I originally bought into Einstein Noah Restaurant Group (BAGL) on 10/21/09 for $13.19 after it had been running against a longer term 61.8% line which seemed bullish to me because the bears hadn’t been able to push it back down. I also liked them on a valuation basis because they compete with the likes of Starbucks (SBUX) and Panera Bread (PNRA) who are each fetching P/E’s more than twice as big as BAGL’s.
I sold about 2/3 of my position at $11.63 because the chart was breaking down. It proceeded to fall another 14% all the way down to $10 where I bought all my shares back for the discounted price of $10.12. They have revenue per share of $25 which compares to $44 and $13 for Panera Bread and Starbucks respectively. At the time of this writing, Starbucks is trading at a price to revenue per share ratio of 1.7 and Panera is trading at 1.4. Einstein Noah looks very good here with a ratio of just 0.4. They also are the best in terms of book value and price/sales.
I ran a discounted cash flow on Einstein Noah using the following values and it was undervalued under all of the circumstances. In an absolutely horrible situation, I think they could fall into the $8’s but in a best case scenario they could hit $25.
1.) Conservative Projection
Projected 5yr EPS Growth: 10
Terminal Growth Rate 4
Discount Rate: 12
Book Value/Share: -1
Price: $11.94 (10.6% Upside)
Projected 5yr EPS Growth: 15
Terminal Growth Rate: 4
Discount Rate: 10
Book Value/Share: -0.5
Price: $21.44 (98.7% upside)
Now before you get all excited, there are some risks though. Einstein Noah only has $11M in cash and is carrying $117M in debt. Their current ratio is .52 and they had negative total net assets to the tune of $10.5M in the most recent quarter although net common shareholder equity went positive for the first time in 2009. However, all of these negative issues have been improving of over the last couple of years and I think the low valuation more than accounts for the problems.
– Michael J. Burns
Disclosure: Long BAGL
Pretty simple rules based buy. Research in Motion (RIMM) should be trading above $60 using the most extraordinarily conservative projections according to discounted cash flows. It should trade around $80-90 using more realistic projections and around $110 using bullish scenarios.
$56.60 was also about 15% under my average price which usually calls for me to add more to my positions if I still feel good about them. I know there is lots of concern that Apple’s (AAPL) iPhone and the new Android competitors from Google (GOOG) such as the Motorola (MOT) Droid will hurt Research in Motion and to be honest I agree. However, I think that the concern has been overdone. Research in Motion is strongest in the business sector where the iPhone and other smart phones have irtually no traction. Corporate spending is falling now because of the recession but I would prefer to buy this fear rather than sell on it because it is temporary and only related to the recession.
The trend in mobile smart phones is strong and I believe Research in Motion will continue to capitalize on its growth.
Disclosure: Long RIMM and GOOG
Today, I bought the Shaw Group (SHAW, formerly SGR) at 28.20.
Shaw got slammed today by a triple team of two downgrades (to Neutral from Buy), a Nuclear Regulatory Commission report about a Westinghouse (of which SHAW owns a 20% stake) reactor saying it needed some more work, and pressure as the market reacted to GE’s and BAC’s unconvincing earnings reports. This morning, the stock was down almost 10%, and I saw that as a buying opportunity.
Despite the government standing in its way at every step, I feel the time is right for Nuclear. It is the only fuel source that can be effectively used in a large scale, for very few pennies per KWH, and emitting no greenhouse gases. Europeans, and the French in particular, have been using nuclear for decades, and get a significant amount of their electricity from uranium. While there are waste disposal issues, they are not insurmountable, and the plants have operated accident free. While many view Shaw’s minority stake in Westinghouse as a negative, I view it as a positive as it makes Shaw, which is primarily an infrastructure company, well positioned for when the Nuclear Regulatory Commission (NRC) begins issuing permits.
I will admit some luck in the timing of my purchase, as barely an hour after my purchase, Shaw issued a release concerning the NRC’s report on the Westinghouse reactor saying that the issues that were raised are surmountable, and they remain on schedule to have the first reactor installed and turned on by 2016. This caused their stock to rise by a percent and takes away a lot of the uncertainty that was swirling around.
The stock is priced at about a PE of 14 given analyst estimate of fiscal 2009 EPS of $2.00. This compares favorably with the PEs of their infrastructure peers like MDR (PE: 20), and nuclear peers like ES (PE: 26). During the times I have held the stock before, around $28 seems to be the sweet spot for accumulation, and the numbers corroborate that fact as I explained above. I will be holding the stock waiting for a price in the low-to-mid 30s, although should other news materialize I will of course adjust that target.
Shaw will report Q4 and Fiscal 2009 earnings at 5 pm EST on Thursday, October 29th. Analysts expect FY09 earnings of $2.00 and Q4 of $.47.
Disclosure: Long SHAW, no position in ES or MDR.
“When the facts change, I change my mind. What do you do sir?” – John Maynard Keynes
I bought SDS before the close yesterday (10/13) after looking at one of my more reliable long term technical indicators which predicted a fairly serious iminent fall in the market. Combined with the fact that Intel (INTC) and J.P. Morgan Chase (JPM) were reporting after the close and in the morning made me want to get some protection.
Their earnings not only had high expectations, but they are also bellwether of their industry and of the overall market. Had anything not gone off perfectly in their reports, the results would most likely have been bad with a run down to at least 1030 on the S&P. I also felt that Dow 10,000 could pose strong psychological resistance in the market
That being said, I heeded the wisdom of Mr. Keynes and covered the position early in the morning after anticipating a half gap fill. In the end I only lost 1.7% (including trading fees) on a trade that could have returned at least 5% easily. I also put on additional long positions which I will get into later.
I have bought NiSource (NI) today at a price of 14.08.
NiSource is the holding company for a group of subsidiaries, primarily utilities in the Mid West and extending through New England. While the company provides its customers with electricity and other products and services, it primarily focus is with natural gas, where it is involved with nearly every step in the process from storage and transportation to distribution.
At a PE of 14 based on this years expected earnings of just over a dollar, the company is competitively priced relative to its peers in the industry. They operate primarily in a region (the Mid-West) that hasn’t been as impacted by the economy as either of the coasts, although they do have exposure in the New England area.
A lot of buzz has been created recently as people hype (and sometimes over-hype) natural gas as an effective “bridge” fuel until the alternative energy industry gains mass appeal. It is clean-burning enough to satisfy the greens, and the major oil producers such as COP and BP have a large enough stake in it that is doesn’t face much opposition from fossil fuel backers. Price destruction recently has made Natural Gas a cheap source of energy, helping it gain momentum. NI seems very well placed to deliver on the Nat Gas boom, as it has well developed distribution networks, and a built-in customer base serviced by their various utility companies.
Ni is due to post earnings on October 30, and analysts have a consensus estimate for a loss of $.03. The summer quarters typically have low earnings as natural gas is used for heating in the winter.
Disclosure: Long NI, long BP.
I have bought VXX (the ETF that tracks the short-term VIX futures contracts) for two reasons.
First is a portfolio hedge against future volatility and a possible reversal in the stock market. As we approach earnings season, volatility generally rises as companies report beating, making, or getting crushed by their quarters expectations. Vix should perform better in this environment than it has recently. Also, should the market wake up to reality, and if corporate earnings come in worse than expected, the second characteristic of VIX, its use as a fear index, should help.
Secondly, as the chart below shows, VXX, and the VIX by proxy, has been declining for a long time. It was highly inflated during the credit crisis, and now has returned to relative normalcy during a time that is still non-normal. I see downside support at 47.54, and decided to front-run that a little bit.
Disclosure: Long VXX.
Just bought BNI, for a number of reasons. At a PE of 16, they are undervalued relative to the industry which has an average PE of 20. Their loads are diverse, without too much exposure to energy, unlike some of the canadian railroads. Geographically, they are in a strong position with an extensive network in the Mid-West, a location which has been hurt less in this downturn than either of the coasts, but also to the West with it’s valuable ports servicing Asia. They pay a dividend of $0.40 per quarter, which equates to a 2% yield that is well covered by earnings.
On the negative side, they are leveraged to macro-economic performance, and the GDP numbers that came out today do not instill confidence that the country is performing that well. They are also tied to consumers, and consumer spending, which did increase during the previous month, but is expected to decline again as the savings rate recovers after the government spending incentives expire. And while they may be cheap relative to their peers, the whole industry may be overvalued, as 20 sounds pretty lofty.
Technically, their stock is developing some strong signals that say buy. If you draw a regression channel from the bottom of the market in March to today (10/1/09), it is currently approaching the bottom of that channel, which coincides with a previous high, creating some good resistance. The Relative Strength index has taken a tick higher after being at the lowest level in months, and while volume has been declining steadily for months, as is has for all stocks, volume actually has started increasing and September volume was higher than August.
Disclosure: Long BNI, no positions in any other railroad stocks.