Look Out, Traditional Advertisers

In this episode of the Market Foolery podcast, host Chris Hill talks with Motley Fool Asset Management's Bill Barker about the news, the market, and exactly what it is that a Motley Fool asset manager does.

According to Target 's (NYSE: TGT) fourth-quarter report, the most important numbers are moving in the right direction -- so why is the stock selling off? The Nordstrom (NYSE: JWN) family finally made an official offer to buy the retailer, with a buyout offer that was below the company's market trading price. And Fox (NASDAQ: FOX) (NASDAQ: FOXA) News is stirring the advertising pot with a statement that it wants to cut its ad time to just two measly minutes per hour by 2020. Tune in to find out more.

A full transcript follows the video.

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This video was recorded on March 6, 2018.

Chris Hill: It's Tuesday, March 6. Welcome to Market Foolery ! I'm Chris Hill! Joining me in studio today, from Motley Fool Asset Management, Bill Barker. How are you?

Bill Barker: I'm well, thank you!

Hill: You're looking dapper. I know this is an audio podcast, but you're looking like you have, frankly, far more important things to do than to be sitting in the studio with me.

Barker: No, not more important, just after work, I'm going to a CFA thing. And it's like when I go to my kids' school, I don't know if you feel the same thing, I like to look like I might be employed when I show up at their school.

Hill: That's something I think I've gotten slightly better at over time. But early in my parent career, going to schools, I didn't do a good enough job on that.

Barker: Yeah. So, did your kids get teased?

Hill: I don't know that they got teased. I mean, they got teased, but not because of that.

Barker: "Your dad doesn't have a job, look at him!"

Hill: No. I think to the extent that my job ever came up in conversations that my kids had, a lot of times it was like, "He does what? What? So, is he on TV?" "No, he's not on TV."

Barker: I get asked that by my kids. "What do you do?"

Hill: What do you do?

Barker: Yeah, see, there we are. I show up on podcasts. That's the only thing they know.

Hill: We'll come back to this because I do want to talk about what a typical week is in the life of someone at Motley Fool Asset Management. But let's get to the retail news, because there is legitimate retail news. Let's start with Target. Fourth-quarter revenue was up 10%. Digital sales up nearly 30% year over year. That's going in the right direction, but just not enough to impress Wall Street today. Shares of Target down a little bit.

Barker: It's a product of where the stock has already been. It's up 30% in the last year, so it's caught up, already incorporated the holiday news earlier on. I think in January they had an investor day and revealed a lot of what the numbers were through that point in time. So, this isn't a whole lot more.

But, the guidance going forward is a little bit tepid. It's a very difficult time for virtually all retailers. Now, Target did announce that its digital sales were up 29%, digital channel sales. That was pretty good. It was 34% the year before. Not bad. That's a small part of the operation. A lot like Walmart ; the digital is growing very quickly in comparison to the established business.

Hill: In the same way that Best Buy just went through a really rough stretch to the point where it was perfectly reasonable to question how much longer Best Buy was going to last, shortly after Best Buy got a new CEO, Target got a new CEO. Brian Cornell is now in his fourth year as CEO. And again, the digital sales are not quite as high as, probably, investors would like them to be, certainly shareholders would like them to be. But they're going in the right direction. And I think in general, the report card for Brian Cornell looks pretty good. He had a phenomenal first year as CEO. There was a little bit of a sophomore slump. But, in general, I think you have to feel pretty good if you're a Target shareholder, about his leadership and his team and where this retailer is headed.

Barker: Yeah. You have two different and very tough wars, the digital war and the in-store war. And they're both tough these days. They're coming from behind against Amazon , obviously, and many other competitors out there, where their competitive advantages online, I wouldn't be able to tell you. I do see some competitive advantage in their stores.

But, the store world is not where you want to have the majority of your assets, and that is where they have the majority of their assets. And they can outperform the competition and still be fighting the headwinds that are applicable to everybody. Now, they're not as tied to the problems with malls, necessarily. But they're still in a struggle to make the stores relevant all the time in the world where the stores are less and less relevant.

Hill: One business that is certainly more tied to malls is Nordstrom. The Nordstrom family drama is seeping into the headlines. I don't want to make it sound more dramatic than it is, but the family has made no secret of the fact that they are looking to take their retail business private. The latest iteration of this is, apparently, the Nordstrom family offered $50 a share. Right now, I think the family owns about 31% of Nordstrom. They offered $50 a share. The board rejected that offer, which I completely understand, because right now it's trading above that. When the day started, it was at about $52 a share, or just shy of that. So, where do you think this is going next? It's not unusual for a board of directors to reject the first offer. That just makes pretty good sense. But do you think the Nordstrom family is going to come back and say, "All right. What about $55? What about $60 a share?"

Barker: I think, where the Nordstrom family is mentally operating from, I guess, is, that moment in time when it became public that they were interested in taking the company public. I don't know what the date of that was, but the shares were trading a little bit above $40 at that time. Understandable. The market reacted to that -- "there's interest by the family in taking the company public" -- so the share price moved up. Now it's moved up around 25% from where it was. The bidders, the Nordstrom family, is still thinking, "The market had this at a value of $40-something. We're coming in at $50. It wouldn't be at $50 if we weren't in the market to buy it." That's why the price is $50 or north of $50. And I can imagine a scenario where they stick with their price and wait for the stock to come back down to earth.

Hill: I mentioned that the board of directors rejected this offer. It was a special committee advising the board that was installed to evaluate this offer. They go to the board and they say, "Look, you should reject this offer." If the board comes to you and says, "All right, the special committee said to reject this offer," what do you think? Do you think they should take this?

Barker: No. I think that the fact that the price is still above $50 indicates to me, if I'm at the board -- if I'm on the board and I accept an offer for $50 while the stock is above $52, and things aren't a disaster, then I know I'm going to get sued. Right? Right?

Hill: That's right! For just one moment, I forgot about the existence of lawyers.

Barker: Yeah. There's no chance that I'm not personally going to get sued for accepting that, unless I have some sort of inside information that doesn't seem to exist that there is catastrophe afoot, and that if we can get $50 we should take that while the getting's good. I don't think that's the case. I'm not implying there's anything like that. But the market is continuing to value the company as if, whether it's the Nordstroms or somebody else, there's value here, and the bidding has not finished.

Hill: Class action lawsuits. Particularly fun to be involved in those, or not so much?

Barker: In my lawyer days, I was only involved in one, and it was a fraud case. It was always fun to be in court. It was a rare thing when you're doing commercial litigation for a big law firm and you're a young lawyer, to get the opportunity to go in court. I had more opportunities when I worked for the city of Philadelphia. But, there's a lot of adrenaline when you're in trial. I don't know if "fun" is the right word, but adrenaline-filled is definitely part of it. In terms of whether, class action suit, it's also a different world. The class action bar is a very different world from the one that you're normally up against when you're doing corporate law.

Hill: But, being in the courtroom, pretty much as depicted on television?

Barker: Nothing like it's depicted on television. There are fewer guns, a lot less shouting, people don't tend to reveal anything that you don't know already on the stand. So, not as fun. Like every other part of life, not as fun as depicted on TV.

Hill: I was hoping that Law and Order was the one show --

Barker: That was true to life?

Hill: -- that was true to life. E-mail from Matt Reynolds. In the wake of --

Barker: Can I interrupt? If you're going to do one thing with an hour of time that you have today to listen to podcasts, stop listening to this one and go download Giant Pool of Money . It still holds up, 10 years later.

Hill: Can I provide the counter to that?

Barker: Listen to the rest of this podcast? [laughs] Is the best stuff going to happen after --

Hill: Oh, no, it's not.

Barker: We're finished with the best stuff of this podcast?

Hill: I'm not going to lie to our listeners.

Barker: I have some good questions for you in the next portion.

Hill: Oh, fantastic. No. I would say, I mean, Giant Pool of Money , that's great. I would also say, if you have not watched the movie The Big Short , I would recommend that over listening to Giant Pool of Money .

Barker: In your car?

Hill: No.

Barker: What kind of danger fiend are you?

Hill: I like to live on the edge. E-mail from Matt Reynolds in the wake of last week's episode when you were here, and we were talking about, among other things, candles. Matt writes, "I imagine the Blue Citrus Candle is a nod to blue Curacao, which tastes like oranges but looks like a blue drink. When mixed with vodka it's basically Four Loko for suburban moms. Here's what it does to you," and he sent a YouTube link of a news story from a few years back where a woman attending a Kansas City Royals game got kind of drunk and jumped into the fountain that they've got out in center field. Matt continues, "Speaking of Kansas City," and this, again, goes back to the last time you were here, " WPP acquired VML, which is a Kansas City-based ad agency that made its name on digital advertising, social media, etc." Thank you for that.

Which leads back to, last time you were here, one of the things we talked about was television networks experimenting with reducing their ad load, and it started with NBC coming out and saying, "We're looking to reduce ads by 10% or so per hour." Fox just upped the ante significantly. The Wall Street Journal reporting today that Joe Marchese, who's the head of Fox Network ad sales, says he wants to reduce commercial time across the broadcast network to two minutes an hour. Not by two minutes an hour. He wants there to be two minutes of ads per hour on broadcast television on Fox by the year 2020. That's going to be fascinating to see, if they can pull that off, because that's a massive drop. And among other things, they would need to not only start charging a lot more for their ads, they would need to either provide significant guarantees in terms of audience, or they would need to completely reorient advertisers' thinking about what should be measurable in their ads.

Barker: Yeah. Or just embed ads more and more around the edges of the broadcast, rather than cutting away the commercials, maybe. I don't know. Say you're doing a football game. I don't know what's being measured here exactly, but if you're doing a football game, you could just leave the cameras on during the commercial break, or for a large chunk of it, and just have the edges of the screen tell you about Budweiser or something like that, and then say you're only doing two minutes of pure commercial time. Maybe. I don't know. But, Fox News or whatever, you could keep squeezing the edges of the screen in a certain way. Because, it's hard to see how they're going to pull off going from, what is it, 15-16 minutes of commercials an hour, to two?

Hill: It's about that, yeah. About 16 minutes on broadcast television.

Barker: You're not going to be able to octuple your prices and keep the same amount of revenue coming in, unless you have a plan to get ads in product placement, or whatever it is, I would think. I'm not smart enough to figure out how you would do that and survive.

Hill: And he was very specific that this refers to broadcast, as opposed to over the top digital. It's entirely possible that there will be, Fox, like Disney , like a lot of other networks, is working on a plan for digital over the top subscription-based models.

Barker: OK, yeah. If you can get people to pay straight up for everything they're willing to pay for, whether that sports, and you have your sitcoms and stuff, where you're keeping the eight minutes per half hour, or whatever it is, get that down to six and a half or something.

Hill: Or, I pay a subscription, I'm getting The Simpsons and Brooklyn Nine-Nine , Family Guy , all those, that sort of thing.

Barker: But, we were talking about the difference between the economics of advertising on a podcast and TV. And one of the reasons, I guess, why for WPP and your third parties who are creating the commercials and placing them and doing all that, why are they necessary -- well, to shoot a commercial is very complex. You have to have a director, you have to have a producer, you have to have a casting agent to cast the thing. Doing a podcast, you're the talent. You're reading out the whole thing. All you have to do, correct me if I'm wrong, somebody writes a script and then, because you have that professional improv background, you can go and take that further than the other guys. But, they're paying for your talent, which is easier than paying 20 people or more for their talents when you're filming a commercial.

Hill: It's also a lot cheaper. It's a lot cheaper.

Barker: Right. You're doing the work of 20. 30, perhaps.

Hill: I mean, depending on the commercial. If Michael Bay is directing this commercial and there are explosions --

Barker: One of those Dilly Dilly commercials, there are 80, 90 people in there. You're doing all of their work.

Hill: Not a beer drinker, but I love the fact that the head of that division of the Budweiser company came out and said, "Yeah, those are catchy ads. They're not doing a damn thing to sell this beer." I forget where it was, but he was interviewed somewhere, and he said, "Oh, no, our sales have not gone up one case because of those commercials."

Barker: I was at a conference a couple of years back, it was a consumer goods conference, and I watched the Anheuser-Busch or whatever part of the company it was that was presenting. I don't know if it was the CEO there or who. It was in Paris, so I think a lot of higher-name people showed up for this conference than normally. You wouldn't normally get a CEO for a lot of these conferences. And he has his 20-minute talk, and then takes 10 minutes from the audience. And all he did was talk about the Super Bowl commercials. It was as if what Budweiser is is a commercial company that happens to sell beer. And that's probably the case, in some ways. If the commercials are things that work, that's what investors need to know for a product like Budweiser. I don't know, they extend the brand in various ways, and there's probably Bud Zero or whatever they're trying to do with it. But, either the commercials are catchy and work, or not.

Hill: And the apparel equivalent is Nike . Nike has a phenomenal track record. Whoever Nike has hired to make their television commercials, that firm is absolutely crushing it, because they produce amazing commercials. I would point out, however, that as great as those commercials have been over the last two years, clearly they haven't been moving the needle in terms of footwear and apparel sales, because Nike has been struggling of late.

Barker: Yeah. Well, TV is not as easy of a vehicle to distribute your advertising, whether it's great or not, as it used to be, because it's all podcasts now.

Hill: It's all about podcast. Thank you to Matt Reynolds for the email. You can email us, is our email address. If you want details on our listener meet up at South by Southwest, which will be next Monday the 12th, drop an email to . I will be there. Producer Dan Boyd, Dylan Lewis from Industry Focus will be there. We've already got some emails. We're excited about this.

Barker: What else is going to be there?

Hill: Food and alcohol is going to be there.

Barker: And some MFAM swag. I mean, not to ruin the surprise ...

Hill: Not to ruin the surprise, but yes, in fact, yesterday, I was on the second floor, and Bill Barker gave me literally a bag full of Motley Fool Asset Management branded stuff. I'm not going to say what it is, I'm just going to say it's a variety of stuff, and I will have that on me in Austin, Texas at the listener meet up. So, come on by.

What is a typical week like for you, when you're not in this studio? Because you and the Motley Fool Asset Management team, all kidding aside, you're managing assets.

Barker: We are managing assets.

Hill: As the name suggests, you're managing assets. But it's also a significant amount. And I don't know to what extent the number is public as of the latest public filing --

Barker: It's all out there.

Hill: Is it all out there?

Barker: Yeah, it's all out there. We manage a couple of billion.

Hill: OK. Wow, that's a lot of zeros.

Barker: Yeah. No, I show up on this podcast and I play the role of a clown for you, but then I leave here and help an experienced and successful team of portfolio managers manage a couple of billion.

Hill: Is earnings season exciting for you and your colleagues? Or is it hectic? Or is it very focused? Because you just have the companies that are in the funds that you manage, and then maybe you have your watch list, but you're not looking across the universe and saying, "Gosh, we have to cover hundreds and hundreds of companies." You just have your own universe, and that's what you're focused on?

Barker: There's six of us, we run three mutual funds. You can look them up. By the way, you were supposed to refer to the team as a five-star fund manager team, because we're back to five stars.

Hill: Nice.

Barker: I'm really referring to the team, not myself.

Hill: No, you would never take that credit for yourself.

Barker: [laughs] I was waiting for you to refer to any of us in any positive way, which would be unique. What's a typical week -- so there's about 40 stocks in one of our funds, and we're going to turn over about 25% of that. If you look at our past, it's all out there, Morningstar , wherever you want to look up the data. So, that's maybe 10 stocks in the course of the year that we're going to sell, buy 10 different ones. Oftentimes, we're just going to buy something we've already owned. A lot of the time, we're going to buy something we've been following from, all of us worked on the newsletters at one time or another, so we know things from that, have followed things for a long time. Between six of us turning over 10 ideas a year through different portfolios with some overlapping holdings, you're only looking for maybe three, four brand-new things a year. As long as you've done the work right buying things the first time, and you're intending to be an investor rather than flipping shares a lot, it makes the work easier.

Hill: This syncs up with what Joe Magyer was talking about. Joe was here last week, I interviewed him for Motley Fool Money . That was one of the things he was talking about, was the very small number, it's certainly smaller than I was expecting, and I'm sure it's smaller than most people are expecting. When, in the course of his day-to-day life, he talks about what he does for a living, there's an assumption of, "You must be covering hundreds of stocks and dealing with them in the funds at Lakehouse Capital." And for Joe, it's a very small number.

Barker: Even if you were good at that, at constantly finding something that's a little bit better than the good thing you already own, even if you would be one of the very rare people that can get in and out of stocks in a good way rather than finding good companies and being invested in them for years, you're creating taxable events for your shareholders all the time by doing so. So, there's a lot of advantages to being an investor rather than a trader, and one of them is the lower taxes. The other is that, when you get something right, you follow it, but you don't have to rethink, "Is this the right price down to the dollar? If it isn't, do I have something else on the watch list that I think is 3% better today?" People do that, they're not usually successful.

Hill: When you go to these fancy CFA dinners like you go to on a pretty regular basis, and you're talking to your colleagues in the asset management world, what is the reaction when you say, "I work at Motley Fool Asset Management?"

Barker: The reaction, 100% of the time, is, "I didn't know you guys had mutual funds."

Hill: 100%?

Barker: Yes.

Hill: There's never been a time where someone in the industry says, "Yeah, I know you guys?"

Barker: No. I mean, we were talking about this, it happened to somebody in the group, once. But it was somebody who already should have known.

Hill: And it was like a unicorn.

Barker: It was like, Tony Arsta had already talked to that person and told them, and their memory was jogged by seeing him again.

Hill: It's like, "You were the guy three year ago!"

Barker: [laughs] "What are you doing?" "Working on some mutual funds." "Oh, that's right! You told me. I forgot between that moment and today."

Hill: What that tells me is, more CFAs need to be listening to Market Foolery .

Barker: Look, there's thousands and thousands of mutual funds out there, and a lot of companies that you've never heard of managing them, and some that you have. You've heard of the bigger ones. We're in a group with many others of not being as well-known. We're certainly not as well-known as the rest of the company.

Hill: I think this is an opportunity to add --

Barker: Or the podcast, which is like, everybody knows that you do a podcast.

Hill: Not really, no.

Barker: Have you've been stopped for an autograph yet?

Hill: No.

Barker: It's going to happen in Austin. I'm telling you. I say, if anybody asks for an autograph --

Hill: You know what --

Barker: -- they get some MFAM swag from me.

Hill: I was just going to say, because you're not going to be there, I was going to say, "No, actually, if you ask for an autograph, no MFAM swag for you. None whatsoever."

Barker: Don't listen to him, people. He's lying.

Hill: We're going to edit that part out. Bill Barker from Motley Fool Asset Management. You can read Bill and his colleagues. Go to , you can sign up for Declarations, which is the free monthly newsletter. It's great content. Thanks for being here!

Barker: Thank you!

Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of Market Foolery . The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow!

Bill Barker is an employee of Motley Fool Asset Management, a separate, sister company of The Motley Fool, LLC. The views of Bill Barker and Motley Fool Asset Management are not the views of The Motley Fool, LLC and should not be taken as such.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Bill Barker owns shares of Walt Disney. Chris Hill owns shares of Amazon and Walt Disney. The Motley Fool owns shares of and recommends Amazon, Nike, and Walt Disney. The Motley Fool recommends Nordstrom. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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