Motley Fool Money - Spotify IPO: Sweet Music for Investors?

Episode Date: March 2, 2018

Best Buy and Kohl’s report strong holiday profits. Amazon buys Ring. And Spotify files to go public. Plus, Lakehouse Capital fund manager Joe Magyer talks Buffett, small caps, hot trends, and investing in Australia. Thanks to LegalZoom for supporting The Motley Fool. Get special savings by going to LegalZoom.com. Use the promo code “Fool” at checkout.     Learn more about your ad choices. Visit megaphone.fm/adchoices

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Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money. It's the Motley Fool Money Radio Show. I'm Chris Hill, and joining me in studio this week from Million Dollar portfolio, Jason Moser and Matt Argusinger, and from Total Income Ron Gross. Good to see you, as always, gentlemen. Hey, we've got the latest headlines from Wall Street. We've got some hot IPOs, and as always, we'll give you an inside look at the stocks on our radar. Before we dig into the latest earnings, Wall Street ended the week with the prospect of a global trade war. President Trump is looking to impose tariffs on steel and aluminum. In response, the European Union is considering imposing tariffs

on about $3.5 billion worth of U.S. imports. A little bit of a frenzy there, Ron. Does this change the way you invest at all? Oh, Chris. So I'm no economist, and I honestly don't know how this would affect my investing, so therefore it probably won't. But what I do know is that trade wars are typically almost always bad for prices, consumers, and those who like to be employed.

So I'm not too pleased. at the prospect. Right. I think Ron's got it. I mean, this is going to help a few small companies, a few small industries at the expense of just pretty much everyone. And so, yeah, it's never a good thing. I mean, hopefully this is a short-term thing that's going to cause some behavioral changes, maybe in global trade. But I certainly, if this drags out any longer, it's definitely going to hurt customers. Yeah, I mean, I think many, many moons ago, protectionist measures probably played a little bit

of a different role in each nation's economy. Because the the world was far more separated and isolated. Today, though, we are operating in a very global economy. All of these businesses that we talk about week in and week out, they all have a global component to them. So these types of protections measures, ultimately it just raises the cost of business for everyone. In the near term, I understand the sentiment behind it, but it really doesn't work. All right.

Let's move on to retail earnings. Big week. And Ron, we're going to start with the good news. Best Buy and Coals, both putting up strong fourth quarter results. Best Buy stock popping. And Coles down a little bit, although over the past 12 months, I don't think Coles shareholders have anything to complain about because that stock's had a great year. Up 55 percent, I want to say, over the last year, not too shabby.

So, like, eight or so retailers reported over the last couple of days, and I'm trying to make sense to see if I can see a theme. And I saw Macy's CEO came out and said, all boats are rising, and everybody in retail right now is benefiting from strong consumer confidence. But you know what? Not so much. As you said, Best Buy and Coles had a nice quarter. Nordstroms, I think, actually had a nice quarter as well. The sentiment kind of changed on that one from one minute to the next from

investors. Macy's had a good quarter. Foot Locker did not. J.C. Pennies did not. Lowe's did not. And the theme, I can't grab a theme here to say why some had strength and some did not. I think when everything retail was suffering last year, and we kind of lumped everything together, I think this is how things are supposed to shake out. Essentially, what you have now is I think you have the strong operators doing better. And the poor operators are the ones who are losing customer traffic or not running the business as well, are still losing. And I think that's a natural evolution of any market.

I don't know why the Macy's CEO would say something like that. Because, I mean, you mentioned Foot Locker. That's down big on Friday. Jay C. Penny. If that stock drops any further, Jason, that's going to drop out of the billion-dollar market cap status. And to Maddie's point, we are starting to see some separation in the traditional bricks-and-mortar retailers. Yeah, and I think with J.C. Penny as an example, I mean, we've seen them try virtually everything to this point from selling appliances to now developing exclusive lines of clothing for children. I mean, I understand what they're trying to do. But again, you have to kind of go back to that old question that Ron has been asking for many years. Does the world really need it? And I think at this point, the answer is clearly no.

I think there are some companies that have been punished maybe unfairly. Like, I think Lowe's is a very well-run company. Unfortunately, it always gets compared to its bigger brother, Home Depot, which is better run. But if you continue to see weakness in a company like Lowe, then probably you can take advantage of that weakness and become a shareholder. Is the fact that some of these retailers are more heavily tied to malls? Is that one theme here? Because when I think about Footlock, or when I think about L Brands, parent company to Victoria's Secret Bath & Body Works, that also came out this week. Bad results there.

It does seem like the more heavily tied you are to traditional malls, the higher the bar is for you operationally. That's fair. I'm trying to think of a company like GAP, which you'll often see a gap. itself in a mall, but Old Navy is often standalone. And Old Navy has actually been the strength for a long time with that company. Actually, this quarter, nice to see Gap itself, the brand, coming on a little bit stronger than normal.

But your point about malls is well taken. Big news this week in the smart home industry. Amazon is buying Ring, a smart doorbell maker for $1 billion. So, Maddie, what are we going to do there? Amazon's going to connect the echo to the front of the company. door now? Is that the move here? Well, yes, I think so down the road. I mean, I think this solves something that's really important to a lot of people, which is just the front door issue, right? If I want packages,

I want deliveries from Amazon or other e-commerce companies. And, you know, I just want to know who's bringing my package when it arrives and who's there. And before I let that person in, potentially to my home. And I think this really takes that to another level. Amazon's made some acquisitions to do this with their key, their blink. But But this is the one really, Ring has a great reputation for security. I think that solves that problem. But to your larger point, this is all becoming an ecosystem, right? I mean, we have the, Amazon now is the front door.

It's got the Alexa Echo platform inside the home, which can do a variety of different things. And I feel like we are one step closer now to the future of not someone just coming to your house and delivering stuff. But my refrigerator now, knowing when I'm out of lettuce or ketchup or mustard and ordering that, and it's automatically restocked. or my AC system ordering filters when the filters go bad and replacing them. I mean, it's... Oh, I'm on board for that. There you go. We're one step closer, and I just think this is another brilliant acquisition by Amazon

in a string of them. Yeah, I think the time ago, doorbell has probably held a little bit of a different status for the household. Today, it's interesting to see the research. Millennials apparently aren't really big fans of the doorbell. It kind of scares them. So they do a lot of texting. Hey, I'm here. Come on out.

And I get that. They need to toughen up a bit. I think this is beyond the doorbell. though, and it makes for a very simple sort of security solution, particularly with the Echo Show. So you link up the doorbell to the Echo Show. Now you're in the kitchen. You've got a clear look as to what's going on in your front yard. Which dog is digging the hole out in my front yard? And what neighbor's dog is leaving those gifts in my front yard, right? Or whatever it may be. So I think it's a very simple security solution.

So Google is working on their own version of this. And for a long time, when it came to smartphones, one of the things that we have all talked about is, the ecosystem in the iPhone and the more that Apple can tie people into iTunes, that sort of thing, the more they can get them in this ecosystem, the less likely they are to switch to a Samsung phone or any other phone. Are we moving that way in the home as well? And granted, we're not there right now, but 10 years down the road, are homeowners going to have to decide what kind of smart home do I want? Do I want an Amazon? Are all of these devices going to work together? Or are they going to have to decide, Now, if you want the ring, then you have to have an echo inside, as opposed to a Google

home working with a ring. I mean, I'll speak from experience here. I mean, we have the echo in the house. We have a nest thermostat. I have a different provider of lights, controlling lights. And so I think that what you're going to see is this big focus on the actual central control, whether you're going with Google or Amazon. Generally speaking, I don't think those companies are as interested in drawing lines and sort of

creating that walled garden. I think it's better for consumers and for those companies to have stuff that interacts with different operating systems. Now, the flip side of that is you look at a company like Control 4, which is a company we've talked about a number of times here, they sell the same kind of stuff, right? But their sort of MO is this operating system. And I think they may be the ones that really feel the most pain here, because Control 4 is kind of like an all-or-nothing solution. It's for the higher-end home. And I don't know that consumers are really ready for that, or even when they're ready, that they're going to be willing to spend that much money on it. So I'm going to be very interested to see how Control 4 approaches

this situation with Amazon and Google making such big investments. Yeah, I think there are already some ecosystems in the home. And Verizon comes to mind. Verizon has my internet, my cable, my phone, and switching costs are not very fun. And it's kind of sticky there. It'll be interesting to see if those companies that are already embedded in the home want to expand that ecosystem out. If they're not very fun, they're not very There are alliances, joint ventures, acquisitions as a result. By the way, shout out to the founders of this small company that just got acquired by Amazon for a billion dollars because back in 2013, Ring appeared on the CNVC primetime show, Shark Tank.

At the time, the company's name was DoorBot. So first of all, kudos for coming up with a better name. They wanted $700,000 for a 10% stake in the company. And the panelists on Shark Tank said, no, thank you. So, Jason, do I have the math right on that? That would have worked out pretty well if they said, sure. Here's $700,000 and 10% of a billion. It's just a lot, yeah, like you said.

Fourth quarter revenue for Square grew 36% wrapping up a solid year of growth for the mobile payment company. Jason, this was your radar stock on last week's show. Would you think? Yes, sir. I tell you, Jack Dorsey, between Squier and Twitter, he's walking out of this earnings season feeling pretty good about things. Yeah, it was on my radar. We always talk about the war on cash, and investors need to look at this move away from cash as a when, not an if situation. It is happening.

This is a very attractive space for investors, and I think Square is one way to play it. I think it's proving quarter-in-quarter-out that it is gaining share in this market. Top-line continues to grow at impressive rates. I think Jack Dorsey has done a very good job of keeping CFO-Sera-Friars there helping to lead that business as he sort of splits his time between the two companies. And what you really want to see with a business like Square, beyond just the revenue growth, you want to see the utilization is actually there. When you're building out this network and you want to see that you're adding that, and the utilization is definitely there.

Gross payment volumes up 31%. It will be profitable eventually. The one thing I was interested to note was the international share there. They're going to be making some big investments in 2018 in Canada, Australia, UK and Japan. So that's really encouraging. Coming up, we'll dip into the full mailbag. Stay right here. You're listening to Motley Full Money. Hey, now that the madness of New Year's is over, it's time to work on your story for 2018, and LegalZoom can help.

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promo code fool, legal zoom, where life meets legal. LegalZoom.com. I'll say it one more time, yeah, promo code fool. Get some special savings. I feel so good. Come pay day. Welcome back to Motley Fool Money, Chris Hill here in studio with Jason Moser, Matt Argusinger, and Ron Gross. Our email address is Radio at Fool.com from Johann Erickson in Sweden.

He writes, our Viking country is known for IKEA and Volvo. but also Spotify, which is going public this year on the New York Stock Exchange. Spotify announced they will do a DPO, not an IPO. Could you explain what that really is and why are they doing it? Jason, what is a DPO? Yeah, so basically, in simplest terms, this is where they bypass the underwriters of an IPO to basically help sort of go about setting a demand and price on the stock. They're not issuing new shares to raise money for the company.

they are giving people an opportunity to buy shares of the company as it exists today. It creates perhaps some optics that maybe could be conceived or perceived as being a little bit more shareholder friendly, I guess. I still think the nature of this business is such that you really need to take a long, hard look at it before you consider investigating it. Because, I mean, just the economics of music are so brutal. And, I mean, we look towards companies like Google and Amazon that have done so well, making music as sort of an ancillary offering at Apple, too. But when you're on your own doing,

I mean, look at Pandora. I mean, those are probably the worst financials in the history of publicly traded companies. Wow. And I mean, that is a company that's been public for, I think, close to six or seven years now. They still can't get profitable because those economics are just so difficult. So Spotify, yeah, big user base. I don't know that's going to be enough, though. An IPO that maybe we have some more optimism around, Maddie. And I think you mentioned this on a recent show. ICHI, which is the video streaming service attached to Baidu, which

is the Google of China. They're getting ready to go public, maybe later this spring? Yes, very soon. They just filed with the SEC, their F1, which is really the most formal part about filing to go public. This is a really exciting deal. They're going to raise about $1.5 billion. They're going to use half of that, most of that, half or most, to acquire new content. They've already got a licensing deal with Netflix, which is getting a lot of shows, but this is really going to up their game in terms of content. But the details behind this are pretty exciting. You have a service with 421 million monthly active users,

126 million daily active users, who, by the way, spend almost two hours on average per day watching shows or movies on ICHE. The most exciting part might be the 50 million paid subscribers, though. So this is the, ICHE is kind of a YouTube Netflix hybrid. It has free users who see shows but see advertising. Then it has paid subscribers very much like Netflix. Fifty million paid subscribers by the end of 2017, that's up from just 10 million at the end of 2015. So tremendous growth there.

Membership revenue is up 74 percent over a billion in 2017. That makes about 38 percent of ICHE's total revenue. If you compare ICHE to Netflix, so ICHE has 50 million subscribers. Netflix, as of the end of the year, has about 120 million. subscribers. So about 2.4 times ICHE's numbers. But the post-IPO valuation estimate for ICHE is only 17 billion, which looks high to me, but then you compare it to Netflix's market cap of 126 billion, which is seven times Ichees. And you can see why I'm pretty intrigued by ICHI. Ticker IQ when it comes out, by the way.

I'd like to make one general statement on IPOs, if I may. Give me a second for me to get on my soapbox. As an investor, there is only one reason you should ever want to see a company go public, and that is because they need to access the public capital markets to raise cash to grow. If it's because their founders want an exit strategy or their venture capitalists want to exit strategy, run for the hills. Speaking of IPOs, Teledoc, which has been public for less than three years, shares hit a new high this week. Strong fourth quarter results. The first year or so, Jason, of Teledoc's public life, a little rocky, but it really seems like they've got their sea legs now.

Yeah, and I tell you, had some really great discussions with some of the physicians at our event in San Francisco a couple weeks back. So it was a lot of fun kicking this name around. But I think that when it comes to virtual health care, one of the biggest risks early on has been in the form of regulatory barriers. I think a lot of people just couldn't quite make that leap. And that makes a lot of sense. I think what we're seeing now, though, is that risk is fading away very quickly. And the nature of telehealth and virtual health care is terrific. I mean, it's scalable, it's affordable.

really helps to sort of reshape a healthcare system that's in dire need. And so this company, Teledoc, continues just to chalk up really great results. All the metrics are pointing in the right direction. Revenue is up, users are up, utilization is up. They continue to forge new agreements with big providers. They just landed the Blue Cross Blue Shield Federal Employee Program. And I just say I'm a member of that, thanks to my lovely wife. And so now I'm a Teledoc shareholder and a Teledoc customer. But yeah, I think that they've set the target for free cash flow positive in 2020, which means the market has set that expectation. I'm expecting big things from the stock.

The Academy Awards are this Sunday night. I've already said it is the official position of this show. We're rooting for Abacus to win Best Documentary. So hopefully Steve James will be taking home a gold statue. Before we wrap up, Ron, I'll just start with you. Do you have a favorite movie about money, investing, business? Oh, so many of them, but I think I have to go with trading places as the cloud. I've taught me everything I need to know about Orange Futures. Jason, what about you? Maybe a little bit more family-friendly, but you may recall the secret of my success with Michael

J. Fox back in the day, my favorite exchange of the movie. How do I get the Litchfield? You'll find it just follow the smell of money. Mine is not family-friendly at all. There will be blood. Oh! Daniel Day Lewis is just the best, and I think he's up for another Oscar this weekend. I just love the movie, though.

He's such a relentless capitalist and kind of blows through everything, including his family and everything, and just all the problems that arise from that. But I just love that movie. What do you got? I'm going to go to our man behind the class first. Steve Broido. What do you got? You must have a movie.

Wall Street. Where are my people? It is the classic. It is. It is great that some of these movies are not just great entertainment, whether they're dramas or comedies. But you can actually learn stuff about investing. And I'll just call out other people's money where Danny DeVito.

It's a wonderful comedy. Danny DeVito plays sort of a Wall Street type moving in on a company that's going bankrupt. And he's got a couple of scenes in there where, honestly, those should just be taught in classes. Just sort of the way he breaks stuff down. All right, Ron Gross, Jason Moser, Matt Arguson. Guys, we'll see you a little bit later in the show. Drop us an email, Radio at Fool.com. Let us know your favorite movie about money, business, or investing. Up next, Uncle Joe Mager returns from Australia. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Full Money. I'm Chris Hill. Joe Mager joins me in studio now. He is the

chief investment officer of Lakehouse Capital and Asset Management Business based in Sydney, Australia. Thanks for making the trip. It's great to be back for a week. I want to talk about Lake House Capital and I want to get to investing in general. But first, because you are a Warren Buffett guy, you are someone who has been to the the Berkshire Hathaway annual meeting, which is coming up later this spring. A week ago, the annual letter came out, and a good amount of the talk coming out of it. And Warren Buffett's big sit-down interview on CNBC was how much cash Berkshire Hathaway has at their disposal. Buffett really sounds like someone who's itching to buy something, but he's also a value guy. So,

He wants to get it at a good price. Look into your crystal ball. You know what? Don't even look into your crystal ball. Warren Buffett gives you a call and says, Joe, I'm thinking about buying something. I've got the cash. What do you think? Give me something to consider.

I would think about private companies. I mean, Buffett's cash pile, Berkshire's cash pile, is really a result of the, to some extent, he's a victim of his own success and the business has grown so much. Book value per share is up about a million percent. a joke, a million percent from when he took over the business, which is just staggering and explains why he's one of the world's richest men, and how they would have over $100 billion in cash just sitting around idle. It's incredibly difficult to deploy that amount of money into listed companies. I think it's a reach to assume that's feasible. So I'd be looking private,

and we'll come back to it. But I also think, you know, the first time I've said this before, I think you started thinking about, well, is this money best parked in Berkshire? Or, you Should shareholders have this cash? Whoa. Well, anyway. So if I'm looking private, I'm thinking what companies, typically founder-led, family-owned would be a good fit in the Berkshire family that are complimentary? One is Hu Yongfong Foods. I am sure that I completely butchered that. But what's just all say is the company that makes Sri Raja sauce. And it's the one that we iconically know is Sri Raja. I think Sri Raja, I think Shri Raja,

would be a wonderful addition to the Kraft Hines family. I have no doubt that this has been discussed before. But if you look at Kraft, you look at Hines, they have made many attempts to do their own version. They have it. But there's just one that we all know and love. I think it'd be a great fit. The portfolio, they can improve distribution, lots of angles. Do you think that Warren Buffett is paving the way for his eventual, maybe not full retirement, stepping aside from the CEO office? Yeah, I think so. I think shorter letters backing off the Kraft Hines board, giving Todd and Ted his understudies there, who are no longer, they're not lightweights, they're now

managing tens of billions of dollars. I was going to say, it's real money now. Yeah, it's starting to add up. And I think more and more, if that makes perfect sense in terms of succession planning, I think he'd like to put that big chunk of cash to work, and that would be his last big elephant gunfire. I'll throw out another one that I think would be interesting. Chick-fil-A. So the business is famously successful. It's private, family-owned. It is very conservative and has a very deep culture,

which is a big part of its success. I think that the true of Kathy's family could continue to own it, and it would probably do very well for a long time. But I could see being a home for Berkshire if Kathy's ever wanted to get some cash. Let's talk about investing in Australia. And what is the climate? there right now. Warm and sunny. Well played. Thank you for coming here in the tail end of winter, by the way.

I know that wasn't easy for you. Obviously here in the States, we're in year eight, year nine. I've lost track at this point of a bull market. How is the investing climate in Australia these days? So, Australia has gone 25 consecutive years without a recession, which is the longest streak in the world. So you've got professional fund managers in their 40s. 40s that have not seen a recession in their adult lives, which is staggering, right? And you know, for Americans, who you think back to the recessions you've seen as an adult, there's

been a lot that's happened, right? We had the financial crisis, the dot-com bubble, there was a crisis in Asia in the late 90s. That's a whole lot of actions since the last Australian recession. The net result is that banks have done very well for a long time. I'm not so sure that that will continue. Mining has done very well in the back of the future. of Chinese demand for commodities. That I wonder about the health of China, given the continued expansion of their balance sheet and a debt-fueled growth. So those things concern me. But underneath that, there are another, you know, the top 100 companies in Australia make up 75 percent of the value of the index. But the next 2,000 companies make up the other 25. And I think there's

a lot of interesting stuff there. Lakehouse Capital, the philosophy is to focus on concentrating capital in one's top position. How do you balance that with diversification? Sure. So we're high conviction investors. And I should add, by the way, our funds aren't offered in the United States, so just so everybody knows. But our small cap fund is focused on 15 to 30 positions at a time. Our global fund is 20 to 40. That's much. much more concentrated than most other managers. And for me, it comes from two places. The first is that empirical research is very emphatic that concentrated funds, on average, outperform

those that are highly diffused. Those studies come in different shapes and sizes, but they all ultimately say the same thing. Beyond that, I just feel intuitively, I don't feel great about the idea of backing, say, my 50th best idea with other people's capital. So I, I just feel, I just I just feel better if we're backing companies that we have actual conviction behind. And realistically, once you move past 15 companies, there is extremely diminishing incremental value in diversification. So I'm comfy with higher conviction. Not everyone is, but I think it makes sense.

One of the areas that you focus on as a fund manager is company meetings. What do you look for when you go to a company meeting? What are you looking to learn? And I have a follow-up. But let's just start with there. What are you looking for right out of the gate at the average company meeting? Yeah. So for context, we've met with the small cap fund.

We got around 20 positions. We've met with those companies about 125 times over the year. So we've gotten to know them pretty well. We're looking for consistency in what they say in the message. If between times we talk, the story changes or they're talking about something that was shining new before and they pretend like it doesn't exist, that's a big turnoff. We're looking for a respect of other employees. So it's a big turnoff to me if you see a group, let's say a CEO and a CFO or some of the

other people on the staff, and the CEO is a habit of cutting off other people. I don't know, it just kind of grates me. And we're trying to get a sense of culture when we talk to teams and we ask early and get a feel for their passion for the business, what they really care about, what their priorities are, and just try to cut through the sales pitch. That was going to be my follow-up. When I hear the phrase, oh, so-and-so is talking his own book. She's talking her own book.

The person I think of when I hear that phrase is you, because you're the first person I ever heard who used that phrase. You know walking into a room they're going to be talking their own book. How do you avoid getting spun? I have gotten less spinnable over time. Honestly, earlier in my career and when I was talking to companies, I was a little more wowed by them. But after you talk to CEO 200 or whatnot, they start to seem a little less incrementally impressive. And, you know, people don't become CEOs without having some charm and the ability to attract investors and keep them on board. I mean,

that's a huge part of being a CEO. But you just have to try to be objective, try to to ask tough questions. And every CEO you talk to, they all think their greatest asset is their people. And they all think they've got the best product in the market. Lo and behold, but you need to fact-check those things. And where you can get data, things like Glass Door in the States is a really handy resource to check out what employees actually say about this company. Unfortunately, it's not as robust in Australia, but it is in the US. So I'd make good use of that. I also make it a point to try to talk to competitors. And as much as we can try to hit a few people in the same industry

and to hear what they have to say about the space. And oftentimes what they say doesn't sync up and that can lead to interesting discoveries. You've been in Australia for five years now. What has been the biggest change in your investing approach besides the fact that clearly you're more griseled and cynical? Yeah, sure. I focus a lot more on small caps than I used to. So if you look at Australian and small caps, the companies in our fund today have an average of four analysts following them. The ASX 200 has an average of nine analysts, and the S&P 500 is an average of 25 analysts. So, roughly speaking, you could say it's about six times more difficult to get an

information edge with a company in the S&P 500 than it is an Australian small cap. I find that charming. And if you're willing to do a little extra work and take on the extra risk that comes with investing in smaller companies and less with it. which there's, then I think there's a lot more room to add value for fundamental patient investors. I want to read something that you wrote. It's on the Lakehouse Capital website, and it's about your investing philosophy. And I'll just quote verbatim here. You wrote, investors should take care to appreciate that just like putting a tuxedo on a pig does not make it handsome.

being a beneficiary of a long-term trend does not necessarily make a stock a long-term winner. That line's been bounced around a few people here at Motley Fool Global Headquarters, and the consensus is that putting a tuxedo on a pig actually does make it more handsome. Well, I think there's something to do that, or maybe a t-shirt with the t-shirt with the t-octo on it, which I always think is pretty snappy style. I mean, a big picture, I think I'll, I hear a lot of investors say things like, oh, there's this great long-term trend, so there's going to be a lot of sportier. So a good example in Australia is rising long-term growth and demand for iron ore. Yes, that has generated some fortunes, but it also creates a really

big cycle. And there are lots of winners and losers. And just because an industry is growing doesn't mean that there's a lot of profit necessarily for public investors. I mean, look at solar. Solar has been booming, but how many tears have been shed by public market investors over solar companies, over the years. It's very difficult to pick a winner in those situations. And so it's always nice to have a breeze at your back, but I wouldn't assume just because there's growing to end demand that a company will be able to succeed if they don't have some sort of advantage or distinct position. Well, and one of the thoughts I had as you were talking was the concept of having stocks

on a leash. You can have a winning stock in a current trend that is growing. That doesn't mean you're going to give it leash from now until the end of time. Yeah. Before we wrap up and before we let you get back to the nice warm weather back in Australia, what is something that is on your radar right now? It can be a company. It can be a country, some international market. As an investor, what is something that you're going to be watching throughout 2018?

All right. First of all, Shiraz from Hunter Valley in 2014, outside of Sydney. best vintage in 50 years. So I'd keep an eye up for that. We say Shiraz in Australia. You'd probably say Surrah. Anyway, it's very tasty stuff, nice, earthy flavor. Wow, wine recommendations. Okay, I'll give you two others. Another is we're focusing a good bit more. I'd say enterprise software is a favorite space of ours. And broadly, it's because we love businesses that can scale quickly and have very loyal customer bases. Another space we like is consumer brands and particularly beverages. And it's never been easy.

Never been easier for beverage companies to get distribution and to scale quickly. So, we're seeing more value creation happen with beverage companies that it used to be, you had to be Coca-Cola to get shelf space. And if you weren't Coke, that's tough. That has changed dramatically. So I think there are a lot more opportunities for one-off brands to rapidly scale. Another, and this is a total, three totally separate things, is I've been thinking a lot more about urbanization after reading a book called Scale by Jeffrey Moore. In the book, he talks about a, he's a biologist who's applying some interesting themes around biology to modern day life and cities. One of the things he talks about is this dynamic where as city scale,

there's super linear growth from the network effect of people living in the city, and essentially that makes cities more interesting. So I'll get around to the investing angle in a minute. But, for For example, if you double the number of people in a city, you're going to see more than a doubling of the number of cafes, theaters, universities, all the things that you think of as being interesting and cultured about a city. They rise at super linear rates as cities get larger. So what's fascinating is that he digs deeper into that. Essentially what he finds is that cities themselves are incredibly durable.

and tough to kill. I mean, you know, Carthage. They might disagree. But there aren't too many examples of that where in modern times, right? And when you get outside the scope of war, even if we look at some of America's, you know, Rust Belt cities that have been hit hard, in the grand scheme of things, if you compare the fates of the most successful cities versus the cities that have suffered the most, that skew of outcomes on the downside is far, far better than what you see in a dispersion of public companies. So where I'm going to the, uh, investing angle there is that there are a lot of companies that focus specifically on network effects around cities. And essentially, what you've got is a network effect on top of another

extremely durable network effect. So a good example that is something like a match.com. They've got Tinder and other dating sites. And within Tinder, essentially, the more guys that are on the platform, more ladies will be attracted, vice versa. And the network effects around that continue to feed on themselves. I just think it makes for a very sticky business that people may not appreciate it. You can read more from Joe Maker and his colleagues at Lakehouse Capital by going to lakehousecapital.com.com. Thank you so much for making the trip. I really appreciate it.

Always a pleasure. Coming up, we'll give you an inside look at the stocks on our radar. This is Motley Fool Month. As always, people on the program may have interest in the stocks they talk about on the Motley Fool We have formal recommendations for or against, so don't buy yourself stocks based solely on what you hear. Welcome back to Motley Full Money, Chris Hill, here in studio with Jason Moser, Matt Argusinger, and Ron Gross. Time to get to the stocks on our radar this week. Ron Gross, you're up first. What are you looking at?

I know Steve wants me to talk about Titan International, but that stock speaks for itself. So I'm going to go with Duncan Brands, D NKN, obviously strong brand, reliable cash flow, Franchise model, recurring cash, operating margins of 50%, really strong left to see that. Management believes it can double the number of stores over time. That might be aggressive, but there's certainly plenty of room for growth. And they should be able to continue to raise their dividend for the foreseeable future, which currently stands at 2.4%. Steve Brito, you got a question about Duncan Brands?

What is going on with the breakfast sandwich selection? It seems delicious. It seems enormous. It just seems enormous. I don't know. What do they do throughout the rest of the day? Well, I agree that it is enormous, and probably could be streamlined because there seems to be a lot of overlap that probably isn't necessary, but it's doing very well for them, and

it's tasty as well. Jason Moser, what are you looking at this week? Well, Chris, you know I like to hit the links from time to time, and so next Tuesday, a Cushnet Holdings will announce earnings. The ticker there is GOLF. They are responsible for the Titleist in Footjoy brands, very, very global brands. And so when you look at golf, somewhere in the neighborhood of 60 million people play the game around the world. world. And an interesting thing about that base, it mostly comprises a large swath of committed golfers who do a lot of the playing and spending. And so they're looking to Titleist and Footjoy is really

the brand in the space. I can't quite commit to the stock, though. Man, golf is just a brutal investment. But interestingly enough, the stock yields 2.3% today on the yield side. And I feel like maybe we see some stability there. Perhaps this could be an interesting little income play. I don't know. I just can't make on my mind. A Cushnet holding, Steve, not exactly a household name. No, I don't play golf, but I hear a lot about Mar-a-Lago these days. Do I want to go there to play golf? Can I do that? I have to believe there are better places to spend your money, and I'm just going to leave it at that. Although, come on, if you get the chance to play golf with the President of the United States, you're not turning that down, are you? Oh.

Oh, all right. I don't know. Let's move on. Matt Argusinger, what are you looking at this week? I'm going JD.com, ticker JD. We tend to overuse monikers like this, but I do think this is your best chance at the Amazon of China. Unlike Alibaba, which is a lot more like eBay, JD makes most of its revenue selling directly to consumers from a network of fulfillment centers that really span China now. Revenue was up 47 percent, latest quarter to almost 17 billion. I'm not sure why the stock was down based on that news on Friday. But in general, there's no way the stock should be

trading for less than two times revenue. It's outrageous. J.D.com, Steve. Any unique challenges about making delivery as accessible as Amazon has made it here in China? Well, the big problem with China is just the amount of fraud that's out there with fake retailers delivering bad goods. And JD has made it their focus to eliminate that. And so with JD, you have a force against that, Steve. Golf, Chinese e-commerce and delicious breakfast items and coffee, Steve. What are you going with on your watch list?

I'm hearing a lot about Duncan these days. I'm going with Duncan. All right. Ryan Gross, Jason Moser, Matt Arkansaser. Guys, thanks so much for being here. Thanks, Chris. That's going to do it for this week's edition of Motley Pool Money. engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill. Thanks for listening.

We'll see you next time.