Motley Fool Money - Motley Fool Money: 07.22.2011

Episode Date: July 22, 2011

What will Apple do for an encore? What does the Greek bailout mean for the future of the EU?  Should investors take stock in Coke or Pepsi?  Our analysts tackle those questions and delve into earnings from General Electric, Intel,  McDonald's, and Philip Morris International.  Plus, CNET editor Rafe Needleman talks about some big trends in technology. Learn more about your ad choices. Visit megaphone.fm/adchoices

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If you're 45 or older and at average risk, ask your health care provider about the KoloGard test. KoloGard is available by prescription only. Learn more or request a prescription today at kolaGar.com slash screen. 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 Hill, and I'm joining me in studio this week from Million Dollar Portfolio, Ron Gross, from Global Gaines, Tim Hansen, and from Motley Fool Hidden Gems, Seth Jason. Guys, good to see you. Hey, Chris. Happy Friday. Big week for earnings. We've got the latest on Coke, Pepsi, Microsoft, Apple, and more.

Plus, as always, a look at the time. stocks on our radar. But we begin with the big macro. European leaders have agreed to a 140 billion three-year loan package to rescue Greece from its latest financial crisis. Tim Hansen, a little golf clap from South. Tim, the stock market in the U.S. reacted favorably to the news. How's it playing over in Europe? Well, their stock market was also up. So I guess investors are happy about this. I think the people who are going to be unhappy are most Greeks and most European taxpayers. So that's a large quorum of unhappy people, which obviously this is a problem with a multi-year, potentially multi-decade dimension to it.

And to the extent that politicians who support this plan are kicking the problem down the road, it's unclear to me if those politicians will still be in power the next time a solution needs to be reached in order to kick the can a little farther down the road. And I think Tim, what Tim and I were talking about this before, problem being kicked down the road is, as he put it out, what was it, that Germany and Greece just fundamentally should not share a currency by definition. Definitionally, those two countries cannot have the same money. And what that means is that economies like Greece or Spain, they go through booms and busts far more often than does, you know, like a German economy. And the way out of

that for most countries is you devalue your currency and that's not great, but it's a way out. But when you're stuck with the Europe, there's nothing else to do. The only good thing I saw about this entire plan. I don't see the only good thing. Avoiding Armageddon is nice. But one, something that's a plus. Something that hadn't happened before is that gasp, the German banks and all these other banks that made these horrible loans were actually being asked to take something of a haircut, which is, you know, up until this point, it's been pretty much you Greek schmose, yeah, you Greek schmose, you take a 30% pay cut and you like it. And we're going to tax you a little higher rate. And yeah. Are we still, let's, we're going to make our Eurobats? You're going to be around and

10 years? Sure. Do you want to make that bet now? No. No? Tim? What do you think? Well, you know, people who've been following my multi-year Euro commentary, which I'm sure is most. And who hasn't? They would know that I initially shared Cess view and said the Euro was going to be gone in five years. I've since reversed course, and I do think it will be around, not for anybody's benefit or not for any good reason, but just because this generation of politicians in Europe invented the Euro, they think it's their legacy. And as we've seen over the past 12 to 24 months, they're literally doing whatever it takes to save it, inventing money out of thin air, whatever it takes. And so I think that political will and the fact that there's no legal

mechanism in place to get rid of it yet means that it will take longer than 10 years to figure out how to untangle this mess. So it's not a great idea, but they're just so damn stubborn that it's still going to be here? Oh, that's correct, Chris. That's the way government works, all European politicians are stubborn. And since we're in the states, they can't sue us. But if we we said this there, they probably could. All right. Let's move on to earnings. And we'll start with a little something we're calling, this week in huge companies you don't care about, but probably own shares of. I'm talking about GE and Caterpillar. We'll start with GE. General Electric's second quarter profit grew 21 percent fueled in part by a strong quarter from the company's

lending arm, GE Capital. Ron Gross, what do you make of GE's latest quarter? I think it looks pretty good. They got their financial division under control, let's say, and the heavy equipment business looks strong. They don't have NBC Universal any longer, so comparisons are difficult. But if you strip that out, business looks good, and they increase their guidance. They're seeing really good growth overseas. Everything looks to be firing well for them. All right. Speaking of heavy equipment, Caterpillar's second quarter profit grew 44% as the company raised its outlook for the rest of the fiscal year. But that was below expectations. The stock was down on the news. Caterpillar CEO said they're seeing some softening of growth in China. He also cited the uncertainty on the U.S. debt reduction plan and a lack of confidence in the business climate. Boy, that sounds like a downer of a conference call.

It's a good lesson for listeners about how the stock market trades in the short term. It's about expectations versus results. It's not necessarily about how companies are doing. It's about what people were expecting. And even though the company had earnings growth of 44 percent and increased guidance, And China is still growing, although perhaps at a lesser rate, and Latin America is strong, and the world is strong. Stock is trading down rather sharply because the company missed by, let's say, two pennies

versus a consensus Wall Street estimate. That's a pet peeve of mine. It drives me crazy, but that's the way the world works. And that's the way the stock market works. If we look longer term, we can actually make money from the short-term kind of nonsense. Seth? Well, yeah, that's true. I think the reason it does that is that a lot of traders have the idea that earnings are so open

to manipulation, legal manipulation, sleagel manipulation, that if you can't find those two pennies somewhere, you must really be out of gas. That's the theory anyway. To return to those numbers and the confidence or lack thereof in the U.S., that is one thing that really is going to be a sticking point. I mean, if we get a big austerity plan here in the United States, that's not going to be good for companies like Caterpillar. There are demagogues out there saying, well, once we have some clarity on business and blah, blah, blah, that'll fix things. That's not necessarily true. If you've got clarity, but it means lower sales because you're not doing infrastructure work or you're not building houses or something, that's not really going to help a company like Caterpillar.

Tim, what do you think? Yeah, I mean, this business climate issue vis-a-vis the U.S. I think has been echoed in a lot of conference calls and it's probably most brazenly talked about this week by Steve Wynn. Steve Wynn, who just went to town. Had a very entertaining call. And you know what? I mean, some people were questioning the relative appropriateness of of making somewhat politically charged comments on a business conference call, but credit to him for coming out and speaking his mind. And obviously, it's a difficult and complex situation, but to the extent uncertainty can limit investment and direction for businesses. And Steve Wynn, obviously is seeing that. And I think some of the other businesses like Caterpillar are

alluding to that as well, though not being nearly the megalomaniac. Well, doesn't Steve Wynn get 70% of his business from overseas already anyway? Well, they've now split the company in two. Win Resorts is now Win Resorts, which is Las Vegas and Win Macau. And the reason he split them in two is because he thought that the McAnees arm or the business had way more growth potential. And by dividing them, he would get, obviously, a higher valuation at the Macau business. Right. On the other side of what Tim was saying, Caterpillar is voting favorably for the future with their wallet

by investing $5 billion through 2015 to increase capacity. So they do see the need and they see global growth and they want to be ready for it. Yeah, I think as far as building goes of all kinds, infrastructure projects, housing, stuff. We're trolling along a bottom here. Things can't get a whole lot worse. Who knows when it's going to turn back up, but it will sooner or later. Record earnings from Apple earlier this week as people continue to buy millions of iPads and iPhones. On Thursday, Apple announced it has sold more than 1 million copies of its new Lion operating system.

And on Friday, there were reports. Apple has joined the bidding for Hulu, the online video service. Seth, obviously, a lot to chew on there. What do you make of Apple's week? You know, they just keep making more money than anyone. 78 billion in cash, what are they going to do with it, lie in the operating system that took Walt Mossberg a week to learn how to run, and still he gives it a great review and says, oh, this is awesome.

Never mind the fact that the scroll works in the opposite direction. Nobody else could get away with that, we were saying. This Hulu thing is pretty interesting. Now, this is all just rumor, also rumor that Microsoft dropped out of the bidding here. And I think this would be an interesting potential acquisition for Apple. I think it would be a great nail in the coffin for poor Netflix shareholders, unfortunately. Apple's user base is enormous, and it is much more loyal than the Netflix user base. And so if Apple could come in and get some of the exclusive deals, which are rumored to be part of the buyout

process, then I think Netflix would have a major potential problem. Coming up, forget the Yankees and the Red Sox. We've got the real clash of the Titans, Coke versus Pepsi. Stay right here. This is Motley Full Money. Welcome back to Motley Full Money. Chris Hill here in the studio with Seth, Jason, Tim Hansen, and Ron Gross, as we go through some of the big companies that had earnings this week. Microsoft's fourth-quarter earnings easily beat expectations as quarterly net income came in at nearly 5.9 billion, roughly 1 billion more than expected. That's a huge win, Ron. Good stuff. When I saw the headline, I was excited not only because we owned it in

million dollar portfolio, but I own it personally as well. I thought the stock would be up big, because as I've said on the show, the stock is really priced for very, very little growth. And we saw a lot of growth here, and so it was exciting. Where's the love? What the street is focusing on, unfortunately, or appropriately, is the fact that the Windows business is weak, and it was actually down 1%. The good news is that office products remained very strong for them, and it allowed them to turn in a good quarter that was better than expected. Xbox is even strong, and we've got the new Star Wars.

I know. Connect Star Wars plus... The Star Wars edition. Seth is positively giddy with anticipation. Are you putting that on your holiday shopping list? Oh, yeah, and I'm going to get me a big old stick, and I'm going to be waving that around because apparently you can use your own lightsaber. I can't do the sound effect.

I wanted to remark quickly on the... the Entertainment and Devices Division, which is that Xbox thing. Rom was just talking about. Now, five years ago, this was a division doing $4 billion in revenue and $1.3 billion just about in losses. And that is now a $1.3 billion operating income line for Microsoft. And there were a lot of people, including analysts at the time, we said, why don't you just give up? You know, this thing is kind of a money sink and why do you bother?

Microsoft keeps at this and actually produces good product in a lot of these. these areas. Office or business division, I guess, is what it's called now, is another example of that. People said, why on earth would you do that? This quarter, it was the biggest moneymaker for Microsoft. So they need to stay in this game. They're willing to do it for the long term. And if you're wondering why they keep these money sinks around for a while, that's why. Coca-Cola and Pepsi, both reporting earnings. Coke's profit was up 47 percent, beating expectations, and the stock hit a 52-week high. Pepsi's earnings were lower than expected. profit up 14% and the company lowered guidance for the year.

Tim Hansen, kind of sounds like Coke won the week. Coke had a good week. Coke had a good week. And the reason for the discrepancy here has to do with, I think, two issues. The first is that if you divide up the non-U.S. world, Coke is pretty much winning everywhere over Pepsi except in India. Now, India is a great market to be winning in for Pepsi, but when you add up Africa, Latin America and China and Russia to get. together. That's a nice... That's bigger. It's a nice, yeah. It's almost as big as India. So, Coke has that going for it, and they saw not only consumption growth in all those markets,

but they also saw people trading up to more expensive products, and also they were able to raise prices. So when you multiply those three things together, you get a nice kicker. On the flip side, Pepsi, more so than Coke is tied to snack foods, and rising input costs there, inflation on raw materials has been hurting them more so than it has been Coke. Do snack foods translate as well internationally, or do the local brands sort of command more loyalty than, say, local sodas would? They do not translate as well.

There's some interesting case studies that Pepsi is done and Kraft and others where they've taken something like the Oreo cookie, and they still have the Oreo brand. Oh, boy. They still have the Oreo brand over in China, but they've completely reimagined the way the cookie is. For whatever reason, the beverages, obviously,

are the same worldwide. So funnions aren't necessarily killing it worldwide. They shouldn't be killing it anywhere. Intel reported better than expected earnings thanks to strong corporate demand. Intel CEO raised guidance for the next quarter, but warned that growth in the PC market was slowing. Seth, what do you think of Intel's latest? These are interesting in numbers and not surprising in some way, surprising in others. A couple of years ago, you never would have guessed that PC growth, outlook from Intel would change by, you know, several percentage points from quarter to quarter

and now they're looking at something like 8 to 10% PC unit growth for the year. Still had record results. A lot of that is due the fact that as consumers and others move to things like tablets or or netbooks or smartphones, which takes away from, conceivably takes market share from the PCs that held Intel chips, you need to have more data centers. And so on the other end, you're selling more sort of enterprise level chips from Intel. So there's give and take there. I think going forward it will be really interesting to see if Intel can develop a platform that will compete on the consumer level because I have a feeling that iPads, I won't

even say tablets. I'll just say iPads and smartphones are going to continue to eat away at sort of the low-end computer. Tim, what do you think? Well, you know, Intel whiffed basically on this tablet and smartphone revolution. and so they've been trying to sell the story that, you know, servers, which their chips are used in, are needed to supply the growth or to feed the growth of tablets and smartphones anyway. They'll still get growth from that. That doesn't seem to be quite as robustly the case as maybe they'd hoped.

And Intel, like a lot of tech companies, is sitting on a lot of money. And I think, although they've said they're not going to do this, I think it's actually probably fairly likely that they go out and try to acquire someone to get them a foothold in that tablet smartphone chip space because they are very far behind. But aren't they coming out with this thing they're calling the Ultra Book, which is sort of this marriage of the tablet and a laptop? The vaporware netbook that's supposed to be more awesome? I mean, they're allegedly working on a lot of things to solve this problem. And they've got the resources to do it, but it helps to buy established customer relationships in this business because there are transitioning costs and things like that. McDonald's reported better than expected earnings with profit up 15 percent. Ron, some nice same store sales growth?

It's done, McDonald's. I mean, thanks to the McAfee and the frozen lemonade and the oatmeal. Between that and the Oreos, you're just salivating over there. McDonald's is coming up against what all food companies are coming up against, which Tim just mentioned, which is rising raw material costs, rising food costs, definitely pressuring margins. And McDonald's has done a nice job, kind of revamping the menu. They've got the value part of their menu. And then they added in these higher margin products, these frozen coffee drinks and the frozen lemonade. And that's really helping them offset that margin pressure, and they're doing really well. They're seeing, as this common theme,

better growth outside of the U.S. than here. But U.S. is still growing as well. Philip Morris International reported better than expected earnings. Strong sales in Asia, especially Japan, helped offset declining sales pretty much everywhere else. The company also raised its guidance for the year. Philip Morris International is the world's largest cigarette maker, and all of its sales come from outside the U.S. Tim, this is a company. that's been on your radar for a while. The important thing to note is that there's different ways to measure Philip Morris's sales. There's sales by volume, which is the number of cigarettes they're selling. And that, in fact, has declined in Europe, and it is rising in Asia. But if you measure

sales by the amount of money they're getting, that continues to go up significantly because they're raising prices and they're getting massive currency benefits from bringing non-dollar back into dollars. You know, the real story here, and I mentioned this earlier with Coke, which benefited from a similar trend is a case study of what's going on in Indonesia as representative of the whole Asia region, which is where they saw 7% volume growth. But then they also saw 27% sales growth, thanks in part to both them raising prices on their products and also people moving up from a sort of Brand X generic cigarette brand to like a Marlboro, for example, which they charge more for, which happens as they, you know, as consumers make more money, they trade up.

And then also the currency benefit, you throw that on and they had better than 30% sales growth in the region, which is just incredible. But again, it's that multiplier effect of wealthier people, raising prices, better brands. And then the currency thing, it's a great time to be a non-U.S. investor. We talked earlier about Apple. There were a lot of stories about Apple this week. And one story that seemed to get more attention than most, if not all of them, was this report of a fake Apple store in China, complete with salespeople in blue T-shirts with the Apple logo. Tim, what was your reaction to? Tim, you've shopped at that store.

I think what's more interesting to me is why do American sort of the blogosphere find this so fascinating? Rip-offs in China are everywhere. I mean, obviously, this is representative of an issue in China surrounding intellectual property, but the concept of taking, you know, pirated goods exists on New York City street corners as well. I mean, obviously this is done to an nth degree, which is maybe why it's interesting. You know, but my theory is two explanations. One is that people love Apple. So when the Chinese mess with Apple, they've crossed a lot.

Oh, I don't you, yeah. I would dare them. The other is that, you know, there's this narrative that China is not really a competitor of the United States because they're not innovative and we don't really need to fear them in terms of usurping our position as the world's superpower. And this sort of story, I think, makes Americans feel better about ourselves that, yeah, we don't need to worry about China. They're sort of amateur.

But it's their Apple store had lousy wallpaper for China. At the end of the day, I think, you know, it's stupid to try to generalize about a country of 1.3 billion people, and I think people are using this story to try to do that, which is unfortunate, but it is what it is. And it is funny. Seth Jason, Tim Hansen, Ron Gross, guys. We'll see you later in the show. Up next, we'll dig deeper into the world of technology and business with CNET's editor-at-large. Stay right here. This is Motley Full Money. Welcome back to Motley Full Money. I'm Chris Hill. A lot going on in the world of technology, and here to help us make sense of it all, is Rafe Needleman, who's an editor-at-large

for CNET. He's covered technology and business for more than 20 years. And he's covered technology and business for more than 20 years, and he joins me now. Rave, thanks for being here. Always a pleasure. So let's start with Apple, because once again this week, they reported huge earnings. What is your take on the new operating system Lion, which, for my money, certainly has a much better name than the, what was it, the spotted leopard or snow leopard or whatever it was? Snow leopard. It's an evolution of the OS10 operating system line.

it is a very interesting product. Under the hood, it's more secure and all that stuff that most people don't know about, but they've made some very gutty decisions in Lyon. For example, they changed the direction that you move your fingers to scroll down on a page on the trackpad. It's now direct instead of you're out-scrolling the page instead of scrolling the taskbar, which means it's completely reversed.

So for everybody who is accustomed to using a a Mac. They've just completely rewritten, everybody has to completely rewrite their muscle memory. It's an incredibly gutsy move. Only Apple could get away with doing something like this. So, I mean, is that going to

backfire on them? That seems like a pretty dramatic move. Apple has made big moves before that actually end up not backfiring. A lot of people grumble. At least in this particular case, Apple is giving you the option of going back to the old way. But really, if you do that, you're

sticking a foot in the past. and not moving on. And Apple obviously wants everybody to move on to the new world where it's all direct interaction with what's happening on the screen. Now, the iPad is obviously not very old in terms of devices, and yet it seems like very quickly

Apple has just completely conquered the tablet category, to the point where, frankly, on this radio show, when we talk about other companies rolling out tablets, it's either with a laugh or a tone of sympathy. the inner voices. Is there anyone out there who is a legitimate threat to Apple's continued dominance with the iPad? Oh, sure, and anything is possible.

Let's discount at the moment the Blackberry tablet and the HP WebOS tablets. They're very, very strong products, but they don't have the base and they don't have the developer support that Apple has. The real threat to the iPad line is, of course, Google's Android tablets. The problem is there are too many of them. The ones that are as good as the iPad aren't necessarily price competitive, and they're just not as enjoyable to use. I mean, you can have as many arguments as you want about the specs on some of the

competing Android tablets being better than the iPad or about the thickness or about the ports and the ways you can plug into it. But you just sit down with two of these products, and you ask you, yourself, which of these would I give as a gift to my mother-in-law, if you like your mother-in-law? And that would be the Apple product, and that kind of tells a story right there. Netflix made headlines last week with their announced rate hike. There were thousands of people who were protesting online. We'll see if those people actually end up leaving the business.

But you recently wrote, why am I paying for Netflix when video store rentals will cost me less per month? and Amazon has a better streaming selection. Do you think this is going to backfire for Netflix? First of all, thank you for reading my Twitter stream. Secondly, yeah, I do. And there are differing this argument as to why Netflix made a 60% jump in fees overnight as opposed to doing it gradually. But regardless, I think this is going to hurt Netflix's users.

It's user-based quite a lot. personally, I'm going to drop the paid, the disc service, since I don't use it enough, and I'm strongly considering dropping the online because even though it's relatively low cost, you know, $9, $10 a month for streaming, their selection is no good. Now, that may change over time,

and they've got to change it to say competitive, but I'm thinking all our card is a way to go, and I'm thinking a lot of other people are going to think the same thing. You know, 60% is just an insulting, rate hike. You're listening to Motley Fool Money. My guest is Rafe Needleman, editor at large for CNET. And if you're interested in business and technology, you should definitely read him on CNET and follow him on Twitter. From where a lot of us sit here in Fool Global headquarters, you see hot IPOs like Zillow, Pandora, LinkedIn. It really takes us back a decade or so

to the dot-com era, the late 90s, and not necessarily in a good way. What does it feel like in Silicon Valley? It's incredibly exciting. The entire valley is about to go public, is how it feels, and money is flowing freely. It really is. It's very difficult not to get a startup funded. M&A is picking up.

IPOs are obviously picking up. There are a lot of people out here who are going to get very rich, very quickly. But it's also exciting because new ideas are getting legs and are getting attention. Yeah, it's frothy, but, you know, that is the way the Valley works. That is the way the entrepreneurial economy works. You have a boom cycle, which we are going into right now. It will be followed by a bus.

There's no question, and it'll happen again. But this is the way it goes, and right now it just feels so exciting to see so many ideas, even bad ones, just get attention. of those three I just mentioned Pandora, LinkedIn, Zillow if you had to bet on one to still be here 10 years from now, which one would you bet on?

Oh, I always bet on real estate. So Zillow. Really? I mean, even with the advertising-based internet business, again, it just seems like 1999 all over again. Well, I'm not talking about the business models that these companies have today.

I mean, they all have good, they all have working business models. Pandora people always pay to be entertained, and Pandora is an execution play if they can make... Actually, I don't know how they make money because nobody is paying for that service. They're an advertising play, and they pay for people who listen to the service and try to make it up on ads, and that's the difficult model.

LinkedIn, a very important business tool. Obviously, they are making money. People do pay for that service, so that's a good business, and that should continue. You know, I don't know what their model will be five, ten years from now. But if you can attach your company to real estate, even when real estate, I mean, people are always buying and selling even when the market is down. Before we wrap up with a round of buy, seller hold, Rafe, again, you're out there in Silicon Valley. So give me a little inside scoop here.

What is an exciting new technology that's not really on a lot of people's radar that you think is going to be big? Let me give you a trend rather than a technology. I'll take it. There are several interesting companies right now that are putting individuals together for financial transactions. You have things like relay rides, which lets people rent their own cars out to other people want to buy it, to rent them, Airbnb, where you can stay at somebody's house around the world.

Zarlie, which lets you do have somebody come and mow your lawn or buy their old Aaron chair or whatever. These are all new markets that help individuals connect to each other using location-based services, which they all do,

and social networking as the filter as to who's trustworthy. I interviewed the CEO of Zarlay the other day. He called this collaborative commerce, and I think it's a very important trend. We will wrap up with a round of buy-seller hold. We will start with Intel. It's hoping to bridge the gap between laptops and tablets with a new kind of device.

Buy-seller-hold Intel's Ultra Book. Remains to be seen if they can get the deals. So I guess that would be a hold. Buy-seller Hold, the future of 3-D technology. Personally, I can't stand 3-D. gives me a headache, but I think kids are going to grow up with it, a moderated buy. And finally, you wrote a Star Trek trivia book back in the 1980s, Buy-Seller Hold the Enduring Appeal of Star Trek.

Oh, man, I just think it's timeless. First of all, I did that book when I was a little kid, so that was a previous life. But, of course, I mean, I think the reboot has been strong. It brought some necessary usefulness into the franchise, so I would definitely buy that with the caveat that CBS, for whom I work, owns the Star Trek TV franchise. And where do you come down on the whole Captain Kirk versus Captain Picard debate? It depends if I'm trying to seduce a beautiful woman or negotiate a peace treaty. See, I'm old school. I got to go with Kirk. Yeah.

I like Picard's nuanced approach, but, you know, after a beer or so, it's Kirk all the way. Rafe Needleman covers technology and business for CNET where he's an editor at large. Rafe, thanks so much for being here. A pleasure. Thank you. Coming up, we'll dip into the Fool mailbag, and we'll give you 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 Pool may have formal recommendations for or against.

So don't buy or sell stocks based solely on what you hear. I'm Chris Hill. I'm back in the studio with me, Seth, Jason, Tim Hanson, and Ron Gross. And, guys, we will open up the Fool mailbag. You can always drop us an email, Radio at Fool.com. Got an email from Bailey in Washington, D.C., who writes, I have a strong belief that inflation will rise and continue to rise. How should I protect myself and my stock portfolio?

Are there industries or segments that I should consider buying or selling? Ron Gross, what do you think? Well, Bailey. In an inflationary environment, I think you definitely can look at a commodity and natural resource-based companies, oils, metals. Another way to go would be companies that can exhibit some pricing power. Coke would be a good example. Coke is actually raising prices now because of rising raw material costs.

I would stay away from things like bonds, fixed income securities like that. But the typical commodity-based play is where you go for inflation. I would suggest Bailey look at the inflation numbers. The inflation we are getting is overwhelmingly right now sort of agricultural inflation, and that's due not really to any monetary policy, but to a lot of bad harvest. But if you believe the inflation story, and I don't, you know, money's pretty much free for the borrowing right now. How about some cheap real estate? Gold? Should you just load up on gold?

Well, I'm not a gold guy, but there is no doubt that if we get rampant inflation, gold will probably be something good to over. I know that, but the real estate, you will be paying them back with worthless dollars. Funions would be good. And you can live on it. You can't do anything with that gold. All right, an email from Brian who writes, What would you do if one of your stocks shot up suddenly and became a significant portion of your portfolio?

Why would a stock go up 10% per day, even when everything else fails? And when is it going to go pop in a bad way? There's a lot to work with there, Jim. Tuesday. This is a classy problem to have in some ways. I would love to. have that problem. Yeah. You know, there's a simple test for this, which is if you're lying in bed at night and you're thinking about this stock and panicked about what it's going to do next,

then you should probably consider rebalancing, which just means take a little off the table, doesn't need to be all of it, and find something else to invest in for diversification's sake. If, however, on the other hand, this doesn't worry you at all. Depending on the nature of the company, it's hard to answer a question without specificity. you could hold on. Why do stocks go up? Sometimes they're riding the moe, as we joke. Other times their businesses are just doing really well.

If it's the former and not the latter, you probably want to consider selling. But if it's the latter and there's real business momentum here, then that's where the magic of compounding is really powerful for investors. And finally, an email from Bill Wiley in Oregon who writes, I've been listening to you guys for quite a while now. My wife got me started when she signed me up for Motley Fool Stock Advisor. Your Motley Fool Money Show has actually replaced the great Louis Roe, Rue Kaiser's Wall Street week for me every Friday night.

Wow, that's some high praise. Take that out who is Rue Kaiser. Motley, he goes on to write, Motley Full Money has become a must-do for me every Friday night with a cold beer. Wow. Me too. Is that a compliment? Or is that like, I need a beer to tolerate you?

Yeah, maybe the latter. We're not sure. It wasn't three beers, just one. Well, you know, with the ABVs, you can get on these beers now. Get that 11% or down. He concludes by writing, I've been trying to contact Seth Jason. Would you please forward me his email? I need to thank him for fossil.

All those times I made fun of you, Seth. Yeah, you and Broydo. For talking about fossil. Up yours. Bill. Bill Wiley in Oregon, apparently has done well by your fossil recommendation. And his funding his beer habit from slightly unfashionable watches. I kid.

I kid. I'm glad, Bill. They've done well. And a lot of our members have made money with that even more than we did ourselves. So they bought it cheaper than we did. All right. Let's move on. to the stocks that are on our radar. And Ron Gross, I will start with you.

I'm going to go back to Caterpillar, and I'm going to take advantage of Mr. Markets' short-sightedness. Wow. Be interested in this stock as it sells off, despite increased guidance, robust growth around the world. I think Caterpillar looks interesting, not necessarily cheap. 17 times earnings, 11 times cash flow. Need to look at that a little bit more. But I think that $5 billion capacity expansion program could really be a big boost for earnings down the road. Let's bring in our man, Steve Brodo, from the other side.

of the glasses. Steve, you get a question for Ron about Caterpillar? Sure. Do shipping costs play a major factor in this business? I'm just trying to think of how large this equipment is and how much I see of it everywhere. It's very large, and shipping costs certainly are a factor. Things like rising oil prices definitely eat into profits when things like that occur. So you absolutely have to take that into account. So FedEx won't come by and pick up a huge... A huge turbine? No, I don't think so.

I guess not. All right. Tim Hansen, your stock this week? I'm looking at at Cynook, which is the China National Offshore Oil Company. And the reason is we've had success buying and holding this one in the past, and it got pricey on the oil price rises a couple months ago, and we recommended selling. But the price is dropping. And I'm interested again for two reasons. One is that they just made an interesting deal to buy a stake in a Canadian oil sands project. That looks like a really compelling valuation. And if the Canadian government approves the deal, it's a big boost for CNUX reserves, which implies that the growth that they've been producing is sustainable.

And secondly, there's apparently, in a very underreported way, a massive oil spill that Cinoch caused in the Bohai Bay region of China, which is near Beijing. You can find it on a map. And no one really seems to know quite how large a spill this is. This seems like it would be big news. But they would be. We're seeing escaping in a boat. So the interesting thing for that, I don't know what, the magnitude of the spill, it hasn't really affected the stock price at all. and it's unclear what costs might come to bear on CNock at any point. But, you know, BP is any experience, depending on if this moves into the stock price, I'm, you know, learning more about the company in the case that it drops dramatically. Somebody finally finds out about this. And what is the ticker symbol? A CEO. Easy to remember. Steve, question for Tim? Sure, it's a broader-based question about oil in general. When will electric cars start to dig into oil companies' profits? I feel like the Chevy Volt, when that came out, it was this massive thing. Everyone's going to be driving a Chevy Volt. I haven't heard very much.

much about the Chevy Bowl lately. And you never will. I wouldn't worry about it. We talked about this on one of the shows, about it in the podcast, how battery technology lags. There are no big breakthroughs coming there, and there are easily attainable breakthroughs in engine technology

that could make gasoline-powered cars much, much more energy efficient, and much more economically. You think 10 years, 20 years, when electric cars are really starting to dig in? How on, never? Never. Okay. I'll take never. Yeah, I mean, why would you invest in that sort of

technology would you invest in making internal combustion engines more efficient. I agree with that. Seth, your stock this week? I'm going to talk about universal forest products, which is as boring as it sounds. They own lots of lumber and sort of lumber treatment facilities. They sell to Home Depot composite products, lumber, plywood, things like that, green-treated lumber. And this stock was just absolutely killed at the end of June when they came out and said, hey, you know what? Bad quarter coming. and then they had their earnings report a couple of weeks later and pretty much gave the same information

and the stock went flying right back up again just because they said the lumber market is no longer in a free fall. I don't know that it is really cheap right now, but the thing to do is to keep in mind that volatility. I think this is a pretty well-run company for the long term, and if you can get an opportunity to buy it when everyone else is freaking out the next time they do, if they do, then I think you're in good shape.

So that's UFPI. Steve? Similar question at last. we're going to stop making things out of wood? It just seems it's amazing to be. I know. It burns. It grows in a forest. It's pretty cheap. The bugs eat it. I hate it at my house. We just did our deck and we did it all in treks. And the problem is that the treks cost me about a bazillion dollars. But I did it because it just holds up so much better. And now I got carpenter bees eating another part of my house. I don't like wood. I don't like wood either,

but it is much more economical than the composites right now. Steve, what would you prefer we use? I would prefer aluminum or steel or brick or mud. I don't know. Adobe will be in Adobe huts. Something doesn't burn. Brick, you want to sleep on a futon made a brick? Energy-intensive building material. Plastics. Everything to be made from oil-based plastics, please.

I actually have a question for Seth. So, Universal Forest, this is the first time I can remember you ever mentioning this company. And I couldn't help. Well, I couldn't talk about fossil again. Well, but I couldn't help but notice that, coincidentally, our colleague James Early, who is a dues-paying member of the American Conifer Society is on vacation right now. Is it because James is not in the room?

And he'd take a swing at you for recommending this company? They only cut down very ugly trees or trees that have sold poison muck to school children. All right. Seth Jason, Tim Hansen. Ron Gross, guys. Thanks for being here. Thanks, Chris. Thanks to our special guest this week.

Raph Needleman, editor at large at CNET. That's it for this edition of Motley Full Money. Our engineer is Steve Brodo. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.