Motley Fool Money - Motley Fool Money: 01.20.2012

Episode Date: January 20, 2012

Mortgage rates hit a new low.  Google reports weaker-than-expected earnings.  Yahoo!'s co-founder resigns.   And Apple launches a new initiative.   Our analysts discuss those stores and share some stocks on their radar.  Plus,  Yum! CEO David Novak shares his thoughts on leadership, China, and the Colonel's secret recipe.  Learn more about your ad choices. Visit megaphone.fm/adchoices

If you're a small business owner, you already know what it takes to keep everything moving. You're juggling customers, invoices, and about 100 decisions every day. Thankfully, taxes don't have to be one more thing on that list. With Intuit TurboTax, you can get your business taxes done for you with a full service expert. TurboTax matches you with your dedicated tax expert who knows your industry understands your business write-offs and gives you the personalized advice your business deserves. upload your documents right in the app, hand everything off, and still feel like you're in the loop the whole way through. You can even get real-time updates on your expert's progress right

in the app, which makes it so much easier to stay on track. And you can get unlimited expert help at no extra cost, even on nights and weekends during tax season. Visit turbotax.com to get matched with an expert today, only available with TurboTax full service experts. Everybody needs money. That's why they call it money. The best thing in life are free, but you can get them to the pond. From Fool Global Headquarters, this is Motley Fool Money.

Welcome to Motley Full Money. Thanks for being here. I'm your host, Chris Hill, and joining me in studio this week from Motley Full Hidden Jem, Seth Jason, from Motley Full income investor, James Early, and for a million-dollar portfolio, Ron Gross. Gentlemen, good to see you, as always. Good to see you, Chris. We've got earnings from Google, Microsoft, Intel, and a whole. whole bunch of banks. We will talk with

David Novak, the chairman and CEO of YUM Brands, and as always, we've got a few stocks on our radar, but we'll begin with the big macro. Weekly jobless claims fell to their lowest point in nearly four years, and the rate on a 30-year mortgage fell to a record low. Seth, Jason, I'll start with you. Those both

sound like pretty good things to me. What do you think? Unless you just refinance and you didn't tick the bottom. Rubbed salt in the womb. There's another eighth of a point we could have gotten. This is the big macro. This is not the big set. Man, it is good news. It's a little bit of good news.

Weekly jobless claims fall. Maybe we'll see that unemployment rate tick up as people kind of dribble back in, but this is the right direction we want to be going. Sure, it would be nice to be getting there faster, but you take what you can get. And the rate on the 30-year mortgage falling to a record low, there are probably a variety of effects to that. In the past, I'm guessing that this has something to do with it.

Europe being a basket case still, so American bonds still being a safe haven, and that is one of the things that drives interest rates down on mortgages. And that seems like not a big deal, but if somebody can refinance, they got a couple hundred extra bucks a month to spend and they spend it, it helps the rest economy. Ron, you're a big employment, guys. Your lower lip quivering when you look at this. Well, I hate to write on our parade.

We've been so optimistic lately, but I am hearing more and more rumblings of QE3. Were you hearing these rumbling from? Are you plugged in? Open a newspaper. Okay, you're reading the rumblings, technically. It would be helpful. It would be helpful, but the reason perhaps it's needed is, A, because Europe's a mess because housing is stuck in the mud, and it could be as much as $1 trillion of mortgage-backed

security purchases to come in and keep interest rates low. Interest rates lower, it's great, but the need for it is what's troubling. So, wait, so the Fed's a basket case, we won't need that particular piece of a QE. Are people holding off on borrowing because the rates are too high now? I was going to say, the Fed is thinking about a third round of bond purchases. It's nothing but troubling, in my opinion. James, what do you think? I agree. I mean, I think that we're trying to solve a debt problem with more debt, and it's ultimately not the way we want to go.

Yeah, it makes no sense on the face of it, but in the end, it's the only thing that's ever been effective at softening the debt problem. So, although I think it's also ridiculous, it's sort of like the cure is part of the problem. Stock market will like it, though. Stocks are likely to go higher if the Fed keeps coming in and buying assets. Shares of Google down 8% Friday morning after the company's quarterly profits came in lower than expensive. I expected, Ron, you're a Google guy. What happened? What is that me? We do own it in a million-dollar portfolio. The street is focusing on two main things. One, the fall in the cost-per-click metric, which is the amount that marketers pay to Google

for search. And then the second is the increased spending that Google has put into place to build for the future. And both of those things together have caused the earnings to miss expectations, and the stock is selling off. I'm not particularly well. worried the paid click growth rate was really high, 34%. I think Google knows what it's doing in terms of spending for the future. So we'll have to let that future play out. We have the stock on hold, and we have had it on hold, at current price, it's just a bit too high for us to initiate positions, but I think things are still fine. Seth? I'd be a little bit more worried, and it's about that price per click thing. There was an interesting article or an interesting few

articles I read this week, which confirmed my biases, which is why I like them, of course. That's the best thing. Which is that Google, I think Google ruined the Internet in a lot of ways, the stupid AdWords, ads that are everywhere. And so now actually research shows people, you know, have quit looking at ads. And the reason that AdWords worked for Google for a while is people, the first thing they started tuning out on the Internet was display ads. Well, then they started tuning out AdWords. And one of the articles I read pointed out that the only people who are still clicking on these dumb AdWords ads anymore are. are a horrible demographic for advertisers are like mid-20 to 30-year-old people with, you know, no money.

And I think that if that continues, you're going to see those pay-per-click rates continue to crater and you will not be able to make it up in volume. That could be the case. This quarter, a big chunk of that fall was due to foreign currency translations. So if we want to remove that, it perhaps isn't as bad as it looks. It was an 8% decrease. So perhaps it's a little less than that in reality. So what is the big opportunity for Google going forward? Because we heard a lot last year about Google Plus, but there are questions about Facebook's ability to monetize its user base. And Facebook has a heck of a lot more people in it than Google Plus does.

It's all about search with Google, whether it's Android or Google Plus or what have you. It's all about getting people to click. And Seth has raised his concerns about that business model. But it continues to be. be the primary driver of revenue. Shares of Microsoft closed the week on a positive note, up on Friday after its latest earnings. Seth, shares of Microsoft close to a 52-week high. What's going on there? Well, they still look cheap. Even ask Ron, I'm sure, over there. Agreed. The big Google. This is an interesting quarter for Microsoft because nothing interesting is going on, right? So the fact that revenues, met expectations, not up a whole lot earnings per share, depending on whose estimates you go for, they beat. mist or Matt, whatever.

The thing with Microsoft is that they've got a lot going forward. And so they're going to have Windows 8 operating system coming out, they say, in about the third quarter of this year sometime in the fall of 2012. And the Xbox is sort of a star this quarter. This is something they have not, they don't, they don't probably play it up as much as they ought to. Xbox is pretty much a huge category for them making them billions of dollars now. Yeah, and it's been making profits now.

while and this is a category the interesting thing to me here is that this is yet another category where everyone for years said stop doing this it costs you money there's an entrenched competitor sony that is way better than you are you don't know what you're doing just give up and that's what people said to microsoft about office it's what they said about server tools and that's what and of course they've had big hits in those areas as well and it's what people currently say about phones and about tablets so this is i think yet another vindication of the microsoft strategy and I would not write them off. I would not write them out of the phone business or the tablet business. They tend to do well in the long term when they put their mind to it.

Ron? Completely great. And I don't want to be one of those analysts that are constantly making excuses for companies. But PC sales were artificially low in the quarter due to the flooding in Thailand, which caused some supply interruption. And that affects Microsoft's Windows operating systems business. So that was kind of the part of the earnings release that would looked the worst, and some of that, I think, was one time. So, Seth, just to close out on Microsoft, is the bigger opportunity for that company, is it, is it the Xbox, or is it Windows 8 and really the Nokia partnership and seeing that payoff, particularly when it comes to mobile? Well, it's a combination of all those factors, because they hopefully combine to give you some kind of

an ecosystem. So the Xbox and Windows Live ecosystem, I think, is growing, and so that is, you know, There's cloud storage of, you can have cloud storage of office documents. You have cloud storage of your video games, saves. All of this is linked to your single sort of Windows profile. And as they continue to get people into that, I wouldn't call it a walled-off ecosystem, but as you pull people in, it becomes sticky. So if Windows 8 is a real hit on both notebook computers and on bigger PCs and on tablets, they'll pull more people into that ecosystem.

And as they do that, they sell them more products. A lot of big banks reporting earnings this week, James, Bank of America, Morgan Stanley, Citigroup, Wells Fargo, and the word I kept seeing in the media reports that showed up time and time again. The word was disappointing. The general trend, Chris, was bad investment banking, okay-ish retail banking, maybe, you know, Goldman halfway underperforming. Citigroup Morgan and Stanley underperformed. These guys are seeing reduced bonuses, which I think we're all kind of sad about. J.P. Morgan capitaled $100,000 cash. But J.P. Morgan's retail

loans were okay. And Bank of America is kind of interesting because they posted good numbers in the I don't know what to make of the department in the sense that $2.9 billion gains came from sale of their China construction bank holdings, another $2.4 billion related to debt sales. So it's sort of like

saying, honey, I made an extra $100,000 this year because I sold your jewelry. I mean, you can't do that. My wife loves that. So often, exactly. One interesting fact, though, I just said on the Bank of America, according to Business Insider, the $5 debit fee caused a 20% increase in account cancellations, which is pretty material. That's got to be one of the worst business mistakes the past five years. One of the headlines I saw on Fortune, the headline was,

bank investors better get used to low returns. I know that collectively we're not necessarily huge fans of the big Wall Street banks. Is this now at a point where we should be staying even farther away from investing in these banks? Well, what returns are okay? If that's what we know, it's coming and we can predict them, we are definitely seeing the end of banking as we knew it with mid-20 percent returns on equity. This is back to banking just being banking or heading that way. So, yeah, they are going to be more stable going forward. Coming up, Apple is trying to shake up the textbook industry.

Stay right here. You're listening to Motley Full Money. Welcome back to Motley Full Money. Chris Hill here in the studio with Seth, Jason, James Early, and Ron Gross, as we hit some of the big headlines of the week. Intel's fourth quarter earnings better than expected, James. How is the chip maker? You know Wall Street types. They love to get excited about things. On the upside and the downside, they like to pronounce death prematurely, and people thought the PC was dead.

It's not dead. It's just slowly aging. It's sleeping? And Intel was able to pull off a revenue and an earnings beat because of this, which is great news for Intel. I'm frankly looking at the bigger picture still, which is mobile. If you look at a chart of PC sales, they've really plummeted, and it's all about mobile devices. Intel's chips, if you've been following the story, use too much power to compete in mobile, but now they say they've reached power parity.

So we're going to see where that goes, and that's like a two-year story there. Yeah, it's even a little more complex than that because Intel's atom microprocessor chip set, which is the low-power chip set. those sales were way down quarter over quarter year over year for the full year. And the reason is those were sort of destined for netbooks. And as we all remember, netbooks were this thing that everyone thought was going to be awesome forever. And it turned out that they were popular for about a year and a half. James, in terms of Intel's earnings, I saw some reports analysts saying that this is a bellwether for the economy writ large.

It points to business spending, that sort of thing. Do you agree with that or do you think it does? I mean, we had the same Thailand flood issue that affected Intel, I think the cost of a billion dollars. So it does show. Intel's chips for an 80% of PC. So people are buying those. I mean, it says something about the economy. And globally, too, that's the other story I should say. It's not just a North American thing. It's a global thing. The PC is much more popular in emerging markets proportionally than in the U.S. I mean, fourth quarter, fourth quarter revenue by business units. So PC client group, that's business purchases for the most part, up 17% year over year. data center, big data center chips, up 8 percent. Those are pretty decent growth rates for a category that's supposed to be dead. One of the big stories coming out of the consumer electronics show, which happened earlier this month, was the Ultra Book. Ultra Book is Intel's standard that combines sort of the best elements of laptops and tablets. You've got super lightweight computers that boot up very quickly. That's the idea. Really robust capabilities.

Seth, when you think about the Ultra Book, is this something that a year from now, because we've talked in the past about the iPad and Amazon's Kindle Fire being sort of a candidate to be the primary competitor. Do you think a year from now we're instead talking about the Ultra Book as the primary competitor? I'm going to go out on a limb and say that the Ultra Book kills off almost all the other tablets, probably not the iPad because if people want an iPad, they want an iPad. For what reason, I still don't know. But an Ultra Book, especially the ones that are going to come out later in the year, which will have better Intel architecture, lower power, a little more power.

lower electricity consumption, but a little more powerful, as well as Windows 8, which should be more sophisticated and require less power. Between those two, you're going to be able to have a really small, sleek, you know, netbook type computer, except it will run regular programs. You know, it'll run them pretty quickly, and boot up instantly, and it'll weigh about the same as if you'd bought a tablet plus an external keyboard. Where do they stand from a pricing perspective? Well, the first ones that came out were in the range of like $800 to $1,000. Intel wants them all to stay below 1,000. They want them priced sort of slightly below the MacBook Pro. So that's all going to shake up.

In fact, some industry analysts and some in the industry predicted in a couple of years you'll be able to get a pretty fancy one for $500, $600. I was going to say the idea of a lightweight laptop seems like such a good idea that Apple had it three years ago in the MacBook Air, but that's a pricier thing that takes longer to load up. Yeah, and it's a little bit bigger. And like most Macintosh, it doesn't really actually run computers that do real work, but it does impress people at the coffee shop.

Earlier this week, Yahoo co-founder Jerry Yang resigned from the board of directors at Yahoo! Japan and Alibaba group. Ron, shares of Yahoo were up. Is there anything left? They were. Shares were up on this news. So clearly Wall Street was happy to see Jerry Yang walk out the door. Yeah, he was basically viewed at this point as an impediment to creating shareholder value,

should we say, in the form of shedding assets. He supposedly was against getting rid of the Yahoo Japan assets, the Alibaba assets. And without him there, perhaps it makes it easier for Scott Thompson, the new CEO, to get that done. Yang still owns 3.8% of the company, but not enough to influence any kind of voting in any major way. So we'll see. If this creates value, we'd be happy at a million-dollar portfolio. We own it there. And we'll just have to wait and say. You should be just excited jumping. You've been praying for Yang's empire. to be torn asunder.

The whole point is a transaction, right? That's what you're looking for. Yeah, I'd love to see perhaps even as much as $17 billion for the Asian assets. You can call off those hit men now. Do you expect the sale of those assets to come in this calendar year? I kind of do, yes, yes, if you're forcing me to give a prediction. I'm forcing you. And we're going to hold you to it.

Apple reports earnings next Tuesday, but made headlines this week by introducing a new version of its iBooks app that supports Interimates, interactive textbooks. So, Seth, is this going to disrupt the textbook industry in the way that Apple disrupted the music industry with the iPod? I know it's going to disrupt their work because they're all going to have to scramble to explain to their bosses how they're doing or what their strategy is to cope with Apple and to get onto this new platform. I actually think it's a pretty crummy idea because most kids spend too much time plugged into Facebook and Twitter and all this other stuff anyway. And I have no idea how they're supposed to sit with an iPad and actually

look at a textbook. I don't think it works at all. And I think the research will eventually bear that out. There's two ways you can probably approach. Fixing that one would be a nanny application maybe that keeps the kids on the textbooks. I suspect that the teenagers will have outgun there. I was going to say, I'm pretty sure my kids will know how to disable that. But here, free business idea for Amazon, if they haven't already had it. You make a cheap Kindle fire, but you sell it just to parents and it doesn't do any of the extra stuff except it just does books

and rich textbooks and that's it so when you lock your kid in the room with it, they have the best of the technology without Facebook and all that other junk distracting them. But the other burden or difficult thing is you have to pay 700 bucks for the iPad in the first place which is not that cheap, you know,

if you've got a couple of kids. Yeah, and according to that interesting business insider story, they downloaded like a tenth of a textbook and it took up a fourth or something of the space on a, an iPad. In other words, you would not be able to carry a semester's worth of books on an iPad, even if you bought the most expensive one. So instead of five, three iPads. I was going to say,

instead of five textbooks, you'd have five iPads? Well, or, you know, the obvious response to that is, well, you just download the stuff as you need it. The trouble is these are huge downloads, and this would take a long time. And, I mean, these could all be shrunk. Books themselves, even the color ones, don't take much. It's the video and everything else. It takes a ton of space. But isn't it inevitable that this will all be digital one day, two decades? from now. There won't be those big backpacks that my kids need to learn the skills of the iPad. I mean, when the phone was invented, Seth would have been like, that phone's going to ruin us. Oh, no, no, no. People won't talk and face-to-face anymore. It goes a lot deeper than that. The way people learn has a lot to do with stuff like how they use their hands and everything, which is why you don't just give a baby a leapfrog, you know, calculator. My kid has a leapfrog calculator. But they don't, but they don't learn this, they don't learn from it, maybe not at all. Certainly not the

the same way they do as if they're turning little objects in three dimensions, the same way you don't learn by pressing buttons on an iPad or typing the same way that you would if you were spelling out words with a pencil on paper. For some things, I think it's better. The interactivity? We teach pretty poorly in school in some subjects. Yeah, I don't think it's for a lack of technology, though. And if the books are so heavy, you just leave them in your locker all the time anyway. Yeah, yeah. All right, Ron Gross, James Early.

Seth, Jason, guys. We'll see you later in the show. Coming up, we will talk business leadership and KFC and Taco Bell and Pizza Hut with David Novak, the chairman and CEO of Yum Brands. Stay right here. This is Motley Full Money. Welcome back to Motley Full Money. I'm Chris Hill. One of the best ticker symbols in the entire stock market is Yum. It is also the parent company of KFC, Pizza Hut, and Taco Bell. Yum Brands operates in 117 countries and employs more than 1.4 million.

people. David Novak is the chairman and CEO of Young Brands. He's also the author of the new book, Taking People With You, the Only Way to Make Big Things Happened. David, welcome to Motley Full Money. It's great to be with you, Chris. So what does it mean to take people with you? Well, first of all, you know, I don't think there's anything big you can do in your business or your life by yourself. So you need to take people with you to get it done. And I think too often leaders think people will do something just because they tell them to do something. I think taking people with you is all about creating a winning culture or winning work environment that inspires people to get things done for all the right reasons.

There are a lot of great leadership lessons that you lay out in the book. One of them is about ways to recognize and reward employees. You've got some pretty unique ways of recognizing employees for their performance. Could you share a couple? Yeah, well, one of the most effective ways to really inspire people and have a lot of fun and create a winning environment is recognition. So I always have had a lot of fun with recognition. And when I was president, KFC, I gave away a rubber chicken, and I'd write on it, and then I'd number it and take a picture of the person and say, I'm going to put the picture in my office and then send them a frame picture as well.

I also gave them $100 because you couldn't eat a rubber chicken. When I was president of pizza, I gave away, you know, these Green Bay Packer cheeseheads. Now as president or CEO of Yom, I give away these big teeth with feet on them for people who walk to talk on behalf of our customers. See, I think the more personal you can make your recognition, and the more there's a story behind it and why you give it, I think it means more. What do you think is your biggest weakness as a leader, and what systems have you put in place at Yom Brand? to compensate for that. Well, I think that the thing I have to be aware of is that, you know, sometimes your greatest strength can be your greatest weakness in the sense that, you know,

one of the reasons, you know, why I think people like working with me is that I'm passionate and, you know, I'm energetic about what I'm working on. At the same time, you know, I've got to make sure that my passion doesn't overwhelm other people. I can get so pumped up about what I'm working on and what I want to get done that, you know, I got to be careful that I create an environment where it's okay for people to say, hey, you know, maybe this might not work or, you know, you might want to think about this way. Because, you know, you've got to create, when you've got my kind of passion, you can, and you have the power that I have, you can overwhelm people.

So I have to watch that. You're listening to Motley Full Money talking with David Novak, chairman and CEO of Young Brands, an author of the new book, taking people with you the only way to make big things happen. and you've had an amazing career at Young Brands, and prior to that at Pepsi, what's been the biggest shift in your thinking about leadership over your career? I think the biggest shift that I've had as a leader is more of what I accelerate. You know, I think I've always, my philosophies and principles have been pretty much the same.

But, you know, I think that the biggest thing that I try to focus on is involvement. and I really learn that the more you know, the more you care. So I think I spend more time on getting more people involved in a part of the process than maybe what I would have earlier. The other thing that I think has shifted for me is that, you know, there's always someone that will say that it can't be done every step of the way. You know, I think earlier on when I thought about dealing with those kind of people, I thought that my conviction and what I believed in, I had to stay after it and get it done,

even though there might be obstacles. Now I think my first inclination is to say, if someone says it can't be done, I want to understand why they say that. And then I can follow my convictions. So I think what I do a better job today of is understanding what the obstacles and barriers are and managing my conviction. You've talked to a lot of business leaders for your book. one of them is Warren Buffett, who has a quote right on the front of the book. Buffett's quote is David Novak is the best at leadership, whether teaching it in this book or practicing it.

When you look at Buffett as a business leader, what do you think makes him so effective? I think there's two things. Number one is humility. I think Warren Buffett, given all of everything he's accomplished and done in his life and his standing in the world, he's a very, very humble person. And the second thing, he's an incredible one. learner. This guy is, you know, he's reading every paper, reads, he's up to speed on everything. He stays current. He's an unbelievable learner. And I think you take those two traits together.

You've got quite a leader. You're listening to Motley Full Money talking with David Novak, chairman and CEO of Yom Brands. His new book is taking people with you the only way to make big things happen. You talk to a lot of business people in this book. Howard Schultz from Starbucks, Alan Malali from Ford, Jack Welch, obviously the great former executive at GE. But there are also some surprising people in here. Magic Johnson. Well, I think, you know, I talk about Magic when I was with Pepsi. He was one of our celebrities that we had for marketing.

And when he became HIV positive, you know, he was wondering, you know, whether his sponsors would stay behind him. and we quickly told him that we would be 100% behind him. And, you know, I just had the opportunity to talk to him, and I asked him what it was like to be such a world-class athlete when he's coming up. And he said, you know, early on I scored all the points, but nobody was really that happy. Later on, I realized that if I just pass the ball more and got everybody involved,

you know, guess what? You know, we'd still win, and everybody would be a lot of. happier, and so I made the decision become the best passer I could possibly be. And I use that as a great story to amplify the fact that a leader's job is really to go from me to we. Magic Johnson could make the hook shot when he had to make it. In fact, he did. He played sinner even though he was a guard and won a major championship doing it, and he took over the game by himself, or at least it appeared that way. But he recognized that the only way that his team could be great is if he had a we attitude.

You held senior management positions at Pepsi, and in your book, you call out Crystal Pepsi as the biggest missed opportunity of your career. Why do you think it failed, and why was it a missed opportunity? Well, first of all, Crystal Pepsi was a phenomenal idea. It was totally intriguing to anybody that ever heard about it, and everybody wanted to try it. In fact, it had major trial when it was launched. but one of the things that the franchisees told me when I came up with the idea, and I did love the idea. I loved it so much I really didn't listen to one of the obstacles,

is that they felt that it needed to taste more like Pepsi. And, you know, it had a cola flavor to it, but they thought if I was going to call it Crystal Pepsi, it needed to taste more like Pepsi. And, you know, I basically was a heat-seeking missile and got that thing into test market and then got it national on the Super Bowl as fast as I could. And the single biggest issue we had with Crystal Pepsi was that it didn't taste enough like Pepsi.

And I think if I would have listened and solved that issue, made it taste more like Pepsi, it still be around today. And I think it was a phenomenal idea. I mean, when we first came up with the idea and we went in the test market with us, it was a lead story on Dan Rather's CBS Nightly News. It was huge. It was a huge idea. Everybody's intrigued with it. and we did drive a tremendous amount of trial, but we didn't get as much repeat as we could have had. Coming up, we'll continue the conversation as we talk China and the Colonel's secret recipe.

You're listening to Motley Full Money. You're listening to Motley Full Money talking with David Novak, chairman and CEO of Yom Brands. I want to ask you a couple of questions about China because I know that Yom does a tremendous amount of business in China. You're growing there. How does the dining experience at KFC in Pizza Hut in China compare to, the U.S. equivalent? Well, Pizza Hut in China is full casual dining. We not only have pizza, we have pasta, we have rice-based dishes, we have chicken, steak, we have a full asset utilization, we have afternoon tea time, a full line of beverages, you know, we have very upscale

facilities and environment, and, you know, it's a full, casual dining experience. With KFC, you know, we have basically in-line units because in China drive-through hasn't really taken off yet, and the population is very concentrated. So we have big in-line units, and the menu has, we have breakfast, which we don't have here in the U.S. We're even open 24 hours. And we also have home delivery or office, home and office. office delivery. So very broad menu, multiple proteins, and full, we have this unbelievable line of desserts called egg tarts, which are fantastic. So, you know, big difference. What do you think is the biggest untapped opportunity for Yum when it comes to China?

Well, I think in the United States, we have 60 restaurants per million people of our three brands. in China, it's three. So we're on the very ground floor of China. The biggest thing that's going on China right now, it's exciting for our business is that there's 300 million people in the consuming class in China today. In the next eight years, experts project it's going to be 600 million. So that's a tremendous tailwind as we go forward in the future in terms of our growth. What's the biggest competitive threat in China? Is it similar to what you face in the United States? Well, the wonderful thing about our international business and China's no exception is that we have very little multinational competition. So McDonald's is our only competitor there of any real substance in China, and we outnumber them three to one.

We're in over 700 cities today, so we have a big competitive advantage as we go forward. You're listening to Motley Full Money, talking with David Novak, chairman and CEO of Young Brands, and author of The New Book, Taking People with You, the only way to make big things happen. We've talked about McDonald's. They're clearly a leader in the industry. What have you learned from studying McDonald's? Well, you know, I think one of the things that, you know, is exciting about our company is we're actually stronger than the McDonald's in a lot of markets. China is certainly one also on emerging markets.

we have a two-to-one advantage in the markets like India, Africa, Indonesia, Malaysia, Vietnam. So, you know, we have big emerging market strengths where we're truly the power brand. Having said that, you know, McDonald's is a great global brand, and what we admire about them is that they've leveraged their asset 24 hours a day. And we love how they have a big breakfast business. and how they've gone after beverages. And so we are working on many of the same kinds of things. I want to ask you about another company that we've studied pretty closely here at the Motley Fool,

and that's Chipotle. How has the success of Chipotle over the last five years influenced your company's thinking about Taco Bell? Well, first of all, Chipoli has basis of the analysis that we've done. When Chipolis are in Taco Bell trade areas, it only impacts our sales less than 1%. So, you know, they really haven't hurt our sales. But we always look at competition is a great source of inspiration. It doesn't matter whether it's Chipoli or Boston Market or, you know, you pick the competitor. Five guys in the hamburger saying, we look at them and we say, hey, if they're doing things in there

their business or their brand that's successful, how could we do something that would be similar or what I call pattern thinking that we could apply into our brand? So, you know, I think, you know, Chipoli has a lot of different products, and we can look at those and say, how can we do something similar, but to do it in a Taco Bell way at half the price, which will be pretty compelling, I think, to customers. What's been the biggest surprise regarding Young Brand's operations and growth over the last five years? I don't know that it's a surprise because it's been very conscious, but the big bet that we've made in growing our global business is really paying off.

75% of our profits are outside the United States. China has just literally become a tremendous growth engine with over 4,000 restaurants. We've just made India a separate division in our company because we expect to open up over 100 restaurants a year there. And I think the other big surprises that we have our highest average unit volumes in the world in France. In France? Yeah, with KFC, which who would have thought that? That's really surprising considering everything. They love food.

They love great tasting food in France, and they love to come in as groups, and they love big meals, and they love the desserts. If I go into a KFC in France, can I get a glass of wine? No, no, no. You can get, we'll give you an ice cold Pepsi, though. Can you work on that? Can you maybe put in a good word for me? I'll tell you what. I'll see what we can do.

I would be remiss if I did not ask you this question, because according to our reports, there are 11 herbs and spices in the Colonel's secret recipe, and I'm not asking you to divulge any secrets here, but I'm just curious. Do you know the ingredients in the secret recipe? No, I do not. The ingredients in the secret recipe are locked up in a safe here in our KFC restaurant support center actually in a vault. And I believe there's only two people in the company that know that recipe today. And they're obviously in our R&D department. You're the chairman and CEO. How is it you don't have access to the secret recipe? Oh, I don't need access to the recipe. All I do is just access to tasting that great tasting original recipe.

My favorite piece is the wing, by the way. The Wall Street Journal calls Taking People With You, the only way to make big things happen. One of the top ten books for your career, David Novak, Chairman and CEO of Young Brands. Thanks so much for being here. Well, thank you. I appreciate it very much. You know, well, I'm a chicken fried. A cold beer on a Friday night. A pair of jeans that fit just right.

And the radio 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 ourselves stocks based solely on what you hear. I'm Chris Hillen, back in the studio with me, Seth, Jason, James Early, and Ron Gross. Guys, time for the stocks on our radar. We will bring in our man Steve Brodo from the other side of the glass to grill you with a question. Ron Gross, you're up first.

Grilled. Just yesterday, I started looking at a company called Camaco, CCJ is the tick symbol. They're actually a best-by-now recommendation over our inside value service. They're a uranium producer, and they're fully integrated, mining, refining. And the play here, they're betting on uranium production, growing significantly in the future. Strong company, nice balance sheet, pays a dividend. It's really, the investment will hinge on uranium prices, at least in the near term, in the midterm. So I'll do some digging there. But it could look interesting at current prices. Steve?

I recently owned and then sold Kamiko for tax reasons. I had a loss in it. Did I make a mistake? It's too early for me to say, but I'm impressed that you need to do things for tax purposes. Well, I figured I had a loss it, and I thought I bought it after the stuff in Fukushima thinking with that tragedy, I thought eventually uranium prices would go back up. That didn't quite happen for me. Well, I'll let you know after I dig in. James, what's your stock? Chris, I've got two, actually. One Oak and One Oak Partner, sort of the same thing. It's a natural gas pipeline company.

And One Oak is a gas utility that owns one oak partners and also distributes gas to people in Oklahoma. It's supposed to stand for one Oklahoma, which is confusing because they're in fact two, One Oaks. But I've been pronouncing that own the oak forever. Is anybody out there still? Is anybody out there still? One Oak, main one up is up 245 percent and the partners is up 100 percent in income investors. So I'm happy with these, the performance.

They're both a little bit rich by my valuation model, but my question is if we see a structural shift to natural gas, they could have more room to run. They both have pretty nice yields now. Steve? Can I buy them both? You can certainly buy them both. Just know that they're going to be a little bit correlated. And to answer your question, Ron, yes, people are listening, especially at KFAQ, our affiliate in Tulsa, Oklahoma. I think they can't believe that we have valuation models. Seth, Jason, what's your stock? Well, if James gets to do two, I get to do two.

Absolutely. You need to buy some Microsoft because they're doing well, even though they're tread in water, and they're going to do better with their new products, the ones we were to discussed. And you might want to buy some Nokia because they're doing a, horribly, and they may do better. The phones, the Windows phones they're making have gotten great reviews. Nokia is one of the strongest brands in the world. Still, they're doing very well overseas, and I think they can turn it around. They probably need to shed some business units or certainly fix some their mapping service, for instance. Keeps losing money, but I think

that you have a decent chance of making an outsized return. Steve? My question will be about Microsoft. I recently went to the first Windows store in Tyson's Quarter of all. been there yet. It's a total knockoff. What do you think? It is. It is a knockoff. It seemed like my wife said it was really cool. It was like a less cool Apple store to me. My wife thought it was cooler than the Apple store. She said especially the way you could sort of play with the connect and do some other things. And the way that the people who ran around didn't act like they, you know, whatever didn't smell or they were not the genius bar, let's say. They seemed friendly. All right. On that note, Seth Jason, James Early, Ron Gross guys. Thanks for being here.

Thanks for our guest this week. David Novak. chairman and CEO of Young Brands. For video highlights, you can go to fooltTV.com. That's it for this edition of Motley Full Money. Our engineer is Steve Broido. Our producer is Mack Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.