Motley Fool Money - Motley Fool Money: 10.26.2012

Episode Date: October 26, 2012

Apple misses on 4th quarter earnings.  Facebook reports better-than-expected earnings.  And Amazon reports its first quarterly loss since 2003.  Plus, former Circuit City CEO Alan Wurtzel talks about Circuit City's past and Best Buy's future. 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 joining me in studio this week from Motley Fool inside value, Joe Mager for Motley Fool income investor James Early. And for a million dollar portfolio, Ron Gross. Gentlemen, good to see you as always. Hey, all you do, Chris. Earnings Palooza rolls on 150 companies in the S&P 500 reported earnings this week, and we will talk about each and every one of them. This is an extended version of rapid fire?

We'll cherry pick. Do we charge more for that? It'll be the same price as always. We will dip into the full mailbag, and we will, of course, share a few of the stocks that are on our radar. But we begin with the biggest public company, and that is Apple. Apple's fourth quarter earnings came in lower than expected as iPad sales fell short of analyst forecast. Gross, you're up first. What did you think? It depends how you look at it. So a rare miss, because they're notorious for sandbagging.

They usually outperform. Street doesn't like that, but the stock is okay. The stock didn't get hit all that hard. Right, exactly. So now it depends. Let's look at things on an absolute basis, not a versus expectations basis. How did it look? Revenue up 27 percent, profit up 24 percent. Margin's not great. Some guidance not great. But the company still puts up a ton of cash flow. These numbers are unbelievable. So Ron, I'm sorry, but you've said on the show like 100 times that investing is all about expectations.

It is, in the short term. Okay. Yes. And then if we look long term, we can take advantage of those short-sighted people. They did better on phones, right, but not as well on iPads. Right. The iPads, which were up 26 percent, by the way, were less than analysts we're expecting. So there is certainly some concern there.

There's certainly some concern about whether this iPad Mini is going to be a big bust or does the world really need it. Some analysts are saying they're going to sell 10 million by the end of the year, at lower margins, but still 10 million. Others are saying, we don't really get it. We don't get the price point. We'll get to the iPad Mini in a moment, but you mentioned different concerns, and you also said it was a rare miss, and yet it was their second quarter in a row that they missed on earnings. Should that start to become a concern for investors that the act of managing expectations, which any smart company does that, is that a concern? I'll go with yes.

I don't love to play the expectations game. The company is not able to predict its results as well as it used to be. That means there's something going on, whether it's a channel or a supply. I mean, they are supply constrained. They say their backlog is pretty significant right now because of some supply issues. So maybe they're not able to predict as well as they had been in the past what the business is going to look like. Is it premature to describe Tim Cook as a train wreck?

I think that's a little hard. Joe, as Ron mentioned, the iPad Mini was unveiled this week. had an event on Tuesday. And as we talked about on Market Foolery, our daily podcast, it seems like the big surprise of the event was not the actual unveiling of the iPad Mini, but the price tag, which is 329, kind of higher than a lot of people are expecting. Yeah, it's $130 more than the Google Nexus 7 and the Kindle Fire HD, which are relatively comparable, not quite as nice. Comparable in size. Yeah, comparable in size and, you know, in different quality aspects too. But I think the $330 price point is definitely a far cry from $199, and I think those companies are still

going to be taking a lot of share at the low end. And it's kind of a no-man's land price point, really. I'm not sure who is going to get excited about this. And I think really the people who are going to be buying the iPad Mini are people who walk into Apple stores see an iPad and they're excited about it, but they can't afford it. And it's like, well, we've got a lower price point here, and they'll go with that. And then the real techies out there. I really want one, but I have no idea why.

I don't need it. It seems like something that would be cool to have, but I already have an iPad. I don't see that. James, I was thinking of you, because you've said before, I mean, you have all manner of Apple devices in your home. When you saw the device that was unveiled on Tuesday, what did you think? Well, it's the kind of thing I might get crisp because I can walk around the house. I actually have a Kindle Fire already. I can walk around the house and watch my, you know, little shows, educational-type programs and stuff on.

But to me, it's just a small TV. I'm kind of crude. Chris, they pay so much money for a peak at the early house. It's less exciting than you said. It's probably also worth mentioning. Finally, this week, Microsoft's Windows 8 was released to the public. This is something we've heard about for literally a year. While there were no earnings announcements, Ron, Microsoft is a company you watch closely.

How big a payoff do you think there's going to be for Windows 8? the new operating system. Well, I think it's fair to say this is critical. And I don't have a projection about how this is going to turn out. There's mixed reviews. It is faster. It's more powerful. They're moving into the mobile world with touch and social networking capabilities.

This will build Windows Phone 8 will come as well. That's huge for them, as well as Nokia. So they've got to get it done. Their track record leaves me on things like this. This leaves me a little bit concerned. But again, we like the stock. We think on a cash flow generating basis, it is cheap. But if the cash flow dwindles, I mean, then you've got to reevaluate.

Is it more exciting than the iPad 4? None of us heard about until we're excited. What about the Zune? More exciting than the Zune? Everything is more exciting than the Zune. Amazon posted its first quarterly loss in more than five years, and not surprisingly, Joe, shares down a little bit this week. What did you make of Amazon's quarter?

I thought, you know, in black and white terms, it wasn't good. It was their first operating loss in about a decade. But when you cut through the noise, basically Amazon is making a ton of investments in marketing and building new distribution centers and in selling Kindles that basically, I think, are adding a lot of long-term value for the business. And that is really the crux of the Amazon thesis at this point, that if you trust management is creating value with these investments, then I think it's a buy. And if not, then it's a screaming sell.

So I personally think that they're all good moves. You look at the Kindle, everyone kind of criticizes because it's selling basically at zero gross margin. So they're selling it at cost. But the real value for Amazon is that they're creating new customers and entrenched relationships for life. And Amazon has said that they're happy to invest money and not got a payback for seven years. It was a very, very long time. That's a very long time. It is.

But I love that mentality, and I think it's going to serve them very well. It's just going to be a bumpy ride to get there. How do you cut through the noise? Isn't that a mixed metaphor? You know, noise is an audio thing, and cutting is like cut through the fog, maybe. And on that note, what I love about Amazon is that it feels to me like they run this company no differently than if it was still private. They're going to do what they think needs to be done, and it doesn't mean their conference calls are going to be any good. Joe and I was speaking earlier. They don't necessarily give away a ton of information.

But they're going to execute the way they think it needs to be done. And that means it's an investment that takes seven years to come to fruition. Then that's what they're going to do. I think that's what we Facebook should be operating, too, by the way. And that's one thing I've always liked about Bezos. And you're using your hands as you make a point, which means you really believe in it. I'm very passionate about this. Procter & Gamble's first quarter profits fell 7%, but earnings still came in better than expected,

and James Early's shares hit a three-year high. What do you think? Well, this is great for CEO, Bob McDonald, because his head actually gets to remain on his body. This guy has been under fire. Warren Buffett has sold some shares. Bill Ackman has been, as an activist, hedge fund investor, has been campaigning for his removal. P&G has really been issuing some poor results. All this year, they bumped down their guidance a number of times.

I think they learned the important lesson that sometimes success is just as simple as putting out results that are not abysmal, which is what they did here. They beat earnings rather nicely. The next challenge is simply to do it again. When you look at a global company like this, how big a concern is the ongoing trouble in Europe, specifically when it comes to P&G, or just companies of that ilk, Colgate, Palmallov, etc. For all of them, maybe a little less for P&G because they just weren't as good internationally to begin with. That was one of the criticisms of Bob McDonald, along with not innovating and over, you know, sort of a bloated cost structure. But anybody who's exposed there is suffering.

It's just the reality of the economy. Yeah, we were talking earlier that this earnings season, certainly the theme is global economic weakness and Europe in particular, and pockets of Asia as well. It's showing up in the numbers, and it's showing up in guidance and stocks are getting really punished. Why people didn't realize this was coming is beyond me. I was going to say, how much more could we be talking about it? But it clearly is having an impact.

Don't bury Facebook, guys, because it's not dead yet. up 20% on Wednesday after quarterly revenue increased 32%. And Joe Mager, they actually made money on mobile. They actually did what they said they were going to do. They came out during their previous conference call and said, look, it's all about mobile and now they're starting to show some results. They are, and they're doing it by stuffing ads all up in my Facebook app in a very obnoxious way, and I'm kind of tired of it. And yet it's paying off. Well, it's paying off right now. Over the long term, I'm not sure how users are going to feel about continuing to go back to a social network

where you just keep getting bombarded with ads. We'll see about that. But sidestepping that, it was a good quarter for them, and they were able to keep growth from falling off. And I think that was really what investors were looking for. It wasn't growth, but just stopping the slowdown, and that happened here. But remember, the stock is still selling it 11 times sales.

Google is around five, so you're paying for a lot of growth and expectations. So how's it I feel working out for it? I mean, what is the price now compared to you? much, much lower. I mean, it's been around halved. Again, even when you factor in the fact that shares were up 20% on Wednesday, the stock over the last three months still down about 15%. And we'll get back to the stock in a second.

But I want to dig into Zinga because when Facebook reported their results, one of the things that sort of jumped out at us was the fact that the revenue they got from Zinga, which does Farmville and the different games, and that sort of thing. Cityville. The money they got from Zinga, that revenue was about 7% a year ago. It was 15%. So they're less dependent on Zinga. And then a day or two later, when Zinga came out with their earnings, they kind of crushed

it and shares of Zinga went up. So it sort of seemed like Zinga was in trouble when you looked at Facebook's earnings, but then they kind of surprised on their own. I think Zinga is in trouble. They only crushed it because they were crushing very low expectations and they have a ton of cash. I do think it's a good move for Facebook to kind of wean off. of Zingo for gaming. They've got that huge platform. They don't need Zinga to carry the load

for them, and they're smart to be recruiting other app developers and game developers to come on and make money for them. What do you think of Facebook stock when you look at the valuation right now? Even with the pop, it's still below where it was on the first day of trade. Well, it IPOed at a ridiculous price. It was ridiculous. 27 times sales is crazy. And I still think at 11x sales, you're paying way too much for it. Coming up, in the span of one year, this stock fell from the high 60s to $2 a share. And it's back in the news this week. Details next.

This is Motley Full Money. Welcome back to Motley Full Money. Chris Hill here in studio with Joe Maker, James Early, and Ron Gross. Crocs was one of the roller coaster stocks of the last decade, and the ride continued this week. Shares down 20% on Thursday after third quarter earnings came in lower than expected. Ron Gross? What's the story here? Well, it's all kind of the point. We own this stock in the service I run called Deep Value, where we're looking at really, really cheap stocks that often have something less than

stellar about them that is making them so cheap. In this case, weakness in Japan and Europe, hurting results, guidance is weak for the same reason. But we think there's a bright future here. The company is only 48 percent, those kind of ugly plastic clogs right now. Great diversification. Joe's wearing some of the new ones. right today. Like a boating type of shoes. So the stock's down at 1250. We actually think it's a double here.

We think it's worth 25 because the company's really making the right moves and the European and Japan issue is not going to be persistent forever. I can't speak to the stock. I will say that when Ron and Rich Griefner first started talking about it, I was skeptical of the quality of the shoes and naturally then I ordered some. But I bought some and they're basically like boat shoes, but they're crocs. I love these shoes. Comfortable?

absolutely love them. They're incredibly comfortable, and they look good. No one has been like, hey, you're wearing big plastic shoes. Like, you can't tell. They look like normal nice shoes are popular, too. Let's not forget, but they are somewhat less than fashionable. It's almost hard to believe that Crocs hasn't splashed the they're not big plastic shoes quote from Joe Mager across their website. Shares of Netflix down this week after third quarter earnings came in better than expected, but still 88% lower than a year ago. That's a pretty big number. A bit lower, yeah. What did you think, Joe?

I thought that was lower. This is a quarter where, I mean, the stock got crushed, but I do think Bulls and Bears, Netflix is basically a battleground stock, right, and has been for a long time. I think Bulls, when they saw this quarter, said, okay, U.S. subscriber growth was up. That's something that's easy to forget. And even though things are tough in emerging or international markets, they're building a footprint, One metric that I thought was really telling was that consumption by subscribers was up 30% year over year. And that kind of flies in the face of a lot of challenges people have put out there about content saying that Netflix doesn't have very good catalog.

Well, clearly the data is showing people are getting more and more into it. That said, and the bare case still exists. Content costs are rising. That's a big challenge. International is still expensive. The HBO is likely to roll out and Netflix set as much, their own offering, competing direct to consumer at some point. Ron, as we talked about in the last segment, Amazon is one of those companies that, for

better or worse, seems to get credit from some people anyway for investing in their business. Do you think Netflix gets the same kind of credit or are they on sort of a shorter leash when it comes to the Wall Street analysts and how they look at Netflix's underlying business? It comes and goes. They used to be the darling, making all the right moves and a reason. Hastings was extremely well respected for kind of building this business that didn't really exist before, DVs into streaming.

Now they've fallen from grace a bit through a number of missteps, and Wall Street is pretty unforgiving when that happens. The beginning of the year, we did a show on predictions, and I predicted that Netflix would be acquired by the end of this year. I don't know if my timing is right, but I'm still sticking by that. Joe and I were talking earlier. I think that makes sense for a number of people. Right, I don't think so.

Casino operator Win Resorts up this week after the company's third quarter earnings came in higher than expected, and James Early, I'm assuming you broke out into a dance when you heard the news that the company, in addition to paying out a special one-time dividend of $7.50, or was it $750, is also going to be doubling its quarterly dividend from $0.50 a share to a dollar per share. I'm still shaking. Actually, you know, I do love this. You've got to love a company whose income goes down 12 percent. and they double their dividend, and then they pay out $750 extra. You know, part of this is Steve Wynn. He's very... He's just that magnanimous?

He's very Republican, and he's against Obama. He's concerned, and he's open about this. And I think he's concerned that the dividend tax rate could go up in, you know, depending on who's... If Obama becomes president, he's even said that the company will kind of peg their dividend policy to the dividend tax rate. I think he wants to get some of this cash out the door to shareholders now before that tax rate probably goes.

of. And one of the things that we've talked about when it comes to companies increasing their dividends is how sustainable is it? And for some companies, it's more sustainable than others. But when on the record and saying, no, no, yes, we're doubling this to a dollar per share, but we think this is sustainable. Do you agree with that? Yeah, and that's the beauty of the special dividend part. Yeah, they can pay out a bunch more in the special than just, you know, well, not modestly double the regular dividend, too. It's great. It's great. I'm happy.

Yeah. Casinos do have a lot of operating leverage, though. So if we do fade back to another recession, I suspect they're really going to regret giving that cash back. You can always drop us an email. Radio at Fool.com is our email address. Got an email from Rob Morrissey in Omaha, Nebraska. Guys, huge fan of the program. Want to ask your thoughts on Arcos Dorados Holdings. It's gotten drilled in the last week or so.

Is this a stock that you feel has a bright future? Ron, this is sort of the, as we've talked about before, sort of the McDonald's of Latin America. If the stock goes down, it's in Ron's department, right? Is that the idea? How dare you? But this is a company we own in million-dollar portfolio. We do like it quite a lot. As you said, they have the exclusive right to own, operate, and franchise McDonald's

in Latin America and the Caribbean. Stock probably is off this week as a result of some McDonald's weakness when they reported. Longer term, the stock has been weak because the Caribbean is challenged. Parts of Mexico, Venezuela and Argentina aren't doing so hot. We love the Brazil story here. We think there's a ton of expansion, potential. in Brazil, and that economy should do well. So overall, despite the challenges, we think the stock makes good sense here. Let's be clear. Right now, the Caribbean is challenged because of Hurricane

Sandy, which is headed our way. So, you know, for all our listeners out there. If we're not here next week, that's why. All right, Joe Magar, James Early, Ron Gross, guys. We'll see you a little bit later in the show. 25 years ago, the top name in consumer electronics retail was Circuit City. But in 2009, it went out of business, and up next, a conversation with former CEO Alan Wurtsel on the history of Circuit City and the future of Best Buy. Stay right here. You're listening to Motley Full Money. Welcome back to Motley Full Money. I'm Chris Hill. In 1949, Circuit City started as a mom-and-pop store with a $13,000 investment. The Consumer Electronics retailer grew and succeeded to the point where Circuit City became the best-performing stock of the 1980s.

But by early 2009, the company had filed for bankruptcy and closed every one of its more than 550 locations. So where did it all go wrong? Alan Wurtsle is the former CEO of Circuit City. He's the son of Circuit City founder Sam Wurtsle. And Alan's new book is Good to Great to Gone, the 60-year rise and fall of Circuit City. And he joins me in Studio now. Alan, good to see you. Thanks for coming by.

Thanks for inviting me. What happened to Circuit City? because I grew up in New England. I moved to the D.C. area about 20 years ago and, you know, sort of had my first real job, first time with disposable income, and I just remember sort of discovering Circuit City and loving it and just really being amazed by it because there wasn't anything like it where I grew up. And what happened? Well, I think Circuit City descended in four steps.

The first step was in the mid-90s when the management, failed to keep abreast of the changes in consumer taste and consumer desires. The old model which I had built in the early 80s was that every customer was greeted by a salesperson and stayed with that salesperson to the conclusion of the sale. By the early 90s, certainly in the mid-90s, customers were buying and preferred to buy consumer electronics on the grocery store model, or it's bulked out, you pick it up, you take it to the cashier. If you had questions, many stores, some didn't, some didn't. The better stores had qualified people to answer your questions, but you didn't have to talk to a salesperson. If you

knew what you wanted, and people, a lot of them were self-educated on the internet, they didn't want a lot of conversation. They wanted to pick it up and get moving. And we refused, Circuit City refused to accommodate that change in consumer buying preferences. Step two in 2000, The second CEO after me, he understood that the company need to make substantial changes. I mean, the stores were mislaid out. He couldn't bulk stuff out because most of the store was warehouse and that showroom. So we have to reconfigure the stores. He understood that changes were needed, but he couldn't bring himself with a board to create a strong-minded plan to re-reliven.

orient the company, partly because it would have required very substantial investment. Circuit City could have managed that, but it would have offended Wall Street. So that and his inability to stick with a consistent plan in other areas wasted five years. He retired early, and his successor, was only in the company for 18 months before he became CEO, didn't understand and appreciate the culture. He basically destroyed a culture which rewarded people who were loyal and hardworking, who asked questions, who wanted to do a good job. And he wanted to tell him what to do. And if they didn't do it the way he'd want to, he fired him.

My way or the highway? My way or the highway. We laid off 3,400 salespeople in one swoop. And then he bragged to Wall Street, how much money at the company at the time? saved and how much the higher their earnings would be, rather than express some regret that 3,400 of the highest pay is, and therefore the best, most qualified, salespeople lost their job. The final step in the nail on the coffin was that the board over the last five years spent nearly a billion dollars. Circuit City had been a pretty good cash cow, built up substantial

reserves, but they wasted it on buying back company stock, thinking that would maintain the price of the stock, possibly maintain the value of their options. It would certainly Wall Street appreciated it. And when the 2008 storm hit, the cupboard was bare, and Circuit City had no money. Suppliers, of course, in 2008 were looking for at their credit risks, were sharpening their pencils, they wouldn't extend Circuit City money for Christmas, and Circuit City had no choice but to close its doors. Now, you were CEO for more than a decade. You stepped down as CEO in 1986, and somewhere along the way, when, again, Circuit City

is so dominant, both as a business and as a stock in the 1980s, and somewhere along the way, there's this up-and-coming electronics retailer by the name of Best Buy. Correct. To what extent, I mean, again, you left as CEO in 86. I think you were chairman until 94. I stayed on the board until 2000. Okay. So, I mean, obviously, a company you've continued to be involved in, as you watched it, what role did Best Buy play in the demise of Circuit City? I mean, it played a big role. I mean, Circuit City lost its way not only vis-a-vis Best Buy, but also the mass merchants because of the selling format.

But we kept this but the comparison to Best Buy was a direct comparison. I mean, nobody knew how much Walmart or Kmart or whatever it was making on electronics, but everybody knew how Best Buy. And so there was a direct comparison. And the management believed, I mean, this was a certain hubris that Wall Street at some point would stop providing capital to Best Buy and that Best Buy would fail. Well, during that period, we started in let's say 1995, both stores average $10 million per store. Five years later, Circuit City was at $12 million per store, and Best Buy was at 40. They had quadrupled their average store sales while we had increased by 20%. You're listening to Motley Full Money talking with Alan Wurzel, former CEO of Circuit City. His new book is Good to Great to Gone, the 60-year rise and fall of Circuit City. Let's stick with Best Buy for a moment because you mentioned that they had some problems that they were able to solve. But clearly, when you look at bricks and mortar retailers across the country, Best Buy is near or at the top of the list in terms of the challenges it is facing.

When you look at Best Buy, what advice would you give them if they came knocking on your door and said, listen, you've been through the trenches. You've seen the ups and downs of retail. What would you tell them? I'd say three things. One is go private. And Richard Schultz, the former, the founder of Best Buy, is certainly exploring that option. It's a very messy thing to close stores, let people go, rearrange your inventories, downsize, and it's better done, more efficiently done, out of the glare of analysts and public attention.

Secondly, they need to emphasize the Geek Squad and the services. the after-sale services, Amazon can't come into your house on the internet and fix your TV or hook it up to your, you know, to your hi-fi system, et cetera. So that's an important step that they took 10 years ago, and I commend them for them. That may end up if they can downsize fast enough being the saving aspect of because that is profitable. And the third thing I would say is see if you can figure out a way to charge for competent, objective consumer information. People still need help in deciding which is the best refrigerator for their needs, the best TV, the best computer. They want help. Not everybody, but lots of people.

And if you could charge a customer for objective information, maybe in the way that the Motley Fool charges for providing stock and the market information, the customers might be willing to pay for that, and whatever they pay could be applied to the purchase if they buy it, Best Buy, and it goes into Best Buy's pocket if they decide to turn around and buy it on the Internet. There are a bunch of great things about your book, but one of them is the lessons that you provide, because this is not just sort of a look backwards at, you know, how did this company succeed and how did it ultimately fail? But you're also providing lessons in this book that I think would apply to most, if not any, businesses. We talked earlier

about emphasizing your own customers and employees versus placing an emphasis on what Wall Street thinks, that whole notion of corporate culture. What are a couple of the other sort of key takeaways you think for people who are either managing their own business or looking to start a business. The first that I think maybe the most important is what I call be humble, run scared. When you think you know the answers, that's when you're in trouble. There's always somebody at your back, some competitor that wants to have a, that has a new idea, a new angle that's trying to take business away from you.

And I think one of Circuit City's problems, I mean, one of Detroit's problems in the, you know, in the 90s and 2000s was they didn't run scared. They didn't think the Japanese or Koreans could build a car that would appeal to Americans. And the hubris, I think, did them in. A second principle, I think, is curiosity. I call it. Curiosity sustains the cat. You just can't look. That kind of goes against what we've heard for decades, certainly my entire life.

The curiosity actually kills the cat. In business, I think. You're going to get some angry letters, I think, about that one. From cat lovers. Yes. I think curiosity sustains the cat because you've got to look around. You've got to see what other companies are doing. We were interested in what Disney was doing, the way Disney handled customers at Disneyland.

I mean, they were superb at managing large crowds of people. I think your book is amazing in this respect, because if you had walked off the stage as CEO in 1986, after the amazing run that the company had had had, that the stock had, and in 1987 came out with a new business book, and it's Alan Wurzell's Lessons of Leadership, How I Built This Amazingly Successful Retailer, Electronics Retailer. That book would probably be embraced. No one would begrudge you that. And certainly, we see that all the time today. But what you've done is you've actually gone back to a company that you helped to found and run,

and you've essentially done an autopsy on what happened. And in doing so, sort of embrace the role of a journalist. You conducted 40, 50 interviews for this. When you were doing all of that research, did anything surprise you? Well, I wasn't surprised what I learned about the earlier years of the company because I was there. Sure. And I knew it pretty well. I learned a lot about the last years that he didn't know because I was off the board for the last nine years.

And I was shocked at, A, the way they treated people, the way they couldn't come up with. they and stick to a meaningful, disciplined, and powerful strategy to catch up. And finally, with the reckless distribution of money in buying back stock to support the price of the stock, it was a tragedy. Has the work you've done on this book wedded your appetite for a second career in journalism? Absolutely. The book is Good to Great to Gone, the 60-year rise and fall of Circuit City. It is an amazing read with some fantastic lessons.

Alan Wurtsil, thanks for being here. Thank you for having me. I've enjoyed it. Coming up, we'll give you an inside look at the stocks on our radar. Stay right here. This is Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against.

So don't buy or sell stocks based solely on what you hear. I'm Chris Hill, joining me in studio. Once again, Joe Maeger, James Early, and Ron Gross. Guys, before we get to the stocks on our radar, another email. You can always email us, Radio at Fool.com. Email from Jaelle Avidane in New York City. She writes, I'm a relatively new investor and have a small portfolio of stocks that I've collected over the past two years. A couple of them are now showing really nice gains of about 40%.

Whoa. That's awesome. We love when that happens. And I'm not sure how to proceed. Should I cash out at least partially or continue to hold? if I believe they have long-term potential. I hear some market experts talking about locking in gains, especially when the market is pulling back,

but would love to hear your thoughts on this. Joe, what do you think? I think you should only sell a stock if you think it's wildly overvalued or you think that something has changed in your original thesis. So either results aren't coming in as well as you expected. Management isn't doing right by shareholders.

Something is going on specific to the company that you don't like. Otherwise, there's nothing wrong with holding on to a stock that's done well for you and letting it continue to run, so long as you continue to believe in the current thesis, current management dean. James? And I will add, if you're not into valuation proper, a lot depends on the quality of the company.

In other words, if it's a top quality company, the balls are more likely to bounce in your favor overall, long-term results just tend to get better and better. But I think Ron would even agree with me as a devalue guy. Sometimes you can have a poorly managed company that's just trading for really, really poor price, once you get your valuation on that kind of company, you might want to sell because it's not necessarily the kind of well-run company you want to hold for a long term. But if it is a good company, just hold it. It's my default. And I will add that if any one or two companies have become too large a portion of your overall portfolio because you're not

well-diversified, that might be a reason you want to pare back a little bit because your risk kind of profile of your portfolio might be a little bit out of whack. All right. Well, I'm going to caveat on that. Even though I agree. But only have to have a caveat. I agree with that point, especially if you're older and you have a robust, diversified portfolio. But if you're in your 20s, you know, you're still building out a portfolio. If you're like 25, 30, you don't need to own 35, 40 stocks like you do when you're, say, 55, 6-age. Yeah, when you're ancient. But when you're younger, you're still adding out that base.

You don't want commissions to eat up too much of the amount of stock that you're buying. So that's okay. All right. Let's get to the stocks that we have on our radar. and we'll bring in our man, Steve Broder, from the other side of the glass. He'll ask you a question, and you can fire one right back at him. And with Halloween just around the corner, feel free to go off the board and just throw a random Halloween question his way. But, Ron, you're up first. What's your stock this week?

I'm looking at BJ's restaurants, BJRI, a recent stock advisor recommendation here. Stock is down 16% this week on lower than expected earnings, which is what got me interested in it. 126 restaurants, mostly California, Texas, Florida, a lot of expansion potential, or so they say, to really build out that store base. I didn't think it looked cheap. The 16% pullback has me a little bit more interested. So this is in BJ's warehouse. No, it's just restaurants.

The restaurant. Steve? Aren't restaurants typically just terrible investments? It's a very tough business. Yeah, exactly. Steve has been listening to the show. Yeah, no, that's, I totally agree with you. And that's why, from evaluation perspective, I would need to see it cheap.

I would not want to bet too much on future growth and future margins. So, cheap, maybe, but otherwise I would stay away. Question for Steve? What is your favorite casual service restaurant, like the Applebee's kind of? That's not Halloween related. Well, I'm getting there. I'm going Olive Garden. Yeah.

Oh, that's right. That's right. Big fan. What a flop of a question. And Snickers are Baby Ruth? Snickers all the way. James? I'm going to go, Chris, with a Nebraska-based company called Buckle.

This is a fashion, like a jeans-type store. It's an income investor recommendation. They make pricey jeans, $100,000 typically on up. Lifetime hemming, in case you decide to grow a little bit, shrink, and then grow again? Lifetime hemming, did you say? Yeah, they do. You can bring it back as many times you want. High return on equity.

Insider's own, 43% of this company, and both the chairman and the current CEO started as sales clerks. I see about 18% upside. I bet that's the first time the word heming has been used on this show. I think so. Or any show. Hopefully not the last. Ticker symbol? B-K-E.

Steve? I'm assuming they're competing with the Abercropping Fitch in that realm. Am I right? Kind of, yeah. They're a little bit more pants-oriented only. And they're in the Midwest. And Midwest is a lot of fracking money and ethanol money. So it's actually the economies are doing pretty well in some of these states where these guys operate.

And Lifetime Hemming. Lifetime Hemming. Did I mention that? Question for Steve? Steve, this Halloween promises to be a rainy Halloween. So I'm trying to get a costume that works. Speed Skater or something else? For you, I would go speed.

Speed skater all the way. Speed skater, okay. I think that you could have the Lycra suit and the hat and you'd be good to go. You'd be waterproof. You know what? You can follow us on Twitter as well at Motley Fool Money to handle. And here's why, because if James actually shows up in a speed skating, we'll tweet that photo out. Joe Mager, what's your stock this week?

Pebblebrook Hotel Trust. They own 25 luxury hotels across the U.S. The Royal Trophy properties, Sir Francis Drake, San Francisco, Intercontinental in Atlanta, and Hotel Monaco here in D. which has wonderful cocktails. The stock is down today because they lowered guidance, but overall I think fundamentals are moving in the right direction, pays a nice dividend that I think has a lot of growth ahead of it.

And the ticker symbol? P-E-B. P-E-B. Steve? Where's the most money to be made in a hotel? Hmm. In a hotel law? I think these guys specialize particularly in bringing people in, obviously,

but also cross-selling in the restaurant and bar. So they come in, reface that, and they make a lot of money that way. Yeah, if Joe's staying at the hotel, it's at the bar. That's where the money is to be made. Do you have a question for Steve? Yeah, my wife and I are thinking about having kids. Should we have a boy or a girl? I think you should have both.

Wow, how is that? Why do you say that? Because I have a boy, but if I said girl, then that would be weird. I mean, you got to just go with both. Yeah, but your son's one. He doesn't listen to this show, though, does he? Of course he does. Of course he does.

He's got excellent taste. Just in the few seconds we have left I know that you picked Snickers over Baby Ruth, Steve but is that your go-to candy for Halloween And if not, what's number one on your list? I would say between Snickers or Reese's peanut butter cups Whatever you get the peanut butter cups, you've hit gold. Ron?

Take five, chocolate-covered pretzel, caramel I think, as well. I'm not a candy guy, but I do like peppermint patties. Joe. Rees. All right. That's a good group. M&Ms. All the way.

Old school. Joe Magert, Ron Gross, James Early. Guys, thanks for being here. Thank you, Chris. That's it for this edition of Motley Fool. Money. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We will see you next week.