Motley Fool Hidden Gems Investing - Motley Fool Money: 01.20.2012

Episode Date: January 20, 2012

Mortgage rates hit a new low.  Google reports weaker-than-expected earnings.  Yahoo!'s co-founder resigns.   And Apple launches a new initiative.   Our analysts discuss those stores and share some stocks on their radar.  Plus,  Yum! CEO David Novak shares his thoughts on leadership, China, and the Colonel's secret recipe.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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BetMGM operates pursuant to an operating agreement with iGaming Ontario. Jason, for Motley Fool Income Investor, James Early, and for Million Dollar Portfolio, Ron Gross. Gentlemen, good to see you, as always. Good to see you, Chris. We've got earnings from Google, Microsoft, Intel, and a whole bunch of banks. We will talk with David Novak, the chairman and CEO of Yum! Brands. And as always, we've got a few stocks on our radar, but we'll begin with the big macro. Weekly jobless claims fell to their lowest point in nearly four years, and the rate on a 30-year mortgage fell to

a record low. Jason, I'll start with you. Those both sound like pretty good things to to me. What do you think? Unless you just refinance and you didn't tick the bottom. Rubbed salt in the wound. That's another eighth of a point we could have gotten. This is the big macro. This is not the big Seth. Man. It is good news. It's a little bit of good news. Weekly jobless claims fall. Maybe we'll see that unemployment rate tick up as people kind of dribble back in. But this isn't the right direction we want to be going. Sure, it'd be nice to be getting there faster, but you take what you can get. And the rate on the 30-year mortgage falling to a record low.

there are probably a variety of effects to that. And in the past, I'm guessing that this has something to do with it. Europe being a basket case still, so American bonds still being a safe haven. That is one of the things that drives interest rates down on mortgages. And that seems like not a big deal, but if somebody can refinance, they got a couple of hundred extra bucks a month to spend and they spend it, it helps the rest of the economy. Ron, you're a big employment guy. Is your lower lip quivering when you look at this? Well, I hate to rain on our parade. We've been so optimistic lately, but I am hearing more and more rumblings of QE3. Where are you hearing these rumblings from? Are you plugged in?

Open a newspaper. Okay, you're reading the rumblings, technically. It would be helpful, but the reason perhaps it's needed is, A, because Europe's a mess, B, because housing is stuck in the mud, and it could be as much as $1 trillion of mortgage-backed security purchases to come in and keep interest rates low. Interest rates lower, it's great, but the need for it is what's troubling. As long as Europe's a basket case, we won't need that particular piece of a QE. Are people holding off on borrowing because the rates are too high now?

I was going to say, so the Fed is thinking about a third round of bond purchases? It's nothing but troubling, in my opinion. James, what do you think? I agree. I mean, I think that we're trying to solve a debt problem with more debt, and it's ultimately not the way we want to go. Yeah, it makes no sense on the face of it, but in the end, it's the only thing that's ever been effective at softening the debt problem. So, although I think it's also ridiculous, it's sort of like the cure is part of the problem.

Stock market will like it, though. Stocks are likely to go higher if the Fed keeps coming in and buying assets. Shares of Google down 8% Friday morning after the company's quarterly profits came in lower than expected. Ron, you're a Google guy. What happened? I'm a Google guy. We do own it in a million-dollar portfolio. The street is focusing on two main things. One, the fall in the cost-per-click metric, which is the amount that marketers pay to Google for search. And then the second is the increased spending that Google has put into place to build for the future. And both

of those things together have caused the earnings to miss expectations, and the stock is selling off. I'm not particularly worried. The paid click growth rate was really high, 34%. I think Google knows what it's doing in terms of spending for the future. So, we'll have to let that future play out. We have the stock on hold, and we have had it on hold. At current price, it's just a bit too high for us to initiate positions, but I think things are still fine. O'Reilly. I'd be a little bit more worried, and it's about that price per click thing. There was an interesting article, or an interesting few articles I read this week, which confirmed

to my biases which is why i like them of course which is that uh google if you i think google ruined the internet in a lot of ways the stupid adwords ads that are everywhere and so now actually people research shows people you know have quit looking at ads and the reason that the that adwords worked for google for a while is people the first thing they started tuning out on the internet was display ads well then they started tuning out adwords and the one of the articles i read pointed out that the only people who are still clicking on these dumb AdWords ads anymore are a horrible demographic for advertisers. They're like mid-20 to 30-year-old people with no money. And I think that if that continues, you're going to see those pay-per-click rates continue

to crater, and you will not be able to make it up in volume. That could be the case. This quarter, a big chunk of that fall was due to foreign currency translations. So, if we want to remove that, it perhaps isn't as bad as it looks. It was an 8% decrease. So, perhaps it's a little less than that in reality. So, what is the big opportunity for Google going forward? Because we heard a lot last year about Google+, but there are questions about Facebook's ability to monetize its user base, and Facebook has a heck of a lot more people in it than Google+, does. It's all about search with Google, whether it's Android or Google+, or what have you.

It's all about getting people to click, and Seth has raised his concerns about that business model, but it continues to be the primary driver of revenue. Shares of Microsoft closed the week on a positive note, up on Friday after its latest earnings. Seth, shares of Microsoft close to a 52-week high. What's going on there? Well, they still look cheap. Even ask Ron, I'm sure, over there. Agreed. The big Google. This is an interesting quarter for Microsoft because nothing interesting is going on, right? So the fact that revenues met expectations, not up a whole lot, earnings per share, depending on whose estimates you go for,

they beat or missed or met, whatever. The thing with Microsoft is that they've got a lot going forward. And so they're going to have Windows 8 operating system coming out, they say, in about the third quarter of this year, sometime in the fall of 2012, and the Xbox is sort of a star this quarter. This is something they have not—they don't probably play it up as much as they ought to. Xbox is pretty much a huge category for them, making them billions of dollars now. It's making profits now. Yeah, and it's been making profits for a while.

And this is a category—the interesting thing to me here is that this is yet another category where everyone for years said, stop doing this. It costs you money. There's an entrenched competitor, Sony, that is way better than you are. You don't know what you're doing. Just give up. I mean, that's what people said to Microsoft about Office. It's what they said about server tools.

And, of course, they've had big hits in those areas as well. And it's what people currently say about phones and about tablets. So this is, I think, yet another vindication of the Microsoft strategy, and I would not write them off. I would not write them out of the phone business or the tablet business. They tend to do well in the long term when they put their mind to it. Ron? Completely agree. And I don't want to be one of those analysts that are constantly making excuses for companies. But, PC sales were artificially low in the quarter due to

the flooding in Thailand, which caused some supply interruption. And that affects Microsoft's Windows operating systems business. So, that was kind of the part of the earnings release that looked the worst. And some of that, I think, was one time. So, Seth, just to close out on Microsoft, is the bigger opportunity for that company, is it the Xbox or is it Windows 8 and really the Nokia partnership and seeing that pay off, particularly when it comes to mobile? Well, it's a combination of all those factors because they hopefully combine to give you some kind of an ecosystem. So the Xbox and Windows Live ecosystem, I think, is growing. And so that is, you know, there's cloud storage of, you can have cloud storage of Office documents. You have cloud storage of your video game saves.

All of this is linked to your single sort of Windows profile. And as they continue to get people into that, I wouldn't call it a walled-off ecosystem, but as you pull people in, it becomes sticky. So if Windows 8 is a real hit on both notebook computers and on bigger PCs and on tablets, they'll pull more people into that ecosystem. And as they do that, they sell them more products. A lot of big banks reporting earnings this week, James. Bank of America, Morgan Stanley, Citigroup, Wells Fargo. And the word I kept seeing in the

media reports that showed up time and time again, the word was disappointing. The general trend, Chris, was bad investment banking, OK-ish retail banking, maybe Goldman halfway underperformed, Citigroup, Morgan Stanley underperformed. These guys are seeing reduced bonuses, which I think we're all kind of sad about. JP Morgan capped at $100,000 cash. But J.P. Morgan's retail loans were okay. And Bank of America is kind of interesting because they posted good numbers in the I-don't-know-what-to-make-of-it department in the sense that $2.9 billion in gains came from the sale of their China Construction Bank holdings, another $2.4 billion related to debt sales.

So it's sort of like saying, honey, I made an extra $100,000 this year because I sold your jewelry. I mean, you can't do that so often. My wife loves that. Exactly. One interesting fact, though, I just said on the Bank of America, according to Business Insider, the $5 debit fee caused a 20% increase in account cancellations, which is pretty material. That's got to be one of the worst business mistakes of the past five years. One of the headlines I saw on Fortune, the headline was,

Bank Investors Better Get Used to Low Returns. I know that collectively we're not necessarily huge fans of the big Wall Street banks. Is this now at a point where we should be staying even farther away from investing in these banks? Low returns are okay if that's what we know what's coming and we can predict them. We are definitely seeing the end of banking as we knew it with mid-20% returns on equity. This is back to banking just being banking or heading that way. So, yeah, they are going to be more stable going forward. Coming up, Apple is trying to shake up the textbook industry.

Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in the studio with Seth Jason, James Early, and Ron Gross as we hit some of the big headlines of the week. Intel's fourth quarter earnings better than expected, James. How is the chipmaker? Chris, you know Wall Street types. They love to get excited about things.

On the upside and the downside, they like to pronounce death prematurely, and people thought the PC was dead. It's not dead. It's just slowly aging. It's sleeping? And Intel was able to pull off a revenue and an earnings beat because of this, which is great news for Intel. I'm frankly looking at the bigger picture still, which is mobile. If you look at a chart of PC sales, they've really plummeted, and it's all about mobile devices. Intel's chips, if you've been following the story, use too much power to compete in mobile,

but now they say they've reached power parity, so we're going to see where that goes. And that's like a two-year story there. Yeah, it's even a little more complex than that because Intel's Atom microprocessor chipset, which is the low-power chipset, those sales were way down quarter over quarter, year over year, and for the full year. And the reason is those were sort of destined for netbooks. And as we all remember, netbooks were this thing that everyone thought was going to be awesome forever, and it turned out that they were popular for about a year and a half. James, in terms of Intel's earnings, I saw some reports, analysts saying that this is a bellwether for the economy writ large. It points to business spending, that sort of thing. Do you agree with that, or do you think it's real?

It does. I mean, we had the same Thailand flood issue that affected Intel, and it cost them a billion dollars. So it does show. Intel's chips are in 80% of PCs, so people are buying those. I mean, it says something about the economy. And globally, too. That's the other story I should say. It's not just a North American thing.

It's a global thing. to PC is much more popular in emerging markets proportionally than in the U.S. I mean, fourth quarter revenue by business units. So PC client group, that's business purchases for the most part, up 17% year over year. Data center, big data center chips up 8%. Those are pretty decent growth rates for a category that's supposed to be dead. One of the big stories coming out of the Consumer Electronics Show, which happened earlier this month, was the Ultrabook. Ultrabook is Intel's standard that combines the best elements of laptops and tablets. You've got super lightweight computers that boot up very quickly.

That's the idea. Really robust capabilities. Seth, when you think about the Ultrabook, is this something that a year from now, because we've talked in the past about the iPad and Amazon's Kindle Fire being a candidate to be the primary competitor, do you think a year from now we're instead talking about the Ultrabook as the primary competitor i'm going to go out on a limb and say that the ultra book kills off almost all the other tablets probably not the ipad because if people want an ipad they want an ipad for what reason i still don't know but an ultra book especially the ones that are going to come out later in the year which will have a better intel architecture lower power a little more power uh lower

electricity consumption but a little more powerful as well as windows 8 which should be more sophisticated and require less power between those two you're gonna be able to have a really small, sleek, you know, netbook-type computer, except it will run regular programs, you know, it'll run them pretty quickly, boot up instantly, and it'll weigh about the same as if you'd bought a tablet plus an external keyboard, so... Where do they stand from a pricing perspective?

Well, the first ones that came out were in the range of, like, $800 to $1,000. Intel wants them all to stay below $1,000. They want them priced sort of slightly below the MacBook Pro, so it'll, you know, that's all going to shake up, In fact, some industry analysts and some in the industry predicted in a couple of years you'll be able to get a pretty fancy one for $500, $600. I was going to say, the idea of a lightweight laptop seems like such a good idea that Apple had it three years ago in the MacBook Air, but that's a pricier thing that takes longer to load up.

Yeah, and it's a little bit bigger, and like most Macintoshes, it doesn't really actually run computers that do real work, but it does impress people at the coffee shop. Earlier this week, Yahoo co-founder Jerry Yang resigned from the board of directors at Yahoo, Yahoo Japan, and Alibaba Group. Ron, shares of Yahoo were up on this news, so clearly Wall Street was happy to see Jerry Yang walk out the door. Yeah, he was basically viewed at this point as an impediment to creating shareholder value, should we say, in the form of shedding assets. He supposedly was against getting rid of the Yahoo Japan assets, the Alibaba assets. Without him there, perhaps, it makes

it easier for Scott Thompson, the new CEO, to get that done. Yang still owns 3.8% of the company, but not enough to influence any kind of voting in any major way. We'll see. If this creates value, we'd be happy at Million Dollar Portfolio. We own it there. We'll just have to wait and see. You should be just excited jumping. You've been praying for Yang's empire to be torn asunder. The whole point is a transaction, right? That's what you're looking for.

Yeah, I'd love to see perhaps even as much as $17 billion for the Asian assets. You can call off those hitmen now. Do you expect the sale of those assets to come in this calendar year? I kind of do, yes, yes, if you're forcing me to give a prediction. I'm forcing you. Yeah, we're all about you. And we're going to hold you to it. Apple reports earnings next Tuesday,

but made headlines this week by introducing a new version of its iBooks app that supports interactive textbooks. So, Seth, is this going to disrupt the textbook industry in the way that Apple disrupted the music industry with the iPod? I know it's going to disrupt their work because they're all going to have to scramble to explain to their bosses how they're doing or what their strategy is to cope with Apple and to get onto this new platform.

I actually think it's a pretty crummy idea because most kids spend too much time plugged into Facebook and Twitter and all this other stuff anyway. And I have no idea how they're supposed to sit with an iPad and actually look at a textbook. I don't think it works at all. And I think the research will eventually bear that out. There's two ways you can probably approach fixing that. One would be a nanny application, maybe, that keeps the kids on the textbooks.

I suspect that the teenagers will have us outgunned there. I was going to say, I'm pretty sure my kids will know how to disable that. But here, free business idea for Amazon, if they haven't already had it. You make a cheap Kindle Fire, but you sell it just to parents, and it doesn't do any of the extra stuff except it just does books and rich textbooks, and that's it. So when you lock your kid in the room with it, they have the best of the technology without Facebook and all that other junk distracting them. The other burden or difficult thing is you have to pay $700 for the iPad in the first place,

which is not that cheap if you've got a couple of kids. Yeah, and according to that interesting Business Insider story, They downloaded like a tenth of a textbook, and it took up a fourth or something of the space on an iPad. In other words, you would not be able to carry a semester's worth of books on an iPad, even if you bought the most expensive one. Two or three iPads. I was going to say, instead of five textbooks, you'd have five iPads? Well, or, you know, the obvious response to that is, well, you just download the stuff as you need it. The trouble is these are huge downloads, and this would take a long time.

And, I mean, these could all be shrunk. Books themselves, even the color ones, don't take much. It's the video and everything else that takes a ton of space. But isn't it inevitable that this will all be digital one day, two decades from now? There won't be those big backpacks that my kids are loving around. I don't need to learn the skills of the iPad. I could see when the phone was invented, Seth would have been like, that phone's going to ruin us. People won't talk and face-to-face anymore.

It goes a lot deeper than that. The way people learn has a lot to do with stuff like how they use their hands and everything, which is why you don't just give a baby a leapfrog, you know, calculator. My kid has a leapfrog calculator. I thought it was a chugging hazard. But they don't learn from it, maybe not at all, certainly not the same way they do as if they're turning little objects in three dimensions, the same way you don't learn by pressing buttons on an iPad or typing,

the same way that you would if you were spelling out words with a pencil on paper. For some things, I think it's better. The interactivity, we teach pretty poorly in school in some subjects. Yeah, I don't think it's for a lack of technology, though. And if the books are so heavy, you just leave them in your locker all the time anyway. Yeah, yeah. All right. Ron Gross, James Early, Seth Jason.

Guys, we'll see you later in the show. Coming up, we will talk business leadership and KFC and Taco Bell and Pizza Hut with David Novak, the chairman and CEO of Yum! Brands. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. One of the best ticker symbols in the entire stock market is YUM. It is also the parent company of KFC, Pizza Hut, and Taco Bell.

YUM Brands operates in 117 countries and employs more than 1.4 million people. David Novak is the chairman and CEO of YUM Brands. He's also the author of the new book, Taking People With You, The Only Way to Make Big Things Happen. David, welcome to Motley Fool Money. It's great to be with you, Chris. So what does it mean to take people with you? Well, first of all, you know, I don't think there's anything big you can do in your business or your life by yourself. So you need to take people with you to get it done.

And I think too often leaders think people will do something just because they tell them to do something. I think taking people with you is all about creating a winning culture or winning work environment that inspires people to get things done for all the right reasons. There are a lot of great leadership lessons that you lay out in the book. One of them is about ways to recognize and reward employees. You've got some pretty unique ways of recognizing employees for their performance. Could you share a couple? Yeah, well, one of the most effective ways to really inspire your people and have a lot of fun

and create a winning environment is recognition. So I always have had a lot of fun with recognition. And when I was president of KFC, I gave away a rubber chicken, and I'd write on it, and then I'd number it and take a picture of the person and say, I'm going to put the picture in my office and then send them a framed picture as well. I also gave them $100 because you couldn't eat a rubber chicken. When I was president of Pizza Hut, I gave away these Green Bay Packer cheeseheads. Now, as president or CEO of Yum, I give away these big teeth with feet on them for people who walk to talk on behalf of our customers. See, I think the more personal you can make your recognition and the more there's a story behind it and why you give it, I think it means more. What do you think is your biggest weakness as a leader,

and what systems have you put in place at Yum! Brands to compensate for that? Well, I think that the thing I have to be aware of is that, you know, sometimes your greatest strength can be your greatest weakness in the sense that, you know, one of the reasons, you know, why I think people like working with me is that I'm passionate and, you know, I'm energetic about what I'm working on. And at the same time, you know, I've got to make sure that my passion doesn't overwhelm other people. I can get so pumped up about what I'm working on and what I want to get done that, you know, I've got to be careful that I create an environment where it's okay for people to say,

hey, you know, maybe this might not work or, you know, you might want to think about it this way. Because, you know, you've got to create, when you've got my kind of passion and you have the power that I have, you can overwhelm people. So I have to watch that. You're listening to Motley Fool Money, talking with David Novak, chairman and CEO of Yum! Brands and author of the new book, Taking People With You, The Only Way to Make Big Things Happen. You've had an amazing career at Yum! Brands and prior to that at Pepsi. What's been the biggest shift in your thinking about leadership over your career? I think the biggest shift that I've had as a leader is more of what I accelerate.

You know, I think I've always, my philosophies and principles have been pretty much the same. But, you know, I think that the biggest thing that I try to focus on is involvement. And I really learned that the more you know, the more you care. So I think I spend more time on getting more people involved and a part of the process than maybe what I would have earlier. The other thing that I think has shifted for me is that there's always someone that will say that it can't be done every step of the way. I think earlier on when I thought about dealing with those kind of people, I thought that my conviction and what I believed in, I had to stay after it and get it done, even though there might be obstacles. Now I think my first inclination is to say, if someone says it can't be done, I want to understand why they say that. And then I can follow my convictions.

So I think what I do a better job today of is understanding what the obstacles and barriers are and managing my conviction. You've talked to a lot of business leaders for your book. One of them is Warren Buffett, who has a quote right on the front of the book. Buffett's quote is, David Novak is the best at leadership, whether teaching it in this book or practicing it. When you look at Buffett as a business leader, what do you think makes him so effective? I think there's two things. Number one is humility. I think Warren Buffett, given everything he's accomplished and done in his life and his standing in the world, he's a very, very humble person. And the second thing, he's an incredible learner. This guy is, you know,

He's reading every paper, he's up to speed on everything. He stays current. He's an unbelievable learner, and I think you take those two traits together, you've got quite a leader. You're listening to Motley Fool Money, talking with David Novak, chairman and CEO of Yum! Brands. His new book is Taking People With You, The Only Way to Make Big Things Happen. You talk to a lot of business people in this book. Howard Schultz from Starbucks, Alan Mulally from Ford, Jack Welch, obviously the great former executive at GE. But there are also some surprising people in here.

Magic Johnson. Well, I think, you know, I talk about Magic when I was with Pepsi. He was one of our celebrities that we had for marketing. And when he became HIV positive, you know, he was wondering, you know, whether his sponsors would stay behind him. And we quickly told him that, you know, we would be 100% behind him. And, you know, I just had the opportunity to talk to him, and I asked him what it was like to be such a world-class athlete when he's coming up. And he said, you know, early on I scored all the points, but nobody was really that happy.

Later on I realized that if I just passed the ball more and got everybody involved, you know, guess what? You know, we'd still win, and everybody would be a lot happier. And so I made the decision to become the best passer I could possibly be. And I use that as a great story to amplify the fact that a leader's job is really to go from me to we. Magic Johnson, he could make the hook shot when he had to make it. In fact, he did. He played center, even though he was a guard and won a major championship doing it. And he took over the game by himself, or at least it appeared that way.

But he recognized that the only way that his team could be great is if he had a we attitude. You held senior management positions at Pepsi, and in your book, you call out Crystal Pepsi as the biggest missed opportunity of your career. Why do you think it failed, and why was it a missed opportunity? Well, first of all, Crystal Pepsi was a phenomenal idea. It was totally intriguing to anybody that ever heard about it, and everybody wanted to try it. In fact, it had major trial when it was launched. But one of the things that the franchisees told me when I came up with the idea, and I did love the idea and loved it so much I really didn't listen to one of the obstacles,

is that they felt that it needed to taste more like Pepsi. And, you know, it had a cola flavor to it, but they thought if I was going to call it Crystal Pepsi, it needed to taste more like Pepsi. And, you know, I basically was a heat-seeking missile and got that thing into Test Market and then got it national on the Super Bowl as fast as I could. And the single biggest issue we had with Crystal Pepsi was that it didn't taste enough like Pepsi. And I think if I would have listened and solved that issue, made it taste more like Pepsi, it'd still be around today.

And I think it was a phenomenal idea. I mean, when we first came up with the idea and we went in the test market with us, it was a lead story on Dan Rather's CBS nightly news. It was huge. It was a huge idea. Everybody's intrigued with it. And we did drive a tremendous amount of trial, but we didn't get as much repeat as we could have had. Coming up, we'll continue the conversation as we talk China and the Colonel's secret recipe. You're listening to Motley Fool Money. You're listening to Motley Fool Money, talking with David Novak, chairman and CEO of Yum! Brands.

I want to ask you a couple of questions about China, because I know that Yum! does a tremendous amount of business in China. You're growing there. How does the dining experience at KFC and Pizza Hut in China compare to the U.S. equivalent? Well, Pizza Hut in China is full casual dining. We not only have pizza, we have pasta, we have rice-based dishes, we have chicken, steak. We have a full asset utilization. We have afternoon tea time, a full line of beverages. uh you know we have very upscale uh facilities and uh environment and you know it's it's a

full casual dining experience um in with kfc um you know we we have uh uh basically inline units because in china uh drive-through hasn't really taken off yet and the population is very concentrated so we have big inline units um and the menu has uh we have breakfast which we don't have here in the u.s um we're even open 24 hours so we and we also have home delivery um or office home and office delivery so uh very broad menu uh multiple proteins and uh uh full we have this unbelievable line of desserts called egg tarts, which are fantastic. So, you know, big, big difference. What do you think is the biggest untapped opportunity for Yum when it comes to China? Well, I think in the United States, we have 60 restaurants per million people of our

three brands. In China, it's three. So we're on the very ground floor of China. The biggest thing that's going on in China right now that's exciting for our business is that there's 300 million people in the consuming class in China today. In the next eight years, experts project it's going to be 600 million. So that's a tremendous tailwind as we go forward in the future in terms of our growth. What's the biggest competitive threat in China? Is it similar to what you face in the United States? Well, the wonderful thing about our international business, and China's no exception, is that we have very little multinational competition. So McDonald's is our only competitor there of any real substance in China, and we outnumber them three to one.

We're in over 700 cities today, so we have a big competitive advantage as we go forward. You're listening to Motley Fool Money, talking with David Novak, chairman and CEO of Yum! Brands and author of the new book, Taking People With You, The Only Way to Make Big Things Happen. And we've talked about McDonald's. They're clearly a leader in the industry. What have you learned from studying McDonald's? Well, you know, I think one of the things that, you know, is exciting about our company is we're actually stronger than McDonald's in a lot of markets.

China is certainly one. Also, in emerging markets, we have a two-to-one advantage in the markets like India, Africa, indonesia malaysia vietnam so you know we we have big emerging market strengths where we're truly the power brand having said that you know mcdonald's is a a great global brand and what we admire about them is that they've leveraged their their their asset uh 24 hours a day you know and we love how they have a big breakfast business uh and how they've gone after beverages and and so So we are working on many of the same kinds of things. I want to ask you about another company that we've studied pretty closely here at The Motley Fool, and that's Chipotle.

How has the success of Chipotle over the last five years influenced your company's thinking about Taco Bell? Well, first of all, Chipotle has, based off the analysis that we've done, when Chipolles are in Taco Bell trade areas, it only impacts our sales less than 1%. So, you know, they really haven't hurt our sales. But we always look at competition as a great source of inspiration. It doesn't matter whether it's Chipotle or Boston Market or, you know, you pick the competitor. Five guys in the hamburger segment, we look at them and we say, hey, if they're doing things in their business or their brand that's successful,

how can we do something that would be similar or what I call pattern thinking that we could apply into our brand? So, you know, I think, you know, Chipotle has a lot of different products, and we can look at those and say, how can we do something similar but do it in a Taco Bell way at half the price, which will be pretty compelling, I think, to customers. What's been the biggest surprise regarding Yum! Brand's operations and growth over the last five years? I don't know that it's a surprise because it's been very conscious, but the big bet that we've made in growing our global business is really paying off. Seventy-five percent of our profits are outside the United States.

China has just literally become a tremendous growth engine with over 4,000 restaurants. We've just made India a separate division in our company because we expect to open up over 100 restaurants a year there. And I think the other big surprise is that we have our highest average unit volumes in the world in France. In France? Yeah, with KFC, which who would have thought that? That's really surprising considering everything. They love food.

They love great tasting food in France, and they love to come in as groups, and they love big meals, and they love the desserts. If I go into a KFC in France, can I get a glass of wine? No, no, no. We'll give you a nice cold Pepsi, though. Can you work on that? Can you maybe put in a good word for me? I'll tell you what.

I'll see what we can do. I would be remiss if I did not ask you this question because, according to our reports, there are 11 herbs and spices in the Colonel's Secret recipe. And I'm not asking you to divulge any secrets here, but I'm just curious. Do you know the ingredients in the secret recipe? No, I do not. Really? The ingredients in the secret recipe are locked up in a safe here in our KFC restaurant support center, actually in a vault.

And I believe there's only two people in the company that know that recipe today. And they're obviously in our R&D department. You're the chairman and CEO. How is it you don't have access to the secret recipe? Oh, I don't need access to the recipe. All I do is just access to tasting that great tasting original recipe. My favorite piece is the wing, by the way. The Wall Street Journal calls taking people with you the only way to make big things happen.

One of the top 10 books for your career. David Novak, chairman and CEO of Yum! Brands. Thanks so much for being here. Well, thank you. I appreciate it very much. 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, and back in the studio with me, Seth Jason,

James Early, and Ron Gross. Guys, time for the stocks on our radar. We will bring in our man, Steve Broido, from the other side of the glass to grill you with a question. John Gross, you're up first. Just yesterday, I started looking at a company called Cameco. CCJ is the ticker symbol. They're actually a Best Buy Now recommendation over at Inside Value Service. They're a uranium producer and they're fully integrated mining, refining. And the play here, they're betting on uranium production growing significantly in the future. Strong company, nice balance sheet, pays a dividend. The investment will hinge on uranium prices, at least in the near

term and the mid-term, so I'll do some digging there. But it could look interesting at current prices. Steve? I recently owned and then sold Cameco for tax reasons. I had a loss in it. Did I make a mistake? It's too early for me to say, but I'm impressed that you need to do things for tax purposes. Well, I figure I had a loss in it. I bought it after the stuff in Fukushima, thinking with that tragedy, I thought eventually uranium prices would go back up. That didn't quite

happen for me. Well, I'll let you know after I dig in. James, what's your stock? Chris, I've got two, actually. One Oak and One Oak Partners, sort of the same thing. It's a natural gas pipeline company, the Partners. And One Oak is a gas utility that owns part of One Oak Partners and also distributes gas to people in Oklahoma. It's supposed to stand for One Oklahoma, which is confusing because there are, in fact, two One Oaks. But I've been pronouncing that One Oak forever. Is anybody still listening? Is anybody out there still? Well, One Oak, main one is up 245%, and the partners is up 100%, income investors. So I'm happy with the performance. They're both a little bit rich by my valuation model. But my question

is, if we see a structural shift to natural gas, they could have more room to run. They both have pretty nice yields now. Steve? Can I buy them both? You can certainly buy them both. Just know that they're going to be a little bit correlated. And to answer your question, Ron, yes, people are listening, especially at KFAQ, our affiliate in Tulsa, Oklahoma. I think they can't believe that we have valuation models. So, Jason, what's your stock?

Well, if James gets to do two, I get to do two. Absolutely. You need to buy some Microsoft because they're doing well even though they're treading water, and they're going to do better with their new products, the ones we already discussed. And you might want to buy some Nokia because they're doing horribly, and they may do better. The phones, the Windows phones they're making have gotten great reviews. Nokia is one of the strongest brands in the world. Still, they're doing very well overseas, and I think they can turn it around.

They probably need to shed some business units or certainly fix some, their mapping service, for instance. Keeps losing money, but I think that you have a decent chance of making an outsized return. Steve? My question will be about Microsoft. I recently went to the first Windows store in Tyson's Quarter Mall. I haven't been there yet. It's a total knockoff. What do you think?

It is a knockoff. My wife said it was really cool. It seemed like a less cool Apple store to me. My wife thought it was cooler than the Apple store. She said especially the way you could sort of play with the Kinect and do some other things. And the way the people who ran around didn't act like they, you know, whatever, didn't smell her. They were not the genius bar, let's say. They seemed friendly.

All right. On that note, Seth Jason, James Hurley, Ron Gross. Guys, thanks for being here. Thank you, Chris. Thanks to our guest this week, David Novak, chairman and CEO of Yum! Brands. For video highlights, you can go to foolTV.com. That's 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 will see you next week. Thanks for watching!