Motley Fool Hidden Gems Investing - Motley Fool Money: 06.26.2009

Episode Date: June 26, 2009

The Fed says the economy should improve but Warren Buffett says the economy “needs more medicine.” Durable goods orders rise, consumer confidence climbs, and the savings rate hits a 15-year high. So what does it all mean for investors? In this installment of Motley Fool Money, we tackle that question, talk about Apple’s less-than-full-disclosure policy, and share a few stock ideas. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Because we have your number. Welcome to Motley Fool Money. I'm Chris Held. I'm joined by Motley Fool Senior Analyst Seth Jason, James Early, and Ron Gross. Guys, happy Friday. Happy Friday, Chris. Wow, that was almost in unison. That was nice. You practiced that beforehand? We did. Nice to see you, teacher. All right. This is a Motley Show. We're not just about business, so we will be talking about Michael Jackson and Farrah Fawcett. We'll explore a secret world called Apple.

It's a place where the CEO goes away for a liver transplant and shareholders don't know about it. And as always, we will share a few stock ideas, but we start with the big macro. Earlier this week came the news that May durable goods orders increased. The Fed said that economic growth should gradually resume, but Warren Buffett says the economy needs some more medicine. And earlier today, the Commerce Department reported that the personal savings rate rose to a 15-year high in May. and the stock market, at least initially, was not that happy about it. James, what do you take out of all of this news this week? What's the big headline for you?

You can't make me care about any of it, Chris. The green shoes are growing in every which direction. We can justify probably any interpretation we want to. We've got World Bank revising its forecast down, but GDP fell less than expected, but unemployment grew more than expected. This is just the typical pattern right now. I call it mixed precipitation. It thinks it could go any which way.

I think the good thing is, the best news for me, actually, I will say this, is the savings rate. It's at 6.9%. That's fantastic. I am all for savings. I think the idea of just deficit spending to stimulate things is the equivalent of giving a sleepy trucker more and more caffeine. In other words, it's worked for a while, but eventually the trucker's got to rest. So we, the economy, are that trucker. I think we should keep saving, and if we can, put it into stocks because that'll really be what stimulates the economy.

Yeah, I agree. listen, in the long term, American saving is a good idea. We've been spending far too much for far too long. But in the near term, we need to spend to get out of this recession. And I think we run the risk of actually deepening the recession or potentially going into a double dip recession if we don't stimulate this economy a bit. And it appears that Americans have taken that government stimulus package and put it in the bank rather than buying that flat screen TV. And that's what the stock market is reacting to. Yeah, and this is one of the things I thought was interesting when some of the earlier numbers came out a couple of weeks ago is that people said, hey, these look okay.

Things are flattish, except we were already at that point seeing some givebacks as we read all the taxes and other things. So savings, I agree, is in general good. But right now it's not the kind of thing the stock market wants to see because, remember, everybody was spending more than they had in this country for a long time. They were taking money to the housing ATM, and they were spending it on coach bags, and they were spending it on guest jeans, which was good for me because I owned guest stock. They were spending it on iPhones and things. And guest jeans? And guest jeans.

I have some guest jeans. You ought to see me. Acid wash? Oh, please, no. I look so sweet in my guest jeans. Thank God this is an audio podcast. Yeah, but that's what the stock market is going to react to. And Shannon and I, and Shannon's not here today,

so Ron will have to nod his head from that end of the table, have been saying for a while that this is one of the reasons people shouldn't get too excited about some of these stock market rallies, because although we think the economy is going to eventually turn, the comeback isn't going to be as strong as some stock prices seem to conclude. One thing I think I want to jump in and just say today also, consumer confidence came out and showed a rise in June. It's actually the highest level since February of 08. But that's interesting that perhaps consumers are starting to maybe think that the recession has bottomed. Would you guys not rather have this money going into stocks

versus retail purchases, though. If there's all this cash sitting on the sides, I hear you, because it can mean deflation, and we don't want to be like a Japan with a 20% savings rate. I want to have my cake and eat it, too. So I'm going to say that I think that for me and my friends and everybody, save your money and be responsible. Everybody else, just, no, seriously, people are going to save more.

We have to save more in the country, but that does mean that the economy is going to have a slower comeback. Far too many Americans are living paycheck to paycheck, one paycheck away from losing their apartment, their house. We need to have them put a little bit more money in the bank, and then let's get into the stock market. But to your point, Seth, I mean, we have seen a little bit of a run-up in the market over the last few months.

I mean, is part of the equation moving forward that investors also need to lower their expectations just a little bit? I think they do. It obviously differs from company to company, but some of the companies I watch, a week ago actually, looked like they were priced for a recovery that was more robust than I think was coming. This week, they're actually starting to look okay again. All right, let's move on to Apple. We had strong sales of the new 3G iPhone, more than a million sold in the opening weekend. But the company also announced this week that Steve Jobs recently had

a liver transplant at a Tennessee hospital. Now, when we talk about disclosure, the phrase we always hear is material fact. Companies are generally required to disclose material facts. But this area of executives' health, it seems murkier. It seems more complicated. I'm raring to go on this. Then I'll put it to you. Did shareholders have a right to know about Steve Jobs' little transfer? Absolutely. This is a guy who is the Apple brand in a lot of ways.

And he's really showing a little bit of hubris, I think, during this entire time. And don't get me wrong. I don't feel good about what's happening to Steve Jobs' health. And I hope that he recovers fully. On the other hand, he is a huge part of that company, and shareholders have every right to know what's going on with a CEO who is that important to the whole company. But the fault really is with the board,

and I believe the board at Apple has shown over a number of years that it does not really serve shareholders' interests very well. Back when this whole options backdating thing happened at Apple, I thought the board whitewashed that horribly. They said that Steve Jobs had nothing to do with it, and that he was clear because of the way some of his options had been converted to restricted stock. but there were great articles out there that showed that the conversion to that restricted

stock actually depended on the way these things were backdated. The board whitewashed that. I think the board at Apple is not a good board, and that is where investors need to direct their outrage, and they should have some. James, CEO health, is that a material fact in your eyes? I think it is. Obviously, if we look at our president or leaders, if they have a health issue, we know about it. We like to know about it. I'll admit, it's a challenging issue. Where you draw the line. If someone's homesick for a few days, that's not a worry. If it's something bigger, that is a worry. My vote is that we need an iPhone app, Chris, that monitors all of Steve Jobs' vitals, and then we just kind of plug in and check it. You think so? I'm kidding.

You know, I say, first of all, the shareholders are the true owners of this company. They have hired Steve Jobs to do a job. Of course, they have the right to know if he's undergoing a major organ transplant. How could that not be a material fact? I think any fact that either stops you from performing your job or is potentially life-threatening, by definition, is material. Okay. So major surgery, that's a material fact? Agreed. And it depends on the company. I mean, some companies, the CEO is much less a part of the culture, a part of the organization, a part of the design. So for some companies, it may not matter nearly as much. But for Apple, it's hugely important. What about liposuction? Is that a material fact? Do we need

to know that? I think we want to know that. The location of the liposuction. Sex change operation? Absolutely. Whoa. All right. Let's move on to the real big story. This is one of those weeks where the market really did get overshadowed by, in this case, celebrity news, the deaths of Michael Jackson and Farrah Fawcett. I mean, that's really been the water cooler conversation let me just throw out a couple of business facts around michael jackson thriller was the best-selling album of all time estimates are that it sold over 100 million copies by the way this is from wikipedia so just so we source that material could be 10 exactly uh sold 750 million records in all in 1985 he paid 47 million uh for the catalog of songs written by john lennon

Paul McCartney. That actually proved to be a good investment. But here's the kicker. The guy was clearly living way beyond his means because he reportedly has $400 million worth of debt right now left to his estate, his family. He took that great investment, he made a little off it, and then he used it to borrow more money. Wow. That actually is a piece of the tragedy that I hope people in America pay attention to because he's no different than the rest of a lot of us who've borrowed more than we can afford. And it was against, okay, future earnings power, maybe, but that future earnings power doesn't always manifest itself.

So that is just one of the tragedies. He's one of those stars that really became larger than life. You can count him on your one hand, Elvis and Michael Jackson, a few Beatles. Weird Al Yankovic. He's number six on my list. He became larger in life, and he led a lifestyle, the word extravagance probably doesn't even come close um to what it was and uh although forbes i think estimated its net worth in early 2000s at about a half a billion dollars i think that might

have even been conservative at that time um he was leading a lifestyle that he just could not afford and that's i think uh an extreme example uh something we should all you know watch and just to put a positive spin on it for perspective here yes he owed 400 million dollars but that's about what his tour would have made, too, this upcoming tour that he was planning to do. I mean, how many people on earth have that kind of earning power? Of course, his cut would have been less, right? Much less, yeah. But still, he has a few more in him, probably.

Yeah, yeah. I mean, it's just amazing. And I will just say, on a personal level, as a kid listening to Michael Jackson in grade school, I was really big into breakdancing. And we would open up my garage door at night and blast the music and breakdance. I mean, embarrassingly, I was actually pretty good. And Michael Jackson is one of my favorites. Wow, now I'm disappointed that this isn't a video podcast.

I think we have to give him his due. He changed the face of pop music. It crossed racial barriers, socioeconomic barriers. I was 14 when Thriller came out. It was a big deal, and it remains a big deal today. Number one on iTunes and Amazon today, following his death. And he really did change the face of music. Yeah, I think it is one of those things that, not to sound like we're a group of grumpy old men,

But for younger people who maybe only know Michael Jackson as just sort of, you know, from his extravagant lifestyle, from sort of, you know, multiple marriages, all that sort of thing, it's almost hard to overstate just how big a star this guy was back in the 80s. Along those same lines, I think it's probably also hard to overstate just what an iconic figure in the late 70s Farrah Fawcett was. Absolutely. Millions of posters sold, many of them bought by our producer, Matt Greer. Yeah. who actually has a Farrah Fawcett mug that we can see into the – Through the window in the other room. Yeah, exactly.

Mac, who is also from Texas. It's holding pencils. Yeah. No, is Farrah Fawcett from Texas? Yeah, she is from Corpus Christi, Texas. Oh, okay. To me, she will always be Farrah Fawcett majors, by the way. Exactly.

Charlie's Angel. Well, and maybe that's why Mac wrote a report on her in, I believe, the seventh grade. Gotcha. No better person to report on during puberty than Farrah Fawcett. Exactly. Do you remember any part of that report, Mac? Farrah was a shy student. Farrah was a shy student.

Mac has leaned into it. But Mac Greer was not. Hey, you know, you've got to be bold to admit that you wrote a seventh-grade report about Farrah Fawcett. Did we all have the poster? Yeah, I did. I did not. But it was the number one-selling poster of all time. I think 12 million copies so far.

That's incredible. Fantastic. All right, as we wrap up June and officially start the second half of 2009, give me one stock that is on your radar. I'll start with you, Ron. I'll give you a stock that we actually purchased yesterday in the Million Dollar Portfolio, a company called Lincoln Electric, which is the market leader in arc welding equipment. Arc welding, like NOAA, like that kind of thing?

Yeah, we actually made that joke in our write-up, believe it or not. Ooh. Yeah, welding, the kind of welding that fuses two pieces of metal together, using an electric arc for those engineers out there. This is a great company, strong balance sheet, great cash flow generation. has been acquiring companies for years. It's a play on infrastructure. When the recession fades and people get back to building our crumbling economy

and emerging markets start to build out their infrastructures, I think this will be a great stock. Okay, James? Chris, my stock is Southern Company. The ticker is SO. And for the longest time, this was your standard widows and orphan utility company in the South where regulatory relations are very favorable. These days, everybody's worried about carbon regulation,

and Southern is very dependent on coal, which is a very dirty form of fuel. And I'm all for carbon, but my belief is that we can't kill the utilities. They're essentially pass-through entities with their costs, and whatever additional costs will be passed on to the consumer, i.e. Southern, will make it through this just fine. Seth? I think James meant to say he's in favor of mitigating the effects of carbon, because I know that he is a tree-hugging guy.

I was not clear about that. Let me be clear now. And he is actually literally a tree hugger. He is a great enthusiast of trees. He's an arborist. Yeah. Isn't that the word? I'm not a professional.

I'm in the American conifer society. I don't let this become widely known. You're a card-carrying member of the American conifer. It's not actually a card. Do they give cards? That would cost paper. You get a magazine every quarter, and there's a group meeting. Yeah.

So send your tree questions for next week. My stock has very little to do with trees. If you were a tree, if my stock were a tree, it would be Buffalo Wild Wings. Which is a stock, I think they own it at Million Dollar Portfolio. We do. And it is a stock that likes to go up and down. And I told folks here some weeks ago that in the low 40s, I thought Buffalo Wild Wings was probably too expensive

and that you might expect it to settle down. And all of the restaurants were, for some reason, trading higher at that point. And now we're down into, what are we at about? Oh, the low 33, 32 mark. I think once you get back down towards 30 again, or even now, you're probably in good shape for the long term. So keep an eye on this one again. Trader Seth, listen to this.

You know what? It's not necessarily. What's the moving average on this puppy? I don't do that when I have the chart. But seriously, sometimes people will pay you more than your stock is worth. There is no shame in selling it then and then waiting to see if people will offer it for less than it's worth. And I think we're getting close to that. Okay.

Seth Jason, James Early, Ron Gross. 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, and we'll see you next time.

Thank you.