Motley Fool Hidden Gems Investing - Motley Fool Money: 02.21.2014

Episode Date: February 21, 2014

Facebook makes a $20 billion connection. Tesla generates some electricity on Wall Street. And Lumber Liquidators raises the roof. Our analysts discuss some of the week's top business stories. Plus, Motley Fool co-founder David Gardner talks Twitter and shares some stocks on his radar.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Don't you wish you could just hit skip on the worst parts of your life? You know, the same way you can skip an ad? I get it. I'm Siyaya and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out. Somehow things usually get worse before they get better. Apparently, that's how I roll.

So bundle up and come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem. everybody needs money that's why they call it money from fool global headquarters this is motley fool money it's the motley fool money radio show thanks for being here i'm chris hill and joining me in studio this week for motley fool one jason moser for motley fool supernova matt argus singer and for million dollar portfolio ron gross good to see you, guys. We've got restaurant stocks, housing stocks, apparel stocks, and more. David Gardner, co-founder of The Motley Fool, will be our guest in studio this week. And

as always, we'll share a few stocks you can put on your watch list. But we begin with the deal of the week. Facebook bought WhatsApp, a popular messaging app for smartphones, in a deal worth $19 billion, Jason, leading some people to say ... That's with a B, right? With a B. Yeah. Did they get the decimal point right? To say, this is the latest sign that we are in full-on bubble mode.

I'm guessing you do not agree, though. Well, no, I wouldn't say bubble mode. I think a lot of it just really depends on your perspective. I think it's only the end of February. This probably qualifies as the deal of the year so far. But, I mean, you have to look at this from the perspective of where social media is and where it's going. I mean, the average global internet user today spends two and a half hours daily on social media. And that number is not trending down.

it's trending up. So, I mean, Facebook knows this, and that's really the impetus behind this entire deal. So, I tried to look at this, and I think we could probably all relate to this, if we think about a big pizza, right? And so, Facebook, yes, I get your take. Glad to. But essentially, the big pizza represents all of this social media time spent per day. And so, Facebook has historically taken about half that pizza on its own right there. And then you have sort of the other players in there, your Instagrams and Twitters and whatnot, that sort of make up that other half of that pizza. They bought Instagram so they could get a little bit more

of that pizza. And WhatsApp, with its 450 million plus user base, is taking up a little bit of that pizza as well. And so what Facebook is trying to do is slowly but surely buy up a little bit more of that pizza every so often so they can become more and more. They're the ones that are taking up all of that time that we're spending on social media each day. And Matty, even though Facebook Facebook financed this deal mostly with stock, and the stock has appreciated nicely, so they're getting kudos for that. There are still people saying, really? $19 billion? Did they overpay? It's a massive number. I can't even believe this company didn't even exist four years ago. 55 employees, $19 billion. Essentially, well under $100 million in revenue. I guess

my thing here, though, is, I think it is the right move by Facebook. Because I always felt But with Facebook, they had to use their size to make a deal like this, to continue to grow their platform. And that is exactly what they're doing, and they're doing it very effectively. They have a $170 billion market cap, $19 billion to essentially add 100 million more users probably that aren't also using Facebook. Agreed. $19 billion, huge number. It breaks down to $42 per user, though, which, depending on the comps you use, is actually not too crazy. Whether this is successful or not. Whether it turns out to be worth it, I'm going to plead ignorance and say, I honestly

don't know. I'm going to wait it out and watch. But we're still proud owners of Facebook. I think the bottom line is, you just have to look at this as a perspective thing. With Zuckerberg at 29 years old, we know the trend of social media is doing nothing but growing. It's just a common form of human communication. So, you have to look at this as a decades-out play. 10 years from now, 20 years from now, is this going to matter? My guess is that yes, it will. So, I think that while the $19 billion does take our breath away, I think that over time, I think this actually will prove out to be a smart deal. I just want to say one more thing about it, though. What I'm seeing a lot now,

Facebook being one, Twitter, LinkedIn, Yelp, Zillow even, companies are starting to talk about other kinds of metrics besides what we're used to seeing, which is revenue, cash flow, earnings, profits. Profits. So, does this make you nervous, or are you happy about it? Well, I guess my point is ... I hear eyeballs come out of your mouth. Exactly. So, we're talking user account, talking monthly active users, unique visitors, traffic. When we start really zeroing down on all those numbers, we might be in a different bad plane in the stock market. We'll see. Shares of Groupon got a haircut on Friday after reporting a loss for the fourth quarter.

And Ron, guidance for Q1 coming in lower than people were expecting. Speaking of profits, when is this company going to make some money? I tell you, last night it was buy on the headline. Stock was up big. Today, sell on the actual results. Let's read the press release. There were some good things. They beat estimates. They did generate an operating profit. Revenue was up pretty nicely. On the other hand, guidance was weak. Lots of one-time expenses, which for them seems to be the norm, so I don't know if you can call them one-time. Gross margins are weak. They're in a competitive space now, moving into the goods business, Groupon Goods, competing with companies like

Amazon or eBay or Priceline. Tough, tough, tough road to hoe there. So, stock sells off, and I think it should. I suppose, Jason, you always want to see your company look for ways to diversify revenue streams, but when I hear Ron say they're moving into competing with eBay and Amazon, that really sounds like a bad hand to draw. Sounds like a tough road ahead. Did you guys see the little President's Day campaign they had, where they called out Alexander Hamilton as one of our greatest presidents ever. And the only problem with that was that Alexander Hamilton wasn't actually a president. So it

was something that obviously got a lot of attention. But of course, after President's Day, they came out and said they meant to do that. It was an intentional mistake to create some press and get the name Groupon out there. And so my point, whether it's intentional or not, when you're relying on little tricks like that to get people to recognize your name, I don't know that that's a business model that screams competitive advantage to me. Shares of Tesla Motors hitting yet another all-time high this week after fourth quarter results came in better than expected. Matty, this is a company you look at. What were the highlights?

Well, you're looking at 6,900 roughly Model S deliveries in the fourth quarter. We already knew that number out there. They had announced that at the Detroit Auto Show earlier in the year, but still a big number. But the news here is what they're guiding for. A lot of analysts on the street were looking at around 31,000 to 32,000 vehicle deliveries in 2014. they're guiding for over $35,000 now. That's a 55% increase of what they did in 2013. They're also guiding for 28% gross margins, which most car companies, if you look at your Fords and GMs, on a great year, they're getting about 8% to 10% on their gross margins. Tesla just did 25% in the

past quarter. They're guiding for 28%. That's a massively profitable car company by any stretch. What I think is going on here with Tesla, and why I'm not afraid of the stock reaching these really new highs, is that I feel like we're a little bit in the Apple story right now. If you look at Apple from, say, 2004 to 2011, analysts were always playing catch-up with Apple. They always said, well, this quarter they're going to deliver 3 million iPods. Well, they came out with 4.5 million. Oh, this quarter they're going to deliver 5 million iPhones. Well, they did 7.5 million iPhones. And every quarter, every year, the analysts had to keep ramping up their expectations. I feel like that's what's going on with Tesla.

They might say they're going to do over 35,000 vehicles in 2014. I would not be surprised if it's 40,000. Is there a concern that as they ramp up production and are pumping out more and more cars, that the gross margins invariably get lower? No. At least if they stick to their current line of Model S's and eventually the Model X, which is a luxury, even a higher-priced SUV, you can actually see those gross margins go up over time. When they will come down when Tesla's forced to expand, because they're going to produce the lower Model E, the more mass-market company, that's when it's going to come down. But I see 25% to 30% gross margins

for the company, at least for the next few years. I'll just give the other perspective, from a million-dollar portfolio, the other side of the trade here. We are concerned that the stock has run so far so fast, and we've moved the stock to hold, and we need some time to really think it through. Is a lot of all that great stuff that Matty just talked about, is that already baked into the stock? We need to think about that a little bit. Interesting week for Panera Bread. Fourth quarter profits came in higher than expected, but they lowered guidance for the current quarter, saying that bad weather is resulting

in lower traffic at their restaurants. And Jason, normally what we see when that kind of combination comes out is a stock takes a little bit of a hit. Shares were actually up for the week. Is Panera Bread getting the benefit of the doubt from Wall Street? Well, I mean, I don't know about the weather thing. I think the weather thing is actually pretty reasonable for restaurants, because it's not like you're going to go in the next day and make up for those sales that you lost or the food that you didn't buy from the day before. So, it certainly affects traffic from that regard. But I think that really, ratcheting back on the guidance for the quarter and the year, on the surface, that doesn't look good,

but you have to look at why they're doing this. And I'm actually encouraged by why they're doing this. They're investing more into the restaurants, into their labor, to the operations in order to make these restaurants a better experience. And I think that a lot of us have have probably observed that when you go into a Panera, it's just not as smooth an experience as it potentially could be. And then, for a while now, I've been very critical of their not-embracing technology, so to speak. We've seen Starbucks and now Dunkin' Donuts just fly right by them with those apps and loyalty programs that you can use as tender on your phone. And the encouraging news from a call that came out the next day was that Panera

is actually investing a lot of money in this, and they're going to have an investor day in March, where they're going to present us with this investment in technology that they refer to as, quote, an enhanced order, payment, execution, and consumption experience. So, we have to wait a little bit to see exactly what that means, but I personally am very encouraged, because I think Starbucks and I think the Dunkin' Donuts will also prove this out, those are very powerful tools for these restaurants that have these powerful well-known brands that can keep people coming back for more. So, I think all in all, it's an encouraging quarter, and I think Ron Shaik is a powerful CEO who will continue to do

well for this company. As we just talked about Tesla Motors stock, when you look at shares of Panera Bread, is it getting pricey? You know, I've always thought that anywhere in that $200 and up range was a little pricey, because I was not quite convinced that they were really making the right moves. Now that I've seen this news with the investment in the business and the technology side of it, I'm starting to think the stock's looking a little bit more attractive. Coming up, some U.S. Olympians learned the old lesson, it's a poor craftsman who

blames his tools. Details next. This is Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Matt Argersinger, and Ron Gross. Guys, a couple of companies related to the housing industry reporting earnings this week. Fourth quarter profits for Tile Shop Holdings fell 22%, and the company said its sales growth was hurt by bad weather. And yet, Matty, I'm assuming that was just better than expected, because the shares were

up more than 12% on Friday. What's going on here? This is completely a relief rally for a tile shop. For those who don't know, they've been under a little bit of scrutiny. There was a short report that came out last November that looked into their sourcing, particularly in China, sourcing for their tiles, and found some interesting relationships, not totally up to par. The company did an investigation, fired the related party, has hired a new person who's handling their purchasing in China right now. That issue's passed. There was really no mention of it on the press release. There There was only one question about it on the call, and the CEO had a good answer for that.

Again, getting back to the business itself, it looks pretty good. Their comp store sales were up 10%. They're opening new stores. Revenue looked good. They're going to open 20 new stores in 2014. The business is going on, and I think what happened is, the stock just got to a point where everyone thought there was another shoe that was going to drop. Another shoe did not drop, so the stock's getting a bit of a bounce. I was going to say, because after that report, you look at a chart of this stock, it fell about 50% from last fall. That tells me that it was sold off too much? I think it was sold off too much. Again, it's a small company as well with a huge

amount of trading volume. I'm not surprised it got cut in half. If there were more relevations that had come out that they were improperly sourcing or managing their inventory in a way, that could have been very bad. I think a lot of investors were betting on that and really selling down the stock. But of course, that doesn't look like it's going to happen. Fourth quarter profits for Lumber Liquidators rose 48%. Ron Gross, I know you watch this company closely, my question for you is, do I have that number right? 48%? It's an incredible quarter, and they put up incredible numbers. How about comp store sales of 15.6%? I mean, there's amazing numbers. Gross margins of 41%, almost. The company

is doing really, really well. There's also some controversy with sourcing related to Lumber Liquidators. I guess when you're dealing with China and Russia in this particular case, always some issues. There's actually an investigation ongoing. We don't think it's going to be material. It could turn up something, but it won't really, I don't think, change our thesis here. The company continues to put up great results. There's plenty of runways to go. 320 stores. We think they can get to over 600. The stock has done incredibly well. So, we actually do have it on hold right now, although we just raised our valuation estimate. O' I was going to say, shares up around 8% this week. It does seem like it's getting

I mean, it's up over 400% for us. We've owned it for a while, which is wonderful, but how much more room there is to run is questionable. Just had to rub it in, didn't you? Will we be talking any more about the social media pizza that Jason talked about earlier? No, we will get to the stocks on our radar in a moment. But before we get to that, the Winter Olympics have been going on, and there is one business story of note. Under Armour had designed a new suit for U.S. speed skaters, the Mach 39. They worked with Lockheed Martin on that.

And the skaters, suffice to say, did not do well. They didn't medal. The team voted to change back to their older suits, which were also made by Under Armour. But, Jason, there were people out there blaming Under Armour for this. And if you thought that they were going to just wash their hands and break ties with Under Armour, it didn't really turn out that way. No, it didn't. I mean, I think you gave sort of a good quick summation of what exactly is going on. And I think the bottom line here, shareholders in Under Armour, or even if you're considering buying shares in Under Armour,

you need to feel really good about the way this has worked out, the way that Kevin Plank and his team there with Under Armour have handled this situation. Because, in my opinion here, this was all week, it was kind of looking like it could be something tough that they were going to have to manage. This has really turned out to be what I think is just a tremendous win for this company because of the way they handled this situation. And I think that the more and more any reasonable person looks into what was going on here, I mean, their training regimen really was the question. I mean, that's what we have to question first and foremost, in training at altitude versus the sea level where they were competing. And that, to me, seems to be the most plausible explanation for their underperformance.

So then the big question was, from there, where do we go? I mean, would they ever renew with Under Armour? How does this affect Under Armour on a global scale? Well, I think virtually every other international speed skating team out there could recognize the fact that, no, this isn't Under Armour's fault. The American team got beat. I mean, they just did, and that's the way life goes. but the news that came out today with them re-upping that deal with Under Armour for another, what, eight years through 2022, I mean, that really is a big deal

because, number one, I think it speaks to the fact that they're able to swallow a little pride and sort of say, hey, look, let's move forward with this. We really understand that we had a good thing going with Under Armour. And really for Under Armour, it just shines a light on how well they've handled this situation. And, you know, Kevin Plank handled the situation with equanimity me. The bottom line was, he wants to make sure that Under Armour can help in getting our athletes the best equipment possible so that they can perform at the highest level. And when you have someone like that, a team like that, it's just really hard to compete

against something like that. So, I think that Under Armour benefits from this. Alright, we've got just a couple of minutes left. Ron Gross, what's on your radar this week? Going back to Horsehead Holdings, ticker symbol Zinc, Z-I-N-C. They report next Tuesday maker of zinc-related products. Shares have done really well. They've got a brand new facility coming online in North Carolina. The price of zinc, the commodity, has been rising nicely, which bodes well. We have it on hold, but I'm going to listen to what they have to say on Tuesday to see where we go. O' All right, Matty, what do you got?

I'm looking at Sina, ticker S-I-N-A. They report earnings this week as well. This is, for lack of a better term, the Twitter of China. They own a massively popular microblogging service. Alibaba, which is a ginormous Chinese e-commerce company, has an investment in them. I'm just very interested in following this company. I think they've got a lot of great potential. If we look at what Twitter's been able to do, if Sina can have a similar amount of success with their microblogging platform in China, there's just a massive market opportunity for this company. Jason, we've got about a minute left. I'm actually going to reach back just to a little earlier in the show here, taking

a look at Panera Bread again. It's a stock that ... basically, my kids first learned about investing with Panera. This quarter, I think, was very encouraging in their investments that they're making in restaurant operations and technology in particular. It's a stock that my daughters have continued to kick around with me as a potential one that they want to add to their portfolio this quarter. When you look at their store base of around 1,600 stores today, they can reasonably double that. That doesn't even bring into account the fact they may be able to add some more smaller concepts in the mix there as well. I think There's still a lot of growth here in solid management with Ron Shake.

It's one we're keeping our eyes on. And the ticker? Ticker is PNRA. All right. Jason Moser, Matt Argesinger, Ron Gross. Guys, thanks for being here. Thanks. Thank you.

Coming up next, a conversation with our man David Gardner. Stay right here. You're listening to Motley Fool Money. Somehow my finances will grow With the interest I show In the interest it gives me And now a piece of paper from me Won't seem half as flimsy

There's a starman waiting in the sky Welcome back to Motley Fool Money. I'm Chris Hill. David Gardner is the co-founder, co-chairman of the board, and chief rule breaker here at The Motley Fool. He joins me now in studio. Thanks for being here. Chris, it's good to see you for, I don't know, what, 12, 14 years now?

But, you know, never enough one day to the next. It's always a pleasure to rejoin and hang out some. I appreciate you doing that because you're a busy guy, particularly when it's college basketball season. Well, but I'm not the only one. And, in fact, Chris, I'm pretty sure these days you're busier than I am at The Motley Fool. I see far more of you out there in The Fool than I see of me. So I know who's doing the real value. Let's get to some of the companies that are in your universe.

And first and foremost, Tesla Motors. You look at the most recent fourth quarter results. shares are hitting an all-time high today as we tape this. And over the last 12 months, this stock is up more than 400%. I know you've made the point before. It had sort of treaded water for a while after you had first recommended it. November 2011. It did nothing for that first year. But are you surprised at the ... I mean, more than 400% in 12 months. While that's wonderful ... Yeah, I'm completely surprised by it. I'm very pleasantly surprised by it. In fact, surprise is a key part of pleasure in my life. I believe that surprises are really part of the fun of life. So it has been incredibly fun. I know that probably about after 200 of those 400%, a fair number of people thought, well, this thing is already priced to perfection.

This is a pricey stock. Right, and now it's doubled again, and I'm not here to say that it's not just about to, I don't know, underperform for the next few quarters, or continues its surge, because the focus for me, of course, and I know you share my focus, Chris, it's not about the earnings report that just happened, or even the next one. It's about being a part owner of a great business, a business that could still fail, but a business that is doing something really wonderful in the world with a great leader, somebody who visited Fool HQ a couple of years ago. And on that day, I said, I think I'm going to recommend his stock

in our next Rule Breakers issue. And especially, I remember Elon pointing out that his company was the third most shorted stock on the entire NASDAQ on that day. So, there's a number of factors there. We don't have to pull them apart. We've got other stuff to talk about. But that was a beautiful cocktail for success, to create a horrendously bad metaphor. People don't drink cocktails of success. I don't know why I went there, but I'm telling you right now, that was almost like the ultimate buy signal for me. I want to ask you a couple of questions specific to Elon Musk. But before that, and this is something you and I have talked a little bit about before, when you look at

the space of automotive companies, they're all competing with one another. Ford competes with GM, Toyota, Chrysler, et cetera, et cetera, et cetera. And yet, I have made the point to you that I look at Tesla Motors as a company that has not just competition, but enemies. And I'm wondering if you consider recent history where, for example, automotive dealers in different states have worked with state legislatures to keep Tesla Motors out of the state. is that even more of a buy signal for you do you get excited by a company that has enemies or is it a non-factor for you well it really comes down to why you have an enemy and um certainly the companies that i love that have enemies are the ones that are doing that

because they potentially are serving customers better than the status quo had been before that rule breaker, started breaking the rules and showed up uninvited to the party. And so, companies like Netflix, which shook up an entire industry, certainly just the whole internet. I mean, Amazon.com, eBay, Zillow today, certainly a company where at least a few years ago, a lot of realtors did not like Zillow. A fair number now kind of like Zillow because they're like, I can advertise on you, even if I'm not going to believe the Zestimate and I still have the proprietary information. I know the neighborhood. And Zillow's just kind of a joke, which some people still say. So, it's these disruptive forces that, of course, when David shows up,

Goliath isn't very happy, and it's very easy to kind of poo-poo David and say, yeah, whatever. And certainly, in some cases, it was wrong to buy that David stock. Some of them fail. How much of your interest in Tesla Motors as a stock is tied up in Elon Musk? If, for example, a year from now, Elon Musk, who has other ventures he's involved in, announces, I'm going to stay on as chairman, but I'm stepping down as CEO. I'm moving away from the day-to-day operations. I want to concentrate on SpaceX or the Hyperloop or something like that. How much does that affect the way you view Tesla Motors, the stock? Well, I mean, first of all, he owns, I think, I'm making up numbers, which I'm pretty good

at these days, because I'm following so many different companies, and I love them all. But I think Elon owns about 30% of Tesla's shares. So, pretty sure if he does step away, he cares a lot still. I think that's where his net worth is most prominently focused. And I will also say that I'm the first to think that if he did make that decision, it's because he sees something awesome, maybe even better than Tesla. And if he's going to maybe be involved in a public company, I would take a hard look at that one, too. So, Chris, I think that Elon is obviously a big part of the Tesla story, and for most of my best stock picks, and Tesla could end up going down as one of them. Our cost at

Rule Breakers is $35 a share. So, here we are. And now it's north of $200. Yeah, we're here less than three years later, and the stock is a solid five, six, six-bagger now. That's a great under-three-year performance. Obviously, I think it has a great future. We'll see how it plays out. But most of the great stock picks that I've had, and I've had more bad ones than anyone at The Motley Fool, but most of my great ones are because they were tightly tied to a true visionary, Jeff Bezos, Howard Schultz, of course, Starbucks, Steve Jobs, I think we know his story. And so, I don't really want to disentangle them,

and I don't really think they look to disentangle themselves from their own companies. I mean, Howard Schultz is there, Starbucks, Bezos is there, Buffett. I still see him at Berkshire, Reed Hastings and Netflix. I don't really speculate or live in fear that we're going to lose our all-star CEO. I realize it can happen, but then I'd be really interested to see where they're headed, and I'd be looking at that, too. You're listening to Motley Fool Money, talking with David Gardner, co-founder, co-chairman of the board and chief rule breaker here at The Motley Fool. You had written something recently for our Motley Fool Stock Advisor service,

touching on your most recent experience at a financial television network, shall we say. This was a couple of years ago, but I wondered if you could share a little bit about that, because there was an exchange with the host who seemed to be very focused, I should say, very surprised at your interest in a particular industry after what had happened the previous day. Right. So, I mean, I'm grateful for financial media. I mean, I really think that I wish more people cared about the stock market. So, I'm never going to say or talk down a prominent financial television network, although I always have questions about television and its nature as a medium and what that means for investing, which will be for another interview, Chris.

But that morning, I was a co-host of the early morning show, and the day before, cloud computing stocks had dropped as a group, which sometimes happens, sector rotation kind of stuff, 7%, maybe 7% or 8%. And so, I had just mentioned one of them that I liked, and we went to commercial break, and she leaned forward and she said, you still like that stock after yesterday? I can tell you, that was said completely straight-faced, very sincerely. These are the people who are setting the public's consciousness around the stock market. Not all of us, because this thing came up that's bigger than television, I think. It's called the internet. There are

a lot of places you can go to find people who are a little bit, I think, longer-term in their thought about business and what really leads to investment success. But it's understandable. If you're a news junkie, and it's all about whatever just happened, and that's the biggest thing in the world, of course, and that to me was like a classic moment that shows the difference between foolishness and the opposite of foolishness. We'll call that conventional wisdom today. Conventional wisdom in investing in the markets is all about what just happened, and that's so big. Tesla's earnings, which have vaulted the stock 10% or so this week. I mean, that's great. We love it, and let's talk about what we already did. But obviously,

all about what's going to happen over the next two or three years, not the last two days. You had mentioned the stocks you own. When you and I were talking recently, you said you own somewhere in the neighborhood of 170 stocks. Well, let me say, I own probably about 55 stocks. Now, across my two services, Stock Advisor and Rule Breakers, those are all my recommendations, and all my children. I don't own every one of my children, because I just don't diversify that broadly, but they all matter to me and I have 171 active recommendations across Rule Breakers and Stock Advisor. Let's stick with that universe then.

If next week the market and all of those stocks in your universe dropped 10%, what would be at the top of your buy list? Because you strike me as someone who keeps a watch list, is looking for opportunities, and while not focused on the short-term, is still at the same time aware of opportunities that short-term drops can bring an investor? Well, first of all, I would not look to buy just because the market had dropped 10%, because the implications sometimes for some people, and I always want to disabuse as many Motley Fool members and fans as possible of this illusion, I think, it might well be that you should be buying with real fervor when the market has risen 10% over the past

week. I don't believe there's a what goes up, must come down thing. I've never seen a study, and maybe no one could ever do it, but I'd love to see, if you see a 10% drop in a stock versus a 10% rise, and you look at that sample size, what's the probability that the stock will go on to gain 25% or more from that point. And I actually guess, for at least those 171 companies, my kinds of companies, that once you see a 10% rise, that's a better buy trigger, if you want to get excited, than that it dropped 10%. So, just a separate point. But to go to the heart of your question, because I think you're really just asking me, Chris, what do I like today? I'm looking for a name.

So, let me give you some names here. And really, first of all, I always hesitate to throw out a few, because I don't want Motley Fool members to latch on and say, that's the one Dave loves. Because I don't have any magical ability to identify within my 171 stocks, the three that are going to be the best over the next year. I can tell you companies that I admire, and for us, let's just go to Motley Fool Rule Breakers, we come out with a list every month of our five best buys now. I'm happy, even though that's premium, and we love everybody listening to subscribe. If you haven't already, shame on you. Don't you want to get started investing? But we're happy to occasionally just share what we're doing

from a premium standpoint. So, I'll just give a couple of those companies that we're looking at as best buys now. One is Yelp. I think Yelp is increasingly growing its tendrils through many different businesses, Google, Yahoo, Apple, incorporating Yelp ratings. Customer reviews are a great phenomenon of the internet age. We didn't have anything like that. There was the Zagat dining guide, where you kind of got that in paper back in the day. But this is a really important thing. Yelp has been a tremendous stock, but I like it a lot. Michael Kors, a fairly recent recommendation of ours. I realize a lot of people think, it's larger than Coach now. It's already had a huge run. How could you like it now? Well,

that's actually often what works for me as an investor, is finding the things that the market is recognizing are winners. Because in my experience, many people think what goes up must come down. It's the exact opposite, often. The winners keep on winning. I find it true in general in life, Elon Musk. And I also find it true in the stock market. So, I think a lot of us need to get rid of this parabolic image in our mind, where, you know, oh, it hit a high now, so I should sell because it hit a high. Too many people are looking at the 52-week lows for their buy list, when they should be looking at the 52-week highs. And that's what I've done consistently for 21 years.

Coming up, David's thoughts on Twitter. This is Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill talking with Motley Fool co-founder David Gardner. The last time you were on the show, we talked about Twitter, which at that point was still a private company. It was on the verge of its IPO. I had asked about your interest in it, and you talked about it in terms of 10-year periods as a stock that, is this something that 10 years from now I wished I had owned throughout that decade? It's a stock you had recommended in Motley Fool Rule Breakers back in mid-December. How is the business looking to you right now? They've already had your first quarterly report as a public company.

In general, the stock has done well from the IPO, but I don't think there's anyone who thinks that Twitter is going to be profitable in 2014, including the people at Twitter. But at the same time, we've seen plenty of successful companies that have been public for a year or two without being profitable. That's right. I mean, Tesla would be a pretty good example of that, Amazon certainly back in the day. So, I don't believe that the stock market needs to see profit in order for a stock to be considered worthy of buying. The stock market is always looking forward, and I think a lot of investors have trained themselves or been trained to look backward. That's what financial statements show. They

show what already happened. There's nothing forward-looking. In fact, they have to disclaim anything forward-looking when they release their numbers. So, if you're looking at numbers and you're becoming a numbers-focused investor, and I would say I spend, of my two eyes, one of them is on the numbers, but the other is actually on where things are headed. I love to look at relevance. I also love to look at market cap. So let's talk about Twitter briefly from a market cap standpoint, also a relevance standpoint. So Twitter today is worth about $31 billion. That sounds like a lot for a company that really is not yet profitable. And frankly, I can't remember history, Chris. I mean, here at The Fool, people were tweeting early on back

in the day, but I don't think that was much more than seven or eight years ago. So this is a relatively recent company already worth more than, I don't know, how about Netflix? Or a company that's been around much longer, like, how about Whole Foods Market? So, Twitter is already worth more than those companies. But Twitter has a bigger opportunity than those companies. I love Whole Foods and Netflix. Those are two of my biggest holdings. And among my personal holdings, I don't have Twitter yet. But it is definitely one of my personal recommendations. And sometimes, Bad news for me. My personal recommendation is to outperform my personal holdings. But, you know, I just see so much optionality. That's the one line I want to hammer down on for

anybody listening. Optionality, we kind of define as the ability for a business to morph into something more or different. Twitter has to represent one of the probably top 30 worldwide today in terms of what it can do with all of the global users it has, with all the relevance they have everything from celebrities managing their fan bases there to, of course, the ad sales they are. They're looking at the feed just like Facebook, mobile. It's the way people get news. It's an incredibly relevant thing. So, Twitter is a stock that I think you should consider having for your portfolio. It's obviously an active recommendation of ours at Mahli Fool Rule Breakers. The market hasn't asked Twitter to make a profit yet. And, you know, eventually that'll happen.

But you're going to find, for great, rule-breaking, worldwide opportunity businesses, the market can be very patient for a long time, not needing profits, as those companies build out their footprint. We've got just about a minute or so left. Darn it! I was listening to an interview that Elon Musk gave five years ago, and one of the things that struck me was he talked about how he had been thinking about the electric car since he was about 19 years old. But before that, he had other things on his mind. But he'd been focused pretty much since he was 19. And it got me to thinking about you. You and I are the same age.

We're officially in our late 40s. And I look around the office here at The Motley Fool. We have more than 300 employees. And I imagine there are some younger people who think, well, David probably always wanted to do this. But what I know is that you didn't really set out to do this. You set out, I believe, to write the great American novel. I am curious because I don't think I've ever asked you this before when did you make the switch when did you decide no this is what I'm going to do I'm going to make

investing not just something I do for my personal life I'm going to make it my business well once I realized that I didn't want to finish my novel which was at that point about 320 pages and it wasn't finishing yet and I was kind of growing tired of it that was probably a good trigger that would be the year after college for me so um but you know there's a great economic term and anybody who's like took the econ courses real basic that i took will already know a comparative advantage and that's where basically you as an economic entity whether you're a person or a corporation you rise to find what the world needs of you that is of the most value that you can provide the world i think the world already has some really great living novelists and lots of amazing dead

ones too, and their literature will live forever, and we love it. I do think the world has lacked people who can pick stocks. I don't suggest that I'm a great, but I do look among left and right from financial networks that are all about the here and now, right through to a mass worldwide kind of financial illiteracy about the stock market. And I think I probably found my comparative advantage. I probably found what I could do that was of most value. And I think I do, I hope I pick stocks better than I put sentences together. He's not a novelist, but fortunately for us, he is the co-founder, co-chairman of the board, and chief rule breaker here at The Model.

Thanks for being here. Thank you, Chris. Always a pleasure. Fool on. That's going to do it for this week's show. We'll see you next week.