Bowling, Diamonds, Whales, and Mice
If you only learn one thing from the ramblings of a rapidly aging value investor let it be this:
good investing requires creativity
Do not for a moment think value investing can be done by, Step 1, then Step 2, and finally Step 3. One of the most important parts of building creativity is curiosity.
I knew that I should spend the day looking at some of the high yielding stocks. Maybe dig into VF Corp. or Walgreens. But that was just too damn boring. I had to find something new and interesting. So I decided to go bowling.
Bowlero - BOWL - $11 came public a few years ago as a SPAC. They are rolling up the bowling center industry and already have a market cap of $2 billion on sales of $1 billion. Students of market history know the bowling stocks were growth stocks in the 1960’s. Kind of the NVIDIA’s of their day. Bowling is not a sport that too many Wall Street guys understand (are there any squash stocks?, when will pickleball come public?).
I came to a hard stop on BOWL when I saw that had a short interest of 36%. I think the most likely explanation is BOWL has some outstanding converts and the shorts of the common are just an arbitrage. But even a 10% short interest is often enough to scare me away, so for now BOWL is a pass. I will still go visit the lanes this afternoon because I am bored out of my mind.
BOWL made me think of other stocks one my list that Wall Street would never understand. The first one was Signet - SIG - $64. SIG just had an earnings miss, and the EV/Sales is only 55%, so I was interested. SIG has done a nice job of rolling up some of smaller “credit jewelers”. In fact I doubt Ms. Khan would look fondly on their deals. I had a friend that worked with the Zale’s bankruptcy committee years ago, so I know the diamond business fairly well. In my first pass over SIG I wanted to see who the big holders were.
My GuruFocus told me Select Equity Group owns a cool 19.5%. Who the hell is Select Equity Group, and what else do they own? That led me to my new favorite investment site, WhaleWisdom.com. Enter Select’s name and up pops a great list of what they own. Select is a hedge fund, but they have to file a 13F. WhaleWisdom does a great job of displaying an easy to use list of all Select’s holdings. Take a minute to work with this site. Most of their stuff is free, but if you want a history of each holding I think it’s $90/quarter.
Whale told me SIG is Select’s 12th largest holding. Select is now a $30 billion fund, but they hold some interesting stuff. They own big positions in companies I like, Brown and Brown (BRO), and the old Perkin-Elmer (now called Revvity - RVTV). Select is the creation of George Loening. George started writing a newsletter about stocks when he was in high school. His first big name was Mary Kay Cosmetics. George started Select Equity in 1991, and keeps a very low profile. It turns out that George will not let his analysts talk with Wall Street under any circumstances. George Loening is my new hero.
I was a little disappointed to see on Whale that Select had been a seller of 900,000 shares of SIG. Are they bailing out, or are they just staying under the 20% threshold for regulatory reasons? Inquiring minds want to know, but all we can do is wait for the next 13F.
Stopped again, I started to skim down the Select holdings list on Whale. They own lots of interesting stocks. Their 11th largest holding is Middleby - MIDD, a stock that I put in my new mid-cap model portfolio. I love Mr. Loening and his cloistered analysts. Select’s stocks are a great mixture of value and growth. Every serious investor should take a minute and look at the list.
Then there it was was, on top of the fourth page of Select’s holdings, a new position in none other than VF Corp - VFC. Why would a semi-growth stock manager be investing in ugly old VFC? It turns out that VFC is now so sleepy anymore.
VFC has just named Bracken Darrell as its new CEO. Mr. Darrell has just left mouse maker Logitech - LOGI - $58, causing that stock to plummet 20%. Darrell is one of the greatest promotors in the Jim Cramer stable. He made LOGI sound like one of the greatest growth stocks of all time on a recent CNBC visit. It made me nervous Darrell left LOGI only a few months after a new CFO came in. Someday I want to look into LOGI, but I will wait for now.
But what should we do with VFC and its 6% yield. EV/Sales is still 1.2x so the stock is not dirt cheap, but they own some nice brands. Years ago my analyst had a great debate with a Fidelity portfolio manger about Timberland (now part of VFC). VFC was a $100 stock just 3 years ago, now it is under $20. Darrell will do a great job of telling the story, but can he really run this strange collection of brands? Will they eliminate the dividend and give Darrell a clean start, or is he on board to defend the dividend?
I ended they day with much more work, than when I started. Now I have to dig deeper on VFC, and I have the whole Select Equity list to ponder. But right now, I am going bowling.