Friday, October 23, 2009

Steak N Shakes Flipping Burgers into $$$

I have written about Sardar Biglari a few times since the start of the year. It appears more on Wall Street are taking notice of this fund manager. This article is from the Wall Street Journals news wire... Steak N Shake 'Already Flowing with Cash'.

Biglari runs a partnership much like the one Warren Buffett ran earlier in his career.

Biglari who started buying Steak N Shake shares a couple years ago is currently the largest shareholder. He is also the acting CEO. He is what you would call a share holder activist. Share holder activists are usually investors who usually take a large stake in a company and push for a turnaround, this is usually when the stock has performed poorly. Not always is this good for the small shareholder but in the case with biglari, his interests are in line with shareholders. As the article states Steak N Shake is already producing free cash flow. Trailing 12 months free cash flow is 35.9 million (see chart below). Biglari has stated before that he could use the cash to buy back shares which decreases the shares outstanding which would help boost the bottom line. He can also take the excess cash and put it to use in better performing businesses, much like buffett has done over the last half century.

Management Direction

"New management, during the fourth quarter of fiscal year 2008, enacted a change in strategic direction under which we began to operate in a manner designed to generate cash. Our long-term objective is to maximize intrinsic business value per share of the Company. (Intrinsic value is computed by taking all future cash flows into and out of the business and then discounting the resultant number at an appropriate interest rate.) Thus, our financial goal is to maximize free cash flow and return on invested capital. We regard capital allocation as immensely important to creating shareholder value. Steak n Shake is transforming into a holding company. Its basic premise is to reinvest cash generated from its operating subsidiaries into any investments with the objective of achieving high risk-adjusted returns. Pursuant to a resolution of the Company’s Board of Directors on June 17, 2009, all investment and other capital allocation decisions are made for the Company by Sardar Biglari, Chairman and Chief Executive Officer. "

Steak N Shake might sell burgers, fries and shakes, however one day they could very well be selling insurance. Biglari is also the largest shareholder of Western Sizzlin (WEST) which he plans on rolling into Steak N Shake which should take place in the coming months.

Free Cash Flow $Mil200620072008TTM
Cash from Operations69.643.424.442.0
Cap Ex(80.8)(68.6)(31.4)(6.1)
Free Cash Flow(11.3)(25.2)(7.0)35.9

Author is currently long SNS

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Wednesday, October 14, 2009

A look at 5 Defensive Plays 1 Year Later!

Here is a look at five defensive stocks I wrote about 1 year earlier and where they are now. The market was tanking but did not reach a bottom for another 5 months. Keep in mind that their are many fundamentals to look for when picking individual stocks, however I tried to kept it simple with just a few important ratios mentioned here.

1) The P/E ratio All five stocks mentioned at the time had a P/E ratio of under 18. Only three currently have P/E's under 18.

2) Return On Equity or REO All had REO's of 14% or better while four of these still do. The higher this figure the better. REO shows how well a company uses investment funds to generate earnings growth.

3) Dividend Yield All paid dividends, and all have increased their payouts since.

4) Debt to Equity Ratio This is a measure of a company's financial leverage. Debt/equity ratio is equal to long- term debt divided by common share holders' equity. Generally the lower this figure the better. Last year P&G had the highest D/E ratio in this group which was .52 today it stands at .33 .

These are the types of companies that the legendary investor Warren Buffett invests in. In fact Coca Cola (KO), Costco (COST), Johnson & Johnson (JNJ), and Proctor & Gamble (P
G) are a part of Buffett's holding company Berkshire Hathaway. The five stocks mentioned returned a combined 11.05% before dividends. If you add on the average annual dividend yield of 2.67% for these five companies over the past year you will get a 13.72% total return. You will notice that all five issues are companies that make products we use and consume everyday, which is another trait that Buffet looks for.

One year later three out of five still look reasonably priced, those being HRL, JNJ, and PG.

Author currently long JNJ.

Tuesday, October 13, 2009

Cash Flowing & Growing!

Even though we have seen the markets rise over the last few months
and many investors/traders calling for a market correction somewhere near here.
These four companies have been passing on profits(through dividends)
to shareholders while growing their businesses. These stocks still look cheap by
their EV/EBITDA ratio of under 6 and low P/E multiples under 10.
Earnings and book value have both increased at double digit rates over the last five years. Two of these company's have tripled off their market lows but still look cheap.

CompanySymbolYieldPrice as of 9/7/2009P/EEPS Gwth (5yr Hist)Earnings Yield (EPS/Price Per Sh)Book Value Gwth(5yr Avg)Cash Flow Gwth (Cur vs.Prior TTM
Apogee EnterprisesAPOG2.2%$14.698.660.60%11.9%13.2%28%
Innophos HoldingsIPHS3.4%$19.802.481%43%32.2%39%
Safety InsuranceSAFT4.75%$33.689.518.5%10.6%16.1%20.3%

Apogee transforms plain glass to create distinctive solutions for
architects, building owners, contractors, picture framers and others. Our glass and aluminum window,store front and curtainwall
systems make commercial buildings look great, reduce energy consumption and protect against hurricanes and blasts. Apogee's glass also reduces fading and reflection for picture framing customers. We combine the expertise of our people to engineer glass and metal building fa├žades, complete massive orders for skyscrapers on time, and manage complex window, curtainwall and storefront installation projects. We also provide glass that makes framed art and pictures look better, while helping framers improve profitability. Leaders in our markets, Apogee leverages the strengths of our products and people to deliver distinctive solutions.

*Here's what The Fools say A Top-rated building products companies

Innophos is a

leading producer of specialty grade

phosphate products for the Food, Pharmaceutical and Industrial market segments. Within these segments our products cover a broad range of applications including water, paper and metal treatment, agriculture, electronics, textiles, tablets, meat

preservation and detergents. For example, specialty phosphates act as flavor enhancers in beverages, leavening agents in baked goods and cleaning agents in toothpaste. With over a century of experience, Innophos and its predecessor companies have pioneered the processes whereby complex phosphates are derived from organic phosphate rock. Our products are produced to the highest standards of quality and consistency with most of our global production facilities operating to ISO 9002 and GMP accreditation. We also hold a number of key patents governing the manufacture and use of phosphates and continue to develop new and innovative phosphate based products to address specific customer applications.

*A Magic Formula Stock with a 5 Star Rating From The Fool

Safety Insurance is a leading provider of private passenger automobile insurance in Massachusetts. In addition to private passenger automobile insurance (which represented 71.7% of their direct written premiums in 2008), they offer a portfolio of property and casualty insurance products, including commercial automobile (13.2% of 2008 direct written premium), homeowners (11.6% of 2008 direct written premium), dwelling fire, umbrella and business owner policies. Operating primarily in Massachusetts through their insurance subsidiaries, Safety Insurance Company, Safety Indemnity Insurance Company, and Safety Property and Casualty Insurance Company,
they have established strong relationships with 827 independent insurance
agents in 969 locations throughout Massachusetts.

Tidewater through its subsidiaries, provides offshore supply vessels and marine support services to the offshore energy industry through the operation of fleet of offshore marine service vessels. It offers services to support various phases of offshore exploration, development, and production, including towing of and anchor handling of mobile drilling rigs and equipment; transporting supplies and personnel; and assisting in offshore construction activities.

Author long APOG

Please note that Apogee came up in an earlier screening I did. 11 Small Cap Stocks Trading Near Book Value

Monday, October 5, 2009

Update On Thor Industries

Thor Industries $THO is the world's largest manufacturer of recreation vehicles and a major builder of commercial buses. I first mentioned Thor back in January 2009 when it was trading at $13.50 per share. The stock was used as an example of a company that the seasoned value investor Walter Schloss might pick if he were still picking stocks on a professional basis. Schoss had a very impressive track record during his years managing money. He was also a part of Ben Graham's alumni.

The stock has had an impressive run this year. I believe the stock price has gotten a little ahead of itself. They just announced today that they were making a special one time payout of 50 cents per share on their dividend. This is in addition to their quarterly payout of 7 cents per share. This is probably why the stock price ran up today.

10 months ago this stock traded at around 1X book value, where as now it trades for 2.3 book. Management still holds a big stake in this company at 39%, which is a plus, and aligns them with shareholders. The company still has a nice cash cushion of over 328 million with NO debt and free cash flow. All good looking figures for any value investor on the lookout for a new business to allocate money in. In fact Warren Buffett bought a similar business Forest River back in 2005, it to had NO debt. It would not suprize me if Buffett or another company would come in and buy this company outright. While I still feel that this is a very well managed company and things are looking up, the margin of safety is not where it was 10 months ago.

*Author does not currently have position in $THO

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