Greedy When Fearful

Keurig (KDP) has been on my radar for over a decade. By the time I learned how amazing Keurig was in 2012, their patent was expiring on the K-Cups. I wasn’t interested in the razor sale of the Keurig machine, I wanted the blades (the K-Cups), so I never bought the stock. Fast forward to 2020 and now Keurig owns so many blades they give Freddy Krueger nightmares. Not only that, Keurig has fixed the three major problems I have had with the company in the past:

• Who’s selling the blades now that the patent expired? They are. A lot of them (see below). A decade later, their Green Mountain brand (Keurig’s brand) is #2 in the K-Cup business, only behind Starbucks. This is incredible. Plus, they own a dozen more brands that dominate the shelves.
• Only single serve coffee? Not anymore. With their successful K-Duo, you can brew fresh carafe with coffee grounds or use a single serve.
• Bad for the environment? K-Kups are now moving to a 100% recyclable material. Combine this with K-Duo and this really improves the environment impact.

Now KDP is drowning in blade sales since they control so many brands:

• COFFEE BRANDS! They make money from their K-Cups on the following brands: Green Mountain, Donut Shop, Laughing Man, Peet’s Coffee, Caribou Coffee, Van Houtte, REVV, Tully’s Coffee, Krispy Crème, Newman’s Own Organics, Barista Bros, Barista Prima Coffee House, Bruleire Mont Royal, Café Escapes, Café Punt del Cielo, Cinnabon, Coffee People, Diedrich Coffee, Donut House, Emeril, Gloria Jen’s, Holly’s Coffee, Kahlua, Laura Second, Orient Express, Timothy’s, Panera Bread, High Brew, Gila Café, FOrto, Adagio.
• SODA BRANDS! Talk about blades. They own the following soda brands: Dr. Pepper, 7-Up, A&W, Canada Dry, Schweppes, Sunkist, Crush, Sun Drop, IBC, Diet Rite, Squirt, Vernors, RC Cola, Hires, Stewarts, Big Red, C-Plus, Cactus Cooler, Nehi Cola, Tahitian Treat Fruit Punch.
• TEAS & WATER BRANDS: Bai, Canada Dry, Dejua Blue, Penafiel, Schweppes, Snapple, Straight Up Tea, Evian, Neuro, Vita Coco, Core, Limitless
• Clamato, Hawaiian Punch, Margaritaville, Mott’s, Mr & Mrs. T, Nantucket Nectras, ReaLemon, ReaLIme, Rose’s, Swiss Miss, Venom Energy, Yoo Hoo, Sunny D, XYience Energy, Hydrive Energy Water, Mistic.

Not only is their brand power heroic, in 2020 they are doing fantastic.

• They are the best performing, non-alchoholic, beverage company in the past few months. Take that Coke and Pepsi!
• More than 10% of their sales are coming from ecommerce.
• They are expanding distribution for the family owned Polar Seltzer. Polar is the #1 unsweetened flavored sparkling water in the 1/3^rd of the country they are currently distributing to. There’s a good chance they can take this same position in the other 2/3rds of the country.
• The soda Dr. Pepper has grown 17 straight quarters in sales! I thought this soda peaked in the ‘80s.
• The Canada Dry (ginger ale, club soda, tonic water, and sparkling seltzer water) has grown for 13 consecutive years!

Keurig Dr. Pepper has an arsenal of brands that will make them an unstoppable competitor for decades to come. They are only 20% the size of Coke and Pepsi and yet are in 3^rd place in the beverage wars. This means massive amounts of upside in the future during the battle of the best drink.

Monty

I have a problem with nostalgia. I adore video games from the 80s/90s along with all the wonderful pop culture that surrounded the era. Movies, food, and toys from decades ago? Excellent! Accepting modern day realities has been a challenge, and it’s even affected my investing.  In Utah, I was raised in the arcades, music and video stores in the Layton Hills, Crossroads, Trolley Square, and Cottonwood malls. All these stores are gone now. Live by the technological sword, die by the sword. Bogus! But, my super shopper sister bought clothing. Quicksilver, Aeropostale, DC, Roxy, Delias, Pacsun.  People won’t ever stop going to malls to buy clothing, right? Wrong! 3 years ago I bought a “mall basket” of the great companies of yesteryear. I thought diversification in the clothing business would save me from quickly moving fashion trends and at least one would survive. But no, father time killed them. All of them. They *all* went bankrupt! Fast forward to today and JC Penny, Macy’s, Payless ShoeSource, Sears, K-Mart, Walmart, Office Depot, Ralph Lauren, HHGregg, Gordmans, Sports Authority, Gander Mountain, Bebe, Rue21, etc. are all drastically downsizing or going out of business. No retailer is safe from Amazon’s wrath! But, people are still buying clothing. How about sport clothing?

“You ought to think about the future.”
“Retail’s got no future Jack!”
“Better be sure.” (Batman, 1989)

Each month we save $100 for each of our children in a Coverdell ESA. About every four months, we buy stock for them. Since the investment horizon is 18 years, we rarely sell, and the stocks are primarily focused on their generation. The performance has been incredible. Netflix? 11 bagger. Tesla? 10 bagger. Electronic Arts? 6 bagger. Disney? 3 bagger. Now, I grew up with EA and Disney. But, they are not just nostalgia plays, they are also defining my children’s generation. It’s been stunningly clear that our family’s biggest winners, haven’t been turnarounds, but companies defining the present and the future. I’m going to take of my rose colored glasses, and don some Doc Brown silver future glasses.

Under Armour (UAA)

When I was growing up, if you played sports you wore Nike. It was impossible to walk onto the playing field without seeing the Nike logo everywhere. Nike, Nike, Nike! Now, when I go to my kids’ basketball, soccer, or baseball games, it’s all Under Amour. Under Amour (UAA) is currently trading at half the price to where it was a year ago, and a whopping *six* times less than it was in 2014. A 60 billion dollar company is now a 10 billion dollar company just three years later. Now, this is because of recent sluggish sales, and a massive investment in wearable tech that has added a whopping 1.6 billion of debt to their balance sheet. However, I think these investments are going to pay off over the decades and their brand is stronger than ever. Nike is currently a 90 billion dollar company. UAA is absolutely an easy double from today’s prices.

Take Two (TTWO)

Mafia, BioShock, Grand Theft Auto, Max Payne, L.A. Noire, Bully, Red Dead. Get off my lawn with your violent trash!!

Go Diego, Go! Dora The Explorer, Civilization, Carnival Games, Wonder Pets, Bubble Guppies, NBA2K, NHL2K, NFL2K, ahhh, that’s better!

Take Two has made all of these games. Though I don’t usually play games that aren’t at least drinking age, I have heard of all of these. Everywhere. Take Two is only a 6 billion dollar company and it looks and sounds a lot like the Activision (40 billion) and EA (30 billion) I grew up with. Can TTWO double and hit 12 billion? Absolutely. Their games are selling like hotcakes along with an incredibly strong performance in mobile games, with sales growing 30% over the past three with massive hits like Dragon City and Monster Legends. This is definitely a video game company that’s going back to the future!

Monty

P.S.

Also added Amazon proof Dunkin’ Donuts to our 18 year experiment. Not only is it our kids’ favorite treat, it’s time to put that 2.34% dividend to work for our daughter. I’m front loading her portfolio with dividend payers so they can do the heavy lifting for me over the decades.

American student debt has just hit a frightening new record of $1.3 trillion, with the average borrower (44.2 million Americans) leaving college with about $38,000 in debt. Add in another $10,000 of payments on interest alone over the next decade and it’s easy to see why graduates are living paycheck to paycheck.

Parents are also strapped for cash, and think saving for college is almost impossible. However, if you start early, I think you can pay for college simply by slashing (Jason Voorhees style), your cable bill.

In 2016, the average American cable bill is a freakish $125/month. One of the leading providers of cable TV is Comcast (CMCSA). By switching to Comcast’s lowest cost internet only plan (currently the Performance Starter for 10mbps) for $30/month, and investing the difference of $100/month (rounding up) into low cost Vanguard Index Funds, over 18 years, you can take a major slice out of the cost of college.  $100/month should grow into about $42,000 (going with an average return of the stock market, about 7%, which the market returned from 1950 to 2009).

This is what we will be doing for my 7 month old daughter, and I thought it would be fun to become Dr. Frankenstein on Halloween night and start the experiment.

For the next 18 years, until 2034, I will be updating this blog post (so set your Bookmarks!) with our progress of rolling our old cable bill into my daughter’s Coverdell ESA. What’s a Coverdell ESA you say?

Now, Dr. Frankenstein didn’t exactly follow the medical community when he practiced, and we aren’t going to either. Rather than use the scientifically proven index fund method, we are going to be using bolts of lightning, buying individual stocks instead.  There is more risk involved, yes, but the upside is much larger. Also, buying index funds is boring. I’m going to be involving my daughter in this process, picking out specific companies, which is a much better learning tool. She will not only see her money grow, she will know exactly what companies the money is in. She will learn some basic business knowledge along the way, and get a better understanding of how this crazy world works. If she doesn’t want to go to college, this money is hers. She can take it out and use it for whatever she wants (as long as she pays a penalty to the government).

Throw …..the third switch!

Our first investment is going to be a part of my family’s Halloween tradition. She is 7 months old now, so we have saved $700 to buy her first stock in graveyard and cremation company StoneMor Partners. There’s a duopoly in the death business, and when we drive by a graveyard, it’s very likely StoneMor will be the owner. “Did you know honey you own part of that graveyard? Give my creation…..life!!!!!”

We usually invest every $400-$800. Dividends are *always* automatically reinvested. So, this score card will be updated every four to eight months.

Happy Halloween!

Monty

18 Year Score Card (2016-2034)

I’m a long term (30 year) bull on SolarCity (SCTY) and recently wanted to start a position for my youngest son last month to take advantage of the fears generated by low oil prices and ending tax credits. However, the tax credits were extended before I bought his position and the stock doubled in a month in the winter of 2015. I have been waiting for it to cool off and that day is today, it’s trading around it’s 52 week low due to weak guidance. Long term this story still looks great! Why? Q4 installations up by 54% from a year ago. I’m buying a small position (2% of portfolio) for my family today as it’s only a 1.86 billion company. Elon Musk is on the board and it’s a Tesla partner. Buy, hold, ignore and in 2046 you may just own one of the largest energy companies in America.

Jason Hall covers the details of this quarter and why it’s given a Fool an excellent opportunity today:

http://www.fool.com/investing/general/2016/02/10/beyond-revenue-and-profits-the-most-important-thin.aspx

Monty

Halloween is my favorite Holiday of the year. The fall air, colors, and bike rides through golden leaf sidewalks. The 31 days of watching and playing The Great Pumpkin, Garfield’s Halloween Special, Ghostbusters, Young Frankenstein, Castlevania, Ghosts ‘N Goblins, and Splatterhouse. Festivals, Halloween themed amusement parks (Frightmares at Lagoon!), buying and making costumes, etc. In the Singleton family, it’s easily the busiest month of the year as the list of fun is endless.  This year, we added a new activity to our Halloween tradition:

Buying Dead People.

Yes, we are literally buying dead people in the Singleton household for each family member every October starting …now! Roths for the adults and ESAs for the children. By doing so, our investment will double every seven years. How is this possible?

Witchcraft? Selling our soul to the Devil? Human sacrifice, dogs and cats living together… mass hysteria? No.

Graveyards. That’s right, Graveyards. You can invest in Graveyards! I had no idea. Credit for this wonderful idea goes to the most conservative and analysis driven investor I follow, James Early. He recommended it in the Motley Fool Income Investor in December 2011. I missed his first recommendation, but then I heard him recommend it again this year on Motley Fool’s daily radio Podcast, Market Foolery.

He keeps talking about this incredible idea because it pays a massive yield of almost 10%. That means the investment will double every 7 years (Rule of 72s. Take 72 and divide it by the yield. Thanks Dad!). My children will see their annual Halloween investment almost be an eight bagger by the time they reach college, through dividends alone! The power of Dividend Reinvestment (DRIP) compounding.

By owning over 300 cemeteries in 25 states, more than 90 funeral homes, with more than a total of 400 locations, StoneMor Partners (STON) has a Warren Buffett style, body-filled moat through massive land ownership (enough space for at least 260 years of bodies) and guaranteed repeat customer business. Low tech and simple. Just try to disrupt this business Amazon! 100% of people die and if StoneMor doesn’t get their money through a burial plot, tombstone, or coffin, it will on cremation. StoneMor is an MLP, which means StoneMor does not incur income taxes, and pays the vast majority of earnings to their partners (you buy a share, you become a partner) which is why their dividend is so high. Very similar to REITs which I also love. Now, because of this, special rules may apply (depending on the amount invested) when it comes to holding MLPs in an IRA or ESA. So talk to your accountant to find the latest on the rules.  Or, just buy and DRIP these shares in your regular non-tax deferred account.

Happy Halloween!

Monty

  Investing just $500 in Pier 1 Imports (PIR) in March 2009 would now be worth $50,000. A hundred bagger. Investing $500 in K-Mart in June 2003 turned into $2500 in February 2005.  A five bagger. Why does the world need Pier 1? Why would anyone go to K-Mart? The world doesn’t. These businesses could have disappeared and nobody would have noticed, yet these were incredible investments. Why? Walking Dead Valuation.  Pier 1 had a market cap of 10 million in 2009, and K-Mart about 1.5 billion in 2003. Pier 1 was on the brink of bankruptcy after 17 consecutive quarters of declining sales. K-Mart went bankrupt, and re-emerged in 2003 with the smaller market cap. Those that bought K-Mart before bankruptcy lost their investment, those that bought after, a five bagger. This is why I spend a few minutes every day scanning the 52 week low lists, because you only need to find one zombie that comes back to life, and it can add a powerful secret sauce to your core portfolio of index funds and blue chips.  Even if you do invest in a company that goes bankrupt, at least you are paying attention to the story. If it ever re-emerges, like K-Mart, you can buy back in and make your money back as it returns to profitability. Why It Only Takes One Predicting the future is impossible. However, by buying a basket, math is one your side. Imagine a basket in your portfolio as one very small investment, let’s call this the Bankrupt Mall Basket. It’s holding a bunch of failing companies instead of eggs. In this basket is four companies, $1,000 invested in each. If three go bankrupt, and only one turns around and becomes a 7 bagger, that $4,000 original investment becomes $7,000. That’s a 75% failure rate, and yet you still almost doubled your money.

Now, I think this basket will do a little better than a 75% failure rate.  That’s why over the next 5-10 years I think this mall basket will at least double. This has been my most successful investing strategy (thanks Buffett!). It worked in the past on AIG, Bank Of America, BP, Netflix, Ford, First Solar, Supervalu.  My failures, like Blockbuster and GM, don’t matter because of how math works. Your losers can only lose 100%, but your winners? The upside is infinite. Through diversification of many small bets combined with time (at least 5 years), your basket will eventually be filled with golden eggs. Finding The One I don’t use traditional valuation strategies when investing in turnarounds. I have found these key factors are most important to success

• Strong consumer brand. Does your non-investing co-worker and family member know the brand? If the answer is yes, congratulations! You have found yourself a strong consumer brand.
• Everyone hates it. The media is writing about yet another bad quarter. Your friends no longer buy their products. Everyone predicts the brand is dead. Stores are closing. You are laughed at when you tell someone you bought shares of the company.
• Low market cap. The lower the better, typically 1 billion or less.
• 52 week low to 52 week high spread. The greater the distance between the 52 week low price and the 52 week high price, the better.
• Buying at or near 52 week low. The best time to buy these companies are when they show up on the 52 week low list.
• The more investments you can make the greater your chances of buying the one.
• Small bets. The smaller the bets, the more diversification you can have. Remember that with Pier 1, $500 became $50,000. A small bet can turn from a seed to a massive sequoia tree. Do not keep buying more shares of a company that’s on its way to bankruptcy. Make a small bet, and let it ride. If you keep buying more shares of a company that keeps falling, and eventually goes bankrupt, those shares are worthless and you have ruined your diversification.
• Nerves of steal. It’s impossible to call a bottom. So, be prepared for many of these investments to drop more than 50% before they rebound. Just watch and don’t take action. Or, don’t watch! If you can place your bets and check back five years later, even better.

The Bankrupt Mall Basket Once again let me stress that small bets, diversification, and time are absolutely key here. If you don’t have those three things, don’t touch any of these companies. dELIaS (DLIA)  *New addition to basket on 8/20/2014* Burning through cash. Had 28 million in 2011 and now only 3 million. Had zero debt in 2011, now has 14 million. This company is getting killed, which is why it only has a market cap of 31 million. Their CFO, David Dick just left. Launched in 1993 by two Yale graduates, but then quickly sold a decade later to Alloy Inc. for 50 million. It resonated with the Gen Y teenage girls. Can it ever come back? Throw pocket change at this one because of their terrible balance sheet. But, if it ever gets back to it’s 52 week high, it’s a 3 bagger. *DEC 7 2014 UPDATE*, DELiaS declares bankruptcy. Pacific Sunwear (PSUN).  California-themed clothing titan founded in 1980. 7 Utah locations, 645 total locations. 137 million market cap. A 2 bagger if it hit’s it’s 52 week high. 27 million in cash and 86 million in long term debt. California-themed clothing is currently out of style. But, it was in style in the 80s, came back again in the 2000s, and it will come back again. Quiksilver, Inc. (ZQK). You may know them as Quicksilver, Roxy, and DC. These three brands are all owned by the same company. 829 retail stores globally and their products are for sale almost everywhere.  Founded in 1969 Australia. 495 million market cap. A 3 bagger if it reaches it’s 52 week high. 57 million in cash, but almost a billion in debt.  That’s a massive amount of debt.  It has a previously strong action-sports brand with clothes, shoes, and accessories.  Will it come back in fashion? 6/23/2015 update. Down 72% for the basket almost a year later, so I’m doubling down. If it doesn’t go bankrupt, major upside as it will be a 5 bagger if it gets back to it’s current 52 week high. But, lots of debt makes this a high risk.  Aeropostale (ARO). Casual teenage clothing giant since 1973. 992 US stores, and over a hundred global stores. 252 million market cap. A 5 bagger if it reaches it’s 52 week high. 106 million in cash, and ZERO debt. Yes, that’s right, zero debt. This is incredibly important. If I was going to go a little heavier in an investment, it will always be the company with the least amount of debt. How long before Aeropostale becomes fashion forward again? They have the balance sheet to weather the storm. RadioShack (RSH) is dead.  Founded in 1921. Only 61 million in cash, and 600 million in debt. Things are so bad, I can’t think of a way their business will turn around. I did hear a Motley Fool analyst mention that RadioShack basically selling Kickstarter-like projects, inventions from individuals, might work. It definitely ties in with their hobbyist brand. However, my first thought was “Wouldn’t people just buy these from Kickstarter or other Internet websites?”  RadioShack does meet my criteria of brand recognition at bankruptcy prices.  It’s trading for 61 million, which is trading for the cash on its sheet. But, because of it’s massive amount of debt, I’m making a very small bet here. SMALL.  If a miracle happens and it gets back to it’s 52 week high, a 7 bagger. But, the investment is probably going to zero. Throw pocket change at this one just in case it’s the next Pier One. However, selling consumer tech is much harder than furniture. Furniture doesn’t become obsolete.*FEB 5 2015 UPDATE* Radioshack declares bankruptcy.  I’ll be updating this article over the years and putting more eggs in my basket as mall brands hit the 52 week low list with a nice 52 week high/low spread. Monty