Motley Fool Money - Motley Fool Money: 09.03.2010

Episode Date: September 3, 2010

We dig into the latest jobs and retail numbers and how Mariner Energy’s explosion is affecting oil stocks.  Plus, why did Dell & HP have a bidding war over an unprofitable company?  Should Netflix be scared of Apple TV?  And can you pass our Labor Day food quiz? Learn more about your ad choices. Visit megaphone.fm/adchoices

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Thanks for being here. I'm your host, Chris Hill, and I'm joined by Motley Fool Senior Analyst, Seth Jason, James Early, and Tim Hansen. Guys, good to see you. Hello. Hi, Chris. It's Labor Day weekend. Summer officially over, so we've got a lot to get to this week, including the latest from Apple, Dell, HP, and Burger King. But we begin with the Big Mac.

On Friday, the latest jobs numbers came out. Private employers added 67,000 jobs, which was higher than expected, but the unemployment rate ticked up to 9.6%. And earlier in the week, the August retail numbers were released and were surprisingly solid, Seth, Jason. I mean, I don't want to jinx us, but are we actually seeing some good news here? You know me, I'm a hater. There's some decent news, or at least news that's not as bad as I thought it would be. And I read a lot of doom and gloom economic. commentary and it was better than than those folks have been predicting as well. So the jobs number, 67,000, you know, that's not a lot of jobs added and it's a net loss after all of those census workers disappear from the payrolls. But, you know, it's better than creeping back in the other direction. And just to touch on the retail numbers quickly, a couple of the companies I followed did a little better than expected. Abercrombie, which I busted on them and here a few times had one of those surprise same-store sales gains, although last year's month was so bad.

It was in the negative 20-percent range that they really couldn't help but do better than that. James Early? You know, Chris Costco even had same-store sales up 5%. I don't know why, but I do know that my wife just joined Costco, and I use a lot of bathroom tissue. I was going to say recession over. I can't explain the other three percentage points of growth. But, you know, the job report was interesting because it was strong in health care,

which is great, but it was weak in manufacturing, which is kind of a tepid sign to me. Well, and it was, I mean, again, it was better than expected. I think the number, consensus number, was around 40,000 jobs. Goldman Sachs, those folks predicted zero jobs being added. But Tim Hanson, what did you think? Well, you know, I think there's a light at the end of this tunnel in some ways, because there's some leading indicators that could show these gains are sustainable one. The purchasing manager's index is up, which indicates that factory activity is starting to pick up again, and those retailers who had good. numbers could be restocking. And also just from halfway around the world, there was an interesting

number, Guangshan Railway, which is a company that does all of the freight and passenger traffic in southeastern China, which is the manufacturing hub of that country, reported that their freight shipping this year, was up more than 20 percent year over year, which would show a rebound and factory activity there, which may bode well down the line for demand. And that's not all just because people are trying to avoid the 60-mile traffic jam. Well, that was in Indramongolia. That's a whole other can of The shipping cargo back and forth through track for an investor. Well, I mean, James, you were touching on the manufacturing sector and all of that activity. But back to retail for a second, what was striking to me about the retail numbers was that it wasn't just Costco.

It was across a range of retailers. So, you know, Costco, as you said, was up Nordstrom, so more high-end fashion. That was up more than 6%. Zumi's, which is an action sports retailer. That was up 9%. and my personal favorite, Victoria's Secret, up 10%. Well, that back-to-school shopping at Victoria's Secret these days, yeah. How much was back-to-school shopping a factor in the sales we saw this one?

Well, these are year-over-year comparisons. So last year people shopped for back-to-school clothes as well. So I don't believe that the back-to-school season shifted. Once in a while, that moves between months, but they usually make it clear in the earnings or in the sales releases if that has an effect. I think that in general we've just got, you know, it's a retail season. People were talking earlier this week about disappointing sales, and some of the retailers who came out with decent numbers said that things may have fallen off a bit after the peak

back-to-school sales happened, but they're not as pessimistic as I thought they'd be, so I think that's better. Chris, I think the great divide we're going to find out pretty soon is going to be the difference between retailers that are discounting to get these sales and that are not discounting as much. In other words, I can deliver great same sort of sales if I lower my prices enough, but I'm probably borrowing demand for my future. That's a lower quality way to do it. And they're all actually doing that, at least from the reports I read.

Which is not ideal. So as investors, what are you looking for next that's going to give you even more encouragement than it seems like we have right now? Is it a month from now we're looking at another retail report like this? Better than expected? Another couple of months of stuff like this? If this happens without the discounting, I would be shocked. I'm bearish and don't see just more and more consumer spending as our way out of this dilemma.

So take me as a contrary indicator on this. One of the big stories this week, a Mariner Energy oil platform exploded in the Gulf of Mexico. No fatalities. Little to no oil was spilled, and it's important to point out that this was in shallow water. and it was a platform, not a rig, but still definitely not good news for oil companies and anyone trying to do work in this sector. Tim Hanson, should investors just stay the heck away from these stocks, or are there opportunities here? Well, you pointed out a lot of the facts of the situation, and as you made clear, the facts of

this situation are totally different from the facts that were the BP TransOcean situation. But at the end of the day, I'm not sure that's going to matter to the people up in Washington who are in charge of deciding when this moratorium is going to. end and in charge of deciding what the regulations are going to look like going forward for the offshore drilling industry in the United States. So for my personal stake at this point, I think there are a lot of political unknowns. When we have political unknowns, I tend to run pretty fast away from them, especially when it comes to investing. That said, if we see a sell-off in the sector, you know, the politicians start rattling their sabres and stock sell off across the board, I would start looking

at the E&P companies and the oil services companies that have a lot of exposure to drilling around the world, not just in the United States, a company like C-D drill, which has a very limited golf exposure. What's the company? C-drill, S-D-R-L on the New York Stock Exchange. And they just do Jacker Briggs for Deepwater drilling. You know, they have accounts in Latin America and Asia and Africa. And that's an opportunity because it could sell off on the political risk, but the political

risk for them isn't all that real. And folks, if you're playing it home and wondering what E&P is, Tim, that is exploration and production. You know, I think guys, though, that in terms of facts versus politics, Tim, certainly, this could have happened anywhere. There's nothing golf specific about a fire like this, nothing at all. According to the journal, they happen more than once every three days. Which doesn't surprise me a bit. They're not all this big, but they happen all the time.

I don't play the political wheel either, but I would not be surprised if the administration uses this, uses that logic, because they sort of want to stick it to be, In other words, it's easier to have a single scapegoat than to sort of draw the eye of the entire oil industry. So in a way, even as an environmentalist, I hope that happens. Is that Jason? Yeah, that is something that I thought, and Tim and I wrote about this yesterday on our site. My first thought was they're going to have a hard time not extending the moratorium. They may decide to do that, but they're going to have a hard time maintaining their rationale for why they were trying to make BP pay. If you remember, the administration said, we made this decision, but it's BP's fault.

we have had to make this decision, therefore they should pay for, you know, everything, including, you know, down to, you know, strip club revenue losses. Entertainment. It's entertainment expansion. Exactly. But if you extend a moratorium based on a fire on another platform from another company, I think you have a harder time maintaining the rationale that this is somehow all BP's fault. Trouble is for them. BP's got the deep pockets. So, but, you know, this is America and we don't necessarily need to let facts stand in the way of.

of our reactions. Amen. Well, and of course, the timing gets interesting because I believe the moratorium was set to expire at the end of November. And, of course, we have midterm elections. There are other things happening in November. We have midterm elections. I'm going to go out on a limb and bet that they don't actually take advantage of this

to extend the moratorium. You're saying that they're not going to let politics influence us whatsoever. We'll make some kind of an uncomfortable bet. I'll do the show without a shirt. It's going to become more expensive to do drilling offshore America for whether that's higher royalty rates or higher tax rates or, you know, just higher safety and sort of licensing costs. You know, the government here recently, I think, is rightfully so, given the number of vaccines that have been happening gun-shy of these disasters and the costs are going to go up here.

But, you know, in countries like Vietnam or Brazil where these oil sales are such an important part of the domestic coffers, they're likely to sort of keep costs low and let people keep going at it. Coming up, Dell and HP had a bidding war that reminded us of the dot-com era of staggeringly overvalued tech companies. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Chris Hill here in the studio with Seth Jason, James Early, and Tim Hanson as we dig into some of the companies making headlines this week. Guys, for the past two weeks, Dell and HP have engaged in a bidding war for three par, a tech company that specializes in cloud computing. In mid-August, shares of 3-par were trading for under $10.

HP won the bidding at a value of $33 a share. James Early, who should be happier here? HP shareholders or Dell shareholders that they didn't win out in what seems... Well, 3-PAR is got to be ecstatic. Which all sounds good until we get together and start. Four-par. Yeah, in a bidding where anything goes, including logic, which has gone out the window here, you know I think it's bad for HP

it kind of reminds me of the bachelor this is this reality TV show where these women compete for this you know good looking guy and in the interviews afterwards they also I don't know what I was thinking you know there's just this competitive frenzy and you do things you don't want

you know you don't like you know to do or something like that so it's kind of the same thing here the argument here is is that cloud computing is the future you know instead of a single big box it's spread all over the internet with lots of storage and these companies need storage.

They need to move their business model for that. But I don't know. I'm going to go out on a limb again and say that cloud computing really won't turn out to be the thing that everybody's saying it's going to be three-par. I was looking at their numbers and they haven't really turned much of a profit. And they make something that I don't think is all that unique, which is, you know, big boxes of storage for people who hope to engage in this cloud computing game, which is people like, you know, Microsoft, Google,

and just about everybody. So fine, they've got some proprietary software, some other technology. It better be really good to be worth what HP paid. But remember, HP paid a premium for Palm, right? Come on. Well, even leaving aside the sort of industry opportunity or not, what the heck was happening in these negotiations? I mean, first, it takes a very special person to outbid Dell,

which is a megalomaniacly run company with tons of cash. And the company that did it is a company whose CEO has gone, now after sexual harassment issues, who was driving that negotiation? If HP gets a new CEO in the next three months and they decide that I don't really like this whole three-par business, that noting's never coming back. This is outrageous. Don't take care of those details. Just to review the numbers again, just a few weeks ago, the market cap for three-par was around 600 million. HP, their valuation is over $2 billion for this company. We've spoken in here about how the boarded...

Yeah, exactly. The board at HP seems, you know, like they're passing the bonger on the table or something. According to what I read of this, they reportedly said, go ahead, bid whatever you want, and you just have, you know, a blanket approval to bid whatever you want beforehand. That's not corporate stewardship. That's just nonsense. It's just habitual chasing growth by tech companies. They're slowing down.

They don't want to admit it, and they should. Let me broaden this for just a second here. As investors, what has to happen? for an acquisition to make sense for you. Is it price? Is it synergy? That's the magic word. Both.

Both of them? But it has to be real synergy, not just the faux synergy they promise. Now, perhaps HP can sell more of this stuff because they're already out there in the marketplace making a lot of sales pitches and throwing their weight around, but all of that remains to be proven. And to make it worth what they paid will be really tough. Chris, to me, size matters in this, you know,

Big acquisitions don't tend, and acquisition size guys, I'm talking. Big acquisitions don't tend to work out. Small ones, however, do, or can. If a company buys up a lot of regional dry cleaners and they have this kind of plug-and-play business model for incorporating them, those are successful acquisitions. The ones you don't hear about, the ones that don't make the news, these big headline acquisitions tend to fail. Tim Henson? Well, one of my favorite acquisition presentations of all time,

if we can think back a few years to when eBay bought Skype. Oh, yeah. And if you look at the eBay Powerpoint, They literally had the PowerPoint. eBay was on the left, and then there was a cloud in the middle with the word synergies. And then there was, on the right-hand side, Skype, and then a number of dollar signs. So it was cloud computing and synergies. It was a synergistic cloud of magic.

And, you know, as we know, eBay, that acquisition didn't work out very well. They lost some money on Skype. But as James said, small, immediately accretive, good price, and logical. Those are your bullet points. And don't ever count on getting those from large tech companies. who are grasping for headlines. You're listening to Motley Fool Money. Guys, time for The Week in Apple.

On Wednesday, Steve Jobs introduced a revamped Apple TV device, a new iPod line, and updates to the operating systems for the iPhone, iPod Touch, and the iPad. Seth, Jason, you're probably the biggest tech nerd in the room. What did you make of all the unveilings? Oh, I'm sorry, should I be awake for this part? This is the only company that can sort of put the digital clock on the toaster and have every tech writer, you know, just applauding and waiting with baited breath. Actually, the new nano update was the most interesting thing I saw,

which it's now almost the size of an iPod shuffle and has a, is covered with a multi-touch screen. That seems pretty interesting, but this is just a series of incremental upgrades. And in some senses, it shows that Apple is really out of ideas except for as far as the iPhone and the tablet go. I mean, Apple TV, the supposed relaunch of Apple TV, basically incorporates an idea that Steve Jobs and other Apple fans ridiculed a while ago, which is the idea of renting shows to people for 99 cents each. First they said, oh, you know, you've got to get people to buy them.

Nobody really wants to buy TV shows. Will they rent them for 99 cents? I don't think so, and you can stream Netflix and pay a monthly fee. Forget about it. James Early? Well, skeptics may poo-poo Apple TV, and maybe for now that's the response, but I think in a couple of years, this does have the potential to be a game changer

if Apple can get traction and convince the studios to unbundle their content. And that sounds boring, but that's very, very critical here. Studios bundle the good stuff that the people want to buy with, like, let's say, theaters or cable networks or Netflix want to buy, with all the kind of the garbage that people wouldn't want and sell it as a package. So that's how they monetize the lesser value content.

So they're resistant to unbundling. But if Apple can convince them, it'll be a big winner. Well, they already do some of that with competitors like Netflix. And my whole problem with the Apple TV thing from the beginning is that there's a limited number of hookups on the back of the TV. And you can do what Apple TV does with any number of other products. Some TVs already have the software built in to do the streaming.

And, you know, if you're somebody out there who wants to play games, well, an Xbox or a PlayStation or a Wii will do everything that Apple TV can do, plus it'll play games. That's the biggest risk to Apple is it becomes like an external wireless mobile. for your laptop. Now they're all built in. If you're Netflix, how worried are you about this? You always have to be worried when Apple's after your market, but I think they have a big advantage in knowing what people want to watch in a pretty big installed base.

On Thursday, Burger King agreed to sell itself to the investment firm 3G Capital for about $4 billion. It's the second time in eight years that Burger King has gone private. James Early, what gives over there? You know, Chris, this 3G Capital had me until I read this quote from and this is, quote, we have great respect for the Burger King brand. Are they sure they bought the right Burger King? By the way, 3G Capital, not as good as 4G Capital. That's a good point.

One day. Burger King has been through, I think, like nine or ten CEOs in the past 15 years. They have flip-flop from owner to owner. They're owned by Pillsbury, then, you know, Grand Met, which sort of morph into Diageo. Tim was a CEO there for a while, weren't you? It was a troubled run, but, you know, I think we exacted some value out of the company. So I think the best case scenario is that these 3G guys say, well, we'll throw a lot of money at this. Burger King, it's just been neglected and we'll spruce it up and it'll do well.

Will that happen? I don't know. It's a competitive market. The story with Burger King, at least the last time around, is this is one of those private equity purchases and then flipouts back on the market that we really frown on here because they load the company up with debt. They take that debt. They pay themselves a giant dividend and pretend that they've been used. geniuses in remaking the company. And then they stick the public shareholders, the bagholders, with the bill. And if that's what happens again here, then no value will have been added at all.

However, I wouldn't be surprised if it's exactly. Final word, Tim Hanson? Well, there was huge value added in this whole deal for some people, and those are owners of really mediocre restaurant stocks, because the value of your holdings just went up 30%. All right, the guys will be back later in the show to share the stocks that are on their radar. But coming up, entrepreneur and author Stephen Greer stops by to talk about scrap metal and precious metals. Stick around, especially you gold bugs. You're listening to Motley Fool Money.

Welcome back to Motley Fool Money. I'm Chris Hill. My guest this week is Stephen Greer, an entrepreneur and author of the book, starting from Scrap, an entrepreneurial success story. And he joins me in studio now. Stephen, welcome. Thanks for having me in. So it's 1993. You're in your early 20s. You can't find a job on Wall Street, which is what you really want to do. And you decide to set out for Hong Kong and you end up working in the scrap metal industry. How does something like that even happen? How do you make the decision as a young man struggling in a recession to find a job? How do you make the decision to go to Hong Kong in the first place? And then how do you get into scrap metal?

Yeah, I say in some ways I was running towards something, but probably it's more appropriate to say I was running from something, and that was a recession. And I suppose that's the timeliness of the book is that a lot of young graduates are facing a difficult economy, and what do you do? You know, I felt I was a very capable person. I had a lot of potential. I thought I was worthy of a fantastic job and responsibilities. And I was offered jobs, you know, selling cigarettes or something like that. And I thought, well, that's not what I was put on this planet to do. And I heard about, you know, these amazing emerging markets in Asia and all the media was talking about China. And I suppose my lucky break was that I had a friend who was in Hong Kong who said, come on over, you can sleep on my couch, check this out.

The place is booming. And I guess the other break I had was my father had some frequent flyer miles and I asked him for a plane ticket so I could go do that on the cheap. And that was 17 years ago and I never left. And I beat around the bushes looking for some jobs but ended up deciding that. I was going to be self-employed. And if I couldn't find the opportunities, that someone else wouldn't give me the opportunities, I would just go get them. So I incorporated my own company out of my apartment to start trading between the United States and China. Didn't really know what it was going to be or turn into. But as you mentioned, it turned into the trade in scrap metal, which is an important

raw material for China. Now, I'm someone who knows pretty much nothing about resources and certainly about scrap metal. Is that something where you were just doing research and you sort of stumble upon like, here's this opportunity? Well, actually, a very large metal recycling company based in Germany. I had sent a faxes out. There wasn't an email back then to everybody I knew saying, you know, Hartwell Pacific, my company, which I named Hartwell Pacific, because my middle name is Hartwell,

and I didn't want people to know I was working alone, is in business and doing, you know, if you have any ideas, or any way we can help, let us know to facilitate trade between China and your country. And this person said, well, look, I'd like you to do a little bit of a market study about the availability of scrap metal in Southeast Asia, blah, blah, blah. China is going to need this vital resource for their steel mills. And sure enough, that's exactly right. I mean, scrap is in pretty much everything you use. I mean, if you don't recycle waste into raw materials, then you're using

virgin metals and they're competitive inputs, and they trade against each other in that way. In fact, I don't know if you know this, but the largest export from the United States in volume is waste. waste metals, waste paper, waste plastic. So, you know, yeah, maybe you don't know anything about it on the surface, but it's a huge international trade. You're listening to Motley Full Money. We're talking with Stephen Greer, the author of Starting from Scrap and an entrepreneurial success story. Having worked overseas for so many years, what is one thing about China that you think every investor should know when they're when they're looking at the country looking at trying to evaluate opportunities what's one thing that would help every investor well i think you can invest in the

china story without necessarily investing in china and that's kind of a thesis that's developed in my mind over the past 17 years because the important thing to know is that the legal system is very nascent and therefore minority shareholder rights kind of don't exist and the level of you know legal structures and enforcement aren't in place to protect you as an investor. So you can make money in China and lots of people have famously done so, but lots of people have famously lost money too. And to me, my view of investing in public stocks in China is it's very much a momentum trade versus a value trade because in difficult times it's hard to extract value from your equity position because you really don't have the same legal rights and enforcement, say, as a bond holder

or equity holder that you would have in the United States. As you mentioned, it's a tough job market out there. You've been going around the country, speaking to colleges. What types of questions are you getting from college and grad students out there? Well, a lot of people are facing that difficult thing, that they can't find the opportunity that they thought was going to be out there. And frankly, their careers might be a little bit more difficult than the previous generations were. But I think from that they will find opportunity because they'll be forced to be creative and to come up with their opportunities. And so a lot of them are saying, can I still go out to Asia and kind of do what you did? And I say, well, you may not be able to do the exact same thing. But I do believe that globalization is a never-ending trend and that emerging markets are coming up with the failure of communism.

I think that's an inevitable mega-trend. And there are many ways to play it. And I think that the smart young people are going to get global. You're listening to Motley Full Money. We're talking with Stephen Greer, the author of Starting from Scrap. Before we let you get away, I want to close with a round of buy-seller hold. So let's start with copper prices are high. Buy-seller hold, the future of the penny.

The future of the penny. I'll sell that. Really? You're just getting rid of them? I'm hanging on to them for a souvenir. Buy-seller-hold Google's future in China. I'm actually a seller of that. And the reason I'll comment outside of that sphere is I just think that the comment I'd like to make to people who are interested in China is that, you know, you have to be fairly apolitical as a business person there.

And I think that they sort of elevated the debate into a political debate. And now it's a very sensitive issue and a very sensitive company over there. And I think that they will find some great challenges and headwinds related to that. There was some noise about this a few months ago. Buy seller hold the likelihood that Dell will go private. I'll say hold because I really don't know the answer to that one. As a general rule of thumb, what do you make of those situations as an investor, as an entrepreneur, when you see a company like Dell where there are rumors that, you know, and we've seen this with Playboy as well.

Hugh Hefner's move to take the company private. Do you generally view that as, well, that's a positive thing, or do you generally view that as a company in trouble? management wanting to own the equity, I would always view as a positive. I mean, what are they seeing? What is management seeing that the other investors aren't seeing? And finally, this definitely is not scrap metal. Buy seller hold, gold. I'm not a gold bug. I find it very interesting. I've always said no to it as an investment, but I have enormous concerns about America's debts and how the financial world is going to play out, and I know that gold has traditionally been a hedge for that, and it's certainly working

in that direction. But again, to me, it's ornamental jewelry, and I don't really understand how it all works. The book is starting from Scrap and Entrepreneurial Success Story. Stephen Greer, thanks so much for being here. Thank you very much. Coming up, an inside look at the stocks on our radar, plus everything you wanted to know about Labor Day food. This is Motley Full Money.

As always, people on the program may have interest in the stocks they talk about. Don't buy or sell stocks based solely on what you hear. I'm Chris Hill and back in the studio with me, our trio of senior analysts, Seth Jason, James Early, and Tim Hanson. Guys, one more news story before we wrap up with stocks on our radar. There was a story on the front page of Friday's Washington Post that the White House is considering a package of tax breaks for businesses, potentially worth hundreds of billions of dollars, I guess aimed at, trying to spur hiring. We got two months to the midterm elections. Politics aside, to the extent that we can do that, as investors, what is more meaningful for you as an investor? Is it tax breaks

for businesses, or is it something more along the lines of capital gains cuts that are going to benefit you individually? What do you think is more meaningful in terms of overall driving the stock market up? Well, Chris, on the stock market, and certainly it's capital gains tax, you know, a lot of these companies operate in different nations of the world. But here in the U.S., what affects investor demand is, you know, after-tax returns to those investors. And as a dividend guy, I would love to see parity between the dividend rate and the capital gains tax rate, or at least that parity maintained versus dividends going

higher. So, yeah, I would say it's on the investor, and that's going to be the more relevant tax rate. But I'm for lowering business tax rates in general. We have some of the highest in the world in the U.S. Tim Hanson? Well, you know, even just leaving the policy specific, policies aside, I would be one for certainty. You know, if we can get

an ability, if I can know if I buy a stock now what rate I'm going to be taxed at in the next three, five, ten years, both my cap gains and my dividends, and then when I'm valuing companies, what rate they're going to be taxed at on their earnings over the next three, five, ten years. I can live with that, whatever the rate may be even though if they should be lower, higher, or whatever.

But right now, taxards have been changing dramatically over the past ten years and there are sunsets and all these crazy provisions being put in. It makes it really hard to be an investor. Seth? I think James is not pointing out one of the good things about our system here, which is that the amount of money you have to pay in bribes to the government

is at least a little bit lower here in the U.S. But that's tax deductible in Nigeria. I think, first of all, I read this story, and it was attributed to the always admirable people familiar with the matter. Exactly. The great mentioner. Yeah, and nobody really knows what this is all about yet. but if you are looking at stock valuations, it all depends on what you want to be the chicken and what you want to be the egg.

I don't believe that just giving businesses a tax break will necessarily spur hiring unless they're targeted, and we don't know that these would be. And I don't know that that's a great long run way to spur hiring anyway. A lot of businesses out there already are sort of a wash and cash, and they're running very lean right now because they've laid off a lot of people. You know what? Most businesses out there right now are waiting for. are signs of demand.

And I don't really know how you stoke that and whether tax cuts of any kind can do it. Hiring people that might have to be laid off again later because there's no demand is not a long-term solution. No, but it works great for November. Good point. Well, I was going to say, we talked earlier in the show about the oil drilling and how the moratorium

is set to expire the end of November, and of course we've got the midterm elections. I mean, when I saw this story, the first thought that went through my head was, I wish I could buy stock in this happening. The whole notion of the president proposing and Congress passing tax cuts for businesses before the midterm elections, that seems like a safe buy. Yeah, I think specifically on the table would be tax cuts for new payroll ads or something like that.

Smaller businesses. R&D tax cuts, too, which certainly encourage investment. All right, guys, it's Labor Day weekend. It's the long weekend. and for those of us who don't have to deal with Hurricane Earl or any other inclement weather, Labor Day usually means barbecues, picnics, that sort of thing, a lot of eating. And we've teed up, our man Steve Broito behind the glasses, teed up a Labor Day food quiz. Steve, what do you got for us?

All right, number one, true or false? Labor Day is the most popular holiday for barbecuing. Tim Hansen, what do you think? True or false? Wow, it would either be Labor Day, Memorial Day, Or 4th of July. Yeah. I'll say true.

All right, James. I'm going to say false. Floss. It is indeed false. Labor Day is number three after 4th of July and Memorial Day. Oh, we had the top three. The whole table had it right. All right, Steve, what's next?

Number two, what national food chain opened its first outpost on Labor Day? Is it A, I hop, B, chilies, C, apple bees, or D, Waffle House? I was pretty sure it was going to be Walmart for their figuring. with organized labor in their holidays. I'll say Waffle House. All right, James? I'm torn between Applebee's and Waffle House. I'll say Applebee's.

Wow. In fond memory of stomach troubles past, I'm just going to have to say Waffle House. I'm stunned that you, James Early, of all people, with your just continued disdain for grain-based food, for breakfast cereals, I'm stunned that you would have anything to do with Waffle House. I used to eat there because you can be stuffed for under four bucks,

but not in many years. All right, Steve, the answer is? The correct answer is Waffle House. Congratulations. Has everyone here eaten at a Waffle House? I wasn't kidding about the stomach trouble passed. Yeah, I had the chance when I did that, you know, went to college in the Northeast and you do the... Drunken road trip? Well, it's the, hey, we're going to drive 30 hours to Florida for spring break and pass.

God knows how many Waffle House is but didn't stop at a one. See, my wife and our newest angle is that we recently drove to Boston and we made sure to stop in New Haven. to go hit the famous pizzeria is there. So we try to find the regional specialty and then the most unique place associated with that. It's gotten us off the highway food, which is, as Seth pointed out, always a good thing. All right, Steve, what else?

Final story, true or false? Labor Day is the official end to hot dog season. What do you think, Tim? Hot dog season never ends in my house. James? I never knew there was a hot dog season. I will say true, though. Wow.

where's the WienerMobile when you need to talk to the driver? It's got to be true. But what about October fest? I mean, hot dog season can end. It's different. So, Tim, you're going to say false. You're going to say false. There is no end to hot dog season.

Steve? The correct answer is true. According to the National Hot Dog and Sausage Council, hot dog season begins on Memorial Day and ends on Labor Day. If you were a council, why would you have a season that limits your shenanigans? But isn't that telling that the name of it is the National Hot Dog and Soshes? Sausage? It's not Broughtwurst. I'm going to add. Does the Tuesday after Labor Day begin sausage season? Is that how that works?

Maybe it's Broughtwurst season. As long as you're not wearing white. It's a different association. All right, guys. One last thing before we get to the stocks on our radar. Labor Day weekend also means back to school. A couple of stats to throw out here. This fall, more than 55 million children will be going back to school, K through 12, and more than 19 million will be going to college. Now, I don't know about you, but when I was a kid, I dreaded the end of summer, but there was usually one fun thing about going back to school.

For me, it was never the back-to-school clothes shopping. For me, when I was in elementary school, it always meant I get a new lunchbox. I was always fired up about the new lunchbox. So let's just go around the table. Seth, we'll start with you. The smell of those new gummy erasers, you know the ones I'm talking about? The really gummy ones. Not the pink ones that are, but the gummy ones that actually work.

Those things were delicious. That's just frightening. And you're blaming Waffle House for your stomach problems? This was years later. Oh, okay. James Early? Ditto in the smells. I'm going to say the binders, you know, made in the PVC material, you know, with somewhat toxic outgassing.

It just reminds me of school. The trapper keeper? The trapper keeper. The trapper keeper was key. Tim Hansen? I have a really hard time thinking of anything that I enjoyed about going back to school. I was one of those kids who never wanted summer to end. You could go with Thomas.

I got older. The girls? That was always a nice part about high school. I was going to say, you went to college right here in Washington, D.C. So, I mean, maybe that was it. Time to go around the table. Talk about the stocks that are on our radar. Tim Hanson, let's start with you.

So I think everybody here knows me as sort of a guy who's interested in emerging markets, but a weird thing has happened over the past year, and that's that emerging market stocks have gotten a lot more expensive compared to U.S. stocks, which have actually gotten cheaper over the past year. So I've recently gone hunting emerging markets exposure via U.S. multinationals one that popped up in my radar that's pretty interesting is Walmart. And the reason I say that is because Walmart right now is trading it seven times its operating earnings, which seems low for a quality of Walmart's, or company of Walmart's quality, but is in line with the peer group.

That said, if Walmart's international sales have doubled over the past five years, and if you look at its competition abroad like Karefor and Wormart and China and Lianhua and the Brazilian Bigsbock retailers and some others, they're trading an average of 12 times operating earnings. So if you to take out Walmart's international segment and give it the international peer group average multiple, it looks like the stocks really be worth about 20 to 25% more today. Tim, did you say Wumart? Wumart is the original Chinese knockoff of Walmart. So there's Walmart and there's Walmart, yeah.

And Walmart's ticker? Is WMT on the New York Stock Exchange. James Early? Chris, I'm going with Heinz. The ticker is HNZ. This is an income investor recommendation from my newsletter. Speaking of hot dog seasons. Exactly, yeah, 4% yield.

Just delivered a solid quarter and raised its dividend. And this was Heinz's 21st quarter or consecutive quarter with organic revenue growth. Organic means ex-acquisition, not like free of pesticides and whatnot. They didn't bid for three par, in other words. Exactly. I was in Quebec this past winter with my infant son, and all we could find is this Heinz organic baby food. So he bought a ton of it. And we got home or back to the condo when we tried to feed it to him.

He wouldn't eat any of it, like any flavor. And we looked like every single thing. Like the number one ingredient was tomato peat. Pura, tomato puree. So now we know where the residual goes. Seth, Jason. I have a stock that both Tim and James will love, and it's gas, GES. I've talked about it here before.

It's, yeah, you're thinking, ooh, acid-washed jeans for the 80s, but they do a lot more than that. They just turned in record earnings again recently, yet the stock has been clobbered because they lowered their guidance somewhat for the upcoming quarter and the year because they actually, because of all the discounting and the stock. stores across from them at the mall. They're having to discount as well. They do a ton of their business, I believe it's now the majority, overseas, where the brand does very well, gets higher margins and has still a lot of room for expansion. They also pay a pretty nice little dividend,

which has kept growing. So that's GES. I own it. We own it in Jams. All right, Seth Jason, James Early. Tim Henson, guys, thanks for being here. Welcome. Thank you, Chris. Thank you, Chris. That's it for this week. Our producer is Steve Broido because our regular producer, Matt Greer, is on vacation in Colorado. I'm Chris Hill. Thanks for listening. Have a great Labor Day weekend. We'll see you next week.