Recent Highlights from Fat Pitch News
Fat Pitch News continues to provide worthwhile value investing links. George recently created a Feed Flare that lets webmasters include a link to bid up their stories on Fat Pitch News. You can read about the flare here.
I’ve added it to all of my blog posts at the bottom of the permalink page. So, if you click on the word “permalink” at the bottom of any of my posts, you’ll be able to bid up the story on Fat Pitch News by clicking a link at the bottom of the post.
Here are some of my personal favorites over at Fat Pitch News (to read the complete story, click the blue URL just below the green banner):
The 38 Stocks in the Buffett Portfolio: A comprehensive list that includes some very old positions that have not been sold. You may have forgotten about a few of the smaller names.
Overstock.com Analysis on Money Central: You’ve read my take on Overstock.com (OSTK), now read someone else’s.
Tribune Good News: Media conglomerate Tribune (TRB) announced a $2 billion stock buyback as well as plans to sell at least $500 million in non-core assets. Ratings agencies drastically cut the company’s credit rating, because of the added risk from the leveraged buyback. However, Tribune’s debt currently remains investment grade.
Claire’s Stores at Value Discipline: Rick looks at Claire’s Stores (CLE). It’s an interesting business. The stores sell cheap accessories to young girls. That’s not the kind of business where competitive pricing is a big concern.
International Speedway at MoneyMarketLetter.com: A post discussing an often overlooked wide-moat company, track operator International Speedway (ISCA).
Sleeping With an Elephant – Emerging Markets – How Diversified Are You?: Rick of Value Discipline discusses the possibility that simply picking a superficially diverse group of international securities may not insulate you against problems in the U.S.
Brunswick – Bargain Basement Boating?: Value Discipline profiles Brunswick (BC), a big player in boating and marine related recreation. The company also manufactures other (non-marine) recreational products and operates bowling alleys.
Funeral Pallor: What’s wrong with the funeral business? Burials are exactly the kind of highly fragmented, slow growth industry that should be highly profitable for the consolidators. Lately, that hasn’t been the case.
Coke Trying to Stay Fresh: You may have seen this story elsewhere. Coca-Cola (KO) is developing new specialty drink recipes by using restaurants as a test lab. The plan seems to be to increase the use of Coke in restaurants. I doubt it’ll lead to big results relative to Coke's total sales, but it makes more sense than many of the marketing pushes for mature beverage brands.
Comments
TRB needs a leveraged buyback like I need another hole in my head.
Seriously, is there a much worse use of credit than to buy back stock with it? The company could be paying off debt, paying a special dividend, increasing the dividend, all without incurring more debt. If they have to incur debt, they could probably acquire a smaller company that would increase the revenue stream.
Buying back falling shares is a waste of cash when it's done with cash. Buying them back on credit? Bad idea.
Posted by: nodoodahs | May 31, 2006 04:55 PM
I don't have a problem with buying back falling shares, but I do have a problem with using this much debt.
The stock price isn't so cheap that a leveraged bet is a no brainier. It seems more like an attempt to try to do something (anything) to get the stock price moving rather than an honest attempt to buy deeply undervalued shares. This seems to be the attitude at most “old” media companies. This plan isn’t something that should be taken lightly. It may well have repercussions for years to come. I’m just not confident the buyback (using borrowed money) makes sense – and Tribune is going to have an awful lot of debt in an industry that isn’t as foolproof as it once was.
In Tribune's case, I agree that paying down debt and paying out cash makes a lot more sense (and likely will continue to for some time).
Posted by: Geoff Gannon | May 31, 2006 05:38 PM
I have come to the opinion that share buybacks are almost always a waste of money. I understand why, from a political perspective, boards vote for buybacks. I also understand that buybacks represent a huge agency problem when insiders and officers are selling to the company as it buys back.
Proof is in the pudding. If you investigate 20 randomly-selected companies who bought back at least $10 million in shares, I'll lay odds that 15 or more of them could have gotten better returns from a CD.
That's the bottom line. If a buyback occurs and the stock is trading lower than the average buyback price, it's a sucky investment decision. If the stock hasn't gained more than a risk-free investment over the average buyback, it's still a sucky decision. The only way it makes any sense from the company's perspective is if the stock trades much higher than the buyback price, AND the company sells the stock for a profit later. Any other condition, and it's a waste.
Buying back using debt adds the issue of having the stock not only outperform alternative investments, but do so by a wider margin. Doubly bad.
Posted by: nodoodahs | June 1, 2006 09:04 AM
Has Coke (KO) resolved the issues with its bottlers and distributors? In many countries outside the U.S. Coke is more expensive than rival Pepsi by as much as 40%! Perhaps Coke should be getting back to the ‘classics’ of marketing.
Posted by: CrossProfit | June 3, 2006 09:04 AM