Stocks In Focus: Markel, July 30 2025

0:10G'day, I'm Scott Phillips from The Motley Fool and welcome to Motley Fool Stocks in Focus, our weekly series on both the Motley Fool Money podcast and on our YouTube channel, where we peeled the covers back a little bit on one of the companies that are either widely owned, in the news, we all might maybe know and love. And this one probably meets all of those three tests. And to go through it, I'm joined by Motley Fool Analyst, Vincent Wales. Vincent, g'day. Hello, Scott. Good morning. Mate, we are going to talk about Woolworths. Now, I think everyone probably knows Woolies, So we will talk about it in a second.

0:44Before we do, I'm going to throw a quick plug in and a bit of a quick description. So firstly, I want to say, if you are watching this on YouTube, thank you. Thanks for checking it out. If you're not already subscribed to the channel, please do us a favor. Hit the like button on the video if you don't mind. It's good for me, good for Vincent, good for our egos, but also helps other people find the video. And then if you hit the subscribe button and the notification bell, we'll release new stuff. We do one of these every week. We do stock of the month, once a month. We do what I've been reading, Motley Fool TV, lots of great stuff on the YouTube channel.

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1:40So please keep that in mind. We can tell you what we think about a company or an investment. We can't tell you what you personally should do about it. That's your job. With all that, a personal financial advisor. Go and seek some advice if you need it. All right, mate. Let's chat about Woolworths. The code is W-O-W on the ASX. I think we all think we know what it does. We probably do. But give us the cook's tour of the company known as Woolworths. Yeah, it seems a bit superfluous going through Woolworths. So I thought I'd start with a factoid, which is quite interesting. It started in 1924, and it used to be called, I've got to check what it used to be called here.

2:12Initially, it was one shop called the Stupendous Bargain Basement Shop. That was what Woolies started off. So it was basically a dollar shop selling pots and pans and stuff like that. But as we all know now, it's Australia's largest, in terms of footprint, supermarkets, known as the Fresh Food People. That's their tagline. along so we all know the main supermarkets the new metros which are the smaller versions which everyone's probably been seen rolling out more and more in the uh more recent stores it's got the big w which is kind of discount uh department store probably the best description of it it has described it has tried uh moving a bit beyond that in endeavor which was its kind of alcohol division but it sold that more recently so obviously everyone knows it's strong brand recognition, putting up market share about high 30s in what's quite a relatively concentrated market.

3:11Beautifully, nicely done, mate. Yeah, Woolies on almost every corner. So plenty of people will know, maybe love, maybe not love Woolies. Some of the best repeat customer business in the country, by the way. We think about software as having high repeat customer uses. I reckon most of us shop in Woolies and or Coles most weeks, if not more than once a week. Mate, let's go to the investment case then, because a big, well-known company can be a great investment or not, depending on what the business actually is like under the proverbial bonnet. So tell us about some of the pros. Tell us about the investment case four.

3:38We'll get to the cons after that. Well, on the positive side, on the pros, it's obviously a very defensive stock. It doesn't matter what the economy is doing. You need groceries and food. So it's always got that supportive base to it, which means it's got a strong balance sheet. It's very cash generative, high turnover. And that means it's able to, produce a sustainable dividend profile, which is important for some investors. It is also quite a large investor in online shopping, which is becoming more popular, and the digital side of it. So that's like maybe one of its growth areas as well, strong areas as well.

4:17It's got economies of scale. It's really only got, obviously, it's got calls as a competitor and the smaller ones like Audi, but it's very hard to disrupt. It's not that easy to build out a network across Australia in groceries. So, of course, it's got the exposure to secondary stuff like health and convenience products, which it also does now. Yeah, nice summary, mate. It's Kaufland, the European retailer, decided to want to open in Australia. I think at even less the distribution centre eventually just went home, said, not too hard, we can't compete. So it does give you a sense of – now, by the way, some people say, well, that's monopoly power.

4:56Maybe it is. But if you're an investor and your own shares is something that is very hard to compete with, that's generally a pretty good starting point. May, let's flip the script. Let's go to the cons. You've laid out a nice argument as to why you might want to consider investing in Woolies. What would keep you away? What should viewers and listeners think about before they make an investment in Woolworths? Well, strangely, I think in some ways, the pros are also the cons. So it's a low margin industry. Obviously, that's the business model, which means it's good cash generation, but low margin.

5:29So it's gone a lot. As I mentioned before, it's a very competitive industry. Kohl's and Aldi nipping it on its heels, which keeps its profitability quite reined in and tight. And sometimes it operates on razor thin margins. You may not believe that looking at what you look at the news. but I recently came back from Europe. And if you think that food is expensive in Australia, try going to Germany and Switzerland and buying your food there. Obviously, the growth profile is relatively slow. It's linked to demographics, population of the country, general GDP. So it's not going to have the growth of, for example, a smaller company or one of the techs that have good margins of growth.

6:17It's also exposed to regulation, rising costs in higher inflationary environments, and it's also very Australia-focused. It's got limited international exposure for growth following its exit from its New Zealand exposure. Plenty of Australian companies have tried to go overseas and have failed dismally. Even Tesco tried to go to California, famously. Tesco, the big UK retailer, you would know well, Vincent, came back with a child between its legs. Very hard to expand internationally in general, and it seems really, really hard when it comes to groceries in particular. Motley Fool money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

7:04Mate, you've laid a nice composition of the pros and the cons. I guess now we're – now, this is not a formal recommendation of the Motley Fool. This is just our attempt, I said, to peel back the layers a little bit and give you a sense of what's under both the company's bonnet and the investment case. But I will ask you, Matt, we're long-term investors here at The Motley Fool. We take a five-plus year time horizon. I'm going to ask you to think about Woolies in that context, given the pros, given the cons, given the current price. And again, this is at the end of July 2025, so things will change.

7:32But from now, mate, what do you reckon the odds are? Is it likely to be a market beater, or is it likely to lag the ASX? So in my view, it's unlikely to be a market beater in the long term due to its mature profile, which we've just discussed. If you're looking for a sustainable dividend, that's obviously something to consider as that's one of your main things. But it's more likely to underperform or perhaps track the market in a bull market, more bull market background. And of course, it's defensive qualities. It's higher chance of outperforming in bearish conditions. But overall, I think it's really more of a market tracker.

8:14It's a steady eddy, and it's going to be difficult to outperform the market over, say, a five-year period. Very nice. Thank you, Vince. That's Woolworths. W-O-W is the code. Thanks for listening on the podcast. Thanks for watching on YouTube. Subscribe to both for lots more great content. From The Motley Fool. And until we speak again, fool on.