In this episode of Motley Fool Money, host Chris Hill and analysts Jim Mueller, Aaron Bush, and Ron Gross discuss some of the biggest recent market news. Uber (NYSE: UBER) and Lyft (NASDAQ: LYFT) reported earnings, and the differences between the two ridesharing giants become more apparent every quarter. Disney (NYSE: DIS) stock dropped after the company posted some weak numbers, but the long-term picture still looks pretty rosy. Also, they go over news from Roku (NASDAQ: ROKU), Zillow (NASDAQ: Z) (NASDAQ: ZG), Kraft Heinz (NASDAQ: KHC), Chipotle (NYSE: CMG), and more. And, as always, the analysts share some stocks on their radar.
Stay tuned for an interview with The Motley Fool's Bill Mann about international investing -- why investors should make sure to diversify geographically, what the U.S.-China trade war means for stock markets, and some fantastic under-the-radar companies around the world that you'll want to check out.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on Aug. 9, 2019.
Chris Hill: Uber and Lyft both issuing second-quarter reports. Uber lost more than $5 billion in the quarter. Lyft didn't lose nearly that much. We'll get to Lyft in a second. Aaron, let's start with Uber. You looked at the quarter, what stood out to you?
Aaron Bush: First of all, that $5 billion loss is overstating it a bit, because a lot of that had to do with share-based compensation from the IPO. But even if you strip that out, they lost over $1 billion. The way I see it, Uber has a bit of a problem. Its revenue growth is slowing while its losses are growing. Uber does a pretty atrocious job of breaking out the business, so we can't get a super great view of what's going on. But a few takeaways. Trips this quarter grew 35% over the past year, which isn't bad. Bookings was about the same. But if you take out the driver appreciation awards, bookings growth was not so high. So, we can get a sense that not only does Uber lack pricing power when it comes to the riders, but it also lacks some pricing power in terms of its take rate on the driver side.
What concerns me about all of this is that the guarantee that they've been saying, you know, "Once we hit a certain scale, we'll be profitable," well, how much more scale do you need? You see them trying -- they cut 400 jobs a couple of weeks ago. I expect there will be more of that. Obviously, they work in different businesses and different parts of the world, so there's a lot going on. But I think the main lesson here is, as long as competition exists across all of these lines of businesses all over the world, they'll have to continue to burn cash, and that's unsustainable.
Ron Gross: I was going to ask, is this one of those Amazonian things where their expenses are so high because they're spending for future growth, and if they wanted to cut that spigot of spending off, they could be profitable sooner? Or is this actually more fundamentally a business model problem?
Bush: I think it's a bit more of a fundamental problem. The difference between Uber and Amazon is that Amazon still often produced positive cash flows. Uber is burning over $1 billion a quarter in cash. Now, they probably can find a way to become more profitable, but it would definitely come at the cost of pretty much all growth.
Hill: Jim, you look at Lyft, they reported record revenue for the quarter. To Aaron's point about Uber and all of the businesses they have, you look at Lyft -- I know we tend to think of Uber and Lyft as being in the exact same business, but Lyft is much more streamlined.
Jim Mueller: Yeah, they are. I don't think they're into things like delivery of food like Uber Eats is. But they do have a lot of overlap. The cars, of course, but also, both companies do bikes, both companies do scooters. Uber just launched the scooters here outside our offices. But from what Lyft is doing, they're actually generating cash, compared to Uber's billion-dollar cash outflow. Lyft didn't generate much, just $11 million for the quarter, but at least it's positive. Further, management said, "We've guided, 2019 is going to be the bottom of our losses," using their adjusted EBITDA metric. But they said they improved their loss prediction for the full year by $300 million. So, instead of about a $1.2 billion loss for this year, now they're expecting about a $900 million loss for this year. And they say 2020 is going to be even less. So, they're apparently claiming they have a path to profitability.
Hill: I think that sounds good, Ron, as long as they actually execute it. It's one of the things I always enjoy about quarterly conference calls, is where management comes out and says, "This is what we want you to hold us to." Lyft is being pretty clear about that. And in six to 12 months' time, we're going to know if they're on that path.
Gross: Execution is everything, as with any business. And even though we're all so used to calling our Ubers and Lyfts nowadays, these are still relatively new businesses, and the whole industry is relatively new. There's a lot of things to work out -- whether you want to be more of a pure play like Lyft, or you want to be everything to everybody like Uber is attempting to. They're going to have to shake this out. The price competition is intense. Paying drivers a wage at which they want to drive for you and be happy employees is a challenge. And this will shake out over the next couple of years.
Mueller: To Ron's point about new businesses, I found something mentioned in the conference call, ironically amusing -- they're rolling out something called Fast Match, which they claim is a faster and more efficient pickup way of finding your car at busy locations like airports. Basically, they have a dedicated area where Lyft drivers are coming up. You take the first one, you're off to go. But that kind of sounds like how taxis work, right?
Gross: [laughs] How about we combine dating with ridesharing, and you get what you get? That's what Fast Match sounded like to me.
Hill: Aaron, I'll just close this with you. Do either one of these businesses look like one that -- and yes, I'm asking you to predict the future -- does either one of these look like, five years from now, they're going to be the clear winner? Because, to Ron's point, it's easy for me to imagine, despite how young these businesses are, that a viable business exists out there. I'm just not 100% sure it's necessarily going to be either one of these two companies.
Bush: Well, I don't know what other companies it would be.
Gross: Good point!
Hill: Uber definitely is the largest, and will remain the largest. I expect there will be bumps along the way. But they almost definitely will figure things out. Lyft is a bit clearer to understand. I think they'll do fine. Honestly, the best thing that could happen for these two companies is to merge together. I don't know if that'll ever happen. I don't know if regulators would allow it. But Uber has struck deals across the world, exchanging their business for equity in other businesses. Don't think it would happen here. But it makes a ton of sense.
Gross: Justice Department would be all over that. We'll see.
Hill: Disney's third-quarter report was the first since the company acquired Twenty-First Century Fox. Shares of Disney down a bit this week after profits got hit. Theme park attendance was disappointing. And, Ron, we also got more details on the Disney+ streaming service. In a weird way -- and I say this as a shareholder -- it's kind of nice to know that even Disney is not immune to growing pains.
Gross: Can we call this a transitional quarter for Disney? I think it is. As they integrate the Twenty-First Century Fox acquisition, profits were hurt by those costs. But, as you say, lower attendance at domestic theme parks wasn't great; Fox's movie studio, Dark Phoenix was a dud. But, you had great things in Endgame, Aladdin and Toy Story 4 as well. There were some positives. But they seriously need to work through the integration of the Fox assets before things start to stabilize.
Hill: It was also announced that they're going to bundle Disney+, Hulu, and ESPN+ for the low, low price of $12.99, which CEO Bob Iger claims is a coincidence, that it just happens to be the same price as Netflix's --
Gross: [laughs] You're so cynical! But, yes, it's competitively priced. You can buy Disney+ for just $6.99 if you don't want that bundle, but the bundle's pretty powerful -- whether you want the Simpsons, or you want the movies from Pixar or Marvel, Hulu obviously has a lot of general entertainment offerings, that's a pretty powerful bundle that I think is going to be very competitive here in the space. I actually think it's going to be quite successful.
Bush: Yeah. I think it will allow them to scale very quickly. I actually think the largest winner here is Hulu. Disney+ would be successful with or without the bundle, I think. But having Disney+ tagged on to Hulu will make millions, potentially tens of millions, more people try out Hulu. And that that's valuable because Hulu, Disney can still get paid ads with Hulu, when people think about upgrading to sports packages and stuff. It makes Hulu a more likely candidate. This is just another attempt through bundling for Disney to build out its entire entertainment ecosystem.
Mueller: But I don't think investors should expect success right out of the gate. It's going to take time for them to figure out how to sell this, what content to include, and to get people to sign up. Yeah, the pricing is very attractive, but Disney management has said that it's going to take a while to get things going.
Gross: Agreed, it may take a while. But I do think the future looks bright. I think a blip in something like theme park attendance, you can take advantage of that if the stock is weak because of things like that, because of things like integration expenses. This is a fine stock to own, I think, at this price, and the future looks pretty good.
Mueller: I certainly agree with you. I just don't think that we should expect it the very first quarter. I'm afraid that people might be doing that.
Hill: And, as we were talking earlier today, this has been a long time in coming, and we're still not at the actual launch of this Disney+ service. That comes this fall. But it does move the attention of the streaming wars, I think, away from Disney. Yes, we'll keep watching what their numbers are, but it moves it more toward Apple and the rollout of their service, and then, sometime next year, if they stay on track, NBCUniversal.
Shares of Roku up 30% this week after second-quarter results for the streaming platform came in better than expected. Roku still lost money for the quarter, just not as much as Wall Street was expecting. Jim, speaking of advertising, they're also growing their advertising, too.
Mueller: Yeah, they certainly are. Among the thousands of channels they have, they have their own channel, the Roku channel, and they have the home screen. That's where they say the data that Roku's collecting allows the advertisers to do a better job of advertising. That's making the advertisers happier and willing to pay Roku more money for that. This is at least the sixth quarter in a row that the company's beaten Wall Street estimates. And Wall Street loves it when companies beat estimates.
Gross: [laughs] Oh, Wall Street, you...
Mueller: [laughs] Right. They have 30.5 million active accounts, which is up about 3% or 4% sequentially, which is a decent number. People are spending more and more on the platform. Year over year, what people are spending is up 27%. So, people are liking what Roku's serving.
Bush: Roku is displaying one of my favorite characteristics when looking for investments right now, and that's revenue acceleration. You look over the past four quarters, revenue grew 39%, then 47%, then 51%, and in this quarter, 60%. A lot of that is because, on the platform side of the business, not the device side, but the platform side, there are more growth levers. Whenever people will sign up for Disney+ through Roku, Roku will get a cut. They get a cut of advertising dollars. And it's exciting because it will also lead to yet another inflection/acceleration in the future, but then on the bottom line. So, Roku is really interesting as an aggregator right now, and it's executing fantastically.
Mueller: Not to splash cold water on that, but to splash cold water on it -- I would like to see them converting a lot more of that revenue growth into actually cash flow growth. For the seven quarters they've now been profitable, they've only generated $34 million in operating cash and $25 million of that was in this last quarter.
Hill: Good-looking second-quarter report for Activision Blizzard (NASDAQ: ATVI), the video game maker behind the Call of Duty franchise. Also raised guidance for the full fiscal year. Yet, shares of Activision Blizzard basically flat this weekend, Aaron. No love.
Bush: The quarterly results are down from the past year. This quarter typically isn't that important. But the company did beat expectations and raised guidance. And they didn't beat expectations because of new games, but they beat it because gamers are becoming more engaged and spending more money in the company's top franchises. I still hear people talking about Fortnite, saying it's still as big competitive headwind. But if you look at Call of Duty this quarter, they still pulled in 37 million monthly active users, and hours played grew 50% over the past year. Time spent playing also grew across other franchises like Hearthstone, Candy Crush, people watching the Overwatch League. So the company is having a lot of success in its top franchises, and management has indicated that that is where it will put its focus. It's increasing its development resources to many of its several top franchises, which I suspect will pay off pretty well.
One yellow flag, though, I'll note is that apart from leveraging existing IP into new mobile games, management is not prioritizing new IP at all. If you think about how a video game company grows, it really is a function of two things: how well is it growing engagement and monetization of its existing franchises, and can it add new ones? And right now, it's only focusing on one side of the equation, which might work out OK, but it certainly isn't leaning into its growth as much as it has in the past.
Hill: That sounds increasingly like the movie business, where they're just all about the franchises.
Bush: Yeah, there is some truth to that. Also, there are a ton of video game companies out there producing a lot of games, so competition is intense. So it makes sense to go out only with what you think is best. And they might be working on something that we don't know. But I wish that they were pushing a little bit more aggressively on that front.
Hill: Another rough week for Kraft Heinz. The stock in an all-time low this week after Kraft Heinz delayed the release of its second-quarter earnings report. Ron, I don't like to talk in absolutes, but I can't think of a single time when the delay of an earnings report ended up being a good thing.
Gross: Well, you know the old saying -- it's always darkest before it goes totally black? There's a little bit of that going on here. If you recall, earlier in the year a $15 billion writedown, cutting a dividend, SEC subpoena over accounting practices. This week, delayed their official filing, but they released preliminary results. Sales fell almost 5%, weak organic sales, promotional pricing. Foreign currency impacts certainly didn't help. Operating income down 55%. Adjusted EPS down about 24%. Again, they had to write down the value of several businesses to the tune of in excess of $1 billion. Pulled their full-year earnings guidance -- which, again, Wall Street never likes to see. New CEO Miguel Patricio certainly has his work cut out for him.
Hill: Last week, we were talking about Procter & Gamble and the amazing job that company has done over the past decade, not just rewarding shareholders, but doing it in a way that reduces the number of brands under the big umbrella. Kraft Heinz has more than 200 brands under their umbrella. Isn't the obvious move here to start looking to sell some of those off?
Gross: One might think so, Chris. However, on the conference call, when an analyst asked about selling off potential weak brands, CEO said it is not on the table right now. So, don't look for that anytime soon.
Mueller: I can't help but wonder, listening to your litany of woes the company has, is this going to turn into a kitchen sink quarter, where they throw every piece of bad news, and then, going forward say, "Hey, we got it all behind us!"
Gross: We thought that was last time, right? With the $15 billion writedown. I think this was a surprise to folks that there was more to come, and maybe even more to come.
Hill: Shares of Zillow fell 20% this week after the company lowered guidance for the full year. Zillow said the integration of its home loans business and mortgage software development are going more slowly than expected. Aaron, this business and this stock really have been treading water for a while.
Bush: Yeah, and right now, Zillow is undergoing a pretty contentious transformation, I think. One of the founders, Rich Barton, is back as CEO, and he's pivoting the entire business over to focus on scaling its Zillow Offers business. So, instead of just being a destination where people can go look at information that helps them make real estate decisions, and maybe get paired with an agent, Zillow now wants to get in on the transaction process itself. As we see this quarter as a result of some of that, the revenue growth is significantly higher. It grew something like 80%. But, the company is now losing a lot of money because of that. So the big question that people are debating is, can this Zillow Offers business be profitable at scale? It's interesting, because the residential real estate market is one of the largest markets out there. There's only a few companies that are positioned to benefit from it, Zillow being one of them. But they have a lot to prove still.
Hill: You look at the stock drop like this, do you get interested?
Bush: It makes me think that people are prioritizing what the Zillow Offers business looks like now instead of focusing on what it could look like in the future at scale. I do think it is worth looking at, but there still is quite a bit of risk here.
Hill: Next month marks the two-year anniversary of Chipotle unveiling queso. Feedback from customers back then was both fast and furious. This week, Chipotle announced it's testing a new queso in Dallas, Detroit, and San Diego. Ron, it is their queso blanco, made with white cheddar cheeses, Monterey jack. I think if you're a shareholder, and anyone with taste buds, you're hoping that this is going to have a better reception than two years ago.
Gross: Yeah. Longtime listeners will know, we've discussed the queso fiasco of Chipotle quite a bit, their non-use of stabilizers was really a misstep. I think they got a lot of feedback about the quality of the queso. This one is described as perfectly smooth with bold cheese flavor and a mild spicy heat. Let's see if they execute.
Bush: I only have four words: there is only upside.
Hill: You think?
Bush: I think so. I mean, it's hard to become worse than what "genuine queso" was.
Hill: That's true. Never forget they dubbed it "genuine queso."
Hill: Bill Mann is the director of small capital research at The Motley Fool. He recently returned from a trip around the world, where he was researching businesses in Iceland, the Faroe Islands, Kuala Lumpur, Singapore, Australia, and more. Our producer Mac Greer sat down with Bill to talk about what he learned on the trip. But Mac began the conversation by asking Bill about the latest with China and the trade war.
Mac Greer: You may have heard there is a new wrinkle this week with the U.S. designating China a currency manipulator. The last time that happened was the Clinton administration. What does all this mean for investors?
Bill Mann: Nothing. I mean, it's psychologically very important. It's financially not so important. Here's the thing -- we have known basically since the Clinton administration, since the last time they were designated a currency manipulator, China's been manipulating its currency the entire time, but they've been manipulating it in a direction that we wanted them to manipulate it. So, the fact that they are trying now to manipulate it down, that's not necessarily in the interest of the United States. So, we're pointing something out -- to me, it seems a little bit weak and desperate, that we would come out and designate them as a currency manipulator now. I mean, we're in the midst of a pretty substantial trade war with them. I think one of the things that people are actually nervous about is that it's another sign of the weakening of the relations in between the two countries, and these two countries are systemically important, really, to every economy on Earth.
Greer: Does any of that have any effect on the way you invest?
Mann: It shouldn't. If China manipulating its currency is really impacting how you invest, then, my gosh, you probably shouldn't have been invested over the last 20 years. But we're in the midst of a time in which the market's rather unsure about what the relationship between the two is going to be. And I think one of the bigger things that investors need to worry about is that China is basically using what is happening right now as a propaganda opportunity for them to try to convince ordinary Chinese people not to admire the United States quite so much. The United States is widely admired in China. The other thing that's happening that may be a bigger deal right now financially is that China feels like it's being pushed around by the United States. So, one of the things that they're able to do, it is not a coincidence that you're seeing all of the unrest in Hong Kong now, and how the Chinese are responding to it, because that is their statement of strength. That could be potentially rather destabilizing all over the world -- I mean, especially in Hong Kong, but really, all over the world.
Greer: OK. That's a good opportunity to talk about your trip all over the world. You've just come back from a really around-the-world trip where you went to Iceland, the Faroe Islands, Amsterdam, London, Kuala Lumpur, Singapore, Australia, and Hawaii on the way back home. What is your headline?
Mann: Well, when I got back to Dallas airport, as soon as we touched down, we said one, because it's a lap around the world, right? It was an actual lap. And in that period of time, when we were in the Faroe Islands, it was a 19-hour day because it's that far north. We were also in Melbourne, Australia that had a nine-hour day. It was in the midst of winter. Melbourne was actually warmer than the Faroe Islands. That's what a cold summer vs. a warm winter will get you.
The amazing thing to me is, one of the themes that we have been investing in, and lots of the Fool investors have been talking about this, is the move toward e-currency -- the war on cash, as Jason Moser has called it on the show. A lot of the companies that we went to go see really are playing into the move into a cashless society. When we were in London, for example, you can get onto the Tube simply by putting your phone on a reader. You get on, get off, it's super quick and super easy. Washington Metro is probably 15 years away from implementing this sort of thing. The terminals for Apple Pay, they are everywhere, in countries as disparate as the Faroe Islands and Malaysia.
Greer: I think back to my first trip overseas with my stack of American Express traveler's checks. I don't need those anymore!
Mann: You don't need them anymore! I used to call something the peso equilibrium. It was that moment in an international trip in which you stopped worrying about whether you had enough local currency and started worrying about whether you had too much. Rex Moore traveled with me, and I don't think he carried a single penny of any international currency. In fact, it was a test for him to see if he could do it. And he managed, he was able to get by really almost without pulling his credit card out, doing everything with his phone the entire time.
Greer: That's amazing! Now, you mentioned some of the companies that you visited. Let's get specific here. Any highlights, any companies stand out?
Mann: We went to go see a company called Adyen in the Netherlands. Adyen is a fascinating company that manages basically the back office of large retailers, basically accepting money from people. It works a little bit like this -- you order something online from Costco.
Greer: Thank you!
Mann: It comes to you in the mail. And you realize that, once again, you've gotten the size 44 instead of a 34.
Greer: Thank you!
Mann: So, you take it back to the Costco store nearby you. Now, Costco has to be able to determine how much you paid for it, where it came from, is this actually something from Costco? Adyen is the company that handles all of that information for companies, and it is much, much more complex than you would think. They are an international company. They do a fair amount of business in the U.S., a lot in Europe and a lot in Asia. One of the global companies that you don't necessarily find this type of opportunity in the United States. Adyen is on its way to being a world leader, and it's buyable on the Dutch Stock Exchange.
Greer: Let's talk a bit more about that. The U.S. markets, of course, have had a very nice run in the last few years. Best in the world. So, why should investors have international exposure in their portfolios above and beyond owning U.S. companies with an international presence? I look at my portfolio. I've got some Disney, I've got some Apple. They of course have an international presence.
Mann: Huge, yeah.
Greer: So, what's the case for owning overseas stocks?
Mann: The headline is, you don't have to. You don't have to own international stocks. But it is the case that the United States market has performed best out of every stock market in the world over the last decade. And, every other part of your financial life is here in the United States. There is a very valued principle in investing that you diversify. And one of the ways that you can diversify is geographically. Perhaps that is a slightly scholarly take on why you might want to be overseas. This is a more practical reason -- the markets are cheaper, and you can find opportunities overseas that you cannot find in the United States. For example, in the Faroe Islands, we went to go see a company called Bakkafrost. Bakkafrost is a salmon farmer. They have on land in the Faroe Islands these hatcheries where they will have 300,000, 500,000 smolt at a time that they're growing, and then they put them into the fjords in the Faroe Islands. The Faroe Islands are absolutely perfectly suited to growing salmon. Because it's far north, the water stays reasonably warm all year round because of the jet stream, and it's isolated from every other place in the world. Eight years ago in Chile, there was an outbreak of a disease that affects salmon, and it wiped out basically the entire market. That's not something that's going to get to the Faroe Islands. It's 400 miles from the nearest land.
Greer: And I can invest in this company?
Mann: Yeah, you can invest in this company. It's a systemically important company for the Faroe Islands. It's listed in Norway. There are certain U.S. brokers that allow you to buy shares directly on the Norwegian Exchange. It was definitely the most photogenic company that I've ever been to go see. There are these fjords, and they've got the big nets in them, big boats -- everything was tremendously exciting and very, very photogenic. But the company is professionally run, and they are actually trying to extend their lead over companies that are outside of the Faroe Islands.
The other important thing about salmon to note is, probably the best brand of salmon, as with most fish, is wild caught. But the amount of fish that you can catch wild each year is fixed. If you catch more, you're overfishing. So, it is a growth market with rising prices, and its biggest, best competitor can't grow anymore.
Greer: And it's a superfood.
Mann: And it's a superfood. One of the densest proteins there is.
Greer: Well, there you have it! Also, when we were talking yesterday in the office, you mentioned a company, Top Glove. Tell listeners about Top Glove.
Mann: Top Glove is based in Malaysia. Malaysia is the dominant manufacturer of rubber gloves. You think about food prep gloves, you think about surgical gloves, about medical examination gloves. These are things that are used all the time in the U.S., in the West. They're growing in use in Asia, Africa, South America. And Malaysia's the best in the world at making them because it's got rubber, it's got petroleum, and it's got well-educated, but not very expensive labor. So, they have an absolute advantage in manufacturing rubber gloves.
Now 20, 30 years ago, there were 600 manufacturers of gloves in Malaysia. Now there are very few. and Top Glove is one of the most dominant ones because they've been very careful about following international standards, FDA standards, things of this nature. It's an extremely professional company. A wild environment in the company. The CEO is a billionaire who started basically running a mom-and-pop sized glove manufacturer, and he has built it, by being very professional and very disciplined, into the dominant manufacturer in Malaysia and then therefore the world.
Greer: Well, they'd better be dominant. If you call yourself Top Glove, you've got to be dominant.
Mann: Right. It's not Third Glove.
Greer: You mentioned something: They have a company cheer?
Mann: They have a company cheer. They have an ethics cheer. Everyone is given a button. We had to do the cheer. We had to sing the company song. There are hand movements that go with this.
Greer: An ethics cheer? Explain that. What is that?
Mann: They work in markets where there is a fair amount of corruption. Malaysia has had a fair amount of corruption, and they're dealing in natural resources, they're dealing in things where they could get contracts the easy way by doing a little bit of payola. And the CEO just said, "No, that's not something that we're going to do." So, they reaffirm at every meeting, internal and with external people through a cheer, through an ethics cheer, before they start the meeting.
Greer: I love that!
Mann: It's amazing! Possibly the most disciplined person I have ever seen. We had our itinerary given to us, and it said things like "12:53 -- Do the company song." "12:58 -- Do the company cheer." And at 1 p.m., he stood up and left the meeting even though we were mid-question, because it was onto his next thing.
Greer: Do you remember any parts of the company cheer? Can you share a line?
Mann: Yeah. And there's handclaps and gestures, which are not so great for the radio. It was, "Top Glove, top quality, top value." And then, "[claps rhythmically] Yes, yes, yes!"
Greer: I like that!
Mann: We need to have that here! Let's come up with a Motley Fool cheer!
Greer: That's good! I'll do the hand claps, you come up with the words.
Mann: You think you can handle it? [laughs]
Greer: Yeah, I think. So, when you look back, it's this whirlwind world tour, you had all these different experiences, what'd you learn?
Mann: The world's pretty big. We think of the United States as being a big market, and it's only about 35% of the world's economy and the world's value, of its stock market. There are huge opportunities outside of the United States. Going out and seeing them reminds me that you don't need to be afraid of investing in countries that are not our own. You really don't. There are incredibly professionally run organizations in countries that you really might not think, like the Faroe Islands, like Malaysia. Singapore and Australia are highly developed. Getting out and seeing these companies and meeting these leaders really reaffirmed to me the power of investing and investing globally, that there are opportunities that aren't necessarily available if you only invest in the U.S. markets.
Greer: Bill Mann, international man of mystery! Thanks for joining us!
Mann: Yes, yes, yes!
Hill: Our email address is email@example.com. Question from Agam Sharma in Toronto, Ontario. "I'm a longtime listener with a question regarding investment research. I find myself doing a lot when it comes to understanding a business, such as listening and even participating in conference calls, reading financials, etc. How can I produce high-quality research similar to analysts?" Ron, what do you think?
Gross: Well, it sounds like he's doing what he needs to do from a research perspective. So, then it's a matter of, what does he want the output to look like? If it's just for himself, that's easy, I would just keep a notebook with your investment thesis, some bullet points, refer back to that occasionally, update your thinking, see if the company is on track. If you want to produce fancy, glossy research, well, that's a whole other story. I would actually caution against that. Not needed.
Mueller: And I think he should keep on doing what he's doing. As Ron said, he's already doing a lot of what we already do. That, and he might want to look into some industry journals.
Bush: The best thing for me was writing and getting feedback. I definitely suggest writing your analysis down and looking to other people you respect to get feedback on.
Hill: Let's get to the stocks on our radar. Our man, Steve Broido, behind the glass will hit you with a question. Ron, you're up first. What are you looking at this week?
Gross: Just a radar stock, not a recommendation. Was recently looking at Align Technologies, ALGN as a potential customer, which got me looking at the stock. They make the transparent removable orthodontic aligners to strengthen teeth under the Invisalign brand. First mover in a very large market. A fantastic run, but recently got hit with management issued disappointing guidance. Talked about weakness in China. They've had some patents expire, which could increase competition. That's interesting. But, they're down nearly 50% from their September highs, so I think it's a good time to dig in and look at the stock.
Hill: Steve, question about Align Technology?
Steve Broido: Does this technology bypass orthodontists? Or do I need to go to my orthodontists to get an Align device?
Gross: My understanding is you can do both. You can do it yourself, I believe, from going to the pharmacy, but you can also go through your dentist or orthodontist.
Hill: Jim Mueller, what are you looking at?
Mueller: Old-time favorite, Netflix. Longtime shareholder. I think the drop after the recent quarter was a bit of an overreaction. Yes, there was a bit of a decline in U.S. subscribers, and a miss on the guidance on the international subscribers, but this is turning definitely into an international growth, and investors need to focus more internationally.
Hill: Steve, question about Netflix?
Broido: Is there such a thing as too much programming? I mean, it seems like everything is on Netflix. The entire world has a Netflix show.
Mueller: Well, they don't have The Office, or at least they won't in a year and a half. But Netflix is trying to get as much programming to be as acceptable to as many viewers as possible, so, no.
Hill: Aaron Bush, what are you looking at?
Bush: I'm looking at Baidu, which is most known for being China's leading search engine. It's interesting to me because everybody seems to hate it right now, and I wonder if the hate has gone too far. I'm just looking at this simple math -- Baidu is a $35 billion business. It has $10 billion in net cash right now. Its investment in iQiyi is worth $7 billion, Ctrip $4 billion, has at least another $2 billion in other investments, which means that its core business is only valued at about $12 billion right now, which is only about a third of its total market cap. That's rare to see. And even if this business just stabilizes, I think there could be some upside here. So it's interesting to me right now.
Hill: Steve, question about Baidu?
Broido: What is the second-largest search engine in China?
Bush: According to Google, the second-largest search engine is Shenma, but it's much, much smaller than Baidu in terms of market share.
Hill: Three very different businesses. Steve, you got a stock you want to add to your watch list?
Broido: I think I'm going with Baidu.
Bush: All right!
Hill: All right. Aaron Bush, Jim Mueller, Ron Gross, guys, thanks for being here! That'll do it for this week's edition of 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. Aaron Bush owns shares of Activision Blizzard, GOOG, AMZN, AAPL, BIDU, Chipotle Mexican Grill, NFLX, Roku, Walt Disney, Zillow Group (A shares), and Zillow Group (C shares). Bill Mann owns shares of COST and IQ. Chris Hill owns shares of AMZN and Walt Disney. Jim Mueller, CFA owns shares of Activision Blizzard, GOOGL, GOOG, AMZN, Chipotle Mexican Grill, and NFLX and has the following options: long January 2020 $1370 calls on AMZN, short January 2020 $1380 calls on AMZN, long January 2021 $150 calls on AAPL, short January 2021 $160 calls on AAPL, short January 2020 $50 puts on Activision Blizzard, short August 2019 $47.50 calls on Activision Blizzard, and long January 2020 $220 calls on NFLX. Mac Greer owns shares of Activision Blizzard, GOOG, AMZN, AAPL, Chipotle Mexican Grill, COST, NFLX, and Walt Disney. Ron Gross owns shares of Activision Blizzard, GOOG, AMZN, AAPL, BIDU, COST, and Walt Disney. Steve Broido owns shares of Activision Blizzard, GOOGL, GOOG, AMZN, AAPL, COST, NFLX, and Walt Disney. The Motley Fool owns shares of and recommends Activision Blizzard, ALGN, GOOGL, GOOG, AMZN, AAPL, BIDU, Chipotle Mexican Grill, NFLX, Roku, Walt Disney, Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool is short shares of PG and has the following options: long January 2021 $60 calls on Walt Disney, short October 2019 $125 calls on Walt Disney, short January 2020 $180 calls on COST, short January 2020 $155 calls on AAPL, long January 2020 $150 calls on AAPL, long January 2020 $115 calls on COST, short January 2020 $155 calls on AAPL, and long January 2020 $150 calls on AAPL. The Motley Fool recommends COST, CTRP, IQ, and Uber Technologies. The Motley Fool has a disclosure policy.
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