Motley Fool Hidden Gems Investing - Motley Fool Money: 04.20.2012

Episode Date: April 20, 2012

Our analysts discuss the latest earnings news from Coca-Cola, Chipotle, GE, Intel, McDonald's, and Microsoft.   And we talk with CNBC's Carl Quintanilla about the new CNBC documentary, The Costco Craze:  Inside the Warehouse Giant. Learn more about your ad choices. Visit megaphone.fm/adchoices

When WestJet first took flight in 1996, the vibes were a bit different. People thought denim on denim was peak fashion, inline skates were everywhere, and two out of three women rocked the Rachel. While those things stayed in the 90s, one thing that hasn't is that fuzzy feeling you get when WestJet welcomes you on board. Here's to WestJetting since 96. Travel back in time with us, and actually travel with us, at westjet.com slash 30 years. Welcome to Motley Fool Money. Thanks for being here. I'm your host, Chris Hill,

and joining me in studio this week from Motley Fool Inside Value, Joe Mager. From Motley Fool income investor, James Early, and for Million Dollar Portfolio, Ron Gross. Gentlemen, good to see you. And good to see you, Chris. We have got, it's earnings season, so we've got earnings from Microsoft, McDonald's, Morgan Stanley, and that's just the M's. We've got Carl Quintanilla from CNBC talking about his new documentary on Costco. And as always, we've got a few stocks on our radar, but we will begin with the big macro. Since we're deep into earnings season, it's an earnings

themed Big Macro this week. A snap from our own Ron Gross. Of the 103 S&P 500 companies that have reported earnings as of Thursday morning, 82% of them have beaten Wall Street's expectations. For context, the last quarter, that number was just 59%. Ron, I'll start with you. What does that say to you? Ron Gross. Well, in fairness, that was stolen from the Wall Street Journal. I don't want to claim credit for that. But what does it say to me? It says that analysts had ratcheted down their expectations on purpose. They were being conservative. And companies are exceeding those expectations, which is good. It's better than the alternative. But it doesn't speak to

even whether profits are up or down, revenues are up or down. It's just about expectations. We need to look at companies individually, one at a time, to figure out what's going on. James? And the question I think investors are asking is, what does this mean about pricing? I mean, the earnings are good, no doubt about that. But we are basically smack dab at the market average on a trailing 12-month price-to-earnings basis, but if you look at an average of the last 10 years, which a lot of people do to smooth out cyclicality earnings, we're on the pricey side, more expensive than most times. So, is that a bad thing, Ron Gross, I ask?

Is it a bad thing? Again, I'm a company-at-a-time kind of guy, so I can't make decisions based on the aggregate. Joe, what do you think? Yeah, I don't put too much stock in macro numbers, but I love this segment. Yeah, I agree. It's a nice sign to see all these numbers coming in ahead of pace, and I've definitely been seeing it in the companies I follow. There's a lot of strength there, a lot of optimism from managers, and it feels good. Listeners should know that in the short term, on the day or the week, stocks do trade versus

expectations. That's why stocks are up, for example, Microsoft, up nicely on beating expectations. But in the long term, it's about profits and cash flow generation, and that's what you really should focus on. And you just use Microsoft as an example because you own it, right? Correct. And we own a million-dollar portfolio as well. Speaking of Microsoft, PC sales for Microsoft were better than expected, and as Ron said, not surprisingly, so were Microsoft's profits.

Ron, you've said in the past in this room, Microsoft is a stock that is priced for zero growth, and now, based on their latest earnings, it appears that we've got some growth. Exactly. That was always our thesis, that it was priced for very low growth. Now, we bought it 25% ago. The stock is up 25% since we purchased it. So, we can no longer really say that. There is now some growth priced into that stock. But when you see Windows up 4% and Office up 14%, you do have growth there, top and bottom line. Xbox is weak. Not everything is going perfectly for them. But the company is growing, and therefore, we think the stock

still has room to run, probably $40 per share or more, from where are we now, about $32, $33? $32. You know, we've talked a lot about Microsoft, one of their big partnerships, and that's with Nokia. Nokia also reported earnings earlier this week, and frankly, that stock just continues. Not quite as good. Yeah, not quite as good. I believe the stock is now at a 14-year low. Joe, we were talking before with the taping. At some point, does Nokia get into so much financial trouble that it makes sense for Microsoft to step in and buy the company outright? Not just yet. Right now, Microsoft's got a pretty sweet deal with Nokia, where they

pretty much have avoided having to buy the whole thing, but they're getting their operating system on all of Nokia's phones. That's really what they want out of the relationship. Now, if Nokia ends up with this alcoholic spree and it keeps crashing and it has to get bailed out from rehab. O' What alcoholic spree? I don't know. It seems like what's going on over there, judging by the phone quality. But at this point, I think the only reason they'd go in and buy the whole thing is for the patents. And Nokia does have a lot of patents, and Microsoft's strategy in mobile seems to be, try and make something work with Windows 7, but if it doesn't work, we're just

going to get a lot of patents and try and license war the crap out of everyone else. Some real recent news that I think the stock may be reacting to, Microsoft stock, is that Verizon Wireless came out and said they're going to push Microsoft's next mobile phone software in the future to compete with Apple and Google, and they expect to have phones based on the new software by the 2012 holiday season. That's new for Microsoft, and I think pretty good news. Just to close out on Microsoft, are trading at around a three-year high. You still like it? Yeah, I think 40-plus. Yeah, I think we've got 20% upside at least.

eBay's first quarter profits up 20%, better than Wall Street was expecting. Shares were up 15% earlier this week, Joe. This is one of your stocks. It is. Let me guess, PayPal did well? It sure did. PayPal revenue was up 32%. They keep adding a million new users a month at PayPal. PayPal, it's not just that more people are using it, they're using it more often. About a quarter ago, it was used a little more than four times by each user each quarter, and now it's up to five. That's really the sign of a network effect, really ratcheting up.

You can see that with sales, 32% boost. But the marketplace business is doing well, too. It actually had a low double-digit gain. A lot of people had written off that business, put them together, and you get some great results. The original intent of PayPal was to put sovereign currencies out of business. How's that going? Should have changed a little bit, but now it's just this frisky little thing. We're on our way. Yeah.

I was going to say, I don't know if that's why the Euro is having the trouble that it's having, but you never know. Joe, shares of eBay trading around a six-year high, still a value stock? Yeah, I'm still a big fan. I mean, they grew their top line by about 19%, so organic sales growth of 19% in the last quarter. It's selling for around 18, 19 times this year's earnings estimates. That's a pretty attractive proposition, and I think you're going to see PayPal spun off in the next year or two, that's going to unlock even more value. Intel's first quarter earnings fell 13% as spending on marketing and research rose.

James Early, it's an income investor recommendation. What's the story? It is, Chris. The good news is business was just plain slow. That sounds awesome. As opposed to ARM Holdings, they're fighting this mobile war, and they've actually been getting some long-term traction in their chips being competitive in that dimension. So that's the much bigger concern for the long-term investor. So this was just kind of slow sales. PC sales, according to Bloomberg, actually declined in the U.S. for the first time in more than a decade.

Europe was slow. So they're just slow. Their gross margins took a hit. This is just plain slow business, which is not great, but it's better than kind of the worst problem Intel could have right now. And, Joe, we also saw other chip makers, AMD, reporting earnings earlier this week, Qualcomm, which is a company I know you follow. When you look at this industry, what do you see? Well, there are a lot of shifting dynamics here. where we're moving more towards a mobile-centric world, that's where the money is ultimately

going to be made, and Intel's having a tough time bridging that gap. See, Qualcomm's absolutely killing it. Sales were up 28%, but the stock fell. Getting back to what Ron was talking about earlier, it's all about expectations in the stock market. You can grow your top line 28%, but if your stock is priced for more than that, it's going to fall. I actually sold my Qualcomm shares a couple of weeks ago on valuation, so nice little bullet dodge. James, Intel, AMD, Qualcomm, you sticking with Intel of those three? I am. Intel's a dividend champion in that group, and that's kind of my speed. GE's first quarter profit fell 12%, but Wall Street was expecting worse. Shares were up

on Friday. Ron Gross, what do you think? If you strip out pension costs and just look at operating income, operating income was actually up a bit, and I think that's what the street is focusing on. The industrial business was up 14%. The energy business, which has been struggling, was up 18%. And I think people really like that. On the negative side, industrial margins were challenged a bit. But the company seems to be doing pretty well. Moody's did recently cut their credit rating, but they said they haven't seen an increase in their cost of borrowing as a result. So, we'll see if Moody's and the other credit rating agencies have any real effect here

on the business. But for the most part, things look pretty good. O'Reilly. You're quite the GE guy. I didn't realize you followed it so closely. You mentioned stripping out the pension costs. How big an issue is that going to be for General Electric going forward? O'Reilly. It's definitely a big issue, so I don't mean to diminish it by saying, let's just strip it out and forget it. These are real costs, real money out the door. But if you want to get an understanding of how is the business doing, then as an analyst, you can strip it out and just take a look.

O'Reilly. I didn't realize you were cool with stripping that out. Every time I pitch you I'm not stripping it out from a valuation perspective. Every time I pitch GM to you, you're like, oh, the pension. It's too much. It's too much. As I said, it is cash out the door, and you must account for it when you value the stock. But it doesn't have anything to do with whether a company is selling its widgets or not, selling its cars or not, selling its energy products or not. And we want to look at both things. I'm glad James Early is sitting between the two of you.

Stripping. A bunch of big banks reporting earnings this week. Bank of America's earnings fell, while Morgan Stanley's earnings far exceeded expectations. James, I know you love the big banks, if only for entertainment purposes. It was a titillating week, Chris. A couple headlines, pretty good results overall. Remember, though, they're coming off a pretty good backdrop given to them by the U.S. government. So I think I would expect better. The market was probably expecting better. We didn't see anybody's stock soar quickly. Bank of America, U.S. Bancorp, Citigroup, Wells Fargo, these guys all reduced

their loan loss provisions pretty heavily, and when you do that, you basically say, okay, we think more people are going to repay these loans. You get to add that money to your earnings. That helps. For the other ones, Morgan Stanley Goldman, these guys did pretty good on the trading, bond trading especially, but the other story, kind of the evil elephant in the room, these DVAs, these debt value adjustments, and basically, as these companies do better, as the market thinks they're more likely to pay back their debt, thanks to a bizarre accounting rule,

they actually have to mark up that value of the debt, and that reduces their earnings. So I think Bank of America took a $4.5 billion hit, Morgan Stanley a $2 billion hit. Bottom line is it's getting harder and harder to actually see what's real operations and what's goofy accounting adjustments with these banks. I'd heard previously of the elephant in the room. I didn't know he was evil. This is a very evil elephant, Chris. Bizarro elephant. Is there a big bank stock that you like, or are they all still, as we've talked about in the past, kind of in that they've got that black box element to them that you're still sort of staying away?

Among the ones I mentioned, U.S. Bank Corp., I don't know if it's a big bank, more like a super regional quasi big bank. That's the one that's a little bit safer. Coming up, we will move on to the food and beverage portion of the show with earnings from Chipotle, McDonald's, and Coca-Cola. Stay right here. You're listening to Motley Fool Money. Chris Hill. Welcome back to Motley Fool Money. Chris Hill here in the studio with Joe Mager, James Early, and Ron Gross as we dig through some of the big earnings stories of the week. Chipotle's first quarter earnings came in higher than expected as the company

opened 32 new locations during the quarter. Ron Gross, you own this. Ron Gross. Oh boy, did I blow it on this one. I sold it what seems like hundreds of ago, which probably is true, but they just continue to get it done. Profit up 35%. Same store sales up almost 13%. They had both increased traffic and higher menu prices. Everything's going great. They have the new shop house concept that I know Joe's a fan of, that I assume is going to be rolled out in a big way. They're going to open 165 new Chipotle stores this year, probably on their way to somewhere around 3,000 from 1,200 now. Everything's going great. Stock's not cheap. 59 times earnings is not cheap.

O' That is definitely not cheap. That is not cheap, but the company's doing great. O' Joe, Ron mentioned ShopHouse. That's the Asian concept restaurant. I think they've just done the one in Washington, D.C. DuPont Circle. O' You're a fan. Oh, I love it. Imagine Chipotle just with Southeast Asian food. And the food is incredibly authentic. I know this, because I just got back from Southeast Asia. O' You are very bronzed, I noticed. Thank you. My head's very pale, though. But yeah, the food is very authentic. It's delicious. And on the conference call, they

talked a little bit about the location, said the stores are comparable to the Chipotle across the street, and that the economics are similar, which is code for it's really popular. I think it's an awesome restaurant, a great concept. The only problem is, I don't think they're going to be able to spread this one around quite to the same level of success as a Chipotle, because Mexican, just at large, is a lot more popular than the U.S. But presumably, they can grow it beyond where it is right now. More than one. I'll bet more than one.

Yeah, they've got another one popping up in D.C. soon. It's hard to believe they haven't hired me yet. Shares of McDonald's up on Friday after reporting higher first quarter earnings and improved margins. James Early, I love the fact that this is one of your stocks, despite the fact that you never eat there. That's right, Chris. Tell your kids to become cardiologists. I mean, along with Apple, McDonald's is one of the two companies that's really just taking over the world, in my view. Same-store sales up 8.9%.

in the U.S., it was actually better than overseas, which is not super common. Revenue, I think, was up 8% without the currency movement. So, McDonald's is just killing it. It's got a lot of these cheap menu items and it's just doing well. It's not a complicated story. It's a simple story, but that's what makes a good investment in my view. Earlier in the week, Coca-Cola's quarterly profits up 8%. Joe, shares at a 14-year high. As a shareholder, I couldn't be more pleased. Yeah, I don't blame you. I mean, Coke's been doing incredibly well in emerging markets and with stuff outside of just cola, as we think of it. So, bottled water, that kind of thing.

Doing amazingly well. They've exported their brands so nicely. And I was in Southeast Asia for my honeymoon. And everywhere you go, and even just tiny parts, remote towns, they have Coca-Cola on the shelves. And it just shows you how early they were and how great they've done at getting the distribution channels out there. Where were you in Southeast Asia?

We were in Malaysia and Indonesia. Gotcha. Interesting. So we got three food and beverage companies here, Chipotle, McDonald's, Coca-Cola. They're all knocking it out of the park. If you had to hold one stock for the next five years, yes, Ron, even taking into account Chipotle's valuation, what are you going with? On valuation, I'm going, I think, with McDonald's on that. James, what about you? Valuation, I don't know.

You can go for any reason. Coke's going to rebound at some point. Coke's going to rebound. McDonald's, I'd like to. Wow, way to hedge. Yeah. Joe? Over five years, I'd probably go McDonald's.

Over 20, I'd go Coke. This week, Warren Buffett announced he has been diagnosed with stage one prostate cancer. It is not life-threatening. He is going to begin two months of daily radiation treatment starting in mid-July. Ron, Joe, you guys both own Berkshire Hathaway and the services that you run. Any concern here? I mean, I know that the prognosis is excellent for him, but does this give you any pause about the leadership at Berkshire Hathaway? Or rather, the succession of leadership at Berkshire Hathaway?

I don't think it does, actually. The succession plan is in place for, at some point, let's face it, Mr. Buffett is not going to lead this company. I don't think this is going to be the reason for that. He's going to make it through this, and he's going to be CEO for quite some time. But the plan is there. It's the five different guys, like all different aspects of the business, right? They'll break up the operating side and the investment side, and I think they'll get it done. Joe?

Yeah, it was jarring news initially, but there's not really any signs that this is going to stop him day to day. It might slow him down a little bit, but I'm not concerned about the business. He's got great people behind him. And, you know, remember, Berkshire is really just a portfolio company, and he's gone out and bought up companies over time that he thinks can last for a long time and almost kind of run themselves. And, you know, he's a manager who's famous for giving his managers plenty of room to run in space. So it's not like, ironically, if there's a company in America that could do without their CEO every day, it would probably be Berkshire.

But we wish him well. Absolutely. And finally, we talked recently about how Starbucks had switched from artificial red dye in its strawberry frappuccinos to an all-natural dye that just happened to get its coloring from crushed up cochineal beetles. There was some backlash from the vegan community, and Starbucks has come out with some good news. The company announced it is switching to a tomato-based extract to get that red coloring. O' That beetle lobby is powerful. I like that beetle-y flavor. O' Joe, you think this is a good move, right? Just to get the hassle behind them? Yeah, absolutely. It's not worth fighting

over. It's a complete non-issue in terms of their cost structure. Just do what it takes They've got the ever-so-eager people on their back. But does anybody here care? Ron, do you care? I mean, I don't know if you're a big strawberry frappuccino guy, but I've had one or two in the past. That wouldn't stop me from having one. It's an approved additive. Agreed.

I've never had a strawberry frappuccino, and I think I still would even if it had beetles in it. It sounds a little gross to me, but not enough to keep me away. I wouldn't eat it. I wouldn't drink it. You wouldn't? No. I mean, I do eat animals. I was a vegetarian for six and a half years, but I wouldn't kill some creature just to color my beverage.

I mean, I know I kill beetles driving on the road right in front of my car, but just for that purpose, I wouldn't do it. Steve Broido, what do you think? I don't see an upside here. I see no upside and only downside, so I say save the beetles. It's all natural. Yay. It's all natural. What about the tomato lobby?

Kill innocent tomatoes? On that note, Ron Gross, James Early, Joe Maker, guys, we'll see you later in the show. Coming up, Carl Quintanilla from CNBC takes us inside one of the great businesses in the world, Costco. Don't go away. This is Motley Fool Money. Get yourself some money and I'll come back to you. Welcome back to Motley Fool Money. I'm Chris Hill. Imagine a store that doesn't advertise, doesn't take Visa or MasterCard, and doesn't bag up your purchases for you. A store with no signs in the aisle.

A store where you have to pay a fee just to walk through the front door. Who would shop there? Well, as it turns out, millions of people every day. The store is Costco, the subject of the new CNBC documentary, The Costco Craze, Inside the Warehouse Giant. It premieres Thursday, April 26th at 9 p.m. Eastern, and it is hosted by CNBC's Carl Cantania, who joins me now. Carl, welcome back. Always good to talk to you. Good to talk to you. Thanks. Great to be here. You have worked on documentaries on a range of industries, automotive, apparel, the trash industry.

What got you interested in Costco? Well, I think, you know, we're always interested in sort of what our own viewing audience would be passionate about. Obviously, they have higher incomes. They like cars, so we did BMW. They have families and live in America. They probably eat McDonald's. At McDonald's, we did McDonald's. But when you look at the demographics of a business like Costco, it very much mirrors those that would watch CNBC, that are in the stock market.

The average member who has a card at Costco makes about $100,000, twice the national average. And we just thought from an operations standpoint, from a stock standpoint, as a cultural touchstone in this country, they have struck a nerve. And people who shop there are passionate, to say the least. And once we started digging, we realized just what a mystery it is, how they manage to get these goods into these places all around the world for as little money as it costs. And, of course, they pass that on to their shoppers. It's fascinating stuff. I was lucky enough to get an advanced copy, so I've seen it.

And it's just an amazing documentary you guys have put together. And in particular, the way that you focus on different industries, different divisions within Costco. And we'll get to that in a second. But I want to start with Jim Senegal, the co-founder, the longtime CEO, and now the chairman of the company since he has stepped down. I've sat down and interviewed Jim Senegal. You got a chance to travel with him. You got a chance to go on a death march with him where he goes into a store and one by one he's ticking through the items. What is that like?

What is it like to go on a death march with Jim Sinegal? It's exhausting. Exhausting is what it is. I mean, you really do lose sight of the fact that this guy is 75 years old and he's on the road 200 days a year. And I asked him, we were on the jet, right? We're on the Costco jet, where the tail number is the year the company was founded and CW, I think, for Costco Warehouse. And I said, why wouldn't you delegate this gig? I mean, you can have operations guys in the field, regional managers go in and check on stores, the way a lot of big box retailers do it.

But this guy has been in retailing since he was 18, when he loaded mattresses for another discounter years ago called FedMart. and this is i mean that's just it's in it's literally in the blood it's literally his passion and watching him go to these stores uh almost all five six hundred of them every year at least once um and no managers by name ask why this milk is there's a sign that says it's this much whereas another sign says it's this much um it was borderline terrifying to know that a guy who's 75 can have that much information in his head. You spend time with Senegal, but we meet in this documentary, we meet other executives, other product managers, and people talk about the imprint that Steve Jobs has left at Apple, but it seems like everyone you meet in this

documentary is a mini version of Jim Senegal. They are incredibly focused, they're incredibly disciplined, and they are as focused on the value proposition for customers as cynical. Is that, I mean, did I get that wrong as a viewer? That's just how it seemed to come across. Yeah. No, we profile a couple of buyers, for instance. One is in charge of buying wine and alcohol, spirits for the company. They sell a billion dollars a year in spirits and wine, one of the biggest retailers of wine in the world. She started out years ago as an administrative assistant right so obviously steeped in the in the managerial culture there moved on to buying audio equipment is now in the wine world and was recently called one of the most powerful women in

the world of wine um the product category is almost secondary to the the discipline you're talking about the idea that i have a good it sells for x amount of dollars in my store how can i lower the cost and sell it for X minus 1% or X minus 10%. Most retailers say, hey, I've got something to sell. I want to get the biggest price I can on the market for it. These guys say, I've got a product. How can I sell it for less? It's almost the inverse of what retailing usually is. But that's the way they've convinced consumers that they're on the lookout for you. They're your advocate. And that's why you're paying 50 or 100 bucks a year for the privilege of shopping there. In the documentary, we are also introduced to Craig Jelinek, who is the new CEO.

I think it's fair to say that CEO transitions are difficult for any company. How should people, whether they work at Costco or they're shareholders, how should they feel about Craig Jelinek being at the helm now that Senegal has stepped down? Well, it's obviously going to be uncertain, I think, for a while. To start with, these guys have worked together for a very long time. Jelinek was almost there from day one, so he knows the culture inside and out. He knows the company and how it works, how it's grown. But Senegal will be the first to tell you that cultures evolve over time.

One day he won't be on this planet, and there'll be someone who never knew him running the company. And so his big passion at this point is making sure that the things the company stands for will last over generations. He always points to Sears, for instance. He says, you know, when I was a kid, I got all my clothes from the Sears catalog. As we now know, Sears is in deep, deep trouble and facing a real crisis. So his point here is to just try to set the sails so that it doesn't veer very sharply from what it currently is about. And that's where that price discipline is key, obviously. You're listening to Motley Fool Money, talking with Carl Cantania about the new CNBC documentary,

The Costco Craze Inside the Warehouse Giant. It premieres Thursday, April 26th. For viewers who watch this documentary, there are just some counterintuitive things that this company does. You would think that more items would be better than fewer. You know, the fact that they pay their employees, you know, the average wage is around $20 an hour. And, you know, the fact that they don't bag up your items for you. I mean, where does that come from? Is that all Senegal, or is it more than that?

Well, when they started, I mean, the warehouse model years ago really was about selling to small businesses, right? You're a small business. You need to buy coffee cups and coffee and paper plates, things like that, tinfoil. And you need to buy it in large quantities. And I think over time what's happened is the American household has become sort of your small business. We all run one. We're all trying to make it operate for as little money as possible. So that sort of mentality has stuck with them.

Keep the number of items relatively small. Keep the cost low. But you're right. Culturally they pay, you know, what, average salary there is $20 an hour. It's higher than average. Ninety percent of their workers get health care. So as a result, they have one of the lowest turnover rates in retailing. Those are habits from, you could argue, a bygone era, but they think still holds them in good stead.

And it's almost counterintuitive to the way some retailers might operate, but so far it's working for them. You're listening to Motley Fool Money, talking with Carl Cantania about the new CNBC documentary, The Costco Craze Inside the Warehouse Giant. What surprised you the most when you were working on this? I think the length to which they will try to keep a price stable. We have a good example in there of their hot dog, right? A $1.50, right? A $1.50, not just for the hot dog, but for a hot dog and a Coke.

So years ago, I mean, that's the price it was in 1985. And over time, their hot dog supplier said, Hey, I can't keep selling you this hot dog so that your price point is $1.50. I've got to raise my prices. They resisted and resisted and resisted. And when push came to shove and one of them was going to lose, Costco said, you know what? Forget it. We will learn how to make our own hot dogs.

They acquired a plant. They basically went to hot dog making school. And now they are their own in-house supplier. And the cost is still $1.50. They swear, and we have no way of confirming this, they swear they never sell anything at a loss. right? They don't have loss leaders the way some supermarkets, you know, take a loss on milk just to get you in the door. But that's almost a sort of Rain Man obsessive compulsive fixation on price that I don't think I'd ever seen before in any kind of American business story.

Well, you just touched on one of the other things that comes across in the documentary, And that is the extent to which other companies, other vendors are willing to work with Costco. You see it in you see it on their faces, whether it's people who make wine or the toy makers. You know, one of the areas you focus on is the toy division, which Costco says it's looking to grow. And you see these toy makers who are just constantly saying, well, we'll work with you. We'll do whatever it takes to make this work, because at the end of the day, Costco just doesn't have that many toys in their store. It's amazing. I was out the other night, and I ended up sitting next to someone just by chance who works in the cashmere business.

And I mentioned I was doing this story on Costco, and she rolled her eyes and said, oh, my gosh, Costco. They look over your shoulder more than any other retailer, she said. But they are going to be there to make sure your packaging is right, your materials are right, your pricing is right. If you and I had a toy company, right, if it was Hill Kingtonia Toys, we probably would put up with it. We would put up with it because the upside to selling that kind of volume is a game changer. It would be a game changer for our business. So you've got toy makers, you've got wineries, you've got big consumer products companies who are like, okay, come on into our plant, make sure you're happy with the way we're producing toilet paper,

and we will deal with it because we need the revenue. Coming up, a round of Buy, Sell, or Hold with Carl Cantania, and we'll give you our weekly look at the stocks on our radar. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill talking with CNBC's Carl Quintanilla about the new documentary, The Costco Craze, Inside the Warehouse Giant. One of the things that you do in this documentary is you're there with the different product managers and different sort of business unit leaders. The guy who heads up their toy division, the woman who's their wine buyer.

You go in the lab testing the Kirkland Signature brand toilet paper, which is, of course, Costco's. that's their in-house brand, Kirkland. I'm curious what you think about the strength of Kirkland as a brand, because I think it's about 20% of Costco's products are Kirkland signature products. Is that something they're looking to grow, or is that something they're looking to keep right where it is? Because at the end of the day, if nothing else, it helps as leverage when they're dealing with other vendors. I thought what you were going to ask was, what do I think of the strength of Kirkland toilet paper,

which is also a big issue for them. That's their number one seller, isn't it? It is their number one selling product. They sell more toilet paper than anything else. A billion rolls. That figure sounds ridiculous, but a billion rolls last year alone. It's enough to wrap around the earth not once, not twice, but 1,200 times. The Kirkland brand, when I told people I was doing this talk, shoppers would say, oh, I love Kirkland.

Like they didn't even mention the word Costco. They went straight to Kirkland. And I think there is a growing cult of people who tried this, what basically is a generic brand, right? It's a private label brand. Tried something, was wowed by the quality, and then came back to it, and then started migrating to other products. So they try the toilet paper, and now they see that there's a Kirkland brand Pinot Noir, and they're like, well, you know what, the other product segments were good.

Let's see if they can make wine. They see enormous growth in Kirkland, and you're right. By having it, it's a huge cudgel that they can hold over the head of any name brand supplier by saying, you know what, you think your price point is low enough? look what we can do once we decide to do it ourselves or in partnership with somebody else. Our producer, Matt Greer, is on the other side of the glass right now, just stood up. He's basically dressed head-to-toe in Kirkland clothing. So there's that.

Somehow I can almost see the pattern on his Kirkland shirt. We will wrap up with a round of Buy, Sell, or Hold. This is the augmented reality eyewear project being developed at Google. Buy, Sell, or Hold Google Glasses. I'm a buyer. However, as I've said, I think it's the first step to us all looking like those guys in WALL-E, where we're in those chairs being pushed around. And very, very fat.

Yeah, that's the part of the movie I'm not wild about. This Tony Award-winning musical begins its national tour later this year. Buy, sell, or hold The Book of Mormon. I saw it last week, and I am obsessed. If you want, I can break into a version of Hello right now for you. Sure. I'm a buyer of Book and Mormon, and I was kidding about the singing. Oh, I was hoping you were going to take us to break.

He is a future Hall of Fame quarterback, and this fall he will be suiting up for your Denver Broncos buy-seller hold, Peyton Manning. I'm a hold on Peyton. I'm not sure, has anyone really gotten a good look at the neck? I mean, what happens the first time he's hit? But I'm looking at someone, I think, who knows Tennessee very well, and she's raising her eyebrows. I think there's enough concern in Denver to say that this may not be a Cinderella story. You're hopeful, but you're still a hold.

Yes. And finally, you seem to struggle with this decision in the documentary, The Costco Craze, Inside the Warehouse Giant. Buy, sell, or hold serving Kirkland brand wine at your next dinner party. the Costco wine buyer would say, pour it into a decanter, serve it at your dinner party, and see what people think. I'm a hold. I'm a hold, and maybe I'm a short, or maybe I'm a sell on Kirkland wine. Call me in a fancy Upper East Side New York snob. See, maybe when I come to the Quintanilla household, I'll bring a decanter with wine, and then you'll never know it's Kirkland. Well, that's before we graduate to straight scotch.

Exactly. You can catch him on Squawk on the Street every weekday morning on CNBC. The new CNBC documentary is The Costco Craze, Inside the Warehouse Giant. It airs Thursday, April 26th at 9 p.m. It is fascinating stuff. Watch it. Set your DVR. Carl Quintanilla, thanks so much for being here.

Thanks, Chris. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill, and back in the studio with me, James Early, Ron Gross, Joe Mager. Guys, that time, once again, time for the stocks on our radar. Think of it as pitching your stock to our man, Steve Broido, on the other side of the glass. Steve's going to pick one. Ron, you're up first. Steve Broido Well, Steve, our listeners might not know this, but you're pretty much a snappy dresser, rather dapper kind of guy,

so I've picked Perry Ellis for you, ticker symbol P-E-R-Y, small cap company. Struggling a little bit lately in some of their product lines. Looks really cheap to me, 50% upside from here. All right, James Hurley. Steve likes complicated investments, so I'm going to pitch him AFP Pervita. The ticker is PVD. It's also a global gains rec, basically. 30 years ago, Chile was this third world country ruled by a ruthless dictator who said, look, let's modernize. Let's go get Milton Friedman, the best economic minds. We'll just do whatever you tell us. So he said, first thing you got to do is privatize your social security. So this is one of the companies that got set

up to help privatize this Chilean social security system. They make big profits, pay around 8% yield. I see 13% upside in this stock. The ticker symbol one more time? PVD. PVD. Joe Mager, your stock? Steve, this is an idea you've heard from Ron before. It's Aon. It's the world's biggest insurance brokerage, and they also do HR services. The company's worth about $16 billion, and they announced this week they're upping their buyback program to $5 billion. So, they're

buying back roughly a third of the company, and they also raised their dividend for the first time in about a decade. Insurance pricing strengthening. Looks like earnings have a long runway. We'll have the buyback program. Steve Broido, you've heard three stocks. Which one are you leaning towards? For full disclosure, I have a family member who works for Perialis. So I will have to go with Perialis. Just kidding. 8% dividend sounds pretty sweet to me. I think that would be where I would be heading. Did I mention you were a snappy dresser? You did mention that, and I appreciate that, Ron. But 8% is...

I've got a lot of ties with that. I got to ask, do you get, as a family member, do you get a little bit of a discount? There's no. I'm sure that could be arranged, though, if I were enterprising enough. What about for Ron? That would be a conflict of interest. We own the stock in deep value, so no, I'm good. That's too bad, because ... You can use some help. You can use it, yeah.

All right. Joe Mager, James Early, Ron Gross. Guys, thanks for being here. Thank you. Thank you. Thanks to our guest this week, Carl Quintanilla from CNBC. You can check out CNBC's new documentary, The Costco Craze. It premieres on Thursday, April 26th at 9 p.m. Eastern. Check it out. It is fantastic stuff.

That is it for this edition of Motley Fool Money. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.