Motley Fool Hidden Gems Investing - Motley Fool Money: 09.03.2009

Episode Date: September 3, 2009

Is commercial real estate the next big hurdle for the U.S. economy? Will Disney’s purchase of Marvel mean superhero-sized returns for shareholders? And was eBay & Skype the worst corporate pairing since AOL & TimeWarner? We answer those questions and more, and share three stocks on our radar. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Motley Fool Money. I'm Chris Hell, and I'm joined by Motley Fool Senior Analysts Seth Jason, James Early, and Shannon Zimmerman. Guys, welcome. Good to be with you, Chris. Happy, happy, what day is it? Well, you know, yeah, we're tipping this on Thursday because we've got the holiday weekend and our producer, Matt Greer, wants to get out of town. Actually, we decided that nothing useful will happen tomorrow. You can all quit work and go home. And the fact that Matt wants to get out of town has nothing to do with the holiday,

by the way. Exactly. Fingers crossed. All right. On today's show, Disney loads up on superheroes, eBay unloads Skype, and as always, we'll share three stock ideas. But we begin with this big macro question. Is commercial real estate the next big shoe to drop? Earlier this week, the Wall Street Journal reported that the commercial mortgage-backed security sector had a delinquency rate in July of 3.14%, which doesn't sound all that high until you consider it is more than six times higher than it was a year ago. James, how bad is this in general, and how bad is this for investors? Well, first of all, let me say this. If you are a regular listener to Motley Fool Money, you would have been warned about this as early as last

week. Actually, no, no. For many months, we've been talking about this. This is like our 27th warning on this. It is big, but let me give you a little bit more perspective. Hang on, hang on. So, we predicted it often enough. It finally happened. Finally, yeah, we've got to be careful of what we say here. Wall Street Journal says there's $6.7 trillion total commercial real estate. $1.7 trillion of that is in bank loans, most of which are not mark-to-market, and about $700 billion in the commercial mortgage-backed securities. So in terms of the securities itself, it is smaller than subprime,

but it's still certainly big enough to be a concern, and I think it's just getting started. My worry is less the big banks. I mean, they are exposed to these commercial securities, which can't be easily modified, and that's a challenge there. But mostly the local and regional banks, those are the ones that are really exposed to real estate, particularly as a percent of their assets, and they don't have any incentive to mark down these loans. They're held typically at face value until maybe the loan gets totally redesigned. But that's going to be the big shoe to drop. Will something force their hand eventually for the write-downs to occur?

The FDIC, maybe? Things just get bad enough. Here comes Sheila. When it just gets so obvious. I mean, you know, in REITs, I should add another thing that I'm staying away from, you know, anything from the office to the commercial property. Although I will say that my wife dragged me to the outlets this past weekend, and I was hoping for, like, an empty parking lot,

but we had to park in, like, Satellite Lot BZ-152, you know, and walk a mile and a quarter to get there. So, you know, it's still booming around here. Yeah, I think the takeaway here is that you probably need to stay away from those little banks you've been eyeballing. And I know I've been eyeballing them, trying to figure out if there aren't some bargains out there. And it is really, really, probably next to impossible to figure out. And keep in mind, the government ain't going to come and rescue these little banks. So if they have made bad loans, which many of them undoubtedly have, they stand a good chance of going under.

And they may get a visit from the FDIC, and their assets will go to somebody else, and shareholders will get bupkis. Is there a silver lining to this at all? So folks who are having to rent commercial space, are they getting bargain deals as a result of this? Some are, yeah. The New York Times says that building values are down by 50% to 65% in much of the nation, which is pretty serious. Yeah, well, oddly enough, if you are lucky enough to be involved with any retailers, I'll drop a name like Guess, which are expanding more slowly now but doing pretty well. This is one I own.

They are finding deals on space as a result of this. So there is a silver lining, but if you're in the wrong place, watch out. Earlier in the week, Disney acquired Marvel in a stock and cash deal valued at $4 billion. Disney now gets to add Iron Man, Spider-Man, Thor, and the Hulk to its stable of characters. Don't mention Thor and the same breath as Spider-Man. It's a big movie coming out next year. It's a movie coming out. I'm not so sure about the size.

Wait, is it next year or 2011? I don't know. It's coming out in a couple of years. I noticed you didn't mention Punisher or Elektra. Oh, you know what? As we've talked about on this show before, more than 5,000 characters Marvel has. Believe me, there are some obscure ones. And very few of them worth a cent.

Yes. Well, again, Disney's adding all of them to their stable that includes Mickey, Minnie, Winnie the Pooh, and to its universe, the Disney universe, which includes Pixar, ESPN, ABC, and, of course, the theme parks. I'm a Marvel shareholder. How psyched should I be about this deal? I think you should be plenty psyched. I mean, it's a predictable deal in some respects. And there are some caveats, but I think it's a smart move on Disney's part,

if for no other reason, but it gives them a bigger footprint, and they have a very slender one right now, in the world of boys' entertainment preferences. You know, they sort of rule the roost when it comes to Sleeping Beauty and Cinderella. Not so much in G.I. Joe. How many princess outfits at your house? Well, so we have about seven for the five-year-old, and the seven-month-old hasn't quite gotten there.

Exactly. You'll be adding some Spider-Man. Well, if I had a boy, I would. As long as Disney keeps the Jonas Brothers, I don't care what else they do. So be that as it may, I think it is a smart move. It is of a piece with the acquisition of Pixar, but it's a bit dumbed down from there. Pixar makes these pretty smart films. WALL-E is the classic example.

Smart both in terms of what it's up to as sort of a political art film that passes as a kiddie movie as well. But also there was basically no dialogue. And so the international hurdle was a very low one to clear. This, you know, this is Marvel. And they do have Spider-Man, which is a top tier title. And they haven't fared as well with the Daredevils and the Hulks of that universe. The X-Men have also done well. I don't think Thor is going to rise to the level of Spider-Man.

But, you know, stranger things have happened, I suppose. There's been a lot of hand-wringing, especially among Motley Fool Marvel owners, who have had Marvel for a long time, and a lot of them have made a lot of money. David Gardner made a great call on this stock back when it was a real value back in the day, what, 2002 or something? 2002, yeah. It's up 14 times or something since then. But I actually think that shareholders like you, Chris, should be pretty happy

and may just consider selling the stock. I think it was trading near the takeout price recently, and sometimes this happens. It is not a tragedy when somebody comes along and offers what looks like a fair price for this. If you're convinced Marvel was worth $100 a share current value, I don't think so. So I don't think there's any reason to be upset about this. This kind of thing happens.

Take your victory lap. Find another stock. I'm sorry. Go ahead. Well, I was just going to say that our colleague, Rick Munar, has a terrific article on Fool.com right now, Five Reasons Why Disney Bought Marvel. Folks should check it out.

It's a nice, succinct rundown of the things that we're talking about here. Yeah, I haven't seen the article, but it is a little ironic what's become of Disney, what was once such a creative company. Now, I think I read that Steve Jobs and Marvel CEO will be the two largest shareholders of Disney after this is done. It's just a distribution company, or not just a distribution company, but primarily at this point. Yeah, production and distribution. It has to import the creativity. You know, Shannon, you can bet against Thor all you want, but Kenneth Branagh is directing that thing.

Didn't he direct Frankenstein, or was he in Mary Shelley's Frankenstein? Let me get that title correct. I think you're right about that. Are there any crossovers you guys are looking forward to? Because I've got to say, the potential of Thor showing up on Desperate Housewives now. Punisher Little Mermaid. Punisher Little Mermaid. I think Captain America is going to get his own talk radio show.

I think you're right. I think he maybe already has one. We were talking before about some of the bigger-named superheroes in the Marvel Universe. But as we said, more than 5,000. Here are just a few more because, you know, Disney has to take the bad with the good. So they're getting Spider-Man. They're getting Iron Man. They're also getting Asbestos Lady, a gifted scientist who designed a flame-proof costume from Asbestos and wielded a flamethrower and guns that fired Asbestos-lined bullets.

This is one of the characters they're counting among the 5,000. That is such a crock. Why didn't they just come out, come clean and say, we got about two, three dozen decent characters? I guess that doesn't sound right. He's an interesting character to me, guys. You're not betting on a movie about Rocky the raccoon, who has many of the same abilities as a normal raccoon, such as a heightened sense of smell and sight.

He wears rocket skates that enable him to fly short distances, and he can carry the weight of at least one other animal. And he bears no relation to Rocky of Rocky Bullwinkle fame? No, or Rocky Raccoon of the Beatles catalog. Or Cartman's raccoon-based hero, the name of which I will not speak on this show. Or Rocky Balboa. There are a lot of Rockies. Too many Rockies. Let's move on. eBay shareholders will not have Skype to kick around anymore.

eBay announced it is selling a 65% stake in Skype to a group of private investors for $1.9 billion. That would value Skype at around $2.75 billion, a bit less than eBay's initial purchase price. eBay had originally hoped that buyers and sellers would use Skype as a communications channel, and that didn't actually happen so much. Seth, you get the honors. I think if we go back to the archive, maybe Fool Video or a prior Fool podcast a few years ago, I may be on the record making one correct call saying, this is just the dumbest deal I've ever seen.

Nobody's going to want to do this. The most incredible thing to me here is that Meg Whitman seemed to not understand one of the primary attractions of her own business, which is that you don't have to talk to people. You don't have to talk. Exactly. You don't have to talk to knuckleheads. You can get a little bit of information

about the product with email or something. Nobody wants to get on the phone and talk to the weirdo who's going to sell them used bike jerseys that I might be interested in buying. Yeah, for a buck. So this was, to me, the dumbest idea I ever heard of at the time.

Well, that's not probably true, but it didn't seem to make any sense. They paid way too much. They paid $2.6 billion up front. They had to pay like a $1.7 billion earn out, which people are all conveniently forgetting nowadays when they say, hey, they got the equivalent of $2.7 billion or whatever this equivalent is.

That's about what they paid. No, they paid another $1.7 billion. And remember, they didn't get all that money back. They have to hang on to a third of this. The final difficulty here is that the telephony like this over the internet is just going to be a commodity. And so I don't expect this to go anywhere for the long term. So I think they're stuck with a third of a loser.

Well, let me push back just a little bit on that just for some devil's efficacy. I mean, the folks who are purchasing the two-thirds of the company aren't dummies. And eBay does have a third of that company left over so they can participate in the upside if they actually manage it to upside. What are we missing that they are seeing or are they missing a point? As you know, smart people with a lot of money make some dumb decisions. I think this may be one of those. All right. You're not going to also leap to the honor of Meg Whitman?

No. No, I think the rationale was wrong. The consequences of it may turn out to be right. It's still a better price than I actually thought they would have gotten. Yeah, yeah. We'll have to give them that. They did a pretty good job of recouping part of what otherwise would have been just money flushed on the toilet. Okay, so exit question.

In hindsight, of these three, which was the worst pairing? eBay and Skype, AOL Time Warner, or Paul McCartney and Heather Mills? well that's the no-brainer it's got it's got to be uh paul mccartney i'm going aol all right shorter week next week because the market is closed on monday so shannon give me one stock that is on your radar oh well so uh definitely on my radar and sort of pending how the health care uh debacle i mean debate uh pans out uh united health looks like a very interesting company and insure with a super attractive uh profile evaluation wise right now Some debt concerns, but basically a company that's poised to do well if wholesale reform fails.

The ticker is UNH. Can I go there for a second? Sure. I don't know if this is widely known. I haven't followed this ticker, but I do know they're laying people off at UnitedHealth. Whether that's good or bad for shareholders, I don't know. I do know they're laying people off. As the conversation goes on, though, and it looks more and more like the public option is going to be taken off the table,

which is going to remove pressure from private-side health insurers, watch the insurance company's stocks increase, as they did yesterday, as that conclusion seems to be almost foregone at this point. James? Chris, I've been looking at Kellogg's and General Mills a little bit. You feeling hungry? You know, I'm actually kind of a low-carb guy, and I don't eat much grains these days. I feel better for it, I think.

These companies are doing very well. They're raising their dividends. They're not going anywhere high anytime soon. They're just very solid, very safe companies with strong returns. And if you've been to the cereal aisle, you know how expensive this stuff. is, and it just keeps selling. You're not going to say anything bad about, like, Frosted Flakes or Cap'n Crunch. Are those your go-tos in the morning? Oh, they're definitely on the Desert Island list, yeah.

But they're frosted. When we were going up there, it was super sugar snacks, right? So now everything is honey, so it's frosted with honey, I'm sure. Yeah, because you can't say sugar. I'm going to restrict my kid from eating any of this, I think. You know what? Someday you're going to bring your kid in here for, like, you know, bring your kid to the Motley Fool day, and we're just going to be like, oh, here, come on to the studio,

and it's going to be Froot Loops everywhere. Seth? Commercial real estate. We were just talking about it. I have, remember my famous auto live? Should you buy? Should you sell? Shannon had this crazy idea of a hold, maybe.

I have a similar situation on another Hidden Gems recommendation from the past called LoopNet, which is kind of a commercial real estate online brokerage service. People buy, sell, list companies. Do they have a telephony arm, too? They should have a telephony arm. Luckily, they avoided that particular trap, but they have not been able to avoid. the abysmal state of the commercial real estate market. Now, they work by kind of getting fees on volume of transactions.

So they're not tied so much exactly to prices or anything in commercial real estate. But of course, prices are going down because there are a lot of transactions going on. So this is a company that's cash rich. I think they've made some mistakes with what they've done with some of their cash. They did a recent capital raise, which I really wonder about. They say they're looking to expand, maybe make some acquisitions. So it all depends, if you're interested in this company, and the ticker is L-O-O-P,

if you think it's a bargain based on all the cash and the cash flow they may make when and if commercial real estate comes back, or if you think it's a dead market, it's a stay away. Could be a hold, Shannon. Well, you know, we think that thinking outside the box is overrated, so the deeper inside the box, that's where people aren't paying enough attention.

I'm going to give you all three, buy, sell, and hold. Nice. One of them will be right. Just pandering to the masses. Exit question in honor of Labor Day. What's the weirdest job you've ever had in your life? And I am including summer jobs here. It could be weirdest or sort of most notable.

Just going to throw it out there. My first job was as one guy does it all, grill, cashier, cleaning up the tables guy at a place called Poor Richard's at a mall in Memphis, Tennessee, where I was presided over by a man who was probably well into his 80s named N***a. And he was clearly being cheated on by his wife. and I would give him a ride home each day and he would report the details of his, you know. So you weren't the guy then? No.

Wow. James? You know. It's tough to follow that one. Yeah, it really is, yeah. I really don't have anything as good. I mean, I've had jobs where I just basically paste one spreadsheet from one thing

and send it to somebody else and then I rigged this thing to automate it and did like a week's worth of work in like five seconds. So I had to think of what else to do the rest of the time. That wasn't while you were working here at the Motley Fool? No, no, no. It was not The Motley Fool. Let me clarify that. I had a job like that at Pillsbury, but they treated me very well as a result and asked me to create more databases and spreadsheets.

Weirdest job. I think I had in college one of those going door to door and begging for money for the environment. A canvassing job, which is the worst thing in the world, except that sometimes people – I had hippie neighborhoods in Minneapolis and St. Paul. And so people would say, I don't have any money for you, little dude, but come on in back. We're lighting up a bong. Have a beer. So there were some interesting afternoons with that job.

I would imagine there were. Steve, do you want to jump in here? Wedding DJ. That was the low point, I think. Wow. Any weddings in particular stand out? Inexpensive weddings. They were all very inexpensive.

Did you have to grow a beard for that job? I did not. I did not. Hey, Steve, have you ever heard that song, The Electric Slide? In fact, I have. Yes, I am. Is that, if you could banish one song? Macarena.

From the, oh, Macarena. Macarena, yeah, it's still. No hesitation on the answer. Although he did grab for the trash can and wretch when you said the electric slide. And we should say that in all of these podcasts, Steve is the wimp beneath our wings. Yes. Thank you. Wimp beneath our wings?

What? It kind of sounded like that, but. All right, Seth Jason, James Hurley, Shannon Zimmerman. Guys, thanks for being here. Happy holidays. 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 own 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. I don't think I should mention his name.