Motley Fool Hidden Gems Investing - Motley Fool Money: 06.29.2012

Episode Date: June 29, 2012

The Supreme Court upholds the healthcare law.  Coke bets big on India.  Google unveils a new tablet.  And McDonald's unveils a bigger, Big Mac.  Our analysts discuss those stories and share some stocks on their radar. 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. Joining me in studio this week, from Motley Fool Inside Value, Joe Maeger. From Motley Fool Income investor James Early and for Million Dollar Portfolio, Ron Gross. Gentlemen, good to see you as always. Good to see you, Chris. We've got the latest on J.P. Morgan's big trading loss, News Corp's big split, and McDonald's big Mac. We will look at the competitive landscape in tablet computers, and as always, we've got a few stocks on our radar, but we will

begin with the Supreme Court. On Thursday, the Supreme Court upheld the health care reform law in a 5-4 decision. Ron Gross, right after the news was public, we saw shares of health insurance companies like UnitedHealth, WellPoint, Aetna, they fell pretty sharply. Hospital stocks were up pretty big initially. But stepping back from all of that, what were your thoughts when the decision was handed down? Bottom line, remove the uncertainty from the market. Market hates uncertainty. Yep. Allowed the winners to run. There you go. James, what do you think? That was tight and punchy. Well, Chris. Yeah, of primary interest to me is the 10% tax on tanning beds, which appears now here to stay. But besides, I'm actually not a frequent tanner,

but besides that- The handlebar mustache would have tipped that off to anyone. I think so. Romney could still, if he gets elected, he could still meddle with this. But it does, to Ron's point, primarily provide certainty. Joe, what do you think? It was a bit of a curveball. The market had convinced itself that the individual mandate was going to get struck down, which might mean that the rest of it got struck down, so there was a lot of uncertainty. Really, to hammer on Ron's point, the market loathes uncertainty. It would actually have a bad thing sometimes, instead of just knowing what the bad thing is, instead of having an unknown floating out there. So,

it is nice, if you do own healthcare stocks, at least you know what you're dealing with going forward. Right. So, circling back around, a lot of the uncertainty was removed. So, hospital stocks, that makes sense. The testing companies like Quest or LabCorp, that makes sense, they'll be beneficiaries. The one uncertainty that still remains is the Medicaid-related companies, because there is an option for states to opt out of some of this. So, if you saw a big state like Florida or Texas really opt out, there could be some impact there. It's probably not the case. The states will probably fall in line, but there still is a little bit of

uncertainty with regard to those stocks, but they did rally. Has it changed anyone's mind? Is there any industry that you look at differently now as an analyst, as an investor, that you think, you know what, I'm now less interested in, for example, medical device companies, because this excise tax is going through, they won't have the pricing power, not all of them anyway. Did anything that transpired on Thursday change your mind? For me, it's hospitals. I've never really spent much time looking at the hospital stocks. Hospitals have a significant portion of their customer base, if you will, their patient base, that end up not paying. This

will be a big deal for them, and the stocks reflect that. And it really may make me revisit kind of the model, and some of the revenue should really be quite higher. James? It does make the modeling easier. I'm a dividend-focused investor, and a lot of the pharma's I wouldn't touch in general, but now at least with the certainty, for better and for worse, I can get in there and model it and feel a little more comfortable. Joe, what about you? Yeah, hospitals definitely look more interesting.

Insurers, some of them might be a little less interesting because what Ron was talking about with Medicaid at the state level, but still a little early to figure out whether that's necessarily a bad thing. Any big questions you have going forward? I know that, you know, as we saw on Thursday, we saw some pretty sudden reactions. There was actually that initial faulty report from CNN saying that the decision— I heard the president at first thought he had lost this battle. For a good 90 seconds, he thought he had lost. Yeah, CNN initially said it was going to be overturned, and then they walked that back.

But, you know, we see these snap trading judgments going on. But long-term, any big questions you have going forward, Joe? No, I think this pretty much ties up a lot of the questions here. I do think you'll end up seeing some reverberations play out over a long time. So, for example, with hospitals, I don't think the market fully appreciates, even though a lot of them popped today, how much value they're going to get out of this and over how long a time horizon. And so, you know, if you're patient, I think you use some nice plays there. And again, depending on who gets elected in November, will this last?

And it's pure form. Health insurance is a very, very touchy, yet critically important thing for Americans. I don't think we're going to leave it untouched forever. A lot going on this week in the world of tablet computers. Google unveiled the Nexus 7 tablet for $199. and a U.S. judge backed Apple's request to stop Samsung from selling its Galaxy Tab 10.1 tablet in the United States. Joe, let's start with Google first. I know that's a company you watch closely. What do you think of the device?

It's a beautiful device. Think of it as a rival to the Kindle Fire. They're both $199. Only the Nexus 7 from Google is lighter, faster, has better resolution, and better battery life. So if you're thinking about buying a tablet, this could make a lot of sense. Now, obviously, people want to compare it to the iPad. You know, I kind of think of these a little differently. The iPad's kind of like a BMW. We all love BMWs and can agree it's a great car, but most people can't afford them. You just want something that'll get you from A to B.

And so a Kindle Fire or this Nexus 7 from Google is something that can do that for most people, and that's why I think it's got a good shot. I'm just wondering, Ron, if you and I were tablets, who would be the Nexus 7 and who would be the Kindle Fire? How about don't worry about it? But Joe has it exactly right. This is not a threat to Apple. Well, it is a threat, perhaps, to the fire. I didn't say it wasn't a threat.

I don't think it's a threat to Apple. I don't think Apple is quaking in their boots at all. I agree today it's not a threat, but I think over the long term, you're going to see these high-end tablets at a low price point start to drive down pricing pressure, and that eventually is either going to steal share or force Apple to come down on price. I think you'll see Apple probably come out with a smaller device

that is lower price on their own. Other than the iPhone. Yes, other than. The mainstream media, and going back to Apple and the court victory over Samsung, Joe, I kept seeing this phrase, major legal victory for Apple. Is it a major business victory as well? A major legal victory would be the one the president had this week. This is a bigger win for Apple than it was a loss for Samsung.

I mean, this tablet would represent a minuscule amount of sales for Samsung. The iPad is a cash cow. I was going to say, Samsung has other tablets. We're talking about just one type of their tablet. Right, in one country. These guys are suing each other all over the globe, and so is Google, so is Microsoft, so is HTC. And, you know, they're winning and losing cases in different courts in different countries. So I wouldn't read too much into one judgment.

I do think ultimately you'll see these guys come together on a solution because, ironically, Samsung is a key supplier to Apple. So they clearly don't want to have to go through these legal shenanigans. In terms of what's going on this week, and particularly, Joe, with Google unveiling this new tablet, to some very good reviews, I should add, who had the worst week? What's the tech company that right now is just going, we are even worse off than we were on Monday? I'd say Nokia. They're having a really tough time right now with Microsoft looking to bring some hardware in-house, doing more work with themselves on the mobile side, that's a real threat to them.

And Windows Mobile was kind of Nokia's last big shot, and now it looks like Microsoft might be willing to go in another direction. Ron, you agree with that? Yeah, you could pretty much say Nokia any week over the last several months, and you'd be probably getting it right. Coming up, J.P. Morgan's $2 billion trading loss may have gained some weight. Details next. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in studio with Joe Maeger,

James Early, and Ron Gross as we go through some of the big stories of the week. Shares of JPMorgan Chase were down on Thursday on a report in the New York Times that the bank's trading loss last month could be as much as $9 billion. James Early, I don't know much about hedging strategies and investment banking, but I know that $9 billion is a whole lot more than $2 billion. It is a larger number than $2 billion, Chris. That's right. It's probably one of the biggest, if not the biggest, if it actually materializes, is that rogue trading loss ever. And that's pretty significant. And to me, the bottom line is that there's no argument now that can be made that J.P. Morgan either adequately understood this trade or had

it under control. Now, that sounds like a statement of the obvious, and it sort of is, But the key point here is not the $9 billion. The key point here is the deregulation going forward. It's like we get a speeding ticket. It's not the $100, the ticket, it's how much your insurance goes up after that. Same thing here with J.P. Morgan, who has long railed against future regulation of derivatives. But I think they should get it, and they certainly need to. Ron, what do you think?

I think the $9 billion headline is kind of misleading. Because I feel, at least when this first came out, it was a $2 billion loss at the time. And there was really, they said, it's going to take time to unwind this. And it could be more than that. I don't know if they said significantly more or more. And so I, in my mind, didn't think $2 billion were done. I figured, you know, it's going to depend on how this trade continues to go for them as they unwind. And it looks like it continues to go south.

You knew it was $9 billion all along. No, but their internal, this document says their internal study said $8 to $9 billion would be the top end of the loss. but perhaps it might end up coming in more like 4 to 6, which is certainly better than 9. In the minor defense of J.P. Morgan, also, it is possible that with the publication of this story and the details of the trade and the motivation of J.P. Morgan to get out of it, they're having a harder time. They're not getting the prices they want. I don't know enough about the trade, though, obviously. In terms of financial stocks, I mean, we talk about investment banks on Wall Street a lot.

But for folks who are interested in that sector, Ron, I'm just curious, your preference. When you're looking at financials, are you more likely to lean towards smaller, like community banks, that sort of thing? Or are you more likely to look at mobile payment or the visas and the MasterCards of the world? I'm typically not a big financial buyer, except for something like insurance, which I like the model of insurance quite a bit. But if I was looking at banks, it would be the easier-to-understand kind of community bank, where I could do some research on the local economy, make a decision about whether I think that was robust or perhaps weak, and then I could make a little more educated decision by understanding their balance sheet.

The big banks, I get a little bit confused. James? Well, just to snipe at one of Ron's points. I like insurance companies, too, but my fear is that they're holding these big bond portfolios, right? They're holding these big bond portfolios, and if we see inflation, they're going to get whacked. Community banks can be great. They can also be riskier than the big banks because they are not too big to fail. So that's one thing.

Another thing I like, Chris, is foreign banks. Like in Canada, Bank of Nova Scotia is one of my recommendations. It's an income investor. It's a much more conservative financial climate. The Canadians just aren't as crazy as we are about leverage. Crazy in the best way. In the best way, yeah. Well, not out here.

In other parts of the world, same thing. It really depends on the regulatory climate because bankers are people who will maximize the rules. Whatever they can do, they're going to find a way. So, it just depends on the rules given to them. News Corp's board of directors has approved a plan to split the company into two separate publicly traded companies. One will operate as a newspaper and book publisher. The other will be an entertainment company that includes 20th Century Fox, Fox TV Broadcast Network, and Fox News. Ron, first and foremost, is this a good plan for News Corp?

I think it's a good plan for News Corp shareholders. I think it is, and probably for News Corp as well. The entertainment division is much more valuable and much more profitable than the publishing business, which is Wall Street Journal, HarperCollins, Times of London. The more valuable assets are those cable networks on the entertainment side, whether it's Fox Broadcast or Fox News. So, this will probably create some value. One thing that's troubling for me is that they've said that they're going to make sure that the publishing business is very well capitalized. They're going to leave it with a lot of cash, and it's going to invest to expand the digital side of this

business to try to turn that. That could be trouble, throwing good money after bad. A few people have tried that before. That worries me. Joe? Yeah, I'm not a big fan of that part, but I like that they're unlocking value by splitting these two businesses. This is a classic conglomerate discount, and that's what happens with stocks, where you have a company that goes out and owns a bunch of different businesses that don't have much to do with one another. Well, investors don't want that. They'd rather own

a pure play business and own a bunch of them and put them together themselves. Companies do that, there's a discount on it, and this is a good way to unlock that. I was going to say, just reading the reports and listening to you guys talk about these two separate businesses, it just seems like if you're a shareholder, you're just almost immediately dumping those shares of the book and newspaper publisher because there's so much more value to be had on the other side. It's funny you say that, yeah, because sometimes the best investing opportunities can come from situations like this, where kind of a sidecar business that people don't want,

it's not the flagship business, gets kicked to the curb immediately by a lot of investors. And sometimes, you know, a newly independent business can find its sea legs and do pretty well like that. Is this essentially the scenario we could see play out with Pepsi and Frito-Lay? I mean, is it that extreme? If Pepsi spun off Frito-Lay, would the disparity between those two separate public companies be as great as what this appears to be? I don't think it would be close, actually. First of all, size-wise, it's not a sidecar

situation. It's much more, they're almost equal. What if we threw in a phone hacking scandal into the snack business? I'd have to think about that. They're very similar. They're complementary. The distribution, and there's an argument even to be keeping them together

because of just the distribution relationships. Speaking of Pepsi, Coca-Cola is planning to invest a total of $5 billion in India over the next eight years. The company had previously said it was going to invest $2 billion between 2010 and 2020. James, why the big doubling down on this bet? They want our diabetes-inducing drinks, and we're happy to supply them. Why would you say that? One of America's brightest companies.

So, Coca-Cola is a recommendation on my scorecard. I like it. I do not like the product, but I like the company. I don't know what that makes me. But what is amazing here, Chris, is actually the size of this investment. Because according to the Wall Street Journal, the Indian sales market is just like a billion dollars a year, which is pretty small. It's like 12 sodas a year. Coke, this is like a $5 billion investment.

They're really banking on a culture shift here, not just incrementally more sales. Joe, when am I, as a Coca-Cola shareholder, going to see this pay off? Over decades. I think this is... So no time soon. No, but I mean it in a good way. Coke is so out in front in emerging markets. They actually get most of their sales from outside the U.S.

They do huge business in Latin America, and it's because they recognize that you need to get distribution and build brand awareness early in these economies, and especially where you have rising tides lifting all boats. People can afford more expensive sugary beverages. And I really do think this is a great long-term move for them. James, if you're Pepsi and India has been one of your brightest international stars for a long time, Aren't you just horrified by this news? Yeah, yeah. I mean, you are, but you've also got other worlds to conquer.

I mean, it's still kind of a land grab in a lot of places, as Joe says. Just Coke versus Pepsi in terms of the stock over the next five years? Don't make me pick. They're both in my scorecard. Okay. Joe, I'll make you pick. Ron? Yeah, I'll go with Coke.

And finally, McDonald's is unveiling a new burger in Germany called the Bigger Big Mac. It is 45% larger than the regular Big Mac. Not to be outdone, guys, KFC, Yum! Brand's own KFC, has unveiled the Cheese Top Burger in the Philippines. It is a fried chicken sandwich with cheese melted over the top bun. I'm just going to go on record as saying, and I've said it. On the top? That's not even practical. It looks disgusting.

It's not all that practical. It's the decline of civilization, as we know. And I said on this show, the double down that KFC came out with, the fried chicken sandwich with the bacon in between. This is delicious. I would have gotten one of those. This, I have no interest in this at all. On behalf of the people of these United States, I hereby apologize to the citizens of the Philippines for this affront. I mean, it's just an injustice.

It's not even practical to eat. It's not practical. No, but you get your hand in the middle of the cheese, a cheese-like product or whatever it's called. What do we think about the bigger Big Mac? First of all, when I first read it, I kept thinking of the scene in the movie, this is Spinal Tap, when the guy had the amplifier that goes up to 11. It's like, no, this is a bigger Big Mac. It's like, well, but the name of the sandwich is the Big Mac.

I mean, it sounds ridiculous. I will give McDonald's credit for knowing their markets and doing research. So they obviously see demand for this. It also could be just a trial, and they'll yank it if it doesn't work. It's nothing ventured, nothing gained. It implies the problem was the Big Mac was not big enough. I was just going to say. Who would even think that?

Joe, are you interested in either one of these sandwiches? Well, at least the name is apt. I'll say that. Steve, let's bring in our man from the other side of the glass. What do you think? I mean, two brand new burgers. What if we throw in a trip? You get a trip to Germany to try the Big or Big Mac.

You get a trip to the Philippines, but you have to try the Cheesetop Burger. But the Cheesetop Burger is actually chicken, which should be noted. But the name of the sandwich. That might affect Steve. I want Steve to have all the information. I do like chicken and I do like cheese, so I think it's a win-win. I don't see how this could be a bad thing. It sounds delicious.

Pack your bags. And I've never been to the Philippines, which also sounds delightful. All right. Ron Gross, James Early, Joe Maker. Guys, we'll see you later in the show. Coming up, more on the Supreme Court's big decision and a look at biotech stocks. Stay right here. This is Motley Fool Money.

Welcome back to Motley Fool Money. I'm Chris Hill, and joining me in studio now from Motley Fool Pro and Motley Fool Options, Jeff Fischer, and for Million Dollar Portfolio, Charlie Travers. Guys, thanks for being here. Great to be here. Thanks, Chris. We want to continue the conversation because it was such a huge decision that the Supreme Court handed down on healthcare this week.

And Charlie, I'll just start with you. I mean, we saw the reaction in the markets on Thursday, but what was your reaction as an investor, as someone who analyzes healthcare industries, pharmaceuticals, all that sort of thing, what was your reaction? I'm a little concerned about the impact on the health insurers. And what is the fallout from this ruling is that the law is going to stay intact. And what that means is that the insurance companies are not going to be able to exclude people for coverage because of their medical history. As a society, we can say that's a good thing. But from the perspective of a business that relies on making a profit, what this means is that the insurance

companies are not necessarily going to be in control of their costs because a large part of the premiums, roughly 85 percent of what they collect, has to go out to pay for somebody's medical care. And the problem here is that their costs are going to rise. And unlike most insurance companies, like if you pay for life insurance or house or auto and you're used to premiums increasing, the health insurers have to get a regulator to approve their premium increases. So they can get squeezed here pretty badly, and their profits will shrink. And that makes it a risky stock to own. I was just going to say, obviously, different companies have different strengths. But it sounds like you're basically saying, with one broad brush, this industry is

less attractive to you as an investor. Absolutely. Especially compared to other places in the healthcare space where you've got companies providing innovative R&D to actually treat people. And those are more interesting to me. All right. We'll get to those in a second. Jeff, what was your reaction? So, the market dislikes uncertainty, of course. And this took away some uncertainty, which helped a little bit. But in a nutshell, all we're looking at is more people seeking more healthcare services. And that's a good thing, you would think, for the industry as a whole. But on top of that, more costs and more hurdles, as Charlie just talked about. So, in the end, it's kind of a wash, and that is the intent

of the law. It isn't meant to be a boon or a penalty to any part of the industry. It's ultimately just meant to make sure that more Americans are insured, so that society isn't footing the bill. So, what you see, though, right now are healthcare stocks have been, generally speaking broadly, inexpensive for a number of years. And I think that's going to continue, because this bill doesn't really, aside from, I agree with Charlie's concerns with the insurers, but overall, the bill doesn't, the law doesn't move the needle that way, that much, one way or another. We did see hospital stocks rise on the news when it broke Thursday morning. Any other winners, whether it's in the short-term or long-term, Charlie, that you, industries that

you look at and say, you know what, they're actually going to benefit from this in the long run? There's opening the door here for the creation of what's called biosimilar drugs, which are generic versions of the biotech companies' drugs like Amgen, Genentech, these companies that over the last decade have produced some groundbreaking treatments for arthritis and cancer. But there's been no FDA approval pathway to get generics of these drugs out. And these can cost tens of thousands of dollars a year. And now with this new law, companies like Novartis and Momento Pharmaceuticals have the ability to make cheaper copies of these drugs. And this will bring healthcare costs down for everybody. Yeah, Chris, so hospitals were up

and medical diagnostics equipment providers were up like Quest and LabCorp. And the reason being, obviously, more patients, more customers who are actually paying now. But the one thing to remember with hospitals, it's a really tough business to begin with. And hospitals receive a lot of reimbursement from the government for health promotion programs, and there's no guarantee that those reimbursements will continue with a new budget that comes next year and all our concerns about the deficit. I want to get to volatility, because this was one of those weeks, Jeff. I mean, we've seen different periods of volatility, but this just seemed like one of those weeks

in the market where we saw snap decisions being made. There was the initial report from CNN that actually they were reporting that it was going to be overturned, and there were probably, I'm guessing, some people making snap trading judgments on that. How do you manage volatility in the services that you run and sort of in your approach as an investor? Since about 2000, so for 12 years, I've been working to manage volatility, and Motley Fool Pro is the result. It's the service that I run here primarily, Pro and Options. Pro uses options and hedging and shorting in very basic ways to smooth out our returns. We want to make some returns when the market is flat, returns when it's down, and then the majority

of our returns when the market is up. So, you can smooth out your returns, lower your volatility by hedging with some simple shorts or index hedges, or using options, basically option writing strategies that pay you premium month after month, and that income adds up and softens the blow of volatility. See, I have kind of a weak stomach as an investor, so I'm not looking for volatility, but it sounds like, on some level, you're rooting for it. Is that fair to say? On some level, you are paid more when you write options in a volatile market, so that's more income in your pocket. That's great. Volatility in general, Charlie will agree,

brings opportunities to buy things cheaper or to short things that are up. So, if you can stay balanced, just keep your head clear. Volatility is then a welcome thing. I want to make a shameless plug, because your service pro is getting ready to reopen. There's a microsite that you guys have put together, and I'll give the URL in a second, but what can people find when they go there? Yeah, we're talking about the election coming up in November, and what happens to the market and to certain industries and stocks. If Romney wins, what happens if Obama wins again? How do we make money no matter which party wins? And that's the microsite, has roundtable discussions

about all these topics and shares free reports strategies that we use in pro to make money no matter what the market does all right it's a free site uh the url gopro.fool.com that's gopro.fool.com just to wrap up on this health care decision one thing that you're watching going forward for the long term charlie jeff touched on this earlier the goal of the legislation was to get access to health care for more people and a lot of that comes through the states with their medicaid programs But unfortunately, a lot of the state's budgets are really stretched, and so they have to make decisions. Do they pay for health care? Do they pay for education? And I think actually the implementation of these programs is going to be something to keep an eye on in that environment.

Jeff, what about you? So I'm watching Medtronic very closely. One way to invest well is to know something very well and just keep your eye on that. Medtronic is the largest medical devices company in the country. They're the number one or two position in just about every medical device unit you can think of. And the stock has been inexpensive for years, and I'm hoping that with some resolution on this law, it'll finally appreciate it. It trades at a very cheap multiple to free cash flow. They do have to pay about $130 million annually now in excise taxes every year due to this bill.

Like most Congress people, I have not read the whole bill or even parts of it. And so I don't understand yet what this tax is about. why single out medical devices companies and make them pay this tax when they spend so much on R&D to provide products that make lives better. So anyway, I'm hoping Medtronic can finally get some traction and expand its valuation. But if they're the largest medical device maker, don't they have a greater ability to simply just pass their costs on to their customers? They have some pricing powers, some, but not so much, because insurance depends what they pay for things. But what they've done in the last few years in anticipation is work to lower their

costs. So everyone's ready for this. Everyone knows, knew it might be coming. And now hopefully the valuation is going to start to improve here. Charlie, you mentioned earlier Momenta Pharmaceuticals and the healthcare decision handed down by the Supreme Court. Not the only legal drama in the wide world of healthcare, because we saw Teva Pharmaceuticals, which Their biggest brand name product is Capaxone, which is a treatment for MS. Teva had sued Momenta and three other companies for essentially patent infringement. The court ruled in Teva's favor. Momenta got whacked earlier this week.

It was down 20% in one day. Yeah, a little bit of pain there, Chris. This seems like a lot of pain. This industry is possibly the most litigious industry around. And the reason is that these companies rely on patents to protect their inventions. In the United States, a drug is covered with a patent for a period of 20 years. And legal battles are very common because, as you mentioned, Copaxone is their bestseller. This is a $3 billion product.

And they have to protect that. The patent does expire in 2015. And then Momenta and its partner, Sandoz, could have the rights to sell their own complete copy of it if they can get FDA approval. But they were trying to get on the market a little faster because this is just a big pinata sitting out there for them to go after. What do you look for primarily when you're looking at a biotech stock? Are you looking for their history? Are you looking at their management?

Are you looking at what are the diseases or treatments that they're trying to deal with? Two things, Chris. One is financial, and that would be a strong balance sheet. Drug development is heinously expensive. It costs hundreds of millions of dollars, so you need a company with a lot of cash on the balance sheet to pay for that. And then high-quality R&D, a company that's going for an unmet medical need, kind of diseases where there's not a lot of competition, that kind of thing.

One biotech stock that's on your radar? I like Momenta at these prices. Jeff, what about you? I can give you 200 biotech stocks on my radar. I am not a biotech expert, but there are two ETFs that are really low-cost, and they each own 99 biotech companies, so you're really diversified. And when some win, as you know, they can become an Amgen or a Genentech. And that makes a big difference to this whole ETF.

One is Spyder S&P Biotech ETF. The ticker is XBI. It owns, it holds 99 smaller biotech companies. Another is iShares NASDAQ Biotechnology ETF. Ticker is IBB, as in boy. That owns 99 biotech leaders, many of the giants. So that's a good way to just own the whole sector. And they've both done, I was surprised to see, really well this year.

They're both up around 20% year-to-date. A lot of winners and losers in health care. Is it safe to say that the lawyers had the best week of all this week? Don't they always have the best week? They win no matter what. Jeff Fisher, Charlie Travers. Guys, thanks for being here. Thank you, Chris.

Thank you. Coming up, we will dip into the Fool mailbag and give you a look at the stocks on our radar. This is Motley Fool Money. 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, Joe Mager, James Early, and Ron Gross. Guys, before we get to the stocks on our radar, folks can always email us.

Radioatfool.com is the way to get a hold of us. Radioatfool.com, that's our email address. A couple of emails to dig into. From Rob Catlin in Taiwan, he writes, in this low interest rate environment, isn't it true that the yields at a company like Annalie Capital will be higher and the dividend yield on a company like Paychex would be lower? If the interest rate goes up, will we see Annalie's dividend go down and the dividends for Paychex go up? Currently, the yield on Annalie Capital is 13% and Paychex 3.9%. James, earlier, our dividend guru, I turned to you first.

There's a lot bundled in there. First, let me factor Paychex out of the equation. Paychex is primarily an operating business. Some of these companies make a little bit of money on the float of the payroll as they process it, but it's not the majority of their income. That's kind of a misnomer. So Paychex will just do what Paychex does. And MREIT, like Annalie, MREIT stands for mortgage REIT. What they do, they basically borrow money at what's called the short end of the yield curve. These are sort of the shorter dated debt obligations, typically at lower interest rates, and they take that money, and they invest it in mortgage-backed securities at the longer end of the yield curve. People are paying into these things. So in other words, a steep yield

curve benefits an MREIT because they can borrow, just like a bank, they can borrow short-term, and they can sort of buy these long-term obligations. Now, what happens when the yield curve gets inverted or flat, which Operation Twist is trying to do now, it's trying to push down long-term at the expense of the short-term, that's going to pinch MREIT. So MREITs have already suffered. A lot of them have cut their dividends somewhat. We could see more of that. But the question, if it's already paying 13%, even if it cuts it to 11% or something like that, is that really that bad? Ron? I think it's also important to just remind listeners that REITs have to pay out 90% or so of their, let's call it income cash flow, as dividends. So you get that,

you know, by definition, that higher yield with REITs than you would perhaps an operating business like a paycheck. And it is taxed at ordinary income rates, so you want to hold it in an IRA or something like that. Is it fair to say that the mortgage REITs are just not big fans of Ben Bernanke, if Operation Twist is a twist? The only good thing about Operation Twist is it's not going to work. It didn't work last time. It might have a very minor effect, but not enough to really throw a wrench in this. Joe? I'm a Paychex fan. That one got thrown to the curb there. I like that float.

Yeah, I agree with James. It's important to realize most of the money they make comes from processing checks, but that's a great tollbooth business. They can push through price increases, and they recently raised their dividend for the first time since the big financial calamity, which is a sign of a little bit of progress and better things to come. Email from Doug Clark

in Wyoming. He writes, hey guys, I drive a truck and I download the podcast so I don't miss a show. That's always nice. Thank you, Doug. My question is, what's up with Radio Shack? Now, that's Doug's entire question, so I suppose there are a few ways we could interpret that. What's the deal with Ovalt?

But first, let's go to our man Steve Broido. Steve, you're a Radio Shack connoisseur of sorts, aren't you? I am indeed. I do like Radio Shack. It's the only place you could go. I imagine if I wanted to build a robot, Radio Shack would be my first stop. Do you have an answer for Doug in terms of what's up with Radio Shack? I don't.

I can tell you, having been at a Radio Shack recently, the stores appear to be getting smaller. The footprint of the store? The footprint seems to be the same size, but they're removing inventory. They used to go in and there'd be 13 shelves stocked with all kinds of weird things, and now there are two shelves, and it's a real open. They're selling cell phones and MP3 players. They're selling what basically everybody else is selling. So, fewer products on the shelves.

Fewer products on the shelves. Doesn't make any sense to me. Ron Gross, I'll turn to you. What's up with RadioShack? As a deep value investor, it is tempting to jump into RadioShack. I don't know, where's the stock? Three? Book value is significantly higher. there. The problem is ... O' Book values and calculator batteries. Right. The problem is, a lot of the book value is in inventory. That is questionable the value. So, they can't get their merchandising strategy right. There's too much competition

out there, whether it's between Best Buy, which I don't like, either, or Amazon, or what have you. They're trying to reinvent themselves. They sell iPads now, they sell cell phones. I go there only if I need a lithium battery, which nobody else has. But interestingly, This week, their chief merchandising officer resigned. I would imagine it was not a fun job. So we'll have to see who they get and where the strategy goes from here. There's going to be another saga here. Just very quickly, when the iPad, the new iPad came out, I wrote some story about people camping out for two days to buy it from the Apple store.

This journalist went into the Radio Shack nearby, and they're just stacked some. There's literally no one else in the store. Now, that's something very good about Apple, about how hot their products are elsewhere, but something very bad about Radio Shack, too. Doug, I hope we answered your question in some small way. Again, you can always drop us an email at radio at fool.com is our email address. Let's wrap up with the stocks that are on our radar, and we'll bring Steve in with a question for each one of you guys. Ron Gross, you're up first. What's your stock? In thinking through an article I was writing for the 4th of July, I came across H.J. Hines,

a recommendation from my colleague James here over an income investor. Ticker symbol HNZ as in zebra. The winner in ketchup, let's face it, sells 650 million bottles of ketchup every year. Company is still growing after all these years. Stock isn't dirt cheap. I need to dig in a little there, but nice return on equity. And the market leader, really strong brands, Orida, Classico, not just the Heinz ketchup. I do love tater tots. Love me some tater tots. Steve? Where did the green ketchup go? Remember that craze, green ketchup? It was nasty.

It went right where it should go. Thought they were onto something there. James Early, what's your stock? Chris, I have this love, hate, anguish, torment type feeling with cereal makers. I've had Kellogg's on my scorecard and then sold it after they had the bacterial contamination incident when they laid off their sanitation workers. General Mills just recently raised its dividend. The Big G?

The Big G, yeah. They wanted everybody to call them the Big G, and you can't pick your own nickname. It doesn't work like that. Call me T-Bone. Exactly. That might stick. 8% dividend yield, increase, I like that. Statistically, stocks that are increasing their dividends tend to do better than stocks that don't.

3.5% overall yield right now. Stock has been roughly flat for the past couple years, and it's on my radar. I'm debating, is it enough of a performer to bite into, or is it just kind of like a flat, okay stock? Steve Broido, question for James? Sure. Do unions play a part in General Mills? There was a factory near my own town, and I thought a lot of those people were union employees. I do not know what percent are unionized. I'm going to guess probably, but yeah. Joe Mager, stock on your radar this week? A Jeff Fisher special MasterCard. It's a beautiful business. So MasterCard makes a ton of cash

because it's a high margin business. There's not a lot of capital requirements and we are shifting more and more dollars through plastic. We're moving away from checks and cash, moving towards plastic and online shopping. And Visa and MasterCard are big beneficiaries. MasterCard's stealing share from Visa, which is nice in the U.S., but they're also growing big internationally. You tell them, T-Bone. And the ticker symbol? MA. Steve? How does MasterCard get bigger than Visa?

I don't think they're going to get bigger than Visa, at least for a couple decades, but still could do plenty well enough to do well for the stock price. Why would I want a MasterCard over a Visa? What is the advantage? Well, I think they're both great, but what I like about MasterCard is it'll probably steal some share from Visa over time, but also is the number two. Everyone wants to partner with MasterCard. Nobody wants to partner with the big guys, so things like Google Wallet, for example.

So it's a nice call option. Steve, three stocks there. You got one you like? I think MasterCard sounds pretty interesting. Yeah, I'm back on the board. The green ketchup really killed it for you, didn't it? Sure did. Joe Mager, James Early, Ron Gross.

Guys, thanks for being here. Thank you, Chris. 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.