Motley Fool Hidden Gems Investing - Motley Fool Money: 12.04.2009

Episode Date: December 4, 2009

What do better-than-expected employment numbers mean for investors? Does Bernanke deserve another term?  Will Comcast win the battle for the living room? In this installment of Motley Fool Money, we tackle those questions, share three stocks on our radar, and discuss the future of the Tiger Woods brand. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Motley Fool Money. I'm Chris Ellen. I'm joined by Motley Fool Senior Analysts Seth Chasen, James Early, and Shannon Serra. Guys, happy Friday. Happy Friday to you, Friday. On today's show, we've got Comcast making a big play in the battle for your living room. We've got the Fed Chief trying to get a job extension, and we've got Tiger Woods trying to get out of the rough. But guys, let's start with the big macro. Big news is the unemployment rate in November fell unexpectedly to 10%, down from 10.2%. President Obama called it the best jobs report since 2007. Shannon, that seems like kind of a low bar to clear. Exactly right, which

is why he cleared it. It is the best jobs report since 2007. And you look at it a little more closely, and it really does seem to be legitimately good news. Unlike, for instance, the little blip down that we got back in July, which was quickly reversed and the unemployment rate began to tick back up again because it was some statistical anomaly. This seems to be really good news. On a net basis, only 11,000 jobs were lost last month as compared with the hundreds of thousands of jobs that we've shed since 2007. And if that is sustainable, and I have some questions about whether or not it is, that's excellent news. I don't buy it. I don't buy it. You're not buying it? I agree with Shannon that if it were

sustainable and if it were real, it would be good news. But ADP, which has a broader measure and is statistically considered a superior measure of what's going on, has the opposite information. This 11,000 number, I don't know if you should really believe that because these numbers are routinely changed the next, the following month by up to 60,000, 70,000 jobs. And the other thing is that the unemployment number, I mean, just think about it on the face of it. You lose jobs anyway, but the unemployment number somehow gets less. This is based on a survey and that's the whole point. The ADP survey is considered better because it's wider, it goes to better places and instead of just calling up households and asking, hey, is everyone working?

I think Seth is absolutely right. And, yeah, I don't buy it either. I don't buy the moon landing either, but the ADP report is more robust. I think the real story for me is what does the Fed do now? The Fed has been testing the reverse repo market, which is a way of taking liquidity out of the bank system. This is just as of today. So the Fed could be plotting some sort of a pullback,

and obviously it has to at some point. But to me, that'll be the bigger news that could come out of this. Look, guys, I'm trying to look at the part of the glass that is half full for once. So if you could help me out here, I would appreciate it. Look, 11,000 jobs. Shannon's got cake on a plate over there. I'm on a sugar rush. We're riding the tiger.

Like I said, if it is sustainable, it's excellent news. To me, what we haven't mentioned yet, but perhaps we should, is this may be the temporary effect of the sugar rush that's caused by the stimulus. About a third of the money has been spent. Some of the projects have already been completed. And in those industries, road construction in particular, some of that is drying up. Maybe it's just a cash-for-clunker style blip. I certainly hope that's not the case.

And I certainly hope it's not the case that people have a head fake experience around this and then back down for more aggressive action because still the economy is in shambles. Can I have one final word so that it makes me seem smart? Sure. Excellent. Here's what I also pulled out of there, and it's something that I don't think is great news either way, is that the only place where you actually saw job growth, according to what I remember, was temp work, not so great, and health care.

I'm not sure that's the one place we want to see growth. So in terms of investors looking at these numbers, is this good? Is this just like stick tight to whatever you're doing at the moment? It's better than not good. I mean, these days, less bad is the new good. I don't think it means a ton even with things like retail spending, for instance. Unlike previous recessions, I think now these people, once they start working again, are going to be saving more.

They're going right back to consumer spending. Hello. Let's just keep that in. That's just to show you that our usual hardworking producer, Steve Broido, is on his honeymoon. And the Uber boss, Matt Greer, is over there screwing up the soundboard. We're just emailing. To your question, Chris, it's worth remembering that employment is a lagging indicator. And for investors, look, you've got this market that's up 60% since March. Employment situation recovery was priced into that then. It's priced into that now. All right. We talked about the Fed. So let's stick with that. Fed Chief Ben Bernanke was on the Hill this week for confirmation hearings, and he did get roughed up a little bit. Senators on both sides of the aisle placed a hold on his nomination for another term as Fed chief until the Senate holds an up or down vote on legislation that would open up the Fed to congressional audits. Seth, is that fair? Is that reasonable?

I'm glad I stuttered through some partially substantive sounding responses because I'm going to go the other way on this one. This is political theater, to quote what Shannon's probably going to say. Ha! Preempted. Preempted, Shannon. But I find it to be really funny because I've not been the greatest fan of everything that Mr. Bernanke has done. But this Senator Jim Bunning comes out and this is the headline of the day. Senator from Kentucky. Yeah, and this is the actual, this is a prepared remark. Your Fed has become the creature from Jekyll Island.

And I just have to point out, this mixes several metaphors and gets the wrong piece of each one. Did he mean the creature from the Black Lagoon? I have no idea. If he meant Dr. Jekyll, he's got that wrong because Mr. Hyde's the bad guy. So unsophisticated. This is a mashup, Seth. Get with the program. I've been to Jekyll Island.

It's a luxury resort off the Georgia coast. This is like my pounding my fist and saying, you have turned the Fed into a naked back rub from Heidi Klum. What are you doing? The creature from the day spa. This is where the folks who were in the creative writing program at my graduate school used to go for their bacchanalia. So I think I may have some insight into what a creature from Jekyll Island might be up to. And it's not bad. But to get to something a little more serious.

I was going to say, literary criticism aside. Aside. This is typical political theater. You can't go without a Fed. I think you don't have modern banking without a Federal Reserve, and certainly in a time like this, probably we owe the Fed a little bit of thanks for some of what happened. And what's going on now is you have a lot of people who typically, this happens in deep recessions, they start to worry about all the spending, about all the stimulus, about all the quote-unquote printing money. And there's a lot of kind of stepping back into the good old days and saying we shouldn't do this, inflation is going to be terrible. Well, you have to let this stuff roll through, and you've got to watch out for the groundswell.

You don't want to pull away from the stimulus too soon, and you certainly can't follow the kind of flat-earth, get-rid-of-the-Fed advice. Sure, and there are a lot of people who see inflationary policies as actually stealing from the people because the purchasing power of your money does go away. That said, I'm a little surprised that Ben Bernanke still wants the job, given all the heat he's been taking. But you have to step back and say, what really is the Fed's job? Obviously, the Treasury prints money. The Fed regulates the supply of the money. But does the Fed regulate, let's say, asset prices? And if so, how much?

That's a very, very difficult question to answer. And obviously, we all blame Greenspan, let's say, for creating this big bubble. But, you know, at what point do you draw the line in a bubble? How do you know until it's passed? A lot of tough calls. I think we do need some sort of an overall systemic regulator to prevent regulatory arbitrage. In other words, entities like banks changing their structure to fall under one rubric or another. Is it best done at the Fed or not? I don't know, but I don't see anything wrong with congressional audits, actually. Nor do I.

And it's not political theater. It's political reality that Bernanke is going to be reappointed to this post. But on the merits, I don't think he should. What is the Fed's mandate? The Fed's mandate is to maintain price stability and to get us as close to full employment as possible. Well, 10% is better than 10.2%, but it's still atrocious. And so, if anything, Bernanke should be erring on the side of the full employment side of his mandate, and he's not. I think there's a case to be made for a Fed that actually cultivates and encourages inflation toward the end of hotter-than-usual growth

and then putting up with that for longer than they would. Just a couple of points. The ending of the Treasury repurchase program, I think, in hindsight, was a bad idea. Now is not the time to do it. And if, again, people start taking their eye off the ball and they go, well, the market's up, unemployment's on its way down, and that sense of urgency around doing something about what is an economy in malaise dissipates, that's going to be bad news for everybody. So if you're a senator, you're voting against Bernanke's? I would. I absolutely would. The only thing is—

But for a different reason than Mr. Bunning. You're saying didn't go far enough. That's right. I think that Bernanke thinks that he's being cautious. But in this context, erring on the side of caution is the riskiest thing you can do. And I just want to point out that this idea that we've got rampant inflation just around the corner is really based on a misunderstanding of what the quote unquote printing money accomplishes. You get inflation and asset prices and other things when you have a money supply and the velocity of that money is moving very quickly so that it chases prices. What happened at the beginning of this is the money supply stayed the same and then the Fed increased it, but the rate at which that money was being used fell so precipitously that we were really on the edge of deflation. In fact, we haven't seen much inflation.

I was very worried about inflation for a while, but then I saw the facts and I changed my mind. Because the banks are hoarding capital. Yeah, and the velocity of money, Seth is exactly right, has gotten down to horse and buggy speed. It's really not a cause of inflation. Then, too, Bernanke was a part of the team that orchestrated the toothless response to the financial crisis. I think that for that alone, he deserves to be shown the door. All right, so Shannon's voting note. Shannon sounded like he's from Sweden today.

This is Vin Zimmerman here. Senator Early, how are you voting? Senator Early would actually support Bernanke. I don't know who else would do a better job at this point. I think he's learned a lot. Senator Jason? I've thrown enough softballs or baseballs at Bernanke. I can give him the vote, but I want to stick to poke him with still.

All right, I'm not sure it'll help him keep his job, but Jay Leno might be getting a new boss. Comcast announced plans this week to acquire a majority stake in GE's NBC Universal Entertainment for the princely sum of $30 billion. The deal still has to get the green light from regulators. Seth, the main economic engines for NBC are its cable channels, USA, Bravo, SyFy, MSNBC, and, of course, our good friends at CNBC. Is this a good deal? yeah but well do they have to buy a piece of shine heart wigs is that we have any 30 rock fans out

there there's nobody in the room i don't know if it's a good deal i don't even know if it's going to happen it seems like the regulatory environment isn't really conducive to this kind of a deal and aside from the price i'm going to punt it over to my colleagues but i don't know that a deal like this makes a ton of sense are we going to be looking back at this a few years from now and wonder if this is the AOL Time Warner situation. I can see certain synergies, but I just don't see the overwhelming logic and the overwhelming necessity to do this. Yeah, well, first of all, let me just say in full disclosure,

after 90210 went off the air, I basically stopped watching TV. I mean, I might catch an hour a month, but, I mean, my time is valuable. I frankly, I'll take it even more extreme. I see almost no synergy to this deal. I really don't. You know, Comcast is sort of maxed out like a utility. How many more people can it reach, right? So what else can it do to make money?

Well, it can buy some content, maybe release some of the DVD movies a little bit earlier on the pay-per-view, things like that. That's minor. I mean, the way they benefit would be if the ad market rebounds a lot, but I just don't see the synergy. But if they control the content and they control the pipeline, then they can adjust the prices accordingly. Yeah, except the trouble with that is that if they try to harvest what I think would be the possible synergies, the hammer's going to drop. In 1992, some law was passed basically saying you can't, like, hog your own stations. You have to sort of share and share alike. You can't Bogart the pipes, the intertubes.

Well, what does this mean for companies like Netflix? I mean, if you're a Netflix shareholder, is this the sort of thing that has you quaking in your boots? I don't think so. I mean, to me, this is a very backward-looking strategy. I mean, the future is not with broadcast television or, you know, cable television. There already is in my house. That's house two, I believe, is streaming media is the way that we mostly watch television now anyway. To the extent that there's Comcast's ability to do that, I guess it's a good thing on balance, but the competition is fierce. I don't really see how this is going to do much for their margins.

Maybe it's good for the net neutrality fans, the idea that you don't let somebody take a preferential piece of the pipeline to move their own product through it simply because they happen to have paid for that pipeline like Comcast and others have. But perhaps if Comcast has this and they've got NBC and all this, maybe they actually have to balance the various types of properties a little more fairly. So maybe this is a good thing for the net neutrality people. I don't know that I'm on the net neutrality side, by the way, because I look at it from the point of view that you need to pay the people who have built the pipes. Otherwise, they quit building them. Media companies have never been known for being well-managed. And I think we're seeing the same lack of brilliance here.

You know what this is? Although we are a financial media company. You know what this is? This is pretty much the creature from Jekyll's Island is what's happening here. Maybe we're missing the point. Maybe this is less a media story than it is a story about GE sort of paring back its positions in industries that are not a part of its core competency. I'm not a GE scholar.

Perhaps my colleagues here are. That's the best side of the story, I think, yeah. So if you're a GE shareholder, you're psyched about this? I would be. All right. Tiger Woods, very bad week with his wife, has not yet cost him any endorsements. Those endorsements include Electronic Arts, Gillette, Gatorade, and Nike. Guys, buy, sell, or hold the future of the Tiger Woods brand.

Not only buy, but accumulate. Really? Yeah, his brand was getting quite bland, and this, I think, sort of spices it up a bit. He's suddenly a growth- You think? Having multiple mistresses spices it up? He's a growth story again, Chris, and it reminds me of what Steve Martin said to David Letterman after David Letterman's woes became public knowledge.

It showed that he was human, and to this point, a lot of us weren't so sure. James, what do you think? I'm just glad he doesn't have any wireless endorsements after being caught sending text messages like, I will wear you out. But, yeah, actually, bye-bye, too. I mean, the Tiger Woods demographic is probably a middle-aged male golfing-type person, the demographic, I guess, that he advertises to, and a little bit younger. And, frankly, you know, a lot of these people have affairs, too, and this dehumanizes him.

He was sort of this asexual being before who just went on the golf course and performed. Now he's a player. Yeah, he's so much more. Exactly. So I buy. Seth? I actually think I will wear you out is an excellent slogan for Nike to use for their shirts and things from now on. The golf shirts with the Tiger brand.

That is really awesome. It could be a caption for his entire career. Yeah, I think you have to. Oh, these are alleged. These are alleged. Producers over at Newser.com. Yeah, these are from the gossip sites, everybody, so they could be completely false. Don't sue us, please, Tiger Woods.

Not that you'd get anything out of us anyway. But you're buying. Yeah, I think you have to buy. I feel sort of sorry for the guy. Really? When I'm cheating on my wife with my seven mistresses, it's because I've had a bad week, and I just need a little cuddle. All right, as we head into the next week, give me one stock that is on your radar and why. Shannon, we'll start with you.

I'm taking a close look right now at a tech company that I think is near and dear to Seth's heart. It's called FormFactor, and it manufactures probe cards. I don't think there's a connection there to Tiger Woods. Probe cards? No, these are instrumental in testing semiconductors. And like I say, Seth can probably give us chapter and verse on the business side. For me, it's on my radar as a result of some of the screening that I do for one of the services that I run here at The Fool. The Fool owns shares of the company.

Our CAPS community loves it. And while it's not the most profitable company in the world yet, it does have a rock-solid balance sheet that's going to help it sort of ride out the inherent cyclicality of its industry. Yeah, it's very cyclical. It's only up 37% over the last 12 months. And that sounds like a lot, but it's lagging its industry. So the valuation, to me, looks really compelling for a company in a growth industry and with a solid financial backing. I'm sorry, what are the probes probed for? It's an interface, James, I'll have you know.

Legitimate question. Between the semiconductor wafer, is this correct? And then the testing equipment itself. This is how you test the validity of the circuitry. Gotcha. You find out if the wafers are any good. The ticker, by the way, is F-O-R-M, form. It sounds like a machine that gains intelligence and then it creates the creature from Jekyll Island.

Exactly. I'm a little scared of this. James, one stock from you. I was probing around in the health industry and found a company called Health Care Services Group. The ticker is H-C-S-G. No way. I almost wrecked them a couple of weeks ago. They're on my radar, but I felt it was a little bit pricey.

But they have a nice yield, above 3%. They do hospital services like laundry, housekeeping, and food services. Fairly small market cap. I don't know it off the top of my head. But it seems like a solid company, well-run, everything that I like except for the price. Wow. So a stock that appeals to the dividend guy and the small cap guy. I just have to point out that both of these guys are just cribbing from Motley Fool hidden gems.

Publicare Services Group was actually a watch list or a tiny gem years ago and is up a lot more than the market. I think in the neighborhood, don't quote me, but I think it's about 130% or something over a time when the market has been flat or slightly down, but still looked a bit expensive to me the last time I checked a couple of weeks ago as well. I'm going to another hidden gem, Guess. I've talked about it on the show before. I own it. Looked pricey to me. I blew it again because they just had great earnings, and then somebody came out and upgraded them and the stock up another 15% or 20% or something the last couple of weeks. Is this the jeans company?

The jeans company. And the story, I guess, is that they actually have a global brand that resonates very well. They run the business very well. They have a lot of cash, high insider ownership. They earn a lot of cash. And nobody pays attention because they think they know the company and because they've heard of it. And it was so big in the 80s that it must not be relevant now, but it is. And so the stock goes through these periods where nobody pays attention. It was $15 a share or something not too long ago. So people who bought it this year could already be sitting on a triple almost by now. And it's worth looking at even at today's prices. I'm certainly going to redo my homework, even though I own shares and have for years. And the 80s are coming back into fashion now, right? All these skateboarders, these tight-fitting jeans.

The stuff doesn't even look 80s. They are one of the few companies founded in the U.S. that have a legitimate global brand that's not a really high-end luxury brand. Is it true that the CEO also has a mullet? No. Paul Marciano, actually a very nice guy. I met him in Florence when I went there to visit some friends a while ago. Really nice guy. But the bottom line is they just really know how to run their business.

Yeah, I think if the CEO has a mullet, I think that's a strike against you on the scorecard. What's Italian for mullet? I don't know. I only know Italian words like bathroom, beer, you know. All right, on next week's episode, stay tuned for the answer. All right, Seth Jason, James Hurley, Shannon Zimmerman, guys, thanks for being here. Thank 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, 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. We'll be right back.