In this podcast, Motley Fool host Dylan Lewis and analysts Jason Moser and Matt Argersinger discuss:
- The Dow Jones at 40,000, and a look back at the major companies that have led the exchange as it's moved from traditional industrials and manufacturing to other industries.
- Why the current market environment is helping Walmart reach new customers and leaving Home Depot shoppers on deferral mode.
- The latest addition to Warren Buffett's portfolio: Chubb.
- Two stocks worth watching: Shopify and T. Rowe Price.
Also, Whole Foods co-founder John Mackey talks through lessons learned about life and business and his book The Whole Story: Adventures in Love, Life, and Capitalism.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
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Dylan Lewis: We've got Dow 40K and the latest stock in Berkshire's portfolio. This week's Motley Fool Money radio show starts now. It's the Motley Fool Money radio show. I'm Dylan Lewis joining me in the studio. Motley Fool Senior Analyst Matt Argersinger and Jason Moser. Gentlemen, great to have you both here. We've got the stock Buffett's been secretly buying the whole story from Whole Foods co-founder John Mackey and of course, stocks on our radar. We're going to start out this week checking in on the market. This week, the Dow kissed 40k for the first time ever. Matt, not able to hold it there, but we will note a milestone, when a milestone comes.
Matthew Argersinger: It is a milestone and I know it's a meaningless number. Who cares? Dow 39,000, 40,000, but it's it's a big round number, so I think we should celebrate it and we're in the middle of a bull market. I have some interesting facts and a few questions for you guys regarding the Dow Jones Industrial Average, which made its debut in May of 1896. Its first computed average was 41 points across 100 for the first time on January 12th, 1906. JMo, do you know the largest company in the Dow, was on January 12th, 1906?
Jason Moser: I don't, but I'm going to take a stab at the dark and just say General Electric.
Matthew Argersinger: The total. Dylan?
Dylan Lewis: I'm going to say oil, Standard Oil.
Matthew Argersinger: You got what you guys are in the general area, it's it was US Steel, Dow's largest company. The Dow first crossed with 1,000 big number on November 14th, 972. Sixty years later, what was the largest company on January or starting November 14, 1972.
Dylan Lewis: In the Dow?
Matthew Argersinger: In the Dow.
Dylan Lewis: I'm going to take his guess from before and say General Electric.
Jason Moser: Yeah, I'm going to keep on saying General Electric things.
Dylan Lewis: Well, you're going to keep on.
Matthew Argersinger: It was IBM in 1972. Dow first cross 10,000 in the middle of the.com boom, March 29, 1999. What was the largest company in the Dow on that date?
Jason Moser: Cisco. It's a great guess. I'm going to go back to IBM, the previous.
Matthew Argersinger: General Electric.
Jason Moser: Should have stuck with it.
Matthew Argersinger: Interestingly enough, Microsoft was the biggest company by market cap in March 29, 1999. But it was not in the Dow. It didn't get into the Dow until November of that year. At that time, GE was still the biggest. Dow first cross 20,000 on January 25, 2017, not long time ago. What was the biggest company in the Dow on January 25, 2017?
Jason Moser: I feel like Apple was in there by them. I don't remember when they got added. I can't remember the day, but I'm going to guess Apple because they feel like they were in there by then.
Dylan Lewis: I'm going to follow JMo on that one.
Matthew Argersinger: You guys are right.
Jason Moser: Finally got it.
Matthew Argersinger: Apple was added in 2015, so yes, on January 25, 2017, it was the biggest Dow component. By-market cap. Dow first cross a 30,000 on November 24, 2020. Just three-plus years later. What was the biggest company on November 24, 2020?
Dylan Lewis: Amazon.
Jason Moser: I don't know if Amazon was in there at that point. I'm going to guess Home Depot.
Matthew Argersinger: No, but it was Apple still. Which was much bigger than of course it's still the biggest. Now, the Dow first cross 40,000 didn't hold it but cross 40,000 for the first time on Thursday. What is the biggest company in the Dow right now.
Jason Moser: Is Microsoft in the Dow? I don't think Microsoft is in the Dow, is it?
Dylan Lewis: I don't think so. I'm going to go to Amazon.
Jason Moser: It's Apple. Is it Apple? It has to be?
Matthew Argersinger: It's Microsoft. It was as this out back in 1999 and now it didn't. It was not the biggest company for a long time, but of course, it just recently went past Apple. It's bigger than a bigger than Apple by about 5%. It is the biggest Dow component right now.
Dylan Lewis: What I like about what Matt he's doing here because one of the things with the Dow is, it's had this reputation for so long of being old, stodgy, outdated industrials, boring and it's not really up to speed with our tech-driven world today. But I think that's one point to note with the Dow is that it's evolved. It's become a little bit more relevant to the modern-day economy in those days where we issued it. I think those days are over. We can look at it with a little bit more credibility today because of its components.
Jason Moser: I think a lot of people will bemoan the fact that it's still a Price-weighted index which feels outdated. It's only 30 components, 31 I think because anyway, because it's a company that has two classes. But either way, it is still the most quoted index I think around the world, if you watch any kind of news, especially for not watching businesses we watch be rushing regular mainstream news. What's the number they always go to? It's always the Dow. Until the Dow was up 300 points and Dow is not this. It's still very relevant.
Dylan Lewis: Can you make a point with the price-weighted versus the S&P, which is market cap weighted for two very different perspectives.
Matthew Argersinger: Don't sleep on the Dow, I think is the takeaway. Also maybe we need to study up a little bit on the Dow Components. Jason, I will put this wellness labor, all this data by the way, I pulled from NAI chatbot. I think it's I fact check some of it so I think it's right, but don't quote me if you're a Dow historian listening to this radio show right now.
Dylan Lewis: We've got smartly AI smart talk coming up in the second segment on today's show, but I wanted to take us to a Dow company that did not come up in that discussion. That's Walmart very much doing its part to lift the Dow this week and help it touch that 40k number. Shares up 7% to a new all-time high, Jason. That's because Company Earnings results this week look pretty strong.
Jason Moser: They did. This is an environment where Walmart should shine. The consumer is becoming a bit more discerning regarding prices and what they're spending. We've seen that just all over earning season in Walmart's value tilt, I think, should prove to be a big driver for the company in the coming quarters, when you look at the results. Revenue growth 5.8% in constant currency. Walmart, U.S. Delivered better-than-expected growth those comps sales were up 3.8%. They ultimately saw their adjusted operating profit up 13%. Doing a great job of bringing that down to the bottom line. You see operating leverage with companies like these that really do a good job of monetizing that fixed cost base. Some encouraging statistics, e-commerce up 21%. The advertising business, you got to dig in a little bit to get some context there. But the global advertising business grew 24%. This is becoming a little bit more of an ad play as well. You'd like to see them diversify that revenue stream inventories in good shape. I think the most interesting part, given their presence in grocery, grocery remains a big part. They've introduced a new private-label brand called better goods. Very much focused on the value side of things. Seventy percent of better goods items are priced under $5. That is sure to attract the grocery consumer.
Dylan Lewis: I look at some of the market conditions here, Jason and you mentioned. Consumers trading down groceries are huge part of this company's business. Some of these private label initiatives bringing some things that you can only get from Walmart. Seems to me like they are trying to create a longer-term relationship with some of these consumers that are trying them, maybe trading down into them and then keeping them as customers beyond this more pinched period.
Matthew Argersinger: There's just no question and you've seen examples throughout history of companies that have done this very well. I think Whole Foods stands out as one they've done with the 365 brand. Look at a company like Trader Joe's, not a publicly traded company, but something very similar in that line. Companies have just done a very good job of building CostCo with Kirkland, another great one. It makes absolute sense for Walmart to try to build that identification a little bit with this better goods brand and I suspect it'll do well.
Dylan Lewis: Less glamorous results this week from Home Depot. Earnings ahead of expectations. Revenue lagged Matt, both down year over year.
Matthew Argersinger: Just not a lot to build on here, Dylan. See what I did there. Comparable store sales continued to decline year-over-year down 2.8% in the quarter. It was tough to see both customer transactions and average ticket size, lower. Management said there was a delayed start to spring. Can spring actually get delayed?
Dylan Lewis: It feel like it's being delayed here. Certainly been getting the rain.
Matthew Argersinger: That's the weather argument. I get it. They also said, of course, and they've been saying this for several quarters now and there's a big ticket items continued to be slow. That's has a lot to do with the tight housing market with high mortgage rates, just not a lot of movement in the existing home side, which is keeping renovations down. A couple of things i did like what they had to say, which is management. They did reaffirm full-year guidance. They didn't reduce it like they have been doing. I like that CEO Ted Decker and team, they're really moving hard and fast into that Pro segment, really trying to grow Home Depot's market share there. They acquired SRS distribution, which is a big distributor to professional customers, primarily who do work in roofing, landscaping and Pool work. Slow period right now for Home Depot, I'd like the investments they're making. I think when the housing market does finally turnaround, they're going to be in a pretty good position.
Dylan Lewis: We're just saying Walmart, huge beneficiary of consumers trading down, I thought was really interesting. Richard McPhail, CFO of Home Depot, saying they are not seeing customers trading down and they are not seeing people move to cheaper power tools, cheaper appliances and they are deferring those purchases. Do you feel like there is probably some pent-up demand for Home Depot products once we get to a better consumer environment.
Matthew Argersinger: Absolutely. I think that's the case. I think it's all about really getting this existing home market unstuck. I agree, by the way, power tools, they get old over time. I think there is a lot of pent-up demand there probably right now.
Jason Moser: I think he's exactly right. When you start moving, you buy a new house rented a new place. Home Depot and they're built, those are the first place is you go. When this thing loosens up a little bit, I suspect we'll see those transaction and that traffic number, those singles to start rising again.
Dylan Lewis: Coming up after the break, we've got dives into AI demos from Google and OpenAI and Berkshire's latest buy. Stay right here. This is Motley Fool Money.
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Dylan Lewis: Welcome back to Motley Fool Money. I'm Dylan Lewis here in studio with Matt Argersinger and Jason Moser. Guys, Berkshire's annual meeting was a few weeks ago, but investors didn't quite get everything that was on Warren Buffett's mind. This week 13F filing out saying what Berkshire has been buying and selling, and we have ourselves a new Buffett stock. Jason Berkshire disclosed. It's been building a position in Chubb, a property-casualty insurer. Does this surprise you at all as Buffett stock?
Jason Moser: No. Not even a little bit. This seems right up his alley. I mean, I'm not even surprised really at the size of the investment of $6.8 billion tag is what I read. This makes a lot of sense. It feels like Buffett is just channeling as is Alexander Peter Lynch buy what you know. You listen to him. He said it, property casualty insurance provides the core of Berkshire's well-being and growth. Chubb is one of the largest players in that market. It makes perfect sense for Berkshire and for Buffett to go ahead and make that investment there. Chubb itself, it's got a long history. It's a company that has performed very well over time. I was looking at the returns on the stock. Over the last ten years, the total return on Chubb is up almost 220% and outperforming the market nicely. It's got a good track record there. Then, if I recall correctly this stake, he started building the stake in the back half of 2023. Just looking at 2023 in Chubb's 10-K, they quoted 2023 as an exceptional year, double-digit premium growth and they talked about a P&C property and casualty combined ratio of 86.5%, which is impressive. Now for those who aren't aware, the combined ratio is it's a popular metric in the insurance world. It's ultimately the incurred losses plus expenses divided by the earned premium revenue. You want to see that number below 100%. Below 100 is good. Eighty six and a half percent obviously well below 100. You look at other companies like Markel company that we follow here. They've done a very good job through the years of keeping that combined ratio in pretty good shape. But he just, he bought a good performer in what is obviously a very crucial market in something that he knows very well. It makes lot of sense, Matt, a lot of speculation here because the ACC had granted Buffett a confidentiality exemption in Q4 for their 13F as they were building up this position. Certainly a lot of investors following Buffett into Chubb shares were up seven percent this week on the news. What do you see when you look at the business?
Matthew Argersinger: I'm surprised and not surprised because I think one of the bedding favorites was Charles Schwab. A lot of investors we're talking about, but you're right. For everything that Jason said, this makes a ton of sense and I can understand why Buffett wanted keep this one under wraps. It's hard. It's hard for Berkshire to build a meaningful position in anything these days. Six and a half billion dollar position takes time. I can see why he wanted to do that because Chubb is trading at a pretty good valuation. It's 11 times earnings, pays a nice dividend. That's been growing and so had that been revealed earlier, I can imagine that Berkshire Buffet wouldn't have gotten the price, that they've gotten in the stock.
Dylan Lewis: Price would have creeped up just a little bit.
Matthew Argersinger: I think so. It has.
Dylan Lewis: People tend to pay attention when Warren Buffett is buying. People also paying attention when Warren Buffett is selling. I think one of the other things I noticed in the 13F was Buffett is a net seller of stocks for the quarter. Jason, any surprises there for you?
Jason Moser: That is a little bit of a surprise. He talks often about being net buyers. That's something we espouse here, trying to accumulate that stuff over time. But the flip side of that is you're doing it for something. Eventually you get to an age where you want to reap those benefits, and so you got to sell. To be able to reap those benefits. Now, I'm not saying that's exactly what's going on here. I think what they got fully out of the paramount position, which was well loser, that happens, but that was a pretty big position. I think they took close to a $2 billion loss on that investment. We know that he trimmed a decent bit of Apple. I'm starting to wonder if I think that might've been prudent move. You start to look at Apple these days and the way they're operating in this AI environment. That's the company that you just don't hear a whole heck of a lot from. You are hearing from Microsoft and Alphabet and Chat, OpenAI and whatnot and Apple just seems to be on the back-burner there. Now, so maybe he saw the valuation and Apple and the size of his stake incited, determined that position was worth.
Dylan Lewis: I think one of the things that does give people a little bit of pause when they see Buffett selling is there's no shortage of cash when it comes to Berkshire. I have to ask the question, Matt. He's not freeing up money to buy something else. He's got the money on that.
Matthew Argersinger: That's what I was just going to say. He's up to 189 billion now in cash and short-term securities. That's just the highest it's ever been, and so is above. I have to say at this point, I think Buffett never vocally or verbally makes a morphic call. But I just feel like he's making a little bit of a call here. Almost 200 billion in cash, a net seller of stocks. Maybe he's just not finding a lot of value right now and that's worth thinking about.
Dylan Lewis: If investors are following Chubb, following Berkshire into Chubb, maybe also put some cash on the side, create some opportunities for yourself to buy some things down the road.
Matthew Argersinger: Maybe Berkshire needs to think about instituting a dividend right there with all of that cash, with that awesome portfolio, with that tremendous operating model. I keep wondering if we're not going to see that come to fruition here over the course of the next year.
Jason Moser: Unfortunately, it's going to be Greg Abel's call. Will see. You asked me you probably at least a few years now, hopefully.
Dylan Lewis: A big week in the world of AI, new demos out from Alphabet's Google and OpenAI. Jason, I want to start with Google's IO event because the narrative around this company has generally been missteps and late to the game. We saw some pretty impressive stuff this week.
Jason Moser: We did. I think that's very well said. Looking at everything that's been going on in AI, and there were these questions as to whether Google's model is being disrupted and where they making the investments that were needed. There was a great blog post this week from Liz Reid, the head of Google search. It really, it dug into a lot of what Google is doing in search. Particularly with this AI overviews product, which is ultimately just its AI organized results pages. One of the concerns in regard to Google and AI and how they will incorporate this, would it cannibalize their business? It seems like they saw round that corner and have come up with a way to where they might be able to avoid that in a quote from this blog posts that I just think it's important to read. She said, I quote, "With AI overviews, people are visiting a greater diversity of websites for help with more complex questions. We see that the links included in AI overviews get more clicks than if the page had appeared as a traditional web listing for that query." I think that is a very positive development that may have come up with a way to essentially enhance their search, make it better with AI without necessarily disrupting or cannibalizing it.
Dylan Lewis: One of the things I like about what we're seeing from Google and the developments from Google is they are user-facing. They are immediately brought into these products that people are already familiar with. I think it maybe starts to quell some of those fears about how does this get incorporated into the business in a way that's meaningful? We also had updates from OpenAI, some fresh demos out this week. They are kind of in their own little garden a little bit. They aren't as incorporated into a visible products, so you have to be a user here. But Jason, one of the things that really jumped out to me was the translation capabilities and just the ability of their product to make sense of things that aren't texts, moving beyond simple text.
Jason Moser: I'm sure it's going to take some time to really nail this down and get it to where it is. It is fail-safe. But I think GPT-4o, I watch some of those videos in the video interaction with this personal assistant. You're now talking about interacting with this personal assistant on your phone and that assistant being able to recognize the world around you. Seeing you and seeing what you're wearing and what you're doing. This is a big step forward. We've seen what these AI models they do a very good job of recognizing and processing text. Video is that next leap forward. It sounds like they're well on their way.
Dylan Lewis: It always feels like there are steps to those aha moments for me and this felt like a big step. I agree. Jason Moser and Matt Argersinger, fellows, we're going to see you guys a little bit later in the show. Up next, we've got one of the giants in groceries. Talking through growing a retail concept. Stay right here. You're listening to Motley Fool Money.
Dylan Lewis: Welcome back to Motley Fool Money. I'm Dylan Lewis. Each week with our interviews, we look to borrow the brains of someone that can make us a little bit smarter about the world of business and better investors and shareholders. This week, I caught up with Whole Foods Co-Founder and CEO John Mackey about his latest book, The Whole Story. Mackey talked me through lessons learned in growing store footprint and how to evaluate a company's mission and management from the outside. The whole story is your latest book, but you've written several and you've often used it as an opportunity to story tell, to share, and to evangelize a little bit as you might say yourself. This time you're reflecting on decades of life and business. What did you see when you took that step back?
John Mackey: That's a really good question. What's interesting about writing a book, particularly a book like this, where I got to review almost 50 years of my life and the act of writing itself is a discovery process and it's a creative process. But it also, and if you're doing a memoir, it reconnects things and you see things retrospectively that you didn't see at that time and maybe didn't see until you actually started writing the book. I began to see patterns as I was writing, for example, that I hadn't seen before. One of my takeaways was reflecting back on where things took a bad term for Whole Foods. Back in the 2008 recession, Whole Foods stock dropped 90% and we were trading at three times our operating cash flow. You could have bought our company and paid for it with our own cash in just three years. [laughs]. Needless to say, we were a little worried that we might get taken over, a hostile takeover might come our way, and so we took in some private equity funds from Leonard Green that in the legal agreement, they had the vote with management for certain period of time, so it would act as protection money. They did very well because they made four billion dollars in less than three years on that investment.
Dylan Lewis: Wow.
John Mackey: Pretty amazing thing. But when we came out of that recession, our stock began to not only recover, but it went up to all-time new highs within just a few years. It was a very heady to watch, having worried that you are going to be taken over to your stock. We were down 90% and we traded onto new highs, got our all-time market capitalization high of about 24 billion. We went from being radically undervalued to arguably radically overvalued in just a few years. But that was the greatest opportunity the company ever had in our history to lower our prices. The competitors were starting to copy us and catch up, and they were taking more and more of our products and they were trying to undercut us in price, and the whole paycheck narrative was out there. We could've put that narrative to bed then if we had just not been less greedy and less euphoric over our double-digit comps and our continued stock going up. We felt like we were unbeatable. But if we'd just been a little humbler and had been lowering our prices, our stock wouldn't gone up so much, so it wouldn't have gotten up to a $24 billion valuation, which arguably was not defensible or sustainable with their current sales and EBITDA that we were producing. We wouldn't have gone up as much, but we would've been able to lower our prices. If we've done that, we probably would very likely still be an independent company today.
Dylan Lewis: As is often the case with great stories, there are setbacks along the way. 2008 is one of them that comes up, but in the early days you also have the flood in Austin at your first location. We have the benefit now of knowing Whole Foods as this trailblazer, this category-defining idea, this business that has over 500 locations. It was not that, and it's not that when you start the book. It's safer way. It's a single location in Austin. At what point in that story and in that development do you start to see the opportunity with natural foods blossoming into what it became?
John Mackey: I began to see it early on because we could see that there were other small chains like Whole Foods Market, Mrs. Gooch's in Los Angeles, Bread and Circus in Boston, Alfalfa's in Boulder, or Unicorn Village in Florida that were our peers. We were swapping financial information and we created something called The Natural Foods Network which we got together three times a year and shared financial statements and talked about strategies. We had these colleagues and I thought, this is going to grow, this movement catching on all. All the companies were doing well, they are all growing. That was my first inkling. I just thought of Whole Foods, we could be this good Texas company. It wasn't until I took a road trip back in 1996 with my first wife, Mary Kay, and in this road trip, we drove from Austin, we went to LA, and toward Mrs. Gooch's and other stores there, Trader Joe's, they were a very different company than they turned out to be too. But we went to northern California, which is really the birth of the counterculture. It had been famous for the Berkeley co-ops and the Berkeley free speech movement. You had Silicon Valley beginning to burst forth, and you had Marine County, and San Francisco was this very special place. Summer of love, the hippies. But you know what they did, they didn't have any natural foods supermarkets in the Bay Area. Although there were turned to natural food stores, that was the first time I realized, my god, maybe Whole Foods Market, maybe we can open a store here. Maybe we could come to California, into the Bay Area, which we thought was a really crazy idea. That's a big step going from just a few stores in Texas all the way out to the Bay Area. Can we do it? We solicited the votes of our team members. We just said, what state outside of Texas should we go to next? It shouldn't have surprised us. The overwhelming consensus by the team members is that our next state should be Hawaii. [laughs].
Dylan Lewis: Was that market opportunity or was that lifestyle opportunity?
John Mackey: I don't think they were thinking in terms of a business opportunity. They're thinking about where they would like to live and if you open a store in Hawaii, count me down as moving out there. [laughs] That was too far a step for us, although we've been very successful in Hawaii ever since we went there. The only state we don't have to compete against Trader Joe's because they've never gone to Hawaii. [laughs] California was Number 2 on that list, so we went to California next. We went to the Bay Area, Palo Alto, and then Berkeley, then Mill Valley, then San Francisco. I think now we have about 50 or 60 stores in the Bay Area. It's one of our best overall market areas. That enabled us to think, you know what? If we can be successful here, we can be a national company. Then we started working on that dream.
Dylan Lewis: You get into the growth strategy with Whole Foods in the process of opening new locations, acquiring new locations, and also some of the companies that you mentioned, some of those colleagues/peers, not quite competitors wind up becoming part of the Whole Foods footprint. There's this opportunity and this recognition, I think, that you need to seize this and move quickly. What did you feel some of the lessons learned were when you were expanding that footprint?
John Mackey: One lesson was we were the first ones to take venture capital in, we were the first ones to raise serious capital, first one to do an IPO, and our peers were not. They were just thinking small and Whole Foods was beginning to think larger. Once we did our IPO, then we were a platform and also an exit strategy for the other entrepreneurs. They could sell their companies, they could get liquid without having to sell it to somebody they didn't want to because we were friends, they could sell it to us. They trusted us to manage their business as well, and they got rich, they got big paydays, and they could ride off in the sunset and live the rest of their lives doing whatever they wanted to do. They were free. That was a win-win-win. But it also gave us platforms. It gave us what we call territory and talent. We got new territory as a base that we could begin to expand from. The hardest thing is to get the first base established because, where are workers going to come from? Where's the talent going to come from? If you can acquire a platform that already exist, you've already got talent, you've already got some territory, and you can take that and put our operational expertise into it and then grow it from there. We bought first Wellspring Grocery in North Carolina because they were friends of ours. Then Bread and Circus in Boston. Then then Mrs. Gooch's in LA. Then we went down into Florida and we pretty much eventually bought almost everybody that had been connected into the Natural Food Network. That was a big takeaway, big lesson, that starting a new region was difficult and expensive and you had to incent people to move and you still couldn't get that many people. But if you could buy something that was already there and combine the intellectual capital together, and you took an attitude of humility. We don't know everything, the information and knowledge they have can enrich the whole rest of the company. We had this attitude of this is what we know, what do you know? Let's compare notes. Let's get best practices. We were learning and growing together, rather than, hey, we must be better and smarter than you because we bought you, you didn't buy us. Instead, we had an attitude of, what can you teach us? What do you see that we're not doing well that we could do better. That attitude really helped Whole Foods Market evolve at a quicker pace.
Dylan Lewis: You mentioned the venture capitalists and there's a little bit of a double-edged sword there. Helping with some of the growth, but then also inviting people in who maybe have different ideas, different incentives, different timelines for things. What was your experience like navigating that?
John Mackey: I had a love-hate relationship with the VCs because I came up with a name that I think catches it pretty well. The venture capitalists were like hitchhikers with credit cards. [laughs] Meaning they got into the Whole Foods car, and as long as we took them to where they wanted to get to, which was either selling the company or doing an IPO, and we did an IPO, so that they can get a really nice return for their investors, which we delivered, they would help pay for the gas. They'd help us with money to let Whole Foods deliver on the promises that we made to them. However, if we were unable to deliver on those promises, then there is a tendency for venture capitalists to hijack the car.
John Mackey: Hire a new driver, generally with a MBA from Harvard or Wharton or Stanford, and throw you out on the entrepreneur on the side of the road. We were lucky because we did get those hitchhikers with credit cards to where they wanted to get to. They never took over the car, and so it had very happy ending. I have lots of other entrepreneurial friends who got kicked out of the car and thrown on the side of the road so what I'm talking about is not hyperbole, it happens all the time
Dylan Lewis: You like to focus on mission and purpose, and it comes up in the book quite a bit. It is a very difficult thing to assess as an outsider for a business. It's not something you can really get a feel for as an insider. But we're investors and we're looking at other companies very often. Do you have any tips for really getting to the nut of that?
John Mackey: I do. First of all, every company is going to put up some mission statement. It's just now something you do. One thing you can ask is where does the mission statement come from? Did it come from a consultant that the company hired to produce a mission statement? Did it come from outside? Was it externally created or was it something that emerged from within the company itself? The ones that emerged from within the company are really authentic higher purposes, because in a lot of ways, the entrepreneur is oftentimes driven by a higher purpose, but it's tacit for them. So many entrepreneurs are very intuitive driven people, and they don't always communicate and make explicit what their own potential higher purpose or what they think the business is. A consultant can come in and help tease that out. That would still be an internal higher purpose because it's just being teased out as opposed to. Here's what I think are higher purpose should be, having talked to a few people. If the purpose is coming from within and you're making what's been tacit explicit, and the entrepreneur aligns with it, then you really haven't authentic higher purpose. I've also found that you can often tell if the higher purposes frequently don't last past the founder, to be honest. Once you begin to professionalize the management team, the professionals come in and they bring a lot of intelligence and sometimes a lot of business experience, but they don't necessarily bring the passion in. They're aligned with their career and their resume. Their loyalty is more to that necessarily than the business.
Dylan Lewis: As you wrap your book, you give us your recipe for your favorite smoothie. Half veggies; spinach, broccoli, bok choy, radishes. Half fruit; berries, banana, seasonal fruits, dates. Any other Mackey favorite recipes you can share?
John Mackey: For smoothies or for food in general?
Dylan Lewis: Food in general.
John Mackey: One of my go-to, easy to make food which is really nutritious is, first you need an Instant Pot, which is the greatest thing because you got the pressure cooker on that. First you've got to soak your beans. This is the only preparation. Soak the beans, but you can do a quick soak, putting them to boiling for a minute and turn it off and then throw out the water after an hour, then you can drain you beans or quick soak, or you can do it overnight and they'll be even better soaked. It starts with beans, some bean of your choice, and then lots of root vegetables. I usually add soaked carrots, sweet potatoes, regular potatoes, other vegetables, bok choy, broccoli, onions, garlic. It's a stew. It's a bean and vegetables stew. Then you can go Mexican with your seasonings, with a little bit of chili pepper in that to get a little bit of chili there, or you can go Indian with a little turmeric and garam masala and black mustard seeds. There are different ways you can go in terms of flavoring it up. Then for me, I'll make up the whole Instant Pot with that bean stew and I can make tacos out of that, once I have that there, I can make tacos. You add cilantro and avocados and tomatoes and salsa. If you're going Indian, you can put a dosa out there. That sources this foundation food, or you can just have it as a stew, which is the easiest thing to do. Between smoothies and a good bean and vegetables stew, I'm eating well for a few nights of the week for sure.
Dylan Lewis: Listeners, you can get John Mackey's book, The Whole Story, beginning May 21st, in addition to his smoothie recipe. It's also got his reflections on the Amazon acquisition of Whole Foods and details on his next chapter, Love.Life, a holistic health and wellness club opening its doors in LA this summer. Coming up after the break, we've got stocks on our radar. Stay right here. You're listening to Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. I'm Dylan Lewis, joined again by Matt Argersinger and Jason Moser. We're going to jump right into stocks on our radar this week. As always, our man behind the glass, Dan Boyd, is going to hit you with a question. Matt, you're up first. What are you looking at this week?
Matthew Argersinger: All right. Back to T. Rowe Price, ticker TROW. I did not know this, but according to the Sovereign Wealth Institute, very reputable organization.
Dylan Lewis: Sounds sure serious.
Matthew Argersinger: T. Rowe Price is the ninth largest asset management firm in the world. I bet not many investors know that, including me. It ended the first quarter with 1.54 trillion in assets under management. That's up about 200 billion year-over-year. Of course, all of that was driven by a really strong stock market over the last 12 months, as we know, which drove asset values higher. T. Rowe did see $8 billion in net client outflows. Those are clients who actively withdrew money out of T. Rowes funds, but that's very small and it's roughly half of what the net outflows were a year ago. What does a big AUM increase like that do for T. Rowes business? A lot. If you look at their net effective rate which held steady, they had a 13.8% increase in net revenue in the quarter, 22% increase in net operating profits, a lot of operating leverage in this business, generated 535 million in free cash flow, paid out 297 million in dividends, which I love, and made 83 million in share repurchases. I look at this business, assets are growing, long-term performance of other funds and strategies, very strong. The stock trades for about 13 times forward earnings pays a 4.3% dividend, and I think Dan likes dividends too, so I like what I'm seeing now with T. Rowe.
Dylan Lewis: Dan, interested at all in that dividend and shares of T. Rowe Price? Ticker TROW.
Dan Boyd: Yeah, sure. But I've started to notice something, Dylan. [laughs] I've started to notice a little bit about Matt's investing style, and it seems to be real estate and companies that already have a large amount of money on hand.
Dylan Lewis: Hey, what's not to like about that? I don't think he's trying to make it too hard for himself.
Matthew Argersinger: That's right.
Dylan Lewis: There are no style points. [laughs] Take the easy wins where you can get them. Jason, what's on your radar this week?
Jason Moser: Taking a closer look at Shopify, ticker is SHOP, and Shopify is one of the leaders in the e-commerce space with its ecosystem of tools and services that help businesses of all sizes with their e-commerce presence. The company recently reported quarterly results and it was a great quarter. The revenue, 1.9 billion, was up 29% after they adjusted for the sale of the logistics business. Some other KPIs, key performance indicators, that look good, gross merchandise volume up 23%, gross payments volume up 31.6%, and subscription solutions were up 34%. The business is doing very well. The kicker here was guidance. They guided for revenue growth in the coming quarter, more in the mid teens, and for a company that's just continuing to chalk up these 25-30 percent rates. That's a problem. That's why the stock sold off. But I can't help but wonder if maybe there's an opportunity here.
Dylan Lewis: Dan, a question or perhaps a comment on Shopify?
Dan Boyd: Shopify is a Canadian company, headquartered in Ottawa, Canada, and in a couple of weeks, I'm going to go to Ottawa, Canada for the first time. I'm not going to go to the headquarters, but I'm just, I guess excited to go to Canada.
Dylan Lewis: You'll be near Shopify, I guess Dan.
Dan Boyd: Sure. I will be in existence near where Shopify also exists.
Dylan Lewis: Dan, which one's going on your watch list this week?
Dan Boyd: Let's go Canada, Shopify.
Dylan Lewis: Alright, that is going to do it for this week's Motley Fool Money radio show. The show is mixed by Dan Boyd, I'm Dylan Lewis. Thanks for listening. We'll see you next time.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dan Boyd has positions in Amazon, Berkshire Hathaway, and Costco Wholesale. Dylan Lewis has positions in Shopify. Jason Moser has positions in Alphabet, Amazon, Apple, Home Depot, Markel Group, and Shopify. Matthew Argersinger has positions in Alphabet, Amazon, Home Depot, Markel Group, Shopify, and T. Rowe Price Group and has the following options: short June 2024 $320 puts on Home Depot and short June 2024 $380 calls on Home Depot. Ricky Mulvey has positions in Home Depot and Shopify. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Costco Wholesale, Home Depot, Markel Group, Microsoft, Shopify, and Walmart. The Motley Fool recommends International Business Machines and T. Rowe Price Group and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
