Motley Fool Hidden Gems Investing - Motley Fool Money: 10 29 2010

Episode Date: October 29, 2010

Who is Todd Combs and what does Warren Buffett see in him? Has Microsoft regained its mojo? And will Kimberly-Clark revolutionize your bathroom? On this week's show, we'll answer those questions, talk about some of the week's big stock market movers, and talk about the business of the mid-term elections with CNBC's John Harwood. Learn more about your ad choices. Visit megaphone.fm/adchoices

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From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. Thanks for being here. I'm your host, Chris Hill, and I'm joined by Motley Fool Senior Analysts Seth Jason, James Early, and Ron Gross. Guys, Happy Halloween. Happy Halloween to you, Chris. Coming up, we'll give you the latest on Microsoft, Motorola, Sony, and more. CNBC's John Harwood will give us his thoughts on how next week's midterm elections will affect Wall Street. Plus, we'll give you an inside look at the stocks on our radar.

But we begin with the big macro. On Friday, the government reported that the economy grew at an annual rate of 2% in the third quarter, which was in line with expectations. On Thursday, the government announced that unemployment claims dropped to their second lowest level of the year. But, Seth Jason, Reuters and the University of Michigan rained on the parade on Friday when they reported that consumer sentiment fell in October. What was your headline of the week? Wow. Well, there's a lot there.

Let's just go through and point out that most of those things you just said don't really matter. Or are prone to change a few weeks from now when they re-estimate what unemployment claims might be. and also in a few weeks when they redo GDP. You don't want to take a gratuitous shot at the University of Michigan? That number is always crazy. Sometimes people, confidence is low, and people go out the next month and spend like crazy. What is going on here, it seems to be going on,

is you shouldn't get too excited about that unemployment claims drop because $434,000, big deal. The usual is about $450,000, that any number of errors could be responsible for that. So whoopee. GDP numbers actually a little bit lighter than the 2.1% that I read economists were looking for. The number in there to look for is probably consumer spending, still 70% of GDP, but growing at a slightly faster rate than that 2% number,

but not as fast as it should be coming out of a recession like this. So not the greatest showing, and yet another reason that anybody out there telling you about inflation should be ignored. James Hurley, what was your headline? this week chris i'll try to say something that matters to please seth i've been looking at this rare earth news um if you haven't been following it your your ipod or or uh maybe an electric car might become more expensive especially yeah exactly well do they still make the zoom yeah sure okay i did not know that um they might get more expensive in coming years thanks to kind of

a madman chinese fishing boat captain who apparently rammed some japanese patrol boats in a disputed region of the sea that apparently is held to belong to Japan. China responded by putting an embargo on rare earth metals going to Japan. These are like, you know, something, bidium, some bidium, I can't even pronounce it. All these chemicals that we're supposed to learn in high school. Stuff that makes Superman hurt. But so the bizarre thing is, so they did that for a while, and suddenly they decided, well, while we're at it,

why don't we just extend the embargo to the whole world? Because we don't need them, we're China. Exactly. Some of these prices have gone tenfold on some of these rare earth metals, and apparently this was unofficial. They never admitted to doing this, and now they might be backing off, but they're not admitting to backing off of the thing they didn't admit to starting in the first place. So it's just bizarre, but it's an interesting story, guys. It still doesn't matter because you can go to 8-Track. Let me make sure I have this right. Because of some local fishing hostilities, the cost of my cell phone is going through the roof? That is apparently correct, Chris, or it might be if this embargo keeps up.

Ron Gross, what was your headline this week? Chris, something that caught my eye was a recent study released by Moody's that says U.S. companies are hoarding $1 trillion, that's trillion with a T, $1 trillion of cash on their balance sheets at the moment. But because of the economic outlook and the way things are a little bit shaky out there right now, they're actually not willing to put that money into expansion. So they're hanging on to it. So what does that mean? I think that means we'll see maybe some increased share repurchase programs.

I think we'll see increased acquisition activity, which is always hit or miss. Bigger parties. They might even hire somebody. Christmas parties are going to be awesome this year. But definitely look for increased M&A activity as they look to put some of that to work. You know, what's just interesting, and I'll go off my little rant on the Fed here, but we've been trying all these policies to stimulate the economy. We've seen an inflation in the value of risky assets. Some of the riskiest assets have bounced back the fastest, but what we're not seeing is corporations actually spend their cash.

In other words, some of the entities that we really want to spend money are still not spending money. On Monday, Berkshire Hathaway made headlines when the company announced it has hired Todd Combs to manage a big chunk of its investment portfolio. The Todd Combs? Warren Buffett. Tolls off the top. Exactly. Warren Buffett told the New York Times that Combs could be Berkshire's next chief investment officer. Ron Gross, who is this guy?

All right, so I'm a former hedge fund manager, and I had never heard of him, quite frankly. As we know, he's a manager, a former manager at Castle Point Capital. Which I had never heard of either, and I'm a hedge fund manager myself. He's a long, short guy, so not necessarily. What does that mean? He's a mullet. He's a hedge fund manager, and he has short positions and long positions.

He plays both sides of the market, which is not very Buffett-esque. He is financial service focused, which is interesting. So he does have a niche. Like the insurance and all that that Buffett is made on. I would imagine Buffett is tapping him to look at that portion of the Berkshire portfolio and not necessarily the Gillette and the Coke kind of stuff that he plays with as well. And let's be fair. Our reaction, basically, who is this guy, was shared by many in the financial community.

What do you think it says about Warren Buffett that this guy is something of a surprise pick, to put it mildly? I think he probably has a relationship with this guy going back years. And that's inflammatory. I have a feeling that he likes him very much on a personal level and that he probably thinks in very much the same way as Mr. Buffett does. We, of course, don't know that because we've never spoken with the man. But I think they probably see eye to eye on the way the world works. Yeah, and Warren, give us a call. I mean, come on.

All right, a nice earnings quarter for Microsoft. Revenue up 25%, net income up 51%, thanks in large part to a boost in businesses spending on technology. Ron, what did you make of Mr. Softee's latest quarter? So, Mr. Softee had a very strong quarter. Important to understand, the stock, until recently, was really priced for no growth. And the service I manage here, Million Dollar Portfolio, we picked some up about a month and a half ago at a really attractive price, and we're happy to do so. This quarter comes in very strong on the backs of, as you said, strong business spending in Windows 7, Office 2010. There was some one-time occurrences, deferred revenue from prior periods that rolled into net income. But still, things look very, very strong.

Now we turn, all eyes turn to the mobile phone market, where we have the U.S. launch on November 8th of Windows Phone 7. And there's been mixed reviews on that. Oh, come on. They're very good reviews, Mr. Microsoft. I've seen them myself. And we will see. The next two quarters, I think, are going to be very interesting. Actually, I think that everyone's going to have their eye off the ball on that.

The interesting thing about mobile is it doesn't make anybody, it doesn't make Google any money. It makes Apple money because of the hardware, and it hasn't made, even when Microsoft had larger market share, their OS didn't make them a lot of money. What matters to Microsoft or to Google in that space is actually locking people into a sort of OS and ecosystem. And that, interestingly, is what the Windows 7 and Office 2010 ecosystem does. So if you're interested in Microsoft, you should be a lot more excited about what happened this quarter

and worry a lot less about Windows Phone 7, even though I think it's actually going to do okay. The consumer was still weak this quarter, though. Yeah. The consumer was still weak, if I recall. And Seth, CEO Steve Ballmer also made headlines with his keynote address at the developers conference. But I don't believe it. Did he do the dance? I don't think any dancing was involved.

No, he actually made fun of that prancing viral video. But one of the things that the haters out there don't understand about that video or about Ballmer at that venue is that it's his job at the developers conference to kind of get the developers, you know, who are a bunch of nerds probably anyway, right? They're writing software. I write software. I'm a nerd, I know. And so it's to get them enthusiastic. That's what that was about, and that's what he's doing this time. And this is pretty important.

Microsoft, the reason Microsoft is the OS and the computer company is because it has always given developers a lot of tools to do what makes them money, and that is what will continue to keep Microsoft relevant in PCs, and it may get them back into phones. Coming up, Kimberly Clark wants to revolutionize your bathroom with its latest product. Stick around. You're listening to Motley Fool Money. Welcome back to Motley Fool Money.

For investing commentary and analysis each day throughout the week, go to fool.com. Chris Hill here in the studio with Seth Jason, James Early, and Ron Gross as we dig into some more earnings news from the week. Ford's third quarter profits were up nearly 70% from a year ago. James Early, as our resident gearhead, what did you make of Ford's latest results? Chris, you've got to love when an auto company does well, even without the benefit of going bankrupt. That actually helped GM and Chrysler. Ford did borrow several hundred million from the United Auto Workers Trust, and it's working to pay that back.

But it's actually making money by selling cars that people want. Get out of here. I wouldn't believe it either. I wouldn't have believed it unless I saw it. Did you go to the financing part of this thing and see how much was like reversal of reserves or anything like that? Was it really selling cars? I think it was their Edge crossover SUV was hot, and their F-150 was pretty popular, too, which I think is the most popular vehicle in the world, allegedly.

So, hey, I mean, that's only two cars, but it's a good start. And I should point out that Ford CEO Alan Mulally will be our guest next week on Motley Fool Money. So if you have questions you'd like us to ask him, please drop us a note, radio at fool.com. And now you know why we didn't bust on Ford too much right there. Exactly. Motorola's mobile division reported an operating profit a full quarter ahead of schedule, and shares were up slightly on their latest earnings. So, Jason, how big a factor is the droid when it comes to Motorola's business?

Well, that seems to have revitalized the mobile business, which is about a third of revenues there, but it doesn't account for a lot of the profits from what I'm seeing. That's the other businesses that none of us can remember because we only think of Motorola phones. So I think Motorola needs to send a fruit basket over to Google for buying the Android operating system and giving it away for free. The problem with this entire setup for Motorola shareholders is that essentially they've done well this quarter in the past by selling phones. But these phones are a commodity, especially if they're Android phones, because that is a kind of a free OS for developers. And when they eventually split up Motorola into two pieces, one of them being the mobile, that is going to be a pretty volatile business, and I think it may be involved in a race to the bottom. So I would say yay for now, but watch out in the future.

It's a slow-motion slip and fall, you're saying, basically. I have to think so. I mean, where is the edge for Motorola in the phone wars? Apple has its brand and its hardware. If you're Motorola, you're just fighting a game against some of those Chinese manufacturers, and it never stops. GlaxoSmithKline has agreed to pay $750 million to settle a lawsuit charging the company sold defective drugs. The lawsuit started when Cheryl Eckhardt, a quality assurance manager for Glaxo, repeatedly raised concerns over the company's manufacturing process. Glaxo fired her, Eckhardt became a whistleblower, and James Early, under the federal whistleblower law, Eckhardt will now get around $100 million.

Whoa, $100 million? I need to kind of rat every one of you out. Well, I think you also have to hope that there's a lawsuit to the tune of many hundreds of millions of dollars so you get a percentage of that. Exactly. Glaxo is paying about $750 million in fines for selling adulterated and ineffective pharmaceuticals from this Puerto Rican plant. Is that against the law?

Didn't ask exactly. What's so bad about that? Some of them are antidepressants. They might have worked anyway. But the bottom line, if you're going to blow a whistle, do it at a large company with deep pockets. It's like being a waiter at a fancy restaurant. You just get a bigger tip. So she's getting a share of these fines.

Good for her. I wonder how many people she saved. Apparently there were actually no injuries reported. In the future, future people, they count. The ones that won't be dead. Steve Roino, just to bring you in here, is there anyone or anything you'd like to blow the whistle on? There's been many things in the past,

but currently I'm going to keep it all under my hat until my expose comes out. Steve's got a lot of tape that rolls that you folks out there have never heard. I think we should put together like a bonus CD, like a director's cut CD of Motley Fool money. I know a Hitman. It might be a lot cheaper. All right, guys.

It's the end of an era. After more than 30 years, Sony has pulled the plug on the Walkman. Ron Gross, how sad does this story make you? When I saw this, I just had a chuckle. It's like better late than never. So earlier this year, they shipped their final shipments into the Japanese market, and it's the end of an era. For those of you technology-challenged folks out there, don't worry. There will still be some around.

Some Chinese manufacturers will still be making a few of them here and there. But it's the end of an era. But what do you put in them? Does anyone make cassette tapes? Can you buy a tape? You cannot, as far as I know. You must just have to make your own tapes. Don't we all still have our own?

I have mine. They're all broken. I just want to pause for one second here. I don't think it's possible to overstate how huge the Walkman was. When it came out in 1979, 1980. It was like five inches by seven inches or something? Well, I mean, huge. Yes, it was large.

I'm kidding. But it was so popular. It changed everything. It changed everything. There'd be no iPod. In the way that the iPod changed everything. Ron, you were mentioning cassette tapes. Do you have a memory of a first cassette tape?

Believe it or not, I think my first one was Meatloaf, Bad Out of Hell. Oh, yeah, sure. A good one. That's a classic. I didn't have the Walkman. I had a Toshiba model, and I remember cranking the- Oh, he's trying to save a buck. The Steve Miller Band.

Steve Miller Band. James? I believe the... I don't think it was on a record. I think I bought Michael Jackson's Thriller as my first cassette. Mine was straight out of Seth's hometown of Minneapolis, or certainly his home state, Minnesota. Prince. The Prince.

Prince and the Revolution. Purple Rain. Steve Broido, yours? Honestly, I was an LP guy. I had lots of records when I was growing up. I had some cassettes, but I mostly, I think, recorded records on a cassette. Steve is way cooler. You're just far younger than us. Isn't that it?

You just missed it? I mean, I had records, so I don't know. Maybe I'm older. He was more of an audio guy. Are you like Benjamin Button with that Brad Pitt movie you just aged backwards? It's quite possible. All right. And finally, on Monday, paper products giant Kimberly Clark announced it will begin testing

a tubeless roll of toilet paper. No more cardboard roll. No more glue sticking to those last few squares of toilet paper. James Early, the toilet paper market is a $9 billion industry. What does this mean? Well, it means I can finally end my decade-long toilet paper boycott. I mean, just so much material with the cardboard and stuff. It's better for the environment.

I'm kidding. It's better for the environment. It's kind of interesting how they're going to pull this off. I mean, I tend to think of it as just kind of whiz-bang gizmo stuff. But, hey, if it sells product, it sells product. What will kindergartners use for projects going forward? I know. Paper towel tubes.

Until they migrate the technology over. Those are the next to go. I say we just go back to what the Romans had, sponge on a stick. I'm sorry, what was that? Just go back to what the Romans had, a sponge on a stick. I don't know that we're going to go in that direction. The environment would be so corn-caught like the early settlers. But you know what, let's think this through one more step.

I mean, if you're in the industry of making commodes, I mean, are we going to see maybe an uptick in bidet sales? What are the odds of that? You know what, probably the plumbers are bummed because I bet that tube ends up in the toilet fairly often, and they're not going to get the call to come and get that out of there anymore. Well, this was something we were talking about before because one of the stories we were discussing before the show was about Avon

and sort of their latest quarter and that sort of thing and how there are some trends around the country where there are high school girls who are saying, you know what, I'm not going to wear makeup anymore. And on the one hand, you know, I can just – Hooray. Yeah, you can look at that and say, well, that's great. You're going with your own image of beauty.

On the other hand, if you're Avon, isn't that the nightmare scenario that like this widespread, you know, success of this movement of girls stop wearing makeup? That's got to scare the hell out of me. Ron, what's makeup at your house, Ron? Well, I do – I'm the proud father of a 13-year-old, and so we have not gotten into that yet, but I don't think makeup's going away. A lot of guys, though, agree that women, frankly, often put on way too much makeup and look better without makeup. I don't know what you guys think. I think it's marketed to them with this notion that men are going to find it more attractive, and we don't. My wife is beautiful without makeup, doesn't wear much.

And she came out the other day. She was going out with her friends, and she had some makeup on. And I actually visibly startled. I mean, she noticed it. You know, they say in recessions, alcohol and makeup are things that do well. So if we get into a double dip, I think you'll see a pickup. Makeup does well during a recession. I mean, the alcohol, I get.

People want to feel better about themselves. Frankly, alcohol should just do, that should be, you know, it's a product for all seasons. I think the makeup sells because people want to disguise. All right. Drop us an email, radio at fool.com. Please weigh in with your thoughts on the makeup movement. Or the toilet paper. Definitely the toilet paper.

All right. The guys will be back later in the show to share the stocks that are on their radar. But up next, CNBC Chief Washington Correspondent John Harwood will give us his take on how the midterm elections will affect investors. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill.

The midterm elections are just days away, and there is every reason to believe the GOP will take control of the House and possibly the Senate. So what will a Republican Congress mean for investors? Here to help us make sense of it all is CNBC's Chief Washington Correspondent, John Harwood. John, thanks for being here. My pleasure. So before we get to the elections, I want to start with the money, because the latest reports indicate that we are seeing records amount of money being spent on these elections.

There's talk that it could exceed $2 billion when all is said and done. How do you think this money has changed the landscape? to be honest not all that much because what what i think tends to happen in political campaigns is that both sides tend to achieve sufficiency that is uh whichever one has more money than the other uh that may vary uh from election to election each side republicans always say that while the unions are outspending us and democrats always say the business is outspending us but as long as you have enough money in a campaign to get your message out, then it's really about the broader political trends. And I think that's what's happening here. Democrats who were not

incumbent in 2006 began to create a network of outside groups that supplemented what the candidates could do. Now Republicans who are out of power are doing the same thing. And the bottom line is that most voters out there are getting plenty of information from both sides in the most competitive races. Well, out in California, you've got former eBay CEO Meg Whitman, who has reportedly spent more than $140 million of her own money in her race for governor, but she's been slipping in the polls lately. Is there a point at which you can spend too much money? Yes, and some Republicans out there have wondered whether or not Meg Whitman was on the air too much over the summer and that voters got sick of her. On the other hand, she's running against Jerry Brown,

somebody who has been in politics for 40 years, and his father was in politics for a long time before that. So he had an incalculable value of name recognition that Meg Whitman didn't have. And again, I think the underlying situation in that race is that Jerry Brown is somebody who's known to California. It's become a Democratic state. Barack Obama's over 50 percent in the polls. And to me, what's happened to Meg Whitman shows that though money can get you in the game and it's significant, it isn't going to win the game for you in the end as long as the other side has some advantages of its own. You're listening to Motley Fool Money. We're talking with John Harwood, CNBC's chief Washington correspondent.

John, this is a show for investors. So how do you think Tuesday's elections are going to affect the stock market? Well, first of all, my impression is that the stock market has largely priced in already the prospect of a Republican House, which is likely not guaranteed. Most of the strategists that I talk to think that Democrats still have a 20, 25 percent, 30 percent chance of carrying the House if they get a lot of breaks in the closest elections. But if not, Republicans will take control, and that's generally expected at the moment. What would be the unexpected event is if Republicans manage to take the Senate, where the odds are sort of reversed. There's probably a 20%, 25% chance that Republicans win the Senate. To do that, they need to gain 10 seats, and there are 11 Democratic seats that are pretty vulnerable.

Even in a wave election, it's not easy to have all those dominoes fall in the same way or all but one of those dominoes fall in the same way, especially when a couple of them are in states like Connecticut, like California, like West Virginia, where either the underlying politics of the state favors the Democrats or the individual candidate favors the Democrats. Are there particular industries or companies that you think are natural winners or losers with a Republican-controlled Congress? Well, I think you have to, first of all, look at the big boogeymen that Democrats have been hammering pretty consistently. And the top two, in my mind, are the oil industry and, I guess, to some extent, the coal industry, but more oil. And secondly, the pharmaceutical industry and the health insurance industry, and more the insurance industry, actually,

because you remember in the health care reform debate, the White House cut a deal with pharmaceutical companies. Some Democrats have criticized them for that. But so they've had less of an edge for drug companies, although it's still there, and some of the policies on importation of generic drugs from other countries and that sort of thing. But really, I would think if you are in the health insurance or the oil industry, you're really rooting for Republicans to take control. You're listening to Motley Fool Money. We're talking with John Harwood, the chief Washington correspondent for CNBC.

Now, you're not only the chief Washington correspondent for CNBC, you're also a political writer for The New York Times. And in looking over your bio, your journalism career started in high school. So I think it's pretty clear you knew what you wanted to be when you grew up. What do you think the newspaper industry looks like five years from now? Boy, I think it's in trouble. and it's going to be a challenge for those of us who do work in the realm of the printed word to figure out what form it survives in.

My sense of foreboding for the industry has been growing over the years as I watch my neighbors and see how few lawns have newspapers tossed at it every morning. It got even worse when I bought my iPad and realized how visually compelling and easy to navigate that device was, and I could definitely see the beginning of the end of the relevance of the printed paper. We'll see. I think there's some brands, the Wall Street Journal, the New York Times, which are pretty robust and are likely to be around.

But, boy, all my friends who work for large metropolitan newspapers are really feeling the stress and the strain. And there's definitely going to be a demand and appetite for information. There's no question about that. But there is a question over how it's going to be delivered and what is the financial model that sustains news gathering. Because in television, the medium that I work in most often, or radio, where we're working in right now, there isn't the model of large news gathering staff. That's been done by newspapers, and we've got to figure out how to support it. All right, John, we need to wrap up with a round of buy, sell, or hold.

So let's start with a news organization that has been in the headlines lately. Buy, sell, or hold the future of public funding for NPR? I would say hold. I think that is one where Republicans are venting now over what's happened with Juan Williams. Remember, they took a run at this before under the Republican Revolution in the mid-1990s. But there comes a point where Republicans would put at risk their relationship with higher-income voters and higher-educated voters in the suburbs if they go after that too aggressively. So I would hold.

This is someone whose political stock has certainly been on the rise this year. Buy, sell, or hold the likelihood that Sarah Palin runs for president in 2012? Hold. I have been expecting that she will not run, but I must say that some recent developments and things she's doing make me question that assessment. So I wouldn't bet on her doing it. I wouldn't bet on her not doing it, and that's why it's a hold. Buy, sell, or hold the likelihood that Mayor Bloomberg runs for president? I'd sell. I don't think he's going to do it. I think it's possible. I think there's an opening

for a third party in American politics. My guess is that Mayor Bloomberg would, there's enough of a correspondence between his views and those of President Obama that I think he would recognize that he would be aiding the election of someone whose views he disagrees with if he were to run. So I'm guessing he would not do it. And finally, you're a graduate of this institution, buy, sell, or hold Duke University, repeating as national champs in college basketball? That is a huge buy. We are loaded this year. Let me tell you, this guy, Kerry Irving, the new point guard, is coming back, and we've got Nolan Smith, and we've got Kyle Singler, and we're going to be a running team, and you don't want to be playing us in March.

He is the chief Washington correspondent for CNBC. John Harwood, thanks so much for being here. You bet. Now it's time to talk about some of the week's big stock market movers. We're joined by Motley Fool Managing Editor Brian Richards, calling us from our West Coast Bureau. Brian, welcome. Chris, thank you for having me. All right, let's kick things off with Broadcom. Shares were up big after the chipmaker reported better-than-expected earnings and raised guidance.

What's the story here? Yeah, well, you know, whenever a company raises guidance after a solid earnings report, Wall Street gets very happy. Shares were up more than 11% on Wednesday when that happened. Broadcom makes chips that are used in cell phones and other sorts of communications equipment. But the real story is that their chips are in Apple iPhones and iPads. That's got to be nice. Yeah, being a part of Apple's list of suppliers is a really big deal.

And, you know, Apple sold 14 million iPhones in its latest quarter. And as the iPhone growth story goes, so goes Broadcom. Coach also had a big week, better than expected earnings. And, you know, handbags, watches, shoes, the sales were way up. What's the headline with Coach? You know, Coach is firing on all cylinders. They beat earnings estimates. Revenues were up something like 20% over last year.

Same-store sales were up, which is a key metric for retailers. Gross margins, operating margins were up. Expenses as a percentage of sales were down. It's no wonder everybody was happy. Pretty much every reported metric for the company was very strong. And Coach, while investors might not view it as a value stock right now, given that it's been bid up of late, it has a really solid brand, and it has a very ambitious growth strategy, particularly in China.

which is just a massive market for luxury goods. And is there ever a situation in which you see yourself carrying a man purse? No. I'm glad we're of like mind on that one. All right, let's close with Royal Caribbean, which had better than expected earnings. The stock moved up 13% at one point this week and triggered circuit breakers. Yeah, yeah, that is certainly a good sign for investors in Royal Caribbean. You're sensing a theme here.

We're in earnings season, and all three of the companies that we're talking about today had really strong earnings reports. Similar to Broadcom, Royal Caribbean also gave a strong outlook and increased guidance, even going so far as to say that based on the bookings that they've received so far, they think they're going to set an earnings record in 2011. It looks like the cruise industry has weathered the recession pretty well with Royal Caribbean's results. Norwegian Cruise Lines, a competitor, just announced plans to build two new passenger ships.

And Carnival Cruise Lines, as well as Royal, is sitting near a 52-week high. So investors in these cruise ship companies should be pretty happy. And the stock aside, are you a cruise person? You know, I'm not really a cruise person. It's a silly reason why, but I really dislike dining at pre-set times. I just can't get over that. That's it? That's the deal-breaker for you? It's the preset dining times? You know, I'm a man of principle, Chris. I can't do it.

Brian Richards from our Motley Fool West Coast Bureau, thanks so much for joining us. Thank you for having me, Chris. To read more on some of the stock market's big movers, including a tech stock that jumped 44%, check out the Motley Fool's website, fool.com. That's fool.com. coming up a special guest just in time for halloween plus an inside look at the stocks on our radar this is motley fool money welcome back to motley fool money i'm chris hill whether it's your first time tuning in or you listen every week thanks for listening to motley fool money But if you're looking for investing analysis and commentary any day of the week,

just click over to The Motley Fool's website, fool.com. We also run different investing services at The Motley Fool, and this week we want to say a few words about a new service built around what's called a long-short strategy, a strategy that hedge funds have had a lot of success with. We recently talked with Motley Fool advisors John DelVecchio and Matt Ritchie and began by asking Matt about the benefits of a long-short strategy. The long-short approach allows you to profit when stocks are going up or down.

You buy stocks that you think you can profit from on the way up, and you're also shorting stocks that you think have some kind of characteristics that are going to cause them to decline in value. And the benefit is that you have the ability to defend against market downside risk. John DelVecchio is a former hedge fund manager as well. He's had a lot of success in shorting stocks. So we asked him about the shorting piece of the equation. You short stocks to protect from downside moves in the market, such as in 2008 or 2001 and 2002 when the market was coming off a big internet bubble.

This helps preserve capital, especially in the context of having stocks long in your portfolio. What specifically I look for are companies that utilize accounting in an aggressive fashion to mask a deterioration in their business. So if they're doing something, what we would call a shenanigan, to overstate their revenues, our expectation is that that company will miss earnings at some point down the line and the stock price will suffer. In wrapping up, Matt talked about some of the features of The Motley Fool's new long-short service, Motley Fool Alpha. We'll deliver specific long and short recommendations to members. We'll give you a concise investment thesis on each stock we recommend, and then also we'll tell you how to size that idea in the context of your overall portfolio. We'll also tell you when to get out of the stock when it no longer makes sense to hold it. To learn more about Motley Fool Alpha and how Matt and John invest,

just email us at radio at fool.com and put alpha in the subject line. That's radio at fool.com. I'm Chris Hill. I'm back in the studio with me, our trio of senior analysts, Seth Jason, James Early, and Ron Gross. Guys, it's Halloween this weekend. And so in honor of that, we've got a special guest doing our weekly disclaimer. Steve Broido, let's go to the tape.

Hello, boys and ghouls. This is Elvira, Mistress of the Dark. Please remember that the little devils on this show may own the stocks that they're talking about. Don't buy or sell stocks based solely on what you hear. Do your homework and make your own decisions. And remember, if you still haven't come up with a Halloween costume, why not be me, Elvira, Mistress of the Dark? All you need is a black wig, a tight black dress, and a big set of... Okay, well, maybe it can't be Elvira.

But, you know, happy Halloween anyway. But what do you need a set of? The great Cassandra Peterson. Oh, that brings back memories. We love her. I mean, who's more iconic at Halloween than Elvira? That's pretty awesome. She's the Santa Claus of Halloween.

Let's talk about the stocks that are on our radar. Ron Gross, we'll start with you. Chris, lately I've been looking at the Brinks Company. I think everyone probably knows their armored car. They're pretty ubiquitous out there. They're a cash security company. They also do ATM servicing. 150-year-old business, 50 countries around the world, really solid balance sheet,

very strong market position. International diversification is interesting to me. So I've been spending a lot of time. It looks like a good one. And what's the ticker symbol? The ticker symbol is BCO. James Early? Chris, if you like weird, confusing things like Seth does, you might like Coal Producing Master Limited Partnership, Alliance Resource Partners.

This is one of the few MLPs that actually owns a commodity, and they own the dirtiest, filthiest, nasty coal that pollutes a lot. But a lot of these power plants have these smokestack scrubbers that take away some of the sulfur dioxide and some of the pollutants. So, ironically, the stock is up like 25% since the cap-and-trade legislation died in the Senate in July. ARLP is the ticker for the limited partnership. AHGP is the ticker for the general partnership. That's the confusing part. There are two different ways to get in. 5.6% yield for the first one.

It is a recommendation in my income investor service. It's a little pricey right now, but on a dip, I'd buy it. Seth Jason? I can't believe James would do that. He hates companies like that. He's like chairman of a tree club. And I'm not kidding about that. That's true.

I'm not chairman, but I'm going to talk a little bit about Volcom, which is they sell jeans and board shorts and stuff for kind of the skateboarder, surfer crowd. If you've never heard of them, that would make their customers very happy. They were clobbered at the end of this week when their earnings did not please Mr. Market. But I think the sales softness for them is going to be short term. and we've got kind of a crummy consumer economy right now. And so long-term, I think that they remain relevant, and they're going to come back beaten down at the end of the week into the teens.

We own it at Hidden Gems, and at this price, you have to take a serious look at buying some more of it. Are they comparable to Zoomies? No, Zoomies is imagine like the local board store at your place that sells those boards and everything, but bring that to the mall. Zoomies is a chain of stores. Volcom is a brand of apparel. Oh, okay, got it, got it, got it.

And the ticker? The ticker is VLCM. All right. Seth Jason, James Shirley, Ron Gross. Guys, thanks for being here. You're welcome. Thanks, Chris. Thanks also to our special guest this week, John Harwood from CNBC and Brian Richards, managing editor of Fool.com.

I should point out to listeners that next month, the Motley Fool's Million Dollar Portfolio Service, led by our own Ron Gross, will be reopening to new members for the first time in a year. For more information, go to mdp.fool.com. That's mdp.fool.com. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.