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The State of Retail: Or, Why Bed Bath & Beyond Is Still a Bad Bet

Chris Hill, The Motley Fool

On this episode of Motley Fool Money, four Foolish analysts run down the week's biggest market news. The government shutdown is definitely big, but an even bigger market impact is coming from China's slowdown. Meanwhile, a bad quarterly report from Macy's (NYSE: M) didn't just tank Macy's stock but also sent troubled ripples throughout the retail space. And Bed Bath & Beyond (NASDAQ: BBBY) saw a nice boost from its report, but investors should still be wary of a value trap.

Activision Blizzard (NASDAQ: ATVI) is down big after a messy split with Bungie, the studio behind the Destiny franchise. And as always, the guys share some stocks on their radar. Also, host Chris Hill talks the Consumer Electronics Show (CES) with Rex Moore, on the ground in Las Vegas. Hear more about the most exciting and weird new technologies on the floor, the state of self-driving cars, what Procter & Gamble (NYSE: PG) had to offer CES, and more.

A full transcript follows the video.

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This video was recorded on Jan. 11, 2019.

Chris Hill: It's the Motley Fool Money radio show! I'm Chris Hill. Joining me in studio this week, senior analysts Andy Cross, Aaron Bush, and Ron Gross. Good to see you as always, gentlemen! We've got the latest headlines from Wall Street, we'll get a report from the Consumer Electronics Show in Las Vegas, and, as always, we'll give you an inside look at the stocks on our radar. 

We're going to begin with the big macro. The government shutdown is now three weeks long, with no signs of an end in sight. We've got more evidence of an economic slowdown in China. Ron, obviously we are business-focused investors, but how should we be feeling about the big macro stuff these days?

Ron Gross: Oh, this furlough. It's a human story, but there are real economic implications here. Just the paychecks that are being forgone right now represent a loss of more than $2.2 billion in consumer spending. You have housing, transportation, food, healthcare, all getting hit. That will reverberate through the economy, for sure.

Hill: Andy, we're seeing more and more CEOs come out, maybe not as strongly as Fred Smith at FedEx did a couple of weeks back, but more and more CEOs coming out and talking about their ability to plan in 2019 getting harder and harder.

Andy Cross: I think it has to, when you start thinking about a government shutdown; the trade issues continue to be forefront for so many of the global companies, wondering what's going to happen with the trade issues. This uncertainty, CEOs and chief financial officers don't like planning because it's so difficult to do when they don't know what's going to happen even over the next few months. So when you start thinking about where interest rates are going to go and all these uncertainties for them, they start saying, "Listen, we can't plan as aggressively as we would like to."

Aaron Bush: The largest uncertainty to me is less than the U.S. and more what's going on with China and the slowdown there. We saw Apple a week ago lower its guidance. That was a pretty big deal. But I think there's a chance that that might just be the first step of many. If you think about Nike, Starbucks, Tesla, all of these big consumer-branded companies that also operate in China, they could get hit, especially if a lot of those companies' growth stories are dependent on China in some way. 

I don't think the news about GDP growth rates or any of that really is the biggest existential deal. But when you pair on trade tensions, even thinking about the story this morning in which another Huawei executive in Poland was detained, I can totally see how those pressures could escalate and how, at some point, China could retaliate even harder on companies operating in China.

Gross: We've also got some consumer price information this morning that shows inflation is not necessarily something to worry about right now, which may give the feds some leeway here if they want to pull back on the tightening and let the economy go a little further, which, of course, Trump and others would love to see it. The pressure on the Fed chief is pretty significant. 

Hill: To go back to one of the companies that you mentioned, Aaron, you look at Starbucks, on Friday, Goldman Sachs comes out with a downgrade of Starbucks, but it's basically tied to an economic slowdown in China. It really does seem like a time for investors to look at the stocks in their portfolio and ask the question, "How much exposure do we have in China here?" For the longest time, China has been the great opportunity for so many businesses. Now, it seems like the risk factor is a little higher, Andy.

Cross: Yeah, I think so, Chris. If you can look into your portfolio and look at the global exposure you have at the individual level to those companies, make sure you understand what that exposure is to your portfolio. I think, long-term, China continues to be such a massive economy and such a massive population that for so many consumer-branded companies like the ones Aaron mentioned, it's still an attractive market. But certainly, these trade tensions and some of the macro slowdowns will impact that in the short term.

Gross: On a macro level, China is so difficult to figure out. They're notorious for playing with the numbers. It's really hard to understand until you actually see someone like an Apple slowing their sales or purchases from suppliers. So, sometimes, we have to play catch-up rather than being able to look at the macro data.

Hill: Let's move on to retail. December numbers starting to be announced by a slew of major retailers. TargetCostco. Bed Bath & Beyond out with some very encouraging holiday sales figures. Ron, not so much with Macy's.

Gross: Macy's was tough. Everyone was hoping for a real strong holiday season, I think pretty much across the board. That was signaled by a number of retailers, from the big box to the department stores to the specialty retailers. And Macy's, for whatever reason, had a bit of a stumble in the middle of December. Beginning was OK and Christmas seemed to be OK. Somewhere in the middle, things took a turn for the worse. It's caused them to have to lower guidance both on the top line and the bottom line. Of course, that has reverberations throughout all of retail, and Macy's stock in particular gets completely smacked. 

I think there is worry that some comments coming out of Macy's about them needing to clean house in terms of inventory will cause them to have to be promotional, which, again, will have implications for other retailers, which in turn will have to become promotional, as well. Lower prices, lower margins, and therefore lower earnings.

Cross: Overall, the Mastercard SpendingPulse for November and through Christmas, retail sales were up 5.1% to $850 billion. Very good, very strong on home improvement, which was up 9% over the year. On the other hand, department store sales were down 1.3%. You're seeing pockets of growth here, but companies like Macy's, which started off strong but then fizzled near the end of the year into the Christmas period.

Hill: Bed Bath & Beyond, shares up 30% this week. Should we start to be curious about this? Or does that seem like a dead cat bounce? 

Gross: I'd be careful rather than curious here. It's the whole expectations vs. results game that we talk about often. Things were really, really bad, and the report was a little bit better than expected, so the stock really popped. My guess is that this is a trade for most folks. I don't think people are looking to Bed Bath & Beyond as a long-term great company to hold like we look for here at The Fool. It's more of a trade for some people, as you said, a dead cat bounce. The stock's only 7 times earnings, so theoretically, it's a value investment, but I think of it more as a value trap.

Bush: I think that pretty much any news around these big-box stores is just noise. They're all fading in relevance. 

Hill: Really?

Bush: Oh, yeah, totally. If you look at Bed Bath & Beyond as an example, but also these other companies, their traffic growth is falling. A lot of the growth that they actually are showing in sales is from digital. It's pretty easy, if you have a budget, to get customers. But if you think about how this plays out over time, someone like Bed Bath & Beyond cannot compete online with the Wayfairs and Amazons of the world. There's just no way. And over time, you'll see the same thing with Macy's. Target seems to be stabilizing somewhat, but at the end of the day, they won't be able to compete the same way, too. Over the past five years, even with Target, maybe that's the best example, their stock has been more or less flat. I don't expect, when looking at any of these stocks, there to be anything better than flat five years from now.

Cross: There are those players, though, Ulta, Home Depot. If you call those big-box retailers, buying habits from consumers -- granted, their online business, they've had very smart digital strategies, but those companies have been able to buck the trend when it comes to retail.

Bush: I agree, there are some exceptions. But I even think that a lot of the exceptions that a lot of even Fools think of as doing OK, if we look over the next five to 10 years, I don't think it's going to play out as well as we think.

Hill: Shares of Activision Blizzard down 10% on Friday, after the video game maker said it will be transferring the publishing rights of one of its franchise games to Bungie, the studio that produced it. Aaron, help me out here.

Bush: This is meaningful and not great for Activision. Let me first back up a little bit and add some context. Eight or so years ago, Bungie was thrilled to stop working with Microsoft. They're behind Halo. Their games were huge. But they were disgruntled working for a larger organization that put pressures on them, and they wanted to move on. And when they did, Microsoft kept the rights to Halo. Bungie announced a new 10-year partnership with Activision. The deal was that they'd launch four Destiny games with expansions. But as soon as they started operating, it was pretty much a struggle right out of the gate. If we fast-forward all these years through today, Bungie has now made two Destiny games with expansions. There have been more issues and negative reactions than I think Activision wanted.

A lot of the narrative going on right now is that Activision is being too oppressive in its expectations. You see similar concerns thrown around with Electronic Arts and all these other big publisher, that they're putting pressure, making people disgruntled. I think that we're seeing that with the Blizzard side of Activision, too, in some ways. Recent executive changes there connected this, as well. That's not awesome. But, I don't think that they're the only ones totally to blame there. I think they need to be careful on how this plays out, but it's not 100% their fault.

Whatever the case, the end result is that Bungie is paying Activision to cut their contract early and take the rights to Destiny. It was pretty predictable that Bungie would move on. What I didn't see happening was that they'd also take the rights to Destiny. That leaves a decent-sized hole in Activision's portfolio of games. We don't know exactly the financial terms on that. It'll take time for Activision to fill that void, but I do think that they will. They'll just reinvest in making new franchises.

Gross: I just need to know -- are you a gamer, Aaron? Is that a thing that you do?

Bush: Yes. [laughs] 

Cross: Be proud of that!

Gross: I was just curious!

Bush: I've been following this stuff for a long time. It's super interesting. I have played Destiny. It wasn't that great. And here we are. They have improved, but it's showing now.

Hill: It wasn't that great, but apparently -- 

Gross: It's no Asteroids.

Hill: -- as you said, it's great enough meaningful in terms of revenue for Activision Blizzard. This is not the only split that Activision Blizzard has had in the last six months in terms of talent. When we think about brain drain, a lot of times, it's in Silicon Valley and it's an executive leaving Alphabet to go to Facebook or vice versa. But it seems like Activision Blizzard really has a creative problem on their hands right now.

Bush: I think some of that is overrated. There's always talent leaving different studios to go elsewhere. But, when I start to see it at the executive level, even their CFO recently left, maybe to go to Netflix even. I think it was Netflix.

Gross: I think so.

Bush: That's when I start to think that there are bigger moving pieces that are problematic and need to be solved.

Hill: One note before we get back to the news, guys. The Motley Fool's looking for some summer interns. We're looking for investing interns, editorial software development, much more. Come spend the summer at Fool Global Headquarters.

Gross: It's beautiful in Alexandria, Virginia.

Hill: All the details can be found at careers.fool.com.

Interactive Brokers in the spotlight this week, when the company announced that founder Thomas Peterffy is stepping down as CEO. Not a household name, Andy, but a pretty incredible story in terms of one man's life and the company that he built.

Cross: Yeah, pretty incredible. He was born in 1944 in Budapest, Hungary. Came to the United States in 1965. Didn't speak a lick of English as a software engineer. Built Interactive Brokers. They have near 500,000 institutional and individual accounts. We use them here at The Motley Fool. Maybe many listeners do, as well. He has really revolutionized and institutionalized this ability to drive trading costs down at the individual level. They've been very successful. 

He's now handing this over to the president, Milan Galik, who has been with him at Interactive Brokers for decades. Actually, Rich Greifner, one of our analysts here, said that he expects this to happen and be very smooth. So it's not a huge surprise. He's 75 years old. Has a meaningful stake in this business. I expect the transition to be smooth. Something to watch out if you are a shareholder of Interactive Brokers.

Hill: Shares of Constellation Brands (NYSE: STZ) taking a hit this week after the company announced that guidance for 2019 would be lower due to weak wine sales. Aaron, Constellation Brands, they've got a portfolio of wine labels, spirits, beer, probably best known for Corona. They're also already writing down their investment in Canopy Growth (NYSE: CGC), the cannabis company up in Canada.

Bush: Yeah, that's the bigger part of the story to me. Really, this was all about expectations versus reality. I don't think anybody's too surprised what's going on in their core business. But writing down their investment in Canopy Growth already, that's news. 

Canopy Growth is the world's largest medical cannabis company. It has tons of brands in the recreational space. They've continued to make lots of big deals. As that industry grows, Canopy Growth will be a relevant player, it will be one of the largest players. I think that needs to be respected. But, it takes time to scale. It takes time to get there. And I think lot of the valuations that we've seen in the stock market, a lot of the deals that we've seen companies like Constellation Brands make with companies like this, they really were pricing in that that would happen much faster than it could in reality. I think this writedown is probably the first of many for different companies out there in this unrolling in 2019.

Hill: They made a $4 billion investment in Canopy Growth.

Bush: That's a lot of money.

Hill: I think we were all surprised, not that they made the investment, but that it was that big. You mentioned, we're going to see more writedowns from more companies. Is it safe to assume we're going to see more writedowns with this company? They invested $4 billion last year. They just wrote down $160 million. What are the odds that at one other point in 2019, Constellation Brands is going to come out and say, "By the way, we're writing some more of this down."

Bush: It's certainly possible. The deal hasn't been there for very long, so I don't know how much they'd write down so quickly. The deal was premised on being able to move fast and build something big quickly, so it is possible, but I don't know to what degree a writedown could be. 

Hill: Yum! Brands (NYSE: YUM) is the parent company of KFC, Pizza Hut and Taco Bell. This week, Taco Bell announced a commitment to vegetarian customers, including a dedicated menu for vegetarians, new items specifically for that menu. Andy, I think we all smiled at the story. But I should point out, Taco Bell is the only quick serve chain in the United States that is certified by the American Vegetarian Association.

Cross: Chris, this is very good news for the Cross family!

Gross: Fake news!

Cross: This is real news! My family is pretty much vegetarian. When you think about Taco Bell going after this market, apparently, you can create 8 million certified veggie combinations at Taco Bell. That's enough, if you ate one meal a day, to eat a new meal for 22,000 years. 

Gross: [laughs] I'm in!

Cross: Here's why this is interesting. By some estimates, somewhere in the neighborhood of 6% of Americans are now classified as vegans. That's up from 1% just a few years ago. As more of us are thinking about this style, Yum! Brands and Taco Bell recognize this. Taco Bell is about a third of total Yum! Brands sales. This is an opportunity to go after this market like no one else is really doing as boldly as they are. I applaud this move! I think it's a good one for them.

Hill: Aaron Bush, back in your college days, I believe you were known to hit Taco Bell now and then.

Bush: Oh, jeez! The binge of the bell, it's a game in which you and your friends can spend $10 every single meal at Taco Bell, which goes a long ways, and you can't eat anything else but Taco Bell. And the last person standing wins.

Hill: [laughs] I think wins is in air quotes.

Bush: Yeah.

Hill: Ron, one quick thing on a business note, you think back to the fall of 2016, when Yum! Brands spun off Yum China as its own stock. That really has worked out well. Yum! Brands shares have nearly doubled since then.

Gross: It's much better as a pure-play. It allows investors to differentiate between the two companies. Clearly, as you say, it's been a good investment. They've performed well.

Hill: This week, more than 170,000 people descended upon Las Vegas for CES, the largest consumer technology trade show in the world. Motley Fool analyst Rex Moore is one of those people. He joins me now not just from Sin City, but you're on the trade show floor, Rex?

Rex Moore: I'm right here in the middle of it, Chris. It looks like more than 170,000 people, to be honest. It's a zoo!

Hill: Thank you for joining us from the middle of the zoo. Let's start with your headline for CES this year.

Moore: One of my areas of coverage is auto technology. I think, once again, autos are dominating out here. Self-driving cars are huge. But I think what people have to remember, they hear about this and think of the auto companies and what have you, but there's so much technology behind the scenes here that investors should be paying attention to. Let's talk about vehicle to everything communications, they call it V2X. When all the cars are connected and everything, you've got to have these cars talking to one another. This ties back into 5G. When that gets rolling out, that will enable all of this communication. You're talking about charging technology. You're talking about batteries. How about software companies? The constant downloads, the updates, the firmware pushes. There's so much going on behind the scenes in so many areas that we have to look out for as investors.

Hill: Rex, I'm reminded of when Apple unveiled Apple Pay for the first time. Tim Cook went out of his way to talk very directly about security because he knew that security was so important in terms of people's money. How much is security part of the conversation and part of the presentations that you're seeing when it comes to self-driving cars? As someone who's been driving for a long time, that's No. 1 on my list.

Moore: We didn't rehearse this ahead of time, did we, Chris?

Hill: We did not.

Moore: [laughs] I'm going to tell you, my inbox has been flooded with companies that are offering security for self-driving cars and connected cars. It's a huge, huge part of the equation.

Hill: Over the last five years, automakers have had an increasingly large presence at CES. Pretty amazing, when you consider that next week, they're going to have their own show in Detroit. With all the automakers at CES this year, did you get a chance not just to kick the tires of anything, but did you get to take anything out for a spin?

Moore: Well, I actually did. It's a company that I'm intrigued about. I think it's one to watch in the self-driving space. It's from a company called Yandex. You've probably heard of it. A lot of people probably have. It's the so-called Google of Russia. I was in one of their self-driving cars. They're actually offering rides here in Las Vegas for the first time in the U.S., and they do not have drivers behind the wheel to act as a safety backup. That shows you how far along their technology is.

The company intrigues me because it has that Google business model. If you think about Google's market cap, I'm going to talk roughly here, about $750 billion. Baidu is another with this this ad-revenue-generated business model. They're about $50 billion. Yandex, around $10 billion. So, I think somebody looking for a smallish company that may have some upside might want to look at that. Of course, there are the geopolitical situations going on right now. But still, it's an intriguing company.

Hill: What was your comfort level when you were in the vehicle?

Moore: I was perfectly comfortable. I've been in maybe half a dozen self-driving cars by now. It kind of stands out for how boring it is. It just drives along like a good driver.

Hill: You know what? That's what I think we all want when it comes to self-driving cars. We want boring, predictable and safe.

Moore: Yes. It reminds me, I also stopped into the BMW booth. They've got a concept car ready for when self-driving really is ubiquitous. We won't need to sit like we do in the cars nowadays. They've got such an incredible luxury looking inside there, a bunch of entertainment options. I think everyone's going to look back on the age of non-self-driving and say, "Oh, my gosh, I don't want to go back to that."

Hill: All right, let's move out of the vehicle industry and into in-the-home consumer technology. For those who haven't been to CES, there are so many companies that are presenting. Similar to the BMW concept car that you mentioned, there are a lot of companies that are presenting concept gadgets that aren't ready for production. Others are a lot closer to production and will have these devices out later in the year. As you walk the tradeshow floor, have you seen a gadget, some type of technology that you thought to yourself, "Boy, if they were giving those away for free, that's the one I want to take home with me."

Moore: Interestingly, have you heard of this company called Procter & Gamble?

Hill: Don't tell me Procter & Gamble is there. Are they really?

Moore: Look, they're over 100 years old, right, but they didn't get to be over 100 years old by not being innovative. They're here. I actually took a tour of their booth. There are some incredible gadgets that I would like to have. For instance, I'm of a certain age, I have maybe some spots on my skin. They have an AI-powered wand that will scan your skin, take the color samples, and then you rub it back over the skin and it completely covers up your skin spots. Consumers, I think, are going to be really pleased within the next decade or so at some of the stuff coming out.

Hill: It's interesting, Tim Cook gave an interview recently where he was talking about health and how important health as a category is for Apple as a business. It's pretty amazing when you consider that, in terms of how Apple makes their money, it's an iPhone company. How much is health and self-care a part of what you're seeing on the trades how floor? I have to say, I'm a little gob smacked that Procter & Gamble produced a gadget that you want to take home with you.

Moore: Well, so am I. I didn't expect that. But yes, digital health and AI-powered healthcare. They have their own huge area here at the show. They have for a few years now. Obviously, as we see the aging demographic, we'll only see that getting bigger and bigger. More to look forward to in the future for us.

Hill: I know you're busy. I know you have a lot that you're doing there. I'll get you out of here on this: when our colleague David Kretzmann was at CES a year or two ago, he said that the strangest thing he saw was a smart rubber duck. Forget smart fridges and smart microwave ovens, someone was producing a smart rubber duck. What's the weirdest technology you've seen so far?

Moore: I haven't seen any smart ducks. But how about a self-driving motorcycle? I mean, that's weird, right? What are you going to do, sit on the motorcycle and go to sleep? I don't think so. But BMW actually had a working model out. It was running around in the lot all by itself. To be fair to them, they say this is not anything they're planning to produce, they're just trying to learn from the technology. But that is a very strange sight, indeed.

Hill: Rex Moore, live from Sin City, thank you so much for being here. Enjoy the rest of CES and get home safe!

Moore: I will. Thank you, Chris!

Hill: Our email address is radio@fool.com. Question from Maddie Peering in New York City. She writes, "As a fairly recent grad, I've started to take a stronger interest in my investment portfolio. Currently, it mostly consists of ETFs. I wanted to get your thoughts on stocks such as Salesforce (NYSE: CRM) and Oracle (NYSE: ORCL). I found these two systems to be lifelines in my current company as well as many of my friends. Also, at first glance, they seem to be reasonably priced and growing. Would love to get your thoughts on investing in them or what you see in their futures." A great question. And kudos to Maddie for taking hold of her financial future. Aaron Bush, Salesforce, Oracle, what do you think?

Bush: First of all, I just want to say congrats on having that level of awareness. There's totally value in looking around at your daily life and finding companies that are relevant. In particular in this case, you're starting to see the investment merits of enterprise software companies in general. They're increasingly relevant, they're mission-critical, they're very sticky. Software at scale is very profitable. 

The next step I'd challenge you to think about is, which of these software companies is defining the future? Typically, it's smaller companies still ramping up, but sometimes it's the larger companies that fit the mold, too. I'd say Salesforce in particular is one of those companies that fits the mold. It's the world's leading provider of customer relationship management software. It has a massive backlog of companies that want to work with it. It continues to improve its platform. Oracle is more legacy. It probably isn't defining the future as much as Salesforce. A lot of that is because it started back in the 80s. It's had a tougher time taking advantage of the cloud, and new database technologies like what's coming from Mongo DB, for example, are potentially threatening. That said, it's still a respectable company and a lot of businesses rely on. It has resources to reinvest. But if I had to pick one of those two, I'd probably lean toward Salesforce.

Cross: Agreed. Salesforce is a $112 billion company. Oracle's a $170 billion. They're catching up to it. From a valuation perspective, it's more expensive, but it's also growing far faster at 25%, 30% a year.

Hill: Question from Ted Sloan in Lawrenceburg, Kentucky. "I'd love to hear your analysis of Ford Motor (NYSE: F). I keep hearing about how they're implementing a turnaround strategy and getting a jump on the electric car boom and sitting on a pile of cash. And yet their share price cratered in 2018 and I have followed it all the way down." Andy, a year ago, shares of Ford Motor were closing in on $14 a share. By the end of 2018, it was below $8. 

Cross: Unfortunately, the turnaround is still in the works. It's not over as Ford continues to announce these billion-dollar initiatives, whether it's electric cars or cost-cutting, which has been the big initiative of Jim Hackett as he's come on board as CEO. They announced a continued trying to restructure the European operations, which have really struggled. Unfortunately, the stock has reacted to that news. You could look at it as a potential value play here. I think it's much less about the future with Ford. At these levels, I'd probably not be looking to buy the stock today.

Gross: More than a decade ago, I recognized it as a potential value play. I can commiserate with the question. It's been tough. I abandoned it years ago. I think it's just going to flounder.

Hill: On last week's show, we did our preview of 2019 for investors and included our reckless predictions for the year. Some of those predictions were about business. Ron, you made a different kind of prediction.

Gross: You bet I did!

There's going to be more definitive signs of previous life discovered on Mars in 2019. That's going to build off of the work done by the Mars Curiosity Rover that, earlier in 2018, found some organic molecules. We'll figure out where those actually came from and build on that. There aren't going to be any signs of actual Martians running around, but I think we're going to see signs of some previous life.

Hill: That led to this email from Ashwin Vasavada in Los Angeles, California. He writes, "Hi, guys! I was doing my usual Saturday morning routine, listening to the show, and out of the blue, Ron Gross makes a reckless prediction about finding more evidence of life on Mars in 2019. As the lead scientist on the Curiosity Rover mission and longtime listener, I could not have been more thrilled. You guys keep doing what you're doing, and our team will do our best to keep the Rover firing on all cylinders."

Gross: That's just awesome! I've had the pleasure of doing this show for maybe nine years or so, and that is by far the best email that we've ever received, from my perspective. Thank you very much for listening!

Hill: No, that would have been a great email if it was just from anybody at NASA, but --

Gross: The lead scientist!

Hill: -- the person running the Curiosity Rover.

Gross: Does that mean I'm right? No, not necessarily.

Hill: I don't think he said that, did he? I'll look at the email again, but I'm not seeing that. Keep the emails coming. radio@fool.com is our email address.

Let's get to the stocks on our radar. We have a little extra time, so our man behind the glass, Steve Broido, is going to hit you with a question, but we've got time, so if you want to hit one back to Steve, go for it.

Gross: I'm not prepared for that.

Hill: Ron Gross, you're up first. What do you have?

Gross: I'm going to go with Markel (NYSE: MKL), MKL, a stock I added to in late December. It's a recent Best Buy Now in our Stock Advisor service. A specialty insurance company. The stock is down 15% from its September high due to market weakness and also an investigation into some loss reserves into a small division of theirs, which, frankly, I'm not concerned about. They consistently generate great returns, both from the insurance side of the business as well as the investment side. Dirty little secret is that insurance companies don't always produce profits on the insurance side. Sometimes they just come from the investment side. But they do both really well. They invest in both public and private companies in their investment business. I love to see that! Really stellar management led by co-CEOs Alan Kirshner and Tom Gayner.

Hill: Steve, question about Markel?

Steve Broido: I know they ensure some odd things. What's one of the more unusual things that Markel insures?

Gross: [laughs] Ballet studios is a good one. I'll go with dude ranches.

Hill: Do you have a question for Steve?

Gross: Steve, when the last time you went to a dude ranch?

Broido: I was a small child. It was in Arizona, in Tucson, I think.

Gross: Nice.

Broido: I didn't like riding the horse. I was a little too small.

Gross: [laughs] That's a big part of it! I'm no dude rich expert, but ...

Hill: Any truth to the rumor, Steve, that you were the inspiration for the movie City Slickers?

Broido: [laughs] No. 

Hill: It is a rumor. It is out there. Andy Cross, what are you looking at?

Cross: Delta Airlines (NYSE: DAL), DAL, reports earnings on Tuesday. It's really had a tough run. The stock over the last month has gone from $56 to $48. It's underperformed all the other airline peers. Its revenue per seat mile estimates for the quarter continue to go down. They said one thing in October, it's now different than what they said back then. They just continue to lower that to the lower end of the guidance. 

Looking to see what Delta is going to say about the profitability of the business. It's a cheap stock. We've added to it recently in a couple of our portfolios at The Motley Fool. Its debt picture is under control. Airlines are now finding real purpose and a better way to run. Long-term, I like Delta. Looking to see what they say about the upcoming year in their upcoming quarterly results.

Hill: Steve, question about Delta Airlines?

Broido: Do you find any airline comfortable? I flew recently. The experience is just miserable, and it seems like across the board, it's uncomfortable, unless you're doing first class or business, which is a little too rich for my blood.

Cross: I tell you, we flew British Airways over to London last year. It was fantastic, even in coach. It was great!

Hill: Aaron Bush, what are you looking at this week?

Bush: I'm looking at Interactive Corp. (NASDAQ: IAC), IAC. IAC, now chaired by Barry Diller, has a pretty wild history. I was looking into it. In the 80s, it started as a broadcast company backed by Liberty Media. It had controlling stakes in ventures like Home Shopping Network, USA Network. It then took its winnings and started to simply just invest where it saw opportunity. They bought Ticketmaster, which later sold the Live Nation. They acquired Expedia, which later spun out. They had huge gains from that. The same goes for LendingTree, TripAdvisor, Match back in the day. Much of that is sold off. But today, they own over 80% of Match Group, which became the top dog in online dating by compiling lots of different brands. They own over 80% of ANGI Homeservices, which more recently became the top dog in home service marketplaces by compiling lots of brands. They own various online publishing properties like Vimeo, Investopedia, dictionary.com. An interesting mix of companies, but I feel pretty good about what they have in their portfolio. 

What's most striking to me is their track record of being able to take their winnings from all these companies and reinvest it in other companies defining the future, and being able to make billions repeatedly off of it. So, I'm really interested in Interactive Corp.

Hill: Steve, question about Interactive Corp?

Broido: It sounds like an excellent holding company. Do they do anything themselves? Or do they just own other businesses?

Bush: It ebbs and flows over time. They do own partial stakes in companies, but they also fully own lots of companies, too. They have a mix of buying companies outright and starting things up internally. It's an interesting incubator, accelerator, big acquirer of sorts.

Hill: Interactive Corp, Delta Airlines, Markel. Three very different businesses. Steve, you got one you want to add your watch list?

Broido: I think Interactive Corp sounds pretty fascinating. Those are some big names.

Hill: They are some big names. Steve, one bit of news from the airline industry that may pique your interest, may change your mind in terms of your flying habits. I don't know if you saw this. United Airlines is putting out a cookbook. It retails for $30. If the airline food really swings in your direction, does that get you interested?

Broido: As long as it's a snack box that costs $44.

Hill: [laughs] Ron Gross, Andy Cross, Aaron Bush, guys, thanks for being here! 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! 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. Aaron Bush owns shares of Activision Blizzard, Alphabet (C shares), Amazon, Apple, Baidu, Electronic Arts, Facebook, Live Nation Entertainment, Markel, Mastercard, Match Group, MongoDB, Netflix, Starbucks, Tesla, TripAdvisor, Wayfair, and Yandex. Andy Cross owns shares of Facebook, Home Depot, Mastercard, Netflix, and Starbucks. Chris Hill owns shares of Amazon and Starbucks. Rex Moore owns shares of Alphabet (A shares), Alphabet (C shares), Baidu, Facebook, Mastercard, Microsoft, and Procter & Gamble. Ron Gross owns shares of Activision Blizzard, Alphabet (C shares), Amazon, Apple, Baidu, Costco Wholesale, Facebook, Markel, Mastercard, Microsoft, Nike, and Starbucks. Steve Broido owns shares of Activision Blizzard, Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Costco Wholesale, Electronic Arts, Facebook, Home Depot, Markel, Mastercard, Match Group, Microsoft, Netflix, and Salesforce.com. The Motley Fool owns shares of and recommends Activision Blizzard, Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Baidu, Facebook, FedEx, Live Nation Entertainment, Markel, Mastercard, Match Group, MongoDB, Netflix, Salesforce.com, Starbucks, Tesla, TripAdvisor, and Wayfair. The Motley Fool owns shares of Delta Air Lines, Microsoft, and Oracle and has the following options: long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, short February 2019 $185 calls on Home Depot, long January 2020 $110 calls on Home Depot, and long January 2020 $30 calls on Oracle. The Motley Fool recommends Constellation Brands, Costco Wholesale, Electronic Arts, Ford, Home Depot, Nike, Ulta Beauty, and Yandex. The Motley Fool has a disclosure policy.