Motley Fool Money - Motley Fool Money: 05.03.2013

Episode Date: May 3, 2013

The stock market hits a new high on stronger-than-expected jobs numbers.  Our analysts talk about what it means for investors and delve into earnings news from Facebook, LinkedIn, Disney, Visa, Mastercard, and DreamWorks.  And the Daily Racing Form's Steven Crist talks about the business of betting on horses. Learn more about your ad choices. Visit megaphone.fm/adchoices

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The best thing they'll life But you can get them to the pie From Fool Global Headquarters This is Motley Fool Money Welcome to Motley Fool Money Thanks for being here I'm your host Chris Hill Joining me in studio this week

From Motley Fool 1 Jason Moser from Motley Fool Hidden Gems Chief Investment Officer here at the Motley Fool Andy Cross And from a million dollar portfolio The very impressed Ron Gross Ron Gross You see the C games in the house

Reigns Palluzza rolls on We've got the latest results from Visa MasterCard, Facebook, and more. We've got one iconic brand getting a serious makeover. We will delve into that. And as always, we've got a few stocks on our radar. But we begin this week with the big macro. The latest unemployment report is out. 165,000 jobs added in April as the unemployment rate drops to 7.5% and Ron, February and March numbers revised upwards an additional 114,000 jobs. We got the Dow and S&P both hitting new record highs on Friday? What's not to love? Oh, Chris. Do you want me to jump on the van wagon or you want the truth? What are we doing here? That's why I asked you what's not to love,

because I knew you'd come back with something not to love. Here's what I really think. I think this report is good enough to show that the recovery has installed, and that's what you're seeing in the markets. You're seeing kind of that relief because on any given month, this could go either way. we have only two, two and a half percent economic growth right here, seven and a half percent unemployment even after this. Things still aren't great. In fact, that labor force participation rate is flat. The broader measure of unemployment is actually up a little tick.

So I'm happy to see we're not falling backwards, but I mean, I'm not popping champagne quirks yet. Jason, we were talking earlier in the week, the whole old investing adage, sell in May and go away when you look at the reaction of the market on Friday. as a result is this kind of pops that balloon a little bit, doesn't it? Maybe a little bit, but hey, we're not Europe. So, I mean, I think a lot of what Ron said is pretty much how I feel to. I mean, there's good news in there that the unemployment rates coming down and that the average wage is going up. Concerns about the broader unemployment U6 ticking up a little bit.

There's some question there as to the quality of the jobs that are out there and whether those can really sustain a robust recovery. And I think there's a boots on the ground dynamic that we all have to recognize. at some point. You just kind of look around, and it doesn't seem like everything is back to just square one yet. But with that said, I think that the Fed's going to keep their foot on the gas, and that makes the stock market really one of the best places, if not the best place, to find the returns. And so I anticipate the sell in May go away at it to not be so applicable this summer.

Yeah, Andy, I mean, when you look around at all the investing options people have for better or for worse, the U.S. stock market continues to look like the best option. Yeah, for better. Really, for better. I mean, like, you know, you look at this number, private payrolls up 176,000, which is up over the revised number from March, both higher than economists forecast. I mean, the U.S. economy is doing okay. I mean, like the private growth, the private GDP number is somewhere like 4%. It's the government. It's both federal, state, and local government level where we're really seeing a lot of the struggle. So the U.S. economy, stocks aren't all that expensive. They've had a nice run, obviously. But when you look

around the world and look at the what investors can get from bonds, really investing in stock still remains the best way to go. You know, we're right in the smack middle of earning season here. And I think in general, what we're seeing is kind of low revenue growth, but pretty good profit growth. And that's because companies are kind of lean and mean still. And you can see that in the unemployment rate. Companies are really not hiring in any big way. And they don't really have an incentive to yet because they have the, you know, the benefit of bringing a lot of this, this, this, anemic revenue growth to the bottom line. And so the cycle continues. We're not going to hire profits grow. We're

not going to hire profits go. We need to kind of break that cycle. All right. Let's get into some of the earnings that you referenced. Facebook's first quarter, kind of a mixed bag, Andy. Revenue up 38 percent. That was better than expected, but profit up just under 7 percent. They missed there. And yet, it seemed like from an expectation standpoint, people were pleased. Shares were up 5, 6 percent on Thursday. Yeah, I mean, yeah, Chris, I was looking for the mobile numbers, looking to make sure we're continuing to see mobile ad revenue growth. And we are seeing that as now more than 30% of total advertising revenue. That's up from the previous quarter of 23%, which is up from 14%. So we are seeing some, you know, accelerations here. The key is just growth, continuing to see growth

in both usage. And how are they monetizing this base? How is that ad revenue going to continue to grow? How are they using graph search? How are they using the platform to be able to grow and monetize off. Now more than 1.1 billion users around the world who use Facebook and will continue to use it, how are they going to profit off that growth? And while it wasn't all wine and roses, Jason, when you look at the mobile number, I mean, this is a business for Facebook that basically didn't exist a year ago. No, you're right. It did. I mean, I applaud them for making that move because it's a necessary one. And I think really the big bet that they're placing is on this Facebook home dynamic,

make the app that essentially takes over your smartphone. If they can pull that off, if they reel people in there to really create and develop that engagement factor, then I think they have a good shot at really developing a long-term monetizable model. If this doesn't work out for them, though, I think that'll be a big hit, and really who knows what can go there. But the price today certainly still reflects a lot of optimism. You know, Chris, one thing that they talked about is just the expense line. The expense line continues to grow as they make these investments, and that has an impact on margins. And really ultimately, it comes down to profits around. And you start looking at a company like Facebook, they have to continue to grow the top line. Also,

investors have to see that go to the bottom line to get really excited. And I think when they look out in the near term and those operating expenses continue to grow, that is one factor that investors may be worried about. LinkedIn down 10% Friday morning after first quarter earnings. Help me out here, Jason. Revenue nearly doubled. Profit more than quadrupled. Why the drop. Well, okay, so ultimately, the 10-second takeaway here for investors is that they need to be looking at today's drop is really, I think, an opportunity to buy into an excellent company. These guys are still really, they're firing on all cylinders. This is the only way I can really put it. And if you look at it today, 225 million registered users, yeah, I didn't mean to take

Ron's line. I was going to say, I think I get a royalty every time it goes out. So we're good. I was going to credit you for it. But no, I mean, 225 million registered users. Now, engagement continues to improve. They have more than 18,000 corporate clients now, and they just passed their price increase. So going through the call, the big concern, I think, was, you know, they make their revenue from three different main buckets in marketing, premium subscriptions, and talent. Now, marketing is the one that kind of falls in the middle there, and they're sort of revamping and adjusting their marketing strategy to bring more mobile into play there. And they saw a slight tick down in that marketing revenue. I think that ticked down probably, you know, had some people jump in ship

today, and that's the big problem there. But really, the long-term picture is it remains. These guys are really doing well. Yeah, I think Jason's right about the tick down there, but also they said they were going to be spending more because, quite frankly, they're still a relatively young company. They need to spend to scale this business. And I just think there are wrong investors in this stock right now. If you're selling this stock off in a significant way to the tune of 9 or 10 percent based on this earnings report, you shouldn't have owned the stock in the first place. It's not a value investment. You can't be looking at quarterly beats and one cent. here, two cents there. This is a long-term play, and the company's doing fantastic.

When you step back and you look at these social media stocks, LinkedIn, Facebook, even Yelp, which earlier this week, and obviously it's a much smaller player, I think the market caps around $2 billion, but Yelp was up 25% this week based off of their earnings. In Yelp and Facebook, it's very much an ad model. In LinkedIn, it's very much a membership model. Is membership automatically that much better? How do you guys think about the two models, just as they stack up, as they relate to these stocks? I think a lot of it is an expectations game. I mean, Yelp, certainly the expectations were very low, and when they brought in that actual top line revenue growth, that's what encouraged the market.

But that's one of my holdbacks on something like a Facebook or a Yelp. One of the things that gives me caution there is the fact that they're so based on advertising. You see kind of where Google is nowadays. Google makes a lot of their money from advertising 95% or so. They've really done a great job in sort of shaping that online advertising environment over the past decade. Facebook and Yelp are still relatively new to that game and have a lot to prove. So that's where I look at something like a LinkedIn. That's why it's so much more attracted because they make their money from a number of different –

they make their money a number of different ways. And advertising is just really a small part of it. Yeah, in general, I like membership better because I think it aligns the company with its customers. in a much more significant way versus the advertising model where your end user, you're really not aligned with in any significant way. So membership, recurring, sticky. I like it much better. All right. Shares of Visa up this week after strong second quarter earnings. The company also raised guidance. Ron, that's always a nice duo right there. Yeah, company did really well. If you take out some adjustments for some tax benefits, profits were up 17%. Beat expectations, raised guidance, as you said. So firing in all cylinders, that's the second royalty. I guess. Can I pay myself?

Yeah, sure. You know, I think the company is doing great. I mean, it's a large company at this point. We're pushing $115 billion market cap. So I don't think it's necessarily cheap, but I do think that they're putting up great numbers. Okay, so the Pepsi, two visas Coke is, of course, MasterCard, also reporting this week. First quarter profit up 12 percent, but, Andy, they missed on revenue. The stock rebounded later in the week, but when you look at MasterCard, what do you see?

Yeah, well, as Ron said, the same thing with Visa. These are just beautiful businesses. They have deep moats. They have high recurring revenue streams. They have exceptional margins. I mean, MasterCard's operating profit margins are almost exceeding 50% and returns in capital extremely high. So these are great businesses. I mean, their EPS line for MasterCard was still up 17%, you know, ex some currency factors. That's right in line with what they expect to do over the next three to four years. So I don't let the short term. quarterly, you know, kind of gyrations affect my decision with a company like MasterCard. Interesting enough, it is a $65 billion company, about the same as Facebook. They do about the same amount in revenues, yet MasterCard generates far more profits. So on a profitability standpoint and a multiple standpoint, MasterCard looks much more reasonable, even though still at 20 times profits, 20 times earnings, it's a little bit on the higher side. But for the business and the quality of the business, it's hard to beat a company like MasterCard. Both MasterCard and Visa

shares hitting all-time highs this week. From a valuation standpoint, Ron, how's Visa looking? Little frothy to use Juson's Worthy. MasterCard edges it out just a bit at four times cash flow of Ibetta 16 times for Visa. So MasterCard's just a tiny bit cheaper. Okay, do I get royalties for frothy?

I mean, if we're talking royalties, let's get this out on the tape. Coming up, just because the critics don't love it, doesn't mean a movie can't make an insane amount of money. The latest example is next. This is Motley Full Money. Welcome back to Motley Full Money. Chris Hill here in studio with Jason Mosner, Andy Koss, and Ron Gross. DreamWorks animation. First quarter profit fell 39%, but investors were expecting a loss and shares up this week around 10%. A lot of the credit for the

quarter went to The Crudes, an animated movie about a prehistoric family. The reviews were so-so, and families, Jason, still went in droves. I had to double... Would you say they flocked? I had to double-check this number because I didn't believe it the first time I read it. The worldwide gross receipts for this film, $480 million. Wow. Yeah, you've got to really give a round of applause for that because, I mean, the expectations for these guys going into this quarter were extremely minimal. And so to bring in five or six million dollars in net income was obviously a big win for them. With that said, I think there is a correlation here, mind you, as to when the Crudes was released, because as we've noted, there

wasn't anything else out there. Right. I mean, you either stay at home or you take your kids to this movie. That is a strategy and an art to time of film. I'm going to throw Mac under the bus here. After his review of this movie, I chose not to take my kids to the movie, and we stayed at home. And so maybe we'll catch it, you know, maybe we'll

catch it on on demand or something like that. But I do think that they face a greater headwind in something like a Walt Disney that continues to just churn out. Hit after hit after hit. They're sitting on their next billion-dollar movie here with Iron Man 3. And so with DreamWorks, It is, to me, a classic value investment. When you see the stock reaching highs like it is today, after a hit like the cruis, I think that's when investors probably need to be looking at selling this stock and wait for them to kind of come back down because they will. And then you can maybe look at buying it again. It's not one that I would recommend holding on to for a long period.

Ron, to Jason's point, Disney shares hit a new all-time high this week. Last weekend, Iron Man 3 opened overseas, took in $195 million. This weekend, it opens in the U.S., China, Russia, Germany. It really does seem like they're just going to be printing money on this one. Disney's a wonderful company, and they do so well in all of their segments, especially the ESPN that we speak about often. This is one of those stocks I sold too early on valuation. Not the first time I've said that on this show. But I actually, my kids still own it, and they're proud shareholders, and I expect we will be for quite some time. Yeah, to put that just into perspective, too. You remember if Iron Man 3 is another billion-dollar movie, well, their studio segment is responsible for only about

seven percent of their operating income, Walt Disney's operating income. And I think that just shows you how this company makes their money so many different ways and in relation to how profitable they really can be. You know, interesting that DreamWorks is less than $2 billion in market cap. And I think the price that Disney paid for Pixar was more than $6 billion. How many years ago, more than 10 years ago? So just the relative value that DreamWorks has right now and the relative value that Disney paid for Pixar and the value that Pixar has created over the years from Disney and for the franchise. and we'll continue to generate for many years to come.

Shares of Buffalo Wild Wings down this week. First quarter earnings fell 11%, much worse than expected. And yet, Andy, the company still bullish on the full year, maintaining their guidance. What do you think? Yeah, I think it was still a really good quarter. I mean, like, we talked about this a little bit on investor beat. You know, it's interesting because the thing I love about Buffalo Wild Wings is just the management team they have in place.

Sally Smith. Yeah, Sally Smith, Mary Twine. I mean, they just have been there for so many years. They're reinvesting back in the business. They have faced some higher chicken prices, chicken wing prices that's starting to mitigate a little bit throughout the quarter, but they certainly saw that last quarter. They are going to this new pricing schedule based on the pounds, not based on the number of wings you actually get. So the confidence I have in Sally and Mary to be able to navigate those kind of environments they've been through this before, they're reinvesting back in the customer experience, really trying to grow the store base, do it right. Having that track record really helps when you kind of face these headwinds. And I own the stock personally and I still like it long term.

Let's stick with restaurants because last week, Bob Thompson, the CEO McDonald's, said in an interview that McDonald's is very seriously considering moving to serving breakfast all day. And, Ron, when you consider they've got locations that are up in 24 hours, this seems like to me anyway, this could be a significant win for them. What do you think? It's an interesting move. They have to do something. They've had three consecutive quarters of declining profits, and they really have to kind of shake

it off a bit and come up with something new. Rising commodity costs are hard to, when you have a dollar value menu, it's hard to make money when you have commodity costs rising. So they've got to do something. My gut tells me it's not the right thing for them in terms of hurting their kitchen efficiency, the spoilage that will occur. I don't think the demand will be there to offset the costs. I think we'll watch it and we'll see what happens.

I've got to give a shout out to our colleague, Charlie Travers, who flagged a really great article in Fast Company magazine about Taco Bell. It was a long article basically giving the backstory on the Doritos Locos Taco, which for all the fun we had talking about that product and just the whole notion of a Doritos taco shell, here are a couple of numbers to mull over. In the first year, they sold around 450 million of these tacos. And here's a direct quote from Taco Bell CEO, Greg Creed. We had to hire about 15,000 people last year, which is two or three per restaurant to handle the sales growth and demand of the Doritos Locos taco business. That's staggering that it would have that kind of ripple effect. And when we look at restaurants and how they're trying to pull different levers, it's just amazing to me that, a significant move like serving breakfast all day by your way of thinking, Ron, that's not going to do it.

But in this case, here's one, it's not even one new product. It's one new shell. And it's a new taco shell. And it wasn't a little bet. It was, you know, there was some costs associated here. And they actually didn't even have a contract. It was kind of a handshake. Taco Bell said, we're going to spend some money.

The Doritos folks said, we're going to spend some money and we're going to get this done. So it was really interesting that it all worked out for them because it wasn't a cheap undertaking. have marketed the heck out of this thing, too. I mean, that's, you could just turn on the TV at any given time and you'll see a commercial, you know, pushing these things. So they've really, really created awareness for them. I mean, the thing about these stores that in a world of U.S. growth, which is, I mean, I know they're global companies, but in U.S. growth where you're at, like, you know, 2 to 3 percent, you are definitely pulling levers and making investments and not inconsequential bets. We're seeing this with things like Taco Bell, KFCs. I

talked about this before. KFCs, I eat the bones concept, you know. All right, Ron Gross. Andy Cross, Jason Moser. Guys, we'll see you later in the show. Coming up, we'll get a few tips on how to invest in a completely different way with horse race betting experts, Stephen Chris. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Full Money. I'm Chris Hill. This weekend, the Kentucky Derby kicks off horse racing's Triple Crown. And with the Preakness and Belmont Stakes still to come, this week, an encore presentation of my interview with Stephen Christ. He's written several books on horse racing and betting, and he is the publisher and chairman of the Daily Racing Forum, which is to horse players what the Wall Street Journal is to investors.

Let's just talk horse betting in general. I'm a complete novice. So what are the sort of the major factors that I should consider when I'm thinking about betting on a horse? Well, the major thing is to buy and study the Daily Racing form. Just as an investor would read the Wall Street Journal and various reports and websites. But, you know, as people in your world like to say, past performance is no guarantee, you know, of future results. But it's sure the best place to start. Are there factors that people tend to overvalue?

Is that one of them? Like just looking at, well, this horse has done well the last few races, so that'll absolutely continue in the future? Well, I think there are factors that people overvalue, especially very casual fans. For example, I think that people who go to the racetrack, jockeys are a good idea to spend time studying the records of the jockeys. I think that's largely a waste of time.

I mean, I have a tremendous amount of respect. These guys take, you know, at a top track like Belmont or Churchill Downs, you know, the top ten riders, they're so close an ability. You could practically assign the mounts out of a hat, and the races would pretty much come out the same way. There's a reason it's called horse racing and not jockey racing. Now, that's surprising to me because here at the Motley Fool, we sort of have the horse versus jockey debate from time to time. We do it, though, in terms of businesses and just saying, you know, looking at a business or an industry and the jockey, in this case, is the CEO and thinking, okay, well, Bill Gates did really well at Microsoft.

If you put him in charge of IBM for 15 years, would the same results occur? And it seems like, at least in the world of investing, there are CEOs who really could succeed in almost any environment, whereas others sort of, I guess, caught the lucky horse to use your parlance. But really, jockeys don't matter that much at all? No, I think you've got the wrong analogy because it's really the trainer who's the CEO, not the jockey. I mean, the jockey frequently meets the horse for the first time, six minutes before he rides him. He is not managing the horse's life and career in the way that a trainer is. So I think most experienced and successful horse players...

Now, you've been doing this for a long time. You went to Harvard University. Do I have this correct? You were studying literature? Yes, I was studying Renaissance poetry. And one night a classmate said, you want to go to the dog track? And I said, what's a dog track? And two hours later, my career as a student of Renaissance literature was pretty much over.

I just fell in love with it immediately and tried to figure out a way to get paid to get to the racetrack. You went to Wonderland. I haven't gone to school in the Boston area, I know that track. Yeah, back in the 70s, it was just a charming, festive place, and wow, racing dogs wearing different colored blankets. And, you know, to me, the Eureka moment was when I bought a program and saw that there was some sort of correlation between all those numbers and how the races turned out. And I've, you know, wasted the last 30 years pursuing those correlations. Now, what has been, I mean, 30 years, that's a long time in any industry.

What's been the biggest change when it comes to horse race betting over the last 30 years that you've seen? Well, it's gotten a lot more sophisticated. I mean, one of the things that I've spent a lot of my career in racing doing was working to improve quality of the information that horse players get. I mean, they used to get pretty sketchy information in the racing form. And, you know, when I started out, I'd have to supplement what was in there with, you know, hours a day. First were the paper called The Racing Times, and then when a group of us bought the racing form more than 10 years ago, we really tried to upgrade that information. All that independent research. You're listening to Motley Full Money talking with Stephen Christ from the Daily Racing Forum.

Let's talk about your business, because this is a paper that goes back to the 1890s. How is business? Well, business is fine because we've managed to branch out. uh... into online i mean nobody's getting rich you know publishing papers anymore uh... but our past performance is something that that and we've been able to add in an interactive quality to them that you obviously don't have on a dead tree uh... in the people who access our past performances online they can click on a trainer's name

and research a wealth of statistics about that trainer they can click on the date of the race and watch a video replay of that race and get a chart. So it's really turned something that was two-dimensional into something three-dimensional, and it's, you know, the difference between now and 20 years ago in terms of the information that a horse player can access is just staggering. So the Internet, it sounds like, has helped your business more than hurt it. It has very much so. You know, a lot of people now download their past performances instead of driving out to a newsstand in the middle of the night to get the form when it comes off the truck, you know, we're still going to be a print product for a long time.

And, you know, I would say that most of our customers over the age of 40, you know, use the paper version, and most of our customers under the age of 40 use the online version. Now, I'm not thinking about quitting my job anytime soon and changing careers, but I'm just curious, to what extent can people make real money, make even a career out of betting on horses? you see this or you read about people who make money as a living being a poker player or something like that. To what extent can people do that with betting on horses? It's a lot harder with horses, and I'd be surprised if there are 100 people in America who are really making a good living, betting the horses.

The problem isn't that it's so impossible to pick winners, but racing has a massive takeout race. I mean, on every race, only 80% of the money that's bet is returned to the customers. And, you know, after about 25 or 30 races, everybody is theoretically broke. I mean, can you imagine if there were a 20% takeout on every, you know, stock trade that was made? All the money would move from the customers to the house pretty rapidly. You know, and that's the price that's paid for the cost of, you know, maintaining racetracks and putting on the races and everything else. And it's really the biggest problem in racing and why it doesn't grow and why there aren't more professional betters.

That 20% of every bet that's made, that's a huge bite. That's still a smaller bite than the state lottery. I mean, aren't states taking like 40, 50%? Yes, they are. And how many people are making a full-time living playing the state lottery? Good point. Good point. In the same way, look, anyone can have a good year or, you know, hit a pick six that pays $100,000. I mean, people do win all the time. But it's a tough living to grind it out day by day fighting that 20% take it. How has your approach to betting on horses changed over the last 30 years? What's really been sort of the biggest shift, or has there been no shift at all? No, I think there's been a pretty big shift in that when I started out, I really thought that the whole game was just divining the most likely winner of the race and that it was about picking winners.

But at some point the light bulb went on that it really was a game that was as much about value as it was about picking winners. You know, there are horses who are great bets at three to one, and the same horse is a terrible bet at even money. I mean, I think similarly, you know, with buying stocks, there are wonderful companies, you know, whose stock is overpriced at any given moment, and it would be a bad investment, even if it's a good company. And there are plenty of good horses, you know, including the upcoming favorite in the Belmont Stakes, who are good horses and the most likely winner of race, but terrible investments at a very short price. It's really, you know, like any sophisticated type of investing involving the public, what you look for are for the public to make mistakes in valuation and to take advantage of those mistakes. So it's not enough to be able to say, gee, this horse looks like he's the best horse in the field. You have to equally, if not more so,

consider his price and his value. Now, I have to move this over to the world of investing in stocks because the way you're talking makes me think that you're also as adept at investing in stocks as you are at betting on horses. I know you don't do it for a living the way you cover horse racing, but how do you manage your money? Is it by investing? No, I totally cowardly safe. I mean, whatever money I have sits in savings accounts and nice safe bonds. I have enough risk in my daily horse playing. And it takes up my time, and I find it more entertaining than, you know, studying companies and executives and P.E. ratios.

So, you know, I save my risk for fooling around at the racetrack, but I keep my money pretty much under the mattress. You're listening to Motley Fool Money talking with Stephen Crist from the Daily Racing Forum. We will wrap up with a round of buy-seller hold. Let's start with another popular way to bet money. buy-seller-hold blackjack. Buy. Blackjack is one of the only,

if not the only game in which an intelligent player who is educated about the game can expect to turn a profit in a casino. So, of all the casino games, buy blackjack. I think I know how you're going to answer this, but I'll

ask anyway. Buy-seller-hold slots. Sell. It's just that, it's just throwing your money away, isn't it? There's no. There's nothing you can do to improve your chances. If you sit there long enough, you'll lose about 10% of your investment, minute after minute, hour after hour.

I understand why people play them, I guess, just for the chance of hitting some kind of giant jackpot, but it's a bad bet. You used to work at the New York Times. Buy seller hold the likelihood that the New York Times will still offer a print edition in 10 years. Oh, bye. I think they absolutely will. I don't think us elderly people are going to die out quite that quickly. You're a former editor of the Harvard Lampoon, and this guy, not at the same time as you,

but he did also write for the Harvard Lampoon. Buy seller hold Conan O'Brien. Oh, definitely, bye. I think he's great. We sort of just missed each other. He got there right after I graduated, I think, but I'm a big fan. You Harvard guys just stick together. That's it.

It's a conspiracy. And finally, some people swear by these, buy seller hold, good luck charms. Sell, there's obviously no such thing as a good luck charm, but, you know, it makes you feel better, it's harmless. Much better than a good luck charm. Check out Stephen's blog online at dr.f.com. He is the publisher and chairman of the Daily Racing Forum. Stephen Chris, thank you so much for being here. Thank you.

Coming up, we'll give me an inside look at the stocks on our radar. This is Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. I'm Chris Hill, joining me in studio once again, Jason Moser, Andy Cross, and Ron Gross. Before we get to the stocks on our radar this week, one other story we should get to, which is Kraft,

the gigantic Kraft Foods reported earnings this week. But frankly, I don't care about their earnings. But here's what I do. No one else did. Exactly, which is one of their brands, one of their many brands, which is Kool-Aid. The Kool-Aid Man, I think we all remember the Kool-Aid Man from growing up. Oh, yeah. Oh, yeah.

The Kool-Aid Man mascot first appeared in 1954, and he just got a makeover within the last couple of weeks. In TV ads, now he's like a CGI animated. He now has pants and a jacket. He's slimmed shoes. They slimmed him down, which makes no sense because he's a pitcher. Like, I don't know why he needs to be more athletic. But from a business standpoint, it now comes in a liquid mix. Yeah, pretty cool.

I was actually happy to see that there's, you know, a business rationale. It wasn't just someone walked into a room and said, yeah, I think it's time to change the old man. You know, the liquid mix business has been crushing Kool-Aid over the last couple of years. And the creepy marketing has Mr. Kool-Aid man opening up his closet to see all the different flavors to decide what he wants to wear that day. He gives himself a little squirt, and that's what his outfit is for the day. Wait, I haven't seen this out. So he's just like clear water, and then he's pouring a little. Yeah, exactly.

And so he goes out, you know, cherry or grape or, you know, whatever he feels for the day. Steve, what do you think of this? I know you're just hearing this for the first time. What do you think? Is this going to succeed for Kraft? Is this rebranding of Kool-Aid? Do you think it's going to help them? I have no idea.

I do drink a lot of Mio. Do you guys know what Mio is? Mio is the, I think they invented, I believe they did, this liquid kind of concentrated thing. and I drink it all the time. That's a craft product. All right. Well, then I'm all for it. Bring it on, Kool-Aid, man.

Like I said, I have no idea when you guys. I'm going to start just using that. In all seriousness, a couple of years ago, we were talking about Tang and how Tang was this just moribunded, languishing product, and they were able to just significantly ramp up sales. Annual sales for Kool-Aid $338 million. Is this the next billion-dollar brand for Kraft? What do you think, Ron? Oh, gosh.

I'm going to take the steels. you've checked and say I have no idea. I think not. No, I think it'll be a nice incremental business, but I don't think it's a billion-dollar business. I'm rooting for them. How can you know? And we should encourage users to send us different flavors so we could try it out as they did with Tang. They're very kind. Absolutely. We had people sending us Tang from literally around the world. So yeah, and I haven't seen this new liquid-mix product. So by all means, if you want to, you know, just put some in a little package, send it off to full global headquarters in Alexandria, Virginia. We love product. We're always fans of product. Let's get to the stocks on our radar. Ron Gross,

up first. And yes, Steve, our man from the other side of the glass, will be hitting you with a question. Hasn't he spoken enough today? Well, I've got Activision for you, ATVI. It's a company after many years of patient ownership. It has finally woken from its slumber. Stock has performed well. Their report next week, I definitely want to hear what they have to say about their capital allocation program, dividends, share buybacks, acquisitions, $4 billion of cash, no debt. Very important to the thesis here. And, of course, I want to check up on their franchises and see how they're doing. Steve, question about Activision? So I've owned and sold Activision.

It's been the kind of stock that the call of duty four will come out and it's this blockbuster thing. And you hear in the news, it made more money today than any Hollywood, every movie in history combined. And the stock continued to go nowhere or go down. What is wrong with this company? Well, you might be exaggerating a bit there. But yes, I understand your point. And that's why I did lead with the fact that finally it's woken up. We never understood why it didn't.

They kept putting up better and better numbers. Each year, nobody seemed to care. It is a tough model, kind of like the movie model. You constantly have to reinvent the next game, the next big thing. But finally, it has woken up and started to do well for us. I like that Steve's question was essentially, what the hell? You're blaming me. What about me?

Andy Cross, your stock this week. Whole Foods reports and symbol WFM, the large organic grocer with 300 stores and one right down the street where I know most of us spend a lot of our lunchtime. I'm looking for gross margin. I mean, for grocers that are not typically very profitable, I mean, operating profits run in the low single digits, except for Whole Foods is on the higher side. So gross margin is really important.

Second quarter of last year was an all-time record for them more than 36%. They're not expecting much better than that, but I want to see how that is impacting or how they are doing on the gross. margin side because it gets to the fact of how much people are willing to pay for the higher prices at Whole Foods. Steve, can Whole Foods ever be more than a grocery store? It's a good question. So, like, whether they're getting into different areas like catering perhaps, like that's

a big part of, I mean, the Whole Food Store. I mean, 300 stores, you know, they have some room to run here with smaller concepts, smaller store bases and more products. I mean, they've moved more and more into even down here locally, Steve, with our Alexandria store on the outside of the store aisles, moving to more packaged good, moving to more prepared foods. They have a bar now down in our Alexandria store. So I think they do have these concepts inside the whole grocer. But it's a conscious capitalism business. John Mackey found it. He's running the show. And it will continue to do well if he continues to work on

the things that got him there. You had me at bar. We got less than a minute left, Jason. What do you Good. Clean Harbors, ticker CLH. And these guys operate in the exciting business of hazmat, environmental cleanups, chemical cleaning, things like that. So it's still a small business, about $3.5 billion company. They have clocked in growth, revenue growth. About 27 percent annual over the last three years. So they're growing quickly. But I like the business, basically, because they do a lot of stuff that a lot of other people can't do. This industry has very high barriers to entry as far as economically speaking, regulations. So interesting company, they, diverse revenue stream. The big segment for them is their technical services segment. And I think the stock today at 20 times estimates is a good deal.

Steve? Are you betting on bad things to happen with this company? No, I'm actually betting on a giant Kool-Aid spill, and I think that's going to be a real impetus to grow within the business. Oh, yeah. That'll do it. Jason Moser, Andy Cross, Ron Gross. Guys, thanks for being here. Thank you. Thanks, Chris. That's going to do it for this edition of Motley Fool Money. Our engineer is Steve Broito, our producer is Matt Greer. I'm Chris Hill. Thanks for listening.

We'll see you next week.