Motley Fool Money - Retail's Rough Ride

Episode Date: May 13, 2016

Retail stocks get hammered. Disney loses some of its magic. Jack in the Box pops. And Electronic Arts scores big. Plus, Motley Fool co-founder David Gardner weighs in on Tesla, AI, and unconventional investing wisdom. Thanks to Audible for supporting this episode. Get a free 30-day trial at audible.com/fool. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Everybody needs money. That's why they call it money. The best thing in life are free, but you can get them to the money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Full Money Radio Show. I'm Chris Hill, and joining me in studio this week for a million-dollar portfolio, Jason Moser, from MDP and Supernova Simon Erickson. And for Motley Fool Deep Value, Ron Gross. Good to see you, as always, gentlemen.

Hey, Nick. Hey, Chris. Earnings Palluzza continues. We will get to the latest results from Wall Street. Motley Fool co-founder, David Gardner, is our guest this week. And as always, we'll give you an inside look at the stocks on our radar. But we begin with the retail industry. And it wasn't pretty, guys. General retailers, including Macy's, J.C. Penny and Coles, all getting hit this week after weak earnings report.

And it wasn't any better with apparel retailers, both Nordstrom and the gap falling more than 15 percent each after similarly week quarterly reports. There's a lot to get to here, Ron. But when you look at the retail landscape, what strikes you first? There's absolutely no bright spot here. Wow. None? There was no bright spot. Akams Razor tells you that the simplest explanation is probably the right one. I have to move to Amazon for that, eating everyone's lunch, including the apparel retailers, as you mentioned. April looks like it may be looking up, but first quarter, holiday season, discounting promotions, store traffic, size of average, cart size, just all really weak.

It leads me to scratch my head a bit because you say, okay, unemployment's decent, gas prices are fine, why aren't people spending? Interest rates are low. What's going on here? Again, I come back to Occam's Razor and Amazon. Well, Jason, when you look particularly at the general retailers, you look, you look, There's one narrative there has to be what we've seen over the past decade with mall traffic, because Macy's, J.C. Penny Coles, they are all pretty heavily dependent on malls. Absolutely. And I think with the Macy's report was quite underwhelming. I think the interesting thing about Macy's is you go to a mall, you probably don't even

tend to go to a Macy's and you end up there for some reason or another. So I think it's definitely a testament to the fact that mall traffic is down. I think when you look at J.C. Penny, I think the current economic climate still very much favors J.C. Penny's clientele, right? That moderate to mid-tier consumer that they're looking for. So the fact that J.C. Penny is struggling, it really leads you to believe there's a consumer out there right now that doesn't necessarily feel as confident, perhaps. Granted, the unemployment picture looks better. I can't help think that maybe we're in a situation where we have some sort of underemployment. I don't think wages are really all that robust. I mean, we know that

the typical consumer savings rate is very low. So if they're spending, they're kind of having to spend either out of that paycheck or on credit, and I think people are a little bit maybe hesitant to do that. Yeah. Last time we saw a real weakness in retail, we often talked about a bifurcation of the consumer. There was the high end and there was the low end, and the higher end consumer was still spending. In this case, no matter where you look, we seem to see the same type of weakness, maybe to different extents, but still weak across the board. And that's what's interesting to me about this time around.

Well, and Simon, we saw e-commerce in general looking better with the year-over-year numbers for April up just more than 10 percent. So whereas sort of store-based retail is flat or maybe up slightly, you look at non-store retail sales, and those are doing just fine. The bright spot, right, Ron? The one bright spot of this is that it's going to e-commerce right now. You look at the 1,000 largest retailers in the North America last year. Web sales were up 15% actually, compared to only 3% on the store.

So it's just a transition, perhaps, that people are spending money in different ways. And I think that there's a lot of companies that are actually doing that transition pretty well, positioning themselves well on the web and still getting a lot of sales out of that, too. Yeah, Wayfair is a good example beyond Amazon. I mean, let's not credit Amazon with everything. There are other businesses in the world. I think Wayfair is one that I certainly understand or understood at least initial skepticism in buying your furniture online, sort of site unseen, or at least not having quite the idea

of how maybe it fits in your home. But the numbers that Wayfair continues to turn in tell us that these guys are doing something right. I mean, you look at sales for the quarter. The earnings just came out. Sales grow almost 93 percent. Repeat customers, which is really a key to their business model, repeat customers placing better than 55 percent of total orders, and their active customer base is up almost 70 percent

to 6.1 million customers now. I mean, they're doing the same kinds of things that Amazon does and really just making sure they focus on the consumer, focus on having that inventory in hand, make a returns policy very simple, and get it to the customer with free shipping in a pretty quick order. Those are the kinds of businesses that I think are going to be really separating themselves here in the coming years, the ones that are very customer-centric and taking advantage of that online channel. Yeah, and I'll wrap by saying maybe we can have some optimism with respect to the second quarter. Retail sales in April were up 1.3%. Auto dealers and online were really the bulk of that. So it's a little bit kind of specific where we see the strength. Home sales were the weakest, mostly because of the weather we've been experiencing.

But perhaps second quarter will look a bit better. I wonder how much of that we would credit to tax refunds. I don't know. I mean, I unfortunately can't speak from the perspective of getting a refund. Thanks a lot, Uncle Sam. But some people did, and I think that probably there was a little boost to spending from that. I agree with Jason. You've got to have a niche in retail today. You're not going to compete with Amazon in things like everyday items or media or electronics or even groceries and stuff like that now.

You've got to have a certain niche carved out. I really like Lulu Lemon in the space. Saw a great growth in direct consumer, the online channel, and they've got something that they've kind of protected. You've got to do something like that for retail to survive. Ron, I don't want to pick on Nordstrom, but I was genuinely surprised by their report, because they were sort of in the same boat as all these other companies we've been talking about here. And historically, I mean, that is a retailer that is known for, among other things, really great customer service. I'm just wondering if this was just sort of a speed bump for them.

So what's interesting is, if you look at the segments, they're online and their discount segment did quite well. Their main typical stores did not. which is bad news for them. They typically use the online and the discount stores as kind of a way to drive people into the bigger stores over time. So it's not a good sign to see that. But I still do believe they're probably the best out there with respect to customer service. And I do like the merchandise they put into the store. Hopefully, this is a blip. But time and time again, we've seen that retail is a really tough business.

All right. Let's move off of retail for a moment. Despite all the success the Walt Disney company has had at the box office, recently. First quarter profits came in lower than expected. The company also scrapped Infinity. Its video game line. Jason, they had five good years of not missing on profits, and that streak came to an end. Well, it has to end sometime, right? I mean, let's reset the bar here and maybe set those expectations a little bit lower so that next year they're easier to clear. I think the biggest question with Walt Disney to this point has always been in regard to ESPN and sort

of how are they going to monetize this project? property going forward in the face of over-the-top programming and the big cable providers being more or less disrupted. It looked like ESPN really brought the results this quarter, though. I mean, operating income was up 9%. It looks like the part of the business is trending nicely in this current quarter. So, again, we kind of look at this ESPN situation, is a question more of distribution as opposed to the actual platform itself. Maybe we're not going to have the big cable companies distributing all that content all over the place, but we're going to have skinnier bundles. We're going to have mobile technology. Plenty of global channels out there for ESPN to be distributed.

And I think that'll continue to do well. I think what's really impressive with what Disney has done, if you look back to 2006 since the acquisition of Pixar and Bob Iager's going on with Pixar, Lucasfilm, Marvel, they have released 27 movies under the Pixar, Disney Animation, Marvel and Lucasfilm brands. Of those 27 films, they've had an average global box office of about $770 million. each. So these guys kill it on that front. But what the nice part about it is the way they're able to leverage that success into other parts of the business, whether it's consumer products or the parks, what have you. I think getting rid of the video game side of the business was a sensible thing to do. It was always the underperformer, and it's a lot easier just to license

those properties out to the companies that do a better job there. And so really, the next big question for Disney is going to be on leadership. And they didn't give us a whole lot of insight there. We know Iger is there until, I think, July of 2018 or something like that. it doesn't sound like he's going to re-up. I think they're really focusing on trying to figure out who they can get to replace him. But that'll be the big question that needs to be answered, because he's obviously done a very, very good job. Do you think three months from now they need to have an answer to that question? If not necessarily this is the person, but at least some sort of progress on the search to replace IGRA.

Perhaps, but I think three months from now, we're probably going to hear more about Disney, Shanghai, high and a lot of the hype around that opening. This has been another one of those points of focus for Iger ever since he's been there. And so I think he's going to really want to focus on the success of that rather than the question of leadership. We have a little bit of time before we have to get that. Disney might have struggled with video games, but electronic arts hitting an all-time high this week after first quarter profits and revenue came in higher than expected. They are crushing it over there, Simon.

Yeah. And Chris, Jason just said, you know, look at it. video game makers that can license Disney's brands. Electron Arts is doing exactly that. Just came out with Madden NFL 17. Chris, I don't know if you saw that Gronkowski is on the cover. I'm worried. Isn't historically the football player who's on the cover of the EA NFL game gets injured that season? This could be a bad sign for you then.

I don't like this at all. But EA, you know, after Disney is sunsitting the Infinity Video Game Group from being in-house, they're going to license it out to other. Of course, Electronic Arts has done that. We've got the Star Wars franchise from Disney. That's really good news for them, too. And this is a company that's getting it done. I mean, 18% growth in their digital revenue, which is just distributed online rather than the actual games itself. They're picking up, like we said, the Star Wars franchise. They've got a lot of growth ahead of them. Do you like EA at this price? I mean, it's an all-time high. I'm just wondering how spicy

it looks. Video gaming is a good industry. There's a lot of growth in this, and you actually get pretty attractive margins. So I think that the question I should answer that with is how big is this going to get as it becomes more immersive and virtual reality starts to catch on. I think there could still be more upside. And I do like the way the industry is going in terms of a recurring revenue model instead of these big, big hits here and there. That makes me much happier to own a stock over long periods of time rather than thinking about too high, too low, too high, too low.

Coming up, a reminder that unhealthy foods can be both delicious and profit. Stay right here. This is Motley Full Money. Welcome back to Motley Full Money. Chris Hill here in studio with Jason Moser, Simon Erickson, and Ron Gross. This week, a federal judge issued an injunction preventing the merger of Staples and Office Depot, and the two companies called it quits. Help me out here, Ron. This is not ExxonMobil trying to merge with Chevron. This is two relatively small companies. I honestly wasn't expecting this outcome. I figured there'd be... kind of a tough road, but not ending in a breakup of the deal.

The concern by the FTC is that the merger would lead to higher prices for large corporations that buy office supplies in bulk. So they're not concerned about the everyday consumer. They're concerned about the large corporations. How nice of them. They're the only ones that happened to be concerned about that. Now, obviously, the counter is that Amazon and regional local suppliers provide enough competition in this marketplace that that shouldn't be.

be a problem. Amazon's business-to-business website has more than a billion dollars of sales at this point, and it is a relatively new business for them. I'm sure it will grow at relatively quick growth rates going forward. So I was surprised. I felt that there was enough competition here to get this done. Those two companies of stand-alone entities really were not really getting it done very well. They've got to shrink their businesses now. They've got to cut costs, closed stores. So all in all, a surprise to me. You know, if you want to win a bar bet this weekend, the top three online businesses in America in terms of sale, number one, Amazon, number two, Apple, number three is Staples.

So despite their relative size, they are selling a lot of stuff online. On Tuesday, shares of Solar City fell more than 20 percent after a disappointing first-quarter report, but the stock began to claw its way back later in the week, got back maybe about half of those losses. Simon, this is one of those stocks that is not for the faint of heart. No kidding, right? This is par for the course for Solar City now. Sometimes you see a month where the stock is down 50 percent, and then the very next month it'll be up 50 percent. So, you almost have to have a stomach lining of steel to handle this volatility. What is going

on behind the scenes here is the market is trying to figure out how to balance out Solar City's huge opportunities with the huge risk with the business right now. Addressing the risks first, Nevada just had a very controversial decision where they were retroactively going to reduce net means. metering rates and impose fixed fees on solar customers. Retroactively, meaning if you put a solar system in two or three years ago with different guidelines, you are now on the hook for the lower rates, even though you already put the system in place.

And there's a lot of fear out there, as there should be, from homeowners, that this might happen in their state as well, and others might follow suit. Balancing that with the huge opportunity, we've already talked about the growth rates of solar quite a bit, that they're very impressive. And Solar City, through financing a lot of the panels they put in place up front, and up front is able to capture enough cash to fund the development of more panels, too. So they're adding a lot of value to the business, but there's a lot of big risks that remain, too, Chris. Fossil Group sells fashion accessories, mostly rich wristwatches, and they

don't appear to be selling enough of them, Jason. Oh, sir. Shares falling 30 percent this week after an absolutely brutal first quarter report. Yep. Guidance often trumps results, especially when the results suck. And their results were really, really bad. And their guidance is that. and honestly, was really worse. I think the biggest problem for fossil is that 75% of their sales come from watches, which, as you've noted before, that's just not seemingly the strong as sort of recurring purchase. You have, on one hand, sort of watch enthusiasts, you have,

on the other hand, these people that are kind of making the switch to some sort of fitness device, and then folks in the middle of there who just don't want to wear a watch. And so you have this retailer with no real pricing power, no real sort of identity. entity otherwise, they're stuck with inventory getting out of control. Margins start to get a little bit compressed. And we've already established we're in the face of a pretty weak consumer at this point in time. So in the first quarter, when you offer up guidance for the full year like these guys did,

it's no wonder the stock got shelled. And honestly, I don't know that there's a catalyst that turns this thing around anytime soon. So if you're looking for a retail idea, I think I'd steer clear from this one. quarter profits for Jack in the Box came in higher than expected. Strong sales at their Kudoba chain run, but they're also getting it done at the namesake restaurants, too. Chris, you don't know Jack. The stock is up 258 percent over the last five years versus 54 percent for the S&P. Most people have no idea the performance that Jack in the Box has put up over those last several years. Doing a really great job. Kudoba is the growth

engine of this company right now, but it's a much smaller piece. of the pie. As of now, 2,200. Jack in the boxes, only 600 Qudobas. But I think we'll start to see the acceleration of new QDobas going forward, and that'll end up being a bigger piece of the pie and spur the growth. How much of their operations are franchised? Is that really the growth engine for them? It's a mix. They're going to open up 50 to 60 QDobas this year, probably, and it'll be half and half or somewhere around there of franchises versus company-owned, maybe a bit more company-owned. than franchises, but it is a big part of the business model.

Yeah, I have to give it up to that management team, because I don't think you get this kind of persistently strong results unless you're a very strong operator. Correct. And they're actually good capital allocators, too, because they're buying back stock at good times. And stock really isn't even that expensive, 24 times earnings, 11 times, EBITDA, 1.6 percent yield for those dividend folks out there. Companies doing a nice job.

Let's bring in our man, Steve Brodo, in from the other side of the class. You've ever been to a jack-in-the-box or a kudoba? I've been to kudoba. I've probably been to a jack-in-a-box, but I cannot remember when. But in terms of kudoba, you feel like you'd go back there, or is it just not a great experience for you? Flip a coin. It was fine. Do we think they're benefiting from the weakness in Chipotle over this time, or is that kind of

too easy an explanation? Don't we think all restaurants are benefiting from the weakness in Chipotle? I mean, I wouldn't assume it's necessarily kudoba. Well, I think you also go to the flip side of that and think, well, one of the ways Chipotle's been working on getting customers back is by getting giving away a lot of food. And so they're sort of going through this process of totally free food. Then they go to the next level of buy one, get one, until they can finally kind

of wean the customer back onto like a full boat offering there. But when you have a restaurant that historically has done pretty well in Chipotle giving away a lot of free food, I think that's probably going to take a lot of traffic away from other restaurants. So perhaps the opportunity to capitalize on Chipotle's misfortunes has passed us. All right, guys. We'll see you later in the show. David Gardner is next. Stay right here. This is Motley Fool Money.

Thanks to Audible.com for supporting this week's Motley Fool Money. Audible.com is a leading provider of audiobooks with more than 250,000 downloadable titles across all types of literature, including fiction, nonfiction, and periodical. Steve Broido, are you an audible consumer? I am. I just downloaded a book recently. Really? Yes, it's called How to Talk, so kids will listen and listen.

So Kids Will Talk. I have a four and a half-year-old. and his listening is not so awesome sometimes. That's great. So you're picking up some parenting tips. Doing my best. Fantastic. For our dozens of listeners,

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Fantastic. Get a free 30-day trial. Just go to audible.com slash fool. That's audible.com slash fool. Welcome back to Motley Fool of Money. I'm Chris Hill. David Gardner is the co-founder, co-chairman of the board, and chief rulebreaker here at the Motley Fool. He joins me in studio now. I need to add a fourth title, I think, Chris.

I'm honored that you would actually come up with those three. But now I'm thinking, you know, maybe Lord of the North. than Marshes is something like that. Radio at Fool.com is our email address. We're taking suggestions for David Gardner's fourth title. I think we can top what I already have. I'm ready to give away one of those for something better. We opened last week's show with the news from Tesla Motors. Alon Mosque announced the company is bumping up its production timetable by two years, going from making around 50,000

vehicles a year with the goal of, by 2018, making four. 500,000 vehicles a year. You follow this company. You first recommended this stock in 2011. What was your reaction to that news? You know, I think there's an important dynamic that probably is a secondary thing for most people, because primary for most of us are when he says a number and they try to hit it. And I think Elon has done an amazing job with Tesla, and they've often missed their past targets. So I think most people are focused on, you know, well, will they do that? And that's a huge number. And I understand, because when you put a number out there, you are kind of making yourself accountable,

but I would also say that Musk has clearly kind of fallen down on some of his past metrics, but that's not the point. I think the secondary, more interesting point, is the reflexivity that's in play there. And, Chris, without boring, this is too long an answer, so I'll be short. But reflexivity, which has been written about by George Soros very intelligently. I've read a little bit about that is basically the concept that when you say something, you start to make it a thing, you kind of put it out there, and then you make it more likely that that thing will happen because you set it. And that's really, if you think about it, that's the whole dynamic of venture capital. If you have somebody who says, and they have

credibility behind him, this is going to happen. All of a sudden, venture capital money rises to invest in it. And guess what? With that capital, it now becomes more possible that that thing will happen. It's kind of like you love the velveteen rabbit into existence. Right? And so this is the dynamic that I see, which is that when he does these things and when he says these things, he actually makes it more likely that Tesla will get bigger and more successful because, partly just because he said it. And even if he doesn't hit his targets, even if it's not 500,000 or it's not two years, it's really important that he said it, and it makes it more likely that Tesla will be a bigger, more successful coming in future.

So, long story short, big thinkers who put stuff out there, I don't hold them highly accountable to the number by the date. I think what they've done on its own, that they even said that, changed the world. If nothing else, it's one more thing that separates Alon Musk from the average CEO out there who is absolutely on a quarter-to-quarter basis playing the sandbagging a little bit, under-promise, over-deliver type of strategy. I agree. And, you know, when you are a highly invested, he owns 30% or so of the company. company. In a mid-to-large-cap company, there are very few people in the world who are in those

positions. Jeff Bezos is another. So they have, they're in their own rarefied space where they can kind of do and say what they think in a way that most corporate types, most CEOs, hired gun kind of CEOs can't really do or say or act that way. So it's an interesting space. And yes, my investment dollars are typically invested with the kinds of people that we've just talked about, Musk, Bezos, et cetera. I like that style of Amherstead. Ambition, Howard Schultz, Starbucks, ambition realized. One of the steady drumbeats that investors hear from Wall Street when it comes to stocks is the right buying opportunity.

You want to make sure you get the right entry point on this stock. And I think that resonates with a lot of people, but I don't think that resonates with you because my observation is that you have demonstrated your willingness to buy stocks that are at or near their all-time high. Why is that? So it's funny. I was just on our discussion boards earlier today, and somebody was saying your recent recommendation of Match Group, Match.com, that company, I missed it. It's up 10%, it's up 17%. So I'm waiting for it to hit, and I think it was like, I won't say the dollars and cents, but it was an actual price target, which in this person's mind, they were hoping

that, but they were asking on the discussion board. And I basically just said back, I never invest that way. I tried never to do that. I'm this simple. I will pick a day and a time. Let's just go with Thursday at 1.30 p.m. Eastern. And I just say, I'm going to buy the stock then. It isn't really about picking price targets in the near term. After all, that's just guesswork. The short term is extremely irrational, and we really don't know where things are priced. And really, a lot of people fall back on reading charts and so-called technical analysis to try to pinpoint, I guess, the prices that they're looking to buy or sell stocks. That's just not a game that I've ever played. I don't think it's a game that most of us are going to win.

I think it's a waste of time a lot of times. So for me, it's getting invested. So I would say to that person looking at Match Group, or you just ask the question. I would just say, it's not about picking the price. It's about buying and becoming an owner of the company, which is what you are as a shareholder, I hope for years. And the ones that have worked out well for me, you look back and you really honestly don't even remember what you were thinking, whether you'd had a good night's sleep or not, or whether you picked your price that particular day. It all washes away over time. And time is really how we should be measuring all of our efforts, especially investing.

You're listening to Motley Fool Money talking with Motley Fool co-founder, David Gardner. And Lord of the Northern Marshes. Say it again, Chris. I like to think that our listeners, our dozens of listeners, are going to come up with at least one nominee. email it to us, Radio at Fool.com, just slightly stronger than Lord of the Northern Marshes. It's not even clear what marshes. Usually, they're not up north. It's cold up there. We'll put a pin in it. That's a placeholder. But hopefully we'll get someone emailing us. Please, for the love of God, radio at full.com, with something better. I want to hit a couple

of topics that you've explored recently on your weekly podcast, Rule Breaker Investing. In 2015, the top performing stocks in the S&P 500 were Netflix, Amazon, and Activision Blizzard. And the first thing that you hit on about what these companies have in common is entertainment. They're content producers. And that struck me because I've been an Amazon shareholder for a long time, and I know they create content. But that's not Amazon's bread and butter. And I'm wondering if you look at Amazon as a company that because they are a content producer, that gives them an edge over a lot of other companies that they may compete with either on the retail level or the web services level.

Was that really the first thing that I, because I think the first thing that I highlighted about the top three performing stocks in the SVU 500 last year is that all of them are active recommendations that we've owned for more than 10 years. Yeah, that's worked out well. That's the first thing we can know. That's true. But I guess slightly more seriously or more on point, Chris. Yeah.

I mean, I think that Amazon of those three companies is the company that is least exposed to new content. The least, I mean, it's such a large company through e-commerce that it's a smaller wing of Amazon that's focused on creating new content or competing with Netflix buying good content for Amazon video. So I mean, it's not the first thing that comes to mind for me, but it clearly is an area of growth for Amazon. And I like companies that create content because that becomes archival.

They become libraries of content. All of a sudden there's a whole asset that's being created as you create that content that has value shelf life, 5, 10, 15, great movies 100 years later. And so I think companies that create content are essentially storing up some of their treasures in heaven. They're setting themselves up for success, not just this year or next, but really 5, 10, again, 50 years forward building those libraries. So Amazon is starting to play that game, but Amazon sells other people's content far more than it produces its own, but that itself is a great business.

We've got the NBA playoffs, the NHL playoffs, the baseball season is in full swing. It's a good time to be a sports fan. It is. I don't watch the NBA, though. You're tired from watching the college basketball. It's true. I'm more of a college basketball fan, but I know it's been a remarkable year. And just Steph Curry coming back and having the performance he did was, what's happened in the NBA this year is truly remarkable.

I know a big fan like you has to look back and say 2016 is a watershed year for the National Basketball Association. It's certainly a lot more fun to watch. You devoted not one, but two episodes of your podcast to what Sports Talk Radio can do to make us better investors. I've got them queued up, but I haven't listened yet. Give me a sneak preview. What's one or two things that Sports Talk Radio does to make us better investors? Well, I think one of the clear things that we learned from Sports Talk Radio, and I've heard

a lot of it over the course of my life, is how prevalent conventional wisdom is. You know, somebody will say, yeah, it's hard. hard to beat a team three times. This happens in college basketball, right? They will have met twice during the regular season. Then they're playing a third game in the postseason. And you hear that line, you know, hard to beat a team three times. The truth is that more often than not, teams that have won twice, win that third time. It's probably not surprising. They won those first two games for a reason. Right. Exactly. So, but what happens is a trope, like a reification, a thing will go out

there. And then people hear it on Sports Stock Radio. And then they themselves find themselves saying it, and it becomes like it sounds intelligent to say, even though it's really not backed by numbers that would be persuasive at all. So that happens all the time in the investing world, where people say things like, you know, I'd never pay more than a 25 PE for a stock. Never. And I don't even, I don't think price earnings ratio is a particularly helpful measure for investors. I think it's good to know. Like the card game of bridge, for those who know it, you need to know how to bid. You need to know the basic rules and conventions to play the game. But really, the way to win

Bridge or the way to win investing is to start breaking the rules and knowing the right time to say, I am going to buy a stock that's more than a 25 price to earnings ratio. So whether it's sports talk radio or sports, I should say, finance talk radio or CNBC, what I find interesting is the conventional wisdom that gets out there and then gets brooded about and repeated a lot. And if you start recognizing it for what it is and you start playing the game, intentionally differently from that, that's a great value of, in this case, sports stock radio. In addition to your other day jobs, you are the lead advisor of our Motley Fool Supernova service. For those unfamiliar, can you give folks a quick overview of Supernova?

Sure. So Supernova takes together all of the stock picks that I make in Motley Full Stock Advisor, and then also Motley Fool Rule Breakers, the two services that I've managed for more than 10 years and picked all the stocks for every month, three stocks per month from those. they're all brought together in Motley Fool Supernova. So if you've heard or used one of those services, you're going to get kind of the whole enchilada, and then we manage the whole service around that full list of over 200 companies today. And specifically, Supernova, I think primarily helps people building portfolios. So, again, if you know the Motleyful Stockiviser, our most

popular service, we're throwing out lots of recommendations. We do that every month. My brother does it. I do it. We love it. We have our best buys now, our new picks. Some people, though, find it a little overwhelming. And they may not be as excited about the hobby of stock picking as we are. And so they sometimes just say, Dave, could you just tell me which stock to buy how many shares? Just make it easy for me and build my portfolio for me. So that's what Motley Fool Supernova does. Best of all, we have several different portfolios. They're all under the same surface. So whether you are in your earlier years earning wages, trying to put away 10% every two weeks, we hope, and you have regular money to invest in the market,

We have a portfolio for you there, or if you are at or near retirement, and you don't have any or much more money coming in, and you're just managing your nest deck. At that point, we also have a portfolio for you there. And of course, the final thing I'd say about Supernova is just the name. I mean, it's a fun name. It kind of has a space theme. It's about innovation. That's what really, that's the thread that runs through my 200 stocks that I've selected,

that I love, that we've talked about, some of which win, some of which lose, is that they're all innovators. And so, Supernova, that kind of space age, we have sort of a NASA theme going on where each of our portfolios we call a mission, kind of like there was Apollo 13. There's Explorer 1 and 2 that you can find in Supernova. So it's a place that I think a lot of people, if they've had a good experience with stock advisor or rule breakers, they eventually find, we say, come on home, we're here for you in Supernova.

One of the areas of innovation that you and the Supernova team are focused on right now is artificial intelligence. What are some of the companies that are in your scope as you look at investing in AI? Well, I think, first of all, it's a really important technology. And some people are worried about it. In fact, Elon Musk, to go back to earlier in our talk, is a little worried about it. And rightfully so. But my experience of the world is that things keep getting better. And I expect that to be the case. The problem is sci-fi and stories are typically dark. It's like everything's Blade Runner, I think, in the future. I was talking with friends recently.

I was born in 1966, and a lot of people thought that the 2000s were going to be a scary, dark time and looking forward, or even 1984 was going to be really bad when I came of age at the age of 18. 2016 is so much better than 1966 by almost every measure, and I think the same thing's going to be true in 2006. So in Supernova, we're looking ahead 10 years this month as we reopened Supernova. We were calling it 2026 and trying to imagine what the world is. world's going to be like, but I think things are going to be really good. Anyway, so AI is clearly

a big trend. Some of the companies that we're looking at, usually the companies that have serious resources to invest and be leaders here. So some of the old faithful, some of the ones you'd count on alphabet, Google certainly is a company. Any time you win the game of go using algorithms from a computer that's thinking on its own as it plays the world's best player, it's far more impressive than what IBM did with Deep Blue when Gary Kasparov fell down to the computer more than a dozen years ago. What happened this year? So, that's really impressive. That's just one sign. Certainly, we think all the time about Facebook.

Facebook is when you have a large platform and you're trying to personalize for people, using AI in order to help people make, just save people time and show them things they like. A lot of these things are already in play. If you think about just the Google search algorithms have been AI for the last 10 years. So they have a deep experience there. I might also just mention Apple, because Apple is very secretive per usual. I know that Apple's working on and thinking a lot about artificial intelligence. Something like Siri is an obvious example that we all recognize,

even though Siri and Amazon's Alexa, which I have also enjoyed, still don't get it right about. I'd say at least a quarter of the time. I find that platform somewhat frustrating because about one and four times when I'm talking to my Amazon Echo. Alexa will say back to me, I don't understand the question you just has, or I just heard. Whatever it is, and it was an obvious question.

It would be like, what's the score of the Minnesota Twins game? But you have to sometimes ask it in a certain way, and I find that frustrating. So clearly, there still are a lot of improvements to be made just with what's here and now. But when you think about autonomous AI, that's where I think get really interesting. Sometimes scary, but I think probably very, very promising for the human race. You know, every relationship takes work on the communication front, even apparently communication with robots. I put in my time. I mean, Alexa and I are getting to be pretty good friends, and I really like the Amazon Echo.

And I certainly spend some time with Siri, too. At some point, though, aren't you going to have to pick your date? I think you are. And it might all come down to the ecosystem that these companies are trying to build up to get you to hang out at their platform, at Facebook, not with Apple. So that'll be interesting. But yeah, I think that AI, clearly there will be a ton of startups, lots of money already being invested in artificial intelligence.

But if you're looking right now where we are, you have to look who's got the big R&D budgets who are really going to be leading here worldwide. If you want more details on Motley Fool Supernova, including some of the great video roundtable discussions that David has been having with other members of the Supernova team, you can just go to Supernova Radio.fool.com. We've got some great discussions about e-sports, about artificial intelligence and more. A lot of great stuff. Check it out at our free microsite, supernova radio. .fool.com. David Gardner, always a pleasure. Chris, I can't wait till the next time I'm on because you're going to have a new title to introduce

me with. And I can't wait for that, frankly. Coming up next, we'll give you an inside look at the stocks on our radar. This is Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So don't buy ourselves stocks based solely on what you hear. Welcome back to Motley Full Money, Chris Hill, here in studio with Jason Moser,

Simon Erickson, and Ron Gross. Just a couple of minutes to get to the stocks on our radar this week. Ron Gross, you're up first. What are you looking at? Don't hate me. I'm going back to the well. CROCS. CROX. Stock was up 30 percent in one day earlier this week on a solid but actually not an unbelievable earnings report. The reaction was actually to the fact that it looks like

the company's strategic plan is actually starting to bear fruit. And we should see improved earnings going forward now that this is starting to take hold. Stocks at 950. I think it's worth 17. Jason Moser, what are you looking at? Sure. Looking at clean energy fuels, take her a CLNE. They build the infrastructure out to support natural gas as a fuel for the transportation industry. And of course, extremely difficult energy conditions have just pummeled the stock. But they are working on shoring up the balance sheet. And management noted, as long as oil is in the $40 range, the economics for natural gas just aren't

as attractive. I think it's a matter of when, not if we see that turn in the cycle. As oil prices rise, natural gas becomes more attractive. And I think clean energy fuels sees better days ahead. All right, Simon Erickson. What are you looking at this week? Chris, I've got Synaptics. S-Y-N-A is the company's ticker. They're a maker of touchscreen solutions, so you're familiar with Samsung's finger swipe to unlock your phone, but they're also getting into fingerprint identification,

so you don't have to remember all of your passwords for online for transactions. But there's a rumor that the company is about to get acquired for more than $100 a share. Also missed on earnings and the stocks back down to 66. I really like the risk-reward tradeoff for that one right now. All right. Simon Erickson, Jason Moser, Ron Gross. Guys, thanks for being here. You can check out, Past episodes of Motley Fool Money and all of the Motley Fool's podcasts, just go to

podcast.fool.com. That's going to do it for this week's edition of Motley Fool Money. Our engineer is Steve Roydo. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.