Motley Fool Money - Motley Fool Money: 06.13.2014

Episode Date: June 13, 2014

Intel rises.  Priceline buys OpenTable. Twitter's COO resigns.  Lululemon stumbles.  And GM issues another recall.  Our analysts talk about those stories and Motley Fool Singapore Director David Kuo shares his thoughts on the slowdown in China. Learn more about your ad choices. Visit megaphone.fm/adchoices

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The best thing they'll like But you can give them to the best. From Fool Global Headquarters, this is Motley Fool Money Radio Show. It's the Motley Fool Money Radio show. I'm Chris Hell and joining me in studio this week for Motley Fool Pro and Options. Jeff Fisher for Motley Fool Income Investor James Early and for Motley Fool Hidden Gems, Chief Investment Officer Andy Cross. Good to see you, Jens.

Good to see you, Chris. Gentlemen. We will break down the latest news in retail, automotive, the tech industry, and more. We will head to Singapore for perspective on the biggest international markets. And as always, we'll give you an inside look at the stocks on our radar. But we begin this week with big tech. Intel does not report earnings until mid-July, but the world's largest chipmaker raised guidance for the current quarter and the full fiscal year on stronger than

expected demand for corporate PCs. Stock was up pretty big on Friday, Jeff. I thought the PC was dead. What's going on here? Surprise, surprise. It is a surprise that more corporations are buying PCs than expected. Mostly they're upgrading, or our analysis suggests, they're upgrading from Microsoft XP, which Microsoft is no longer supporting to the latest software.

So the question is how long will this upgrade cycle carry PC sales? Because IDC research still expects PC sales as a whole to decline 6% unit volume, 6% lower this year. And that's on the back of eight straight quarters of declines, two years of declines for PC sales. Andy, Intel for the longest time was considered to be a bellwether stock, but hearing everything that Jeff said, it seems like maybe not so much anymore. Well, I tell you, the news that it came out, I think, was quite shocking because, like, the rest of us, I was like PCs. I mean, I think that industry was just totally, you know, dying by the vine.

So the news, at least, I think, is encouraging. And not just for Intel or it's really for the industry writ large. Like, I was thinking we follow Dolby and Stock Advisor. And for Dolby, that could be a really good sign that that. the PC market is actually showing some signs of life. But now, for Intel's perspective, though, the PC is not going to be enough to keep this thing compelling. I mean, we still need either success in mobile or maybe Internet of Things to get these chips out there. I mean, this is great for now, for what is it, you know, 7% bump, but it's not going to be enough to get the job done long term.

Yeah, this buys Intel a bit more time as they try to work their way into mobile in a profitable way and Internet of things. And basically their goal is to anything that computes, they want to sell the chipset for it, the processor for it. And they got a long way to go still. Jeff, when you look at the stock, though, even with the bump on Friday, how is this stock looking on a valuation basis? You know, Chris, it remains pretty reasonably priced. It yields 3%. It trades at a multiple of around 15x earnings, so around a market average. Stop me if you've heard this before, guys.

On Friday, General Motors announced a recall on 500,000 Chevy Camaros due to, wait for it, a faulty ignition switch. James, this is GM's 38th recall of this year, and last year for all of 2013, they only had about 23. Chris, if you're at a party and you give a drunk guy the keys and he goes out and he crashes, he hits somebody or he drives into a pond or something, can you really complain, especially if he's done it 37 other times? I mean, this company should never have been bailed out. I mean, this is the U.S. government's fault. we've been waiting for GM to fix itself in a year now, and apparently this is not that year. GM is now literally recalling 10% of all cars on U.S. roads. I mean, and maybe there's some credit to be given for them taking less than 11 years to announce this particular recall,

but that's vastly overridden by the fact that this is another ignition switch problem, and you think somebody would have actually caught on to the fact that this might not be their specialty. Yeah, I mean, there are some people who are looking at this and saying, look, they're being cautious, they're being safe, they're learning from their mistakes, and yet, when I look at the aggregate numbers, 38th recall so far in 2014, totaling somewhere in the neighborhood of 16 million cars, I don't know. This is, this, GM, years ago, GM should have been allowed to fail. The money that was put towards resuscitating GM should have been given as some kind of a

payout to whoever. The parts could have been sold to Japanese or Korean automaker or European automaker, someone who would have known what they were doing and run this company competently. But instead, we kept this thing alive and now we pay the price, right? You disagree? Ouch, well, you have to wonder if the pendulum

has just swung to the other side. They weren't doing recalls when they should have, and now they realized, holy cow, any little thing, we better recall it and get it fixed. But weren't these Camaro's made like as recently as this year that are being recalled? Yeah, these are Cameras. This is not a legacy problem.

This is a recent problem, too. Who's still buying Camaros? At least 500,000 people. Priceline is buying OpenTable, the online restaurant reservations company, for $2.6 billion. Andy, that's a premium of 46% for OpenTable. First and foremost, are they worth it? That's a really good question, Chris, because it really depends on how Priceline's going to integrate the Open Table, both the platform and also the business. price line's been shopping around for these little acquisitions they bought kayak they still haven't

I don't think shareholders of which I am one I'm actually one of Open Table as well too they haven't seen the full benefit of the kayak acquisition to integrate that platform so they're going to try to do the same thing with Open Table so I think it could be a very nice tuck in acquisition but the big picture for price line it's actually a very small part of their overall market capitalization I was going to say they can absolutely afford this acquisition but but I think people were surprised by how much they were willing to pay. And we even saw on Friday shares of Yelp up 10, 15%, just because people are now looking at Yelp and thinking, well, maybe they're next. Yeah, I mean, the price is far higher than the 52-week high, which usually that's kind of the guidance of acquisitions and rich on an EBITDA level and an APE level for the growth prospects of what you would traditionally think of a company like this.

But OpenTable has a lot going for it, even though the price is rather, was higher than the 52-week high and higher than what I would. would have thought price line would have paid for. What's confusing to me, and I don't follow these companies, but I just read an article or two about this. And they said that price line typically does not make much of an effort to actually integrate these companies, and it lets them operate independently, which seems strange. Why would they pay such a high price if they're not going to try to integrate and get some kind of synergies?

Are they collecting it like an old lady hoarding cats? I mean, what are they doing with this? Well, it's also that I think it's customers and technology. You could just think how maybe they would think about open table because so much of price lines business is tied to the booking.com. Open table has all this access into these restaurants. Maybe there's some bed and breakfast kind of synergies there, too. Maybe it's the technology to use the actual OpenTable platform.

They want to actually use that in some of their booking.com business. So they may still run it as a separate unit, but they may be able to integrate some of the systems. And Price Line is more open table is pretty much domestic. And Price Line is actually very international. Well, yeah, I mean, it's, yeah, they paid more than, $80,000 per restaurant. Open table has 31,000 restaurants. So the price point, like I said before, does seem a little bit rich just on the surface, but I like price line strategy for making these

little acquisitions. Here's the thing, Chris, though. I would think that price line actually is going to make a much larger acquisition over the next year or so. You know, we've talked about how hot the IPO market has been for the last 18 months, but it really seems like the M&A activity is picking up to the point where I'm. I'm wondering if now when investors are thinking about buying a stock, James, should they also be thinking about if that company is a potential takeout candidate, if that alone is a good thesis for buying a stock? Generally no, because takeout is very, very hard to predict, and then they happen, and then they can be announced and they can be canceled. It's a tough thing. It's something to take it.

It's better for a bad stock. For a good stock, good company, and this is actually something most investors probably don't think about in the right way, I would say. For a really good company that you think is going to be a long-term winner, you actually don't want it to be bought out because you get a small premium and that's your whole game, right? But for a lousy company, you actually want that. So it depends on your type of company. The other thing about OpenTable, it's a huge mobile platform. Priceline still is not outside of their kayak. It's really not a huge mobile platform play yet.

OpenTable certainly is. So it's a play further in the mobile growth. You're really into this, man. You're going to think about it. We own both these stocks. We're talking about something else. You're still thinking about it. Yeah, that's right.

He's having a good week. Yeah. I like that. I was on a roll. Well, I think the price really tells us OpenTable was not eager to sell. I think they're really held out because they're a young company. They think they're all right. They think they're great. Shares of Twitter up three and a half percent on Thursday on the news that chief operating officer, Ali Rogani, was resigning effective immediately.

He will remain with Twitter as a strategic advisor to CEO, Dick Costello. Help me out here, Jeff. This is a guy two months ago, the Wall Street Journal had a story about him calling him, Mr. Fix It, and now he's effectively out the door. Out the door. His fixes didn't work. And really, that's the story here. The user-based growth at Twitter is close to Stalin. It only grew 5% last quarter, quarter over quarter. For a young company that just went public, you need faster growth than that. Really, at least double digits. So Twitter now has 255 million users, but only about 20% or so.

Visit the site once a month. Facebook is closer to 75%. So there's an engagement. problem too. So CEO, Dick Costello, had to shake things up, and one of his moves was getting rid of COO and some other top executives. He's reorganizing the business, having more people report directly to him, and I think he's going to really try to oversee boosting growth at Twitter because they need it. Yeah, Andy, it's worth noting that they're not hiring a new chief operating officer. They've effectively eliminated the position. And I'm wondering if, Chief, Chief operating officers are not something that every company needs. Well, not to make a huge general statement,

but chief operating officers probably don't come very cheaply either. So as an opportunity to kind of continue to think about your margins and keep your personnel costs low, which for a tech company and for a tech consumer company, personnel costs are such a high part of your overall cost structure, a way to keep it on the downside. And also for the CEO to consolidate power. Coming up, we've got some retail earnings news,

And amazingly enough, not all of it is terrible. Stay right here. This is Motley Fool Money. As always, people on the program may have interests 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. Welcome back to Motley Fool Money. Chris Hill here with Jeff Fisher, James Early, and Andy Cross.

Lulu Lemon Athletica down more than 15% this week. James, first quarter profits look pretty good, but they lowered guidance for the full fiscal year. CEO calls this, quote, a transitional year. I'm assuming that is not transitional in a good way. Yeah, pretty soon they're going to have to change their name to just lemon. I mean, this was a fast-growing company. It still is a fast-growing company, but there's a lot of competition now. And what's ironic is that Levi's recently complained that their jeans had poor sales because people were buying yoga pants instead, but apparently they're not buying yoga pants from Lulu

lemon. And that's the issue. This company was started as kind of a fad, a craze. And it's It's a one-trick pony. I mean, they're trying to be a two or three or four-trick pony, but it's still hard. And now kind of those birds are coming back to Roos, so to speak. If there is a silver lining, it might be that they are buying back their stock about half a billion dollars worth, and they're doing it at a pretty good time. Shares are down 36 percent. Stocks at a three-year low, so I'm wondering if that alone gets you interested in the stock.

No. You know, there's still a lot of board infighting. The CEO is a very colorful character. He thought the issue with the translucency in the previous pants was the fault of overweight customers trying to put them on. And he's voted against the whole board. He owns 27% of the company, I think. So I think there's just too much infighting. There's too much of a fad risk for me to get interested.

Shares of Radio Shack down 20% this week after its first quarter loss was bigger than Wall Street was expecting. I'm not even sure how that's possible, Andy. And moreover, how is this company still standing? Yeah, well, full disclosure, we recommend this in Hidden Gems and still hold it. We put it in the penalty box a few months ago just given the continued worsening performance of their store base trying to close stores. Now the big risk is that they won't be able to fund the business and they won't be able to pay the debt. And there's more than likely chance, more than maybe a 50% chance that they actually will have to file off of bankruptcy. So they just have the mobility curve has not worked out for them.

The store base is just too large. They need to continue to shrink that. And they just may be running out of time, Chris. Yeah. One of the stories was how they were looking to raise more money. The CEO was trying to put on a brave face and say, look, we're in turnaround mode, but we're going to need money to fund that. But I just wonder, who's going to lend them money at any rate that is not considered anything but prohibitive?

Yeah, and that's the trick. I mean, a few years ago, this company's interest cover, when you look at their profits versus the interest expense, was somewhere in the eight to nine times. Now they're not even operating profit, running off operating profits. So the fact that that's going to turn around at any reasonable time and someone's going to loan their money, that's the real risk. And that's why investors have sold the stockoff so significantly. My dad shocked me yesterday. He has been playing with my son and doing different experiments. He actually came back.

He said he went to Radio Shack and found some electric. circuitry toy kit. And that's the kind of thing you can only probably buy at a Radio Shack. So that's one out of three customers or a quarter for them. That's very true for those who want who want to kind of like find what they want. But that's just a shrinking

part of the sales base now. I don't want to get too personal, but did everything go okay with the electrical circuit kit? Actually it did. It's not to a lot of shaking, which we were not certain that it would, but actually did. So good job for the product. Restoration hardware up 15% this week after

strong first quarter and they raised guidance for the full fiscal year. It's looking good, Jeff. Shares at an all-time high this week. It's looking good and it's a fun story, fun company to watch because in the midst of the Great Recession in 2008-2009, they had a whole kind of reorganization plan that they're now laying out and put it into place, which includes closing about 30% of stores, making their remaining stores showcase destinations, and selling, they sell nearly half of their revenue comes from comes online or through what they now call their source books and have any of you received a oh my gosh yeah did did you did it put a hole through your floor when you say it broke my back trying to pick it up so it's wait what is the what is a catalog just arrived at last week or so at

our house it's i think 16 pound 18 pound yeah it's 13 catalogs though they don't want to call them that they call them resource books or source books okay but they're catalogs all in one bundle yes and they're only sending them once a year. This is once a year you get it and they say that's much more ecologically friendly. And then you have them all year for when you want new lighting or to new furniture. Each one is categorized.

So it's an interesting concept and it's kind of like reminds me of the Sears catalog. You get everything at once once a year. And we know how well that worked out for soon. Yeah. It worked well for a long time and then it didn't. So we'll see how well this works. Well, it's also worked out Wellful William Sonoma, which plays in the same space as restoration

hardware does. And this is the difference between company like Restoration Hardware or William Sonoma, they can use their stores as showcases to go buy the product online. You can't do that at Radio Shack. That's a big difference. And that's the value of having something like William Sonoma or Restoration Hardware compared to something. Restoration Hardware still sell all those junkie, like, pseudo-1950s trinkets, you know, the fake x-ray glasses or, you know. I think they've streamlined a little bit. I think they've moved on from that from that is not always their brand now. Yep.

You're right that wasn't part of the brand. The store, though, I agree, is important because a lot of what they sell is furniture, and I am very reluctant to buy a chair without trying it first. A fun thing I learned recently, too, is that they plan to provide espresso drinks and food and child care in their stores as well. So they're really going all out. What would the child care look like at a restoration hardware? Hey, can I then go, like, out for the day?

Is restoration hardware your look, Jeff? Just at a curiosity, in terms of your interior design taste. Is there you kind of a restoration hard work on a guy or more like a modern guy? We live in a house built in 1934, so we try to match, you know, that time period. So kind of mix, yeah. Finally, guys, the World Cup has begun, but with literally billions of people expected to tune in, what is it going to mean for office productivity? According to one survey in the Middle East, where games will be aired between 7 p.m. and 4 a.m.

Nearly 90% of professionals said they plan to watch at least some of the games. A third of them plan to just get less sleep, 10% of them, said they will go into work late in order to catch up on their sleep. Another 10% said that they would take annual leave. Let's bring in our man Steve Broido from the other side of glass. Steve, you're a big soccer fan. How are you going to maintain your productivity during the World Cup? Well, since I don't follow hockey, I think it should be just five.

I'm not asking you to pick a winner, Steve, but can you at least give me two teams you think are good candidates to meet up in the finals? Canada and Angola. Keep those emails coming. Radio at Fool.com to show your support for our man, Steve Broido. Thanks, guys. Up next, we're going to head to Singapore to check in with our man David Quo. Don't go anywhere. I sat back down with a smiling face while she went down to the powder place. With my green back, just a little piece of paper coated with Florafil.

You're listening to Motley Full Money. Welcome back to Motley Full Money. I'm Chris Hill. China is the world's second largest economy, and it is an economy that is a economy that is slowing down. Here to help us make sense of what's happening in China and other international markets is David Kuo. He is a regular financial commentator for the BBC, and he is the director of Motley Fool, Singapore, which is where he joins me from.

David, always good to talk to you. Thanks for being here. Oh, by the way, just one small correction. According to some people, China has already overtaken America as the largest economy in the world. This is through some kind of jiggery pokery. I think they call purchasing power parity. And on that basis, it's already at the point.

Yes, China is the second largest, according to most traditional measures, yes. I'm getting that information from the BBC, so that's what we're going with for now. Yes, you get on. Always, particularly when you're on it. You look at the latest quarter for China's economy. It grew almost 7.5% in the first quarter of 2014. Most people, I think, would look at that and happily take. that kind of growth, and yet it is slowing down. And now we see the central bank in China

starting to take some steps to boost some growth. From where you sit in Singapore, what stands out to you when you look at China's economy right now? I think in the past, China was perceived as being a developing economy. Some people say it is still a developing economy. But what China really wants is, anyone can get a country, lots of money into the country, but what China wants is good quality growth, sustainable growth. The economy to be more like the economies of the West, not the economy, rather than to keep on pumping money in. It's 20 years. It's been the government that's had the upper hand. We will build hospital, you know, when you can't really, and we know that Chinese consume that money. They're also looking for the banks to start lending

even more money, and the latest move from the central bank in China is, to, among other things, cut the requirements in terms of the amount of cash that banks need to keep in reserve. They're doing this for about two-thirds of the bank. How much concern is there, if any, that China may be moving to what we like to refer to here in America as free money forever? I'll tell you why, because American one is what we call, and this is when factory is something that China has been doing for the last 20 years and it wants to stop the economic growth. Now, those are the four leaders that China. I have to remember that China is still a command economy.

In other words, the government spend money and drive the economy to encourage. And what you should really be doing is to lend out that cash to companies who want to borrow the money in fourth-one is net exports. And unlike many other countries around the world, four levers, the economy to grow. You're listening to Motley Fool Money talking with David Quo, heads up operations at Motley Fool, Singapore. Let's move to another country, and that's India, which now has a new leader. in the wake of the recent election, Narendra Modi. And part of his platform was economic reform. How should investors feel about India's new leader?

We need, I mean, at one time, both a cent a year, and then suddenly, come down a few percentage for Modi's mind. I mean, one people between the ages of 10 and 20, and 10 people between the ages of 20. Now, this is not good that India, the population of young people, and one in ten of these young people are not employed. It will get unemployment down to see India, and it really needs to.

When you look at the return of emerging markets, just the basic emerging markets index over the last few years, it's really been terrible. And there was a good stretch of time, David, when not only were emerging markets a really great place to invest, but you could make investments in ETFs in China, in India. some of the countries that we're talking about here. But lately, emerging markets have been really bad investments.

When you look around the world, do you find yourself gravitating as an investor towards any particular market? And if so, which ones and why? So you have plenty of opportunities within the emerging markets. But just looking at the economy growing through these emerging markets, I'll give you one example. I mean, if you look at this company, you know, one way which people can take on developing economies, not by going in directly, but looking at a tangential way in which they can invest in. Information is more freely available, and I think, you know, that is a better way.

One country we haven't yet talked about is Japan. And, again, another example of a country that for a long time was the epitome of growth and economic success and has really stagnated over the last decade or so. So what's your take on Japan's economy right now and whether it is a place investors should be looking or should be avoiding? And many years ago, you have money out of simply because of, I mean, the prime minister in Japan's country in Japanese corporations is some GDP figures, some economic figures. Suddenly when the figures, another one point really went out and bought, if the Japanese yen can fall low enough, it will have net exports. So it's picking all four boxes there. So there is no reason why we shouldn't be excited about.

Coming up, more with David Kuo. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill talking with David Kuo from Motley Fool, Singapore. You're listening to Motley Fool Money talking with David Kuo, heading up Motley Fool, Singapore. I can't let you go without a question or two about the World Cup because I know you're a fan.

Do we have to talk about the World Cup? I know you're a fan, but I also know you are a former bookman. So, first and foremost, who should I be betting on in the World Cup? And is there, if maybe not a favorite out there, is there an interesting long shot where I could get some good odds? I don't believe, you know, as far as the World Cup is kind of, one of the reasons why, whilst it might be okay for you, the clock in the morning, Chris.

I mean, can he imagine, as a clock in the morning, you're setting another Netherlands team? Every year in the United States, when the Super Bowl, Bowl is held. Obviously, you can bet on either team, but there are also always a lot of interesting prop bets that you can make, which team will score first, which team will kick the first field goal, that sort of thing. Does that sort of thing go on with the World Cup as well? Absolutely, especially when you put it that way. If you want insights into what is happening in Singapore's stock market, you can get David Quo's free investing newsletter, take stock. You can sign

up for it by going to our website in Singapore, which is just fool.sg. That's the website for Motley Fool, Singapore, Fool.S.G. And you can sign up for the free newsletter, take stock. David, always good to talk with you, my friend. Enjoy the World Cup. I will be supporting the US of A, and part of the reason is because I know that will not be a large commitment of my time, because there is every expectation that they will not make it out the group round. I'm glad they're grateful for your small support, yes, even if it's in the early stages. All right.

I have to go make a bet on Belgium. I'll talk to you later. Thanks, Chris. Bye-bye. Thanks, David. All right, joining me in studio once again, Jeff Fisher, James Early and Andy Cross. Guys, a couple minutes to get to the stocks on our radar. Andy Cross, you're up first.

What are you looking at? Coach has an analyst day next week, Chris, and so we need to. see some really good, exciting news coming from Coach, when it comes to their North American business and their brand. They're really trying to turn things around. James and I both follow the stock. It's in both of our services. So I think it's really important that they make this message to the analyst investors. They don't lower any of the guidance. They talk about what they can do to grow the business in North America again. And the ticker symbol? C-O-H. James Early. What are you looking at?

Critch, Buckle, ticker BKE is a stock on my income investor's scorecard. This is a Midwestern U.S. jeans retailer that made a lot of money when genes were popular and people had a lot of money from fracking in the area. But now with all the bad news about jeans, with the bad news about yoga pants, I'm wondering about how viable this is long term. It's a very well-run company. No question about that. But they are a little bit very concentrated in genes.

So I'm curious about my own estimates on this one. Jeff Fisher? The market is the gift that keeps giving, right? And so Panera bread is worth coming back to to consider the tickers PNRA. Now, well, many of us know Panera, but they're going through kind of a reorg themselves, if you will. They're trying to make it more efficient for customers to go through the food process, and they're also trying to develop their online sales and catering and pickup. So they're looking at all these different ways to grow their revenue per store.

The stock is as inexpensive on evaluation multiples as it has been in years, and the business cycles through periods of investment like now, and then earnings growth follows. That's its history, and I think the future looks better. Steve, Coach, Buckle, Panera bread, you got a favorite among those three? I think Panera seems the most interesting. All right. My weekend is complete now.

All right, Jeff Fisher, James, Your Early, Andy Cross, guys. Thanks for being here. Thank you, Chris. I'm going to do it for this week's show. The show is mixed by Gail Anion Nui. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill.

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