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Valentines for Investors?

Jason Stipp

Jason Stipp: I'm Jason Stipp for Morningstar, and welcome to the Friday Five. This is our look back at five notable headlines for investors. Joining me as always with the Friday Five is Morningstar Markets editor, Jeremy Glaser. Jeremy, thanks for being here.

Jeremy Glaser: Glad to be here.

Stipp: So this week, because we love our investors, we have five valentines out there in the market. Tell me what you've got for the Friday Five Valentine's edition.

Glaser: We'll take a look at hotels, we'll see that Google might not be spending their money as wisely as they can, wide-moat investors might be in for a great Valentine's Day surprise, Greece got a big gift from the European Union, and finally we'll take a look at our Valentine's Day stock pick.

Stipp: OK, so hotels actually did get a valentine from last week. So tell us a little bit about what you saw there.

Glaser: Last week we talked about how the big winner of the Super Bowl could very well be hotels, and even though your Colts went down in flames, hotels seem to be doing a little bit better. Wyndham Worldwide and Marriott had results that were better than expected, their 2010 outlook is pretty good, Starwood already came out with a 2010 outlook. It seems that a lot of the worst for hotels is over and that their next Valentine's Day may be filled with a little bit more love than this one is.

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Stipp: I think I had a little bit more fun watching the commercials than seeing the Colts lose last week. Google actually had an interesting commercial in the Super Bowl, a little bit on the strange side seeing as it was about how they do search.

But anyway, potentially some worse news for Google this week, for Google investors. Tell us a little bit about their news there.

Glaser: It's amazing how companies that sit on giant piles of cash manage to waste an incredible amount of money. I think that Super Bowl ad might have been one indication, and another was that Google this week said that they want to roll out a high speed Internet connection to anywhere between 50,000 and 500,000 Americans.

I don't know when Google became a telecom or become an infrastructure company. I think their return on investment on something like this is going to be extremely low. They claim they'll be able to use the knowledge gained from deploying this network into making web apps work faster.

I don't really see how that works for investors of Google. If they wanted someone to build out an expensive fiber network, they would have gone ahead and built Verizon. I don't really see how this is going to work out. I don't think it's a valentine.

Stipp: It sounds to me, Jeremy, like a little bit too many dollars and not enough sense, perhaps.

Glaser: Exactly.

Stipp: So for number three, maybe some better news for investors, for large-cap investors. It looks like they have some opportunity in the market even though the market overall looks fairly valued. How is that?

Glaser: One of the surprising things about the recovery has been that these wide-moat companies and the large-cap companies, ones with great competitive advantages and great businesses, haven't really done as well performance-wise. And that gives investors a pretty good shot to get into these firms even when the entire market looks pretty evenly valued.

We have about a 14% discount to where we think the fair value is on these wide-moat firms. Investors who are looking to have a valentine to themselves might do well to pick up these companies with great businesses now at a pretty good discount.

Stipp: So speaking of the market, it was actually up a little bit this week on news out of Greece, which you said had a very big valentine. Tell us a little bit about how big it was.

Glaser: They got a nice gift--maybe nothing explicit from the European Union saying that they're going to get X number of dollars or we're going to guarantee your bonds in such a way--but they did come out and say explicitly that the European Union, and the eurozone in particular, is going to stand behind Greece's debt, and that investors don't need to be worried about a default or default across the entire eurozone.

How this is going to work to other indebted countries such as Italy and Spain and Portugal, no one is really sure. But it's a sign of confidence that the savers like Germany are going to end up bailing out some of their more free-spending brothers.

Stipp: So for number five, Jeremy, Valentine's Day obviously all about matters of the heart, and so is your pick for Valentine's week. Tell us about it.

Glaser: It took a little bit of time to come up with this pick. I thought about some of the candy companies, maybe someone like 1-800-FLOWERS. But I think when you look at it, something like Abbott Labs is probably the best choice. They really try to do a lot to keep the heart healthy.

Their drug-covered stent business has been doing extremely well. It helps keep your heart open. They've been taking share from companies like Boston Scientific that announced earnings this week that weren't so hot on the stent side.

So I think for matters of the heart, I think the pharmaceutical device companies are probably a pretty good place to look.

Stipp: Well nothing says romance like some flowers and a stent.

Glaser: Exactly.

Stipp: Thanks for joining me, Jeremy.

Glaser: You're welcome.

Stipp: For Morningstor, I'm Jason Stipp. Thanks for watching.