Ricky Mulvey (7:00)

All right, I just got back from getting a cup of coffee so I hope it's too much. Yeah, you missed nothing of consequence for those keeping track. I do believe that the under eight minutes for the Nortel reference did hit on on the gillies rant about where we're at.

Jim Gillies (7:14)

I hope the payout worked for everybody.

Ricky Mulvey (7:16)

How about a little chaser? We've just had this froth to get you all fired up and there's nothing if you're having trouble, honestly if you're having trouble sleeping at night, maybe you need a little bit of, you want to relax, you listen to some Home Depot earnings. There is something that happened that's somewhat, I think, significant for the company and that's that comparable sales turned positive the first time in eight quarters. I don't know that, that seems like a big deal, right, Jim?

Alice Southwick (7:42)

It does, yeah.

Jim Gillies (7:44)

Sounds pretty good to me. Yeah, it's, it's, it's good.

Ricky Mulvey (7:47)

You really mix it up, man. You just did like a, you did like a 7 minute answer to one question. Then I set you up with an earnings question. You're like, hey, all right, keep moving.

Jim Gillies (7:55)

I could talk Home Depot earnings if you want, no problem.

Ricky Mulvey (7:57)

Well, let's. How about the cash flow story with this company?

Alice Southwick (8:00)

Sure.

Ricky Mulvey (8:00)

Because I'm, when I'm looking at the earnings and I'm a Home Depot shareholder, you know, and you've told the story on the show before. What a magnificent cash flow story because even though they're not grow sales like, like kooky, they're cutting their share count, they're boosting their dividend and that's going to reward the long term shareholders. But now when we're looking back on the past year, seems like maybe that's not happening in the future. Home Depot reduced its share count. Yeah, it was by like 1% over the past year. Dividends up 2.2%. So if you're holding onto the stock, you get about a, a little over a 2% dividend payout. I mean, the longer chart, if you look at how they've increased their, their earnings per share, that's rosier. That's rosier. That's good for the long term shareholders. But when I look at what's going on this year. I don't know. I don't know, Jim. It seems like that that thesis might not be what it was.

Jim Gillies (8:51)

That's very possible. Yeah. The, the story might be fraying. I think it's intact for now, but, and I think there's a very good reason why 2024 is kind of a, a step back from really the, the cash cow policy they seem to have had since emerging from the global financial crisis. So like from about February or March of 2009, so we're past the global financial crisis. They have aggressively bought back shares. They've aggressively increased their dividend. Dividend's gone from 90 cents a quarter. Sorry, 90 cents a year to $9.20 a year. So it's up 15.6% annualized since 2000. You know, and new store openings are way down. So that has been the cash flow story and it's been a really great cash flow story. Like if you were a buyer in March of 2009, you're getting your cost basis back now at this point, every two years, just from the dividend alone. Oh, and the share count, the share price has gone from like 20 bucks to almost 400 bucks. So it's been a fantastic story. But you are correct. Last year it looks like the cash flow story got a little bit derailed. And that is can be almost chalked up to one thing and that is the acquisition of SRS back in March of 2024. SRS is a residential specialty trade distribution company serving guys like roofers, landscapers, pool contractors, among others. That acquisition cost about $17.6 billion of cash plus a minor amount of stock, which is why the stocks, the shares outstanding only went down by about 1% last year because they added a bit more for this deal and that basically covered took all of the cash flow. The free cash from last year kind of went to this acquisition. So I think that's why they really cut back on their share buybacks. They really cut back. You already mentioned the dividend has only been hiked by 2% this year. Just over 2. If we see them course correct this year, they flip back to, okay, we made that acquisition. We're now going to take our cash flow, maybe pay down the debt that was associated with that acquisition. Or as I like to say, you know, all the cash flow they generated made the acquisition happen. So the dividend last year got funded by debt. Let's pay that debt off, shall we? Or at least get course correct a little bit. If they go back to that and this kind of back to what they were doing from 2009 through to 2023, I'm going to say the cash flow, the cash cow story is intact. However, if we start seeing them make other acquisitions and going for other growth that's non traditional, not new stores and kind of maybe diversifying a little bit to steal from Peter Lynch. At that point, maybe it makes more sense to own Home Depot as part of a diversified index strategy rather than owning an individ. So I will, I will agree with you. The cash cow story looks like it hits pause. I want to see them hit the unpause button for, for 2025 going forward.

Ricky Mulvey (11:46)

Fair enough. When I look at a company like Home Depot, which I already mentioned I own, that's, that's one where you better really be doing something special for me to pay attention to that versus like the SCHD Schwab dividend fund where I don't have to do any work and I can collect a healthy dividend and I don't have listen to an earnings call about how they are growing their pro wallet share through a unique system of capabilities, building new stores and creating the best interconnected shopping experience. Jim.

Jim Gillies (12:15)

Huh.

Ricky Mulvey (12:16)

Let's go to Celsius as we as we wrap up. This is one that the the stock chart. Speaking of wacky stock charts, let's see if you're on the Celsius bandwagon. So last week the company reported and the surface level results not so good. The guarana seed extract rush, not a sugar rush, they're sugar free. Seems to be stalling out. Sales are up just 3% over the past year. And this is a stock that traded for 36 times sales at one point. You can't do that and maintain that multiple. But the shareholders got a glimmer of hope. As Alani knew, this acquisition came down a female focused energy drink brand which Celsius bought up for $1.8 billion. Hey, maybe that's enough to restart growth. I mean today the stock is getting sold off again, but I mean this is definitely, this has fallen from COVID highs. I wanted to check in on it with you. Let's talk about the purchase first. Should I be excited as a Celsius shareholder about this Alani new acquisition?

Jim Gillies (13:11)

Probably not.

Ricky Mulvey (13:12)

Cool.

Jim Gillies (13:14)

I'm not sure what a female focused energy drink brand is. I've never really gendered my beverages. But maybe I should.

Ricky Mulvey (13:19)

Marketing.

Jim Gillies (13:20)

Yeah. Monster is for boys.

Ricky Mulvey (13:22)

They do motocross and ufc.

Jim Gillies (13:24)

Oh, okay. Sure. Okay. Look, I've never seen a Lonnie new product but if, you know, if it tastes good, I'll drink it. My first inclination. I saw this, this, this deal last week. Even though the stock did react very happily to it. It's given it all back now. But I had a. This is what buying growth looks like that can work out. There's. There's lots of companies that do roll up strategies and over time, you know, prudent roll ups can, can work out very very well. I'm not sure this one qualifies though. And I was kind of wondering like they're claiming they're paying 2.8 times revenue for a new and 12 times on expected adjusted EBITDA with all of the synergies just assumed to have rolled in, which I find optimistic. I wish them well. But I do find it optimistic. They did pay some of the purchase price in in New Equity. The sellers of Aulani New are getting roughly the same percentage of ownership that Pepsi did when they invested. Signing a distribution deal with Celsius in 2022. That's when Celsius really caught fire because everyone said oh look, Pepsi. And I think correctly speculated that Pepsi at one point down the line will probably be an owner of Celsius, But I think they'll only be that owner of Celsius at a price that makes sense. And distribution definitely hit a wall last year inventory wise. I think Pepsi may have overestimated demand. I know that didn't used to see a lot of Celsius in my neck of the woods. Always be careful. That's more anecdoted than anything else. But didn't used to see a lot of Celsius frankly at all. I now see it everywhere. My kids who probably drink more energy drinks than I would approve of, but I don't know about it officially they have kind of what limited Celsius consumption they have is now kind of it's yesterday's drink, I'll put it that way. At least to them again it's only a couple of teenagers, early 20s, something. So maybe don't, don't, don't, don't do.

Ricky Mulvey (15:23)

A lot of data, man.

Alice Southwick (15:24)

All right.

Jim Gillies (15:25)

Yeah, I've just, I'm just looking at it. But look, you know, Celsius has no acquisition history to speak of. Okay. So acquisition and intelligent integration doesn't mean they can't do it, just means they don't have any experience doing it. And again, I'm having trouble shaking the notion that this was buying growth in the wake of a rapid slowdown in the growth of their core business. Now I will fully admit I have a bit of a side hobby and I like to find Covid era fallen angels stocks that just get, that have real products. Which Celsius does that have gotten just waffled because they were at ridiculous valuations during the COVID era.

Ricky Mulvey (16:05)

Can I, can I give you two scenarios now?

Jim Gillies (16:08)

Sure.

Ricky Mulvey (16:09)

Okay, so the two scenarios you mentioned, the fallen angel status and going forward. I see. I. There's multiple scenarios. These are two that I think are both honestly seem kind of likely. And we'll see which one you're buying for your, your Covid fallen angel hobby number one is that we have a category that's intensely difficult and also maybe declining a little bit in energy drinks. You're not health conscious. Consumers are not just all running to energy drinks. And you know, Celsius just overpaid for an acquisition but that won't restart its growth story. So that's scenario one and then scenario two, which also I think is somewhat reasonable is that here's an energy drink company that had some hiccups with distribution and inventory is it got integrated into PepsiCo, but now it's much closer to a Coca Cola earnings multiple which is very mature, very little growth ahead. And investors are far too pessimistic about its category leading products which it now kind of has in the sugar free space. Okay, back to your Covid hobby or your Covid fallen angel hobby.

Jim Gillies (17:09)

I, I think it's probably closer to the second one which I think is actually what you probably want. I think Celsius is, I don't think their products are going away. I think they have value. I think there's real value there. It just might be real value that's lower than the current market cap or enterprise value. And that's the problem is that you want to, you want to assess like I like my stocks with a lot of pessimism built in. Like if I can come in when just everyone else has just sold them off, I'm, I'm happy and maybe slightly pathological that way. But you know, if you can, if you can turn something that everyone else has lost faith in, you can get a multi bagger before other people notice, like a two and threefold. And you know, I'll give you a couple of examples now if I told you Peloton has tripled off of its bottom since, which I think was last summer. A lot of people go for yeah, but Peloton is still garbage. Yeah, but you know, I wasn't buying at you know, the 160. I was buying in the you know, 5 and 6 range and bottomed at 3. There's a company that's now been taken out called Nouve which was a Canadian pay processors traded in both US and Canada. I think it topped out at 160 and it just got taken out at 45, I believe 44. Now if you were a buyer at 160, that really sucks for you. We're a buyer like hidden gems Canada members at you know, 23, it's less sucky for you. And so you know, I kind of looking at a bunch of fallen angels from the COVID era, Celsius included, you know, as to whether, you know, once all the excitement is been drained away, is there a real business here with real cash flows that is real value for shareholders and can we buy it on the cheap? So I'M watching Celsius. I'm just not yet ready to declare it. Time to jump into that particular.

Alice Southwick (18:59)

On.

Ricky Mulvey (18:59)

The watch list, not quite on the buying list. Jim Gillies, appreciate you being here. Thank you for your time, your insight.

Jim Gillies (19:04)

Thank you, Ricky.

Robert Brokamp (19:07)

Schwab Trading is now powered by Ameritrade to give you a new elevated trading experience tailor made for trader minds. Go deeper with thinkorswim, the powerful award winning trading platforms now at Schwab. Unlock support from the Trade Desk, our team of passionate traders who live and breathe trading like you do and sharpen your skills with an expanding library of online education crafted just for traders, all designed to help you trade brilliantly. Learn more@schwab.com trading.

Ricky Mulvey (19:43)

All right, up next, Alice Southwick and Robert Brokamp offer up some estate planning lessons from Warren Buffett that you can take with you even if you're not a multi billionaire.

Warren Buffett (19:59)

Warren Buffett took control of Berkshire Hathaway stock in 1965 and has since become one of the wealthiest people in the world and enriched millions of shareholders along the way. But you didn't need to be an owner of the stock at any time between then and now to benefit from Buffett's avuncular wisdom. Fun fact, looked it up ahead of time and the feminine version of avuncular is material. Am I saying it wrong? I'm sure you'll let me know. Over the decades, through his letters to shareholders and in interviews, Buffett has shared countless financial and life lessons. This includes how he wants his enormous fortune to be dispersed after his life comes to an end.

Alice Southwick (20:38)

Yeah. In a letter published last November, Buffett, who is 94 years old, wrote about continuing a practice that he began in 2006, and that is donating some of his Berkshire shares to charitable foundations operated by his children. And those donations, as well as annual share transfers to the Gates foundation, have reduced the number of shares he owns by 57%. Yet Buffett is still worth approximately $150 billion. And he regularly explains what will happen to all those billions when he passes away.

Warren Buffett (21:07)

Now, fortunately, you don't have to be a billionaire to take some tips from Buffett's estate plan. Here are several to consider, starting with Everyone buckle up now because this one's going to blow you away. Actually have an estate plan. Sounds so simple, but it's so hard.

Alice Southwick (21:24)

It is. So in his November letter, Buffett wrote, quote, father time always wins. To date, I've been very lucky, but before long, he will get around to me and indeed, he's going to get around to all of us. But despite the fact that we're all going to die, sorry to let you know about that. Most Americans actually haven't done any estate planning. That's According to the 2025 Wills and Estate Planning Study from caring.com, only 24% of Americans a will, according to the study, which is actually down from 33% in 2022. And for most people, a will isn't enough. You should have a much more comprehensive estate plan, and that should include updated beneficiary designations on things like your retirement accounts, insurance policies, powers of attorney, advanced healthcare directives, maybe a trust, and a letter that explains where to find all your important documents, accounts, and assets if something happens to you.

Warren Buffett (22:12)

All right, so once you've done the thing that apparently everyone hates to do, you're going to actually need to revisit it and regular update your estate plan.

Alice Southwick (22:21)

Yeah. Buffett revises his plan every few years. So, for example, he's written that he and his first wife, Susie, assumed that actually he would die first, which would then leave Susie to watch over the distribution of his estate. But then, after Susie died in 2004, Buffett had to change his plans, leading to his decision to donate shares every year beginning in 2006. And that was also the year he married his second wife, Astrid. Another notable change in Buffett's estate plan was that in a 2006 letter, Buffett indicated that the Gates foundation would receive a bequest of more Berkshire shares when he passed passed away. But he stepped down as a trustee of the foundation in 2021, and in an interview last June, told the Wall Street Journal that donations to the Gates foundation will cease upon his death. So, you know, life happens, right? People move into and out of your life due to birth, death, marriage, divorce, estrangement. People move to different states, which could invalidate parts of an estate plan, especially advanced healthcare directives. What you own and how much will also change. So, you know, be like Buffett. Update your estate plan every few years to account for any changes in your, your address, your family, or your assessment of who should get what.

Warren Buffett (23:27)

All right, so the next way you can be like Buffett is. And because you're listening to this podcast, I assume you probably own some amount of stock. And the good news is you can donate and bequeath appreciated stock just like Buffett.

Alice Southwick (23:41)

That's right. By donating Berkshire Hathaway stock, Warren Buffett avoids having to pay capital gains on those shares. Also, if he itemizes deductions on his tax return, Which I assume he does, Buffett can deduct the fair market value of the donation up to 11 it. On top of that, any shares of stock that his kids or other heirs will inherit is going to get a stepped up cost basis to the value of the stock as of the date of Buffett's death. And they're not going to have to pay taxes on the huge capital gains embedded in those shares.

Warren Buffett (24:10)

All right, the next thing you're going to want to do is consider your heir's ability to manage an inheritance, because let's be honest, some of your kids are better with money than others or.

Alice Southwick (24:19)

They just might not be old enough.

Jim Gillies (24:20)

Right.

Alice Southwick (24:20)

So in a 2023 letter announcing that year's donations of Berkshire stock, Buffett wrote, quot three children are the executors of my current will as well as the named trustees of the charitable trust that will receive 99% plus of my wealth pursuant to the provisions of the will. They were not fully prepared for this awesome responsibility in 2006, but they are now. So the lesson here is if your heirs will not be capable of responsibly managing the money or responsibilities they will inherit, it could be due to age, maybe suboptimal financial habits, or maybe they're in a problematic marriage and you're worried about the poor judgment of your kid in law, then it makes sense to put others in charge until beneficiaries are ready.

Warren Buffett (25:00)

Babies are so dumb with money. So maybe you might want to be like Buffett and use trust to have a say in how your bequests are handled.

Alice Southwick (25:09)

Yeah. One way to maintain control of your money from beyond the grave is through a trust. So the money is going to be managed and dispersed according to the terms you write into the trust. And it's going to be managed by whomever you name as the trustee. If you have an heir or few who are not particularly savvy about investments, you could dictate how the assets are allocated. And it actually doesn't have to be very complicated. In his 2013 annual letter, Buffett wrote, One bequest provides that cash will be delivered to a trustee for my wife's benefit. My advice to the trustee could not be more simple. Put 10% of the cash in short term government bonds and 90% in a very low cost S&P 500 index fund. I suggest Vanguards. I believe that the trust's long term results from this policy will be superior to those attained by most investors, whether pension funds, institutions or individuals who employ high fee managers. And of course, quote Also, if you have heirs who are prone to overspending, the trust can dictate how much money is dispersed at regular intervals and even what the money can be spent on.

Warren Buffett (26:07)

Now the next one here, it's, man, it's delivered in such a creepy but such a great way. And the lesson is to give with a warm hand, not a cold one. That's your cold hand we're talking about here. So good.

Alice Southwick (26:19)

Yes. So if you like Buffett, know that you will not need all the money you've accumulated over your lifetime. Why wait until you've passed away to help family members and charities? Yes, it's definitely important to ensure that your money is going to last as long as you do and that you account for the possibility or really actually likelihood that you'll need to pay for long term care when you get older. But if it's certain that your beneficiaries will receive an inheritance, it might be more useful to them now, right. When they're perhaps trying to raise a family, maybe trying to buy a home, paying for their kids college degrees than many years from now. Plus you'll be around to bask of their appreciation.

Warren Buffett (26:52)

All right, once you've done all these things to be more like Buffett with your planning, well, you need to probably talk to your heirs about it. So review the plan with them.

Alice Southwick (27:01)

Yeah, this one might be somewhat controversial, but I think it makes a lot of sense. So in last November's letter, Buffett wrote, quote, I have one further suggestion for all parents, whether they are of modest or staggering wealth. When your children are mature, have them read your will before you sign it. Be sure each child understands both the logic for your decisions and the responsibilities they will encounter upon your death. If any have have questions or suggestions, listen carefully and adopt those found sensible. You don't want your children asking why in respect to testamentary decisions when you are no longer able to respond. And testamentary basically means things that happen upon your death over the years. Charlie. And of course he's talking about Charlie Bunger, the late vice chairman of Berkshire. And I saw many families driven apart after the posthumous dictates of the will left beneficiaries confused and sometimes angry. This discussion with your family is particularly important, I would say, if you won't be leaving equal amounts to your kids. Right. You want to explain your reasoning why you can and take into consideration the responses you receive. The main takeaway, of course, is that a lack of clarity now could lead to legal fights over your estate when you pass away, which could be costly. Time consuming and really cause permanent rifts among your family members, which I'm sure you don't want. Also, you might want to ask your heirs about preferences for inheriting items that might have more sentimental value than financial value. And we're talking about things like family heirlooms, collectibles, even like furniture and knickknacks. And you want to resolve situations where more than one person wants a something. And all that said, I will point out that in his letter, Buffett emphasized that this is a recommendation for when your children are mature. It might be better to withhold information from one or more children if the knowledge of your estate plan will lead to them doing things like not working enough or not saving enough or basically just pestering you for advance on the inheritance. If you plan to leave unequal amounts to heirs and you don't want them to know about it, work with an attorney to create trusts that have more privacy. Just know that these types of family secrets often have a way of eventually coming to life light.

Warren Buffett (28:53)

All right. And the last way you can be like Buffett in your estate planning is to leave the world a better place than how you found it.

Jim Gillies (29:01)

Yeah.

Alice Southwick (29:02)

In the interview with the Wall Street Journal from last June, Buffett said that his wealth quote should be used to help people that haven't been as lucky as we have been. There's 8 billion people in the world, and me and my kids, we've been in the luckiest 100th of 1% or something. There's lots of ways to help people, and you don't have to be a billionaire like Buffett to appreciate how fortunate it is to be born in the US or really any developed country with excess cash to invest and not really have to worry about paying for the necessities. Yes, charity begins at home, so you definitely want to make sure that your family will be set. But then maybe consider charities to help others achieve financial stability. And if I may make a suggestion, one example is Together We Bake, which is an organization that provides job training to women facing barriers to employment. I admire the organization so much, I joined the board of directors. So if you're looking for a good cause to support, visit TogetherRebait.org to make a donation or maybe order some delicious granola or cookies. If you want to be like Buffett and create a charitable fund that exists beyond your death and is distributed by your children, look into a donor advised fund. So these are offered by financial services firms like Fidelity, Schwab, Vanguard, as well as some organizations like the National Philanthropic Trust and a donor advised fund could be funded during your life or at your death. The sponsoring organization manages all the money, but you or your heirs determine which charities will receive the distributions and which when.

Warren Buffett (30:22)

All right, bro, how about you give us your parting advice that our listeners can quite literally take to their grave?

Alice Southwick (30:29)

Well, we have to fool our fans of Do It Yourself investing, assuming you have the requisite time and knowledge, of course. But we're not really fans of Do It Yourself estate planning, so find a qualified, experienced estate planning attorney in your area. It's not going to be cheap, but it's going to be money well spent. Make sure you follow through on all the recommendations, such as as changing the beneficiary designations or retitling assets in the name of the trust. A lot of good estate plans fail because not all the I's were dotted or the T's were crossed. Then tell your relatives that you've updated your estate plan and encourage them to do the same because you're going to be the person who pays the price if your parents or other relatives don't have an updated plan.

Ricky Mulvey (31:11)

As always, people on the program may have interests in stocks they talk about. Then the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and are not approved by advertisers. The Motley fool only picks products that it would personally recommend to friends like you. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.