Motley Fool Hidden Gems Investing - Spotify IPO: Sweet Music for Investors?

Episode Date: March 2, 2018

Best Buy and Kohl’s report strong holiday profits. Amazon buys Ring. And Spotify files to go public. Plus, Lakehouse Capital fund manager Joe Magyer talks Buffett, small caps, hot trends, and investing in Australia. Thanks to LegalZoom for supporting The Motley Fool. Get special savings by going to LegalZoom.com. Use the promo code “Fool” at checkout.     Learn more about your ad choices. Visit megaphone.fm/adchoices

Thanks to LegalZoom for supporting this episode of Motley Fool Money. Whether you want to take your business to the next level or take control of your family's future with an estate plan, LegalZoom is where to start. They're not a law firm, but their network of independent attorneys can help keep you on track. For special savings, go to LegalZoom.com and enter the promo code FOOL at checkout. That's LegalZoom.com. Everybody needs money.

That's why they call it money. The best things in life are free. But you can give them to the birds and bees. 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 Total Income, Ron Gross. Good to see you as always, gentlemen.

Hey, how you doing? We've got the latest headlines from Wall Street. We've got some hot IPOs. And as always, we'll give you an inside look at the stocks on our radar. Before we dig into the latest earnings, Wall Street ended the week with the prospect of a global trade war. President Trump is looking to impose tariffs on steel and aluminum. In response, the European Union is considering imposing tariffs on about $3.5 billion worth of U.S. imports. A little bit of a frenzy there, Ron.

Does this change the way you invest at all? Oh, Chris. So, I'm no economist, and I honestly don't know how this would affect my investing. So, therefore, it probably won't. But what I do know is that trade wars are typically, almost always, bad for prices, consumers, and those who like to be employed. So, I'm not too pleased at the prospect. Right. I think Ron's got it. I mean, this is going to help a few small companies, a few small industries, at the expense of just pretty much everyone.

And so, yeah, it's never a good thing. I mean, hopefully, this is a short-term thing that's going to cause some behavioral changes, maybe in global trade. But certainly, if this drags out any longer, it's definitely going to hurt customers. Yeah, I mean, I think many, many moons ago, protectionist measures probably played a little bit of a different role in each nation's economy, because the world was far more separated and isolated. I mean, today, though, we are operating in a very global economy. I mean, all of these businesses that we talk about week in and week out, they all have a global component to them. So, these types of protections measures, ultimately, it just raises the cost of business

for everyone. In the near term, I understand the sentiment behind it, but it really doesn't work. Alright, let's move on to retail earnings. Big week. And, Ron, we're going to start with the good news. Best Buy and Kohl's both putting up strong fourth quarter results. Best Buy stock popping. Kohl's down a little bit, although over the past 12 months, I don't think Kohl's shareholders have anything to complain about, because that stock has had a great year. Up 55%, I want to say, over the last year. Not too shabby. Eight or so retailers reported over the last couple of days, and I'm trying to make sense to see if I can see a theme. I saw Macy's CEO came out and said, all boats

are rising and everybody in retail right now is benefiting from strong consumer confidence. But you know what? Not so much. As you said, Best Buys and Kohl's had a nice quarter. Nordstrom's, I think actually had a nice quarter as well. The sentiment changed on that one from one minute to the next from investors. Macy's had a good quarter. Foot Locker did not. JCPenney's did not. Lowe's did not. And I can't grab a theme here to say why some had strength and some did not. Well, I think when everything retail was suffering last year, and we lumped everything together, I think this is how things are supposed to shake out. Essentially, what you have now is, I think you have the strong operators

doing better, and the poor operators are the ones who are losing customer traffic or not running the business as well, are still losing. And I think that's a natural evolution of any market. I don't know why the Macy's CEO would say something like that, because, I mean, you mentioned Foot Locker, that's down big on Friday. JCPenney, if that stock drops any further, Jason, that's going to drop out of the billion-dollar market cap status. And to Mattie's point, we are starting to see some separation in the traditional bricks-and-mortar retailers. Yeah, and I think with JCPenney as an example, we've seen them try virtually everything

to this point, from selling appliances to now developing exclusive lines of clothing for children. I understand what they're trying to do, but again, you have to go back to that old question that Ron has been asking for many years, does the world really need it? And I think at this point, the answer is clearly no. I think there are some companies that have been punished maybe unfairly. I think Lowe's is a very well-run company. Unfortunately, it always gets compared to its bigger brother, Home Depot, which is better run. But if you continue to see weakness in a company like Lowe's, then probably you can take advantage of that weakness and become a shareholder.

Is the fact that some of these retailers are more heavily tied to malls, is that one theme here? Because when I think about Foot Locker, when I think about L Brands, parent company to Victoria's Secret, Bath and Body Works, that also came out this week, bad results there. It does seem like the more heavily tied you are to traditional malls, the higher the bar is for you operationally. That's fair. I'm trying to think of a company like Gap, which you'll often see Gap itself in a mall, but Old Navy is often standalone. And Old Navy has actually been the strength for a long time with that company. Actually, this quarter, nice to see Gap itself, the brand, coming on a little

bit stronger than normal. But your point about malls is well taken. Big news this week in the smart home industry. Amazon is buying Ring, a smart doorbell maker for $1 billion. So, Matty, what are we going to do there? Amazon's going to connect the Echo to the front door now? Is that the move here? Well, yes, I think so, down the road. I mean, I think this solves something that's really important to a lot of people, which is just the front door issue, right? If I want packages, I want deliveries from Amazon or other e-commerce companies, and I just want to know who's bringing my package, when it arrives, and who's there, and before I let that person in, potentially,

to my home. And I think this really takes that to another level. Amazon's made some acquisitions to do this with their Key, their Blink. But this is the one really, Ring has a great reputation for security. I think that solves that problem. But to your larger point, this is all becoming an ecosystem, right? I mean, Amazon now has the front door. It's got the Alexa Echo platform inside the home, which can do a variety of different things. And I feel like we are one step closer now to the future of not someone just coming to your house and delivering stuff. But my refrigerator now, knowing when I'm out of lettuce or ketchup or mustard and ordering that, it's automatically restocked. Or my AC system ordering filters

when the filters go bad and replacing them. I'm on board for that. Sign me up! We're one step closer. I just think this is another brilliant acquisition by Amazon in a string of them. Yeah, I think a time ago, doorbells probably held a little bit of a different status for the household. Today, it's interesting to see the research. Millennials apparently aren't really big fans of the doorbell, it kind of scares them. So, they do a lot of texting, hey, I'm here, come on out. And I get that. They need to toughen up a bit. I think this is beyond the doorbell, though, and it makes for a very simple

sort of security solution, particularly with the Echo Show. So, you link up the doorbell to the Echo Show. Now you're in the kitchen, you've got a clear look as to what's going on in your front yard. Which dog is digging the hole out in my front yard? And what neighbor's dog is leaving those gifts in my front yard," or whatever it may be. So, I think it's a very simple security solution. So, Google is working on their own version of this. And for a long time, when it came to smartphones, one of the things that we have all talked about is the ecosystem in the iPhone. And the more that Apple can tie people into iTunes, that sort of thing, the more they can get them in this ecosystem,

the less likely they are to switch to a Samsung phone or any other phone. Are we moving that way in the home as well. And granted, we're not there right now, but 10 years down the road, are homeowners going to have to decide, what kind of smart home do I want? Do I want an Amazon? Are all of these devices going to work together, or are they going to have to decide, no, if you want the Ring, then you have to have an Echo inside, as opposed to a Google Home working with a Ring? I'll speak from experience here. We have the Echo in the house, we have a Nest thermostat, I have a different provider of lights, controlling lights. I think that what you're going to see is this big focus

on the actual central control, whether you're going with Google or Amazon. Generally speaking, I don't think those companies are as interested in drawing lines and creating that walled garden. I think it's better for consumers and for those companies to have stuff that interacts with different operating systems. Now, the flip side of that is, you look at a company like Control 4, which is a company we've talked about a number of times here, they sell the same kind of stuff, right? But their MO is this operating system. And I think they may be the ones that really feel the most pain here, because Control 4 is kind of like an all-or-nothing solution. It's for the higher-end home. And I don't know that

consumers are really ready for that, or even when they're ready, that they're going to be willing to spend that much money on it. So, I'm going to be very interested to see how Control 4 approaches the situation with Amazon and Google making such big investments. Yeah, I think there are already some ecosystems in the home, and Verizon comes to mind. Verizon has my internet, my cable, my phone, and switching costs are not very fun. And it's kind of sticky there. It'll be interesting to see if those companies that are already embedded in the home want to expand that ecosystem out, if there are alliances, joint ventures, acquisitions as a result.

By the way, shout out to the founders of this small company that just got acquired by Amazon for $1 billion. Back in 2013, Ring appeared on the CNBC primetime show Shark Tank. At the time, the company's name was Doorbot. So, first of all, kudos for coming up with a better name. They wanted $700,000 for a 10% stake in the company. And the panelists on Shark Tank said, no, thank you. So, Jason, do I have the math right on that? That would have worked out pretty well if they'd said, sure, here's $700,000 and 10% of a billion. It's just a lot, like you said. Fourth quarter revenue for Square grew 36%, wrapping up a solid year of growth for

the mobile payment company. Jason, this was your radar stock on last week's show. What did you think? Yes, sir. I tell you, Jack Dorsey, between Square and Twitter, he's walking out of this earnings season feeling pretty good about things. Yeah, it was on my radar. We always talk about the war on cash, and investors need to look at this move away from cash as a when, not an if, situation. It is happening. This is a very attractive space for investors, and I think Square is one way to play it. I think it's proving quarter in and quarter out that it is gaining share in this market. Top line continues to grow at impressive rates. I think Jack Dorsey has done a very good job of keeping CFO Sarah

Fryer there, helping to lead that business as he splits his time between the two companies. What you really want to see with a business like Square, beyond just the revenue growth, you want to see the utilization is actually there. When you're building out this network and you want to see that you're adding that. The utilization is definitely there. Gross payment volume is up 31%. It will be profitable eventually. The one thing I was interested to note was the international share there. They're going to be making some big investments in 2018 in Canada, Australia, UK, and Japan. So, that's really encouraging. Coming up, we'll dip into the Fool mailbag. Stay right here. You're listening to Motley Fool Money.

Hey, now that the madness of New Year's is over, it's time to work on your story for 2018, and LegalZoom can help. You can finally get serious about launching and running your own business, or maybe square away your family's future with the right estate plan. You can do all of this and more with LegalZoom. They've been helping people like you and me take care of their dreams and responsibilities for over 16 years. LegalZoom is not a law firm, but they have the resources to keep you on the right path, including advice from their network of independent attorneys all at your fingertips. LegalZoom plugs right into your life without billing you by the hour, because at LegalZoom, all of the pricing is given up front. So, write your 2018 story now

at LegalZoom.com and use the promo code FOOL to get special savings. That's LegalZoom.com. Use the promo code FOOL. LegalZoom, where life meets legal. LegalZoom.com. I'll say it one more time. Yeah, promo code FOOL. Get some special savings. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Matt Argersinger, and Ron Gross. Our email address is radioatfool.com. From Johan Eriksson in Sweden, he writes, our Viking country is known for Ikea and Volvo, but also Spotify, which is going public this year on the New York Stock Exchange. Spotify announced they will do a DPO, not an IPO. Could you explain what that really is and why are they doing it? Jason, what is a DPO?

Yeah, so basically, in simplest terms, this is where they bypass the underwriters of an IPO to basically help go about setting a demand and price on the stock. They're not issuing new shares to raise money for the company, they are giving people an opportunity to buy shares of the company as it exists today. It creates, perhaps, some optics that maybe could be conceived or perceived as being a little bit more shareholder-friendly, I guess. I still think the nature of this business is such that you really need to take a long, hard look at it before you consider investing in it. The economics of music are so brutal. And we look towards companies like Google and Amazon that have done so well making music

as an ancillary offering, and Apple, too. But when you're on your own doing it, look at Pandora. Those are probably the worst financials in the history of publicly traded companies. And I mean, that is a company that's been public for, I think, close to six or seven years now, and they still can't get profitable because those economics are just so difficult. So, Spotify, yeah, big user base. I don't know that's going to be enough, though. An IPO that maybe we have some more optimism around, Matty, and I think you mentioned this on a recent show, iQiyi, which is the video streaming service attached to Baidu, which is the Google of China, they're getting ready to go public maybe later this spring?

Yes, very soon. They just filed with the SEC, their F1, which is really the most formal part about filing to go public. This is a really exciting deal. They're going to raise about $1.5 billion. They're going to use half of that, most of that, half or most, to acquire new content. They've already got a licensing deal with Netflix, which is getting a lot of shows, but this is really going to up their game in terms of content. But the details behind this are pretty exciting. You have a service with 421 million monthly active users, 126 million daily active users, who, by the way, spend almost two hours on average per day watching shows or movies on iQiyi. The most exciting part might be the 50 million

paid subscribers, though. iQiyi is kind of a YouTube-Netflix hybrid. It has free users who see shows but see advertising, and then it has paid subscribers very much like Netflix. 50 million paid subscribers by the end of 2017, that's up from just 10 million at the end of 2015. So, tremendous growth there. Membership revenue is up 74% to over $1 billion in 2017. That makes up about 38% of iQiyi's total revenue. If you compare iQiyi to Netflix, iQiyi has 50 million subscribers. Netflix, as of the end of the year, has about 120 million subscribers. So, about 2.4 times iQiyi's numbers. But the post-IPO valuation estimate for iQiyi is only $17 billion, which looks high to me,

but then you compare it to Netflix's market cap of $126 billion, which is seven times iQiyi's, and you can see why I'm pretty intrigued by iQiyi. Ticker IQ when it comes out, by the way. I'd like to make one general statement on IPOs, if I may. Give me a second for me to get out of my soapbox. As an investor, there is only one reason you should ever want to see a company go public, and that is because they need to access the public capital markets to raise cash to grow. If it's because their founders want an exit strategy or their venture capitalists want an exit strategy, run for the hills. Speaking of IPOs, Teladoc, which has been public for less than three years,

shares hit a new high this week. Strong fourth quarter results. The first year or so, Jason, of Teladoc's public life, a little rocky, but it really seems like they've got their sea legs now. Yeah, and I tell you, I had some really great discussions with some of the physicians at our event in San Francisco a couple of weeks back, so it was a lot of fun kicking this name around. But I think that when it comes to virtual healthcare, one of the biggest risks early on has been in the form of regulatory barriers. I think a lot of people just couldn't quite make that leap. And that makes a lot of sense. I think what we're seeing now, though, is that risk is fading away very quickly. And the nature of

telehealth and virtual healthcare is terrific. I mean, it's scalable, it's affordable, it really helps to sort of reshape a healthcare system that's in dire need. And so, this company, Teladoc, continues just to chalk up really great results. All the metrics are pointing in the right direction. Revenue is up, users are up, utilization is up. They continue to forge new agreements with big providers. They just landed the Blue Cross Blue Shield federal employee program. And I'll just say, I'm a member of that, thanks to my lovely wife. And so, now I'm a Teladoc shareholder and a Teladoc customer. But yeah, I think that They've set the target for free cash flow positive in 2020, which means the market has

set that expectation. I'm expecting big things from this stock. The Academy Awards are this Sunday night. I've already said, it is the official position of this show. We're rooting for Abacus to win Best Documentary. So, hopefully, Steve James will be taking home a gold statue. Before we wrap up, Ron, I'll just start with you. Do you have a favorite movie about money, investing, business? Oh, so many of them, but I think I have to go with Trading Places as the classic. Taught me everything I need to know about Orange Futures. Jason, what about you?

Maybe a little bit more family-friendly, but you may recall The Secret of My Success with Michael J. Fox back in the day, my favorite exchange of the movie. How do I get to Litchfield? Ah, you'll find it, just follow the smell of money. Mine is not family-friendly at all. There Will Be Blood, because Daniel Day-Lewis is just the best, and I think he's up for another Oscar this weekend. I just love the movie, though. he's such a relentless capitalist and kind of blows through everything, including his family and everything, and just all the problems that arise from that. But I just love that movie. What do you got? I'm going to go to our man

behind the glass first, Steve Broido. What do you got? You must have a movie you love. Wall Street! Where are my people? It is the classic, for sure. It is great that some of these movies are not just great entertainment, whether they're dramas or comedies, but you can actually learn stuff about investing. And I'll just call out Other People's Money. It's a wonderful comedy. Danny DeVito plays sort of a Wall Street type moving in on a company that's going bankrupt. And he's got a couple of scenes in there where, honestly, those should just be taught in classes, just sort of the way he breaks stuff down. Alright, Ron Gross, Jason Moser, Matt Argersinger, guys, we'll

see you a little bit later in the show. Drop us an email, radio at fool.com. Let us know your favorite movie about money, business, or investing. Up next, Uncle Joe Mager returns from Australia. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Joe Mager joins me in studio now. He He is the Chief Investment Officer of Lakehouse Capital, an asset management business based in Sydney, Australia. Thanks for making the trip. It's great to be back for a week. I want to talk about Lakehouse Capital, and I want to get to investing in general.

But first, because you are a Warren Buffett guy, you are someone who has been to the Berkshire Hathaway annual meeting, which is coming up later this spring. A week ago, the annual letter came out, and a good amount of the talk coming out of it, and Warren Buffett's big sit-down interview on CNBC, was how much cash Berkshire Hathaway has at their disposal. Buffett really sounds like someone who's itching to buy something, but he's also a value guy, so he wants to get it at a good price. Look into your crystal ball. You know what? Don't even look into your crystal ball. Warren Buffett gives you a call and says, Joe, I'm thinking about buying something, I've got the cash, what do you think? Give me something to consider.

I would think about private companies. I mean, Buffett's cash pile, Berkshire's cash pile, is really a result of the, to some extent, he's a victim of his own success, and the business has grown so much. Book value per share is up about a million percent, not a joke, a million percent from when he took over the business, which is just staggering and explains why he's one of the world's richest men, and how they would have over $100 billion in cash just sitting around idle. It's incredibly difficult to deploy that amount of money into listed companies. I think it's a reach to assume that's feasible. So, I'd be looking private, and we'll come back to it. But I also think, you know, the first time I've said this before,

I think you started thinking about, well, is this money best parked in Berkshire? Or should shareholders have this cash? Whoa, bull. Anyway, so if I'm looking private, I'm thinking, what companies, typically founder-led, family-owned, would be a good fit in the Berkshire family that are complementary? One is Huiyang Fung Foods. I am sure that I completely butchered that. But let's just all say, it's the company that makes sriracha sauce. And it's the one that we iconically know as Sri Raja. I think Sri Raja would be a wonderful addition to the Kraft Heinz family. I have no doubt that this has been discussed before. But if you look at Kraft, if you look at Heinz, they have made many attempts to do their own version.

They have it, but there's just one that we all know and love. I think it'd be a great fit in the portfolio. They can improve distribution, lots of angles. Do you think that Warren Buffett is paving the way for his eventual, maybe not full retirement, but stepping aside from the CEO office? Yeah, I think so. I think shorter letters backing off the Kraft Heinz board, giving Todd and Ted his understudies there, who are no longer, they're not lightweights, they're now managing tens of billions of dollars. I was going to say, it's real money now.

Yeah, it's starting to add up. And I think more and more, if that makes perfect sense in terms of succession planning. I think he'd like to put that big chunk of cash to work, and that would be his last big elephant gunfire. I'll throw out another one that I think would be interesting, Chick-fil-A. The business is famously successful. It's private, family-owned. It is very conservative and has a very deep culture, which is a big part of its success. I think that the true Cathy's family could continue to own it, and it would probably do very well for a long time. But, I could see it being a home for Berkshire if Cathy's ever wanted to get some cash. Let's talk about investing in Australia.

What is the climate there right now? O' Warm and sunny. Well played. Thank you for coming here in the tail end of winter, by the way. I know that wasn't easy for you. Obviously, here in the States, we're in year eight, year I've lost track at this point, of a bull market. How is the investing climate in Australia these days? So, Australia's gone 25 consecutive years without a recession, which is the longest streak in the world. So, you've got professional fund managers in their 40s that have not seen a recession in their adult lives, which is staggering. And for Americans, who you think back to the recessions you've seen as an adult,

there's been a lot that's happened. We had the financial crisis, the dot-com bubble, there was a crisis in Asia in the late 90s. That's a whole lot of action since the last Australian recession. The net result is that banks have done very well for a long time. I'm not so sure that that will continue. Mining has done very well on the back of Chinese demand for commodities. I wonder about the health of China, given the continued expansion of their balance sheet and debt-fueled growth. So, those things concern me. But, underneath that. The top 100 companies in Australia make up 75% of the value of the index, but the next 2,000 companies make up the other 25%, and I think there's a lot of interesting stuff there.

Lakehouse Capital, the philosophy is to focus on concentrating capital in one's top position. How do you balance that with diversification? Sure. We're high-conviction investors. I should add, by the way, our funds aren't offered in the United States, just so everybody knows. But, our small-cap fund is focused on 15 to 30 positions at a time. Our global fund is 20 to 40. That's much more concentrated than most other managers. For me, it comes from two places. The first is that empirical research is very emphatic that concentrated funds, on average, outperform those that are highly diffused. Those studies come in different shapes and sizes, but they all ultimately

say the same thing. Beyond that, I just feel intuitively, I don't feel great about the idea of backing, say, my 50th best idea with other people's capital. So, I feel better if we're backing companies that we have actual conviction behind. Realistically, once you move past 15 companies, there is extremely diminishing incremental value and diversification. I'm comfy with higher conviction. Not everyone is, but I think it makes sense. One of the areas that you focus on as a fund manager is company meetings. What do you look for when you go to a company meeting? What are you looking to learn? And I have a follow-up, but let's just start with there.

What are you looking for right out of the gate at the average company meeting? Yeah. So, for context, we've met with the small cap fund. We've got around 20 positions. We've met with those companies about 125 times over the years. So, we've gotten to know them pretty well. we're looking for consistency in what they say in the message. If between times we talk, the story changes, or they're talking about something that was shiny and new before, and they pretend like it doesn't exist, that's a big turnoff. We're looking for a respect of other employees. So, it's a big turnoff to me if you see a group, let's say a CEO and a CFO or some of the other people on the staff, and the CEO has a habit of

cutting off other people, it just kind of grates me. And we're trying to get a sense of culture when we talk to teams and we ask early and get a feel for their passion for the business, what they really care about, what their priorities are, and just try to cut through the sales pitch. That was going to be my follow-up. When I hear the phrase, oh, so-and-so is talking his own book, she's talking her own book, the person I think of when I hear that phrase is you, because you're the first person I I ever heard who used that phrase. You know walking into a room, they're going to be talking their own book. How do you avoid getting spun? I have gotten less spinnable over time. Honestly,

earlier in my career and when I was talking to companies, I was a little more wowed by them. But after you talk to CEO 200 or whatnot, they start to seem a little less incrementally impressive. And people don't become CEOs without having some charm and the ability to attract investors and keep them on board. That's a huge part of being a CEO. But you just have to try to be objective, try to ask tough questions. Every CEO you talk to, they all think their greatest asset is their people, and they all think they've got the best product in the market, lo and behold. But you need to fact-check those things. Where you can get data, things like Glassdoor in the States is a really handy resource to check out what

employees actually say about this company. Unfortunately, it's not as robust in Australia, but it is in the U.S., so I'd make good use of that. I also make it a point to try to talk to competitors, and as much as we can, try to hit a few people in the same industry, and to hear what they have to say about the space. Oftentimes, what they say doesn't sync up, and that can lead to interesting discoveries. You've been in Australia for five years now, what has been the biggest change in your investing approach? Besides the fact that clearly you're more grizzled and cynical. Yeah, sure. I focus a lot more on small caps than I used to. If you look at Australian small caps, the companies in our

fund today have an average of four analysts following them. The ASX 200 has an average of nine analysts, and the S&P 500 has an average of 25 analysts. Roughly speaking, you could say it's about six times more difficult to get an information edge with a company in the S&P 500 than it is an Australian small cap. I find that charming. If you're willing to do a little extra work and take on the extra risk that comes with investing in smaller companies and less liquid shares, then I think there's a lot more room to add value for fundamental patient investors. I want to read something that you wrote. on the Lakehouse Capital website. It's about your investing philosophy. I'll just quote

verbatim here. He wrote, investors should take care to appreciate that just like putting a tuxedo on a pig does not make it handsome, being a beneficiary of a long-term trend does not necessarily make a stock a long-term winner. That line has been bounced around a few people here at Motley Fool Global Headquarters. And the consensus is that putting a tuxedo on a pig actually does make it more handsome. Well, I think there's something to that. Or maybe a t-shirt with the tuxedo on it, which I always think is a pretty snappy style. I mean, big picture, I hear a lot of investors say things like, oh, there's this great long-term trend, so there's going to be a lot of support here. So, a good example

in Australia is rising long-term growth and demand for iron ore. Yes, that has generated some fortunes, but it also creates a really big cycle and there are lots of winners and losers and just because an industry is growing doesn't mean that there's a lot of profit necessarily for public investors. Look at solar. Solar has been booming, but how many tears have been shed by public market investors over solar companies over the years? It's very difficult to pick a winner in those situations. And so, it's always nice to have a breeze at your back, but I wouldn't assume just because there's growing to end demand that a company will be able to succeed if they don't have some sort of advantage or distinct position.

Well, and one of the thoughts I had as you were talking was the concept of having stocks on a leash. You can have a winning stock in a current trend that is growing. That doesn't mean you're going to give it leash from now until the end of time. Yeah. Before we wrap up, and before we let you get back to the nice warm weather back in Australia, what is something that is on your radar right now? It can be a company, it can be a country, some international market. As an investor, what is something that you're going to be watching throughout 2018? First of all, Shiraz from Hunter Valley in 2014, outside of Sydney. That was best

vintage in 50 years, so I'd keep an eye out for that. We say Shiraz in Australia, you'd probably say Syrah. Anyway, it's very tasty stuff, nice earthy flavor. Wow, wine recommendations. Okay, I'll give you two others. Another is, we're focusing a good bit more, I'd say enterprise software is a favorite space of ours. Broadly, it's because we love businesses that can scale quickly and have very loyal customer bases. Another space we like is consumer brands and particularly beverages. It's never been easier for beverage companies to get distribution and to scale quickly. We're seeing more value creation happen with beverage companies

that it used to be, you had to be Coca-Cola to get shelf space, and if you weren't Coke, that's tough. That has changed dramatically. I think there are a lot more opportunities for one-off brands to rapidly scale. Another, and this is three totally separate things, is I've been thinking a lot more about urbanization after reading a book called Scale by Jeffrey Moore. In the book, he's a biologist who's applying some interesting themes around biology to modern-day life and cities. One of the things he talks about is this dynamic where as cities scale, there's super linear growth from the network effect of people living in the city, and essentially, that makes cities more interesting.

I'll get around to the investing angle in a minute. But, for example, if you double the number of people in a city, you're going to see more than a doubling of the number of cafes, theaters, universities, all the things that you think of as being interesting and cultured about a city, they rise at super linear rates as cities get larger. So, what's fascinating is that he digs deeper into that, and essentially what he finds is that cities themselves are incredibly durable and tough to kill. I mean, you know, Carthage, they might disagree, but there aren't too many examples of that in modern times, right?

And when you get outside the scope of war, even if we look at some of America's, you know, Rust Belt cities that have been hit hard. In the grand scheme of things, if you compare the fates of the most successful cities versus the cities that have suffered the most, that skew of outcomes on the downside is far, far better than what you see in a dispersion of public companies. So, where I'm going with the investing angle there is that there are a lot of companies that focus specifically on network effects around cities. And essentially, what you've got is a network effect on top of another extremely durable network effect. So a good example of that is something like a Match.com. They've got Tinder and other

dating sites. And within Tinder, essentially, the more guys that are on the platform, more ladies will be attracted, vice versa. And the network effects around that continue to feed on themselves. I just think it makes for a very sticky business that people may not appreciate. You can read more from Joe Mager and his colleagues at Lakehouse Capital by going to lakehousecapital.com.au. Thanks so much for making the trip. I really appreciate it. Always a pleasure. Coming up, 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 with Jason Moser, Matt Argersinger, and Ron Gross. Time to get to the stocks on our radar this week. Ron Gross, you're up first. What are you looking at?

I know Steve wants me to talk about Titan International, but that stock speaks for itself. So I'm going to go with Dunkin' Brands, D-N-K-N. obviously strong brand, reliable cash flow. Franchise model, recurring cash, operating margins of 50%, really strong. Love to see that. Management believes it can double the number of stores over time. That might be aggressive, but there's certainly plenty of room for growth. And they should be able to continue to raise their dividend for the foreseeable future, which currently stands at 2.4%. Steve Broido, you got a question about Dunkin' Brands?

What is going on with the breakfast sandwich selection? It's delicious. It's enormous. It just seems enormous. I don't know, what do they do throughout the rest of the day? Well, I agree that it is enormous, and it probably could be streamlined, because there seems to be a lot of overlap that probably isn't necessary, but it's doing very well for them, and it's tasty as well. Jason Moser, what are you looking at this week?

Well, Chris, you know I like to hit the links from time to time, and so next Tuesday, a Cushnet Holdings will announce earnings. The ticker there is GOLF. They are responsible for the Titleist and Footjoy brands, very, very global brands. And so, when you look at golf, somewhere in the neighborhood of 60 million people play the game around the world. And an interesting thing about that base, it mostly comprises a large swath of committed golfers who do a lot of the playing and spending. And so, they're looking to Titleist and Footjoy as really the brand in the space. I can't quite commit to the stock, though. Man, golf is just a brutal investment. But interestingly enough, the stock yields 2.3% today on the yield side. And I feel

like maybe we see some stability there. Perhaps this could be an interesting little income play. I don't know. I just can't make up my mind. A Cushnet Holdings, Steve. Not exactly a household name. Now, I don't play golf, but I hear a lot about Mar-a-Lago these days. Do I want to go there to play golf? Can I do that? I have to believe there are better places to spend your money, and I'm just going to leave it at that. Although, come on, if you get the chance to play golf with the President of the United States, you're not turning that down, are you? Oh, well, all right. Let's move on.

Matt Argersinger, what are you looking at this week? I'm going JD.com, ticker JD. We tend to overuse monikers like this, but I do think this is your best chance at the Amazon of China. Unlike Alibaba, which is a lot more like eBay, JD makes most of its revenue selling directly to consumers from a network of fulfillment centers that really span China now. Revenue was up 47% latest quarter to almost $17 billion. I'm not sure why the stock was down based on that news on Friday, but in general, there's no way this stock should be trading for less than two times revenue. It's outrageous. J.D. dot com, Steve. Any unique challenges about making delivery as accessible

as Amazon has made it here in China? Well, the big problem with China is just the amount of fraud that's out there, with fake retailers delivering bad goods. And J.D. has made it their focus to eliminate that. And so, with J.D., you have a force against that, Steve. Golf, Chinese e-commerce, and delicious breakfast items and coffee, Steve. What are you going with on your watch list? I'm hearing a lot about Duncan these days. I'm going with Duncan. All right.

Ryan Gross, Jason Moser, Matt Arkansas. Guys, thanks so much for being here. Thanks, Chris. That's going to do it for this week's edition of Motley Fool Money. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening.

We'll see you next time.