ELON MUSK, SPACEX and TOOTHPASTE?

In 2006, Iron Man director, Jon Favreau, and its star, Robert Downey Jr., were developing the Tony Stark character for the Iron Man film and they had a big problem. They were trying to bring the character of a fast talking genius billionaire Tony Stark to the big screen but had no idea how to make him seem real or likeable. Makes sense. Most people hate rich people who have it all. Where do you find a billionaire with advanced engineering degrees, is a playboy, parties with the global elite that the audience would cheer for? Robert Downey Jr. heard about Elon Musk and got a personal tour of SpaceX. Robert was blown away with the meeting and what he saw at the facility. SpaceX is a company that designs, manufactures and launches advanced rockets and spacecraft. The company was founded in 2002 by Elon Musk to revolutionize space technology. Real life Iron Man stuff. Robert met many people in the technology sector but no one was like Elon so he decided to use Elon Musk as "inspiration" in his portrayal of Tony Stark on screen. Iron Man released in 2008 and went on to earn $600 million at the box office. It was a blockbuster.

In Iron Man 2, Elon Musk made an on-screen cameo appearance and allowed some of the filming to occur at SpaceX.

Elon has a strong track record of succeeding in any industry he focuses on. In 1995, Musk quit graduate school at Stanford University to co-found PayPal, an online financial service that allows people to pay for items using a secure internet account. PayPal has disrupted the finance industry and is considered a major threat to traditional banking today. eBay purchased PayPal in 2002 for $1.5 billion, Musk made $180 million from the sale which he used to invest in Telsa and SpaceX.

Elon Musk invested $50 million in Tesla and became the CEO. Tesla is an electric vehicle company based in California that focuses on electric cars, solar and renewable energy solutions. Today he is the largest individual shareholder of Tesla, if the stock does well, he does well financially. The stock did nothing for 15 years. As of October 2019 the stock price was under $50 a share. The stock closed at $880 recently. The total market value of Tesla today is a staggering $834 billion US.

Check out below to see how Tesla’s current market value compares with global automakers:

Toyota: $215 billion

Volkswagen: $103 billion

Daimler: $74 billion

General Motors: $61 billion

BMW: $52 billion

Honda: $48 billion

Ferrari: $41 billion

Fiat Chrysler: $35 billion

Ford: $35 billion

Nissan: $22 billion

*Total Market Value : $471 billion

*Tesla Market Value: $834 billion

*Based on Friday, January 8, 2020 stock prices

You saw that right. Tesla’s is worth almost two times more than all the global automakers put together. Other than never having to pay for gas again, Lou Shipley’s article in the Harvard Business Review (Feb. 28, 2020) stated clearly why Tesla had the upper hand on traditional automakers:

“Software is a big part of Tesla’s advantage.

The biggest challenge leading automakers face is that they lack the expertise required to compete in the age of the software car.Tesla builds cars by developing software on unique hardware. This enables the company to improve its cars’ software functionality every few weeks. This is in sharp contrast to the traditional auto industry model where the product is the same for as long as you drive it.

Also with fewer parts, the total cost of Tesla ownership is significantly lower than an internal combustion vehicle. There’s no need for expensive oil changes, tune ups, replacing mufflers, and the like. This simplicity dramatically reduces the consumers total cost of ownership.”

Friday, January 8, 2020, Elon Musk passed Amazon founder Jeff Bezos in net worth, becoming the richest man in the world. His net worth hit over $205 billion US.

Elon’s personal net worth on Friday was higher than the value of Exxon Mobil Corporation ($192 billion US). Exxon Mobil is the world's largest publicly traded oil and gas company operating in six continents and in most countries. Elon has publicly stated how much he hates the oil and gas industry and that Tesla's goal is to destroy the oil industry. It has gained a lot of media attention, Stanford economist Tony Seba has stated that electric vehicles, such as Tesla, will kill the global oil industry by 2030. This helps explain why so many investors have been selling their shares in oil and gas companies and buying up shares in Tesla.

The auto and oil industries aren’t the only ones getting rocked by Elon Musk. the entire aerospace sector is paying attention to what’s happening at SpaceX. I mentioned earlier that Musk founded SpaceX, of which he is CEO and lead designer. SpaceX has developed a reusable rocket and launch system to significantly reduce the cost of space flight. Making a launch vehicle reusable is very difficult. It took SpaceX 14 years to do it. It was a large investment for them and it required modern technologies that did not exist when they started. SpaceX even managed to land a rocket on a floating stage in the Atlantic Ocean. This is the ultimate in rocket science technology. Unlike Tesla, SpaceX is a private company but according to Forbes was valued at over $46 billion in August 2020 (he invested about $100 million in it back in 2002).

Prior to SpaceX, most spacecraft were built by publicly owned and government-funded companies such as Boeing. According to its website, Boeing is the world's largest aerospace company valued at about $115 billion and was started in 1916. It is the leading manufacturer of commercial jetliners, defence and space and security systems. It employs more than 153,000 people in more than 65 countries.

No one thought Elon Musk’s SpaceX would ever be a legitimate competitor to Boeing but it has been winning some major contracts from NASA while Boeing has struggled. In March 2019, the Boeing 737 MAX passenger airliner was grounded worldwide after 346 people died in two crashes. This was a huge blow to Boeing and shook the company to its core. Meanwhile, SpaceX is going from strength to strength. You can bet SpaceX is giving Boeing and other aerospace companies many sleepless nights.

Elon even disrupted Hollywood. If Robert Downey Jr. didn’t get the Tony Stark character right the Iron Man movies would not have taken off. It was a huge risk at the time. Years of bad publicity and multiple arrests related to drug/alcohol abuse made the actor a risk for Marvel Studios. He had been nearly unemployable in Hollywood for several years. Marvel Studios last film was Howard the Duck, a disaster at the box office back in the 1980’s. Also no one in Hollywood wanted to make movies on the Avengers. Sony Pictures turned down a chance to buy all of Marvel’s movie rights for only $25 million back in 1998. Sony only wanted Spiderman.

As stated earlier, Elon was the inspiration for Tony Stark. Everything changed when the first Iron Man movie became a global box office hit. Disney saw an opportunity and bought Marvel for about $4 billion. The executives at Sony Pictures didn’t look so smart now. Since the purchase Disney has earned more than $18 billion at the global box office from the Marvel superhero movies. Robert went on to play Iron man in 10 Marvel films and paved the way for other Avengers movies such as the Incredible Hulk, Thor, Captain America, Guardians of the Galaxy and Black Panther. He even has an important role in the new Spiderman movies. This does not include the billions in merchandising that Disney has made since the Marvel purchase.

If that wasn’t enough for you, Elon Musk was an Executive Producer for Thank You for Smoking (2006 film). He and his PayPal friends financed the film’s budget, under $10 million, when no one in Hollywood wanted to touch it. The film went on to earn $40 million at the box office and it made an additional $16 million in DVD sales in the US. This was before streaming became popular. It is now available to view on Amazon Prime/Netflix.

Elon Musk owns several other companies, and they are transforming the industries in which they operate. They include: automotive, aerospace, telecommunications, energy, transportation, infrastructure/tunneling, artificial intelligence and healthcare.

As a shareholder you don’t want to own a company that is directly competing with one of Elon Musk’s companies. So with all this disruption where can someone invest where new technology or innovation won’t destroy the company overnight?

The answer according to our research is toothpaste. Oral care if you really want to get technical.

Have you ever seen Charlie and the Chocolate Factory? In the book and 2005 film, Charlie’s dad used to work in the toothpaste factory, screwing the lids onto tubes, until he was replaced by a machine that was cheaper and more efficient.

The toothpaste business is very interesting. There are only a handful of companies that make toothpaste around the world even though it’s a fairly simple business. Companies such as Colgate-Palmolive Company (Colgate) and Procter & Gamble (P&G) have been around for over hundred years. Despite what happened to Charlie’s Dad’s job, the toothpaste business in general has low risk of technological disruption. I don’t see Elon, Amazon, Google or Apple disrupting the industry, yet.

In the United States, Colgate's 2019 share of the toothpaste market was 35%. Crest and Oral B, divisions of P&G, had about 35% market share as well. They are always close. The Coca-cola and Pepsi of the oral care market. In 2019, Crest 3D White was the leading U.S. toothpaste brand with sales of $263.9 million U.S.

It’s a different story globally.

Colgate has a worldwide dominance in the oral care market (toothpaste, toothbrush dental floss and mouthwash). It owns 41% of the global toothpaste market and 31% of toothbrush sales based on 2019 data. In other words, they are #1 in the toothpaste and toothbrush market globally. They are #2 in the mouthwash market. All this information is available to the public in Colgate’s Annual Report.

The world’s population is reaching close to 8 billion people. Most of these people brush their teeth at least once a day. Some brush twice a day. So almost half the world wakes up every morning and uses Colgate toothpaste. I can’t think of a product or company that has that kind of reach. According to P&G recent annual report, Crest brand (includes Oral-B) had the number two market share position with nearly 20% global market share. That is way behind Colgate. And other competitors aren’t even close. Let’s look at the global numbers.

Colgate has been in key emerging markets for a very long time. For example, the company entered Mexico in 1925, Brazil in 1927, and India in 1937. Colgate's toothpaste market share exceeds 80% in Mexico, 80% in Brazil and 30% in China, 30% in Russia, 50% in South Africa and nearly 60% in Australia. It has more than 50% market share in the oral care market in India. India’s population is approaching 1.4 billion people. Crest doesn’t even show up in the top 5 in terms of market share in India.

Colgate’s dominance in Latin America is incredible considering “Colgate” means “go hang yourself” in Spanish. Hate to be the first person in charge of Marketing/Advertising when Colgate entered the Mexico market.

You don’t have to be a dentist to understand that cavities remain a global problem affecting a large percentage of the world’s population. Most dentists recommend brushing twice a day and flossing. That makes Colgate a business with huge staying power and room for future growth.

Colgate’s gross profit margins are just over 60% (been increasing for years) and are up there with Coca-cola and Google. The higher the gross profit margin number the better. The oral care business is very profitable. P&G’s gross profit margin is less than 50%. Colgate wins again.

The history of Colgate is interesting. The Colgate family fled from England and settled in America during the Civil war. They had to leave England because they had sympathized with the Americans during their fight for independence. So, in March 1795, the Colgate family members boarded the ship and arrived in America. They settled on a farm.

The young William Colgate left the family farm and started a small soap and candle business in New York City in 1806. Colgate entered the oral hygiene market in 1873 and during the initial days, the toothpaste was sold in glass jars. In 1896, Colgate became the first brand to sell toothpaste in a collapsible tube. Wow, talk about innovation. I am being sarcastic.

In 1955, Colgate lost its number-one ranking in the toothpaste market when its rival Procter & Gamble Co. began selling Crest, the first toothpaste with fluoride. Colgate added MFP fluoride (sodium monofluorophosphate), an enamel strengthener and cavity reducer, to its toothpaste in 1968. Colgate Total, a line of toothpaste designed to protect against a number of conditions including gingivitis, was introduced in 1997. That’s about it! No major technological breakthrough in almost 23 years and still number one globally.

Today Colgate-Palmolive Company is a publicly traded consumer products company with $15.7 billion of worldwide net sales in 2019. Oral care is Colgate's largest segment, accounting for 46% of annual revenue. It is the world's largest toothpaste maker.

In addition to its oral care line, the firm manufactures shampoos, shower gels, deodorants, and home care products that are sold in over 200 countries around the world (international sales account for about 70% of its consolidated total). It sells popular soaps, deodorants, dishwashing liquids, and cleaners under powerful brands like Palmolive, Speed Stick, and Ajax.

Colgate-Palmolive has paid uninterrupted dividends on its common stock since 1895 and has increased payments for at least 57 years. Let that sink in for a minute. Currently, the dividend yields 2.5% annually, and with a payout ratio of around 52%, Colgate should have little difficulty continuing to make the payment. It’s a cashflow machine.

Investing in stocks and building your portfolio is like rocket science. When you launch a rocket, if your trajectory is off by inches at launch, you can be off by miles out in orbit. It’s important to have so-called “boring” companies in your portfolio. They provide a firm foundation and help power returns over the long-term.

In the late 1990’s when my parents were studying business in university, the professors never talked about companies like Colgate. Instead they talked about sexy technology companies building the hardware for the Internet. These companies included Cisco Systems, Intel, Oracle, Nortel (bankrupt), Yahoo (sold to Verizon cheap) and Sun Microsystems (sold to Oracle cheap). Funny thing is if you bought all those stocks in 1999 and held them today, Colgate’s total stock return would be at least three times higher than the tech group’s returns combined. Check out the stock charts below.

And check out Colgate's stock:

20 years later, the university professors and the media still don’t like talking about companies like Colgate. They are too busy reporting on technology companies and what Elon Musk is doing. The real life Iron Man is more exciting to talk about at parties than toothpaste. Oh well, boring is good over the long-term.