Motley Fool Hidden Gems Investing - Tesla Accelerates

Episode Date: May 6, 2016

Tesla revs up production. Priceline loses altitude. Activision Blizzard scores. Zillow raises the roof on guidance.  And KFC serves up a surprising new offering. Our analysts discuss some of the week's top business stories and share some stocks on their radar. Learn more about your ad choices. Visit megaphone.fm/adchoices

This episode of Motley Fool Money is brought to you by Rocket Mortgage by Quicken Loans. Rocket Mortgage brings the mortgage process into the 21st century with a fast, easy, and completely online process. Check out Rocket Mortgage today at quickenloans.com slash fool. 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. Joining me in studio this week from Million Dollar Portfolio, Jason Moser and Matt Argersinger. And from Motley Fool, deep value, Ron Gross. Good to see you as always, gentlemen.

Hey-o! Hey-o! Earnings Palooza rolls on. We will get to the latest results. In fact, so many stories to get to that we don't have a guest this week. So, strap in, guys. You're in for the long haul. No one told me about this. As always, we're going to give you an inside look at the stocks on our radar, but we will begin with the big macro. 160,000 jobs added in April. The unemployment rate remains unchanged

at 5%. What do you think, Ron? I don't want to be a Debbie Downer. There's a series of reports here that I'm not in love with. The unemployment picture is not improving. We're kind of stuck where we were. Unemployment rate holding steady at 5%, which, let's give the economy some credit, that's pretty good from where we were years and years ago. GDP, pretty weak, only 0.5% growth in the first quarter. That's anemic. We've got an economy that's really not growing. These employment numbers are not great. We did see wages tick up a bit, which we're always happy to see, but I'm not loving where we're going here. I think there are a lot of folks

that are not feeling this recovery that we've experienced, really, over the last seven years. if you haven't been in the stock market, you probably don't feel that things are that good. And now, all of a sudden, it looks like things are kind of going on the down part of the cycle, and people are saying, wait a minute. Well, if you do step back, though, and take the long view, even with the latest numbers, I think we've averaged at least 200,000 jobs every month for five years. It doesn't really get much better than that, I think, even if you go back to previous cycles. And I understand there's some definitely underlying weakness. But, you know, that's pretty strong.

Now, let's step back and take an even bigger picture view here for a second. If we think about the way things have progressed here, just in the last decade, if we talk about Are we going back to before the wheel was invented? Well, somewhere in the middle. Somewhere in the middle. Revolutionary time? Yeah. Oh, okay. If we think about the advancements in technology, we talk about unemployment, we talk about

wages. We think about it from a consumer's perspective. As technology continues to make our lives better and better and better, it brings the cost of a lot of things down. At the same time, it eliminates the need for a lot of that human capital out there. I think even bigger picture, the concern has to be, at some point, do we become so dependent on technology that this completely wipes out the need for human capital in a lot of these job markets, at the same time bringing down wages? If you look at things like Amazon's robots running their warehouses, for example, online banking, all of these kinds of things. Just a little piecemeal of time there, but over the course of the coming decade and further,

do we need to look at a new normal for unemployment, either higher unemployment numbers or just wages that get stuck? I was listening to a sports podcast that I love to listen to, and the host actually said, his son asked him if he could go to basketball camp this summer. His dad said, you can go to basketball camp, but I'm also going to send you to coding camp, because that is really what students need to be learning in this new economy. Agreed. And I'm okay with 5% unemployment. That's a pretty good number. The U6, the broader measures at 9.7, still not too bad. It's the GDP numbers that are more concerning to me.

Zero interest rates for a long, long period of time, just to get us where we are today. There's not a lot of strings you can continue to pull if economic growth continues to go down. Some countries have gone to negative interest rates, go figure that. So, that's what concerns me. O' Safe to assume that we're not going to be having a rate hike in June, as many previously thought we would? I think rates are going to stay put for quite some time. O' Alright, let's get to some of the earnings news of the week. Tesla Motors lost

money in the first quarter, but that's not surprising. What was surprising was the company moving up its production target of delivering 500,000 vehicles by two years. Matty, they're delivering about, they're on pace to deliver about 50,000 this year, so by 2018 they're going to deliver 10 times the number of vehicles? What's 10X between friends, Chris? I thought Elon Musk on the shareholder letter actually had the ultimate understatement. He said, increasing production five-fold over the next two years will be challenging and will require some additional capital. Yes, will definitely require additional capital. It will require, I think, Tesla becoming the

best manufacturer on Earth, which is what he actually said on the conference call. He said, that's what we're aiming to do, and that's really the only way we'll be able to get to some kind of number like that. They're really hoping by the end of the second quarter to be at a rate of 2,000 units per week. Now, that would put them on an annual basis at about 100,000, exiting the year. They're ramping up very fast, but getting to 500,000 is going be going to take quite a lot. They have the Gigafactory coming online later this year. That's ahead of schedule. But there's now doubt in my mind that they're going to have to raise a lot more capital. Don't get me wrong, the aspiration to

be the greatest manufacturer on Earth is a wonderful one. But the clock is now ticking, and it's set for two years earlier than it was before. So, it's not just, we want to be the best manufacturer, it's, we want to be the best manufacturer in the next two years. Well, not only that, I think it's also essentially being what no manufacturing company has ever done in history. I'm not one to bet against Elon Musk, but that's going to be quite an achievement. I think the real story here is the nonchalance in Chris's voice there when he's talking about Tesla losing money. He's like, yeah, we knew that was coming, that's no big

deal. I mean, at some point, you've got to put up or shut up, right? Do they need to reach those production levels to justify the current value of the stock? If they reach those production levels, let me tell you, I think the stock's actually cheap. So, I don't think they need to do that. The reason they need to hit that number is because of the demand for the Model 3. If they have any hope, if you have any hope as a Model 3 buyer to get your car before 2018, they really almost have to hit those kind of production levels.

Priceline put up some nice profits in the first quarter, but the company lowered guidance for Q2 and shares down more than 7% this week. I feel like we've seen this movie before Jason, in terms of the guidance? Yeah, and a bit of a CEO problem to just kind of act as the cherry on top there. I think with Priceline, this is really one about what in the world does the future hold for these guys versus the performance they logged this most recent quarter. Because the performance this most recent quarter was really solid. Gross travel bookings were up 26%, and room nights booked jumped 31%. And that is a pure demand indicator right there. That is a sign that the demand is there. They continue

to grow that network out as really the largest provider. They are notoriously pretty conservative on their guidance. I think that has something to do with this here. But then, the CEO issues that are plaguing them right now, that's going to have to be resolved. This is a difficult industry to maneuver. There was a lot of negotiating that went on in building up this business. I think that with Houston stepping down, and they're going to take it slowly, but they really need to make sure that they find the right fit for the CEO to take this company forward. Even though a lot of the hard work is done, this is still a very difficult industry to maneuver, because it does require constant attention, constant negotiation, and that

is going to be key to really them being able to keep this thing growing. I think shareholders should feel good about the fact that they did communicate, they were very clear, yes, the CEO is gone, yes, we need a new one, no, we are not going to rush this process. No, and I think that's the way you have to look at that, because again, this is not just some business where anybody can in there and fill his shoes. They really need to make sure they identify someone who's not only very proficient with the market itself, but also has the inclination to stay there for many years to come, and maybe not sleep with someone who works there.

Jason, I think you have a theorist who a good fit might be for that role. Who's on the shortlist? You look at some of the smartest minds in this industry, I think that Steve Koffer, CEO at TripAdvisor is arguably the smartest mind in this business. Given what they're doing at TripAdvisor, which is becoming more like a Priceline, you could do worse. If you put Priceline and TripAdvisor together, that would be a straight-up market leader that would plague competitors for years and years to come. Shares of Whole Foods up this week after second quarter profits came in higher

than expected, but same-store sales were actually down. John Mackey, co-CEO, sits on the board of directors here at The Motley Fool. I feel like this was a Rorschach test quarter. Depending on what you feel about the company, you could find something that you liked or didn't like. It's a competitive market out there, and they're really continuing to struggle. 2% traffic decline, almost a 1% basket size decline. They're attempting to discount and promotions to help the business, but they're struggling. So, they're really turning to this new 365 store chain concept to try to revive things. So, they had to cut full-year guidance, sales and profits. They did buy back a lot of stock. They continue to do that.

I applaud that. But times are tough. They're struggling. Will they give any color on when they're going to start rolling out the 365 stores and how quickly? We'll see the first one this month in May. They've signed 19 leases so far. That's really probably just the very beginning. I expect to see a lot of them. But they'll go slow, test it, and see how it works. But I'm hopeful that this will revive them. At least, let's see how it goes. But I'm hopeful. Whole Foods always earned this premium, I mean mega premium, multiple in the market because there was a lot of growth, they were doing something a little bit different, and

we've noted how, over the past few years, the competition has ratcheted up, and more stores are really offering all of the same kind of stuff. I can't help but wonder if this isn't the kind of space that's going to go the way of your drugstores, like CVS and Walgreen, Rite Aid maybe even to a lesser degree, where it becomes less really about where you get it, as far as the brand that you're buying it from, and more about what's most convenient. Is it easier for me to get it from store A on the way home, or go a little bit out of my way to store B. I think at the end of the day, all things being equal here, it's a bit more about convenience. And on that note, I do think it's important that

Whole Foods is growing out their relationship with Instacart for delivery and things like that. So, we'll see more and more of that stuff, I think, as time goes on, too. I will say, since the stock has been relatively weak, certainly over the last year, down almost 40%, that if they can figure this out, the stock looks relatively inexpensive maybe six or seven times EBITDA at the moment. I'm in a wait-and-see mode. I'm a current shareholder now. I'm not adding. But the stock's not expensive, so it could be interesting. Coming up, video games, e-commerce, housing, we've got it all. Stay right here. This is Motley Fool Money.

Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Matt Argersinger, and Ron Gross. First quarter profits for Activision Blizzard were nearly double what Wall Street was expecting. The video game maker also raised guidance for the current quarter. Looking good, Matty. It is. And I think it's time that we start talking about Activision Blizzard in terms of its audience size, because it's pretty impressive. If you look at the monthly active users, which they've started disclosing for their brands, up 10% to $55 million at Activision, up 23% to $26 million at Blizzard, and of course, King Digital, up 3% sequentially there

since they closed the acquisition of $463 million. So, you're talking about a company that has over 500 million active users. That puts it just behind WeChat, YouTube, and Facebook in terms of audience size. O' Oh, WeChat. I didn't realize that. Very popular, very popular. And CEO Bobby Kotick, I thought he made a good point on the call, he said, our audience spent 42 billion hours playing or watching our games games in the past 12 months, that's slightly more than people watch Netflix. O' Wow. They're talking a lot more about their audience at Activision. I think it speaks

to the popularity of interactive games, the continuing move to mobile on games, but also just the digital sales of games. If you go back even five years ago, most gamers, the way you'd buy games, you'd go to Walmart or GameStop, you'd spend $50, one game, several weeks later, you're done playing with it, you move on to the next game. What's happened now is that the lives of these games, and the revenue potential for these games, because of updates or because of map packs and extra things you can buy, now the average revenue of a game might be $100 or $150, and it might last a year or two longer. So, a lot of great things happening in the video game space in general. Of course, Activision's the leader,

and I didn't even talk about esports, which of course is also a big future. O' Remember years ago, when the stock just could not break out of its range, and kept saying, they're putting up good numbers, they're putting up good numbers, recurring revenue, move to digital, it's all going to work. It speaks to holding on to companies that you believe in and that you really like the model of, and then the stock will come around eventually. Yeah, exactly, Ron. I think it's that perfect example of that coiled spring. Companies fundamentally get stronger and stronger, and eventually the stock price just explodes higher. Zillow's first quarter loss was bigger

than expected, but the company raised guidance, and it must have been pretty rosy, Jason, because the stock is up nearly 10% this week. Yeah. I mean, to that point, I think at this stage in its life, Zillow is primarily a revenue story. And so, anytime you can see raised guidance like that, I think the market generally will receive it well. A very broad portfolio of brands now with Zillow, Trulia, StreetEasy, HotPads, and there probably will be some more that come in there over the coming years as well. They're focused on, really, four main priorities. Growing their audience of users, which they continue to do. March traffic peaked at more than 166 million. Growing

their premier agent business, and you look at that segment, revenue grew 25% to 134.5 million for the quarter. Interestingly enough, on this note, this part of the business, they're focusing on really more the high performers of premier agents, as opposed to trying to grow this just vast network of agents. Because I think, not only do they want to be recognized as the place where you can find anything real estate, but really the quality real estate information out there. So, they're focused more on quality, less on volume there as far as the agents go. And that actually is working out. I think that's a good long-term strategy. The emerging marketplaces, which is a smaller part of the business, but mortgage, rental,

they continue to add new tools there, which continue to benefit the top line there. And then this is a company that really prides itself on its culture, and being a company that can attract and retain great talent. Ultimately, this is a tech company. I truly believe that this is the new direction. This is the direction the real estate market is going in most cases. It's going to give consumers more information, more access to that information than ever before. Again, top-line story, the top-line's moving in the right direction. I think, eventually, these guys pull back on spending a little bit, profitability will really accelerate, and patient shareholders should be okay.

And I'll add, I think one thing going for them is that you do have this whole millennial generation that, for many reasons, has not been able to purchase a home. In fact, you do surveys, and it is a population, now the biggest population actually in the country, and they do really want to buy homes. And I think that's a generation that grew up on mobile, grew up on using things like Zillow. And so, I think that just means home transactions, home buying and home selling, is still going to be tremendous in the years to come. And that feeds right into Zillow's strengths. It's interesting, my wife's a realtor, and so it's kind of a double-edged sword,

because it acts as a great way to get business, but sometimes you're fighting against the data that people are reading that isn't exactly accurate. Everyone now thinks they're an expert. The realtor has to come in and explain, let me explain the market to you, let me explain why values may be not what you think they are. So you sometimes have to fight against all that information that is flowing to people. First quarter profit and revenue for CVS health coming in a little bit higher than expected, and the stock moving a little bit higher, too, Ron? Ron Grossman. The company's doing well, benefiting from all those Target pharmacies they took

on in the acquisition of Omnicare. Same-store sales are up 4%. Margins took a hit. What we call reimbursement pressure continuing to weigh. Some of their product mix were kind of hurting margins. So, adjusted EPS was only up 4%. But, pretty good. Guidance a bit weak, week, but reiterated full year. So, I would say, everything's on track. The company continues to execute well. O' MercadoLibre is the most popular e-commerce business in Latin America. First quarter results were surprising, but in a good way, Matty. Surprising in a good way. It's tough to follow the top line in earnings results

for this company, because the currencies they deal in in Latin America are so volatile against the U.S. dollar. Three metrics I really like to use, if you look at registered users, those Those are up 20% to $152 million, so they're by far the leader in e-commerce in the region, of course. Items Sold, which is my proxy for revenue growth, up 39% to 38 million units. And then, Transactions on Mercadopega, which is their PayPal-like platform, up 86% to $27.5 million, which gives you an idea of the velocity of transactions across Mercadolibre's platform. I love this company. I think if you really want to play e-commerce in emerging markets, this is probably your best bet.

More than three years ago, hedge fund manager Bill Ackman invested a billion dollars to short Herbalife stock. Coming up, let's see how that's working out for Bill. Stay right here. You're listening to Motley Fool Money. I gave money to Bill. He pays up my bills and helps me make up my The Motley Fool Money is brought to you by Rocket Mortgage by Quicken Loans. Steve Broido, do you remember what it was like buying a house, going through the whole mortgage process? I do, yes. I bought a house in 2005. Good time? It was a pretty big process.

A lot of paperwork, yeah. Very much so, yeah. For anyone who has bought a home, you know how frustrating and time-consuming getting a mortgage can be. But Rocket Mortgage brings that whole process into the 21st century by taking all the complicated, time-consuming parts of applying for a mortgage out of the equation. With Rocket Mortgage, you can easily share your bank statements and pay stubs at the touch of a button, helping you get approved in minutes for a custom mortgage solution that's been tailored to your own financial situation. And Steve, almost best of all, you can do it all on your

phone or your tablet. Very cool. That wasn't happening back in 2005. Most definitely not. Definitely not. So, if you're looking to refinance your mortgage or buy a home, check out Rocket Mortgage today at quickenloans.com slash fool. Equal housing lender, licensed in all 50 states, NMLS, consumeraccess.org, number 3030. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Matt Argesinger, and Ron Gross. We'll get back to the news of the week in a second, guys. But I want to talk for a minute, just a minute, about company guidance, because we reference this all the time. It is

always part of the story when it's earnings season. But I want to know how you guys use this as stock analysts. And Matty, I'll just start with you. Well, I do take management guidance pretty seriously. I think when management sets expectations for the year or beyond that, it's a way for me to gauge what I think the growth of the company could be. And it gives me ways to determine whether management is able to control the destiny of the company, where they're able to reach goals. What I don't take very seriously, of course, is street guidance you get from analysts and ... Other than us.

Other than us. Unfortunately, a lot of companies are really good at playing the earnings expectations management game. They're great at under-promising and over-delivering on quarterly earnings calls. For me, I don't know what the actual statistics are, but I I feel like every time I read an earnings release and you see the reaction, it's always, well, this company beat by $0.02 or $0.03, or they beat revenue expectations by $10 million. It's no longer a surprise. What is surprising is that the stock still reacts positively in general to that, when it's really just all about a company managing expectations. But Ron, let's just take a new company. If you start digging into a company and

you buy the stock, is that management on a tighter leash than a company that you've known for a while and a management team that you've known for a while? Because I'm assuming that it takes a little while to get a sense of how they are when it comes to offering guidance and their vision for the near and long-term future. That's fair. Some companies, some management teams are better than others at issuing guidance. And some industries lend itself to guidance better. Early-stage technology, fast-growing companies, it's very hard to nail that, even if you're there every day managing the business.

More stable, blue-chippy-type companies, you can kind of nail that management guidance. You can make it much tighter and not have to make as many revisions as you would with a high-tech company. So I think if you're focusing on valuations and value, for example, like I do, It is helpful to get management's thoughts on where a company is going to be a year from now in terms of cash flow and profits. The quarterly guidance is a little too much for me. It's a little too granular. They constantly have to update it. I would be fine with, let's just stick for one year out. How does this year look like it's going to shape up? That helps me to inform my models and make a decision about a stock.

Are you the same way, Jason? If you could wave a magic wand, companies don't give quarterly guidance anymore? Yeah, I wouldn't have a problem with that. I tend to always pay attention to what management says they're going to do. I care more about what management says they're going to do versus what any Wall Street analyst ever imagines they might be able to do. It always makes me chuckle, businesses like TripAdvisor, for example, where they don't really offer any guidance, other than just maybe a range of sales growth that they're looking at. But you know very well that management there is geared towards three- and five-year timelines

there. So, it makes me chuckle the audacity of Wall Street to sit there every quarter and say, oh, they missed analyst estimates by this much money. Well, those estimates are just arbitrary guesses on your part. So, yeah, to Ron's point, some companies lend themselves better than others to setting guidance. But for me, really, the important part is is that management is doing what they say they're going to do. If that's happening, and you see the business continuing to perform fundamentally well, over time, the stock market is going to recognize those good businesses. It's just a matter of us being more patient. We have to remember, earnings per share numbers, which are usually the most prominent

part of the earnings release, it's what analysts usually zero in on, and whether or not a company missed or what they're guiding for in terms of EPS, those numbers can be so manipulative. I don't want to get in the weeds here, but the bottom line is that those numbers can be manipulated in a way that really any company, most companies, especially financial companies or companies that have the ability to do that, can really report almost any number they want in terms of earnings per share. So, just be very aware of that. Something as simple as share buybacks, for example, they always chat that as being such a great thing. Plenty of statistics out there to prove that companies are pretty bad

at it, but that's one very simple way they can reduce that share count and therefore boost earnings per share, which, hey, that looks great, quarter, you beat the estimates there and everything, but really, is that a sign that your business is performing? And I'll just wrap it up by saying, if you're a long-term buy-and-hold type of investor, you can absolutely ignore the quarterly noise. And you probably can even ignore the annual noise, management guidance or analyst guidance, as long as you feel the company is on track and building and growing over time, and management is making the right moves. The rest can get a little bit too granular, can be too noisy, can lead you to make poor decisions, buy and

hold good companies that are executing well. You went in a slightly different direction. I thought you were going to say, you can ignore the quarterly guidance, and you can ignore the annual guidance, as long as you keep listening to Motley Fool. That's what I meant to say! I thought that's where you were going. Let's get back to some of the news of the week. Jason, you mentioned TripAdvisor. Expenses in the second quarter rose more than 13%. That hurt their profits, and that hurt their stock a little bit this week. Sure. A very good example, again, of one where analysts set out all of these expectations based on zero guidance from TripAdvisor. We know how TripAdvisor, how Stephen

Coffer is running this business. They're making this move to instant booking to make TripAdvisor not only the place where you get your information, but the place where you can book your hotels and your attractions and places you want to go after consuming all of that information. They are focusing on a four-phase plan here in this rollout. They gained Hotelier and OTA, Online Travel Agency, partner adoption in 2015. They've done that. They've got a lot of hotels and relationship there with Priceline on that instant booking platform. Execute the global product launch. Check. That's happened now. They're in the middle of really trying to perfect that experience and educate users that you can now actually go do that on TripAdvisor.

You can book a hotel there. And then after that, it's really, hey, let's continue to delight our users, show them the capability, grow repeat purchases, that'll be something that happens a little bit further down the road. But what this has all done, because there's a difference in the way the revenue is booked on TripAdvisor now. It used to be something that was recognized whenever the click was made. But now, if you're booking something on instant booking, that revenue isn't recognized until the person actually makes the visit and stays at the hotel. So, it delays the revenue recognition a little bit out. And that's why the top line is slowing down here in the front half of the year. That will re-accelerate the back half

of this year and back into 2017. And again, a great example of a business with a longer-term mindset there. And again, there's nothing out there quite like TripAdvisor. They have such a great environment there of content, pictures, reviews, opinions, and a wonderful mobile presence as well. So, this is one we continue to be very enthusiastic about in Million Dollar Portfolio, especially. Did they have to go back and restate revenue, because they said, we've been doing this wrong? Or was it just a change in policy for going forward? No, it was a change in policy. When they decided to go ahead and roll out instant

booking, it was something they were very clear with up front in saying, we've been growing our top line 20-25% here these past five years. You're going to see, in the case of these next two years, the revenue is going to slow down considerably, because No. 1, we're changing our tack here and moving in a new direction, but No. 2, it's delaying a lot of that revenue out. So, a couple of things that will accelerate this, creating awareness that you can actually do this on TripAdvisor's platform, and then as the timing catches up. And again, we should see more of that towards the back half of this year, definitely into 2017. Herbalife's first quarter profits came in higher than expected. Stock up 12% on

Friday, and Bill Ackman's billion-dollar bet against this company really isn't working out well. Stock's up 40% over the last year. two stories going on. There's the activist component with Acme attacking them using words like pyramid scheme. Those are big words, right? And then there's, how's the company executing? And the company continues to put up relatively decent numbers. Sales are up 11% if you exclude currency effects, and they raise guidance for the year. So, they continue to do well. I think the stock is actually moving on the news that they're in advanced talks with the FTC to settle some of these things that perhaps Mr. Ackman was accusing them of.

They've said that a fine could be as much as $200 million, which for a $6 billion company actually isn't that bad. So I probably think some people kind of heaved a sigh of relief there and sent the stock up higher. But they said there's a number of open issues with the FTC, a range of possible outcomes, including potential litigation or perhaps a settlement. So there's a lot of open items here, but I think people are saying, okay, it looks like we're going to have a resolution here, and then the stock will trade as the company executes. This week it became official, the big merger between Halliburton and Baker Hughes was called off, but don't cry for Baker Hughes, they got a lovely parting gift in the form

of a $3.5 billion check. Boy, as breakup fees go, Jason, that is phenomenal for them. And And yet, both stocks down this week. I get why Halliburton is down, because they've got to write a big check. Is Baker Hughes down because people are looking at this company and thinking they are just in a much more troubled state than Halliburton? Well, I think it brings more uncertainty into the picture, which we know how the market reacts to uncertainty. A couple of things here. Halliburton is going to be just fine. They have the financials to bear this, though it does bring into question, I think, leadership. You have to wonder, were they entering this transaction perhaps a little overconfident,

a little cocky? I don't know, I think it could be probably argued that you could at least ask that question. If we go back in time, we find someone at Halliburton Management saying, oh yeah, go ahead, add in a $3.5 billion break. This thing's a lock. This thing's going through, no problem. That's something worth at least looking into. There's a lot of money that seems to be wasted in this industry. For Baker Hughes, again, it brings some more uncertainty into the picture for them, because there are a number of different strategic initiatives they need to examine with the business, particularly now that they're not going to be a part of

something bigger. But the interesting thing I think here, and actually, we talk a lot about share buybacks and really how so many companies do such a poor job at them. This is an interesting situation, though, because Baker Hughes Management is talking about wanting to return value to shareholders. This is some found money, really, isn't it? This is money that they didn't have to do anything for. They talked about using some of this cash to buy back shares. In this case, I think this could work out pretty well, because most energy stocks, and Baker Hughes is no exception, are in the tank right now. You want to buy back those shares when the market is really taking you to the shed. It could be argued

that they are buying these shares back at an opportunistic time. They have the financial resources to bear this storm. And I think, when all things are said and done, this could be actually a nice little opportunity for Baker Hughes shareholders if they can hang on. In terms of Halliburton's case, I think if you ask Paul or us on the MDP team, we wanted to see this merger go through, because I think it created a lot of competitive advantages for both companies, as a combined company. At the same time, though, any time I see a big acquisition or merger unfold, and the company's allowed to be separate, generally, I don't feel too bad about that. Especially when it's a big one like this, these acquisitions

don't often create a lot of value down the road. Companies are usually, over time, better off staying standalone. Do you expect Halliburton to go shopping for a smaller acquisition? Obviously, this was a much bigger one with Baker Hughes, but do you think that they're itching to buy something? I think so. If you saw the conference call that Halliburton did, it's remarkable that essentially every oil and gas service company is losing money now. So, you can imagine how that affects a company like Halliburton or Baker Hughes or Shumbler Lane, but imagine what's happening to the smaller players who don't have as many combat advantages or the

balance sheet. So, I think there's going to be room for Halliburton to probably make some small acquisitions, especially during this still negative period in the cycle. Yeah, I think this is probably a deal that was more important for Baker Hughes than it was for Halliburton. I think Baker Hughes really needed Halliburton more than the other way around. But at the end of the day, they'll both still be OK. Coming up, we'll give you an inside look at the stocks on our radar. Stay right here, this is Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and

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. After years of poultry supply problems in China, KFC is starting to turn things around, guys. Sales in China rose 12% in the first quarter of this year, and now the company has unveiled a new offering, KFC polish. Working with the good people at McCormick, the spice company that provides KFC's secret mix of 11 herbs and spices, the nail polish comes in two flavors, original and hot and spicy. And I say flavors because it's edible nail polish. This might be the worst idea

in the history of everything. No extra crispy. So I would understand, like, scratch and sniff, like on a cherry-scented, are you supposed to actually start sucking on your fingers and then eat it? You can. Let me just play devil's advocate. If you're the producers of this nail polish, don't you want people to run out of nail polish as quickly as possible? So, instead of waiting for people to chip their nails, it's like, no, just wear it, and then at the end of the day, lick it off, and then they're flying off the shelves.

This is the end of Western civilization. I mean, as the father of daughters, there's more nail polish in my house than Nike's got sneakers. So, I don't know that this would be any different than any of the other stuff that they have in there. It seems like it lasts about a day, anyway. But I really think this is interesting from the McCormick perspective, right? I mean, are we talking about a new potential revenue stream here? O' Can you get a side of fries on your toenails? McCormick has found a way from your kitchen into your bathroom.

O' I just thought of this. The reason I kind of like it, even though I'm a little a little speechless here, just the thought of it. But, the whole nail polish removal chemical scent that invades my apartment, I'm sure your guys' house is at least once or twice a month, that kind of goes out the door, right? Because, essentially, my wife is ... Yeah, maybe you're not really trying to pull this stuff off, it just disappears after you're done licking. I'm sure there are some upsides, although I was bouncing this idea off our colleague Melissa Malinowski, who heads up our office ops team here at The Motley Fool. She was

immediately horrified by the idea, and brought up something that I had not thought of, which is animals. If you have a dog or a cat, and you're feeding them, what does this do for them? Particularly if we're talking about the hot and spicy. I have two. But if this catches on, if this does catch on, what's coming next? Pepperoni pizza? Do I need to state the obvious timing I mean, with Mother's Day, just a couple of ticks of the clock away here. If any listeners want to test this out for us, drop us an email, radio at fool.com. Let us know how it worked out.

Let's get to the stocks on our radar. We'll bring in our man Steve Roido from the other side of the glass. Ron Gross, you're up first. What are you looking at this week? Steve, I'm really thinking about adding to my position in Apple, AAPL. The stock's down 25% over the year, last year. I get that. Concerns over China.

I understand that. And really concerns, I think the overriding concern is, is this company going to be able to continue to innovate? I think the answer is yes. $11 billion in operating cash flow during the most recent quarter alone, $230 billion of cash on the balance sheet. Now, the iPhone 7 and future iterations does need to be strong. That's a given. But 10 times earnings, 2.4% yield, I think it's a bet worth taking. Steve, question about Apple? What would make the iPhone 7 just knock your socks off? Is there anything they could put on it that would just make you go, this is it?

Because ever since the first iPhone, it's incremental. It's got better. The screen's gotten better. It's got a camera on the other side. It's cool, but, you know. That's fair. This will never happen, but I used to love the old StarTAC flip phones that, you know, you could kind of feel like it was a real phone.

Like the StarTAC, but the StarTAC Motorola StarTAC. Oh. Remember those? If they made one with a flip up, I'm in. Retro. I like it. It rhymes with StarTAC. Jason Moser, what are you looking at?

Yeah, one I've talked about here before, WageWorks, the ticker is W-A-G-E, and they provide consumer-directed benefit programs like flex spending accounts, health reimbursement arrangements, things like that, to employers. So, I like the value proposition there, helping employers save on the tax bill, helping employees save on the tax bill, talking about companies that run their own show and meet their own expectations. They met their own expectations that they set for themselves last quarter. A couple of interesting catalysts here on health reform. As you see, new healthcare coming in, and many will pay lower prices for higher deductible plans, which means more out-of-pocket expenses, more incentive for

them to participate in those plans. And they just signed a really big deal with the U.S. OPM that's going to bring in a number of customers as well. So, interesting, interesting stock I'm going to take a look at for MDP. Steve, question about WageWorks? With a company like this, do I as a consumer have to lose for WageWorks to win? Is it just higher fees? And I'm like, oh man, they're winning and I'm losing. I want win-win. I think they're actually setting it up as a win-win, because you get to stash those dollars away as pre-tax dollars. They're helping you save on your tax bill.

O'Reilly. Well, I talked about Activision Blizzard earlier. I take our ATVI. Listen, we are close to a watershed moment for esports, which is, for those who don't know, competitive video gaming. Activision's got the best games. They've got a massive audience. They recently recently acquired Major League Gaming, which is one of the big esports leagues. Bobby Kotick, the CEO, can't stop talking about it. I think it's a massive opportunity. Steve? My question is, when is virtual reality and Activision Blizzard synonymous? That's going to take a little more time. At least five years, even longer. I just

don't think the technology or the costs are low enough to give it a mass audience just yet. What do you want to add to your watch list, Steve? You know, I've owned Activision Blizzard and I regret selling it, so I might add it back to the watch list. It seems like it's done very well recently. All right, Ron Gross, Jason Moser, Matt Argersinger. Guys, thanks for being here. Thanks, Chris.

That's going to do it for this week's show. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.