2018 is now a year of the bear. Don't panic, there's plenty of investing you can still do. In this episode of Motley Fool Money, host Chris Hill and analysts Matt Argersinger and Ron Gross hit on the biggest stories on Wall Street. What's behind this bear market? Does it even matter for long-term investors? FAANG is down huge -- is this a buying opportunity? Nike's (NYSE:NKE) stock popped on a great quarter. Jack in the Box (NASDAQ:JACK) jumped on some "strategic alternatives" talk. Twitter (NYSE:TWTR) attracted some attention from Citron.
And, as always, the guys share some stocks on their radars this week. Plus, tune in for an interview with Gillian Zoe Segal, author of Getting There: A Book of Mentors. Segal shares what she learned from interviewing iconoclasts like Warren Buffett and Sarah Blakely for her book about what makes successful people tick.
A full transcript follows the video.
This video was recorded on Dec. 21, 2018.
Chris Hill: It's the Motley Fool Money radio show! I'm Chris Hill. Joining me in studio this week, senior analysts Matt Argersinger and Ron Gross. Good to see you as always, gentlemen! We've got the latest headlines from Wall Street. We will dip into the Fool mailbag. And, as always, we'll give you an inside look at the stocks on our radar.
We begin once again with a reminder that investing is not for the faint of heart. This week, the NASDAQ officially entered bear market territory, down more than 20% for the year. The Dow Jones Industrial Average and S&P 500 just a few percentage points away from that mark. On top of everything else, Ron, we're taping this on Friday afternoon and the prospect of a government shutdown at midnight is still very real.
Ron Gross: As our producer, Mac Greer, would say, woof. This has been rough. We've erased every single bit of gain that we got from the Trump tax cuts that took place in January. The market shot up. It was awfully exciting, although we kind of were robbing Peter to pay Paul, I think, a bit with those tax plans. But we're back to September 2017 levels here. A slow bleed, not one of those quick corrections. Never fun. Don't look at your portfolios too often. Don't look at your brokerage statements too often. Long-term investors should just sit tight, maybe even take advantage of it. As you pointed out correctly before the show, Chris, the markets hate uncertainty, and we are replete with uncertainty.
Matt Argersinger: Yeah, that's right. As investors, we try to search for the reasons or the causes for volatile times like this. Ultimately, there are no right answers. We really don't know what's causing it. We were talking before the show, and we were throwing out dozens of reasons.
Gross: I have them written down right here, so you know they're real.
Argersinger: There you go. The important thing to know is, stock market drops like this, 15% or more, sharp, painful, but they happen. They happen roughly every few years. It's not abnormal. It doesn't necessarily have to be a sign of bad things to come. Even if you look at the course of this bull market that we've had, we had similar drops in 2010, 2011. Remember 2011, when Europe was imploding, and it looked like we were going to default on our debt? Then, we had another drop in late 2015, early 2016. The market bounced back each time to new highs.
Now, I'm not saying this is going to repeat like that process. But, this has happened.
Hill: We focus on individual businesses. But this is one of those times that remind investors that the big macro still matters. When it comes to macroeconomic things like the running of the U.S. government, Fed policy, trade with China, you look out over the next six months, and Ron, it almost seems like it's easier to look at individual businesses and have a sense of where they're going in the next six months as opposed to all the macroeconomic stuff. What, if anything, can we be certain about?
Gross: What's interesting is, the individual businesses, taken as a whole, adds up to the macro. If you say, "I'm not going to worry about global growth slowing or U.S. GDP slowing. I can't predict that," that's occurring because perhaps individual companies have slowing growth, and interest rates are rising and that has consequences, and people are freaking out about the yield curve flattening and potentially inverting. That gets a little behind the curtain a little too much. Let's not go that far. But individual businesses do add up to being the economy as a whole. So, when you look at a company, whether it's Apple (NASDAQ:AAPL) or a company that does most of its business domestically, you do have to think about what are the growth prospects going forward? Are they perhaps slowing? If they are, then you do have to account for that in your valuation.
Argersinger: All good points. I think there are macro things that we'll see, certainly with this earnings season coming up. We might see some of these things play out within the corporate earnings arena. The macro becomes the micro as we start looking at these individual companies. For example, as Ron mentioned, interest rates are higher, yields are higher. Not only does that mean that debt cost, debt service requirements for companies are higher; it also means that risk-free rates are higher, so stocks have a little more competition. If you're institutions or money managers, stocks aren't the only game in town. If I can get risk-free yields that are higher than normal, maybe I'm parking some more of my capital there, as well.
I'd say the housing market, we haven't talked a lot about that, it's slowed down legitimately. We've seen month after month of lower housing sales. You talk about the U.S. economy, that's a pretty big engine of the economy. That's slowed down.
The big elephant the room is the tariff issue that keeps coming up and popping up. We don't know how it's going to play out. But there are companies that do trade overseas, that do have international customers. Input costs are going up, prices are going up. You either pass those on to the consumer or you lower your earnings expectations. We'll see how that plays out.
Gross: I do find it interesting, though, that all of the benefits from the tax cuts seem to have evaporated. They did translate to real earnings growth. That's perhaps what's driving this 3.4-ish GDP growth that we're seeing. I agree, it's probably a one-time hit. It's not going to persist into the future. But it was real. So, to give it all back is interesting to me. Perhaps we'll see it show up down the road in the $1 trillion-plus share buybacks that occurred during this year. When you lower the share count of companies across the board, that should eventually accrue to shareholders, if not in the short-term at some point. Maybe we'll get that down the road.
Hill: This week, shares of FedEx (NYSE:FDX) had their worst day in 10 years. Second quarter profits looked good. CEO Fred Smith, though, cut guidance for 2019, and he blasted leaders in the U.S. and around the world for, and I'm quoting here, "bad political choices that have created macroeconomic slowdowns." He threw in there Brexit, the immigration crisis in Germany, the tariffs in the U.S., the trade war with China. It's a little surprising to see someone like Fred Smith come out and be this vocal.
Argersinger: Yeah. And you like it, too. You like when CEOs, especially someone like Fred Smith, who's built this phenomenal business over decades, and he's been through multiple business cycles, multiple market cycles, and you think he's got a lot of gravitas when it comes to speaking to something like this. But here's an example of a situation where the political climate, all these macro things that we're talking about, it's affecting a legitimate business. FedEx, you're not surprised at that, being in the business they're in, being a real, legitimate part of international trade flows. When their costs go higher, when the cost of their customers go higher, they feel that, and their volumes get affected.
Hill: In terms of guidance, this is one of those things that we see, and I don't know how you guys feel. When it comes to the companies that are in my portfolio, I always prefer the little leaders of those companies to be a little cautious with their guidance. I don't like to see too much excitement. I'd much rather see under-promise and over-deliver. But in something like this -- Ron, you've got a company in FedEx that is as much of a bellwether stock as any that is out there. The ripple effects of Fred Smith cutting guidance for 2019 go beyond under-promising.
Gross: I would prefer just the best outlook they can provide. If you want to err on the side of conservatism rather than bluster, that works for me. But honesty, transparency. Don't have an idea of what you actually think and then cut it back on purpose just to be conservative. I don't like that.
Hill: Come on, sandbagging.
Gross: Not my thing.
Hill: [laughs] It's a tried and true tactic when it comes to earnings growth.
Our email address is email@example.com. Question from Eugene Tang. He writes, "I bought shares of Amazon (NASDAQ:AMZN) at a price of $1,890." And I will just add parenthetically, right now, Amazon's about $450 a share lower than that. He writes, "Based on the current sell-down for tech stocks, particularly FAANG stocks, would you recommend to average down the Amazon shares or purchase the shares of a company that I have not owned, like Apple, Microsoft or Alphabet? Which are the most attractive FAANG stocks based on the current market value that you would consider getting or increasing in stake?"
Really two questions there. The question about the most attractive FAANG stock right now, we can get to that in a second. The first question there is one that we've all dealt with at one point or another. I bought Company X for the following reasons that I think it's going to grow; it's now lower than that, so do I add to it? Typically, do you add to a stock that has dropped? Because you think, "Hey, I'm getting it at a cheaper price!" Or, do you ascribe to, "No, I'm just going to let it go where it is."
Gross: Often, I will add to stocks that have dropped. But I have conflicting thought here. It reminds me of back in the early 2000s, when telecommunications equipment stocks were on fire. Then, we got the internet bubble bursting, and the telecom equipment bubble bursting. And it was like, "Ooh! This is going to be great! I'm going to pick these up on the cheap, especially some that I never got!" And you know what? They never came back.
Don't think too high-level. Almost, don't think of it as an industry or a sector. Look at the individual companies behind those decisions and see if you're comfortable adding or buying for the first time.
Argersinger: Yeah. You could simply ask, what's the reason that a company like Amazon is down 30% from when you bought it? Or, any of these stocks. And if the answer is, "because the overall market has fallen," and maybe these companies were highly valued, as well, I think you could make that argument -- but, in most cases, I think it's OK to average down, as long as the stock is down for reasons beyond its own business, its own earnings, things like that. I tend to shy away if there's a fundamental reason, if a company reduces guidance or changes its business and falls. That's when you want to be a little more careful.
Hill: Is there one of the FAANG stocks that looks particularly cheap? As we talked about earlier this fall Matty, at one point, we were talking about the big tech stocks in China. It was almost like they were a dance line, they were all down roughly the same amount. It kind of seems the same way with the FAANG stocks.
Gross: There's always two sides of every analytical story. There's always pros, there's always cons. But Apple at 12X earnings is as much of a no-brainer as I think you're going to find out there, understanding that there's growth issues, that unit sales are perhaps slowing. There's always two sides. 12X. It's priced for very little growth here. This is a stock you should own at these prices.
Argersinger: Agree, Apple looks very, very cheap. Amazon's always been my race in this FAANG fivesome. That's because its business has so much more potential than the other four. I never expected Amazon to fall as much as it has in this downturn we've had. It might be the one the last chances to get it below a $1 trillion market cap. We'll see.
Hill: On Friday, shares of Nike were up 8% after second quarter profits and revenue came in higher than expected. Ron, can I interest you in double-digit profit growth?
Gross: This is a really strong report. As Mac was saying before the show, it's like Under Armour, but good.
Hill: As an Under Armour shareholder, I take offense to that.
Gross: I'm sorry. I'm a Nike shareholder. I'm pleased with this report. It's really solid. Revenue up 10%. Earnings up 13%. Their digital program working really well. North America up 9%. Greater China jumped 26% across the board. Geographically really positive results. A lot of folks don't realize Nike owns Converse. Converse up 6%. Gross margins widening. That accrues to the bottom line. They're buying back stock, $1.3 billion during the quarter of stock purchased. They've repurchased 183 million shares since the program began. The company is doing really, really well.
Argersinger: This is one example -- here we are, it's late December. We're outside the normal earnings season and Nike reports in this time. This is why I can't wait until late January, early February. I think we're going to start hearing from companies. Obviously, Nike's business is doing really well. I'd like to see if that's across the board. It'll give us a better indication of where we are in the economy and where we are with corporate confidence. Nice to see from Nike.
Gross: I should have checked, I wonder if Foot Locker is up on this news, because a lot of their inventory relies on Nike. If the sell-through is as strong as it looks, Foot Locker would be up in sympathy.
Hill: The online sales that Nike has consistently put up, and increasing that, has really been impressive. That was something, when they first started, there were some legitimate questions about how sustainable that was. Of course, that was a few years ago when Sports Authority was in business, where those bricks and mortar retail stores were more substantial for Nike.
A few months ago, Nike put out that ad with Colin Kaepernick. The tag line, "Believe in something, even if it means sacrificing everything." We talked about it on the show. Our colleagues in the sports talk radio industry decided, all of the sudden, they were business analysts, and they were saying, "Oh, this is going to hurt their business. People are lighting their Nike stuff on fire." On this show, we said, "Mark Parker has been running that company for more than a decade. It's possible he knows what he's doing. Maybe give him the benefit of the doubt on this one."
Gross: It's nice to see. It warms my heart a little bit that consumers did not go the other way on this.
Argersinger: At the time, it reminded me of that Charles Barkley ad from the mid-90s. Nike has a history of pushing the envelope with their advertising, and it's worked wonders.
Hill: Rough week for Twitter. Shares fell 25% after Citron Research put out a report calling Twitter "the Harvey Weinstein of social media." Matt, Twitter can be a rough place, especially a rough place for women. Even for Citron, this seems untoward.
Argersinger: It does. It's a shame that something like Citron still has as much influence as they do in the stock market. We all use Twitter. Chris, you and I use it pretty extensively. Some of the behavior on the platform, let's say, is not all that great. What Citron was reacting to was this Amnesty International study that showed how difficult it is to be a woman on the platform, especially if you're a woman in the media, and all the, for lack of a better word, hate that you get on the platform. It's troubling, and it should be taken seriously. But I think Jack Dorsey and his team are working hard to curb as much as possible. There's always a fine line there. You don't want to threaten free speech, and you don't want to hurt the anonymity of the platform, which makes it appealing to a lot of users on Twitter.
At the end of the day, I think this is true for all these platforms, advertisers follow audience. I don't know who first said that, but it's true. If you look at Twitter with over 300 million active users, I don't think advertisers are going to step away from that. Even today, advertisers are looking for platforms outside of Google and Facebook, and Twitter's an appealing one to look at.
I think the study's troubling. I don't think it's going to have much impact on Twitter's business in the near-term.
Hill: For those unfamiliar with Citron, all of the big Wall Street firms, they've got their reports that they put out there, upgrades and downgrades. It seems like, if Citron is in the news, it's because they basically put out a short report.
Argersinger: Right. I don't know if they disclosed it, but they're most certainly short Twitter before they issued this report. That's just how they roll. So, take that for what it's worth.
Hill: Shares of Jack in the Box popped late in the week after the company announced it is "exploring strategic alternatives." I'm surprised by this, Ron. This is a restaurant that I think of as doing well. Certainly, over the past five years, the stock's beaten the market's return.
Gross: Up 60% over the last five years. This year, struggling, down almost 20%. We can get into Jack in the Box specifically, but it's really interesting, a lot of M&A activity in this restaurant space. Buffalo Wild Wings, Panera, Popeye's, Bojangles, lots of folks seeing some value in this space, and they're gobbling up some of these companies.
Jack in the Box, box as you said, they're exploring strategic alternatives. They're saying if they don't come up with a buyer, they're going to put a new capital structure in place in the first half of 2019. Their debt levels are a bit out of whack, so that could lead to a bond issuance, for example. Activists Blue Harbor and JANA have been really pressing for them to do something to increase value. They've been complaining about the capital structure, margins, capital allocation, franchise mix, pretty much the kitchen sink. JANA did strike a deal with them to get two independent board members, and I'm sure they're pushing for the sale, too.
They did sell Qdoba a while ago to try to increase shareholder value, unlocking it with that. We'll see. I imagine a deal will get done.
Hill: Next week on Motley Fool Money, we're going to have our year-end review special. The week after that, we're going to have our 2019 preview show. You don't want to miss that.
Are restaurants in the stay-away category? It kind of seems like they are.
Gross: I've never been excited about restaurants the same way of never been excited about specialty retail. It's a very tough business. As a private investor, restaurants are one of the worst investments you historically could make.
Hill: A D student, a law school reject, and a guy with a crippling fear of public speaking. They are just a few of the people that you will meet in Gillian Zoe Segal's book, Getting There: A Book of Mentors. Segal spent five years interviewing successful business leaders and exploring what's behind their achievements. Earlier this week, producer Mac Greer talked with Segal about her book and the secrets to success.
Mac Greer: Gillian, there are a lot of books out there about success and leadership. What got you interested in writing Getting There?
Gillian Zoe Segal: I grew up without a mentor. I always used to look at people and wonder, No. 1, how they found their career path, and No. 2, what would make each individual successful? What kind of qualities did that person have that other people didn't have? The best way to figure all this out was to say I was doing a book on it. It gave me an excuse to meet with these 30 luminaries and just be as nosy as I wanted to be.
Greer: What's the biggest thing you now know about success that you didn't know before you started writing the book?
Segal: I think it all boils down to resilience. Everyone gets knocked down and knocked down repeatedly, in big ways and small ways, in personal ways and ways that just have to do with your career. But the trick is to just get back up and try again, or take a hint and change course a little bit. That would be the one thing that every single person has in common.
Greer: What do you think the biggest misconception is when it comes to success?
Segal: One thing that's really interesting is, it does not matter what school you went to. A lot of people in my book were chosen solely because they were successful in their field and I admired them, and I think eight of them did not graduate college.
Greer: [whistles] That's interesting. What else surprised you as you were writing the book?
Segal: One of the things that really surprised me was how important being good at sales is, how important good communication skills are. Basically, a lot of people, Sara Blakely is one of them, who founded Spanx, and John Paul DeJoria, who's the founder of The Patrón Spirits Company, and John Paul Mitchell Systems, they talk about door-to-door selling as being the most pivotal experience in their life because it taught them, No. 1 resilience, but No. 2, how to be a good communicator and get other people to follow what you want them to follow.
Greer: Let's talk about a few of those people you profiled. Because we're a show for investors, let's begin with Warren Buffett. Gillian, when a lot of us measure Buffett's success, when we think about Warren Buffett, we think of his incredible track record as an investor and we think about the incredible amounts of shareholder value he's created at Berkshire Hathaway. I learned from your book that his dad taught him that the inner scorecard is what really matters.
Segal: Yeah, absolutely. I think that one of the reasons Warren Buffett is successful is that he has good values and people want to do business with him. People want to make him proud. He learned a lot of these lessons from people in his life, and his father was one of the biggest influences. He basically said that you've lived a successful life if, at the end of it, the people who you want to love you do. If you're just the kind of person who has your name on hospital wings or buildings, but you don't have full relationships, you're just going to have an empty life.
Greer: Let's talk a bit more about that. Buffett said that one of the best pieces of advice he ever got, courtesy of his friend Tom Murphy, "Warren, you can always tell someone to go to hell tomorrow."
Segal: That's one of my favorite quotes in the entire book. Actually, I go to the Berkshire Hathaway annual shareholders meeting every year, and I get to see and hang out with Tom Murphy. That's a thrill because I love that piece of advice.
Basically, he's talking about controlling your temper. A lot of times, people spout off without thinking, and especially in this day and age, once something is out there, you can't take it back. If you've sent an email or a text, it's there on permanent record. Basically, he says, "Hold on to it for a day. If you still feel the same way tomorrow, you can tell them to go to hell then. You haven't lost your opportunity." That's one of my favorite quotes, because it's applicable not only to business, but to every aspect of life. It could be with your spouse or your child or your friend.
Greer: That's such wonderful advice. You mentioned the Berkshire Hathaway meeting. When I think of Buffett in those meetings, I think of Buffett and Charlie Munger holding court in front of thousands of people for hours upon hours. That's all the more amazing when I learned that Buffett, as a younger man, had this really crippling fear of public speaking.
Segal: Yeah, up until the age of 20 or 21, he was so afraid of public speaking that the thought of it would literally make him throw up. He lived his life so that he didn't ever have to find himself in front of a crowd. He would avoid classes in school if they made you speak in front of the class. And then, one day, he signed himself up for the Dale Carnegie public speaking course, and basically, it changed his life. If you go to his office, which is where I went to interview him, he has his Dale Carnegie Public Speaking certificate framed on the wall. He says that that certificate had more of an impact on his subsequent success than any other degree he has.
Basically, it goes back to communication. He says that no matter what business you're in, you want to get people to follow you. If you're in sales, you want people to buy what you're selling. If you're a manager, you want people to follow you in business. He says that good communication skills make all the difference in the world.
Greer: Let's talk about Spanx founder Sara Blakely. When you think of Sara Blakely, what resonates? What really stands out about her success?
Segal: Her persistence. She founded Spanx, and she actually kept the idea secret for a full year while she was working on it. She told her friends and family that she was working on an idea, but she didn't tell them what. When she finally told them what she was working on, they laughed at her. She says that she was already so invested in it that she didn't give up. But she said, "It's splitless panty hose." And people said, "If that's such a good idea, why wouldn't the big guys have done it?" They tried to help her by steering her away from wasting any more time on this. But her success story is a story of resilience, back to that again. Knocked down, discouraged again and again, and she just kept up with it. And now, we all know she's a self-made billionaire.
Greer: I love the dinner table conversation that she was having growing up. At her dinner table, her father would ask, "What have you failed at this week?"
Segal: Yes. It goes back to resilience again, a lot of people say, "If you don't fail, you're not trying hard enough." Failure is just part of the process. I think the sooner you can view failure as just part of the process, the further you're going to go. A lot of people will get knocked off course from a failure. But if you think of it as just part of the process, the next time you fail, if you pat yourself on the back and say, "I'm doing what I'm supposed to be doing, this is just part of it," you'll end up going far.
Greer: I love that. It really ties into something that you mentioned in your profile of Boston Beer founder, Jim Koch. For those people who don't know Boston Beer, they may know Sam Adams. Boston Beer is the parent company. Jim Koch had this to say: "People tend to think way too linearly about career paths. The path didn't appear to me until I was 34, and my wanderings are what prepared me for it." Is that a recurring theme with a lot of these people? Where there's not necessarily this A to B line to success, but the success comes from discovery, from grinding it out, from trying different things?
Segal: Yes. It's a big theme. A lot of people say that you can't always understand how an experience is going to play into your career, but very often, they do. He left business school. He was getting a joint business in law degree at Harvard, actually. He left and became an Outward Bound instructor mid-course. He just took time off. That taught him so many lessons. Like, you don't climb a mountain to get to the middle, you climb to get to the top. It also taught him a lot about risk. He talks about perceived risk vs. actual risk. He gives an example and says that a lot of people are afraid of rappelling, that's when you're tied to a rope and you walk off a cliff backwards. He says, a lot of people are afraid of that, but that's really not dangerous. You're tied to a harness that could lift a car. You're pretty safe. But walking on a glacier at a certain time of year, that doesn't appear like it would be dangerous, but really, you're at a big risk for an avalanche. Then he compares that to business.
He had a job at the Boston Consulting Group. He really wanted to leave that job. He wasn't happy and he wanted to start a beer company. And for so long, he was afraid to do it because he thought it was such a risky thing to do. Then he realized that the real risk was staying in his job at the Boston Consulting Group that he hated and just living the rest of his life unhappy. And that if he didn't go out there and try, the only thing that he knew for sure was that he would just stay where he was and be unhappy.
Greer: This is the wild card question, how about someone that we haven't yet talked about that really resonated with you?
Segal: One of my favorite people in the book was Craig Venter. His full name is J. Craig Venter. He was the first person to sequence the human genome. But watch out, because I could speak for an hour. [laughs] You'll either have to edit me or just read that essay. He has the most amazing story. I'll give you a couple of bullet points.
He got Ds throughout high school. The only reason he even was allowed to graduate high school was that they did not want to see his face again, so they made him write an essay that nobody else had to write so they could pass him and just get rid of him. Then he decided to not go to college and just surf. He had a couple of jobs. One was putting the price tag on toys at Sears and the other was driving a fuel truck at the airport.
The story goes on and on, and he ended up being one of the most important scientists of our time. You'll have to read it to see why.
Greer: That sounds great, Gillian! I've actually been here long enough that we interviewed Craig back in the day. As you may know, when he first mapped the genome, it was not without controversy. He used his own approach. I think it was called the shotgun method. And some people felt like he was cutting corners and it was a bit of a shortcut. He had this ongoing rivalry with the head of NIH. I remember, among other things, he was a very controversial figure at the time.
Segal: Absolutely! Basically, he ended up going to Vietnam, to the war, he was drafted. That changed his life. You have to read it, again, because it's a long story. He talks about an attempted suicide when he was there. Then, when he decided he wanted to live, he decided that he wanted to help people. So, he went back to community college, and he learned how to learn. He eventually knew that if he was a scientist, he could help more people than if he was a doctor. He got a cushy job at the National Institute of Health. He was trying to sequence the human genome with a team. But he thought, "This is a nine-year plan. I think I know a way we could do it in one year," and no one would listen to him. So, he quit his job, and he raised his own money, and he ended up doing it in a year. It's an incredible story.
But all of his earlier critics, it's very threatening when somebody wants to do something new and different. It was threatening to the way the government was going about it. So, he was really attacked and criticized. But now, all those people use his method, which was called shotgun sequencing.
Hill: The book is Getting There: A Book of Mentors. It's available everywhere you find books. For everyone listening, from everyone at The Motley Fool, we wish you a very Merry Christmas. And, hey, if on Christmas day you happen to get under the tree an Amazon Echo or a Google Home Assistant, two things. One, you can listen to our podcasts on those. You can also get The Motley Fool's daily news briefing, just look for The Motley Fool on your app and click subscribe and you're good to go. Seven days a week, Ron.
Gross: I've got it in my home.
Hill: Alright, let's get to the stocks on our radar. Our man behind the glass, Steve Broido, is going to hit you with a question. Ron, you're up first. What are you looking at?
Gross: I'm going with Carter's (NYSE:CRI), CRI, leading manufacturer of children's clothing in the U.S. Dominant position in that industry, children's apparel. Strong brands. It has scale advantages. Strong financial performance over multiple market cycles. Now, there are some short-term problems that have caused the stock to fall by about 30%. Of course, the market's weak. The Toys R Us bankruptcy screwed around with earnings in the short-term. Problems with the China licensee hurt the entry into that market. But, again, I think those are just short-term. Buys back a ton of stock, dividend's growing, 2.3% yield.
Hill: Steve, question about Carter's?
Steve Broido: This may sound kind of weird, but what about Carter's getting into adult clothing?
Gross: I think that's a very competitive industry and they should stick to their lane.
Hill: [laughs] Wow! Matt Argersinger, what are you looking at?
Argersinger: I spoke about Berkshire Hathaway on yesterday's Market Foolery podcast. You're looking at this market, it's been volatile. What am I going to buy? I would say, if you want something with very low downside, at least from my perspective, look at Berkshire Hathaway. Warren Buffett's buying back stock today, I guarantee it, because Berkshire's stock is trading roughly 1.3X book. Buffett has modified his approach there. He used to be buying at 1.2X. He's elevated that a little bit, looking more at an intrinsic value estimate. He's been buying the last couple of quarters. I guarantee he's buying now.
I think you've got limited downside in the stock, but you also have a business overall that's growing earnings 8-9% a year. Looking for a nice 10% annualized return? I think you could do worse than look at Berkshire Hathaway.
Gross: Hear, hear.
Broido: With a company like Berkshire, which has a pretty hefty price tag even on the B shares, do those move as much as stocks that are priced more cheaply?
Argersinger: They can. Look at Amazon, Amazon was trading at over $2,000 a share, and it's down 30%. But I think Berkshire, the nature of the business conglomerate, it's not going to move as much. And if you look at it, it hasn't moved as much as other stocks in this downturn.
Hill: Steve, I've got a stock on my radar this week.
Hill: It's iQiyi (NASDAQ:IQ), ticker IQ.
Hill: AKA, the Netflix of China. It went public earlier this year at $18, got up to the mid-40s. Now, it's down to $15. It's the No. 1 stock on my watchlist, Steve. Question about iQiyi?
Broido: Are they showing films that are based in China? Or is it international? Is it the whole catalog?
Hill: It's the whole catalog. It's the whole megillah, Steve.
Broido: OK! Interesting!
Hill: Three stocks. Carter's, Berkshire Hathaway, iQiyi. You got one you want to add to your radar?
Broido: I may have to take a look at iQiyi!
Hill: I have to thank our man Matty Argersinger for bringing this one to the table. It just looks so cheap!
Gross: Interesting. Do they have growth potential outside of China? Netflix is expanding overseas --
Hill: China is kind of a big market, I don't know if you've heard.
Gross: I get that, but is there any global opportunity there?
Argersinger: Global, not so much.
Gross: Probably not, right?
Argersinger: But, 80 million users now, probably going to have at least 200 million users within the next few years. And that's just China.
Gross: Not too shabby.
Hill: Ron Gross, Matt Argersinger, guys, thanks for being here!
Gross: Thank you!
Argersinger: Thanks, Chris!
Hill: That's going to 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! Merry Christmas! 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. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Chris Hill owns shares of Amazon, UAA, and UA. Matthew Argersinger owns shares of GOOG, Amazon, SAM, iQiyi, NFLX, Twitter, and UA and has the following options: long January 2019 $15 calls on Twitter. Ron Gross owns shares of GOOG, Amazon, Apple, BRK-B, FB, MSFT, and Nike. The Motley Fool owns shares of and recommends GOOGL, GOOG, Amazon, Apple, BRK-B, SAM, Carter's, FB, FedEx, NFLX, Twitter, UAA, and UA. The Motley Fool owns shares of MSFT and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends iQiyi and Nike. The Motley Fool has a disclosure policy.