Motley Fool Hidden Gems Investing - Motley Fool Money: 08.14.2009

Episode Date: August 14, 2009

Does optimism from the Fed spell better times ahead for investors? Will the Chevy Volt and Nissan Leaf drive big profits? What’s in store for retailers like Costco, Wal-mart, and Target? Will JetBlue’s pricing experiment help its stock takeoff? In this installment of Motley Fool Money, we tackle those questions, share three stock ideas, and debate the relative merits of Fiji bottled water.   Learn more about your ad choices. Visit megaphone.fm/adchoices

Don't you wish you could just hit skip on the worst parts of your life? You know, the same way you can skip an ad? I get it. I'm Siaya and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out. Somehow things usually get worse before they get better. Apparently, that's how I roll.

So bundle up and come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem. Welcome to Motley Fool Money. I'm Chris Helen. I'm joined by Motley Fool Senior Analysts Seth Jason, James Hurley, and Shannon Zimmerman. Guys, good to see you. Good to see you, Chris. Seth, welcome back.

How's fatherhood treating you? I'm a little sleepy. All right, we'll get you some caffeine. We've got a lot to get to this week, including the latest with Apple, Google, Walmart, and JetBlue, A car showdown between the Chevy Volt and the unfortunately named Nissan Leaf. And as always, we'll share three stock ideas. But we begin with the big macro. We're taping this on Thursday with news just out that retail sales in July fell.

It's the first drop in three months. And on Wednesday, the Fed issued a statement saying that, quote, economic activity is leveling out. The Fed also said it would slow down plans to buy back $300 billion in Treasury bonds and that it would keep short-term interest rates near zero. Always really exciting pros whenever the Fed issues a statement. All right, Shannon, what does all this mean for investors? Well, so what you basically have is Ben Bernanke giving the economy, if not a high 5, then a high 2.5, and then a pat on his own back, basically, because he was one of the grand architects of this recovery plan.

And according to one of the grand architects, it's looking good. Leveling out, I think, is synonymous with what we've been talking about for a long time now, things not being as bad as they could be. Yeah, what is that really? The trajectory is smoothing, Seth. Leveling out is good if it's been dropping. I was thinking it's like when you fly out of an airplane and you reach terminal velocity. That's good, right?

I'm not accelerating toward the ground any more quickly. But I think Ben Baraki is going to lift up the nose just before we hit bottom. And it's all because of everything we did, right? Yes, although one of the key things was this Fed purchasing of Treasury bills, and that's going to, not in September, which is what the market had anticipated, but rather in October, they're going to do a wind-down. And you would think that that extended period of time would have made the market happy for Treasuries. It did not.

The confirmation of the Treasury prints bills for the Fed to buy them. Right, exactly. So what's going to happen is you're going to have this glut of supply. the deep-pocketed buyer, which has been the Fed to this point, is going to go away, and then you're going to have all the supply. So, you know, Treasury bills are a nice little safe haven, but there's no upside. So, if you've been thinking about that in terms of an investment opportunity, now is the time not to think about that.

And what's that going to do with the mortgage rates as well? Well, so they don't move in tandem, but directionally they're mostly correlated. And so, right, yeah, as the yields rise, and yields rise on bonds as the prices... Price declines, yeah. Exactly. Thanks very much. That's what I'm here for. James Gutierrez says. Just sitting here, waiting for my chance.

Let's hurry up with this before everybody falls asleep. Mortgage rates, to answer Seth's question, should rise. But I don't think that, to quote another president out of context, this aggression shall not stand. I don't think that Obama is going to let that happen because the housing market recovery is so central to the economic recovery that something's going to have to come in there to mop up that liquidity. Yeah, we'll see if they can do it. Well, speaking of recovery, we keep hearing the phrase jobless recovery. But they're all jobless recoveries.

That's the thing. That doesn't really sound like much of a recovery. That's actually a problem. I heard somebody squawking about that on television. What's that thing on the wall that yells at me? Television. The talking box. The talking box, yes.

But this is the normal way that you come out of a recession is that economic activity turns up a little bit, but you still get the job losses piling up for a while. One of the things that worried me is that we've seen these productivity gains. Now, in general, productivity gains are great because they raise the standard of living for everybody, right? Cheaper iPods, all of that stuff. But for the people who lose their jobs because of the better productivity, bad. And that's the kind of thing that we're going to see going forward that's going to make it tougher. Although they could portend more hiring down the road if employees are maxed out productivity-wise.

I think the big thing for me here is that fundamentally recessions arise because of imbalances in the economy. And these imbalances take a while to correct. So even if we're flattening out, which is better than not flattening out, it could be a few years before things perk back up. But what do we do? We wait. Yeah, it won't feel like a recovery to everybody, but that's unfortunate, but it's the way they go. And that's why the unemployment rate is often regarded as a lagging indicator. But as we've discussed in the past, sometimes that is the indicator that economists, certain economists anyway, look forward to a sustainable recovery barometer. Okay, exit question.

The Index of Consumer Sentiment found that household confidence fell in July. It's the first drop in five months. So going around the horn here, on behalf of your household, are you feeling more or less confident? confident, Shannon? My seven-month-old is just as confident as ever, just giggling away. So I'll use her as the barometer and say yes. I think that we are similarly confident over that stretch of time. James? I'll copycat that because I have a seven-month-old also who's pretty confident. So yes, I am confident. We've got to get that play date thing. My seven-day-old just kind of burps and giggles and poops. So that to me sounds pretty confident. That sounds pretty confident. I'm not

at all confident, but my three kids outweigh me. So confident here as well. All right, it's Automobile Smackdown time. In one corner, we have the Chevy Volt. GM said this week that the Volt will get 230 miles per gallon. The Volt uses its gas engine if you drive more than 40 miles and is expected to sell for around $40,000. In the other corner, we have the Nissan Leaf. Nissan says the Leaf will get 367 miles per gallon,

which is interesting since it doesn't actually use gas at all, But it still gets 367 miles per gallon. Anyway, the Leaf is priced between $25,000 and $30,000. Seth, a lot of numbers flying around. What is your take with this one story? What a smackdown. This is like two of me having a slap fight. Two scrawny skinny guys?

Yeah, having a slap fight. This is just, it's kind of BS with numbers. I don't know really how they came up with this estimate for the Chevy Volt because it gets about 50 miles a gallon from what I've read when it's running on its gas generator. so you could make the miles per gallon anything you want because if you get that first 40 miles on electricity and then you only go a couple of miles on gasoline wow you're going to have some great looking gas mileage this would be like if i tied this is equivalent if i tied my old truck

to a mule and drove it around you know for 100 miles and then drove the last mile on gas then i would say hey i got great gas mileage what they need to do is we need to remember that these cars are going to be a little bit cheaper to run on electricity depending on what you pay, and they're probably going to be pretty good for the environment, but they are not going to suddenly use one-fourth less gasoline or less power because there's just no free lunch in the world. So just take all of these numbers with a grain of salt and maybe start thinking about miles per kilowatt hour. Yeah, I agree. I think we definitely obviously need a new standard. I would like to see carbon emissions somehow baked in too. I mean, electricity is a lot cleaner fuel

than gasoline or diesel fuel in general. So that's important. I mean, I think there's a broader issue too. And that in producing the Volt, Chevy has made a point. And the point is that it can deliver less than the Japanese at a much higher price. I mean, I thought it already proved that point. I'm being a little harsh, but it's 40,000 bucks, which is darn expensive. You know, the Volt is, I mean, the Leaf is, what'd you say, Chris, 20,000, 25? They want to spend 25 to 30. Yeah. They're not out there yet either. It does get better gas mileage. But actually the truer point is that they're just points on a continuum. The Volt has a gas backup sort of thing that It charges the battery or the electric motor, which runs the drive shaft.

There is no gasoline to drive shaft engine. You could actually take a road trip in a Volt, where in a Leaf, you've got 100 miles, then you're stuck plugging it in. But this is good. Most people drive mostly around town. Depends on what you're going to do with the car. Now, is it spelled like Leaf Erickson, the Norse Explorer, or is that L-E-A-F? It's not Lafe. L-E-A-F capitalized.

That might be better, the Lafe. And maybe you're going to save on gas because the cars are so small and uncomfortable to drive, people will drive them less. I like these. I mean, you guys have been drinking the haterade, maybe, but I like these cars. I mean, I just think we need these types of vehicles. Well, you know, Forbes had a really great piece on the best, worst, and weirdest car names. Among the strangest were some of the Japanese names. Not making these up.

The Diatu Naked, the Toyota Deli Boy, and the Isuzu Giga 20 Light Dump and Mysterious Utility. That's the full name. So the exit question. Just how bad a name is the Nissan Leaf? I like it in a strange way. It doesn't make me want to buy it, but it's neutral. I drove a Daihatsu Charade in grad school, so anything that was better than that. Wow, much like your grad school education.

Charlatan, yeah. Shh, Chris, don't say anything about that. All right, time for some quick takes. Walmart said Thursday that same-store sales fell 1.2% in the past quarter, but profits were at the high end of expectations. Shares of Walmart down around 10% over the last year. Shares of Target down around 10% as well. Shares of Costco down more than 20%.

Shannon, what do you think on the retail scale? Well, that's only half the story, of course. So, those numbers in absolute terms are quite grim. But you compare them with what the market has done over that stretch of time. Now, that's a market beater, only down 10%. Yeah, exactly. Absolute terms, not so great. Relative terms, those stocks have held up.

And lo and behold, they are staple stocks. And Walmart, of course, is a best-in-class player in that sector, but with fairly complicated results. So, same-store sales were down, yet profits were up on cost-cutting. And then, you know, a part of the hit that they took had to do with currency effects. And then the question is, well, doesn't currency matter? Well, it does, unless you're Walmart, and you're going to be an investor in Walmart over the long haul. Typically, that's a wash. Walmart did say something interesting, though.

They also are using this phrase, the new normal, which is sort of entering the financial media lexicon right now. Ooh, that's better than green shoots. I agree. I agree with that. And basically what they're saying is more disciplined spending means that their ticket size, which is a restaurant metric, but it applies here too, will be smaller. But if that's the case, if that's the dynamic, Walmart is still a winner. The thing about Walmart that I always figure, and I've said this for years in my writing here at The Fool, is that when Walmart is doing better than the rest of the retail peers and specialty stores, that's a sign to me that the economy is still a little bit shaky.

So this is good if Walmart sales are slowing down a little bit. No, I don't think that's good either. It doesn't work both directions, actually. It's a one-way door, okay. Yeah, exactly. All right, JetBlue is offering a $599 pass that lets travelers take unlimited flights for a month, from September 8th to October 8th. Any destination JetBlue flies, and there are no blackout dates.

Wait, just this September to October? September 8th to October 8th. Shares of JetBlue are about where they were a year ago, but are down more than 60% over the last five years. Do we like this monthly pass idea? I love it because it kind of reminds me. Now, do you like it as a consumer or as an investor? As a consumer, totally as a consumer.

But it reminds me of the all-you-can-stream music services that I also love and that have failed to save that industry. But maybe it would get Americans to take longer European-solid vacations. Yeah. Who knows? To multiple cities burning tons of material. Hey, and you guys, yeah, and as we do a lot of hating on the socialists over there in France and Germany, but the news today,

the news today is that their economies actually grew. So those people are kicking our tails over there. It's their months-long vacations. Although with all of the protests that we've seen around the health care reform, maybe the Glenn Becks of the world can gin up some faux populist outrage over that as well. Long vacations is un-American. I don't know, but they're very refreshing. Speaking of refreshing, sales of bottled water have fallen for the first time in five years.

Oh, can I clap? Bad news for companies like Nestle, which sells Poland Spring, Deer Park, and Perrier, just to name a few. Nestle said that profits declined for the first half of the year. It's the first decline in six years. James, that's bad news for Nestle and for companies like Coke and Pepsi. What do you think for investors? Yeah, it's bad enough that I'm even going to lower my pun standards and say growth has tapped out in bottled water. I know, just this one time.

But let's put it in perspective first. Bottled water is just 10% of Nestle's sales, and bottled water, the segment, went down 2%. So it's not really that big. It's more important what it could pretend. I mean, three things going on. One is the recession. Second is health. You know, there's BPA in plastic.

Nobody likes that. Third is the environmental waste. I mean, I can't stand bottled water for that alone. And Wall Street Journal had an article, Condé Nast switched from Fiji water to Deer Park, and it was an illustration of cutting back. I mean, put this in perspective, though. Fiji water, there's literally water that is boated across the ocean, across the lobe from Fiji, burning probably three gallons of diesel fuel for every gallon of water.

I don't know what the ratio is. It's the dumbest thing I've ever, yeah. It's totally absurd. And they port the bottles over as well. The bottles aren't manufactured on the island, I don't believe. Probably not. Yeah. I have always thought that bottled water, I drink some bottled water like San Pellegrino or something that has a specific flavor or taste.

And I don't mind. I think that's defensible. But just drinking plain water that is the same as tap water that you can filter at your house. What are you, some sort of European socialist? I am. Just go home and drink your two-cent-a-gallon water, everybody. Filter it in your fridge and let these companies lose their profits on this. Let's quit filling the landfills with plastic.

Enough. Got to fill it with something. That's true. I like the bottled water that they make over at Jack Daniels. I just think there's something about it. Battle of the market caps. As of this moment, Apple has a larger market cap than Google, $150 billion to Google's $146 billion. Apple retook the lead a few weeks ago.

Guys, if you had an extra $150 billion in your pocket. And I do. In your face, the Google. And you had to buy either one of them. Had to hold it for 10 years. What would you buy? Wow. I'm going to say Apple.

I mean, Google's an ad sales company. I don't see how they ever break out of that despite all their innovation. Apple is much safer, I believe. Wow. Geez, I'm speechless. There's no Microsoft in the answer choice. I know. I'm sorry, Seth.

This is like a Sophie's choice for Seth here. Apple or Google? I'm going to go with the Google. They're lumpy and cyclical, but I believe they've got, I believe that just the overall growth gives them the edge here. It's a Sophie choice in reverse, though, right? Because he hates both of them. Yeah, that's a good point.

All right. As we head into next week, give me one stock that is on your radar. We'll start with you, Shannon. It's penny stock no more, Freddie Mac. Whoa. Which I do not offer. It's on my radar. I'm not recommending it by any means.

Shannon, just buy. Buy it all. It's up 90% year to date. It's up 150% over the last month, And that's largely on developments that, depending on how you look at it, are either smoke and mirrors or just, you know, back office accounting changes. And this is a company that had a $374 million year-over-year loss, which is smaller than anticipated, but still humongous, obviously. And, you know, even if you don't own shares of this company, you, U.S. taxpayer, own this company. The government's in for about $50 billion of void.

James? I usually don't watch what hedge fund managers do, although I used to work for one. But John Paulson, who is a guy who called a lot of the financial crisis stuff early, has bought back into Bank of America now and owns 2% along with some other financials. So maybe it is time to start looking at some of those stocks. Okay. Seth? I'm going to have to go back to the well with Boom, which is Dynamic Materials, a small producer of some kind of fancy clad metals.

They do something that's really cool. They take steel plate. Well, it's cool if you're a nerd like the guys in this room. They take steel plates, and then they take titanium or other metals, which can't be welded to steel by any normal welding means. And they actually explode them together. They run a controlled explosion that fuses them together. It's very cool.

And they are being hit right now because they sell, in general, a lot of this material to the oil and gas industry and others. And these big projects, these big industrial projects, are obviously on hold these days, right? Nobody's putting in more capacity because of what's going on. So the stock has taken a hit. the backlog of work is down, but they're still doing a lot of quoting. So the future is really up in the air for them, but they have a pretty good moat and the price is as tasty as it's been

in a few months and it's definitely worth a look. Okay. And as we've said a couple of times, you're a brand new father. Can you give us like, I don't know, like a 10 word tweet on what it's like to be a new dad? Wow. I have advice for the other new dads whose babies aren't sleeping seven hours a night, which is the tight swaddle is key. The burrito wrap? Yeah, you need to wrap them up like a little mummy. Yeah, I prefer the guest room.

Tight swaddle plus guest room equals happy parents. Okay, and Steve, I mean, we asked you last week for some advice for Seth. He just got married, right? Yeah. But we asked him for some parental advice for you. Really? Do we have a bun in the oven?

No, whoa. You get a minute, Steve. We're all friends here. Wow, a lot going on right now. No, I just keep on trucking. It sounds like the baby's doing well and good work. I mean, that's a victory right there. Cross my fingers.

Steve thought maybe if you got some baby-proofing stuff. I think that was the phrase you used, wasn't it? Baby-proofing stuff, yeah. I hear that they wander around. No, and I didn't even know I needed it. But I put the knives up high. Is that a start? That's probably a good start.

All right, Seth, Jason, James, Early, Shannon, to everybody. Guys, thanks for being here. Welcome, Chris. Thanks for listening to this edition of Motley Fool Money. As always, people on the program may have interests 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.