Motley Fool Hidden Gems Investing - Starbucks’ Bold Move

Episode Date: March 20, 2015

Investors react to the Fed's loss of patience. Starbucks announces a stock split and gets some blowback over its latest initiative.  And Nike rises on better-than-expected earnings.  Our analysts discuss those stories and share some stocks on their radar.  And Motley Fool CEO Tom Gardner discusses valuations, hidden gems, Chipotle, Facebook, and Shake Shack.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill, joining me in studio this week from Million Dollar Portfolio, Jason Moser, from Motley Fool Income Investor, James Early, and from Motley Fool Pro and Options, Jeff Fisher. Good to see you, as always, gentlemen. Good to see you. We've got a couple of stocks hitting all-time highs. We've got one consumer brand making a couple of bold moves. Motley Fool CEO Tom Gardner is our guest this week. And as always, we'll give you an inside look at the stocks on our radar. But we begin this week with RadioAtFool.com, our email address. Question from Brandon in Grand Rapids, Michigan. He writes, if the Fed raises rates, how will that affect the price of stocks, if at all? And James, the Federal Reserve released a

statement on Wednesday signaling that it could increase rates in June. And the Dow index promptly shot up about 300 points. Yeah, well, it's an interesting question, Brandon asks. Let me first back up. The Fed said they're going to have patience now raising rates, or they've removed the word patience, excuse me, they're going to have less patience, which means probably in the next meeting or two, we're going to see some microscopic hike. I mean, the secret thing about economics is nobody has any idea what's going on. So everyone just tests and learn in small increments. The key point, two key points, three key points, what does this mean at a time when the U.S. dollar is already high relative to just about every other currency? And also no other

developed country is really paying very much. And then I guess some other point that I forgot, but this is an unusual time. So I think that's why we're seeing an unusual market reaction. And I think this is going to be something that's going to play out over a couple of years rather than six months to a year, as we've seen with prayer rate hikes, and the fact that we're still ... I mean, everyone else is paying nothing, and I think that's why the U.S. still looks so good, and perhaps why stocks aren't panicking like they normally would be. Jeff, what do you think? I'll add a few more key points. Interest rates affect behavior, of course, and that can affect

the stock market. When it costs more to borrow, that means there's less money in circulation, generally speaking, so people may spend less, and that may affect earnings. Companies may borrow less and spend less to grow. And that may affect earnings as well. So the other point is higher interest rates on treasuries and bonds make those a little more attractive, relatively speaking, than they currently are compared to stocks. And so in the past, the interesting thing, there was a new study from 1966 through 2013, where during times of increasing interest rates, stocks gained less than 1% annualized. And the reason for that is- That doesn't sound good.

No, it's not good. They gained about 12%, 13% annualized during times of rates going down. But that said, when rates start from a very low level, as they are right now, and very gradually go up, that's when stocks still do all right. And the reason being is that that suggests the economy is strong because rates are going up, and the economy is getting stronger because rates are going up slowly over time. So, as James said, nobody really knows, but there is good reason to be a bit more defensive on the stock market when rates are going up. Yeah, and I mean, to Jeff's point there, we are coming off of a very historically low base here. So, with rates this low, and with the fact that they are going to ratchet them up ever so slowly, I'm sure, I think the stock market is still going to be the

place where the best returns are for the foreseeable future. That's why I don't think we're seeing any major panic today. But with that said, there's a big priority on making sure that you have your money in these quality businesses that you can trust even in downturns. Yeah, because it's earnings growth that will ultimately drive stocks. Yeah. Starbucks is in the headlines for its new marketing campaign called Race Together. The idea is to encourage customers to talk about race relations in America. But that is not why shares of Starbucks are hitting a new all-time high this week. For the first

time in a decade, Starbucks is splitting its stock two-for-one. The company will also begin testing a delivery service later this year in New York City and Seattle. Jason, let's take these one at a time. Your thoughts on the stock split? Yeah, I mean, we perpetually say that stock splits really aren't material, and this is really no different case. I mean, they're going to split their shares. They're fun, though. They are fun. They are fun indeed. You own twice as many shares now. It creates a lot of hubbub, and you you own twice as many shares, but the pizza is still the same size, right? But this was

certainly something that Howard Schultz was taking shareholders into consideration when he thought of this. He said, hey, listen, our shareholders get really excited when we split our shares. So, hey, guess what? We're going to split the stock, and consequently, shareholders are excited, and that's just fine. But it doesn't change the fundamentals of the business. This is still the same company it was yesterday, and it'll be the same company tomorrow. It is the same company, although I have to say, as a longtime shareholder, the delivery service testing surprises me a little, because for so long, Starbucks really tried to establish itself as the so-called third place. You've

got your workplace, you've got your home, they want it to be the third place. And if now they're delivering, I'm wondering if that undercuts the third place idea slightly. Perhaps it could, but I don't think the delivery initiative is going to be as widespread, maybe, as some might think it will be. They're taking this from two different approaches here. So, So, the one that they're going to pilot in Seattle is actually going to be partnered with Postmates, which is an on-demand delivery company that has a presence in 12 states and the District of Columbia here. So, this, again, is going to be what they test out in Seattle. The second one is the Green Apron Delivery Service, which is more focused on dense urban

areas. This is actually going to be something that rolls out first in the Empire State Building New York City. And this is going to involve actually a Starbucks barista on site in the building. And so it doesn't sound like this is going to be something where they try to leverage existing Starbucks infrastructure. This is going to be something entirely different. Now, whether this results in a little Starbucks store in the Empire State Building that has sort of a streamlined menu of offerings, that remains to be seen. But it's certainly much more focused on sort of that office building demographic as opposed to something more widespread. Just to ask the obvious question, I mean, a cup of Starbucks coffee is only,

expensive as it is, it's $3 or $4, something like that. I mean, does it make sense to have somebody deliver that? And then you've got to give them a tip, right? You're not going to give them 20 cents. You've got to pay them another $3 because you came all the way over to your floor 72 of the Empire State Building, wherever you're at, right? I'll deliver to you, James, for $3. Well, and it's the old adage, right? Time is money. And so, I suppose they're striking

this initiative out in areas where individuals really value their time down to the minute where an elevator ride maybe is a bit too much to ask for, and they're willing to spend that little extra for that delivery. But yeah, to your point, James, we don't necessarily have too much of a problem just moseying down a couple of flights of stairs and walking to the Starbucks across the streets. I'm not sure it would play out in an area like here. New York City, far more crowded, far more populated, a lot of money flowing out there for sure. So, maybe that's a more ideal place to start. And again, I don't think this is something that you would see all over the place. What do we think of this Race Together initiative that Howard Schultz, the CEO,

has introduced? Because in some corners, he's getting credit for good intentions. I mean, he was quoted as saying, looking at race relations in America, if I ignore this and just keep ringing the register, then I become part of the problem. On the other hand, there are some people saying, look, I just want my coffee. I'm not looking to have an in-depth conversation with a barista who I don't know. And it's hard from a business standpoint to see any sort of upside here. I would fall on the ladder of what you were just saying there. I don't want to go into a Starbucks and talk about race relations. It's just not my bag. It's not what I'm looking

to do. And so, interestingly, I wonder if this isn't going to play out by people saying, hmm, maybe I don't really want to go to the Starbucks store if it's going to be this sort of awkward silence when I get my coffee and I see that they've written race together on it. Now, with that said, Schultz is notorious for using his position as a platform to reach out to the country and create more awareness regarding certain issues. And I admire the intent here. I I think that the intentions here are good, but maybe he's just gone a little bit too far with it. Perhaps just the ad in the paper is enough, or passing out stickers at the store, for people to be able to take that conversation further, and most importantly, elsewhere.

Because, yeah, I don't know that you want a bunch of belligerent coffee drinkers stuck at a Starbucks for two or three hours debating race relations, because I just don't see that ending well. I mean, certainly his heart is in the right place, and the cause is good. I don't think any of us would dispute that. But what's just entertainingly bizarre is who he's picked to do this. I mean, the baristas are some of the busiest people on earth running around. I mean, the only way it could be worse is if you did this with toll booth operators or emergency medics

or someone who just doesn't have time to stop and have a long conversation about this thorny issue. It's almost intriguing to me. Yeah, that's all I was going to add was I think Schultz and company are asking the wrong people to do this, and I think it's a reach for them to ask this of their employees. Mixed third quarter results for Oracle. Revenue for the business software maker was flat, but they raised the dividend 25%. Jeff, the cloud business does seem to be growing nicely. Cloud is growing nicely from, admittedly, a small base, but it's growing sharply. Bookings are up more than 100%. Revenue, which comes in over time on a monthly basis,

is up more than 30%, on cloud that is. Overall, Oracle's revenues were flat, but they're up a good 6% when you take out currency. And that's a good result. I own shares. We own it in pro. I'm happy to own it. I'm happy to keep owning it. It's one of those stocks that looks reasonably priced because it's climbing this wall of worry. People believe Salesforce and others are going to eat its lunch, and I don't see that happening. The fourth quarter, historically, is the biggest quarter for Oracle. Are they in a position where they're good riding into it as they are now, or do they kind of need it to be a bigger hit than usual? No, I think they're in a good position, Chris.

They've had some momentum in recent quarters, and I think the market's expectations have come down a little bit, so those are two good coinciding factors. Third quarter profits for FedEx rose 53%, much higher than analysts were expecting. Sounds like a big number to me, James. Why is FedEx stock down this week? Chris, this is one of those stocks that makes me feel like a moron every time I look at the chart. It's just gone up and up and up, you know, and I avoided it years ago. I read a FedEx plan lands every 90 seconds. That's how busy these guys are.

They had great results at a time when UPS did not. So that's great for FedEx. The problem is they lowered guidance by a nickel per share guidance, somewhere around $2 per share. So nickel's not really that big of a deal, but there was some fuzziness in the future regarding, even though the gas prices or fuel prices are dropping, FedEx was still benefiting from a fuel surcharge,

which apparently they're not going to be benefiting from in the future. So that's enough to spook Wall Street on a stock that's probably priced in a lot of good news. Coming up, one airline stock taking off and one restaurant stock that's turning things around. Stay right here. You're listening to 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 with Jason Moser, James Early, and Jeff Fisher. Just in time for March Madness. Nike stock is hitting a new all-time

high. Third quarter profit came in higher than expected. And Jason, I hasten to point out they are doing that despite some currency headwinds. They are doing that despite some currency headwinds. Chris, I tell you, the big thing here, which was really impressive, was this turnaround in China. They undertook a rebranding of sorts in China over the past couple of years to get a little bit more in touch with the consumer and take more control of that relationship on the ground there in China. And it's really paying off. They saw 17% growth in China this year versus only 7% last year. That, along with the fact that they saw some strength in Europe as well. This is obviously

a powerhouse brand that's doing a lot of things well, and the direct-to-consumer continues to help them in their quest for margin expansion, gross margin up 140 basis points. You look at what these guys have done. It's a big company closing in on $100 billion. They have a share buyback plan that has really rewarded shareholders since 2010. Share counts down 11%. Stock is up over 160% during that same time. And I don't see any reason for that to change. It's just a phenomenally huge market opportunity when you go all-in with sporting goods, equipment, and apparel. And Nike is just really, really, as Ron Gross would say, firing on all cylinders. Shares of American Airlines up more

than 10% this week. On the news, it will be the newest addition to the S&P 500 index. on Monday, it will replace Allergan, which is the maker of Botox. This seems like kind of a big deal, Jeff. It is a big deal, actually, Chris. And it's a surprise. American Airlines came out of bankruptcy recently. Expectations were it would be added back to the S&P, but not for perhaps another year at least. So this is a surprise how quickly this happened. Why is it a big deal? Because it's estimated that it results in about 79 million shares of buying interest from index funds and funds that track the S&P index. So, whenever any company is added to the S&P 500 and pro-holding Skyworks was, Skyworks Solutions was a couple of weeks ago as well. So, we've seen

this twice in two of our holdings. The shares run up rapidly on that news in anticipation of all that buying power. Long-term studies show that a stock in the S&P 500 maintains those gains. It may not become a better performer over the long term, but it does benefit from being in this venerable index. And it's the third airline to join the index after Southwest and Delta. Thank you. Shares of Darden restaurants also hitting a new all-time high. Third quarter profits came in higher than expected. Darden is the parent company of the Capitol Grill, Longhorn Steakhouse, and yes, Steve Broido's favorite, Olive Garden.

It's, James, kind of a turnaround going on at Olive Garden. At 240 basis points, or 2.4 percentage point improvement, Chris, in Olive Garden margins since last fall, Starboard Value is a hedge fund that basically knocked out the whole board of Darden and replaced it with 12 new people. Run by Jeff Smith, by the way. Starboard Value is 42 years old. Our generation, but probably has a lot more money than any of us. So, yeah, they cleaned house, and it's looking good. comp sales were up 3.6%. They raised their 2015 outlook, and they accelerated their buyback

program, too. So, activism works sometimes. Before we get to the stocks on our radar, I want to mention, once again, GoBankingRates.com, which is the online portal for just all kinds of rate information, mortgages, car loans, banks, credit cards, etc. Motley Fool Money is a finalist on their list of the best financial radio shows and podcasts. You can vote for the winner. Just go to gobankingrates.com. And like Jeff Fischer's home city of Chicago, you can vote every day for the month of March. So, some good friends of ours, guests we've had on the show before, Clark Howard, Dave Ramsey, Freakonomics. We love those guys. But we're going to vote for us. We'd like it if you would, too. Daily. Every day for the month of March. Jason Moser, what's on your

radar this week? Yeah, I'm going to harken back to 2010, where I was digging into Tidewater. And Tidewater is a company that provides offshore vessels and marine support services for oil and natural gas, energy and exploration and production companies. And so, in times like today, where oil prices are in the tank, and there's not a lot of exploration going on out there, Tidewater's stock really feels the pinch, because they put a lot of these boats in dry dock, and they're just not really being used a whole lot. But that means shares today are selling at less than half of book value.

And I think that it's a cyclical one that whenever oil prices do start to come back up, Tidewater will rise with that tide as well. And the ticker? TDW. Steve, question about Tidewater? My question for you is, when are oil prices back at $100? A barrel. Easy question.

February 23, 2016. Write it down, Steve. James Early, what's in your radar? Back to Copa Airlines. This is a Panamanian airline. much more, actually, the most profitable airline in the world by profit margin. It pays its staff 11% of its sales compared to 30% of sales in the U.S., and $500 million of Copa's money was trapped in Venezuela

when Nicolas Maduro, the madman president who changed the words of the Lord's Prayer instead of Our Father to Our Chavez, he moved Christmas to November 1st, and he implemented a Barbie doll price cap of $2.50, so it would be affordable to everybody. Anyway, he decided not to let COPA take out $500 million. So that's depressed the stock price, but they can still use that money for expenses, and they're still a very profitable airline. And the ticker?

CPA. Steve? How do I know I can trust these people, James? COPA is actually a very respected, it wins many, many awards for best managed airline in the Americas, in Central America, in South America. You can Google it or read my write-up if you want more. Jeff? There's something in the air today.

it's United Continental, UAL. It's the next airline that is expected to be added to the S&P 500, likely sometime this year. Now, with all the airlines merging, it's hard to keep track of who is who. So, it's fun to look at them now and see how their profits are growing. Steve? Do you fly United, Jeff? I prefer Southwest, but I'll fly what I need to. Steve, three stocks. You got one you like there?

I'm going Copa all the way. You don't have trust issues, apparently. No, no, I'm going Copa. It's a safe airline. Copa Cabana, let's do it. Jason Moser, Jeff Fischer, James Early. Guys, thanks for being here. Thank you, Chris.

Up next, we will talk stocks, CEOs, a little college basketball with Motley Fool CEO Tom Gardner. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Tom Gardner is the co-founder, co-chairman of the board, and CEO here at the Motley Fool. and he joins me now in studio. Thanks for being here. Of course, Chris. Great to be here.

There are individual companies and stocks I want to ask you about, but let's start with the market in general. And it seems like the last time you were in the studio, I probably started with this question, but the market is higher than it was a year ago. When you look at the market right now, what do you see in terms of valuation? Because as the market continues to go up, we're hearing the drumbeat get a little bit louder. This is bubble territory, we're due for a correction. What do you think? Well, the first thing I always do is, I'm looking at individual companies. So, I'm just looking one company after another and trying to see if I find something that

looks like a great investment for the long-term, for five years or more. And when the market's gotten beaten up, you look across the marketplace and there are a lot of companies that look cheap. And when the market's done as well as it has over the last five years, it's harder and harder to find businesses. And when I run the numbers, I like to find a company that I think is going to generate 15% annualized returns. And I'm finding a lot that look like, well, 11%, 12%, 9%. And so, it's a more richly valued market, but it starts company by company for me. Recently in Austin, the South by Southwest event was going on. A few of our analysts

were down there. I didn't get invited to that. You did not? No. Wow. Some of the people who work for you went. Gosh, next time we'll have to swing an invitation for you. One of the speakers was Bill Gurley, the venture capitalist from Silicon Valley. His firm is behind some of the hottest private companies like Uber and Snapchat.

He said a couple of interesting things that I wanted to get your take on. One was he said, and this is someone who has decades of experience in Silicon Valley, he said right now, the way he sees it, there is a complete absence of fear in Silicon Valley. Those are his words, complete absence of fear in terms of the investments that are going on, in terms of the general attitude. I hear that. And as an investor, that makes me a little nervous. Well, it definitely seems to be a bubble in the private market. And you look at the technology zone, the area of innovation and disruption, and there's a lot of exciting, there are many exciting things happening. But I do have that

same feeling that the valuations are becoming more extreme, the enthusiasm for the company is growing. And I watch around me, I watch investors around me that are more value-oriented and they start capitulating. They're like, oh gosh, why have I run valuations on companies all these years? I should have just gone with something that looked like a sky shot. I should have just gone with the big dream company and let it ride. And there's a lot of truth to that in investing for the long term. But when I see the deeper value investors starting to say that now, that's, you know, that's a qualitative sign for me. Has that been a change in your investing strategy? Because when I think back,

maybe 20 years ago, you weren't necessarily a strict valuation person, but you were, as an investor, someone who was more focused on the cash is king approach, the large, stable, revenue generating, repeat purchase businesses. Have you moved away from that? If I've moved away from that, it's to having a greater affection for small companies. When I ran Hidden Gems at The Motley Fool, you just look at the data, and if you want great long-term investments, you want small-cap growth companies. People think you want small-cap value companies, by the way, but the data is really ... I don't think it's a good scientific look at the data. The data of small-cap value, you have to remember, those studies are rebalancing

those portfolios every year. And when a company is no longer a small cap, you don't get credit for it. So, if you get a great small cap value, which my father calls for these types of businesses, duck in the water analysis. You know it's a duck, you know it goes in the air, you know it's coming back down to the water. Then it may go underwater, and you know it's going to go up in the air at some point, and it's going to come back down to the water. That's not what Amazon did. That's not what Netflix did. That's not what Middleby did. That's not what great, great growth companies do. And so, small-cap growth is the best place for long-term investors. But the valuations are richer, and so you either have to accept that you're going to take some hits here along

the way, and it's going to be more volatile, and you're just going to have to lengthen your holding period, or you keep some cash on the sidelines. You're listening to Motley Fool Money, talking with Tom Gardner, CEO at The Motley Fool, also the lead advisor on our Motley Fool One service. You mentioned the Everlasting portfolio. Let's talk about some of the companies that are in it, and a couple that are not in it. And let's stick with Facebook. It's the single largest holding that you have in the portfolio right now. It's about 10% of the portfolio. And against the backdrop of a market that's gone up around 35% over the last two years, this is a stock up more than

200%. It's had an amazing run. Is it getting pricier, or do you think this is a buy right now? I still think it's fine to buy Facebook this price. I think you'll beat the market. I think you'll get returns in the range of 15% a year over the next five years. I think the only problem that Facebook is really going to run into is the same sort of problems that I think Google will run into, is beginning to run into a little bit in Europe, which is, at a certain point, you reach a size and scope and people begin to poke around with whether or not your pricing is anti-competitive. the law of large numbers starts to work against you. There's a wonderful study online, Too

Big to Succeed. It hasn't happened to Apple so far, but if you look back 15 years and you see Microsoft, Intel, and Cisco, they were just automatic winners. Those were the awesome companies of 2000 and the late 1990s, and they ended up being pretty poor investments over the next 15 years. So, I think you have to be aware that that's definitely possible for these companies. But for me, where Facebook is today, I still think it has more than a double over the next five years. I just think it's so incredibly profitable. It's got a young founder. In 20 years, as I've said many times, Mark Zuckerberg will be Jeff Bezos' age. So, you've got 20 years of somebody totally dedicated who's obsessed with Facebook and

the technology and the possibility. And I just think there are so many great things that line up for Mark Zuckerberg and Facebook that I'm happy to have it as a 10% position in the portfolio. It's been a great stock for us. If you think back 15 years and the United States government looking into Microsoft being the behemoth that it was at that time and potential anti-competitive practices. Do you think if Bill Gates had access to a time machine, he could go back in time? Do you think he breaks up the company? I think if you let him go far enough back, then right before we began the taping, we were talking about the I Hate Christian

Laettner program on ESPN, and we're both Hoops fans, both going to enjoy March Madness. I think that Bill Gates was Christian Laettner-like. Actually, he was probably more Laettner than Laettner because people think Laettner went to some high-end, nice school and had a tailwind behind him and everything he did, but that's not true of his background at all. But it actually is true of Bill Gates' background. I mean, he went to wonderful schools. It's true of my background, my brother's background. We went to awesome schools. We were incredibly fortunate. it but gates is the perception of gates in the in the 1990s was cutthroat um um i mean just it wasn't a positive perception and i think what google has learned and i think successful but

cutthroat yeah i mean darth vader like possibly and so i think that the larger you get the more you need to emphasize how are we going to grow the love how are we going to make people love what we're doing here so i think you would that would have been a first step that you took and And then, I think at a certain point, yeah, if you look at the constraints that the Justice Department can put on you, you might as well break your company up in the way that you want to break it up. I do think Microsoft, and I said it on Kudlow and Kramer, I think it was in 2002, I said, I think Microsoft should voluntarily break themselves up. I still think they should today. I think they'd be a stronger company with entrepreneurial

units than one giant business trying to figure out how to navigate a new world. Another stock that's done well in the Everlasting portfolio is Chipotle. I am a shareholder as well, and … Congratulations. Thank you. What's your cost basis, if you can remember, ballpark? Somewhere in the low $300s, so it's done well. And yet, when I look at the business and how it is being run by the co-CEOs, Monty Moran and Stephen Ells, certainly the way they handled the recent incident they had with pork supply. I look at an incredibly well-run business, and it has been that way

for years. And so, anytime I see a company like that, my mind goes to, okay, where is the vulnerability? And recently, it appears that the only point of vulnerability that I can see for Chipotle is the attention that Monty Moran and Stephen Ells are getting for their compensation. They are incredibly well compensated, and you can argue that, hey, stock has done really well. I'm just wondering, when you see stories like that, do you view that as a distraction? Because I don't view it as meaningfully undercutting the business at this point, but it also seems like something that needs to be addressed in some way. I'm not sure how, but it does seem, at a minimum, like a distraction for them.

I think what has to happen is that, it's not likely to happen, but I think what would be beautiful, is if each case were treated as its own individual case. And there were fewer feelings of compensation analysis and comparisons and all the rest, because what that does is that then moves toward normalcy, and basically there's a range that you can be in. There's a wonderful book coming out by Laszlo Bock, who's the head of the People team at Google, and one of the chapters of the book is entitled Pay Unfairly. And what Laszlo and Google have created at their company is, hey, if you excel and you're passionate about what you're doing and you're creating tremendous value and there's a record, there's a performance

track record, and it's very evident that you're an all-star, Google will pay you unfairly. You could be a developer with the same job description on the same team as another developer and you're making 15 times more than the other person. The other person is making $175,000 and you're getting paid $2 million. You know what? That's exactly what happens on professional sports teams. And those are such highly competitive atmospheres, those sports teams. And they know, I mean, the marketplace is very pure and clear in those situations. And so, the same should be happening for public market CEOs. What happens is they all get lumped together and everyone's like, oh, CEO, executive compensation is completely... And you know what? In a lot of cases, it is.

But when you have an outlier that's created an incredible business that's winning for all of stakeholders, the default setting should be to overcompensate the winners, to pay unfairly in favor of them. So my vote as a shareholder is in support of the executive packages going to the companies that I see that are serving all their stakeholders in such a delighting way and so successfully. And so in the case of Chipotle, I would be voting very strongly yes in support of copying them in the way that the company has proposed. Let's stick with the food industry. this is not a stock in the Everlasting portfolio. It's only recently become public. And that Shake Shack came up on last week's show. They recently reported their first quarterly report

as a public company. What do you think of this company? It's only got about 65 locations. Obviously, the growth opportunity is there in theory. And yet, I'm lacking for things in my life, but options on where to get a really good burger is not one of them. It's interesting. I feel like hedging my answer, but I'm going to take a stand. I'm going to say Shake Shack's going to be a winner. I think it's got a great brand. I think the concept is very well-defined. I've gotten to know Danny Meyer. He's an awesome restaurateur. He's an awesome person. I would recommend reading his book, Setting the Table, for anybody who's interested in either the restaurant business or just business and entrepreneurship

in general. It's a fantastic book. I think that the financial story is solid for Shake Shack. I'm not personally that excited about it. It's the small component of it, international licenses and trying to get Shake Shack in Abu Dhabi, et cetera. I'm much more like, hey, just win the U.S., just keep winning the U.S., win the market that you're in, win the region that you're in, then broaden to another region, and then win the country that you're in, and then worry about elsewhere. So some of that stuff isn't very pleasing to me, but Danny Meyer owns 21% of the business,

and I think that it's replicatable, and I think it'll be successful. Do I think it'll be an unbelievable winner? I don't think it'll be an unbelievable winner, but I think it's going to be a market-beater. Coming up, more with Tom Gardner. Stay right here. This is Motley Fool Money.

Welcome back to Motley Fool Money. Chris Hill talking with Motley Fool CEO Tom Gardner. Warren Buffett has said that he prefers businesses over leadership. I believe the quote is... Who's that, by the way? Warren Buffett, Midwest guy. Okay, yeah. Great sense of humor. The quote from Buffett, I try to buy stock in businesses that are so wonderful that an idiot can run them, him, because sooner or later, one will. Elon Musk is not an idiot, but it does raise the

question, at some point in the future, if he's no longer running Tesla Motors, is that still a stock you want to own? There are a couple of Buffett quotes that aren't my favorites. That's one of them, yeah. Another one is the rule No. 1, don't lose money. Rule No. 2, don't forget Rule No. 1. If you took that approach, of course, I'm sure that there's probably some context around that quote from Buffett that makes you go, yeah, okay, got it, I agree. But if you take that approach to the venture capital business, you're done. If you never want to lose money on any investment, you're never going to find the great investments in the private markets as a growth investor. So,

that one doesn't have broad enough application for me to be that relevant. And the other one that doesn't is the monkey CEO comment. I like it, it's funny, it's colorful, but I hate the idea of being invested in any company that has an idiot at the helm of that business. There are too many things that can go wrong today for a company to have somebody who's really, really incredibly incapable. So, Tesla, where you can say, if we do work back to that quote and where it could be true, it's a highly organized, structured business. I think Costco right now is like a machine. By the way, I love their founder and CEO, Jim Singhal. I love Greg Jelinek, their present CEO. I don't think either of them are monkeys, but I think

they've got a system, a replicatable system. So, you could get somebody more monkey-like in that, and the machine would continue to run. Tesla, though, demands a tremendous amount of creative genius and will. I mean, there have been a lot of unexpected turns for Tesla already. And if you don't have a founder who's completely bought in with a large stake and is driven and passionate at the higher purpose level and the desire to innovate, you're going to end up with that business falling apart. I would not want to be an investor in Tesla unless Elon Musk is the CEO. Or, there's a succession plan where the other person who's going to become CEO is as impressive or ideally more impressive than Elon Musk, which would

be very hard to do. The NCAA college basketball tournament is underway. It's actually underway as we're taping this. So we'll wrap up soon so you and I can get to watching some games. But outside of the NFL playoffs, this is the most expensive sporting event for television advertising. The average 30-second spot's going for about $1.5 million. And one company that is investing heavily in TV advertising for the college basketball tournament is another company in the Everlasting portfolio, and that's Buffalo Wild Wings. You know this company well. You've sat down with Sally Smith, the longtime CEO. Do you like this investment they're making?

It's been a huge, huge multibagger for us at The Motley Fool. And we've held it all the way up from, I think, 2004 when we first bought it. When I first saw in Buffalo Wild Wings, you can see in Shake Shack, too, you rarely find restaurants that are growing early on with no debt. They're usually using leverage and doing a lot of franchising. And in the case of Buffalo Wild Wings, they do franchise, but they were debt-free and they were growing and it was a beautiful business because they really dominated that niche, which is better than Shake Shack, which has competition. Buffalo Wild Wings, they were competing against small local sports bars, No. 1. And then No. 2, people were like, Hooters is going to crush

Buffalo Wild Wings. I was like, no, no, no. These are completely different concepts. I think that what they have done from an advertising perspective, once I saw Buffalo Wild Wings showing up on ESPN as an advertiser, I was like, this is so sweet. Because there's really nobody else that's now dave and busters is coming out saying we're a great sports bar come down and play some games and video games and watch watch the ncaa hoops with us i i just don't think it works anywhere near as well as buffalo wild wings this concept so yeah i support that advertising spend also i think buffalo wild wings has done a great job creatively with their ads who's your pick to win the tournament i refuse to pick kentucky i refuse to pick kentucky i don't i i

I do have a taint on coaches who have prior violations. I either want, I mean, the reality is I wouldn't actually mind Calipari. Calipari could represent what I really believe, which is I believe the player should be paid. And I know they get scholarships, and I know that that's very valuable. Many of them are then, there are certainly many situations where players are pushed along to be hoops players on campus and not really to take their education that seriously. But leaving that aside, they're bringing so much money into the university and so much prestige, reputational value beyond the just capital that's coming in, I think they should be paid. So, in a way, Calipari has been kind of closer to that capitalistic version. But

since he's run into some rules problems, I refuse to pick Kentucky, even though they have the biggest margin. Statistically, they have the highest probability of winning that any team has come to the NCAA tournament in many years. So, I picked Arizona. He's the co-founder, co-chairman of the board, and CEO of The Motley Fool. Chris, who do you have winning it? Also a big college hoops fan. 20 years ago, I filled out my last bracket. I enjoyed the tournament way too much.

I love that. I'm not involved in a bracket. So you know what? Let's wrap this up. You're just a fan. You're just a fan. Just a fan. But give us the inside secret, though.

Come on. Who do you got? You know, Buffalo. Buffalo. I love it. Bobby Hurley. It's a great story. If you're going to go for a Cinderella, go for a Cinderella.

Thanks for being here. Thank you, Chris. For more on Tom Gardner's service, you can go to radio.fool.com slash one, O-N-E, that's radio.fool.com slash one. That's going to do it for this week's radio show. Our engineer is Steve Broido, our producer is Matt Greer. I'm Chris Hill, and we'll see you next week. I'll see you next time.