Netflix Concerns and Retail Woes

In this episode of Motley Fool Money, host Chris Hill and analysts Andy Cross, Jason Moser, and Emily Flippen hit on some of the biggest recent business news. Why does Amazon (AMZN -1.65%) make up such a large chunk of the digital ad world? How can parents get their kids interested in investing? American Express (AXP -0.84%) reported a good quarter, so why did the stock drop? How does Netflix (NFLX 1.74%) proceed in the face of tons of new competition? Plus, updates from Ameris Bancorp (ABCB -1.53%), Yum! Brands (YUM -0.18%), UnitedHealth Group (UNH 1.35%), Coca-Cola (KO 0.31%), Intuitive Surgical (ISRG -0.50%), monthly retail industry sales numbers, and more. And, as always, the analysts share some stocks on their radar. 

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Oct. 18, 2019.

Chris Hill: Hey, thanks for listening to Motley Fool Money. We have a lot going on this week. We have earnings season starting to heat up. We're going to dip into the Fool mailbag. 

It's the Motley Fool Money radio show! I'm Chris Hill. Joining me in studio this week, senior analysts Jason Moser, Emily Flippen, and Andy Cross. Good to see you as always! 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. 

But with earnings season starting to heat up, we're going to start with Netflix. Third-quarter results for Netflix were not perfect, but profits look good. International subscriber growth was stronger than expected. Andy, shares of Netflix down ever so slightly this week. I'm a little surprised because I thought, in part because of the international subscriber growth, this was pretty good.

Andy Cross: Well, don't forget that the last quarter was so bad, where they came out with their new additions far below expectations. It was nice to see that they at least moved in the right direction this quarter. Sales were up 31%. Actually up 35% if you back out some of the currency effects. Nice growth on the profit picture. Paying additions at 6.77 million, just slightly below the guidance they had at 7 million, but it was the second consecutive quarter where the paid subscriber additions were below what they estimated. I haven't seen that at least in four years. So, from that perspective, that was a little concerning. Hopefully, when they look forward to the fourth quarter, we see that number reverse, and they actually can beat some of the guidance. 

Chris, as you mentioned, the strength is all on the international side. Tons of investments going into the international programming. They continue to get a little bit of a boost on the pricing they put forth when it comes to the revenue per user. Reed Hastings, the founder and CEO, talks about how the increase they put forth on the U.S. side has impacted the additions on the U.S. side of the business. So really, it's all growth about the international side. That was the bright picture. 

Overall, it was an OK report. I was glad to see they had the growth come back compared to last quarter. But clearly, so much competition, as we've all talked about, that is heating up. That's the big thing to watch for Netflix.

Hill: Jason, Reed Hastings also being very up-front about what he called modest headwinds in the near term, just the amount of attention that's going to be paid to the launch of Disney+ next month, and then Apple+ coming on line.

Jason Moser: Going to be a lot of platforms out there with a lot of really good content. The thing about Netflix, this is the challenge that Netflix faces, is because they're a pure play, they can't hide behind any other part of the business. When you look at some of the numbers, they're projecting negative $3.5 billion in free cash flow this year. They continue to talk about that slow march toward positive free cash flow. That sounds like it's going to be a long time coming. All along the way, that share count continues to go up as well. They're going to continue tapping the capital markets. Share count's likely going to continue to go up because they have to keep paying for that content, those obligations now are closing in on $20 billion. For me, it goes back to pricing power, and we're already seeing some challenges there when they start to try raising prices. That's affecting the growth. So, while I think it's going to be a core offering a lot of people will keep, I feel like we're entering this new stage, and the financials, I think, are going to come under more scrutiny now.

Emily Flippen: I actually think that Netflix has more pricing power than people give it credit for. I tend to be a little bit more of a Netflix bull, even in this environment. And that's because they still have a lot of levers to pull, the way that they can monetize the service. The way they historically monetized it is by whatever's going to get them the greatest number of eyes. And the reason why we're seeing that customer growth starting to slow down is because of the fact that they've already saturated at least the U.S. market. So now, the growth then becomes you saturating the international market. And once they have all the eyes that they wanted to aggregate, that's when they get their pricing power. I actually think that, while there's been a lot of critiques over Netflix's originals, Netflix's TV shows, they're one of the only platforms that's giving a platform to international producers, international TV shows. And I think people misunderstand how much power that has for the international markets in particular. There's lots of different ways they can monetize it. I think they'll get to profitability. They'll be free-cash-flow positive. It's just a matter of figuring out when they want to make that move from attracting the greatest number of consumers with a low price point to upping the price point.

Cross: Well, yeah, it'll be a while until they're free-cash-flow positive. They are nicely profitable, but they're investing so much, and they have content obligations north of $19 billion now. But Emily is absolutely right, the international platform -- the contribution margin on the international side is half of what we have on the U.S. side. They're ramping up so much of their spending and their programming around international. That's an advantage. Hopefully the profitability curve internationally continues to ramp up, and that drives the stock price eventually higher. 

Moser: And that international dynamic makes a lot of sense, why Amazon, too, is investing so much in that market as well.

Hill:  From video streaming to surgical robots. Intuitive Surgical's third quarter was better than expected, and the stock up more than 6% on Friday, Jason.

Moser: Yeah, the investment case for Intuitive is that management's going to keep finding new ways to get its robotic systems into hospitals to perform more procedures. Honestly, when you look at the numbers, it does seem like everything is working out quite well. Global procedure growth was 20% for the quarter. In the U.S., it was 18%. They placed an additional 275 da Vinci Surgical systems. That was up from 231 in the third quarter of 2018. Their installed base now stands at 5,406. Total recurring revenue for the quarter $817 million. That represents 72% of the total revenue of the company. That's one of the attractive parts of this business, is that razor-and-blade model. You get those machines in the hospitals and then you continue to benefit from the recurring revenue that comes from servicing them and using them. From a personal point of view here, I enjoyed spotting the phrase "augmented reality" in the call this quarter, talking about their IRIS system. Just a reminder for everyone, it is the integration of pre-operative imaging and 3D imaging into real-time case studies for doctors. It's helping train physicians on using the da Vinci robots. And again, I think this is a company that is based on technology, very forward-looking, and you know healthcare is a market that I like a lot. There's just so much opportunity there, particularly as technology continues to evolve.

Hill: Shares of UnitedHealth Group up 10% this week after the healthcare giant posted third-quarter profits of $5 billion. Emily, UnitedHealth still down a bit from its 52-week high, but I feel like a couple of more quarters like this should do the trick.

Flippen: I think there's a lot of pessimism in the market right now for healthcare -- maybe not for Intuitive Surgical, but for UnitedHealth, definitely. That's largely because of the macro environment we're in right now, heading into 2020. It's hard not to see healthcare being a cornerstone issue, and UnitedHealth in a lot of ways is positioned right in the middle of that. While the stock price hasn't reflected the strong performance for this quarter, UnitedHealth actually owes a lot of its strong performance to its new Optum business. I will buy someone lunch if they could name all the different businesses within their Optum business. Can anyone?

Hill: No.

Moser: I could go find them on the website and read them off to you, but it's a lot.

Flippen: Honestly, good luck! I tried. Here's what I got. Optum Health, OptumRx, OptumInsight, Optum Bank, OptumCare. I don't know if that's all the Optums out there.

Hill: Is there Optum Web Services? 

Flippen: Yeah, probably.

Moser: Sounds like they're Optumizing their business model.

Flippen: [laughs] But, all of their Optum businesses grew at double-digits last quarter, which is really impressive for a company this large whose overall revenue grew about 8% year over year. The Optum businesses are definitely performing well. They're doing a great job of increasing shareholder value. They issue dividends, they have share buybacks. It's overall a good, stable business. The macro environment right now might continue to see a company like this pressured, though.

Cross: Over the last decade, UnitedHealth is up more than 10 times in value, has a nice little dividend. A very stable stock, as Emily mentioned, the volatility is much lower than the market. At $230 billion market cap, it's a pretty stable company to be able to stick in your portfolio.

Moser: It's nice that Teladoc Health is partnering up with Optum too, right, Mac?

Hill: Third-quarter profits and revenue for American Express came in higher than expected, but shares not moving on Friday. Jason, you look at Amex, it's up around 15% for the past year. Is what we're seeing with this latest quarter a valuation thing?

Moser: Maybe. You know I love a good membership business. American Express is essentially a membership business. You pay a membership fee, in most cases, to have the card. A couple of years ago, we had some real concerns. I know I specifically did, in the face of this tech threat in payments and card services. Amex seemed like a legacy provider that might be missing that next wave. But you fast-forward to today, the business continues to chalk up good results. Excluding currency, adjusted revenue was up 9%. That marks the ninth straight quarter of revenue growth of at least 8% for the company. I think that's really impressive. They're paying a little bit more on the reward side, making sure that they invest in co-branded partnerships to keep their card users, their card holders using the cards. Those are good long-term decisions in my opinion. That is seeing the forest for the trees, knowing you're going to take a little short-term pain in order to make that network bigger and get people spending more with them. Very cool to see them saddling up with PayPal and Venmo to do more things like splitting card purchases, and even enabling customers to pay with Amex points where PayPal is accepted. 

From the stock perspective, over the past three years, it's been a really good performer. The stock has basically doubled. When you compare that to other companies in the space like PayPal, it's still lagging. To me, Amex is more like a bank investment at this point. They're doing a lot of good things to keep up with the times. As a card holder, I love it. I'm not terribly enthusiastic on it as an investment, given the other options that are out there today.

Hill: For more earnings news, we will start Down Under with Atlassian, the Australian-based enterprise software company, out with first-quarter results that were better than expected. Atlassian also raised guidance for the second quarter. Andy, why are shares down 7% on Friday? This is what we like to see!

Cross: I think the reason they are down is probably more about the general malaise around some SaaS companies, some software, cloud businesses this year. There were some comments from other SaaS companies that clients are pushing back some of their purchases, are a little bit slower to develop them. So, I think there might just be some concerns there. 

But Atlassian, this is one of my favorite management teams. The two co-founders that own almost 30% of the stock are very involved in the business. Sales were up 36%. They have their Jira software. They have Trello, which we use around the office here. They're continuing to innovate into those businesses. But also, on the pricing side, they now have been more aggressive on the free-to-premium side. They have these different free offers that clients are gravitating to. It helps continue to grow their revenues. Their expected revenue growth will continue going forward. You look long-term, $30 billion business. Very large market for them to be able to play in. We're getting more and more collaborative as organizations work together. They serve 160,000 global clients. I see the growth just continuing for Atlassian. It's very well run. They actually generate, when you adjust for some of the heavy stock compensation, they generate some nice free cash flow.

Flippen: You hit it on the head there, too, about how well run this company is. They're the type of co-founders that you look for in an investment, people who can lead a company for the long term and have its best interests in mind -- and, as a result, have your best interests in mind. I will just add that Atlassian is interesting because, when you think about SaaS companies, you talk a lot about the idea of being developer-focused, so, the people who are actually the ones using the technology, making it friendly to them. Atlassian does a great job of being developer-focused. Unfortunately, that makes it a little bit harder for them to get into other areas of the business. They have a lot of product suites that, once you have one, and once you've made that decision, your developers have gotten Atlassian, it's easy to expand it, but you have to convince them. The developers have to convince the company to bring it Atlassian in in the first place. They've been doing great doing that so far, but I do think it comes down to the fact that if you're a developer, their products are just so much easier to use than the competition's.

Cross: Yeah, I agree. They make these little acquisitions. They bought Code Barrel, which makes automation for Jira, which partners very well with their large Jira business. And they bought Opsgenie last year. That's an incident response and management software. That's been plugging in. And they're very patient. They let the businesses grow that they acquire and they slowly integrate them. That's good long-term.

Hill: Coca-Cola's third quarter was fueled by strong sales of Coke Zero. Shares of Big Red up on Friday, and Emily, close to an all-time high.

Flippen: You're actually missing the big story here, Chris.

Hill: Do tell.

Flippen: The big story here is the fact that they launched coffee-infused soda in 20 markets across the world. Sure, while the great results were associated with Coke Zero and lots of people buying little tiny cans of Coke -- I know you'd like to do that, Chris. 

Cross: I do!

Flippen: Little tiny cans of Coke. Well, the big story to me is the idea that there is, in fact, coffee-infused Coke out there in 20 markets. I don't believe the U.S. is one of them yet. But if memory serves, I think they tried to do something like this maybe a decade ago, and it really fell flat on its face. But based off this quarter, maybe it's being more successful in other markets.

Hill: You know what's better than coffee-infused soda? 

Flippen: Nothing?

Hill: Coffee.

Flippen: [laughs] I challenge that. 

Cross: Straight to the source.

Moser: Coffee-infused stout, that's a good one. Founders Breakfast Stout.

Hill: Third-quarter profits and revenue for Ameris Bancorp came in higher than expected, but shares of the Southeastern bank not moving on the results. Jason, I know you're a fan of this one. But you look at Ameris Bancorp's stock over the past year, and it's basically flat.

Moser: Yeah. I think a lot of that is tied to this Fidelity acquisition and the general challenges in banking given the interest rate environment. Small banks have a tougher time dealing with that. You go into a quarter like this, you really are looking for the red flags. I don't see any. The metrics that matter most are all looking very strong. The Fidelity acquisition added $5.2 billion dollars in total assets, $3.8 billion in total loans, and $4 billion in total deposits. You put all that together now, and they stand at total deposits of $13.7 billion. Total assets now just under $18 billion. For the quarter, net interest margin staying in check. It was down just a tick to 3.84%. A good number, given the interest rate environment. 

I think that one of the key justifications for the acquisition was this access to a lower-cost deposit base. When you look at that, you see this non-interest-bearing deposits representing almost 30% of total deposits. Now, that's up from 25% a year ago. That's important because it was a key justification of the acquisition. The president of Fidelity, Palmer Proctor, he's now stepped in to fill the CEO role. Seems like he's got a good grip on the business. Excited to hopefully get him on Industry Focus soon for an interview. But as a shareholder in Ameris, I'd feel very good about what they're doing.

Hill: Emily made the comment about healthcare probably going to be a spotlight issue in the 2020 election. Feels like big banks are going to be in the spotlight as well. Do you think that is even more of a bull case for smaller banks like Ameris Bancorp? Let's face it, to the extent that banks get attention from politicians thinking that they're too big, we're talking about a bank here that's less than $3 billion.

Moser: If I'm going to prioritize the list, I feel like tech is at the center of the bull's-eye for this election season. Banks will probably play second fiddle there. To your point, yes, big banks obviously possess a lot of advantages there. I think ultimately, that's where we're going to continue to see consolidation in this space. I think a lot of bigger banks look at Ameris today and think, boy, they'd love to swallow that thing up at the right price. But for now, I'd love to see this team get the room to keep on doing what they're doing. 

Hill: It's not necessarily a name that flows off the tongue, but it's not also not Truist. 

Moser: Listen, money's money, and people like money.

Hill: This week, it took less than two hours for KFC to completely sell out of its Seasoned Tickets promotion. For just $75, the deal entitles the holders of the Seasoned Ticket to have four dozen made-to-order chicken wings delivered to their home every week for 10 straight weeks. Emily, I feel like this can only be a win for parent company Yum! Brands.

Flippen: It's only a lose for the people who missed out on buying the Seasoned Tickets. It's a win for everybody else, undoubtedly. This was referred to as the Netflix of chicken wings. I don't know how that connection was made. I see it as a Stitch Fix of chicken wings, except I'm a lot more bullish on these wings.

Cross: [laughs] A box!

Flippen: Exactly. This is what I want, though. I want them to customize the boxing like Stitch Fix does. I want them every week to send me -- what is it, 48 wings a week? 

Hill: Yeah. 

Flippen: 48 wings, every week, and I want the flavors customized to me. I've had a bad week, maybe send me some spicy wings, spice up your life a little bit. And the ones I don't like, maybe I can send back, get a little refund, I don't know. There's an idea here, though.

Cross: I think they should also include a card for a local cardiologist, as well, too.

Hill: If you're getting four dozen wings delivered every week for 10 weeks, hopefully you've got some friends over, right?

Cross: I guess so.

Moser: Either that or perhaps a Peloton membership. 

Cross: You'll need it.

Flippen: I will say, to be serious about it, though, they're definitely losing money on this deal. For $75, 528 wings, that's about $0.14 a wing if my math is correct. There's probably somebody out there who's crunching the numbers saying, "That's not right." But, generally, that's really, really cheap wings, so they're probably losing money on this deal. 

Hill: Let's talk retail for a moment. The retail sales in the month of September fell by 0.3%. Jason, that doesn't seem like a big number, but this is getting a lot of attention, and I think it's reasonable that it gets a lot of attention, in part because it's the first drop since February, but also because we're going into the holidays. You've got the National Retail Federation coming out and saying, "Everything's going to be great around the holidays! Consumer spending growth is going to be double what it was last year!" And then you have some economists saying...I don't know. You take this, you combine it with contraction in manufacturing, and others. When you take this data point and you look at retail, what goes through your mind? 

Moser: It seems to me like they're trying to make this the Lego holiday season. Everything is awesome, and let's just keep on doing it. Maybe that's how it works out. I'm taking a little bit of a counter view to that, though. A year ago, we were just getting into this whole trade war thing, and the ramifications of it, thinking it would probably be resolved by this point. Doesn't look like that's going to happen. Uncertainty makes retail a little bit more of a difficult space. And then there's data out there that says, while unemployment is great, wages are still a little stagnant. Personal consumption expenditures have slowed a little bit. When you look at the state of the consumer, there's some telling data out there in regard to the state of consumer credit card debt. We talked about this earlier during the week on MarketFoolery. On average, households with the lowest net worth are the ones with the most credit card debt. That ultimately is the fuel that feeds this retail fire. At some point, that slows down. I feel like we're seeing some signs that things are starting to slow down. I'm not saying that we're on the tip of a recession or whatever, but I can certainly see how maybe this is a slower holiday season than some might expect.

Flippen: I'll play devil's advocate to that a little bit. That quote in particular was year-over-year growth. Looking at this time last year, there was a lot of fear in the market, a lot of concern about the economy. Maybe that led to lower spending last year than what should have been seen. I think it was just earlier this week, was it JPMorgan Chase that reported? And the real big story was that Jamie Dimon came out and said, "Yeah, manufacturing has been weak, but the American consumer is still extremely healthy." So, while we're seeing this weird contraction with the manufacturing industry, at the same time, it seems like American consumers are still willing to spend. So I tend to think that maybe we're going into a good holiday season for retailers.

Cross: Also, the monthly number is the change from last month. When you look year over year just on that month, we're still up more than 4% on the overall consumer spending. That's a little bit below the long-term historical average of about 4.2%. It's down from where it was last month year over year. Consumers are still spending 4% more than we spent last year in the month. I think we have to take the month-to-month results all with a grain of salt. 

I think the trade issue is going to cause some longer-term ramifications for the consumer spending. But Emily is right, the consumer is the driver of the U.S. economy, still spending money. That's a good thing to see, especially with the manufacturing economy not working at all.

Moser: And not all retail is created equal. That's a big market with a lot of players. There are plenty of names we could look at, plenty of companies we could say, "Well, I'm not terribly optimistic." But look at a company like Etsy, for example. Admittedly a smaller niche market, but man, did they own it. It just seems like quarter in and quarter out, that consumer stays very healthy.

Hill: Well, and you think about all the retailers out there, it seems like either you need to be big, or you need to have a moat. When we look at Amazon, Walmart, Target, and I'll throw Costco in there as well, they're probably OK weathering any type of storm here. And I think Etsy is a good example of a smaller retailer with a good moat. 

Moser: To your point on those big retail names, look at companies that benefit from those names. Something like a Hasbro. Over the past several years, Hasbro has separated itself from the other competitors in that space. I suspect Hasbro will continue to do very well, because we know that holiday season is the biggest month for these toymakers.

Flippen: We talk a lot about some of these bigger retailers. It's important not to forget the discount retailers, too, which have also been performing really well. That's the TJ Maxxes of the world, the Burlingtons of the world. These are businesses that have actually done really well in their niches. When it comes down to it, when you think about what retailers are going to do poorly this holiday season, it's probably the same retailers that have been doing poorly for the past few years.

Hill: Let's move on to online advertising. The latest forecast indicates that Google and Facebook will continue to dominate, as they have. Most noteworthy in the forecast, Jason, was Amazon's ad business looking like it's going top $7 billion in 2019. That's roughly 30% growth year over year. I shouldn't be surprised by this, but that's a pretty big number in terms of growth. 

Moser: It is a big number, particularly when you consider that the space is ruled by Google and Facebook, Alphabet and Facebook. With Amazon, you've got the ad opportunity on the commerce site, but also, there's the entertainment side with the Fire TV Stick and Fire TV Box, the way people are getting their entertainment now. There's a big opportunity there, there's no question about it. We talk about The Trade Desk a lot. The Trade Desk is even a company looking at this as a big opportunity, because they recently came to an agreement with Amazon to be able to sell ads on that platform with all of the third-party providers for that Amazon entertainment platform. 

Amazon is going to capture their fair share. I don't think this is ultimately a major threat to something like a Google. I think Facebook is dealing with a lot of their own challenges right now. It's hard for me to imagine five years from now, we're still not looking at Google and Alphabet as the kings of online advertising. But, it's a massive market. 

Cross: At that point, it's more than a $730 billion market, the total advertising market. Digital is still a very small part of that. Digital search is even a smaller part of that. You have Google and Amazon definitely making inroads. We've talked about this. Search on Amazon's platform, a huge opportunity. They saw that and now they have the advertising for it. Jason mentioned The Trade Desk. One reason we continue to like that is because of the programmatic side, so, matching up, a very algorithmic, much more efficient way to do this, in the non-walled-gardens -- so, not the Facebooks, not the YouTubes of the world, but elsewhere, on other media platforms. A company like The Trade Desk has an opportunity because that market is growing much faster than the overall digital market.

Flippen: It also begs the question, what are regulators going to do about this market that increasingly seems to be focused around what is only a few of the biggest companies here in the United States? To Jason's point about Amazon allowing third-party ad providers on their platform, it feels like that's almost by force. They know if they don't, then they can have some antitrust suit against them regarding preventing third parties from advertising, or providing advertising support on their platform. It poses an interesting problem for regulators. Typically, monopolies are by force. This is a monopoly by choice. Google, Facebook, Amazon, they're monopolies because consumers use them. They're not monopolies by nature. From a lot of perspectives, it's hard to imagine regulating these advertisers because the place that naturally aggregates eyes would receive advertising credits.

Hill: Although it did make me think, when I was looking at this story initially, and to your point, Jason, about how big tech is going to be in the spotlight for politicians in 2020, this is one more reason to go after Amazon -- their increasingly dominant ad business. 

Moser: Oh, yeah. It also makes you appreciate a business like Roku. When it first came public, we looked at it as a hardware play. But clearly, that's taking a back seat to what is becoming a very robust partnership and advertisement-based model. Again, I would imagine The Trade Desk will be able to benefit from that. I'm sure that Amazon's opening up of its walled garden, so to speak, is partly in response to that competition.

Hill: We've talked before about start-up beverage companies, whether it's a small craft brewery or even a non-alcoholic beverage company; more often than not, the business plan of whoever is starting that business is, "I just want to get bought by a giant. I want Budweiser to buy me. I want Coca-Cola or Pepsi to buy me." Do you think that's now the play for small start-up digital advertising businesses? That this is now so dominated by Facebook, Google, and increasingly Amazon that, for start-ups out there, they just think, "Hopefully we can catch their attention and they'll buy us out."

Cross: Jeff Green, the founder of The Trade Desk, did sell his first advertising business, I think to Microsoft eventually. I mentioned that $730 billion-plus market. That's obviously total advertising spend. But, the way this business is evolving, yes, they do have big players, but when you start moving outside those walled gardens, you have companies like The Trade Desk, if they can be more efficient and more friendly to their clients, and independent, that's important, and independent, there's a huge opportunity for them.

Moser: I'm not going to lie, I zoned out after you said craft brewery.

Hill: [laughs] You can email us. [email protected] is our email address. Or, you can be like Derek in Japan, who sent a physical letter to us here at Fool global headquarters in Alexandria, Virginia. Derek writes, "I've been listening since 2010. The majority of that time I've been in Japan, stationed here while on active duty, and after that, working with the military here. It's a great show. Keep up the good work. My question is, how do I get my kids more interested in investing? I started investing for them years ago, but I'd like to get them more involved when it comes to picking stocks. Should I have them focus on companies that actually make something? It might be easier to understand what a company like Disney does as opposed to what a company like JPMorgan Chase does. Would that be easier for them? Or should I stick to the financials, as I do when I invest? P.S., enclosed is this fall's versions of Kit Kat from Japan. Enjoy."

First of all, thank you for listening for so long, Derek! Thank you for a great question, which we'll get to in a moment. But thank you also for the green tea Kit Kats and the toasted green tea Kit Kats. I think the consensus around the table here is slight favoring of the straight-up, traditional green tea one. Is that fair to say?

Cross: Yeah. In fact, I'm going to grab one...

Hill: By all means, just chew into the microphone.

Cross: I'm not going to chew into the microphone! I just wanted to look at it! Yeah, the green tea is, I think, a little better than the other one.

Hill: Jason, let me start with you. It's a great question! It's always great to get your kids involved in investing, but chances are, they're going to be more interested if it's a business that they can understand like Disney as opposed to, well, JPMorgan Chase.

Moser: Yeah. Hats off, first and foremost, for getting your kids into investing. I'm not sure how old your kids are at this point. But I will say, my wife and I have worked on making sure our girls are financially literate and aware of what's going on in the world. Part of that is investing. They've been owning stocks for several years now. Two things I always come back to when it involves kids and investing. It's companies they know. It's also taking the business owner's mentality. I think that the more you're able to get companies on their radar that they know -- and I'm not saying understand their business model fully. Understanding generally what the company does. But also, give them this understanding that owning their stock is actually only owning the business. And once they've got companies they know and like on their radar, and then there's this possibility of actually being an owner of that business, that lights a fire, I think, in a lot of people. I know it definitely piqued my girls' interest as well. So, that's one thing we've continued to do with our girls, is trying to make sure the businesses that we're shooting across their radars are ones that they run across every day, and then create that ownership mentality.

Flippen: Jason's giving you the wise answer. I'm going to give you what I think is the more realistic answer. That is to say, kids and parents, sometimes things that parents try to get you into, you're going to hate automatically. I don't know how old your kids are. Maybe if they're younger, this doesn't apply. But I remember when I was growing up, I came from a family, my father's a history professor, my mother was a lawyer. I am now working in finance, if that tells you anything about my desire to get into history or law. I will say, I like the idea of buying companies that your kids can understand, and owning businesses. What got me started investing was buying a biotech fund that I knew nothing about, and then watching it go up 50% and absolutely losing my high school mind based on how much money I suddenly had. Depending on how your kids view the world. Maybe they're like Jason's kids, and they're more business-minded, well-rounded children than I was. But I was very excited by the idea of capital appreciation.

Moser: Let me make sure, first and foremost, "the wise answer," was that code for old? Are you calling me old, Emily?

Hill: That's how I took it.

Moser: No, I think, an important point here -- I think you're right. With kids, that interest, it's not like we sit there and talk stocks all the time. They take a look at their portfolio maybe four times a year. We look at their portfolio to see what it's doing. So, keep your expectations in check as a parent. This isn't about getting your kids talking stocks every day. I think that's an unrealistic expectation. But yeah, set the expectations appropriately, and understand it's a marathon, not a sprint.

Cross: Yeah, I think it's getting your kids interested in the inquisitive nature of learning about businesses and understanding the products they use or enjoy every day, and how that basically manifests itself into a business and capitalism and how that grows. Emily's right. I think sometimes, you start lecturing them, they're not going to listen to you. So, I think the approach of trying to get them started into the products and the businesses in what they enjoy, as much as the finance and the actual stock side. I'm just starting to do the stock part to it, and I get a lot of glazed eyes from my kids right now.

Hill: To Emily's point, if you have a couple of stocks that they're interested in, that's great. If there are a couple of stocks that you know as a parent are going to be monster winners over the next 20 years, don't let that stop you from buying. Don't let your kids' ignorance or lack of caring about the business stop you. 

Let's go back to Jan. 4th of this year. It was our preview for the year ahead. If you're a longtime listener, you know on our preview show, we talk about stocks to watch in the coming year, CEOs on the hot seat. We also make reckless predictions about anything, not just business. Let's go to our man behind the glass, Dan Boyd, for my reckless prediction for 2019 that I made on Jan. 4th. 

"Hill: I'm just going to say that regardless of where free agent Bryce Harper ends up, the Washington Nationals are going to the World Series."

Hill: You're welcome, everybody!

Cross: Strong!

Hill: I didn't put money on that. I probably should have. That's what I get for not taking my own advice. 

All right, let's get to the stocks on our radar. Our man behind the glass, Dan Boyd, is going to hit you with a question. Emily Flippen, you're up first. What are you looking at this week?

Flippen: I'm looking at a company called Avalara, ticker AVLR. It's a cloud-based tax compliance software business. Its flagship products include tax processors that allow companies to better calculate sales tax. If anyone remembers the 2018 Supreme Court case, I believe it was South Dakota vs. Wayfair, they require people who sell online to start calculating sales tax for the jurisdictions in which they operate. Avalara simplifies that process. It's a relatively small business, but expanding quickly.

Hill: Dan Boyd, question about Avalara?

Dan Boyd: Generally it's Ron Gross who brings the most boring stuff to the table here on Motley Fool Money. I want to thank Emily for picking up the slack while he's not on the show this week.

Flippen: [laughs] Always looking out!

Hill: Jason Moser, what are you looking at? 

Moser: I'm going to try to one-up her, Dan. I have Masimo, ticker MASI. Earnings coming out next week from Masimo. This is the company that is in the business of -- say with me, folks -- pulse oximetry and other non-invasive blood monitoring equipment. 

Flippen: Well, of course.

Moser: [laughs] Last quarter, again, shipments were up. They have now an installed base of almost 2 million worldwide. A lot of parallels to Intuitive Surgical that we were talking about earlier with the razor-and-blade model, recurring revenue dynamic. Massive market opportunity in healthcare. I'll be very interested to see how this latest quarter shakes out.

Hill: Dan, question about Masimo?

Boyd: Jason, Chris clued me in before the show that there is another company called Massimo in the world, but I believe this one is a coffee company. To our earlier discussion about coffee, who you got, Jason? Blood or coffee?

Moser: My blood is fully enriched with coffee 24/7. 

Hill: A little thing we call fusion. Andy Cross, what are you looking at?

Cross: I'm looking at Manhattan Associates, symbol MANH. It has nothing to do with Manhattan, New York. It is actually a software logistics, inventory management business. It's making this big push to the cloud. Five billion dollar market cap. They report earnings next week. For them, it was a legacy business. They've shifted to the cloud. It's really helped the stock price. I want to see how that continues to grow their overall business.

Hill: Manhattan Associates, Dan?

Boyd: OK, Andy, if it's not associated with New York or New York City -- with Manhattan, of course, being the most iconic part of New York City -- what Manhattan is it associated with?

Cross: I think it's actually from Manhattan Beach, California.

Hill: Not Kansas? I immediately went to Manhattan, Kansas.

Cross: Could be Kansas.

Hill: Three very different businesses, Dan. Maybe not the most scintillating trio. Avalara, Masimo, Manhattan Associates. You have one you want to add to your watch list?

Boyd: It seems like we can't live without blood or coffee, so I'm going with Masimo.

Moser: That's two weeks in a row, folks! Thanks!

Hill: Also worth pointing out, you know that's just bragging rights, right?

Moser: Listen, I have to have something to go home to, Chris.

Hill: [laughs] Jason Moser, Andy Cross, Emily Flippen, thanks for being here! That's going to do it for this week's edition of Motley Fool Money! Our engineer is Dan Boyd. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening! We'll see you next week!