Motley Fool Money - Motley Fool Money: 12.09.2011

Episode Date: December 9, 2011

Jobless claims fall as the EU continues to search for a resolution to the debt crisis. Ford reinstates its dividend for the first time in 5 years. Microsoft releases a major upgrade to Xbox Live. McDonald’s stock hits an all-time high and JC Penney buys a stake in Martha Stewart. Our analysts discuss those stories and more, and share 3 stocks on their radar. Venture capitalist Paul Holland discusses the future of technology and “Something Ventured”, his documentary film about the start of the VC movement. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Gentlemen, good to see you as always. Good to see you. How you doing, Chris. We have got the latest from Ford, McDonald's, Microsoft, and more. We have got a startup expert giving us a look at the next big things in technology. And as always, we've got a few stocks on our radar. But we begin with the big macro. Jobless claims fell to a nine-month low, Ron Gross. Last week, we talked about unemployment dropping.

That was good news. Do you feel the momentum building? Do you feel it? Two weeks in a row of good news? I think I might feel it. Yeah, I'm encouraged. And each week we get another job. data point that's positive, I become more encouraged, and I've been pessimistic for a long time.

So two weeks is a good trend. We're not out of the woods. Let's not get crazy, but it is a trend. How many data points would you need to have to be like off the charts? 12. 12. If you're a regular human, all you need is two. That's how we roll. That's how we roll. Two data points. We've got a trend. Exactly. Well, before we... One, if you're a reporter, by the way. Exactly. Before we get too steeped in the good news, let's go over. to Europe, which is constantly influx. You had to go ruin it. It was a perfectly good show. I know. And I almost hesitate to mention this, James, because I sort of feel like by Monday,

anything I say now about the EU is just going to be obsolete. Monday, by later this afternoon. But it appears that EU leaders have a deal in place with most of the countries. Great Britain is not one of them. What's the latest? Group psychology studies have shown that a size of four is like the optimal group size for getting ideas together in decisiveness. So you put 20. seven people together, make them Europeans. I mean, you're not going to get much. I'm a little surprised they agreed on this in the first place. And they all ate each other, but the problem is monetary

union without fiscal union, so they're trying to think of a way to fiscally unionize, basically so that the kids can't go spending on the parents' credit cards metaphorically. There is some kind of agreement. I don't really understand it. It's vague, and I think that's going to be the question is, how does it play out, and will the member states abide by this? Because there were previously agreements before about joining the euro and they didn't work too well either. Seth? Yeah, the question here is, is there an actual mechanism needed to take care of, you know, liquidity problems or do they just need to sort of convince everyone that, hey, we've got this big secret plan over here and, you know, if there's a problem, it'll be taken care of.

And is that kind of reassurance enough to just get these so-called bond vigilantes to quit drubbing the Italy's and the Spain's and the others. It's this obviously a problem at the end of the day. Is 2012 going to be the year when investors can finally look at Europe and feel like, okay, I'm now going to dip my toe back in the waters of investing in Europe? Oh, no, I think that's going to be the year that we say, woo-hoo. I mean, I feel really bad for all those people, but I have been looking for real estate in Italy for a long time, and I'm glad it's gotten so cheap.

For the first time, in more than five years, Ford Motor is going to be paying a quarterly dividend. James, Ford Motors, one of your stocks. You've got to be ecstatic. Well, it's not one of my income investor stocks, but I am a little bit familiar with it. I will say, I'm semi-estabstaff. Actually, I'm not ecstatic at all. The American car companies semi-extatic. Ford less so than GM are kind of like the kids who just got beaten up in the playground. And they're trying their best to stand up and walk around like nothing happened. But these guys have just been through hell. So they need to take a breath, I think, and maybe not try to pay out so much cash just yet. It is not a lot of cash.

I think they're starting with five since his share in March, coming compared to like a buck 40 something in EPS per year. So it's not huge, but I don't see the rush. Ford does. Ron? Interestingly, I think the amount of the dividend was less than analysts we're hoping for. So even though it was good news, a little bit disappointing. I thought it was interesting that the company said they've done stress tests on the business

and they've looked at their solvency. And even if we get another downturn, economic downturn, this is the kind of thing that is sustainable. They will not take it away again, which I don't. Who could promise that, let's face it. But I think that is a good signal to the markets. Now, earlier in the week, the Wall Street Journal reported that Ford has begun a two-year search to find a replacement for CEO, Alan Malali. He's expected to step down in two years.

The search may take less than that. They listed some internal candidates for executives, a guy from Hyundai, who's an executive, who's a candidate as well. Ron, you own shares of Ford. I mean, how do you feel about this being out in the open? Well, first, let's say Ford has not confirmed this. In fact, they say they're not currently undergoing a search. So whether they're doing it behind the scenes or not, we can't really be sure. There's obviously many good candidates that probably could take the reins here.

I prefer more disclosure than less. Some people think it's a distraction for this to be talked about now when it's two years out. Hey, I'm an owner of a company. I want to know what's going on with the leadership of that company. and I can handle a little bit of noise here and there. Would you want to be CEO of an American car company? Absolutely not. Oh, I'd take it any day.

Would you? Oh, yeah, because all of these things are sort of, you know, if you screw up, you're still a bazillionaire. But what's the difference? I mean, Malale didn't screw up, I don't think. I think he did a pretty good job, and he's going to be an even bigger bazillionaire. But, yeah, you want to be a CEO of any American company

because the pace structure is such that even when you fail, you can just laugh at everyone and give him the finger because you never need him again. Do you want me to make some phone calls, see if I can get you on the short list? Yeah, I've got two years. I don't think that's happening. All right, Xbox Live got a major upgrade this week that includes new options for watching TV and improvements to its Connect game system. Seth, I will be honest.

I was downloading it. I know you're an Xbox person. I didn't realize the numbers were this big. Microsoft has 35 million subscribers to Xbox Live. Well, and they don't, I think that's a good count, actually. actually, because a lot of companies, especially these Internet startups, they just tell you how many people they have signed up. Microsoft is talking only in that number about people who logged on in the last three months. That's a pretty good conservative number. I think it's a fair number.

But it's also tiny compared to the total user base that Microsoft can be bringing into this system. And I'm going to get to that in a second, but there's 364 million hotmail users. It's by far the biggest free email system out there. And of course, they bought Skype 521 million users of Skype. That was as of Q3 2009, at least according to the numbers I got off Wikipedia, which were the only ones I could find. How could those be wrong? Who knows how many there are? And, of course, they are going to be integrating Skype with both Windows Phone platform and the Xbox platform.

One of the more important things they've done here is they've kind of made the look and feel consistent with Windows 8, with tiles that are coming up, as well as Windows phone. that is very well regarded by a lot of the tech analysts out there. So they're really finally bringing everything together. And I think they have a good shot at owning the living room. They do in many senses already. And they introduce the cloud in this time around, which I think is a pretty nice.

Well, yeah, that's actually a very small piece for now, but it's interesting that you can now save your games, save your games to a half gig of online space, save your saved games, not like the disc itself. But anyway, that means that if you're a gamer and you're over at your buddy's house, you don't have to have a memory stick with you. You just log on and go. Well, and this isn't just about games. I mean, this also includes Netflix.

You've got TV channels from... They're adding... They're seeing to add HBO to go. They're going to have Verizon, and I think it's Comcast. On demand from Comcast. On demand systems. They're going to have Crackle and some others. So they've had for quite a while now, Hulu Plus and Netflix, which I think are the two most popular services.

But as they add more of these, essentially... you get an amped up set-top box that also plays games and can do a variety of other things. As we continue to hear rumors about Apple TV coming in 2012, do you think the folks at Apple are watching this and looking for a blueprint? Well, they obviously haven't because they've been copying some of the features for a while. The voice search that's been built into the connector, the voice control has been there for a while for months now. but now they've added some search, which is actually pretty impressive. I say, you know, Xbox, you know, find New Girl. I tried last night, the TV show, and it found it in two or three different places.

You could buy the episodes. You could use Hulu Plus, and it just brought those up, and then I could just wave my hand over the Hulu option, since I'm already a Hulu subscriber, and bang, it started the latest episode, just like that. So a lot of the rumored features that people are saying are going to make Apple TV such an awesome device. they already exist.

They're already here. They're already here. They're in the Xbox. You can use them on any TV in the house. Coming up, Martha Stewart's not going to jail, but she was in the headlines again this week. We'll tell you why, right after this, you're listening to Motley Full Money. Welcome back to Motley Full Money. Chris Hill here in the studio with Seth, Jason, James Early, and Ron Gross.

Shares of Costco down slightly this week on the company's latest earnings. Ron, the profit looked good. the margins less good. That's good. Well, the first headline was that they missed expectations. They didn't meet analysts' expectations, which is actually not correct. If you strip out the one-time charge from an audit that was done on the Mexican joint venture, they were right in line.

Most importantly... You sound defensive about that, though. Yeah. I was not correct. Yeah, you know, Costco's my baby. Yeah. It's always firing on all services. What's going on here is the company is holding the line on prices, even lowering prices in some

circumstances as we go into the holiday season. They're doing that in the face of rising costs, which impacts their margins, impacts profitability, which sometimes Wall Street doesn't like. But this builds goodwill. This plays right into where they want to be. It drives those strong retention rates, those membership retention rates that they have, and this will pay dividends down the road. Because they scalp you every year on that fee, right? So you're like, wow, it did just raise 10%. I'm going to save a nickel on my toilet paper. But I pay them how much more? This is like the first time in five years they raised the membership fee.

Right. It's still, what is it, $55 a year, a little bit more than a dollar a week. We have to find everything bad we can say about Costco just to watch Ron's. And it is the end of the tenure of Jim Senegal, so we thank him for all he has done for us shareholders. But it's clear he's ready to go after this. The company is still in good hands. Shares of Martha Stewart living Omni Media up more than 40% this week after J.C. Penny bought a minority stake in the company. Seth, obviously, that's good news for Martha Stewart.

Everything at that company is always good news for Martha Stewart. He comes first. Is this a good long-term move for J.C. Penny? You know, I really don't think so. This Macy's has been selling Martha Stewart stuff for a while, and they're reportedly miffed by this because they expected something more of an exclusive arrangement. But I don't know that this helps JCPenney. And I think this shows that Ronald Johnson, who is the guy who takes credit for the Apple retail strategy, maybe out of ideas because I saw one of his ads the other day, or a JCPenny ad, I assume that he had some control over this

because it was a complete rip-off of a Target ad. Well, he did use to work at Target, and he was busy to Target. I'm saying that he seems a little bit like a one-trick pony to me. I mean, even the font choice and colors were a complete rip-off from Target, and what he did at Target, one of the things that helped at Target, was he brought in some kind of hipness. So he brought in sort of Michael Graves' designs and some other brands. And I think that works at Target, because Target essentially, before this,

Target was not hip. It was just sort of a cleaner version of Walmart. But I don't think you can do that at JC Panny, no matter what you try. And certainly Martha Stewart is not going to bring any hipness to anyone. Walmart tried to copy Target itself, and it failed miserably. It's just these retailers have their niches. I tend to agree with that. Earlier this week on Market Fullery, our daily podcast, one of your colleagues called this a business match made in heaven.

You're saying J.C. Penny and Martha Stewart is not the next Exxon mobile? Well, it's just so obvious. I found myself saying I couldn't already get Martha Stewart junk at J.C. Penny. They have all those other junkie brands that are not differentiated and not the least bit cool. I don't think this moves the needle at all at J.C. Penny. I don't think you're getting a holiday card from Martha Stewart this year. We're Walmart. Mark. Shares of McDonald's hit an all-time high this week, and the company reported global. Same store sales were up nearly seven and a half percent. James, that is huge. It is great. When the times

get tough, we get less picky about where we eat and McDonald's is cheap. I actually... You say we? You mean, you included it? I did go to McDonald's this morning. Wow. Really? Whoa. What did you? You guys know, I used to be vegetarian. My wife and I cook and buy our food separately because she doesn't want a part of my weird animal-friendly diet. I had no food, so I was going go to Whole Foods for breakfast, too much traffic. So it took a weird way, went through McDonald's, got three egg McMuffins. Three? And I'm dealing with the guilt. But it was fast. It was really fast. I got to say that. And they were good, isn't it? I know not the Canadian bacon. But yeah. What did you get in it? What egg McMuffin did you get? Just egg and bun. And like an English muffin.

And you ate one of these? Three of them. Wow. Wow. Wow. That's disgusting. The company is doing well. Ron wouldn't do that. It is an income investor. Yeah. It's been a couple hours now, but income investor recommendation, strong international revenues in particular, whereas like a young brand, for instance, done pretty well too, but they're not as strong domestically. McDonald's is very well diversified. It's a good company. If you are looking for Coca-Cola's secret formula, it is now on display at the World of Coca-Cola Museum in Atlanta. Sure it is. But before you pay your $16 to get in. It's with the Fort Knox Gold. That's what the ticket costs. You're going to see only the vault encasing the

formula that's going to be visible to the public the formula I guess we're going to take it really on display then yeah so and for two dollars you can go to an internet site and see a picture of the ticket that you get great why are they doing this Ron I mean I mean because there's a mystique people will pay for almost anything three egg brick muffins let me give you an example it's like five bucks yeah I mean people will pay people will pay to go inside a giant fiberglass musky in heyward Wisconsin or wherever that thing is what's a musky a musky a musky a musky yeah yeah it's a It's a giant pike-type fish. Very aggressive, skinny, long fish.

This show is not only entertaining, but educational. In the few minutes we have left, we'll get to the stocks on our radar. Let's bring in our man Steve Brodow from the other side of the glass for a question for each one of you. Ron, Gross, you're up first. I'm going to go with ZIPCarr, ticker Z-I-P. The stock has been absolutely smacked since we originally purchased it in a million-dollar portfolio, giving us the opportunity to buy a little bit more, average our cost basis down. And for those not familiar, it is the leading car sharing company, kind of changing the paradigm of the car

rental market and the car market in general. And we think it's got a ton of growth in its future. It's really a young company at this point. Steve? Sure. I can think of nothing more frightening than Zipcar, actually. The number of variables, you have cars that are being driven by different people, things smashing into each other.

They have to get parking spaces all over the country. Yes. What is so appealing about this? It just makes no sense to me. For people certainly in metropolitan areas that don't own cars, it's a great solution. I know many people who are subscribers, you pay a small annual fee and then a user fee per time, and it's very convenient. It works very well. And if you don't own a car, it's a nice alternative.

And they're firing on all cylinders, too. I didn't say that. Steve. No, the one time you should use it. It sounds like Steve might be more of like an Avis and Hertz. Well, I'm with Steve, but I recommended this and we bought it at Hidden. gems. And I started out saying, listen, this is not my kind of thing. I don't like to share it. Get your fork away from my plate unless you want my fork in your hand. And I certainly don't like to share

cars. But that doesn't mean I can't recognize that other people don't see the value in this. And I think a lot of people do. Okay. In the minute we have left, James, your stock. Chris, I'm going deep. Anglo-American A-A-U-K-Y. And the pink sheets is the tickers. Actually a very big company. On November 4th, it was announced that it was increasing its ownership into De Beers Diamonds to 85%. Now, I've been thinking a lot about socially responsible investing lately. I'm trying to to decide how I feel about diamonds in general. I know De Beers has this Kimberly Accord to ensure conflict-free diamonds, but I've heard it's not very well complied with. So I'm trying to think about how I feel about Anglo-American now. It's just on my radar. Steve? Shouldn't I be afraid of

just anything on the pink sheets? The pink sheets sound like a scary, scary place to be. Most of the time, yes, but like Nestle is a pink-sheets company. There's a couple others. There are a few sort of big-name, huge market-cap pink sheets, and this is one of them. But you're right. This is the rare exception. You can sometimes find value because, as you said, some people stay away. Seth? I'm going to go with guests, which I've spoken about before here. GES is the ticker. Just released

earnings, disappointed Wall Street slightly. I own the stock. We have it over at Hidden Gems, but they are still doing very well, producing a lot of cash. The revenue growth is slowed down a little. They're protecting their brand, so they're not doing the discounting that everybody else is doing, and so that's slowing down sales a little bit, but

international expansion is important for them. They're doing well there. And, you know, the free cash flow yields about 9% right now for a company that can be growing in the mid-teens for a long time to come. That's just too cheap. Steve? One primary, guess is primary competitor. Who would it be? One company?

Oh, boy. It's sort of, it's, they don't have a single competitor. You know, they compete in a lot of places. So, you know, they compete in accessories, coach, et cetera. Benetton is still around? Benetton, yeah. Jordan. You could probably say Benetton, I guess, especially in Europe.

Yeah. I think Reggie Millington is a big fan of guests. He would be a fan of guests. All right. Seth, Jason, James Early, Ron Gross. Guys, thanks for being here. Thank you, Chris. Coming up next, what are the next big technologies we should be looking for?

We'll talk with startup expert, Paul Holland. Stay right here. This is Motley Full Money. Welcome back to Motley Full Money. I'm Chris Hill. Paul Holland is a venture capitalist and is the co-executive producer, along with Molly Davis, of a new documentary film about the...

the venture capital community. It's called Something Ventured. Paul joins me now. Paul, thanks for being here. So you get hooked up with Dan Geller and Dana Goldfine, who are the co-directors of the movie. I watched the movie. It's really fascinating stuff. And frankly, if someone had told me, hey, I've got a documentary about venture capitalism. It's really riveting stuff. I would have thought they were crazy, but it's really just an amazing set of stories. And let's just go through a few of them. And I'll just start with, you know, the biggest fish in the sea. And that's Apple. You know, one of the things that blew my mind in this movie is the number of people who had the opportunity to invest in Apple very early on and passed on it.

Yes. What were these guys thinking? He's not the only one. And he lit up and he's... I was going to say, yeah, a capitalist version of Reds. But there were lots of folks that are out at that stage. You're listening to Motley Full Money? talking with Paul Holland, Venture Capitalist and co-executive producer of the documentary film,

Something Ventured. You mentioned Apple, and it reminded me of maybe my favorite single image in the movie, and that is a news article from 1974. It's the cover story of a magazine, and it is about the success of IBM. And the image is of a massive shark, and written on the side of the shark is IBM. And it's basically going to eat all these smaller sharks. And the smaller ones are, you know, other computer companies, Siemens, Honeywell, GE. And the quote that blew my mind was, there will never be another new computer company. That's 1974. And obviously, there's a lesson to be had there in terms of sort of the folly of huge pronouncements like that. But I'm curious, when you look around, I mean, Apple seems like it's the big shark today.

It seems like the company that it would be easy for someone today to say, you know what, there's never going to be a company like this ever again. What do you think is the shark that potentially eats Apple as certainly, you know, IBM as a computing shark, was certainly taken down a few notches? Yeah, and I think that's what makes, you know, the biggest threat to happen in Java and pads, iPhones. There are some amazing stories in this movie. A lot of them, because of their success, there are also just some colossal failures in this movie.

I mean, I suppose that's the nature of the beast in venture capital. But are there any in particular that sort of stand out in your mind where you just sort of look back and go, wow, what were they thinking when they invested in that? The second investment. It's almost hard to believe that didn't work. Right. I think it's just one of these things where, you know, there have been many.

You're listening to Motley Full Money talking with Paul Holland, venture capitalist and co-executive producer of the documentary film, Something Ventured. You are a partner at the VC firm Foundation Capital, so I want to ask you a couple of questions that sort of tie into your experience there. We recently had Neil Ferguson on our show, the historian, and talked about his latest book, which deals with essentially the rise and the decline. of the West. One of the things he talked about was the rise of innovation in China, among other places in the world. Do you think America is losing its edge in innovation? Incredibly vibrant. The first side of the equation about, you know, the general... At the Motley Fool, we're focused on public companies, but as a venture capitalist, I'm guessing you're focused on private companies and sort of the up-and-comers and looking for the next

big thing. What are a couple of companies or technologies that are on your radar right now that are probably not on the radar of people like me? You can stop me along the way because there's a combination device. Coming up, more with venture capitalist Paul Holland Plus will play a round of buy-seller hold. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley cool money. Chris Hale talking with Paul Holland, venture capitalist and co-executive producer of the documentary film, Something Ventured. Paul, before we wrap up with a round of buy-seller hold, help settle a debate in our office because we talk frequently about the IPOs that have occurred in 2011. And, you know, as seen in your film, there are venture capitalists who will essentially take flyers on 10,000, 10 companies. One of them can pay off big. Some of them could also fail very quickly. So I'm going

to spot you up with a few IPOs. You tell me of the ones I give you, if I were just to hand over to you, 100 shares, which one you would feel best about over the next five years? LinkedIn, Groupon, Pandora, and just because it's close to my heart, literally, Duncan Brands. And I'm just hand over 100 shares. You don't have to, you know, take the risk. Which one are you thinking is going to pay off the most in five years? How could you? All right. We'll wrap up with a round of buy, seller, hold. There are reports that the IPO next year could be looking at a company with a valuation of around $100 billion. Buy seller hold, the business of Facebook. Bye. Why is that? It's got a loyal customer base, and it's got Howard Stern, Buy-Seller Hold, the Future of Sirius X-M.

Why is that? And finally, there are rumors that this could be the next big thing for Apple. Buy-Seller Hold, an Apple television set. Trult. Yeah, you can hold, absolutely. I'll just hold on that. I've got Apple TV. The film is something ventured.

It is as entertaining a film as I have seen all year. Congratulations, Paul, to you and Molly and Dan and Dana and the whole team. It's great stuff. Listeners should go out. They should find this movie because it's probably not playing at your Cineplex yet, but this is definitely a movie you want to look for. Something Ventured. Paul Holland, thanks so much for being here.

Chris, thank you very much. That's it for this week. For daily analysis on the latest business news, you can check out our daily podcast, Market Foolery. And for video highlights, you can go to 4. FoolTV.com. That's it for this edition of Motley Fool Money. Our engineer is Steve Broido. Our producer is Mac Career. I'm Chris Hill. Thanks for listening. We'll see you next week.