Motley Fool Hidden Gems Investing - Motley Fool Money: 02.11.2011

Episode Date: February 11, 2011

Our analysts discuss the latest earnings from Chipotle, Cisco, and Disney.  We delve into Microsoft's new deal with Nokia and talk retail with Costco CEO and co-founder Jim Sinegal.   Learn more about your ad choices. Visit megaphone.fm/adchoices

Everybody needs money. That's why they call it money. The best things in life are free. But you can give them to the birds and bees. From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. Thanks for being here. I'm your host, Chris Hill. I'm joined by Motley Fool Senior Analysts Seth Jason, Ron Gross, and Charlie Travers. Guys, good to see you. Hi, Chris. Chris, we've got Costco co-founder and CEO Jim Sinegal as our guest this week.

Yeah. We've got earnings from Disney and Chipotle and a new partnership for Nokia and Microsoft. Double yeah! Plus, as always, an inside look at the stocks on our radar. But we begin this week in Egypt, where President Mubarak has stepped down, ending his 30-year reign. Ron Gross, it's often been said that the stock market hates uncertainty. So Mubarak's gone, but how much more certainty do we have now that the Egyptian armed forces are taking over the leadership of the country? Yeah, I was going to say, for now at least, the control has been handed over to the military.

So what could go wrong? What could possibly go wrong? I think we're on the path to free elections, it appears. At least the markets are showing that most of the uncertainty has been removed. I'm sure some additional uncertainty will rear its ugly head down the road. For now, this is a pretty historic event. It's good to see the people cheering in the streets. It's something that doesn't happen very often.

It seems like it is. Let's hope it is. I mean, the skeptic in me says, listen, Mubarak has got these guys on speed dial, and he disappeared to his vacation home earlier in the day. So either he's got a real tin ear for what you need to do when your country is erupting, or he is sort of on his way out. And reports are he's worth $2 billion to $3 billion. So let's hope he takes that money and goes into the sunset and we move on.

On Friday, the Obama administration unveiled its plan to remake the mortgage market and reduce the government's role in housing by winding down Fannie Mae and Freddie Mac. Seth, the plan would be phased in over a long time. It would have to be because not doing it that way would be pretty catastrophic. I mean, unfortunately, in this country, Fannie and Freddie are the default. I mean, they control the mortgage market. And that, in a sense, had to happen during the financial meltdown. But we still don't have a lot of details on how this is going to unfold. But it'll be a good thing when it finally happens because these companies were taking too much risk because they had an implicit government backing.

And, of course, it turned out to be explicit. Ron, what did you think? Chris, the federal bailout of these two entities has so far cost taxpayers $153 billion. And there's $60 to $200 billion still to come. This is not going to be any quick fix here. These companies or their problems are going to be around for quite some time. There's going to be political debate, political fallout. This is going to take a while for these things to get wound down.

So, you know, interesting to see them trying to make some changes, but this isn't happening overnight. One of the early reactions to the plan was that this may make home ownership tougher to come by. Is that necessarily a bad thing? It probably isn't, but it's not what people want to think about right now when home prices are still on the way down. Among the proposals, lifting down payment requirements up to 10%. I mean, you can squeak by with almost nothing these days. So other requirements or other proposals would be bringing down the amount of money you can spend on a house, which right now is quite high.

So once that stuff starts happening, if it starts happening, that is going to keep a damper on home price increases. But that's not necessarily a bad thing either. And my wife is a realtor, so this does kind of hit close to home, so let's be careful. For the third time in five months, China has increased interest rates. Seth Jason, any ripple effect for U.S. investors? I don't think we'll see a ripple effect from this. I believe this is mostly a little bit of posturing, public posturing. I was hunkering down with one of our Global Gains colleagues here, Nate Weishar, and he was telling me that he believes this is pretty much aimed at reigning in speculation in the property market. The problem is that the

interest rate isn't really the issue in China. It's a little bit complex, but it comes down to this. China has a huge trade surplus. They have to buy a lot of dollars, therefore, in order to keep their currency from appreciating. And what happens to a lot of those dollars is they are, picture the finger quote, sterilized by being, the Chinese government forces banks to hold on to them. Well, in the last couple of years, a huge wave of this money has been unleashed into the Chinese economy. It was much bigger than the actual official stimulus. First thing it did is it pumped up property values. We've heard about the bubbles there. Now it appears to be coming down with regular inflation as well. And not just pump up property values,

you're seeing ginormous empty malls in entire cities. So it's clearly massive construction and what appears to be malinvestment, which historically has tended not to end well. You're listening to Motley Fool Money. We're talking about some of the big headlines of the week. Ron Gross, before we move on to some company-centric news, consumer sentiment numbers came out on Friday. Confidence among U.S. consumers at an eight-month high. Are you feeling like your confidence is at an eight-month high? I don't feel it. It seems like this survey seems to be indicating. Well, Ron, you look great.

Oh, thanks. Work out, eat right. As I said months ago, there is another little barometer, Another survey is part of this that shows what people are thinking about current economic conditions, and that has actually risen to its highest level since January 2008. So another indication that people are feeling pretty good. We have had some tax cuts recently, and people seem to be a little bit more optimistic than they had been. Not sure I necessarily feel it, but it seems that the country at large does. Well, if you look at revenue reports coming out, it's earning season, and everyone's saying, oh, a lot of these companies have become more profitable because

they're cutting costs, but there are also some pretty decent revenue gains. Consumers are spending more on their credit cards. I'm not sure that's necessarily good, but it does appear that consumer behavior is ramping up a little bit. On Friday, Nokia announced a software partnership with Microsoft that will make Microsoft's Windows the primary software on Nokia phones. Charlie Travers, Nokia's stock was getting hammered after this announcement. It seems like investors hate this deal for Nokia. What was your take? I should have played the lottery this week, because I called this on Wednesday. Yeah, I'm actually surprised that Nokia stock is getting annihilated, because this company

was in a position where, if they didn't do anything, they were going to die a very slow and painful death. And so, they took the action of doing something, and that would be partnering with Microsoft. And I think this partnership makes sense in a lot of ways, because it gives Nokia, a differentiated option versus all the other competitors offering Android phones. Seth, you're a Microsoft guy. What did you make of that? And I have a Windows 7 phone, and I've been reading, I've been watching that investor reaction and then reading the facile, sort of way too easy headlines all over the news about how this is a terrible decision, how Nokia should have gone with Android. I thought they would

actually go both ways. The problem with going just with Android is that then you're in a race to the bottom because Google is just going to support that to the point where it pushes all of the margin out. And I think that Windows Phone 7 is really closer to the iPhone in a certain way, at least in the ecosystem sense, in that it's a much more controlled environment than Android. And I think that's a better spot for Nokia to operate. And for Microsoft, this is a pretty nice win because Nokia still sells hundreds of millions of phones and has a big presence overseas, and that will help them get their operating system in more places. Yeah, and my, how things change in a year. I mean, you know, this time last year, Microsoft was written off as dead in smartphones, and a deal with a company with the scale of Nokia really gets them back in the game.

Guys, remember all those Toyotas being recalled last year? Didn't we talk about that every five minutes for a while? What was the stretch? The government report came out this week. Turns out Toyota's electronics were not to blame. Turns out that the most common problem was drivers hitting the gas when they thought they were hitting the brake. Seth, we did talk about this a lot last year on the show. I claimed that it was drivers standing on the gas when I thought they were hitting the brake. You called this. Well, it's history repeating itself. Same thing happened to Audi a while ago. And if you looked at a lot of the evidence, it really looked like this was the case.

This is, well, it's bad news for the poor folks who were injured or killed as a result of these accidents. But, you know, Toyota in the meantime was vilified and it became the politically correct thing to do to just assume that they were covering something up. Whenever something like this happens, I always assume that the problem is the most likely problem. And, you know, we are just collectively kind of a bunch of dumb monkeys. The problem is usually us. So Toyota drivers like me, just we're kind of idiots. No, everybody is. Everybody is.

Gas pedal on the right, brake on the left. I've driven a Prius, and if you look at the size of my size 13 clown boots here, how am I not going to hit both pedals at the same time? I know. It's too bad that doesn't come in a stick. You could do all three at once. Right. Coming up, a popular hero is riding off into the sunset,

and at least some investors are happy about it. We'll explain. This is Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in the studio with Seth Jason, James Early, and Ron Gross. If you follow The Motley Fool on Twitter, we've been nominated for the Shorty Awards. Guys, I think this is like the Oscars of Twitter. So if you follow The Motley Fool on Twitter and you want to vote for us, you can go to shortyawards.com and cast your vote.

All right, guys, let's get back to some of the companies making headlines this week. Chipotle's fourth quarter profits were up 47%, and the company saw a 13% increase in same-store sales. Seth Jason, you were pretty happy about this news. I think that's a gross understatement. Kind of says it all right there. Yeah, I own too much Chipotle because we own it at Hidden Gems, and because of compliance rules, I was never able to sell it when I probably might have a while ago when I was getting a little bit nervous. And so, yeah, sheer luck has led to another 100% gain.

And that's been good for our members at Hidden Gems and anyone who's owned Chipotle. The problem with Chipotle is they just keep doing this thing where they increase their earnings by 40%, 50%, 90%. They did that a lot this year, and the stock is priced for it. They just keep doing everything right is the quickest way to look at it. They keep increasing their margins. They make more from every dollar that comes in. They keep expanding. They seem to be doing it intelligently.

There's no stopping them. Ron, you're a value investor. When you look at Chipotle's share price, what does the valuation look like to you? Well, I have sold Chipotle both personally and in the Million Dollar Portfolio service quite some time. And we did so because the risk-reward didn't make sense to us. The stock was priced for store expansion and margin expansion to a level that just didn't seem reasonable to us. So just because the stock has risen to the level it has doesn't mean it will stay there. It doesn't mean it's even necessarily warranted.

But they're doing a great job. It's a fantastic company. Stock looks expensive to me. Shares of Activision Blizzard were down sharply this week, after the company forecast that 2011 sales would fall short of analyst estimates. Activision is also discontinuing its Guitar Hero game. Charlie Travers, not a great week for Activision shareholders. Yeah, it makes it less likely the three of us here are going to bow out to some Tom Sawyer, because I know Ron's a big Rush fan. Yeah, Activision's stock has not done well for four years.

It's been basically flat the whole time. And they're doing the right thing by getting rid of some of their unprofitable kind of titles that have been kind of on the downslide. The music games were kind of always a fad. You know, they made a big stink about getting people together and you sell all these accessories that kind of are like the equivalent of a juicer sitting in your living room that you don't use after you got it from grandma for Christmas. But long-term, Activision is a very, very solid way to play the U.S. spending on entertainment. Video games sell more than movies these days, and Activision is the top dog in the field, and I like it a lot. Ron? The stock reacted really negatively to guidance, really weak guidance from the company.

I don't think it was the stock. I think it was the people selling the stock. Yeah, that's true. Blame the stock. I think this is a classic case of the company sandbagging or giving guidance that is really very conservative. I think both from a revenue perspective, a margin perspective, even a shares outstanding perspective, the company really was conservative here, and I think we're going to see them beat. Seth? I think there's another lesson for investors here. It's a little more subtle, and that is that everybody knew about Guitar Hero. Everybody knew about Rock Band, and those were money-losing units for the umbrella game companies that had them.

And you would never think of that when you thought about how popular they were, but they really weren't making money. So it's one of those things that what you perceive out in the media might not necessarily be a decent money-making venture, and you have to look for that when you're investing. You're listening to Motley Fool Money. Chris Hill here in the studio with Seth Jason, James Early, and Ron Gross. Shares of Cisco Systems fell more than 14% this week after the company reported lower-than-expected earnings.

Seth, this is the third quarter in a row that Cisco has underperformed. They used to be great at the expectations game. What happened? Well, they stink and they're stinking it up. And John Chambers, the CEO, I think could use a boot in a certain part of his anatomy and be shown the door. He's been blaming, putting the blame on the economy, on state spending, picking scapegoats that have mysteriously somehow not been a factor for other companies selling similar gear. I mean, the last fiscal quarter, their gross margin was down more than 3%. The operating margin was down more than 7%. This is horrible. They're losing share or they're losing margin at the high end with their most profitable business, which makes the overall business less profitable.

Their consumer division is a complete mess. Do you remember when they bought Scientific Atlanta? How many people here remember that? The set-top box business? Yeah, they bought a couple of these businesses for set-top boxes on top of TVs. When's the last time? I mean, that business is going away. They bought Flip Camera, and the guy who ran Flip Camera, they actually just booted him out.

He was the head of their consumer business. His big innovation was just to put a USB port on a camera. They have no strategy there, and that is just going to kill them. If they cannot differentiate and get people to pay big money for their nerdier hardware, and they can't make it in the consumer, and there's no evidence that they can, I would stay away from this stock. All right. Finally, Disney posted better-than-expected earnings this week. Ron, shares of Disney are closing in on an all-time high.

They are. And as a Disney shareholder, I'm pleased about that. How are they getting it done? Well, this stock is near and dear to my heart. It's the first stock I've ever purchased for both my children, and they're proud shareholders. And the company is doing great, in line with the economic recovery. Even their theme parks had increased attendance this quarter, which has been a drag on earnings beforehand. ESPN is really the driver here. Their TV divisions in general, cable networks and ESPN, higher advertising revenue, and it's just really shown in the revenue all the way down to the bottom line. And it's kind of continuing a

theme that we're seeing with a lot of the U.S. media companies this quarter, showing really strong results. But again, to go back to the parks, because it seems like in quarters past, the basic story of Disney's earnings was doing great on the TV, but the parks were really a laggard. Are they doing something different at the parks, or are they just sort of getting lucky? They're not doing anything significantly different, except in some cases, they're doing some pricing promotion. But in this case, it really is an economic story. As the economy improves and people, as we said earlier, feel more comfortable,

consumer sentiment goes up, they start coming back to the theme parks and spending money. Before we go to break, when you think of the classic Disney characters, there are so many. I want to just go around the table. Give me one and think like Survivor, the reality show Survivor. If there's one you could boot off the island, you could just get rid of one character, who would it be? And on the flip side, if you could take a road trip with one classic Disney character, who would it be? Charlie, I'll start with you. I'm very partial towards venison and deer sausage, so I'd have no problem putting a slug right into Bambi.

and cooking that up. Killing Bambi's mom wasn't enough. See Travers at Fool.A. Bambi's like an old cigarette smoker now, not that young cutie. And a road trip, Charlie? I think if you're going to road trip, you really got to go all out and do something crazy.

So my partner would be the Mad Hatter. Nice, nice. Ron, what do you think? Well, I'm kicking out Daisy Duke, Chris. I'm sorry. She's just plain mean to Donald. She's got a temper like I've never seen. Daisy Duke?

Daisy Duke? Yeah, Daisy Duck. Daisy Duck, yeah. She's got a temper like I've never seen on a dog. Because Daisy Duke is from the Dukes of Hazzard, and she's, well, in a word, awesome. She's completely mean to Donald. She's trying to change him at every step. I mean, this guy's a star.

He doesn't need this. Okay. All right? And once we kick her to the curb, me and Donald are going out in the town. We're hopping in that red jalopy with the 313 license plate, and him and I are going on a road trip. Really? That voice wouldn't bug you after a couple days in the car? Seth?

Well, if I throw out one Disney princess, they all go, right? Because they're all just the same one with a bunch of different wigs. Is that true? That's kind of. All right, then that's my pick. And then you have to go with the road trip. You've got to go with the Robin Williams genie. Anything can happen.

Oh, from Aladdin? Yeah, I think so. Robin Williams wouldn't just bug you after a while? Not if he's got that kind of magical power. Steve, what about you? I'd boot the crab from Little Mermaid. Was it Sebastian? Is that his name?

Yeah, the Jamaican. It's sort of irritating. And the road trip, I'd go with Thumper. Thumper seems like good people. Aw. That's nice. He's such a good guy. And you know what?

That would cheer up Thumper because Thumper's friend Bambi has just been killed by Charlotte. So that's nice of you, Steve. Could you just pick me up? All right. Coming up, a conversation with Costco co-founder and CEO Jim Sinigal. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money.

I'm Chris Hill. In 1983, Jim Sinigal and his partner Jeff Brotman borrowed $7.5 million to open up three stores. Today, Costco has 582 locations in the United States, Canada, the UK, Mexico, Australia, and Japan, and employs 150,000 people worldwide. Costco co-founder and CEO Jim Sinigal, welcome to Motley Fool Money. My pleasure, Chris. Good to talk to you again. Jim, I was in your Pentagon City store this week, and right there at the front of the store, there were a couple of tables filled with swimsuits. Now, we're having record cold across America. Why are you selling swimsuits in the dead of winter? Almost looks like we haven't figured it out.

Well, you know, our strategy has always, Chris, our strategy from the very beginning is that we are early in on categories of merchandise. So you would probably not be surprised that when it comes to the end of May or beginning of June, we won't have any swimsuits. So we are early in and early out, whether it's the toy season or the patio season or, in this particular case, swimsuits. But also bear in mind that a lot of people in Washington, D.C. are choosing this time to go to the Caribbean or go to Florida or perhaps other places where there's warm weather. And we have, generally speaking, a very affluent customer base. These are the people that would most typically be making those trips. And so the products, first of all, the concept of early in, early out, and the fact that we are catering to those types of customers would be making trips to warm climates. As I said, we're having this record winter here in America.

To what extent does the weather affect your business, and to what extent is it a convenient excuse for retailers? Because it always seems like there are times when a company is reporting earnings and they cite the winter weather as an excuse for poor earnings, and it smacks a little bit of the dog ate my homework. You know, we have a saying that the only thing that retailers never run out of is excuses, and that seems to be the case. We're always accused of that, so we brought that down on ourselves. You know, I'll tell you, frankly, we try to encourage our people not to talk about the weather. You know, we need to know because, obviously, it discerns patterns in sales. So if we see something that is happening, we need to know what's causing that effect. But aside from that, using the excuse of the weather, you know, it's going to snow every year,

Maybe a little bit worse this year, but, you know, we'll get through that. And it didn't just snow on us, and the customers eventually have to buy stuff. So, you know, eventually they've got to come out of their homes. And, you know, we are just like every other retailer, whether it's in Chicago or in New York or in the Washington, D.C. area or in California. And we're going to survive and try not to use it internally as a big excuse for performance. You're listening to Motley Fool Money. We're talking with Costco co-founder and CEO Jim Sinigal. Jim, you have come under some criticism by some on Wall Street for overpaying your employees.

How do you respond to a criticism like that? well um you know i guess i would respond in a couple of different ways first of all we have always chris taken the attitude since the day we started our business that if you if you look to hire good people provide good jobs and good wages and a good career that good things will happen in your business and we think that if you will buy into the concept that Costco is the low-cost provider of goods and that we get higher productivity, sales per square foot, et cetera, than anyone else, then we must be getting very, very good productivity out of these high-paid employees.

And so in the final analysis, we think you get what you pay for when you hire good employees, and we think the numbers speak for itself. Now, having said that, I think when you look at our stock And you look at the multiple of our stock compared to some of our peer competitors in the big box arena, we haven't done so badly. And I think that probably that's a lot of chatter coming out of Wall Street in many instances. I think they recognize that we get the type of performance that we do out of our employees. In 2008, you said in an interview, you compared raising prices to heroin. You said it's like heroin. You do a little, and you want a little bit more, and raising prices is the easy way.

So, I mean, how much does it kill you to raise prices in your stores? It's like sticking a needle in my eye. We always try to think of every possibility before we have to make that choice. Now, there are certain times when you're hit with increases on commodities like wheat or sugar or butter or things where you're going to have to raise some prices because the cost of the products have gone up so much. But we try to think through and problem solve on all of these issues to see how long can we go without raising the price, how little can we raise the price, And what can we do to become more efficient so that we are continuing to, you know, really drive ourselves towards bringing the lowest price to the marketplace? So, you know, we don't like to do it. We think it is like heroin.

If you're doing it just to improve your profitability, you're going to find that you can't do away with it in the future. Are there times when you sell below cost? No. Well, let me qualify that. We don't sell below cost unless we made a terrible mistake on something. the market down. But we are not in the business of lost leaders. And as a matter of fact, it's prohibited in our company. We don't use that type of lead on with our Costco members. We're in the business to make a profit, and everything that we sell has to make a profit

for us. Now, one of the things that happens to us in a case like gasoline, we may get ourselves into a jam because we have such a finite amount in the ground. We have less than a day's supply of gas in the ground. So if we get a big increase in price during a day, our competitors may still have a weak supply there. So we may have to sell at very close to cost, maybe sometimes even fractionally below cost, recognizing that we catch it when prices go the other way. You're listening to Motley Fool Money. We're talking with Costco CEO Jim Sinigal.

Jim, you are known for, among other things, answering your own phone and from time to time handling customer complaints. So I'm curious, what's a recent customer complaint that you've handled and how did you handle it? Well, we had just two days ago a customer who called me from Connecticut. They had a problem with getting their membership card tied in together with their Amex card. And for some reason or another, we had a snafu, and we had tried, apparently, from a couple of different levels, tried to straighten it out, and this customer just said, you know, I just want somebody to help me, please. and we got it fixed in 10 minutes but you know

he was a very reasonable person he was he just was frustrated at that point because it had been going on for a couple of months and you know I do that and to tell you the truth I enjoy it because

it really is interesting if you work the thing how you can take somebody who is frustrated or even somebody who is angry and turn them around if you can come up with a solution to the issue. You know, there are some times, obviously, that doesn't work. But generally speaking, when somebody is angry enough to call me, it needs a little bit of investigation.

And like I say, if you can do something to turn that situation around, you'll feel pretty good about it. Now, Saul Price, the legendary retailer, is someone who's had a tremendous influence on you. So for the benefit of our listeners who may not know that much about Saul Price, what was so different about his approach to retail? Well, you know, Saul, look, I started working for Saul when I was 18 years old down in San Diego. I was a college student and working part-time, and of course they worked for him for years and years and years and eventually became very good friends. And as a matter of fact, I had dinner with him just three nights before he died.

So we remained very good friends all during that period. And, you know, he was different because he viewed business as something that was more than making money, that you also had a social commitment, you know, that there was an obligation to all of the stakeholders in the business. And it wasn't just words or lip service. It was something that he really believed. But he was incredibly intuitive about what the customer wanted, and he was incredibly bright relative to operational and merchandising skills that would make a difference in the marketplace.

And I think Sam Walton made the comment that he, I think he said, I have stolen, and then he changed it just a little bit and said, I prefer the word borrowed more ideas from Saul Price than any other man that I've ever known. And I think that's quite a compliment about the innovative skills of a person who was trained as an attorney but became one of the legendary retailers. And it was because he was always thinking of new ways, And he was so very, very committed to making certain that he brought quality products to the market at the lowest price possible. Your father was a coal miner and a steel worker.

What did he teach you about the working world? That you're going to have to work hard and nobody's going to give you anything. And he taught me to be honest. You graduated from Helix High School in La Mesa, California back in 1953. three. If I could go back in time and talk to some of your teachers or maybe the principal at Helix High, what would they say about Jim Senegal, the high school student? Never had a clue this guy would do this. You know, listen, I was just like every other 16, 17 year old

I was interested in sports and you know in many instances skating through some of my classes, probably not doing as well as I should have and

but I was not a bad student but I was not a great student I don't think that they would that I, it would have been a memorable career there You're listening to Motley Fool Money. We're talking with Costco CEO Jim Senegal. Jim, before I let you get away, we have to wrap up with a round of buy, sell, or hold.

So let's start with buy, sell, or hold the estate tax. Buy. Why? Well, because I think that the mood of the Congress and the mood of probably the administration is that they will increase it somewhat, but that it will be significantly below where it's been in the past. It's probably such a small fraction

of the revenues that come in that it probably would not change it materially. It costs $1.50 and comes with a 20-ounce soda, buy, sell, or hold, Costco hot dogs. Buy. when was the last time you raised the price on the hot dogs we haven't ever it's been it's been since we began it's been a buck 50 for the hot dog and a quarter pounder and finally uh this is something that most everyone uses at some point

buy sell or hold costco caskets uh buy we're happy with that business and we think we've got a very good supplier who performs well for us. I saw somewhere online that there was one location that was offering two-for-one. Can you confirm that somewhere there was a Costco offering two-for-one on caskets? I can't confirm that. No, I can't confirm that. I'm sorry. I don't know, but I'm going to check the minute we get off the phone. Jim Senegal is the co-founder and CEO of Costco. Jim, thanks so much for being here. My pleasure, Chris.

Coming up, we'll give you an inside look at the stocks on our radar. This is 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. I'm Chris Hill, and back in the studio with me, our trio of senior analysts, Seth Jason, Ron Gross, and Charlie Travers. Ron, I know you're a big Costco fan. What did you think listening to your friend Mr. Senegal there? Well, I think Costco is probably one of the finest-run companies in the United States, and Mr. Senegal is an absolutely terrific merchant and CEO.

I thought it was interesting what he said about raising prices. I'll be nice, and then I'll be cynical. On the one hand, I think he really does care about keeping prices low and making things affordable for the consumer. The cynical side of me says his business model is reliant on people renewing that membership. So, 75% of Costco's operating profit comes from those membership fees. So, he needs to keep people happy, so they're coming back to the stores and renewing that membership, and lower prices does that. Alright, time to talk about the stocks that are on our radar, and we'll bring our

man Steve Broido in to grill you with a question. Charlie Travers, your stock this week? Yes, Chris. I've actually been eyeing up large-cap, more safe dividend-paying kind companies. And one that has caught my eye recently is Abbott Laboratories. It's a very well-known company. They do pharmaceuticals, med devices. They have a nutritional segment. So they have their fingers kind of in every little cookie jar across the healthcare industry. And what's interesting about Abbott right now is that the stock is trading for only 10 times their earnings guidance for the year. And you get a nice 4% dividend yield on top of that. And I think that's a lot to like with a very safe kind of company. And what's the ticker symbol?

ABT. Steve, Abbott Laboratories. What do you think? How do pharmaceutical companies tend to perform? It seems like, in terms of biotechs and pharmaceutical companies, they usually seem to do very badly. Am I mistaken? It is a very feast or famine kind of business. These are high-margin products that are awesome until the patent runs out, and then they disappear and go away. But Abbott is in a good position right now with their portfolio.

Ron, your stock this week? Over at Million Dollar Portfolio, we like Hillenbrand, ticker symbol HI. So, Hillenbrand is the leading maker of caskets for the funeral services industry. You cynical, cold-hearted so-and-so. Hey, they make a product that's in demand. Now, they've done something recently that I normally would hate, is that they took $370 million and they made an acquisition of a company that has nothing to do with the funeral services business. And that's usually a recipe for disaster. In this case, it's an industrial company.

It's going to give them the growth they need to kind of get that cash flow moving again. I'm going to give them the benefit of the doubt. I've spoken with management. I think they know what they're doing. Stock looks good, cheap to me here. Dividend yield to 3.5%. I like the company. Steve Broido, leading casket maker.

What makes a good casket, Ron? You know, I mean, it seems like a- Craftsmanship, Steve. Don't people, I mean, isn't cremation getting more and more popular? That is actually one of the, I would say, the main risks to the business model is cremation is growing and they are actually getting into the urn market in a bigger way as a result. But as we all know from the closing of the Big Lebowski, it's pretty easy to disintermediate the business as well with a coffee can. So just to be clear, they really are diversifying into urns? Sure. Yeah. Wouldn't you?

I guess. I'm also wondering if there's a cremation company out there that's publicly traded that maybe, I don't know. Could be an acquisition candidate. Seth Jason, please get us off this gruesome topic. Your stock this week? It's probably been several days since I flogged Fossil. But Fossil is going to have earnings next week. And I'm looking at what a lot of the companies in its space are doing, sort of higher level, affordable luxuries,

coach and others and i just think that as expensive as fossil looks i think they're going to knock it out of the park again and uh and the stock is going to continue to do well um it's a spicy play if you're thinking of doing it uh before the 15th of course because uh you know anything can happen on about earnings day and the ticker symbol f-o-s-l steve bruno fossil what is fossil what is the primary thing that fossil makes if you had to say fossil is watches Yeah, and it seems like that as well. It seems like they've gotten into leather goods and all sorts of stuff. Yeah, and that's doing really well for them, actually.

Their accessories have done very, very well. I never would have guessed it. I never would have guessed that watches could be a decent business. When I first looked at this stock, I thought, they can't possibly be a good business. But the truth is in the numbers, and they've done a great job. I'd actually like to turn the tables here and ask Steve a question. Steve, do you own shares of Fossil? I do not.

They'll be fine. Nice. Thank you. Steve Broido, our contrarian indicator. You know, I mean, to be fair to Steve. He bought XM Satellite Sirius and made a bunch of money, right? Yeah, to be fair to Steve, he has got some great winners in his portfolio. Is that right, Steve?

Yeah, it's definitely Feaster Fam and Charlie. But, yeah, there are the occasional— Stinkers, if you will. Allied Irish banks and— Now Cisco, add that to the list. All right, Seth Jason, Ron Gross, Charlie Travers. Guys, thanks for being here. Thanks, Chris.

Thank you. Thanks to our special guest this week, Costco co-founder and CEO, Jim Sinigal. If you haven't already, please check out MarketFoolery. It's our new daily podcast. You can get it on iTunes. You can get it on The Motley Fool's website. Just go to MarketFoolery.com every Monday through Thursday at 4.30 Eastern. Our engineers are Steve Broido and Gail Agnew Nuevo.

Our producer is Mac Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.