More often than not, investors look at the same basic information when checking stock quotes. Other than looking at the price, many people check the dividend yield, and maybe even check out the price-to-earnings ratio.

However, this isn't really enough to make an informed investing decision and let you know what you're really getting into when buying a certain stock. And, as you can see from this screenshot of an Apple stock quote from TD Ameritrade, there is a lot more information contained in a stock quote.

Source: TD Ameritrade

Here are three numbers you need to start paying attention to and what they mean to you.

Beta
The beta is a great measure of how well you'll be able to sleep at night after you invest in a stock. More specifically, the beta tells you how reactive the stock is to market movements.

If a stock has a beta of less than one, that stock is less reactive (volatile) than average. For instance, a beta of 0.5 means that the stock is half as reactive to market events or other headwinds as the S&P 500 is. If the S&P declines by 10%, you can expect to lose just 5%. Solid dividend-paying stocks with a long track record of growth generally fall into this category, and a few examples are Procter & Gamble, Colgate-Palmolive, and Johnson & Johnson.

On the contrary, a beta greater than one means that you can expect an above-average amount of volatility from the stock. Your investment may still perform nicely over the long run, but you can bet there will be some bumps along the way. For example, First Solar's beta of 1.9 means that if the market moves by 1%, you should expect your shares to move by 1.9%. The more speculative growth stocks tend to fall in this category.

52-week range
As the name implies, this tells you the range of prices the stock has traded for over the past year. And, an effective way to use it is actually somewhat counterintuitive.

For example, let's say that a stock is trading for just pennies above its 52-week low. Well, your gut instinct might tell you that shares are very cheap right now and it must be a good time to buy. However, companies like this are normally cheap for a reason, and have even further to fall.

A good example of this right now is the materials sector, such as coal and iron ore stocks like Walter Energy. Currently, the stock is trading for $1.75 per share, more than 90% below its 52-week high. However, the company is facing some serious liquidity issues and analysts expect the company to hemorrhage money for the foreseeable future.

So, while there is indeed a chance the company will turn around and reward shareholders, this is definitely one stock that is cheap for a reason.

Short interest
Short interest can be very useful because it can give you a good idea of whether or not the public believes there is something wrong with the stock at its current price. A high short interest should definitely set off an alarm in your head, or at least be a reason for further inquiry.

As an example, the aforementioned Walter Energy has a short interest of more than 60% as of the latest data. In other words, out of the 65.8 million outstanding shares in the company, nearly 40 million of them are currently sold short.

This goes back to my "cheap for a reason" argument in the last section. Sure the price is low, but there are an awful lot of people who seem to be willing to bet that the worst is yet to come.

In contrast, Apple has a short interest of just over 2%, which conveys a general level of confidence by investors. Johnson & Johnson is even lower at just 0.77%, meaning there is hardly anyone willing to bet money that the stock has any significant downside ahead.

How to use these numbers
To sum it up, looking deeper into the numbers listed in stock quotes can tell you whether or not a stock is truly a bargain, or if it's simply cheap because the company is "broken."

The more you know about what you're looking at, the stronger your investment decisions will be. And mastering the interpretation of these three figures is an excellent place to start.

For just less than $1 million, this Potrero Hills home could be yours. Source: Zillow.com.

Most homeowners who bought their homes at the peak of the frothy real estate market in 2005 or 2006 probably have at least a little bit of regret about that purchase. For many of these buyers, those investments eight-plus years ago are at best breakeven today. 

For investors in U.S. cities like San Francisco, though, that's not the case.

A few specific examples point to the trend
For example, this five-bedroom, three-bath home is currently for sale for $999,000 in the Potrero Hills area. The home was last on the market in June 2005, when it sold for $752,000. Assuming the home sells for the current asking price, that calculates out to nearly a 33% return. 

Or, consider this three-bedroom, three-bath home in Midtown Terrace. The 1,934-square-foot home sold for $801,000 in 2004. Today's $998,000 asking price would represent a 24% return over the 10 years since its last sale. 

Let's not forget at this point that the past 10 years includes the greatest real estate collapse in a generation. To see 25%-33% returns speaks to the impressive resiliency of the San Francisco market. 

Case-Shiller Home Price Index: Composite 20 data by YCharts

Since the bottom of the real estate collapse, the San Fransisco market has bounced back at a much higher rate than the broader real estate market.

Over the past 12 months alone, the Case-Shiller home price index for San Francisco has nearly doubled the Composite 20, growing by 6.65% versus 3.48%, respectively. 

Broader economic strength supporting the real estate market
Since the crisis, the San Francisco economy has recovered quite well. The unemployment rate has been lower than national averages since 2012. 

U.S. Unemployment Rate data by YCharts

San Francisco has benefited from its place at the epicenter of the tech world. From Silicon Valley to Mission Bay, billions of dollars are invested in San Francisco companies that create high-paying jobs, bring high-skilled workers to the city, and support one of the strongest local U.S. economies.

That strength extends beyond Internet start-ups, biotech, and cutting-edge engineering jobs -- San Francisco is also a major financial center sitting halfway between Tokyo and London. It is a major West Coast port thanks to its natural harbor, and thanks to nearby Stanford University, the area is also a worldwide leader in research and development across numerous industries, medicine being of particular note.

What does this mean for homeowners (and potential homebuyers)?
For current homeowners in San Francisco, the future remains bright. The San Francisco economy shows no signs of coming weakness; it's likely that the area will continue growing unabated. With that growth will come ever-increasing demand for housing and continued strength in the market. 

Don't forget, the real estate boom and bust from 2006 through the financial crisis was fueled by speculation. In the San Francisco market today, the area's growth is being fueled by fundamentals. 

So if you're interested in the market, you should consider acting sooner rather than later. It's very likely that $1 million won't buy you quite as much home tomorrow as it does today.

Facebook could soon follow Apple , Samsung , and Google into the healthcare field. According to a recent Reuters report, the company is experimenting with online support communities for patients and mulling the development of personal health and fitness apps.

Facebook CEO Mark Zuckerberg. Source: Flickr

This isn't the first time Facebook has expressed its interest in the healthcare field. In 2012, the company asked users to specify their organ donor status, which caused average daily online organ donor registrations in the U.S. to soar from 616 to 13,054, according to the American Journal of Transplantation. When Facebook acquired virtual reality headset maker Oculus VR for $2 billion earlier this year, CEO Mark Zuckerberg cited telehealth (virtual doctors' appointments) as a possible use for the technology.

Although Facebook's support groups and mobile apps are still in the early planning stages, it's fascinating to consider how the company could redefine "social healthcare" with its 1.3 billion monthly active users.

The business of social healthcare
Facebook wouldn't be the first company to create online social groups for patients and doctors.

Back in 2008, Google launched Google Health, an ambitious effort to connect fragmented electronic health records, or EHRs, into a single personal health record, or PHR. That effort was abandoned in 2011 after the service failed to achieve mass adoption among doctors and patients. Last November, Google launched Helpouts, an "expert marketplace" which can help connect patients to doctors via video connections.

Meanwhile, smaller companies like Doximity and Personiform are emulating Facebook and Twitter's networking models to connect doctors and patients to one another. Doximity, which had nearly 300,000 members as of January 2014, allows physicians to connect to each other and share patient data in a HIPAA-compliant manner.

Doximity's iOS app. Source: iTunes

Personiform's Project Medyear connects patients and physicians by merging Twitter hashtags with Google+ circles. Patients can actively share their health problems and symptoms on the network with hashtags, which helps them connect with strangers with the same ailment. To protect their privacy, Medyear uses Google+ circles to form "CareRings", which control exactly who sees their health information. Physicians can join also the network to connect with their patients.

WebMD , which offers support groups via its online communities, lets physicians use its Medscape mobile app to send medical information to patients who use WebMD's mobile app. Last October, the company acquired Avado, a developer of cloud-based patient relationship management tools, to enhance this system.

Considering all the activity that's going on in this field, it makes a lot of sense for Facebook to experiment with using its sprawling social connections to link patients and physicians to each other.

The business of preventative care apps
Meanwhile, preventative care apps -- like exercise, diet tracking, and calorie counting apps -- are a big part of the booming mobile health (mHealth) market, which Grand View Research estimates will grow from $1.95 billion in 2012 to $49 billion by 2020.

Apple, Google, and Samsung are all getting ready to capitalize on that growth. Apple recently launched HealthKit, its unified dashboard for iOS health apps and wearables. Google will soon respond with Google Fit, a similar platform which notably lacks HealthKit's integration with EHRs. Samsung has S Health, another similar dashboard for Samsung phones and Gear smart watches.

These platforms are all designed with the expectation that sales of smart watches will soar. Current forecasts mostly back that belief -- for example, research firm ON World believes that smart-watch shipments will surge from less than 4 million in 2013 to 330 million by 2018.

With these unified healthcare platforms and devices taking over smartphones, it would be wise for Facebook to offer health-tracking features to its 1.07 billion mobile monthly mobile users, who generated 62% of the company's advertising revenue last quarter.

The Foolish takeaway
Although the healthcare market is a lucrative one, it will also be a challenging one for Facebook to break into.

Facebook's constant shifting privacy settings, its dependence on targeted advertising for revenue, and its controversial "emotional manipulation" experiment could all hurt Facebook's chances at evolving into a trusted healthcare network or developer of health-tracking apps. Last year, Reason-Rupe's survey of over 1,000 American adults revealed that 61% did "not trust Facebook at all" for protecting their personal information and privacy.

Becoming a private social network for patients and doctors is a smart next step for the social network, but we should remember that Facebook couldn't compete against LinkedIn for a simple reason -- the former was a place for personal posts, while the latter hosted professional profiles. We could see the same problem with asking patients to share health information on Facebook -- its reputation as a casual social network could prevent it from ever being taken seriously as a healthcare platform.

Seeing your hard-earned money get drained month after month by recurring fees and expenses can be incredibly frustrating. Between the necessities of housing, transportation and food, it's a common personal finance rule of thumb to allot a whole 50% of your income to cover these costs.

But to meet your financial goals and build a cushion for potential emergency situations, it's important to find ways to save money wherever you can on these major expenses.

Budgets are likely tight following the summer travel months; according to a CreditDonkey study, 76.5% of those surveyed in 2013 about their summer travel plans listed gas prices as a major concern.

But what are some ways to minimize necessary costs? Here are some components of your transportation budget that could be adjusted to unlock major savings.

1. Reduce your monthly loan payment with a refinance
If you're paying an exorbitant amount in interest on your current auto loan, it might be wise to refinance -- and the time is definitely prime. National auto loan rates are remaining at near-historic lows: 3.26% APR for a 36-month loan, 4.01% APR for a 48-month loan, and 3.58% APR for a 60-month loan, according to the GOBankingRates interest rate database.

Refinancing your auto loan to get a lower rate can have a significant impact on the total cost of your vehicle, regardless of term. However, if you specifically want to lower your monthly expenses, opting for a longer-term loan will better accomplish your goal. Many Americans are opting for these products, too; according to USA Today, there was a 25.1% increase in 73- to 84-month loans in 2013.

When compared side-by-side on the GOBankingRates auto loan calculator, a 48-month loan for $28,000 with a 3.94% APR will cost $631.46 monthly, whereas an 84-month term would bring that monthly payment down to $381.95. That's $249.51 in savings each month. Keep in mind, you'll pay almost $2,000 more in interest over the life of the loan; but, when spread out over three extra years, opting for a longer-term loan can help alleviate month-to-month budget stress.

Keep reading: Here's How Much an Auto Loan Refinance Could Save You

2. Purchase an energy-efficient car
If you have enough money saved up front to cover the higher cost of an energy-efficient or electric vehicle, it might be worth investing now to enjoy lower monthly transportation costs in the long term.

The average price for a new Toyota Prius ranges from $24,023 to $29,583, with the vehicle boasting an EPA-estimated 51 mpg city and 48 mpg highway, according to U.S. News & World Report. In comparison, the Ford Mustang's average starting price is $22,685, offering just 19 mpg city and 29 mpg highway.

When comparing base models, the Toyota Prius costs almost $1,500 more up front; however, the monthly gas expenses for the Prius are less than half that of the Mustang. The initial investment in an energy-efficient vehicle could save you at the pump on a regular basis, significantly reducing your trips to refill. Additionally, there are tax credits to offset the higher initial cost of fuel-efficient cars.

Perils For Pedestrians producer John Wetmore said that getting by with one less car in a family can also reduce expenses beyond just the monthly gas bill.

"You will really save money if your family can get by with one less car and also have fewer car payments, not to mention insurance, tires and maintenance," Wetmore said.

Related: Small Fuel-Efficient Cars More Popular Than Hybrids Amid Rising Gas Costs

3. Stay on top of car maintenance and insurance
In the same way that low tire pressure makes a bicycle inefficient and difficult to maneuver, your vehicle's tire pressure can contribute to increased transportation costs.

According to Jordan Perch, analyst for DMV.com, the way you drive your vehicle can greatly contribute to its fuel economy.

"The most effective tips that can help you improve your car's fuel economy include driving within speed limits, avoiding hard accelerating and braking, making sure your tires are properly inflated, and avoiding high revs," Perch said. "Also, proper maintenance is a must, which includes changing your spark plugs when needed, replacing your air filter often and checking your oil regularly."

Additionally, it's beneficial for drivers to reevaluate their auto insurance policies when up for renewal, as personal circumstances might have changed, qualifying them for a better rate. For example, a new job that's closer to home and reduces daily mileage can reduce your insurance costs, as can the removal of a ticket from your traffic record.

4. Opt for public transit or ride sharing whenever possible
Do you have access to public transit, live nearby a coworker or have a neighbor who works in the same part of town? Using public transit or carpooling, if possible, can save you a significant amount of money each month.

The American Public Transportation Association estimates that those who commute by public transit save as much as $13,765 annually. If ride sharing is better suited for your situation, carpooling to work can amount to $200 a month in savings if gas costs are shared, according to Perch. If you're looking for a fellow commuter, check out sites like CarpoolWorld and eRideShare that connect drivers with fellow carpoolers.

If you opt to carpool but want to save even more, BeFrugal.com founder Jon Lal recommended shopping for the best gas prices and taking advantage of rewards points to cover fuel costs.

"To fill your tank up for less, modify your gas-buying habits," Lal said. "If your local grocery store has a gas station, see if you can cash in your grocery store reward points for a reduced price on gas. Or cash in your credit card point rewards for gift cards to purchase gas anywhere. To see where the lowest price gas is near you, use an app like Gas Buddy, Local Gas Prices or Cheap Gas."

This article originally appeared on GoBankingRates.

Since the beginning of the year, the price of a single bitcoin has fallen by more than half, from about $750 to the current price of around $360. In fact, in the past two months alone, the price of a bitcoin has plunged by more than $200.

Source: Flickr

Why has this happened? If anything, it would seem like the opposite path would be more likely. After all, more retailers than ever are accepting bitcoins, major players in the venture capital industry are throwing money into bitcoin-based businesses, and more of the public is becoming aware of the digital currency.

So, why has bitcoin plunged? And should people who own bitcoins be worried?

The current state of bitcoin
It used to be very tough to find a mainstream retailer who accepted bitcoin, but this is no longer the case. Among the household names that accept bitcoin directly or are planning to in the near future are Overstock.com, Dell, DISH Network, Newegg.com, eBay (and PayPal), and Virgin Galactic, just to name a few.

And through digital gift-card store Gyft, you can now use bitcoins to shop at major retailers such as Best Buy, CVS, Amazon.com, Target, and Whole Foods.

In January, Overstock became the first major retailer to accept the digital currency, and had processed $1.6 million in purchases before the end of May. And, at that time, Overstock's CEO said that while bitcoin is a tiny part of the business, it was growing by 25% per month.

More recently, Overstock opened up bitcoin acceptance to more than 100 countries worldwide, and the company is now reporting about $15,000 in bitcoin transactions per day (a rate of about $5.5 million per year). Naturally, once Overstock started the trend and proved there was actually some money to be made, other retailers decided that they wanted a piece of the action as well.

Tough to buy for many people
Because the acceptance of bitcoin by retailers has become so much more widespread, it is actually easier to spend bitcoin right now than it is to acquire it.

There are two basic ways to get bitcoin. You can "mine" for it, which involves investing in expensive and sophisticated computer equipment and is literally becoming more difficult and less profitable by the day. Or you can purchase bitcoins on an exchange like Coinbase with money from your checking or savings account. As of yet, there is no mainstream way to acquire bitcoin using a credit card or with cash.

And, in perhaps the biggest development of all, eBay's PayPal announced that it would start allowing transactions in bitcoins.

This could potentially be huge, not only for the acceptance of the currency for goods and services, but it could kick-start the mainstream adoption of the digital currency. Once PayPal's 152 million account holders can deal in bitcoins just as easily as they can in U.S. dollars, it could really give the bitcoin economy a boost. The full bitcoin integration likely won't happen for some time, but it's definitely a step in the right direction.

However, until this happens, the market definitely favors selling, rather than buying bitcoins.

Widespread retail acceptance is bad for the price of bitcoin
And here's the main point: When retailers accept bitcoin, it's generally because they want to attract a larger customer base and want to minimize their transaction costs. It is not because they like bitcoin as a currency, or have any interest in keeping bitcoin on their balance sheets.

On the contrary, when you buy a product in bitcoin, the retailer usually immediately sells the bitcoin, converting it to U.S. dollars. This creates tremendous selling pressure in the bitcoin market, and has probably played a very big role in the price drop.

Cause for concern, or just natural "growing pains"?
If anything, I believe that the price drop and selling pressure created by the surge of retailers who accept bitcoin will emphasize the need for a more practical, user-friendly way for the average person to buy bitcoins. Sure, some bitcoin ATMs and things of that nature have sprung up, but aren't widespread or well-understood by the public.

The recent decline is simply a necessary and healthy part of the growth of the bitcoin ecosystem. And once consumers are able to adopt it as quickly as retailers have been, the selling pressure on the currency will subside.

So, to answer my original question: This is not a cause for panic. However, it is reasonable to expect some volatility along the way as the bitcoin relationship between retailer and consumer evolves over the next few years.

Source: Priceline.com

Blue chip stocks are remarkably solid companies, typically market leaders in their respective industries with proven track-records of success and unquestioned financial strength. World class names such as PepsiCo, Johnson & Johnson and Procter & Gamble usually come to mind as well established blue chip stocks, while Apple could easily be on its way to consolidating its place as a blue chip stock due to its tremendous brand value and impressive cash flow generation.

Blue chip stocks provide many advantages for investors, such as safety and reliability, usually combined with generous dividends and share buybacks. On the other hand, it tends to be quite difficult for big companies in mature industries to find growth opportunities, so blue chip companies are generally not the most exciting growth names in the market.

Keeping this in mind, looking for the next blue chip stocks and buying them while they are still young and rapidly growing can be a smart strategy to maximize returns. As a company proves to investors that it has what it takes to be included among the best quality names, gains for shareholders can be substantial over time.

Today a strong contender to reach the blue-chip  Priceline.com stock and a few important reasons why the global leader in online travel seems to be clearly moving in the right direction when it comes to earning a place among the best blue chip stocks over the coming years.

The business
Priceline is the undisputed global leader in the online travel industry. While rival Expedia has a bigger presence in the U.S., Priceline leads by a wide margin in international markets. The company produced $13.54 billion in gross bookings during the second quarter of 2014, with $11.68 billion coming from international markets.

Expedia generated a similar $13.05 billion in gross bookings over that period, but nearly 60% came from the U.S. Importantly, Priceline is more efficient than Expedia at translating gross bookings into sales: Priceline registered revenue of $2.12 billion in the second quarter versus $1.49 billion for Expedia, so the disparity in sales is much bigger than the relatively small difference in gross bookings.

Online travel agencies provide a remarkably valuable service to both travelers and industry operators. Occupation is a key factor for profitability in industries like hotels, airlines, and car rentals: The additional cost of accommodating one more guest in a hotel room is almost irrelevant, so it makes a lot of sense from a financial point of view to offer steep last-minute discounts if the room is going to otherwise remain empty. The same goes for an unoccupied seat in a plane, or an unused rental car.

But offering aggressive discounts can tarnish a brand, making it difficult to convince clients to pay regular prices if they have become accustomed to big bargains. Using online travel agencies to offer last-minute deals under special conditions, companies can clear their inventory by selling to bargain hunters, while at the same time protecting their brand and image.

Needless to say, clients are more than happy with these kinds of deals, which can be outstandingly cheap. Comfort, efficiency, and transparency are additional advantages for travelers when it comes to choosing online travel companies over traditional sales channels in the travel business.

The numbers
Priceline has delivered truly outstanding financial performance while capitalizing on its opportunities for growth over the last several years. Sales have increased at 29.2% annually through the last five years, while earnings per share expanded at an even faster rate of 57.4% per year over that period.

The company continues firing on all cylinders as of the last quarter: Gross travel bookings increased 34% during the second quarter of 2014 to $13.5 billion. Total sales grew 26% to $12.12 billion, while adjusted net income came in at $667 million, a 31% increase versus the prior year.

Priceline does most of its business via the agency model, which means allowing hotels and other operators to list their own offers and prices, paying the company a commission for every transaction. This means the company assumes no inventory risk on most of its sales, and it allows Priceline to generate growing profit margins as it spreads its fixed costs on a growing revenue base.

PCLN Operating Margin (TTM) data by YCharts

Sustained sales growth, in addition to expanding profit margins, should provide a double boost to earnings over the coming years, so investors in Priceline stock have valid reasons to continue to expect strong earnings growth from the company.

Bottom line
Priceline benefits from a leading position in the promising online travel business, and the company is transforming its opportunities for growth into remarkable financial performance for investors. The online travel leader seems to be on the right path to becoming a blue chip stock over the long term, and this looks like a convenient scenario for investors in Priceline stock.

BNSF train hauling stacked J.B. Hunt containers through Cajun Pass, CA. Image by Mark Loewe under Creative Commons license.

At nearly 188,000 miles, the combined length of the U.S. interstate highway system and the U.S. freight rail system could wrap around the Earth's equator more than 7.5 times. This massive yet intricate network has played a significant role in the growth of U.S. gross domestic product, and has its origins in the first 13 miles of commercial rail track laid in Baltimore in the late 1820s, a route that was piled by the famous steam engine Tom Thumb. The interstate system in turn was launched in 1956, when President Dwight D. Eisenhower signed legislation authorizing its construction.

What is the road and rail industry?

The road and rail industry centers around the companies that use these two networks for commercial purposes. It encompasses both road freight transportation companies (trucking) and commercial rail freight companies. It also includes the rental car and rental truck sectors -- think Hertz Global Holdings, or Ryder System -- as well as shipping companies that have ground operations and facilitate endpoint delivery to consumers, such as FedEx and UPS.

How big is the road and rail industry?

The road freight portion of this industry is divided into two major categories: full truckload, or FTL, and less than truckload, or LTL. The top 25 carriers in each of these two categories have a combined annual revenue of over $58 billion. Estimates peg the commercial rail industry at $60 billion annually. Add in total domestic truck rental revenues of $17 billion, and a car rental market of over $36 billion, and the result is an industry with revenues over $171 billion annually -- before taking into account associated logistics, repair and maintenance, and other services necessary to keep so many wheels turning.

How does the road and rail industry work?

While both road and rail can broadly be described as the primary methods of commercial ground transportation in the U.S., they have a few distinct differences. Trucks ride over an infrastructure provided for and maintained by U.S. taxpayers -- the U.S. highway system. Rail companies maintain their own track. According to the Association of American Railroads, rail companies will spend $26 billion on the U.S. rail network in 2014. 

The rail industry is divided by revenue into three major carrier classes. The largest, Class I, includes rail companies with operating revenues exceeding $467 million in 2013. According to the Association of American Railroads, there are currently seven Class I railroads: BNSF Railway, CSX Transportation, Grand Trunk Corporation, Kansas City Southern Railway, Norfolk Southern Combined Railroad Subsidiaries, Soo Line Corporation, and Union Pacific Railroad. The seven Class 1 railroads make up 69% of domestic freight rail mileage, and employ 90% of U.S. rail employees. The rest of the industry is divided between the smaller Class II, or regional carriers, and Class III, or short line carriers.

The trucking industry is regulated by the Federal Motor Carrier Safety Administration, or FMCSA. FTL freight is propelled by companies in need of bulk shipments, while LTL is characterized by packaged shipments -- a company pays only for the space its packages take up on a truck. 

Road and rail find an intersection in the commercial business known as intermodal transportation, the process by which goods are shipped from one point to another using multiple modes of transportation. Goods are shipped in standardized 20- or 40-foot "containers," enabling efficient transfer from one mode of transport to the next. Each year in the U.S., more than 25 million containers and trailers are transported by this method. The trucking industry often provides short-distance transport of containers from ports to railyards. This segment of intermodal is known as "drayage," taking its name from "dray," a type of cart used historically to carry loads over short distances. 

Companies such as FedEx and UPS are often referred to as "intermodal companies," as they cover several points in the transportation chain, from air freight to ground freight, including package delivery to businesses and individuals.

An example of intermodal transportation: This truck offloads goods from a Japanese ship in the Port of Jacksonville, Florida. The pallets will be loaded onto either a truck or freight train for further transport toward their destination. Image by JAXPORT under Creative Commons License.

What are the drivers of the road and rail industry?

The fortunes of many industries can be linked to the health of domestic manufacturing, yet few have such a broad exposure to manufacturing as the road and rail industry. Since the need to transport raw materials, components, and finished goods increases when manufacturing output rises, most companies in this industry keep a close eye on aggregate U.S. manufacturing activity. For example, railroad giant CSX regularly cites changes in the Institute for Supply Management's "Purchasing Managers" and "Customers' Inventories" indexes when discussing business results.

Commodity demand, agricultural production, and fuel prices also influence this industry. Fuel prices in particular can affect the profitability of trucking companies, and in recent years, major trucking carriers have explored options for lowering fuel costs, including experimentation with new truck engines that run on liquefied natural gas, or LNG, rather than diesel fuel. Though up-front costs to implement natural-gas-burning vehicles are higher, LNG is roughly 60% cheaper per gallon than diesel fuel.

Finally, technological innovation sparks continuous improvement in train and truck operating companies. Recently, both types of organizations have focused on wringing efficiencies from their transportation networks through enhanced logistics. An instance of a widely used commercial innovation is GE's "RailEdge Movement Planner" software for rail companies, which improves scheduling and routing, and has been compared to the rail industry's version of an air traffic control system.

Similarly, trucking companies employ fleet management systems to improve fuel efficiency, safety, and on-time delivery. Regardless of the economic climate, it's likely that innovation will play a prominent role in sharpening the net profits of both road and rail companies in the coming years.

Income disparity is widely reported in America these days. It turns out there is also significant disparity in charitable giving as a percentage of income. And it may not be what you expect. Why might this be? You might consider it in your own charitable giving.

A recent study shows that wealthy Americans are giving less of their income, while poor and middle-class Americans are giving more. Covering the recession period and after, from 2006-2012, The Chronicle of Philanthropy study used tax records of people who itemized their deductions to determine their inflation-adjusted level of giving within socioeconomic and geographic groups. Although this does not account for all charitable giving -- namely, from those people who don't file itemized tax forms -- the amount of giving included in the study represents about 80% of the total.

In fact, the percentage decrease at the top levels of income almost mirrors the increase at lower levels of income. Since 2006, Americans earning $200,000 or more decreased their charitable giving by 4.6%. Americans earning less than $100,000 increased their giving by 4.5%. This is a surprising result, given that average incomes among lower- and middle-class Americans decreased during this period, whereas the incomes of wealthy families increased significantly.

Las Vegas, which was hit hard by the recession, has had a 14.9% increase in share of income to charitable giving. Source: Wikimedia Commons.

Why might people who are earning more give less, while people earning less give more? This is not entirely clear from the data, but here are some possible reasons to consider:

• In some cases, wealthy people have considerably more complex finances, with resources in different institutions and a range of funds, possessions, and investments. That may make it more challenging to determine a generous amount to give.
• The tax deductions gained through itemization may make less of a difference to people with wealth than to those with more constrained resources, so wealthy people may have been underrepresented in the study.
• Lower-income people are more likely to encounter the adverse effects of a downturn and poverty in general. Past studies show that people in more high-net-worth zip codes give at a lower rate than people who live in more economically diverse zip codes. If you never see hardship, you are less likely to empathize with people who are disadvantaged, and your charitable giving may reflect that.
• Similarly, lower-income people are more likely to live in communities where the recession hit the hardest, so they may have seen firsthand the positive effects that nonprofits had in the area.
• Given that there were big increases in Utah and also the "Bible Belt," religion may have played a part in this giving disparity. That giving increase may follow from religious belief or more community engagement through service programs.

How might this affect your overall decisions regarding how much to give and to which nonprofits? First of all, if you're wealthy, include charitable giving in your financial planning so you can navigate the complexity of your finances and set philanthropy giving goals. You may have to reach out or travel to personally see the people your gifts benefit. This will help you understand the issues that matter to you. If you live in a big city outside of the South or Utah, know that your peers may be giving less than the average and could use some encouragement or a role model like you.

And if you're a generous lower- or middle-class American, know that your giving is being recognized. Recent studies have reconfirmed that giving more makes you happier and healthier and can lead to social connections while giving you a feeling of authentic purpose. If you are struggling financially, your charitable giving may help to offset some of the effects of that stressor. Regardless of your socioeconomic level, your charitable giving can feel good and help offset the effects of economic disparity -- in income as well as charitable giving.

Source: Kinder Morgan

Kinder Morgan is expected to report third-quarter results on October 15. This will be an interesting report as the company is in the process of acquiring its publicly traded MLPs Kinder Morgan Energy Partners L.P and El Paso Pipeline Partners LP as well as LLC Kinder Morgan Management . It's the MLPs that are what really fuel the results of Kinder Morgan as it collects distributions and incentive income from them each quarter. However, their existence makes Kinder Morgan's report a bit confusing. To help make that report less confusing here are the three areas investors really need to watch when Kinder Morgan reports its third quarter results.

Review: Progress so far this year
The Kinder Morgan family of companies started 2014 on a very strong note. Overall, the companies reported solid results in both the first and second quarter. The highlight so far this year has been the natural gas pipelines business at Kinder Morgan Energy Partners. In the first quarter that segment's earnings were up 46% over the prior year while segment earnings in the second quarter demonstrated strong year-over-year growth of 13%. When combined with the strong financial results of Kinder Morgan Energy Partners' other segments, along with solid results from El Paso Pipeline Partners, it has resulted in Kinder Morgan having a very solid start to its year. If those strong results are going to continue, the three areas below will be key. 

First area to watch: The segment results of Kinder Morgan Energy Partners
Kinder Morgan Energy Partners currently fuels about 75% of Kinder Morgan's income, so its results are critical to the company. The biggest driver of its business is its natural gas pipeline segment. As we see in the following chart, that segment's earnings are almost double its next largest segment.

(Note: Results in millions) Source: Kinder Morgan Energy Partners LP press releases. 

What we want to see here is another increase in segment earnings in the natural gas pipeline business. We're especially interested in seeing segment earnings increase over the second quarter of last year:

(Note: Results in millions) Source: Kinder Morgan Energy Partners LP press releases. 

In addition to paying close attention to growth in the natural gas pipeline business, we want to see solid segment earnings growth across all five of the company's segments. 

Second area to watch: The impact of lower oil prices
One of the reasons the segment earnings at Kinder Morgan Energy Partners grows in such a stable manner is because the bulk of the company's income is secured by long-term contracts. However, the company's carbon dioxide segment produces oil, and not all of that oil production is hedged. In fact, Kinder Morgan's budget assumes that it will realize $95.15 per barrel of oil on its unhedged oil production. Given that oil prices plunged last quarter, this will likely have an impact on quarterly results.  

Kinder Morgan projects that for every dollar that oil falls below $95.15 it will see a negative impact to its distributable cash flow by about $7 million. That's not earth-shattering until we consider that oil prices in the U.S. are now $10 below that budgeted price. So, what we want to see is if falling oil prices did impact the company's profits in the quarter and what effect the continued fall in oil prices will have on the company's outlook for the rest of the year. We'll want to see if the company sees falling oil prices being a major headwind to its carbon dioxide business or if it sees this as just a temporary bump in the road. 

Third area to watch: The organic growth pipeline
Earnings growth across all of Kinder Morgan's companies comes from either acquisitions or by building new projects. Last quarter the company placed $700 million worth of projects into service that should help to boost its results this quarter. However, more importantly the company increased its backlog of future projects as it added $1.2 billion in new projects. As of the end of the second quarter the contract backlog at Kinder Morgan Energy Partners alone stood at $15.4 billion and $17 billion companywide.

We want to see Kinder Morgan's backlog continue to grow as the company announces new projects and increases its backlog. As the following slide notes, Kinder Morgan currently has a number of projects that are not included in its backlog.

Source: Kinder Morgan Inc Investor Presentation. 

What we want to see this quarter is that some of these projects have now been officially added to its backlog or at least are more certain to be built. Because these projects are key to the company's long-term growth, we want to see them move from the concept stage to contracted, as well as new project concepts being added.

Investor takeaway
This very well could be Kinder Morgan's last earnings report where its results will be clouded by its complexity. That being said, by taking a closer look at the performance of Kinder Morgan Energy Partners and the company's project pipeline, we should have a pretty good gauge of how the combined company will perform once it consolidates all of its affiliates under one umbrella.

All too often investors focus on a company's income statement and completely ignore its cash flow statement. Doing so puts investors at risk because a company can earn money even while hemorrhaging cash. That used to describe Chesapeake Energy , which at one point spent $12 billion more than its $2.2 billion in operating cash flow . Today, Chesapeake's capital expenditures are much more in line with its cash flow, which can be illustrated via a  cash flow analysis.

Drilling down into Chesapeake Energy's cash flow statement
In the first half of 2014, Chesapeake Energy produced $2.6 billion in cash flow from operations, even though the company only reported net income of $700 million. This discrepancy is regularly found at oil and gas companies because of the massive expenses these companies take each quarter. Let's look at Chesapeake's cash flow statement for the first six months of 2014 to see why the company's income is nearly $2 billion lower than its cash flow.

Source: Chesapeake Energy 10-Q for the second quarter of 2014. 

We see here that Chesapeake Energy is adding back charges it took for depreciation, depletion, and amortization to the tune of $1.445 billion. That's on top of adding back in items such as deferred income tax expenses and derivatives. Add it all up and Chesapeake Energy's operations brought in $2.6 billion in cash during the opening half of this year, which is $400 million more than in the first six months of 2013.

A good portion of that cash was reinvested in the company's business. That is found in the next part of the company's cash flow statement, which details cash flow from investing activities.

Source: Chesapeake Energy 10-Q for the second quarter of 2014. 

Here we see that the company's investing activities resulted in $1.7 billion in net cash being consumed through the first six months of 2014. The company spent nearly $2 billion to drill and complete wells, which is $1.1 billion less than it spent through the first six months of last year. Notably,Chesapeake Energy brought in $1.9 billion from asset sales in the first two quarters of 2013, but only sold $250 million in assets over that same period this year. This tells us the company invested within its operating cash flow rather than selling assets to fund drilling, which was Chesapeake's former funding mechanism. Overall, Chesapeake Energy had just over $850 million in free cash flow this quarter after adjusting for its investing activities.

The company used that excess cash flow to pay down some debt, pay dividends to investors, and bolster its cash position, as shown in this final snapshot of its cash flow statement.

Source: Chesapeake Energy 10-Q for the second quarter of 2014. 

Here we see that Chesapeake Energy paid down its credit facility by almost $400 million while also buying back $400 million of its debt. Most of that money came from debt issued from Seventy Seven Energy  as part of Chesapeake's spinoff of that oilfield services business. That move was intended to improve Chesapeake Energy's balance sheet, which is exactly what we see happening. Overall, the company's cash flow and balance sheet are improved from last year, when the company increased its debt by $400 million.

The rest of the Chesapeake's excess cash flow this year either went to pay dividends to both common and preferred investors or to pad the company's cash balance by $625 million. That's a lot higher than the $390 million boost last year, which came entirely from the proceeds of a debt issuance.

Looking at Chesapeake Energy's cash flow shows that the company's underlying business produces a lot of cash. While a good portion of that cash is consumed by its investing activities, the company finally has some left over. It's using its leftover cash to bolster its balance sheet by paying down debt and increasing its cash position. Bottom line, Chesapeake Energy's cash flow is much improved from last year as the company's turnaround heads in the right direction.

Xilinx  is a leader in the programmable logic devices field, controlling approximately 50% of the market it specializes in. Despite its strong position in a growing industry, the company has seen its share price fall roughly 18% year to date, and now trades in the $37 range, representing a new 52-week low.

The maker of programmable circuits supplies chips that are used in cell-phone communication towers, and has recently experienced some turbulence due to a slower-than-expected rollout of 4G technology in China. The downward pressure on its price has pushed its dividend yield up to 3.1%, a level that compares favorably against other semiconductor companies that pay dividends.

XLNX Dividend data by YCharts.

With its share price at relatively low levels, strong cash flow, and history of raising its dividend payout, there are compelling reasons to take a position in Xilinx. That said, the company is also facing some significant hurdles, and these challenging elements should be weighed against its apparent strengths for a more complete estimation of the stock's future.

Here are two things that Xilinx dividend investors need to know.

Heavy reliance on the Chinese market comes with substantial risk
As the world's largest market for mobile devices, China is key to Xilinx's future. Thirty-five percent of the company's revenue in its last fiscal year came from Asia-Pacific territories, and that share should be significantly higher this year due to 4G LTE expansion in the region.

To give an idea of what the geographic breakdown of its business might look like by the end of the annual fiscal term, its last-recorded quarter saw 43% of its business come out of China and other Asia-Pacific territories. With the rollout still under way, it's not unreasonable to believe that the annual share will be even higher. Having a leading position in the world's biggest mobile market is great, but there are also circumstances and conditions in China that could destabilize Xilinx's business and stock.

Mounting tensions between China and Hong Kong and Taiwan have also heightened tensions between the Eastern power and Western nations. The political flare-ups arrive on the heels of concerted antitrust investigations by China designed to reveal alleged improprieties by foreign companies that do business within its borders. Among many others, these anti-monopoly investigations have targeted American tech companies like Microsoft and Qualcomm, and the belief that these regulatory probes are being conducted with the intent of creating a business climate more favorable to Chinese companies is not uncommon.

While Xilinx can't reasonably be said to have a monopoly on the programmable logic devices market, it essentially splits the sector with its main competitor, Altera . That these American companies control the production of chips that are fundamental in communications and defense technologies goes against China's national interests, and it's possible that the country will use its regulatory muscle in ways damaging to Xilinx's business, or that it will attempt to prop up a local manufacturer of programmable semiconductors.

The competition with Altera is an x-factor for Xilinx
The current market for programmable logic devices may be large enough, and growing fast enough, to allow both Xilinx and Altera to prosper; but it's difficult to predict how the adoption of their respective technologies will impact market share. Xilinx sells roughly 70% of the world's programmable 28-nanometer chips, but Altera may have significant advantages when it comes to next generation die shrinks. The rival company has partnered with Intel to manufacture and market 14-nm chips, which represents a significant threat to Xilinx's own, less-advanced, 16-nm offerings.

Altera's software system is also widely viewed as stronger than what Xilinx offers, so as 28-nm programmable devices are phased out in favor of the next-generation sets, it looks like Altera has the opportunity to increase its market share. Xilinx may be forced to increase its research and development expenditures, or lower its prices if Altera's chips gain market favor. Either of these moves could hurt the company's margins.

What does the future hold for Xilinx dividend investors?
Last year, Xilinx distributed $267 million in dividend payments to investors. With cash and short-term investment holdings of approximately $2.5 billion, the company could continue to pay dividends at current levels for eight years even if it fails to generate profit throughout that period. That's not a likely scenario, but it is an indication that the company's dividend structure is strong, particularly in light of sustained increases to payouts during the last 10 years.

Investors can be reasonably assured that Xilinx's dividend offering will remain an attractive component of the stock. Whether or not the company can grow in line with its targets and retain its market share advantage are the bigger points of uncertainty.

 

Coconut Chicken sandwich from Yum! Brands' new Banh Shop concept. Credit: Yum! Brands

Chipotle's first ShopHouse restaurant opened in September 2011. Credit: Chipotle Mexican Grill

Chipotle's existing store base is still lucrative and growing quickly. Credit: Chipotle Mexican Grill

Why? Because Chipotle still enjoys industry-leading economics and growth prospects from its flagship concept. Each new restaurant requires a relatively small capital outlay, returns on invested capital regularly sit north of 23%, and Chipotle's steadily rising free cash flow (which stood at nearly $400 million last year) has enabled it to stay debt free while building a mountainous $1.1 billion cash hoard.

Following a couple rough years, shares of semiconductor giant Intel have soared an impressive 39% over the past 12 months.

Source: Intel.

After badly lagging the market for much of 2012-13, several key issues that had previously hampered Intel stock seem to have dissipated. For starters, the PC market, although by no means exhibiting envious growth, is no longer imploding. Likewise, Intel has also made significant progress in rolling out its new suite of mobile chips that offer the promise of a foothold for the business in the post-PC era.

Investors will get their chance to check in on the status of Intel's turnaround on Tuesday, when the company issues quarterly earnings after market close. Here's what to look for.

Can the turnaround keep going?
At first glance, the analyst community's expectations for Intel's earnings report largely reflect the conventional wisdom surrounding the stock, namely moderate improvement. Here are the consensus analyst projections for Intel's top and bottom lines in the third quarter.

Source: Yahoo! Finance. 

As was the case last quarter, Intel's anticipated high single-digit to low double-digit performance probably has as much to do with extremely easy comps versus the same quarter last year as with better than expected performance in its core businesses. In last year's third quarter, Intel delivered anemic sales and profit performance of +0.2% and -0.7% respectively. That's not exactly a high bar to clear, but an industrywide trend should also give investors some comfort heading into the Intel earnings report.

Wind in Intel's sails
Try as it might to diversify, Intel's fortunes remains largely anchored to the overall performance of the PC market. In 2013, Intel's PC client group segment produced roughly 63% of its revenue and effectively the same percentage of its operating profit. That has been an absolutely excruciating position to be in over the past several years; the global PC market declined 9.8%  last year, according to researcher IDC. Heading into 2014, few expected better. IDC projected 2014's PC market contraction to be an only moderately less depressing -6%. However, that simply hasn't been the case as the year progressed.

Source: IDC Worldwide Quarterly PC Tracker.

As you can see, the PC market has proven more resilient than imagined, although by no means robust. However, these less painful declines have given Intel the backdrop needed to post reasonably strong numbers. In the last two quarters in which market estimates have badly overstated the actual PC market's performance, Intel has also exceeded expectations.

This is by no means a given, but it's hard to overlook what appears to be an unsurprising trend between the PC market's resiliency and Intel's cheery quarterly performances. This is by no means gospel creed and could certainly not be the case in Intel's upcoming report. However, as a company that is largely levered to the PC market, there's also a reasonable logical basis for thinking things might turn out well for Intel.

Intel remains very much a company in transition. As the PC market continues to slide into maturity, Intel has worked tirelessly to expand its chip portfolio to encompass smartphone and tablet semiconductors. This has been a slow process and could remain muted in the years to come, especially with the tablet market not necessarily proving the high-growth silver bullet Intel might have hoped. While it seems a case exists for another strong report from Intel, investors might be wise to view the chip giant with a healthy dose of skepticism given all the uncertainty surrounding it.

It's always useful to keep an eye on insiders buying stock in their own companies. It's particularly intriguing when management is doing it while integrating a major acquisition. With that in mind, Fools should keep a close look out for stock in auto parts retailer Advance Auto Parts .

Earlier this year, the company completed the purchase of General Parts International -- owner of Carquest and Worldpac stores -- for just more than $2 billion. If the insider buying is a good tell, then the integration plan is working out just fine. It's time to take a closer look.

What the deal means for Advance Auto Parts
The market certainly likes the deal, because Advance Auto has noticeably outperformed its peers Autozone , Genuine Parts Company , and O'Reilly Automotive in the year since it was announced.

AAP data by YCharts.

Advance Auto Parts benefits in three major ways from the deal. First, General Parts had 80% of its revenue in the commercial market (20% DIY). The addition of its business is forecast to shift Advance Auto's revenue mix to 57% commercial from 40% previously.

This is good news for Advance Auto because, according to CEO Darren Jackson at the company's investor day in June, "You can see that the commercial market continues to outpace the DIY market 3 to 1." In a sense, the acquisition allows the company to accelerate the process of shifting its revenue mix away from its historical DIY base, which, according to Jackson, "used to be 84% of our business a decade ago."

Second, the deal is a good geographic fit, as Advance Auto previously had 87% of its stores in the eastern half of the U.S. General Parts is strongly represented on the west coast and Canada. 

Third, the price paid appears to be excellent for Advance Auto. At the time of the deal, management disclosed that the price paid was an EV/adjusted EBITDA of 9.3 times. Enterprise Value, or EV, just represents the price of the company, and EBITDA is Earnings Before Interest, Tax, Depreciation and Amortization. It's the most commonly used metric in takeover activity. However, Advance Auto expects to generate $160 million in annual run-rate synergies by the third year following the deal and, including these synergies, results in an EV/adjusted EBITDA ratio of just 5.4 times.

To appreciate just how cheap this looks, readers should note the current EV/EBITDA valuations in the following graph -- also note the run-up in Advance Auto's valuation.

AAP EV to EBITDA (TTM) data by YCharts.

Current trading positive
A quick look at its results so far this year also reveals that the company is doing well -- another reason for insiders to be buying. On a negative note, gross margin declined from 50.1% in the first six months of last year to 45.4% this year; but this was attributed to the higher mix of commercial sales as a result of the acquisition -- commercial sales tend to be lower margin. However, Advance Auto managed to increase its comparable same-store sales by 2.5% -- the figure doesn't include same-store figures from General Parts -- and management declared itself to be "on pace against its business expectations."

Indeed, "on pace" might be all the company needs to do to appreciate. For example, a look at forward EV/EBITDA -- one year ahead forecasts that help investors price in future growth -- shows that Advance Auto looks cheap compared to its peers.

AAP EV to EBITDA (Forward) data by YCharts.

In fact, the average of the forward EV/EBITDA ratios for its three peers is 10.4, implying that Advance Auto has a 13% upside potential just from hitting its targets.

However, investors need to keep an eye out for one concern with the company -- its inventory management. In the last two years, Advance Auto's inventory turnover -- how many times it turns over its inventory, with a larger number being good -- has declined. Carrying lots of inventory is not great for cash-flow generation, because it means cash is tied up in holding inventory. Indeed, as the second chart below shows, this has helped cause free cash flow to assets to decline in recent years. This is not good.

AAP Inventory Turnover (TTM) data by YCharts.

Investors should follow this figure closely in future quarters because, theoretically at least, the greater scale acquired with General Parts should create some opportunity for Advance Auto to improve inventory turnover in future years.

The takeaway
All told, Advance Auto looks on track with its acquisition, and its management appears confident enough to buy stock. Despite the strong rise in the stock price, the shares still look cheap, based on forward EV/EBITDA estimates, compared to its peers. However, Fools should keep an eye out for how its inventory management develops going forward.

What: Shares of wearable sports camera maker GoPro dropped over 13% in intraday on Monday following a report from a news.com.au journalist that former Formula One racer Michael Schumacher's "traumatic head injuries were caused by GoPro camera mounted to his helmet when he fell in a December skiing accident."

Indeed, according to ValueWalk, experts have found that the GoPro camera might have weakened the helmet, particularly since an analysis of the helmet reportedly "revealed that it had the right material."

So what: As Seeking Alpha commenter "Jta91" pointed out, this isn't exactly news: The London Telegraph reported the investigation into whether the GoPro camera was responsible for the shattered helmet in February of this year.

In short, this doesn't seem newsworthy. 

Now what: GoPro trades for approximately 7.84 times expected revenue for the year and about 95 times expected fiscal 2015 earnings -- a very rich valuation. So it's no surprise the stock is sensitive to news flow.

The knife, interestingly enough, appears to cut both ways: The stock ran up significantly following the completely expected Hero 4 camera launch, and now it's coming back down on a piece of "news" that is unlikely to be material to the company's business performance.

Nevertheless, I'm staying on the sidelines as the market seems to have already priced in some pretty significant growth for GoPro, even following today's large drop. 

We recently had the opportunity to sit down with LinkedIn founder Reid Hoffman, who has just written The Alliance: Managing Talent in the Networked Age.

This exclusive interview appeared previously on our premium investing service Motley Fool One. A full transcript follows the video.

Enjoy, and Fool on!

TOM GARDNER:

We're here in Mountain View, California at the headquarters of LinkedIn with the founder of LinkedIn and the executive chairman, Reid Hoffman, who's also the author of The Alliance: Managing Talent in the Networked Age -- a wonderful book that just came out in the last -- eight weeks?

REID HOFFMAN:

Yes. Eight. Maybe nine, now.

TOM GARDNER:

Did you go out on a book tour, by the way?

REID HOFFMAN:

A half a day.

TOM GARDNER:

Perfect.

REID HOFFMAN:

That's all I had time for.

TOM GARDNER:

I'll just say that I think book tours -- let's go in a different direction with our conversation and discuss book tours. But it's not the most efficient way to get word out about the new project that you worked on.

Let's start with one story in the book, which is the story of John Lasseter, just because I think he captures, pretty well, the problems [of] many companies. Gallup data shows that 70% of people are going to work either indifferent or downright negative about their job or their boss or their employer, [and] they're missing the opportunity that maybe somebody like John Lasseter is bringing their way at their company. Maybe give us the John Lasseter/Disney/Pixar story.

REID HOFFMAN:

Oh, the John Lasseter story? I've met John Lasseter, now, actually. So, John was working at Disney. A young person. Maybe first job. He went to them [saying], "Oh, we should do computer animation. We shouldn't do it this way. We could do these amazing things." The management, [rather than] saying, "Well, look. They key thing about companies in the modern age is being adaptable. The key thing is actually using intelligence that comes from the network inside the company and broadly in terms of figuring out what is our future." [They] basically said, "No. That's dumb." And they fired him. The absolute worst possible response.

TOM GARDNER:

It was essentially like, "We're tired of your crazy ideas. We've asked you to do your job, and you keep bringing these ..."

REID HOFFMAN:

Yes, exactly. And so the end result of that, of course, is he goes off and co-founds Pixar. Pixar is a mammoth success and the way that Disney keeps its feature is Disney buys Pixar. Which, of course, shifts from an individual salary to a multibillion dollar acquisition.

TOM GARDNER:

Value that could have been created inside of Disney ...

REID HOFFMAN:

Yes. Exactly ...

TOM GARDNER:

... was missed because they didn't look at their employee as anything more than an asset to manage ...

REID HOFFMAN:

Yes ...

TOM GARDNER:

... rather than talent and passion to unleash.

REID HOFFMAN:

And the key thing, when you think about how do you have an adaptive and innovative company, is you have to think, How do I get a network of ideas to refine them? So, it's not command and control. I am CEO. It is my vision ... Even Jobs, by the way, didn't work that way. Steve Jobs did not work that way. He constantly was talking to people, getting a sense of what are the things that [are] possible for [them] to do. You want to architect that structure all the way down in the company. Because there are even managers saying, "How do I get network intelligence in order to know what I'm doing?" because we live and work in a networked age.

And so the thing is [if] you have an interesting, innovative, ideating employee, you say, "OK. Is this good stuff? Like [they're] bringing something up. I should pay attention to it." Now, if he was saying, "I think we should be doing tiddlywinks ..." On a LinkedIn interview, sometimes we'll have that. I'll go, "Okay, that doesn't work." But like clearly computers [and] software [are] going to transform animation. This is a good signal. How do we encourage the people to actually help us adapt in the future?

TOM GARDNER:

One of the beautiful things about network intelligence, which you articulate so well in the book and which is in evidence at LinkedIn since inception, is it essentially invites people to admit that they're wrong. Once you have a network of ideas, there's no embarrassment. It's one of the hardest things to do is to take a public stance and say, "I made a mistake." I've always loved the John Maynard Keynes line, "What do you do when you get more information that suggests you're wrong? I change my mind."

REID HOFFMAN:

Yes, exactly.

TOM GARDNER:

That network invites exchanges and ideas. I remember Jobs at one point saying, "I'll walk into a meeting with the most passionate belief and I will walk out and talk to the rest of the company as if I never had that belief."

REID HOFFMAN:

Yes.

TOM GARDNER:

So, how do you create a network? How does a company that isn't LinkedIn -- how do they start deploying it?

REID HOFFMAN:

Well, there's a couple of different things. One is every employee has a network and you actually want to have employees have networks. Be active in the networks. One of the things we write in the book is to have some policy by which they can take people they know out to lunch, as long as they're reporting that intelligence back to the company.

It doesn't have to be a client. It doesn't have to be, "I'm recruiting you." I mean, those are obvious cases. Just someone who knows something that could be helpful for the company. I take you out to lunch. I learn [something] myself and expense it -- but that expense is part of reporting it back to the company. So, it benefits the company as well as me and so forth.

Another one is alumni. What people haven't realized is [as] a consequence of the fact that people now go and work at a number of different companies, [those] companies have large, very active, still-in-the-industry alumni that is a resource that is essentially just thrown away. They're like, "Well, you worked here. You should be grateful. You should just do things for us."

Well, they've got a new employer. They've got things to do for the new employer. It's not like that's their primary person that they're dancing with. And so, you can't just say, "Well, you should do things for us." No. It's a two-directional street. Part of what we talk about is how companies should essentially treat their alumni network as actually a set of people they still have a potentially really good relationship with and how they have a two-directional relationship.

For example, just last night we were having essentially an alumni event for LinkedIn alumni where part of the conversation was, "OK, what do you see going on in mobile? What do the next-generation apps look like? How are you seeing Android versus iOS?" And because these people are working at all these other different companies now ...

TOM GARDNER:

It helps [that] you not be as insular, as you're probably not already ...

REID HOFFMAN:

Yes ...

TOM GARDNER:

... because you're already a network. But it just reminds you that there are smarter people outside your company than you can ever have inside the walls ...

REID HOFFMAN:

And I got, actually, some really interesting insights for what the future of productivity apps are, because people working at these different companies said, "Oh, we should pay attention to this one and how that plays into a network." This all was last night, so I haven't gone and looked at them yet, but ...

TOM GARDNER:

[crosstalk 00:06:05] What about rotational, transformational, foundational? That experience that somebody at LinkedIn has when they're coming to work and they're [asked], "How are you going to transform our company?" What is the breakdown and how does somebody weave their way through a career at LinkedIn?

REID HOFFMAN:

We talk about three types of tours. Rotational is kind of like a fixed time. Generally speaking, the job ends, although you might continue [to] cycle in it. Transformational, which is the central one of the tours of duty, is a two- to five-year tour. It depends a little bit on the industry and what's going on where. My career should be transformed and the business should be transformed, and the two should be aligned. Fundamentally, everyone we hire starts on a transformational tour.

TOM GARDNER:

Starts?

REID HOFFMAN:

Starts on a transformational tour.

TOM GARDNER:

Oh, I would have thought it starts in rotational, orientation, boot camp ...

REID HOFFMAN:

No. Well, we have a few. We have the BizOps group. We have a few groups that have specific college interns or college graduate programs [where the] job ends in two years. At two years, we hope that you found another job in the company, but this job is over in two years. That's part of rotational.

Transformational. Say someone was hired in products and or was hired in engineering. [It's] come and do this. One of the questions our head of engineering asks people when they interview for jobs is, "What's the job you want after LinkedIn?" Because part of how we deliver on that transformational process is what's the job you're trying to get to?

Now, great people. We hope they work here a very long time. Part of being transparent about that is to create longer employment longevity -- but we are committed to transforming the people's careers -- because we want them to be committed to transforming our future. It's an alliance, which is the reason we named the book that way.

Then foundational. You get people who will [say], "This company's mission -- this is my mission. This is what I want my life to be about." And part of how you can tell the difference between foundational and transformational is five years from now, can you imagine working somewhere else? Yeah, that would make sense [is transformational]. Then you're on a transformational tour. If it's foundational, then, Oh, my God. This is the thing. I might be in a different job here at the company, but this is the mission that I'm on. That's foundational.

I think healthy, adaptive companies in the new world have essentially some foundational people. CEOs should almost always be on a foundational tour -- not necessarily all -- and then a transformational tour. It's a blend and a mix of them, because you get continuity through the foundational tours, and you get adaptability through the transformational tours.

TOM GARDNER:

What do you think is actually happening in other companies? What would be leading the 70% of people who say, "I'm not engaged. I'm not impassioned about this mission. I don't enjoy working for my boss." It's got to be something along the lines of, "I think I'll just have this same job forever. I may have had this education that pulled me in six different subjects and then I had sports and I did all these things.

"Now that I go to work here, all I do is pick up the phone and put it down. Pick up the phone and put it down. Pick up the phone and put it down. And that's my job, every single day, year after year." So, the idea of transforming something or rotating somewhere else in the business doesn't apply.

REID HOFFMAN:

Well, in particular, there's this major problem that [people realize once you point it out to them]. It's kind of [being] in a blind spot for most people. There's a massive erosion of trust between employers and employees because everyone knows, "Oh, you might go get a job somewhere else," but no one talks about it. No one says, "Okay. How are we helping you make progress -- even if that progress is somewhere else -- or that you might go take a job at another company?" It's a very rare conversation.

Yet, if you have that mutual lie of omission on both sides, where the employee is going to think, Well, I'm going to tell you what you want to hear, like I am really dedicated and I believe in the company, but actually I'm thinking about maybe my next step is there. Then [that employee is] inherently eroding trust. Likewise, as a manager, if you're [saying], "Well, I don't want to give you permission to think you can work somewhere else," well, it's not your permission to give.

TOM GARDNER:

It's a free world out here ...

REID HOFFMAN:

It's a free country. So, it happens by the absence of a conversation [that] trust degrades on both sides, which then also means you stop talking about what the future long term looks like -- what the belief is, where you're moving to, and [where] you're going.

Because if you're actually adopting a good management attitude, it's like, "Look. I am going to help you transform the trajectory of where you're going, but there's only a limited number of slots internal to the company." So, if I go on a promotion and you have six or eight people working for this person and they say, "Well, I would like to be that person," only one of those people is going to get that spot. What happens to the rest of them? Oh, we hope they just stay. Well, maybe some of them will stay, especially the ones on foundational tours, but maybe the other one ...

TOM GARDNER:

They need a new assignment. A new opportunity.

REID HOFFMAN:

Yes. And so, how do you make that happen? Now, if it's in the company, great. But a good alliance is, "I'm committed to you because you're also deeply ..."

TOM GARDNER:

So, a manager at LinkedIn ...

REID HOFFMAN:

Yes ...

TOM GARDNER:

... can be spending time helping one of their team members find a job somewhere else.

REID HOFFMAN:

Absolutely. I've done it myself. Always for longevity, you're trying to say, "Okay. Could we find something that would work for you here?" That's always a good question. No question. For example, take David Hahn, who we also talked about in the book. I had three conversations with David on each tour of duty saying, "Is the right thing to stay at LinkedIn or do something else?"

TOM GARDNER:

To be a venture capitalist.

REID HOFFMAN:

Yes. Well, actually, he's an Entrepreneur-in-Residence now.

TOM GARDNER:

Okay, right.

REID HOFFMAN:

Active VC. But then he came to me and said, "Look. I really want to run something." I was like, "Well, Jeff's doing a great job. He's in that job, so that's not available." We talked about it. I said, "No. There's a new, big mission you could do here at LinkedIn. That's not [really what your objective is]. You should go do that." He [asked me how he should do that]. We talked about it for a month or two. I said, "Well, you're not going to get enough clarity unless you're out. You should be in an organization, so why don't you come to Greylock and do it?" He said, "Okay. That'll work." And we had just an excellent transition.

TOM GARDNER:

What would have happened if he had said, "I want you to help me get a job at Facebook to create a professional network at Facebook?"

REID HOFFMAN:

Well, that would have been no, and that would have been a problem.

TOM GARDNER:

That would have been a problem.

REID HOFFMAN:

That would have been problem.

TOM GARDNER:

[Then], draw the line for me. What's the reason for that?

REID HOFFMAN:

The point of the alliance is we keep both interests in mind -- not just one. Both. For example, [if] I'm going to go create a professional profile on Facebook or anywhere else, it's like, "But, no. That's what we do here. You're harming the company. That's a statement in opposition and conflict. You have knowledge of our work and philosophy. That's actually a dishonorable thing to do. It dishonors all the investment that we've put in. The things that we've done together. That's not good. You should not do that."

But, for example, if he says, "Well, in fact, I want to go work at Workday," which does performance systems and account management systems, but LinkedIn has something to do with [00:13:15], that's fine. That's not trying to do the public professional identity. That would be like, "Great. Let's help you go do that." And are there edges between the companies? Okay, we might ...

TOM GARDNER:

But it's not a frontal ... It's not a company that is directly aiming at your business.

REID HOFFMAN:

Yes, exactly. And neither of us are aiming at each other's businesses. We might both have ATSs. Like they were doing an ATS and we're working on a bunch of other application tracking systems -- that's what an ATS is. That's fine. No problem. Workday is easy because also I'm good friends with Aneel, who is the CEO and all the rest.

TOM GARDNER:

It's an alliance. It's a shared ...

REID HOFFMAN:

It's an alliance.

TOM GARDNER:

No one side is going to be permissive and let the other one ...

REID HOFFMAN:

Exactly ...

TOM GARDNER:

... step in and take advantage or vice versa.

REID HOFFMAN:

Exactly. For example, companies should say, "Look. The individual matters, too. It's not just my interests." It's not like, "Well, it's only as long as it's good for my interests." No, no. Your interests, our interests, and how do we align them? That's the really key thing. And there's huge ground for that.

TOM GARDNER:

And you can pretty much guarantee -- I know the answer to this question, so why ask it [and] why waste our time -- but somebody who does leave to work for a direct competitor will not be in the alumni network.

REID HOFFMAN:

Yes. Exactly right.

TOM GARDNER:

They're not going to be distinguished alumni, and they're not going to be a part of the conversation about where the world's going and connecting and learning from what you're learning and sharing.

REID HOFFMAN:

And, for example, once you have a robust alumni network ...

TOM GARDNER:

You don't want to miss out on that.

REID HOFFMAN:

Yes. For example, when we had these hundred people last night, part of the value was all reconnecting with each other. We hosted the event [and] a huge portion of the time was actually them being able to say, "Oh, what are you doing now? What are you doing now?" It helps all of them. What they're grateful about is, "Oh, my gosh. You've given us an environment by which we can get back in touch with each other." One of them was saying, "Hey. Maybe you should come work at my company." That was one conversation I walked into. And that's all helpful to them.

TOM GARDNER:

So, network intelligence also helps you innovate, because new ideas come into the flow. How does that happen? Take, for example, Sales Solutions at LinkedIn. How did that idea emerge? Now, to me, as an outside investor, it makes total sense and I'm very excited about it. But as an outsider, it's difficult to see what the steps were that got there and how the network helps that.

REID HOFFMAN:

We have a very good reason to believe that every professional will have an active use case for LinkedIn -- one or more active use cases for LinkedIn. We're just building toward them. It's just a question of when. We have a category which we think of as "outbound professionals" which we know are the first people who, when they discover LinkedIn, they go, "This is better than chocolate for a business like us."

We knew that recruiting was going to be the first place, because it's such a hard problem and it's so important for companies and it's so important for individuals finding the right opportunities. And how do you make that a lot cleaner, like a network age product? Sales we knew, from the very beginning, was going to be another important area for us. This [goes] all the way back to when we were sitting around an apartment ideating.

TOM GARDNER:

2003. Sales was on the list.

REID HOFFMAN:

Yes. It was on the list. Now, the shape of it ...

TOM GARDNER:

That's an unbelievable thing, though, to think that the opportunity that sales presents -- you waited on for 11 years.

REID HOFFMAN:

Yes.

TOM GARDNER:

Now, as an investor, that's a very positive thing for me. For example, Harley-Davidson won't sell all the motorcycles it can. Chipotle won't open all the storefronts that it could right now because it's going to pace itself. It loves its existing business and it's not trying to please Wall Street's next quarterly demands.

REID HOFFMAN:

Absolutely.

TOM GARDNER:

But it's 11 years of knowing that you could have had additional growth. [That], "Hey, if we build recruiting out, that's going to be there."

REID HOFFMAN:

Yes. And the key thing is we think of the LinkedIn network as an ecosystem that has to [please all of the members]. We were like, "Okay. How do we put sales in, in a way that really works for the salespeople and works for the rest of the network?"

TOM GARDNER:

It could be painful for me. Everyone's tapping me. "Hey, listen. Your second cousin was my counselor in summer camp's brother and I was wondering if you wanted a new CRM solution at The Motley Fool?"

REID HOFFMAN:

And so it was important to build both the robustness of the network and the features into it that made that work for everybody. Look, always there's an occasional footfall here or footfall there, but on the whole, it's better for everybody. That's how we build the products.

Part of it was when we said, "What should our first thing be? Recruiting, sales or marketing?" Those are the three things to say. Those are the big ones that you do first. Because even though journalists use LinkedIn to find sources [and] hedge funds use it to find experts, those aren't the big categories.

TOM GARDNER:

Did you read Flash Boys, the Michael Lewis book? I don't know if you've read it.

REID HOFFMAN:

I haven't yet.

TOM GARDNER:

There's a section in it where basically they find all the high-frequency traders on LinkedIn. They're basically zapping on there. RBC figures out how high-frequency trading is happening and somebody inside RBC starts patching together all of the different developers and finance people on LinkedIn to show how that network ...

REID HOFFMAN:

Makes total sense. But the big categories are recruiting, sales, marketing. [00:18:25] We said, "Which one do we pick first? We'll pick hiring first. It's seriously broken. It's important on both sides -- important to the employer and important to the employee." And actually, [from] 2003, this is actually one of the things that changed. We [said we'd] do hiring, then we'd do sales, and then we'd do marketing. We're actually doing sales and marketing together, because we're like, "Oh, we actually have a lot of people now and we can actually work on both projects at the same time." But that's where it came [from]. Now, there was a lot of details. We hired an entrepreneur by acquiring a company who we thought could be the right lead for the project. There's a lot of things that come to ...

TOM GARDNER:

What was the acquired company? Okay, sorry.

REID HOFFMAN:

Talent ... Oh, God.

TOM GARDNER:

Just make an acronym up. CLJ.

REID HOFFMAN:

I think it was ...

TOM GARDNER:

But it was a talent business.

REID HOFFMAN:

Well, actually it was a CRM business that was started by two folks. And part of how we identified them was we were asking people who good entrepreneurs [are] here. We thought the product was good, but it was actually much more of who are the people who have the right stuff and most of that knowledge comes from outside the company. It's talking to various other entrepreneurs. People who work at Y Combinator, which is an incubator here. All of these kinds of things as a way of generating ... Oh, Sachin. He's the guy. "We should go talk to him."

TOM GARDNER:

The external network ...

REID HOFFMAN:

Yes.

TOM GARDNER:

... is more valuable than the internal network, do you think, over the next 20 years for LinkedIn?

REID HOFFMAN:

Well, they're both super valuable, but on any topic, the [smarter] people, the [deeper expert] people working outside your company and inside. So, if you're not tapping that expertise -- that diversity of opinion [and] how they solved other problems -- you're going to have a serious problem adapting at the right speed.

TOM GARDNER:

This is going to seem like a non sequitur, but I think I can segue this. What about succession at the highest levels of leadership? In the case of your creation and your team's creation of LinkedIn, you bring Jeff in. Succession at so many companies is a fail point -- or a struggle point. Starbucks' Howard Schultz comes back after seven years. Michael Dell comes back.

REID HOFFMAN:

Yes.

TOM GARDNER:

I don't think the transition at Microsoft [proved] to be a great one in the end. Although Steve Ballmer is one of the greatest chief operating officers in technology history, [it] didn't necessarily suit him to be the CEO of the company. There may be a succession problem at Apple. We don't fully know that story. It hasn't played out.

REID HOFFMAN:

I've met all the individuals in Y Combinator.

TOM GARDNER:

Yes, of course. But how do you think about why you got it right at the relatively early stage that you did and how do you think about succession for LinkedIn, obviously, or in observing any company and how they do it. I know that at LinkedIn, an employee who moves on to another job must provide a succession plan for the role that've moved out of.

REID HOFFMAN:

Yes, that's exactly right. To get longevity -- because the question is how you build companies that live for 100 years, 200 years -- [to] continue to be adaptive, continue to do things, one is you make it an internal function. So, you go down the manager hierarchy and everyone's identifying successors. They have already now. They have already in one or two years. They have an emergency. I'm hit by a bus.

TOM GARDNER:

[crosstalk 00:21:50]

REID HOFFMAN:

Yes. Kind of working it through. And sometimes you get [00:21:55] I'm not ready to go. Okay, what are we doing for them? Are they comfortable staying? Do they need a new tour somewhere else, in which case we have to start looking for someone. On a new one? All of these sorts of things.

Now, specifically in the CEO thing, one of the reasons this worked really well is I actually think a CEO-hiring process is a multiyear process by which you're spending a lot of time essentially looking for what is a later-stage co-founder. What you're essentially doing is [looking for] who has the talent. Who has the passion. Who has the product understanding of the area they're in. [Who] would [say], "This isn't a job. This is my life mission and I have all the things that would want to be brought in, not just as a CEO but as a later-stage co-founder." That's the thing that makes a great CEO.

TOM GARDNER:

I love that.

REID HOFFMAN:

One of the things, as I reflected back on it, is what I had been doing ... Because I had known that I'm actually a better product person or problem solver. I actually don't want to be a CEO. I knew that, and so I spent years talking to people. Like I spent years developing my list of, "It could be so-and-so, and it could be so-and-so, and it could be so-and-so." When it was like, "Okay, we need a person," I actually called five people and I set up dinner appointments.

I'd already been getting to know them. I already had a sense of what the right fit was. And Jeff -- I don't know if he said this on camera -- but he was the only person who was both ready now and [who] could be the person forever. Because I had a "ready now" list and a "forever" list and [he] was the only person who was on both lists. "Any interest? Because you can come and try it and see if you like it." And I was sold.

TOM GARDNER:

I guess he would be maybe in his late thirties at that point.

REID HOFFMAN:

Yes. That would be right.

TOM GARDNER:

One of the things I've observed in succession plans in companies is they often turn to the right-hand chief operating officer or the person that they've been working with for the last 25 years who, when they take over as CEO ... By the way, this is a real pain point for me, so this is like a personal therapy moment for me having this conversation. It's just I watch the succession happen and I'm like, "Why haven't we selected somebody? Twenty years of their career has yet to play out."

REID HOFFMAN:

Yes.

TOM GARDNER:

And they're their forever person. They may not be as proven, but he's got the team that can surround this person. That can set up a runway for the next quarter century of leadership.

REID HOFFMAN:

I actually think there are two classic mistakes -- that's one of them -- that's made in CEO hiring. One of them is, "Hey. This person's been here a long, long time. Steady hand at the rails." When actually one of the things that you're looking at is it's massively risky any time you change a CEO. It's like brain surgery. So, how do you also turn that risk into an advantage, which is how do you have the new blood? How do you have the vision for the next foundational tour of duty because given mortality and humanity -- all these things do go to, "Okay. It's only X time for that next cycle." That's one.

The other one is also that they tend to go, "Well, let's hire someone who's been a CEO before." In fact, that's usually not the right play. The right play is, "How do we find someone where it's their first time being CEO and they're really hungry to say, 'This is the thing I want to do.'"

TOM GARDNER:

Make my mark right here.

REID HOFFMAN:

Yes. So, for example, my conversations that I've had with Satya Nadella ... Initially it was, "Okay, I'm worried. Is it the safe, internal choice? But, oh. He's thinking boldly. He's asking lots of questions. He's got a strategy." And none of that is just like, "No, no. We're Microsoft. We know we've been very successful. We'll just do it more." It was, "No, no. I'm thinking really boldly about it." I was like, "That's a great first step."

TOM GARDNER:

There's a book entitled The Outsiders which studied the performance of eight CEOs over the last 40 years ...

REID HOFFMAN:

Interesting ...

TOM GARDNER:

... and they basically returned north of 20% a year over 20 years or more. That's how they were featured in the book. And Buffett's in the book ...

REID HOFFMAN:

Yes ...

TOM GARDNER:

... and Henry Singleton and Teledyne. One of the factors was they were all first-time CEOs. Maybe not all of them, but at least seven out of eight of them. That was a key point that was made. It's like they're bringing fresh eyes. This is going to be their career. There's not an exit ramp.

REID HOFFMAN:

I think sometimes it works to hire someone to be a CEO who's been a CEO before. But the default, when you talk to a recruiter, says do that. And actually, I think the default should be first time, and that's the exception. Sometimes the really valuable exception, but the exception.

TOM GARDNER:

As long-term investors at The Motley Fool, what we look at first, typically, is the culture. We look at [whether] this [is] set up for long-term success. The portfolio that I manage at The Motley Fool I'm mandated to hold for at least five years. So, it's a waste of time to think about what will happen in the next six months or to overrate valuation. It is obviously a factor in investing.

But The Alliance is the playbook, so maybe I'm just asking what I've already asked you. Why is LinkedIn a 4.5 out of 5.0 with something like 6,000 employees? And a CEO with a 98% approval rating across more than 700 employees that have taken the time to rate the CEO? I think he is the most highly rated CEO of a public company on the Glassdoor site. Why has that happened?

REID HOFFMAN:

Partially because Jeff's great. He focuses on a culture that has the characteristics of the alliance, which is how it is really great to work here. How is it that you feel like this is part of a progression of where you're going? That the whole transformational promise is actually delivered on. Part of it is that he focuses on how you help train leaders.

One of the things where Jeff has a deep skill bench, which is different than me, is I am a good partner to leaders. Jeff is a good trainer of leaders. Jeff is like, "How do I help you become the leader that you are? How do I help actually [impart] you're a great leader here but not here, and how do I help you understand that?"

TOM GARDNER:

[00:28:22]

REID HOFFMAN:

And love that. And make progress. That culture of how do you run an organization that's committed to the transformation, is focused on operating well, and has a real degree of openness but also attention to what that promise is in terms of how you make progress. How do you become more of a leader? How do you hold each other accountable in a compassionate way? It's [that] we are striving for excellence and we're making sure when we interface with other, that that's what we're doing. We're also doing it in a way that we don't have any people with anger management problems.

TOM GARDNER:

There's no one-upping here.

REID HOFFMAN:

Yes.

TOM GARDNER:

We're both on a mission. We're both passionate about the purpose. We're foundational. We're in the foundational zone if we're in leadership at LinkedIn and so typically a high performer in the foundational zone craves feedback.

REID HOFFMAN:

Yes.

TOM GARDNER:

Some companies think that they crave more money. But what they really crave is an inspiring challenge and a great group of people to work with and feedback for what they can do better and what they're not good at.

REID HOFFMAN:

Yes. All of that and also the sense of meaningfulness about what I'm doing. Like this work? This matters. Like what I do? This matters. And so that's another part of leadership.

TOM GARDNER:

A personal question for you. What matters to you right now? I think from the journey that you've had, what a remarkable last 20 years.

REID HOFFMAN:

Yes.

TOM GARDNER:

I mean, what a remarkable life.

REID HOFFMAN:

Eh ...

TOM GARDNER:

But what is it that is motivating you now that might be unique or different than what was driving you 10 years ago? Or is that purpose and value consistent ...

REID HOFFMAN:

There's a consistent framework. What I think a lot about is how we make massive systemic improvements to society at scale. The language I use is designing human ecosystems. Technology is the leverage point for that. So, creating networks or marketplaces, these kinds of things, are the ways to do that. It's been intensely, for the last 20 years, within the commercial realm and still is, within LinkedIn.

Although, for example, we focus a lot on what we call LinkedIn for Good, which is how do we help veterans get jobs? How do we help students? Yes, it has an economic impact, but we invest in them disproportionately to the economic impact. It's [about] how we have the whole system be better and how we make sure that the society is better off for that. And we're really good at that.

Another one is how we help professionals, through LinkedIn for Good, find micro volunteering opportunities so that they can take their expertise and actually apply it within the change-world area and how to have that matching work well.

Then I also begin to think about now that I have this awesome platform of LinkedIn as a network -- [with] my identity, also, as a venture capitalist at Greylock Partners -- how do I then begin to apply that in ways that were tools that weren't available to me before?

I was having a conversation with Todd Park, who's the CTO of The White House, in reference to technology bringing cost efficiencies. There should be a lot more good technology deployed within government. Providing services. Making it better and more cost effective. How do you do that and how do you navigate the political processes?

One of the things that Todd mentioned to me was, "How do we get more good engineers to focus on this problem?" I [said], "Look. You're a star. Why don't we get some other stars and we'll do an event here. And we'll get the engineers who are interested to come to it and [ask what we can do]. We'll have a set of conversations with them."

He said, "Will you do that with me?" I said, "Sure. Of course, I'll do that with you." I'm on the board of Mozilla and I'm sure Mozilla would love to do this, so we'll do it at Mozilla. That kind of thing was probably a tool that wasn't in the tool chest, as much, five years ago, because it's a result of LinkedIn's success and Greylock's success and these sorts of things.

TOM GARDNER:

What do you think of Wall Street's financial services industry? Our position, our vantage on it is incredibly short term. The commission structure is set up in a disadvantageous way for clients. Many of those clients are passive investors that are unclear about the relationship that they're getting into with a financial advisor. And that advisor ought to be able to be automated ...

REID HOFFMAN:

Yes.

TOM GARDNER:

... I think just like a driverless car.

REID HOFFMAN:

Yes.

TOM GARDNER:

Your entire financial life -- these are rules-based. It's not that complex to get people to pay their credit cards off. Get a passive index fund. If they want to buy stocks, they can beat the market with The Motley Fool. Awesome. They get insurance. Their mortgage. Why is there so much inefficiency still in financial services when financial services has been investing in tech companies? There seems to be such a movement within those two industries and yet we still sit in the face-to-face advisor-led, commission-led structure.

REID HOFFMAN:

I think the dysfunction is that the majority of people don't actually understand how much a leveraged fee structure makes it very difficult to do. And they're so uncomfortable with the product area, they just want to have someone talking to them about it. You're like, "You realize that's reducing value -- not adding value." As you know, I'm an investor in wealth funds through Greylock. Generally speaking -- except for the very specific things that I do where I'm expert at them -- I generally park things in low-fee ETFs and so forth. That's the way to go long and over time.

When friends of mine ask me what [they] should do, I say, "Wealth funds. ETFs. And if you do specific investing, make sure you're an expert at it. Make sure you know what you're doing." Because if you do it casually, the likelihood is it's terrible. And if you just outsource it to someone else, then the macro question is, in terms of their investing with your money, if they were so great at it, why aren't they just running their own fund? Why are they investing your money?

TOM GARDNER:

Our Motley Fool principle is we have skin in the game, too.

REID HOFFMAN:

Yes, exactly.

TOM GARDNER:

That's a [key point about financial relationships made by] Nassim Taleb, The Black Swan author. Are they putting their money behind their own advice? If they aren't -- which is not happening in most cases -- you can virtually guarantee that that's going to be a subpar result after fees and after taxes.

REID HOFFMAN:

Exactly right.

TOM GARDNER:

So, the passive indexing or skin in the game component ...

REID HOFFMAN:

I 100% agree.

TOM GARDNER:

You want to know that Warren Buffett ... And that's why we love the founder mind-set at companies that you talk about in The Alliance and the founder-led businesses. That's why parking your money with that founder -- whether it's the Starbucks leader or the Facebook leader or the LinkedIn leader -- is a great way to invest.

REID HOFFMAN:

And you guys do great content. As I told you, one of the reasons I'm here is actually I love your content. I actually read it every so often.

TOM GARDNER:

Reid, what do you think about valuations right now? We have just a few more questions.

REID HOFFMAN:

Complicated ...

TOM GARDNER:

Valuations in technology. You look back to 2000. Obviously, it's unfair to do that in some ways, but you look at companies like Microsoft, Intel and Cisco. They had great cultures. They had outstanding growth rates. Balance sheets. Everything looked beautiful for them and then they became very poor investments over the last 15 years. Very poor is a strong statement. They weren't great places to have your money once they had ascended to a very large market cap, high-multiple tech company. Do you fear that in technology now?

REID HOFFMAN:

Well, it's complicated. The fundamental way I look at stock prices is they're options on the future. Even in the value stocks -- not just the growth stocks -- I look at them as they're essentially options on the future. What happens is people try to tell themselves it's all more scientific. They do DCF analyses. They do all these kinds of things. But really part of the question comes down to where do you think the company is going to be in three to five years. That's kind of the fundamental thing.

Like everyone [says], "Well, these tech valuations are out of whack." [It's] because there's a subset of these tech companies. They're not all tech companies. There's a whole bunch of tech companies that do not trade the way these [do]. Like, "Oh, my God. Look at this one." It's almost like a wisdom of the crowds or madness of the masses -- depending on which one it is -- on a collective view of what do we think the future of this is. Where do we think it goes? It's not actually on a, "Well, shouldn't you value it on the following CAGR and everything else?"

TOM GARDNER:

Don't you think you would have said this about Cisco 15 years ago? The future is networking and look at their balance sheet. Look at their growth rates. They've got their leadership in place. I don't see what could go wrong for that business at 40x earnings and their $400 billion market cap.

REID HOFFMAN:

The reason it was working then is that they had a very good engine going. When the new tech came along, they would buy it. But there was actually new hardware and networking tech that was coming along that if they didn't buy it, that that would create a threat to their business. And they had a great culture. And they were doing that really well. They were the poster child of the playbook to learn to do that. As that rail began to go off, that was a little bit more [of a] challenge.

So, it's not always, "Oh, they're killing it now" means they'll kill it in the future. You have to think about what's going to come along ...

TOM GARDNER:

What is the future?

REID HOFFMAN:

Yes. And is the networking hardware going to be the key thing? Or is the networking hardware going to be here or is the strategy brittle on someone else building the next thing? For example, one of the things the mobile ecosystem opens up is people replace a mobile phone about every two years. That means that the turn rate on how drastically the market share could shift ...

TOM GARDNER:

If Apple can ascend the market share so incredibly rapidly, it means somebody else can, too.

REID HOFFMAN:

Yes, exactly. So, you have to think about what's the volatility of that?

TOM GARDNER:

And you would look at LinkedIn and say, "It's pretty well insulated from competition because of the network."

REID HOFFMAN:

Yes.

TOM GARDNER:

There's not an immediate network effect. There are app developers and there is that in the iPhone market or the smartphone market -- but not as deeply embedded as the network relationships you get in a LinkedIn or maybe in a Facebook.

REID HOFFMAN:

Exactly. Network properties -- when you have a network -- the network could be eBay or Marketplace. The network could be Airbnb. The network could be Facebook. The network could be LinkedIn. Network properties have more resilience.

Now, you always have to be [thinking] that there could be a new thing coming along and we want to be the new thing. We have to be thinking about how do we build the new thing? And if you're not thinking that way ...

TOM GARDNER:

What's the number one metric -- to the extent there is one in your mind -- for tracking whether a network is gaining vibrancy or declining in relevance? GeoCities. There must be a tripping point there, obviously. MySpace. For me, one of the things is succession transition. I don't know that MySpace wouldn't have succeeded far more than it did if it had its founder/leaders leading all the way through.

REID HOFFMAN:

MySpace had a great platform. There was a time where Facebook versus MySpace -- it was a very open question.

TOM GARDNER:

Yes. So a network is beginning to lose relevance when this happens ...

REID HOFFMAN:

More or less, the growth curve can go through high growth and low growth, and high growth and low growth. If you're at all in a decay, the decay can go at the same speed that the growth goes at. So, you're kind of looking at is the growth [at an end]?

I forget what the public numbers for Facebook [are], but say it will get to 1.3 billion monthly active users. Well, maybe you're growing as fast as the Internet's growing at that point and the fact that it's not growing is not actually a problem. But if you actually begin to see serious drop-off, then you begin to go, "Okay, that will compound that way, too."

TOM GARDNER:

I want to throw a few one-liners at you to end. You can answer them as briefly as you'd like to. They're just one-liners tied to The Alliance and they're relatively unique takes you have, I know. What would you say if somebody -- we have many entrepreneurs in the Motley Fool community -- said, "I tell everyone that works at our company that we're a family."

REID HOFFMAN:

Oh. I would say it's a serious long-term mistake, and the reason it's a serious long-term mistake is because what you're creating in people's minds is that we are loyal to each other above everything else. For example, you don't divorce your brother. You don't fire your brother or your child for performance things. And yet, you will do that in the right circumstances. What [are] the needs of the business? How are you performing? Those really matter.

We suggest "team." That we're a team and we have the loyalty of the team. We have the emotional connectivity of the team. We have the trust of the team. You need all these things on teams and we have that. But we have this performance metric that isn't like, "Oh, you can trust us. It's all great." It's a cheap trust that ultimately will break, and when you break it, it's going to be seriously painful.

TOM GARDNER:

A CEO of a company in New York City -- actually one of the most highly rated companies on Glassdoor. A small company, about 80 employees, called EliteSEM. Their CEO, who I met with about six weeks ago, said, "Whenever somebody at our company tells us that a headhunter called them, we give them a bottle of wine."

REID HOFFMAN:

Uh-huh. Yes.

TOM GARDNER:

And we do that because we want to celebrate that their value is going up in the marketplace and that the trust is built between us that they came over and said, "I got another headhunting call." We get him or her a nice bottle of wine. Good idea or bad idea to think that way?

REID HOFFMAN:

Great idea. And great idea because it has an open, honest conversation. Because that should be paired with conversations about where you're going, what's your transformational tour of duty and all the rest of the stuff. But the [openness] and honesty and trust of it is awesome.

For example, one of the things people realize is that every single employee on LinkedIn has a super complete, deep LinkedIn profile, because that transformation going out in the world -- that's the way the world should operate. [It's] is the way that LinkedIn operates.

TOM GARDNER:

Teamwork hurts the highest performers. They're dragged down to have to help other people who aren't performing at as high a level. What do you think of that?

REID HOFFMAN:

That doesn't scan for me.

TOM GARDNER:

I'm not asserting that. I'm just throwing one-liners at you to get your attention. This is free association day.

REID HOFFMAN:

Oh, no. It's all good. The question is if you haven't had the right team composition and you actually are allowing people who shouldn't be on the team to be on the team and that's causing friction -- you can have a problem there. So, keeping each other to a high bar in terms of what you're doing and how the team operates is extremely important.

Now once you have that, team members will have different skills and strengths. And sometimes to bring them along -- because they're great at this but they're not great at this, but you have to help them work on this as you're doing that -- but you do that collectively because it's a team. And functioning as a team is powerful. Sometimes you have younger members that you're training up and you're helping, and that's part of what you're doing. So, there's all of those sorts of things that are really important.

Where actually a stellar team member may be helping others, it may have a small productivity because, look. The hour that I spent doing this -- I could have been doing that. But you have to focus on the output of the team over time. Great team members -- great team leaders -- are what's the output of the team over time, and that's the way you have to think of it. Now, you also have to think about not just the team, but me. While my output is being seriously blunted, we have to reconfigure in order to make that work.

TOM GARDNER:

I co-wrote a LinkedIn Influencers article with the captain of the women's soccer team at the University of Michigan and she says, "Our mission is to help the teams of the future."

REID HOFFMAN:

Yes.

TOM GARDNER:

We want to have an incredible year this year. Don't get me wrong. We want to be awesome this year. But we're trying to set our teams up for the next three, five, ten years at Michigan.

REID HOFFMAN:

Yes, exactly.

TOM GARDNER:

Technology is won by the best ideas and the best strategies -- not by the best cultures with the best people.

REID HOFFMAN:

It's complicated. It's certainly ideas and strategies matter a lot.

TOM GARDNER:

Rank those for the fun of it. I mean, I don't know how much you can divorce any of the four from each other, but maybe that's the point. You want to have an A-plus culture ...

REID HOFFMAN:

If you have such a great technology and strategy, you can implement it with a bad culture. It has happened.

TOM GARDNER:

Which is less likely if you have an awesome culture with great people but a terrible strategy.

REID HOFFMAN:

Yes, probably. If you have a terrible strategy and a great culture, it probably won't work, although you hope that your great culture will get you the people that will fix your strategy. This is one of the reasons that network intelligence and everything else is important, because knowing where the puck's moving to is really important in making these bets.

Now, you have to be able to skate to the puck. You have to be able to skate to the puck as a team. You have to be able to recover from failure -- all of which makes culture very important. But the transformation that is brought about by technology at an accelerating pace is you have to be adaptation rather than pure efficiency. Now efficiency is important, too, but adaptation is cardinal for the future.

TOM GARDNER:

It is more important for an employee to have an awesome external network and for all the employees to have awesome external networks than it is for a company to be deeply concerned about its proprietary information.

REID HOFFMAN:

Yes.

TOM GARDNER:

Yes!

REID HOFFMAN:

I think that's exactly right. It's not to say you don't have secrets. It's not to say you trade secrets or anything else. Or not to say you have plans that you don't want to share and you don't want to publish. Part of what we distinguish, actually, in The Alliance, is nonpublic, non-secret information that actually can be useful. There will be [times where I say], "Here's LinkedIn's analysis of reputation systems."

Yes, it's information that we've built that I'll be talking about to someone else. But I'm talking about [it as] here's something that will be helpful to you that is not breaking any confidentiality rules. It's not saying anything about what LinkedIn's sales are doing or what LinkedIn's secret strategy plan is or any of those sorts of things. But it is information we built and we invested in, and we don't publish it because we don't see any value to publishing it. But I'll share it with you as I'm talking to you because then you'll also share similar kinds of information with me.

TOM GARDNER:

Which happens among investors all the time.

REID HOFFMAN:

Yes.

TOM GARDNER:

In fact, I would say that a member of the general MorganStanley team that worked, in part, on the IPO after you had gone public at LinkedIn said to me, "This is my favorite company to go through the IPO process in MorganStanley, period, in any industry, because I love their leadership team and I love the B2B, B2C. I love the dynamics of that economic model." And although I hadn't launched my portfolio, yet, and although LinkedIn was going to be a hold in it, that conversation with him caused me to keep adding to LinkedIn repeatedly, which is, of course, a key move as an investor, to add to your winnings.

REID HOFFMAN:

Yes, exactly.

TOM GARDNER:

If you reaffirmed, don't be worried that you're moving your cost bases higher.

REID HOFFMAN:

Yes, exactly. Double down on the things that you know are winners. And I wasn't saying anything specifically about LinkedIn ...

TOM GARDNER:

I know that. As a LinkedIn shareholder, I want to know that you're going to just continue to be part of LinkedIn in a big way. Do you see other big LinkedIn entity companies outside of LinkedIn that you'll be starting?

REID HOFFMAN:

Oh, no. No, no, no.

TOM GARDNER:

Got it. Okay, right. You're a Greylock investor. Married with great satisfaction. And you're an executive chairman at LinkedIn with great satisfaction.

REID HOFFMAN:

Yes. So, the reason we're here today is that a majority of my working days are in this office.

TOM GARDNER:

Love it. Reid Hoffman, the co-author of The Alliance. Thanks so much for spending time with us. I did want to confirm one last little thing that I read on your Wikipedia page. Is it true that you made one of the earliest investments in Facebook?

REID HOFFMAN:

Yes. Actually, I intro'd it to Peter and I was part of Peter Thiel's round.

TOM GARDNER:

Just one great investment after another. Any time you want to join our investment team, please let us know.

REID HOFFMAN:

Thank you very much.

TOM GARDNER:

Thanks very much.

REID HOFFMAN:

It was a pleasure.

[End]

Earlier this summer Targa Resources Corp and its MLP, Targa Resources Partners LP   were thought to be acquisition targets. Bloomberg reported that Energy Transfer Partners had targeted Targa, but the deal never materialized. Today, we see Targa going from target to hunter as it has acquired both Atlas Pipeline Partners L.P. and Atlas Energy L.P. . Let's drill down to see what this deal means for investors.

Understanding the deal
This is a pretty complex deal, so we'll break it into bite-sized pieces. First, Targa Resources Partners is acquiring Atlas Pipeline Partners for a total of $5.8 billion, which includes $1.8 billion in debt. Atlas Pipeline Partners' investors will receive 0.5846 units of Targa Resources Partners and a one-time cash payment of $1.26. This is a deal of one MLP acquiring another MLP.

The next part of the deal is where it gets a little complex. Targa Resources, which is the general partner of Targa Resources Partners, is acquiring Atlas Energy, which is the general partner of Atlas Pipeline Partners. However, Atlas Energy owns some non-midstream assets, which it will be spinning off prior to being acquired by Targa Resources. So, after that spinoff is complete we have one general partner acquiring another general partner. This deal, likewise, will be a cash and stock deal. All that complexity aside there's really two basic reasons why Targa Resources is making this deal. 

Greater scale where it matters
The deal to acquire Atlas is first and foremost about growing Targa's scale. In the following asset map we see that Targa is acquiring assets in the Midcontinent and Texas to pair with its assets in Texas and the Gulf Coast.

Source: Targa Resources Corp Investor Presentation. 

However, the most important area where Targa Resources is growing its scale is in the Midland Basin of Texas where its assets match up really well with Atlas' assets. This is key because the rig count in the Permian Basin is the largest in the U.S., which is noted in the chart at the bottom of that map. Given that the deal will make Targa Resources Partners the second largest processor in the Permian Basin, the company will be in an even better position to profit from future growth opportunities because it has such a large asset footprint in the basin to build upon.

Source: Targa Resources Corp Investor Presentation.

With more than 75 billion barrels of recoverable oil and gas resources in the Permian Basin this really is a great spot to have a large asset footprint. Producers see this play offering decades of production growth opportunities. Because of that, this deal really is about making sure Targa Resources Partners is in the best position to capture these new growth opportunities.

Building an income machine
While growing its scale in the Permian Basin is what drove this deal, the big benefit of that scale is income growth. Targa Resource Partners now estimates it will be able to grow its distribution to unit holders by 11%-13% next year thanks to this deal. That's up from the previous estimate of 7%-9% growth.

Meanwhile, Targa Resources' investors will see their dividend jump 35% next year, which is up from the more than 25% growth that it previously estimated. On top of strong growth next year both companies believe the deal will yield future income growth to investors as the Atlas Pipeline assets will add new opportunities in the Mississippi Lime and Eagle Ford shale that Targa didn't have before.

Investor takeaway
Targa Resources quickly went from an MLP acquisition target to one of the largest, most diversified MLPs on the market. After the deal closes Targa will be a $23 billion behemoth that will have plenty of additional growth opportunities across four of the top five shale basins. Not only that but the company has interesting export capabilities along the Gulf Coast as well as offering investors soaring income. Add it all up and Targa Resources is becoming a compelling MLP option for investors.

Last week, Costco Wholesale Corporation reported solid results for Q4 of its 2014 fiscal year. Mr. Market was very pleased, sending Costco shares to a new all-time high even as the rest of Wall Street struggled.

Costco Wholesale Corporation 5 Year Stock Chart, data by YCharts

On Wednesday morning, longtime Costco CFO Richard Galanti spoke to analysts and investors about the company's Q4 earnings. Based on his comments, shareholders can be confident that Costco is well-positioned to keep delivering above-market investment returns.

Underlying results were even better

Overall, $1.58 earnings figure for the year's fourth quarter was reached despite several discrete items, representing $0.05 or $0.06 [per share] in the aggregate that did not go our way.
-- Richard Galanti, Costco CFO 

Costco grew EPS 13% in Q4 to $1.58. This was a big turnaround from its recent trend; through the first three quarters of FY14, Costco's adjusted EPS had declined slightly year-over-year. In fact, the news was even better than it seemed.

A number of small, unusual items combined to depress Costco's EPS by $0.05 or $0.06 last quarter. The headwinds included unfavorable currency fluctuations, changes in inventory valuation, a higher effective tax rate, and higher bonus accruals. These were somewhat offset by higher profits from high-volume, low-margin gasoline sales.

Costco's earnings growth could have been even higher last quarter (Photo: The Motley Fool)

For the most part, these factors depressing Costco's earnings were either one-time or short-term in nature. This means that if Costco's underlying business trends remain the same in the next few quarters (and years), it will report even stronger earnings growth.

Looking for more millenials

In early September ... for 8 days, we ran a nationwide membership promotion for new members on LivingSocial. These types of promotions, we believe, will allow us to get in front of younger demographics.
-- Richard Galanti, Costco CFO

One of Costco's biggest potential weaknesses is its aging customer base, which skews heavily toward baby boomers. Costco has been trying a variety of tactics in order to gain younger members. It hopes to convert these new customers into loyal long-term Costco shoppers.

In March, Galanti talked about expanding Costco's organic selection to appeal to millenials. This is a big opportunity because organic items tend to have higher markups at other retailers, allowing Costco to offer significant savings.

Costco recently ran a LivingSocial promotion that threw in several free items including a giant toilet paper package (Photo: The Motley Fool)

The most recent tactic was a LivingSocial deal. For $55 (the regular cost of a membership), people who signed up also got a $20 cash card, a rotisserie chicken, an apple pie, and a package of Kirkland Signature toilet paper, plus some other offers. In other words, the LivingSocial deal provided a whole lot of extra value, making the effective cost of the membership close to $0.

Since LivingSocial users tend to be younger, this offer is bringing in millenials who otherwise might not have joined Costco. Even if the renewal rate is significantly below 90% -- Costco's recent renewal rate in the U.S. and Canada -- this move will still generate significant long-term value, since the new customers are much younger than Costco's average member.

Plenty of growth opportunities

For the current fiscal year, fiscal year '15, our plans are to open 31 new warehouses and also relocate 4 existing locations. 19 of the planned 31 new locations will be in the United States, with the remaining in international markets.
-- Richard Galanti, Costco CFO

Galanti also provided an update on Costco's expansion plans. During FY14, Costco increased its warehouse count by 29. For FY15, the company has 31 new warehouses planned. That said, the openings are heavily weighted toward the back half of the fiscal year, with 21 scheduled in Q4. A few of those planned openings are likely to slip to FY16.

Regardless of the exact total of warehouse openings, Costco is likely to end the new fiscal year with roughly 4% square footage growth: in line with the recent trend. Most importantly, the company has a long pipeline of growth opportunities. Costco is likely to open an average of 30-35 new warehouses annually for the foreseeable future.

E-commerce is profitable and growing

Sales in e-commerce were up in the high teens for both the fourth quarter and the fiscal year.
-- Richard Galanti, Costco CFO

E-commerce is another area with significant growth potential for Costco. Last year, Costco's e-commerce sales totaled just under $3 billion: less than 3% of total sales. E-commerce is actually more profitable than Costco's core warehouse business.

Fortunately, Costco's e-commerce sales have been growing at an 18%-19% annual rate recently. That's more than double the company's overall growth rate. As e-commerce sales grow to represent a larger proportion of total sales, Costco's profit margin should rise.

Costco is trying out a few strategies to drive e-commerce growth. One tool is simply expanding to new countries. Costco only operates e-commerce sites in the U.S., U.K., Canada, and Mexico today. However, it has warehouses in several other countries, including Japan, South Korea, and Australia. Costco plans to add 1-2 countries to its e-commerce operations in the upcoming year.

Costco has partnered with Google to boost e-commerce growth (Photo: The Motley Fool)

Costco has also partnered with Google through the latter's Google Shopping Express platform, which provides same-day delivery from a variety of retailers. Google Shopping Express began in the Bay Area and has since expanded to Manhattan and West Los Angeles. If Google continues to grow the program, it should help Costco grow significantly in e-commerce.

Bringing home some cash

[Costco will] repatriate from Canada back to United States about USD 1.2 billion or CAD 1.3 billion of our Canadian cash ... balances in the near future.
-- Richard Galanti, Costco CFO

Like many U.S. corporations, Costco has a significant amount of overseas cash. As of August, 2013, Costco had more than $2.3 billion held outside the U.S. Costco recently decided to repatriate a large chunk of that money from Canada because its annual earnings there are more than enough to pay for future growth investments.

Repatriating cash to the U.S. can often lead to steep tax bills -- which is why many corporations hold so much money overseas. However, Costco will only pay $15 million in taxes to repatriate this sum of money.

This is a great move for shareholders. It will give Costco significantly more flexibility to repurchase more shares while continuing to raise its dividend each year.

Strong momentum

Costco's Q4 earnings demonstrate that the company is firing on all cylinders. Costco remains a solid long-term investment opportunity due to its steady high single-digit growth rate and consistent profitability. Foolish investors would be wise to take a closer look at this strong brand-name company in order to see if it has a place in their investment portfolios. As always Foolish investors should do their own research before making any investment decisions. 

On Oct. 9, Microchip kneecapped semiconductor stocks following its earnings warning. According to the company, the weakness that it saw wasn't company specific, but instead the result of an impending "industry correction" that it expects "will be seen more broadly across the industry in the near future."

While many chip stocks, particularly small caps, were down high single digit to low double-digit percentages, Cirrus Logic , a company that has tremendous exposure to Apple only sold off modestly.

Being highly dependent on a single customer is, as seen in this price action, can have its upsides.

Why did Cirrus hold up so well?
It has been widely reported that Cirrus Logic derives over 80% of its revenue from chip sales to Apple. Now, as I highlighted in an earlier piece, there are real risks associated with having such a high proportion of a company's revenue come from a single customer.

However, if a company's said major customer is doing extremely well in an industry that is otherwise uncertain or simply doing poorly, then that concentration becomes a source of strength.

In this case, there seems to be very robust demand for Apple's iPhone products (and Digitimes reports that Apple is ordering enough chips from its suppliers for 200 million units of iPhone 6 and iPhone 6 Plus), and new iPads (reportedly coming on Oct. 16) could help drive iPad unit growth, helping Cirrus Logic.

Exploring the whacky Cirrus Logic earnings-per-share picture
A look at current sell-side estimates for Cirrus' earnings per share for fiscal years 2015 and 2016, respectively, reveals expectations of $1.99 in the former and $1.54 in the latter. On the other hand, analysts expect that the company's revenue will grow 3.2% during fiscal 2016.

What's going on here?

Well, Feltl's Jeffrey Schreiner pointed out back in April that while he expects Cirrus to see top-line growth during fiscal year 2016, the company will also experience "headwinds from the full utilization of deferred tax assets."

In other words, Cirrus is likely to see its tax rate move up, hurting net income (and thus earnings per share) even as revenue grows.

Is Cirrus Logic a bargain?
So, let's assume that the high tax rate kicks during fiscal year 2016, leading to the drop in earnings-per-share that consensus estimates generally expect. This means that, at $19.13 per share (the most recent close as of writing), the stock is trading at roughly 12.4 times expected earnings.

Not dirt cheap, but it's certainly a significant discount to the current S&P 500 multiple of 18.47.

While there are no guarantees, I expect that Cirrus will report solid results on Oct. 29 for the most recent quarter, and I'm even optimistic that it will issue strong guidance.

Further, since Apple customers are well-known to be "loyal," any share gains on Apple's part should lead to a sustainable uptick in revenue for Cirrus. Of course, the big risk here is that Apple forces Cirrus' margins down given that Cirrus, which is highly dependent on Apple, likely has little power to say "no."

In light of my expectations of share gains on Apple's part, a low likelihood that Apple will switch chip vendors, and a very low forward multiple that seems to bake in a lot of the risk, I feel comfortable owning the shares.

Foolish bottom line
Small-cap chip component plays aren't the safest investments around -- not by a long shot. However, given that the rest of the chip space has just taken a beating, and given that Cirrus is likely immune to these weaknesses in light of the fact that most of its sales come from Apple, it may be worth considering for investors with higher-than-average risk tolerance.