Motley Fool Money - Episode: Celsius Pays for Growth
Release Date: February 25, 2025
Hosts: Dylan Lewis, Ricky Mulvey, Mary Long
Guests: Jim Gillies, Alice Southwick, Robert Brokamp

1. Market Turbulence: High-Flying Stocks in Decline

Ricky Mulvey opens the discussion by highlighting recent market volatility, particularly affecting high-growth stocks. He mentions significant drops over the past week:

• Palantir: Down ~30%
• Bitcoin: Holding steady
• MicroStrategy: Down ~26%
• Tesla: Not performing well
• Broad QQQ Index: Down 5%

Ricky Mulvey [00:00]: “We got a lot of clouds to shout out and the first of which is that we got some turbulence.”

Jim Gillies attributes the sell-off primarily to investors taking profits off overvalued, speculative stocks. He provides a critical analysis of both Palantir and MicroStrategy, emphasizing their inflated valuations and speculative bases.

Jim Gillies [01:16]: “Palantir... achieved a valuation level of over 100 times sales. Bluntly, that's idiocy, that's dumb.”

Key Points:

• Palantir: Speculative growth based on political theses, lacking clear business fundamentals.
• MicroStrategy: Transitioned from a software company to essentially a Bitcoin holding company, trading at twice Bitcoin's net asset value.
• Market Impact: High-growth stocks like those mentioned are contributing to NASDAQ's downturn, but diversified index funds like QQQ may mitigate broader risks.

Jim Gillies [07:00]: “In the event of a meltdown, participation index will at least protect you from some of the damage.”

2. Home Depot's Performance and Shifting Cash Flow Dynamics

Ricky Mulvey transitions to discuss Home Depot, noting a positive but cautious shift in its financials.

Ricky Mulvey [07:42]: “Comparable sales turned positive the first time in eight quarters.”

Alice Southwick concurs, acknowledging the significance of improved comparable sales.

Alice Southwick [07:44]: “It does, yeah.”

Ricky Mulvey delves deeper into Home Depot's strategic moves, questioning the sustainability of its cash flow story amidst recent acquisitions.

Key Points:

• Historical Strength: Home Depot has been a reliable "cash cow," consistently increasing dividends and reducing share count since post-2009.
• Recent Changes: Acquisition of SRS in March 2024 for $17.6 billion has absorbed much of the company's free cash flow, leading to reduced share buybacks and a modest 2.2% dividend increase this year.
• Future Outlook: The sustainability of Home Depot's cash flow depends on whether the company can revert to its aggressive buyback and dividend strategies post-acquisition.

Jim Gillies [08:51]: “The acquisition of SRS... really covered all the cash flow. So I think that's why they really cut back on their share buybacks.”

Alice Southwick emphasizes the importance of assessing whether Home Depot can maintain its cash flow narrative moving forward, suggesting that diversification or continued acquisitions might alter its investment appeal.

Alice Southwick [11:46]: “The cash cow story looks like it hits pause. I want to see them hit the unpause button for 2025 going forward.”

3. Celsius Inc.: Acquisition and Growth Strategy Under Scrutiny

Ricky Mulvey shifts focus to Celsius Inc., discussing its recent acquisition and subsequent stock performance.

Ricky Mulvey [12:16]: “This is one that the stock chart... last week the company reported not so good results.”

Celsius's Recent Moves:

• Sales Growth: Up 3% year-over-year, a slowdown from previous COVID-era highs.
• Valuation: Previously traded at 36x sales; current multiple unsustainable at current sales growth.
• Acquisition: Purchased Aulani, a female-focused energy drink brand, for $1.8 billion.

Jim Gillies [13:11]: “Probably not [excited about the acquisition]. I'm not sure what a female-focused energy drink brand is.”

Key Analysis:

• Strategic Fit: Gillies questions the strategic rationale behind targeting a gender-specific market, noting the potential risks in overpaying for growth.
• Valuation Concerns: The acquisition price implies optimistic synergies that may not materialize, potentially burdening Celsius with overleveraged growth strategies.
• Distribution Challenges: Previous distribution hiccups, particularly with PepsiCo, suggest underlying operational vulnerabilities.

Celsius's Future Scenarios:

1. Market Decline: Continued difficulty in the energy drink sector with minimal growth, making the acquisition ineffective.
2. Mature Integration: Transitioning into a stable, mature company with limited growth prospects, aligning closer to traditional beverage companies like Coca-Cola.

Jim Gillies [17:09]: “I think it's probably closer to the second one... the real value that's lower than the current market cap.”

Ricky Mulvey [18:59]: “The watch list, not quite on the buying list.”

4. Estate Planning Lessons from Warren Buffett

Transitioning from market discussions, Alice Southwick and Robert Brokamp delve into estate planning insights inspired by Warren Buffett.

Key Lessons:

1. Establish a Comprehensive Estate Plan:

   • Ricky Mulvey [19:43]: “...estate planning lessons from Warren Buffett that you can take with you even if you're not a multi-billionaire.”
   • Alice Southwick [21:24]: Emphasizes the importance of having a detailed estate plan beyond just a will, including beneficiary designations, trusts, and healthcare directives.

2. Regularly Update Your Estate Plan:

   • Alice Southwick [22:21]: “Buffett revises his plan every few years... to account for any changes in your family or assets.”

3. Donate Appreciated Assets:

   • Alice Southwick [23:41]: Buffett donates Berkshire Hathaway stock to avoid capital gains taxes and to provide stepped-up basis benefits for heirs.

4. Assess Heirs' Capability:

   • Alice Southwick [24:19]: “Consider your heir's ability to manage an inheritance... use trusts to guide the distribution and management of assets.”

5. Give While Alive:

   • Alice Southwick [26:19]: Encourages giving to beneficiaries during one's lifetime to provide immediate benefits and ensure the money is utilized effectively.

6. Communicate with Your Heirs:

   • Alice Southwick [27:01]: Suggests discussing the estate plan with heirs to prevent confusion and potential conflicts after one's passing.

7. Leave a Positive Legacy:

   • Alice Southwick [29:02]: “Leave the world a better place than how you found it... consider charitable donations and creating lasting charitable funds.”

Conclusion and Action Steps:

• Professional Guidance: Engage with an experienced estate planning attorney to ensure all legal aspects are covered.
• Comprehensive Documentation: Ensure all elements of the estate plan are thorough and up-to-date.
• Open Communication: Maintain transparency with family members to foster understanding and cooperation.

Alice Southwick [30:29]: “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.”

Final Remarks

Ricky Mulvey wraps up the episode by reminding listeners to approach stock investments and estate planning with due diligence and professional advice.

Ricky Mulvey [31:11]: “Don't buy or sell stocks based solely on what you hear... make sure you follow through on all the recommendations.”

The episode provides a comprehensive analysis of current market trends, company-specific performance insights, and valuable estate planning advice inspired by one of the most successful investors, offering listeners actionable information to navigate both their investment portfolios and personal financial planning.

Notable Quotes:

• Jim Gillies [01:16]: “Palantir... achieved a valuation level of over 100 times sales. Bluntly, that's idiocy, that's dumb.”

• Jim Gillies [08:51]: “The acquisition of SRS... really covered all the cash flow.”

• Jim Gillies [17:09]: “I think it's probably closer to the second one... the real value that's lower than the current market cap.”

• Alice Southwick [23:41]: “By donating Berkshire Hathaway stock, Warren Buffett avoids having to pay capital gains on those shares.”

• Alice Southwick [27:01]: “You don't want your children asking why in respect to testamentary decisions when you are no longer able to respond.”

Timestamp Summary:

• 00:00 - 07:00: Introduction and market turbulence discussion focusing on high-growth stocks.
• 07:00 - 12:00: Analysis of Home Depot's financial performance and strategic acquisitions.
• 12:00 - 19:00: In-depth discussion on Celsius Inc.'s acquisition strategy and future prospects.
• 19:00 - 31:11: Estate planning lessons inspired by Warren Buffett, covering comprehensive strategies and actionable steps.

This detailed summary encapsulates the key discussions and insights from the "Celsius Pays for Growth" episode of Motley Fool Money, providing a clear and informative overview for listeners and those unable to tune in.