Motley Fool Hidden Gems Investing - The Future of Investing

Episode Date: September 18, 2015

What does the Fed's inaction mean for investors? Will Hewlett-Packard's fortunes improve after a break-up? And will Olive Garden continue to serve up big returns? Our analysts tackle those stories and Motley Fool co-founder Tom Gardner weighs in on Apple, Netflix, and the future of financial services.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill. 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. From Million Dollar Portfolio and Motley Fool Rule Breaker, Simon Erickson. And from Motley Fool Deep Value, Ron Gross. Good to see you as always, gentlemen. Simon's got two jobs. I know. He's working double time here. We've got the latest earnings from Wall Street. We've got surprising developments in the beer and television industries. And as always,

we'll give you an inside look at the stocks on our radar. But we begin once again with the Federal Reserve. Janet Yellen and friends deciding not to raise interest rates, citing the global economy as well as market volatility. And Ron Gross, you called this last week. I did. A broken clock, right twice a day. Yeah, I didn't think they were going to raise. They certainly are going to raise, whether it's in December or sometime in 2016. I don't have a guess yet, although December would be, if you forced me to guess, I would say that. What mostly surprised me here is the fact that the market sold off like it has on the news, I would have guessed that it was going to rally. These things are usually

counterintuitive. It turns out what's going on right now is intuitive, because investors are mostly concerned that the economy isn't strong enough to withstand a minor hike of 25 basis points, and so the market is selling off. Usually, it would go the other way because of these things being counterintuitive so often. I understand that a bit, but I think it's more just so the timing wasn't right. It's not really that the economy isn't strong enough to withhold it yet. It's just there's things that are a little shaky right now. Some things aren't as perfect as the Fed would like them to be. Let's give it a couple few more months, and then I think we can go.

But Jason, one of the things you said last week is, boy, I really hope they're not going to use market volatility as a reason not to do this. And that's kind of part of the reason here. That was part of the reasoning. And I can't say that I agree with it, because by that logic, then the powers that be could just introduce some significant volatility every time this decision comes up, and it just keeps on repeating itself. I think that all in all, this is probably the easy way out at this point. They came up with some reasonable justifications besides just the market volatility. With inflation still low, and it seemed like inflation was

a big theme of Ms. Yellen's talk after, this is something that's not a matter of if, it's a matter of when. I will say, to Ron's credit there, picking it right, I caught him outside last week flipping a coin. Okay, heads, they'll raise. Tails, they won't. So, it must have come up tails, right, Ron? Ron Grossman. Exactly. But, no, I mean, I think what will be interesting to watch here is, because it sounds like maybe a rate increase will come at some point before the end of the year, it'll be interesting to watch the inflation numbers, because that's kind of what they're really pegging this to. And if inflation remains low, and there's reason to believe it could, how long will

this actually drag out? Well, first of all, congratulations, Ronstadamus, over here, calling this. Very nicely played. From my rule-breaking perspective, I think it's very interesting how investors are putting money to working companies instead of bonds right now. So, you've got all this cheap money, and I think that's fueling innovation. You couple cheap money with crowdfunding, there's a lot more companies that are launching right now, couple that with private equity money out there as well, and the internet, and there's a cheaper way to scale and to sell products these days. I think this is a great time to be a rule-breaker with cheap money on the economy.

Beer stocks on the rise this week on reports of a potential mega-merger. Anheuser-Busch InBev is talking to rival SAB Miller about a merger that would combine the two biggest beer makers in the world. The result would be a $250 billion company producing Budweiser, Miller Lite, Corona, and a host of other brews. Simon, why are they doing this? Anheuser-Busch InBev is already on top of the heap, why would they look to merge with their No. 2 rival? Well, I'm glad you named some of those brands, which hopefully some of our listeners are drinking while they're listening to this programming. But there's two keys in this industry. I think one is distribution, and the other is appealing to consumer tastes.

First, looking at the distribution side of this, InBev, before this would go through, accounted for about 21% of the beer market share globally. Add in that SAB Miller is about 10%. You've got a behemoth in the industry, 30% market share globally of beer distribution out there. And this can kind of leverage the position that InBev has in the U.S. and Brazil and China. SAB's got kind of a dominant position in Latin America and Europe. All of a sudden, you've got some efficiencies from better distribution. But add on to that as well that global taste for beer is different in different countries. For example, Budweiser is a premium beer in China.

We might not think of it here. Some of us might. I don't know. Now I am worried about China. You can take advantage of those geographic tastes that are different. Also, get local craft beers. If you've already got the distribution, a lot of these companies have a stake in it anyway. So, this is a game of efficiencies and distribution. I think that the strategy is correct. Jason, I don't think there's anyone who thinks that the U.S. Justice Department is going to let this go through without some

sort of spinoff of some of the brands here. But I have to believe that if you're Boston Beer Company, if you're some of these smaller craft brews, even just local private craft brews. In some ways, you're probably rooting for this a little bit, aren't you? That's really difficult to say. There, I think, is no question there would be a very thorough and close examination of any sort of antitrust issues letting this go through, because it would be so big. But really, scale is the name of the game here. Perhaps if you're a little craft brewer, then you're looking at this and thinking, wow, OK, that just gives them the financial might to buy up really their favorite little craft brewers that they

want and rolled them right into the fold there. Boston Beer continues to be stuck in this sort of little twilight zone, where they're becoming a bigger brewer, so to speak, and that alchemy and science wing of the business is bringing in some interesting little concepts there. But again, scale is the name of the game, and that's what they don't have yet compared to these big boys. A shakeup in the cable TV industry this week, as New York City-based Cablevision was bought by European telecom Altice for nearly $18 billion. Ron, I'll be honest, I've never even heard of Altice until this week. Who are these guys? They're out of Amsterdam, and they've

been in acquisition mode. They've been looking to get an entree into the U.S. They had wanted to buy Time Warner Cable. Charter Communications beat them to it. This is a great way to get three million subscribers in the New York area. I think we'll continue to see them be acquisitive, whether it's in the U.S. or overseas, it's hard to tell. But certainly, it's a nice acquisition for them. Not cheap, $17.7 billion, including $10 billion of debt. It's a 22% premium for Cablevision shareholders. Not too shabby. They're going to have to go out and sell some shares, though, to raise the money to get this done. If you're a behemoth like Comcast, are you concerned about this entree on U.S. oil, or

are you just not worried, given how much bigger Comcast is than Altice? Yeah, I think that the competitive dynamic kind of remains the same. We'll see if Altice continues to do roll-ups, but I think for the most part, all the kind of competitive advantages that one or the other had remain. Altice is big on this kind of thing we call the quadruple play. We have a lot of triple play subscriptions here in the U.S. Quadruple brings in landlines as well. We've discussed, you know, it's interesting because landlines are kind of going the way of the dodo bird. The growth industry that is landlines. But me being an old-timer, loves his landline. So, I think the competitive environment remains mostly the same. Next month, Hewlett-Packard will formally split into two companies. But this week, the tech giant announced it is laying off up to 33,000 employees. Jason, this is in addition to the 55,000 jobs that HP had previously announced it was cutting. I think that's probably what really

stoked the Fed's decision this week, right? It was dis-news, easily. Jobs are going away here. I think with HP, while this all helps the cost side of the equation for this business, it doesn't really do anything to help the growth side of the equation here. That's really the side that investors want to know more about. If you look at HP's income statement, it is just a litany of shrinking businesses. This is interesting. Looking a little bit closer to the income statement there, this is a fascinating business. When you look at restructuring charges. Now, by nature, restructuring charges are supposed to be one-time expenses. When you look at Hewlett Packard's income statement, it's not the case here. You go

all the way back to 2001, and every year they have had some very healthy restructuring charges that have totaled almost $15 billion up to this point. And I think that with this restructuring, of course, we're going to see more of those going forward. It's no surprise the stock has been a dud over that same period of time. Meg Whitman's got her work cut out for you with a new business. Who knows how it all shakes out, but I don't see any reason why investors should feel compelled about this story today. And talking about those restructuring charges, I mean, HP is a company that's been plagued by ghosts of balance sheets past. I mean, this is the bloated acquisition company

that we've gotten used to. 2002, $25 billion for Compaq. 2008, $14 billion for EDS. That doubled their workforce to over 300,000 people. 2011, of course, remember the $11 billion acquisition of Autonomy that they wrote down $9 billion the year after that. And then, the industry changes the game to cloud computing. You don't need all this packaged software anymore. And I think this is still pain to come for HP. So, what do we think of these two new companies? Late October, it's going to split. You'll have HP Inc., which is sort of the PC and printing side of the business. And then you've got Hewlett Packard Enterprise, which is the business software and services.

probably worth noting, Jason, that Meg Whitman, the CEO, she can pick which either one she wants to run. She's going to be running the enterprise business. Yeah, what do we think? I mean, we think we're not going to invest in them. That's basically it, in a nutshell. I mean, again, I just don't see any compelling reason. This is like the company that tech just has flown right by. They seem so antiquated at this point in this new age of cloud computing and data storage. I don't know that Hewlett-Packard the chops to necessarily compete so effectively in today's world, regardless of cost cuts, regardless of spinning off the business. This is still one that I just don't see any compelling

reason at all to be a part of it. Coming up, the return of a legendary restaurant innovation. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here with Jason Moser, Simon Erickson, and Ron Gross. Oracle falling a bit this week after first quarter revenue came in lower than expected. Ron, we were talking about cloud computing earlier in the show, and I think if you're looking for a bright spot in Oracle's business, it's probably the cloud division. It's a lot of the same themes we were

talking about with Huy Chulipakard. You're right. Cloud business is doing quite well. Revenue up 29% in the latest quarter for that segment. However, that's only 7% of the business. The legacy business, which is the software licensing, is the problem here. That fell 16%. If you take out currencies, which is affecting this company as it is with most, it's only 9%. But still, we have a problem in the legacy business, and Oracle knows that, and they're desperately trying to reinvent themselves as a cloud company. And they're doing a fine job, as I said. They've been spending a lot of money building out these data centers, and that's almost done. So, you probably will start to see margins increase

going forward, but again, only in that small segment. This is the second largest business software company in the world. Do they need to at least consider taking a page out of HP's playbook and think about, hey, maybe if we split our business in half in some way, we're going to do better for shareholders? It's possible. But then again, you probably won't get any takers for the legacy business. The cloud business might be interesting, but it's awfully competitive. I mean, everyone's moving to the cloud now. You have to almost to survive. So whether it's SAP or IBM or Microsoft, Salesforce.com, eating everybody's lunch in certain segments. It's a very competitive

business. So, doing it, you spin it off at your own risk. Shares of Fitbit up more than 25% this week after Target announced it will offer Fitbit activity trackers for free to its employees in the United States. That's well over 300,000 people, Simon. That's good news for Fitbit's business. Definitely good news as far as the number of target employees. Chris, I have a little bit of a different take on this, though. I think that this story is less about Fitbit as the company, who's just an early leader in this movement, and more about the personal accountability that people are taking for their health now. You're going to see a boatload

of wearable devices that are going to be tracking biometrics and reporting your health to hospitals and all of this stuff coming in the next couple of years. I think even more important is going to be, the company that's going to integrate that and put the cloud-based software to make sure that that's accounted for. Fitbit is still getting less than 1% of revenue from recurring sources, so I'm not really sure this is the right way to play it. But they are an early leader, they're playing the hype cycle well. Is the only thing they have going for them that first mover advantage, that big first guy that gets into this? Is there anything special?

I don't know yet. It's to be determined, I think. I think the right thing to see is if they incorporate a software part of this business, or if people are just buying three Fitbits when they lose their first two. Yeah, I think Simon nailed it right there. I mean, it's hardware we always talk about being kind of a race to the bottom after a little while. And with Fitbit, they do have, I think, a very popular product and offering. They need to figure out a way to develop a relationship with the consumer, some sort of recurring, any which way they can get that software to keep people coming back and utilizing that to sort of report health back to wherever.

That would certainly benefit this business. But if corporate wellness is on the rise, and it certainly seems to be on the rise, then doesn't it make sense for them to pursue more of these types of deals? At the moment, it's a very small percentage of their overall business, but if they can cut a few more big deals like this ... Absolutely, no question. This is right up their alley. The reason why you don't see a company like Target offering 300-plus thousand employees an Apple Watch is because of the obvious cost difference. They would bankrupt them? That's where Fitbit really actually

has a big advantage here, in that they have a device that serves a singular purpose. It's a health tracker. The Apple Watch is nice as a device as it is, it does a lot. So, it's not necessarily something that you might see strike this same kind of a relationship. But I think this Target deal is a great opportunity for Fitbit to really try to gain more of these kinds of deals. And with those kinds of deals, if they can figure out ways to strengthen these relationships and keep them ongoing, that would be tremendous for the business. I agree. Target's a good move for Fitbit. They should celebrate this deal. But I think there's also going to be a lot of competition. $9 billion market cap for this company is

a little too spicy for me right now. Rite Aid's second quarter revenue looked good, but profits took a hit, and so did the stock, Ron, down around 10% this week. I wasn't surprised to see the stock come down, but the magnitude of how much it fell was the shocker for me. Profits were down significantly, but there's a lot of one-time charges in there, and you've got to strip them out. They retired debt early, and they have costs to acquire the pharmacy benefit manager, EnvisionRx. If you strip those out, things certainly aren't is bad. What is bad is we're seeing lower pharmacy reimbursement rates, and that's really

eating into profits. That's the problem across the board, not just what Rite Aid is having. Eventually, that may work itself out, and we'll see things stabilize, but for now, that's cutting into profits. They had to cut their full-year guidance as a result, and the stock sold down as a result of that. Did it sell down to the point where you think it's a buying opportunity? Probably nine times EBITDA right now at current prices, which to me is neither cheap nor expensive. It's kind of right in the middle there. Probably a wait and see for me. Darden Restaurants reports earnings

next week, but the stock has been on fire over the past year, up nearly 40%. The parent company of Longhorn Steakhouse, Capital Grill, and Olive Garden was in the headlines this week with the return of the pasta pass. Yes, unlimited pasta. From October 5th through November 22nd, they offered just 2,000 passes, guys. 1,000 of the $100 passes for individuals, and then 1,000 passes for families. Those are $300. And Jason Moser, they sold out those passes in one second. You know, I just wonder, is that physically possible? I mean, like, OK, go! Done. I mean, that's what that's like, really.

But, I mean, last year we were talking about this and thinking, OK, this is sort of an interesting little pitch. And what this has actually turned into is a very neat PR stunt for them, because that's all it is, right? They're not making money on this deal, but they're certainly creating a lot of awareness there. And when you look at Olive Garden, I mean, Darden in general, Olive Garden makes up the majority of this company's restaurants. about 850 or so of them, a little bit more than half of their whole presence there. And Olive Garden's actually performing very well. Last quarter, they confirmed they've had 10 consecutive months of same-store sales growth. To-go transactions have really helped boost the business.

Those were up 23% from a year ago. They have earnings coming up here soon, I think next week. And so, it'll be interesting to see kind of how that's going. But, you know, an interesting announcement in the middle of this year, they're going to be spinning off part of the business into a REIT. And that will be something, you know, it's a way for them to unlock sort of the real estate assets in return a little bit more value to shareholders. And I think that's been part of the catalyst for the stock this year. But there's no question that the restaurant operations are performing

better and it's no coincidence that it's right after they got rid of a good old Red Lobster. Let's go to our man behind the glass, Steve Broido. Steve, you're the biggest Olive Garden fan any of us know. Were you one of the lucky 2,000 people to actually get a pasta pass? I have to say, I was unaware this even was occurring. Oh my goodness! Man! Last time around, we heard that they were reselling these on eBay. Can you do that? Are they resellable? Steve, get on that, I imagine. If it is resellable on eBay, is that something you'd be interested in?

Maybe. $100 for an individual? Well, first, do you go on individual or do you go on family? I'd probably go family. And I'd see how big my pockets could be filled with pasta for the road. Because the to-go is actually working out pretty well for them. This is no doubt one of the best deals in the industry in terms of grams of fat per dollar spent. All right, guys, we'll see you a little bit later in the show. Up next, a conversation 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 in studio now. Thanks for being here. Great to be here, Chris. I want to talk to you about a bunch of things, and especially stocks, but I would be remiss if I did not ask you about one of the big stories. I think it'll end up being one of the big stories of 2015, certainly of the recent past, and that is the market volatility that we had in August.

It certainly got a lot of headlines. I suppose it always makes for compelling television when the market is dropping, but what was going through your mind when you saw the recent market volatility playing out? I felt that this is just a normal part of the market dynamics. This was probably the first time in my history as an investor where I felt completely that this is just clockwork. It's supposed to happen. It comes every 11 months, according to Morgan Housel's research here at The Motley Fool. And that really completely changed my view of market. Climbs and declines is Morgan's work, just the mathematical context of the market going back more than 100 years.

Stock market falls 10% every 11 months. Once you know that information, it really should. You know, Warren Buffett once said about value investing, and maybe he meant about investing in general, that either you get it or you don't. And I like that he said that, but I sometimes feel that The Motley Fool's mission is to prove that that isn't right, that we can help you get it. we can help you understand it if you didn't naturally pick up how to invest successfully. And so, yeah, for me, the 10% decline, I guess it was down 12% or 13% at some point. That mathematically happens historically every 11 months. And this was the first one because of Morgan's work where I was like, ah, there it is. Great. Now we're going to buy.

Speaking of Morgan Housel, you're the lead advisor on our Motley Fool. Yeah, Morgan isn't. Yeah, Morgan isn't. He is not. Well, he is working with you on the Motley Fool One service, and there's a new initiative. He works for me in the Motley Fool One service. The initiative is called Mindset, and it really gets to one of the things you were talking about, which is just sort of the emotional part of investing, which, as we've seen recently, that can be tough. I mean, we're not robots. We're human beings. So, emotion is a part of this. to what extent, if any, do you think emotion can be a positive thing for our investment thinking?

Well, Warren Buffett, another quote that we know is that he feels that the reason he succeeded and turned a couple thousand dollars into tens of billions of dollars over his life as an investor is because he learned how to manage his temperament. Not as people sometimes say, Oh, he gets to meet with executives. Oh, he has so much money. Actually, some of those things work against him. Now that he's so large, it's harder to succeed. What has worked for him is that in the darker periods of 2008, 2009, there's Buffett coming on TV and making big investments and saying, this is a great time to invest, when the natural reaction is to be horrified, not just about the stock market, but, wow, is capitalism collapsing

around us, and Buffett is buying. By the way, when Buffett first came out and said, now's a great time to buy. The market fell another 20% after he said that. I do remember some people going out and saying, you know, he's conflicted. He's trying to talk up his book. He says, no, he's just buying, and he's buying all the way down because he's getting those discounts. So, I think that Morgan's work, when we look back on it five years from today, he's leading mindset as a component of Motley Fool 1. I think we'll look back and say that that was one of the greatest contributions for investors that work with The Motley Fool that we've had in our 20-plus years in business. The landscape has changed a lot in

the financial services industry over the last 20-plus years, since you and your brother David started The Motley Fool. Tell me about your crystal ball. When you think about the next 20 years, how does the future of financial services look to you? First thing is, I think it's going to entirely move online. I think the frequency with which somebody will meet a teller at a bank rather than go to the ATM, or meet a financial advisor in an office rather than sign into a mobile app or a site online, I think that the decline of the traditional relationship with financial advisors is going to quicken and be dramatic over the next five to seven years. When you start looking out

five to 10, to go to 10 to 15 years, I think that more and more of the problems we're trying to solve in our financial lives, all of us, are going to be automated. I think it's very easy to select a smart credit card. I think it's very easy to select some foundational ETF and index fund investments to get started with. I think that that tool could also have behavioral components that are helping your portfolio to be managed. You're getting warnings and alerts like, no, you're inclined to sell right now, but historically, this would actually be the worst time to sell. So, I think that financial services will become an app. Just like Tim Cook recently said, television is becoming an app, your Netflix app or your

Amazon Instant Video app. I think that finance entirely is becoming an app. And when you go out 20 years, I would say all the things that we're hearing and thinking about driverless cars, I think that the children who are born 20 years from now will have easily the option to have their entire financial life automated online for them, all trackable, transparent, all 90% less expensive than it is today, and very highly personalized for people. And that will bring a lot more stability into people's lives. That is a huge triumph for humanity, if we can get people to have the right decisions being made in their financial life if they don't have an interest in learning or mastering it themselves. Let's go back to Tim Cook for a second,

because earlier this week, he went on Stephen Colbert's show, talked about a bunch of things. One thing he would not talk about or address directly was the question that was put to him about whether Apple is, in fact, working on a self-driving car. When you think about the prospect of Apple, with all the cash they have on the balance sheet, working on a driverless car, what do you think that means for Google, or for that matter, for a company like Tesla Motors? Or Uber, even. When I think about my quarter century as an investor, I will say that it doesn't sound necessarily convincing and devastating that it will win, because there is a reality in open markets, which is that those for whom that is the only thing they do, like, they

are only making driverless cars, or they are only making a cup of coffee. I mean, there there have been category killers that are so much smaller than their large competitors, and they just climbed their way up. I mean, if you think about Costco vs. Walmart, there would be no reason to think Costco could compete with Walmart, but they mastered what they did. They created a subscription approach to retail. And then Walmart came out with BJ's and tried to compete, but they just drove straight ahead on that. So, I would say, if you wanted to compete with Apple on driverless cars, it should be the primary thing that you do, not a laboratory research project inside your company. So, that would cause

me to slightly lean towards Tesla and Uber as the companies that may become the serious frontrunners on electric cars that are driverless, and all of the energy battery supercharger work that Tesla has done will be a real advantage. Which could mean that Uber or Tesla is acquired by Google or Apple, given their balance sheet. But I would bet more on those innovators mastering it than Apple and Google dominating as one of many different business lines they have. You're listening to Motley Fool Money, talking with Tom Gardner, CEO here at The Motley Fool. Let me ask you about a few of the stocks that are in the Everlasting portfolio that you run. I'll start with one that I own, and that's Chipotle. In general, I'm a happy

shareholder of Chipotle. And yet, I see that they are taking this, what I consider to be maybe too methodical approach to rolling out new concepts. They've had the Shop House Asian cuisine concept. O' You wish it was going faster. Just the fact that it's only a few months ago that they opened their very first location in Chicago, when you think of a city of that size. I'm curious, when you look at the way Chipotle is managing their business, what stands out to you? Well, there's always the possibility that the leadership team is not being aggressive

enough and they're not taking enough risk. But I would say in this category, my two greatest investments in restaurants have been Chipotle and Buffalo Wild Wings. I own both of them today. And they're both debt-free balance sheet. And what it generally means, if you're debt-free as a restaurant is that you could be expanding much more rapidly, because you can get access to leverage. You have leases. There are a lot of ways to raise capital to expand more rapidly. What's happened to Chipotle and Buffalo Wild Wings is they've built their balance sheet up. They've done the reverse. They've opened restaurants more slowly than they need to. I think their explanations are great. I think Chipotle's explanation is great,

which is, we want the best people, the best restaurateurs. We want to make sure that our food quality standards are high and rising. So, we think we're going to win, and we don't have to rush into it. I look at Chipotle as the Harley Davidson of the restaurant industry. They're not making as many motorcycles as they could sell, but they're slightly creating more demand. I think in a way, particularly if you're a returning customer at Chipotle, those long lines out of a Chipotle restaurant are a good advertisement for the business for them. I think they probably, to cross the chasm to an even more mainstream business, is just to continue to reinforce to people those lines move quickly. You get in that line,

you'll be done in seven and a half minutes. Like, if they had a clock or something that indicated, because I imagine there are some people that walk by that and are thinking, no, I'm not going to waste my time there. So, overall, I like the pace at which they're growing. I disagree with you on that, Chris, among so many other things. And actually, what I would say is that I think Chipotle is the Starbucks of food. They're not going to be as great a stock over a 25-year period as Starbucks has been, but I think the method that they have and the throughput that they have through those restaurants, those are huge competitive advantages for them. The newest addition to the Everlasting

portfolio is Netflix. That's a stock that's had an amazing run. I'm curious, why pull the trigger now? What do you see about the next five to 10 years in Netflix that made you think, yeah, that's a stock I want? Well, David has recommended Netflix a number of times. Stock Advisor, Rule Breakers, Supernova, it's been an incredible stock. It's one of the biggest winners for The Motley Fool in our 22-year history. It's been a very volatile stock. You can imagine, we're on the receiving end of a tremendous number of emails and communications about what people think about what we're doing out here. When Netflix was down, and it was down about 70%, we were just getting excoriated. We were being attacked from a number of people

on Twitter or wherever. And I credit David and his mentality of having a diversified portfolio of disruptors that can afford to have some losers in there. I credit him for just standing there and saying, no, I believe in Netflix, I'm sticking with it. I recommend it in Stock Advisor. My team convinced me to hold it through the volatility, which has been great. It's been a great, great stock for us across The Motley Fool. In the Everlasting portfolio, I think we just overlooked it here. The portfolio started in June of 2012. We're beating the S&P by 31 percentage points. We've got about 35 companies. These are the businesses I love the most. I think I probably just overlooked it, given

how incredible the stock has done, and the naturally, seemingly high valuation it brings with it. I think I just had it on my list on the side to consider. We had the drop in the market, and Netflix got dunked a bit. I think Reed Hastings is a young founder-leader of a really very cash flow-positive business when you look at owner earnings and look at the cash flow statement. They got a lot of great growth prospects. By the way, I'll close by saying, I think Narcos is an awesome show. I think Netflix has great prospects ahead. Virtual reality is something that you and I have talked about before. Oculus Rift, which

is the company that Facebook owns. Earlier this year, we were in Seattle, we got the chance to take a tour at Valve, which is a private company. When you think about the potential for virtual reality, where does it go from an investing standpoint? I'm trying to think, because we've certainly seen technologies that are pretty impressive from a wow factor, but they don't necessarily translate into a business. When you think about virtual reality, where does that go in a meaningful way on the business side? So, I bought the Oculus Rift developer kit, too. Knowing that, hey, this is going to have some flaws in beta, but I wanted to see and experience what it was like. I found

that I used it to the greatest extent, with the greatest delight, just watching either movies or conferences. I watched a human resources conference by the company Workday, and I just sat there with my Oculus Rift on it, and I literally felt like I was in the crowd. I thought I could turn my head to the left and there's somebody sitting there, and I'd be like, oh, hey, we're here, we're all learning together. So, it's immersive, and that's really great. That's really interesting to me. I don't think it's just that I'm 47 years old. I think that you really have to develop the game for virtual reality. If you try and translate something that's been made for into VR, it's dizzying and nauseating.

And so you have to have a whole different type of developer, like mobile developers. You have to have a different type of developer, which is happening at Valve, which is happening. But the last thing I'll say is I don't think it will really take off until it is interactive. until I'm signing to virtual reality with four of my friends and we're all playing hoops against four other people and I'm just standing in my living room, essentially dribbling around, no ball, just my hands in the air, passing it to my friends,

until it becomes interactive. And that's why that would slightly advantage Facebook with their commitment to networks and communication and community. But I think until that happens, it's going to be a sideshow. He's the co-founder, co-chairman of the board and CEO here at The Motley Fool, Tom Garner.

Thanks for being here. Thank you, Chris. Thanks for the great programs you put out every week at The Fool. 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. Sure. Welcome back to Motley Fool Money. I'm Chris Hill. Joining me in studio once again, Jason Moser, Simon Erickson, and Ron Gross. Guys, time to get to the stocks on our radar

this week. Our man Steve brought up behind the glass, I'll hit you with a question. Ron Gross, what are you looking at? I'm looking at Xcera, X-C-R-A, a brand new, literally brand new, watch list stock for deep value. They're a manufacturer of test equipment for semiconductor and other industrial electronics equipment. Tiny company, only $340 million market cap, but solidly profitable, great balance sheet, only 5.5 times EBITDA, looks cheap, no growth really baked into the current stock price. So if they can put up any kind of growth into the future, the stock really does look cheap. What I need to spend time on is saying, how are these guys different than a lot

of the competitors out there, some of which are much larger than them? And if they don't have a competitive advantage, then that's where we start to worry about that future growth. So that's my next move. Steve, question about Xero? How do they calibrate their testing equipment, Ron? Steve, I'm so glad you asked. It has to do with mercury. It's all about the mercury. I have no idea. I have no question about this company. This makes no sense to me, but it sounds very cool. They sell semiconductor companies like Analog Devices and tell Texas instruments who need to calibrate and test the reliability of the semiconductor equipment. O' You've got to figure they've got calibration

experts on hand, right Jason? Of course. That's the name of the game. If you don't have a calibration expert, where are you? O' What are you looking at? Kind of in line with what we've been talking about today with healthcare, a little company called Teladoc, ticker is T-D-O-C. This is a company I've been keeping an eye on this summer as they went public. Teladoc provides telehealth services via mobile devices, the internet, video, phone, to clients and their customers in the United States. Think about internet and disrupting the healthcare industry. Basically, you're seeing your doctor via internet, more or less.

To me, I think we can all agree the doctor's office visit is one of the most inefficient and time-consuming processes on the face of the planet. Teladoc is leveraging medical expertise around the country to impact consumers all over the country. IbisWorld pegs this market today at around $650 million in revenue. They see annualized growth taking it to about $3.5 billion in revenue by 2020. And Teladoc's the market share leader. They have 4,000 big clients, think employers, like Home Depot, insurance companies, yada, yada, yada. That gives them about 11 million unique members, and it is growing. So, it's certainly one that has piqued my interest and that I'm going to be looking further into.

Steve, question about Teladoc? Is cybersecurity a big concern for these folks? Cybersecurity is a big concern for everyone these days, Steve. You got such a better question than I did. Simon Erickson, we've got about a minute left. What are you looking at this week? Chris, I'm going with Qunar. The ticker is Q-U-N-R. This is an online travel platform in the People's Republic of China. Very similar to a Priceline or a TripAdvisor here in the United States, which we like Trip and MDP. But if you've noticed, Chinese tech stocks

have kind of had a volatile year this year, and it's a good time to pick out the winners from the rest of them. Qunar is building a mobile platform that kind of appeals to the growing Chinese middle class. They're growing sales over 100% year over year, and more than half of that is coming from mobile. I think it's this mobile platform that's going to be really interesting, because there's now 15 cities in China that have more than 10 million people a piece in them. So, it's going to be more people booking more vacations, hotels, flights, and stuff like that on the mobile platform. They're 47% owned by Baidu, who's very interested in this space right now. I think it's a winner. Steve? Where would you go in China if you could go

anywhere. I would go back to Shanghai, which is one of my favorite cities to visit in China. All right, guys. Thanks for being here. 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 week.