A (3:03)

This is a big bet for Liverpool which is a about a $7 billion USD company and Nordstrom is about $3 billion. And there is one brand in there that I'm particularly curious about which is Nordstrom Rack. And you know, I like the Nordstrom Rack. I know our colleague, my co host Mary, who's listening right now is a big fan of the Nordstrom Rack. And also public markets love TJ Maxx. So I guess when you're looking at this, why couldn't Nordstrom Rack be more of a growth story as we're talking about Nordstrom going private right now? People love a treasure hunt, Jim.

B (3:37)

Well, you know what people love more than a treasure hunt because big lot says hi. People love everyday low prices. People love buying in bulk to save a few bucks on a per unit basis. So the luxury department stores of large and this is the same problem at Macy's, the same problem at Kohl's. A couple Canadian names I could mention that have long gone now Eaton's and Simpsons. We of course saw Sears go away. Not so much luxury but department stores and the kind of, the one store fits all has kind of gone away in favor of the, or at least they've suffered in favor of the discounters. Could it have been the next TJ Maxx? I don't know, maybe. But I think that people are, I think people are just you know, more interested in, in, in low cost and you know, and buying in bulk and that may, that may or may not be some commentary on the high cost of living today. But you know, it's just some of these things, their, their time has passed rightly or wrongly. I think it's really that much more complicated. And then the fact that you have the family ownership and the dominance there, it's like you know, they're, they're still going to make their millions every year and it'll be fine. And there's no tag days for them. But there's no, I was kind of thinking like, what's, what's the incentive to stay public? You know, you're going to get a low to mid teens multiple on cash flow. Your cash flow is not growing in my view at least. Anyway, there's, there's not a lot of booming upside here. So, you know, take it, take it private. You know, get rid of all the, the public filing costs. Maybe you can streamline the business a little bit more and then just run it as a cash cow for, for both Liverpool and the Nordstrom family.

A (5:18)

You get access to capital markets, you get more liquidity if you want to sell some shares. There's some advantages to being a public company even if you're getting a lower multiple. Jim?

B (5:27)

Yeah, I, I, I don't think they're going to have any trouble raising capital on the debt side. They get about 2.6 billion in debt. They will have no trouble rolling that. I don't see the potential upside in the value creation here. So it's like public, not public. I don't think it's going to really impact anyone's life unless your last name is Nordstrom.

A (5:46)

So Bloomberg reported that in 2018, the board rejected the family's bid to take Nordstrom Private at 50 bucks a share. Now it's going for less than half of that. We've seen a similar story at Paramount, which is this family business that refuses to sell when an offer is high and the growth prospects are subdued. And you have, you have outside buyers coming in and saying, hey, we can cool this melting ice cube if you want to hand it to us in the private markets. Are there any companies you're looking at today where, you know, if the board invited you in, Jim, you would say, you know what, now might be a good time to leave the public markets, take, take the silver, get out of here.

B (6:25)

Well, the first thing I hope the board, the members of the board from 2018 who rejected that $50 bid, I hope they're writing checks to return all of the compensation they've got over the past seven years to take. Now a buyout at half. Good job, guys. I don't really follow companies, I don't really follow companies to see them taken out in this kind of negative situation, which is what I think this is. You know, like, this is, yeah. And I think it goes down to, like, I've got lots of companies I think are gonna be acquired or I would like to see a takeout. I had one personally on my, on my Canadian service here is being taken out today. It's kind of a got a surprise bid. That's a tiny little company, so it won't go too far there. I'm generally looking, because I play in the small cap space a lot, I'm generally looking in. Probably about half of my companies over time get taken out. I'm thinking back to I was the co advisor for a little foolish service called Paydirt back in the mid 2000 and I've kept the names from that service, you know, in a little spreadsheet. I check in occasionally. More than half are gone now, you know, they're long gone because, you know, just small companies get acquired. So that's kind of what I'm looking at. I don't really look at these companies where, you know, oh, we don't want it taken out, we don't get taken, okay, fine, now we'll take a buyout. When you've eroded shareholder value for half a decade, that's not my jam. I will say though that there are some companies I think would probably benefit from being out of the public eye. And the one that I think should probably be folded into a larger connected fitness player at some point, although we won't say Apple, but maybe Google and their fitness app because they did buy Fitbit is Peloton. I think Peloton, they finally got the right people in charge, or at least better people in charge. They finally decided to stop bleeding cash. They finally decided to fix their balance sheet as best they could given they were kind of over a barrel. I think there's still a really nice subscription business hidden in there. Even though their hardware is not selling as well as it was during the pandemic for what I think are obvious reasons, I think the value of, and especially as they've got the app so you don't even actually have to own hardware from Peloton anymore to play here. You can own the app and pay the subscription there and use your own material and your own hardware. So I think at some point they'd be my candidate to go away. Unless you want to. I think people, you know, hope springs eternal and I think, you know, companies always think they can be the ones to turn around. New managers think they can always be the ones to turn it around. Heck, investors buying, you know, I like to call it the cult of the value investor of which I am a card carrying member. We always think a turnaround is going to come around and some of them do, but some of them don't. Nordstrom, Public, private. I don't think we're going to be missing out by them going away. And I think peloton, you know, if it gets taken out, you know, next couple years, you know, 20, $25, it wouldn't shock me.

A (9:35)

All right, we're going to move on to a story that is significantly more personal to you as I, you know, the listener can't see this. I'm looking behind Jim's shoulder and I see a stormtrooper bobblehead. Certified Star wars fan. This caught my attention. Forbes reports that Disney will spend more than $600 million on making two seasons of Andor the second season coming in at $345 million. We'll go from the fan perspective and the investing perspective, you know, is a lower level Star wars fan than you. I like the first season I thought was pretty good. Practical effects are expensive. I didn't know they were that expensive. But I'm looking at this and my back of the napkin math is that these episodes are gonna be about two times more expensive than the final season of Game of Thrones. As a Star wars fan, are you happy to see this investment in a gritty adult Star wars series?

B (10:32)

Heck yes. It's not my money. Spend away. Go ahead. It's the same thing I have when I see Juan Soto or Shohei Ohtani sign for whatever they sign for. It's like, it's not my money. Go get paid, guys. Yeah, so I'm fine with this. I will also say that this is supposed to be the final season of Andor. It's only going to run two seasons. I will humbly suggest, without seeing it, that the final season of Andor will be better than the final season of Game of Thrones. That might be more of a comment on Game of Thrones, but anyway, I'm happy to see it because I will hold that there are two distinct eras of Star Wars. There's before Disney and after Disney and before Disney has its issues. You know, the prequel trilogy is a step down from the original trilogy. I hold Andor is the best thing they've done since they acquired and I'm going to loop Rogue One in there as well because Andor is technically a prequel to the movie Rogue One. But Disney has not had any real clue how to hold and monetize Star Wars. Now I think they're going to lose their shirts on this, given the cost of this, because it is the least watched Disney plus show, at least until the Acolyte aired. And if you tried watching the Acolyte, you'll know why that one failed. I did, and I do. But I mean, why was andor the least watched Disney Star wars show? And the answer is, in my opinion, because the stuff they had before was scattershot, the tentpole movies. So the episodes 7, 8 and 9, they didn't have a coherent plan and they didn't have a coherent story. Episode eight seemed to be trying to monkey with what they set up in episode seven. And so episode nine was trying to fix Episode eight. Poor character writing. Finn's a big hero in the first one. Oh, now he's a joke in the second one. Rey is perfect the way she is, so who cares? Captain Phasma was a waste. Snoke's the Big Bad. Oh, he's not. It was completely incoherent. The Lesser, the Non the Non trilogy movies. Rogue One is excellent, but it's excellent because it was a more adult and they took some risks. Solo is fine, but then what TV shows have they done? Well, the Mandalorian, the first couple seasons are fine. The third season was terrible. Obi Wan Kenobi was a joke. The acolytes joke. Season 7, Clone wars was fine, but bad Batch was kind of mundane. So they've been very scattershot and they don't know what they have. Another thing too is what I've said here. So we went to the Star wars land at Disney, and yeah, you can see a bunch of stuff behind me. And what you can't see is all the stuff on that wall and you can't see the stuff downstairs. Like, there is a lot of Star wars stuff in this house and we'll leave it at that, including some very nice artwork you don't realize is Star wars stuff till you look closely. So we went to Galaxy's Edge and Disney a couple years ago, and we were quite excited. And I took money because I have money and I am willing to spend it. Disney take my money. I didn't buy anything. I walked out. Because everything they are trying to sell you at the Disney park is not han, Luke, Leia, R2, 3PO. It's not Darth Vader Stormtroopers. Like, it's not the classic stuff that people who have money are willing to buy. It wasn't that. It was all stuff from the sequel trilogy. I don't. I'm sorry, I don't want a Kylo Ren plushie. I don't care. The character didn't resonate. The character was uneven anyway. But when they've had good writing and Rogue One is good writing andor is excellent writing, I would Say that the Luthen speech, anyone who's seen andor the four people who've seen it will know what I'm talking about. When Luthen talks about what he sacrifices. And it's gritty, it's adult. It's actually showing what life is like under this totalitarian government and that it's oppressive and that it's hard and people are going to die. This is a mature story being told by a really good storyteller because you go look at a lot of stuff, it's kind of played for laughs. And it's like, you know, Star wars can be funny, but that's not the primary motivation. Like, Han Solo, funny guy. Right. Princess Leia had some pretty good lines in the original Star wars, but it's not humor. Isn't the end all. And also too. And this is just a personal thing and this is more Star wars than anyone ever wants to hear from me. The totalitarian fascist government in charge, which is what the Empire is under. Disney, they're clueless rubes. They can't do anything right. Especially some of the. Like. Like, it's a joke. And if you don't give consequences to your characters, people aren't gonna take your characters seriously.

A (15:23)

Well, IP management, including Star wars and beyond Star wars is something that Disney seems to be struggling with. They had a movie open this weekend that is underperforming with Mufasa. And, you know, these are fond memories people have as children and they're kind of struggling to get people back to the movies to go see them. I think of. I think of the Daisy, Ridley's character in Star wars.

B (15:48)

That's Rey.

A (15:49)

Rey. Excuse me, Rey. And in one of the new movies, they have her essentially speed running through Jedi training.

B (15:56)

She's perfect.

A (15:57)

And when you think of the original trilogy Luke Skywalker has to go through some stuff with Yoda in order to be a Jedi. And I think there's just some fundamental misunderstandings about storytelling under this new regime for Star wars that I don't understand why they don't understand it.

B (16:15)

You're exactly right. And again, I think Daisy Ridley did fine with what she had, what she had to do. But the character was written where she gets everything almost instantly. And so there's, you know, the classic hero's journey. The hero has to suffer in order to overcome. And that's not. You don't see that, but you're exactly right. I mean, especially at Lucasfilm, Disney's having problems, but even at Lucasfilm, like the Indiana Jones movie Dial of Destiny or whatever it was. People want to see Indiana Jones and the first 20 minutes of that movie where they've de aged Harrison Ford and I understand that's expensive and that felt like Indiana Jones. And I'm hearing good things about. There's a game out called the Great Circle right now. I'm hearing really good things about that game. But when it came to the rest of the movie, the movie was, the movie was awkward and bad because they just, they showed old, broken down, they, they deconstructed the hero. And that's kind of what they've done with Star wars as well. We're going to deconstruct Han Solo. Like, forget the love story of Han Solo and Princess Leia. Now they're divorced and he's an absentee father because reasons, you know, and it's just like, well, like we don't, we don't want our heroes deconstructed. Okay. We don't want to be told that, hey, the heroes you loved, yeah, they're flawed and terrible and here's some new heroes and we're going to take these guys apart. Like it just, it doesn't sell.

A (17:37)

So we can talk about what Disney doesn't know how to sell. The fact of the matter though, biggest two movies this year are Inside Out 2 and Deadpool and Wolverine.

B (17:45)

Both of which are good movies, by.

A (17:47)

The way, both of which are pretty good movies. So inside out 2 was good because it had something new to say in a sequel. In the original Inside out, the main character, you know, young kid experiencing these, these emotions now we have her in puberty and understanding things like anxiety. So there's something new to say from a director that has children and also like, is able to bring real life into it. And Deadpool was actually. Was a real risk. It was an R rated movie coming from Disney about superheroes, which is something that granted it's a sequel, but people still like going to the movies to see superheroes in. In the X Men.

B (18:19)

Yeah, I mean I, I liked both of them. I really did. I agree with what you said about Inside out two, Deadpool and Wolverine. I mean the amount of character work. I mean, I know it's a R rated movie coming out of Disney, but you know, it's not the first time. They used to, what was it? Miramax or whatever they had a deal with, they would release their R rated stuff through. They can do that and the audience is there. But I mean like, you know, the audience has been built up in the prior two Deadpool movies. It's been Built up in however many X Men movies there are, which even when they changed the main cast, they never recast Logan. Right. They never recast Wolverine. It was always Hugh Jackman. The issue, the issue I see is that, you know, we. You can't make your money now in selling the, you know, selling the DVD and the Blu Rays after. Right. You know, which you kind of was the way it was for, for about 20 years there. It's like even if you didn't make it back in your box office, you would make it back in, in DVD and Blu Ray sales later. We're not really doing that anymore because. Well, because we don't. No one buys physical media. We all want to subscribe to 17 streaming services apparently, instead. So a lot of these things, they're losing their shirts on them and they haven't really found out a way to monetize them. And so what are they doing? They are really relying on existing ip. We're going to do sequels as much as possible because at least we've got that kind of built in audience and maybe entice you in or we have to get smaller. And these are the two that hit. But I already mentioned how much I'm not a big fan of the Disney era. Star wars, with a couple of exceptions. Exceptions. And I mentioned the Indiana Jones. It's like it's guys at some point, the mine and even in the Marvel universe, which of course Disney owns as well. Like they peaked with Endgame, Endgame's five years ago. Now it was 2019. And all of the Marvel since then, all the Phase four and Phase five, whatever we're doing, the TV shows, the movies, it's just been a steady degradation. And so it's nice what happened with Deadpool and Wolverine and it's good. But you know, I don't have a lot of hope for a lot of the other stuff that's been coming out because it's, I mean, you know, does anyone remember what the plot of the Marvels or the eternals was like?

A (20:32)

2 final points. And then I'm going to move to a question for hardcore, the hardcore investors listening. If you made it through that conversation on Disney and Star Wars, I want to make sure we leave you with a little treat. Something to take home with you.

B (20:43)

Yeah.

A (20:44)

So my two final points are one, the international box office is less reliable for big tentpole movies. And then the second is, is that Deadpool and Wolverine was the only big Marvel movie this year. I think both of those, those facts are important. All right. I had to Say that. Now we're going to go to a mailbag question that you know, at the end of the year I want to get to an advanced investing concept because in the beginning of the year we're going to get some more general stuff as we have newer investors welcomed to the show. So here's the question from Cal fool that I thought would be good for you, Jim. I'm thinking about using more options to generate income on the stocks that I own. The this is selling a covered call. What should I know before doing this and is there an advantage to doing this instead of just owning dividend paying stocks and doing a little less work?

B (21:26)

Well, the advantage is you can increase the income on the underlying stock by selling calls against it. The disadvantage and I can go in a number of different directions here. Well, number one, first off, two companies that pay dividends. So if you're gonna say sell a covered call on a dividends, paying stock dividends, take down the price of the call. So when you're selling it, you're arguably getting paid less than you should be. Have to get you a finance paper to show you how that works. But yeah, let's just say selling covered calls on big dividend payers is going to pay you less. The problem that calfool may be stepping in here is because they specifically say generate income on stocks I own. Well, what is your cost basis in those stocks that you own? What account are those stocks held in? If they're held in a tax sheltered account, this is probably not that big of a deal. If they are held in a non tax sheltered account, let's say I'm going to pick on Starbucks just because it's the one that comes to mind. For I think it's about 85 or $90 a share. If your cost basis is $10 a share and you say get paid two or three dollars to sell a three month call option against your shares, that money is yours to keep. You'd sell one call option for every 100 shares you own. But if the stock runs up, okay, if the Stock goes from 85 where it is today, 87 where it's today, let's say it runs to $120 by the end of the three months because Brian Nicol is, you know, perceived to be turning the company around. If you sold say the $90 call option to generate income today, you are going to be scrambling to either buy those calls back and they're going to be a lot more expensive and it's going to, you know, largely eliminate any profitability you could have had. Or you're going to say goodbye to your shares that maybe you don't want to say goodbye to and you'll have a big tax bill. So always think about, am I doing this in a taxable account? If not, it's probably fine. You might end up selling something you don't want to sell too quickly, but at least there's no major tax implication if it's in a taxable account. You might want to rethink this. This is why when I was running Motley Fool Options, my good friend Jim Mueller is running Motley Fool Options. Today. He will say the same thing. We always preferred what's called the buy, right? So if you want covered calls and you're aiming for like 1% a month, which is, you know, reasonably, you can do it, you know, maybe a little bit better. Actually. What you would do is you would buy shares in lots of 100 and then you would sell a call, one call contract against the shares you bought. That way you're deliberately targeting income. Don't do it in an account where you already own shares. We could lose those ones taxes again. But just be careful and think about what you're doing. Think about the tax implications and then as well be sure you're okay waving goodbye to those shares. Because at some point you will see a stock run up, you will see a call exercised against you. And then the final potential indignity is always be aware. If you are gonna sell covered calls on a dividend paying company, be aware once the stock price goes above the strike price on the call. And if we're heading towards the next dividend date, you might lose your shares early. And there's some formulas you need to worry about. But what could go there, you might lose your shares early because the counterparty or option might try to steal your dividend from you. So just be aware and think through the implications of what you're doing here. It can be a fine. I do cover calls all the time. Just be aware.

A (25:10)

Good place to end it. Get to run long today. No B segment. Jim Gillies, appreciate you being here. Have a good holiday week and I think I'll see you in the new year.

B (25:17)

Thanks, Ricky. You too.

A (25:23)

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 Snow buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and or not approved by advertisers. Motley fool only picks products that it would personally recommend to friends like you. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.