WEBVTT - Lakeview's Rothbort on Kroger: Much Better Buy Than WFM (Audio)

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<v Speaker 1>Global business news twenty four hours a day at Bloomberg

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<v Speaker 1>This is a Bloomberg Business Flash from Bloomberg World Handquarters.

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<v Speaker 1>I'm Charlie, held out the dial. The SMP nez dat

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<v Speaker 1>continue to slump. Stocks are falling in the worst sell

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<v Speaker 1>off since the UK voted to leave the European Union,

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<v Speaker 1>Britain leaving the European Union after a Federal Reserve official

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<v Speaker 1>signaled more willingness to raise interest rates Right now, the

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<v Speaker 1>SMP down forty four points at thirty seven, a drop

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<v Speaker 1>there of two percent. Navs stacked down a hundred and

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<v Speaker 1>thirteen points, a drop there of two point two percent. Down,

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<v Speaker 1>Industrials now down three hundred twenty points, a drop of

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<v Speaker 1>one point seven percent. The tenure down thirty seconds had

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<v Speaker 1>yield one point six eight percent, Gold down eight to

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<v Speaker 1>thirteen twenty nine, a drop of six tents of one percent.

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<v Speaker 1>And crude oil West Texas Intermedia Crude down three and

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<v Speaker 1>a half percent, dropping a dollar sixty seven of barrel

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<v Speaker 1>to I'm Charlie Pellot. That's a Bloomberg business flash. You're

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<v Speaker 1>listening to Taking stock with Pim Fox and Kathleen Hayes

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<v Speaker 1>on Bloomberg Radio. All right, let's bring in Scott roth

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<v Speaker 1>for right now. He is president and founder of Lakeview

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<v Speaker 1>Asset Management, and he joins us from the great state

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<v Speaker 1>of New Jersey. Scott, Uh, we're gonna talk a little

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<v Speaker 1>bit about supermarkets and food retailers because they've had a horrible,

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<v Speaker 1>horrible week, um, getting really crushed, except for the fact

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<v Speaker 1>that Kroger is doing well today, um after putting out earnings.

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<v Speaker 1>So what's going on with Kroger. Well, you know, I

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<v Speaker 1>think that when you're looking at the industry right now,

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<v Speaker 1>people are looking at what happened with Sprouts Farmers Market

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<v Speaker 1>earlier in the week and Whole Foods earlier in the summer,

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<v Speaker 1>and both of those stocks have have ciently had problems recently,

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<v Speaker 1>and and Kroger as well had really been so both

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<v Speaker 1>hard from it, it's highs. Kroger is somewhere. Um it's

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<v Speaker 1>kind of a hybrid type of operation. Uh. It's it's

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<v Speaker 1>part Costco because it does sell gasoline. Um, it is

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<v Speaker 1>part Whole Foods because the Kroger is trying to bring

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<v Speaker 1>in organic foods into the mix. And it's part of

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<v Speaker 1>the traditional uh you know path Mark type of of

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<v Speaker 1>a restaurant chain. They also happened to be the the uh,

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<v Speaker 1>in my opinion, the best managed company the entire industry.

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<v Speaker 1>And they have a larger buy back plan on and

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<v Speaker 1>and they're very opportunistic. UM. So the company reported results today. UM.

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<v Speaker 1>Their margins were down very slightly because of food prices. UH.

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<v Speaker 1>They kind of trimmed backed their guidance, but overall it

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<v Speaker 1>wasn't all about it that bed of a quarter. Comps

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<v Speaker 1>are doing well, especially once you factor out the gasoline

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<v Speaker 1>side of the business. UM. And I think they have

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<v Speaker 1>a good mix of business as opposed to when you

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<v Speaker 1>look at Whole Foods and Sprouts, which really are more

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<v Speaker 1>focused on the organic side of the business. It's only

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<v Speaker 1>about of Kroger's business right now. UM. But it's the

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<v Speaker 1>healthcare costs and the pension costs paying people that's hurting them, right,

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<v Speaker 1>That's only part of it. Um. Uh, pensions are hurting them.

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<v Speaker 1>UM and UM. Look, these two companies are experiencing growth,

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<v Speaker 1>you know, growth pains. UM. It happens. You know, you

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<v Speaker 1>start out in these industries, um, and you know you

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<v Speaker 1>grow slowly and you you get you know, white acceptance.

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<v Speaker 1>But you know, as time goes on UM. While you're

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<v Speaker 1>selling a higher priced organic UM product to people, you're

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<v Speaker 1>still managing with lower cost UH inputs. And now what

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<v Speaker 1>they're funding is that things like you know, pensions are

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<v Speaker 1>starting to hit them, healthcare costs which didn't hit them before. UH.

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<v Speaker 1>And so they're they're they're maturing here and and they're

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<v Speaker 1>beginning to experience UH some of the complexities of maturing businesses.

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<v Speaker 1>Scott Rothbort Kroger has undred stores around the country, Kroger

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<v Speaker 1>of course the brand name Ralphs as well as Dylan's.

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<v Speaker 1>The stock is down, you know since the beginning of

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<v Speaker 1>the year. Is it worth buying Kroger KR at thirty

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<v Speaker 1>six to share well him? As you know, we run

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<v Speaker 1>a separate restaurant and food portfolio and put our newsletter

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<v Speaker 1>h within the last few days we actually bought some

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<v Speaker 1>Kroger before it during his couple of days before UM

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<v Speaker 1>has a decent divon yield of one point five. We

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<v Speaker 1>thought that that all the BED news as already in

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<v Speaker 1>the stock. With the stock coming down from a fifty

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<v Speaker 1>two week high of forty two seventy five down into

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<v Speaker 1>that's today, I mean in today training it hit aft

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<v Speaker 1>two week low. Uh it it actually a couple of

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<v Speaker 1>days ago, but but we're pretty close to it today.

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<v Speaker 1>And of course the stock is up on the day. Yeah.

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<v Speaker 1>I don't see the stock going much lower. And I

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<v Speaker 1>think this company has the ability to manage through the storm,

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<v Speaker 1>if you want to call that in in the grocery industry.

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<v Speaker 1>And because they don't have the exposure to exposure to

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<v Speaker 1>the organic end of the business where we're seeing food

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<v Speaker 1>costs come down tremendously and there's pressure on companies like

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<v Speaker 1>Sprouts and Whole Food to lower their prices to the

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<v Speaker 1>end consumer, Prober really doesn't have it because Probo gives

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<v Speaker 1>you a choice. You can buy the traditional head of

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<v Speaker 1>lettuce or you can buy an organic head of lettuce.

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<v Speaker 1>And I think that's the big difference that's going on here.

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<v Speaker 1>But also fund actually quite fascinating also is that that

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<v Speaker 1>the comps a Whole Foods were down, yet the comps

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<v Speaker 1>at Sprouts were higher. Um and you knows, as I

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<v Speaker 1>tell my students at at UM at Setonhole University where

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<v Speaker 1>it teaches in the snance department, when you look at comps,

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<v Speaker 1>you really have to dig down through comps and comps

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<v Speaker 1>have three different aspects to him, it's a traffic how

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<v Speaker 1>many people come into the store, the price, um, you know,

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<v Speaker 1>the price of the products, and the ticket side, how

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<v Speaker 1>much you are actually buying. And so I think we

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<v Speaker 1>we we've got to deconstruct um the comps for all

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<v Speaker 1>these stores based upon those three uh different aspects of comps.

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<v Speaker 1>And I think what's happening that Sprouts and Whole Foods

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<v Speaker 1>are starting to see their their traffic flowing uh to

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<v Speaker 1>Kroger's or other chains that are not organic but do

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<v Speaker 1>have organic offerings. So you like the stock at about

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<v Speaker 1>thirty one and a half dollars to share. But if

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<v Speaker 1>you pull up him, if you pull up the c

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<v Speaker 1>o MP on the Bloomberg can take a five year

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<v Speaker 1>look at Kroger over the last five years, including reinvested

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<v Speaker 1>dividends right the S and P and the consumer stage. No,

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<v Speaker 1>no contest, Kroger did much better. Yeah, it's tripled, you know, Uh,

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<v Speaker 1>the SPS only doubled, and Whole Food is you know,

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<v Speaker 1>down over the last five years. So you know, Kroger

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<v Speaker 1>understands how to manage um east to west and north

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<v Speaker 1>to south in this country, both in a flute areas

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<v Speaker 1>and just regular, you know, middle and lower class areas.

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<v Speaker 1>Whole Foods doesn't understand how to do that because they

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<v Speaker 1>can't appeal to every consumer. So, you know, plus Kroger's

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<v Speaker 1>understands how to manage through good and bad economic times.

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<v Speaker 1>Wholefoods doesn't understand that. We do want a little bit

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<v Speaker 1>of Whole Foods because we want to be in the stock,

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<v Speaker 1>But I think Roger is a much better buy at

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<v Speaker 1>this point in time. We've gotta run, Thanks very much,

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<v Speaker 1>Scott Rothford. He is the president founder lake View Asset Management.

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<v Speaker 1>This is Bloomberg coming up on taking stock. We're going

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<v Speaker 1>to take stock of Jesse Ventura, former governor of Minnesota.

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<v Speaker 1>He's gung ho on his marijuana manifesto. Will tell you

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<v Speaker 1>what it is next