Motley Fool Hidden Gems Investing - Motley Fool Money: 08.08.2014

Episode Date: August 8, 2014

Disney reports big earnings.   Procter & Gamble announces a big move.  And shares of Lululemon rise on insider selling news.  We discuss those stories and Motley Fool analyst Joe Magyer weighs in on value investing, GM, Facebook, and Google.  Learn more about your ad choices. Visit megaphone.fm/adchoices

The Royal Canadian Legion is celebrating its 100th anniversary. And now, our change has a $2 coin to mark this milestone. Honour the Legion's mission to carry forward stories of service and sacrifice to new generations. And their dedication to supporting veterans and their families from coast to coast to coast. Celebrate this enduring legacy. Find the 100th anniversary of the Royal Canadian Legion $2 coin today. Chris Hill, joining me in studio this week from Motley Fool Income Investor James Early and from Million Dollar Portfolio, Charlie Travers and Ron Gross.

Good to see you, gents, as always. Good to see you, Chris. We will dig into the latest news on retail, healthcare, gaming, and more. We will head down under to look at investing in Australia. And as always, we'll give you an inside look at the stocks on our radar. But we begin this week in the Magic Kingdom. Strong second quarter results from the Walt Disney Company. Profits up 22%, higher than expected, Ron.

Theme parts, consumer products, two divisions looking particularly good. I feel like singing Let It Go. Can we all just for a moment? Well, Frozen is a big part of this. It is a big part. and everything really looks strong. Usually we're focused on ESPN. We always say, we always lead with that.

In this case, if you had to pick a weak spot, it would be that. The high cost of Major League Baseball, World Cup, eight into profits. We actually saw a reduction there. Everything else was great, though. But, James, when you look at the Walt Disney Company, it's hard to remember, but it wasn't that long ago that there were serious problems in one or multiple of these divisions. But to Ron's point, when your problem is, well, media isn't making quite as much money as it used to, things are pretty good. This is one of those stocks, Chris, that has looked a little bit expensive for a long time.

And I've kicked myself for the past, I would say, three years for not buying earlier. So I would concur. And it's really nice to see. We went through the years of the John Carters, if you remember that wonderful movie and the huge write-downs and really some flops. And the studio is really doing wonderfully now. We mentioned Frozen, but you have Captain America. Maleficent did really well. So that bodes well for the studios.

It bodes well for DVD sales, which has also been a troubled spot at certain points of time. Next year we have Star Wars. We have a Pixar movie coming out in 2015 probably, The Good Dinosaur I think it's called. So the studio is really doing well. Then you have the rebounds of the parks. ESPN, even if it's weak, it still produces a ton of cash flow. The company is doing really well. Are you a lot back in the parks now?

I don't know what that means. Well, let's move on to retail. Second quarter profit from Michael Kors was better than expected. Sales were up in Europe and Japan. Charlie, this looked like a really good quarter, and the stock barely moved this week. Yeah, I would say it's a phenomenal quarter. Revenue's up 43%. They did 24% comps.

I can't think of any other retailer that does those kind of numbers these days. And their run over the last few years has been absolutely phenomenal. It's not just North America, but Europe, Japan. It's really globally they're just crushing it. But, yeah, as you mentioned, the stock was down. There's two concerns here. The first is that comps are slowing down. They said they're going to do high teens for the rest of the year.

If anyone else could do high teens, you'd be thrilled about that. But from where they've been, that's a little light. But still, it's fantastic. But then the other concern was falling gross margins. I think a lot of the analysts were worried about discounting. The industry is highly competitive, but it's not just Michael Kors seeing gross margins slipping a bit. Big competitors like Coach and Kate Spade have also seen their gross margins down this year. They did say on the call that they brought their fall items out too early

and that their consumers were still interested in the spring items, and that's part of the reason for the decline. They're not worried about it, and given their track record, I really wouldn't be either. I'm glad you mentioned Coach because, as you indicated, the day Michael Kors came out with this report, the stock was down. It rebounded later in the week. On the flip side, you look at Coach, which also reported this week, fourth quarter sales down, profits for the quarter down more than 60 percent, and shares of Coach up around 8 percent for the week. How low are the expectations for Coach? I know it's been struggling lately, but come on. Well, Coach had been doing comps of

about minus 20. So when you do better than that, I mean, really, the expectations for Coach were absolutely horrible because their new products don't come out until next month uh you know they thought that they're just going to struggle until that happened uh but they came out better than everyone charlie it's a little known fact that you actually follow purse blogs fairly uh oh yeah yeah yeah you're optimistic about you joke but when charlie was doing a ton of research for for coach he was he was on those yeah yeah you got to do it that's the product bank of america is reportedly close to the biggest settlement ever with the U.S. Department of Justice. This, of course, is related to the bad mortgages sold in the run-up to the 2008 financial crisis.

And James, the numbers that are being reported, this would be a settlement somewhere in the neighborhood of $16 to $17 billion. $9 billion would be fines to federal and state governments. The rest would go to consumer relief. Assuming this gets announced in the next week or so, is this finally the end for Bank of America in terms of the damage that was done? Chris, the beauty of America is that anybody can sue anybody at any time. So there's no guarantee this is not the end. But I have to think, if you're a private investor, you probably sued them already. This settles with basically the attorney general and all the state attorneys general, I believe. So it's probably the end. I think Washington Post said they will have paid

$66 billion in total legal costs, but I think they lost about $965 billion, or they sold about $965 billion in bad mortgage-backed loans. So it's still a small portion compared to the damage they caused. Yeah. Our colleague David Hanson tweeted out earlier this week, for the amount of money that Bank of America has paid in settlements, they could have bought the likes of Whole Foods, Chipotle, Under Armour, Waste Management, et cetera. If you're Brian Moynihan, And the CEO, are you happy that this is now almost behind you, or does this raise the bar for him to actually – because now he can no longer use this as an excuse. He has no more excuses, yeah. I mean, he's made a lot of excuses, and that's hurt him.

I think he should be happy. Bank of America just got the okay to raise its dividend for the first time in, I want to say, seven years, too, which is also pretty exciting. So, yeah, now it's on him. Back in February, CBS announced it would stop selling tobacco products this week. CVS reported second quarter profits rose 11%, but Charlie, they break out their earnings. They break out the pharmacy section and what they call the front store sales. That's where the tobacco products were being sold. And for CVS this quarter, front store sales were down about a half percent.

And I think it's reasonable to look at this and say, well, for all the applause they got from some corners to stop selling tobacco, this is affecting their business. It is, and it's going to affect it even more as they roll through their fiscal year. Their goal is to be totally out of tobacco by the fall. So if you're in a CVS and you see tobacco behind the shelves, it's because it's not broadly across the company at this time, but it's on the way. And as a result, the full year impact is going to be even worse than what they reported this quarter. They said about a 4% drop in their comps for that segment for their full fiscal year. But I actually think it's not as bad overall as what that sounds, because it's about $2 billion in annual sales from not selling tobacco anymore. And that sounds like a big number.

But their front-of-store retail segment overall did $65 billion in sales. So it's a big number, but relative to how big CVS is, it's not a lot. James, I have to believe that this is a move that you applauded at the time. I'm curious, though, as an investor, does this get you more interested in a business like CVS? Well, CVS has outrageous fees, so I just don't like them as a consumer. But certainly, it does get me more interested. I like their streamlining. Obviously, a company can sell anything they want to.

They make a choice on what their offering is. So I think CVS is making the right choice. Coming up, one consumer goods company decides that bigger is definitely not better. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in studio with James Early, Charlie Travers, and Ron Gross. Shares of Activision Blizzard up on Wednesday after both sales and profits for the second quarter came in higher than expected.

This is the company behind popular video games like Call of Duty, World of Warcraft. Ron, this is one that you watch. What did you think of the quarter? Yeah, we've owned it for a long time, and it's done really well for us. And the quarter looked really great. Although, if you look at the headline, you might not think so, because earnings were down. But the thing is, with these kind of businesses, as with movie businesses, it's really lumpy. It depends when you release new games and when that revenue comes on board.

But they've got the number one and two top-selling console game. They have the number one-selling PC game. World of Warcraft continues to do well. But I think most importantly is they have three new releases that are really highly anticipated coming this fall, which will be the needed catalyst that they need to get that revenue back to where we want to see it and get the growth going. I want to get to one of the new releases in a second, but it also seemed like a big part of the enthusiasm around this quarter was digital sales. I'm just curious, how much is that moving the needle for the bottom line, though? Because digital sales were up something like 70% over a year ago.

It's important, and it makes the business less lumpy as well. As we said, a lot of this is based on when things get released. but the digital sales have a more recurring revenue nature to them, and it's actually one of the reasons we really liked Activision in the first place. CEO Bobby Kotick talked about Destiny, which is a new game coming September 9th. Do I have this number right? They spent $500 million on this game? They spent a lot.

I can't confirm exactly that number, but it was a whole lot of money, and they have Skylanders, the next one coming out, Call of Duty, the next one coming out as well. It takes a lot of money. That's two John Carters. But then when you see these come out and they say, you know, biggest weekend of all time, including movies, you see some of those types of headlines, you can see that the investment was worth it. But they've got to be good. Are we getting close to a requiem for Zynga?

Because they also reported earnings this week. And I say earnings in air quotes because it was really a loss that was bigger than expected. They lowered guidance. The delay, I think, is the big deal. They pushed games out into late 2014, but in probably 2015. So those that are interested in the Zynga story have to wait for profits, at least probably until 2015. You've got to be really patient to wait for that when you look at a company like Zynga. So I continue to not be a fan.

Shares of Lululemon up on Friday after founder and former chairman Chip Wilson agreed to sell about half of his stake in the yoga apparel company. Good news, I think, Charlie, for shareholders, because this was really shaping up to be a fight for control of the company. And for any other challenges that Lululemon has, this one appears to be off the table now. Yeah, that's a really good thing for Lululemon shareholders. The last thing this company needed after all it's been through over the last year is this sort of distraction at the upper level. You know, Chip Wilson owned about 40 million shares, which is 27 percent of the company. It's certainly a big enough stake to, you know, cause some headaches in the board who really didn't want him around anymore, even though he was the founder and he's the chairman up until their annual meeting this year. I think, really, this is the best thing is to cut his stake, decrease his involvement and influence, and, you know, eventually move away entirely.

For the backstory, if people aren't familiar, I mean, he tends to make a lot of interesting remarks, basically. Controversial, yeah. He blamed the see-through pants that overly large women shouldn't be wearing his clothing to begin with or something like that. Right. And when you have a real quality control issue with your clothing and you're trying to not damage your brand with your core customer base, the last thing you need is a lightning rod personality like that. I'm curious how you guys view insider selling. Obviously, in this case, it is, as we just discussed, a situation where a founder stepping away, selling a stake, it's relieving a headache for the company. But, James, I'll just start with you.

When you see that an insider of a stock that you own is selling, does that matter to you, or is it only in certain situations? Small amounts don't matter to me, usually, but I've been burned a bunch of times when I should have heeded the warning of insider selling, and I did not. Can you give me one example? Leslie Wessner, the CEO, former CEO of Limited Brands, I recommended his stock at Income Investor in, I don't know, maybe 06, late 06, early 07, and it was right after he'd sold, you know, several, many millions of dollars worth of shares, and he was right, I was wrong. Ron? I agree. It's typically a negative signal to me. I don't like to see it. The one time I kind of let it go is if the CEO is getting up there in years and a significant amount of his wealth and his family's wealth is tied up in that particular company. And for estate planning purposes, he's put a plan in place to start lightening up. I think that makes perfect sense. I think that would be something that I would probably do as well. And I can't really use that as a negative signal. But, James, we were talking earlier, and the idea of sort of automatic selling was brought up in the conversation, because I look at that, and I think, well, look, if the CEO assumes the office and then sets up a plan to begin to sell shares, I'm fine with that. I get the sense that you think that that's not automatically a benign thing.

I'm plugged into accounting circles, Chris. Actually, a couple of friends of mine are accounting professors. One of them, Alan Jagalinser, he's done research on this. And if you search for Jagalinser 10B51, that's the automatic sales plan. He's shown that there's actually a significant spike in the price at which these plan sales are executed. Basically, the chart looks like a volcano, and the peak magically being that the day that the supposedly automatic sales plans tend to actually make the sale. Charlie, let's go back to Lululemon. Where is the stock now?

This is one that's had a great run, has come back to earth a little bit. When you look at this stock, is it fairly valued? Is it cheap now? I wouldn't call it cheap, but I would put it in the realm of interesting. For all the issues they've had, this is a very attractive brand. Their sales per square foot in the mall is cream-of-the-crop level, best-of-breed kind of company. The stock's come down dramatically from where it was a year ago. So if this was a company you may have had on your watch list, I would definitely give it a closer look.

With the one caveat being specialty retail is notorious for being a tough investment. And what's hot one year is not the next. Then you can get really burned. Procter & Gamble up this week after the consumer goods giant said it will be selling or cutting roughly half of all of the brands that it owns. And, James, let me just give some context for our listeners. There are about 180 brands under the Procter & Gamble umbrella, and chances are we've all got at least a couple of them in our home. Duracell batteries, Gillette razors, Tide detergent, Crest toothpaste. But most of the profits come from just about 70 or 80 of these brands.

So it seems like a good move. They said they're going to be selling them or cutting them over the next two years. I guess my first question is, why did it take so long for them to figure out that somewhere in the neighborhood of 100 brands aren't really contributing much to the bottom line? I think that's the operative question. I think 95% of their profit is going to remain intact. It shouldn't have a big valuation impact. It reminds me of something like Facebook or LinkedIn, where I look on my LinkedIn profile. I have no idea who some of these people are.

They're just on there. I mean, hopefully P&G knew a little bit more than that, but, you know, 95% of your – most of your friends, you know, you don't really interact with much. Most of the things we do in life don't have much effect. And the same thing is happening for P&G. So, yeah, it's good that they're doing this now. It's embarrassing that it took them this long and the problem grew this big. But is this something that could move the stock methodically upward over the next couple of years? Because I could see just not just that we're cutting unprofitable brands, but if they can outright sell some of these, whether it's to private equity or to some other consumer products conglomerate, that's cash on the balance sheet.

It could be. You know, P&G famously botched White Cloud in, I want to say, about 20 years ago. The fabric softener? Sorry, it was like a toilet paper. They let the patent expire, and I think Walmart got it and since turned it into a billion-dollar brand or somebody did. And that was like a famous mistake. So maybe somebody will do something with these divested brands. Oral-B, just from the articles about this, Oral-B seems to be talked about one.

I always see their picture on here. But, yeah, we don't know what's going to happen. I think the ultimate thing, though, is innovation. They can get rid of the brands. That's going to remove some managerial costs and some distraction. But they still got to actually make things that people want to buy more. Speaking of innovation, they also own Charmin, which is the most popular brand of toilet paper in America. And this week, Charmin announced it is going to be selling chamomile-scented toilet paper.

And let's bring in our man Steve Broido from the other side of the glass. Steve, let me hit you up with a direct quote from the announcement from Charmin. Each roll has the scent of chamomile added to the tube to create a bathroom experience that soothes all the senses while still providing the strong quality Charmin toilet paper consumers know and trust. All the senses, Steve. Can I just say, yuck? Chamomile was not the scent you would have gone with? I don't want to mix my teas with my restrooms. Just keep it separate.

That's a weird, weird product offering. Do you think that there were other scents that they were... I have to believe there were other people saying, no, let's go with, you know... That's a full-time job, testing those scents, I would imagine. Creepy full-time job, but a full-time job. Drop us an email, radio at fool.com. Weigh in with your preferred scented toilet paper. Up next, we will talk investing in Australia with an old friend.

Uncle Joe Mager is next. This is Motley Fool Money. He tried to look like he had a little bit of money. Welcome back to Motley Fool Money. I'm Chris Hill. Joe Mager is the lead advisor of the Motley Fool's Real Money Portfolio Service in Australia, while somehow still running the Motley Fool Inside Value Service here in the United States. He joins me in studio now.

Do you not sleep? Is that why you're pulling this off? No, I have an eight-month-old that ensures that. It's great to have you back in the studio. Great to be back. Great to be back in the States. I want to talk about investing in Australia in a minute, but let's start broadly here in the U.S. because you are, first and foremost, a value investor.

How hard is it for you to find value in the market right now? Very hard, very hard. So, you know, I try not to get too swept up in macro because I don't think it's something that most investors do well, self-included. But every data point that I can find for a macro-level evaluation is negative. You look at Buffett's favorite measure, it's U.S. total market cap against GDP or GNP, more or less the same thing. It's at 120% right now. Long-term, it's around 100. That's way above.

The only time that it's been above where it is today was the 2000 era. So I'm not suggesting that we're in for some sort of crazy correction, but that's high. CAPE ratio, it's a Robert Shiller measure that measures the value of the S&P 500 against the earnings over the past decade. That's a 26. Historically, it's been 17. So there's that. There's that. And then when I look at individual companies, I value them all the time on a bottom-up basis.

And frankly, I'm just not finding many ideas. Companies are selling at discounts to fair value. It's a tough market. So what do you do? Do you just sit on whatever cash you have on hand? Do you just bide your time? Or at some point, do you say, you know what? I just need to change my expectations about what I'm going to buy and the price at which I'm going to buy it.

Yeah, you need to stay disciplined, but at the same time, stay invested. So I am a big fan of we are at the full of always keeping your money in the market, not trying to time getting in or out. We're not market timers. The reality is you're probably going to be wrong. And it's better to get a low return than no return, which is more or less where you're going to get in cash these days. So realistically, I think over the next decade, we're probably going to be looking at mid-to-high single-digit equity returns at the market level. But the thing is that's much better than zero. And the reality is if you choose well, you don't have to invest in the market. You can invest in individual companies that are good businesses selling at good prices. You can beat that. Berkshire Hathaway, a company that you follow closely, you've been to the annual meeting before. They reported last week.

I did want to touch on it, though, because, gosh, second quarter profits up 41%. Overall revenue for the quarter, close to $50 billion. And it's such a huge company with 80 or so subsidiaries. But as someone who watches it closely, did anything stand out to you? Well, the insurance business continues to be the economic engine. So, trains are a big deal there, BNSF. Mid-American Energy, also a big deal. And the company does continue to spread its wings.

but insurance is incredibly successful for them, Geico in particular. They've been aggressively throwing money at marketing in a very good way. They've been generating a lot of business, growing market share. Normally when insurers grow market share quickly and grow business quickly, it's usually because they're buying bad business, and it usually turns out poorly. I actually get nervous when I see an insurance company that's growing quickly. Not at Geico. Their results continue to be strong, and it's really just driving the business.

We were talking earlier in the week. you mentioned the acquisition of Heinz has been a huge success. And at the time, some people were questioning it, not so much for the valuation that was paid, but because of this relatively new way of acquisition that Berkshire Hathaway engaged in bringing in a third party. But you think he may go back to this? Yeah, he might. I mean, it's clearly worked out fantastic. Heinz Profit's up about 50% over the past year. I certainly would have not expected that. I don't think anyone did.

And I think if people realized how much their Brazilian partner, 3G Capital, could come in and ring out, they would have been for it. I think that this is going to be a platform for growth for Berkshire, which is about a half owner of this business. Yeah. I mean, they've got great distribution, great brands. They can now go out and buy individual brands, plug that into the distribution, and I think that 3G is clearly a great partner, good buddies with Buffett, and they've certainly proven to be good business partners. So as a Berkshire shareholder, I'd be more than happy to back any deal with them. You're listening to Motley Fool Money, talking with Joe Mager, lead advisor of the Motley Fool's Real Money Portfolio Service in Australia, when he's not running Motley Fool Inside Value. You are someone who has been a big fan of Google's business, and you have been in the

past pretty skeptical, certainly when they were on the verge of going public, of Facebook. Now that they've been public for just over two years, how are they looking? Better than I expected. Yeah. How big a surprise was that? Because when they first went public, right out of the gate, as you know, the stock dropped. the big question was, are they going to be able to make any money off of mobile advertising? And they have answered that question and then some. Yeah. You know, I think when you look at something

like Google, in hindsight, it should have been a little more obvious to all of us that the growth story was very clear. I know people, self-included, thought it was expensive and that there wasn't a mode around search. But in hindsight, I do think that there are a lot of people who correctly identified where things were going. With Facebook, I really think these guys just blew past expectations in ways I don't think even bulls could have really expected. There was zero revenue coming from mobile, and now it's a tremendous cash cow. And one of the big knocks, which I talked about at the time, was that the platform was built for desktop. Twitter was built for mobile. Facebook was built for desktop. I think what I really underestimated with Facebook was how much of a

photo-sharing platform it would become, and how ubiquitous the selfie, the dinner shot, you know, I'm having this great dinner, I'm having a great time with my family, I'm at the beach, I'm on vacation. It's incredible, the number of photos that flow through there, and just the mobile engagement for people that are on there is, you know, just way above anything I would have forecast. How much do you think these two companies have one another in their sights? Because you look out at the coverage in the financial media, you can find people saying these two companies are absolutely on a collision course and others saying, no, no, no, there's room for both. I think there's room for both, but probably not within the individual verticals on which they compete.

So, you know, Google has Google Plus. It's no Facebook. And Facebook has search, but it's no Google. Facebook is a platform, but it's not an operating system, which Google has. Facebook has tried to work around that when they rolled out Facebook Home. That was a pretty big flop. So I do think that it will be hard for Google to out-Facebook Facebook and Facebook to out-Google. Neither of them is going to succeed at that.

I do think that Facebook will succeed in winning a lot of share in online advertising. They got great data. You know, here at The Fool, we've had good success using Facebook advertising ourselves. And we didn't even start using it until somewhat recently. So I think a lot of people will come around to that conclusion. I don't think that's necessarily a problem for Google, though. They've been growing consistently at 20% for years. You know, it's nothing to sneeze at.

And a lot of Facebook growth is not necessarily coming from Google, which has great depth inventory, touches a lot of people, but from the Yahoos of the world and other second-ranked, second-tier providers of ad space. I would be remiss if I did not ask you about General Motors, because that's yet another company you have followed closely at inside value for years. That's a very kind way of putting it. Roughly 30 million vehicles, GM has recalled so far in 2014. A lot of enthusiasm at the beginning of the year for Mary Barr, the new CEO, but she has an enormous challenge on her hands. I am curious, why is this stock a buy to you? Well, it's been a very painful few years. So the shares are flat from where I recommended them, and the market is up 70%.

So that hurts. What's frustrating is that a lot of what I thought would happen with the GM thesis has played out, but not all. I was right about the call with the U.S. auto market bouncing back in a big way, and everyone is benefiting from that. But GM has just consistently shot themselves in the foot. Obviously, these product problems, it's such a shame because GM had really gone so far on shedding quality image issues. They'd really made a lot of traction, and now they just completely obliterated a lot of that. It's going to take them time to win that back. They haven't cut costs as quickly as I thought they would, and they do have a lot of new plates, makes, models coming out.

that is strong that's going to boost margins that's going to boost enthusiasm for the brands that said some of those are the roles the silverado has been out for a while now hasn't really been a big win for them so that's why it's been disappointing now all that said balance sheet still in great shape i think that right now you know the shares are very out of favor partially because they've been underperforming which is not a good reason to not own them but But also, you know, the overhang with the bad news, I think a lot of that's going to fade 3.6%. Dividend yield, it's a nice plus as well. You're listening to Motley Fool Money, talking with Joe Mager, analyst at Motley Fool Inside Value and at our service in Australia.

Let's talk about Australia. Let's talk about it. How is the market out? You get used to it. Really? Yeah. You got to start, you put some butter on there. Okay.

You got to work your way into it. So if I find myself in Australia, I shouldn't just go straight Vegemite. I've got to mix it in with something just to sort of ease it in. Absolutely. Okay, that's a good tip. Order a flat white, too. A what? A flat white.

What is a flat white? That's like the iconic coffee of Australia. Okay, well, you could have just said coffee, and you would have had me there. Oh, man. The day we got there, we came in off a red-eye. I was exhausted. I go into this restaurant. I'm like, can I get a coffee, please?

Oh, what kind? A coffee, a black one. No. What kind of coffee? It turns out there are like five or six different kinds of coffee. You don't just order coffee in Australia. It's very, very intricate. I was very frustrated and tired. I want more tips in a moment. But first, how is the market down there and how is investor sentiment in Australia? Well, the market is expensive. 23 years without a recession, it's the longest streak in the world. That tends to breed a lot of confidence. You've got 40-year-old professional investors that haven't witnessed a recession in their adult lives. I mean, this is really

incredible. This is never going to stop. No, it's good times forever. I think a lot of stocks are priced as if nothing bad will happen again. And that's usually around the time that bad things happen. I'm not in the business of being a perma bear, but I am cautious and we're being very conservative with our portfolio right now. Is there a particular industry or a particular company that you've got your eyes on? Yeah. Well, I'm always a big fan of strong, reliable, recurring revenue, anything platform-based. I like enterprise sales a lot. So one company, it's a New Zealand-based company that's listed in Australia. It's called Xero. That's X-E-R-O. Xero is a cloud-based software, small business accounting company. So it's a lot

like QuickBooks. Only imagine if QuickBooks was in the cloud. QuickBooks is actually in the cloud in the U.S., but Xero was there very early. Accounting software for small business doesn't sound very sexy, and you think, who cares about the cloud part? You know what? It's not just that it doesn't sound sexy. It's not. They make it exciting, and I swear I've had so many members and people come up to me and say that they love using the software. I know it seems far-fetched, but they're very passionate about it. Retention rates are incredibly high, and they've had great and cross-selling, and they're rolling out a lot of new products, and they're expanding into the U.S. aggressively right now, and they're actually going to IPO in the U.S. either later this year

or early next. IPO expectations, I'm sure it's not going to be on the level of Alibaba, which is set to be enormous, but is this one we should definitely put on our watch list? Yeah, we own it at Pro. It'll IPO at a few billion dollar valuation. They got 300,000 customers. So it's rapidly growing. It's still a small business in the grand scheme of things, but they've got 27% market share in New Zealand growing quickly. So it's a real business. One more tip for me, if I get to Sydney and travel throughout Australia, what's a must-see sort of under-the-radar tip for tourists? Don't tell me about the Opera House. I know about the Opera House. I've seen Finding Nemo. So I'm aware. I'll get to the Opera House. But what's one more

Or like, hey, if you make that trek, here's one thing you've got to go. Well, Great Barrier Reef is almost a cliche, but I'll go with Uluru. So a lot of people would know Uluru as Ayers Rock. Uluru is the name of the indigenous people, what they actually call it. Are you familiar with Uluru? I'm not. It is the giant red rock. I am certain you've seen a photo of it at some point, probably in a science textbook at some point.

It's right smack dab in the middle of the country. and it is this enormous rock sitting in the middle of just a vast expanse of red dirt it's just incredibly beautiful you have to fly you fly out there it's a tiny tiny airport and it's a niche little thing but we went out and had dinner out in the desert and watched sunrise come up over it's just beautiful beautiful it sounds like something out of a movie it's a and by a movie I mean like a sci-fi movie. It sounds like aliens came and dropped this enormous red rock in the middle of Australia. Yeah, that's what it looks like.

Get back there safe, and you're welcome anytime here, man. Thank you. Coming up next, we'll give you an inside look at the stocks on our radar. You're listening to 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. Welcome back to Motley Fool Money.

Chris Hill here in studio with James Early and Charlie Travers and Ron Gross once again. Before we get to the stocks on our radar, guys, I want to give a shout-out and a big thanks to Karim Yurgaleev, one of our Stock Advisor members, who lives and works in Kazakhstan. He was visiting this week with his wife, Sarah, and brought tribute in the form of chocolate from Kazakhstan, which the chocolate bars are wrapped with duplicates of Kazakh currency, which is, as I was saying during the break,

is just yet another reminder that the U.S. has among the most boring currency in the world. It's just the Kazakh currency is just beautiful. Look at that. You had me at chocolates, but then you throw in currency. All right. Let's get to the stocks that are on our radar this week. We'll bring in our man, Steve Reuter, from the other side of the glass to hit you with a question. Ron Gross, what do you got? All right, Steve, follow me here. Big five, ticker symbol F-I-V-E, and here's what's interesting.

It's a recent recommendation from our Hidden Gems newsletter, and our Motley Fool Pro service recently sold it short. Completely different opinions, coming out of the same company. It's very motley. It's very foolish. We like that here, but it's an interesting thing to watch. 323 stores they think they can get to 2000 a lot of competition out there obviously from the dollars sporting goods what is it uh it's everything you could imagine for five dollars oh like a five buck and below kind of like a dollar but but they go after higher um more

affluent clients than a typical dollar store um would go in there in better strip malls and it's really interesting there's just a lot of competition and the stock isn't necessarily cheap and there's the discrepancy between hidden gems and pro but i'm looking at it closely Steve, question about Big Five? Can you be a high-end store if your products are $5 or under? I took my son in once, a little research, and he was like, whoa, this is awesome. Every single thing $5? And I said, go nuts.

What did he buy? Candy. Did that answer the question, though? Did it actually answer Steve's question? Be honest. I think there is a place for it. I honestly do, yeah. James Early, what's on your radar this week?

I'm going with Apollo Investment Management. The ticker is A-I-N-V. This is an income investor recommendation I had a long time ago. I sold, and then I re-added. 9.2% yield. This is a business development company that makes risky loans. Somebody's got to do it, and it's decent business. And with recent regulation, it's harder for banks themselves to make risky loans.

That means it's a little bit more lucrative for the companies that do. Their average loan yield is now 11.1%. They're actually moving into the safer end of the risky loan spectrum at that. But you still get a 9.2% yield. Steve, question about Apollo? Is there a dividend yield that makes you run away from a stock? I mean, anything above 7% is going to be risky, pretty much for sure. It just depends on what else you're getting and what the situation is.

I just like the idea of the safer end of the risky spectrum. Senior secured loans. That's like the more affluent dollar stores. Exactly. Charlie Travers, we've got about a minute left. What do you got? King Digital reports earnings this week. Tickers K-I-N-G.

And unlike Zynga, King Digital actually makes a boatload of money. How about that? Because of Candy Crush Saga. Many of you have probably played this game. They have 350 million monthly users. Only 12 million of them actually pay the company anything. Most of these games are free to play. The ones who do pay on average about $18 a month.

So I think there's a lot of opportunity there if they can get more people to start paying a little bit of those microtransactions. And if they can keep rolling out the games, which they actually have a very good track record of doing, the stock's only at 10 times earnings. So it does look interesting. Steve? Can I still go to Farmville? That would be a Zynga. The answer is yes, and I'm sure the people at Zynga and all of their shareholders would love it if you would go to Farmville and buy a few digital pigs or something like that. Do you have a stock you like there, Big Five, Apollo, King Digital?

Apollo, 9% sounds pretty interesting in today's environment. I knew that's where it was going. All right. Thanks for being here, guys. That is going to do it for this week's show. The show is mixed by Gail Año Nuevo. Our engineer is Steve Broido. Our producer is Matt Greer.

I'm Chris Hill. Thanks for listening. We'll see you next week.