It's a Thanksgivingpalooza on this episode of Motley Fool Money. Host Chris Hill talks with six analysts about the year past and the year ahead -- stocks that have served them well and stocks that really haven't, turkeys to steer clear of, and subjects to avoid at dinner.
Facebook (NASDAQ: FB) slipped from hero to zero this year, and the future doesn't look great. Meanwhile, against a slew of challenges in Latin America, MercadoLibre (NASDAQ: MELI) pulled out ahead (JD.com (NASDAQ: JD), not so much). Fitbit (NYSE: FIT) struggled, to put it lightly, but maybe it can turn around from here. Also, when can we stop talking about Sears? Tune in to hear more.
A full transcript follows the video.
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This video was recorded on Nov. 23, 2018.
Chris Hill: It's the Motley Fool Money radio show! I'm Chris Hill. Joining me in studio this week: senior analysts Jason Moser, Matt Argersinger, and Jeff Fischer. Good to see you as always, gentlemen! It's our Thanksgiving special! We're going to give thanks for a few stocks. We're going to call out a few turkeys. But as longtime listeners know, our Thanksgiving special means one thing and one thing only.
[turkey gobble sound]
Jason Moser: Trigger-happy Broido!
Hill: Steve Broido, our man behind the glass with our one special effect that we use every year.
[turkey gobble sound]
Moser: It's a good one, though. It works.
Hill: It's good. It works. But I'll just remind Steve that it's a long show. Pace yourself.
[turkey gobble sound]
Hill: [laughs] Let's start with a serving of humble pie. We'll just go around the table. Matty, I'll start with you. It can be a stock, it can be a business story, something that you were wrong about in 2018.
Matt Argersinger: There were many things I was wrong about. One stock that comes to mind in particular is JD.com. It was probably my favorite idea coming into the year. I think I mentioned it at least a couple of times on this show as my favorite way to play the growth of e-commerce in China. Well, it's down more than 50% as of this taping.
[turkey gobble sound]
Argersinger: Yeah, there it is. Now, granted, there's a chance all this is just a massive bout of pessimism around Chinese technology stocks right now. That's what I'm hoping for. But the market is usually right, and the market right now is saying this company has serious problems and risks. I think it certainly does. The company has spent billions on expanding its logistics network across China, but Alibaba and other competitors have certainly also made their own investments in it, as well. And of course, I couldn't predict that CEO and founder Richard Liu would find himself accused of a really heinous crime a few months ago, for which he may still answer for.
I think I probably bought in too much the entrepreneurial story and the market opportunity, and not enough to the business and competitive market for JD.
Hill: Jason Moser?
Moser: I'd like to call out Facebook as one. And I really am actually happy to see the market holding Facebook's feet to the fire. I did not think that would happen, and here we are today. The stock year to date is down close to 30%. But really, I think where I was even more wrong -- because I was wrong on Facebook there -- I was more wrong on leadership there, with Mark Zuckerberg and Sheryl Sandberg. For a long time, I touted them as a reason to invest in the business. It seemed like quarter in and quarter out, they said the right things, they presented great numbers, they had this terrific long-term view and held these metrics out there. We just thought, "They're really doing things how we like to see." Fast-forward to today, and it really seems like the bottom has fallen out of the executive suite there.
Perhaps this is a situation where you believe half of what you see and none of what you hear. Even then, it still doesn't look all that great. My trust in them is actually at about a zero right now. I don't know they do anything to get that back. Now, I never would have invested in Facebook anyway, but there's no way I'm touching that stock now, not even at these levels, Chris.
Hill: It's interesting, because when you look at all of the businesses that we talk about on this show, and a lot of times, the challenges facing any given business are in the marketplace. It's a product that they're struggling with, Matty. Something like that. When it's trust in leadership, that's what's so amazing about the media coverage around Facebook these days.
Moser: Yeah. When you look at that duo there, I think Mark Zuckerberg needs Sheryl Sandberg more than the other way around. I actually wouldn't be surprised to see at some point, perhaps Sheryl Sandberg steps down to go pursue other interests. She only needs so much of this headache. Again, I think you buy into Facebook today, probably you do OK from there. And I'm holding my nose saying that. It's not an investment I'm interested in. But again, with your statement there, poor leadership really closes the door for me.
Hill: Jeff Fischer, do you want to dig into some humble pie?
Jeff Fischer: Certainly. While we're on the topic of food, the stock I'm talking about is Shake Shack (NYSE: SHAK). It's up about 13% this year. But I started the year short shares in Motley Fool Pro, meaning we are betting on the stock to fall. We ended up covering the shares, closing our short, at a much higher price than the sock is at right now. We've been wrong however you want to count it.
I think the stock is extremely expensive. I think it still is. But the shares have gone up as sales have grown, as they've added new stores, even though traffic is waning a bit and same-store sales were down recently. But it's a good lesson in humility, especially when selling short. Any listeners who sell short know how difficult it is. Timing is not on your side, costs are not on your side, etc. This one is one we got wrong across the board.
Hill: I remember when you shorted it, talking with you about it. One of the things you had pointed out to me was that within the framework of the overall portfolio, it represented a very, very small percentage of the portfolio. I'm curious, did you actually go eat at a Shake Shack before you decided to short it?
Fischer: I did. And unfortunately, [laughs] I didn't like it. If I liked it, maybe I wouldn't have shorted it.
[turkey gobble sound]
Moser: Steve, can you work in a cow sound effect here? Come on!
Hill: Look, man, we're already spending the whole special effects budget on this one sound. Do you want to double the budget?
Moser: I'll pay for it!
Hill: You don't do the books around here, Jason!
Hill: Let's get to a stock that you're thankful for, flipping the script a little bit. Matty, what do you have?
Argersinger: How could I not be thankful for MercadoLibre? A year where international stocks, especially emerging market stocks, haven't been crushed; they've been obliterated. When Amazon's marching on your turf, when Brazil's fallen into political turmoil and suffered through a nationwide trucking strike over the summer, when Argentina almost defaulted on its sovereign debt again, and when Venezuela... well, you know what's happening there. MercadoLibre is actually up 10% as of this taping, and its results continue to be outstanding. Not only is it still the leader by far in e-commerce in Latin America, it's actually building its own answer to PayPal and having a lot of success doing that. I've been thankful for MercadoLibre for the past eight years, as long as I've owned it, and I think I'm going to be thankful again this year.
Moser: Last year, I told you I was very thankful for the War on Cash basket. I still am, as a proud owner of all of those stocks. I'm going to stick with the basket theme here, my Healthcare and Wealthcare basket this year. These four stocks -- Idexx Laboratories, Teladoc, United Healthcare, and Masimo -- again, same concept, equal weighting all the way across all four companies. The basket to date from February 9th, 2018 inception, is up 30.2% vs. the market's 3%. And that's incorporating all of this volatility from Monday when we're taping. To me, this was a great way to get exposure to a massive market opportunity in healthcare that spans not only people -- because obviously, that's the bigger part of the market, but also with Idexx Laboratories and our pets. I have three dogs at home, as you know. They take a nice chunk out of my pocket every year, so it's nice to know I'm getting a little bit of return there in owning shares at that one.
Hill: You've done a couple of these basket stocks. I'm curious how you settled on four stocks. Was that just something where you thought, this is going to be easy for me to follow?
Moser: It's not a hard and fast rule. It's between four and six. With the Healthcare basket, these were the four that really made the cut, as with the War on Cash basket. But I've been known throw a basket out there with five or six every now and then.
Hill: Jeff Fischer, what are you thankful for?
Fischer: I think we need an Easter special where it's just Jason's baskets.
Moser: I like that!
Fischer: Last year, I was thankful for Paycom (NYSE: PAYC), Steve told me as we walked in. That was up its up 35% in the last year. Paycom has been great. Maybe this year's one will do, as well. I'm thankful for Twilio (NYSE: TWLO) this year. The stock has more than tripled from $25 to about $80 lately. It's a revenue model that makes money as businesses using apps communicate with their parties that they need to communicate with, users and whatnot. It's a usage-based revenue model. The more we use this technology, the more Twilio gets paid, which has been instrumental in turning the company profitable this year, non-GAAP profitable the last two quarters. It has plenty of room to keep growing. It has an $8 billion market cap now, up from about $2 billion as the year started, but it's addressing a market that's much larger than that. Twilio also has great management, founder management who owns a lot of shares.
Hill: By the way, speaking of the usage model, that's actually how we pay for the special effect. The more Steve uses it, the more we're paying. Time to get to the turkey stocks, guys. It's the stock to avoid. We've done a little looking back at 2018. Let's look forward and go around the table. Jeff Fischer, I'll start with you. What is a stock that you think is really in the turkey category?
[turkey gobble sound]
Fischer: Have any of you ever shopped at a Dillard's department store?
Moser: When I was like 12.
Fischer: A long time ago. They're not really in this Washington D.C. area. Dillard's, DDS, they're a retail department store competing with every other retailer out there. Revenue peaked in the year 2000, actually, at $8.6 billion.
Hill: 2000 what?
Hill: Just 2000?!
Fischer: $8.6 billion. Now it's $6.5 billion. Slowly, steadily declining. Interest expenses of $55 million on their debt. Net debt is about $700 million. Eats up about 20% of their operating income. And now, their margins are under pressure, as well, as the competition just keeps growing.
The stock trades at about 12X expected earnings, 14X free cash flow. Could maybe be taken private at some point. There's a lot of family ownership involved. Still, I think overall, it's a turkey to avoid.
[turkey gobble sound]
Hill: Jason Moser?
Moser: Mattel (NASDAQ: MAT) can't seem to stay out of their own way. In a time where consumer spending is actually on the rise, and seemingly this company should be making a killing, they're getting killed instead. The Toys R Us bankruptcy has been a catalyst in bringing not only Mattel down -- of course, Hasbro (NASDAQ: HAS) has been subject to that, as well. But they're still night and day stories. With Hasbro, I'm quite confident they'll be able to recover. Mattel, not so sure there. They continue to maintain a very less-than-compelling portfolio of brands.
[turkey gobble sound]
Moser: [laughs] That really is what it's all about. With Barbie and Hot Wheels, they don't maintain the same sort of resonance with kids these days. Plus, fewer ties with owners of that IP, like Disney and whatnot. They let that deal go, that was just a killer. And honestly, the balance sheet now is turning into one massive liability. The stock is cheap for a reason. I would steer very clear.
Hill: Matty, you got one?
Argersinger: I hate piling on here, and I didn't plan this with Jason, but Facebook.
[turkey gobble sound] [turkey gobble sound]
Argersinger: OK, OK! The user base is massive. They've got Instagram. They're going to keep making billions, at least in the short-term. And yes, I think the stock by most measures is cheap. But beyond the leadership problems that Jason talked about earlier, keep this in mind: Alphabet, Facebook, Amazon, I think all three are going to phase rising scrutiny in the years ahead. They're so big and so impactful. Ask yourself this: which of the three, by the nature of its business model, is required to make your experience as a user worse in order to make money? What's the one that's going to continue to stuff your news feed or message feeds with stuff you don't care about and aren't looking for? I'm not sure Facebook is the next cigarettes, but man, we can probably all be a little healthier for using less of it.
[turkey gobble sound]
Hill: That was a pretty stunning comment from Marc Benioff, the CEO of Salesforce, basically saying Facebook is like cigarettes. Let me push back a little bit. Earlier in the show, Jason said Facebook is down from its highs, it's a cheap stock by a lot of measures. Cigarettes, not good for you, but you'd do pretty well as an investor over the last, 20-50 years if you invested in cigarettes.
Argersinger: Like I said, I think Facebook will continue to make a lot of money. I know Jeff likes a lot, but I just I could never own it.
Fischer: Well, my attitude on it is evolving, just like you two. The management missteps have been significant and disheartening. And that's key to a thesis. We're still reviewing it.
Hill: We've been doing our Thanksgiving special for years now. Producer Mac Greer came up with a new wrinkle for this year's show, which is something that we're calling Not at the Table. Because let's face it, to the extent that people are a little nervous about Thanksgiving -- some of that centers around, "I'm going to be sitting down with extended family, maybe in-laws, what if politics comes up?"
Argersinger: What if that crazy uncle brings his...
Hill: Exactly. And it's like, "Can you two go outside? Can you go on the front porch if you're going to have that conversation? Not at the table. Can we not do this at the table?" Jeff Fischer, in terms of business and investing -- as Jason said, we're taping this before Thanksgiving. What's something that you're really hoping doesn't come up at the table this year?
Fischer: I know it will, too. I wonder if this will surprise you guys. It's this question: "Hey, Jeff! What do you think of the market?"
Argersinger: There it is!
Fischer: My answer is the same every time basically. "We're investing in individual companies. The market will do what it will in the short-term, but over the long-term, great companies grow value." That's what I say. But I'll usually throw in some, "It's at 17X trailing earnings."
Hill: You'll throw in math to confuse them?
Fischer: [laughs] "The S&P is at 15.6X 2019 estimates. Here, have some turkey. It's right around its long-term average." Yeah, I'd much rather talk about winning companies, and what makes for a great individual investment, rather than the market as a whole.
Hill: I'm not trying to get you in trouble with anyone in your family. Having said that, I'm curious if you've ever made up a company name or a ticker symbol just to get someone off your back. Because a lot of times, people are just looking for a ticker.
Fischer: I haven't yet, but I think I'll try that this year.
Hill: Jason Moser, something you're hoping really doesn't come up at the table?
Moser: I feel like the solution is you get like a business card, and on the back of it, you get that little investing philosophy. If someone asks you about the market, just give them the card. Just a cut-and-paste response, you're going to answer it 20 times.
For me, it's interest rates. I mean, stop already! Please! For crying out loud! They need to go up, they are going up. It's not if, it's when. Does it matter if it's three or four times next year? No. The fact of the matter is that rising interest rates in this environment is a sign of a healthy economy. It needs to happen. At least get savings and CDs to a point where you have a choice. Don't ask me if the Fed is going to raise it by X, because I don't care. It doesn't matter.
Fischer: Does that come up a lot at your Thanksgiving table?
Moser: Thankfully, this Thanksgiving is just going to be me and my immediate family. By immediate, I mean my wife and two kids. You'd be amazed!
Fischer: I could see your daughters asking. "Hey, Dad, when are rates going up?"
Moser: I play golf, and the neighbors are like, "Hey, what about those interest rates?" And you know why? It's because that's what the financial media is throwing out there every single day. I tell you what, when the next financial crisis hits -- trust me, it's coming -- you won't have the same interest rate strategy to work with. We need to get those things up sooner rather than later.
Hill: There's a greater than zero chance I'm going to contact your lovely wife and just say, "There's $20 in it for your daughters if they drop this question on Jason." [laughs]
Argersinger: Do it!
Hill: Matty, something you're hoping doesn't come up at the table?
Argersinger: When I was thinking about this topic, I immediately thought about last year and several extended family gatherings where at least one family member each time came up to me and said, "You should really think about investing in Bitcoin." My question all the time was like, "Tell me why I should do that. Why should I put money in Bitcoin?" And of course, the answer was always, "It's going up, you idiot!" Or something like that. Well, well, well, how did that work out for everyone? I'm joking. I think Bitcoin and cryptocurrencies are very interesting. I'm just still struggling personally to grasp the fundamental case for them. But I am 100% confident in this: I think crypto will not be a topic at the Thanksgiving table this year. Everyone's moved on to cannabis or something like that. So, at least I can avoid that.
Hill: Are you sure you don't want to be the one to bring this up? Like, "Hey! Last year, you were bringing up crypto. Do you want to talk about that?"
Argersinger: [laughs] I thought about it!
Hill: It's pretty interesting. Randall Stephenson, the head of AT&T, he was just interviewed for video for the Wall Street Journal. He was talking about blockchain as being the thing he's the most interested in. No mention of crypto.
Alright, Jeff Fischer Jason Moser, Matt Argersinger, guys, happy Thanksgiving! Thanks for being here!
Argersinger: Happy Thanksgiving to you too, Chris! Thanks!
Moser: Thank you!
Hill: Coming up: our Thanksgiving special roles on. We've got a brand-new crew of analysts coming in.
Joining me in studio, as promised, a brand-new crew of senior analysts.
Ron Gross: And better. I'm bringing it!
Hill: Ron Gross, Emily Flippen, and Andy Cross. Thanks for being here! Happy Thanksgiving!
Andy Cross: Happy Thanksgiving!
Hill: We're going to start once again with a serving of humble pie. Ron Gross, what's something in the world of stock investing or business that you were wrong about?
Gross: Chris, let me take you back to a simpler yet chaotic time. The year was 2009 when Charly Travers said to me, "How about Intuitive Surgical, Ron Gross?" And what did I say, Chris? I said, "No, Charly, it's 15X EBITDA and $60 per share."
Hill: "That's outrageous!"
Gross: "We cannot invest in that, Charly Travers!"
Cross: 15X EBITDA! [laughs]
Gross: [laughs] Well, fast-forward to today, and the stock is $486 a share, a 700% increase from those days. At the time, it was a four-time recommendation from David Gardner. It is now a six-time recommendation from David Gardner. I value invested myself right out of the investment.
Hill: Is that the one, more so than others, that you beat yourself up about?
Hill: [laughs] Oh, there are others?
Gross: [laughs] There are many others.
Hill: Emily Flippen, what's something you were wrong about in 2018?
Emily Flippen: I can take a big slice of humble pie for this one, but I'll admit that I'm still holding out a little bit of hope. It's Fitbit. I bought Fitbit up when it was trading at $15 a share. I was a wearer of Fitbit. I really bought into the product, and I really believed in the data. But man, did they just not deliver. I will admit I'm still holding on to my shares. I'm still holding on to my actual Fitbit, although I'm not wearing it right now. If that says anything right there... [laughs]
Cross: That's telling!
Gross: There you go!
Hill: They had a good quarter this last report.
Flippen: "Good" is relative, isn't it?
Hill: Well, yeah!
Gross: It wasn't horrible.
Hill: That is damning with faint praise. But, how much hope do you hold out for a really strong holiday quarter for Fitbit?
Flippen: They had a good smartwatch, that one smartwatch. I'm not getting my hopes up. But I like to be pleasantly surprised. Not getting my hopes up, but I won't be mad.
Gross: They went from having no smartwatch to being the No. 2 player. That's pretty good.
Flippen: That's true. They took over a lot of other players in the space. Good for them.
Hill: Andy Cross?
Cross: Williams Sonoma (NYSE: WSM) is a retailer that many of us know and not enough of us shop at, apparently. This is a retail business, so it's facing all of the pressures in 2018. The stock's pactually erformed very well in 2018. It was beating the market up until this last quarter. But that's when the humble pie settles in.
[turkey gobble sound]
Cross: [laughs] The guidance for the coming quarter, not so exciting. And the thing that continues to hit so many of these businesses are the risks of the tariff costs and what it's going to do the profitability. While Williams Sonoma continues to make investments to juice the business against a very competitive retail environment, including from the likes of Amazon, humble pie settled in this quarter and hit the stock for a good drop.
Hill: It's a little surprising with William Sonoma when you consider that, I would say better than most retailers, they did a good job with the omnichannel approach of, "Yes, we've got the stores, but we've also got the catalogs, we've got online." They did a good job of managing all of those channels. I'm wondering if maybe they're starting to price themselves out. They sell expensive stuff, but they're not really thought about as a premium retailer in the same way that Nordstrom (NYSE: JWN) when it comes to apparel.
Cross: You're right, Chris. They've done very good on the omnichannel level. Their e-commerce business is now 55% of their total sales. That's at an all-time high. E-commerce is growing twice as fast as the regular business. They do have that store footprint that is very costly, and they continue to make investments in logistics, which is very costly, because they have to compete against the likes of Amazon. It's a story that's going to grow sales in the low single digits and profitability hopefully higher than that, but it's just not quite the exciting growth story. It's not priced for the growth story, either.
Gross: On the upside, eventually there'll be able to capture all the Bed Bath & Beyond customers once that company (unclear 23:44).
Hill: Let's switch gears, move to stocks that we are thankful for. Ron?
Gross: I have to go with the first stock I ever bought my children in 2002, which was Disney. The company's up 700% over the past 16 years. Both children still own it. Even with some stumbles here and there, from the ESPN perspective largely, the stock's only 3% off its all-time high. Still getting it done. That's going to pay for a nice chunk of college for both kids. I'm very thankful for that.
Hill: 2019 is shaping up to be a pivotal year for Disney, when you think about the rollout of that Disney+ app.
Gross: Disney+ app, Fox assets coming online. The actual + app, the sports one is better than expected. I didn't hold out a lot of hope there. But so far, so good. We'll see how the rest of it falls in place.
Hill: Emily, a stock that you're thankful for?
Flippen: I'm also going to go back to 2000, bring us all back there. This company has been reporting corporate social responsibility reports since 2002, which is long before it was very popular to do so. My stock I'm thankful for is Starbucks (NASDAQ: SBUX). I think the company has done so many great things in their business. Even beyond just what a great investment it's been, it's a company that I think anybody can hold their portfolio and feel proud about. That's a stock that I personally really enjoy.
Cross: I'm going Warren Buffett, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), Charlie Munger. It's one of my largest personal positions. I'm so thankful for the education that Warren Buffett over 50-plus years has brought to investors and business people, politicians. He's extremely wise. He's collected an amazing group of businesses there, investments, plus operating companies, plus insurance companies, and the likes. But the contributions he's made to investors and business people around the world, not just making shareholders wealthy but truly making other people wealthy, as well. From the education perspective, Berkshire Hathaway and Warren Buffett I'm very thankful for.
Hill: It's pretty amazing when you consider that Buffett essentially has the unofficial title of "Economic Reassurer in Chief" for our country, and has certainly, over the past decade -- I hesitate to name who a potential replacement would be for that. For all the talk of, "Who's going to be the next CEO at Berkshire Hathaway?" I'm not concerned about that. I'm more concerned about, who's going to be the next unofficial spokesman for rational business thought in this country?
Gross: You need that combination of folksy and long-term thinker, and nobody really pops into mind.
Hill: We looked back, let's look forward. Ron, turkey stocks -- aka, one stock to avoid. What do you have for us?
Gross: This stock always reminds me of Fitbit. Sorry! [laughs]
Hill: Oh, wow!
Flippen: Oh, no!
Cross: Is it Fitbit?
Gross: No, it's not, it's GoPro (NASDAQ: GPRO).
[turkey gobble sound]
Gross: Went public in 2014 at $24 a share, hovering around $5 right now. I really enjoyed CEO Nick Woodman when he's on Shark Tank. Have you guys ever seen him there? But it's kind of ironic, because a lot of times, the criticism that the entrepreneurs at Shark Tank give to the people presenting is that you have a product, you don't have a company. Ironically, I feel the same way about GoPro.
They're not profitable. They haven't been profitable. They're cash flow negative, which is not positive, for those keeping score. Balance sheet is getting worse. They've hired bankers to look into a partnership or a sale, it hasn't born any fruit yet. They've had to slash their workforce. They keep coming out with the next iteration of their same product. I think we're on iteration No. 7 now. It's a company that just can't seem to go anywhere because it's a product, it's not a company.
Hill: Do the contestants on Shark Tank ever throw that back in Woodman's face?
Gross: [laughs] No. He's not a regular, I don't think. He just makes guest appearances.
Cross: It's funny, as a company that tried to build up the whole ecosystem and has really struggled to do that and get out from the product challenges they're having. I was bullish on them a few years ago, and they certainly haven't lived up to that hype.
Hill: Emily Flippen, do you have a stock to avoid?
Flippen: I have many stocks to avoid, but this one is one that I am especially personal about. It's Game Stop (NYSE: GME).
[turkey gobble sound]
Flippen: I was a big believer for a long time. I think Game Stop is sitting on a bunch of stuff that, if they had good, thoughtful management, they could do something with. Recent turnover in the CEO position. The CEO left after, what, three months after taking the position? The company has turned into a bit of a laughing stock.
I will say that I would not buy it now, but I am hopeful that maybe, if somebody comes along and takes a position, that's the only way they're saving this company.
Hill: Isn't that among the most troubling situations? When we talk about management turnover, certainly, the ideal situation is longtime, successful CEO announces his or her retirement, and there's a clear path to leadership. A CEO taking the job, and three months later, turning around? I mean, don't we have to assume that that person walked in, found out a bunch of stuff about the business that they didn't realize when they took the job, and said, "This ain't worth it!"
Gross: It's brutal. And I think Emily's right, it's ripe for an activist investor. I just don't know exactly where the value is there that can be wrung out of it.
Flippen: They sold off all the value. They have great refurbishment factories. They're the only company that can refurbish things like old phones or old consoles. That within itself is such a value. What they did was they acquired Cricket, with the concept of, "Maybe we can become the phone repair people." Then they sold Cricket. They had a great mobile game developer, which they're selling. I feel like management is just trying to sell off the assets, to not be the one responsible.
Cross: There's a Game Stop across from the shopping center where I live, across from a Starbucks, and I wish they would just put another Starbucks there, and have two Starbucks.
Gross: There aren't enough Starbucks, that's true.
Cross: I'm going with JD.com.
[turkey gobble sound]
Cross: The huge Chinese e-commerce business has really struggled. The stock has really struggled. It's down almost 50% this year. This last quarter continued to show the challenges that they are having, and we're seeing from a lot of Chinese companies. While still growing at fast rates, the growth isn't as fast as people expected. Their sales growth was up 25%, even though their service revenues were up by 50%. Their annual counts, they served more than 305 million Chinese consumers. That's huge. That was up 14% over the year.
But generally, overall, what's hanging over them is the accusations from the founder and largest individual shareholder, Richard Liu, sexual impropriety allegations here in the U.S. That continues to hang over. As a person who's looking for businesses that you want to be able to invest in for many years, when you have that situation, it's not something that I think I want to back at this point.
Hill: I'll add one more stock in here. This is one that we've talked about for years. One of the things I was reminded of earlier this fall with Sears was the fact that stocks will pop when the announcement is "Hey, we found someone to lend us money." And I would say to anyone out there who looks at Sears and sees, "Sears is up 20% today!" Eddie Lampert has connections. He can always find someone to lend that company some money. To your point, Emily, when you were talking about Game Stop, it reminded me of Sears.
Flippen: Me too.
Hill: We've seen that over the past decade. Sears had these assets -- a lot of them were real estate, but they had the Kenmore brand, Craftsman tools -- and they just start selling them off!
Cross: You want to be very careful now generally, especially today, with the cost of debt increasing. You want to be very careful about the amount of debt your companies carry on the balance sheet. From an analyst perspective, from an investment perspective, watch put companies like Sears that are very highly levered. That can turn very quickly.
Hill: Because what never gets added in that announcement, Andy, is, "We borrowed this money. Here's what we're paying in interest." [laughs]
Cross: Yeah! And then their sales and earnings start to decline, and that compounds itself. That's a very scary situation. The amount of debt out there for corporate America is extremely high these days.
Hill: We're going to go to our man behind the glass, Steve Broido. Steve, I have to believe, the investor that you are, you've got a stock out there for the dozens of listeners that you would say, "Just stay away from this thing."
Steve Broido: I would stay away from my entire portfolio. It's been a really rough couple of weeks. I'm sure you guys are feeling it, as well.
Hill: A rough couple of weeks. But come on, Steve, we're long-term investors!
Gross: Long-term, baby! Folksy!
Hill: Our final segment, brand-new this year in 2018. People can drop us an email at firstname.lastname@example.org to see, by popular demand, if this is working and we should bring it back in 2019. It's something we like to call "Not at the Table." It's politics most often that people don't want to talk about at the table. Take that conversation outside.
Ron, when it comes to business and investing, what is something that you just don't want to talk about this Thanksgiving?
Gross: You stole a little of my thunder -- cranberry sauce will be a-flying if somebody brings up Sears, and wants to talk about that stock. We've talked about it ad nauseum on this show. Finally, they filed for bankruptcy in October. But, no! It's not over yet. The question is, will they reemerge from bankruptcy? My answer is, I just don't care. I don't want to talk about it anymore. Eddie Lambert has done a terrible job trying to wring out the value from, as you said, the stores, the assets that were perhaps worth something at one time.
Are they going to secure the financing needed? Are they going to close the proper number of stores? Will they be able to live to fight another day? If they do, I think it's just putting off the inevitable of once again having to file. But next time, it will be for liquidation, not reemerging.
Hill: We've been friends a long time, so please be honest with me. Are you mad that I brought up Sears?
Gross: I was a little mad. I was a little bit mad. [laughs]
Hill: Emily Flippen, what's something you're really hoping doesn't come up at the Thanksgiving table this year?
Flippen: I'd prefer to have politics come up over somebody asking me about GE (NYSE: GE) again. It's inevitably going to happen. And I kind of agree with Ron -- I just don't care anymore. GE, talk about selling off assets. Wow! Really, a trend for this is, we're seeing companies selling off great assets, assets that were performing well, because of market sentiment trying to save the company. Now, what do we have left at GE?
Gross: You have a penny dividend.
Flippen: A penny dividend, an Aviation unit that's the only good asset left in the business, and a bunch of failing Power units. We'll see what happens, but please don't ask me about it again.
Hill: Across the board, because you three make your living analyzing companies, is it standard, whether it's the Thanksgiving table or just in social settings, at a barbecue or something like that, when you're chatting with someone, and they find out what you do for a living, does it immediately move into the person saying, "Oh, you're a stock analyst! What do you think about X?"
Gross: For sure, and therein lies the curse of this business. [laughs] As Jeff said earlier in the show, everybody always wants to know what you think of the market or what you think of a stock. The worst is when the market is on fire, like during the internet bubble of the late 90s, where everyone thinks they're a complete genius, even though they don't know what they're doing. And they think you're an idiot because you can't make the same amount of money that they're making in a company that doesn't actually have profits.
Hill: Andy Cross, what's something you're really hoping doesn't come up at the table?
Cross: The one thing that I don't want to come up at the table, but I think will, outside of the market and the stock talk, I'm a proud graduate of the University of Michigan. My wife is a proud former resident of the state of Ohio. There's a little game every year called Michigan-Ohio State. This year, it has even more meaning to it. I've instructed my family not to bring up the Michigan-Ohio State game. I think overall, the non-investing, non-financial topic that could cause the most cranberry a-flying at the Cross household is the Michigan-Ohio State game.
Gross: Wolverine are 3.5-point favorites.
Cross: Away? Wow!
Hill: Are you concerned about people piling up on you? Or are you concerned about this causing a rift in your marriage?
Cross: A rift in my marriage. It already does. It already has, the whole year, it's caused a rift in my marriage. Stocks are showing a lot of volatility now. We'll certainly have a lot of conversation at my table about stocks and investing. What I'm really hoping does not come up is the Michigan-Ohio State game.
Gross: Do we think cannabis is coming up at Thanksgiving this year? It seems to be the newest hot topic.
Hill: I was going to say, if it was Bitcoin last year, the, "Hey, this is getting a lot of headlines. What do you think about this?" Yeah, it's probably cannabis, isn't it?
Gross: I would imagine you're right. It's the new Bitcoin. It's the new hot thing, especially with the midterms that just came up and everyone legalizing it, one after the other. We'll see what happens.
Cross: I think so, also. Also, considering that there are a lot of people who have made a lot of money in the investments in a lot of stocks. And a lot of them, especially the high-growth stocks, are starting to peel back. We'll definitely have questions about, "What do you think about stock X, Y, Z?"
Hill: Let's go back to our man behind the glass, Steve Broido. Steve, is there something you're hoping to avoid at the Thanksgiving table in terms of topics?
Gross: [laughs] He's trying to avoid gout!
Cross: The topic?
Broido: Trying to avoid it, trying to avoid talking about it, just gout in general. Let's steer clear.
Hill: Steve, I don't want to get overly personal, but have you considered, maybe take your own plate and go in a separate room? If you don't want to talk about gout, and you certainly don't want to talk about stocks, maybe just a table by yourself?
Broido: Sounds delicious!
Hill: Table for one for Mr. Broido! [laughs]
Gross: And a lot of kale.
Hill: Ron Gross, Andy Cross, Emily Flippen, thanks so much for being here!
Gross: Thanks, Chris!
Cross: Thanks, Chris! Happy Thanksgiving, everybody!
Hill: That's going to do it for this week's Motley Fool Money. Our engineer is Steve Broido. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening! We'll see you next week!
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Andy Cross owns shares of Berkshire Hathaway (B shares), Facebook, and Starbucks. Chris Hill owns shares of AMZN, PYPL, Starbucks, and DIS. Emily Flippen owns shares of Fitbit. Jason Moser owns shares of AMZN, Hasbro, IDXX, MASI, PYPL, Starbucks, TDOC, and DIS. Jeff Fischer owns shares of GOOG, AMZN, Facebook, JD.com, MercadoLibre, Paycom Software, Starbucks, and TDOC. Matthew Argersinger owns shares of GOOG, AMZN, GoPro, JD.com, MercadoLibre, Starbucks, TDOC, Twilio, and DIS and has the following options: long January 2020 $50 calls on JD.com, short January 2020 $50 puts on JD.com, and long January 2020 $45 calls on Starbucks. Ron Gross owns shares of GOOG, AMZN, Berkshire Hathaway (B shares), Facebook, Starbucks, and DIS. The Motley Fool owns shares of and recommends GOOGL, GOOG, AMZN, Berkshire Hathaway (B shares), Facebook, Fitbit, Hasbro, IDXX, ISRG, JD.com, MASI, MercadoLibre, Paycom Software, PYPL, CRM, Starbucks, Twilio, and DIS. The Motley Fool owns shares of GameStop and has the following options: short January 2019 $16 calls on GameStop and short January 2019 $82 calls on PYPL. The Motley Fool recommends GoPro, Nordstrom, TDOC, UNH, and Williams-Sonoma. The Motley Fool has a disclosure policy.