Motley Fool Hidden Gems Investing - Motley Fool Money: 03.08.2013

Episode Date: March 8, 2013

Our analysts discuss the Dow's new high, drama at Dell, and Warren Buffett's annual letter.  Plus,  Motley Fool co-founder David Gardner talks about some of his favorite, cutting-edge companies.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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 chris ellen we are not at fool global headquarters we are we are not ron we are on stage live from the Kogod School of Business at American University in Washington, D.C. We've got a live audience. I think they're alive. I think they're awake. Okay, fantastic.

Just my shameless solicitation for applause there. One of the finest looking audiences I think I've ever seen. And incredibly handsome. Joining me on stage, Charlie Travers, Jason Moser, and Ron Gross. We've got a great show this week. We've got Google hitting a new high, Apple hitting a new low. We've got Dell Computer caught somewhere in between. We've got Motley Fool co-founder David Gardner, who's going to share his thoughts on emerging technologies.

And later in the show, we've got three students who are going to come up on stage and share the stocks that are on their radar. But we begin this week with the market writ large. This week, the Dow hit an all-time high run. It's the highest point the Dow has been at since October 2007. What do you think about this? Does it get you nervous? does it get you excited there are some people out there saying this is a sign of a bubble well if you don't like money this isn't for you but if you're a fan of money it's a it's a nice thing

to happen so a few things are happening i think we have to look at what's happening and does it matter to us what's happened is that corporate profits have recovered really nicely since the great recession and the stock market has followed suit that makes perfect sense but there's a couple of things that are happening one companies are not hiring so they're keeping their expenses really lean and mean and that's helping profits which are great but it's not helping the country get people back to work the second thing is that the Fed through various quantitative easing programs has making it basically there's no place to go but stocks there's no yield to make anywhere else and that's driven people

into stocks so you have stocks being the supply for side the demand for stocks I should say being let's say artificially inflated there so does it matter what do we do? Do we start trading in our stocks? Do we try to time the market? For foolish investors like us, the answer is absolutely not. We're long-term investors. We buy good companies. We hold them for the long term. We let the market, we let the Fed do whatever they're going to do, but we stay invested. Yeah, Jason, what about that? To the point of the whole notion of the Fed, and as we've talked about before, this whole free money forever, to what extent does that get you nervous? Well, I think it's a fair statement to say we should be at least a little bit nervous.

I mean, I was looking back at Ben Bernanke's white paper at the beginning of 2012. He was talking about the state of the housing market. And essentially, since 2007, there's about $7 trillion of wealth that was erased. We've seen a recovery to a degree back to the highest level here of U.S. net worth, household net worth here at about $66 trillion today, which I think sort of helps prop up the stock market a little bit. There's some money to buy those stocks. And unemployment's coming down slightly, a little bit. I think there's still plenty of things to be concerned about, and I think that's why we probably all look at these recent market highs

with just a little bit of trepidation. Yeah, and Charlie, it's certainly gotten tons of attention. CNBC, essentially, for a couple of weeks now, has had sort of almost like a countdown clock, just waiting for the moment when the Dow hit a new all-time high. Are there stories that aren't getting as much coverage? Are there stories that are as meaningful to investors that are sort of under the radar?

I'm always much more interested in what CEOs are saying about the state of their business, particularly bellwether stocks like American Express or Walmart or UPS. So when a company like Walmart says they had a very soft February, that gets my attention a lot more than what's going on with what the market itself is doing.

I'll turn back to you, Ron, because you're the value guy on the stage. Are opportunities harder to come by when it comes to finding value in stocks? Yeah, as a value guy, I'd much prefer to talk about one company at a time instead of markets, but since you asked, and we've got some time to kill. So the Dow is currently trading at about a PE of about 18. Not dirt cheap, not real expensive either. There are some great companies in the Dow. And for long term investors, as I said, you buy them at reasonable prices and hold

them and you'll do just fine. I think if you're looking for some more growth, you can go to some smaller companies that aren't as well-known as the Dow stocks and find great companies there. But there's always companies to find. Certainly, when stocks get a little bit frothy, they're a little bit harder to find for real serious value guys. But if you're willing to pay a fair price, there's plenty of companies. The two biggest technology stocks making news this week, shares of Google hitting an all-time high. Meanwhile, Apple hitting another new 52-week low. Charlie, let's start with Google. I know this is a stock that you you watch closely. When you look at it, I mean, it's great to hit an all-time high, but again,

kind of like the market, there are people who look at that and think it's a time to run. What do you think of Google in terms of the value of the stock? I think you have to look at the type of business you own. Some of the tech companies in the past that hit those all-time highs and then their stocks didn't do very well might not necessarily have had the most innovative of business models. And I'll reference Dell and Microsoft in particular, which got really frothy a decade ago, and then the stock didn't do so well. And I think that was because they were really great at doing one thing and not so great at innovating beyond that. I think the opposite is the case with Google. Yes, the stock is high, but it's only at 30-something times earnings.

And this is for what I consider to be one of the most innovative companies in America. I think what they excel at is trying new things, whether it's fiber optics in Kansas City or Google Glass, and getting them out to market. And so a company like that that can constantly do new things, I think is going to be just fine. And Jason, on the flip side, when you talk about the most innovative technology companies, that's a mantle that Apple held for years. And it seems like some of the luster is gone. And I'm not just talking about the drop in the stock, but just sort of the products. It seems like, you know, for lack of a better phrase, the cool factor is gone for Apple. And I'm wondering if you think that's overblown or if they really are now in the

position of they need a hit record. If you are trying to tell me that my iPod and my iPad and my iPhone are less cool now than they were a month ago, I would question that. I think they're just as cool. I think the cool factor really is, I think it's a good example of the psychology of the market. You know, for a long time, Apple was the king of the hill. The problem with device makers, when you're the king of the hills, there's always someone trying to knock you off the hill. So with Apple, I mean, you look at the market as a forward-looking mechanism. We have the iPhone and the iPad have made just a tremendous impact in our lives here in the United States. It's certainly playing out around the world as well. But the problem is with the market looking forward,

they want to know what's next. And so with Steve Jobs, there was a little bit of a sort of a wonder factor there. And you knew he was going to come up with something special. We just didn't know what it was. I think there's some legitimate questions to whether Tim Cook has that in his mind. But I think that when you look at things like whether it's the iWatch or whether it's an ITV or something, you look at Apple, it's one of the most innovative companies out there. It touches so many consumers. And today, when you look at the stock price in relation to the amount of cash that the company generates, you have to really be interested in the stock, I think. Yeah, but Ron, so much of that cash, so much of that $140 billion in cash is overseas. That is true. And if you run

valuation models, you need to account for that. But there's still plenty of cash here that they can use for investments, use it to return to shareholders. I think because of the silliness, quite frankly, of traditional Wall Street, the hedge funds and the mutual funds, they rotate out of apple they rotate into google google's now one of the top held stocks um because of that rotation it makes it feel like apple is out of favor it's stocks trading at 10 times earnings but grew 61 in its most recent year stocks are screaming by at these prices uh charlie back to google for a second because one of the other stories this week is these reports that google is getting ready to launch a same day delivery service called google shopping express what could

go wrong with that. Exactly. So for an annual fee, slightly less than apparently what Amazon Prime's fee is, you can get same day delivery from Walmart, Target, Safeway. Is this really a good idea? Going up against Amazon, one of my favorite companies, I say probably not. But what I do admire about Google and companies that do similar things is the willingness to take small calculated risks and see what works. Shares of JCPenney fell more than 15% early this week after it was revealed that Bernardo Realty Trust sold 10 million shares of JCPenney stock. And this is key, Jason, for two reasons. One, that was about half of the stake that Bernardo had. And the second reason is that the guy running Bernardo also sitting on the board of directors at JCPenney.

Yeah, I mean, probably expect that to come to a close. So rather than try and fix the company from the inside, he's like, no, we're just going to sell the stock. Well, and I think rightfully so. I mean, we're looking at a company here that's really lost its way. It's lost its identity. And I mean, they turned in a performance last quarter with negative 30-plus percent comps, which is just unheard of. But, again, I mean, I go back to, you know, 30 years ago, maybe JCPenney had an identity there. It was sort of an anchor for malls. But today, you have to really wonder what in the world it's doing. What are they selling and who are they targeting?

And I think that's one of the problems. And Ron Johnson, for everything that he did at Apple, which is obviously very commendable, but that wasn't a turnaround situation. And so I go back to this with JCPenney. He was brought in for a turnaround. And I don't necessarily think he had the experience necessary to turn the ship around. And I'm not saying it was turnaroundable. I mean, I think now at this point, you might just throw a Chipotle in a JCPenney. You could probably create more traffic.

But at this point in the game, I don't know there's really anything they can do. You've been an activist investor in the past, Ron. When you look at a company like this, this seems like it is a situation ripe for an activist to come in and, among other things, agitate for a new CEO. And I know he's only been on the job for less than a year and a half. But the drumbeat that Ron Johnson has got to go is getting louder. Absolutely. You know, the heads of the larger retail companies, it's kind of a small group of people, and they all know each other and, for the most part, respect each other.

And I found it extremely interesting that yesterday, Alan Questrom, one of the most respected retailers, heads of, you know, JCPenney in the past, Barneys, Federated, Neiman Marcus, came out and said, the board must take action. Ron Johnson is not a reliable source any longer. So to hear that come from him with his knowledge of the retail space, I think that speaks volumes and a change is necessary. And retail is a tough business. I'm not sure the world needs JCPenney, certainly not with the large footprint they have now. The last time we talked about Dell Computer, the company was set to go private. And this week, activist investor Carl Icahn, who owns 6% of Dell, said that they should stay public, pay out a one-time dividend of $9 a share. They should restructure.

And then, Ron, we saw Jim Chanos, the famous short seller, come out and say that this business is just falling apart, and that's why he's shorting it. What is all the drama? If you're Michael Dell, you're pulling what's left of your hair out. Two sides to every trade, and then you have Michael Dell. Well, listen, the $13.65 that they're trying to take it private for is probably on the light side. Obviously, you want to take a company private as cheaply as you possibly can. Carl Icahn coming out and saying the stock is worth closer to $23, that's probably on the high side. The truth probably lies somewhere in the middle.

I don't know if I'd be shorting a company that has theoretically a deal on the table to go private. There's some risk associated with that, certainly. But for Dell, any investment in Dell is a bet on the future. You can't look at its current cash flows and say, I like it, because the business is completely restructuring. The PC business is hurting. And they're trying to kind of pull an IBM, if you will, and turn themselves into a service and server business.

And that's all based on the future. And you either have to understand that future, or you just have to stay away. How is this all going to end? I'm asking you to look into your crystal ball as a longtime Dell shareholder. Is this just a lot of noise, and eventually Michael Dell is going to get his wish, and the company goes private? Yeah, I think that does happen. Perhaps they'll increase their offer a bit. This is what's called a go-shop time right now where other people can come in and make offers. Perhaps the board goes back to say, you need to sweeten your offer a bit. This is a bit light, but I do think it ends up going private. Coming up, forget the CEO of 2013, we've got the early frontrunner for employee of 2013. Stay right here. You're listening to Motley Fool Money.

welcome back to Motley Fool Money Chris Hill here on stage with Jason Moser Charlie Travers and Ron Gross at the Kogod School of Business at American University in Washington DC late last week Warren Buffett came out with his annual letter to shareholders and Jason there's a lot of stuff to dig into anytime Warren Buffett comes out with his annual shareholder letter The thing I loved was the shot that he took at CEOs, basically telling CEOs, stop whining about market uncertainty and start allocating some capital.

But what were the highlights for you? Yeah, I love that. I mean, he's telling people to get out there and spend. He's showing us that Berkshire Hathaway is spending a lot of money. But I think what I really got a kick out of was sort of he took us through on the model of insurance companies

and how a lot of these insurance companies run very bond-heavy portfolios. And a lot of these bonds are going to be rolling off legacy bonds he referred to them as. And so they're bonds with higher rates of return at this point because they're so old and that as they roll off, they're either going to do one of two things. They're either going to have to find a new way to earn a better return or if they reinvest them in bonds at the rate that bonds are today, these insurance companies were looking at a considerable smaller

rate of return for the foreseeable future. And so I think it's really, when you look at a company like a Berkshire Hathaway or even a Markel Insurance, which we talk a lot about at The Fool, it shows the importance of with insurance companies, what they're able to do with that float. You know, not every insurance company is created equal. And when you find really talented investing squads, you can stick with them for long periods of time. And one of the other things from the letter, Ron, was Buffett's praise for a couple of his lieutenants, Todd Combs, Ted Weschler, who, as he pointed out, had better years than he did in managing their portfolios. And if you're a Berkshire shareholder and you're worried about what's going to happen when Warren Buffett and

Charlie Munger are gone, you've got to feel good about that. Yeah, good stuff. I think he said that He's going to increase the capital that they each manage to $5 billion. Great that he has faith in them. He says they both crushed the S&P 500 in one year, but hey, it's better than not crushing it. So I think that's great for succession. Jason, when Buffett talks about the stocks that he's looking to buy more of, it's not exactly state secret stocks.

We're not talking penny stocks here. It's Coca-Cola, IBM, Wells Fargo, American Express. does that does that do anything for you as an investor do you look at that and and think increasingly about buying those shares or is that just buffett and his world yeah that's certainly within his circle of competence you know he and charlie munger talk a lot about that investing in companies they know and understand and that's certainly something we espouse the motley fool too i think that there's a perception out there that the tougher the investment thesis it must be a better investment and if i can't understand it then wow it's got to be a really a great

investment it's gonna return a lot of money and that's just not really the case and so we we don't have any problem at all taking the too hard to invest in and throwing them out there and just finding those sort of easy little hurdles to step over. And so that's, you know, we're used to seeing that from Buffett time and time again. And I would expect to see the same once he hands the reins fully over to Combs and Westler. What had been the worst kept secret in the media industry was made official this week when News Corp announced the launch of Fox Sports 1, a national sports network uh charlie given the cash cow that espn has been for disney um to what extent are the people at disney and espn at all nervous about this and to what extent do they just say you know

what we're espn we're fine uh espn is by far the most valuable station on cable so i think they're okay for the time being but if you've seen the success that fox sport has had on fox particularly with the nfl uh this is a very serious channel that they are developing uh they have college basketball and football rights. They get Major League Baseball. So they have very valuable sports that people want to watch. Sports is the only part of the traditional broadcasting model that is not broken. If you look at what Netflix and Hulu have done to traditional TV shows, that game is over. But live sports is the one type of programming where advertisers still find it very valuable. So I think they're going to do very well here. Well, they've got the advertising

and they've also got presumably the subscriber fees. Now ESPN, I think at the moment it generates It's about $5 per subscriber. Fox isn't going to get that right out of the gate. I think it's closer to, the analysts are estimating it's going to be closer to $1, but presumably that would rise over time. When you consider the fact that News Corp, that stock has beaten the market

over the last one, two, five years, does this just sort of pad what they're already doing? Right, so the projections I was seeing, they'd started at about a buck and change on the affiliate fees, and that's going to go up to over $2. Their profits are going to explode off of this. Now that they have Regis Philbin.

Yeah, I'll be honest. I was a little stunned that at 81 years old, Regis Philbin was not only stepping back into the world of TV, but sports. Go figure. You know what? Don't bet against Regis. You can never bet against Regis. Finally, late on Saturday night, a man tried to rob a Dunkin' Donuts in West Haven, Connecticut

by climbing through a drive-thru window. Acting quickly, an employee grabbed a fresh pot of hot coffee and threw it in his face. When the man got back in his truck and drove away, she yelled after him, and I love this part, go run on Dunkin'. How great is that? I mean, if you're the CEO of Dunkin' Brands, aren't you tracking this woman down and immediately giving her some sort of amazing spot bonus? I think you have to. I mean, the fact that you have an employee out there that would actually do that, that takes a lot of initiative, a lot of courage.

And I love Starbucks, but Starbucks baristas aren't doing this. They're just not. I just don't see that in them, in part because they don't have pots of coffee. First, she threw a cup of coffee and then just started chucking pots. She's a go-getter. Yeah. Well, you know, and as investors, you know, we like to see that. We like to see passionate leadership, passionate, you know, passionate.

Does it make you a little bit more bullish on Dunkin' Donuts, Chris? I'm putting deep. That's not possible. He's already. I'm very bullish, but I'm just bumping it up my watch list. All right, guys, we'll see you a little later in the show. Coming up, a conversation with Motley Fool co-founder David Gardner. Stay right here.

This is Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill, coming to you from the Kogod School of Business at American University in Washington, D.C., in front of a live audience on stage. It was 20 years ago this summer that The Motley Fool first appeared as a printed newsletter with 37 subscribers. Today, The Motley Fool has 270 employees, a suite of premium membership services, an asset management division, and offices in Australia and the U.K. and just across the river in Alexandria, Virginia. And at the start of it all was our guest this week, Motley Fool co-founder and chief rule

breaker, David Gardner. Good to see you. Thanks, Chris. Thanks, American University. Because I've known you for a long time, I know that that other, you know, you're the co-founder of the Motley Fool, but it's that other title, chief rule breaker, that I think you especially like. And that's because you like rule breaker stocks.

For the uninitiated, what is a rule breaker? What defines a rule breaking company? And what are a couple of examples of rule breakers? Rule breakers are the companies that are often led by visionary CEOs and early management teams. Often they're funded by Silicon Valley. And they are big game changers. They are the impact players of the present and the future. So one of the great rule breakers of our time, I think, is Amazon.com.

It started as a Rule Breaker all the way. It became a public company in the late 1990s. It was Earth's biggest bookstore back then. I still have my mouse pad, Earth's biggest bookstore. It looked overvalued, but part of the beauty of finding Rule Breakers is whenever you do buy a Rule Breaker, it looks expensive. It often doesn't have profits to justify the multiple that you may see it trading at. And yet, if you're willing to just close your eyes a little bit and think about the future and not look so much at the present, you end up finding, I think, the great businesses of our time. So I like to say that Rule Breakers are the companies that we all realize now we should have owned five years ago and we should probably be buying them today because what they become in the next five years is exciting.

How do you separate those out, though? Because as we were both around at The Motley Fool in the late 1990s and then through the dot-com bubble, there were plenty of pretenders out there. So how do you separate the Amazon dot-coms from the pets dot-com? Well, I think that Warren Buffett has helped us all when he reminds us of the three I's of every cycle. So the first I is the innovator. That person comes first. The second I is the imitator. This is the person who is imitating what the innovator is doing. and the third eye is the idiot and that's the person who somehow managed to get venture capital money as well and also has the website or the business that is trying to mimic the imitator so yeah there were a lot of innovators anytime you have a new technology you're gonna have an incredible efflorescence of new opportunities people business models and some of them are gonna fail that's part of a venture capital mindset that you have to adopt if you're gonna

going to be a rule breaker investor. But, you know, I've always stayed focused on the innovators. The imitator would be like buy.com, which I think, is it still in business? Has anybody bought anything from buy.com? Yes. So we have some hands up here at the Kogod Business School here at American University saying yes, still buying from buy.com. So still out there. I don't even remember some of the idiots, but I think pets.com might count as one of them. But the businesses that aren't around today, Chris. So I think if you just stay focused on who is the visionary in the industry, and you tend to stack your money up with those people, you're going to avoid a lot of mistakes. I read something you wrote recently about investment books.

What surprised me a little bit was people frequently ask you for recommendations on investment books, and you basically said, yeah, I don't read investment books. You're more of a business book guy. What do you get out of business books that you don't really see that you might get out of an investment book you know i think that if you are investing as we do at the molly full you're buying businesses i almost wish the word stock didn't exist and stock market because it disconnects many people from realizing the essential thing that's going on there which is that you're becoming a part owner of another company and uh you know a lot of us are in touch with it if you have a family business or small businesses we all kind of get that but for some

reason people start talking about stock and some people start going crazy they they think that they're flipping pieces of paper. They don't even have any awareness of what's happening with the business. Many people, computers these days are trading via algorithm, really don't know the businesses. So Chris, you know, I've always felt like I've been well rewarded for understanding business, learning more about business. We're speaking at business school tonight, so I think we have some kindred souls in the audience. If you really study what works in business and just become a part owner of that, I think you're going to outperform most of the mutual funds out there. And a lot of the people that are often quoted on every show, except the

Motley Fool radio show. Um, what are a couple of books that you would recommend? We've got a bunch of students in the, uh, in the audience, um, whether they're about individual business leaders or business philosophy. I know you had the chance to visit with John Mackey, CEO of the, the founder of Whole Foods recently and his push towards conscious capitalism. Well, that, that book is a wonderful book, Conscious Capitalism, which is a 2013 publication. So if you want to read something that is really great and that gets you thinking in a new way about what business should be, and for some of the best stocks of the last 10 years, what business has been, I would recommend Conscious Capitalism. You know, I love lots of different types of books. So books on corporate

culture, a book like Mavericks at Work by Bill Taylor and Polly Labar is an excellent book, just giving you a window into some innovative workplaces and seeing how that feels and what that looks like. Because that's what you're buying, by the way. You're buying those workplace cultures. Those are the things that persist the next five or ten years if you're investing as we are. I love Seth Godin. He has a great blog, Seth's blog on the internet. He's a marketer. He's probably one of the marketing visionaries of our time. Moneyball is a wonderful book. It's one of my favorite books. I've still never read it. Wait a minute. I'm sorry. It's your favorite, one of your favorite books, but you haven't read it? It's one of my favorite books. I still have

not read it, but I know. I don't think you get to claim that. And there's, I hope this doesn't sounded all egotistical, because it really isn't. I'm in awe of Michael Lewis, the author, and Bill James, who I had a great phone conversation with three weeks ago. But I feel like I know the Moneyball story so well that I kind of skipped that one. Of course, I also got to watch it on the silver screen, as many of us did too, so it makes it easier not to read the book. But truly, it's a wonderful story, and I'm such a big Bill James fan, and I've written about baseball statistics in the past. It's not as interesting today because the revolution's already happened there. But what you see in Moneyball is, I think, what should happen with

the stock market. People should be looking at new numbers and thinking differently about what works in investing and in business. And so baseball's been figured out. I'm happy to say I still don't think really the stock market has been. What is a metric? And there are certainly any number of metrics that investors can look at when they're trying to evaluate a business. What is a metric that you think uh is overrated um i i think the price earnings ratio is overrated uh price earnings ratio is uh thanks i was not expecting any applause but um price earnings ratio is is a great rule of thumb kind of like batting average in baseball for baseball fans you hear it as a kid growing up and you think you know okay a good batting average is over 300 um and then i

think you hear something like this as a young investor you know look for a stock with a low PE ratio, or it's trading at 24 times today, therefore it's more expensive and not as good as when it was trading at 18 times two years ago, let's say. And I think that that's very misleading. And the reason is because so much more is packed into the company, the business that you're buying than the multiple off the trailing 12 months earnings. As an example, let's go back to Jeff Bezos at Amazon. So on top of the earnings, whatever earnings or cashflow amazon generates i would add you know on the bar graph i'd stack another chunk on top of that and that's the value of having jeff bezos running that company and you could take the same industry and

take a different company and i think that whatever their earnings or cash flow is i think you actually subtract a portion of that bar graph if it has a poor manager in fact i think a lot of ceos in america are subtracting from the e even though if you're just using the e especially if just screening for numbers. You're not really seeing that. So that's just one simple, silly example. Who's actually running the company? And I think the reason that this approach to investing has worked is because there is no way to express that numerically. So people tend to be highly numerical when they're investing. They're very left-brained. And if they're not, their computers are. And computers are doing the mass amount of trading today. So you end up missing all of the

right side of the brain. And you miss up all the soft stuff that really is what works in business. two years ago you were on the show and one of the things you talked about in terms of emerging technologies was 3d printing um and you look at the performance of 3d printing stocks over the last couple of years and they've they've been tremendous particularly among market leaders like stratasys and 3d printing uh or 3d systems i should say so now i'm just gonna look for the next great thing out of you so when you look at the way technology is going where do you see it going right now well i think you have to first of all just look at the zeitgeist you have to step back 50,000 feet and look at your own era and your age and ask, where is the real value being

created? Where is the real innovation? I think if you do that, I continue to see the internet being the single most important technology of our time. It's just amazing. The earliest interviews I did for The Motley Fool, CNN, you know, coming back, we're going to have David Gardner, a co-founder of somebody called The Motley Fool. He says that people are going to use their credit cards on the internet back after this and you know it's funny to think about but truly my early interviews were just i was an apologist for e-commerce you know this yes i think people will use their credit cards in the internet but that's that's how that's where we were back then in 1995 how'd that work out by the way i mean i guess i wish i'd bought even more amazon um but

so so you know the internet remains um the next big thing in so many ways 3d printing absolutely is. So I'm not going to change my tune off 3D printing because just two years later, it would be as if we were talking first in 1995 and I was saying internet. And then you asked me again in 1997, I'm not going to change my tune just because it's two years later. It's still so early for additive manufacturing. And that's just one of, but to try to get to a better answer, because I'm sure I should say something exciting now. I think that everything from self-driving cars to, which I had a great conversation with Bill James about, he's a huge self-driving cars fan, and we may not have time to talk about self-driving cars today, and most people when they first

hear it, it sounds just totally crazy, but really revolutionary, very interesting how much safer and better our society can be, how little we'll be driving our kids around soccer games as much 20 years from now, your kids, but that right through to just amazing medical achievements that are happening on almost a weekly basis. So I think the real story of our time is an accelerating amount of technology, huge capital being deployed globally, increasing capitalism globally, and more and more freedom happening. And so it's becoming increasingly difficult even to identify and say there's one technology, plastics, as we all remember from the graduate.

It's not plastics. We're not in a world where it's one thing, internet or 3D printing. actually having a mind alive and willing to take some risk and picture where we're headed and being an optimist more than anything because it's very hard to do in a world where our media is so infatuated with whatever's going wrong to miss the incredible stories of our time like the decline of violence Washington DC is far safer far safer today than 30 years ago when I as a DC native was 16 years old and we're all we're not noticing that we're just

looking at whatever the latest bad headline is so I think that helps us as investors if you're just willing to believe. He's the Motley Fool co-founder and the chief rule breaker, David Gardner. Thanks for being here. Thank you. Coming up, stocks on our radar, live from the Kogod School of Business at American University in Washington, D.C., this is Motley Fool Money. You've got a friend in me. 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. Back on stage with me, Ron Gross,

Jason Moser, and Charlie Travers, live from the Kogod School of Business at American University in Washington, D.C. And guys, it is time for the Stocks on Our Radar, but the fun is, it's not your radar, it's their radar. We've got three students we're going to bring up. Let's start with Nick Marone from American University. How are you doing, Nick? Good, how are you? I'm doing well. I'm doing well. Thanks for being here. And what's the stock you have on your radar? This week on my radar, I have AIG, ticker AIG. They're trading at a low price to earnings multiple if you want to talk about those again their price to book is about point

six one which is kind of low for the industry but if you want to talk about AIG as a company they've really improved their balance sheet a lot since 2008 and all the stuff they had on there before they've moved a lot out of the risky financial insurance that they were in before and back into the the traditional insurance model and they're getting some pretty good returns their earnings are up overall and I think you just got to look at them as a good company improving and coming over the hump that that bad brand AIG had in the past, there'll be a stronger company for it in the future.

Nice pitch. Ron, a question for Nick about AIG? Yeah, thank you very much, Nick, for doing this. We really appreciate it. Earlier in the show, we talked about really well-run insurance companies like Berkshire, Geico, a subsidiary of Berkshire, Markel Insurance. These companies make money on both the insurance side of the business as well as the investing side.

AIG has a combined ratio of over 100, which means they actually lose money on insurance. and make it up on investing. Is that loss, is that important to your thesis here? Do they need to make money on insurance as well? Something I think we need to look at when we look at insurance and the industry as a whole is that it's not in the best place it's ever been.

It's kind of low, especially with low interest rates from the Fed as well as other things going on in the markets. And as insurance comes back, I'm sure that's something that the market will work out for AG. Thanks very much. All right, up next from Georgetown University, Carlos Roa.

Carlos, what stock do you have on your radar? I have Krispy Kreme donuts on my radar this week. It just broke its 52-week high. It is probably one of the best turnaround stories I've seen so far. Ten years ago, it was the hottest company, as in literally Fortune magazine cover, this is the hottest brand in America. Four years ago, it was being shorted and squeezed to oblivion

after the recession, trading at a low of $1.04 a share. Now it's back and again it's all-time high of $15.08 a share. What I like about it is that it has plenty of room to grow. The coffee and snacks business sector in the United States, 36% of that is Starbucks, 25% is Dunkin Donuts, and only 2.6% is Krispy Kreme. And the best thing is there's still plenty of growth internationally in Latin America they don't barely move is that nothing in Europe and apparently they managed to break through the cultural divide in

Asia and the Middle East so why I see there's plenty of growth and win and who doesn't like donuts I mean really who doesn't like donuts Jason question about KKD I think we all love donuts I mean I grew up in Charleston South Carolina so Krispy Kreme is was kind of like a religion down there but one thing I noticed with Krispy Kreme they have about 85% of their stores are franchised today which with a bigger company like starbucks i'm not too terribly concerned with that i wonder though if you have a feel for the management and the culture that they're trying to create there because one of the concerns i have with heavy heavily franchised

models is that they they lack some of the control uh that that company owned models made do you have a feel for the culture and how management's running the show there somewhat one of the failures the company had which led to their stock price crash a few years ago was that they didn't help market the franchises enough now they're paying attention to that and fixing that up I think they're marketing is more of a this is an original American product we make me donuts and it tastes good enjoy it it's great stuff thanks coming up third from American University Carlos Sanabria Carlos what do you got for a stock so the stock on my radar this week is cool

and Sofa Industries Incorporated. The ticker is KLIC. Coolick and Sofa, for those of you who aren't familiar with it, produces equipment used in the manufacture of semiconductors. Household name, just like Krispy Kreme, I'm sure. I know Ron will love Coolick and Sofa because I know he's a value guy and they have some fantastic multiples. Price to earnings is 5.5. You adjust that for their great cash position, which I'll talk more about in a second. Their cash adjusted P is 2.4. They're trading at 1.3 times book value. Another great thing about Kulik and Sofa is that they recently completely deleveraged their balance sheet,

paid off all of their debt. It's a very important thing in a cyclical industry like semiconductors. They also have almost a $500 million cash position, which puts them in a great place to invest in the future and catch up with increasing semiconductor demand, particularly in Asia markets. It sounds a little bit, though, like a primetime drama on TNT, like mismatched detectives, Kulik and Sofa. Charlie, question about?

Yeah, so as shareholders, we are the owners of the business, and the CEO and CFO are our employees who are the stewards of our capital. And in a volatile industry like this, how comfortable are you with the people running the show? Yeah, I mean, the CEO, Bruno Gilmart, I'm not sure if I'm saying his name correctly, Bruno Gilmart and the CFO, Jonathan Cho, they've both been on board since 2010. One thing that they really pushed for since they came on board and which they found success with is in the cost-cutting, is in the cost-cutting factors, particularly in a volatile industry. This is going to be important during the downslopes to help keep the company in great shape.

I think they've done a great job of that, and that's just another factor that makes Kulik and Sofa a great buy. All right, thanks, Carlos. All right, guys, three good pitches there. Ron, you got one in particular you like? I'm going to go with AIG. I think it makes sense. All right, Jason? My heart's still in Charleston.

I'm going to give Chris a green shot. Charlie, what about you? I like going with a semiconductor company out of Singapore just because I think a lot of American investors don't look overseas and there are great businesses around the world. All right. Charlie Travers, Jason Moser, Ron Gross. Guys, thanks for being here.

That is going to wrap up this edition of Motley Fool Money. The show is mixed by Rick Engdahl. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. Thanks to our host here at the Kogod School of Business, American University. We'll see you next week.