The new year is here, and it's time to look back on some of the biggest and weirdest stories from 2017. For the first time ever, Industry Focus is hosting the Industry Focus Awards, where the hosts from all five shows come together to pitch their contenders for various categories. Next up, learn more about our picks for Best Quote of the Year and Happily Ever After.
This video was recorded on Dec. 28, 2017.
Kristine Harjes: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. This is the Thursday, Dec. 28th show, which is episode No. 3 in our four-part 2017 Industry Focus Awards show. If you didn't listen to the episodes released yesterday and Tuesday, please go back and do that before continuing on with this one. The next award we would like to present is Quote of the Year. I know we have Vince and Dylan pitching. Gents, who would like to go first?
Dylan Lewis: I'll hop in here. I'm kind of straddling techand CG with this quote. I had to check and make sure it was in 2017, it was right around the end of 2016 and the beginning of 2017. My quote is, "I am one of the kings of mean on Twitter," and the person who said that quote is T-Mobile (NASDAQ:TMUS) CEO, John Legere. And I obviously don't condone cyberbullying in any form, but I think this comment really embodies Legere's attitude, and why he's been such a force of nature in the telecom space over the last couple of years. You look back over the last two years, T-Mobile has doubled the S&P's return, posting 60% gains, and it's really because they've been incredibly aggressive with their promotions and all of the public posturing that we've seen from John Legere. If you follow his Twitter account, he routinely calls out all of the other carriers, throws a lot of shots. He's not someone you want to be in business against. He's extremely competitive. And all of that has led them to be able to steal a ton of subscribers and leapfrog Sprint in market share. So they're currently in third among the major wireless carriers. All that has been done really, I think, because he has been so growth focused and so aggressive. I think this kind of embodies that.
Harjes: I can appreciate the competitiveness. That's one of The Motley Fool's core values. I can get behind that one. Is this also the company that stole the "can you hear me now" guy?
Sarah Priestley: No, that's Sprint.
Lewis: Which blows my mind, by the way, that Verizon did not have him on lockdown for a lifetime --
Harjes: I know, that's such a savage move.
Lewis: It's brutal.
Harjes: I think they're the kings of mean with that one.
Lewis: Yeah, it was pretty good. I can't bad-mouth Sprint, though. I switched over to them, and I'm paying almost nothing a month --
Harjes: How much are they paying you to say that?
Lewis: No! [laughs]
Michael Douglass: Discreet product placement.
Lewis: I will say, part of the reason I bring this up, too, is that I really reevaluated the telecom space in the last year. Some of it was seeing what John Legere was doing with T-Mobile. Some of it was understanding how aggressive the promotions are from all of the also-rans in that space. I mentioned Sprint in that I switched over. I was a Verizon subscriber for a long time. I was offered a deal with Sprint where, they basically sent me a SIM card, it cost me $14 with shipping, and I'm getting charged $2 or $4 a month because of taxes and fees, for their unlimited data plan. And I live in a major metropolitan area where service is generally pretty good, unless I'm on the metro. And you look at those types of promos being out there. That one was an online-only one, they didn't do it in store. They were banking on people finding it and not having to use marketing or sales staff for it. There are all of these people in the second, third, fourth, fifth, sixth ranks of wireless subscribers that are trying to chip away at Verizon's lead, trying to come up with other ways to make their offering more appealing, because they might not have the "best network". If you spend so much time on your phone on wifi anyway, that doesn't become nearly as important.
And seeing all these things going on, frankly, I was a Verizon bull for quite some time. I thought it was a really great dividend stock. I don't think it's a bad dividend stock now, but I look at all the competitive pressure in that space, and I sold my shares a while back because I was worried that even offering a great product, people weren't going to be willing to pony up, because there were so many other really great deals from all these people trying to chip away at market share.
Harjes: And then Legere tweets that, and you're like, I don't want to be betting against the king of mean.
Vincent Shen: I'll add to that. We cover T-Mobile every once in a while on the Consumer and Retail show. And I usually cover it with Dan Kline. He loves Legere. And a big part of it is, a lot of the things you mentioned in terms of promotions that consumers are benefiting from now, those are things that T-Mobile pioneered with their Un-carrier initiatives. They've had 11 or 12 of them at this point. Things where your data would roll over, or the price that you see in the marketing would be the price that you pay, inclusive of all those various taxes and surcharges and fees. Things like that. Consumer friendly, really forcing the other three companies in the big four for the wireless carriers to step up their game and become more competitive. And I think overall, he's definitely someone who reminds me of other visionaries across industries who push everyone forward in that way.
Lewis: I appreciate you strengthening my case in a category where you also have a submission. [laughs]
Douglass: But wait. We all know, this is the classic Vince thing, he's going to slow walk up and come in with a knock-out.
Lewis: "Speaking of visionaries ... "
Shen: OK, you know what, so ... the company I'm nominating is National Beverage (NASDAQ:FIZZ), ticker FIZZ. National Beverage is a $5 billion company that produces a variety of beverages, obviously, its most famous being LaCroix. That's a sparkling water brand that's riding the wave of popularity right now for the sparkling water drink category, and it's leading it. The chairman and CEO is this gentleman, I think he's 81 years old, his name is Nick Caporella, and he's known for more unconventional comments in the company communications and press releases that National Beverage releases. They do not host quarterly earnings calls with analysts. So,you get a simple press release each quarter for the earnings results, or the special dividends, for example, that they pay. And then you get commentary from Caporella. And that's it.
So here are my personal favorites in terms of quotes from the past year. I have a couple of them. This is from a May special dividend announcement: "National Beverage Corp. does not possess a patent which, by the way, is the most formidable moat, but has the closest audacious back-up moat ... a cult-led, tech-charged millennial with 'change' power, an extremely passionate and proven innovator, healthier mandatory incentives pushed by society plus a powerful army of highly competent professionals drinking the plan! Throw in the team called Team National and that moat becomes ... nuclear. We are on the right side of conviction, the healthiest motive a public corporation can have: No greater cause than to enrich the loyal shareholder. No greater honor than to create a healthier, stronger America! Thanks for giving us our purpose ... fueled with your loyalty!" That's just one example.
Douglass: [laughs] OK, so it's Dylan vs. Vince, quote A.
Harjes: Vince, Vince, and Vince. Wait, so Vince, also, this guy is very well-known for sporadically using all caps, is that correct?
Harjes: So how much of that last quote was in all caps?
Shen: I don't remember exactly. I have it pasted in my notes here.
Harjes: Safe to say 50%?
Shen: There's a lot of exclamation points, there's a decent amount of capitalization. And he's very enthusiastic, and I actually really appreciate that about them. It really shines through in their press releases, as you can imagine. The next one is from a July earnings release. He says, "What better feelings can there be than those that make the mind and body feel awesome while simultaneously invigorating your glorious self-esteem? What determines the ultimate potential for this kind of innovation? A healthy guarantee; the true side effects -- super great feelings and a long-lasting hydration afterglow that allures one to want more! How much better does it get? Try i t... and see!" I love that! I love that! Very positive.
Alright, I'm going to end, this is the last one I have, it's from another earnings call. It's from the latest one, actually. It says, "National Beverage is creating operating performance that is astounding," and they are, "when a seasoned operator can innovate, develop and focus on all the variables necessary to achieve these results -- it's standing ovation! If Warren wrote what I did, not a soul would utter a squeak of criticism!" And they close out most of their press releases with this. "National Beverage's iconic brands are the genuine essence ... of America. Patriotism -- If Only We Could Bottle It!"
So that's a taste of what you get in terms of the company communications from National Beverage. And at this point, if you look at the results that they've been able to put up in this sector, it's hard to even criticize them for being so excited. The company has reported 12 consecutive quarters of revenue and earnings growth. It's well on its way to hitting $1 billion in annual revenue. And that growth is expected to continue in the high teen percentages for the next several years. The operating margin is up over 8 percentage points to 19.6% in just the past two fiscal years. So profitability has really expanded for them. And for the consumer and retail world, National Beverage has a pretty rich price to earnings valuation. They have about 40x, and that's thanks to the hype around LaCroix, which is really driving this company, definitely, in terms of the brands. They have strong growth. There have also been some buyout rumors. This is a $5 billion company that could be tacked on, for example, by a Coca-Cola or a Pepsi. So whether you like it or not, Caporella is obviously doing something right and keeping shareholders very happy. So that's why I selected those quotes as my picks.
Douglass: So I think it's essentially Vince vs. Vince vs. Vince for this one. Can we just agree on that? Personally, I'm going to vote for that final quote, the footer of their press releases, "the essence of America."
Lewis: If only we could bottle it.
Douglass: I mean, that's a great tag line. "Patriotism -- if only we could bottle it."
Lewis: It sounds like a Budweiser commercial. [laughs]
Douglass: [laughs] It does.
Harjes: I kind of wish that this company did do conference calls.
Shen: Oh, so do I!
Harjes: You'd get so many gems.
Shen: Actually, in my opinion, that's a ding for them. It's obviously not as friendly for investors, in terms of getting a full view of the business.
Harjes: I don't know. Maybe that's super savvy PR. Like, "Let's lock him in a room. He cannot talk to the analysts."
Shen: [laughs] Well, I think he gets to make those decisions, otherwise those press releases would not come out the way they do.
Lewis: So, what are your votes? [laughs]
Harjes: Bottling patriotism, I have to go with it.
Priestley: Bottling patriotism.
Lewis: You can't beat that. You can't beat all caps.
Harjes: Well, when you put it like that. Well, there you have it! Alright, we have one more award to give out today, and this award is something we're calling Happily Ever After. So deals announced or closed in 2017. Which ones would we like to give an award to?
Priestley: I'll go first. My Happily Ever After may not be all that happily ever after, however, it's a sizable deal that closed in summer of this year. Baker Hughes, A General Electric company (NYSE:BHGE). Yes, that is its new name. There's a marketing company that's earned way too much money for that. It's true. This summer, GE (NYSE:GE) merged its oil and gas business with the No. 3 oil services provider, Baker Hughes. So GE is primarily an equipment manufacturer for the industry, and Baker Hughes specializes in services and products for things like horizontal drilling and hydraulic fracturing, which as we all know if we listen to the Energy show, is getting huge. The new company is 60% controlled by GE, 30% of the float trades on the market under the ticker BHGE.
So the company said this creates a new type of oil field services firm that defies easy comparison. But basically, it's a full-stream services company, is what they've created. It's spun out the way it is to give GE a hand in the oil and gas industry without exposing them to the volatility of the commodity. It's good for GE. It's going to potentially add $0.04 to GE's earnings per share in 2018, $0.08 by 2020. And the whole initial discussion was started because GE and Baker Hughes got together to discuss if Baker Hughes could use GE's Predix data technology. So there's already a lot of big data usage going on in the oil and gas industry. We talk a lot about internet of things, especially with tech, too. And the industrial internet of things is going to be huge. There's already a lot of data being collected, but they're not analyzing it, they're not using it very well. This software is essentially going to unlock a lot of potential that's already being collected. But they realized they could achieve a lot of efficiency gains together, and they could really unlock a lot of potential in the industry by using internet of things. That's why it's happening.
Why it may not be happy is, on the 11th of November of this year, GE's new CEO, John Flannery, had to present his strategy for how the company is going to turn around. If anybody has been paying attention to the stock, they're down 43% year to date. I'm personally feeling the pain of that. John Flannery alludes to exit options from the deal. He says, as part of maximizing the value for shareholders, they would investigate if there would be a different form or structure for the ownership of the asset. Now, the reason that he's saying that so quickly after the deal has been made is partly because he may not have been fully involved when the deal was formed. So we don't know his personal views on the deal. Secondly, he's under a huge amount of pressure from activist investors to try and unlock as much value from GE for shareholders as possible. And the whole idea of this union was predicated on oil prices, too. As we talked about on the previous show on the Saudi Aramco IPO, crude oil prices are just underlying the whole industry. The volatility that we're still seeing is making people nervous.
Lewis: So, your Happily Ever After is kind of a snarky happily ever after.
Priestley: It is, yes.
Harjes: I should have specified that it's "Happily Ever After?" That's our category.
Douglass: Yeah, it's the Dylan way of looking at Happily Ever After.
Lewis: Why don't you add some context, maybe, for listeners who don't get to enjoy me in the pod and only get my bright, upbeat voice on the Friday Tech show?
Douglass: Dylan is, I would say, our resident...
Priestley: King of sass.
Douglass: King of mean? No, the way I was going to go with it actually was, some artists paint. Others do architecture. Some make music. Dylan ... his preferred medium is sarcasm. And by the way, that's A Christmas Story reference, and I hope you all enjoy that.
Lewis: It's beautiful. It's an excellent, excellent movie. I appreciate the reference. It's one of my favorites. I watch it every holiday.
Harjes: As somebody who doesn't get the reference, does that make him the Scrooge?
Lewis: [laughs] I like to be more of a floating Krampus.
Douglass: Different Christmas Story, but that's OK.
Harjes: [laughs] I tried.
Priestley: So, my Happily Ever After is more like a summer wedding followed six months later by a potentially very sticky divorce. [laughs]
Harjes: [laughs] OK, sounds good. Let's see if our next Happily Ever After is a little bit happier. Vince?
Shen: I appreciate that you injected some realism into that. Fairy tales are not real. My original nominee for this category was the Amazon and Whole Foods Market deal. That deal caused a lot of headaches and concerns for big box stores like Wal-Mart (NYSE:WMT) and Target, grocery stores like Costco and Kroger, and it kneecapped the Blue Apron IPO. In general, you have this giant, looming threat, because Amazon now has at its disposal a network of over 400 stores. So far, the actual changes have been limited in terms of what you see at Whole Foods. There's prices on certain grocery staples that have been lowered. That generated a lot of buzz and increased foot traffic to the stores. Amazon has rolled out a lot of its Alexa-powered devices like the Echo, and made them prominently available at Whole Foods locations, too. The longer-term effects of that deal are not quite clear yet. And considering the Happily Ever After name for the award, I wanted to stretch my list of nominees a little bit. My actual deal is the Wal-Mart acquisition of Jet.com. That technically closed in late 2016 ...
Harjes: [laughs] Oh my gosh.
Lewis: Doesn't this remind you of the quote category, where Vince was like, "I'm going to drop three examples in here?"
Douglass: This also reminds me of when someone was saying, "We should exclude cryptocurrencies on a technicality because they didn't start ... "
Shen: Play to win, Michael. Play to win.
Douglass: I'm just saying.
Shen: So the deal technically closed in late 2016, but we've seen the effects of the deal come to light more so this year, which is why it's my nominee for this category, my official one. Originally, this $3 billion deal was seen as Wal-Mart's way to really tackle e-commerce and present a more formidable competitor to Amazon. And the company would get all of the digital commerce expertise and infrastructure that Jet.com has developed in just a few years of operation. But the real gem for Wal-Mart was actually locking down Marc Lore, Jet.com's founder, and having him become the president and CEO of the e-commerce efforts for the entire company. He's the driving force behind a lot of the initiatives that we've seen from the company in the past year, like free shipping for orders over $35, discounts for orders picked up in store, in-store pick up for groceries, and there's more coming in terms of the smart cart technology that Jet.com has had available for its customers for some time now. In the most recent quarter, e-commerce sales for Wal-Mart rose 54% year over year. All in all, I think Lore has brought a mindset and willingness to take risks that was needed in a huge enterprise like Wal-Mart, and that change would not have been as possible without having someone like him to drive that. So that's my pick for Happily Ever After.
Harjes: That's all well and good, and now I'm going to nominate something qualified. [laughs]
Shen: [laughs] Fair enough.
Harjes: This one deserves an award just because of the sheer size of it. This is CVS (NYSE:CVS) - Aetna (NYSE:AET), which was announced fairly recently. CVS is a very well-known retail pharmacy chain. They have a bunch of stores. They have walk-in clinics, they have a pharmacy benefits manager, a whole lot of lines of business. Aetna is an insurer. So this is basically a vertical integration. There's not a whole lot of overlap between the two of them. But CVS is looking to buy Aetna for $207 per share, which comes to a total of $69 billion. The drama, and what I think makes this really interesting, is with whether or not it'll be approved. In previous years, that might have been a no-brainer. Vertical, that's fine, it's not an antitrust situation. But there's a ton of doubt about whether or not this is going to go through. If you look at Aetna's share price, they're trading for about $180, which is to be compared to that $207 buyout price. That's a huge difference. So I'm going to borrow a tactic from Sarah and put this into a real-life perspective. This would be the prom king and the prom queen got engaged, and then their friends didn't save the date.
Priestley: [laughs] I like that.
Douglass: Broadly speaking, I think CVS and Aetna is totally fascinating because if it succeeds, you could really have a company that owns so much of the healthcare value chain on the care side. I think that both in terms of the amount of money involved and potential for transformation of the healthcare system and, let's say, relevance, given that it actually happened this year, should absolutely be the winner.
Lewis: I think, given that Vince has already won several categories and been quite smug about it --
Douglass: [laughs] So that sounds like a pity win for someone else.
Lewis: Well, there are two other people in this race right now.
Douglass: That's true.
Lewis: But I don't think I can give Vince and his multiple submissions a vote. I think I'm going with Sarah's, because I appreciate the snarkiness. And for both of you guys, I like that you're seeing something for what it is and moving beyond the headlines to understand what it means and what the staying power might be. I happen to like Sarah's tone the most, and it's a story that I haven't been following all that much.
Shen: I can read the tea leaves, so it looks like I'm disqualified. Kristine, I think that deal is really interesting, but --
Shen: You say, Happily Ever After? I really don't know if it's going to close. I'm not banking on the AT&T-Time Warner deal, either. So Sarah, by technicality, congratulations!
Harjes: Oh, wow!
Priestley: Everyone wants to win on a technicality!
Harjes: Can I throw a dark horse vote out there? I would actually vote for Amazon-Whole Foods.
Lewis: The thing is, that was your pitch. You could have gone with that.
Harjes: Like you could have just ended there.
Shen: I would not feel right picking that one, just because we don't really know yet, in terms of long-term effects.
Harjes: He didn't feel right winning again.
Douglass: His morals got in the way.
Harjes: He threw himself under the bus.
Douglass: To be clear, that's such a huge opportunity in terms of totally revolutionizing both the Whole Foods experience -- I mean, when we went to get the editorial holiday tree from Whole Foods, it was much more reasonably priced than in past years.
Harjes: Yeah, even just the amount of jaws that hit the ground when that was announced -- I remember when I read the headline, I was floored. It was really dramatic.
Lewis: And you look at what it's done to the market and some other participants in that space, and it's been so wholly disruptive.
Douglass: Wholly? I see what you did there.
Lewis: That wasn't even intentional. But my vote stands with Sarah.
Douglass: So Sarah wins on a technicality. I'm sorry, Sarah!
Priestley: You dropped the ball, Vince. That's what they're saying.
Shen: That's fine.
Priestley: But I think I definitely get vote for Worst Company Name of 2017 as well. Baker Hughes, A General Electric Company.
Douglass: I mean, that's almost as bad as some of the Berkshire subsidiaries. A Berkshire Hathaway company.
Priestley: Maybe that's what they're trying to emulate. It hasn't worked, though.
Harjes: Oh. I mean, that kind of makes sense, take some of the big-name recognition as opposed to going with a new company name entirely.
Priestley: It is working against them. I think they're down 15%.
Harjes: And that's the reason why. Alright, folks, we have reached the end of the penultimate show in our four-part award show series. Tune in tomorrow for the final installment. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. This show is produced by Austin Morgan. For the entire cast of Industry Focus, I'm Kristine Harjes. Thanks for listening and Fool on!
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dylan Lewis owns shares of Amazon and Costco Wholesale. Kristine Harjes owns shares of Costco Wholesale. Michael Douglass owns shares of Amazon, Berkshire Hathaway (B shares), and PepsiCo. Sarah Priestley owns shares of General Electric and Target. Vincent Shen has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Berkshire Hathaway (B shares), Twitter, and Verizon Communications. The Motley Fool recommends Costco Wholesale, CVS Health, Time Warner, and T-Mobile US. The Motley Fool has a disclosure policy.