Motley Fool Hidden Gems Investing - Motley Fool Money: 11.13.2009

Episode Date: November 13, 2009

Warren Buffett and Bill Gates take stock in the economy.  Disney delivers big earnings.  Playboy courts a suitor.  And Intel settles with AMD.   In this installment of Motley Fool Money, we tackle those stories, share three stocks on our radar, and discuss some underrated and overrated animated characters. Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill. Welcome to Motley Fool Money. I'm Chris Hill, and I'm joined by Motley Fool Senior Analysts Seth Jason, James Early, and Shannon Zerring. Guys, happy Friday the 13th. And to you as well, Chris. On today's show, Disney delivers, homebuilder stocks stage a rally, and Playboy goes looking for a friend with benefits. All that, plus, as always, three stocks on our radar. But we begin with this week's joint appearance at Columbia University's Business School by Warren Buffett and Bill Gates. Buffett said the financial panic is over and the bottom has come in stocks. Gates said we made some mistakes but that our financial system is still strong. Shannon, these are two guys with a pretty healthy track record of success. What did you take

away from their musings? Well, for me, the Warren Buffett piece of it is of a piece with the Burlington purchase and it's almost as though he's writing his own autobiography on the way out. Warren Buffett, great American investor. So he buys the iconic railroad, the part of it that he didn't already own. And he's out touting the great American recovery. The panic is over, certainly. And I think we've sort of been running as a theme here on the podcast. Has the market gone so far that the economic recovery is going to have to be tremendously robust to support not only where we've gotten to, but what we would see going forward in the stock market? I have to defer to Warren Buffett, maybe not so much Bill Gates on that. But I think there's a little bit

of theater going on here as well. James? But have you ever noticed that wherever Becky Quick is, Warren Buffett is there too. I mean, he's, I don't know if he's a good woman. Warren likes the small, cute ladies. This was hosted, yeah, I should point out, this was hosted on CNBC by Becky Quick, one of the co-hosts of Squawk Box. Exit question. Both these guys actually do have day jobs where they are overlooking companies, Microsoft and Berkshire Hathaway. If you had equal shares of both, which one do you think is doing better over the next five years? For sure. Next five to ten years, I'm going to say Berkshire because I think the operating system game is going to be commoditized away.

James? I might have to go Microsoft just because of its valuation. I would go Microsoft because I think they're going to do fairly well. Valuation's nice. They're going to pay out the cash flows, and Berkshire Hathaway is Berkshire Hathaway. I own it, but didn't a bunch of us, didn't we all tout Microsoft a few weeks or months ago when it was a lot lower than now? How many people at the table bought it? We should have taken our own advice.

Not me. Oops. The Fed announced on Thursday it will prohibit banks from charging overdraft fees on ATMs and debit cards unless a customer has agreed to pay extra for exceeding account balances. The rules will kick in next year and will not apply to printed checks or regularly recurring debits from checking accounts. Guys, sounds like great news for consumers, but what does this mean for lenders who collected, I'm still blown away by this number, $37 billion in overdraft fees last year? $37 billion! Well, bad news for them. But I have to say that this must have Greenspan spinning in his grave because, no, wait, he's still alive. Technically still alive. But remember, when Greenspan ran the Fed, banks just got to do whatever they wanted, including, you know, minor things like this and other minor things like, you know, nearly crater the entire world economy and have us all eating squirrels for dinner. but this is very good news for consumers because let's be honest banks have been very sleazy about

this for years trying to pretend they were doing you a favor when the obvious technological solution to somebody making an overdraft on their debit card is to just say hey not enough money there thought you'd like to know not not give them the money and then charge them 30 40 dollars for you know giving them a buck 50 so this is going to be bad news for some banks because it's been a a good profit center, but I'm not going to cry for the banks. Yeah, and if you're broke but you like to take a lot of women out to dinner anyway, you could still opt for this protection. Like Warren Buffett.

Exactly. You could still opt for this overdraft protection. It's not a required thing, but I think the Fed overall is really trying to assert itself in the face of regulatory change that's coming through the Senate right now. There might be this separate banking regulator, and the Fed is trying to kind of show up. This is the right thing to do. It's just a little bit late. They're kind of like running their hands up in the air going, ooh, ooh, look what we did before you take away all our power.

Shannon, on a scale of 1 to 10, how big effect is this going to have on bank stocks? On bank stocks, probably next to none. On bank stock analysts, I think it's a very sad story, a little covered angle of this story. That was the one part of the income statement that was not smoke and mirrors. What are they going to do now? Definitely much tougher for the bank stock analysts. All right, Intel is paying one and a quarter billion dollars to settle an antitrust lawsuit that AMD filed back in 2005. The lawsuit alleged companies like HP and Dell were pressured to sell only Intel-based computers or limit their AMD sales to some small percentage of revenues.

The companies did this in return for Intel rebates that were said to be big enough to turn quarterly losses into profits. Shares of AMD were up 24% on the news. Shares of Intel down slightly. Yeah, I mean, the ironic thing is they're paying out all this money, and it doesn't really solve their biggest problem. I mean, AMD has sort of been like the ex-wife wanting more alimony all these years, and Intel has paid them, and that's going to help. But they still have a number of states, like most recently Andrew Cuomo,

New York Attorney General, is now after them for their competitive practices, as well as the FTC, and that, I think, is the biggest concern that they have, and this doesn't actually address that problem. Yeah, that is the bigger problem. In terms of the monetary amount, it's chicken feed, basically. Intel spews out $1.25 billion every time someone sneezes in a foundry, so it doesn't do anything for the investment case. I think it looks cheap on a going-forward basis,

but if I owned shares right now, I would not buy additional shares or sell them. I would probably just stamp out, I don't own Intel. Well, the best thing about this is probably that a share of AMD can now get you a happy meal, maybe even a full-value meal at McDonald's. But seriously, this is a subject I hesitate to weigh in on. Our listeners may not know, but AMD's stock has a cadre of loyal followers who are maybe only third or fourth in sort of craziness behind the XM Sirius types or, dare I say, the Apple types. And they're probably already writing us letters about how we don't know anything and Intel deserves all the horrible things it's gotten. But as far as most consumers are concerned, and I'm on the nerdy edge,

I build my own computers. A few years ago, AMD was a preferred chip for the money. You got a little more performance, perhaps. And they were taking some market share after a long struggle. But then, as often happens in the tech industry, the tide sort of changed and Intel's chips moved ahead. They forged ahead. As far as most consumers are concerned, Intel chips are cheap enough, offer enough performance, and they have no reason to go asking for an AMD chip. Quite frankly, they wouldn't care if AMD disappeared.

So if Intel was throwing some elbows, that's not good, but it ain't the only reason they're ahead. Yeah, the only reason AMD exists, you know, in a big picture sense is probably because Intel is so good in the first place. I mean, if not Intel, who's the competition in the U.S.? And Intel really needs AMD to stick around. Otherwise, the government will be on their back nonstop. So they need a kind of sickly, pathetic AMD to keep limping along. Just two follow-up points. So is everyone noticing the secret theme that Seth is working through the podcast?

So we've had a reference to squirrel meat and now the value meal. And AMD is trading in the sixes, so you can get the Angus third-of-a-pound beef value meal. Excellent. Homebuilder stocks got a boost this week after upbeat reports from Toll Brothers, Beezer, and Comstock. Guys, should investors be taking a look? Well, Chris, we've had mixed results on things home-related for the past year or so, but the thing that really stands out here with me is that Toll Brothers is doing well, and Toll Brothers typically does houses that are half a million bucks and up.

In other words, it's a more upscale builder, and these aren't typically first-time homebuyer-type houses that would be benefiting from this first-time homebuyer credit, unless you're in a costly market like we are here. So I think that's positive news. I mean, just for what it is. I think we have to give credit where credit is due. This is decent enough news. It's going to be affected by the macro situation as well.

We had a visit today at The Fool from Bob Posen, who is now at MFS, before was at Fidelity, and earlier in his career served with the SEC. And he pointed out in discussion that a third of U.S. mortgages are underwater. It's hard to imagine, if that doesn't get cured, how homebuilder stocks can sustain their rally. And there's not much of a cure for that. And as we've discussed here in the past,

one of the main indicators of whether or not somebody defaults on a mortgage isn't whether they can afford the monthly payment. It's their perception that they're underwater and that there's no point in paying off and they ditch. But I'm always willing to malign homebuilders when James is willing to be nice. I won't do too much of it today, but I will point out that anybody out there listening to this shouldn't go off and run into buy home builder stocks because they're a bit like bank stocks.

They're really tough to figure out what's going on underneath. You have to have a lot of specialized knowledge about the business and then more specialized knowledge about the individual locations where each home builder operates. And so don't get excited. Unless you are willing to do that homework or you know what's going on, these are not good investments for you. Playboy is looking for some action. According to reports, the company is considering selling itself to Iconics Brand Group, which owns and licenses brands like Candies and Joe Boxer. Shares of Playboy had lost around 75% of their value over the last two years, but were up more than 40% after the report came out. Is this a good investment for Iconics?

Well, Chris, for perspective, you know, if somebody listening is not on top of the porn industry as we are here at Motley Fool Money, Playboy's results have been soft for the past several years for a simple reason that you don't have to buy porn at the counter anymore you know playboy was always kind of the gentleman's porn brand not that i would know but uh you get it on your iphone because you're not a gentleman that's the reason um actually it's not just iconics iconics is trying to buy them but so too is golden gate capital apparently playboy has been talking with both of these guys for for almost a year uh which which makes it interesting and i don't think they even want the porn i think they just want the brand playboy has really built a uh an

attractive brand on air fresheners and and and what have you so uh yeah we'll see where this goes you have to own 70 of the company actually so it'll it'll be up to him is iconics also after spam they ought to be why because you think that has some mixture with like gel box it's an iconic brand well why don't i have that and playboy is about roughly the same as spam particularly nowadays or let me be a little uh more kind it's the norman rockwell of porn i don't think that works in this market. I don't think spam has the kind of international appeal that the Playboy logo has. Actually, I think spam has a lot more. You'd be surprised how well that stuff sells in some- Stir-fried spam with squirrel meat and a value meal, that's good eating.

It's practical. And there's no way Hormel wants to get rid of spam. No way. Disney reported an 18% jump in fourth quarter profits. The company's cable networks, including ESPN and the Disney Channel, helped make up for sluggish consumer spending and declining profits at theme parks shares of disney up around 40 for the year shannon are we feeling the disney magic well so disney is really a proxy for the overall u.s economy and i'll come to that in a moment chris but first of all it's a very personal stock for me so in my undergraduate days i worked at the epcot center kennel and in some ways that was the best job i ever had until i came to the fool my father-in-law's been his entire kennel kennel is that where the people

dressed up as animals were, is that their changing room or something? No, nor was I required to dress up as an animal. These were, you know, people bring their pets on their vacation, and what are they going to do, leave them in their car? Oh, actual dogs. Some people do leave their dogs in their cars

in the Florida heat, and so there is a kennel. Folks, if you don't know, take your dog there. Otherwise, security will. If you guys see it, so you would break into the car and remove the dog. I wouldn't, that was not my job. That was the role of security. That's good, that's good.

With a jimmy or whatever that's called, and they would open the door and bring them in, and amazingly, people would come to the kennel angry that their dog had been rescued. Wait, was there a stock story? Was there a plan and collect the insurance money? I'm coming to that. But the most important reason that Disney is an important stock for me

is that I met my wife there, and she worked in guest relations when I was working in the kennel. And the costume in those days involved a plaid skirt and a riding crop, so it was love at first sight. Wow. Yeah. Because of the costume. That's right.

Are you kidding about the riding crop? No. Wow. Does Kristen still have this? I think I love Shannon's wife, too. She does indeed. She does indeed. So maybe at the holiday party, I'll encourage her to. Please do. That would be fantastic.

One more personal anecdote before I get to the stock story. And that is this. And this is sort of a good segue into it as well. So about 12 years ago, very generously, Chris's parents gave us 100 shares of Disney stock that were then priced at $30 a stub, as they say. And now it's $30.27. That's what the stock has done over that period of time. Now, the return has been better because of the dividend. You bake that in. It's about 2.5% over the last 10 years. But still, the stock has basically gone nowhere. Now, I think with this kind of earnings news, we're in a very interesting spot for Disney

because it is a proxy for the overall economy. Yes, their consumer stores and the parks and resorts are disappointing, and they're ticking down. But that's exactly what you would expect in this phase of the economic cycle. And they're firing on all cylinders in terms of the cable channel, particularly around ESPN. So if that unit stays strong and if the economy really does come back and so the parks and consumer retail side perks up, this is a very interesting stock at this point. Maybe you should get the shares back as a return gift. So this is interesting because it shows actually what Disney isn't a stock I pay a lot of attention to. But the deep thought occurs to me that this is a very good diverse business because at the very time that people are not going out,

they're sitting on their keisters at home watching tv disney can still make a bunch of money off them so that's that's pretty good aren't they getting too big though i mean they seem to be buying everything inside i mean it's it's only a matter of time before they buy playboy um i mean doesn't that kill the creativity at some level yeah i guess i guess there's always that that worry but they seem to be doing a pretty good job with what they've got so let's wait for the let's wait for them to do a horrible job before we start calling for them to break it apart i think it's great that you're able to provide that kind of analysis of the business of disney while i'm still focused on the image of shannon's wife with the plaid skirt and the ride as i have to go okay exit question

what's the most overrated disney character and i'm not talking marvel or pixar or any of that i'm talking like the old school disney it's either chip or dale i can't decide which nice nice i never really got any lessons from snow white really yeah it's just what's the takeaway you know it's just kind of hollow i mean okay i can see that she was definitely the weak character in that movie but a cutie sure she's cute but i mean not as not as entertaining as the dwarfs mickey mouse i've never understood anybody's fascination with mickey mouse i i can't believe they built an empire on those ears or that voice oh my god voice absolutely heinous good for them i gotta say that the voice is is pretty amazing because let's face it if you knew someone or

worked with someone and they talk like that you would slap the hell out of them do you know who the first person to voice uh mickey was was it walt walt himself and steamboat mickey steamboat willie steamboat willie thank you very much steve jump in here i'm going most underrated uh lambert the sheepish lion do you guys know Lambert most underrated most underrated who is Lambert

Lambert is pretty underrated Lambert is a he was a sheep that lacked confidence so he was referred to as Lambert the sheepish lion in what movie exactly

he did not have a huge career but was he only in shorts or something he was in one short I believe and there was a cute

little song about him is he so underrated that none of us have ever heard of him and possibly you're making him up see what our listeners can't see

is through the glass Steve is actually an aficionado of old timey stuff His office out there is decorated with lots of old sort of 40s and 50s advertisements with cartoon characters, including a Disney how to catch a cold. And by the way, Disney back then was telling you that the reason you got a cold was sitting in front of an open window.

So that's not true. Lambert, the sheepish lion, check him out. Did Lambert hang out with asbestos lady? I don't believe you. Oh, okay. No, but that's coming soon. Just believe me, the synergies with Marvel, they are coming soon. Pixar presentation.

All right, let's wrap up. Give me one stock that is on your radar. Well, I've got to stick with this personal Disney theme. I like it right now going forward. This is the soft spot for the parks and the resorts, but that's going to come back, as will the consumer segment. A little worried about the consumer segment, the revamp. Apparently, they're going to make the stores like Westworld,

so there will be Smell-O-Vision installations and then Snow White. Not your favorite, James, I know, but she'll apparently pop out of a... Cake? Not a cake. That would be something that Playboy might be interested in. But she'll pop out and pitch you or your child something. That's going to be a little creepy. But as those segments come back, the strength that they're already experiencing on the cable channel side will be fortified.

I think there's a potential upside. Discount for the fact that I own it and that my wife does indeed still have her guest relations costume. But I like it going forward. So Snow White is going to pitch your child something like right in front of you? So if you say no, you look like a jerk. And she's like a pushy sales lady. Gotcha, gotcha. James?

I'm going with Intel. It's just kind of been on my radar lately. It pays an above 3% dividend, like I mentioned earlier. And I think it could be an interesting time to pick up the stock, given all the bad news circling around. Seth? I can't remember how often I've discussed Fossil on the podcast. And anyway, it's a Hidden Gems recommendation, and I own it. And I was a little worried about the valuation not long ago because consumers aren't buying stuff.

At least they didn't seem to be buying stuff like watches and handbags and all of this stuff that Fossil makes. But they had their recent Q3 earnings, and they just slapped it out of the park. They are selling a lot of watches, a lot of high-end watches. They've got their own brands as well as making brands for famous licenses like Diesel and others. They're doing really well with worldwide expansion, doing well with new products like leather bags and other accessories in Europe and other places. So I had to move it back to Team One and Hidden Gems and take another look because this is a company that is not only doing a great job with earnings, but the CEO gets paid zero.

Actually works for nothing, not that fake nothing, but a real nothing. He owns a lot of shares, and he says, I don't need any more comp. I'm going to work to maximize the value of these shares. And so the rest of us should expect fossil watches from you for Christmas? I actually was looking at the website. That's a joke. But I was looking at the website to do a little research, and I was so impressed with a couple of the lower-end watches

that just look really great that I did the email thing to my wife and said, if you're looking for ideas, here they are. All right. And does your wife know all of our sizes, our watch sizes? We'll have to just go to Fashion Time at Tyson's Corner and get them adjusted. Fair enough. Seth Jason, James Hurley, Shannon Zimmerman.

Guys, thanks for being here. Good to be with you, Chris. That's it for 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. You pulled it up, didn't you? You pulled up Lampert. You have Lampert on YouTube. Lambert, the sheepish lion Lambert is always trying to be a wild and woody sheep Lambert, the sheepish lion

Little lambs all love to put their heads on a stone Lambert thought that he could lick a dozen lambs alone While the other lambs all gathered round To watch this honeyed out He wanted to be counted in But he was counted out