Lessons Learned + Hasbro?
It is earnings reporting season for the next few weeks, so let’s think about investment philosophy while we wait for some earnings disappointments.
However, at the bottom of this post, I do have some positive thoughts on Hasbro - HAS - $60.
I started writing in the Fall of 2022. These are the top 10 concepts I hope you have learned since then:
Make good comparisons - When you have found a good investment idea, be sure to carefully compare it to the alternatives.
Can I understand this company? - Being a generalist is difficult. Be sure you understand a company, and its history, before you invest. It is ok to say “too complicated, let’s move on to the next idea”
You cannot ignore economic analysis - Some companies are significantly tied to outlook for the general economy. Be sure to carefully evaluate the downside risk in each stock with a possible recession in mind.
Constantly look for new ideas - Good investing requires a constant search for new ideas. Allocate adequate time (15-25%) to the search for new ideas.
Buy low, sell high - Start by analyzing companies that have been performing poorly, or that are closer their lows. Sometimes companies in the middle of their range are reasonable ideas.
Get to know lots of companies - Learn to do a quick “one hour analysis”, so you have time to look at lots of companies. As Warren Buffett said, “if you want to be a good analyst, there are 5000 public companies, start with the A’s”
Embrace uncertainty - Look for companies with low “earnings visibility”, and try to take a longer time horizon.
Have disrespect for Wall Street’s opinion - Companies that have a significant proportion (> 50%) of hold/sell recommendations, or “low expectations” are often good value investment ideas to evaluate.
Build a mosaic, for companies - Good investment ideas come in all “shapes and sizes.” There is no magic mathematical formula. Some mix of valuation, expectations, growth potential, and balance sheet, makes every idea different. It is not always the lowest P/E, or best growth, or a debt free balance sheet that make the best idea. This is an art, not a science.
Build a mosaic, for a portfolio - A good portfolio is a mix of different ideas. It is ok to avoid certain top performing sectors, but some level of diversification is needed. Diversification is especially needed in concentrated (less than 25 names) portfolios.
None of these concepts are addressed in standard investment analysis textbooks. These ten ideas come from years of practical experience.
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Hasbro - HAS - $60 is a very solid investment idea. HAS is definitely a top 30 idea. New management took over in late 2022, and positive changes are finally happening. Let’s wait on the 2nd quarter, to be reported in a few weeks.
The “Wizards of the Coast” brand has made Hasbro a significant digital player, much more more than I realized. The new CEO came from Microsoft, and built this business with a focus on “sci fi and fantasy” games. Some old toy brands are still a drag, and are being rationalized. Inventory cuts have been huge.
In very rough terms HAS has shot at $1 billion in EBITDA, which puts the stock at 8-10x. That is not real exciting, but with a little more polish, there is room for multiple expansion. This is not Electronic Arts (17x EBITDA) just yet, but HAS moving in that direction. Rejoice you yield whores, their is a 4.5% yield while you wait. For a “medium yield” stock, there are lots of positives here.
Expectations for HAS are a little high with 11 buys, and only 3 sells, but HAS had a large divestiture to make in 2023. The possibility of investment banking fees make sell recommendation more unlikely.
Other value investors are still sleeping on HAS, and seem to prefer Mattel - MAT - $17. I see very few positives at MAT. It is cheap, but the Barbie hype is gone.
HAS is one stock where good comparisons are difficult. Seeking Alpha throws toys in the leisure products category. Comparisons to golf clubs, guns, and boats, seem a little silly. Of the companies on that leisure products list I do want to look at Yeti - YETI - $40, down from $100.
OK, I just hate not do some comparisons. So let’s look at the “medium yield world”. Let’s call that over 4%, but less than 5%. I already grabbed Kinder Morgan and Northwest Natural, and maybe Verizon and Philip Morris International, from the high yield world. Nutrien and Helmerich & Payne are in my top 20, and have 4% yields
I think HAS has more brainwave activity than:
Gilead Sciences - $70 - 4.3% still too much hype
Ford - $14 - yikes, run, I prefer BorgWarner
Kraft Heinz - $32 - 4.3% - too leveraged
Kenvue - $18 - 4.4% - I was wrong, worth a look
Devon - $46 - 4.4% - still wary of the variable dividend idea, I prefer HP
International Paper - $43 - 4.2% - taekover hype
Interpubic - $29 - 4.2% - another top 30 idea, Google issues?
Viatris - $11 - 4.3% - boring, regulatory issues
FMC - $57 - 4.0% - another top 30 idea, Nutrien is better
Vail Resorts - $180 - 4.7% - still concerned about travel cyclicality
Huntsman - $42 - 4.3% - too much housing exposure