Motley Fool Hidden Gems Investing - Motley Fool Money: 10.04.2013

Episode Date: October 4, 2013

The government shuts down. Twitter gets ready to go public. And some Microsoft shareholders call for Bill Gates to step down. Our analysts discuss those stories and Honest Tea co-founder Seth Goldman talks about the business of tea. Learn more about your ad choices. Visit megaphone.fm/adchoices

Everybody needs money. That's why they call it money. The best things in life are free. But you can give them to the birds and bees. From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. Thanks for being here. I'm your host, Chris Hill. Joining me in studio this week from Motley Fool One, Jason Moser, and from Million Dollar Portfolio, Charlie Travers and Ron Gross. Good to see you guys. How you doing, Chris? We've got some hot IPOs and some tech companies under fire.

We will dip into the full mailbag, and as always, we'll share a few stock ideas to put on your watch list. But we begin this week with the big macro, and that means the government shutdown. The government has been shut down. Who knows, Charlie, by the time this makes air, maybe they'll have their act together and the government will be back up. The market didn't really react in a negative way, but what is looming out there for investors is the October 17th deadline to raise the debt ceiling. Where do you think we are right now? Yeah, Chris, that's really a much bigger deal than the government shutdown,

not to make light of anyone who is actually caught up in that situation, which is not great if you're relying on that. So what is going on here is, by law, the government can only spend money if there are sufficient funds. Where do they get the money? They get it from tax receipts and by borrowing. And the amount of money that the Treasury can borrow to pay the bills is set by Congress. Typically, raising that debt limit is only a formality. It's occurred 60-something times in the past few decades.

It's typically not a big deal. And really, this is important because every year when Congress sets the budget, they are agreeing to pay these obligations, except the last two times around, they did not agree to actually let the Treasury raise the money to do it. And so, you know, typically we tend to be company-focused investors here. But when this happened in 2011, the S&P fell by 16% in one month, and Standard & Poor's downgraded the U.S. So I don't think anyone wants to repeat what happened two years ago, but we'll see if common sense prevails. Yeah, Ron, we've talked before. 2013 has been a great year for the market in general, a great year for investors.

To Charlie's point, that really could come to an end if they don't get this right. Yeah, I think it would be so catastrophic from a market perspective, from an economic perspective. It would probably bring us back into a recession, if not worse. Treasuries would plunge. Interest rates would rise. It would reverberate around the globe. One would think that our legislators will come to their senses and compromise or someone will give in. So that doesn't occur. And if I'm betting possible versus probable, I'm saying we'll be OK and it's not going to go down the road of a catastrophe. But, Jason, if you're taking the other side of the bet, and you think that we are going

to have a repeat of 2011, what do you do as an investor? Do you take a little money off the table here? I mean, that's a good question. I mean, I think that Ron's probably right. And you look at the credit default swap activity, I think that indicates as well that the market... How would one look at the credit default swap activity? You just Google it, right? But it does seem like, at least the market for now, is agreeing that this will be resolved. But, you know, I mean, it makes a lot of sense. When you look at these headline events, you know, the market hates uncertainty, but it seems like

one thing is certain, we're going to run into these types of headline events all the time. And it's just impossible to predict how they're going to play out in the market short-term speaking. But I think that really making sure that you always have some cash available in a watch list, that's really how I try to play this out. I mean, I don't really look at a 1% or a 2% or 3% drop in a particular stock like a reason to go out and just buy, buy, buy. If you see some massive correction like we talked about before, then that's nice to be able to take advantage of it. But really, it shouldn't change your long-term goals, your long-term reasons for investing in a company to begin with. If you're investing

in a company and part of the reason is because of little headline events like this, then you need to reassess why you invested in that company to begin with. I do agree with that. I think periodically, though, it's good to go through your portfolio and see, am I still in this company because my thesis makes sense, his valuation makes cents? Am I allocated correctly? With the market hitting all-time highs, this is as good a time as any to do so. And there are probably companies, like we just did this in a million-dollar portfolio, that you maybe want to take some profits on, pare back some allocation on. There might be some companies you want to increase, but it's good to periodically, especially in times like

these, take a look at your portfolio. Kind of like a spring cleaning, I guess. Charlie, I'll just wrap up with you. To Ron's point, are you doing that type of exercise? Are you going through and looking? And I don't want to say you're rooting for an event to cause one of your stocks to drop 10%, 20% so you can buy more, but are you going through that as well? Oh, yes, of course. I do have cash on the side, just like Jason mentioned. But I think one thing you could also look at is your allocations, and not just with stocks, but with bonds as well. The last time this debt crisis came to pass in 2011, actually, U.S. government treasury ETFs performed well while stocks were falling. So, you know, balance things out.

Twitter is not public yet, but its filing to go public is. Twitter hopes to raise up to a billion dollars with its IPO, which could come as early as November. Jason, you've had a chance to look over the S-1 filing now that it's public. What caught your eye? Well, it was a wonderful evening last night reading the SEC documents. And actually, it was really kind of cool. I mean, there's a lot of things in there. I learned a lot about the company.

I think first and foremost, it's just understanding the market opportunity that's out there for Twitter and how they actually do make their money. I mean, they make their money from advertising, plain and simple. And it's just through selling these promoted tweets and things like that that they do it. Of course, the immediate comparison, the questions that come up, compare it to Facebook, right? And I mean, I think that's a fair comparison, at least to a degree. So I did do some digging there as far as the numbers go. And if you look at one of the metrics they really help to gauge success is their monthly active users and revenue per monthly active user.

And just based on the first half of 2013, there is a disparity there where you see Twitter brings in about $1.18 revenue per monthly active user. For Facebook, that number is $2.48. So there is a significant gap there. Now, Facebook obviously has about five times the registered user base. So a tremendous audience, and they've been in the public markets a little bit longer. I think that Twitter is going to face, you know, the initial hurdle for them is going to be proving their value. And I think that if they can do that, that would be really the key is to show that the data that they have is relevant to advertisers and bringing those advertisers in the door, really, to get those things out in front of eyeballs. It was already quite a week for IPOs.

Pot bellies went public on Friday. Shares of the sandwich shop rose more than 130% on its first day of trading. Ron, there are some people out there, some analysts saying, hey, this is the next Chipotle. Is it? That seems wonderful for the potbelly people if it actually is. I don't think so. I think at the end of the day, it is just a sandwich shop. Now, it's a good sandwich shop.

They do a good job. The idea is to get people in and out relatively quickly through their kind of conveyor belt. Business model, which I think works well, and it has a nice look and feel to it. I think it's a growing company. The growth is not extreme. It's not going to be one of those high flyers. They're going to grow store-based by, they say, about 10% per year. So I think the IPO is actually pretty reasonably priced, probably around 14, 15 times earnings, which is not lofty.

Now we're at 40 times earnings after that pop. A couple things I don't like about the IPO, some insiders sold shares into the IPO. I hate to see that. They're using a big chunk of the proceeds to pay a dividend to former insiders, current shareholders. don't love to see that. I like proceeds being used to grow the business. So, a grower, not extreme, don't like use of proceeds, but I like their sandwiches. They make a nice milkshake, too. Jason, earlier in the week, we saw some other names that I think people will recognize. Remax going public, their shares popping on opening day. And Burlington

Stores, the parent company of Burlington Coat Factory, shares up more than 40% their opening day. Yeah, that was pretty impressive, actually. Burlington operates in this space that probably doesn't get a whole lot of love from the press and whatnot. I think the off-price apparel market is not the sexiest industry in the world, but they basically take all these sort of either canceled lines or surpluses, and they're able to just sell them at rock-bottom prices. So, it's more than just coats. It's all sorts of apparel. And I looked at this company and compared it to some of its competitors to get a better idea of sort of the valuation perspective. And if you look at something like a TJ Maxx or a Ross, which these guys compete with, their stocks trade at an EV

to EBITDA multiple of around 10, 10.5. When Burlington went public that first day, that valuation was implied at about 6.5 times. So, it was, on paper at least, significantly cheaper. So, it didn't surprise me to see that pop. And I do think that there is a lot of runway for this company. As far as growth goes, they can grow that store base. But it's also worth knowing they have about $1.6 billion in debt on the balance sheet. So it's not spotless. It's worth pointing out that the hidden winner this week was actually Tweeter Home Entertainment, the consumer electronics retailer that went bankrupt in 2007. It is a penny stock. But when Twitter goes public, Twitter's ticker symbol is going to be TWTR. Tweeter Home Entertainment

is TWTRQ. And on Friday, shares rose over 1,000% of this penny stock as some mistaken investors thought they were buying shares of Twitter. There's a little lesson to be learned there. Coming up, we will dip into the Fool mailbag and give you an inside look at the stocks on our radar. You're listening to Motley Fool Money. Hey, it's Chris here. Is your business protected from data loss? If it isn't, it should be. Join the 100,000 businesses who trust Mozi to protect their critical business files. Mozi automatically backs up your critical files to world-class data centers with maximum security. It's easy to set up and use.

It saves you time and costs up to 80% less than other solutions. Mozi is the most trusted name in cloud backup. So visit mozi.com. Use the promo code FOOL to save 10% on your initial purchase. That's M-O-Z-Y.com. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.

Welcome back to Motley Fool Money. Chris Hill here in studio with Jason Moser, Charlie Travers, and Ron Gross. Guys, we have talked before about Microsoft CEO Steve Ballmer, who will be stepping down in the next 12 months. This week, Reuters reported that three of Microsoft's biggest shareholders are pushing for Bill Gates to step down as chairman. Charlie, these three unnamed individuals, say what you want about Carl Icahn. At least he puts his name on it when he's making these types of calls. But three unnamed shareholders collectively own about 5% of the stake.

Are they right to push for Gates to step down as chairman? I actually hadn't considered that possibility until I saw this report. But now that I have had some time to think about it, I think it's actually a good idea for both Bill Gates and Steve Ballmer to step down and just give the company an entirely new, fresh start. And I say that as a big admirer of Bill Gates. I think he's brilliant. And if you listen to how he talks about his philanthropic efforts, he's a visionary. I mean, he's a creative guy for solving problems, but that doesn't mean he's necessarily the right person to serve as chairman of Microsoft anymore, especially as they're bringing in a new CEO who might want to take the company in a new direction.

And I think having the very big shadow of Bill Gates standing there while you're trying to make those changes is a daunting prospect. And so I do agree. I think he should just gracefully step aside. He's selling 20 million shares a quarter. And by 2018, he wouldn't even be a shareholder anymore. So I think it probably is time to step aside. You agree with that, Ron? Interesting.

Yeah, I wasn't sure which way Charlie would go with that. I think what he said makes good sense. I think if I was a board member, I really would want to know how much time he's devoting to Microsoft versus his philanthropic duties. Is he really and truly engaged? Because especially now as Microsoft switches gears and changes strategies, you need a highly engaged chairman, especially when the CEO is going to be brand new. So if he's not as committed perhaps as he used to be, which he probably isn't, it might be a good idea. But do you think he should be on long enough to at least have a say in who the next CEO is going to be? I would like to see him stay on the board, regardless if he's chairman or not.

2013 has been a fantastic year for Samsung, as the company surged past Apple as the world's biggest smartphone seller. But the great 2013 may have ended this week. David Pogue, the technology columnist for The New York Times, wrote a scathing review of Samsung's smartwatch, the Galaxy Gear. There's a lot to chew on, Jason, but I think the money line is when Pogue wrote, Nobody will buy this watch, and nobody should. It's amazing how quickly the tide turns. I mean, it wasn't that long ago when we were looking at Samsung and saying, wow, these guys are just taking the market by storm, a great phone, it's going to be a smartwatch that's going to complement this great phone, and Apple's in all sorts of trouble. And I think that that's obviously proven to be hyperbole, if anything else. I mean, I know at least one radio show where I went on air and I voiced my disdain, my disbelief in the smartwatch, and I stand by that statement. And I just don't think, I mean, I just don't see what it does that your phone doesn't do yet.

And so I think you have a lot of hurdles, really, to overcome there. And I'm still not totally convinced yet that Apple didn't just float this idea of iWatch out there just to force Samsung's hand in getting a smartwatch on the market first and making them look like idiots, because they obviously do. You can always drop us an email. Radioatfool.com is our email address. Got an email from Tom Smith in Antioch, California. He writes, after listening to the show in mid-2011 and hearing the discussion about lumber liquidators, I did my own research and bought the stock at $16.67.

It is now over $100 a share. I've never had such a big winner in such a short period of time. I'm not sure whether it's time to sell, though. What do you guys think, and what are some tips on making that evaluation for my other holdings? Thanks, and Fool on. Congrats, first of all, I guess, Rod, in order for Tom. Always nice to see that. That is, as our producer, Matt Greer, would say, that's a high-class problem to have.

My stock has shot up that much. But at its core, a universal question for investors, when do I sell? Yeah, we share that good problem. We're up maybe 400% or 500% on our lumber liquid data's position. And what we've done is we've sold into the strength in little pieces as the stock has moved up and has kind of bumped up against our valuation estimates. It actually has exceeded even what we thought they could do in terms of revenue growth, same-store sales growth, gross margins. So our models tend to be conservative in this case. Now we are over $100 a share, as you say.

I would say if we get to $120, then it's really optimistic. There's a lot of goodness baked in there. There's 300 stores now. They say they can get to 600. $120 would reflect a lot of good things happening and that's where I would probably look to maybe exit so when you have a stock that's gone up three or five fold and maybe it was a small position to start but then it gets really big which is great to have less business focused and more about managing your emotions if it is such a large part of your portfolio where you're

watching that stock every day and you're worried about all the little ups and downs that might be a sign you need to take some money off the table and get it back and check a little bit the sleep factor. Absolutely. Always important. All right. Well, let's wrap up this segment. Maybe we can provide a few stock ideas for Tom to put on his watch list. And we'll bring in our man, Steve Broido, from the other side of the glass. What's on your radar this week, Ron? I got Costco reports next week. We actually, this week, recommended investors take some money off of the table and reduce their allocation to Costco because it has had such a nice run and at $115 a share. As with lumber liquidators, we think a lot of the goodness is baked in,

But it is such a beloved company by me and really all of Fooldom that I would love the opportunity to even go back in again, take a larger stake at some point. So I'll always be watching it very closely. Steve, question for Ron about Costco? Can Costco basically stop growing, just say, we're not going to get involved in Internet stuff, we're going to run brick-and-mortar stores, and we're just going to keep the locations we have and keep chugging along? They could. I think they will be able to consistently raise membership fees going forward, which kind of falls to the bottom line. So you have some built-in growth there every now and then.

But they do only have 625 stores now. They can get to 1,100 at some point internationally. So there's still plenty of growth left in their future, even without the internet. But a lot of that is already baked into the price. Jason Moser, what do you got? Yeah, it sounds boring, but the company's actually pretty cool. Lincoln Electric Holdings. They are the leading provider of arc welding and cutting products. So, big industrial play here. They just break it down to welding and stuff like that. So,

you're basing this investment on industrial activity and the bounce back in that. But they have a nice diversified revenue stream, about 50% North America, 50% international. That 50% international, about 15% of that is the BRIC nations. So, significant emerging market opportunity there. You know, this is just, it's kind of a slow and steady wins the race. It's still a small company at about $5, $6 billion. But there's just a tremendous global opportunity of industrial activity out there. And as that bounces back, I think that Lincoln is a very well-run company and it will benefit. And the ticker symbol? L-E-C-O. Steve, question about Lincoln Electric?

Are they operating here primarily or in China? Well, I mean, it's 50% of their sales come from North America, primarily the U.S. But where are they? Are they welding here, doing welding in the U.S., or is it done? Yeah, welding everywhere. It's all done. Oh, yeah, yeah. So they're on site. Yeah, they sell the welding equipment and then the consumables that go with that equipment.

Charlie, we've got about a minute left. I'm looking at Intel, Chris. They report earnings on the 15th. And I think the market's perception of this company as a desktop Windows company, and that's just completely wrong. They are in Apple's MacBook Air. They're in Chromebooks. They're making a huge push into mobile with much faster, more efficient processors. And I think their growth over the next five or ten years is really going to surprise investors.

Steve? How often should I be upgrading my computer processor? Well, I'd say for a tablet or phone, probably every two or three years. That's going to do it. Charlie Travers, Jason Moser, Brian Gross. Guys, thanks for being here. Thank you, Chris. Up next, entrepreneur and now best-selling author Seth Goldman,

the founder of Honest Tea, joins me right here in studio. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. Back in 1999, Honest Tea did a little over $1 million in sales. By the time Coca-Cola bought Honest Tea in 2011, the company was doing $75 million in sales. Seth Goldman is the co-founder, president, and TEO of Honest Tea.

And his new book is Mission in a Bottle, The Honest Guide to Doing Business Differently and Succeeding. Welcome back. Thanks, Chris. It's great to have you here again. The first thing I've got to ask you about this book, it is in the form of a graphic novel. Right. What was behind that decision and what did the publisher say when you said this is how we want to do the book? Well, so in 2011, my oldest son was a senior in high school, and he had officially entered senior slump.

He had gotten into college and was no longer doing homework. He was bringing home comic books. And my wife sent me up one, and she says, you've got to get him to keep his grades up or he's going to lose his acceptance to college. And at the time, I had been reading a bunch of business books and just found them really repetitive and preachy and not that inspiring, especially the green business books, which are what we need to be inspired by. And so what would happen is I'd go upstairs, I'd be with my son, and then my wife would come up and find us both reading the comic books. And I said, wait a minute. If these comic books can draw me in, why can't we take a business story and turn it into a graphic form? And between the tea gardens, the label design, the bottling plants, there's a lot of visual elements to our story.

I think you have an untapped market here. I think if you aren't already planning to go to Comic-Con next year in San Diego, I think your publisher needs to set up. I've gone to some of the Comic-Con events. But when we went to the publisher, they responded very well because just as the beverage shelf doesn't need another beverage unless it's meaningfully different, the business bookshelves are full of plenty of entrepreneurial stories. But if we could find a different way to tell a story and make it more accessible, they were open and receptive to it. Let's talk about some of the lessons in your book because you do a wonderful job of laying out the story of Honesty, the idea of the company, and how you grew. But I think for the average person, not just the average business person, but also the average investor, some of the lessons to be drawn from this are amazing. One of which that really struck me was the whole idea of understand your buyer, which is not as obvious as it seems.

That seems like in business the most obvious thing. Right. But for us, it wasn't the end consumer we need to sell. It was the distributor and the store manager. Because we had a group of consumers who were incredibly loyal and passionate about our product. But the distributor and the store manager often weren't going to be the folks who enjoyed a less sweet organic beverage. And so when they tried our product, they'd say, well, this isn't sweet enough or it's too expensive. And we'd say, well, you're not necessarily the one who's going to buy it.

And so the only way to convince them of the opportunity was to help them appreciate that there was a business opportunity. And so when we had consumers who would request the product or if the product wasn't on the shelf, they'd go to the store and say, you know, where's my Honest Tea? And that was so important in driving our growth. That ties into another lesson that you touch on, which is distribution being maybe the most important thing in your business. Well, it's ironic because we still have our business plan, the original business plan at HonestTea.com on our website. And the plan does a wonderful job of describing the brand, aspiration, and sort of the positioning. No discussion of distribution at all. If I recall correctly, the last time we talked, I don't even think the word distribution appears in that business plan, does it?

I don't think it does. And someone wrote, if you make a better mousetrap, the world will be the path to your door. But it's just not the case with beverages. You've got to be able not just to get to the door of the store. You need to get to the shelf. And so you need a distributor who can both deliver the product and merchandise it. And ultimately, beverage distributors are the best folks suited to do that. One other lesson that reminded me of some of the big technology companies in the United States, and the lesson is too much money can make you stupid.

Yeah. Well, we never had too much of that. So what we see people do is they raise a lot of money, especially entrepreneurs. They raise a lot of money, which also means giving up a lot of control. and then they'll try to, you know, make it, blow it out big until, before it's proven. And we knew, you know, along the way we made so many mistakes and had we had more money, we would just made bigger mistakes, you know, whether the tea wasn't filtered enough or the labeling message was wrong or even the product wasn't right. And if we'd spent all this money

promoting a product that wasn't right, then it would have just been more costly. So we made mistakes. There's no avoiding mistakes, but at least in the beginning, they were less expensive mistakes because we just had less money to spend. You're listening to Motley Fool Money, talking with Seth Goldman, co-founder of Honest Tea. His new book is Mission in a Bottle, The Honest Guide to Doing Business Differently and Succeeding. A lot of challenges as you were starting out and some pretty significant setbacks, one involving shards of glass in a couple of different locations you have. You're working with Whole Foods and you get reports from two different locations. You've got shards of glass. Yeah. How do you deal with something like

that? Well, it's very scary. We had a supplier who brought in defective packaging and the plant ran it and was not able to catch all the product. And so fortunately, no one was hurt or injured, but it was scary because certainly there's the potential for that. And we knew, you know, all you need is one bad incident to really put the business under at that stage is such a delicate balance. And so we took the proactive road, we just pulled all the product off the market. And financially, it was a disaster. I mean, we lost hundreds of thousands of dollars in a company that was only doing a few million in sales. So it was extremely negative impact on the business. But in the long term, it was the right thing to do for the brand. It was the right thing to do,

certainly from a personal safety perspective. And in the long term, it was the right message to send to our retailers that we weren't going to be taking chances. And as a side note, a different company had the same issue at the same time, didn't pull off the product, and eventually did go out of business. Let that be a lesson out there. You mentioned how when entrepreneurs are raising money, that can be a good thing, but it also means they're giving up control. In 2011, Coca-Cola acquires all of Honest Tea.

what made you and your colleagues decide you know what this is worth giving up control because we had you and i have talked about that before that at a point where they were just an investor and not the majority stakeholder you ultimately had final say what happened in 2011 to say all right well we're going to do this deal well first of all we'd been working with coca-cola for three years as coke as a minority investor and we had developed a great working relationship we had scaled the brand. We had dramatically increased the availability of the product. And we had also proven this model of a business based in Bethesda, Maryland, run by an entrepreneurial team, but owned by Coca-Cola in Atlanta. And what we agreed was that we would keep the basic structure

intact. And from our perspective, that worked. We were happy and Coca-Cola was happy. And then what we enabled us to do was really tap their distribution capabilities to get the product to national scale. And that's still going on. I mean, but it's been so exciting to feel like we've always talked about democratizing organics. How do we make healthy organic products available, not just to the natural foods channel or not just to the folks on the coasts who live in wealthy communities? How do we make it available in every state, in every community and, you know, beyond just the health food stores to the convenience stores to restaurants, and that's starting to happen. Is Coca-Cola leaning on Honest Tea more? And let me explain what I mean by that,

because over the last decade, soda sales, and it's not just Coca-Cola, it's Pepsi as well, soda sales in the United States have been steadily declining. And I'm going to use a baseball analogy. It seems like maybe at the time, once upon a time, Coca-Cola looked at Honest Tea as a relief pitcher. We just need a couple innings a week out of you. But as soda sales decline, are they now looking at honesty and saying, we need to make this a bigger part of the Coca-Cola portfolio of beverages? Well, they certainly see how the world is evolving and diets are evolving. And so they, just like any business, need to be diversified. And so we are obviously very different from a lot of the offerings they have. And so the fact that

We've earned our place on the trucks and in the shelves and in what they call their sets. It's an important reflection of how the future is evolving for them. Last question about Coca-Cola. Is it ever awkward whether you're dealing with a customer or a distributor or maybe not a distributor but a customer or anyone? And is there ever an awkward moment when they realize, oh, wait a minute, this product that I love, this honest tea that I love so much, is actually part of Coca-Cola, which for some people may be seen as the evil empire? Sure. Well, there's always a perceived dissonance when an organic fair trade brand is part of a large multinational. Those just sound a little dissonant.

But when I can explain to people about our ability to grow, just some of the numbers I look at, when Coke invested, we were in 15,000 stores. Today, we're in over 100,000 stores. And when I can talk about when Coke invested, we were buying 800,000 pounds of organic ingredients. This year, we'll buy over 5 million pounds of organic ingredients. That helps them appreciate that from a mission-driven perspective, the impact has changed. Coming up, more with Seth Goldman. Stay right here. This is Motley Fool Money.

If you've got the money, I've got the time. time. We'll go honky-tonking and we'll have a time. We'll make all the night spots, do the town a fine. If you've got the money, honey, I got the time. Welcome back to Motley Fool Money. Chris Hill here in studio with Seth Goldman, the founder of Honest Tea. How big a part of your business are the kids' drinks, the juices, the lemonades, that sort of thing? Well, we have a line called Honest Kids that's really focused to drink pouch and it has exploded. And we're both thrilled and still surprised by not just how it's now over 30% of our total business and it's growing in over 30% a year while the category itself is shrinking. So to me, it's a real reflection of, there's no

question it's premium. I mean, it's more expensive than the other products out there, but it is also dramatically different calorie-wise. It's 40 calories versus most of them at 100 calories. And so it is, we call it, it's not the sweet spot. It's just a tad sweet spot. And what's so interesting about Honest Kids, if you were to do a market test, a taste test with it, we would lose because any kid is going to choose a sweeter drink. But in a lunchbox, there's one option and kids get comfortable with it. You can have this drink or you can go thirsty. I've had that conversation with my kids.

Now, do you have someone working in the labs on the pouch technology? Because, and I may be alone as a parent here, but I have the darndest time trying to actually puncture the thing with the straw. Sometimes I pull out a meat thermometer, which is not the best thing to do in front of my kids. Oh, and that's a good suggestion. It's very frustrating. It is a, it's the best package, or the worst package except for all the others. So it's very environmentally efficient, and that's why we've stuck with it. But we are working to find ways to make it more user-friendly or more kid-friendly,

or in this case, often more teacher-friendly, because it's a challenge. We've seen plenty of companies go public this year, more this year than any time since, I think, 2007. And when you look at, and maybe it's not you, maybe it's one of your colleagues, do any of you ever look at, for example, a noodles and company going public day one, the stock price shoots to the moon and you think, ah, we should have held out. We should have gone public. Not for a second. Just to look at some of the parallels. So back in 2007, when we were growing, but also faced the decision of whether to sell, Jones Soda Company was a market cap of over $750 million. But they didn't have access to distribution. Now their market cap is under

$30 million. So for me, it's a great reflection. And I've been on boards of some companies that have just sold. And it was, the public markets can do a lot, but in the beverage distribution world, the distribution is so key. And just having money in the bank doesn't get you more access to customers. What is the next big thing for Honest Tea? What is the thing that you are working on that you're particularly excited about? Well, it's the expansion. I mean, we'll do over a hundred million dollars in sales this year, and that's nice. It's not anything to shake a stick at. But we need to think about how we get into more mainstream, not just channels, but mindsets. How do we get more people to adopt our product and our approach to food and to nature? And so

some of the ways we're doing that is we're actually now in a conversation with a national restaurant chain, one of the five largest in the country, to look at having Honest Tea be a core part of their daily offerings, not just the special or during Organic Harvest Month. It's you know, every day. So that's just extremely exciting for us. And then whether it's a marketing campaign or messaging, how do we make it more accessible? And so those are the kind of things we're working on. You're listening to Motley Fool Money, talking with Seth Goldman, co-founder of Honest Tea. His new book is Mission in a Bottle, The Honest Guide to Doing Business Differently and Succeeding. This might anger some of your colleagues at Coca-Cola, but I'll ask it

anyway. Steve Ballmer from Microsoft has been in the news recently. He will step down as CEO at some point over the next 12 months. And one of the names being floated as a potential replacement is Alan Mulally, the CEO at Ford. So that got me thinking. If John Mackey at Whole Foods picks up the phone and calls you, or Howard Schultz at a Starbucks and says, Seth, I'm thinking about winding down my time here. I've done all that I want to accomplish at Whole Foods and or Starbucks. And I'm thinking about who's going to sit in the chair when I'm gone. Are you taking a call? Are you taking a call from John Mackey or Howard Schultz? It's very flattering to put it that way. I got to say, I'm still excited. I know this

sounds weird because I've been doing this for more than 15 years, but I still feel like this is the mission I've been destined to build. And as much as we're over $100 million, dollars. The goal is to get this to a billion. So I still feel like there's a lot of unfinished work. You know, that said, if anything, I think my, not that I've contemplated it, but my next phase may be more in the public sector. I'm thinking about how can I continue to be an advocate for this approach to a broader, you know, societal change. Now, in a previous life, you were involved in investing with Calvert. Your company seems to fit perfectly in the universe of what some in the investing world think of as socially responsible investing. What is your take

on socially responsible investing? Well, what's interesting, so a company like ours actually wouldn't normally meet Calvert's criteria in the sense, not from the mission perspective, just because we weren't publicly traded. So Calvert did have a small portfolio where they would invest in what we would call either the high impact investments or the special equity investments. But what I've found meaningful in the mutual funds, the public markets, is being able to give consumers and empower them to be able to understand how their money is being invested. And so one of the things I worked on at Calvert and actually still focus on with Honesty is making sure my retirement money is, I have a choice. And if I don't want to invest in tobacco

stocks, don't put my money in a mutual fund that's going to invest in tobacco stocks. So I think This is, you know, choice and transparency are really important. And so, you know, one of the issues I've had with Coca-Cola, now that our 401k is moving into Coca-Cola's, is I want to make sure they have those options. A lot of times that's just not something employers think about. So I think it's important as a choice. As an investment strategy, I'm not going to try to argue that it's going to deliver better returns. I'm confident it can deliver market returns. I think in the long term, depends how long term you phrase it, but I think in the long term, you're investing in companies that have a more forward-looking understanding of their responsibilities and commitment to the public welfare.

So, I think there'll be better bets over the long term. Now, last question. Even before that, once upon a time, you were a wrestler. A very bad wrestler. You wrote something earlier this year, a blog post about wrestling. Yeah. Any takeaways for investors about wrestling? For me, the reference was to the fact that as an entrepreneur, I've had to deal with so much defeat and so many setbacks.

One of the best preparations I had was being able to bounce back and to be resilient. And I think today, if we look at the way our kids are being raised with helicopter parents and sort of being there to give them an award no matter how good or bad they are, it's like, you know what? Kids need to experience failure. Everyone needs to experience failure. Not that it's – I should wish it on anybody, but you can't really understand what success means and why it's important until you've, you know, looked up – you've been on the mat and you're down for the – literally down for the count and found a way to fight off your back. And, you know, as a culture, I worry about our ability to develop a resilient entrepreneurial group of people because we just haven't let them get challenged and experience defeat. The book is Mission in a Bottle, The Honest Guide to Doing Business Differently and Succeeding. It is already a Wall Street Journal bestseller.

Seth Goldman, thanks so much for being here again. It's great to be with you, Chris. You know, we kicked off this week's show talking about the government shutdown. At the center of that dispute is Obamacare. We've got a special free report entitled Everything You Need to Know About Obamacare. It's got what it means for your taxes, the impact on your portfolio, why hospital stocks are the big winners, what it means for health insurers, big pharma, and a host of other industries. And you can get this free report simply by dropping us an email,

Obamacare at fool.com. That's Obamacare, all one word, at fool.com. Just in the few seconds we have left, Steve Broido, my man on the other side of the glass. The government shutdown, has it affected you at all? I know a lot of people in this area, obviously it's their jobs, but for people who aren't in the federal government, it's not being able to go to national parks. My wife works for the federal government, so yes, very much so, and how.

I'm sorry about that, man. I hope it ends soon. Me too. So does our family. That is going to do it for this edition of Motley Fool Money. The show is mixed by Gail Añonuevo. Our engineer is Steve Broido. Our producer is Matt Greer.

I'm Chris Hill. Thanks for listening. We'll see you next week.