything. The public relations rep said, well, think of something that makes you happy. So I thought about going to a NAPS game. They moved a little bit. I looked at a picture of my family on my phone. They started wiggling.

I started giggling, which made them move a little bit more. The demo nearly ended with me collapsing on the floor in laughter. And there's a picture of me wearing these things, which should ensure I will never be running for office. And what is the application for something like this? Like, I get that it's an interesting device to model or something like that, but I'm just trying to see. Like, other than if you're a professional poker player and you can somehow convince the other people at the table to wear these things, I don't get what the useful application is. Instead of dogs playing poker, we have cat-eared humans playing poker. Exactly.

You know, it's a $100 device, so I think it is, perhaps you wear this to provoke odd reactions among your friends, maybe jealous longing, I'm not sure. I think, like I was saying before about sensors, when it gets cheap enough to combine these features in a consumer device, people will do a lot of interesting stuff. We were talking earlier about high-definition television, and I remember the first time I saw a high-definition TV. It was 1992. I was at an expo, and I thought, well, that's kind of interesting, but it was to the point about the Ultra HD TV. It was expensive, and you think about it, Rob, 1992, we were at that point still about 10, 12 years away from HDTVs really being in a lot of people's homes. So with that in mind, I'm curious what you have seen at the Consumer Electronics Show that you look at and you think, I think that's going to be a hit. That's going to catch on, but it's going to be a good decade or so before people really start going out and buying that. Yeah, 4K, I just don't see it getting too far.

in the mass market because these screen sizes a lot of people you know i live in a house built in 1920 i cannot physically fit a tv bigger than maybe 46 inches unless i'm going to somehow suspend it from the ceiling so i don't know how far that goes i think that the tv trend i'm a lot more happy to see and this is continuing is the whole connected tv phenomenon your tv has apps for netflix and amazon and hulu mlb.tv maybe uh i've been calling that tv second digital transition because you're getting to a point where, you know, among the things in some cases is what you actually really get rid of, the cable box.

There's the Roku little web media receiver. They announced a deal with Time Warner Cable where you provide your account credentials and you can watch every channel you pay for over the Internet. No big, ugly, stupid cable box required. You're listening to Motley Fool Money, talking with Rob Pecoraro, technology writer at the Consumer Electronics Show in Las Vegas.

Before we wrap up with a round of buy, sell, or hold, I want to get to the whole notion of disruptive technology, because as investors at The Motley Fool, that's something that we're interested in, and that's certainly something that people have done well with, investing in technologies that have succeeded in disrupting businesses. When you walk around the exhibit halls, and we were just talking about cable TV and people cutting the cord, so to speak. When you walk around the exhibit halls, what is an industry or a company that you think is threatened by some of the things that you've seen at CES this year? So I'm glad you meant one of the places I've been writing lately is a tech policy blog called the Disruptive Competition Project. So we're on the same wavelength here. I think, you know, the traditional pay TV model, it's not like companies like Comcast and Time Warner are hurting, but the whole idea that you're going to keep paying ever more per month for this huge assortment of channels, 75% of which you do not want, that doesn't scale. and when it gets to be so much easier to sort of put together what you want from whether you add a box like a Roku to your TV

or maybe it already has a bunch of apps of its own. In my own life, my wife and I, we haven't paid for TV since 2009. We do pretty well combining over the air with one internet app or another. So they're sort of ripe for disruption. There's an interesting trend to look at in the cell phone business. T-Mobile announced a few weeks ago that they're going to get rid of the traditional handset subsidy. So instead of you pay what you think is $99 for a phone,

then recouped endlessly because there's another $20 or $30 out of your bill even after you've paid back that subsidy, they're just going to charge you what the phone costs, and you'll pay less each month. I'm hoping that that's going to open up the market a little bit because in that case you're going to have vendors, phone vendors who will want to compete on price presumably because the price will be a real number, not this fake thing you see in the ads

that doesn't actually reflect what you wind up paying. All right, we will wrap up with a round of buy, sell, or hold. Let's start with buy, sell, or hold 3D printing. Buy. The cost of that equipment is coming down, and you don't necessarily need to buy one. There's a lot of interesting stuff being done, setting up hacker spaces in various cities. If you're ever in San Francisco, you should really check out one called the Tech Shop. That's not far from Moscone Center. You could just go into these places that have a 3D printer and things like a water jet cutter

and various other specialized industrial machinery. They could probably hurt you really bad if used incorrectly. The tools of sort of, you know, one-off manufacturing are getting a lot cheaper and easier to access. This phone has been a long time coming, much anticipated, at least by the people who make it. Buy, sell, or hold the BlackBerry 10. I got a hold. They have a huge challenge. It is not enough to have a great interface.

One of the phones we've been trying out here is a Windows Phone 8 Pro on the HTC 8X. It's a nice piece of work. The Windows Phone interface is really clean and elegant, but the app support is pretty bad. And one of the apps we've been using most often, Twitter, is the worst Twitter client I've ever used, even though it's Twitter's own software. Research in Motion has that issue. And a lot of people, you know, there weren't so many people who went out and bought BlackBerry so much as their IT department saw to it that they had a BlackBerry.

And once you get people who've switched to iOS or Android, do they necessarily feel that longing? I don't know. Google is one of the companies that's been working on this. Buy, sell, or hold driverless cars. That's got to be a hold as well. It's sort of very appealing and sci-fi. I think our cars will drive for us, but there's such a huge regulatory burden to get over to have those. That's something that we're going to accept.

I think it is more likely that you'll have cars that are going to be increasingly, you know, a little more like R2-D2 in the back of the accident fighter sort of looking out for you, but not necessarily, you know, taking the wheel, but fixing problems, warning you. You already see it in cars that try to make sure you stay in your lane, that warn you if you're too close. Lexus did a whole demonstration about all the different ways their car will try to ensure you, if you don't come out of the trip with the car intact, you will be intact. And finally, it's home to the Consumer Electronics Show, as well as numerous bachelor and bachelorette parties. Buy, sell, or hold Las Vegas as a family vacation spot?

Sell, sell, sell. I have to say, of course, I always see Vegas as worst. or see if the traffic is horrible. The monorail should be a good alternative, but they don't know how to pack enough people on their little elevated trains. That doesn't work too well. And I will certainly say in this particular trade show, you do see enough vendors who choose to attract attention to their exhibits

by dressing healthy-looking women in outfits I would not approve of my daughter ever wearing. Put it that way. Rob Pegoraro is a technology writer. You can read his stuff at USA Today at Discovery News. as well as RobPegoraro.com. Rob, get home safe, and until then, have fun in Vegas. Thanks. Coming up, we'll give you an inside look at the stocks on our radar.

You're listening to Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, So don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Joining me in studio, once again, Joe Mager, James Early, and Charlie Travers. Before we get to the stocks on our radar, just talking to Rob Pegoraro at the Consumer Electronics Show.

And Charlie, there are so many gadgets out there. And one of the things I mentioned to Rob, the one that sort of blew my mind, was this company, Neurosky, which has the miniature helicopters that you control with your mind, which frankly seems like something out of a James Bond movie. But you know what? If the price were right, I would probably pay for one of those. I would terrorize my cat with that. But you're something of a gadget guy. Coming out of CES, sort of what stands out to you?

Well, as a gamer who loves my Xbox, the Microsoft demo in the middle of the Samsung keynote presentation was quite amazing. The current Xbox is seven years old, so the next generation one is coming out very quickly. And what they're using is their Kinect technology to scan your living room and then using Samsung's projectors to take your game, and you're basically blowing out your TV to the entire wall. So if you imagine you're gaming, they showed snow falling on your wall or explosions and fire. It was incredible to watch.

Go look it up. That sounds awesome. It also sounds like you could, like, really mess up a little kid with something like that. Yeah, or my cat. Or your cat. Let's bring in our man Steve Broido from the other side of the glass. Steve, before we get to the stocks, any gadgets from CES that look good to you or anything on your wish list? Because they've got thousands of companies working on gadgets.

See, I'm going to go off the board and go with a gadget that goes on your keychain. And it's totally not technological at all, but it has saved me in many ways. Whenever I need a pen, it's called the TelePen, telescoping keychain pen. I have a photo up so you can see. it's this little expanding pen and it goes on your key ring every time you need to sign a check or write something down i always have a pen with me it's uh it's not like electronic but boy do i love that little pen i thought you were gonna say a bottle opener no no no the telepen telescoping keychain pen google it it's very inexpensive it'll change your life i don't think i've ever

heard you promote something in quite this way before is it possible you're an angel investor in this company i wish believe me i wish i love this thing are you getting a little cut are you You're going to get a promotional deal? Believe me, I wish. Promotional consideration for Mr. Broido's wardrobe, paid for by. Let's get to the stocks that are on our radar, and Steve will have a question for you. Charlie Travers, you are up first. What is the stock on your radar this week?

I am very excited about Baidu. Ticker is B-I-D-U. The stock has sold off pretty hard recently, started to rebound. They are the equivalent of Google in China. They dominate the market just like Google dominates search here. All the same competitive advantages. And I think this is a long-term winner as the internet and e-commerce just continues to grow in China. It's a phenomenal buy right here. Is part of the reason you're excited about it

the valuation because it has been sold off so much? Right. This is a stock that has seen its revenues just explode and it's priced for about 10 or 12 percent growth right now. It's really on sale. Steve, question about Baidu? Yes. What is its relationship with Google? Is there one? And And second question, is Google, did they pull out of China entirely? Are they back there? What happened with that? Yeah, Google did back out of China. I think they're still operating in Hong Kong.

Now, Baidu does use the Android operating system on some mobile devices, so there is some connection there. James Early? Chris, I am going with Bank of America. The ticker is BAC. This is on my radar, not necessarily in a good way, although I am a customer. These guys were basically two clowns short of a circus coming out of the bailout. It was just one goof-up after another. And with this interest margin issue, I see more clouds looming overhead.

They're in the middle of settling these mortgage fraud issues, but it's not quite done yet to the extent people think. So I think the clown fest will continue. I was going to say, the big story at the beginning of the week was Bank of America settling for more than $10 billion with Fannie Mae. That was greeted by the market as good news, but you're still looking for more clouds. It's being questioned by some watchdog group or something, and there's still some more settlements, smaller ones albeit, but more settlements to be done. Steve, question about Bank of America? Do you recommend owning stocks of companies that you believe to be kind of slimy? I don't mean that as a joke.

I'll answer it like this. I see what you're asking. You can, but you have to sell more quickly. So, in other words, a slimy company that's selling for really low valuation could actually be a good investment, but you want to sell that once it hits your valuation estimate. You don't want to keep holding that kind of company for the long term. But ethically, do you think it's a good idea to own a stock in a company that you believe maybe isn't the most wonderful? Oh, that's not how I roll, Steve. I mean, I realize that other people do that, but personally, I wouldn't do that.

I do. Do you have a company in mind that you're considering that is slimy? Well, I've owned Bank of America in the past. I don't own it now. But it's just, I don't know. They kind of creep me out. I mean, it's a big bank. I have a feeling there's a lot of people doing some bad things there.

I don't know if I term them slimy, but I understand what you're saying. Maybe poorly run. Yeah. Joe Mager? I'll go with automatic data processing. It's the nation's largest payroll processor. Now, stocks aren't cheap right now. The market's near a five-year high, so it would behoove people to think about how they're diversified.

And if you're looking for something conservative right now, I think ADP is a good fit. It's one of the few companies with a AAA credit rating. I think there are four left, and they're one of them. Nice, rock-solid dividend, and it should do well as the economy bounces back. You get better employment numbers, and when interest rates go up, too, they'll profit. Before I kick it to Steve, we were talking earlier about Boeing, and Charlie made the point about essentially barrier to entry. It's not like you can just throw up a company overnight that makes jets.

To what extent is ADP in that category where they have a high barrier to entry? Well, the nice thing is they compete at the high end of the market in terms of the size of their customers. So if you wanted to handle all the payroll for Ford, for example, or J.P. Morgan, it would be incredibly difficult for you to step in and do that because you've got to deal with all the complexities of local, state, municipalities, that kind of thing. So it's a very strong business with incredibly high retention rates because of that. Plus math. You've got to do a lot of math if you're in that business.

Steve, question on ADP? The question is, what percentage of the market does Paychex currently have, if you had to guess? It's substantially smaller. It's tough to get breakouts from them. But ADP processes around like 1 in 5, 1 in 6 U.S. payroll checks, and Paychex is the next step down from them. So, pretty small in the grand scheme of things. Paychecks is more like the small to middle-sized firms. ADP is kind of the mid to bigger. And they kind of leave each other alone.

Yeah. It's working well for them. Steve, Baidu, ADP, Bank of America, you got one you like? Hmm. I'm going with Joe's pick. Yeah. We will end there. Joe Mager, Charlie Travers, James Early.

Guys, thanks for being here. Thanks. That is it for this 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.

Thanks for watching!