Motley Fool Hidden Gems Investing - Motley Fool Money: 06.22.2012

Episode Date: June 22, 2012

The Fed makes a move.  Moody's downgrades big banks. Microsoft unveils its Surface tablet. And Burger King serves up a hot I.P.O.  Our analysts discuss those stories and share three stocks on their radar. Plus, we talk about the natural gas revolution with journalist Tom Wilber, author of Under the Surface: Fracking, Fortunes, and the Fate of the Marcellus Shale. Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. Thanks for being here. I'm your host, Chris Hill. And joining me in studio this week, for Motley Fool Stock Advisor, Jason Moser. For Motley Fool Income investor James Early, and for Million Dollar Portfolio, Charlie Travers. Gentlemen, good to see you. Good to see you, Chris. We've got the latest on Microsoft's tablet, JCPenney's struggles, and Starbucks' new store.

We will look at two dividend stocks going in opposite directions. And as always, we've got a few stocks on our radar, but we begin with the big macro. Guys, we're going to play a little pick-your-headline this week. We had the Fed announcing a six-month bond-buying program. U.S. jobless claims fell slightly, and we had any number of GDP numbers coming in from around the world. In general, not so great. But James Early, what's your headline of the week? Chris, I'm going to go with Operation Twist, which the Fed is doing. If you've watched as many kung fu movies as I have, and it seems like you have, you know, when the hero is fighting like 20 guys, he's only fighting like one or two at a time, and the rest are just kind of moving around

in the background, looking like they're not just standing there, but they're really doing nothing. Waiting for their chance to get kicked in the face. Exactly. What the Fed is doing here. It's so ironic that in 2004, Ben Bernanke co-authored a paper called Monetary Policy Alternatives at the Zero Bound, where he acknowledged that the original operation twist in the 1960s was a failure, but apparently it was good enough to try again and then again. Even last year when we tried it, it didn't really do its intended effect, which is to lower long-term rates sort of at the expense of short-term rates. So I see this as a nothing move just designed to show that the Fed is just moving

around in the background. Charlie, what do you think? I'm going to stick with the central banking theme, except I'm going across the Atlantic over to Europe, where there's an interesting story going on where the European Central Bank is loosening the rules on the collateral it will accept from banks in order to lend them money. So usually the European Central Bank required high-quality assets, and now they are allowing mortgage-backed securities, we all know how great those things are, and auto loans. And the reason they have to do this is they have to keep shuffling money around. The countries need to sell debt to the banks, and for the banks to have to get the money to buy them, they need to borrow money from the ECB. It's just this three-card money of shuffling money around over there without any real progress being made.

The ECB's ultimate goal is to get banks to boost lending to stimulate economic growth, but I see this as a sign of a bad situation getting worse. I was going to say, this just seems like nobody in Europe watched anything that happened in America in the last four years. Yeah, I heard there was a rumor they were going to allow McDonald's coupons to be used as collateral, but that was not true. Jason, what's your headline of the week? I'm going to go with the Moody's downgrade of the banks yesterday. To me, we had heard whispers of this over the past couple of weeks, didn't really know a time frame as to when it was going to happen. But they just whipped out these downgrades on all these banks yesterday.

And it's interesting to see that the banks are holding their own today in the market. But to me, it's much like when we look at consumers with poor credit. They're viewed as higher risk, and they tend to have to pay higher rates, and they put up more collateral. And it's essentially the same thing here with banks. These banks are viewed as higher risk, and so they're going to have to put up more collateral and even potentially raise more capital at some point, which would certainly hit investors. You look at companies like Bank of America and Citigroup over the past five, six years. their shares outstanding have gone up significantly, more than doubled,

even tripled in some cases. And so, that can be detrimental to shareholders as well. It's not a shock that it happened. It's a little bit surprising to see the banks holding their own, but it's also just amazing to think about the power that Moody's holds in the market when they just do something like this. I want to go back to Moody's in just a second. But James, let's just wrap up on the bond program, because I'm trying to get my head around this as an investor. Because, I mean, as you said, and we talked about this earlier in the week as well. You know what, this is a little move by the Fed.

It's not hugely significant. Is Bernanke essentially holding back other levers that he could be pulling to stimulate the economy? Is he waiting for things to get worse? I realize I'm asking you to play mind reader here. I see him as a somewhat leverless man at the moment, actually. I mean, this is something he can do that shows he's, I mean, what else can they do?

More QE3, QE4, whatever? Sure. Maybe, but you can only lower rates to zero, really. I mean, that's the biggest lever they have. This is sort of just tweaking a little bit. The idea is by buying longer-term treasuries, you push down the yield because the price and yield work inversely, which lowers kind of that end of the yield curve and is supposed to stimulate demand for home loans and longer-term things. But I just don't see that much more.

I mean, they've done a bunch of these little weird special programs, but there's not much more they can do. Back to Moody's, Jason. I mean, as you said, Moody's came out. We saw reports of this last week, the warning signs that Moody's was going to downgrade these banks. It wasn't just here in the U.S. We saw Barclays and Deutsche Bank included in this as well. And yet, it seems like the clout that Moody's had maybe 20, 30 years ago, where a downgrade would be catastrophic, It seems like the market's sort of just shrugging it off. Moody's lost a lot of credibility when they were pretty much ranking every piece of junk out there as A+.

All these mortgage-backed securities, like Charlie was mentioning, Moody's was one of the ratings firms complicit in just assigning ratings to these types of securities and holdings that didn't really warrant that type of rating. And so when the bottom fell out there and we realized that there was a lot of junk out there, I think that Moody's, along with the other ratings agencies, lost some credibility there. I mean, this is a beautiful idea of Moody's. It's just about four years too late, and that's the thing. So, 2000 and late, I heard today. You know, logistically, though, this could require the banks to post some additional collateral.

It sort of hurts their credibility in general, so there could be some operating issues tied to this. But I agree with Jason. Long-term, you know, the effect of the rating agencies. S&P showed it with the downgrade of the U.S. Treasury. I mean, it's just diminishing. Earlier in the week, Microsoft introduced its new tablet, the Surface. Among the key features, front and rear-facing cameras, a cover that flips down to become a full keyboard, and a built-in kickstand. Charlie, a lot of cool features. And frankly, the kickstand, as we talked about, that seems a little bit like a no-brainer. And yet, one of the things we were looking for heading into this announcement was a price tag. We didn't get that. Microsoft

said they were going to price it comparably to others in the market. But, you know, as someone who watches Microsoft, what did you think of this unveiling? They certainly watched and learned from Apple over the past couple of years. The emphasis on aesthetics, on a slick user experience have taken priority at Microsoft over just making something cheap and ubiquitous. It's an interesting cultural shift for the company, and it's a necessary one for them to compete in the consumer space. But as exciting as the Surface looks, there's a lot of unanswered questions. The media at the event didn't actually get to demo the devices themselves. That's going to come later, closer to launch. For example, that cover looked awesome. But how does it really stand up to hours

and hours of typing? Things like that are open-ended questions. But as we own Microsoft and our service, I'm cautiously optimistic. James, you're someone with a lot of Apple products. I am. I'm cautiously unoptimistic. The keyboard is better. I mean, that's a fantastic idea. If it works well, that's great. But for the rest of it, do I really need, I mean, what's the benefit? They don't have any apps compared to the iPad. It's not as cool as the iPad, but you can use your Office suite of PowerPoint, Excel. But is anybody really doing like heavy duty use of that on their tablet? That's not really a tablet oriented thing. So, you know, Charlie, we're all talking before the show, and I think the key would be they could tap the business market,

the enterprise market. That would be the only success story. Otherwise, I just don't see it being as hot as a consumer device. Jason, what about that? If they get a lot of chief technology officers from companies that maybe are already Microsoft customers using their office products, if they get them on board, that's got to be a key constituency, right? Yeah, and I think that's a primary focus for sure. I mean, I think James makes a great point there and that these tablets are not really great input devices. In other words, doing a spreadsheet or typing up a document or article or something, it's just not really very friendly towards that. But if companies can integrate a tablet like Microsoft's tablet into their

already existing infrastructure relatively easily, then I think that's a big selling point. I look at it for me, and Chris, believe it or not, this is probably the one device I'm not going to be chomping at the bit to go buy immediately. Wow, and you have like many devices. And I've got like one of them all, right? Yeah, I was going to say, you've got the Nook, you've got the Kindle, and Kindle Fire, and everything. Yeah, I mean, that's just that I think for consumers like myself, there's no real argument to say, well, I'm going to go get a Microsoft tablet because now I can enter stuff in Excel or Word,

because I'm not using this tablet for that anyway. But for companies, there could be that integration. If you like the Zoom, you'll love this. Right, yeah. So Jason and James are getting on some of the key topics here, and the Surface is not just one device, it's two. The smaller, lighter weight one running on an ARM processor is going to be intended as the iPad competitor. But they're also rolling out a more robust machine powered by an Intel processor that I expect to do very well in the enterprise space.

It's the one that competes with the iPad that we'll have to hold our breath on. What about the price? Where do they have to price this? Where should they price this in terms of that first device that you were talking about, the one that's really more aimed at the consumer market, the iPad competitor? What's the price got to be? So they're playing that very close to the vest. All they said is that it would be comparable to existing ARM tablets. You know, the popular ones come out of Samsung and Asus. And they are in the $400 to $500 price range, which is comparable to the new iPad, which starts out at $499. I do not think they could go higher than $499 out of the gate.

I was just going to say, they have to go lower, don't they? Yeah, but they don't want to go too much lower. So maybe like $449, give $50 off or something like that. I would say a solid 20%, 25% lower, maybe not much more than that, but that's what they need. Jason? Yeah, I'm thinking somewhere around like the $399 to $449 area that just kind of gets people's interest up, because it can't be more than the iPad, but they have to be careful not to price it too low, like a Kindle Fire or something, because then all of a sudden you create this perception that maybe it's not really worth it.

Coming up, two big dividend stocks going in opposite directions. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in the studio with Jason Moser, James Early, and Charlie Travers. Shares of JCPenney down more than 10% this week. The stock dropped on Tuesday on the news that Michael Francis, the president of JCPenney, was leaving the company. James Early, he was only on the job for eight months. The company didn't say why he's leaving. I mean, what- He might have his reasons.

The rough spot is not just that he left, it's why he left. And we don't really know. My guess is that he might have seen a sinking ship and just took the first life raft, but certainly there could have been disagreements. The whole Ron Johnson, CEO Ron Johnson strategy, has not been panning out particularly well. They're trying to sort of targetize JCPenney. I think the president was from Target before, and they hired Target's old ad agency. But the problem is, there already is Target, and people could go there. JCPenney has the problem of having the name of JCPenney. So it's got this poignantly anguishing dilemma of do we just jettison our old self and try to become new and cool and hip and lose the market that we used to have, or do we embrace our sort of less cool self?

And really, there's not a reason to shop at JCPenney, and Nordstrom's is cooler, Target is cheaper, unless it's the only store in town. So they're at this weird crossroads. I think they're going to go for the risky strategy, but it's going to take a long time if they're going to turn this around. And Ron Johnson, Charlie, he seems to be doubling down on this strategy, this pricing strategy, which he even admitted customers found it confusing because they had all these different things going on. It seems like he's really on the hot seat now. It was really like the throw spaghetti at a wall pricing strategy and hope that something stuck. It was just utter mess, and they should have just stuck with one clear, easily understandable price point

instead of trying to work all these different programs at the same time. For perspective, same-store sales were down 19% in the first quarter. It's brutal. We have a tale of two dividend stocks, Procter & Gamble and Kimberly-Clark. Shares of Procter & Gamble fell this week after the company lowered guidance, Jason, for the second time in less than two months. What is going on? Yeah, that sounds pretty bad, and it really is pretty bad. It makes management, first and foremost, just look like they don't know quite what's going on, and that's the way it seems. Procter & Gamble has had a tough time embracing the emerging markets strategy

that Colgate-Palmolive and other companies like Kimberly-Clark have been more successful with. If you look at it over time here, Procter & Gamble is suffering from declining margins, and that's due to increased production costs along with pricing pressures. And then, to top it all off here, we have CEO Bob McDonald, who's now in the hot seat, because of the fact that this company has really not done much. The stock price has been flat. And we look at a company that has generated close to $9 billion in free cash flow over the last 12 months. The stock price is actually down 10%. That's not a good sign.

They're not embracing any new product lines or coming up with anything new and innovative. So I think they're in a little spot right now. And yet, James, they have 25 different brands that are billion-dollar brands for them. They've got a lot going for them, Chris. But as Jason says, the shtick here for these consumer products companies has been emerging markets. And the developed market is pretty much a flat business area right now. But people in the Philippines, people in Latin America can spend a couple of bucks on a packet of Tide or something like that. But P&G's products aren't there in the way that Unilever's are, in the way that some of these other companies are.

So that's one thing. And second, people have been just dumping into these quality dividend-paying stocks, thinking, I want to replace my CD, which was yielding 4% five years ago. And they're going for the best names they can find. And P&G, unfortunately, is scaring them. And on the flip side, you've got Kimberly-Clark, which shares hit an all-time high this week. It really seems like when you stack up Unilever, Colgate-Palmolive, Kimberly-Clark, and then you look at P&G, particularly over the last year,

P&G is basically the one stock that's not doing well in that group. And valuation-wise, because they're both my income investor service, I think Kimberly-Clark is a little bit rich right now, whereas I think P&G is a little bit too beaten down. So that could be the better buy. I was just going to say, so over the next five years, even though they're sort of going in different directions recently? You think P&G might?

I think P&G might on the valuation, yeah. Starbucks is planning to open a Tazo tea store in Seattle later this year. The company says it wants to do for tea what it did for coffee. Charlie, can they do that? Maybe so, Chris. I'm skeptical. I was skeptical at first until I learned a little bit more about it. They are only going to offer tea in these stores,

and how it's going to work is that they will sell 80 varieties of loose-leaf tea sold by the ounce. Here in Virginia, I know there's a couple local mom-and-pop tea shops that do exactly that, and maybe they can find a way to disrupt that market just as they did with the coffee shops. They don't have immediate plans to open anymore. I would have been more interested if they made an announcement that they're going to do 500 of these stores, for example. Don't you want to test first? Well, yeah, but usually, like in retail, you'll test with maybe 50 stores or something like that in different markets. To only do one doesn't move the needle at all for Starbucks.

But there is a large global tea market. It's worth about $95 billion. It could be a huge opportunity if this works out. Yeah, it is a huge opportunity. I think in the U.S. alone, the market's at least $8 billion, probably closer to $10 billion now. But, yeah, I mean, it is something. It's not going to move the needle with just this one store. I think they really want to test this out to see if it proves. But tea in general, I mean, in the U.S.A., we're seemingly very coffee-centric. But the fact of the matter is, according to the Tea Association, the U.S.A. is the sixth largest consumer of tea in the world. world. And Tazo T-booked $1.4 billion in sales last year. So, it's not insignificant. And

if they can build this out and do it right, then I think it could be a meaningful contributor to the top line here over the course of time. And finally, guys, once again, Burger King is a public company. It is now trading under the ticker BKW. Charlie Travers, not your typical IPO this week, though, was it? No, no, it wasn't, Chris. Burger King was taken private in 2010 by a Brazilian private equity firm called 3G Capital. Recently, a company called Justice Holdings, which was co-founded by hedge fund manager Bill Ackman, paid $1.4 billion for a 29% stake of Burger King. And that happened in April with the goal that the company would list and be public.

So 3G and former Justice shareholders own almost the entirety of the IPO. They were not selling shares to outside investors, as you would typically see the venture fund or the private equity fund sell out and let the retail investors take over. So Burger King is back on the market, and I think it has an interesting growth story. They are going to take a page out of the Yum Brands and McDonald's playbook by using joint venture partners overseas to grow their store base. And I think it's a good strategy. And they are also rolling out a summertime menu, which includes barbecue sandwiches, sweet potato fries, and yes, the bacon sundae, which they tested, I believe it was in Louisville, and apparently it passed the test.

Do you have a fast food guilty pleasure? I'm an avowed hedonist, so I do not believe in guilt with my pleasure. But I would say one of my favorite fast food treats is getting a bowl of chili from Steak and Shake. Let's bring in our man Steve Broido from the other side of the glass. Steve, what do you got for your guilty pleasure in fast food? I'm going to have to go with McDonald's cheeseburgers. man those things have cost me a lot of damage done but they're very very delicious coming up a look at the business of fracking and the fortunes being made

in the natural gas industry stay right here this is Motley Fool Money Welcome back to Motley Fool Money. I'm Chris Hill. The push to get natural gas out of the ground in Pennsylvania and New York State has been compared to the gold rush of California of the 1840s. It's a story that's been covered for years by Tom Wilber. He is a longtime journalist and author of the new book, Under the Surface, Fracking, Fortunes, and the Fate of the Marcellus Shale. And he's here in studio, the rare in-studio guest. Tom, thanks for being here.

Thanks for having me, Chris. Great to be here. Let's do a couple of definitions to kick things off. First, the Marcellus Shale, I'm not a science person, so Marcellus Shale sounds like a character in an Elmore Leonard novel to me. For our listeners who may not be familiar, what is the Marcellus Shale? So the Marcellus Shale lies under four states, New York, Pennsylvania, Maryland, and West Virginia. Yeah. And it's different from traditional geological formations, which gas was produced from. Scientists have long known, geologists have long known that there's a lot of carbon content

in the Marcellus shales and other shales like it, but it's never been a viable source for operators because they have no way to extract the gas from bedrock, essentially. And that's where fracking comes in. And we've talked about fracking on our show from time to time. And just to, you know, again, give the definition, this is where a mixture of water and sand and chemicals under high pressure are injected into the rock to essentially release the natural gas. That's really like the major development, you know, in terms of the energy industry over the last decade or so is the development of that process. Yes, the refinement of that process, because fracking has been around for a long time,

And fracking has been used in conventional formations, conventional formations being different from a shale gas formation. And conventional formations are geologically limited pockets of gas, and they drill vertically down. The thing with shale gas is they couldn't use this conventional type of fracking because you'd just be fracking a small part of this broad mantle of gas. So the key to developing shale gas is the concept of horizontal drilling. They drill down vertically, and then they're able to steer the drill string horizontally and drill out for a mile. So they're kind of going along the length of this pancake-like strata. And they can do different legs right around the wellbore. It spiders out in different directions.

And, you know, you talk about the market opportunity here. The number that comes up early in your book, an estimated 500 trillion cubic feet of natural gas. Again, I'm not a science person, but that is such an enormous number. So it's no wonder, as your book begins, you start to see what you refer to as the landmen. The landmen start showing up in these rural areas in Pennsylvania and New York. They're representatives from oil and gas companies. And they're coming basically with a blank check in their hands. Yeah, and it's important to remember, in 2006, 2007, 2008, when these landmen started showing up,

there's a couple factors at work. One, the price of natural gas was going up. So the returns on extracting natural gas were a lot greater. So you have 500 trillion cubic feet. If that's worth $10 per thousand cubic feet, as opposed to what it was before, which was half or a third of that price, obviously there's a lot more incentive to produce it. So that was one thing. The other thing was this horizontal drilling that we talked about and the hydraulic fracturing had been developed in Texas in the late 1990s in the Barnett Shale. And geologically, that was a lot different than what we're seeing in the Marcellus Shale in the Northeast. Plus, there's a lot of other factors that are of practical importance when you're producing the play, the topography,

the watersheds, the lay of the land, the population density, all these things. So the question was, Could this be translated from the Barnett to the Marcellus shale? And Range Resources quietly worked on some pilot projects in the heart of Appalachia in 2006, 2007, and they were successful. They produced a lot of gas from the Marcellus. People started catching on. And Terry Engelder, a Penn State geologist in particular, he has built his career on shale gas and understanding shale gas in the Marcellus in particular, watched this carefully. He was the one that first reported that, geez, there's a lot more gas in the Marcellus Shale than anybody ever imagined. Range Resources was on to this.

Terry Engel did some calculations, and he figured out that, geez, my calculations show there's 500 trillion cubic feet. And prior to that, the USGS calculations, the government calculations with the Marcellus held a lot of gas, but it was more like in the order of 3 or 4 trillion cubic feet. So the size and the incentive for developing the Marcellus increased by an order of magnitude over a course of a couple years. That plus the high price of natural gas all contributed to this gold rush mentality. You mentioned range resources. There are other companies that get profiled in your book, obviously. And this is a company we've talked a lot about on our show, Chesapeake Energy.

You've got Cabot Oil and Gas. But even big companies like ExxonMobil, Royal Dutch Shell, one of the things we see in your book is what was once considered, for them anyway, sort of this niche part of their business. All of a sudden, the market opportunity is such that they just start placing these massive bets. Yeah, I think it's really important to understand that with the ability to produce shale gas, it changed the entire game in the United States, not only with natural gas, but with domestic energy production. Because the Marcellus shale in the Northeast and also the Utica shale, which is below it and just as big or bigger, is one of many shale gas plays that are being developed now. And this idea of horizontal drilling and hydraulic fracturing also

applies to oil production. It also applies to something called wet gas. And as these various commodities change in price, they can use the technology and the land holdings to go from one formation to the next. So while developing natural gas from the Marcellus Shale in western Pennsylvania or Ohio, they can also look at other formations and explore oil-bearing formations or wet gas bearing formations. And what they're finding is there's a lot more carbon in the United States that is now accessible through this than there was before. So it's really about onshore drilling. We've heard so much about offshore drilling for so long, and now it's really about onshore drilling. You're listening to Motley Fool Money, talking with Tom Wilber, author of the new book,

Under the Surface, Fracking, Fortunes, and the Fate of the Marcellus Shale. On the other side of these companies who are placing these big bets are some very real human beings that you profile in the book. And they're dealing with these, initially these landmen who are coming with checks saying, listen, we want to lease your land, we want to buy your land outright. There's a value proposition in it for you as a landowner. but one of the people in your book equates dealing with these oil company representatives to like being in a poker game where the other guy gets to see your cards but you don't get to see his cards. Exactly and that would be Jackie Root who represented landowners in Pennsylvania early

on she still does and her strategy was to enlighten landowners about the wealth that they were sitting on, get them together so they can leverage their negotiating power in groups. And the idea is gas company leads large contiguous tracts of land. And if they can pick off land owners one against the other, they can put together these tracts of lands. But if all the landowners hold out together and one does not sell cheap, then they have a lot more power. So it's important to remember in 2006 when Range Resources did this, they weren't telling the world about it. It does the companies no good to explain, hey, geez, you're sitting on a lot of gas. Can we come and lease your land?

Hey, look over here. So everybody's quiet. Everybody's holding their cards. And I think what happened was when you're talking about the big companies now getting into it, Range proved up the resource. Terry Angelder came out with his assessment that there's a lot of gas here. The wells were producing, and everybody started paying attention. And when we got involved in New York State, the New York State media was the landmen were at the door up there in areas where landmen traditionally never were in undeveloped areas of New York State as far as mineral resources and eastern Broome County in particular. And some of the farmers got together, and they did this thing with Jackie Root,

and she ran across the Pennsylvania border. She came up to New York and advised them, and they took her advice. And they ended landing a deal with XTO Energy for $110 million. And this is for 50,000 acres, this group of 500 farmers. Some of these farmers made more overnight signing the lease than they would make in a lifetime. And that opened everybody's eyes to the fact that they were sitting on something big. This was before Josh Fox's movie raised awareness of all the concerns about Gasland. And people were generally enthusiastic about it, and they were ready to move forward.

So this was an eye-opener. There's a lot of money on the table. And XTO Energy was later bought by ExxonMobil. So now you have the big international companies getting into the game. Coming up, more with Tom Wilber, plus a round of buy, sell, or hold. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money.

Talking with Tom Wilber, journalist and author of the new book, Under the Surface. You're a journalist. We hear different sides of the story in terms of the environmental impact of fracking. As a journalist doing your research on this book, what do you know about the environmental impact that you look at and say you're able to separate? Well, I know this to be true, whereas some people are charging X, Y, and Z, and that hasn't been proven yet. Yeah, I think the biggest thing that I know about it is there's a lack of transparency and a lack of reporting requirements for the industry. So when they say things like, geez, we've never had a problem with this and we've been doing it forever, it's easy to hide behind that lack of transparency because there's a lot of cases that are unreported or underreported. The industry is exempt from the Federal Clean Drinking Water Act, which essentially would require them to report to the EPA what chemicals they put into the ground.

Without knowing what chemicals are putting to the ground, you're not quite sure what could be happening or what problems could be happening. They're exempt from hazardous waste handling laws, both state and federal. So if you have an IBM or a Kodak and they're producing a waste that's hazardous, the drilling industry might be producing that exact same waste, but it's an industrial waste. So the handling requirements aren't the same. There's other reporting requirements that the industry doesn't have to abide by. So if they cause problems on private land, a lot of times it's between the landowner and the gas companies and whatever contract they have, and the burden of proof is on the landowner.

So I guess to answer your question, what do I know now about it, it's hard to quantify what the problems are without having more disclosure and better reporting requirements. Are some companies better at transparency than others? I mean, as investors, we see this all the time in other industries where some companies are just much more open about the way that they do business. Is that the case? Well, sure. I mean, it's going to vary. And as I say in a lot of my talks, because people ask me all the time, well, what's your view? And when I'm talking to environmental groups, which I do frequently, they want to know what my view is.

And I make it very clear that I'm on the side of disclosure. And just I haven't closed my mind to the fact that companies can and do work in good faith and they do the responsible thing. But it's different from company to company. What surprised you the most when you were working on this book? The scope, the scale, the size of this thing, the amount of people that it impacted and the potential it has for the future. It's, I think, the environmental story and the economic story of the decade. And I think it has global significance in terms of shale gas development, whether natural gas becomes the fuel of choice of our country. And everybody has a stake in it because they're sitting right over these resources.

Before we wrap up with a round of buy, sell, or hold, where do you think we're going with this? I know that in New York State, Governor Cuomo recently unveiled a plan to maybe try and limit drilling to the deepest areas of the Marcellus Shale. Where do you think this is going to play out over the next 10 years or so? There's a couple things that are really important here, and one is this idea of home rule. And home rule is the idea that local governments can control what happens within their borders. and this applies to permitting and the state traditionally has permitted gas wells so there's a big legal fight going on right now that the it just ended up in courts and if home rule prevails that is uh certain uh towns can say you can't drill in my town um that's going to be a big

disincentive to drill in in new york state um in pennsylvania it's playing out a little different way but pennsylvania the ball is already rolling and i don't think home rule has as much of a chance. So I think it might play out state by state. The biggest, I think it's really critical, the markets. If the markets continue and we have the ethane cracker plant, which Shell is proposing for Pennsylvania, which has used natural gas as a feedstock for all sorts of products. If we have an export plant in Louisiana to export natural gas to developing countries. And these markets develops, the price of gas goes up. If we have natural gas vehicles, I think we're going to see the full-scale development of the resources. If the price of gas stays low, if it becomes

economically unviable, if we have a lot of home rule issues and restrictions and more regulation, then it will probably play out piecemeal. But I think eventually, sooner or later, these shale gas reserves will be developed. All right. We will wrap up with a round of Buy, sell, or hold? Let's start with an energy industry that's come under fire over the last 18 months or so. Buy, sell, or hold the future of nuclear power? Oh, I'm going to sell on that. There's nothing looking good from a public relations standpoint with nuclear power. Buy, sell, or hold the majority of cars being powered by natural gas in 25 years? I'm going to sell on that. And I think natural gas-powered vehicles are going to

remain popular for fleet vehicles. I just don't think there's the infrastructure. There's going to be an incentive to build the infrastructure for everybody to be driving a natural gas car. And finally, we have seen plenty of stories move from the printed page to the big screen. Buy, sell, or hold a movie version of Under the Surface. oh i'm gonna buy that absolutely that's gonna happen it's a big story as you say there's a lot of colorful characters in it and it'd make a great movie intrepid reporter does your wife have someone in mind to play you does she have a casting oh um no she she hasn't but i'll ask her the book is under the surface fracking fortunes and the fate of the marcella shell it is a very

compelling read, and as Tom said, with some amazing characters in it. Tom Wilber, thanks for being here. Tom Wilber Thanks, Chris, it was a pleasure. 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. Joining me in the studio once again, Jason Moser, James Early and Charlie Travers. Guys, after the fact, Tom Wilbert did have some thoughts that he shared via his wife. His wife's choice to play him in the movie is Brad Pitt. So that's, you know, that's nice. That's a loving wife. Charlie, I mean, your lovely wife, she'd

have Brad Pitt play you in the movie, wouldn't she? Maybe Ryan Gosling. Oh, yeah, she is. All right, two minutes left. Let's wrap up with the stocks that are on our radar. We'll bring Steve in, casting his vote for which one he likes best. Charlie, you're up first. What's your stock? Potash Corporation of Saskatchewan, just because I like saying Saskatchewan. But the ticker is POT. This is the world's largest independent producer of potash, which is a fertilizer used in high-value crops. The stock right now is at a two-year low because they had

a weak Q1 and a weak outlook for the full year. But I think this is a chance to buy a industry leader on the cheap. Okay. James Early, what about you? I think Steve appreciates a solid bargain, and Procter & Gamble has been beating down pretty well lately. Ticker is P&G, of course, but this is a stock that's paid 122 years of dividends. It gets 60% of its sales from developed markets, but I think they're going to change that 3.8% yield, 11% upside by my model. So, this could be a good time to get in. All right. Jason, what about you?

Yeah, I like that Procter & Gamble call. I'm going to go with a core stock that we hold over at Stock Advisor, National Oil Well Varco, ticker is NOV. Energy in general seems to have been beaten down to a pulp here lately, and National Oil Well Varco is down about 15% since earnings in April. I think that's based on some margin concerns as they invest in the business, but it's a $25 billion company, a big-time leader in the oil industry in supplying all of these components and parts and systems from offshore to onshore drilling and exploration. So, I think now is a good time to be looking at it. Yeah, and it's not going anywhere.

No. Steve, what do you like? Well, I believe I currently own P&G, so that one's out. But you would have picked it. I might have. I'm going with the potash one. Stocks at two-year lows sound very, very exciting right now, because it seems like everything's at a two-year low. But fertilization seems like a great place to be, and the word potash is kind of cool. To say nothing of Saskatchewan.

Buy low, sell high. Sage advice from Steve Broido. James Early, Jason Moser, Charlie Travers. Guys, thanks for being here. Thank you. Thanks to our guest this week, Tom Wilber. 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.