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

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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.

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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)

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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

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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

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  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

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How I Won 1st Place In Wall Street Survivor In 5 Easy Steps

On Election Day, I won 1^st Place in the Beehive game of Wall Street Survivor set up by my friend and fellow stock-geek Mark Poncelet.  I virtually booked a 14.26% total portfolio gain in 3 months which ranks as one of my best runs ever. That’s almost quadruple of the S&P’s return of 3.79% from August 01 to November 6^th 2012. Before I joined the game, I told Mark I would either come in first place or last place with my aggressive, turnaround heavy portfolio.  In Stockland, the seasons aren’t predictable. It’s impossible to know if the seeds you have planted will blossom or if it’s another decade of winter. That’s why I never invest money I need within 5 years, I invest for decades. Thankfully, spring surprisingly arrived early.

Here are the 5 strategies I used in WSS followed by my results and why they did/didn’t work.

1. Diversify, diversify, diversify! Think of yourself as a super-hero baseball player and the universe is the stadium. To win the game, you only need to hit one home run (1,000%+ gainer).  But, it takes 30 years for the intergalactic ball to move from home plate to outside the stadium, so you won’t know the results until you have hit all your balls and wait for them to land. How many swings would you like before you started playing? If someone told you they only wanted one or two swings wouldn’t you think they were crazy? Yet, the #1 problem in real life and in the Beehive competition was people did not diversify. People constantly circled me with gigantic gains because of going all in on one idea followed by gigantic losses. In the end, it was a losing strategy for them.  Remember, if you buy stocks you are in the business of predicting the future. Plan on being wrong frequently.

2. Valuation.

• Expectations. Stocks move on expectations more than anything else. So, the majority of my picks were so hated that any good news would move them significantly.
• 52 week low to 52 to week high ratio. I started with a screener to find companies I liked that were trading near their 52 week low.  Then, the further they were from their 52 week high the better.  Netflix being at $57 with a 52 week high of $265 and First Solar being at $18 with a 52 week high of $118 are perfect examples of this. Sometimes those old sellers return as buyers when they feel the water is safe again. Low prices can also attract big sharks. Carl Icahn bought 10% of Netflix and Softbank bought 70% of Sprint during the game because the blood these companies shed was in the water.
• Market Cap.  I also picked stocks with a market cap below 10 billion. Like a baby doubling in size every year, it’s easy to go from 2 billion to 4 billion.  However, like a tiger growing to the size of a dinosaur, it’s been impossible to go from 500 billion to 1 trillion. Since the Philadelphia Stock Exchange started trading in 1790 there has never been a 1 trillion dollar company. Yet, Google and Apple were very popular picks in the game. If your mega-cap doubled in price how much would it be worth?

3. Turnaround or growth thesis?  I love dividends, but not if I was going to die in 3 months. Since that was the life of the game I only focused on two types of stocks, turnarounds or growth. How are they going to turn around? Do you see a future that nobody else sees? Turnarounds give you big gains if anything good happens to them. “What goes down must come up!” (Popeye). Growth stocks give you big gains if they continue to define a future that’s not in focus yet (“What do you mean people aren’t going to listen to music on CDs?). Figure out where the puck is going before everyone else (Thank’s Gretsky!).

4. Buy and hold. Invest in slow motion. Do not short, use stop loss, or buy on margin. My 2^nd largest winner was First Solar. During the game, many ideas were borrowed since players can see other people’s trades. Players that traded First Solar missed the big gains. Netflix, Sprint, and Supervalu’s gains all came in one day. Statistically, there’s only one day a year (on average) where a stock gets the majority of its gains. Predicting the future is hard enough, pinning the exact day is impossible. This is why trading fails. I practice trimming. Buy more when your stocks hit a 52 week low and sell less when they hit a 52 week high.  I sold half of my position at Sprint after Softbank invested in Sprint and pushed it to a new 52 week high, since the game is short. Plant the seed, sit back and wait for it to grow.  Aim for 1000% gains made over decades, not 20% gains made over months.

5. Diversify not Diworsify (Thanks Lynch!).  There were 13 stocks in my Beehive portfolio, and my best 10 ideas took up about 10% each of the portfolio. Study after study has shown that if you want to beat the market, having a somewhat diversified yet concentrated portfolio is the most important. Invest the heaviest in your best ideas. Warren Buffet invested 1/3^rd of his entire portfolio into American Express in 1964 when everyone was selling because of a fraud scandal. Since I don’t have Warren Buffet super-powers, the largest I’ll ever go is 1/10^th. Still focused enough to add huge gains if I’m right, but won’t kill me if I’m wrong. If you are diworsified and have too many stocks, you will probably end up just mirroring the market. Ironically Peter Lynch who coined this phrase and brought in 30% annual returns owned hundreds of stocks in his portfolio. But, that’s because it’s the weight of the holding that’s important, not the number of stocks. In the game, Netflix started out as 10% of the portfolio and Knight Capital started out as 1%.

You might be laughing that I’m blogging about my performance in a game.  But, I didn’t play the game like it was a game. I played it like it was real to see how my strategies would fair against competitors who were playing with fake money ($10,000). In fact, my best investments actually ended up mirroring my real-life investments. I personally own all of these stocks except Sprint, JC Penny, and Night Capital.

Monty

P.S. Scroll down if you want to see what I’ve been buying and selling since my last post.

11/14/2012

McDonalds Latin America (ARCO) hit a 52 week low yesterday so I doubled-down @ 2.3 billion and turned a -26.8% loss into a -15.3% loss. This was caused by currency problems that reduced earnings. However, same store sales were up 6.5%, organic revenue up 11.6%, and 103 new stores opened in 2012. Those are the real important numbers. Increased position from 1.7% to 3.3%.   PEG 1.34, 2.17% yield.

Decreased BP position @ 128 billion from 4.3% to 3.1% to raise cash. PEG 4.90, 5.33% yield

11/09/2012

I hate, HATE buying a stock (ZIP) after it has a one day pop of 28% but this is what I get for not sticking to my discipline and not buying more of my stocks when it showed up on the 52 week low list two days ago. I said “I’ll wait until January and add it to my fear basket.” Zipcar increased EPS 5 fold, a massive beat and raise with today’s report. Details here: http://www.fool.com/investing/general/2012/11/09/zipcar-beats-on-both-top-and-bottom-lines.aspx . Since the fundamentals have greatly improved and the stock still trades 50% below its 52 week high, is only a 484 million dollar company, I’m acting now. I believe it’s going to run since the facts have changed and the market cap is so small. Increased my position from 1.0% to 2.3% in portfolio. Here’s my original article I wrote as to why I like Zipcar and I still believe in this thesis. https://greedywhenfearful.com/2011/08/19/my-bet-america%e2%80%99s-love-affair-with-the-automobile-died-in-the-20th-century-zip/

Decreased Nucor (NUE) from 2.5 to 1.2% to raise cash for my ZIP purchase. Children have slowed down our aggressive saving (but I’m trying to change that).  I chose to lighten up on Nucor as I decided I really don’t want my dividend stocks to be cyclical, I want them to be secular. Rock solid companies that grow money every month no matter what the country is facing.

10/05/2012

Jim Cramer went over a Goldman Sachs report on 10/1/2012 that made a good case stating that Yahoo’s core business is trading for only 1/7^th of its value. This is a nice margin of safety for a potential turnaround with a new CEO (Marissa Mayer of Google fame). Placing a small bet (Only 1% of portfolio) on YHOO to see if this 19 billion company can actually turn. Peg 1.33.

9/14/2012

This market is ON FIRE! It’s INCREDIBLE! DOW and S&P near all-time highs. So…getting fearful now that people are greedy with both US and Europe printing endless amounts of money.

Way too many of my positions are near their all-time highs and 52 week highs it’s making me uncomfortable. Raising cash by reducing the following positions by an average of 20% in the portfolio:

CIT, KORS, FDX, MSFT, INTC, LULU, UA, GOOG, EBAY

9/12/2012

Sold 30% of JPM shares @ 151 billion to lock in gain of 14.6% on those shares and raise cash. Reduced total position from 3.5% to 2.0%.

Used cash to buy 3D –Systems (DDD) @ 2.10 billion to buy another ¼ position as it’s decreased 10% since my original purchase. Now makes instead 3.2% of portfolio instead of 1.7%. PEG 2.53.

9/11/2012

Starting position in Kimberly-Clark (KMB) @ 32.58 billion to make up 1.5% of portfolio. My wife’s pick to ride what we believe to be the next baby boom (KMB makes Kleenex, Scott, Huggies, Pull-Ups). I like the 3.6% yield and 1.8 PEG rate.

8/28/2012

http://cubify.com/ is the future and I’m tired of watching these gains pass me by. Started position in DDD @ 2.35 billion to make up 2% of the portfolio. Reduced ATVI by 50% to raise cash, now makes up to 2.1% of portfolio. PEG 2.57.

Do tech patents actually mean something now? Does RIMM have any mobile patents worth anything?

With 1.8 billion in cash and a patent portfolio estimated at 1.8 billion that equals 3.6 billion. Current market cap: 3.8 billion. At this price I’m betting (Vegas style gambling) on a patent buy-out, so making a 1.6% position in portfolio.

8/27/2012

Sold 30% of BAC shares to lock in loss of 28% on those shares. Reduced total position from 6.3% to 4.6%. Main reason to raise cash and BAC was one of my biggest holdings. Now, I can purchase NOK to make up 1.8% of portfolio at 12 billion.  Apple winning a major patent victory against Android (Samsung is largest Android reseller) is enough catalyst for me to dip my toe into the Microsoft Windows Phone 8 world. Maybe scared vendors will start pushing Microsoft? Balance sheet is pretty ugly though and hardware tech is hard so this will be a Vegas-style trade for me.

8/8/2012

Starting position in Arcos Dorados (ARCO) to make up 2.2% of portfolio @ 3 billion. ARCO is the exclusive franchise of McDonalds in Latin America. Double the population of the US yet McDonalds only has .0003% locations per person there. McDonalds has .005% locations per person in the US. Will it be just as addicting in Latin America?

Sold 20% of FUN shares to lock in gain of 45% on those shares. Reduced total position from 4% to 3%.

Sold 20% of FDX shares to lock in gain of 25% on those shares. Reduced total position from 3.5% to 2.4%.

8/6/2012

Starting position in Hain Celestial (HAIN) to make up 2% of portfolio @ 2.50 billion to pair with Annie’s. Whole Foods Market stocks more than 2,000 products made by Hain.  Why buy the WFM middleman when you can ride the organic wave at EVERY grocery store? Hain sells wherever organic groceries are sold. PEG 2.05.

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Will Netflix repeat Amazon’s history? I think it will rhyme.

In July 2011, Netflix (NFLX) was valued at 16 billion, everything was perfect and people spoke about Netflix with reverence. When they say stocks are priced to perfection this is exactly what they are talking about. Then, the CEO did something stupid called Qwikster and drastically raised prices and customers left in droves. The cost of content increased and many new releases got pulled from their on-demand catalogue. Competition from Hulu and Amazon ramped up. US subscriber growth has slowed. Fast forward to yesterday and Netflix hit a new 52 week low losing 80% of its value from the top and making it worth 3 billion dollars.  Here’s 3 reasons why the market hates Netflix:

1)      Netflix isn’t profitable. Netflix is investing heavily outside the US and who knows if the concept will work in other countries?

2)      Netflix has no moat. It doesn’t matter if they were first in this business. Anybody can put up a website and provide the same product.

3)      Netflix has razor-thin margins. With competition from everywhere, it’s almost impossible to make money when the lowest cost provider wins.

Now, re-read those three reasons but replace Netflix with Amazon. That’s exactly what everyone was saying about Amazon in 2001 after the dot com bubble burst.  Amazon was a 50 billion dollar company and dropped to a 3 billion dollar company from 2000-2001. More than a 90% loss in just one year.  Fast forward to today and Amazon is worth 100 billion dollars. Anyone that dove in after the dot bomb has made 33 times their money.  Fortunes are made when the nerdy underdog gets the girl and wins the game. Not when the arrogant jock scores yet another touchdown.

Netflix will never be as diverse or as good as Amazon is. But I do think history will rhyme a bit. What goes down, must come up! As long as you don’t go bankrupt. Here’s 3 reasons why I think I can sextuple my investment in Netflix by 2016 and am doubling down today.

1)      Netflix has first-mover advantage and this is huge.  Investing heavily in international expansion while losing money in the short term is exactly what they should be doing to hit my 2016 price target.  They brought in almost a billion dollars of revenue last quarter and only 65 million of that was international.

2)      The majority of customers will stay with you if you have a great product at a great price. Netflix has been doing a great job this year keeping people hooked as the average subscriber watched 40 streaming hours of content in June. Those are record breaking numbers and people got mad at CEO Reed Hastings for bragging about his customers watching a billion hours of content.  Amazon and Hulu will be taking market share but this isn’t winner takes all. I think Netflix will be Coke, Hulu will be Pepsi, and Amazon will be Dr. Pepper. Even if I’m wrong on the order profits still ahead.

3)      Netflix brings in about $7 per user. Currently, they have no profit but just in 2010 they were making 7.5% per user.  They actually beat earnings guidance by 5 fold last quarter. They have around 36 million subscribers and only 3.73 million are international. Once their international expansion is complete, I think they will easily hit 7.5% again. If Netflix can keep its lead as the Internet takes over the world, eventually it will follow the path of every other major American brand and actually have more international subscribers than domestic. If that happens, anyone jumping on the train now will be rich.

Now, I’m not going all-in or doing anything stupid here.  When you are trying to predict the future always plan to be wrong. We own 40 stocks and even after doubling-down Netflix only makes up 10% of our holdings. We have at least 5 years for this to play out.

Monty

P.S.:

Below are also other stocks I have purchased since the last update. My wife recently made some picks today to further diversify our holdings.

Michael Kors (KORS).

My wife’s a huge project Runway fan.  Only been public 8 months and started opening stores in 2007. 58% increase in revenue last quarter with a gross margin of 58%. Same store sales increased by 36%.   KORS opened up 71 new stores last year. Michael Kors owns 6.5% of the business. 181 North American Stores.  46 International Stores.

Starbucks (SBUX).  My wife’s favorite addiction. Consumers are worried about economy and showed slower consumer traffic in June and July. 30% off all time high it hit in April. 1.58% dividend.

Annie’s (BNNY). Only been public 5 months and riding the organic movement. Our son loves their food! Net income increased 17% with latest quarterly report. In 2011, the company generated $20 million in profits on $117.6 million in sales, up from $96 million in revenue in 2010 sales and $6 million in profits. The company offers over 125 products, which are sold at over 25,000 retail locations.  There are over 35,000 grocery stores in the United States alone. This is a positive for Annie’s because the company can grow its distribution within the U.S. by 40%.

Also had a lot of winners  over the past two months so followed the philosophy of “Buy More 52 week low sell less 52 week high.”

7/18/2012.

Buy more 52 week low.

Supervalu (SVU), the 3rd largest grocery chain in America is now at a 35 YEAR LOW @ 492 million. Massive debt (6.3 BILLION) and Walmart, Target, and dollar stores are eating their lunch. Can they turn it around? At least they are immune to online sales. PEG -.059. Increased position from 1.3% to 2.3%.

7/17/2012

Sell less 52 week high.

Cedar Fair (FUN) owner of Knott’s Berry Farm hit a 52 week high today @ 1.79 billion. PEG 2.24. Sold 20% of position to lock in gain of 48.2% on those shares. FUN now makes up 3.6% of portfolio instead of 4.8%. FUN is up 50% for the year and gold only up 1%. So far my call of amusement parks being a better investment than Gold is correct! https://greedywhenfearful.com/2011/12/16/3-reasons-why-amusement-parks-are-a-better-investment-than-gold-fun/

7/12/2012

Buy more 52 week low.

Supervalu (SVU) hit 52 week low today @ 575 million. OUCH, a one day drop of 50%!! PEG .35. Increased SVU position from 1% to 1.6%. In one day this turned from a massive dividend story to a turnaround play. CEO Herkert says SVU is still profitable, bankruptcy isn’t on the table. This means eventually the stock will recover and the dividend will come back. By 2017 I believe I will be happy about this investment.

7/11/2012

Buy more 52 week low.

MAKO hit 52 week low today @ 637 million. OUCH, a one day drop of 40%!! PEG -.79. Increased position from .7% to 1.2%. They sold 9 one-million dollar robots instead of the projected 11. I never expected robotic surgery to be a smooth ride so this doesn’t surprise me at all. But, a 40% sell off for missing by two and lowered guidance? Classic over reaction!

7/2/2012

Sell less 52 week high.

Boston Beer (SAM) hit 52 week high today @ 1.59 Billion. PEG 3.14. Sold 20% of position to lock in a gain of 85% on those shares. SAM now makes up 3.7% of portfolio instead of 4.6%.

6/18/2012

Buy more 52 week low sell less 52 week high.

EBAY hit 52 week high today @ 54.87 Billion. PEG 1.30. Sold 20% of position to lock in a gain of 72.7% on those shares. EBAY now makes up 2.1% of portfolio instead of 2.8%.

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