Motley Fool Hidden Gems Investing - Motley Fool Money: 11 05 2010

Episode Date: November 5, 2010

The stock market hits a two-year high. The Fed goes on a buying spree.  The GOP wins control of the House. And Starbucks and Whole Foods report big earnings. On this week's show, we'll tackle those stories and talk with Ford CEO Alan Mulally. Learn more about your ad choices. Visit megaphone.fm/adchoices

When WestJet first took flight in 1996, the vibes were a bit different. People thought denim on denim was peak fashion, inline skates were everywhere, and two out of three women rocked the Rachel. While those things stayed in the 90s, one thing that hasn't is that fuzzy feeling you get when WestJet welcomes you on board. Here's to WestJetting since 96. Travel back in time with us, and actually travel with us at westjet.com slash 30 years. everybody needs money that's why they call it money

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 analyst seth jason James Early and Tim Hanson. Guys, good to see you as always. Good to see you, Chris. We've got earnings from Whole Foods, Pfizer, Kellogg's, and more. We've got Ford Motor Company CEO Alan Mulally as our guest this week. Plus, we'll give you an inside look at the stocks on our radar. But we begin with the big macro. Tuesday's midterm elections resulted in the GOP taking control of the House. On Wednesday, the Fed announced a move

to buy $600 billion worth of bonds over the next eight months. And the stock market must have liked at least one of those two things because on Thursday, the stock market hit a two-year high. James Early, what did you make of the news of this week? Well, Chris, someone's probably feeling stimulated by Ben Bernanke, but it's just not me. In fact, this policy is basically making easy money easier. So it's making strong companies stronger. In other words, rich companies richer. The companies like Coca-Cola, like Microsoft, have already very low borrowing costs and lots of cash. They're able to stockpile even more. It's causing money to flood into the risky assets, but it's not necessarily stimulating bread-and-butter staples purchases.

And that's what we really need to do. We still have 14% of Americans on food stamps, according to the Wall Street Journal, just the other day, and that number is actually up. So the stimulus I would like to see is going to affect those people. Tim Hanson? Well, you know, there are a couple points to this plan. The first is that the goal of it is to bring down interest rates to make it easier to borrow. I thought our problem in the first place was that we'd borrow too much at the beginning of this.

Didn't we already do that? Details, details. So that's one problem. And the second problem, as James pointed out, you know, personally, I think this is a big bet. It's a Hail Mary. I saw it called a few times that in the press, which, you know, the good news about Hail Marys is they work sometimes. But this is, I really think that they're really risking the value of the currency here, which I think is a significant long-term potential risk. But that's sort of the point, too, part of it.

I mean, if the dollar gets weaker, everyone here, you know, because we're in America. We don't go anywhere. What do we care if the dollar is weak against stuff that doesn't come from here? But on a more serious note, what Bernanke's trying to do is he's hoping that this is kind of odd. It's like trickle-down economics, except the trickling isn't working very well. Companies, we were talking about it, I believe, in last week's show, have record amounts of cash, and they're not investing it. And so whether this works or not, I think, depends less on moving the interest rates down a little bit

by effectively lowering yields than on sort of collective psychology. One thing that worries me about it is that we might have Greenspan too. Did anybody read the Washington Post editorial that Monsieur Bernanke wrote? No. In it, he actually writes, this I think is insane, that this is a good move and we already know it because in anticipation of the move, the stock market moved up. And when stocks go up, people feel like they have more money

and then they go out and spend. So he's essentially saying at this point, hey, all I want is another little stock market bubble and that'll right things. That'll get things just right. Yeah, but don't you think that if the stock market had gone down, that he would have just switched that line in the editorial

and said, you know, we need this because the stock market's down. Yeah, I mean, it's an idiotic remark. Whether he's right or wrong, it's an idiotic remark. Don't you guys think Bernanke's starting to sound a little bit like Tim Geithner with a beard? I mean, he's just maybe a little too weak for his role. Well, that's an interesting point.

I mean, the Fed, right, It's supposed to be this apolitical body. And more and more, it seems like they're managing for the short term, like they're coming under some political pressure. You know, we just got through an election season where everybody was doing everything they could over the past three months to sort of pull a stimulus out from somewhere to get voters to vote one way or the other. You know, and it seems like Bernanke's sort of going down that track. It's very short-term oriented thought. Well, President Obama is headed over to Seoul, Korea for the G20 summit. Tim, you look at, you know, the global investing community with global gains.

I mean, what does China think of this move? Well, everybody is sort of wary of this. And the reason is that it's become a race to the bottom in this currency issue. It says that when your currency is weak, your goods sort of become cheaper for the rest of the world to consume. So here in the United States, if we get a weak currency, maybe our manufacturing sector picks up and jobs are created. But every country is thinking that way. Korea wants a weaker currency. Japan wants a weaker currency.

China wants a weaker currency. India, so on and so forth. So it's really become a race to the bottom. and no one is thinking in a global context. They're all thinking about their individual countries, which in times of stress makes sense, but we're not going to get a solution to this as long as that keeps happening.

Yeah, it's understandable, maybe makes less sense. Let's go back to the midterms for a second. Again, the Republicans are taking control of the House. Do you think the stock market reacted positively to that news, this feeling of, okay, well, there's going to be a change in leadership and maybe regulatory controls are going to be different for certain industries. Making those kinds of guesses is sort of a goofy headline game. But if you watched the action that day,

stock market was down on the election news, or let's call it after the election news, and only went up at the end when Bernanke came on. So it would be the opposite of excitement over Republicans if you believed that the stock market's action said anything. And I don't believe that. Well, and also, I mean, it wasn't... But Bernanke does.

It wasn't an unexpected result. I mean, it had been predicted for a while. It was almost a fait accompli that the Republicans were going to take control of the House. All this stuff is priced in well in advance, Chris. That's absolutely right. And moreover, we still have a mixed Congress, which means Republicans are not going to be able to steamroll anything massive in. We may see some rollback of some health care reform stuff that was not even rolled out in the first place, though, for some financial reform things that have been punted to smaller government agencies to make final decisions. But to me, as a dividend investor, the thing that I hope for is that we don't see a big spike in dividend tax rates. We never will. We're going to have such a log jam.

I very much hope that's right. I mean, previously, Obama wanted ordinary income, then it was 28%, then 20%. And now there's even talk of keeping it at 15%. And if we have that in parity with capital gains taxes, that won't disincentivize dividend paying. You're listening to Motley Fool Money. We're talking about the big macro this week. One other big macro item, guys. On Friday, the jobs numbers came out. The jobs report for October, employers added 151,000 jobs. That's the highest, most since May. Seth, what do you think? Do you want the good news or the meh?

Give me some good news. Start with the good. You know me. I always want the good news. The good news is, if this is true, it's job growth exceeding population growth, sort of. which we don't get very much the past couple of years, maybe even not so much the past decade. We're creating more babies than jobs? Is that the problem?

We have been for a while, yeah. And the way things work, I talked about collective psychology. You hope is that more people working equals more people spending equals, then you need to hire more people, more people working, you get this virtuous cycle. Why this is a meh is, keep in mind, this is a survey.

It's a very big survey, but it is still a survey. Don't get excited. Growth was generally in what I consider low-quality employment, like retail, temporary workers, and as I've mentioned many times in the past, health care, probably the one spot we don't want to see a lot of extra spending. And these survey results are subject to major revisions in future months. Sometimes, you know, 50,000, 60,000 jobs appear or disappear and completely change the direction of what we thought the original news said. So whether or not this is real is up for grabs.

We've got a lot of earnings news. we'll get to in the next segment, but we should highlight a company that we've made fun of in the past, and that's Starbucks. Starbucks' latest quarter was big. Net profits up 86%. Seth Jason, the stock is at a 52-week high. You were mocking them just a couple of weeks ago. I did not. Did I mock? Well, there was a little bit of mockery with the whole thing where they're like, Howard Schultz said- It's out of character for Seth to mock anything.

I don't think I mock. Well, it was the whole thing with Howard Schultz, and he was saying that the employees got to slow down. Stop making multiple drinks at once. Yeah, I actually stopped going to Starbucks because of that. The lines are terrible by here. But I looked at this earnings report and it looks pretty good. But don't be too fooled by that 85% increase in fourth quarter EPS because you're comparing last year to a quarter in which they had 50 some million dollars worth of restructuring charges. Now, those are real charges, so this is a real gain from that quarter to this quarter. However, it's not a sustainable gain. And so going forward, you can't expect that kind of scale of improvement. But it still looked pretty impressive.

Comps were up a good degree, and only a small part of that was price increases. So I think if you're a Starbucks shareholder, you have to be fairly happy. But this is not the old fast-growth Starbucks. This is the more mature kind of dividend-payer Starbucks. Tim Hanson? Well, there were. I mean, the results coming out of the international division, which has long been a laggard for the company, where they've been putting up good revenue growth but haven't been able to produce any profits. They actually put up 20% sales growth out in the rest of the world and threw up about a 12% or 13% operating margin, which still lags their U.S. profitability, but well ahead of the, you know, barely break even they were doing this time last year. So I think that's a sustainable improvement, which will make Starbucks shareholders happy.

And so is the instant coffee, the Via. The Via is good, too. Popular, right? Yeah, they're selling a lot of that. We've mocked that. I was just going to say. We've really mocked some mileage out of that. Yeah, and they may make an awful lot of money with that. I drank a lot of that Via when we were in the hospital with my wife when she was giving birth.

Because the hospital coffee, terrible. The Via coffee, far better. So thank you to Starbucks for that. And you should see the videos in the delivery room. Tim is a blur. It's all jittery. I delivered the baby myself. Teeth chattering in the background.

All right, coming up, the midterm elections are over, and one business icon is already hinting at a presidential run in 2012. Stick around. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. For investing commentary and analysis 24-7, go to The Motley Fool's website, fool.com. Chris Hill here in the studio with Seth Jason, James Early, and Tim Hanson as we dig into some more earnings news from the week. Whole Foods had blowout earnings this week, and the stock was up 15% on Thursday.

Tim Hanson, how are they doing it? They're doing very well. You know, this is a good lesson here for investors. And what it is is that good or great companies can return from sort of the brink of disaster. And Whole Foods struggled a few years ago when the economy went down. People weren't buying premium-priced foods. They sort of tried to redo their brand a little bit to focus on some of the values they have in their store. They did the wild oats acquisition, which they struggled to integrate and also got them into trouble with the FTC.

But with this report, they really look like they've emerged from that period of turmoil. Their comps were incredible, 8%, 7% at stores that were more than 10 years old, which is an incredible number for stores of that age. And they're really doing a nice job. They think they're getting traction with, A, the focus on value, which I can actually speak to first person. I mentioned earlier that my wife recently had a baby. We've been eating a lot of takeout dinners, and we've discovered the Green Plate Special at Whole Foods, which is the best deal going. You get a protein and two sides for like $5.

It's unbelievable. Better than a McDonald's value meal. Wow. This is going on at the Whole Foods down the street, huh? Right down the street, yeah. That's been $15, $16 at lunch there at the buffet. So if you hit the prepared food section, Green Plate Special. I'm going to hit the prepared food section.

It's a great deal. And then they also think they're getting some traction with this sustainable seafood initiative they have where you go and they've got little red, green, and yellow lights on every food depending on how sustainable it is. So apparently people are finding valued whole foods and they're still finding some inspiration in the ethos. Would you buy a red light seafood? Ah, it depends what it is.

The price is right, it sounds like. Extinct but tasty. I think we're making a field trip after today's show. All right, has Garmin lost its way? The GPS maker reported weaker than expected earnings and reported a 19% drop in its automotive revenues. Garmin also announced that it's leaving the smartphone business, which I found particularly interesting because I had no idea they were even in the smartphone business.

That's why they're leaving. Yeah. Seth Jason, a lot of smartphones have GPS navigation. Where does that leave a company like Garmin? That's the problem, isn't it? Garmin's problem, the big problem is its number one product is being killed. You know the one, the personal navigation device for cars or what my mother calls that bitch on the dashboard. and that's about half of Garmin's current revenue

and it is not going to be for very long if it's dropping 20% a year. Smartphones are taking that business away. The cars come with in-dash GPS more and more often and the prices on those, although it's still a kind of a big rip-off, it's less of a rip-off than it used to be. And so that's really their problem.

Garmin's entry in the smartphone field went nowhere. It was a bigger joke than the kin, and so that only leaves Garmin a few places where it can actually get anything done. One of those places is outdoor and fitness GPS units, like the little watches that nerds like Tim and I might wear when we're out for our run. They've got a pretty good lead there, but that is not a whole lot of revenue. The other is marine and aviation, which is slow growth. There's a lot of competition. I really think in a few years, Garmin is going to just continue to dwindle, and some private equity company will buy it just for those small pieces, and that's it. If I were a stock buyer out there, I would get out of Garmin.

Pfizer's third quarter profits were down 70% due to one-time charges and presumably to not selling more drugs. James Early, what did you make of Pfizer's quarter? Well, technically, Pfizer still beat analyst estimates despite some of these YF merger costs and ongoing asbestos litigation from a subsidiary they bought a while back. But overall, I'm skeptical of chemical-based drug discovery as a general thing. I think the returns are diminishing. It's harder and harder to find these billion-dollar drugs that way. The future is through biotech and things like that, but these big companies are just going to have to buy that technology rather than generate it themselves.

We touched on this a little bit in the first segment. Pharmaceutical companies like Pfizer, are they looking forward to a Republican-led House of Representatives? Is that helpful to them, to the pharma industry? You know, I don't know. I don't see it as a material change. They are if they are located in the district of a Republican or a Democrat, for that matter, because that's really how you get the bucks. Guys, there's a war on.

Fortunately for us, it's a serial price war. Unfortunately for Kellogg's, it's in the serial business, and third-quarter sales and profits were down. James Shirley, I believe you've had Kellogg's as your radar stock in the past. What did you make of the results? I actually have it as an income investor recommendation, Chris. Yeah, the profits were $0.90 a share instead of $0.94 last year, So it did take a ding, not massive. Kellogg's had some recall issues, partly with stinky, nauseating smells coming out of the plastic packaging versus the cereal themselves.

Had some Eggo waffle production issues as well. Just wakes you up, right? Exactly. Wow. The cereal wars might be abating. I think General Mills is starting to raise prices. But it also shows you how much profit there is on these products. I mean, this is a higher margin business, you might think, and they can withstand this. These are strong companies overall. So short term, it's a bummer. Long term, I'm not worried.

I have to think Cap'n Crunch would be pretty useful in a war. I mean, he's a captain. The character? Yeah. Grape nuts, they're pretty hard to throw them at people. I would take Tony the Tiger over Cap'n Crunch. Cap'n Crunch is tiny. You can hold him in your hand.

Yeah, but I think he has a sword. We'll have to check the box. Go to the box, boydo. Could you open your drawer? All right, not an earning story, but news this week for movie fans. MGM filed for bankruptcy on Wednesday after rejecting a takeover bid by Lionsgate Entertainment and billionaire Carl Icahn. MGM is the distributor of the James Bond movies,

the Rocky movies, the Lord of the Rings trilogy. Is James Bond out of a job now? What's going on here? It's pretty interesting. Apparently MGM is going to make the next Bond movie in the fall of 2011. They're going to own like 50% of it. This is the fall of 2011.

Do you mean 2012? To me it's 2012. Forget that. What about Frodo? What about Frodo? Well, they're trying for that too, but despite these successes, big movies in general can tend to be big duds.

And MGM has a big library with 4,100 films and I think like 10,000 TV shows, but they need like new, fresh movies to bundle these old things with to sell them big money, and they haven't been able to do that. So it's pretty interesting, and they're ironically being run now by people who I don't think know too much about the movie business, which might be a great thing, actually. You know, if you look at the history of the movie business, though, that's just the way it is. I was remarking before the show that when I was watching Omega Man on Netflix one time, I was surprised it was Warner Brothers, but it was owned at the time by a company that was a funeral home and parking lot conglomerate.

That's the best kind of conglomerate. The movie business is not always glamorous. Some sort of profitable business to prop up all that money losing Hollywood mumbo jumbo. As we mentioned, the 2012 presidential campaign has already begun, and one business icon went public with the news that he is, quote, seriously considering a presidential run in 2012. Ladies and gentlemen, Donald Trump. How excited are we for a potential Donald Trump presidential run? I'm excited for the potential of Donald Trump being on camera more than he already is.

I was going to say, he might be more willing to be a guest on our show. Yeah. Too bad that he's such an unsuccessful businessman, except in his own press. Look, success has not ever gotten in the way of a candidacy. He's simultaneously a big success and a big failure. It's kind of hard to reconcile. So I think he would cost us some credibility on the world stage, but who's counting? I mean, he's got certainly a well-known brand.

But, yeah, he has taken several of his own companies right into the ground. You know what? If Donald will just go with the shaved head and get rid of that weird wig or whatever he's got, I'll vote for him. You're saying that hair's not real? I've seen him lift it up. He's shown that it looks convincing. All right. The guys will be back later in the show to talk about the stocks on their radar.

Up next, Ford Motor Company CEO Alan Mulally will be our guest, and only one business show in the world has the guts to ask him what Americans really want to know, when are we getting flying cars? Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Last year, Time Magazine named Alan Mulally as one of the most influential people in the world. For the last four years, he's been the president and CEO of Ford Motor Company, and he joins me now. Alan, thanks for being here. Well, glad to be with you, Chris. Ford just posted record third quarter earnings, and you've said the key drivers going into 2011 will be increasing quality,

an improving competitive position, and a gradually improving economy. Now, you have control over the first two, but not the third one. So my question is, how does Ford string together a few more quarters like this last one if the economy basically stays where it is? Well, Chris, it's a really important part of our plan because, as you well know, four years ago, we made some pretty big strategic decisions which would allow us to profitably grow Ford, not only through the worst recession that we've all seen, but clearly to improve that performance as the economy started to strengthen. And so, you know, everybody had a chance to see with our third quarter results that even at this, you know, lowest industry that we've had in nearly 40 years that we are able to operate profitably based on the strength of the fabulous new Ford product line and, as you pointed out, our ever-increasing quality and productivity.

So right now, our best estimate is that the U.S. economy will expand maybe a little bit less than 3% for the year 2010. And we anticipate that. I think we're pretty much aligned with most of the economists that it'll be somewhere around a 3% expansion in 2011. So Ford's well-positioned. We took the tough structural actions, operate profitably at this lower demand. We invested in the new products. And now the customers have the price that they really do want and value available for it as we recover. I want to read you a headline from Wednesday's Wall Street Journal.

And the headline is, GM could be free of taxes for years. And the article goes on to talk about how GM won't have to pay as much as $45 billion in taxes on future profits because of special tax rules made to specifically benefit government bailout recipients. Now, unlike GM, Ford didn't accept government money. Ford is profitable, just posted record earnings. So how do you compete with a company that's backed by Uncle Sam? Well, we knew that we were following a different strategy. Remember, Chris, we actually, during the time when GM shared with everybody that they were completely bankrupt

and they were going to go into bankruptcy, that we actually testified on behalf of GM and Chrysler for the good of the industry and also to help prevent a collapse of the industry, which many people believe could have taken the U.S. from a recession into a depression. So we supported that temporary help from the government. Clearly, we have been on a completely different plan for the last four years, and we did not want or need to take precious taxpayer money. And also, we were also investing during the worst time in our new products. Now, clearly, we were disadvantaged in the near term on the debt

because that was essentially wiped out as we went through bankruptcy. But our plan always was get back to profitability, generate free cash, and then accelerate the improvement of our balance sheet. And one neat thing, Chris, about the third quarter was that we shared the progress we're making on that. And with our commitment to pay the $3.6 billion in the VEBA on the retiree health care, remove that and honor that commitment, we have now for the year repaid $10.8 billion of our debt. And we also gave guidance, Chris, that we're going to be cashed net positive by the end of the year, which means that we'll have improved that

net cash position by nearly $8 to $9 billion for the year. So the most important thing we do is continue to make the cars and trucks that people want, improve our quality and our productivity like we're doing, and then accelerate the improvement of our balance sheet, and we'll be just fine. You're listening to Motley Fool Money. We're talking with Alan Mullally, the president and CEO of Ford Motor Company. Ford's making a big push into the electric vehicle and plug-in hybrid market. Is there a point where you think that will make up a majority of your product line? And if so, when do you think that is? Well, I think, Chris, it's going to be a while before it's a substantial part of the product line, because clearly, you know, Ford has a very, very

robust technology roadmap going forward to not only improve the quality and the fuel efficiency and safety, but also provide that across all of our vehicles. And the technology roadmap that we see is there's a lot of room to improve the internal combustion engine, and you see that with EcoBoost, with turbocharging and direct fuel injection, nearly 25% improvement in fuel efficiency and 15% reduction in CO2, new lightweight materials, integrated electronics, aerodynamics. Then we see gradual electrification of the vehicles, and the first major push will be the hybrids, where you have internal combustion engine and electric motor. Then you'll see more

plug-ins, and then you'll see gradually more all-electric vehicles. Now, the rate of that expansion will be really dependent on the improvements that we make in the battery technology and the electrical components, because we need to get the weight down, the scale up, the cost down, the capability to charge in warm and hot temperatures and do it quickly. And of course, Chris, the other enabler will be the infrastructure throughout the United States and a smart electrical grid so that we can actually charge the vehicles conveniently. So I think that public-private partnership is going to be a very big piece. But the most important thing is that we keep developing enabling technologies and make them technically and economically viable. So if I'm reading between the lines, it sounds like you're saying five years.

Oh, at least, Chris, because you think about the infrastructure that we have in for gasoline today is tremendous, which makes it all work for all of us. And whatever we do, it's got to be economically attractive, but also has to work for our lives. And the infrastructure is just not there now to be able to support the vehicles. Plus, the vehicle's got to be economic, because if the consumers, we're all going to make an economic decision, And we all care about fuel efficiency, and we care about quality, but we also care about the economics that go with that. So the most important thing we do is to keep improving the technology and work with the public sector and utility companies to get the infrastructure in place. You're listening to Motley Fool Money.

We're talking with Alan Mullally, the president and CEO of Ford Motor Company. Alan, what was the first car you ever owned? I think I had a Chevrolet before I moved to Ford. Is there anything in particular that you remember about it? And it can be anything. It can be the color. It could be. I think it had, my first Ford had moon hubcaps and black rims that offset the cream-colored body.

And I just remember how neat it was when I got my driver's license and the highways were open to me to move about freely. And you just took off, I'm guessing. Absolutely. Like all of us. You know, Chris, a neat thing about Ford and Henry Ford was his original vision, which we are accelerating today, is to open the highways to all mankind so that all of us can move and feel the freedom that the automobile brings and also have great, safe, and efficient transportation, plus have great careers with Ford wherever we operate around the world. So, you know, it's just an honor to be accelerating the implementation of Henry Ford's original vision.

You're listening to Motley Fool Money. We're talking with Alan Mullally, the CEO and president of Ford Motor Company. Alan, before we let you go, we have to wrap up with a round of buy, sell, or hold. So let's start with something that certainly has its fans as well as its detractors. Buy, sell, or hold the future of ethanol. Well, I would say a buy because I think that clearly we're going to have many elements of the solution, energy independence and security, and I think that the ethanol we have today is a start. I think we're going to see more biomass fuels going forward, and they'll be part of the solution.

Google has developed one that has logged over 140,000 miles on the road. buy, sell, or hold the driverless car? I think I would probably hold on that because I think that people just really, really enjoy that driving experience and there is nothing that can replace the ability of the human being to assimilate all the different situations we're going to be in and be able to react accordingly and, Chris, enjoy it. See, I thought you were going to say you were going to hold on it

because it's just kind of creepy. Well, you know, I've worked on automatic systems for my life, as you know it, with commercial airplanes and automatic landing systems and autopilots and autothrottles. And when it comes to the car and with an airplane, the most important thing is that the driver or the pilot is completely in charge because the human's ability to simulate all the different situations that we can get into is absolutely amazing. The best thing we can do, just like we're doing in the automobile industry, is to give the drivers all the situational information that they need and the alerts that they need, and then let the human being do what they do best, and that is focus on driving and using the human being's ability to react. We don't hear quite as much talk about it these days.

Buy, sell, or hold a manned trip to Mars in the next 20 years. I probably would sell on that. And that might happen someday in the future, but I think that's a ways out. And finally, you're a top executive at an aerospace company. You're the CEO of an automotive company. So I think more so than probably anyone else in the public markets, you are the most qualified to weigh in on this topic. Oh, my. Speak slowly, Chris. I'm getting ready.

Buy, sell, or hold, by the end of this century, flying cars. I, well, clearly, we have made flying cars. I think the real question is, will it be widespread and economically viable? And I sure don't think so. because the economics of commercial airplanes to be able to deliver a large number of people around the world is so compelling, and to do that in a small two- or three- or four-passenger just really doesn't make sense economically. Not even with 90 years lead time?

Well, you know, I have been working on the future, but maybe that's a little too far out. He is the president and CEO of Ford Motor Company. Alan Mulally, thanks so much for being here. Well, thank you, and thanks for covering the Ford story. Coming up, big movers, reverse stock splits, and a few stocks on our radar. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Joining me to talk about one of the week's big movers is Motley Fool Managing Editor Brian Richards.

Brian, welcome. Chris, thanks for having me. So the big mover we're going to talk about this week is Mankind. It's a biotech company, focuses on products for diabetes and cancers. On Thursday, shares fell 18% after details of a lawsuit came out, a lawsuit from a former executive. Yeah, a former regulatory affairs director said he was fired for raising concerns about some overseas clinical trials for the company's signature drug, which is an inhaled insulin product. And for its part, the company says the guy was fired for an unrelated reason and that it investigated his claims and found no problem with the data from those foreign trials.

Now, Mankind was started by Alfred Mann. He's got a huge stake in the company, almost 40%. And inside ownership, we like to see that at The Motley Fool, but the lawsuit's just hanging over it. Yeah, and Alfred Mann lost a lot of money on Thursday with his big stake. But Mankind was already a risky stock before Thursday. It's a biotech company, so, you know, often in biotech investing, there's a binary outcome. The company will get approval for its drug or it will not get approval for its drug. And the shares will go up a lot or they will go down a lot.

And this is just another reminder of the risk of investing in biotech stocks. So now it's got the lawsuit and the pending FDA approval because this drug isn't on the market yet. Right. And, you know, so normally there's one big variable for biotechs, and that's FDA approval. Now we've added another big variable, which is the outcome of this lawsuit. So, you know, for investors who are interested in beating down companies or interested in biotech investing in general, you know, we would say tread cautiously. All right, Brian, thanks for joining us. To read more, you can click over to fool.com to read Is Mankind a Bad News Buy?

You can also read about some of the other big movers in the stock market. go to fool.com. 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. I'm Chris Hill. I'm back in the studio with me, our trio of senior analysts, Seth Jason, James Early, and Tim Hanson. All right, guys, time to wrap up with the stocks on our radar this week. And we will bring our man behind the glass, Steve Broido, into the mix. How are you, Steve? I'm hanging in there. Thank you. All right. Well, Steve's going to hit you with a wildcard question. So, I hope you're more- I didn't sign up for that.

Sorry, you have to be extra prepared this week. It's not on my contract either. You have a contract? All right, Tim Hanson, we'll start with you. What's your stock? Well, I think a couple weeks ago I talked about T. Rowe Price in this forum on the thesis that the next decade for stocks is going to be a lot better than the last decade. So I've got another.

God, I hope so. I'm back with a stock this week to play that same trend. It's called Virtus Investments. It's on the NASDAQ VRTS. It's a recent spinoff from an insurance company. They have about $25 billion in assets under management, which is a huge amount of assets under management. But they've struggled historically with profitability because of this tie-up with the insurance company. They are now sort of streamlining their operations.

They expect to get more profitable over the next year or two. They're hoping to get to 25%, which would still be below the operating margin for the industry average. And if they get there, it would suggest a fair value for the stock somewhere between about $45 and $70 per share. And it's currently at $38, so Virtus. Steve, what do you got for Tim? So what exactly do they do again? They're the ones who lose money for you and your mutual fund. Okay, good, good.

I'm having a hard time following exactly what they do, but it sounds like a good call other than that. They are asset managers, so when you contribute to your mutual fund, they're the ones who manage the money for you. James Hurley? Chris, I would love to hear what Steve thinks of incumbent telecoms outside the U.S. An example would be Philippine Long Distance, which is a recommendation in my newsletter. These companies typically have nice margins and good market share, But the governments are trying to encourage competition by facilitating these upstarts that are taking some of that share. But there's still a lot of people in these countries who don't have any phone connectivity at all.

So it's kind of a tug of war between the competition and then sort of the untapped portion of the market. So I'm just kind of stewing on these companies. Steve? What about we were recently in Jamaica and noticed a similar kind of trend where there seemed to be a local cell provider that seemed just enormous. Do you think in countries like the Philippines that there'll be increased connectivity? I'm assuming with Internet and all that, that that may, you know, voice over IP, that kind of technology might affect what your company does? Well, yes, a lot of these companies are capitalizing on that, which is good, typically, primarily good for the incumbent. It's just very hard to predict the adoption rates of that.

And there are people who don't even have cell phones and prepaid cell phone is the norm in these countries, too. All right, Seth, Jason. I have, wow, just as boring as you can get. AMN Healthcare, which is a healthcare service, actually the biggest healthcare service company. They provide staffing to the biggest healthcare service staffing company in the country. Kind of smacked down this week on results. They had some goodwill write-downs, which are non-cash losses. The non-cash now, it means they wasted the cash back when they made the acquisition back in the day.

But I think that going forward, the thesis I have here is that we are going to need more and more nurses and other health care staff. And as the economy improves and hospitals and others start staffing up to meet the demand that will be there, that AMN is in a very good position to profit from this. And so long as it's been pounded as it has been lately, it's probably the time to consider buying it if ever. And the ticker is AHS. Steve? With the Republicans now controlling the House, how will health care reform affect what you're talking about,

especially if health care reform gets rolled back, which some people are predicting? My opinion on that is that it doesn't matter what anybody says about health care reform. Here's the reality. Everybody wants as much health care as they can get, and they don't want to pay for it. And unfortunately, politicians all tend to give that to them no matter what their party. So I don't really think that has much of an effect on this business. Yeah, I was going to say, well, the need for nurses isn't going anywhere. America is still getting money.

Especially non-nurses. Yeah. It's just going to matter who's going to pay for it, which is the health care reform question. But the need, I think, for what you're talking about is irrelevant in politics. By the way, Seth, you used the phrase goodwill write-downs. That seems like something a company would say, like, hey, stock market, don't punish us. It's no big deal. Don't punish us too much.

These are goodwill write-downs. When you buy a company, say I buy Chris's Burrito Factory and I pay you $100 million for it, but sold, but, but your company only has like one building worth 10 million and an equipment worth 5 million. Everything else that I pay you on top of that is sort of, it's intangible stuff. So it's, it's goodwill and or intangible assets, the recipes to make your burritos and the goodwill you have, the relationships with your customers. Now, if later on, I find out that your company is not as profitable as I thought, then by accounting regulation, I'm required to go back and impair the goodwill, which is basically to go to the balance sheet and say,

this stuff is only worth half of what we thought. And at that point, it's a loss on the income statement, but the cash went out the door when you bought the company. It's very, very fuzzy. That's the key. Hey, you know what? I'm taking the $100 million you gave me, and I'm going to Vegas. All right, Seth Jason, James Early, Tim Hanson. Guys, thanks for being here. You're welcome.

Thanks to our special guests this week, Ford CEO Alan Mullally and Brian Richards, managing editor of Fool.com. For the latest analysis and investing commentary each day throughout the week, go to 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.