Motley Fool Money - Hot Toys for 2017

Episode Date: December 1, 2017

Costco hits an all-time high. Chipotle makes a change at the top. Buffalo Wild Wings goes private as Applebee’s offers a surprising promotion. Ron Gross, Matt Argersinger, and David Kretzmann analyze the retail landscape and much more. Plus, toy industry expert Chris Byrne talks about this year’s hot toys. Thanks to Slack for supporting The Motley Fool. Slack: Where work happens. Find out why at slack.com. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good to see you, as always, gentlemen. Hey, Chris. We've got the latest headlines from Wall Street. We'll get a jump on the holidays with toy expert Chris Byrne. And as always, we'll give you an inside look at the stocks on our radar. As of this taping, though, between the fate of the tax bill in the Senate and the former national security advisor pleading guilty to lying to the FBI, I think it's safe to say, guys, that there is some market uncertainty that is roiling, well, the markets. But we're going to move on. We love a little intrigue. No comment, no comment.

Let's start with the retail landscape. We are a week removed from Black Friday. Things have settled down. And Ron, I'll just start with you. I don't want to jinx us, but it really does seem like things are shaping up across the board for a good month for the retail industry. I am sure I'm going to regret this, but I think the holiday season looks pretty good, as you indicated. Black Friday, Cyber Monday were certainly solid online stronger than brick

and mortar, not surprising. Amazon being the biggest beneficiary of that at about half of the sales done online. Pretty incredible. But you know what? Even the department stores. Remember the department stores? I know you remember them. Oh, yeah. They were actually not too bad either. So I think there's signs of optimism, and I think it's going to carry through. Yeah, it's interesting. When you take a step back and go back to June when Amazon announced it it was acquiring Whole Foods, I think the market took a couple weeks to digest, like, okay, is Amazon literally swallowing up the entire retail space and do any of these retailers

have a shot? But since early July, Costco's up 14 percent, AutoZone up 20 percent, tractor supply up 26 percent. Walmart of 28%. So I think people are coming to grips with the fact that... People buying tractors for the holidays? You know, got to load up. Black Friday sale, right? Maybe Cyber Monday sale too for your tractor. But anyway, I think it's becoming clear that if you're a quality operator in this retail environment, sure, competing against Amazon is not easy, but it can be done.

I think the market got way too pessimistic. And you know, the stock market tends to overshoot on the upside, and it tends to overshoot on the downside. And I think that's exactly right. With the Amazon news from the summer and everything they've done in e-commerce, it's just we've got way too pessimistic and cynical about the traditional retailer. And so on any glint of positive news, which a lot of these retailers have had, and especially, as Ron predicted, they're going to have a great holiday season. The valuations got to a point where, you know, they're cheap, historically and absolutely. And so why not bid them higher if this news is better?

Well, and you look at a company like Five Below, which is a discount retailer. That's a stock. They came out with their latest earnings report. That's a stock in 2017. It's up about 45 percent. Are they just doing that good a job of operating? Or is that a stock that just got way too much pessimism attached to it? I think they're selling a wide range of products at obviously a fair price of below $5. And that's resonating with consumers. Even though the stock market is high, and even though unemployment is low, and even though we have GDP growth that appears to be above 3%. So things are humming along. People still are hurting out there. People still need a bargain,

like a bargain. And when you see results for five below, same-star sales up eight and a half percent for this latest quarter. Very, very impressive. Didn't Costco just put up same store sales of north of that for the first time and forever? Absolutely. They were helped a little bit by the calendar, the holiday season being in this period versus last year it was not, but still, that only was responsible for about one and a half percent of their 11-ish and change, same-star sales comps. So really, really great numbers. Yeah, their e-commerce is up 39 percent as well for the month. So Costco really clicking in a lot of different areas.

Maddie, is there a limit to how much upside, how much optimism we can attach to any single quarter? And I'm thinking primarily of Sears, which just lost more than half a billion in their latest quarter. And at least for a while, in the early hours after that report came out, the stock was up. Just because, even though they lost, again, more than half a billion dollars, that was still better than expected. Better than expected. That's the key. If you can do that, you'll probably get a higher bit in the market. But I think the points that Ron and Dave had made about, it's really about certain retailers who have, you know, big customer traffic and quality and specialties.

Those are going to do well. The Sears of the world, the JC Penning's of the world. I think they might have a dead cap bounce here or two, but long term, there's really not a lot of hope for a lot of those companies. Over the past year, Sears has burned $2 billion in cash, and they have $4.5 billion in net debt. So I wouldn't put them in that quality operator bucket. JCPenney is another one. I'd probably stay away from.

And even the department stores, they might be seeing a little bit of a resurgence. Those are companies that have really been poor cash allocators. They have growing debt balances. Cash production is often going down. So those are ones I'd stay away from. Yeah, and I think we have to also be very careful about looking at what Walmart has done and Costco has done in terms of e-commerce and saying, well, look at their e-commerce business. You have to remember, those are still such small fractions of their overall revenue.

And so it's going to take a lot of continued growth. You're going to have to see 30, 40, 50 percent continued year-over-year growth before it even starts to move the needle for those companies a few years from now, just given the store account where they get most of their revenue from. So, fast forward about five weeks or so in early to mid-January. We'll start to get report cards for all of these companies. And of course, at that time, we'll realize, you know what? Ron Gross was right all along.

It really was, that great. From your mouth. But what is maybe like one or two metrics that we should be looking for in January beyond just sort of how they did over the holidays? We'll put aside Sears. And at the other end of the spectrum, we'll put aside Amazon. But for just sort of the general retailer, what should we be looking for? For the general retailer, meaning brick and mortar, I would look for guidance as to

What are they thinking in terms of, are they going to increase their store count? Are they looking optimistically toward the future and they want to build? Or are they looking to cut costs and close stores and contract their footprint? I think a lot of these stores, the traditional retailers, are going to succeed this holiday season because they're going to be heavily discounting a lot of things to get customers in the store. So the question is, what do their gross margins look like? If they're strong, then I'd say, okay, well, not only did customers come shopping, at their stores, but they didn't come for the discounts. They came because they wanted to come

and shop at that store. I think that would be a strong sign that maybe they'd turn the corner. Shares of Alta Beauty getting hit on Friday. Third quarter profits looked pretty good, David, but guidance for Alta Beauty's fourth quarter had some investors heading for the exits. Well, I mean, they maintained the same guidance. So I think some investors might have been expecting them to raise their guidance. But I mean, take a step back and look here. Sales up 19 percent, store sales of 10.3 percent, e-commerce up 63 percent, earnings per share of 21 percent. Their rewards, the number of reward members grew 21 percent to over 26 million members. So as far as retailers go, it's hard to find better numbers than what Ulta has put up pretty

consistently over the past several years. I think Wall Street was, a lot of investors were looking for something bad in this report. And if there was one yellow flag in the report, the gross margin dropped year over year, just slightly, about one percentage point. So perhaps some discounting there. You see some department stores like Macy's and Coles offering more discounting with makeup and cosmetics, which is obviously Ulta's bread and butter. But looking at 2014 to 2015, you essentially had the same thing happened in the same third quarter period at Ulta. And since that point, obviously, the company is done just fine. So I wouldn't get too worried now. Obviously, if it became a trend

over the next few quarters, maybe something I worry about. But at this point, the company is just clicking in all the right places. Yeah, but I would be careful. When you see a company, I want to say they're trading it around 40 times trailing earnings. No, now it's actually down at 26 or 27. So that's not that bad. Still premium. Okay, but still a premium, but not nearly around 40.

So that's good to know. But again, this is not a high-tech company that's changing the world. It's a retailer. And the second they start to put up either weaker gross margins or slower store count or guidance starts to trail down, the stock is going to get sold off. So you just got to be careful. Well, and the stock has been sold off. I mean, it's down about 20% year to date.

So even with the metrics you mentioned, David, is this a buying opportunity or do you want to see one more quarter to see if what we just saw is a little bit of a speed bump or a trend? I lean toward this being a buying opportunity. I think given the numbers that they're putting up, it is worth a premium valuation. The valuation is still above the market multiple. And for a retailer that is lofty, so expect volatility. I think over the next three to five years, this pizza market.

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Welcome back to Motleyful Money, Chris Hill here in studio with David Kretzman, Matt Argusinger and Ron Gross. Our email address is Radio at Fool.com from Nick Schwake, who asks, do you think there'll be an uptick in crime against autonomous vehicles since there will no longer be a driver? And if so, how much will it impact a company's profits? I like this question for a lot of reasons, and one of them is, I'm envisioning pulling off a crime against... Really? That's where you go? That's where I immediately went when I saw it. So dark. Wait.

Like a Brinks truck or like a Honda pilot? I don't think Brinks trucks are necessarily going to be the leaders in autonomous vehicles, but I thought, well, Ben and Jerry's, if they want to roll an autonomous truck down the highway, yeah, I'm absolutely thinking about how I could rob that. But anyway, to that question, what do we think about this? I think it's such a provocative question because we envision this future of autonomous vehicles. We're like, this is going to be great, the ride-sharing revolution or the mobility transportation revolution. and not having less accidents, less traffic on the road.

But, God, you're right. There's going to be people. And we always think of, like, hackers and stuff. But no, like what we were talking about for the show, it's like, no, I'm going to step in front of a Thomas truck because it's going to break because it's not going to run me over because it's smart and autonomous. Hopefully. And I'm just going to rob that truck.

Hopefully. Maybe we put David out there. It's still illegal. Just because it's possible. It doesn't make it right. So how much is this a concern? Like, if you are, I mean, honestly, to go back to the Brinks truck example, if I'm Walmart at a Walmart.

And if I'm any major company that is shipping a lot of stuff across the country, I don't want to be first on this. I'm happy to be second or third because I think Nick's right. I think there are absolutely going to be people trying this. I think there's an opportunity for the insurance companies here to write another level of insurance to protect folks like Walmart against this kind of stuff. But that may be a bit premature. I was thinking it from the police perspective, the other side, where there's going to be less traffic stops, less drunk driving stops, maybe none at some point, if we're really all just abiding by the law because our cars tell us to. And so the police will have plenty

of time to go catch your Walmart and Ben and Jerry's. They can try. Yeah, I think questions like this just reiterate to me that full autonomous vehicles is probably further away than a lot of people might think. Some people will say, oh, just two or three years out, we're going to have self-driving vehicles out on the road. But I think we'll still need some form of human control over the vehicles, whether it's remote operators overseeing these semi-trucks that are, for the most part, autonomous, but have these remote operators who can take control when they need to. I think there are just a lot of other questions and issues that need to be worked out, and it'll take more than a couple years to get there.

Another restaurant chain taken private this week. Rourke Capital Group, a private equity firm that appears to specialize in restaurants, is buying Buffalo Wild Wings for, let's call it $2.5 billion, Rod. What did you think? I think, yeah, they had something had to give here. Mercado Capital, an activist investor, was really putting the pressure on. They had gained some board seats. They wanted them to re-franchise the whole business. Sally Smith had been kind of forced out, the longtime CEO of Be Wild. And so something had to give, and I think this makes sense. I actually think it is a relatively fair

price at $157 in cash. The board has voted unanimously in favor of it. And another mediocre chicken wing bites the dust. Let's not give too much credit to Mercado Capital, because they were putting pressure on Sally Smith last summer when it was 167 a share. That's true. They probably, I mean, they voted in favor of it. So they're not fighting it and trying to get more money out of it, but I'm sure it's not where they wanted it to be.

Between this and Panera Bread and Ruby Tuesday, Krispy Cream, these restaurants being taken private, is this now time just, if you're an investor, if you're an investor, Is this an industry that you maybe just want to put to the side for the foreseeable future, or are there still opportunities here? Well, for me, it's also a little bit of a sign that we might be a little bit in the later stages of a bowl market because there's still a lot of cheap money flushing around there, but the returns have been tough to get by. So you look at restaurant companies where there's obvious franchising opportunities, obvious opportunities to load on some debt, pay out a dividend, private equity investors, things like that.

But I wouldn't be surprised if it keeps happening. And I think if you're a strong brand in that space and you have a cheaper valuation, you're definitely a target. Some of the private equity deals specifically in the restaurant space where there was real estate as part of the valuation scenario makes more sense to me. Bewhile, you don't really see that specifically. So you're really betting on being able to turn the business and to make a return by really improving the business. The shares of Chipotle lay up more than 8% this week on the news that CEO Steve L. is leaving the corner office. He will remain as Chipotle's chairman of the board. In a written statement, Ells said, we need to move faster and execute better, which is interesting, Maddie,

because Steve Ells was the person in charge this whole time. Yes. Well, I think with Steve Ells, you have the founder, the original innovator behind the concept, the brand. But when Chipotle was trying to grow too fast, opening 200, 250 stores a year, trying to expand across the nation, you know, across the nation. and not really focusing on things you need to do, like your supply chain to do that, and marketing. And I think that's where he probably fell short. And, of course, Chipotle, we know the last two years have been just about as disastrous for any company as ever. But, you know, I think it's the right move.

And for one, and I was surprised to kind of relearn this. But Steve Ells owns less than 1% of the shares of Chipotle, which is surprising to me. I mean, Chipotle's not a massive company. He did found it. And yet he owns about 0.7% of the outstanding share. So he's not going to appear a person who's going to get in a way, I think, of a new CEO or a new team to come in and try to reinvigorate the brand. So, I'm not surprised the stock is up. I think some new blood at the CEO level makes sense. They've brought in some other new executives

from RBs and young brands to oversee operations and communications, some areas where Chipotle has clearly struggled over the past couple of years. But I think the issues that Chippoly is facing, they are fixable. And the company has over half a billion dollars in cash, no debt, free cash flow production and margins. Still not where they were a few years ago at the peak, but they are ticking the right direction. So I like the steps that they're taking, and I think it's worth a look at these levels. Regardless of who the next CEO is, how quickly does that person pull the trigger on breakfast at Chipotle? Because it seems like...

Right after they kill the burger concept that they announced a couple of years ago. Breakfast is right after that. I hope the pizza concept rolls out. I'm ready for that. Dine Equity is the parent company of IHOP and Applebee's. Shares of Dine Equity are up this week, and I think I know why, guys. New promotion at Applebee's for the entire month of December, Long Island Ice Tees are only $1. That's a fabulous time-honored strategy, Ron. Get your diners drunk. I'm in. Let's go. The good chicken fingers, little mac cheese, and the ice steak. We're going to have to have a heat map around all these Alibu's locations for accidents and

pedestrian accidents, you know, once they roll these things out. I don't know. Long Island NIST's are dangerous, especially for a dollar. The fact that they're doing it for the entire month intrigues me. We always say that alcohol is high margin for restaurants, and it is the fact that they're willing to sacrifice those margins and hopefully get people to stay longer, eat more food. What's fascinating is that a dollar, they might not even lose money because the markups are so high. They could just maybe break even. Let's go to our man behind the glass, Steve Broido. And I have to pause and say, you know,

time listeners know Steve's love of Olive Garden, which has led to many listeners emailing over the last few weeks. Steve, did you see the story about the couple with the brand new baby girl that they, their last name is Garten, and they named her Olivia? I did. Someone emailed it to us, and I was very, very happy that they did. I was delighted. I think there was genuine confusion of whether or not it was you. There were people saying, is Steve doing this? Are he and his wife thinking about this? We are not having another child, but it were. That is what we would name, our daughter.

You heard it here. How do you feel about the Applebee's move here? I mean, you're a savvy investor. Do you like this move for Dine Equity? I mean, it's always great when you've got a company in the news like this. The news may have paid for all of this itself. They're on our show now. We're talking about Applebee's, right?

Savvy point. You think that was their goal? Like, how do we get on Motley Full Money? You never know. Why not? Reach the dozens. That's right. David Kretzman.

and Matt Argusinger, Ron Gross. We'll see you a little bit later in the show. What is the hot toy for 2017? We're going to discuss that and more with Chris Byrne. The toy guy is next. This is Motley Full Money. Welcome back to Motley Full Money. I'm Chris Hill. Black Friday and Cyber Monday are behind us. But there is still a lot of holiday shopping to go. So what is the hot toy for 2017? To answer, that question and more, we turn, of course, to Chris Byrne. He is a 30-year veteran of the toy industry, and he's the content director for TTPM, a leading product review site for toys, tots, pets, and more. Chris, always good to talk to you. Thank you. Happy holidays. And to you as well, what is the hot toy this year? Well, you know, there's a lot of really hot toys, and one of the things

that we love is the fact that there isn't one that people are going crazy for this year, certainly things like the fingerlings, which are these little mechanical monkeys that fit on your finger. They're very hot. We do a list of about 18 to 20 toys every year, and there's a lot of different things for different kids. So I was looking at your list, and I was stunned to see Teddy Ruxpin. I remember Teddy Ruxbin from when I was growing up. So for those who were not around in the early 1980s, what kind of upgrades? What kind of upgrades? grade did this toy get? Well, Teddy Ruxpin was a groundbreaking phenomenon when it came out.

It was basically a stuffed toy wrapped around a tape recorder, and he told stories, and his mouth moved as he told stories. Well, basically, he's the same, but it's all run by an app and by electronics, and he's got eyes that are interactive. They're sort of LEDs, or animated eyes, rather. And, you know, the great thing is that the play is still the same. Your toy is telling you a story, and that's the thing that, you know, that doesn't really get old. I'll get back to the list on the TTPM website in a second.

But first, to the extent, I'm not going to ask you to divulge any sort of industry secrets here, but how do you and your colleagues determine what constitutes a hot toy? Is it pre-orders? Is there some sort of trend data that you're looking at? for in particular? Well, it's a combination of things. First of all, we try to stay very close in touch with what kids are playing with at, you know, rather than what's being, what's being, you know, hoisted on them, for one of a better word. We stay in touch with retailers. We find out what people are ordering. We certainly talk to the manufacturers, and we do talk to retailers to see what

are they getting behind. It's a little bit different than it was in the 60s and 70s when there were only three channels, and toy makers would say, hey, we're going to, we're going to be. going to make this, you're going to buy it, and we're going to put it on TV, and kids are going to want it. So the market is much more fragmented, so it's harder to figure out what's going to be hot. But it definitely goes to how are kids playing, what are they playing with, and what are the trends we see emerging over the year. Are you ever bewildered by something that really catches lightning in a bottle? Is there ever a time where you and your team just sort of look and say, I don't really understand the appeal of this,

but it's moving like hotcakes anyway? Well, sometimes we do. I mean, I think the fingerlings are a great example. You know, to an adult's eyes, it's a mechanical monkey that sits on your finger and goes, you know, makes little noises and turns its head. But we really try to look at it from how is a child perceiving this? And for kids, it's collectible, it's social, it's got just enough technology to be silly and bring it to life.

So, yes, every once in a while, we scratch our heads and go, why is that working? but then we put on our kid hats and look at it and say, oh, yeah, I see how that could work. You read my mind. I was totally thinking of the fingerlings because those things just kind of creep me out. I know. And you know what? That's because you're a grown-up. Maybe not a surprise that a few of the things on the hot list on your website this year are connected to Star Wars. And, of course, we're just days away from the new movie coming out. Is Star Wars just a goldmine? for the toy industry. I mean, obviously, the Disney company is going to make their money,

but are toy makers just rooting for an endless supply of Star Wars movies for the next 20 years? Well, you know, that's a great question. I'm not sure. Obviously, Star Wars does very well, but in a year when there are three, you know, it's the third movie year, third consecutive movie year, how many lightsabers can you sell? So the toys that are really moving are the ones that are really breakthrough, like the little bits, droid inventor kit. That's taken this wonderful sort of STEM learning system, which is a little esoteric for kids when you open a box and it's just a bunch of electronic bits. But when they put it in the context of building your own R2D2 or another robot, it becomes a real active play experience, and it has the Star Wars theme, so it gets its

gets sort of relevance from that, but it really is sort of an independent play experience. And I think it's that kind of innovation or something like the Star Wars droid from Spin Master. It's actually about 19, 20 inches tall and will follow you around. I mean, that's sort of when they can get that kind of magic into a toy, I think that that's going to really help it break through. Let me ask you about a couple of the companies that are front and center in the toy industry, because they've been making headlines above and beyond whatever are the hot products this season. And let me start with Toys R Us and the bankruptcy there. What did that mean for the toy industry?

How much of a ripple effect did that cause? Well, I think from a financial standpoint, the ripple effect is not going to be that dire for a lot of the people. The preferred vendors are going to get their money. There's insurance. There's people had insured orders. I think that the larger sense is that Toys R Us is really important for the breadth of the toy industry for showcasing more than just what you would find online or for giving that sort of supermarket shopping kind of experience for people to go and find out about toys when they see them on the shelf

that they might not see otherwise. What's happened is a lot of that has shifted online as people are researching toys online from YouTube or our site or other places. So that shopping experience has changed. But I think that Toys R Us has been a dominant player for so long in terms of just the sort of wealth of the toy industry. It would be a shame to lose that. Reports recently that Hasbro is interested in buying Mattel.

Mattel has fended that off so far. If you're a toy maker, are you rooting for that merger? Or does that consolidate too much power in the hands of one company? well i think it did it would consolidate uh... too much power in in in one company and i think i think the c c would probably have something to say about it because between them that would be you know certainly a significant portion of of the toy industry uh... but the toy industry is not like any other industry because it is a product

driven business so so you can be the biggest toy company in the world and if you don't have the hot property or the hot product that people want uh... you're it it doesn't really mean that much in terms of of you're not dominating a sort of a commodity product. You're dominating in a very, very item-driven business when it's an eight-year-old who decides if your company's going to, you know, how your company's going to do. When it comes to the toys themselves,

increasingly over the past couple of decades, we see electronics becoming more and more vital to the success of a toy, not just video games, although that's certainly an industry undue itself. But when you look at the toy industry and sort of the battle between video-related games, games and toys that involve a screen of some sort versus the quote-unquote classic toys, are there classic toys that are immune that no matter how many video screens get thrown, a kid is going to go back to that classic toy even though it doesn't have a big electronic component to it?

Oh, absolutely. I think the crayon, the colored crayon, which Crayola launched in 1903, is still going strong. You know, that arts and crafts sector has actually exploded and grown very, very fast, even in light of all the technology. And I think that today's kids are different from kids a few years ago because they've never lived in a world without a smartphone. So it's like you and me never living in a world without a television. It changes how they perceive it because the technology alone isn't magical. So it's things like the pick-me-pops, which are stuffed animals packed in a lollipop-shaped package. These are huge. LOL surprise, which are tiny collectibles.

None of these have any technology in it. And if you look at what drove the summer, it was really slime and spinners. And both of those kind of cannibalized other sort of toy sales from, major manufacturers because kids were happy with that. And parents told us, my kids happy making slime. Why am I going to spend money on anything else? So Lego made headlines earlier this year when, for the first time, possibly ever, the company struggled a little bit financially. It's not a publicly traded company, but it's certainly a very large, dominant company. I think they had a round of layoffs as well. And that was

one of those stories that sort of made me sit up and take notice because Lego for a very long time seemed like it was completely immune in terms of video-related games. Is that still the case? Or as a company, has Lego come to depend not just on sort of the toys themselves, but also on their properties as they move into the movie business? Well, I think they've definitely banked a lot on their on their movie properties and i think the lego movie the original lego movie was was very good for them i think they had uh... they didn't quite get the results they they wanted from from lego batman or leggo nindjago so i don't know what that means for the future but when i look at lego they had such exponential growth for for several years

that that that's hard to maintain because the the market for them or their sales have stayed uh... have continued to be strong with it with their fans but the market hasn't expanded at the rate that they're going to be able to be able to they grew. So it wasn't possible to keep growing at that speed. They would have to plateau at some point. And I think that's what happened. They still have a very strong line. And they've got a really nice entry this year in the Lego Boost, which is sort of, if you know, the Mindstorms, which is the sophisticated sort of robotics kit, the Lego Boost is for like Kids 7 to 12. And that's really a more simplistic one. But it combines all that coding and STEM and Lego building,

with a great character as well. You mentioned the fidget spinners sort of taking off earlier this year, and when I really began to notice them was when I saw adults playing with them, like adults here at this company sitting in a meeting across the table from them, and they're playing with fidget spinners. Are there toy makers who are specifically designing things to have crossover appeal for adults, or is it just all about the kids?

and if they get the adults, that's a bonus? I think in the case of the fidget spinners, if they get the adults, that's a bonus. There is a small company out of Portland called Zing, and they've kind of capitalized on that with certain things. They made a couple of spinners, and they've done other types of things that are the kind of pocket toys that you and I might have spent our allowance on. And adults like to fiddle with them, too, because adults like to fiddle. I mean, there's been desk toys for years that people like to fiddle with

or just flipping a pen. But it's definitely targeted most to kids, and if the adults pick them up, too, well, that's just gravy. All right, before we wrap up, what's one toy, maybe two toys, that are a little bit under the radar that aren't going to get the attention of anything sort of Star Wars-related, that sort of thing?

What's something that, if we want something a little unusual for our kids, that we should keep an eye out for this holiday season? Well, one I really like because I was, I've always been sort of a little bit of a history walk. And Playmobile, which is a wonderful company out of Germany, they have a thing called Pharaoh's Pyramid, which is a pyramid, which is a pyramid play set that's really, really a lot of fun to play with it. It's got, it looks like a real pyramid. It's about, stands about two feet tall, it's square. The sides come apart. It's got different chambers.

So it's a combination of kids who are learning about history, but also have a little bit of, adventure built into it as well. And with the recent discovery of that extra chamber, that other chamber in the real pyramid, I think it's interesting that they sort of are on top of that for kids who love that kind of narrative-based play. And that's really what it inspires is really the narrative-based play. And probably the other one that I think is not getting as much attention as it should is a small company that came over from Holland called Yulu, and they've taken the whole

escape-room concept and turned it into a series of games. So they're just different activities. So again, it's a good party game. This is a really good year for games. And it's a small company that I think is going to do big things. If you want to make your workplace more fun, check out Chris Burns' book entitled Funny Business, Harnessing the Power of Play to give your company a competitive advantage.

Chris, it's your busy time of year. I really appreciate you taking the time to talk. Oh, thank you guys. It's always a pleasure. Coming up, we'll give you an insight. look at the stocks on our radar. This is Motley Fool Money. I want to say thanks again to Slack for supporting this week's episode of Motley Fool Money. Slack is a messaging app that brings together all of your team's communication in one place,

and it gives everyone a shared workspace where conversations are organized and accessible. We've been using Slack at the Motley Fool for years, and it saves so much time, and it has really done wonders for productivity. It's also done wonders for cutting down on internal email. With Slack, you don't have to keep searching through email for that one follow-up or searching through multiple systems to find what you're looking for. You can drag and drop file sharing that works with all the apps you already use, like Zendesk, Google Drive.

Plus, you can tailor Slack to your work with more than 1,000 apps. It's fantastic. And with mobile apps for iOS and Android that syncs seamlessly, you can always pick up where you left off, no matter where you are. Slack. work happens. Find out why at Slack.com. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against,

so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money, Chris Hill, here in studio. Once again with David Kretzman, Matt Argusinger, and Ron Gross. We're going to get to the radar stocks in just a minute with our man behind the glass, Steve Broido, but also on the other side of the last this week, some special guests from the Robert B. Smith School of Business at the University of Maryland, Shea Holmes, And Brittany Radsky, hanging out with us. Thank you for joining us.

Thanks for hanging out. Special note for listeners in the DC area, next Friday, December 8th, we're going to be taping Motley Fool Money at Chatter in Washington, D.C. Chatter is a restaurant owned by a group of individuals, one of whom is Tony Cornheiser, of Pardon the Interruption Fame on ESPN. It's at 5247 Wisconsin Avenue. It's at the corner of Wisconsin and Jennifer Street. So come on out and join us.

Friday, December 8th, 1130 a.m. We're going to tape Motley full of money, and then we're going to have a bite to eat. Maybe a Long Island iced tea. I don't think they're selling for a dollar in chat. But we'll see what the price is. But yeah, so come join us a chatter on Friday, December 8th. Let's get to the stocks on our radar this week. And our man behind the glass, Steve Brodell will hit you with a question.

Ron Gross, you're up first. What are you looking at? I'm going back to Sherwin Williams, the paint retailer that I think is relatively ubiquitous. Really strong management team, strong retail distribution system, over 4,000 stores. They just acquired VALSPURP paint for $11 billion to accelerate their global growth, which is an exciting move to me. I think that makes good sense. Hurricanes have hurt results recently, but that's just a short-term blip. Nothing to worry about. The stock has done so well. It's up 160 percent over the last five years that the dividend

has actually now dipped under 1 percent. I do like it for the dividend, though, because they have increased that dividend for 37 consecutive years, and I think they'll continue to do so. the ticker? The ticker is... You're going to look that up. Steve? Question about Sherman Williams? Steve, what's the ticker? SHW? SHW. Thank you very much. My question is, Ron, how often should I be repainting the interior of my home? Well, I'm not a paint expert, but I would like to say every three to five years, Steve. Have you done that, Ron? Recently, we repainted our whole home within the last three months. With Sherwin William paints, I hope. For sure, and I was in the story, yes. I was really hoping Steve's question was going to be, what's the ticker symbol?

David Kretzman, what are you looking at this week? I'm going with AppF, not a household name. And the ticker is APPF. Came prepared. Show off. Hey, you know, do what I do. It's why we make the big bucks. This is a software as a service provider for small, mid-sized businesses and niche verticals. So they primarily serve property management companies today. And they also serve small law firms. But property managers, is their bread and butter at this point.

Those are actually multi-billion dollar addressable markets. And management basically wants to expand into other niche verticals down the road. But for now, it's still a large opportunity with those two markets. This is a company growing revenue above a 30 percent clip. They're now profitable and free cash flow positive as they scale. And the two co-founders are still involved and they own over 18 percent of the company. So a lot of things to like here. One more time, the name of the company? Appfolio. Steve?

Can you explain what a vertical is? That one always gets me. I mean, I just think of it as an industry. So you have one vertical is the law firms, one vertical is property managers. That's my definition. But go to Webster's, Steve. Matt Argusinger, what are you looking at this week? I'm going with a Warren Buffett favorite, and that's Moody's, Ticker MCO. We own it in a million-dollar portfolio, and we just actually added it to our best buys now.

It's not the cheapest of stocks, but basically you have an oligopoly business that has tremendous margins, great returns on capital. As world financial markets continue to develop and banks get disintermediated, corporations go out to the credit markets for debt, I think Moody's volume is just going to continue to grow. That's going to give more cash flow for Moody's management to buy back more stock, raise a dividend. And so I think double-digit returns by Moody's today. Is it a cinch? Steve, question about Moody's? Explain a world without ratings. So if Moody's didn't exist, what does that world look like? There's no ratings on companies. There are not.

Well, I think what you would have is a situation where debt would be a lot more expensive, because the Moody's AA, AAA rating is what really satisfies investors and enables yields to be so low. I hope to never live in that world. I was going to say, first and foremost, a world without ratings means chaos at the movie theaters. That's right. Total chaos.

Moody's, Apfolio, Sherman Williams, three very different businesses. Steve, you got one you want to add to your watch list? I'm going S.H.W. Steve, do you have a particular paint color you want to go with the next time your house needs to touch up? All of them. We need to repaint. You got to go neutral for resale value. I recommend an egg show. I'm not selling, though, so I can go crazy. Everyone sells eventually, Steve. But then the buyer repaint it too.

They say tope is very soothing. Ron Gross, David Kretzman, Matt Argusinger. Guys, thanks so much for being here. Thanks, Chris. That's going to do it for this week's edition of Motley Full Money. Our engineer, Steve Brodo, our producer is Mac Greer. I'm Chris Hill. Thanks for listening. We'll see you. next week.