Tough Decisions

I think I have several good ideas to replace FirstCash - FCFS - $117 in my model portfolio, but I could not settle on the best one. I am still paralyzed by big picture “macro” questions, including the election. Below are my possible new ideas in order:

1. LKQ Corp. - LKQ - $42 - LKQ has a new CEO. In the first minute, of his first earnings call, he was pounding the table on stock buybacks, and raising the company’s required return on acquisitions. This makes me stop and take notice. There will be an “investor day”, on September 10th to outline new growth initiatives. I guess I will wait. The company is has having short-term problems because lower used car prices are leading to fewer repairs. Some fear technology is preventing some car accidents, but I am not buying that argument. This is a well run company, in a semi-bizarre industry, that I want to own. I will wait for the investors day to learn more. LKQ won an important patent lawsuit against GM in the quarter.

2. Etsy - ETSY - $54 - The last time I waited on a good internet idea Williams-Sonoma -WSM went from $50 to $150. I am taking the same risk here. I really think I understand this company. They are doing all the right things, and the stock is not expensive. I hate to be constrained by “macro concerns”, but I must admit that I am limited by my concerns about the health of the consumer. ETSY has fought off some competition from China, and seems to be the only game in town for small artists to sell their stuff. I like this stock better than all the other retailers, but I frozen by the macro issues.

3. Hasbro - HAS - $67 - I missed the bottom on Hasbro around $50, and now I am too frustrated to jump in at $67. The restructuring story is unfolding almost perfectly, but I do not want to admit missing the bottom. In the real world this is a constant problem. All I can do is wait for a ‘hiccup”. Given that earnings can be “lumpy” because of the timing of new game announcements, I might just get lucky. More than half the business is now sales to “kid-ults”, age 14 and over. This is really a video games company, but is still perceived as a toy company.

4. Norwegian Cruise - NCLH - $16 and Vail Resorts - MTN - $175 - These are both stocks I should own, but I am a miserable, grumpy, old man. I fear that the travel boom after the pandemic is not sustainable. I am letting these macro concerns override investing in two very well run companies. I hate looking in the mirror. Maybe I should punt Brunswick - BC - $77, and add one of these instead?

5. Bowlero - BOWL - $11 - Bowling should be a good recession business, but I still cannot pull the trigger here. This company was born as a SPAC (special purpose acquisition company), and that still concerns me. BOWL scared investors because they bought a water park in the quarter. Getting away from bowling alleys, and into water parks, is a little concerning. But the stock price reflects those concerns. As a kid who grew up in Milwaukee, I know the bowling business. These guys are good operators. They are doing very well in renting “event” rooms. This is the stumble I have been waiting for but i cannot pull the trigger. This is one management I might need to meet in person.

6. Ziff-Davis - ZD - $42 - ZD is almost TGTBT (too good to be true). ZD missed their estimate in the 2nd quarter, but maintained their full year guidance. Wall Street is not buying that. The Ziff family made their money for many years publishing “hobbyist” magazines. The physical magazines are long gone, but this company now operates dozens of unique websites with targeted advertising. They stand to benefit if the Google monopoly on digital advertising is ever broken. The company is run by smart guy, Vivek Shah, who understands the advertising business. Selling at 7x earnings, and buying stock back at a significant pace, I guess Wall Street is worried about advertising spending. I wish some other value investor owned this stock. I really do not know exactly what I am waiting for.

7. Goodyear Tire - GT - $8 - Expectations have dropped to almost nothing. During the August call when it came time for questions, not a single analyst was even on the call. GT made a significant asset sale in the quarter, but it will take time for the deal to close. Since the buyer is a little unusual, I will wait. Imports are still problem on the low end, but I believe in the old Copper brand they bought a few years ago. This is almost a classic “old fashioned” value stock. Twenty years ago I might be rushing to buy this stock, now I am a little more patient.

8. Oxford Industies - OXM - $88 - I waited for a miss, OXM missed, and macro stuff is still making me wait. The company is doing everything right. They are even building stores that include “Marlin Bars” to attract traffic. What a deal, getting you drunk, and selling you shirts. They are doing OK in the women’s business, and made a decent acquisition of a footwear company, Jack Rodgers. OXM is a growth stock selling at 10x.

9. First Watch - FWRG - $17 - It is concerning that FWRG has had to buy back 40+ franchise units over the last two years. This is never a good sign, but the stock price reflects these concerns. The company still has 130 new locations planned for the next few years. The food is still very high quality, but maybe a little too expensive in this environment. Unit economics are still strong, but it takes 3 years to get a store to full profitability. I still like Jack in the Box - JACK a little better, but this is a cheap restaurant stock.

10. Rogers - ROG - $106 - I can feel the money fleeing the technology ETFs making this stock go lower every day. The CFO did jump ship, so it seems there is no sale of the company on the horizon. There guys have great technology, and a buyer wanted to pay $250+. ROG is a big tax loss selling candidate. Let’s wait.

11. Ashland - ASH - $86 - Business is getting better, and the they announced an important asset sale. The Diamond Hill guys are buying more. I am waiting for this to get cheaper.