Motley Fool Hidden Gems Investing - Raising the Roof

Episode Date: April 21, 2017

IBM continues its losing streak. Visa hits a new high. Mattel hits a 52-week low. And housing-related stocks raise the roof. Plus, CNBC's Kayla Tausche talks Wall Street, Trump, and tax reform. Thanks to Warby Parker for supporting The Motley Fool. Order your FREE Home Try-On's at http://www.warbyparker.com/fool .     Learn more about your ad choices. Visit megaphone.fm/adchoices

Thanks to Warby Parker for supporting this episode of Motley Fool Money. Get boutique quality, stylish eyewear and eyeglasses at revolutionary prices. Try them yourself by going to warbyparker.com slash fool to order your free home try-on kit with free shipping all around. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money radio show. I'm Chris Hill, and joining me in studio this week from Million Dollar Portfolio,

Jason Moser and Matt Argersinger, and from Supernova, David Kretzmann. Good to see you, as always, gentlemen. Hey, Chris. We've got the latest headlines from Wall Street. CNBC's Kayla Tausche is our guest this week. And as always, we'll give you an inside look at the stocks on our radar. But we begin with all things related to housing. homebuilder D.R. Horton putting up nice profits in the first quarter this week. Stanley Blackendecker's

first quarter profits more than doubled. And Sherwin-Williams' second quarter results pushed the stock to a new all-time high. Matty, we've got all these things in and around the housing market. I don't know, I look at these results and I just think, I don't really have any exposure to housing in my portfolio, and maybe it's time I start looking there. You might want to. I mean, you didn't even mention that sales of existing homes in March hit the highest level in a decade. So, lots of macro numbers out there, but I wanted to actually focus on some businesses and kind of, I think this can partly explain what's going on in the housing market. So, Amazon, which we all know, almost $80 billion in North

American online sales. Facebook, 1.2 billion daily users. Netflix, probably going to crack 100 million subscribers this weekend, many of whom, for some strange reason, are going to watch a lot of Adam Sandler, which I didn't know about. We'll get to that. Yeah. And then, Activision Blizzard, which we all know is the biggest video game publisher. Players spent $40 billion playing Activision games last year, $3 billion watching other people play Activision video games. And here's one more data point. Somewhere, according to the U.S. Census, 20-25% of employees around the country telework at least part of the time. So, where am I going with this?

People are shopping online, entertaining themselves at home, spending hours and hours interacting on Facebook, Snapchat, Tinder, and increasingly working from home. So, I feel like, where is all the investing going? What are they not doing? Well, they're not getting in their car driving to a restaurant or to the mall to go shopping. And so, I feel like that, in a way, is something that's been happening for a very, very long time. I just think now Now we're finally seeing the implications in the markets and in business, and it's an astounding trend. O' Yeah, last year was the first year where millennials, people between the ages

of 18 and 34, became the largest demographic in the U.S., topping baby boomers. At some point, those millennials will move out of their parents' basement, they'll want to buy their own. Well, you did! O' I finally did! I made that leap a couple of years ago. But I think that's a long-term tailwind behind the housing market, because at some point, those millennials will look to move into their own house or potentially build their own house.

And on that note, U.S. housing starts, or the construction of new homes, is still a good amount below the historical averages. So, there are still rooms for that tailwind to continue. Well, I was just saying, what are those millennials going to do? I think, more than any other generation, I think they're going to spend a lot more time at home than any other generation. And so, that's where they're investing their time and all that's going to be spent. Yeah, I mean, housing is in great shape. I personally would like to go ahead and take

credit for the lion's share of that activity here this first quarter of this year. So, you're welcome, America. Chris, I think you probably have more exposure to housing, though, than you give yourself credit for. As a homeowner, you have a lot of equity in your home, I think, right? So, there's your exposure. And that really is one of the benefits to being a homeowner, is getting that equity, giving you the opportunity to do more with that as time goes on. because that equity ultimately results in new ways to finance things that may come up in your life. You've got a child, I think, who's getting ready to go to college here. Yes, indeed.

Going to be a lot of big bills coming your way, Chris. So, you may want to look at refinancing and who's going to play a big part in that refinancing. One of our favorite businesses is L.A. May, which is another way to play into that housing market. And we've talked a lot about Sherwin-Williams, another phenomenal quarter. I mean, this is a business where the paint stores group is responsible for most of the company's revenue, about 70% of the revenue. And this domestically, it's about a $12 billion industry. And Sherwin-Williams owns more than half of that market share altogether.

So, I think you posed a very good question before taping it. What exactly is going to disrupt paint in the coming years? I mean, it's a bit tongue-in-cheek, but really, I don't know what does. 25 years from now, aren't we going to be painting our houses and apartments the way that we're doing it right now? I just don't see that changing in any big way. Unless we have pixelized wallpaper. And Sherwin-Williams is just in a great position there with that. Because of the presence, because of the portfolio of offerings, it's more than just Sherwin-Williams. They're

able to pass through production costs pretty reasonably without too much interruption of business because they've priced their product there. It's not that higher-end offering like a Benjamin Moore. And they're getting ready to close this Valspar deal, which is only going to make this company bigger. So, I think when you look at a business like Sherwin-Williams, we had it on the watch list in MDP for a while. The biggest problem was, we could never get it to where the price actually made sense. And I understand why. The market gives this thing a lot of credit because it deserves it. Yeah, I just think, standing back, we've seen with retail sales this past holiday season, we continue to see it, I think that's

a big, big trend. And we know for a fact, based on statistics, that we're sort of over-retailed in the U.S. anyway. And so, maybe naturally, it needs to come down anyway. But I think that's a big, big trend to watch out for. Second quarter profits for Visa rose 27%. That was higher than Wall Street was expecting. So was Visa's revenue. Probably no surprise, Jason, that we've got Visa's stock hitting a new high on Friday. Sure. We often get the question, which stock should I own, Visa or MasterCard? And Chris, my answer is, yes. I think you should just own both, because honestly, there is no reason

not to. I mean, these are two businesses that are playing into one of the biggest secular trends out there today, as more and more economies go cashless. I mean, this is something where the overwhelming majority of the world is still not cashless. And so, this is a trend I think is going to play out for a while to come. Visa doing a great job with it. Payments volume up 37% from a year ago. $1.7 trillion of volume in that quarter. I mean, that's just amazing. Transactions were up 12% inclusive of Visa Europe. They just brought in Visa Europe into the business here, so now there's one company focusing on taking over the world, so to speak. And taking over the world is probably a pretty reasonable way to look at

it, because there's more than 3 billion Visa-branded cards out there in the world today. More than 44 million merchant locations. These guys are doing everything right. Again, I really do mean it when I say, there's no reason why you shouldn't own Visa and MasterCard, because they really are two very good businesses that have done really well for shareholders over the past decade and beyond. Yeah, it's tough for me to see how Visa and MasterCard get disrupted anytime soon. The reason I really like these businesses, I think part of the reason they have such incredible margins, really unheard of margins compared to a lot of other companies and industries, is that they will succeed regardless

of what platform you're using, whether it's Alipay from Alibaba, WeChat, PayPal. You're still using the credit cards, and they're still processing those transactions. So they're just in such a powerful position, such an incredible network. I love the position that they're in over the long term. For the first time ever, Verizon reported a quarterly loss. David, I'm sure there are other things of note in their first quarter report, but a loss? Well, yeah, it was their first ever quarterly decline of wireless subscribers. So they're finally, I think, feeling some pressure from T-Mobile and Sprint. But I think T-Mobile deserves a lot of the credit here. T-Mobile has really been aggressively going after Verizon and AT&T. Since 2013, the number of wireless

subscribers with T-Mobile have grown from 44 million to over 71 million today. Verizon has 145 million. So they're still in that lead position. But I think they might be getting a little bit complacent here. And I think there is room for T-Mobile to disrupt Verizon and continue to gain some share. There was a recent spectrum auction with the FCC, essentially where companies like Verizon, AT&T, and T-Mobile can bid on that spectrum from the FCC to grow their networks and grow the amount of data they can process and the speeds and so forth. T-Mobile spent nearly $8 billion for 45% of the available spectrum in that auction. AT&T bid $900 million. Verizon didn't bid anything. They didn't bid for any of the available spectrum. So to me, that signifies it. Maybe

Verizon's a little bit complacent here. That leaves a lot of room for T-Mobile to boost the speed and capacity of their network. So I like the position that T-Mobile's in. And over the past year, T-Mobile shares are up 61%, Verizon down 4%. Is there a CEO in the public markets more entertaining on Twitter than T-Mobile CEO John Ledger. The way he just aggressively trolls, in particular, Verizon. Somehow he worked hashtag Verizon into one of his tweets going after Verizon CFO. He said, stop gouging your customers and start doing more for them. Seriously, how Verizon are you? He actually sent that out on 420, dude, right? April 20th? April 20th. Oh, man. The man's brilliance just compounds.

A lot of numbers went into IBM's first quarter report, so let's go with this one. It was the 20th quarter in a row of declining revenue. Shares of Big Blue down about 5% this week, Matty. You know that old saying, no one ever got fired for choosing IBM? Well, that used to apply in the investor world, too. I feel like if you're a money manager and you invested your clients' assets in IBM, and if you had a bad quarter, how could they blame you? You bought IBM. I don't think that really holds anymore, though, with Big Blue. I mean, you mentioned the 20th consecutive quarter. If you go back to 2012, that was the last year

when IBM generated over $100 billion in revenue. That also marked the peak for IBM's earnings. They generated $16.6 billion in profits that year. Over the last 12 months, $79 billion in revenue and just $11.6 billion in profits. And of course, people are going to say, well, they're paying a great dividend and earnings per share haven't come down that much. A lot of that is financial engineering. It's only going to get you so far. And I'd say the problem with IBM is, I don't think they really know who they are. They think they're a cloud company, a consulting company, a big data company. I just think they're trying to do all those things, but not one thing particularly well. We don't know what they are either.

We've been talking about that a lot lately. It's like, what is IBM anymore? What is it? I'm not sure. I think most people think it's Watson, although Watson's not something you can actually buy for your home or for your business. I'm not sure. I think that's totally understandable that people think it's Watson, because from a promotional standpoint, that is how IBM is pushing itself. If you just look at their television ads, it's all about Watson. And when you think about the way management talks about their latest report, I don't blame them for saying, just ignore the declining revenue

and focus on our growth in cloud. It's like, that's fine, but the growth in cloud is not making up for the declining revenue. No, no. And overall, they're declining. So restructuring your business or shifting from one segment to another is not going to of the job done, and certainly hasn't over the last five years. Coming up, if you have a few hundred dollars you want to light on fire, we have got just the product for you. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Matt Argersinger, and David Kretzmann. Shares of Mattel hitting their lowest point in over a year after a

first quarter loss that was much worse than expected. And Jason, they had a bad holiday quarter and they did so much discounting after the holidays. That's what showed up in this report. That's right. And it's really hard to get worked up for this business these days. I mean, Mattel is just very much a company in crisis. I think new leadership in Margot Georgiades was sorely needed, but I'm afraid that she's not the answer alone. I think that Mattel, they're facing a bigger crisis in some of the brands that they have in their portfolio, some of the brands that have really been responsible for so much of the strength of the company in past years. American Girl, Dolls, Monster High, those are franchises that

now are turning on them and really becoming sort of a drag on the company's performance. And really, we talked about this before with Mattel and with Hasbro, and really the key for these businesses, figuring out a way to hitch to the bigger players out there that have the IP, like Disney, for example. That's the easiest example. And we talked about Hasbro's striking gold with that new Princesses deal, and I think that's going to pay off for years and years to come. Conversely, when we look at Mattel's conference call, they're talking about this big release for Cars 3 next quarter. And I'm sorry, Cars 3 is a pretty successful franchise it, but it doesn't hold a candle to Princesses and Star Wars. And so, I mean,

what Mattel is realizing now is under-investing in the business and chasing some of those opportunities, I think, is going to really hamper them for some time to come. And to your point about inventory, I mean, gross margin fell almost 7 full percentage points this quarter because of that glut of inventory they had to unload after the holiday season at rock-bottom prices. I mean, that's just retail 101 right there. When you see retailers doing that, those are signs, those are red flags, and Mattel's full of them. Although, Georgiana, she's been CEO for about an hour and a half. Right, yeah.

You've got to give her a little bit of time. You've got to give her. I think we've talked about that before on MarketFoolery, maybe, and you've really got to give her a year to kind of try to get this plan sort of established and to see if the company can actually gain some traction with it. But, man, I tell you, she's got her work cut out for her. Shares of Netflix down a bit this week after subscriber growth in the first quarter was a little bit lower than expected. That being said, David, this wasn't a bad quarter. No, not a bad quarter. And the stock wasn't nearly as volatile after this release as we've seen

in previous years, where it pops up or down 20%, and that's a mild reaction from the market. So, no, this quarter really brought a lot of what Wall Street and the market was expecting. To me, though, Wall Street and the headlines are focusing on the profitability of Netflix. And that's true to an extent, but you can't ignore the huge upfront cash costs that Netflix is incurring spending this money on original content. Their free cash flow burn or their cash burn is now about $1.7 billion over the past year, and that's increasing. They already have a net debt position of $2 billion, and there's rumors that they're going to bring on another $2 billion in debt in the next couple weeks. So, that signifies a fairly risky investment. That's a huge bet on that original content paying off. And so far, that has been a wise investment. But when you have a company that's

burning so much cash and raising a lot of debt, that increases the risk with that investment a good amount. Yeah, I think it's amazing. I think Ree Hastings, a few years ago, after one of their good quarters, said, the cash that we're going to be generating in two years or three years is going to be amazing. That got investors all excited. And now he's come out and said, well, no, we're pretty much going to be negative free cash flow for at least the next few years. O'Reilly. Many years. I get the strategy. I think expanding as much as they had and gaining scale and, of course,

expanding to many, many more countries over the last years, it's the right strategy. At some point, and I think David's right, it's going to catch up with the content costs. O'Reilly. Although, to the point you made earlier in the show, Matty, they did call out the fact that Netflix subscribers have watched half a billion hours of Adam Sandler movies. And we can laugh about that, as we should. But I think they call that out as a signal to people to say, you know what? We know what our people want. Yeah, we're giving a lot of big checks out to Adam Sandler and Jerry Seinfeld and others, but people are actually watching this stuff. And so it's worth paying them for it. If he can have that success with Adam Sandler,

then the $6 billion they're spending on content this year should be able to go pretty far. One of the more impressively funded startup gadget companies in Silicon Valley is Juicero, a $400 juice machine that presses single servings of healthy juice. The Juicero has been compared to a Keurig coffee machine, and the business model appears to be the same. You buy the machine, and then you buy bags of healthy juice so that the machine can press them. There appears to be just one problem, however. some of the company's investors, which include, by the way, Kleiner Perkins and Alphabet, they were surprised to learn that you can also squeeze the Juicero bags with your bare hands.

Which, of course, begs the question, Matty, what do I need a $400 machine for if I can just take this bag and squeeze my juice myself? We read and see these types of companies all the time. I mean, if you go to the Consumer Electronics Show, I guarantee you can see dozens of juice pressers out there. What fascinates me about this story is that supposedly smart guys and gals from Alphabet and Kleiner Perkins sat in a room at some point for a presentation and decided to invest, I think, around $100 million. $120 million in venture funding raised by this company. I'm astounded.

In the honor of The Simpsons turning 30 this year, I can't help, the first thing I went to when I read this story, it takes me to Dr. Nick Riviera and Troy McClure pushing the juice loosener, right? Yes. You got that all from one bag of oranges? The juice loosener. I mean, that's what this is, right? It's peak Silicon Valley. Let's go to our man behind the glass, Steve Broido. An increasingly healthy Steve Broido. Steve, I know you've been hitting the gym a lot lately. Where does juice fit into your new health regimen? Nowhere. Nowhere? So if your lovely bride were to pick up a juicero as a birthday gift or something like that? There'd No interest. It'd go with the SodaStream, I think.

Wow. So, you're going with soda instead of juice? Absolutely. All right. Drop us an email, radioatfool.com. SodaStream or Juicero? You get one free. Which one are you choosing? Radioatfool.com. All right. Jason Moser, David Kretzmann, Matt Argersinger. Guys, we'll see you later in the show. Up next, CNBC's Kayla Tausche will join us to talk about what investors should be watching in Washington, D.C. Stay right here. This is Motley Fool Money. All right, before we get to Kayla Tausch, you've got to say thanks to Warby Parker for supporting Motley Fool Money this week. Warby Parker makes high-quality, stylish,

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Go to warbyparker.com slash fool and order your free home try-ons. Welcome back to Motley Fool Money. I'm Chris Hill. On Monday, Congress returns from a two-week break, and the federal government is set to run out of money on April 28th, unless the powers that be can reach an agreement on a new budget. So here to help us make sense of it all is Kayla Tausche, Washington correspondent for CNBC. She joins me now from our nation's capital. Thank you for being here. Thanks for having me, Chris.

We don't usually get into the political arena here at The Motley Fool, but this seems like one of those situations where I get the sense that Wall Street is going to be watching what happens on Capitol Hill a little more closely than usual. So in terms of getting a budget deal, do you have a sense of what is likely to happen over the next week or so, or even what investors should be watching for? Well, there's going to be a big college effort to get this done, Chris, next week. Officially, I should say, Congress returns from recess on Monday, but they're not fully going to be in session, all of them having returned until Tuesday at around 6.30. And I have to imagine that the last times that they kicked the can

down the road on the budget, first in September of last year, and then in December, that they didn't necessarily believe that April 28th, 2017 was going to be a difficult deadline to reach. This time around, it corresponds with roughly the 100th day of the Trump administration. And having a Republican president in the White House, Republican majority in Congress, It should have been an easy deadline to reach. Now they're trying to grapple with what's more important to have accomplished by the end of those 100 days, repeal and replace the Affordable Care Act, which was the campaign promise that nearly every Republican stumped on last year, or getting this budget passed and not kicking the can down the road again.

Luckily, they do have a couple options. They're currently discussing a Plan C, I should say, to have a short-term stopgap bill to get them a week or a couple weeks down the road if they decide they want to prioritize health care or if they can't reach a deal on the budget. But again, this is somewhat frustrating to people who have been pushing for this deal to get done that thought in December or in September that we weren't going to be in this situation again. President Trump seems to pay pretty close attention to polls or at least some polls. And in one form or another, you could look at the performance of the stock market as a poll. So, if we don't see that sort of concerted effort,

or if it gets bungled in some way, that's likely to send some sort of shockwave through the market, send investors scrambling, because as the old adage goes, the market really hates uncertainty. How big a risk is that? Because it really does seem like it only takes one mistake, either on the funding or on health care reform, to send at least some investors headed for the exits. Well, there will certainly be a reaction in the market. And we know that the administration takes the stock market very seriously. Steve Mnuchin, who's the Treasury Secretary, called it a mark-to-market business running

the White House. Gary Cohn, who runs the National Economic Council, he said that the stock market is a real-time barometer. But you could argue, Chris, that it's already been factored in, this difficulty of governing over the last few months. The market's been trading sideways. Most of the gains since the election were captured between November and mid-February. I think when the market started to realize that governing isn't going to be as easy as conventional wisdom previously thought, they started backing away. You didn't have a ton of net new buyers in the market, and so they haven't been giving the administration as much credit for the last couple of months.

That being said, the underlying earnings that companies are turning in for the most part, except for a couple high-profile misses, are good. So the market is saying, look, GDP might be good. Earnings growth is still good. there might not be a ton of reasons to sell the market and there's not the urgency of the financial crisis where you would see a ton of selling when Congress didn't pass, say, the TARP rescue package. But that being said, they might not have a lot of reasons to come in and buy the market unless they see something positive happen. Certainly, as you mentioned, health care reform was a big promise during the campaign. But one of the expectations after the

election in terms of economic initiatives that we heard was, we heard about infrastructure spending, maybe putting together a huge infrastructure bill that would stimulate the economy. But we also heard a lot about tax reform. As you said, we have a Republican president, we have a Republican Congress. Cutting corporate taxes seems like such a slam dunk. Is that going to happen in 2017? Because once upon a time, it seemed like a no-brainer. And now you're starting to hear more whispers like, yeah, this might not happen until 2018, if then. Right. Goldman Sachs actually just put out a note this week saying that it is more likely that it is a first quarter of 2018 scenario if it happens. Goldman did say that it believes that it is still a priority and that the administration is committed.

But the timelines for these things have been stretched way out. There are some in the market who say maybe they could do just a corporate tax rate cut, that that would be easy enough, that you could increase the deficit and give companies a break. But the administration has made it clear that they want widespread and across-the-board tax reform. They want the middle class, they want individuals to be able to see a tax cut. And Sean Spicer, the press secretary, said a couple weeks ago that individuals, when they file their taxes for the full year 2017, he hopes that they will have a tax cut and that they will pay lower taxes. But it's unclear exactly where the negotiating ground is on this.

The president is not an ideologue. It's unclear what his non-negotiables are. He put out a plan during the campaign that is different in some substance from what Paul Ryan, the Speaker of the House and the Ways and Means Committee have been talking about. And it's unclear what the president believes has to be in there, what Congress believes has to be in there, and what the non-negotiables are, what the negotiables are, and how something gets out the other side. You're listening to Motley Fool Money, talking with Kayla Tausche, Washington correspondent for CNBC. Before you headed down to the D.C. Bureau, you were covering the financial industry, and the big bank stocks are up around 30% or so since the election last year, with no real change to

their fundamental businesses. In terms of expectations, we talked about tax reform. There really seems to be an expectation that there will be meaningful banking deregulation, and that's what's driving these stocks up. Is that likely to happen? Because that seems like an even longer putt than tax reform. There's certainly some momentum there. We did just see a draft from Congressman Jeb Hensarling, who runs the House Financial Services Committee. He's put forward some legislation that would seek to reform financial regulation, in essence, a replacement of Dodd-Frank. And it has certain relief for the banking industry. For instance, they currently go through stress tests twice a year to basically prepare their balance sheet

for a worst-case economic scenario. Under Congressman Hensarling's legislation, that would go from twice a year to every two years. That's a huge cost for all of these banks. The biggest banks have hundreds, in some cases thousands, of people who are working on those stress tests alone. So if you get to exhale and not have to do that twice a year and instead do that every two years, that's a huge relief. I think early on after the election, a lot of the momentum that was built into the banking industry was this promise that there would be no new regulation. Dodd-Frank still has about 300 rules that haven't even been written. So there's this idea that, okay, the president has put a moratorium on new regulation. At least they won't have to

comply with 300-plus brand new rules. And you have an administration in place and congressional momentum against regulating them further. So there does appear to be some conversation that's headed in the direction that would benefit the banks. But Chris, the thing that's hurting them the most right now and that you're seeing in their earnings is that the treasury market, treasury yields have gone down. And that is what banks price a lot of their assets off of. That is what they lend to consumers off of. And if yields on bonds go down, then banks ultimately are less profitable. That was unexpected. And that's going to offset some of the benefit the banks will see from Washington. One of the things we've seen since President Trump took office is a pretty

steady stream of public company CEOs meeting with the president. From the people that you talk with on the government side and on the business side, is there any theme emerging from those meetings? Is there any tangible takeaway or is it just for optics and the sort of hope that somewhere down the road these different industry CEOs are going to find some sort of favorable law passed that's going to benefit their company? Well, I think it's safe to say that the motivation has changed over time. In the early days of the administration, CEOs wanted a seat at the table because they didn't want to be the subject of the president's Twitter wrath, where he called them out in front of millions of his followers. They also didn't want to not be there and have their competitors be there in case there was a tug-of-war between which company would get a contractor, which company would get potentially more favorable treatment. Over time, CEOs have suggested that the value in having a seat at the table is weighing in on policy discussions that might be advantageous for your company. For instance, in just the last couple of weeks, we've seen the White House change its tune on the Ex-Im Bank, which the Wall Street Journal reported was directly a result of a conversation that the president had with the CEO of Boeing, which benefits from the Ex-Im Bank. Also, the president changed his position on calling China a currency manipulator, which was reported to be a discussion that Steve Schwarzman, who's the CEO and founder of Blackstone, raised.

and other CEOs have raised saying, you know, we do business in China. This would really rock the global financial system if you were to do this. We don't think that that's a good policy. And not to mention China actually stopped intervening in its currency in the way that you were talking about on the campaign trail. So CEOs have realized that there are real results when they weigh in and that the president is listening when they talk. All right, let's move off of the macro economy for just a moment. Next month marks the five-year anniversary of Facebook going public. It is now, I think it is now the fifth largest public company in the United States. You covered that IPO. My memory is that it did not go smoothly at all. I'm curious if you could share anything

that stands out from that day, and are you at all surprised that it is as big and successful as it is five years out? Well, the memory that sticks out the most to me, Chris, is not necessarily the IPO day itself, eventful as that day was with a false alarm on the open and then the glitch and then the significant price decline, the reporting that it would change from the NASDAQ to the stock exchange because the company was so angered about how poorly it was handled. But the headline in December, a few months before it actually went public, and the headline was at the top of the Wall Street Journal, and it said Facebook seeks to be a blue chip company. And that was the first report that Facebook was going to have a market cap above $100 billion. And people said they are

crazy if they think the Fidelity, the Vanguard, the big retirement money managers are going to be buying this speculative stock. And what has been proven in the five years since is how formidable that company is in terms of earnings power, how nimble it has been in changing its business model and how much it was able to capitalize on transitioning its business to mobile, because that was the reason why the IPO didn't go so well. They had added a line to their filing that said, you know, most of our users are transitioning from their desktop computers to mobile. We have 0% revenue in that space. Now mobile is 75% of Facebook's revenue, and it's safe to say that they managed that transition well, although now in 2017, they're facing a

much different set of problems. All right, last thing, and then I'll let you go. You grew up in Georgia. You're a proud graduate, very proud graduate of the University of North Carolina. Congrats on the men's basketball national championship. I can't claim any credit, but I will take the congratulations. So Georgia, North Carolina, you've only been in Washington, D.C. for a few months. Have you found any good barbecue yet? Not yet, but I will take any recommendations that come in. It's definitely a little bit more of a Southern flavor in this town. My colleague told me that Washington, D.C. has the efficiency of the South and the personality of the North, which I think is supposed to be an insult on both ends. But

being from Atlanta, coming off a decade in New York, I could definitely identify with both of those and feel at home either way. If you want to know what's happening in Washington, D.C. that affects the economy and your investments, good news. Kayla Tausche has got it covered on CNBC, on Twitter, and elsewhere. Kayla, thanks so much for taking time out of your day. Thank you. Coming up next, we'll give you an inside look at the stocks on our radar. This is Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks

based solely on what you hear. Welcome back to Motley Fool Money. Chris Hill here in studio, joined once again by Jason Moser, Matt Argersinger, and David Kretzmann. You can check out past episodes of Motley Fool Money and all of our podcasts by going to podcast.fool.com. And while you're there, you can test drive our flagship service, Motley Fool Stock Advisor. The brand new issue just came out. Two new stock recommendations from David and Tom Gardner. So check that out. Go to the podcast center. Scroll to the bottom of the page at podcast.fool.com. I have said before, one of the reasons I love working at The Motley Fool is we get to work with so many smart and talented people. And earlier this week, the DC Femtech Awards were

announced. The awards highlight women programmers, designers, and data scientists in the greater Washington, D.C. area, and I am happy to share that for the third year in a row, our colleague Lisa Chung is being honored for her work. And by the way, guys, the D.C. FemTech Awards have been given out for three years, and Lisa's been honored every year. That's how good she is. We're going to go to our man, Steve Broido, behind the glass. Also joining us this week, special guest, Keith Fredrickson, visiting from New York City. Thanks for coming by, Keith. All right, Jason Moser, you're up first. Steve will hit you with a question. What's on your radar this week. Well, yeah, sticking with the health theme,

looking at Boston beer, ticker is S-A-M. I'm sorry, the health theme? Well, it makes you feel good. We've really talked a lot about the headwinds that they've been facing in the craft industry, as more and more craft brewers pop up around the country. I don't think that threat is abating anytime soon. I expect to see a lot of the same here in this coming quarter, with falling depletions, sort of just them trying to figure out new ways to get products out to consumers. It's just really difficult in this space when you have so many options. And Boston Beer is just kind of in that twilight zone and not quite small to be craft and not quite big enough to compete with the big boys.

They have to figure out a way to do that. And I actually think Jim Cook, if he's not too proud, has the opportunity here, perhaps, to be the Buffett of craft beer and start bringing the smaller regional players in under their umbrella, give them the distribution, them that capital, the public markets give these public companies. There could be an opportunity there, but this earnings slated for Wednesday is when we're watching. And the ticker symbol? S-A-M. Steve Broido, question about Boston Beer?

Is there a low-end opportunity for them? Is there a PBR somewhere-like opportunity for Boston Beer? I think of them as being very classy beers. Well, they are classy. I think, really, the opportunity is figuring out a way to convince those PBR, those Bud Light drinkers, why they should be drinking Samuel Adams instead. I I think the biggest challenge there, it's going to require a little bit lower pricing, which could play out on the company's profitability, in the near run at least. Do you think they want to buy Juicero? I would imagine they'll take a pass.

Might be a discount. David Kretzmann, what are you looking at this week? I'm looking at Skechers, ticker SKX. This is a global shoe company known especially for its casual work and walking shoes. They have over 2,000 retail stores worldwide, including 550 in China. They're still working through some of the retail headwinds domestically in particular, but that international business makes up about half of revenue today, and it's still growing. They reported results this week.

It was their first $1 billion-plus quarter in terms of sales. They have a strong balance sheet, over $500 million in net cash. It's just trading at 16 times earnings, so I think the expectation's low, but I think the company might be able to top that. Steve, question about Skechers? Do you wear Skechers shoes yourself? I do. The company actually is getting into athletic shoes. shoes, running shoes in particular, and they have the highest-rated shoes on Amazon, running

shoes on Amazon, and the lowest price point. And I'm a happy customer. Matt Argersinger, what are you looking at this week? Well, if you believe all those things I said in the earlier segment about people spending a lot more time at home, then I think we should all be taking a closer look at Grubhub, which is the ticker symbol, appropriately, G-R-U-B. I think most people know that Grubhub enables people to order food delivery from over 50,000 restaurants, I know this, in over 1,000 cities. It takes a nice piece of every transaction. The company grew revenue 37% last year and is very profitable. Steve, question about Grubhub?

How does anyone make any money here? It seems like Grubhub gets a cut, the delivery people, everyone's getting a cut here. Who's making money? The middlemen are everywhere, Steve, I know. Grubhub does a good job. You're paying for the delivery and you're paying a small portion of the menu cost. Restaurants like it because it builds their business, and so they'll make it up in volume in most cases. Steve, you can wear your Skechers, walk to pick up a six-pack of Boston beer, and while that's happening, Grubhub's going to deliver some to your home. You got one of these three stocks you want to add to your watch list?

I might look at Skechers. All right. If you could have Olive Garden delivered via Grubhub, are you going that route? Absolutely. Okay. I just didn't know if the in-restaurant dining experience was part of the attraction of the Olive Garden. The in-store pickup experience is also delightful. As long as you're wearing your Skechers shoes while you pick it up.

Jason Moser, David Kretzmann, Matt Argersinger, guys, thanks for being here. Thanks, Chris. Thank you. That's going to do it for this week's edition of Motley Fool Money. Our engineer is Steve Broido, our producer is Mac Greer. Next week, we're going to get a preview of the Berkshire Hathaway annual meeting with CNBC's Becky Quick, so tune in for that. I'm Chris Hill, thanks for listening, and we'll see you next week.