Mutual Series Marks 60 Years of Value Investing

Mutual Series Marks 60 Years of Value Investing

Flagship Mutual Shares Fund Employs Deep Value Strategy Since 1949

— Franklin Templeton Investments (NYSE: BEN) is commemorating the 60th
anniversary of its Mutual Series group and launch of its
flagship Mutual Shares Fund. Founded in 1949, Mutual Series has a long
history as deep value investors with a very distinct style, searching
aggressively for investment opportunities in undervalued stocks, merger
arbitrage situations, corporate reorganizations and distressed securities.

Auto Legend Penske Sees Value In Saturn

The news has been out for about a week now on Roger Penske buying Saturn Motors which has been a division of General Motors for the last 19 years. Who is Roger Penske?  Well to most he is the team owner of Penske Racing, the most dominant racing team in American Open Wheel racing. However, if one takes a closer look at Mr. Penske he is one shrewd business man. I would even go so far to call Roger a Value Investor.  To many that read this blog will say how does Roger Penske buying Saturn pertain to picking stocks. Remember folks investing whether it be buying shares in a company or the whole company is still investing. Value Investing is just digging a little deeper for the true deals. Why do I call him  a value investor? This is due to him stepping in and buying Saturn when things look pretty dim in the auto industry as well as the overall economy. 

Now I do not know whether Mr. Penske and Warren Buffet know each other, but it seems as though The Captain has taken some cue's from the Oracle of Omaha.  Meaning that Penske is sticking to a business he knows very well, plus buying an established brand on the cheap. As most true value investors know that this is when you generally find some of the most attractive deals.  Penske has made a career in the auto industry for nearly 50 years.  I think he sees an established brand that has a loyal customer base that needs some tweaking. Its much easier to buy a existing auto manufacturer than start from scratch.  

Here is what some others are saying:

Penske has a unique plan put into place where the production function of the automobiles will be outsourced  Jeremy Rooney at The Examiner

Saturn dealers can collectively breathe a sigh of relief. Having Roger Penske as the boss will mean good things for Saturn  Keith Crain at Automotive News

Also keep in mind Eddie Lamperts & Bill Gates big buy in of AutoNation $AN

Biglari & Co. Find Value In Those Famous Steakburgers

Steak n Shake (SNS) long known for their signature Steakburgers, Crispy Fries and Hand- dipped  real- milk Milk Shakes is still offering a value in more ways than one. Since current CEO Sardar Biglari has taken over the helm from the struggling food chain Biglari & Company have acted quickly to instigate a turnaround. While the stock price is well below its 5 year high of nearly $22 per share the business itself represents a company that is being overlooked by the investment community. At the end of 2008 Steak n Shake put in place their 4 meals for under $4 in hopes of driving traffic to their stores. Is this working? Well according to their latest 10-Q they earned .08 cents a share or almost 2.3 million dollars versus a -.14 cent loss from the previous year I would say that their headed in the right direction. However, I do not want to focus on what they earned but the VALUE in the shares of the business. 

Like Warren Buffett has often quoted "Price is what you pay and VALUE is what you get."   

"We must first cut the knowable, the COSTS, and then invest to increase the unknowable, the sales." Sardar Biglari.

Biglari & Company have whittled down the capital expenditures from 69 million at the end of 2007 to 31.4 million at the end of 2008. Currently the trailing twelve month CapEx is 10.2. The trailing twelve month cash from operations is 36.4 less the current CapEx of 10.2 mil. gives them  a Free Cash Flow of 26.2 million. Their current book value is $9.88 per share and the stock is trading around the $8.75 range.  At the end of 1999 book value was $4.71 per share while  the stock price was $10.13 per share. Most of the property they sit upon is company owned with a value of $413 mil. which equates to $14.35 per share.  As of the end of 2008 the company had 415 company owned stores and 75 franchised stores.  Recently the stock was ranked in the top 10% in year to date performance of small cap stocks.

While this might not represent a company that is growing at hyper growth rates like many of your social media companies today, this is a company who has been in business since 1934 and has stayed close to their core product line - burgers, fries, and shakes. As you can see by some of the numbers, this stock is trading at a cheaper valuation, than where it was ten years ago. Here is a company who is run by a young man who seems to find undervalued situations much like Ben Graham did through out his career and also like Warren Buffett'S early years when he ran a partnership.  

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Author is long SNS

  

The Making Of A Beer Connoisseur

    This is actually my first Post about beer on this blog. The Blog will still remain a financial site however the blog  gives me a chance to talk about and engage in other interests I have, and beer is one of them. 

     Beer dates back to the time of ancient Egypt. Beer is a natural drink and made with four main ingredients-  barley, hops, water and yeast. The Germans refer to this as Reinheitsgebot (pronounced "Rine-Hites-gaBoat") the "German Beer Purity Law" of 1516. This is actually the oldest food regulation in the world and is still in effect today. 

     I guess your wondering about the title- The Making of A Beer Connoisseur, I guess that would be me. Am I really a beer connoisseur? Well that would depend on who you asked. Probably in the beer drinking mainstream the answer would be Yes, but for those that have made a career in the business, maybe Not.  

The beer being profiled here is Duvel a Belgium beer. Its considered an ale but looks and drinks much like a pilsner style beer. It's a refreshing beer but one should go easy on this one, especially at 8.5% alcohol. The word Duvel is French meaning Devil. It has been brewed by the Moorgat family  for four generations since 1871. Its an enjoyable drink and for those that usually drink mainstream beers such as Budweiser, Miller, and Coors this would be a nice beer to try. Cheers!

Buffettfest The Woodstock Of Capitalism

  Well it is that time of year again. The Woodstock of Finance or Buffettfest which is  Berkshire Hathaway's $BRKA  annual meeting. Unlike most shareholder annual meetings that seem to be rather boring Berkshire Hathaway's annual meeting is anything but. Over the years it has grown exponentially. Its like going to see your favorite rock band in concert but even better. The Rolling Stones Mick Jagger and Keith Richards don't have anything over Berkshire's Warren Buffett and Charlie Munger. In years past Buffett has strummed a few licks on his ukulele while up up on stage. He has even been seen on a $HOG- that's A Harley-Davidson in case your wondering.

  This is basically a weekend long event where a legion of Berkshire loyalist(shareholders)  make the annual trek to their Guru's headquarters and home town Omaha Nebraska. From what I am hearing through other news sources is that this year  might be a bit somber instead of the usual financial lovefest that its been in years past. You see Berkshire shareholders are not use to loosing money and 2008 was one they would like to put behind them as would most investors. 

  What makes this so unique is that Buffet is unlike other CEO's of company's. For one he pays himself a low salary in comparison to most CEO's, and his interests have always been aligned with the shareholders of the company. Unlike many annual meetings where the board will make up excuses for short falls or spend half the time talking about electing board members, dolling out stock options or pay raises Buffett shoots straight from the hip. So for the better part of a day Buffett will field question after question.  Also unlike other shareholder meetings Buffett and his finance-flower children will have a chance to have some fun and spend money like their on vacation.

  The Buffettfest expects a record crowd of 35,000 people this year up from 32,000 last year. While Buffett is coming off his worst year ever, his popularity has rose to new heights. This might be because of the tough times we are in and who better to smooth things over than the Greatest Investor of all time The Guru of Value Investing Warren Buffett.

Below are a few good reads, so enjoy!

Berkshire Is Still A Brand Name New York Times

Buffett Fans Set For 'capitalist Woodstock' CNNMoney/Fortune

Here's the Story on Berkshire's Mungar WSJ Online

Invetors Flock To Capitlism 'Woodstock' After Buffett's Bad Year Barron's

Also check out the Ultimate 2009 Berkshire Hathaway Annual Meeting Guide @ Fat Pitch Financials

Concentrate On Value Part III - Debt/Equity Ratio

As I wrote in my previous two Post, Ignore the headlines and stick with the facts at hand, not the B.S. that is hyped in the media or the tips you hear at a party. Investing, although not so simple can be  enjoyable and profitable if you approach it in the right manor. As mentioned  in my previous two posts book value, free cash flow and return on equity are just some of the tools used to finding the right business to invest in. Another tool to help guide you  is the debt/equity ratio which is simply liabilities divided by the stock holders equity. A simple example of this would be: Take your homes current market value, say it is  $200,000 dollars and lets say you owe the bank $100,000 dollars, your debt-to equity ratio is 1.0 or 100 percent. Lets also take your neighbors home current value of $200,000 dollars and suppose he/she owes $150,000 dollars. The debt/equity ratio is $150,000/$200,000 3.0 or 300 percent. In this formula we are looking for low debt/equity ratio's. The lower the better. However keep in mind that some industry's will have higher figures than others. Also take note that this is how many company's finance their growth,however if the debt/equity ratio gets to be to high this could be a warning sign to get out or stay away altogether.  Also let me reemphasize that you should never take just one of these methods all on its own. Choosing a stock using a combination of these  methods can yield some profits for the patient investor with an eye for value.

Ignore The Headlines And Concentrate On Value Part II

As I said in my previous post concentrate on the fundamentals. We as investors are constantly bombarded with news via 24 hour news channels, the news paper and now that Ultra 24 hour news channel The Internet.  Hey information is great and now we can receive more of it and at a faster speed than ever. As an astute investor one needs to turn off the hype and noise and concentrate on those fundamentals. I mentioned earlier terms such as book value and free cash flow, well their are other important things to look at when buying into a business. For example  One of the most important profitability metrics is return on equity [or ROE for short]. Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. If you think back to lesson three, you will remember that shareholder equity is equal to total assets minus total liabilities. It’s what the shareholders “own”. Shareholder equity is a creation of accounting that represents the assets created by the retained earnings of the business and the paid-in capital of the owners.

A business that has a high return on equity is more likely to be one that is capable of generating cash internally. For the most part, the higher a company’s return on equity compared to its industry, the better. This should be obvious to even the less-than-astute investor If you owned a business that had a net worth [shareholder’s equity] of $100 million dollars and it made $5 million in profit, it would be earning 5% on your equity [$5 / $100 = .05, or 5%]. The higher you can get the “return” on your equity, in this case 5%, the better.

Some businesses that cosistantly have high returns on equity are Philip Morris International $PM w/59% ROE, Johnson & Johnson $JNJ w/30% ROE, and Coca Cola $KO w/28% ROE.

Return On Equity is another investment metric used by many famed Value Investors such as Warren Buffett, Bruce Berkowitz, Mohnish Pabrai and many other notabe investors.

Ignore The Headlines And Concentrate On Value

Ignore the headlines and concentrate on the fundamentals. The market has had a nice run the last two weeks bouncing up over 20%. Hey this is great but don't get caught in the hype. Sure you want the market to go up just like most everyone else, however to many people get caught up in the NOW, that is, what the Stock Market is doing today, this week or next month. Forget that crap and concentrate on investing in businesses. As an Independent Investor one needs to focus on the true worth or the actual value of the business. Its the same thing as if you were to buy a pizza parlor. How much does the business make? How long will it take to get my money out of it? How much debt do they have? Is this business located in the right place? Is this a dying business or a growing one? These are some of the things you would ask if you were buying an existing establishment. Well the same rules apply to the stock market, except most individuals and institutions do not adhere to these principals. Of course their is no sure fire way but if you focus on a few basic fundamentals such as book value or free cash flow this will help in whittling down some prospective investments. For those that might be new, book value is defined as the total value of the company's assets that shareholders would theoretically receive if a company were liquidated.  Warren Buffett uses the book value as a measuring stick, often looking at the growth in book value.  Free Cash Flow represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Currently Wellpoint $WLP is a good example of a business with excellent free cash flow. 

An Off Shoot Of Buffett's Partnership: Sequoia

Here is an interesting link on The Sequoia Fund. Sequoia is a value oriented mutual fund managed by Ruane, Cunniff, & Goldfarb. The Seqouia Fund $SEQUX has a large number of companies in their portfolio however Sequoia concentrates a large percentage of its dollars to a hand full of companies. Warren Buffett's Berkshire Hathaway $BRKA, $BRKB currently is their largest holding followed by Martin Marietta Materials $MLM, Fastenal $FAST, IDEXX Labs $IDXX, and Mohawk Industries $MHK. Sequoia has an excellent track record stretching back to 1970. The Sequoia Fund is not really an off shoot of Berkshire Hathaway, however they have a long history together. Bill Ruanne who was the founder of the fund was one of a small group of investors along with Warren Buffett  that trace their roots back to the Father of Security Analysis Ben Graham. It seems back in 1969 Buffet ended his Buffett Partnership after a 13 year run. Buffett steered his partners over to Ruane who in turn started the Sequoia Fund. The Fund was closed off to new investors for 26 years and reopened in 2008. 

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