Starbucks and Southwest Airlines Face Leadership Changes and Activist Pressure

Brian Niccol's Venti Task at Starbucks | The Motley Fool

We also give an investor's overview of Academy Sports and Outdoors. In this podcast, Motley Fool analyst Jim Gillies and host Ricky Mulvey discuss: Then, Motley Fool personal finance expert Robert Brokamp kicks off a two-part interview with Dave Hatter, a cybersecurity consultant at Intrust IT, about the Social Security database hack and how to make your personal information more secure. To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our beginner's guide to investing in stocks. A full transcript follows the video. This video was recorded on Sept. 10, 2024. Ricky Mulvey: Happy first week of school to Brian Niccol. You're listening to Motley Fool Money [MUSIC] I'm Ricky Mulvey. Joined today by Jim Gillies. Jim, good to see you. Jim Gillies: Good to be seen, Ricky. Ricky Mulvey: Well, yesterday, former Chipotle CEO, Brian Niccol, he grabbed his lunch pail. He hopped on his private jet and started his first day leading Starbucks. Interesting company to look back on, because it sort of long, long term. Starbucks has been a fabulous performer, but over the past just five years, it's just been paying dividends. On Mr. Niccol's first day of school, what's the situation he's walking into this new high school with new friends, new opportunities. Jim Gillies: I'm going to suggest, well, I like that you said that Brian Niccol's taking his lunch pail, because I would suggest the first thing is it's a good thing he's not eating at Starbucks, because I'm of the opinion that Starbucks has never gotten food right, unless you like pre-made sandwiches made a month ago in a factory in Denver. I think that might be something that he's walking into. I think he's also walking too. Starbucks was famously always the so called third place between work and home. A third place where you could gather, maybe if you're like me and a remote worker who sits at a desk and needs a little bit of downtime from sitting at the same desk always, so I go to a Starbucks to sit at a different desk. The third place has disappeared. Starbucks has evolved under the leadership, and you can insert in air quotes if you want there. The leadership over the past six or seven years, has evolved from a coffee shop, more low key to get in slash get out with your sugary fruit fruit beverage of choice rather than the focus on coffee. My take is I think there's a lot of things he's going to need to do to get back to where they were. I've got a Beatles song in my head, get back to where you once belonged. I think that would probably be a a good start for Mr. Niccol. But he's going to have a bit of a slog, I think. Ricky Mulvey: You've got British bands on the brain. We'll see why in a little bit [laughs] There's one person he needs to make a fan of. The former CEO, Laxman Narasimhan, definitely did not have a fan in Starbucks founder Howard Schultz. What does Mr. Niccol need to do to make Mr. Schultz a fan of him as CEO? Jim Gillies: Oh, boy, Ricky, can open worms everywhere. Thank you for that setup. I don't give a rats hindquarters what Howard Schultz thinks of Brian Niccol. I think we are in the spot where you have to hire Brian Niccol because Howard Schultz messed this up so thoroughly, he needs to sit down, shut up and count his money. You say the last guy, Howard Schultz wasn't a fan. I say the last guy was hired scouted and worked at the feet of Howard Schultz for 18 months. Howard Schultz cost Starbucks through that last ego-driven. I'm going to hire the next rockstar that's going to take Starbucks into its next phase of growth. He scouted him. He had a six month internship where he was sitting at the feet of St. Howard, and then he was released into the wild. Then he was gone in less than a year. That's Howard's fault. Brian Niccol is here to take over from the mistakes of Howard Schultz. Not quite the take I think you were expecting me to give you. Ricky Mulvey: Well, you know what some might say. This is a little bit like first one was General Electric after Jack Welch. You got Bob Iger in the notes here. Anytime you have these force of personality CEOs, I think there's something in their brain where they want someone to come in and do a competent job because no one can really do the job as well as they can. Maybe there's a little sandbagging going on. Next question. Jim Gillies: I was going to say, do you want me to lead it a bit more Bob Iger, but I think we'll leave him alone for now. Ricky Mulvey: Yeah. We can set that aside. Jim Gillies: I will just say, I don't think Niccol needs to make Howard Schultz a fan. I think Brian Niccol, look, he's already got a really good track record with first Taco Bell, and then later Chipotle, obviously, he's already made a boatload of money. He can tell Howard to go pound sand if Howard gets a little too familiar. But it's important to realize, Howard's no longer on the board even, I think. He's pretty much out. Yes, he's got a big equity stake. But I think we need to walk away from the Howard Schultz era of Starbucks. He did a fantastic job for decades. But his time has passed, let Brian Niccol cook. Ricky Mulvey: The investors are certainly excited about Brian Niccol. He got an 18% pop when he was announced as CEO. But he's got some problems, and I wonder if one person, one CEO, can take care of all of this, which is, as you mentioned, the loss of a third place identity across 35,000 stores, and also not great worker morale. What do you think about that? Jim Gillies: Well, first, I want to remind folks, and this sounds terrible. I'm a Brian Niccol fan. I'll say that. But realize this is a different situation than Chipotle. When Brian Niccol was appointed Chipotle 2017, I think, it was met with derision. They're hiring the guy from Taco Bell to come in and lead the company whose famous tag line is food with integrity. There was met with very, very healthy skepticism. With Starbucks, as you say, 18% one day pop, he's met with, oh, he's the savior. That's a very different setup. I think investors should realize that and realize it's probably going to take a little bit of time for that to come back. I don't even count Laxman, and he was the wrong guy. That's not a sin. Again, I lay that right at the feet of Howard Schultz, actually. He was the wrong guy to lead this company. But I think under Kevin Johnson, who was there from 2017-2022, and then he left and Howard came back for his third CEO. The company became a capital returns guy. I became almost a financial engineering or a financial returns company, and that can be death for a company with a specific culture. You've already mentioned GE. I'm going to throw out a lot of the problems Intel is facing today is because two decades ago, they went from an innovative culture and Intel inside. We are a technology company first and foremost. They were one of the four horsemen, and that's a compliment, by the way, one of the four horsemen of the Tech Bubble, them, Cisco, Microsoft, and Qualcomm. That covered Tech at the time. Intel is today considerably lower than the high price it hit almost 25 years ago during the Tech Bubble. So when you stop focusing on what you are, and start focusing on just dividends and buybacks and capital returns. I love those things. But those have to be the secondary thing that's coming from the business. And we're going to talk about a company that I think still has it in the proper order in a minute. But I want to see Niccol return to let's make it the third place identity. Let's not just set out two little two person chairs to get people out as fast as possible. This is going to maybe be controversial with some people. Stop focusing on unionized stores. Stop focusing. If some stores unionize stop picking fights in that area. If some stores unionize, that's fine, if some stores don't. I am from a background in industry, in my engineering days. There was a lot of industry, and we proudly were a non-union shop because we talked about very frequently when other industrial companies in our area, where I live, would talk about unionizing, or when we would talk about unionizing, we're like, hey, we're going to pay you what the union shop gets down the street. We're going to pay you the same as them. Oh, and you don't have to pay union dues. Problem solved. A little rapprochement with your employees, and 35,000 stores. Maybe think if you need 35,000 stores today, maybe you can cut back on a few of the outlets. You don't have to have a Starbucks in the washroom of another Starbucks. Maybe think about strategically reducing the store count so you can later grow the store count. Basically, focus on what the Starbucks promise has been prior to Howard Schultz's return. Probably, I would say, Howard Schultz was there from 2008-2017 after kicking Jim Donald out. He then passed the reins to Kevin Johnson. That '08, 2010, 2012 focus on what you're doing well there and try to replicate it. Ricky Mulvey: We'll see if it happens. Certainly, a company I'm keeping a closer eye on now. Let's move to a company we've talked about a little bit on the show, which was reported this morning, Academy Sports and Outdoors. You've pitched it, and it's basically a value conscious Dick'S Sporting Goods. The major theme here is that sales for the company are slowing and decreasing, in fact, but the cash flow number is up by 60% year on year. I know you're a cash flow guy. What's happening with those cash flow numbers, Jim Gillies? Jim Gillies: Very good, thanks. I'm going to make a bold and probably stupid prediction. I think the bottoms in on this stock, because that earnings report was terrible. As you go down, and look, it was largely expected to be terrible, I will say that. I have said very much the same thing. But when you have quarterly, sales are down, 2.2, comp sales are down almost seven. Net income is down about 9%. Earnings per share is only down about 3%. That's the result of past buybacks. We're going to get back to that. If you look more at the first half of the year, things are down even worse, except for the top line sales. They reduce their guidance. Guidance went from sales growth. Can't pronounce syllables, apparently. Sales growth was originally expected to be negative 1.5 to 3% this year with comps -4-1. Now comps are expected -6-(-3). They've reduced their free cash flow expectations a little bit. That's mainly due to decreased capital spending. This was a terrible quarter, or it was a really bad quarter, except for those cash flows as you talk about. The stock is up, as I speak about 6%. The stock is up after just a brutal quarter, which suggests to me that everyone was expecting things to be bad. I was certainly expecting things to be bad. However, I have a bit of a longer-term view on this one, and I have a case study where I think this one is tracking. Ricky Mulvey: I think we can focus on why things are bad, management highlighting. We had hurricanes, we have a tightened consumer. I think it's also worth pointing out when you look at this company next to DICK'S Sporting Goods. DICK'S Sporting Goods had comp sales growth of 4.5%. Academy Sports had a 7% comp sales decline. They're still opening stores. Before we get to the case study, what's happening with that disconnect, do you think? Jim Gillies: I think DICK'S is a better-viewed brand. DICK'S has a far more reach in terms of their branding. I believe they're in all 50 states or at least the 48 continental states, whereas, I think Academy might be in 19 states now. I think they just re opened a store in Ohio for the first time. They're doing a lot of green fields research, which as you point out with negative comps, might not be the best application of it for now, but I think there's increasing brand awareness. I think there's a lot more brand stickiness with DICK'S, and I think you need to see Academy doing that increasing brand awareness. Now, they have done this move before. They have chased this. This is a company that, as you say, they talked about having issues in the quarter from hurricanH hits, which knocked off, I believe, about $16 billion off sales. They had issues with conversion of a distribution center a warehouse where they had a bit of a hit because they chalked up to about 30 or $35 million in lost sales. There's $50 million in lost sales from this quarter that they at least have an explanation for. Whether you buy the explanation or not is up to you. But they were very good on the conference call as well, just talking about this didn't work. This wasn't great. We are seeing some green shoots. Green shoots being they're talking about more recently opened stores are outperforming the legacy stores are doing well. What little we have on 2023 vintage stores. Those are outperforming 2022 stores, which are just now entering the earliest stores in 2022, are just starting to enter the comp sales, you calculate your comps. You don't use all stores because a store opened last week. We're not going to include that in comp sales. I think things are going to turn. It might suggest to you that some of their legacy stores might need a bit of a refresh if the newer stores are indeed out performing to that level. When I look at the overall business going on here, and I look at what they're talking about, this is a company that famously had a five year plan that went from 2018-2022. They hit all the targets in that five year plan ahead of schedule. They've now got a second five year plan. That is running through 2027, where they want to get sales over 10 billion total. They want a net income margin about 10%, adjusted operating profit, 13%. They want to increase their inventory turns, yada, yada. They want to increase their digital sales. When I look at that and give it a very, very healthy haircut. I'm trying to be very, very pessimistic with my forecasting on this company. Because, if they outperform my pessimistic estimates, I think we're all going to do very well, frankly, on this one. I am a shareholder. After the numbers they've reported, after the very, shall we say, negative numbers, I expect for the next year, year and a bit. Jim Gillies: Modeling all of this out, and particularly what they do with their cash flow, because the cash flow story is very good here. What do they do with that cash flow? They're doing all of their gross spending on new stores. That is all covered in by self-ganar cash. They pay a very modest dividend, but it's still there. It's still something. They buy back a lot of stock and they're very aggressive at buying back their shares at today's prices. I will suggest to you the reason they're doing it at today's prices is because very, very modest sales growth conversion of so called GAP profitability. You are either to EBITDA or adjusted EBITDA pick your poison there. To free cash flow, I assume it's going to take a hit. For example, over the last four quarters, adjusted operating profit to free cash flow has been converted at about a 60% rate. I don't have it any higher than 49% rate going forward. Historically, it's been well over 100, if you do cumulative. I run through my modeling exercise. I try to be very pessimistic. I make sure I account for all of the debt they've got. I make sure I account for all of the options and other shares and things that are outstanding that are going to be a drag on value for shareholders. I'm struggling, Ricky to get the fair value, the intrinsic value of this company below $80 of my estimate. The stock is trading at about 55 or 56 today, I think. Frankly, at this point, the fact that they're buying back shares as aggressively as they are while not impacting their growth plans, they're not borrowing to buy back stock. They do have some debt, but they've got almost much cash as they have debt. I think it's about $150 million differential. They've been slowly taking their debt down. There's a lot of really good stuff happening here under the hood. I'm going to keep on pounding the table because I don't see any reason. Even with this bad quarter, which was expected, I don't see anything that's derailing my long-term thesis here and this is very undervalued in my view. Ricky Mulvey: Well, I'm a shareholder as well, and I know we talked about this company a lot. I hope it's undervalued. Jim Gillies, we do not have time for the ticket master story. Hope we get to it another time. I appreciate your time and your insight on this. Jim Gillies: No problem. Thank you. Advertisement: Ricky Mulvey: Ricky Mulvey with Motley Fool Money here to tell you about the Range Rover Sport, the vehicle that leads by example, visceral, dramatic, and uncompromising. The Range Rover Sport offers powerful on-road performance and commanding all-terrain capability. Once you hit the accelerator, you'll feel this vehicle's exhilaration. The Range Rover Sport combines dynamic sporting personality with the peerless refinement that you expect from Range Rover. This vehicle has a pretty incredible optional feature, massage seating. You can enjoy a dynamic drive in total comfort in a 22-way adjustable and ventilated front seat with massage function. It heats up in the colder months, too. You're not just going where you need to go, you're working out some knots along the way. Look, the third generation Range Rover Sport is the most desirable, advanced, and dynamically capable yet. I drove one. It was a great experience, and that's why I'd like to invite you to visit rangeroverusa.com to learn more about the Range Rover Sport. Up next. As many as 272 million Social Security numbers are out on the dark web after a background check company was hacked. What can you do to protect your information? My colleague, Robert Brokamp caught up with Dave Hatter, a cybersecurity consultant for Intrust IT and a regular on 55KRC the Talk Station in a two-part interview. We're playing Part 1 today, Part 2 tomorrow. Also, as a heads up for newer listeners, Brokamp's nickname at the Fool is Bro, so you'll hear Dave call him that throughout the conversation. Robert Brokamp: Last month, we learned that national public data, which is a data broker had been hacked and the personal information of hundreds of millions of Americans began showing up on the so called dark web. Dave, what do we know about how this happened and what types of data were stolen? Dave Hatter: Well, Bro, thanks for having me on first off. This is a major breach probably based on what we've seen so far, if not the most significant because it appears to be the culmination of a bunch of different datasets put together. It's billions of records, hundreds of millions of people, primarily in the US, the UK and Canada. It appears so far. But it's got a lot of really sensitive data in it that potentially is very valuable to hackers and identity thieves. That's really part of the problem until we have a national privacy law, which we don't. There's roughly 18 states that have one now. You as a consumer continue to be the unfortunate victim of these things. Usually, even if they pay a fine, very nominal penalties to these companies, these data brokers, again, whose entire existence is built on absorbing your data, compiling your data, aggregating your data, and selling it to other people where they make gigantic amounts of money. When you see these breaches, again, you as the consumer are now the one that's fraught with peril. You're the one that has to worry about. Is your identity going to be stolen or your bank accounts going to be hacked. It's a major problem, unfortunately. Again, when you look at the types of sensitive data even though it doesn't all appear to be correct, it's things like Social Security numbers and passwords. The stuff that makes it really valuable to bad guys who want to steal your money. The thing I try to get across to people all the time who say, too small, I don't have anything worth stealing. Your money is worth stealing. They will steal it if you make it easy for them. Sadly, this is just like rocket fuel for them. Robert Brokamp: Unfortunately, this isn't the first data breach right back in 2017, a breach at Equifax, one of the major credit ratings agencies affected more than 147 million consumers. Again this won't be the last. Let's talk about the steps people should take to protect their identity, their credit score, and their accounts. Your first recommendation is to not ignore a data breach notification. Dave Hatter: Generally speaking, once these companies step up and acknowledge that this has happened to National Public data has, you'll end up getting some letter from them. Sadly, I've gotten several of these. Chances are you have two and I'm sure all your listeners have from various data breaches that have occurred like the one you mentioned previously. When you get these letters, you need to open them, you need to read them carefully, you need to understand what they're telling you has potentially been stolen because not all data is equal to the bad guys. Having a Social Security number is a lot more valuable than having your street address. Having a password, they know people use the same passwords on multiple accounts. That's why 104 Hat Nerds like me are always warning. You've got to get a password manager, you need to have a strong, unique password on every account. They know people use the same password or some slight variation like, hey, I'm going to be super secure on this account. I'm going to make it 1, 2, 3, 4, 5, 6, 7. They know this. When they get this data, it's super valuable to them. Again, not all data is equal. Read the notification, understand what it says, and then the rest of these steps you can apply in different orders depending on what data was stolen. But in this particular case, again, it's a lot of super-sensitive data. You really need to act on this. Robert Brokamp: Reading about this breach, I had read about some websites that supposedly, you could go to that website, enter your information, and see if your information was stolen. But my first reaction was, I don't want to go to these websites and enter my information. They were npdbreach.com and npdpenester.com. Do you think people should go and use those sites? Dave Hatter: In general, no. Let me say this. There are legitimate sites out there like, Have I Been Pwned, which is created by Troy Hunt, a Microsoft guy, where you can go and search the dark web and see if your information shows up. The concept itself is legitimate, but the bad guys know people don't really understand how this works and they will often set up fraudulent sites to prompt you. Think of it like a honey pot for bad guys. Hey, you can come check and see if your data has been stolen. While again, the concept itself is legitimate. I would strongly encourage people to not use any of these sites that pop up unless A, it's mentioned in the data breach notification letter you get from the company that informs you of the breach or B, it's been well vetted by someone like a consumer reports or a CNET or a ZDNET or someone like that. There are organizations out there that have experts and editors that will look into this stuff. Again, if the FTC, for example, or the FBI on their public website, say, use this site to see if your data has been breached, I would trust that, but I certainly would not trust any emails. I would not trust anything I stumble into. I would only use a tool like that if it was thoroughly vetted or presented to me through a legitimate source like in a data breach letter. Robert Brokamp: Another one of your top recommendations is to freeze your credit. Dave Hatter: Honestly, Bro, I don't know why people don't do this in general. I just keep my credit frozen. The minor inconvenience of having to unfreeze it when I need to perform some credit related activity it just makes it so much more difficult for bad guys to go down the identity theft route. Now, again, with the data that's been stolen, there's all different ways they might try to scam you. But in this particular case, because it contained things like Social Security numbers and other sensitive information that would make it easy to impersonate you, I would strongly recommend, as I have many experts since this have come out. Just go ahead, go into the credit bureaus, freeze your credit. Again, it's painless for the most part, takes a little time. Then if you need to do, go get a loan for a car or whatever, unfreeze your credit, do what you need to do, refreeze it. I think it's just good advice in general. But if you get the data breach notification letter, it would be one of the first things I would do. Robert Brokamp: Those three agencies are Experian, Equifax, TransUnion. You go to the websites, you sign up, you freeze it. It'll take you 15-20 minutes total to do it. Then if you ever need to unfreeze it, it can be unfrozen and is little as an hour if you just do it on the website or you. Dave Hatter: It's pretty trivial compared to the protection you get as a result. Robert Brokamp: Another recommendation is to initiate a fraud alert with the credit bureaus maybe while you're there on the website. Dave Hatter: While this will make it a little more painful potentially once you've done this, especially if your data has shown up in one of these breaches to your point Bro. Just go in there. While you're freezing your credit, initiate a fraud alert. It'll stay for a year. It'll roll across all three credit unions. It just makes it that much more difficult for the bad guys who are trying to impersonate you and open credit in your name for them to take that action. Again, it's fairly easy to do. Once it's in place, you're going to be a much more difficult target. That's really the thing folks need to get in their head. Yes, I know, I said this before. I'm too small. I don't have anything worth stealing. Why would someone target me? Your money is worth stealing. Sometimes the way they get to that is through identity theft. Thankfully, while I've never been the victim of identity theft. I know several people that have, and I can tell you it can be extremely traumatic, painful, and time consuming, and costly to unwind identity theft. By doing these simple things, again, you're going to make yourself a much more difficult target, and in most cases, they're just going to move on to the software targets who aren't implementing these protections. Robert Brokamp: Another type of information that people can get is maybe your credit card information, or your bank account information, so you suggest that people should stay alert and monitor their financial accounts for unusual activity. Dave Hatter: This is good advice in general as well, because a lot of times if they do get their hands on that, they'll run a couple of small transactions to see if you're paying attention and then if those go through, they'll swing for the fences. If though you get that data notification letter, then you should be on heightened alert. You should be extremely vigilant, you should monitor your accounts, and hopefully you're going to do some of the other things we're about to talk about here. But once you've shown up in one of these breaches, whether it's this breach or the recent AT&T data breach or any of the others. Again, I've gotten several letters from different organizations over the last three or four years telling me my data has been stolen. Once you get one of those, you should be on heightened alert because there's no guarantee they're going to target you. But if there is a guarantee, they have information that would make it easy for them to target you, whether it's identity theft or trying to get into your bank accounts or some other sort of impersonation where they're going to attempt to social engineer you into doing something and steal your money. Robert Brokamp: People have likely seen commercials for identity theft monitoring services, what do you think of those? Dave Hatter: Well, in general, I've had a lot of people push back when I say, I think this is a good idea. If you're super disciplined and you have a lot of time on your hands, can you monitor all of your accounts and look for fraudulent activity and so forth? You can. You can't do it at scale, like their advanced AI platforms can, but you can do some of these things on your own. The big benefit though of identity theft monitoring companies. In my opinion is A, they can operate at scale that no human being can. None of it's perfect, none of it's a guarantee, you're going to be protected. But B, in most cases, as part of your subscription to their service, they have experts and attorneys who can help you. Once you are the victim of identity theft, again, speaking from people I know that this has happened to, it was extremely difficult for them to recover from that. Very costly, very painful. They have PTSD afterwards because it can be so hard to undo the damage that's been done. Again, if you're staying vigilant, if you're freezing your credit, if you have some of identity theft monitoring service and they detect that, hopefully, they're going to be able to stop it very quickly and then even if they can, you can rely on their attorneys for advice and guidance on what to do next to try to recover from that with the least amount of pain. In my opinion, it's worth it, but even more importantly, in so many of these cases, once these data breach notification letters go out, that's why it's so important to read it. They're going to offer a year or two years of free identity theft monitoring. It's absolutely crazy not to sign up for that free service and take advantage of it and let them do their thing. Again, you're trying to build defense in depth, multiple layers of protection so that, ultimately, if they don't get stopped at one level, they get stopped at the next level and then if there is a successful attack of some sort, you've got experts there that can help you try to recover. Ricky Mulvey: As always, people on the program may have interests in the stocks they talked about and the Motley Fool may have formal recommendations for or against so buyer sell anything based solely on what you hear. I'm Ricky Mulvey, thanks for listening. We'll be back tomorrow.

Are Activists Helping Southwest Investors? | The Motley Fool

The airline is keeping its CEO, but losing a large chunk of its board. In the fight with Elliott Management, who's winning? In this podcast, Motley Fool analyst Bill Mann and host Mary Long discuss: Then, Motley Fool personal finance expert Robert Brokamp continues a two-part interview with Dave Hatter, a cybersecurity consultant at Intrust IT, about how to protect your personal data after a security breach. To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our beginner's guide to investing in stocks. A full transcript follows the video. This video was recorded on Sept. 11, 2024. Mary Long: There was more than one debate yesterday. You're listening to Motley Fool Money. I'm Mary Long, joined today by Bill Mann. Bill, pleasure to have you. Thank you for being here. Mary Long: I am so glad to hear that. Yesterday, big event in American News. We had a presidential debate between Donald Trump and Kamala Harris. Thankfully, it is not our job to debrief that, but I did want to nod to that event and maybe hit on an interesting policy proposal that I've caught whispers about recently and I figured you would have some takes on. Democrats and Republicans alike have recently indicated interest in setting up a sovereign wealth fund in the US. Trump mentioned this at an event not so long ago and Biden shortly thereafter, said we've been thinking about setting something similar up. These investment vehicles are already pretty popular in Asia, the Middle East, Norway has one. Why don't we currently have one here? Bill Mann: What are the current countries that have sovereign wealth funds have in common? Mary Long: They're small. Bill Mann: It's close. They have trade surpluses. Which the US as the owner of the reserve currency for the globe does not have and will not have. This is a crazy idea. First of all, in the US, we have about $5 trillion already in public pension funds, which is like a sovereign wealth fund. It's very much the same vehicle, but we don't have sovereign wealth in this country. The reason that countries have sovereign wealth funds, is that if all of the money that they make from having a structural or procedural trade surplus state in their country, it would cause rampant inflation. The sovereign wealth fund is a way to relief pressure for inflation within these countries. We don't have this problem in the US. We have the US dollar, which is in some ways, the greatest sovereign wealth fund you could possibly have, being the reserve currency, being able to value our debt in our own currency. No, it's a terrible idea because the way that we would be funding a sovereign wealth fund would be from the general fund and the general budget of the US. It's not a good idea. We do not have sovereign wealth in the United States. I'm not here to take questions at this time. Mary Long: If it's such a bad idea, then why is there this sudden discussion about it and not just discussion, but seeming agreement, especially when agreement is so often so rare between the two parties? Bill Mann: Well, let me ask you a question. Do you think that government officials would like to have control over more or less money? Mary Long: I'm going to go with more. Bill Mann: As always we've already heard proposals to tax unrealized gains. It's a way to manage another part of the economy and similar to what's happened with our pension funds everywhere. They are generally and widely underfunded. There are obligations attached to them and they actually come from state and local budgets. We don't have any real evidence that we're good at this, which doesn't mean that the government won't try and try again. Mary Long: Also yesterday we had a very different debate played out. This one happened at the New York Office of activist Firm and Hedge Fund Elliott Management. Elliott took a stake in Southwest Airlines earlier this summer. Yesterday, Southwest Executive Chairman Gary Kelly went to go have a little chat with those activists. The result of that chat is that Kelly and six other members of the Southwest Board are out, but CEO Bob Jordan stays in. What's the scorecard here? Is keeping his job a win for Jordan? Is it a win for Southwest shareholders? Is Elliott happy about the outcome? What's the scorecard look like? Bill Mann: Well, to the extent that this was a hostile conversation, you would have to say that the Southwest management team lost entirely. To give up six board seats to an activist investor who came in earlier in the year and has something on the order of 10% of the shares outstanding. This is Elliott Management's style. It is full score a win for them. I guess it's good for Jordan to keep his role. Gary Kelly basically posed that when he came on to be the executive chairman, it was a temporary role for him. I guess it's true for everyone but really specifically, that he was not going to remain in the seat for an extended period of time. Perhaps that's true. Perhaps it's not. In some ways, I think that this is a way for them to be able to say, hey, we have agreed to listen to you. Mary Long: We talk so often about the power of the CEO, even Brian Niccol heading over to Starbucks. He's going to change things. But this is a reminder that there's a whole board behind and beside that one person. As this Elliott Southwest situation continues, how much attention should investors be paying to whichever new candidates ultimately join the board and are forwarded by Elliott? Bill Mann: It's an open secret that the boards for most companies are generally speaking identified as candidates by the CEO or the management team. In this case, Bob Jordan has not identified any of these new six candidates. It will probably be a little bit more of an adversarial relationship or more of an arm's length relationship. To the extent that Southwest Airlines has been poorly run over the last couple of years. I think that that adversarial relationship has the potential to yield some real gains and some improvements for this company. As you know, Southwest Airlines has been one of the great success stories in American industry over the last half century. But they've had a tough decade as other airlines have moved into generating much more revenues from ancillary services that Southwest's existing management team has been resistant to go down the path of. Mary Long: Kelly shared a letter with the shareholders after this meeting and one of the things that he really hit on was that Southwest history, Elliott wants Southwest to be more like, say, Delta. But Kelly points out in this letter that every major airline in existence in 1986, other than Southwest, either is gone entirely or has gone bankrupt at some point. That includes Delta. I read that and I think that's an interesting history lesson. But what does that history mean for Southwest today? Bill Mann: It really is a funny example because I think Delta by this point has gone Chapter 33, which is Chapter 11 three times. To suggest that you want the one successful airline from that period of time to go and be more like them, it's a little bit of a strange shout. But really, post 911 and post COVID, the airline industry is very different than it used to be. The other airlines are making a huge amount of money off of airline lounges, off of other types of services that Southwest at this point, as a discount airline doesn't offer. There is something to be said to perhaps, at this point, recognizing the fact that travelers demand something different than Southwest Airlines provides across the board now and to give a little bit more choice. Mary Long: I'm glad you brought up lounges because I feel like so often when we talk about this Elliott Southwest story and how Southwest compares to other major airlines in the US, we talk about their seating structure. Their two free bags. All the stuff and oftentimes lounges get left out of the conversation. But many competitors that are similar to Southwest in stature have shelled out money to build really fancy lounges that holders of airline credit cards get access to. It's the cards themselves that generate profit not the lounge, but is that something that Southwest should perhaps explore with this new team? Bill Mann: I think that probably Southwest has under invested in its loyalty programs across the board and airline lounges and credit card programs are definitely a big part of that. The nice thing about teaming with a credit card company is that the credit card company and the banks that bank them tend to help with these types of capital investments. If you can create a much more of a return experience for customers, it makes Southwest Airlines that much more valuable as a partner brand. Mary Long: That said, I will admit I have coveted the Southwest Companion pass since I knew that it existed. That feels like I do not have access to that loyalty perk, but that is something that I have long desired. Bill, Southwest lost some board members, Campbell's lost soup or a part of their name. The company, which was founded in 1869 announced yesterday that it would be proposing a name change to its shareholders, the name change is pretty simple. The company wants to go from being the Campbell Soup company to simply The Campbell's Company. What's in a name, Bill? Why does Campbell's want to ditch the word soup? Bill Mann: It hurts a little bit, doesn't it? Mary Long: It does. It's like the end of an era. But perhaps the start of a growth story. Bill Mann: Perhaps. Well, so Campbell Soup company has been somewhat misnamed for a long time because they own Pepperidge Farm, they own Snyders. They own Cape Cod chips. They own Rao's. It's a lot of different companies and a lot of different brands that aren't soup-based. It's a reasonable thing for them to do. It still does feel like, recently here, they decided to drop the corner in Tyson's corner and it's just Tyson's. I'm hostile about this. Maybe I'm a bit of a traditionalist, but I think that there are traditions that you should hold onto. Mary Long: Was Tyson's Corner ever a corner? I agree with the name. It's sad to me to lose that, but I think that corner? Bill Mann: They cut corners. [laughs] I'm sorry. That was a little bit of a digression. Campbells. It is OK, I think for companies like Clorox, for example, own Hidden Valley Ranch. You can be the name of the company that was the founding company and it is the aggregator. But I think in the case of Campbell soup, they're viewing the soup part as being a little old school and you mentioned earlier that they are talking about a growth strategy. What seems less growthy than soup? Mary Long: Well, to that point, another reveal from yesterday's meeting was this long term growth algorithm that targets growing net sales 2-3%. That doesn't feel very growthy to me. Bill Mann: Well, let's focus on the other part of that descriptor,. How long term. If you grow 3% for a long time, I think that's going to work out really well. What they're talking about is sales growth and they believe that they have areas where they can generate some efficiencies and so on an earnings per share basis, they can earn 7-9% per year. Again, if you offer me 9% growth in earnings per share over the long term and define the long term as long enough, that is a winning strategy. Mary Long: It's not quite the pivot that Facebook made when they changed their name to Meta, but it is perhaps the sign of something new for Campbells. Bill, thanks so much for joining me today and for sharing your insights on this variety of topics. Mary Long: Before we move on to today's next segment a PSA to Fools in Denver. We've got a live event coming up next week. We're teaming up with our friends at bigger pockets for a conversation about Airbnb as a stock and from the side of real estate investors. We're going to have time for networking and Q&A both before and after recording the live show. The Events at 6:00 P.M. Next Wednesday, September 18th at the Denver Press Club. Tickets are 27 bucks and they include a drink. I'll put a link to registration in the show notes. Hope to see you there. Up next. My colleague, Robert Brokamp continues yesterday's conversation with Dave Hatter. A cybersecurity consultant at Intrust IT about keeping your information safe in the wake of a massive Social Security data breach. Robert Brokamp: You've already touched on changing your password, making that hard to figure out. You mentioned using a password manager. What do you say to people who are nervous about having a password manager where there's just one password and they have access to all your other passwords? Dave Hatter: That's a good question. I'll tell you, again, 30 plus years in the business, the last seven or eight focused exclusively on cybersecurity. I use a password manager. The reason why and there are several reasons why. First off, my password manager, I use one password, I recommend one password, but there are plenty of good ones out there. Again, you can use sites like Consumer Reports, ZDNet, CNET, Tom's Guide to research them. If you find a password manager makes the top five list across multiple places like that, well that's going to be a good choice. I'll come back to one password in a minute, but the bottom line is, if the password manager uses the right technology and then assuming you have a very strong, unique password on your password manager and you use multi factor authentication, aka two-step verification or two-factor authentication, you will be a very difficult target. I can tell you, my password managers master password is a 30 character phrase good luck guessing. There's no way and it's basically uncrackable. That coupled with MFA, I can tell you, makes me a lot more secure than using the same password on multiple accounts or trying to write them down on a piece of paper, plus, it works on my IOS phone, it works on my Android tablet, it works on my PC. Wherever I am, I have access to my passwords all the time. Why it's especially relevant here is once you get through the initial friction of using one of these things, it makes it really easy to change your passwords. I don't know what any of my passwords are. I don't know what my bank account password is. I don't know what my health insurance account password is. I don't know what my Linkedin in password is. They're all literally the longest random password that they will accept. I go into my password manager, I say generate password, it syncs it up with that site, I change it. I'm done. The reason why it's especially relevant here other than just generally good advice. Is if you need to change all of your passwords because you're in a data breach like this, or you've been hacked and you know there's hackers attempting to do some nefarious deed to you. You can go into your password manager, go to a site, say, change password, generate a password, save it and you're done, rather than, well, how do I come up with the right pattern and where do I write this down? Again, there's going to be some initial friction. It was very frustrating when I started using one of these at first, but now I would never want to go back. But to your point, though, you need to have the right technologies. The one reason I like master or one password rather, is it has some additional secret key that you have to have. It uses zero knowledge encryption. Less or one password does not know my passwords. The passwords get created, they get encrypted, they get sync to their servers. They don't know any of my passwords. If you look into their technology and there are other good ones out there again. It's not the only good one. But the way it's constructed and configured, if you do it right, you're going to be way more secure than if you don't have a password manager. However, to your point, you must have a strong unique password for your password manager, and you must turn on multi factor authentication. At that point, again you're going to be substantially more secure than the average person, and you will be in a position to much more easily deal with the advice to change your password. Robert Brokamp: Many of us have multiple accounts, maybe even multiple apps on our phones that we no longer look at, we no longer use. You think if you're not using an app or an account, you should just delete it? Dave Hatter: Yeah. In general, let's be real here. I know this is going to come as a shocker to you bro, but believe it or not, software engineers, which is what I did for most of my career, they like to eat too. They also have mortgages, they have car payments, etc. Believe it or not, they are not building these web-based platforms and mobile apps out of the goodness of their heart. I know that's a shocker to people. But that is the deal. They got to get paid somehow. When you're not paying with money, you're paying with data, you are the product, not the customer. I'm not saying that's especially nefarious, but understand the trade off. When you download some great new app to your phone and you use it for free, they're collecting your data. I always like to encourage people before you download any app, especially if it happens to be an app like Tamu or TikTok or anything controlled by a Chinese company, you should check out the privacy settings and you should check out the privacy label. Apple and their App Store has a privacy label. [Alphabet] Google now has something similar. Apple requires you to tell people what data you're going to collect before you can distribute an app through their App Store. I challenge people, go look at the TikTok privacy label and it's basically collecting everything off your phone, everything. Why does it need all of that for you to share videos of cats dancing or whatever? The answer is it doesn't. So my more specific point is, these apps are designed to collect enormous amounts of data. That's how they make money. By installing an app and then forgetting it's there, it just basically keeps collecting data forever. I'm not saying if you find value in an app and you understand the trade off and you want to use it, OK, but then at least it's an informed consent thing. In general, delete accounts you don't need anymore, delete apps you don't use anymore. It's just one less way for data to leak out that could be breached somewhere down the road. I'll be honest with you on my Apple phone, I have about seven apps that I've installed that weren't on the phone when I got it from Apple. Now, again, I'm a 10-forward hat guy. This is what I do for a living. I know how this stuff works, but I am trying to limit my digital footprint as much as possible, but still be able to engage and exist in an increasingly digital society. Robert Brokamp: People often get scammed because their identity has been stolen. Another way that people get scammed is that they are contacted by people with false identities. Here we're talking about phishing through emails, smishing through text or vishing through voice mails, where someone says they are your bank or the IRS or your brokerage and they try to get you to give them information of some kind or another. This is a huge problem, isn't it? Dave Hatter: It's a huge problem and these data breaches make it worse. I would throw in, in the old days, folks like me would give you all the red flags you needed to look out for, the grammar is bad, the English is bad, the punctuation just doesn't make sense. Well, now, thanks to these large data breaches. Especially in a data breach like this, where I might know every place you've ever worked. Because this was a background check company. They have a lot of data about you. Every place you've ever worked, would it be easy for me and now throw in something like ChatGPT or Grok and generative AI tool to generate English that sounds perfect or possibly even use a voice cloning tool. I now have all this information about you. Can I pretend to be your bank? Can I pretend to be some previous employer? Can I pretend to be the local sheriff and use all of this information to craft a very compelling email, voice mail or text to you that says some terrible thing is about to happen if you don't do X? Yes. That's the double-edged sword of these data breaches. It's not just that I have enough information to pretend to be you to set up an account in your name, or I have certain sensitive information that might allow me to log into one or more of your accounts. It's I have all of this data that allows me to craft a narrative and to use spoofing, because it's easy to send an email from any email address, and it's easy to make a phone call from any number. To come at you in a way where I seem to be very legitimate. I seem to know information that only the party I claim to be would know. That just makes it that much easier for you to fall down the trap and into a rabbit hole of some nefarious deed. Yes. These data breaches are so bad and sadly, they keep happening because, again, there's very little penalty, frankly for the organizations that aren't doing the right things to protect your data. This is one of the reasons why you should be extra vigilant, even if some you get a phone call. You get a text message, you get an email that seems to be super realistic and they seem to have information that only that organization would know. You need to stop. Take a breath and do what we nerds like to say is go out of band. Don't call that number back. Don't click their links. Don't use the email addresses they sent you. If it's some organization you worked with before, get a bank statement, go to their website. You initiate the next step. Do not use any of the information they sent because any part of it could be fake. Even the phone numbers might be pointing to some boiler room in India. Where it's a room full of scammers waiting for your call. I hate to be the bad news guy, but this stuff is all real and unless you are very vigilant and understand the risks, it's easy to fall prey to this, sadly. Robert Brokamp: It is real. It happens all the time. Finally, if you are a victim of identity theft or some other scam, what should you do? Dave Hatter: Well, if it's in your bank accounts or something, my advice would be the very first thing you should do is call your bank. If you see any unusual financial transactions, immediately stop what you're doing, call your bank, attempt to get them to stop that because in most cases, if you move quickly, you can either block an attack or recover your money. If you don't discover something for 30 days, 60 days, 90 days, in most cases, it's over. That would be my first thing is immediately call your bank or your financial institution, tell them there's fraud, try to get them to stop it. Then the next thing I would suggest that you do would be go ahead and report it. The FBI has a website called the Internet crime Complaint Center (IC3)(.gov). You can report it there and then the FTC has a couple of different sites. For example, they have an identity theft specific site where you can report it. Now, let's be real here, Bro. The FBI is not going to come and get involved because you had $500 stolen out of your bank account. That's not going to happen. In larger cases of fraud, $500,000 stolen from a business or something they will often engage in that. But by reporting these things, especially if it's some new novel thing they haven't seen before, you're basically doing a solid for the rest of society because then they can use that information to start warning about it through their channels, through their X feed and their Facebook pages and through their emails and so forth. When you report these things, you're not only creating documentation that can help you potentially in the event that you need an insurance claim or there is some law enforcement activity that's going to be needed at some point, but you're just helping raise awareness about the rest of society. Then again, back to Freezer credit, initiate a fraud alert, anything you can do to lock yourself down. Start changing your passwords, turn on MFA, will go a long way toward any further attacks, because in many cases, if you get hit once and then you don't take any of these actions, the bad guys will sell your information to other bad guys who will then come after you as well. I know this is bad news for folks, I always said before, I hate to be the bearer of bad news, but just a strong dose of education and awareness and then taking these things to heart and doing these simple things will make you a much more difficult target. Mary Long: Before we wrap up today's show, I want to take a moment to acknowledge that today is the 23rd anniversary of 9/11. September 11, 2001 was a day that sent shock waves around the world and massively altered how we live and think today, even though it's nearly a quarter of a century later. Time has obviously passed, but the memory of that event is still strong and it's still heavy. We continue to mourn the lives of those lost on that day over two decades ago. We didn't record it, but after today's show, we all, Bill, producer Ricky Movie, our engineer Tim Sparks, and myself. We all took a moment to talk about where we were on September 11 and how that day has continued to stay with us and to impact us each since. Wherever you were, however, that day affected your own life or your own worldview, I encourage you to take a moment today and reflect on 9/11, that moment in history and to think about those who are no longer with us. If you are looking to engage in more of a conversation about this, Bill and a few other Fools did talk about it on today's episode of the Morning Show. Which Motley Fool members can watch at live.fool.Com. Thanks for listening Fools. Today and always, we appreciate you. As always, people on the program may have interest in the stocks they talk about. The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Mary Long. Thanks for listening. See you tomorrow Fools.