What is up Cruisers?!
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Before You Read:
Make sure to follow Cruising Altitude on Twitter @CA30K for more frequent portfolio updates and news. Want to hear what CA writers think about investment ideas and news? Follow CEO Alan @AlanSoclof and COO Ethan @EthanCA30K!
What is Inside?
The Tweet of the Week
Spotlight: Sprouts Farmers Market $SFM
Portfolio Update
Portfolio News- $NVTA
Trivia
Tweets of the Week
Sponsor- 7Investing
😂HUMOR
The Tweet Of The Week
We like to start our newsletter with a not-so-finance-related tweet that is kind-of -finance-related when you take a deeper look.
This week’s Tweet of the Week belongs to Dave Portnoy:
Brilliant and funny observation. What does this have to do with finance?
Portnoy is founder of Barstool Sports, which is owned by portfolio pick Penn National Gaming $PENN
Bruno Mars was preforming at the Grammy’s which was playing on CBS, owned by ViacomCBS $VIAC (Cruising Altitude’s leading stock)
Spotlight time!
🔍SPOTLIGHT
Sprouts Farmers Market
🥬Background
When you think of the next great investment opportunity, your mind probably goes to genetics and cloud computing.
Today, we are asking you to replace these thoughts with Brussel sprouts and spinach!
Yes. You read that right. Today’s spotlight piece will be on Sprouts Farmers Market $SFM— a grocery store chain!
We at CA feel that this is an extraordinary opportunity that allows you to invest in a stock trading at a significant discount to its fundamentals and with strong growth possibilities in the future.
Let us jump right in!
📓The Company
We see Sprouts as a mixture between Whole Foods, Trader Joes, and your local regional grocery store.
Sprouts is looking to give you the classical grocery experience with a farmers’ market vibe. They have the biggest brands and all the organic and natural foods that you could want, all at a great price!
The company currently has 362 stores nationwide, with the largest concentration in California, where there are 208 locations.
Most importantly, consumers love it, and there is demand for more stores nationwide!
In a grocery store brand study (apparently those exist), 70% of consumers that went to Sprouts actively promote their experience. That is 70% not only willing to return, but also willing to share their experience with family and friends!
Powerful.
🏢Financials
Grocery stores are fun, don’t get us wrong. But what really attracts us to $SFM is how discounted the price of the stock is to the fundamentals. Let us break it down:
The market capitalization of $SFM is $2.88 Billion
Revenue has increased nicely from $4.7 Billion to $6.5 Billion from 2017- 2020
Sprouts is trading at only .4x sales
2020 net income was $287 million! Yes, you read that right
From 2016-2019 net income was $124MM, $158MM, $158MM, and $150MM respectively
These guys and gals are a cash generating machine and, for some reason, the market has not taken any notice.
Interestingly, since 2017, the stock is down 18% even though the company has been crushing it.
Why would I invest in a stock that does not go up?
Share buy-backs!
🚙Share Buy Backs
When considering investment options, you should consider the return on your money, of course, and you shouldn’t worry about the market not realizing the value of your stock picks. The reason you shouldn’t worry is that even if the market never realizes it, the company you own is able to reward dividends or buy back existing shares.
Sprouts is doing the latter.
Simply put, buying shares back is when a company takes their excess cash from operations, of which Sprouts has no shortage, and buys shares off of the market.
What this does is decrease the amount of shares outstanding and, therefore, increase the value of each share to the shareholder.
This is very, very good for the shareholder.
Specifically, over the past few years Sprouts has bought back around 40 million shares of the company out of approximately 160 million outstanding! That is around a 25% buyback and they are not even done yet!
They just announced an additional share buy back of around 10% more shares!
📓Growth
Not only is the current valuation as appealing as a perfectly shining Honey Crisp apple, but the future one might be even better.
Sprouts Farmers Market is looking to grow— seriously grow.
Starting in 2022, the company is looking to open about 30 new stores a year! This means the company will increase their store count by about 50%, which also means we could see an additional $3 Billion in revenue by 2025.
The company actually expects the new stores to be more profitable. They are focused on opening stores that are about 20% smaller and therefore 20% cheaper to build.
The company already has a few smaller store examples, and the CEO shared how they are just as profitable.
The best part? The consumer does not even notice the difference!
Additionally, the company is getting modern with their approach to marketing and coupons.
The company is focused on growing a significant social media following that allows them to reach their target customers. They are already up to 273K Instagram followers and growing quickly! Additionally, the company has zero coupon advertisements in newspapers and is focused on building a significant email following with 3 million e-mail addresses.
Here is what management had to say about their increase focus on digital:
“Through our efforts, our customer database grew tremendously in 2020, with customer e-mails growing 50% and downloading of our Sprouts mobile app increasing nearly 60%.”
The company is focusing on data and technology for advertising. We love this!
Lastly, the company has a strong and rapidly growing line of private label products. This is a fantastic sign as privately labeled goods typically have greater profit margins.
📓Wrapping It up
Awesome fundamentals, share buy backs, awesome fundamentals, and a nice growth trajectory! It does not get any better than this.
For a deeper dive into $SFM, check out our first ever YouTube video with the Chit Chat Money guys that we recorded just last night!
💸Performance
Portfolio Update
As you can see, the portfolio is now a little bit more colorful! Under the “Ticker” column we are instituting a color-coded system that allows Cruisers to see how excited the CA team is about certain stocks.
Here is the breakdown:
🟩Green= “Absolutely Ecstatic”
🟧Orange= “Just Ecstatic”
🟨Yellow= “Some Concerns”
🟥Red= “Big Concerns”
To track our portfolio during the week, click here!
📰NEWS
Portfolio News
When you are a long term, relatively concentrated investor, there will not always be a ton of news on your companies to share!
Therefore, some weeks we will be sprinkling in other portfolio-related media pieces. This week, we have an interview with portfolio pick Invitae’s $NVTA CEO Sean George on CNBC!
🗒️TWITTER
Tweets Of The Week
This is a W.
Weekly Brian Feroldi Appearance!
We at CA hope to help put a couple on your radar!
🎮GAMETIME
Trivia Night!
Question 1 (Easy): What is the name of the automotive company that is merging with the $CCIV SPAC?
Question 2 (Medium): Who runs Ark Investment Management?
Question 3 (Hard): Which company recently announced $25 billion in bond sales?
Answers
Answer 1: Lucid Motors! The star of last week’s Spotlight piece is one of the latest companies to announce they will go public via SPAC. They’re trying to fill the luxury EV market (that is practically non-existent currently) with their first car that will be released later this year, the Lucid Air.
Answer 2: Cathie Wood! Cathie Wood’s five actively managed ETFs focus on a range of topics such as genomics, fintech, and autonomous technology. The flagship ETF, ARK Innovation $ARKK had an amazing 2020, riding on popular companies such as Tesla $TSLA, Square $SQ, and our very own Teladoc Health $TDOC. While her funds have struggled early this year, Wood remains positive and continues to share her ETFs’ investment strategies (very cool—transparency is in right now).
Answer 3: Verizon $VZ! That’s right, the nation’s largest, most reliable (wow these commercials really do stick in your head) cellular communications provider will be taking on a lot of debt (and I thought my student loans were expensive). The company is doing this to finance the expansion of its 5G network. Verizon recently won more than 50% of airwaves offered by the FCC in an auction, spending more than $54 billion to do so.
🤝PARTNER!
7Investing!
This week’s newsletter is presented by 7Investing. 7Investing is a professional stock advisory service led by 7 skilled and experienced investors. The company provides their 7 top stock picks on the first Monday of every month.
Every Monday, Wednesday, and Friday, 7Investing has a live one hour show called “7Investing Now” where they break down finance news, specific stocks, and answer all of your questions. It is awesome!
To check out the 7Investing website and learn more about the company, click here!
New Portfolio Pick! $SFM🚀🚀🚀