Motley Fool Hidden Gems Investing - Motley Fool Money: 08.19.2011

Episode Date: August 19, 2011

The markets have another volatile week. Google makes a big acquisition. Wal-Mart reports big earnings. And a basketball game in China causes a big stir. Our analysts discuss those stories and share some stocks on their radar. Plus, Motley Fool retirement expert Robert Brokamp shares three retirement tips. Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill. Welcome to Motley Fool Money. Thanks for being here. I'm your host, Chris Hill. And joining me in studio this week from Motley Fool Global Gains, Tim Hanson. From Motley Full Inside Value, Joe Maker, and for Motley Fool Income Investor, James Early. Guys, good to see you. Good to see you, Chris. It's happening. We've got Google spending billions on Motorola. We've got Coke investing billions on China. And we've got a few stocks on our radar. But we will begin with the big macro. Guys, the

not great news continued this week. The number of Americans applying for unemployment benefits rose. We had headlines about how Germany's economy was flat for the latest quarter. Let's just go around the table. Joe Mager, I'll start with you. What stood out for you this week, macro-wise? It was all really bad. I mean, there was a lot of bad, just bad piling up everywhere that seems to be pointing towards more bad. I mean, the general vibe is that we could be sliding into a second recession. I don't know that it's going to be catastrophic, but it definitely points towards concern, and I think investors need to respond.

How should investors respond? I had a feeling you'd ask that. I would say by getting a little bit conservative, or maybe not getting out of stocks, but rotating to conservative ones and thinking about some of your exposure to cyclical businesses or high-growth businesses with frothy valuations. James, what did you make of the week? Chris, we've had this same scenario on the positive a couple months ago, then on the negative. It's back and forth, back and forth. To me, the news is still inconclusive. I just think we have to prepare for a recession, because we may have that, or we may just have, not any worse economic news, but flat stocks for 10 years.

So I think every investor needs to be ready for that, in case it happens. Hopefully it won't, but just in case. Tim? I think one of the interesting things emerging is that demand in the U.S. is down, but it's not down significantly. But the thing we have still is really high unemployment. And what's interesting is I wonder how long we're going to tolerate that before people in the political realm start calling for more trade protectionism. Obviously, that would create jobs likely in the near term for the U.S., regardless of what its long-term consequences would be. But it would be a severe shock to the rest of the world to start trying to take back some of that manufacturing capacity into the United States.

Are you a trade protectionist by nature? No, no, I am not. I am the opposite of that. But I think, you know, at the end of the day, politics in the United States is largely about winning elections. High unemployment doesn't win elections. And there's one sort of quick solution that politicians could turn to to solve that problem. And I'm afraid they might. One of the other headlines this week, and I know that there are no big fans of gold in this room, but once again, gold hitting a record high. It is closing in on $1,900 an ounce.

What do we make of this? That's high. At its very base, it speaks to the fact that this is such an uncertain environment that people are basically turning to the only thing that can't give them bad news on a week-to-week basis, which is gold. Gold may be expensive, but it doesn't go out and tell everybody that every week. It just sits there. It sits there and shines a little bit.

And when people like shiny things, it probably means it's a pretty stressful time. Is gold non-optimist? We all look kind of silly right now, having missed this huge run-up, But at the same point, the fact that we have to sit here and ask what to make of it, there's really nothing to compare it to, because you can't really value gold. It just is what it is. It is defined by what it's not, in a sense. So, is that pricey? Well, relative to gold previously, yes, but that's all we have to answer the question.

So, I still wouldn't be a big gold investor right now. Now, we had a volatile couple of weeks to kick off August. This week was looking much calmer until Thursday, when the market was down huge. It was very volatile. And, Tim, the thing that was fueling it was this report that an unnamed European bank basically took out a pretty huge loan from the ECB. Yeah, 500 million euros to backstop its capital position. And the reason that freaked out the market is because what we've sort of assumed heretofore is that there are some fundamental problems in the global economy. but that unlike the problems of two years ago, the banking system was relatively okay in terms of its liabilities and its assets.

What taking out this loan means is that there's a relatively large bank in Europe that is really worried about its capital position. And if those banks start failing, that's when credit dries up, and that's when you get sort of the choking economy effect that we saw two years ago, which is a really bad thing. And, you know, what had been the case is that companies have been saying that if you're creditworthy, we can go out and get capital and keep doing business as usual. If banks start failing, that ceases to be true. Heretofore is one of those words that you see in writing, but you never expect to actually hear in conversation. I try to break vocabulary ground every week on this show, Greg. Well, I mean, my point is a little simpler.

I think that Europe has gone from having people on welfare to whole countries on welfare. And I think that just doesn't mean. Gone from having. It's been the case for a while. It's just getting worse and worse and worse. So, when are they going to admit that this system doesn't work? Or maybe it will work at the detriment of almost everybody. I just don't see the EU lasting long like this. Not that we have a lot of room to point fingers.

I mean, we just went through this whole debt ceiling crisis and didn't really solve anything. I mean, we just nudged the can down the road a little bit. That's the play, right? I mean, to go back to the other point, people try to win elections. Elections run on much shorter cycles than economic cycles, which is why you see sort of unsustainable economic thinking drive policy. You're listening to Motley Fool Money. We're hitting some of the big headlines of the week.

More pain at Bank of America. The company is planning to cut 3,500 jobs. This is on top of the 2,500 it has already cut. And the CEO said, when all is said and done, the total could reach 10,000 layoffs. James, Bank of America's stock didn't really move a whole lot on this news. What does that tell you? Well, nobody really had a lot of faith in Bank of America. Anyhow, it's already just been whacked the past month and a half or so.

I mean, with this firing, it's 288,000 total employees at the banks. This is around 3.4%. It would be the equivalent of the U.S. sort of cutting off Ohio in a population sense. So it's material. And no offense to Ohio, just that's the state whose numbers worked out best with the analogy. The only problem is that the CEO forgot to fire himself. The thing here is that these problems that Bank of America is dealing with are a string of bad decisions made by upper management. Not so much the rank and file, but they're punishing the rank and file.

And maybe they don't need all these people, and they do need the cost savings. That's going to help. But it's a little bit sad, because it's like the peasants are paying for the kings wrong. Now, there are some investment bankers in there, so I don't feel too bad for those guys. But in general, there are other problems here, too. Big story from earlier in the week, Google announced a deal to buy Motorola Mobility for $12.5 billion. Joe Mager, that is a huge check to write. Why did Google feel like it needed to make this deal?

So, it's a very big check, but I remember it's only about 6% of Google's market cap, which I think a lot of people are forgetting. It was a huge story, and it's important, and I think it'll shape the smartphone space for years to come. But for Google, this was really about protection. It was a very defensive move. They're looking to shore up their IP. Right now, patents are all the rage, and companies are using patents as weapons right now, Microsoft in particular. And it's important that Google get in the game because they're a relatively young business. They don't have a lot of patents and they needed to go out and get some to protect Android. So that's basically just what they bought with Motorola was 17,000 patents.

This patent trolling is actually this whole underground economy that nobody really talks about much, but has been actually going around for a while. I think IBM makes like a billion dollars a year patent trolling, just finding other companies that seem to be infringing on its patents, even if it's not using the patents and threatening to sue them unless they collect some kind of settlement. So Google, I think, I don't know how much they want to get in the game on this, but it at least gives them protection from being sued in the future if they buy Motorola's pretty huge patent portfolio. The thing that I find kind of weird about the deal is if the deal doesn't happen, Google has to pay $2.5 billion in breakup fees, which is a pretty steep fee.

Tim? I do think there are interesting angles to this deal aside from the patent one. And one of isn't the integration of hardware, which Motorola brings to the smartphone space and the operating system that Google has. Obviously, Apple has done a great job of combining great hardware design with a great operating system and selling loads and loads of iPhones. I'm sure Google would like to be able to do the same thing. The other interesting piece is in set-top boxes, which Motorola actually has a pretty robust business in around the world. Google has thus far struggled to launch its Google TV. But if you think of Google as an advertising business,

yes, the internet is a big place for advertising, but where else do people like to advertise? Obviously television. And if they can get Google TV going in any meaningful way, it opens up a whole new path of monetization for the company. Now, obviously, if you are a shareholder of Motorola Mobility, you had a good day. Yeah, you're a winner.

I might retire. Yeah. What are some of the other winners and losers in a deal like this, Joe? I think Microsoft is a loser. Initially, it might look like they win because up front, this could open the door for some companies like HTC and Samsung that rely on Android as their operating system to maybe try something different. In the longer term, though, I think ultimately Google is going to be stronger for this deal, and I think it just further pushes Microsoft out in the space. James? Nokia could benefit. If like an Apple or Microsoft, somebody tries to buy a similar phone company, that would be one that's pretty beaten down.

So Nokia is a potential winner in that. They could get lucky. Yeah. They could get lucky. Yeah, yeah. Otherwise, don't buy. Yeah. And the flip side of that is Research in Motion, maker of BlackBerry, is probably going to be the one left standing out in the cold on this. You know, interestingly, RIM has a lot of patents as well. Yeah. And so if we believe this patent thesis about Motorola, then research emulsion all of a sudden goes from being an also-ran to becoming an interesting property for someone.

And obviously, there are a lot of cash-rich tech companies out there who seem willing to spend. It could actually turn out – RIM, I think, would be in the purgatory right now because as a business, it's going downhill. But all of a sudden, this asset it has is going up in value. Maybe we should quit our jobs and become patent trolls. It seems kind of interesting. You know, it's capital what? Right after A. Right after I start my Chinese YouTube that I take public.

Coming up, how big are the business implications of an exhibition basketball game? Bigger than you think. Tim Hanson will explain in a moment. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in the studio with Tim Hanson, Joe Maeger, and James Early. If you're looking for investment analysis during the week, check out our daily podcast, Market Foolery, in just 15 minutes.

You'll get our take on a few of the big business and investing stories of the day. You can subscribe to MarketFoolery on iTunes. It just takes a few seconds. And, oh, yeah, it's free. We don't talk about sports all that often, unless there is some sort of business implication. But on the front page of Friday's Washington Post, the lead story was about a brawl that took place at the end of an exhibition basketball game that Georgetown University was playing in China. Tim Hanson, you're a proud graduate of Georgetown University. So you were paying attention to this even before the brawl.

But walk us through what happened here and how it relates to business. Well, this is a Goodwill basketball tour gone wrong, to say the least. But what's interesting and what I think people are missing by reporting on this as a sports story is that the team Georgetown was playing against, Georgetown being a college amateur team, They were playing against a Chinese professional team composed of members of the Chinese People's Liberation Army. So this is the Chinese military basketball team. And the reason why I think that's important is because it shows, you know, they're an extension of the government. And the way that this game played out really shows or embodies all the risks and difficulties and dangers associated with investing in China.

So just to set the stage for when this brawl broke out, according to reports, and some of these are unofficial because the Chinese government has now blocked almost all local coverage of the event. By the end of the first half, Georgetown had committed 28 fouls to Bayi Rockets 11. And by the time the game ended at 64 to 64, the Chinese team had attempted 57 free throws. So a tie game to fight 57 for three sets tells you that potentially the refs weren't calling the game evenly. They were skewed. And there's an interesting coda. Allegedly, the game was actually 64 to 62 when the fight broke out. But following the fight, the refs decided that Georgetown had committed a foul, maybe at some point during the fracas,

and awarded the Chinese team two additional free throws. This is after Georgetown has already left the court to tie the game 64 to 64. Why does this matter? Basically, this is the government team, it's the Army team. What they were after in this exhibition game was a close game so that when they printed the score in the newspaper the next day, it looked like the Army represented themselves and the government very, very well. I'm sure the officials were in on it,

and I'm sure the coaches told their players to go out there and be very aggressive to try to keep the game close. The government basically wants an illusion that doesn't exist in reality, which is that the Army basketball team is just as good as this Division I team in the United States. It doesn't make any sense, but that's what they wanted to propagate. You know, switch this over to the economy, and you have this massive discrepancy in China, right, between Tier 1 cities and between Tier 2 and Tier 3 cities in the rural population.

But they want to show the face of Tier 1 to the world. You have this exploding municipal debt problem in China, which is they wanted to be able to keep telling everybody that during the downturn, we had 7, 8, 9, maybe this year 10% GDP growth. Is it sustainable? Sure. So who started the fight, though? Was it just some pushing and shoving?

Is that? Well, apparently, well, if you watch the video, which is shocking footage, the Georgetown point guard got trapped in the backcourt, threw an outlet, and then got pushed. He responded with a push of his own, and as soon as he did that, the entire Chinese basketball team came sprinting out onto the court, kicking and whatnot. Two kicks.

Ugly footage. Come on. It's ugly footage, you know, and like I said, most of the coverage in China has been redacted, But there are some comments on Weibo, the Chinese Twitter, and the Chinese netizens are actually being very critical of the Chinese army. They're pretty embarrassed that they, A, needed to cheat, basically, to keep up with a bunch of college kids, and that, B, they were so undisciplined that the army reacted this way. I think that's why the Chinese government is cracking down.

You know, their attempt, basically, to make the army look good ended up making them look really, really, really bad. And that is a nice analog to their attempts to make the Chinese economy look good are creating some very serious systemic risk. Speaking of business in China, Coca-Cola's CEO said this week the company plans to spend $4 billion in China over the next three years. Tim, this seems like a pretty big bet. Is it a smart bet? I think so. We were just talking about all the risks associated with investing in China, but it's a huge consumer market. And Coca-Cola is already the clear market share leader there in terms of beverages. And basically, with this investment, they're doubling down on growth in that market. It's a catch-all investment.

It's going to do infrastructure, bottling, new employees, everything, brand building. And I think, you know, when you look around the world, there are not a lot of places to go after aggressive growth that are markets big enough to help big companies put up big numbers. You're basically looking at China, India, Brazil, and to some extent, sub-Saharan Africa, but that's a long ways off. So, when you think about it in that way, you say, well, we might as well go into China. James, this is one of your recommendations, isn't it? It is. And Coke and Pepsi are, well, Coke was sort of the international leader and still is. So, I like this move. They're looking at flat sales in North America for beverages.

That's been their big problem. So, they have to go international for growth. I don't think there's anything fancy going on here. It's just a huge market. They're number three market behind Mexico. So, they're just throwing money towards it. And I think it's smart. Joe, you're an Atlanta guy.

What do you think of it? Sure. That immediately makes me an expert on them, Delta, and Home Depot. Yeah, I think it's a logical play for them. I mean, this is a space where you want to build out infrastructure and distribution capabilities. And it certainly makes sense for them to get in there and build that out. I think they're going to do very well in China for a long time. And I think Tim made some great points on the basketball analogy. But this isn't like a Google type situation where the Chinese government views Coke as a threat to their supremacy. This is a pretty friendly outside business coming in.

And, you know, I think it's been very well there for a long time, and it's a great use of capital. And the fact that their cans are red has to give them some kind of an advantage there, I would think. It's like the color of China. Yeah, that's got to play well for them. Actually, red cans aside, the number one cult beverage in China is Sprite, which I guess the citrusy flavor is nicer. I wonder how Mellow Yellow does it. I've never seen it. All right, Tim Hanson, Joe Mager, James Early.

Guys, we'll see you later in the show. Up next, retirement expert Robert Brokamp with a few ideas on how to make the most of your retirement savings. Your check stub ain't nothing but a receipt for the taxes you pay. The more money you earn, all the more taxes you gotta pay. Stay right here. This is Motley Fool Money. My bills are all due and the baby needs shoes and I'm busted.

Welcome back to Motley Fool Money. I'm Chris Hill. We have had more than our fair share of volatility this month. Beyond looking to buy shares of companies that suddenly have lower stock prices, investors are also trying to figure out ways to keep their retirement savings safe. Here with a few tips on that is The Motley Fool's retirement expert, Robert Brokamp. Robert, welcome back. Well, thank you, Chris. Good to see you. Let's start before we get into the tips that you have for folks. Earlier this month, we had the historic, capital H historic event where the S&P downgraded.

America lost its AAA rating. What did you make of all of that? Well, the funny thing is, S&P is saying that the United States is going to have a little more difficulty paying back its debt. So, what happened? Well, stocks dropped, and the debt actually did better. So, it shows, I think, first of all, what the market thinks of S&P's opinion. You would think, first of all, that the bonds would drop in value, but no, they've done very well since then. And the stock market has been quite a ride. And I think that has much more to do with the overall economy as well as what's going on with Europe, much less to do with what S&P thinks. So as I said, you've got a few tips for folks who are looking to make

the most of their retirement savings. One of them is a couple that you wrote about recently. And I hope I'm pronouncing your name correctly. The Catterleys. Yes, Billy and Acacia. And they are an interesting story. They retired 20 years ago at the ages of then 38. They've still been retired and they've been able to do this on less than $30,000 a year. And the real lesson there is we focus on how much we need to have before we retire, but you also have to focus on how much you need to spend. And they've demonstrated that you can live a very exciting, cool life by retiring, but not living on, you don't need a whole lot of money. And how have they been able to do that? Well, first of all, they cut out all debt. Second of all, they live

all over the world in places where the cost of living is very low, places like South America, places like Thailand, places like China. They've been just about everywhere, but they go to places where the cost of living is low. The American dollar goes very far, but it's still very interesting, very exciting. They get massages. They live on the beach. I mean, they do all kinds of very cool things. You can go to their website. It's called retireearlylifestyle.com and they show you how to do it. I mean, that sounds like, I mean, maybe you and I should just hop a plane, go for a visit. I think so. Are they looking for people to hang out with? I think so. I mean, it's very exciting. And I should say that the other thing that they're very careful about is

what they spend their money on. And the other lesson with them is that they monitor their expenses religiously. But if you do that and focus on spending money on things that are really important, you may actually be able to retire earlier than you think. All right. Another tip, you say, focus on when you'll need the money. Yeah. And chances are that you don't need the money now. I was at the Morningstar Investment Conference earlier this summer. The CEO of BlackRock, Larry Fink, was there, and he said something like, the problem with the markets these days is a focus on short-termism and not long-termism. And he essentially said, why care about what happens today when you don't need the

money for 20 years? And I think it's a great point. I mean, for most people, you think if you're 40, you're going to retire in your 60s at some point. You don't need the money today. So why are you focusing on what the market does today? Do you really think that cash or bonds is a better investment for the next 20 years than a good, solid dividend-paying stock like Colgate or Procter & Gamble, which have yields that exceed cash and bonds right now anyhow. In terms of your own investment, is that one of the things that you really try and focus on? Yes. In particular, focusing on the long-term, but also I love U.S. large-cap stocks that are paying good dividends right now. I think they're a great buy. The yields are exceeding 10-year

treasuries right now. And not only is that a good investment, but it allows you to buy more shares of the stock, which pay more dividends, which allow you to buy more shares of the stock. It's a great way to invest over the long term. And final tip, refinance. Right. You know, with the Fed reacting the way it does to the economy, it drives down interest rates, which is really bad for- Free money for everyone, which is essentially the policy. Exactly. Which is bad for savers and bad for retirees. But for people who have debt or mortgages, it's a great thing. And right now you're looking at mortgages at 4% or lower. If you have the ability to refinance, you can shave off hundreds of dollars off your monthly

payment, but thousands of dollars over the lifetime of your loan. The only thing you want to be careful of is if you have something like a 20-year mortgage and you refinance it to a 30-year, you're extending that loan 10 years. You want to increase your payments enough so that you still pay it off in 20 years, but that lower interest rate will still save you thousands of dollars. I was just going to say, I was on vacation the last couple of weeks, saw my older sister. And one of the things we talked about was how she and her husband are refinancing their house. And that was the big thing for them, was finding a way, finding a rate that worked for them where they're able to reduce the, not so much the monthly payment, but the years involved.

Right. And I think that's a great way to do it. And if you get a 30-year mortgage, you don't have to wait 30 years. You can pay a little bit extra more. Just make sure you indicate that it goes towards principal, not interest. And you can pay it off sooner. But having a 30-year mortgage gives you the flexibility to say, if you lose your job or something, then you can cut back the payment and just do the minimum. Okay. And just to close out, and this is not about retirement or saving for your future, but I know you're a football fan. We got the NFL season has been saved. It's coming up. So buy, sell, or hold your Tampa Bay Buccaneers making the playoffs this season.

As a loyal Bucs fan, lifetime Bucs fan, I have to say buy. But a lot of expectations this year, very high expectations. I fear that there could be sort of a sophomore slump, but I think it's possible. All right. He runs the Motley Fool's Rule Your Retirement Service. He is our retirement guru, Robert Brokamp. Thanks for being here. My pleasure. And you can get a one-month free trial to the Rule Your Retirement Service by going to retirement.fool.com. Model portfolios, mutual fund advice, and advice on how and when to

retire. That's retirement.fool.com. Coming up, we'll give you an inside 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. I'm Chris Hill, and back in the studio with me, Tim Hanson, Joe Mager, and James Early. Yeah, I forgot there for a second. Guys, a couple of earnings stories that we didn't get to earlier in the show. We'll start with a couple of computer makers. Shares of Dell down a bit this week after the company cut its forecast for the rest of the fiscal year. And Hewlett-Packard's

revenue was higher than a year ago, but shares were down big on Friday after the company also cut its forecast for the rest of the year. Joe, we were talking before the show, You were pretty amazed by HP this week. Yeah, it was crazy. I've never seen so much bad decision-making in news come out of one press release. So, the initial headline was they're spinning off their PC business, which I think is a good move. It's a total commodity business, and we talk about that a lot here at The Fool. Bad margins, bad long-term prospects, and they want to focus on software.

So, I was like, oh, this is great. But then it's all downhill. But at least they led with the good news. So PR 101, check the box. Nice job, HP. So they cut guidance for this year for the third time, which is pretty rough. They are buying a software company, Autonomy, for about $10 billion. They are paying 16 times forward sales, which is just an absurd, absurd valuation.

Are they getting any patents with that? I assume so. At least they'll have Autonomy. If not, they should get those patent trolls. Absolutely. Hire some of them. Yeah, and I think the stock is just getting pummeled on that, understandably, and because of the guidance cut. But then also, they're basically shutting down Palm and the software

that they acquired when they picked up Palm a year and a half ago. And pretty much the deal, the Palm acquisition now is like a complete failure. So, we've talked before about investors essentially staying away from banks and bank stocks. Given Given everything you just said, Joe, about computer makers and the commodity business, do you look at these kind of stocks in the same vein? You know what, investors, if you're looking at technology stocks, you really might want to just avoid the Dells and HPs of the world? Yeah, I think so. I don't like businesses that are commoditized for the most part, and that's pretty much what these guys are. They

sell PCs that are completely undifferentiated, but they're smart to their credit and they're trying to move away from that and move further upstream, do more software. We've got higher margins, stickier customers. What both of these companies have that could potentially make them interesting is large footprints and big sales forces and lots of connections to corporate clients. To the extent that they can actually get things that these clients want to pay for, they can move the product. Dell has shown that through some acquisitions. I think the big difference between these companies and bank stocks is that we don't know what is wrong with the bank stocks. We don't know what's on their balance sheets. At least we know what's wrong

with Dell and HP. So you can make a calculated judgment about whether or not the price you're paying is over or undershooting what is wrong with them. I think potentially some people could make money in Dell or HP. It's not easy money, but I wouldn't preclude them from the investment universe the same way I look at banks and just say, wow, that's just too hard. Just like every beautiful woman eventually gets old and wrinkled, it's just a fact of life. Oh, boy. So true with these growth companies. You know, that was a good comment.

These tech companies that for the longest time we had this notion that all tech equaled growth, whether it was hardware makers, whether it was Oracle, whether it was networking, everything tech was growth. Cisco. Cisco, yeah, for the longest time. And finally, we're seeing tech kind of differentiate itself into different facets. There still is high growth, lots of high growth in tech, but there are aspects of tech that are slow growth, that are commodity aspects, and this is sort of playing out right now. So, investors take a long time to kind of finally come to grips with this.

So, I think this is what we're seeing here in the market. And so, James, I take it you think there's no way you're going to get old and wrinkly? I didn't say anything about me, Chris. I'm talking about beautiful women. I mean, I may have that fate myself, too. but let's move on to this evaluation question to this and i want to ask but won't let's move on to the home improvement companies uh lowe's profits were essentially the same as a year ago while home depot's profits were up about 14 percent uh james uh without invoking the inevitability of beautiful women um what's your take well just invoking beauty alone this is sort

of the tale of two makeovers uh lowe's had its makeover just corporate makeover uh you know five or six years ago. They redesigned the stores, making them more friendly, more accessible to women, a little more focused on kind of the home interior aspect of it. So they're sort of bearing the full brunt of the economy. Home Depot didn't. And for the longest time, they lagged lows. Now, recently, they've kind of done their own makeover. They had five years of declining same-store sales growth until like last year or this past winter or something like that. But now they've added more kitchen stuff. They've been doing more online presence, some boring inventory and distribution stuff. So basically, they're not really seeing the economy. What they're seeing

is the effect of those makeovers boost their sales. So Lowe's had disappointing sales cut their outlook. Home Depot had good sales and actually boosted their outlook. And it's basically for that reason. Yeah. And that story kind of highlights why I generally don't like investing in retailers, because times change like that. HD is delivering and they're doing a great job. But I think in a few years, we'll probably see that Lowe's has stolen some of their good plays and They'll have their time in the sun, too. Just a bizarre anecdote. Just to show you how much spin companies embed in their earnings commentary,

here's a quote from the Wall Street Journal. It says, Lowe's also blamed its sales struggles on hot weather and droughts in the southeast, because people weren't doing much gardening or outdoor work. Meanwhile, Home Depot said the heat wave boosted its sales as customers purchased more fans and irrigation products. Well, they have better air conditioning than Lowe's. Literally the same event. You're listening to Motley Fool Money.

We're hitting some of the big headlines of the week. Walmart's quarterly profit rose nearly 6%. Shares were up this week. Same store sales in the U.S. down for the ninth straight quarter, Tim. They still can't get the- But they were down less, Chris. They were down- This is progress in the U.S., which is good.

But the story for Walmart, you know, Walmart is a fascinating corporate study, mostly because you can go onto their website, their IR website, and get every annual report they've ever produced as a public company. So you can basically see how the chain expanded from 51 stores in five states in 1972 to the thousands and thousands of stores around the world they have today. And what you learn is that they had basically 30 years of 30% sales and earnings growth, and the stock returned 30% annually. Over the past 10 years, this is a company that has produced 10% sales and earnings growth, and the stock is actually down 1% annually over the past 10 years. So what's going to happen going forward? Yeah, they are going to struggle a little bit in the U.S.

They're doing okay there on cost-cutting. They're getting back to everyday low prices. But they continue to put up 15%, 16% sales and earnings growth outside of the United States. And that's just really driving the overall results. And at some point, I think the stock here is going to have to catch up to the performance of the business. And shareholders in Walmart are going to do pretty well. So the same-store sales in the U.S., not a concern to you? No, I don't think so.

So, like, you know, down less is sort of a joke in some ways, but it's also good news. It means they're fighting back effectively against the dollar stores and others who have been going after them on the low end of the market. And, you know, but it's also it was less than 1% decline. You know, at the end of the day, that's not going to move the value of the company that much. It's a good headline. But when you say how healthy is Walmart as a business, you look at their cash flow, you look at their balance sheet, you look at their growth abroad. They're doing very well in a lot of aspects. And Walmart is making up, well, first of all, it was overvalued 10 years ago.

So it took a long time to catch up with that valuation. I personally, as an income investor recommendation, I think it's sort of surpassed that in terms of its earning potential. So I think it is a good investment now. But years ago, they made the big blunder, two big blunders. One is copying Target with fashionable, you know, trying to be fashionable. The second is copying Target with just reducing their unit count. And what they learned is that if people wanted a Target-like shopping experience, people would just go to Target because they rolled out these implementations right at the peak of the recession, and Target was looking good with these things when the economy is doing well. So Walmart is now trying to re-clutter its shelves.

It's going back to its low-price roots, but this is not something that happens overnight. It's not something that changes sales for a company overnight. So, I agree with Tim that at least less worse is better. More good. Yeah, more good on the path to becoming better. All right, time to get to the stocks that are on our radar. Tim Henson, we will start with you. What's your stock this week?

My stock is Baidu, which is the Chinese search engine, which we visited in China this past June. And I've been sort of skeptical about the company and its ability to innovate. And I thought, you know, basically they've been handed a lot of market share by the Chinese government once the Chinese government really forced Google out of the market. They took the market share, the stock's been going gangbusters, the company's growing like gangbusters. It's a great story. So I thought I had the wrong opinion on Baidu. Then some interesting things started happening this week in China. Chinese Central Television, the state-run media company, started running exposés about all the ways Baidu is defrauding its customers,

defrauding the people searching on the website, slandering respected academic professionals online. And it starts to get curious, why is the Chinese government suddenly turning on Baidu? Well, over the past year, they've launched two of their own search engines. And quietly this week, CCTV launched one of their own as well. So now there are three government- That's my homepage now, by the way. The CCTV search engine? Yeah.

Can you do anything with it? No. I'm not even sure it works at this point, but they've got it out there. And so the Chinese government is notorious for throwing out trial balloons to try to sort of turn public sentiment so that when they actually do something, there's not an uprising or a revolt. My suspicion or my hunch is that they would like to further regulate the Internet search space and in doing so try to reduce Baidu's market share. I think they worry that Baidu now controls the information flow in the country, and I think they worry that Baidu is stealing a lot of marketing spend from those state-run media channels.

What could this mean? I think stricter regulations or potential prosecution under the country's monopoly law, which could result in them fining Baidu a very material amount or trying to rip away some of its intellectual property and give it to those government assets. So I think the play is potentially some lottery ticket puts on the stock. Just, you know, if something comes out, stock drops sharp, you spend a little money, make a lot of money. If it doesn't, you just lose a little money. And the ticker symbol?

That's B-I-D-U, but look at the options on your own. James, your stock this week? Chris, if you're tired of hearing about all the fun your friends are having in natural gas distribution stocks, you might want to check out Spectra Energy, which is one of the biggest and most diversified midstream natural gas companies. The 4.1% yield, the ticker is SE. The story here is that natural gas is the fuel of our country's future. We have a lot of it. It's about half as dirty as coal, which is pretty darn good for a fossil fuel. And there are different ways to play it. There are commodity-sensitive ways. There are pipeline ways. But Spectra gives you kind of a diversified

exposure. The gathering and processing they have, they have the storage of natural gas, the pipelines. So, if you're not quite sure where to begin, but it sounds like something you want to get into, this could be a good stock to go into. It is an income investor recommendation. It's done pretty well for us. Joe Maker, your stock this week. Google. I'm a big fan of Google's long-term prospects. I think this shares were just whacked totally unfairly recently. When you look at it, sales are up 32% in the latest quarter, and the stock's trading for 18 times earnings. Pretty interesting combo. Balance sheet's

still great. The Motorola deal got a lot more negative press than it should have in the grand scheme of their business. They're still kicking butt and taking names in U.S. search. I think it's pretty clear that Bing isn't going to walk in and eat their lunch at this point. What about CCTV? Well, I'm enjoying their website. And the ticker symbol? G-O-O-G.

Goog. All right, Joe Vigor from Motley Fool Inside Value, James Early from Motley Fool Income Investor, and Tim Hanson from Motley Fool Global Gains. Guys, thanks for being here. Thanks, Chris. Thanks to our special guest this week, Robert Brokamp, who runs our Rule Your Retirement service here at The Motley Fool. That's it for this edition of Motley Fool Money. Our engineer is Steve Broido. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.