Motley Fool Money - Motley Fool Money: 07.24.2009

Episode Date: July 24, 2009

Existing home sales rise for the third straight month. The Dow crosses 9,000 for the first time since January. And Amazon, Apple, Chipotle, eBay, Ford, JP Morgan, McDonald’s and Microsoft report earnings. So what does the week’s big business news mean for investors? In this installment of Motley Fool Money, we’ll give our take, offer up 3 stock ideas, and talk about the relative merits of buying shoes online. Learn more about your ad choices. Visit megaphone.fm/adchoices

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

What? Oh, boy. Fantastic. You guys go hard, man. Daredevil Born Again, official podcast Tuesdays, and stream season two of Marvel Television's Daredevil Born Again on Disney Plus. Welcome to Motley Cool Money. I'm Chris Held. I'm joined my Motley Fool Senior analyst, Seth Jason, James Early, and Shannon Zimmerman. Guys, happy Friday.

Hi, Joe. Happy Friday, Chris. A lot of companies reporting earnings this week, including Amazon, Apple, Chipotle, eBay, Ford, McDonald's, and a little tech startup named Microsoft. We'll get to those stories, offer up three stock ideas, and talk about the relative merits of buying shoes online. But we start with Mr. Market. This week saw the Dow Cross 9,000 for the first time since January. and news that existing home sales were up for the third straight month. So, Shannon, a lot of talk that things are turning around. Do you buy in that?

No. To me, this is like a short-term fling that has worked out much better than anyone expected, and so investors have stuck around longer than they should have. Some things aren't meant to last, and this rally is one of them. For all the good economic data that came out this week and the not as bad as expected, economic data that's come out over the last several weeks, bad news remains. Home sales may be up, but home values are still more of them, for example. Personal income still in the dole. Unemployment still set to hit double digits very soon.

And in this, the most consumption base of all economies, consumers are saving, not spending. That adds up to a rally that has probably overshot the relief mark and is kind of in the realm of the ridiculous. For me, go ahead. I just have trouble sitting here while Shannon malign summer romance and the United States of America. I don't malign it. Why do you hate freedom? Some things are beautiful in their moment and then not so beautiful after that moment. You're right.

Sometimes it's nice to just fall in love for a couple of weeks and then get out of town. Exactly. Did you have like a summer crush? But I'm going to jump in quickly before I see the Florida James to upstage me with his awesome analogies. And just point out that this home sale increase thing is another bogus media artifact. The pace of home sales as of existing home sales, as reported by the people who are interested in selling homes who get the 6% cut, is up slightly over the pace they predict or the pace they determined last month. If you compare it to the pace where we were last year, it's still down. And you have to consider that we're moving more foreclose.

closures is really not that great news. Yeah. I mean, less bad has become the new good, but that's not necessarily good. For me, the big shoe to drop is commercial real estate. I mean, that could get massacred, and if that gets massacred, so could we. It's being massacred already. All right. Well, someone forgot to tell Microsoft about the party this week. Shares of Mr. Softie were down on Friday after the company reported worse than expected earnings. The big culprits, weak demand for PCs, and a first ever decline in annual sales

for Windows. Seth, you love the Zoom. You're our resident defender of Microsoft. What do you have to say about all this? It was a pretty stinky report, but again, I'm always surprised by what surprises people. I didn't have an opinion that we don't, those of us here at the Fool, and sit around

and estimate earnings and revenues. Speak for yourself, Seth. Except for Shannon. But if you looked at what Logitech, for instance, same space, their revenues were down 30 plus percent. Lexmark, same space, revenues down 20 plus percent. We have a warning from Dell, I understand. haven't seen those numbers. Dell and HP don't come out till the middle of August,

toward the end, I guess. But if you look at what everyone else in the space is doing, for the most part, in the PC space, they're about Microsoft is about in line with that. So there's nothing to be surprised about people aren't buying a lot of computers. Businesses aren't investing a lot in computers. And when that happens, you're going to get a result like this, which isn't great, but it's expected. Yeah, and I think that part of what's happened here is it's been this controlled burn of hype around Windows 7, which everybody seems to love in pre-release, this pre-release phase. And then this report comes out before Windows 7 does, and people are shocked, shocked that the earnings aren't as strong as they would have appeared to have been had Windows 7 been released, which it will be later this year.

So, things will change. There's sort of back projecting their forward projections or something. Exactly. And one question for you. So if this earnings release had been a Zoom, what color would it be? It'd be the brown one. Of course. I honestly did not know they had continued to make the Zoom until today.

The new ones are actually a lot better. Seth reminds us every week. I don't even know why I would buy a Zune. At Best Buy. Apple reported better than expected earnings this week, thanks to, yes, the iPhone. Apple sold 5.2 million iPhones during the quarter, twice the number of Macs that it sold. James, is the iPhone becoming Apple's primary business, and if so, is that a good thing? Well, it's a good thing if it's making the company money.

And Apple's being very smart in this environment. I mean, unlike the Zoom, the iPhone does sell units. But it doesn't come in Brown. Maybe not, but 626% unit-wise, however, the money, the actual sales revenue that came in from the iPhone was only up 303%. In other words, Apple has a cool product that they were arguably charging too much for. They smartly lowered the prices, and now they're doing a lot more revenue in the recession because of it. Everything they do is smart. Everything.

I have, oh, man, I have three Macs at home. You had to think about whether you were going to admit that or not, didn't you? No, I'm full disclosure here in Motley, wait a minute. The rumor has it they did do one smart thing, which was reversed that lockout on the Palm Pre. Didn't somebody send that story around that they were going to let it? Oh, breaking news. My conspiracy theory on that is that while Steve Jobs is away, the tinier lackeys may have come up with this idea to lock it out. And then in my narrative, which is odd because it casts Jobs as the hero, he comes back and he says,

dudes, come on, this thing isn't going to really hurt us. Don't make us look like idiots for this minor fly. So they did another very smart thing, I think, in going back there. So I'm sorry. James, you have three Macs in your home. Is that one for you, one for your wife, and one for your baby? Is that like you have one? My wife has two.

Okay. My dad has two. You know, I spread the word. It was. Do you drive a Volkswagen, too? I do not. To your point. So they are selling moving more units when they lower the price.

This is a little experimental price search. It worked out well for them. If they could untether the device from AT&T, that would also expand the audience space. Would it not? Correct. And one thing Seth has been talking about consistently, sort of similarly, is they untethered their sort of the development app process for the iPhone, and that really supercharged that. So, yeah, right now, I personally think AT&T is a poor investment because it's got so much writing on iPhones, despite its good results. So, yeah, we'll see.

They could open that up, but hopefully they will. Earlier in the week, Amazon announced it's buying online shoe retailer Zappos. Later in the week, Amazon reported weaker than expected sales for the quarter and saw its stock tumble. Says shares of Amazon still up around 80% for 2009. What do you think the story is with Amazon? To quote the Big Lobowski, there are a few strands in the Dutors had here right now. One of them is that these kind of worse than expected results in the stock drop only are bad in the context that everyone had such high hopes for Amazon. And so when they don't come in quite as high,

there's this letdown. So Amazon, it's very clear to me, at least right now, that they seem to be winning a war that I thought eBay was going to win, which is collecting this vast network of small retailers, people selling out of their houses, out of small shops everywhere. And they seem to be winning that fight. eBay seems to be losing it. And that's why I think it's actually hard to put a price tag on Amazon, because you don't know how long that can go on and how much money they can make as a result. To turn to Zappos quickly, Zappos is weird. If nobody out there's familiar with it, I see these shoe boxes coming into the cube next to mine, where our business manager sits. And she, you know, she picks out the pair that fits, and then she sends 20 boxes

back and keeps only the 21st. I'm virtually certain that my wife is doing the very same thing as we speak. Right now. You can feel it. But what's going on with this is they're not trying for synergies or anything. Zappos, it looks like it's becoming profitable. It does, you know, probably going to be doing a billion in revenue in a year or two. And so Amazon is just tucking a moneymaker. So, safe to say that none of us are actually buying shoes online? I don't know if dudes buy shoes from Zappos or not. Not the dude or us dudes either.

A question for Seth, in addition to being our resident Zune fetishes, you're also a big fan of the Kindle. Did any copies of 1984 mysteriously vanish from your unit? No, that was a weird. What were those, were like, do they accidentally sell illegal copies and then have to erase them? And then the big brother of Amazon vanished them overnight. No, I'm ashamed.

I'm reading some terrible fiction on my, on my Kindle right now that I can't even tell you what it is. Oh, we'll get it out of the math of the podcast. We'll share it with you later books. I've read Fabio books in the past. It's long story. Goes written. All right, let's do some quick takes on some other earnings news.

Ford reported a $2.3 billion profit for the quarter, but that came mainly from the company restructuring its debt. So you pulled that out, and Ford would have reported a loss. James, are you hopping on the Ford bandwagon? I need a warranty until 2011, Chris, when Ford was, will turn a profit, according to his latest report, which is great. I mean, the company's not bankrupt, which is actually saying a lot. They actually Al sold Toyota in terms of vehicles sold this past quarter.

The F-Series pickup truck took line is particularly strong. One thing they don't have, they don't have sexy cars. They still have Middle America boring cars that nobody really wants to buy. Oh, you're bagging on the focus, actually, and this new thing called the Flex have gotten pretty good reviews and done fairly well. But I think most of their cars people are bored with. Yeah, they just need to do more. I mean, they need to get their cars in gear, and if so, they'll do okay. eBay reported better than expected numbers, thanks to the success of PayPal.

eBay's auction business now makes up only 25% of its revenue, Seth. PayPal accounts for 35%. Is that a good thing for shareholders? I don't think so, because the dwindling auction business is really no good. And PayPal, while it's an excellent cash machine, and it's great because you're just taking a cut of all these other transactions, It's the kind of thing that I think could be interrupted by another service. Who knows what that could be. You have to think about the history of business.

Whenever there's sort of a fat margin to be made on something that's relatively easier that can be done by anyone with a lot of technical savvy and some money to start it up, you have to sooner or later expect that something will happen, something will change. And I'd be worried. Aren't you surprised that that has not already happened? I mean, so the margins are fat. PayPal's been the dominant player for a while. Amazon or somebody.

Yeah, I mean, it is pretty surprising that they've held it as long as they have. and Google sort of took a half-hearted run at it and gotten nowhere. But it's the kind of thing that I would not, I would have more faith in eBay's auction system. In other words, if you're the only auction game in town, you hopefully collect everybody. I think PayPal could be a more wide-open field, but it hasn't turned out that way yet. Finally, Chipotle reported better than expected earnings, thanks to rising margins. Shares have more than doubled since November, Shannon. Is it too late to get in?

Absolutely not. The valuation is stretched relative to where it was about six. months ago, but the stock is still a silver bullet wrapped in aluminum foil. So the results were fantastic. And weighing nine pounds. And it's a killer. And I mean that in the good way. And it tastes good with guacamole. Yeah, it's showing strength and resilience amid a very tough economic time. Increasing prices, and customers have swallowed that, no problem. Double-digit revenue growth, the highest operating margins in the history of the company. So, yeah, I think it's a great company, a great investment for long-term investors. As we head into the last week of July, give me one stock that's on your radar.

and Shannon, stick with you. Yeah, I'll stick with the food theme and say Mickey D's, McDonald's. The tickers, of course, MCD. It's a, say what you will about its food, but it's a very healthy company and a great investment. Also reported second quarter numbers that were strong and would have been stronger still, except for the rising dollar, the currency translation did not work to their advantage, but they still posted year-over-year growth, a good company for right now. James?

Chris, I'm going to talk about Morgan Stanley, and I really don't care about the company that much, but it gives us a good lesson in that they're getting criticism for not taking enough risk this past quarter, unlike, say, Goldman Sachs. How dare you? Exactly. But it sounds funny because, you know, we've just been through, you know, this banking nightmare. But it illustrates the point that that sometimes jumping into safe stuff after a storm is not the best thing. A lot of the best performing mutual funds these days were the worst performing mutual funds last year. So that's the lesson we get from that company. Well, see, I want to push back just a little bit on that.

A little bit sounds good. Yeah. Go for lots. Is this a short-term mistake? that will actually work to its benefit on down the road? Or is this something that you think is sort of characterically flawed about their approach? No, I mean, I think it's a little more complicated. I mean, they actually do have a lot of commercial real estate, which I would consider pretty risky in some of their other business. I guess trading balance sheet businesses, you know, they were not as sketchy. So, you know, I don't think we can fault them too much.

I just think they're sort of the sacrificial limb that taught us a little bit of a lesson this quarter. What James doesn't understand is that clearly people just want them to take on risky risks. Is that so much to ask? In profit mightily. Seth Jason, one stock that's on your radar. Just for James, since I know he loves cash flow stories, I'm going to have to just go back to Microsoft. I'm just looking at a spreadsheet here. And Microsoft is, it looks like it's priced, and this is at a 12% discount rate, which might be a little hefty for them for something like

5% growth for 10 years and then dribbling off to a terminal rate. That's pretty, that's nerd speak for very, very little expected. I don't know that I would buy it right now, but I have a limit order in on caps, which is our program we have here where you kind of play the market. And $20 to me, I think, would be a really good entry point. So if anybody's watching and this bad news kind of drives the stock price down a little bit, that might be a good thing to watch for. Yeah, I mean, I don't like the company, but at a cheap enough price, I could like the stock.

Yeah. All right. Seth, Jason, James Early, Shannon Zimmerman. Guys, thanks for being here. Good to be with Chris. Chris. Thanks for listening to this edition of Motley Full Money. You can check out past episodes on Motleyfulmoney.com. And if you click open iTunes, you can listen to Motley Full Conversations, the newest edition to the Fool Podcast family. As always, people on the program may have interest in the

stocks they talk about. Don't buy ourselves stocks based solely on what you hear. Do your homework. And please just make your own decisions. And remember, the conversation continues 24-7 at Fool.com. I'm Chris Hill. We'll see you next time.