Motley Fool Hidden Gems Investing - Motley Fool Money: 07.10.2009

Episode Date: July 10, 2009

GM reemerges from bankruptcy. Google announces plans for a new operating system. Amazon cuts the price of the Kindle 2. The SEC continues to examine Apple’s disclosure about Steve Jobs’ health. We'll talk about what it all means for investors, share some investment ideas, and debate Levi Johnston’s value if he were a stock.   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 Hill. I'm joined by Motley Fool Senior Analysts Seth Jason, James Early, and Shannon Zimmerman. Guys, welcome. Howdy, howdy, Chris. Good to be with you, Chris. A lot to get to this week.

Coming up, GM returns from the dead, Amazon shakes things up with the Kindle, and the SEC continues to probe Apple. Whoa. Yes, yes. Hold on to your shorts. Those stories and more, plus we'll share a few stock ideas, but we begin with the news that Google is launching a new operating system based on its Chrome web browser.

It's expected to make its debut in the second half of 2010. Shannon, in terms of the operating systems market, is this a game changer? Well, are we talking putt-putt or the Super Bowl? Any sport you want, baby. All right, so this is candy land, goofy golf. I'll give it that, but no, it absolutely is not a game changer. They have some orders in place apparently for netbook suppliers, and that's something because Google, for all their endless innovation, remains an ad sales company. And so they're deeply cyclical, smart about it, but still deeply cyclical, and they need a diversified revenue stream.

This is not going to give it to them, but I think it's an interesting story nonetheless because they are gaining some traction with their Chrome browser, which I can attest is a fantastic browser, particularly when you compare it to the bloatware of Internet Explorer. Because what do you want a browser to do? What's the main thing that a browser could do to improve your web experience? It could be faster, and Chrome is measurably faster, particularly compared to IE. I'm going to disagree a tiny bit. I use actually a different collection of browsers. And Internet Explorer is big and bloaty, but it does a lot more stuff.

And so sometimes I use that, and then sometimes I switch over to a light Firefox or something. So I think it's a different tool, and I think Chrome is an interesting tool. I did use it for a while. This thing to me is the most revealing about sort of the business press and the tech pundits out there. everyone you know wants to sort of clap and applaud applaud for google and this isn't really that that first of all this was leaked a month ago or something so it's not such new news anyway but second of all it's just another linux operating system and that's how netbooks began and a very strange thing happened to netbooks after they became more popular suddenly windows

xp became kind of the dominant os on them and that surprised me but really it was because people sort have wanted some of their familiar applications. So I really don't see that Google has a leg up on the other Linux OSs, and I don't know that they have a leg up on the Microsoft OSs in this space. So I think they'll get some market share, but I don't think it's a

changer. And I have to agree with you, Seth, even though it's well known that you're on the Microsoft payroll and consistently bearish on anything non-Microsoft. I will read one quick headline from Business Insider, the Henry Blodgett blog site. Busted. Eric Schmidt caught using a BlackBerry as opposed to his

Google Android device, which you should be using. So that at least tells you something about the faith of Google's own CEO. What happened to all that Android? That was the big buzz in maybe a couple of phones. Nobody sees it now, right? Yeah, and again, I don't think this is going to be a game changer at all either.

I do think Chrome is a great browser. If you are using it for sort of basic computing, it is not bloated in the way that IE is, but you're right, it does do more. Firefox does more as well with extensions, which Chrome does not support. But the watchwords at Google are speed, simplicity, and security. If they do build this operating system with the DNA of Chrome in it, they've already hit the first two on the head.

The third will depend on how popular it is. The more popular the browser becomes, the less secure it becomes. Ask Billy Gates. Exit question, just to build off of the business media that you were talking about. It is set up, this news has been set up by a lot of the business media as Google versus Microsoft, even though there are other companies. That's just the story people like to tell. Well, so just to go a little bit further, I think that is way overblown. and there's a lot of controlled burn hype, and Google's the master of that, certainly.

But to the extent that they're pointing to a cloud computing future, that's of interest, and Microsoft is paying attention, and they should pay attention. And for me, with my 1,000 gigabytes of MP3s, I can't wait until I'm storing those things in the clouds and not on some physical storage in my house. All right. GM emerged from bankruptcy on Friday. CEO Frederick Fritz-Henderson says the new GM will repay about $50 billion in government loans ahead of the 2015 deadline, and he says the new GM will actually make money. GM is also launching a Tell Fritz website so that customers can share their thoughts

on what they want in a car. James Early, is there anything that you would like to tell Fritz? Certainly, Chris. On the positives, just to tick them off quickly, fast bankruptcy. They got rid of the debt, the external debt, and that was great. Board shakeup, cutting some brands like Hummer, Pontiac, et cetera. The only problem is that they're still making GM cars, and that's really the crux of it. I mean, they're getting good reviews.

The styling, though, is for middle America. Even middle America doesn't like that. I mean, I think of it as being sort of the made-for-rental-car market. You know, the positives, though, they do have the Volt coming up, this electric hybrid kind of car. Camaro is good. Trucks are good. Their cars get good reviews, but they are a smaller company, mean they're betting a lot on a few products that, aside from the Volt, don't even necessarily get great gas mileage. And one of the issues I think that people still don't pay enough attention to

is the fact that they're going to have some pressure from the government to, obviously, who are the owners now, right, to create these fuel-efficient cars. And I'm all for that. The problem is that creating hybrids, especially plug-in hybrids like the Volt, is not a cheap thing to do because there just aren't that many economies of scale for parts and everything. So what I'm reading these days is that the Chevy Volt, which actually runs a generator, so it's a plug-in hybrid that actually when the engine runs, it doesn't run the wheels, it runs the motor, the electric motor, that this thing may be $30,000 to $35,000 to buy. And that may be selling it at a loss. So this thing is pretty interesting technology, but it's definitely

not a savior and folks shouldn't push it too hard because it could crimp the new company's profits. Bloomberg reported this week that the SEC still has Apple on its radar. The issue? What did Apple's board of directors know about Steve Jobs' health, and when did they know it? On January 5th, Jobs announced he had a hormone imbalance. On January 14th, he announced he was taking a five-and-a-half-month medical leave. Jobs went on to have a liver transplant that was first disclosed by the Wall Street Journal. Seth, let's do a quick roll call of some of the folks on Apple's board of directors.

We have Google CEO Eric Schmidt, Intuit CEO Bill Campbell, some guy named Al Gore. How bad is this SEC situation for Apple's board? To me, it just confirms something that I've thought ever since they whitewashed the options backdating at Apple, which is that the board there just doesn't do anything except rubber stamp the decisions that Jobs makes. Now, luckily, Jobs has had some really great ideas about what to do with that business, especially what to do with the products. But as we can probably surmise from his ongoing health issues, that he may not be around too long to keep doing that.

So the board, Apple shareholders deserve a board that is actually taking care of the business, and I don't think they are doing that at all. And really it's unconscionable, but nothing's going to change. Yeah, that's exactly right. They had a wonderful opportunity to sort of come up with a succession narrative in Steve Jobs' absence. They didn't do it. That was a squandered opportunity. He was away.

The company did some interesting things while he was away, and they lost that opportunity. And so Steve Jobs rules that world, but for how much longer, who knows? Yeah, it's said by board observers that famous people, politicians, and pro-athletes are the worst people to have on your boards. And they don't have a pro-athlete, but they do have the others. Unless you're the CEO who just wants everything his way. Now, just to play devil's advocate, there are some legal experts out there saying, you know what? There are privacy issues that trump anything. But no, no, no, no, no, no.

When you're that important to a company and you're the CEO, medical issues that encompass whether or not you're going to be alive next month are not private. Fair enough. Amazon just reduced the price of the Kindle 2 by 60 bucks. The electronic book reader device that Seth Jason loves more than life itself now retails for $299. I hate it now. What's the deal with that? I paid a lot more than that for mine. So is this a bad sign for Amazon?

No, I think it's a good sign. The explanation they gave is that they are making more of them and they're able to cover the costs, and so they want to lower the price. And other observers are looking for, they want those weird narratives. So they're saying, oh, maybe Amazon's trying to pre-compete with some Apple device that, of course, doesn't actually exist, so they're lowering the price ahead of time. I don't really, sometimes the simple story is the right story. And if Amazon is selling enough of these, they could probably afford to sell them a bit cheaper

because they're covering more of their fixed costs with more units, and why not pass that savings along to the customers? So why the secrecy then? Why not just tell us? Why is Amazon so cryptic about their – No, they did say that. They said our manufacturing costs aren't that high and we just want to pass the savings along.

Yeah, I tend to agree with Seth on that. It reminds me of a comment from Flannery O'Connor. Some graduate student was giving her some Freudian interpretation of a short story, and she said, you know, sometimes a cigar is just a cigar. I thought Freud said that. I thought Freud said that. I can do some Fett checking here. Flannery O'Connor is just blatantly stealing from Freud?

Perhaps. This is how I heard it. Wow. All right, guys. Before we talk stocks, let's wrap up with other news that caught your attention this week. James, let me start with you. Sure. What caught my eye is Buffett's claim that the stimulus package we've had so far is equivalent to half of Viagra and that we need more Viagra.

I mean, I guess he's – I don't know if he's working with the familiar or not. I won't go there. You know, he does not see green shoots, you know, as some other uprising press. Oh, see, you went there. Oh, yeah, sorry. You went there. Do we have to bleep that? Okay, okay, okay.

No, no, no. Look, bottom line is that the P-PIP is a joke. And yes, I did say P. The P-PIP is a joke. You know, I think the goal was to get these toxic securities up and moving. Why? I don't know. You know, even banks are questioning whether they want to do it.

Do they want to give up the upside from these things? Do they want to acknowledge that they need to sell them in the first place and mark to market at a very low price? It's sort of like taking the towel off after the cold shower. I mean, I don't know that they're going to want to do this. So that's my headline. I don't know where we stand. I think we have mixed precipitation, as I've said in this podcast before. Let's just wait and see.

But we keep waiting, and we're not seeing anything. So these toxic assets remain toxic. It seemed like a big problem. It hasn't gone away. But what is happening? Well, bubbles arise and recessions happen because imbalances are creating the economy. So we had a pretty big imbalance. And so, at least in my view, it's going to take a while for that imbalance to correct.

So I think we just have to kind of sit and expect to be choppy for perhaps years. All right, Shannon, what caught your attention this week for other news? For me, the headline was Levi Johnston, who is apparently about to become a member of the Illiterati. I'm sorry, the Literati, by writing a book that's going to expose the Palins. This is Sarah Palin's one-time future son-in-law. Let me do that math. Yes, exactly right. Yeah, that's right.

And so the big salacious headline was that he knows why Sarah Palin has resigned. And so you kind of read into that more than you probably should. And then you click the link, and oh, and it turns out it was about money. She wanted to be able to take advantage of lucrative offers that were floating her way. Which is what we heard like last week anyway, right? And then tech press. Levi's up on the news. So it's interesting to me that he's going to come out and write a book.

And we were talking before the podcast about what we would do if he were a stock. And he is a distressed stock. He may have a pop because apparently in addition to the book, he's working on his acting skills. So maybe a reality TV show is in the works. Oh, yeah. But at that point, dump his shares. Okay. Seth?

I don't have any Viagra jokes to make. I'll stick with Abercrombie and Fitch. I saw this retail. Oh, there's plenty of humor to be had there. Yeah, this retail report. Oh, it was really ugly for June. And a lot of companies, even companies who sell cheap stuff to people without a lot of money, like me, like Costco, didn't do very well. But Abercrombie & Fitch's same-store sales were down, where am I here on this page, in the 30% range.

I mean, it was just awful. And a stock that I called out not long ago on the podcast, Aeropostale, which is, from my geezer eyes, sells pretty much the same clothes except a cheaper version, had an impressive same-store sales gain. And so I think what we continue to see is people pinching pennies, you know, and spending their money at the cheapest place possible. And so I was a little worried about this. I picked Abercrombie a while ago as a stock to watch a few years ago. And I'm pretty worried right now that they are not only suffering a bad economy, but that they just don't have it. All right.

As we head into the next week with Bastille Day coming up, any revolutionary stock ideas? Yes. I think now is a fantastic time to, again, take a look at fixed income. We have been sounding this theme off and on on the podcast for a while. The Dow melting down, the economy is going to heck in a handbasket, the attitude that existed last fall, that isn't with us so much anymore. And so the yield spreads, which is the premium that you get for taking greater risk, in this case for high yield bonds, is not quite as wide as it was back then. but it's still a fantastic opportunity for people that are thinking seriously about asset allocation and moving a part of their portfolio out of equities and into fixed income.

Take a look at high-yield muni bond ETFs and high-yield corporate ETFs. Two terrific opportunities, but that window will likely close as the economy heats up. Okay. James? Yeah, Chris, if you ask yourself, what is the sound of one investor clapping, perhaps a General Motors shareholder knows the answer. For those who don't know, GM is a totally different company owned by the government, The Canadian government bondholders, nothing to do with the current GM stock, which for some reason is up 40% today from $0.84 to $1 something. It's now called Motors Liquidation Company.

Despite this warning on the website, management continues to remind investors of its strong belief that there will be no value for the common stockholders in the bankruptcy liquidation process, even under the most optimistic of scenarios. So who are these people? I mean, can I answer that? I think they might be idiots. I moved the market with a $5 investment, so that's what happened. That's my stock. It's on my radar. I'm not endorsing it.

All right, Seth. I've got to go back where I just was and say, if you're interested at all in a retailer, an apparel company, that seems to be getting the job done, you might have to look at Aeropostale again because I've looked at them over the years. They've made pretty good cash flow, and they're the only one in their space that's getting the job done.

They're not only not having big same-store sales declines, they're actually getting same store sales gains, which is pretty incredible. It was 12% this month. So I think that is a place to look. Okay. Seth Jason, James Hurley, Shannon Zimmerman. Guys, thanks for being here. Good to be with you, Chris. Thanks for listening to this edition of Motley Fool Money. You can check out past episodes at MotleyFoolMoney.com. As always, people on the program may have interest in the stocks they talk about. Don't buy or sell stocks based solely on what you hear. Do your homework and make your own decisions. And remember, the conversation continues 24-7 at fool.com. I'm Chris Hill.

We'll see you next time.