Motley Fool Hidden Gems Investing - Motley Fool Money: 12.10.2010

Episode Date: December 10, 2010

China raises reserve requirements. Netflix gets added to the S&P 500.   Kraft goes to court against Starbucks.  And Howard Stern resigns with Sirius XM.  On this week's show, we tackle those stories and talk about the toy business with industry expert Chris Byrne. Learn more about your ad choices. Visit megaphone.fm/adchoices

Don't you wish you could just hit skip on the worst parts of your life? You know, the same way you can skip an ad? I get it. I'm Siaya and I live in Ice Cove. I've made some questionable decisions that didn't end up the way I planned. And today I'm still figuring it out. Somehow things usually get worse before they get better. Apparently, that's how I roll.

So bundle up and come along for the bumpy ride. Stream a new episode of North of North Tuesdays on CBC Gem. 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 analysts seth jason James Early and Ron Gross. Guys, good to see you. Good to see you, Chris. All right, on this week's show, Netflix gets a promotion and Starbucks and Kraft start a food fight. We'll talk toys with industry expert Chris Byrne, plus we've got a few stocks on our radar. But we begin with the big

macro. Next week, the Senate will consider a bill to extend the Bush tax cuts. Now, James Early, there are obviously a lot of moving parts to a story like this, but as investors, we care about the capital gains piece. Where do things stand, and what's it going to mean for investors? Sure, Chris. You're right. This tax stuff is very important. It affects all Americans, except Wesley Snipes. Wesley started his prison term this week. Exactly. The holdup itself is just a lame duck move by the House Democrats. I think they would even agree with that. It's likely to pass. I think Obama will be coming up for re-election before you know it. I don't think he wants to be known as the guy who raised taxes in a fragile

economy. But I think you hit on the nail. The key point here, especially to me as a dividend investor, is that we're going to maintain parity between dividend rates and capital gains tax rates. If that had not happened, or if that does not happen, if dividend rates go up much higher, that drastically, or at least meaningfully, changes the incentive of corporations away from dividend policy. And studies show the dividend policy actually encourages prudent corporate spending. So we need to maintain this. Ron Gross, as an investor, what are you watching in this story? Yeah, I think James hit it on the head. Obviously, the lower the capital gains tax rate and the dividend rate, the better it is for investors. It encourages investment in the stock

market versus other types of investing or saving. And so that's all good news. I think Democrats that are holding this up would probably agree with that. I think one of the biggest sticking points was on the estate tax. And that's always been a big sticking point. They didn't like what Obama had agreed to there. But I think, as James said, I think this is going to get passed. Seth? Yeah, I think it will as well.

I'm kind of, I'm of two minds on taxes. I don't like seeing big tax bills either. On the other hand, I look around and I say, you know, someone's got to pay for all this stuff. So I think that we actually have

sort of a cowardly legislature as well as all of us here in America are pretty cowardly. In other words, we want lots of stuff. Who are you calling a coward? You and you and you and everybody listening out there, probably you too,

because you want a lot of nice services and everything for free, but when it comes time to pay for it, you just hope somebody else will do it. And I think all of us need to grow up, pay your taxes, and just get on with it. Having to pay a lot of taxes is a problem you want to have. And that's why Wesley Snipes went to jail this week, because he wasn't paying his taxes. Exactly. In other big macro news, China has tightened its monetary policy for the third time in a month. And on Friday, the Consumer Sentiment Index in December was up higher than economists had forecast.

Ron Gross, what is happening in China, and how does it affect me? Okay, so let's step back. What does it mean to me? Let's step back for those macroeconomic non-geeks out there. So China, for the third time, as you said, in a month, has been asked to increase the amount of cash it holds, the banks hold. What that means is that there is less cash to flow through the economy. It's relatively simple, and that will slow the economy down. That they hope.

They hope. It will slow inflation down, and the central bank can actually continue to do this if need be. If more severe tightening monetary policy is required, they can always go the route of raising interest rates. So they're slowing the economy down. And this does have implications for multinational companies. It has implications for our stock market here in the U.S. as well as abroad. I think as of now, you know, this has kind of been expected. The markets are not reacting a third time.

James? Well, Chris, to me, the bigger news, actually, is that WikiLeaks says China has artificially enhanced its GDP numbers. I mean, if you can't trust the Chinese government, who can you trust? We're not really. They also had the thing about the attack on Google earlier this year. And, you know, one report that it actually was ordered by the government. But, I mean, again, are we shocked by this? I guess not.

Seth, what did you make of the consumer sentiment numbers? Well, I love them because they confirm a pet theory I have, which is that people are tired of being depressed. We've seen some pretty good-looking retail numbers coming out over the past few weeks. People seem to be spending a little more money, maybe more than they have. But what you have in an economy like this, what you really need is for that sentiment to change. And you don't need everybody to suddenly go drunk with credit and just start spending like crazy. But you do need people to start spending their money, and that gets cycled into the economy. To get a little tipsy on credit, not just full-blown drunk?

You just need them to stop pulling back. And so if this is an indication that that is going on, which I think it is, then that's going to be good for the economy. And I also think that there are a lot of people out there saying stocks are just way too expensive across the board because the bounce back isn't going to be that great. And I think those people are not paying adequate attention to just how cost-conscious a lot of these companies have gotten, how many costs they've wrung out of the business. If there's a little bit better growth than people expect, they might get a lot more profitable still. Ron?

Yeah, I love those same lines. A different barometer of economic conditions came out today, too, and it rose to its highest level since January of 2008. Are you going to keep us in suspense any longer? Which is pretty – I actually don't – they didn't give a name for it. It's a mysterious barometer? It was a mysterious economic barometer. Google that. Google mysterious economic barometer.

But I think that clearly bodes well for this holiday season. Wait, seriously. There's something with no name that you don't know what it measures and you're citing it? I didn't write it down. It was in the same Michigan survey. Ron Gross, ladies and gentlemen. Thank you. Keep those emails coming to radio at fool.com.

And I let it go when he was putting ramification and implication together into amplification there. And I let it slide. I didn't say that. You did. You're listening to Motley Fool Money. Chris Hill here with Seth Jason, James Early, and Ron Gross. Guys, out with the old, in with the new. Standards and PORS announced this week.

It is adding four companies to the S&P 500 index. Among the companies being added are Netflix and Cablevision Systems. Among those being dropped, Office Depot, Eastman Kodak, and the New York Times. Seth Jason, what do you think? Well, this is the kind of thing that happens all the time, or I guess whenever the committee meets to bring these new companies in. And I think it, you know, it's, you feel sorry for people who've been holding on to shares of the New York Times. And Eastman Kodak. Oh, and Eastman Kodak. I mean, they have been dead forever.

So, you know, this doesn't mean those companies are necessarily horrible companies, given the prices. I haven't dug into all of them, but I would say that what it does mean is that their glory days are past. Now, on the other hand, companies like Netflix that make it into the S&P 500, they don't always stay there. And for various reasons, I think Netflix is bound to take a major, a major fall within the next couple of years. But before we dig into that, Ron, I mean, when a company is added to the S&P 500 index, that's, I mean, if you're a shareholder of one of those companies, you're psyched, aren't you? You are psyched. All the index funds, the index ETFs, they have to go in and they have to add it. And you do get a nice one-time pop.

And there is – it creates a bit of an ongoing demand that these companies have to continually buy up the shares. But it will not insulate you from a poor business model. If your business goes south, your stock is going down. So if you're selling, like, newsprint with a lot fewer ads every year, you might go in. Or film for 35-millimeter cameras. Seth I took away your chance I want to give it back now did you want to rip into Netflix some more

everybody loves it so much when I talk about Netflix I just read a very interesting article this week it was along the lines of what I've talked about the past couple of weeks my worries on Netflix which is that their costs are artificially low right now and that in the future if they get everybody moved over to streaming

there are going to be maybe some bidding wars on this content it's going to cost them a lot more money to license it And I think that investors just have no idea what that cost structure looks like going forward, what the competitive landscape looks like going forward. And right now, the stock is priced as if nothing can ever go wrong. Coming up, Howard Stern continues his reign as the king of all satellite media. Details in a moment.

This is 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 Ron Gross. And, guys, during the commercial break, I think we solved the case of Ron's missing barometer in the Consumer Sentiment Index. Ooh, the mystery thing. What did we come up with, Chris? Well, we were looking at the story online, and it turns out there is no mystery barometer.

But in your defense, the word barometer does appear in the story. Thank you. It is part of the Reuters Michigan survey, and I was referring to a piece of it. So thank you for clearing that up. And I would like to thank my fellow analysts for throwing me under the bus at every turn. I appreciate that. Anytime. Always a good time.

What's the serial number on the axle? On Thursday, Howard Stern signed a new five-year deal with SiriusXM. Wall Street must have approved because shares were up nearly 6% on heavy trading. Ron Gross, you're a fan of Howard Stern's show. Are you a fan of SiriusXM's stock? I am a big fan of the show. I'm a Sirius subscriber. I'm not necessarily a fan of the stock because the future of that medium is really up for grabs.

Whether it's satellite or internet-based or a hybrid of both is really difficult to understand. It's good for Sirius, certainly, to lock Howard up for the next five years. Good for the audience numbers. What about the cost, man? He hasn't disclosed it, but I'm sure it's hefty. But with 20 million subscribers now, up from 600,000 years back, they probably can foot the bill. I think what's most important here, however this industry evolves, it's that content is king, and whoever has the content and owns the content will be the winners,

and that's what Sirius is trying to do. I think we need to get perms here, because this guy got $500 million for his previous contract, plus $225 million in stock, which is now down to $47 million, so ha-ha. Don't do that. Ron, you think he got the same deal again? I think he probably got a very similar deal. Really?

Whether it didn't include stock or whether it was a combination of cash and stock, I would be really shocked if it was for significantly less. I think satellite radio is just like, in 15 years, we laugh that we ever thought it was going to be anywhere. And we all look at that button on our cars and go, why did they bother to install that? Ron, how much extra per year would we have to pay you to have the Howard Stern haircut? For $20,000 extra. Go back and look at my high school pictures. It's already been done. The deal is a five-year deal for Howard Stern. Is SiriusXM going to be here in five years?

Oh, yeah. Oh, yeah. Sirius, and they will continue to evolve as well. It might not just be a satellite-based company. It probably will be. I think they just put up a satellite recently. They'll probably put up another satellite, I think, next year. And the business will continue to evolve. CEO Mel Karmazin is a sharp guy, and he knows what he's doing. He knows how the industry is going to evolve. Let me just play devil's advocate for one second. Let's say for the sake of argument that he did get $100 million a year. I mean, as you said, the terms of the deal weren't disclosed. But let's just say for the sake of argument, it's $100 million. If you're serious, XM, why not take the

other side and just say, you know what? You can walk, and we're going to take $100 million, and we're going to deploy it in other ways. Seriously, you could bring a lot of hookers into the studio to do this crazy contest for $100 million. He already does that. Bring us. I know, but for a lot cheaper. Yeah, exactly. James will do that for a lot less money. I think a significant number of serious subscribers are there for Howard. I know if he hadn't signed up, I probably personally would have canceled. The music is not so amazing that it'd be worth the fee. You know, they have some other great content like NFL, but Howard is the big draw for most subscribers. On Thursday, Johnson & Johnson issued a nationwide recall of more than 13 million packages of the soft,

chewable version of Rolaids. James Early, I'm a Johnson & Johnson shareholder, and I think I've seen this movie before. What is happening at J&J? Apparently, you don't spell relief with Rolaids unless you want metal shavings and wood in there. Soak minerals and fiber. Exactly. At some point, it might be time to recall the CEO, too. I'm thinking that before this one, some of the recalls they had were minor labeling issues, which got me excited because I thought, well, maybe they're just cleaning house. They're saying, okay, well, we're doing recalls that aren't even really necessary just to show you that we turn over a new leaf. But if we're back to contaminants and quality issues, this is not a good sign. Financially, it's hard to make a case

that these are really going to dent Johnson & Johnson's fortunes. And the brand can recover unless we keep seeing recalls like this. Costco reported first quarter earnings, net profits up 17%. Ron Gross, that was in line with expectations. What was your take? Costco is really firing in all cylinders. They continue to open up stores at a nice rate. And most importantly, their same-store sales, which is a measure of how their existing stores are doing, keep increasing their sales. They were up about 5% over the same period last year, and that's excluding gasoline and foreign effects changes. So they're doing really well.

Margins are up. Most importantly, perhaps, their renewal rate for their subscribers is pretty much an all-time high at 88%. And if listeners will recall, Costco, 75% of Costco's operating profit comes from those annual subscriptions. The member dues, right? Not from necessarily selling, you know, 500 rolls of toilet paper at a shot. All right, guys. Corporate smackdown time. Starbucks versus Kraft.

On Monday, Kraft asked a federal judge to stop Starbucks from breaking a 12-year partnership that enables Kraft to distribute Starbucks coffee to grocery stores and other retailers. James Early, who's going to win this fight? Oh, it's tough. You know, ultimately, Starbucks wins because they have the better products. But, you know, this is what happens when you ask a competitor to stock shelves for you. I mean, Kraft owns Maxwell House, and they go and they put Maxwell House on the store shelves. And so Starbucks is mad that they were apparently not replenishing the Starbucks coffee frequently enough,

and they were giving poor shelf space to Starbucks coffee. And that's huge in a grocery store. It's the eye-level shelf. Those are the most expensive rows. So their argument is that on their behalf, Kraft wasn't browbeating the stores into giving the Starbucks stuff the space it deserved? Sort of. Now, Kraft has grievances that it's countering with.

And Starbucks bypassed Kraft with the Via instant coffee too. A little bit of a slap. Ultimately, to put this story in perspective, I mean, Starbucks is making about $500 million a year in grocery store coffee sales, which is about one-twentieth of their total revenue. It's not huge. But the settlement, Starbucks offered Kraft $750 million, I think, which Kraft declined. It might be double or triple that ultimately, and that's probably more or equal to Starbucks' current cash. Exit question.

One of the best-known Kraft products is Miracle Whip, the Kraft alternative to mayonnaise. I hate that. When was Miracle Whip invented? Ron Gross, take a shot. 1957 James? 1926 the year 666 that stuff is disgusting

it is like mayonnaise that has been left out in the sun Steve Roto? 1798 just going on a flyer here according to Wikipedia 1933 it premiered at the Century of Progress World's Fair in Chicago. Actually got us out of the Great Depression

if I recall. It was an instant success as a condiment on fruits, vegetables and salads. Yeah, back when people tied an onion to their belt. Well, it was the style at the time. A month after restating earnings, Green Mountain Coffee Roasters delivered solid fourth quarter earnings

but lowered guidance for the future and the stock got whacked after hours on Thursday. Seth, Green Mountain got punished. Did they deserve it? Well, Green Mountain has been trading at this huge multiple for a while. They make the little cake cup cutie thing you put in the little coffee machine and it squirts out a

I use it every day, Mr. Making fun of everything. That's fine, except that that's not going to take over the world, and the stock is priced as if it is. Green Mountain has looked weak to me for a while. They've been going on this acquisition spree. The latest one that I remember that was fairly big was this Canadian, pretty much the Canadian Folgers, Van Hout. They paid twice the annual revenues for this company.

So these earnings, I'm not sure how solid you want to call them. Herb Greenberg, he doesn't like Green Mountain. He doesn't like anything, but he hasn't liked Green Mountain for a while. And he points out that the beat is because of a lower tax rate, which is something you can engineer. And there are a lot of other things to be worried about. For instance, no more forward guidance on how many of those little K-cups are being sold. So I would be pretty worried.

The SEC, I don't believe, is done trying to figure out what Green Mountain's accounting issues were. I don't think they're that big. I just think Green Mountain is not a grow-to-the-moon kind of stock, and it is priced like one. Steve Broido, you're a Green Mountain shareholder, aren't you? I am indeed. How are you feeling? You know, it's been a very interesting ride. I essentially bought the stock a couple months ago, went up, I don't know, 15%, 20%.

Promptly fell 15% or 20%. Went up again, and now I'm pretty much where I started. So it's been enjoyable. It's certainly exciting. Are you a regular consumer like Ron is? I'm not. I hate coffee. So the Peter Lynch school of buy what you know.

It sounded like a good idea. They got an awful lot of coffee. Coming up, hot holiday toys, dubious toys, boys playing with dolls, girls playing with trucks, and the future of the Happy Meal. We'll take stock in the toy business with Chris Byrne, the toy guy. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. With the holidays upon us, it's time to talk about toys and the companies behind them with the toy guy. Chris Byrne is an expert on the toy industry and the director of content for Time to Play magazine. He joins us from his office

in New York City. Chris, welcome. Well, thank you very much. So what are a few of the must-have toys this holiday season? Well, you know, a lot of them, things like Singama Jigs, which are these small dolls that sing Monster High, which is a new launch from Mattel. It's their first fashion doll brand launch in a long time and it's uh it's it's you know off the charts it's basically the children of the of the classic monsters dracula wolfman their kids are going to high school and they have high school problems and it's just very very funny uh scrabble flash from hasbro with five uh tiles with radio radio frequency id rfid that they communicate with one another uh justin bieber dolls so you know he's oh no oh yeah oh yeah the justin bieber singing doll really really

big. Things like paper jams, which is conductive ink technology, printed circuitry on what looks like a guitar. You play it. It's $24.99, and it's blown out of stores. Wow. Now, I have to say, I have a couple of daughters, so I know about the Monster High dolls. I think that's on one of their lists. How does a toy get to that status? How does a toy become a must-have toy? Well, it's a real combination of it. It starts with having a good toy. The regrind in factories is littered with all the toys that never made it. It needs to be well marketed. And Monster High is a great sort of example because they went out and they marketed this initially really just by the internet. They talked really, they went to the sites that girls were going to. They went directly to their target audience.

That's something that they can do now for a fraction of the cost of what it used to be for TV advertising. They probably spent about half a million dollars initially online to get it going. They would have had to spend $5 million on TV advertising to achieve the same thing. So it's really economical, very focused, and then the word of mouth starts. They start the sharing, and then it becomes viral. You're listening to Motley Fool Money. we're talking with the toy guy, Chris Byrne. Chris, last year, Time Magazine compiled a list of the 10 most dubious toys for children. This included a homeless American girl doll,

an airport security playset, and my personal favorite, the Harry Potter vibrating broom. What is... I know, I know, it's almost hard to believe, but it's true. What is the most dubious new toy you've seen this year? You know, it's really funny because I tend not to pay attention to those. We tend to focus on what kids like because, you know, there probably was some kid who loved that Quidditch broom. And, you know, you have to be very careful when you apply an adult sensibility to something that's child-directed. It's possible that there were women over 40 who really loved it. Yeah, yeah, well, you know, that's where you go with that.

But I think that there's been a lot of eye-raising at the Barbie video girl because the FBI published that thing last week that it could be used for child pornography. Now, this is a Barbie with a video camera in it. But you know what? It's a toy. And it's sold out. It is a great toy. So at one level, you've got adults who create this sort of sense of this is a dubious toy. And at the other end, where it counts, is you've got kids who are embracing it and playing with it. And, you know, like with the video girl, they are taking a play pattern that they love, which is Barbie,

adding the video component, making and sharing videos, and it's completely imaginative play. It takes an older and a little bit more jaded mind to make it dubious. I've got two daughters and a son, and my wife and I have made a conscious effort to offer them all manner of toys across the spectrum. And yet, our daughters tend to gravitate much more to dolls, our son much more to Legos and superheroes. The Toy Industry Association has their annual Toy of the Year Awards. There are 11 categories, things like toys for toddlers, outdoor toys.

But I was struck by the fact that one of the categories is best toys for girls and another is best toys for boys. Are those lines, are those gender lines still as sharp as they were 50 years ago? Or are we seeing more toys that have crossover appeal? You know, I think they're as finely defined as from the time that man first crawled out of the primordial ooze. You know, gender differentiation is a natural biological phenomenon that happens not just in the human species, but in every species. Where it shows up in toys is that at about age four, you know, kids naturally gender differentiate. Boys will go off in one direction.

Girls will go off in another direction. We've seen, you know, boys pick up dolls and smack them together, and girls make a family of trucks. So it really is, it's part of our wiring. And, you know, it's relatively, you know, new in the evolutionary scale for that to evolve away. And so that's just going to happen naturally. You know, boys are going to like power and conflict. Girls are going to like nurturing and cooperative play. And that's just the way it is.

You're listening to Motley Fool Money. We're talking with toy expert Chris Byrne. Toys are certainly fun, but they are also very big business. This is a $21 billion industry. So I want to talk about some of the toy retailers in a minute. But first, I want to get your thoughts on some of the toy makers. Let's start with Mattel. Mattel produces Barbie, Hot Wheels, Fisher-Price.

Shares are up around 30% over the last year. When you look at a company like Mattel, what do you think they're doing right, and what could they be doing better? Well, I think they're doing a lot right. I mean, I think that going off into Monster High has been very strong for them. I think that without giving anything away, the way they've been going with Hot Wheels and looking going into 2011, I'm very encouraged by what they've been doing. They've been doing a great job in their games division.

They've been holding their own in American Girl in an increasingly competitive market for those large story-based dolls. Barbie has been cyclical throughout her 51 years, and she was in a down cycle for a couple of years, but there's a management team there that I think is amazing, and they are really focusing on Barbie, and she's got different careers and different stuff and different ways of being expressed, entertainment.

I think they've done just a great job with bringing her back and making her relevant again. Hasbro has got some of the basics like Play-Doh, Transformers, also classic toys like the Easy-Bake Oven. Shares of Hasbro up 60% over the last year. What do you think about their management team and the opportunities that they have? Well, I think Hasbro is taking a very different tack. They are looking to be more of an entertainment company.

They're leveraging a lot of their IP into movies, certainly based on the success of Transformers, huge success of Transformers, the success of G.I. Joe. They've got Stretch Armstrong coming. At the same time, they haven't walked away from their core brands. They've still got Scrabble. They've still got Play-Doh. The team running PlaySchool is doing just a great job with bringing back things like Weebles. And I think that they are looking more to be an entertainment company, certainly with things like The Hub, which is definitely, you know, a risk. But I think it's one that seems to be doing okay so far. They are looking to grow that way, but they haven't walked away from innovation. The Scrabble Flash I

mentioned earlier, really innovative product within a brand context. So I think they're really smart. I think Brian Goldner, who is a CEO, is a visionary. He's somebody I'm a big fan of. And just one more, and that's LeapFrog. This is an educational learning game producer, shares up more than 60% for the year. What do you think of LeapFrog? Well, I think from a product standpoint, I think they're doing amazing stuff. Their new Leapster Explorer

takes that handheld gaming system for younger kids, and it's got greater curriculum, it's got greater touchscreen, it's got all kinds of other things going on with it. They've done a really good job in their early ages, birth to 18 months. I think they're really focused on product.

I think there's a lot of speculation that they are going to be sold. So I think that's been part of what's contributed to their stock price going up. But at the same time, they wouldn't be sold if they weren't focusing on great product, and they've certainly done that this year. You're listening to Motley Fool Money.

We're talking with the toy guy, Chris Byrne. Chris, the largest distributor of toys in the United States is McDonald's. Right. How has McDonald's changed the toy business? Well, it's really interesting, because McDonald's focuses on licensed toys and promotions, And, you know, there's a lot of talk about the Happy Meal toys, but those toys were invented, were introduced, you know, 20 some odd years ago, almost 30 years ago, you know, to get people to choose which fast food restaurant they wanted, not to get kids to eat badly.

But they are doing things where they are an important and almost integral part in the promotion of a license or a property. They've done great stuff with Disney. They've done great stuff with Mattel and Hasbro. Their Monopoly program is consistently a success for the classic brand. Barbie Hot Wheels have done very well in those. And it's a way to get kids into franchises and playing with them. The challenge is if you've got a movie that's not so strong necessarily, kids will get the toys they want with their Happy Meal and may not buy the major toys.

But that's always a risk. Walmart is the largest retailer of toys in the country. How do you think Walmart has changed the toy industry? Well, you know, it's sort of as Walmart wants, so goes the toy industry. And I say that with great respect because the volume of toys they sell is essential to the ability to produce toys at prices that people can purchase wherever they're sold. I think they've taken a real leadership in exclusives. They had a How to Train Your Dragon exclusive that brought together a lot of manufacturers this summer. The toys didn't do perhaps as well as everybody wanted, but that's a model that you're going to see more of.

They've been taking a lead at getting rid of things like the twist ties and packaging and merchandising. So they really are a leader, and I think they've got a very forward-thinking team there that's looking at how can we do this better, how can we make us continue to be a destination for toys. And there are going to be toys that they're not going to carry. They may carry 1,200, 1,400 toys. So they're going to carry the hot promotional toys, and that's where people are going to go for those. So with that in mind, is there still room for dedicated toy retailers like Toys R Us? Oh, absolutely. You look at Toys R Us, and I said maybe 1,400, and I don't know the exact number of units, different toys at Walmart.

You'll see more than 7,000 at Toys R Us for the depth and breadth of a line for things like exclusives. They're doing exclusives, too, with Jack's Pacific, with the Disney Princess line that's blowing out. And it's really interesting, the whole exclusive thing, because it means that they are preserving the price structure. So they've got this Princess and Me at $49. Well, Walmart or Target or somebody else isn't going to undercut them because they have it exclusively. Now, Walmart and Target are also looking for their own exclusives. And I think that's one of the big changes in retailing is people are looking to see, well, how can I have something exclusively for a year, six months, or whatever in order to preserve the pricing?

because it is a good value, you know, even at $49. That doll is a great value. All right, before we wrap up with buy, sell, or hold, as a parent, and we have a lot of parents listening, give me one tip if I'm looking to get a good deal on a hot toy. Buy it when you see it because, you know, it's not worth saving $10 or even 10% to make yourself crazy on December 22nd

if you're buying for Christmas. Buy it when you see it. Things are going to sell out. the top 100 toys that we've had at timetoplaymag.com, they will be gone by the 15th of December. Alright, I will get on it right after this interview. Alright, let's wrap up

with Buy, Sell, or Hold. They're all the rage right now. Kids wear them and trade them. Buy, Sell, or Hold silly bands? I would hold. The trend has definitely peaked, but they are definitely a fashion statement. I don't think kids are

acquiring that many more of them, but They're still available. They're still being seen on wrists everywhere. They got a bad rap because of some safety concerns. Buy, sell, or hold the chance that old-school lawn darts will one day return. Oh, buy, definitely. These are great. You know, old-school lawn darts are not going to come back,

but they have been redesigned by a company called Fundex, and it's still a classic outdoor game. Do they still have the metallic tip? They do not. You have to buy those on eBay or wherever, those jarts. they do not. All right. The San Francisco Board of Supervisors recently approved a proposal that would do this unless McDonald's followed certain nutritional guidelines, buy, sell, or hold banning toys in Happy Meals. Well, I guess sell, because it's ridiculous to think that, you know, it's not

the toy that makes a child eat incorrectly. It's the modeling of the parent and what they buy. And as I said earlier, those toys existed to get people to choose between fast food restaurants. Not say, do you want a Happy Meal or do you want a dish of Brussels sprouts? It's got a lot of competition in the form of handheld video games and other high-tech games. Buy, sell, or hold Yahtzee. Oh, buy. It's a classic game. We're seeing a lot of classic games do very well. And not only just in the classic Yahtzee, it's an iPhone app, it's an iPad app.

There's a handheld Yahtzee game. This is a classic game, great for the family at the holiday time. And finally, I can't believe that I'm the only parent ever to have done this. Buy, sell, or hold, stacking the deck in Candyland so your kid wins and the game ends sooner. Buy. You are absolutely not alone. You know, one person said to me at one time, oh my God, it's possible to win at Chutes and Ladders with great agony in her voice.

You know, these are definitely, these are the tricks that parents learn. Chris Byrne is an expert on the toy industry. He's the director of content for Time to Play magazine, and he is the toy guy. Chris, thanks so much for being here. My pleasure. And Christmas Day is here. The most wonderful, wonderful, wonderful, wonderful, wonderful day of the year. Coming up next, we'll give you an inside look at the stocks on our radar.

This is Motley Fool Money. Every time it rains, it rains. 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, and back in the studio with me, our trio of senior analysts, Seth Jason, James Early, and Ron Gross. Guys, it's that time once again, time for Stocks on Our Radar, and we will bring our man Steve Broido in from the other side of the glass just to grill you, just because. Ron Gross, redeem yourself.

Well, I'll do my best, Chris. I've just started digging into a company that looks really interesting, Automatic Data Processing, ADP is the symbol. For you that are not familiar with it, it's the large payroll processing company. It has 550,000 clients, covers 31 million workers with its payroll processing services. They've got a really nice mode. They have some pricing power. I think there's also a play here on rising interest rates down the road because the company does earn some money on the amount of capital it holds before it pays it out.

Float? Did I say float? Did I use a word such as barometer? I mean float. What are the amplifications of this? The company holds the cash before it pays it out to workers, and they actually earn a little bit of interest on that. So a rising interest rate environment could make that pretty interesting.

3% dividend yield, really strong balance sheet. It looks interesting. All right, Steve, question for Ron. How does outsourcing play into this company? Outsourcing? You still need to pay outsourcers. So outsourcing companies in general. Are these folks outsourcing to places like India, for example?

They just handle the processing of payroll. So, no, they're a domestic U.S.-based company. They compete with a company called Paychex. They do higher-end clients, Paychex is a smaller company, and they're cutting the checks for these workers around the country. James Early, your stock? Well, ADP is actually an income investor wreck, as is Atlanta-based gas utility AGL, formerly Atlanta Gas Light. And mine's more of a lesson here because AGL is a solid southern gas utility,

and south is a great place to be if you're a utility. It's buying Illinois-based NICOR to create a huge gas company. NICOR is in a very unfriendly regulatory environment. I don't like this deal for AGL. The market seems to think it'll go through, but state regulators have been very, very difficult about certain deals now. So there's a chance it could blow up. And if you want to play this using what's called merger arbitrage or risk arbitrage, like we used to do at my old hedge fund, you could actually buy, go long AGL, and go short NICOR.

And if this deal blows up, you can make a lot of money. If not, not. So be careful. It's an advanced move. But there are people doing this. And if you wanted to string a piece of rope between two towers and walk across it, I'm sorry, Steve Broido? My only question is, is it a good idea to use the analogy of blowing up in terms of a gas company? Nice.

Seth, Jason, your stock this week? I'm going to give you one of those stocks that I've probably made fun of here on the show. You've all heard about this cloud computing thing, which people try to tell you is this whole entirely new, different way of doing things. and, man, everything's in the cloud. I think that's a lot of bogus, and a lot of it is trying to get your investing dollar. In two years, nobody's going to know what a cloud is. Yeah, no, we will.

It'll all be there, but cloud computing is what we just used to call network computing. Anyway, the company I'm looking at this week is Salesforce.com, right? And the ticker is CRM, and it's insanely expensive. I don't know how to value it. The one thing, the recent piece of news that makes it interesting to me

is that they started or are going to start a service at a site, database.com, which will let people create database applications right there on the web and host them right there on the web. Sounds very boring, but just about everything in the world that runs needs to run on a database. And if this takes off and they can gather market share, then it can take down people like Oracle and others, and that could be a huge driver going forward.

So if you're looking for some more spice on the spice, you might want to look at Salesforce again. Steve, we've got 30 seconds. What does Salesforce do in one sentence? Well, they manage customer relationships for businesses. Does that work for you, Steve? It works. I like it. All right. Seth Jason, James Early, Ron Gross. Guys, thanks for being here.

Thanks, Chris. You're welcome. Thanks to our special guest this week, toy expert Chris Byrne. For the latest analysis and investing commentary each day throughout the week, go to fool.com. One of our feature stories right now, our top five tech stocks crushed the market. We review the five tech stocks that our writers picked to outperform in 2010, and each one is outperforming the market significantly, except for one, a little company you may have heard of called Google.

Our engineers are Steve Broido and Gail Agnew-Nuevo. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.