Motley Fool Hidden Gems Investing - Southwest Changes Seats

Episode Date: September 11, 2024

The airline is keeping its CEO, but losing a large chunk of its board. In the fight with Elliott Management, who’s winning?(00:21) Bill Mann and Mary Long discuss: Proposals for the US to develop a sovereign wealth fund The activist battle at Southwest Airlines Why Campbell’s dropped the “soup” Then, (13:52) Robert “Bro” 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. Check out the Range Rover Sport at www.landroverusa.com Join us at our live podcast recording in Denver with Bigger Pockets on Wednesday, September 18: https://www.meetup.com/biggerpockets/events/303028272/ Companies discussed: SWA, DLA, CPB Host: Mary Long Guests: Bill Mann, Robert Brokamp, Dave Hatter Producer: Ricky Mulvey Engineer: Tim Sparks, Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

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. Hey, Mary, how are you? I'm doing swell. How about yourself?

I have also swell. I am so glad to hear that. You know, 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 kind of nod to that to that event and maybe hit on an interesting policy proposal that I've caught whispers about recently. And I kind of 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, oh, we've been thinking about setting something similar up. These investment vehicles are already pretty popular in Asia and the Middle East. Norway has one. Why don't we currently have one here? What are the countries that have sovereign wealth funds have in common? They're small. ah it's close they have trade surpluses which the u.s 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 u.s we have

about five trillion dollars already in public pension funds which is kind of like a sovereign wealth fund it's very much the same kind of 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 stayed in their country, it would cause rampant inflation. So the sovereign wealth fund is a way to relieve pressure for inflation within these countries. We don't have this problem in the U.S. We have the U.S. 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 so no it's a

terrible terrible idea because the way that we would be uh funding a sovereign wealth fund would be from the general fund and the general budget of of the u.s it's 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 OK, I've got one more question for you, though. If it's such a bad idea, then why is there this sudden discussion about it? And not just discussion, but like seeming agreement, especially when agreement is so often so rare between the two parties. Well, let me ask you a question.

Do you think that do you think that government officials would like to have control over more or less money? Hmm. I'm going to go with more. Yeah. I mean, as always, we've already heard proposals to tax unrealized gains. It's a way to manage another part of the economy. And, you know, 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. So we don't have any real evidence that we're good at this, which doesn't mean that the government won't try, try and try again. Also, yesterday, we had a very different kind of debate played out.

This one happened in 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 this 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? Well, I mean, to the extent that this was a that this was a hostile conversation, you would have to say that the that the Southwest management team lost entirely, you know, to give up six board seats for, you know, to an activist investor who came in earlier in the year and has something on the order of 10 percent of the shares outstanding. uh this is elliot management style it is it is full full score a win for them i guess it's good for jordan to keep his uh to you to keep his role gary kelly basically posed that when he came on to be the executive chairman it was a temporary uh role for him i guess that's kind of true for everyone but you know but really specifically that that it was not he was not going to remain in the seat for 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, you know, to be able to say, hey, we have agreed to listen to you. We talk so often about the power of the CEO, even like Brian Nickel heading over to Starbucks. Oh, he's going to change things. But this is a reminder that there's there are there's a whole board behind and beside that one person. So as this Elliott Southwest situation continues, how much attention should investors be paying to whichever new candidates ultimately join the board and are and are forwarded by Elliott? Yeah, it's it's a it's kind of an open secret that the boards for most companies are generally speaking identified as candidates by the CEO or the management team. So in this case, Bob Jordan has not identified any of these

new six candidates. So, 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.

Kelly shared a letter with 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. So I read that and I think, OK, that's an interesting history lesson. But what does that history mean for Southwest today?

Yeah, it really is a funny example, because I think Delta by this point has gone, you chapter 33, which is chapter 11, three times. So 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 9-11 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 low discount, as a discount airline doesn't offer. And so 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. 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 this stuff. And oftentimes lounges kind of 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? Yeah, I think that probably Southwest has underinvested 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 back them tend to help with these types of capital investments. And so, 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. That said, I will admit I have coveted the Southwest Companion Pass since I knew that it existed. So, that feels like I do not have access to that loyalty perk, but that is something that I have long, 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. That 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? It hurts a little bit, doesn't it? It does. It's like the end of an era, but perhaps the start of a growth story. Perhaps. Well, so Campbell's Soup Company has been somewhat misnamed for a long time because they own Pepperidge Farm. They own Snyder's. 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. So, it's it's a reasonable thing for them to do it still does feel like you know recently here

they decided to drop the corner in tyson's corner and it's just tyson's i'm hostile about this maybe maybe i'm a bit of a traditionalist but i think that there are traditions that you should hold on to okay wait here's my quick question because i'm a d i grew up in the area was i knew this would hit you hard was this corner ever a corner it was i agree the name it's it's sad to be to lose that but i think that corner they cut they cut corners i'm sorry that was a little bit of a digression back to campbell's it is okay i think for companies like clorox for example owns hidden valley ranch you know the you you can be the name of the company that was the founding company and it is the aggregator but i think in in the case of campbell soup they're viewing the

soup part as being a little old school and you know you mentioned earlier that they are talking about a growth strategy what seems less growthy than soup well okay to that point another reveal from yesterday's meeting was this long-term growth algorithm that targets growing net sales two to three percent that doesn't feel very growthy to me well let's focus on the other part of that descriptor how long term right if you grow three percent for a long time i think that's going to work out really, really well. And 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 seven to nine percent per year. And again, if you offer me nine percent

growth in earnings per share over the long term and define the long term as long enough, that is a winning strategy. 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 Campbell's. Bill, thanks so much for joining me today and for sharing your insights on this variety of topics. I'm glad they didn't rename themselves Campbell's Meta. Can you imagine? Thanks, Mary. 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 BiggerPockets 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 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. Okay, up next, my colleague Robert Brokamp continues yesterday's conversation with Dave Hatter, a cybersecurity consultant at Interest IT about keeping your information safe in the wake of a massive social security data breach. 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? Yeah, that's a good question. So I'll tell you, again, 30 plus years in the business, the last seven or eight is focused exclusively on cybersecurity. I use a password manager. There's 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. And you can use sites like Consumer reports, ZDNet, CNET, Tom's Guide to research them. And if you find a password manager makes the top five lists across multiple places like that, well, that's going to be a good choice.

I'll come back to 1Password in a minute, but the bottom line is, if the password manager uses the right kind of 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, very difficult target. I can tell you, my password manager's master password is a 30-character phrase, good luck guessing. There's no way, and it's basically uncrackable. So 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. So wherever I am, I have access to my passwords all the time. And 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 password is. They're all literally the longest random password that they will accept.

So I go into my password manager. I say generate password. It syncs it up with that site. I change it. I'm done. So in a scenario, 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, okay, how do I come up with the right pattern and where do I write this down? So 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 kinds of 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 last or one password does not know my passwords, right?

The passwords get created, they get encrypted, they get synced to their servers. They don't know any of my passwords, right? So if you look into their technology and you know, there are other good ones out there. Again, it's not the only good one, but the way it's, 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, must, 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 passwords. 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. Yeah. In general, because let's, so let's be real here, right? 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, et cetera. 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. And 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. So 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 Taimou or TikTok or anything controlled by a Chinese company, you should check out the privacy settings and you should check out the privacy label. So Apple and their app store has a privacy label. 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 tell me why it needs the, I mean, 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? And 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 keep 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, well, okay, but then at least it's an informed consent kind of thing, right? So 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 tinfoil 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. So, people often get scammed because their identity has been stolen. Other ways that people get scammed is that they are contacted by people with false identities. And here we're talking about phishing through emails, smishing through text, or vishing through voicemails 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? It's a huge problem. And these data breaches make it worse. And 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's 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, I mean, this was a background check company, right? 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, a 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, voicemail, or text to you that says some terrible thing is about to happen if you don't do X? Yes. Yes. And 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. 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. And that just makes it that much easier for you to fall down the trap and into a rabbit hole of some kind of nefarious deed. So yeah, 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 sort of things to protect your data. So yeah, this is one of the

reasons why you should be extra vigilant. Even if you get a phone call, you get a text message, you get an email that seems to be super realistic, and they seem to only have information that only that organization will know you need to stop, take a breath and do what we nerds like to say is go out of band, right? 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 sort a 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. It is real. I mean, it happens all the time. So finally, if you are a victim of identity theft or some other kind of scam, what should you do? Well, if it's like 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 sort of 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.

So 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. And then the next thing I would suggest that you do would be go ahead and report it. So, 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, right? I mean, that's not going to happen. You know, in larger cases of fraud, $500,000 stolen from a business or something, you know,

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, right? Through their channels, through their X feed and their Facebook pages and through their emails and so forth. So when you report these kinds of 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 sort of, you know, law enforcement activity that's going to be needed at some point, but you're just helping raise awareness about the rest of society. And then again, back to freeze your 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 towards any further attacks. Because in many cases, you know, 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. So, 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, much more difficult target. 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 shockwaves 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 Mulvey, our engineer Tim Sparks, and myself, we all took a moment to talk about where we were on September 11th 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, and 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.