Barrett Business services stock has been cropped by Wall St. from $27 last summer all away down to a new 52 week low today at under $12/share. This was apparently in response to the Q1 2008 conference call describing a dramatic drop in earnings compared to Q1 2007 $0.15--> $0.01/share fully diluted and guidance that the Q2 EPS will be about 50% of the comparable value from 2007 Q2.
Despite this, BBSI's balance sheet is extremely strong with no bank debt, 30% insider ownership and recent insider buying. Fundamentals are very compelling P/E 9 P/B 1.2 Dividend 2.7% with a payout ratio of only 23%, great free cash flow of $13 million/year and double digit ROE.
The management is well respected, in particular the CEO Bill Sheretz, who has a lot of "skin in the game". He is the largest shareholder (3.6 Million shares).
The major vunerability of this pick is that it is maximally exposed to the area of the USA hardest hit by the recession economics: California.
If the management can control costs and maintain scalability of their business plan, I expect that they will survive this downturn even if it is prolonged by several years and go on to reward the long term investor.
I have bought small increments at $16, $15 and $12.
Motley Fool's view
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Tuesday, April 29, 2008
Monday, April 28, 2008
Kenyon v.s. analysts
Time to Upgrade Wal-Mart (the first 35% doesn't count)
April-26-2008
While scanning my daily emails from several brokerage houses this morning, I came across another example Wall Street analytical rigor. It seems Merrill's retail "analyst" decided it was time to upgrade Wal-Mart (ever heard of them?) to a BUY rating today.
Now THAT my friends is some Grade-A Wall Street Value-add! If by chance you have been following Wal-Mart's (WMT) stock price recently, you will see that it is at a 4-year HIGH, and that this analyst missed the 35% gain since August 2007 - but better late than never I guess, so today it's a BUY!
Let me see - is it "buy high sell low"... ? Or maybe it's "sell low, ignore higher, buy high"! That's what Merrill's crack "analyst"seems to think. If you take a peak at the chart in the back of the report, the one required now in the back of every analyst report, you can see a history of the analyst's ratings on the stock. Here is how this analyst did:
Dec. 6 2005 - ratings upgrade from Neutral to Buy, stock price 47.62
18 July 2006 - rating downgrade to Neutral, stock price 43.17, stock LOST 9.3% while rated buy vs. S&P500 loss of 2.1%
16 March 2007 - upgrade to Buy, stock price 46.21, a GAIN of 7% while rated neutral vs. S&P500 gain of 12.1%%
14 August 2007 - downgrade to Neutral, stock price 43.82, a LOSS of 5.2% while rated buy vs. S&P500 loss of 2.9%
30 August 2007 - downgrade to Sell, stock price 43.32, loss of 1.1% while rated neutral vs. S&P500 gain of 2%
26 Oct 2007 - Upgrade to Neutral, stock price 44.64, gain of 3% while rated sell vs. S&P500 gain of 5.3%
April 25 2008 - upgrade to Buy, stock price 57.45, GAIN of 28.7% while rated neutral vs. S&P500 loss of 9.4%
Summary:
While rated BUY, the stock LOST 9.3% and 5.2%
While rated NEUTRAL, the stock gained 7%, lost 1.1%, and gained 28.7%
While rated SELL the stock GAINED 3%
One heck of a record! The fact that she just upgraded to BUY is making me take a closer look at my WMT holdings. I trimmed a little recently in a managed account that was overweight, but continue to hold in other accounts. I think it is nearing fair value at current levels, so I am considering trimming further.
What this points out however is that much of Wall Street's ratings "upgrades" and "downgrades" are nothing more that backward looking momentum calls or shallow extrapolation of recent trends. The only value they create is for themselves in the form of commissions generated from speculative trading activity.
Just another example of why we should avoid the noise, and simply buy good companies when they look cheap and sell them when they look expensive.
Sunday, April 27, 2008
Tuesday, April 22, 2008
Marty Whitman's first principles of value investing
April-22-2008
Marty Whitman's "Strategy"by Todd Sullivan
Regular readers kow I am a fan of Whitman and hold a position in his Third Avenue Value Fund (TAVFX). Considering the funds 15% annual return since 1990, it just may pay to listen to what he has to say. In a shareholder letter, Whitman disclosed the five elements he says are the key to his success.
They are: buy cheap, buy quality, buy to hold, buy with minimal expenses, and buy without leverage (margin).
*Buy to hold: Stick with the stock and do not sell just because the price drops. Unless, “there has occurred a permanent impairment in underlying value" of a stock.
*Buy with minimal expenses: Reduce taxes and trading costs by having the patience and confidence to hold. One of the largest drains on investments not considered by investors are commissions and taxes. For example: An investor has a stock that goes from $10 to $20 and sells. His return is $10, correct? No. Assuming he is in the 28% tax bracket his actual return on the sale is $7.20 ($10 - 28%) after taxes and even less when commissions are factored in. If he decides to buy the stock back he must wait for an in excess of $2.80 a share drop in order for the trading to be worth it.
*Buy without leverage: Means do not use margin. “While leverage can increase your returns in good times,” he says , “it will dramatically increase your losses in bad times.” Much of the recent angst of investors at Bear Sterns (BSC), Merrill Lynch (MER) and other banks has been due to excessive leverage. Too much leads to forced selling into depressed markets and destroys returns.
*Buying cheap: Cheap, or, “issues at prices that reflect substantial discounts from readily ascertainable NAVs (net asset values) … (and whose) NAVs will increase by not less than 10% per year compounded".
*Buying quality: Whitman defines it as a strong financial position, competent management, and a business that is “understandable … plus lots of cash and a high level of insider ownership … with some type of competitive advantage”. A very Buffett like strategy and a very simple one filled with common sense. For more on Whitman's thinking, visit the Fund's site here.
Marty Whitman's "Strategy"by Todd Sullivan
Regular readers kow I am a fan of Whitman and hold a position in his Third Avenue Value Fund (TAVFX). Considering the funds 15% annual return since 1990, it just may pay to listen to what he has to say. In a shareholder letter, Whitman disclosed the five elements he says are the key to his success.
They are: buy cheap, buy quality, buy to hold, buy with minimal expenses, and buy without leverage (margin).
*Buy to hold: Stick with the stock and do not sell just because the price drops. Unless, “there has occurred a permanent impairment in underlying value" of a stock.
*Buy with minimal expenses: Reduce taxes and trading costs by having the patience and confidence to hold. One of the largest drains on investments not considered by investors are commissions and taxes. For example: An investor has a stock that goes from $10 to $20 and sells. His return is $10, correct? No. Assuming he is in the 28% tax bracket his actual return on the sale is $7.20 ($10 - 28%) after taxes and even less when commissions are factored in. If he decides to buy the stock back he must wait for an in excess of $2.80 a share drop in order for the trading to be worth it.
*Buy without leverage: Means do not use margin. “While leverage can increase your returns in good times,” he says , “it will dramatically increase your losses in bad times.” Much of the recent angst of investors at Bear Sterns (BSC), Merrill Lynch (MER) and other banks has been due to excessive leverage. Too much leads to forced selling into depressed markets and destroys returns.
*Buying cheap: Cheap, or, “issues at prices that reflect substantial discounts from readily ascertainable NAVs (net asset values) … (and whose) NAVs will increase by not less than 10% per year compounded".
*Buying quality: Whitman defines it as a strong financial position, competent management, and a business that is “understandable … plus lots of cash and a high level of insider ownership … with some type of competitive advantage”. A very Buffett like strategy and a very simple one filled with common sense. For more on Whitman's thinking, visit the Fund's site here.
Saturday, April 19, 2008
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