How about a thought experiment?
Today, I’m going to imagine someone puts a gun to my head and asks me to list 15 stocks from the one I like best to the one I like least. There’s a further condition. Price doesn’t matter. If these stocks were somehow equally cheap, which would I buy first? And which would I buy last?
These are 15 stocks I did in-depth research on when I started exchanging emails with Geoff. They are ordered, from the stock I like the most to the stock I like the least:
- DreamWorks Animation (DWA)
- Ebix (EBIX)
- Nutrisystem (NTRI)
- Carnival (CCL)
- Chuck E. Cheese (CEC)
- Masimo (MASI)
- International Speedway (ISCA)
- Bio-Reference Labs (BLRI)
- News Corp (NWSA)
- Seaboard (SEB)
- WWE Entertainment (WWE)
- Landauer (LDR)
- Yahoo (YHOO)
- Nintendo (NTDOY)
- Ambassadors Group (EPAX)
1. DreamWorks Animation (DWA)
I like the organization. I believe DreamWorks’ future is favorable. Their movies are getting more consistent, and the international market is growing. The economics of movies is declining, but that can be offset by the increase in international market volume. There is a possibility for growth without adding more invested capital.
2. Ebix (EBIX)
This company grew earnings by 52% annually from 2002 to 2011 and 59% annually from 2006 to 2011. They made a lot of acquisitions. But 10 year average ROE (including goodwill and intangibles) is still high at 28%. The CEO seemed to understand their advantage and kept exploiting that. The potential market is huge. I think this company will continue to grow in the future.
3. Nutrisystem (NTRI)
This company has a great brand in a huge market. Capital allocation seems good. NTRI’s earnings in the last several years were not good. But I think their future will be better.
4. Carnival (CCL)
Carnival has an impenetrable moat. The management runs the company better than other cruise companies, and they are conservative. The problem is that this business requires a lot of capital. However, they still manage to earn an average 13% return on equity. And I expect decent growth in the business.
5. Chuck E. Cheese (CEC)
CEC has good brand image in a small niche. I think the management is good. They are cautious in expansion and have been paying a dividend. But I don’t expect much growth in this company.
6. Masimo (MASI)
Masimo is a medical device company. Masimo dominates its niche market and has shown the ability to find new products for growth. I have no doubt it will grow fast in the future. But I don’t know how future expirations of some patents will affect the business.
7. International Speedway (ISCA)
This company earns a good return on capital. Capital allocation is good. Earnings slumped lately but I don’t think there’s a long-term decline in NASCAR’s popularity. I think the recent return on capital is lower than normal. But it’s too difficult for me to know the normal long-term popularity of NASCAR.
8. Bio-Reference Labs (BRLI)
BRLI has a good record of profitable growth. However, this is a sales-driven organization. I’m not sure how their sales tactics might affect future earnings.
9. News Corp (NWSA)
NWSA has a great portfolio of valuable media assets. I think past earnings are a good indicator of future earnings. However, I don’t understand capital allocation at the company. I’d be reluctant to be Rupert Murdoch’s junior partner.
10. Seaboard (SEB)
SEB has a good record of internal growth. It’s not small but gets little attention from Wall Street. But I don’t understand the management because of their secrecy. And their recent earnings might be higher than normal because of the high pork price. But if I’m forced to pick SEB, I will use their long-term book value growth as an indicator for future returns. Over the last 19 years, book value has grown more than 11% a year. Over the last 35 years, the stock price has risen almost 17% a year.
11. WWE Entertainment (WWE)
WWE is an interesting company. It has a unique product and uses little capital. But like ISCA, I have a problem with basing an investment on the long-term popularity of a sport. And I have a much worse impression of the management than ISCA’s, in terms of both capital allocation and trustworthiness. But WWE has the opportunity to start a cable network to exploit its library. If forced to buy this company, I would put my hope on the potential of a new cable network.
12. Landauer (LDR)
LDR has a very profitable core business. However, it made some acquisitions lately. Although new businesses are related to the core, I have to watch. I don’t understand the new businesses enough. And I have to see how the acquisitions work out.
13. Yahoo! (YHOO)
YHOO has some valuable assets in Yahoo! Japan and Alibaba. Those stakes can provide a floor value. But unless they are acquired by Facebook (FB), Yahoo! in the US is toast.
14. Nintendo (NTDOY)
I love the organization. I love the company’s culture. But I need to watch how mobile devices affect its handheld game device business.
15. Ambassadors Group (EPAX)
This is a very profitable company. However its sales tactics are misleading. Past earnings could be artificially high because of the deceptive sales tactics.
In future posts, I’ll talk about these companies and compare some of them.