I Could Be Wrong - Brunswick - BC
I own Brunswick - BC - $81 because I could be wrong.
BC is a very educational stock. It is important to understand how BC fits into the entire portfolio. Not every stock in a portfolio is there because it is one of my top 20 ideas. Sometimes a stock is in my portfolio because it plays a unique role.
BC is a stock I own in my Model 20 portfolio because I could be wrong about the market in general. Right now I would rather own a 4% yielding one year T-bill than the average stock, or even my Top 20 Model portfolio. My Top 20 Model is the portfolio I would own if I had to own stocks. In a world where Colgate Palmolive - CL - $96 (my proxy for the S&P 500)) sells at 17x EV/EBITDA, my best guess is the market is 30-40% overvalued, i.e. CL should sell at about 12x. If I am wrong about the market BC is the type of stock that should do well. I would guess BC has a Beta over 1.3x and should, in general, do better in an up 20% market.
BC is also a stock I own because I could be wrong about the the economic outlook. In general, I think the chance of a significant recession is higher than the consensus. The consumer is over-leveraged, and the banking system is a mess. After a “pandemic bounce”, I fear we have some negative GDP quarters in our future. That is why in the Model Top 20 has very few economically sensitive stocks. But I could be wrong, so I also own BC. If the economy does better than I think, BC should be a good stock to own. I could replace BC with ConAgra, and eliminate all economic sensitivity, but in my view that would leave me with a slightly under-diversified portfolio.
I wish I could live in a world where there were no “top-down” concerns. I lived in that world for many years. In those years my view of the market and the economy was pretty close, or even slightly more positive, than the consensus. I was happy to own consumer durables, industrials, and higher Beta stocks. Right now I prefer to “hide under a rock”, until it is safe to come out.
BC just reported their quarter, and they survived better than others. I will do a mored detailed review of the quarter in the next few weeks. Right now, I want to do a quick review of BC against the other 500 stocks in the Consumer Discretionary sector.
I would rather own BC than:
Amazon or Tesla - you might be reading the wrong blog if you want to own these guys
Home Depot at 27x, near an all-time high, is not a value stock
Nike deserves consideration, but I think they have been screwing their retailers by pushing too much direct to consumer
I prefer fishing boats to anything auto related. Sure Ford is cheap, but I fear the financing side of the business. I want understand Subaru - FUJHY - $9 a little better, near a low.
There are cheap auto parts stocks I want to own when the world is better. BorgWarner or LKQ
There are several in the leisure industry that deserve consideration - Polaris, Harley-Davidson, Thor, Winnebago, MarineMax
Maybe Etsy is better, but I understand BC a little better, this is a close call
Reasonable people could own a big retailer instead, maybe Dollar General or Nordstrom
I am also waiting on the travel related stocks - Vail Resorts is my favorite, or maybe Norwegian a little cheaper, still thinking about Choice Hotels
The homebuilders are is this sector, but I need to see more pain before buying Green Brick or Pulte
Maybe a casino like MGM or Wynn is ok, but I prefer Red Rock Resorts which I consider a special situation, and not part of this group
I really consider restaurants as a special situation, and not part of this group
I missed Williams Sonoma at $60, but I want to own it someday, CarMax is another very well run company I want to own at the right price, Hasbro is another solid idea that has run too much
Their are a bunch of smaller cap stocks in this sector that are pushing on BC - Yeti, Oxford, Krispy Kreme, Tempur Sealy, Columbia, Carters, Bowlero, Lovesac, Duluth, Sally Beauty
Whirlpool did not cut the dividend an is still surviving
BC has lots of competition for its “ place on the team”, but right now it is the winner, and the idea I like best to hedge my chance of being wrong.
Over the last 30+ years I have watched BC defeat is competition, sell its non-core businesses, build the best dealer network, and reduce the cyclicality of the business. I understand BC better than any of the 500 stocks in this sector.
If I invested only on my top-down view, I would not own any of thee stocks.
However, I could also replace Treehouse Foods, or Kinder Morgan with a more economically sensitive stock. For that discussion, let’s wait for earnings season and the election to conclude.