Motley Fool Hidden Gems Investing - Motley Fool Money: 06.05.2009

Episode Date: June 5, 2009

It was another good week for the market. Is it a sucker's rally or a real recovery? Are there still some bargains to be had? Will Google's new Wave swamp Facebook? What’s in store for Wal-mart and other retailers? Can Playboy's new CEO make the bunny multiply? In this week's installment of Motley Fool Money, we'll tackle those questions, share 3 stock ideas, and air a few beefs. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Jason, Shannon Zimmerman, and James Early. Guys, thanks for being here. Happy Friday, Chris. All right, we've got a lot to chew on this week, guys, including the latest jobs report and whether our economy is truly on the rebound. We'll talk about GM, Google, Playboy, share three stock ideas and air a few beefs. Shanna, let's start with today's report that unemployment rose to 9.4% in May. It's the highest in 25 years. We've got some analysts saying the worst is behind us. We've got people like NYU's Noriel Rubini warning that it could be a slow recovery or that we actually could be in for a double dip. So where are you on this spectrum? Well, I mean, you have

to look at the jobs report that came out today. And, you know, in any other kind of circumstance, we would say a job loss of roughly 400,000, just slightly south of that, would be horrific. But given that the expectation for job losses was much, much higher and the trajectory of job loss seems to be coming down or softening a bit, that's been taken as good news and rightfully so. You know, we've been talking on the podcast over the course of many weeks about being dubious about the rally based on macroeconomic data that seems to be not quite as bad. It's just terrible, not horrible.

So there is something to that. You have to acknowledge some bright spots. So terrible is worse than... Terrible is the new good. Terrible is the new good. Exactly right. And earlier this week, there was an upward revision to the first quarter's productivity figure. That's important because if companies are doing more with less, eventually that means that they can do more.

And that means rehiring workers. So there are some bright spots, but certainly not bright spots that are sufficient to prop up the rally that we've been seeing. So at this point, even if you are an economic optimist, I think you have to gauge the data relative to how far the stock market has shot up. I don't think the fundamentals support that. The question is, if we get a recovery, well, it'll be when, but when it comes, how strong will it be? And all the evidence is it's not going to be that strong. So if the companies you're looking at are priced for a return to things as they were back in 2006, watch out. Yeah, the single biggest data point for me on this is mortgages and all these Alt-A, for instance, that are resetting and primes coming up.

We've already had the subprimes. They're pretty much washed the system. The next big batch is Alt-A, and then primes are more of a constancy. And with the single biggest share of wealth in the average American being in his or her home, that's going to be a pretty big factor, I think, with the economy going forward. Shannon, is there any part of the market right now that you think is undervalued? We've seen a bunch of stocks bid up here and there. Any sector looking undervalued to you?

I think consumer goods companies are a place to look and focus on right now, only because I think that is probably where, as investors really do come back into the market in waves, as there is a sustained economic recovery, that's likely to be an area that folks are going to focus on because valuations, even there, have been beaten down. And it's a place that has interesting companies like McCormick, which James touted a few weeks back, a fantastic company that we've been doing some work on this week,

an interesting kind of play on what looks like a very boring, button-down, plain vanilla extract kind of company, but it's actually a very spicy investment. We pay you the big bucks for something. All right, guys, it was week one for the new GM after the company filed for bankruptcy on Monday. Under the plan, the two biggest owners of GM will be the government, which owns 60%, and the UAW, which owns around 17%.

GM is selling or shutting down Pontiac, Hummer, Saturn, and Saab, all four of those brands, and it will focus on smaller cars and green technologies like the Chevy Volt, GM's first mass-market electric car. But, Seth, we had a little noise across the river over there in the halls of Congress this week, some stuff about dealerships being shut down and a lot of angry people over there. Welcome to your new manager's GM. There was a great article in the Washington Post, and it showed what I believe to be the case, which is there's no company so poorly run that a hill full of congressmen can't run it worse.

These people, GM and Chrysler, were being browbeat on some of the dealer closings. And so quite, as you would expect, people whose dealerships are being closed are ticked off, probably calling a congressman and congresswoman and saying, hey, you know what, you know, all this public money, why can't my dealership stay open? The problem here is that you can't have a business being run by several hundred people whose main concern is to be reelected. And you also can't have them second guessing every decision made by the managers of that company. I looked at some of the comments here and they were just ridiculous. I'm going to pick on Senator Amy Klobuchar, Democrat of Minnesota, where I come from. And this to me is an example of the

kind of thing we have to look forward to. Speaking of the closure of one dealership, she said, oh, it seems like a good location out there near the Mall of America. What does that mean? I mean, unless you're going to come and show us the numbers that prove this is a good dealership, then just be quiet. You have to make these decisions based on facts and data. Unless she's got it, unless these congressmen have it, they need to be quiet and let decisions be made by people who know the numbers. You mean the same kind of facts and data that the previous management has used over the course of many years. As I said, if you think you can improve on it by putting 500 people whose primary goal

is to get reelected, you're nuts. When was the last time a car company closed a perfectly good dealership? I mean, unless I didn't get the memo here, the whole point was that GM is a deathbed company whose cars aren't selling, no offense to GM, but they need to take drastic action. And bankruptcy is the only measure, only means they can use to do that. And obviously, if your cars aren't selling, you're going to have to close dealerships. So now they're trying to do that, and they're not allowed. To me, it doesn't make any sense at all.

What will happen if they're not allowed to is, since their government owns it, I can envision them just digging into the taxpayer pocket because it's convenient to help support some of these dealers, some of these dealerships, or any other decision that may be politically unpopular. America, welcome to what it's like to own a company with 500-some-odd managers. All right, so James is three-quarters right, and Seth is completely wrong. Oh, okay, here we go. The rhetoric and the language is unimpressive to me as well.

And I, like every sort of free marketeer, capitalist, also kind of reflexively resist government intervention in industries. At the same time, what's happening, I think that we've talked about this in previous podcasts as well, is a dismount, a sort of slow motion dismount around an industry that will eventually go away. It needs to go away. But extinction would be ill-timed right now, and it needs to be orchestrated because there are real-deal economic impacts for the communities and the ecosystem around the auto industry itself that have to be tended to now, given the fragility of the economy. Now, you can look past all that and be an economic capitalist purist, as I think Seth is. Not at all, Comrade Stalin, but who's going to make these decisions is the question. I will not have that. Let's bring it back to the investor standpoint, since this is a podcast for investors.

Five years from now, are we going to see GM as a good investment of our tax dollars? No? No chance? No. No return whatsoever. James, you're a former mechanic. No chance? It'll be a good investment for somebody.

I doubt it'll be for us. Yeah. Private money will probably get pieces of it after the taxpayers have paid off the parts that aren't any good. All right. Let's move to retail and some ugly same-store sales numbers for May. Target, down 6.1%. Costco, down 7%. Abercrombie & Fitch, down 28%.

The big winner appears to be Walmart, which no longer reports monthly numbers, but did announce it will create 22,000 jobs this year. Seth, is Walmart essentially in its own category? I'll try to be quick with this. I've always been bugged by the way writers in the business world have looked at Walmart and tried to pretend it was a bellwether for the economy or even said something about other stores because the way Walmart always looked to me is that it does fairly well during good times

and during bad times it also does fairly well usually at the expense of other stores because people are trading down. To my mind, while Walmart is doing well and other stores are doing poorly, that's a sign that consumer confidence is low and that people are looking to pinch pennies. So, yeah, Walmart is in a class by itself, and I think that you need to be really careful about what the data say there. Shannon, should companies stop reporting these monthly same-store sales numbers? I mean, what is the upside for a company?

Yeah, well, what is the upside for investors? It's like a pointless painting. You're looking at every little dot over dot, and at some point you become more focused on the dots than the big picture. So, yeah, what's the use value of that? I think it's none, particularly if you're a buy-to-hold long-term investor, as, of course, we believe you ought to be. Yeah, Shannon's absolutely right about that.

I actually like some of the same-store sales volatility, though, because when you have a company you like and you know is good, you wait for a kind of crummy report, the market can kill it, and you can pick up the shares cheap. But it's still a bad reason to have this kind of reporting. Google has provided a preview of Wave, Google's new application that combines email, instant messaging, and online forums. So, guys, depending on who you talk with,

Wave could either be the end of email as we know it, it could make current operating systems obsolete, Or it could just be something Google announced months before the actual launch just so they could steal some of Microsoft's thunder around its new search engine, Bing. What do you think, James? Chris, I wanted to hate this thing so bad my teeth were chattering because it's just, to me, I'm not an instant message kind of guy. I'm not a Twitter or text messenger.

You're just up there in your cabin in Montana. Exactly right. A long hand in my code writing against the mirror. But I looked at the thing, and it does make some sense. You can embed documents, you can embed videos and text. It's this cohesive message thread that, you know, strikingly is gradually approaching face-to-face conversation again. And, you know, well, let me point out one thing. I tried to watch the video explaining it.

I couldn't because the bandwidth, I guess, was exceeded and it was clipping. So it was very popular. The guy, though, talking about it made a point of mentioning that they gave everybody at the conference where they debuted this phones. And he mentioned that and he sort of paused for applause. So Google, it was a little cheesy. I think the debut of this, but it is a reasonable product. I don't know where it goes from there, but I'm eager to see it. Yeah, and I just have been playing around with not the preview itself,

but with a text explanation of it, and so it's sort of an old-school take on what will be a sort of newfangled technology. For me, what it seems to do is to consolidate a lot of functionality that people use in disparate ways right now, and I think it's going to out-Facebook Facebook, particularly if you can do it around sort of semi-private communities. It would be a fantastic tool. You know, Facebook wants to be sort of the number one online communications platform,

but they can't even allow you to have attachments to email. So Google's got that solved and has for a long time. I think it's an interesting prospect, and we'll see what happens when the product is finally released. And it's open source. And it's open source. I predict this is just as awesomely game-changing as Google Chat. I predict it will be ad-supported. And finally, Playboy has named Scott Flanders as the new CEO. Not Ned Flanders.

Not Ned Flanders. Of The Simpsons fame, Scott Flanders. Shares of Playboy are down more than 70% over the past five years, and Flanders says that he wants to, quote, tap the potential of the iconic bunny head brand. Oh, did he really say he was going to tap that? Say what you will about Playboy, but it truly does tap. Did you say lip sales, Chris?

It has one of the great iconic brands around the world. Wow. So how does Flanders fix this business? I can't get over the name. I'm sorry. If this weren't a family show, I would say Playboy is up against a pretty stiff competition, but I really think so. I mean, the business has changed since it started a long time ago,

and what is the Playboy brand on now, like mud flaps or air fresheners and things like that? Pretty much anything you can slap a logo on. I don't know where we go from there. I mean, it's not my industry, but Shannon may. Well, let me throw out this possibility. You look at a company like Marvel Enterprises, which went through bankruptcy and then essentially remade their business where they stopped making stuff and really just got into the licensing business.

The thing is, their 50-year-old characters, you want to see that. Not the same at Playboy. You don't want to see? Well, I got nothing on this, actually. All right, exit question. None of our bailiwick. Stock's down 70% over the last five years. Five years from now, is this something that Flanders can turn around

where the stock is worth buying? Five years from now, it is owned by a Middle Eastern private equity and or public equity outfit. In Dubai. Yeah, in Dubai. Do they open up the mansion? Does Heff just start giving tours like Graceland? Heff won't be around long. I think Playboy is the General Motors of the porn industry.

I just don't see it going anywhere. I don't think Heff is around now. It's like a Weekend at Bernie's kind of thing. Every time you see a photo of him, it's like, are they propping him up? How dare you say that about a great American businessman in Hugh Hefner? That's what those two scantily clad women are doing. and they're actually carrying him around. All right, it's time for What's Your Beef?

Time to tee off on a stock, a person, a concept, an icon. Shannon, we'll start with you. Yeah, my beef this week is with the sort of reflexive knee-jerk invocation of socialist murderers whenever someone makes a point that doesn't comport with your own ideology that you don't even regard as ideology. And are you referring to anyone in this room? His initials would be S-J.

Seth with beady eyes. Yes. So, my beef is actually sort of a recurring beef, and it's a check-in on a story that we've talked about a couple of podcasts in a row. And it's the public-private partnership that was floated as sort of the latest variation on how we were going to close the gaps between what investors would pay for toxic assets and what banks value them at. Well, you know, we were curious. There seemed to be a news blackout. And then there was a news item that suggested, oh, no, this really is front-burner stuff. And now word comes from the president of the New York Fed, well, not so much. he had this to say, we have not made a final decision on whether it is doable. And if it is

doable, whether it is worth the cost. Well, that's not what we were told two months ago, right? So now apparently that's not going to happen. And from my point of view, good riddance. It was a bad deal for taxpayers. And now the question is the same question we've had for months now. What comes next? Are banks just going to have to eat it? That would certainly be my take, which would have a big impact on their share prices. Or are they going to come up with the 19th variation on this plan, which so far has been floated often, but has not worked yet. I think the 19th variation is going to look like such

a big improvement. Chris, my beef is pretty serious this week, and it comes from your home state of Maine. I was traveling this past week for a wedding. Now, we've all been in restaurants that try to get fancy with the bathroom names. Instead of just

men or women, it's, you know, Bonjour, Mademoiselle, or something. But I spent a few minutes trying to figure out if I was a duck or a goose. And I just didn't know. I didn't want to go in the wrong one by mistake. So I just waited, and finally a local came out of the goose. I was about to go in the ducks, but that saved me. But, I mean, come on here.

So that's my beef. You know what? I'm not going to sit here while you impugn the great state of Maine in any way, shape, or form. Would you have known? Is that like a Maine thing? You know what? I'm going to have Steve edit this out after the fact. Seth, what's your beef?

I want to return to beefs that I had probably even before we were doing the podcast. Aged beef. I've got aged beef. If it's something you and I may have done in some previous iterations of our podcasts or online video, and it's just to catch up with our friend Angelo Mozzillo. Oh! Y'all may have heard that I was beefing with Angelo, not that he really cared, because he sold a couple hundred million dollars worth of countrywide financial stock where he was CEO

at the same time that the housing bubble appeared to be coming apart at the seams, and it looked like he was really doing it because he knew things were worse than he was telling people. Well, now it turns out the SEC is saying that's exactly what he did. It wasn't just coincidence? Well, the SEC alleges that he committed fairly massive fraud on the way to doing this, and Angelo, as well as a couple of his lieutenants, are in a little bit of trouble. So pay attention to these beefs. They might save you money someday.

We sentence you, sir, to house arrest inside your tanning booth. All right, it's time for Stocks on Our Radar, sponsored by Motley Fool Inside Value. Invest like an adult. For a free 30-day trial, go to insidevalue.fool.com. Invest like an adult, but listen to us argue like children. Speak for yourself, Seth. Shannon, you get to kick things off. What's one stock on your radar?

Well, so recurring beef, recurring radar stock. And so the industry is natural gas. Right now, the futures market is pricing natural gas well below the cost of new production. And so that's an imbalance that is going to be addressed one way or another. Either they will eventually mop up the glut that has driven prices down, or a real-deal economic recovery will kick in that will drive demand up. Either way, it's a matter of simple arithmetic unless there's some kind of brand-new find in terms of how we're going to power our country.

So what can you do around that fact? There are a couple of companies that you should look at. Chesapeake, we called out earlier. The ticker is CHK. Something that is a bit more buttoned down and financially healthier is BP. That also has a good revenue stream around natural gas. And then there are ETFs that you can focus on as well. I just think that right now is a very interesting time for savvy investors to take a look at natural gas because, again, it's a math problem at this point.

James? I'm traveling abroad, Chris, this week to Greece. I'm talking about National Bank of Greece. Wow, that's going to be a step down from Maine. I'm just metaphorically traveling abroad even. Basically, in the U.S., consumer lending is about 75% of GDP, and that's a lot. We're over-leveraged. We know that. In Greece, it's only about 15%.

So the Greek economy has, it's not anywhere near as levered as the U.S.'s is. Greeks are much more conservative with their banking. It is a less stable country, but NBG is the former state bank of Greece. It's a dominant company. It's a bank that Greeks trust, and it's expanding and fast-growing southeastern Europe. It is not for the risk averse, but otherwise, don't be aware of Greeks burying banks, I guess. All right, Seth? I'm going to loop back to Chesapeake quick because I know Shannon,

If he hasn't read the new contract that the CEO got, Chesapeake, he's going to want to. There's something about the company buying art from the CEO. I don't know about that. Is that right? Yeah, I agree. So you'll want to read that before you head there. But my pitch, my stock is very simple. Aeropostal, the one of these retailers selling these clothes that's actually shooting the lights out.

Their same store sales up 19% last month as opposed to everybody else going down the tubes. Stock isn't as cheap as the others, but then again, these guys are doing the job. All right. Seth Jason, James Early, Shannon Zimmerman. Guys, thanks for being here. Thanks, Chris. Thanks for listening to this edition of Motley Fool Money. You can check out past episodes at MotleyFoolMoney.com.

As always, people on the program may have interest in the stocks they talk about. Don't buy or sell stocks based solely on what you hear. Do your homework and make your own decisions. And remember, the conversation continues 24-7 at Fool.com. I'm Chris Hill. We'll see you next time. We'll be right back.