Motley Fool Hidden Gems Investing - Motley Fool Money: 01.22.2010

Episode Date: January 22, 2010

President Obama proposes a crackdown on big banks. Google and eBay report earnings. Anticipation grows over Apple's next creation. And the market responds to the latest twists in the health care debate. On this week's inaugural Motley Fool Money Radio Show, we'll tackle those stories, talk with Pulitzer Prize-winning Google Story author and New Mountain Capital Senior Adviser David Vise, and share three stocks on our radar. (New shows get uploaded every Friday by 5pm ET.) Learn more about your ad choices. Visit megaphone.fm/adchoices

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Because we have your number. everybody needs money that's why they call it money from fool global headquarters this is motley fool money welcome to motley fool money i'm your host chris hill and i'm joined by motley fool senior analyst seth jason james early and shannon zerman Guys, good to see you. Hey, Chris. Wow, that's a new thing for us. It's a whole new opening.

We've got a lot to get to this week, but I've got to start by thanking all of our listeners who have been with us over the past year as Motley Fool Money grew online. And now that we're making the official leap from podcast to broadcast, got to give a shout-out to our affiliate radio stations, WZAN in Portland, Maine, WBIS in Annapolis, Maryland, and WFED AM 1500 in Washington, D.C. Guys, we're going radio. The pioneers, the people who are going to make all the other radio stations look late on the road. You know what? We'll take all comers. All radio stations are welcome.

Late comers, you're welcome as well. Coming up later in the show, we'll be talking about Google with David Weiss, author of the best-selling book, The Google Story. We'll also go through some of the big-name companies that reported earnings this week and give you a look at a few of the stocks that are on our radar. But guys, when we look at the big news this week, we have to start with President Obama's proposal to crack down on the size and scope of banks. Under the proposal, banks would no longer be able to own, invest in, or sponsor hedge funds and private equity funds. A bank's size would be limited, and banks' ability to trade on their own behalf, known as proprietary trading, would be restricted. James, there's a lot there. Break it down for us. Yeah, Chris, there sure is.

I mean, first of all, let's go back to the history books to 1929, before the crash. And banks then were taking deposit money, basically low-risk, easy-to-get money, and investing it in stocks. And that was a catalyst in the stock market crash. So Congress put through this Glass-Steagall Act that basically separated commercial and investment banking. This is a step back towards that direction. But there's really a key point is, how do you define proprietary trading? That's really the kicker here because officially, I checked, officially proprietary trading is typically a low single-digit percent,

like 1%, 2%, or with Goldman Sachs' case, 10% of revenues. That's not a lot. I think in real life banks are doing a lot more quote-unquote proprietary trading, but that's going to be a key thing to overcome here, and I'm sure the banks are going to try to circumvent it. Well, they're already arguing that, hey, this isn't what caused the financial meltdown, so why are you getting uppity about it? That is true to a certain extent, although some of the trading that was done in exotic derivatives was in fact, this is a chicken and egg argument, was fed by the trading that some banks were doing on these and by internal hedge funds that some banks were creating.

The problem is now we need this now, I think, is that maybe it's true that this didn't contribute specifically to the extent that we might worry back then. It may now because all of these banks that were previously just investment banks, well, they're all regular banks now. And so this is a way of staking a claim and saying, listen, if you get access to really cheap capital, then you don't get to gamble with it. And if you are so smart that you deserve all these bonuses on all of this trading, then that's fine. Go do it without being a regular bank because we don't want to backstop that. Well, I have two things to say to that. First, I wouldn't be surprised to see them un-regular bank themselves. You know, Goldman Sachs, J.K. Morgan, they became regular banks to gain certain benefits, and they might just back out again.

And, yes, I believe that it was technically untransparent securitization of mortgage instruments that really caused the crisis most directly. The banks played a role in that. But I think the broader point is, it doesn't matter. Even if this didn't or did cause the crisis, the next crisis will be something else. It's not going to be the same thing again. James has hit the nail on the head with that phrase. What was that? Securitization? I said a lot of phrases. No, no, no. Untransparent securitization, right? So that sort of encapsulates the complexity of the so-called Volcker Rule. And so I think it's a great idea in practice, or in theory, but not so much in practice. The thing that they could do is to, you know, require FDIC-insured banks to raise reserve limits. But reserve limits are already near all-time highs, and that would only further curtail lending.

And lending is, you know, pretty curtailed as it is. I think the day before Lehman collapsed, its Tier 1 capital was technically okay. I mean, it's very hard to pinpoint. It's hard to put any kind of a rule on a bank because banks are so complicated that even trained analysts don't know what's going on. I don't even know if the banks do. It's so easy for them to circumvent or squeeze around some rules. They need rules. It's important to have rules, but it's hard to make rules.

Well, Shannon, you mentioned the Volcker rule after Paul Volcker. That's right. Where's Tim Geithner in all this? He kind of got pushed to the side. Underneath Paul Volcker's left shoe? He's at the kids' table. The adults have taken over. Is this a situation where there are definitely going to be unintended consequences?

We just don't know what they are? Always. I mean, you've got a bunch of congressmen, a bunch of senators putting this together. Even if their intentions are great across the board, which, of course, some won't be, they have no idea where things will go. Yeah, well, one unintended consequence as well will be that, you know, lawyers across the country will be racking up thousands of billable hours. Jack Bogle, who I'm a great fan of, you know, he's all in favor of this kind of legislation, but he doesn't think it's going to work because all the lawyers and geniuses on Wall Street are going to figure out ways to get around everything. As Spandau Ballet once said, so true.

What about, let's just bring it back to investors who we're all about here at The Motley Fool. What is the takeaway for investors? Yeah, Chris, if you're looking at these banks down, you know, 3%, 4%, 5% and thinking about jumping in, you may be right, but this whole thing is so fuzzy. Banks are a gamble right now. You have no idea what they're going to look like a year or two from now. All right. The Wall Street Journal reported this week that China's economy grew at 8.7% in 2009 and is now close to overtaking Japan as the world's second largest economy. And while that appears to be good news on the surface, the Chinese government is taking steps to rein in a booming housing market. Seth, what's going on here?

Well, it's the kind of thing that happens only in crazy economies that you wouldn't see. You wouldn't see this happen here in the United States where property prices just shoot through the roof. and the the chinese economy is is very hot the government threw a ton of money at the recession problem then uh they threw a ton more money at it by leaning on bank managers and others to lend so i mean pretty much all of the you could argue that all of the the spending in in china is is government dictated to a degree and when things get too hot and uh and inflation starts to creep in as people are a little bit worried with these latest numbers they uh they have a command economy They come in and they say, up your capital reserves, don't lend so much.

And what happened here was we saw a little bit of financial panic. We saw the markets drop on that news. You know, Chris, I actually like this. I think it kind of marks a turning point for China. China has long wanted to be known for its growth and, I guess, gymnastics. And it's very painful for them to pull back on something like this, but they're doing it. I think it shows some good discipline. I think, ironically, the next step is for them to be just hands-off altogether.

I don't know if we'll get there. Yeah, it may be responsible economic stewardship of the country, but people who are invested in China, and I think probably all of us are, at least to the mutual funds that we own, should curb their enthusiasm. China is a bubble in terms of as an investment opportunity. And even if the government is going to stage manage the bursting of this bubble, the consequences for folks who are probably much more heavily exposed to China now than they were a year ago could be dramatic. I own an emerging markets ETF, and its largest country exposure by far is to China. The thing was up nearly 100% over the last 12 months. If you haven't taken a look at your portfolio in terms of its allocation, now is a great time to dust off your belief in reversion to the mean and recalibrate accordingly.

Okay, we talked about investors. What about just for the average U.S. consumer? Is this a situation where there's going to be a ripple effect and all of a sudden prices start spiking at Walmart? No. In fact, the opposite is likely. If you overspend, which many would argue is what's going on in China, then prices on things are destined to drop. Yeah, I think oil went down, and a lot of the commodities went down because of this, even. All right, we've got to take a quick break.

But when we come back, we'll break down some of the companies that reported earnings this week, including GE, Starbucks, McDonald's, and more. You're listening to Motley Fool Money. welcome back to Motley Fool Money I'm Chris Hill in studio with our senior analyst Seth Jason James Early and Shannon Zimmerman guys a lot of companies reporting earnings this week but I think we should just take a moment and reflect on the bumper music we just heard their wipeout and James you were out of the office for a lot this week uh care to tell the folks listening at home where you were? I was skiing. I was skiing. And let me say this. It is very easy to be a really good skier when you're going straight. It's when you turn that your skill

comes out or doesn't. And I was actually weaving through some stopped traffic and going a little too fast. What kind of traffic? Like three-year-olds we're talking. And second guess myself. And the next thing I know, I was kind of tumbling down the mountain. And the people who brought me my ski said it was the least they could do because it was the best show they'd seen all day. So I took that as a compliment, and my MRI is next week. Fantastic. Well, we look forward to those results. We'll see if that actually cracks the news next week. All right, Shannon, in terms of earnings, let's start with eBay. The company reported better than expected earnings. There was a big gain from unloading Skype, which I think we all agree was just a disastrous acquisition.

PayPal's revenue up 28% year over year. What did you think? Well, to borrow a great line from my colleague Rick Minarez hit me eBay one more time. This is a great story for these guys, even though I think that we should sort of frame the discussion of earnings around the fact that all of these companies are reporting against remarkably easy year-over-year comparisons. But even accounting for that, eBay's results were quite impressive. Shedding Skype was a smart move. It was as smart as acquiring it was dumb. And I shop online to avoid talking with people. Why on earth would I want to use Skype to confer or have conversations with the folks I'm purchasing these things from? The price was the dumbest part of that.

The billions was the dumb part. And even with the gain, they don't get back the price that they paid. But the acquisition of PayPal in 2002, that was deft. And the apping of it, so to speak, was absolutely genius. So this time, for the first time over the last 12 months, eBay has generated more revenue from outside sites that use PayPal than they have from their own properties. That's just a genius move on their part. And I think looking ahead, if management can pull off those kinds of savvy techniques and strategies,

And it's an interesting company to put on your radar right now. It's interesting because eBay, obviously known for the whole online auction thing, but that business is really tapered off for them. And as you said, PayPal has really taken off. Do you think somewhere down the line they look at spinning off PayPal and generating money that way? Not anytime soon. I mean, this is a profit center for them. And I guess they have to do the calculus to determine can they generate more through a sale than they can through ongoing.

Oh, no, you don't sell the goose that lays the golden eggs. Right, but when the eggs turn a bit brown, perhaps, then maybe you think about selling them. All right, Starbucks reported better than expected earnings. Strong sales of Via, the single-serve instant coffee that I think— It's not instant. It's good coffee in a hurry. Is that what they say? Yeah, exactly. They've got a slogan that tries to say it's not instant coffee. They do, and let's be honest. We all kind of made fun of it when they first announced it.

We totally did. The sales have been strong for them. What did you make, Seth, of Starbucks earnings? Come on. It's not that great. Again, you've got the easy comp situation. You've got comparable store sales increasing 4% against a really bad climate last year. But that's only a 1% increase in traffic.

It's a 4% increase in average ticket, which means either they're raising prices and or doing a good job of selling people stuff that's a little more expensive. Margins are way up. But when you're cutting costs, that's the kind of thing that happens, EPS. This is all fine. This is all well and good. And if you are walking into Starbucks, don't count on a bargain. They're getting their growth by charging you more.

And if you are an investor in Starbucks, well, I said a couple months or a few weeks ago on this show that I thought the shares were fully priced in the $19 range. We're up in the low 20s right now. I don't see a lot of upside for these shares, although Starbucks is certainly a good company. It's not going away. It does say something about the brand, though, if they can jack up prices like that. Yeah, well, they can only do it so much probably, right? I mean, I think Starbucks is entering that kind of low-growth phase.

For a while, it was the go-go growth stock. If they stop making stores, which they said they're going to do, maybe they should pay out a dividend, James. Then it is probably a very interesting stock. I would like it. I am the dividend guy. Yeah, I mean, they launder money there. Can I say that? No, they produce it.

And speaking of pricing, just one thought before we go too far from eBay. I just noticed in my notes here, I looked, and eBay is trading the lowest earnings multiple, that's price over earnings, since they had earnings. The average P.E. from before 2009 was 108. This is a trailing P.E. eBay is now at about 21. So probably a lot of stocks are cheap these days, but that does look kind of cheap. Okay, so one thing that has come up with both eBay and Starbucks, as you mentioned, Seth, the easy comps.

Is this something that investors should expect pretty much for this entire year, better-than-expected earnings, because... Next quarter or two, anyway. Really? For sure. You're going to see it over again. Better-than-expected, better-than-expected. And there are a few reasons for that.

If you're in this game like we are, you realize that estimates don't come out of thin air. These companies, they lead analysts by the nose to these estimates, and they can lead them to low estimates, and they can do that for bad reasons, because they want to sandbag and look better when they beat them, or, which I think is probably the case now, they can be scared for a year or so and be very conservative. And we're going to see a lot of companies that are doing better than they thought because they were panicked just as the rest of us were for the past year. Yeah, that'll be the headline, but folks should definitely look past the headline. Another point

worth bearing in mind too is that next year, or actually in this year, 2010, analysts expect a pretty healthy earnings growth for the S&P 500 companies, but not so much on the revenue side. So when you do that math, how are they growing earnings? Well, by cutting costs. You can only do that so far. And maybe they're wrong. Exactly. All right, let's move on.

GE, better than expected earnings for investors. No way! Yes, despite reporting a 19% decline in fourth quarter profits, GE is getting hurt by its financial unit and by weakness at NBCUniversal. James, you're our resident Jay Leno lover. What is your take on the state of GE? Well, a couple things. First of all, you know, GE is a barometer for the economy.

I mean, and the lesson there is very simple. We're not out of the woods yet. GE is actually largely a financial company. It started doing this because people couldn't afford to buy a refrigerator all at once. It started lending people money, and now finances are typically 40% or so of revenues. NBC, which is getting a lot of news, is about 10% of revenues, although they're selling a lot of that to a Comcast. But I just got to say one thing.

I don't mean to drag this show into the pedestrian, but I guess I do. I want to work for NBC. If I can drive ratings into the toilet and get paid $45 million, or I and my staff can get paid $45 million to leave. To go away. I mean, what's up with that? I mean, you screw up and you get a massive bonus. I mean, it's a pretty good list.

Well, in other words, Conan O'Brien is accepting a job as the head of a large investment bank soon. And don't forget, we've got the Winter Olympics coming up. They're expected to lose $200 million on that. Go, NBC! Maybe somebody out there in radio or podcast land can inform us. Why does anybody want the Olympics? They lose so much money. They bid so high.

Aren't they always a disappointment? It's the prestige, Seth. Come on. Two words, ice dancing. Wow. Nancy Kerrigan. All right. McDonald's served up better than expected earnings.

No way. Yes. Thanks in part to espresso-based coffees and its Angus third-pounder burger. Sold together. Are we loving it or what? Yeah, so the profit increased 6%, but the real question is, what was the average weight gain of the typical McDonald's customer? Well, at least a third of a pound, it sounds like.

I want to see the earnings to heart attack ratio before I would consider these shares. All right, sticking in the world of fast food, no earnings to report, but Burger King made news this week when the company announced a plan to sell beer. The plan is to sell beer and burgers at a Whopper bar in South Beach down in Florida. Wow. Like on the beach? Is South Beach on the beach? It's a huge tourist area. I mean, come on. First, when you said South Beach, I thought you were about to say Salt Lake City,

and I would have been really surprised. But beer saved Disneyland in Paris because it was just going downhill. Nobody was coming, and they make a lot of money from the food concessions. But then they started serving alcohol, and that's what worked with all the Europeans. They had to have booze. Now, we're not Europe. I think it saved it, though, because people realized that those rides really aren't any fun unless you're a little bit messed up.

This is very strange, and maybe it works. I have not liked Burger King, the stock, or what happened when it was flipped out as an IPO. But I have to say that with that really creepy Burger King ad and a lot of the other stuff, they have done things that nobody else had the guts to do. So if they benefit from this, you know, good for them. A Whopper and a beer? Come on. It doesn't get any better than that. You know what? I eat a lot of really bad, unhealthy food, and I even can't stand the idea of that.

All right. We'll have to stop right there. the guys will be back later to talk about the stocks that are on their radar. But coming up after the break, we'll be joined by Pulitzer Prize winning writer David Weiss and get his thoughts on the future of Google. This is a true story about a man in Michigan who pulled a gun in Burger King. But the waiter just looked at him and told him that he had to order something from the menu. Only then can you open the till. So the man from Michigan ordered onion rings. But even with a gun pointed at his head, the waiter was no coward. Sorry, sir, onion rings aren't available during breakfast hours.

So the Burger King burglar turned and walked right out the door. And I don't think he'll be coming back no more. This is Martley for Money. Welcome back to Motley Fool Money. I'm Chris Hill, and it's time to dig a little deeper with Google. And here to help with that is David Weiss. He won a Pulitzer Prize for his business reporting at The Washington Post. He's the best-selling author of The Google Story, and he's now a senior advisor with New Mountain Capital, a New York-based investment firm. David, welcome to Motley Fool Money. Thank you. It's great to be here. A lot to talk about, but why don't we start with

Google's earnings this week. Sales rose 17% in the quarter, the fastest pace in a year. But even though earnings beat expectations, it seemed like Wall Street was looking for a blowout. What did you make of their latest quarter? Well, I think that you have to remember that Google stock has doubled in the recent past in price. And so, you know, the stock had really run up a lot in anticipation of earnings. So they would have needed to really beat in a big way on the top line, meaning the revenue line, for the street to have really gotten excited. Basically, what I'm saying to you is, all the good news was already priced into the stock before the earnings. There were no positive surprises, and there were a few things that gave people concern.

What was the most concerning thing to you? um well i think the most concerning thing uh to to analyst on wall street was the fact that the company is aggressively spending on uh capital items and the company is hiring again and growing um and in addition uh the company has made clear that it's gonna be on the prowl for acquisitions And I think Wall Street would have been happy particularly to see this company bring its cost down. It's very expensive to deliver the world's fastest search service. It takes a lot of computing power to do it. And Google's rate of spending for all the computing power it takes is much higher than Wall Street would like.

Despite all of the things that Google is trying to launch and has launched successfully, almost all of the revenue comes from advertising. Is there a danger that this is a too-many-eggs-in-one-basket kind of company? You know, if you remember the major television networks, ABC, NBC, CBS, for more than 70 years, they gave away programming for free on television, and they made all their money on the advertising. Was that too many eggs in one basket? I don't think so. I think it's a winning formula, and people misunderstand it when they say that Google is a one-trick pony because it only makes money on the ads. What I do think, however, is that the company has struggled to produce more revenue from advertising on some of its other investments, most notably YouTube. Well, I want to get to YouTube in just a minute, but first, Google's presence in China has also very much been in the news.

Google said last week it would no longer censor search results in China, and that if China refused to allow an uncensored search engine, Google would shut down and possibly leave altogether. Do you think they will? I think what Google did was draw a line in the sand that is going to be looked upon historically as one of the wisest and shrewdest political moves in history. Let me tell you why. In the last year to 18 months, Google has increasingly been viewed with suspicion in the United States and in Europe by antitrust regulators. Google had a bullseye on its back being viewed as a monopolist, perhaps a monopolist that would follow in Microsoft's footsteps

by being sued by the Justice Department. What Google has achieved by taking a strong stand against censorship in China is it has gotten itself the white hat back. It has lived up to its notion of don't be evil, and it has changed the way the company is viewed politically in the United States and Europe overnight. Instead of being seen as a monopolist, Google is seen as fighting for free speech. And it is one of the shrewdest political moves any corporation has made in the recent past. And from a business standpoint, if you're looking at the search market,

in China, Baidu, the Chinese search engine, was dominating that market. It really didn't mean a whole lot to Google's revenues in terms of what they were getting out of China. So, I mean, is this a really great way for them to save face? I think this is not about saving face. I think this is about scoring points. I think it's an offensive move by Google. Most companies wouldn't dare to pick a fight with China. They would look at China as, you know, bigger than the United States in terms of potential future growth. And it takes a company that has $22 billion of money in the bank to really take a stand like this. And, you know, they had quite a debate inside the company when they went into China over the issue of censorship. Now they're taking a

principal position that benefits them politically in the United States and Europe, and that also has scored points with them among human rights activists all over the world. We're talking with David Weiss of New Mountain Capital and the author of The Google Story. A few months back, we had Clay Christensen, a Harvard business professor, in at Motley Fool headquarters, and one of the things that he talked about was disruptive innovation. Yeah, of course. In terms of the two companies we've been discussing, Apple and Google, which one do you think is more likely to be disrupted? That's a great question. Let me look into my crystal ball, and I think the company that is most likely to be disrupted between Google and Apple is Microsoft.

Really? Yeah, because Google and Apple are both doing things that are highly disruptive to Microsoft. And that's the company that is going to struggle the most as a result of what I anticipate will be continued success at Apple, continued success at Google. Is it really that, is it more an area where Apple and Google just have too many weapons at their disposal? Is that why Microsoft is in the precarious position you think they are? Microsoft is in a precarious position because its core business is the Windows operating system, and that is their main profit center. They are no longer an innovation leader, and they are a very mature company trying to make the transition going forward. And the problem for Microsoft is that they have a very large R&D budget, which they talk about quite a bit.

But most of that R&D budget goes to produce the next version of Windows and to protect products they have. It doesn't go to coming up with new products and new ideas. Windows ultimately is seriously threatened by free systems that both Apple and Google are giving away that are web-based and can be downloaded, and over a period of time, it's hard to beat free, and the price of Microsoft Windows is high relative to free. Do you think that Google can make a dent in Apple's success with the iPhone? Do you think that with Nexus One, they can start to steal a little bit of market share? I think that Google is in the very, very early stages of this.

It's a very expensive phone, over $500. They're trying a novel concept where you can buy a phone online and then try to go get your service, so you're not locked into any service provider. I think it has less of an impact on Apple and the iPhone, and it has more of a potential impact on the wireless players out there, Verizon, AT&T, Sprint, T-Mobile, because suddenly those companies have lowered the cost of phones dramatically using the classic razor razor blade model and made their money on the monthly subscriptions and you've been tied in. So if you wanted to be on the Verizon service, you had to

buy a phone from Verizon. Now Google is saying, buy a phone from us and you choose what service you want to be on. So I think actually the Google Nexus One phone in the long run poses, and other more improved models, pose a much greater threat to the wireless carriers than they do to Apple. Now, David, when you and I were talking earlier, you mentioned that you have three phones. Is one of them a Nexus One? Absolutely not. People are having nothing but headaches with that baby so far. A lot of kinks. A lot of kinks. We spoke with you back in 2005, and at the time, you said that

one of the things about Google was they were not particularly good at acknowledging weaknesses. And back then, you cited click fraud and Google's unwillingness to really address that problem. Is there a weakness that Google has today that you think they are not acknowledging to the degree they should be? Very good question. Probably the biggest weakness they have today is retaining talented employees. When Google was smaller, all the brightest people in Silicon Valley wanted to go to work there. When the upside from working at Google and stock options and the rest was there, when you could go there and you had access to Sergey Brin and Larry Page, Google's co-founders. It was an exciting, dynamic place to be. Now Google's

a company with 20,000 employees, and the biggest weakness that they have today is their ability to retain and attract the best and the brightest, and they have not taken sufficient steps to acknowledge this. It is a serious problem, and it's reflected in the number of senior people who've left to go to other places where they have more upside opportunity, including Facebook and others. And it is also reflected in Google's efforts to expand its employee base abroad in a number of different countries where they may have a better shot at attracting and retaining employees who may not have as many alternatives as people do in the leading technology countries of the world, particularly Silicon Valley and in Israel.

You wrote the Google story in 2005. What has most surprised you since you wrote the book about Google? You know, the biggest surprise I've had in the intervening years is how quickly the company went from being loved and held up as a model of everything that's good about capitalism to being on the wrong side of the Justice Department and the antitrust regulators. In the book, in the Google story, I wrote that political risk was the biggest risk to be managed. I think they've done a good job at managing that risk. I did not imagine, however, that in such a short time they would face so many tests from the Justice Department

that would affect their business behavior. Every day the number one thing they have to be concerned with is political risk. Before we let you go, I want to circle back to the earnings that they announced earlier this week because, as they usually do, the topic of YouTube came up on their conference call. And Google does not break out revenues with regard to YouTube. Where do you see YouTube going? Because it's certainly very much a part of everyday web culture. I don't think a day goes by during the week where someone doesn't send me an email with a YouTube link saying,

you know, you've got to watch this. But where do they go with this very popular but potentially unprofitable, or certainly to this point, it seems like it's been an unprofitable tool. Is it going the movie route and selling movies that way? I think that it is trying a variety of different things and seeing what sticks. Google has been struggling. Google paid $1.6 billion for YouTube, a company that had no revenue at the time it purchased it. However, by doing that, Google commanded Mindshare on the Internet

because, as you know, YouTube is the number one video site. You know, it's very interesting. Once upon a time, there was a company called America Online that was the darling of Wall Street. And it had the most powerful communications application anyone had ever seen, and it was called instant messaging. and AOL never figured out how to make money on instant messaging. In the end, it remains to be seen whether YouTube attracts more people to Google itself

because people use it to search for videos and therefore there's a spillover effect that reinforces the Google franchise or whether YouTube itself can become on a standalone basis a meaningful contributor of profit to a company that just turned in a $2 billion quarterly profit for the first time and which has more money in the bank than the gross domestic product of many countries. The best-selling book is The Google Story. The author is David Weiss, now a senior advisor with New Mountain Capital.

David, thanks so much for being here. You bet. Still searching, still searching, still looking all alone Welcome back to Motley Fool Money. As always, people on the program may have interest in the stocks they talk about. Don't buy or sell stocks based solely on what you hear. Chris Hill here, and back in the studio with me, our trio of senior analysts, Seth Jason, James Early, and Shannon Zimmern. Guys, time to talk about the stocks that are on our radar.

Shannon Zimmerman, let's start with you. Well, I'm going to steer clear of the politics for now, at least, but health care insurance companies in particular became infinitely more interesting as a result of Tuesday's election in Massachusetts. That's when, to quote a Village Voice headline, the Republicans gained a 41-59 majority in the Senate. So some version of health care reform may survive, but it'll be a watered-down version of something that was already watered down anyway,

and I think the insurance companies are going to be the beneficiaries of that. The best player in that space, as I see it, is UnitedHealth Group. The ticker is UNH. It's up 31% over the last three months, but it still looks cheap relative to its earnings and its cash flow over the last three years. So if you're looking to play in an attractive space, I think that's the company to watch. Okay. James Early?

Chris, I have a Minnesota stock for you, so Seth should be happy as our Minnesotan here. By the way, last time I was in Minnesota, I got a ticket for picnicking without a permit at a state park. I mean, I don't know what kind of state this is, but I've put my grudge aside, and then I like Polaris Industries. P-I-I is the ticker. It's not just Minnesota. That's up north with the snow machines, huh?

Yeah, they make these stinky snowmobiles and ATVs and utility vehicles, which is sort of like a beefed up golf cart where you can drive to go hunt if you're not able to walk or just don't want to. Everybody I know has one up there. 53% payout ratio, which is pretty low. 3.5% yield, which is pretty nice. Return on equity has moved from 39% to 59% over the last couple of years. Give me the name and ticker one more time.

Polaris Industries. Ticker is PII. Okay. Seth Jason. Geez, I don't know. In honor of that, I feel like I should put on a Minnesota accent for me to do my stock on my radar but I'll let it drop and I'm in a similar space

Harley Davidson earnings out this week not so great for some reason all the analysts have it rated a buy I see things the other way it looks like they're trying to get rid of their financial services unit yes if you were a Harley Davidson fan you may not have known that Harley made a lot of its money

the past few years being the bank to loan people the money to buy Harley's I think that that is going to end I think that people taking cash out of their homes to buy Harley's has already ended It looks like an expensive stock to me, and I think moving to India to sell more Harley-Davidson's is not really a rescue plan. And what's that ticker? H-O-G.

Hog. One of the all-time great tickers. All right, we've just got a minute or so left. Next week, we've got President Obama's State of the Union address, so we'll be digging into that a little bit in next week's show. But we also have the much-anticipated public release of Apple's tablet. Just quickly around the table, what can Apple include? in this gadget to make you want to run out and buy one? Well, I don't know, but it seems

destined to be more popular than the Beatles, and we know who John Lennon said they were more popular than themselves. James? Yeah, I'm trying to think of something that's family-friendly. I mean, I really like everything Apple. It's just so cool, so I'm going to say nothing and be cheesy. Seth? It has to be the price point, because I think everyone

agrees it probably will be cool. The trouble is, an iPhone is already really cool, and it's a lot cheaper and fits in your pocket. So, I don't know. All right. Free liver. All right, Seth, Jason, James Early, Shannon Zerman. Guys, thanks for being here. Thank you, Chris.

Also want to thank our special guest this week, David Weiss, author of The Google Story. Want to thank our producer, Steve Broido, our senior producer, Matt Greer. And I want to thank Kate Beckinsale, just because. That's it for this edition of Motley Fool Money. If you missed any part of the show, you can find it at our website, MotleyFoolMoney.com. You can also get a copy of our free report, The Motley Fool's Top Stock for 2010. all that and a whole lot more

including photos of the guys the incredibly handsome James Early shouldn't we have a photo of Kate Beckinsale and the moderately handsome Shannon Zimmerman

and Seth Jason all of that at MotleyFoolMoney.com I'm Chris Hill we'll see you next week