Motley Fool Money - Motley Fool Money: 02.08.2013

Episode Date: February 8, 2013

Hedge fund manager David Einhorn sues Apple. LinkedIn connects. And Dell goes private.  Our analysts discuss some of the week's big stories and talk about some stocks on their radar. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, I'm Charlie Cox. Join us on Disney Plus as we talk with the cast and crew of Marvel Television's Daredevil Born Again. What haven't you gotten to do as Daredevil? Being the Avengers. Charlie and Vincent came to play. I get emotional when I think about it. One of the great finale of any episode we've ever done. We are going to play Truth or Daredevil.

What? Oh boy. Fantastic. You guys go hard. Daredevil Born Again official podcast Tuesdays and stream Season 2 of Marvel Television's Daredevil Born Again on Disney Plus. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money.

Welcome to Motley Fool Money. Thanks for being here. I'm your host Chris Hillen, joining me in studio this week. From Motley Fool 1, Jason Moser, from Motley Fool Income Investor, James Early, and from a million-dollar portfolio, Mr. Ron Gross. Good to see you guys. Hey, you do, Chris. We will break down the latest earnings from restaurant stocks, entertainment stocks, and more.

We've got the number one stock of the 19th. 1990s retiring from the public markets. We'll dig into that. And as always, we've got a few stocks on our radar. But we begin this week, once again, with the biggest public company of all, and that is Apple. Head fund manager David Einhorn sued Apple in federal court this week, saying management needs to do more to unlock shareholder value. Since Apple has more than 137 billion in cash on the balance sheet, Einhorn is pushing for preferred shares of stock with a 4% dividend. So I turn, of course, to our dividend guy, James early. You know, Einhorn's a guy with a good track record.

He owns a good chunk of Apple's stock. Does he have a valid point here? Or is this sort of saber-raddling? Well, saber-rattling, but to a point, I mean, the best thing, Chris, is this is bringing everything to a head, like a hot rag on a Zit. This Apple does have too much cash. The lawsuit is a little bit weird. You like that, don't you?

The idea is that with these preferred shares, it could somehow unlock more value. or a greater price for Apple. But the problem is, these are not regular Apple shares. These are preferred shares. So it's going to be a little bit different. I'm not sure in terms of the financial engineering argument how strong a case Einhorn has, but certainly Apple is responding, and that's what we want to see here. Yeah, and Ron, to that point, part of Apple's response, they put out a press release afterwards and said, hey, look, last year we came out with a plan saying we're going to return $45 billion to shareholders over the next three years. And as of next week, we're $10 billion into that.

Yeah, which is true. So they are making good headway there. And what Einhorn wants is a little convoluted, so it makes for great radio. But the point is Apple was trying to actually do something that is shareholder-friendly, which says we can't issue blank-check preferred stock without shareholder approval, which, as a former activist investor, I like to see, because companies can often use blank-check preferred as kind of a method to thwart acquisition candidates. It's like a poison pill, but a little bit different. But Einhorn doesn't want to see that.

Einhorn wants it there. He wants to make sure that the company can issue preferred stock whenever it wants. He doesn't want it to be more difficult than it needs to be. I think he's barking up the wrong tree. I think Apple's going to return capital appropriately to shareholders. Jason, what about that? What is the best way in your mind for Apple specifically to return shareholder value? Is it through stock buybacks?

Is it through greater dividends or a big splashy acquisition of some sort? Yeah, I mean, I agree with Ron there totally. I think the default here needs to be to shareholder approval. I would rather have that option out there than not. And I think that what Apple needs to do, I think they're doing a lot of things well here. You have to remember that $131 or $137 billion, however much is now. I mean, close to $100 billion of that is actually offshore. So it's not necessarily the most accessible cash in the world. But, I mean, I appreciate the fact that they've initiated a dividend. They're going to buy back shares. I think now is a pretty opportunistic time to take advantage of that. What I don't want to see them do is. is make an acquisition just for acquisitions sake. And they can learn, I think, from Microsoft's example here through the years of making big, bad acquisitions. Are you saying Microsoft are not good capital allocators? I'm just throwing it out there. How dare you? I think that they can learn a lesson from that and not making an acquisition just for acquisition sake or just to grow.

I like the deliberate pace there. And so I think they keep doing what they're doing, share buybacks and dividends are a great start. But they've literally just got two choices, right? either a dividend, I mean a buyback, but either a dividend or buybacks, or just a big, dumb acquisition. It's kind of like one or the other. I'd like a special dividend, a nice big chunk. Or a big smart acquisition. Well, part of that press, part of that press release I mentioned, Ron, Apple did say that they were, they welcomed Einhorn's proposal.

They welcome all points of view. So maybe. Welcome of like the following. They were very diplomatic about that. There's some State Department language there. Right up until they start calling it with dissident. Maybe they'll take your point of view as well. Shares of LinkedIn up nearly 20% Friday morning.

After fourth quarter profit rose 66%. The business networking site added 15 million new members in the quarter. Ron, that is two members per second. They're still on that pace. They're doing a great job. They're up to 200 million users, which is actually great for them, because what it means is that they can raise prices. So they're saying, we're reaching so many people now,

sorry, folks, we're going to have to charge you just a bit more, which is, hey, that's good for them. That's the way it works. They're doing a great job putting up the numbers, continuing their streak of beating expectations every quarter since their IPO. So they're putting up the numbers that they need to support that relatively lofty valuation. I think the company's doing a great job. It is the 13th most visited website in the world, which I was astonished to discover when I heard that stat. How big is their moat? We talk about competitive advantages and businesses having a moat. It would seem like on the surface anyone can attempt

to just throw up this type of business, but the networking effect run, it just seems like it's so powerful for them. How big is the moat? They have first mover advantage and they have a network effect as a result of getting up to 200 million. That is not an insurmountable mode. It is nice. Sometimes there are no other moats in businesses. They're doing a good job. They need to really continue to entrench themselves. So they are the recruiting default of choice. And they'll kind of, you know, you know, increase the moat just a bit, but nothing is forever. They'd have a stronger moat than Facebook, right?

I mean, in a sense that, like, it's more, it's harder to bug your professional contacts again to recreate some whole new network. Correct. And I love it because there's three sources of revenue. The most important one, which grew 90%, being the one from corporations who are looking to hire people, so versus just an ad model, which they have too. But I like the other kinds of revenue model better. A couple of restaurant stocks making headlines this week.

POTLA's fourth quarter profit up nearly 7%, just barely below expectations. Panera's fourth quarter revenue up 15%, and same store sales, up 5%. Jason, who do you think had the more impressive quarter of the two? That is a difficult answer there. But I do think probably, I would go with Chipotle. I think the thing about Panera I like is they have such a wide variety of optional menu that they attract. I think a lot of people, you could go in there and buy just $3 or the coffee and bagels, or you can go in there and get a nice lunch.

A Chipotle is a little bit more of a specialized menu in that you're going in there to get burritos or tacos, and it's typically a $10 to $12 ticket item. But, I mean, they both had a really excellent quarters. The Chipotle, I think it was really interesting to see that they got out in front of this bus here about three weeks ago with the pre-announcement, you know, stating that their food cost inflation was going to be a focus. Right. They expected low, low single-digit, flat to low-single-digit comps or same-store sales. And so the stock immediately went from, you know, 297 that day to two. $280 the following day. And I didn't really see anything to be concerned with, so I thought maybe the shares would recover that price, and then some by the time the earnings came out,

and they did because it was a good quarter. They've done a really good job not only keeping their eyes on costs, but they're improving the efficiency of the operation, their throughput. In other words, the people that they get through that line every hour, they improve three transactions per hour at peak times during lunch and dinner. And they improved the overall daily transactions by more than 3% for the quarter and more than 5% for the years. So they're getting more people in the stores. The shophouse concept is playing out here. There is a lot of room for this company to grow. It is amazing how to have like 400 people in that line. You think, oh, this is going to take five hours, but they really move you through. And the other thing they do well,

I think, is because of the app there, you can order your food ahead of time and go in there and pick it up and save yourself the hassle of waiting in line. So they just, again, it's that focus on efficiency, to focus on throughput, and really devoting all of their attention in the cost to the food at hand. And I think that's what brings people back for more. What is the way to think about these two stocks? Are they both growth stocks? I tend to think of Chipotle as more of a growth stock, but for investors who are looking at the restaurant universe, are they both growth? Or what do you think? I would say they are, but I agree with you. I think that Chipotle has a better runway of

growth ahead. Panera makes me a little bit nervous at this point with 1600 stores because they have the competition out there in the form of Starbucks. And we know that Starbucks is really going to be upping their game in the food realm of things here. But Chipotle really does offer something special that's proven out in just a Mexican concept. What they can do with the Asian concept is going to be interesting to see. But I do think there is more upside potential there with Chipotle. Disney's first quarter earnings fell 6%. Ron, usually when we talk about Disney, it's the parks and the media networks that get the attention. But this quarter, it seemed like it was the studio entertainment division, which frankly just didn't have a good quarter at all.

There's a few things going on. One ESPN, which continues to do wonderfully, did have some increased costs for some rights to some sports, which happens. That's part of the business that's going to take care of itself over time. It's going to show up an increased revenue. But, you know, it thinned out margins. Also, the studio business was a bit weak. They had some missteps, the Brave movie out on Home Video. They had Cinderella out this time versus Lion King last year, so the comps were tough there.

Overall, the company's doing great. I think the street is impressed that the video game segment actually was profitable for the first time. I was going to say, first time ever. Yeah, so that was really nice to see. And they had been signaling, you know, hey, give us some time. It's going to turn, and it seems like it has. We've got Star Wars coming in 2015. We'll see how that brings.

I'm a little excited. I mean, I've seen them all. You don't sound like a fan. Yeah, yeah. And I'll see this one. I'll see this one. But it's a great company. It's just a blue chip, wonderful American.

company and it's doing a great job. I keep on feeling with Disney going on the Star Wars standalone movies, you're going to have like, you know, our 21st century version of the odd couple with Yoda and Boba Fett trying to make it work. Getting a place together? Yeah, the early days. I'm interested to see how to carry that out. Shares of Disney were up 33% in 2012 and the stock hit a new all-time high this week. What do you think of the shares, Ron? Are they a little pricey? I notoriously recommend selling the stock too early. I really didn't see the growth that they continue to put up. So is it going to knock the absolute cover off the ball? I don't think so. Is it a great company to hold in your portfolio forever? I think yes. Maybe it is.

Coming up, a financial icon got a makeover this week, and we're not happy about the new look. Details next. You're listening to Motley Fool Money. Funny, funny, funny, what money get new. Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, James Early, and Ron Gross. Lower sales in China hurt young, Brand's fourth quarter earnings, and the company also lowered guidance for 2013. That's never a good combination of factors there, James. It does not sound good, Chris. And obviously, this is, Yom is actually more of a Chinese company than an American company

by revenues. A lot of people don't realize that, and a little less than half its profits, but more than half of its revenues come from China. So the issue, as many of us know, is excessive levels of antibiotics were found in the chicken. Yes. You know, they could probably make a side business, just taking everybody who's got some kind of bacterial infestation and feeding him this chicken. But obviously people have stepped away.

Food safety is a very touchy issue in China. I don't know how the question, the unanswerable question, is how much longevity this sort of fear factor is going to have. I tend to think these things blow over. It's still a long-term trusted American brand. It's been there for several decades. But we'll have to see. One board member just bought a big chunk of chairs,

which is a good sign. That's a good sign. David Novak, the CEO in the statement with the earnings, did refer to, quote, the adverse publicity from the poultry supply situation. Right. Comp sales were down 6% in China. I think, you know, you're going to see that. But China remains an extremely important place for Yum.

I think they're going to open up 700 new stores this year, which is not small amount. And I think you'll see those numbers turn. I'll just, this is why I only eat, I don't eat fast food. I only eat organic, humanely raised animals for reasons like that. Well, I do think we are in the middle of a shift here. I think fast food restaurants in the United States, the question. quick-service restaurants are having a little bit of a more difficult time. And I mean, it's not just Taco Bell and KFC, but McDonald's and Burger King and Wendy's. I think there's

a bit more of a focus not only on the quality of the food, but the health of the food, you know, the health benefits of the food. And so you're seeing like your fast casuals like Panera and Chipotle and others succeed more. I don't know that these quick service restaurants, I don't know they can really overcome that. They're trying to spend more to up their game to compete with those fast casuals, but the same store sales don't lie. They're down, and they're not really showing showing us the money. It might you be a little biased, Jason? We just heard before we started taping it, Jason had a very bad experience with Kentucky.

I was going to say, during the break, Jason was saying, not a big fan of the KFC. No. Staying in China, by dues, fourth quarter revenue rose more than 41% to just over $1 billion, and yet, Ron Gross shares down more than 10% this week. 36% increase in that they come just ain't enough to get it done. Apparently. You know, what can I tell you? Smallest increase since the first.

quarter of 2009. And investors in a stock like Bidu or Google or Amazon or any of these traditional high growth stocks don't like to see that and they pull out and they sell. It doesn't really have anything to do with the long-term health of this business. Clearly the market leader. They do have some things to work out. They got to figure out mobile. Who doesn't? Right. And they're doing some increased spending around that. There's some increased competition from Chihu-360. But nevertheless, they're clearly the market leader. They do a great job. They do have the moat there, and we think it's inexpensive. The market share that they have is somewhere in the neighborhood of 75% of the search market

in China. I look at that, and one question I have is, how much higher can they go? Probably no higher. In fact, they perhaps could go lower, but at 70%, it's still a fantastic business. The still growing. Yeah, pretty exactly. The worst kept secret on Wall Street was made official this week. Dell is being taken private in a $24.4 billion buyout. being financed by Michael Dell, the founder, private equity and debt financing from some big

investment banks, and also a $2 billion loan from the nice people at Microsoft. Jason, as I said at the top of the show, this is the number one performing stock of the 1990s. If you bought at the beginning of the decade and sold at the end, you got a return of almost 92,000 percent. Does something like this say that they just can't hack the public markets anymore? What does this move say to you? I don't know that that. I mean, I think we've known for while that they've been having trouble hacking the public markets. And I think it's a great history lesson in that it's been a wonderful performer up to this, up to this point. I think Dell actually might have been the first stock I ever own. My dad gifted me some shares

20 years ago at like 45 bucks. I promptly sold them and took the cash, but thankfully I don't know. Ron still has his. I feel like I have a proud owner at $36 a share. But I think that what we're seeing with this is this is going to at least give the company a chance to get out of the public eye and try to get their house in order. The thing about hardware and tech is when you're the king of the hill, there's always someone trying to knock you And Dell has been suffering from this with everything that we've seen from Microsoft and now Apple and Google and everyone else out there is trying to take part of this game. But, you know, Best Buy, I think is another example of a company that is trying to maybe take this route as well because their business model is not as applicable as it once was. And as well as the stock did for a number of people years ago, it's not going to do the same thing going forward.

So getting out of that public eye will give management the opportunity to get their house in order without the scrutiny of us on this radio show every week in Market for. every day, getting them a hard time. Just real quick, if you own PC stocks, whether it's HP or someone else, or tech hardware, is this a warning? I think it's a shot across the bow. I think it's just another sign of the difficulty in this line of work, and that when you are the king of the hill, when you're on your game, there's always someone up there, someone just trying to knock you right off.

Activision Blizzard's fourth quarter earnings came in higher than expected. The video game maker also raised guidance on first quarter profits. Ron, shares were up more than 7% Friday morning. Finally, Chris. Some recognition from the markets. Activision, you know, it never goes anywhere despite putting up great numbers. It's been in this range of $10 to $12 a share for a year now. It's great to see it over 13. Finally, this is the best performance in its history. Record operating margins. I think the street really likes some comments they said about what

they may do with their $4 billion worth of cash in the sense of returning it to shareholders in some form. I got a little nervous when I saw some acquisition comments and things like that. But overall, great numbers. They're thinking about their capital allocation strategy. Their franchises continue to do great. So things are looking very nicely. And finally, this week, Hasbro announced a new game piece for the board game monopoly.

They had asked people to vote online, and the five choices for the new game token were helicopter, diamond ring, robot, guitar, and cat. and unfortunately the people have spoken and they pick the cat which I guess because there's a game token that's a little dog maybe that was sort of the opposite I really thought they would have gone like helicopter or a robot but so much cooler it is so much cooler

are you not a cat person Chris? I'm not a cat person I'm really allergic so I guess I didn't play Monopoly anymore the piece of the story that I like the most is that in addition to selecting a new piece they had to essentially boot one of the old pieces the iron got kicked out of the game. But there's a company in Pennsylvania called Ames True Temper. It's

a subsidiary of Griffin Corp. They make 80% of the wheelbarrows that are sold in the United States. So they started an online petition to essentially save the wheelbarrow. Genius. That is genius. That's very smart. Shout. I hope someone's getting a raise over at Ames True Temper. All right. Jason Moser, James Early, Ron Gross. Guys, we'll see you a little later in the show. Coming up, we're going to take a look at Global Investing with Bill Mann from Motley Fool Asset Management. Stay right here. You're listening to Motley Fool.

Welcome back to Motley Fool Money. I'm Chris Hill. To kick off 2013, the Dow Index rose nearly 6% in the first month, the best performance in January since 1994. Here to share some perspective on that and other investing topics is Bill Mann, the portfolio manager and Motley Fool asset management. In studio now. Good to see you, my friend. Good to see you, Chris. How are you? I'm good. What do you make of that? Let's start with the Dow popping nearly 6% in January. As a long-time investor, do you get excited about something like that? Does it make you nervous? Well, it kind of depends. I mean, for me, it's actually what's happened in January is kind of a reasonable outcome, because if you recall in December, everyone thought that the world was going to

end with the fiscal cliff. We were, we were all going down that highway together. So there was some latent buying pressure. But what's really interesting to me, and I guess in, you know, in our world in the fund industry is that January has also been the best month for fund investments. So people putting money into funds, the most money has poured into the mutual fund industry since March of 2000. Now, March of 2000 is kind of an interesting month because that was the very end. I was going to say, that was the very end right before the tech bubble started to explode. Right. That money got set on fire very quickly. very quickly thereafter because so much of that money I know you were you were around then and you were watching the markets and I was involved as well all of that money was going into telecom companies into tech companies and so on and basically that money got just debacleed I mean that money was set on fire so you look at now and you wonder about what's happened in between well we've had some really interesting times in between and we've had some really interesting opportunities to buy you know to buy stocks in between it at prices and it values

much below where we are now. And yet during those periods of time, people were rushing out of the market or were sticking their money under in the mattresses or into the gold market or into bonds. So it just always, it's always interesting to me that just how powerful fear and greed are, because now it really feels like the train is leaving and people are pouring money into the market again. Do you think the market in general is overinflated and stocks are at a premium right now? Or there's still bargains out there. There are bargains out there. I would say in general, the places where a lot of people are looking are probably pretty,

you know, pretty well valued. A lot of the small cap companies are, you know, especially domestically, you're having a very hard time finding things. A lot of the international markets, you were talking about the Dow specifically, but a lot of the international markets, especially of the emerging market companies, countries, those stock markets have gone absolutely crazy. where people are looking for yield, they're looking for returns, they're not finding it in Europe. They want, you know, they want allocations, you know, overseas. And so a lot of markets have gone crazy. So it's a lot harder. But underlying all of this, it's not like in 2000 when, where so few people were afraid. People are still afraid. You know, the bond market and the gold prices are still very high.

They're still very much a fear trade on. So I'm not convinced that we're done. Let's start here in the U.S. because I know that part of your portfolio is domestic. Yeah. I think there are a lot of people who are looking at housing, in particular, as one industry that is probably poised for a good 2013. Yeah. Where are you and your team looking, whether it's housing or elsewhere, when it comes to U.S. companies and industries? Yeah. So housing was an area where we've spent a lot of time in 2011 and 2012 back when nobody was looking at housing.

And we weren't really focusing on the home builders because I think a lot of the issues, particularly with the banks, particularly with lending, haven't really turned them, you know, haven't really turned themselves around. But the home builders have responded as if they, as if they have. So the home builders were not, we're not that interested in. The supplier companies have been ones that have been very interesting to us. And then oddly enough, you know, the one trade that worked in 2011 and 2012 domestically was Apple. Really? I mean, yeah, you've heard about this. I've heard of that company. It's a computer company. They make computer gadgets. Quite successfully. Quite successfully.

It's one of the most remarkable companies out there. But it's suddenly, suddenly Apple has gone from doing no wrong to doing no right. So that's an area that's really interesting for us as well. Let's stick with Apple for a second because I think particularly in the wake of this. Because we never get to talk about Apple. But particularly in the wake of their latest quarter, I know that, and we'll talk more about this in a moment, but part of your focus is domestic, part of it is also global. And when you look at the global smartphone market and Apple's competition, particularly from the likes of Samsung, what do you make of that?

It's a Lord of the Flies market. I mean, a lot of people tend to think of Apple's products as being somehow almost religious. You know, and in 2012, you've really kind of seen that come to an end. I thought Samsung's ad campaigns that sort of made Apple look like the doughty, you know, old stayed, you know, the thing that your grandmother had, you know, those brilliant ads. And that's happened, that's happened in a lot of places. In China, the iPhone, for example, has never really gotten the same traction as being, you know, a fashion element that, you know, that it has here in the U.S. and in Europe. So that market is going to remain pretty tough.

You know, I think that it is very true that, you know, that Apple has lost a little bit of its mystique. But ultimately for us, I mean, you're looking at a company that has, you know, multiple commas in its cash balance, you know, in the hundreds of billions of dollars in cash by itself. So Apple doesn't have to be the same remand. Markable Growth Company for it to do okay from here. You know, you look at the cash, you look at just how, you know, how their margins are. And their margins of their margins actually dropped a little bit this last quarter. But even if you decline them a little bit, Apple's going to do okay. Just so they don't try and recapture the magic of when they went from, you know, $6 to $700 because those days are gone. You're listening to Motley Fool Money talking with Bill Mann portfolio manager at Motley Fool Asset Management. As I said, part of your portalsals. portfolio is focused globally. What markets are you looking at? I know you recently had a trip to Nigeria, which I think when the average investor thinks about emerging markets, Nigeria is probably not in the top five. Maybe not. And in fact, Nigeria is a really interesting country. And it was a remarkable trip for us. So Nigeria has grown at 7% per year over the last decade. And they've done it in areas where you might You think of Nigeria and, you know, to be frank, you really think about two things.

One, you think about email scams. Yes. And, too, you think about oil. You know, and maybe their third business would be corruption, you know. So none of those are really great, you know, really interesting business. Tough to invest in email scams and corruption. Right, right. Although I probably would be interested in a publicly traded email scam company.

Probably would do well. If there's any listeners out there who have a, you know, have a line on a, please send an email to. Yeah. Radio at fool.com. But Nigeria has what is now a 30 million person middle class. You know, and middle class in Africa is defined a little bit differently. That's having $2 in discretionary income per day. It's growing very rapidly.

They've got some good consumer brands. A lot of their consumer brands are subsidiaries of European and American companies. You know, Guinness, Nigeria, for example, is owned by Diageo. So their management is all European. You know, they have good local Nigerian managers, but then ultimately they're held to standards that are way beyond what you would find in a lot of developing markets. And so the consumers in places like Nigeria, in places like South Africa, I mean, these are places that are really, really interesting to us. And we're patient. You know, I think the really interesting thing to me about Nigeria is that when we went, we kind of felt like we were going to get off the plane and the local brokers who we were working with were going to be happy to see us.

but it's not true. The local brokers were tired of international investors coming in and having them, you know, having them take them around. But so it was a fascinating trip for me. You know, a lot of people have gotten, you know, gotten very wary of Russia, for example, which is still, you know, it's a kleptocratic, you know, society. You know, the markets are crooked. China, you've had an enormous number of issues. So people are going to look at places like Nigeria. It's the 10th largest, country in the world by population. And, you know, within the end of the decade should be the largest market in Africa. There's also, with respect to China, something of a slowdown going on. We saw that with Young Brand's most recent results. That was some slowdown. It was some slowdown. What do you think that means for the average investor in the United States? And to what extent, if any, does the slowdown in China, has it made you change

your investment approach? So I think that it's a really interesting. interesting question. So I'll try and answer this without taking 15 minutes. But so. Please too. We're going to have a commercial break coming up. So, uh, China, China has been the manufacturing base for the world for about a decade. But China, one of the reasons that, you know, that their policies have been structured in the way they have been, was really to bring in, you know, to raise the level of income for, you know, for, for, for, for, for, and so they've been very systematic about this. But what's happened in China is that the income levels and the salary levels have gone up so much that China is no longer the low cost place to produce. And there's, you know, there's marginal costs and then there's, you know, and, you know, to produce.

And then there's the absolute cost. And so places like Vietnam and Bangladesh and even Nigeria have become cheaper to manufacture. And so what you're seeing is a little bit of a shift out of China. And it's healthy. So we're actually very interested in certain consumer names that are in China. But the manufacturing and the manufacturing is not going away from China. And the country really needs their rate of growth to continue because there are 1.6 billion Chinese and not that many of them have been lifted out of poverty yet as a percentage of the population. So their growth rate will continue to be far beyond what you can find in the U.S. and in Europe and other developing market.

but it's not going to be reliably double-digit going forward. So, I mean, it's a healthier market in some ways. I think one of the concerns, and we've certainly talked about it before on this show, when you're looking at companies that are based in China, is just the whole notion of trustworthiness. To what extent can we trust the management, the numbers on the balance sheet, that sort of thing. In your time, and you've had a long time to study business in China,

are there companies that stand out in terms of their track record for trustworthiness? It's a great question. Yeah, so I've been in China. I've been working in China off and on since 98. One of the issues in China is not only that the companies themselves, you know, put a low priority on, you know, good bookkeeping or good reporting is that the government's kind of in on it too. So you had a number of companies that, you know, in 2006, 2007 that were Chinese that listed in the United States and then were found to be frauds. And so then the Chinese government made their local financials unavailable to foreign investors anymore. So that's troubling.

That, you know, that is, that is really troubling. That's one way around the problem. Right. And I think it's ultimately extremely destructive for China because the easiest solution is to say, well, forget it. I'll just invest elsewhere. I mean, that's why people are, you know, I probably shouldn't have been so surprised that people were looking at a place like Nigeria because China is so bad, they got to look somewhere else. So, I mean, as, you know, as as as as as as as bad of a reputation as night as Nigeria has, they were forming in the other direction. So, I mean, for me, there are, there are very good companies in China.

There are very good companies that, that tend to have Hong Kong base management or or Western educated management. We are still very fond of Baidu, although they've had a very, they've had a very hard. time over the last six months or so. I think ultimately that's a very good company run in a very honest fashion. You're listening to Motley Fool Money talking with Bill Mann, the portfolio manager at Motley Fool Asset Management. You can read his monthly column declarations. You can sign up for it. It's a free email. Just go to foolfunds.com. I was on the Fool Funds website, and one of the things that stood out to me when I was looking over, you guys disclose not only your top holdings, so now all of the holdings.

But one of the things that caught my attention was the degree to which financials as a category are a part of your portfolio, it was frankly a surprisingly high. Did you find it shocking? It wasn't shocking, but I just, it was, you know, somewhere in the neighborhood of 20 to 25 percent. Yeah. And what surprised me was, I guess just how high that was because typically I think of financials and I automatically think in terms of the big, Wall Street banks, which despite the fact that some of them at varying points over the last few years

have been good stock investments. Yeah. From a transparency standpoint, it's hard. It's really hard. And that's ultimately the main reason I just avoid them completely. Why are financials a big part of your portfolio? Well, so you really touched on two things. One is that what we've started doing, and we started doing this last month, is in full funds.

We do release our full list of holdings every month, a few days after the end of the month. And the reason that we do that is we feel like our shareholders ought to know what they are investing in because ultimately a fund can't do any better than its holdings. So we really want people to know. But if you look at our holdings, you'll see. That sounds like a radical notion. Is that? It is radical. But here's my ignorance of the fund industry.

Is that actually a radical notion? It is radical. I mean, it's baffling to me that it is so. But with most fund companies, you can find out. really instantly what their big holdings are. But not everything. But not everything. No.

It's just not the case. I mean, there are a few fun companies that do it. And I can't take credit for having come up with the idea. There's a wonderful asset management company out of Ohio called Diamond Hill. And when one of our, when Tim Hanson, one of our analysts sat down with them, they said, yeah, this is why we do it. We want people to know. And we said, that's a great idea.

We should be that way too. The Motley Fool, as a company, believes in this sort of thing. So the Motley Fool's mutual fund arm, the Fool Fund should operate in this way. So when you look through our holdings, you will notice, yes, there are a rather large number of financial companies. You will also notice that there are very few banks. And so a lot of people tend to think of banks as being financial companies. But insurance companies are also financial companies. And a lot of asset management. are considered to be financial companies like Diamond Hill, but also companies that are some of the best companies in the world, some of the great, you know, compounding machines of all time like Berkshire Hathaway and Markell, Brookfield Asset Management. These are companies that we hold. And they're not, they're not in the banking industry. I mean, they're not out there trying to, you know, trying to get the mortgage industry back, you know, back on its feet. They're not worried about that. They are, they are investors in the ways that we think that people should invest. but they do get characterized as financials.

But we've stayed away from. We don't tend to worry about what our benchmarks look like. I mean, in the fund industry, everybody's put up against a benchmark. And the way a lot of fun companies work is they say, well, I'm going to, so I'm supposed to be invested. My benchmark is in 23% in European banks. So therefore, 23% of my portfolio should also be European banks and where I'm going to value is picking the right banks. We have no exposure to European banks, not direct exposure,

in any of our portfolios, just because we haven't found anything that we're interested in. And, you know, through December and January, that's really hurt us. But I think longer term, you know, having a no strangers in your portfolio policy is a little bit better for us. And, and, you know, it's just, it's the way that we're more comfortable operating. You can read more from Bill Mann at foolfunds.com. He's the portfolio manager. at Motley Fool Asset Management. Thanks for being here. It's really good to see you, Chris. Coming up, we'll give you an inside look at the stocks on our radar.

You're listening to Motley Fool money. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So don't buy ourselves stocks based solely on what you hear. I'm Chris Hill, joining me in studio once again, Jason Moser, James Early, and Ron Gross. Guys, it is that time. Once again, time for the stocks that are on our radar. Ron Gross, you're up first. What do you got? I'm going back to the well with his microcap company called

Amco Pittsburgh, ticker symbol AP, a microcat manufacturer of forge-hardened steel rolls. Think of rolling pins kind of that they use to roll out steel. They make the rolling pins. The company reported fourth quarter results better than my model anticipated. The stock is 1750 now. I think it's worth 30. 30? Once the steel cycle firms up a bit. So there might be a weight here, but it's incredibly undervalued. It'll form up sooner or later. It's a correlation with the steel and his man of steel cufflings. If Ron is rocking the Superman cufflinks today. They're kind of large.

Just quickly, what kind of time frame you're talking? It's hard to predict cycles, so let's say within two years. Okay. James Early, what's your style? Chris, you planted the Hasbro seat in my mind, so I'll go with that. This has been a bit of a turd on the I scorecard. It's not been neck rape. That's more of my timing, not the company. I do like it long term, and it just raises dividend 11%, which, you know, when you see that,

I kind of lose all reason and rationality, so I like cashbro. You're that cool. H-A-S, H-A-S. H-A-S, ticker symbol. All right, Jason Mozer, what's your stock? I think I'm feeling the nostalgia from having lunch over at the shophouse yesterday, but I like Chipotle where it stands right now. I think after reading through what this quarter was like,

I think this is a company that has a lot of growth ahead. Again, I had mentioned the throughput before, but what I also think is really interesting is that, you know, you're looking at a company right now that's trading around 30 times forward earnings. The last time, That's a reasonable price when you compare it to its peers. For a long time, it's been 55 times or so. The last time it traded in this range was back in 2009

when they were forecasting flat to low single-digit comps. And we saw that whole year play out that way. I think this is a good time to be looking at the stock. All right, guys, thanks for being here. That's going to do it for this edition of Motley Full Money. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill.

Thanks for listening. We'll see you next week.