The Obviously-Going-To-Die Stocks

MarketFoolery
|

Automatic TRANSCRIPT

We're going to start with the stock of the day. Don't call it a comeback bed bath and beyond has been here for years. It's just all that time someone else was running the company but now that Mark Trittin has been in the Corner Office for about a year. We're seeing days like today second quarter profits came in exponentially higher than expected. Same store sales were positive for the first time in four years. The stock is up more than thirty percent this morning. I'm assuming at least part of what we're seeing with the stock is some shortsellers saying that's it. I. Think. I'm. Probably. Bed, bath, and congratulations to march written and Beth by best buy bed bath and beyond. For this quarter, March, written formerly of target, of course, and a few other places before that, I think Nordstrom's and I believe. He had a stint at Nike to could be misquoting. This bed bath and beyond is in a group of companies retailers that I like to call the obvious obviously going to die crowd. And the funny thing about companies that are obviously going to die when they get the right mix of management decision making and in some help from the environment and you know just a little bit of because no one's more aware of a company's struggles at least no one should be more aware of a company struggles then the people inside the company. And that's when you plan your strategy. What are our tools? How can we navigate our way through whatever we found ourselves in business is not easy and certainly for this group retailers that I'm Gonna I'm GONNA hold up. Bed Bath and beyond as one Chris. But you know how about Game Stop Game Stop. The seller of video game systems and Software that of course is going to be the next blockbuster. Right if they writing that headline since two thousand and nine, how `Bout Michael's the craft store everybody knows I. Y has an Amazon run over. And the granddaddy of all of these. Companies that are obviously going to fail. They're obviously going to be taken bricks and mortar is dead is best buy which just before the podcast we were talking about how? How many listeners? Realize, that best buy has been at ten bagger over the past decade they went through some struggles they brought in new management. WHO had a plan? and. I'm sure they were mocked and I'm sure people were skeptical and they executed on that plan and best buy, which was a sub twelve dollar stock in. Two Thousand Ten two thousand eleven is today roughly one hundred twenty dollars stock. And so when you see. I'm a kick myself a little bit on dust by iron best buy bed bath and beyond his too many bees. Bed Bath and beyond. I actually did a little bit of work about a year ago as I was discussing with one of our with one of our foolish coworkers. About this basket of Taylor's who are sure to die. And we had this one. We had game stop we have Michael on the docket and I went through you know what this company's history of cash flow was and what they've done with it and how they've raise capital, and this is before Mr Trenton came on but I. It laid the groundwork for someone with. A better vision to come in and knocked the ball out of the park which you've seen today and and best bed bath, and beyond is as we speak it's now a six th bagger since March of this year and so in the a roughly a year ago when I did my work because I was vigorously debating co I pointed out that in the previous six years here was bed bath and beyond had produced four point two, billion dollars in free cash flow. They had also issued one point five billion dollars in debt and debated smart about the debt because the debts. Basically staggered I think is a ten twenty and thirty years. and. They have to pay it back anytime soon, and they had gone on a massive buyback program. They've they've retired a ton of their shares. Now. Slowly melting ice cube no one's going to want to own this business what have you. But at the time the stock was about ten eleven dollars the company is training but four times enterprise value of free cash flow. that. That is rock bottom fools that is something that is going to go away. That's what the market is telling you. Flash, forward, to today and oh positive cops. Oh. We have a plant. They've they've suspended their dividend they've they've halted their. They've halted their. They suspended the dividend halted their share buyback plan I believe in. April. But with this. With this. report, they have generated a ton of cash flow. They've deployed it smartly they took down some temporary which they had out as part of the PARCO vid. They have bought back twenty percent of that long dated not in any danger to come calling debt they bought that back at a discount. Which is brilliant. They. So they're down to their down net debt down by about thirty percent from where they started the year. They have a store optimization program, which is something that a lot of these retailers the slowly melting ice cube crowd will call them. They are reducing their store count 'cause they don't need it because they can move to ECOMMERCE, which they've done a little bit they can move to. The geography is able he served by less stores and you see a lot of. Traffic that previously went through one store transitions to another and. They are steal a Ron grosses them here they are firing on all cylinders and I'm not sure. Anyone. Thought is coming. I am I am both thrilled that they are doing this they're having success because everyone loves a comeback. I'm less thrilled that you own it and I don't. But. That's mainly because I had this in my hand a year ago Chris and I'm holding it up. The skull of York. And and I'm looking at it and I didn't at least put a little field position because as I said, at the time training for four times free cash flow that is close to no-brainer territory for me. So two other quick data points before we go to our next story. Not. Surprisingly digital sales of big driver this quarter. That goes hand in hand with the store closures so Another smart move by Trittin and his team. And also Happy to see that they're you know suspending the dividend that they're. Suspending the sticking with the we're not going to buy back shares. I'm also happy to see they're not offering guidance. Their New Orleans. No need to at this point. Let's move on the third quarter sales, for Pepsi, grew five percent and. Kind of like we saw three months ago snacks and some of the beverages particularly the Seltzer. Part of their portfolio helping to make up for the fact that somebody restaurants are closed. So many sports and entertainment venues are closed and. That's that's the stock is basically flat and this kind of flat for all of twenty twenty but. Nice to see that the the salty snack part of the business is making up for the sort of the tried and true Pepsi part of the business. Gilead household particularly the soon to be sixteen year. Old Member of the Gillies household has been doing his part to. To to help with the salty snacks portion and shareholders. Thank him. Yeah I was GONNA? Say. You know dude. There are other food groups other than Doritos. Look it was a perfectly acceptable boring quarter from a perfectly acceptable boring company and and I think you know Chris but maybe some of the listeners not know. For, me to call a company perfectly boring from for me. That's a compliment because I like businesses that are boring. Not Terribly exciting person myself I enjoy. Investments in companies that just actually do what we expect them to do, and essentially just get it done quarter after quarter. Pepsi is not GonNa. You know if you'RE LOOKING FOR PEPSI TO BE A. Ten bagger. You know anytime soon like the aforementioned by we mentioned earlier. That's not gonNA happen. They are just a steady bedrock performer for your portfolio and we all need a few of those. So we can go after the more exciting things in our portfolio. Yes. So it was it was A. It was a boring it was a boring quarter but boring is nice because boring boring says, oh, we end up four four plus percent on. Organic revenue growth total revenue growth went up five plus percent. EPS Is up ten percent year-over-year just for the quarter. It's still down for year to date, but of course, Mindy Stan why because the previous quarter? Cova. no-one no-one was new what was going on? So we kind forgive that. They are they're pointing towards the full year. They did give guidance their point point to a full year of approximately four percent revenue growth approximately five fifty core earnings. Stocks at about one hundred, forty bucks. So it's not cheap. But it's not terribly expensive, and again, this is one of those widows and orphans stocks. You can buy put it away and we'll see you when you retire. Hugh Johnston, who's the CFO at Pepsi? Granular on CNBC this morning talking about because when you think about all of the food and beverages they have across their portfolio he got granular talking about the new cheetos macaroni and cheese saying you know they're trying to keep up with demand as a fan of both cheetahs and macaroni and cheese I haven't tried it yet but I can see why it's popular. Any. Do they give any color on the? Two. Portals that they were direct to consumer sites that they launched earlier this year snacks dot com and Pantry shop dot com. Sadly, Chris they did not at least in the conference call or the press the presser maybe in the ten Q I haven't read the ten q yet obviously but. Yeah no snacks dot com I can confirm both of those sites are open and accepting offers as of this moment. SNACKS DOT COM and Pantry shop I think is an interesting one because they are. You know you are buying your you're you're buying all of your Pepsi Slash quaker products. Simultaneously in in in the various groups. So if you want your everyday Pantry, you want to get your your oatmeal and your healthy. Your healthy Chia bars and your rice cakes do people still eat rice cakes and if so why? You can get all those delivered at the same time or your snack package your breakfast package You know it's it's interesting to to have it delivered. I I'M NOT A. I I'm one of the three people in North America is still doing own grocery shopping. So I'm probably target here but I know a lot about the people how to use it and I think probably if I let my as I mentioned a sixteen year old note that this thing existed. It might be his only source of nourishment. So yeah, don't don't. On, the first time I went to that website I kind of went crazy to the point where in the box showed up to two days later even my kids were just like. This is a lot of snacks and was like, yeah I may have ordered too many but but I regret nothing. Playboy. Enterprises is returning to the public markets after nearly a decade and because I was are out of fashion, playboy is going to be doing this through a speck. Mountain Crest acquisition is a current special purpose acquisition company that is going to be taking playboy public through a reverse merger and wants to deal is done that company where the ticker is MC. ABC? Is. The playboy name and the ticker symbol P L B Y? I guess I, I saw this story and I thought, okay I'd that's one way for playboy, which is a private company and has been since twenty eleven. I. Guess That's one way to raise money. I, I, I'm hard pressed though to think that. The second round of playboy being a public company is going to go any better for the company and for investors than it did the first time around. That was my initial take as well, and you say it's one way to raise money I'd say it's one way for insiders to cash out. Tomato Tomato. The more I think about this though. I could be spectacularly wrong and it wouldn't be the first time. This might be quite this might be interesting I can see. I can see a number of thing, and I just find this interesting from a number of re. I as you point out. Yes, playboy. Is private the SPEC the Special Purpose Acquisition Company Mountain Crest Acquisition, company. It's out there. Now it's got. It's a walking wallet got a bunch of cash their stocks over ten dollars specs go at ten bucks. There's nothing you can. You can go buy today Chris if you want. And You can just sit there and wait until the transaction is completed in q one. If. You WANNA own playboy. So, playboy today is not playboy of the past for thing, magazines have died. So, there are no issues of the iconic famous magazine. These no regularly published issues and I believe they went to quarterly publishing versus. Monthly publishing before that. So what playboy is trying to be or this new iteration trying to be a licensing company and they're calling it across four major categories they're saying sexual wellness, which I'm just going to skip to the next one, which is style and apparel which is. Apparel. and accessories for men and women globally gaming and lifestyle also digital gaming hospitality and spirits. So you can get yourself some playboy-branded Bourbon. And beauty and grooming, which is fragrance skin care grooming cosmetics for men and women. Okay. That sounds interesting. They're not a publishing company more avoiding that and I guess they have a bunch of online stuff as well which. Tell people they can go look on their spare time but. They are calling themselves a streamlined high growth business. The company has four hundred million in cash flow contract through the next eighteen years. and has products available for sale and in ten thousand major retail stores. In the US, this is a brandon company. Now, now, what you think of the brand and what you associate with the brand, the iconic a bunny ears brand, of course. Is Is. is going to be probably a nuanced and varied. I can understand why some people. Would not want to do with this brand I completely understand that is not. Bend the most shall we say progressive brand in history? It has fostered some. Attitudes, particularly women that. I think it's fair to say some would find distasteful and I I completely understand why? And for those people, they're just not going to be shareholders and that's that's fine. But what I find interesting about this if this, if the licensing deal and we have, we've already had a certain dry run of this in. Do you know the magazine Maxim? It was. So it's a men's lifestyle magazine, girly pictures, and whatever it was bought by an entity called big holdings. I'm going to say eight nine years ago. With the goal of they went into change it from the the lad magazine into more of a lifestyle brand licensing deal what playboys doing. Now. I mentioned earlier it's important to have You know leaders businesses, you respect and trust big lorry holdings is not one of those businesses but I do know that they even though they're circulation sales are down significantly there they have turned that profitable on a small scale with the licensing strategy. I suspect the playboy will do a better job. And It will depend on the valuation coming out but you know when analogy I might throw up as. As a comparison is. Franchising businesses in the in the restaurant space. So a restaurant brands international, which owns importance and Burger King. Dunkin brands, which of course owns your beloved Dunkin donuts. Those are those are check cashing businesses, they they sell the franchise to a Franchisee. And then take tax six percent of their gross sales and royalties every month plus x percent for advertising they sell you a system and so those are very asset light cash-rich capital Genita- businesses. And part of me wonders here it's obviously not the same as selling. Coffee and whatever. But part of me wonders if that is what this business will look like, and if they are truly in the growth business and the cash generation business, this might be an interesting opportunity. And you just hit on what I think is the most interesting thing to watch. Once it becomes a public entity again, the high growth aspect of this because now we're going to see Now, we're GONNA see through quarterly reports. Okay. Are you growing? Because that's one of those things where we investors and the market in general get to decide what we consider to be high growth And I again I had I had your initial take which was. Oh please. Like if it didn't work the first time. It's going to work less well this time. The more I read about like. I'M GONNA keep an eye on this. Curiosity. Jim Gillies always talking to you. Thanks for being here.

Coming up next