Motley Fool Hidden Gems Investing - Motley Fool Money: 10.09.2009

Episode Date: October 9, 2009

Retailers report better than expected same-store sales numbers. Dr. Doom warns that it could get worse. Dell and Google take on the iPhone. And Google and Microsoft court Twitter. We'll tackle those topics, talk about McDonald’s new artsy side, and share three stock ideas.     Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey Ontario! Come on down to BetMGM Casino and check out our newest exclusive, The Price is Right Fortune Pick. Don't miss out! Play exciting casino games based on the iconic game show, only at BetMGM. Access to The Price is Right Fortune Pick is only available at BetMGM Casino. BetMGM and GameSense remind you to play responsibly. 19 plus to wager. Ontario only. Please play responsibly. If you have questions or concerns about your gambling or someone close to you, please contact ConnexOntario at 1-866-531-2600 to speak to an advisor free of Welcome to Motley Fool Money. I'm Chris Hill, and I'm joined by Motley Fool senior analysts Seth Jason, James Early, and Shannon Zimmerman. Guys, happy Friday.

Happy Friday to you, Chris. On today's show, Dr. Doom warns that we haven't hit the bottom, Dell and Google take on the iPhone, and McDonald's gets artistic. Or as my friends in Boston say, artistic. But we begin with better than expected retail numbers for September. Retailers announced the first increase of same store sales since August of 2008. Seth, this has got to be good news. Well, I don't know. Come on, first increase in over a year? If you read past the headlines, most of the stories do mention that I've seen on this that there was a Labor Day holiday shift. So some places moved back to school dates a little bit later. And so they took some business from

August and moved it into September. Some of the retailers I follow over at Hidden Gems like Zoomies was a beneficiary of that. So I would take this with a grain of salt. There was also some conflicting news. So I would say the data are inconclusive. Consumer credit continued to contract. So we're being urged to believe that somehow people are spending more at the same time that they're spending what they're borrowing less to spend. But as we know, most of that spending boom over the past half decade was debt based. So I don't think we're out of the woods. And second point, let's see where the margins are, too. I mean, these are just sales.

We don't know exactly how profitable they were yet. And they were the low-end stores to a large degree. Yeah, TJ Maxx and Kohl's. I had to teach someone how to drive stick shift once, and we thought, where can we find nobody? So we went to the Kohl's parking lot. I shop at Kmart for that reason. I have to check out as fast because there's nobody there. Yeah, well, you know, with all this doom and gloom, I want to be reflectively contrarian and say something positive, but I can't.

I mean, the news is up from what, though, from catastrophically low levels, manipulating the calendar, and how profitable were they? Who knows? Hey, it could be worse. Let's be positive. It could have been worse. Well, it was an actual increase. I feel better already.

Up 0.6%. The forecast was being down 1.1%. That's a lot better than that. All right, let's do a golf clap, everybody. All right, let's move on. Shannon did not golf clap. No, no. Economist Noriel Rubini said this week the housing market may still fall another 10%.

Rubini, who was one of the few to actually predict the financial crisis, said that losses in the commercial real estate market will make matters worse. James, do you agree with Dr. Doom? When I hear 10%, I think that's it. I mean, this guy's been Dr. Doom, but he actually wants to change his nickname to, was it Dr. Realist? Dr. Realist. Yeah, so he's back with a realistic forecast now. 10% is sort of forgettable, I think.

A lot of people would be happy with that. Yeah, I don't think it's a problem, really. He is right about commercial real estate. That is an issue, and a lot of those loans are not marked to market, so we don't know what the true exposure there is. Yeah, that part of the banking collapse or the banking woes, that story is not completely unfolded yet, and so the banks are going to be more heavily hit.

When that does begin to unfold, are the regional banks that have much more exposure to commercial real estate projects in their areas than the big boys do? I don't see how that ties in directly to housing prices, however. I mean, there could be economic aftershocks that could do things. But they're really, let's probably state for the record here, or you guys can disagree, they're really not that tightly connected. Commercial real estate is going to do very worse by some measures. But, you know, these are businesses, so presumably they can handle it better than people. But residential real estate would be the prelude to this story. Yeah, and again, they're not directly linked.

They're kind of linked through a spider web. But the moral of the story is everyone borrowed too much for everything. Right, and I would differ a little bit with James because the 10% is not a big number coming from Dr. Doom, but it is a big number on top of the losses that we've already suffered. We have had big losses. But I will say, this is a quote from Scott Adams, a creator of Dilbert, I'm suspicious of anyone who has a strong opinion on a complicated issue. I'm talking about Dr. Doom, not you, Shannon.

All right, exit question. I've got strong opinions on everything. Exit question. What's a better nickname, Dr. Doom or Dr. Realist? Well, I think Dr. – I'll stick with Dr. Doom. I mean, he was the prophet in the wilderness screaming that the sky is falling and the sky fell. So he was right. If things have moderated somewhat since then, then his doom looks a bit more realist.

But I think that, you know, given his history, he's Dr. Doom to me. He can only be Dr. Realist because he was Dr. Doom in the first place. You can't just start out as Dr. Realist and make a name for yourself. I think it's Dr. Playa, because if you do some internet searching on this guy, he's at these parties, and there's always these hotties posing with him. Oh, well, in that case, I'm going to call him Dr. Love. Yeah, Dr. Love. And you know what?

They're posing with him because he's Dr. Doom. I know. That's sexy. We need to take our pessimism on the road, because there are benefits. There are fringe benefits here that nobody made us aware of. Moving on. The Wall Street Journal reported this week that Twitter is talking with Google and with Microsoft about a licensing deal for Twitter's real-time data. The deal would allow Google or Microsoft to integrate real-time Twitter feeds with the search engines.

Guys, who does this deal make the most sense for? Twitter. They're flailing around looking for something. They can latch themselves to that might monetize their service. This could possibly be it. We'll see. But of those players, it's definitely Twitter. What becomes of this, though?

I mean, on one level, who really wants to search some guy's twit? Is it tweet? Tweet. In fact, I tweet. I just tweeted while we were doing this. But, you know, there are hedge funds. I'm not searching anyone's twit. We better change the conversation.

We're getting real close to the edge now. Exactly. Let's take a step back. Family show here. Watch your vowels, everybody. There are hedge funds to change the topic. There are hedge funds that invest based on keywords appearing in the media. that might signal certain shifts and trends and things like that.

I mean, that I can see. That's kind of a niche search thing, though. It's not sort of the everyman. So I kind of wonder how big of a deal can they make of this? Well, there are already providers out there that give you the cutting edge. You know, what's the hot term this five minutes or hour on Twitter? How useful is that? I guess we may not find out.

Even if we find out how large a pile of money Google or Microsoft throws at Twitter for this data, that might not tell us what it's actually worth. Could be worth a ton. could be worth not so much. More fun news from Google this week. It was reported that in a deposition given in May, Google CEO Eric Schmidt acknowledged overpaying for YouTube. Schmidt said that he told Google's board

that the company was worth $600 to $700 million and Google paid $1.65 billion. He said Google believed that there would be a competing offer and he also cited YouTube's growth relative to Google Video. So you go in with your high offer? I don't think any of us are really surprised by this, are we? Or are we? I'm confused because he said he's overpaying,

but then he said it was worth it. So it's a little bit... I want to buy a house from this guy because it sounds like his negotiation skills are backwards. I believe all of this, and I have more on this, which is about how I think YouTube is simultaneously the most important but least relevant video outfit on the planet. But as for whether or not they overpaid, we may not ever know because we still don't know if there's a financial model behind it.

But what I mean about some of this is that a lot of that premium content, the stuff they originally, I believe, hoped they could advertise behind, has moved to Hulu or individual network sites. And a lot of premium, I guess, grassroots content has moved to sites like Vimeo, which have much higher quality. So what's left at YouTube is, to a large extent, I believe, stuff that people don't want to pay to advertise around, and that might be a problem. So it's the Twitter of movies. But there's a way in which, too, that their job at that stage, whenever YouTube was the hot property and they overpaid for it, and I think they probably did overpay for it, they're like venture capitalists. Their job is to throw money at things that seem as though they could blow up and be huge. Whether or not they do is another question.

Yeah, and they were, I mean, Google Video was going nowhere. YouTube just collected everybody, and so they had to make the move, and they made it. YouTube did announce this week it is getting more than 1 billion views a day. Yeah, that's got to cost some money. Think about how much data they're streaming and how much of that streamed data provides any kind of revenue at all. Wall Street Journal also reporting this week that AT&T will team up with Dell on a smartphone that will be powered by Google's Android mobile software. The Dell phone could come out as early as next year. AT&T already has a deal with Apple's iPhone.

Is this a threat to Apple in any way? No, I don't think so. It'll probably go the same way as the Dell MP3 player, which no one remembers. Dell has an MP3. They did. They backed out of that market, as I understand it. It had a joystick, I think. I think it did. I think AT&T will be happy to shake off at least a portion of their iPhone customer base.

Anyway, it's clogging up the network. It's going to clog it more when they get that DOI. It's a pretty big deal, though. I mean, the contract is expiring, and in my analogy, it's almost like having an iPod and replacing it with a Zune. I mean, this Dell player is probably going to be so much smaller in scale. I don't see it being much business. you're just going to take that Mr. Zune

it's pretty ill informed he capitulated two podcasts ago he knows it's over there's no point because well you ever see this is exactly the thing people don't want to give a product a chance because they'd rather attach to a stereotype

but anyway without going there this thing is the thing about Android phones is that there isn't one Android operating system we've seen from other providers like HTC and others that they're already kind of re-skinning and actually writing applications over it. So Android is not the iPhone platform.

It's going to come in a lot of different flavors like Windows Mobile. Windows Mobile flavors don't really keep anybody happy. I don't think Android flavors will. People and their phones really want this kind of easy system, and Apple has that wrapped up with the App Store. They've got a huge moat. The game is all Apple at this point. I think they're going to kill Research in Motion's BlackBerry.

I think they're going to roll it all up. Yeah, and the numbers definitely support that, that the growth of Apple's market share in the smartphone market is just phenomenal. 52% is what Research in Motion has, which is down from 56% last year, and all that growth is going to Apple. And to your point, actually, if it helps, I'm not even picking on the Zune so much as its market share. I mean, it could be a great device, but I think Apple has just won that war. Oh, yeah. They won it before Microsoft got into it. Quickly, Amazon announced this week it's lowered prices on the Kindle.

Woo-hoo! Oh wait, not woohoo. I got screwed. I paid about $400 for that piece of... But is it a good thing for Amazon? I think it is because it extends the reach of the product, potentially. And I think more important might be the international version, which costs, I think, about $30 more than the newly lowered price of the U.S. version, which will run on AT&T's network. Here, I believe they run on Sprint, but AT&T is all over the world. And so that's good news for them as well. And if they can keep dropping this down and they just claim they're getting economies of scale and that lets them sell it, and I don't think there's any reason to disbelieve that, but if they can get this thing cheap enough, then they will much more easily fend off competition not only from the Sony reader or the one that's going to work with Barnes & Noble, but also from any potential Apple product, which even though it might by some miracle be a good e-book reader, will probably have to cost more than a couple of hundred bucks.

And so if they can get these things down to the $150 range, I think they have a lot less to worry about long term. Yeah, but they are competing on price. Whether or not they're enjoying economies of scale is one question. But they know this new wave of readers is coming. And so they have some serious competition in a way that they did not one year ago. My wife just ordered one of these international ones, despite my ridicule in the podcast. No, the newer ones, I used my parents. They've got the newer versions a lot nicer than the older one.

But, you know, I just yesterday signed up for The Economist. used to get the paper edition, getting it on Kindle now, Financial Times, never got the paper edition, don't want to carry around that much. I'm getting it through Kindle now. I mean, these are really addictive devices for people who like to read. Well, I get The Economist on my iTouch, which also functions as a music player, and 45 games that I've downloaded. But I don't want those Coke bottle thick glasses on my nose wrecking my face. Well, you know, I thought that I was older than you, Seth, but apparently not. Well, we had Clay Christensen in the office today, you know, harvard professor and best-selling author of the innovators dilemma i mean an incredibly bright guy

and one of the things that he said was his next book which is coming out next year is coming out on the kindle first that he's you know he talked about how for him when he publishes a book the first thing he thinks is oh god i forgot to include x y and z and the book is already out there there's nothing you can do about it whereas with the kindle he can update stuff i mean is that that sounds like something that certainly works in favor for amazon and the kindle it could be a really disruptive uh thing for publishing i mean there's there's actually a business model there that that doesn't exist in the paper world and can't exist well yeah additions and yeah tina brown at the daily beast is trying to come up with a business model that will bring books to market

much more quickly than they currently are so they can take advantage of prevailing trends when people are are interested in them the kindle and that e-reader technology is much more supportive of that than traditional publishing model yeah mona lisa meet mayor mccheese news out that next month mcdonald's is opening a restaurant in the louvre i mean another round of golf what's next the vatican where else is where they might already have one in the mayor mccheese sure oh my god they don't have him in france but they have the hamburglar le hamburglar i think you never know i mean is this ultimately a low risk thing for mcdonald's i mean there was there was sort of this initial outrage like, oh, my God, how could they be in arguably the greatest...

The French love McDonald's. They just don't love loving McDonald's. And as I understand it, not only are they allowed to use trans fat, they're required to use trans fat there. So it works out well for everyone. Yeah, let's say that for the French. That at least would be an advantage to living in Paris. You get some fries that taste a little better. Art and McDonald's could be scarier. I actually heard that France is the number two McDonald's market outside of the U.S. Yeah. And let us also point out that down not too far from here at the Smithsonian institutions,

There's almost nowhere to eat lunch down there. It's really a travesty. The museum cafes are really a pain, but you've got the McDonald's in air and space. And it's awesome. The museum cafes are almost like McDonald's without the McDonald's. It's just hamburgers and fries. But they're a lot more of a hassle.

But the real hidden gem, no product placement, but the real hidden gem down there is in the Museum of the Native American. Unbelievably great food. It's cafeteria style. That's where you should head. It's amazing stuff. I couldn't stand the lack of information. All right, before we get to stocks on our radar, worth mentioning that earlier today it was announced that President Obama was awarded the Nobel Peace Prize.

On Monday, October 12th, the Nobel Prize for Economics will be announced, and I have taken the liberty of nominating each one of you for the prize. So if we could just go around the horn real quick, just give me one or two sentences on why you deserve the Nobel Prize in Economics. Shannon, I'll start with you. Well, you know, as honored as I am to be nominated, I think that Obama's going to win that. too so i think that's really not gonna happen not a chance yeah james you know the quote i live by is similar to scott adams is you show me a confident economist and i'll show you an idiot so expressing my lack of confidence i think that's the only thing i can do well so i'm just going to make a campaign pledge which is to treat all those blonde scandinavian women very well when

i'm there to accept the award oh rubini of scandinavia that's why for you listening steve you want to jump in and and and if you're if you're on the the nobel committee uh based on what you've just heard which which guy are you giving the award to um let's see skanky one skanky one those compelling cases i'm going i'm going uh james because i found james very entertaining today okay thank you james thank you steven i'll give you your five bucks after all right good luck guys all right as we head into next week what's one stock that is on your radar shannon we'll start with you well i received a very thoughtful email from a listener about my radar stock last week, which was Moody's, and so I want to revisit that today. You know, sometimes radar stocks are

quasi-recommendations, but sometimes they're not. Sometimes they're news items, which was the case with Moody's last week. And for me, the big-ticket news items are Buffett paring back his position significantly in Moody's over the course of the year, a stock price that has popped 13% during the month of October alone on what seems to be very little actual news, and then still in the atmosphere is what is going to happen to the ratings agencies into the future. Now, I'm kind of agnostic on the stock in terms of the investment fundamentals. It is a recommendation of the full stock advisor service, and they certainly know the investment case inside out. So I'll defer to those guys. But I'm as anxious as the next reform zealot to see what happens to the agencies. And

if something significant does, that's going to have a significant impact on Moody's, and the market right now seems to be pricing in that that's not going to occur. We'll see. James? Interesting. A stock brought to my attention by analyst here, Joe Magger, is Accenture. It's a consulting company based in Bermuda, which helps it avoid some taxes. It just likes its dividend 50%. Yield is only 1.2%, 1.3%. So it's not a big yielder, but that's a big raise in its yield. So I like that. Return on equity is above 30%. It could be an emerging dividend pair one of these days.

It's got a backlog of orders, too. I think you should take your wife and her brand new Kindle and go to Bermuda and check out the company in person. That's not a bad idea. Just a recommendation. All right, Seth? Oh, wow. I think I'm just going to have to recommend the same thing I would recommend if you were looking for a bar in the D.C. area, which is to go slumming. The Raven.

That's where you want to go. I think if you're looking at retailers, since we talked about retail report, you have to go with the news, which is that the low-end retailers are doing better. So fix your sights on the specialty low end, your Aeropost stalls, maybe your Gap. No, not your Gap. But keep in mind, if only you could just buy Old Navy because that was the big mover there. But seriously, look for places that are providing customers with the look they're used to but with cheaper prices, and I think you'll do better than betting on the high end. Fair enough.

Seth Jason, James Hurley, Shannon Zerring. Guys, thanks for being here. Good to be with you, Chris. Chris. Thanks for listening to this edition of Motley Fool Money. As always, people on the program may have interest in the stocks they talk about. Don't buy or sell stocks based solely on what you hear. Do your homework and make your own decisions. And remember, the conversation continues 24-7 at fool.com. I'm Chris Hill. We'll see you next time. Thank you.