Posts In:

Geoff Gannon March 14, 2006

Suggested Link: Pilgrim’s Pride – – The Sky is Falling

I’ve previously discussed chicken stocks in general and Pilgrim’s Pride (PPC) and Sanderson Farms (SAFM) in particular. Last Tuesday, the accounting blog 10Q Detective posted on Pilgrim’s Pride:

Pilgrim’s Pride – – The Sky is Falling

Back in January, I suggested that investors interested in chicken stocks look to Sanderson Farms first. My thinking on the matter has not changed. Below, I reprint part of a post from January briefly explaining why you shouldn’t rush off to buy Pilgrim’s Pride, without first taking a good look at Sanderson Farms.

Remember, the following is an excerpt of an old post, the announcement referenced was made in early January:

These stocks may appear cheap, but appearances can be deceiving. It is not a question of if margins will contract; it is a question of when margins will contract. Some value investors will take Pilgrim’s announcement as a buying opportunity. It may be just that.

However, I wouldn’t be buying Pilgrim’s Pride (PPC). When trouble comes, the much smaller, much more conservatively financed Sanderson Farms (SAFM) will be in the stronger position. Sanderson Farms has the better recent record when it comes to earning a good return on capital. On the other side of the scales, Sanderson Farms does trade at a higher price-to-sales ratio than Pilgrim’s Pride. In a business like this, price-to-sales can be an important number, because there is little reason to expect any one company to consistently maintain a wider profit margin than the rest of the industry.

I won’t pretend I understand this industry. I don’t. I won’t pretend I have any clue as to what these firms will earn over the next few years. I don’t. What I do know is that, if I were looking at chicken stocks, I’d start with Sanderson Farms. I suggest you do the same.

Some other bloggers such as Bill of Absolutely No DooDahs have written some very intelligent things about chicken stocks. If any of them are reading this post, I’m sure we would all benefit were they to comment below with the relevant links (hint, hint).

Visit 10Q Detective

Read more
Geoff Gannon March 13, 2006

Stock Analysis Articles

For new visitors, here’s a list of my stock analysis articles to date:

An Analysis of Lexmark (LXK)

An Analysis of (OSTK)

An Analysis of Energizer Holdings (ENR)

An Analysis of the Journal Register Company (JRC)

An Analysis of Journal Communications (JRN)

An Analysis of Pacific Sunwear (PSUN)

Read more
Geoff Gannon March 13, 2006

News Item: (OSTK)

On the day, Overstock shares are up about 10%. Over the last two days, shares of (OSTK) have dramatically increased in price. The increase has been close to 20% for the week. I’m just writing this quick note to assure readers that this price change is small relative to the discount to intrinsic value at which Overstock is selling.

Over the last two months, I have written about the company while its stock was trading at various prices. Nothing has changed. Everything I have written remains as valid today as it was when I wrote it. The market is still valuing the company at a fraction of its true value. If you are interested in purchasing shares of Overstock, you shouldn’t let the relatively small increase in the stock price scare you off.

If you are still undecided, there is no reason to act hastily. First, come to a conclusion as to Overstock’s value. Only after doing that should you check the market price.

Simply put, this post is to assure you that nothing has changed and to encourage patient, confident action based on your assessment of the facts at hand, rather than on emotions such as fear, greed, or anxiety.

Related Reading

An Analysis of (OSTK)

On the Rationale for the Overstock Post

On Overstock (Again)

On Overstock’s Fourth Quarter

Read more
Geoff Gannon March 12, 2006

Suggested Link: Traditions in Value Investing

Traditions in Value Investing

A lengthy overview of traditions in value investing. This articles cover Benjamin Graham, Warren Buffett, and Phil Fisher. It also mentions a few good written works by and about value investors. Highly recommended.

This article originally appeared in Deep Wealth.

The article has been submitted to Fat Pitch News. So, if you like the article, please bid it up over at Fat Pitch News so others will get a chance to read it as well (if enough people vote for the link, it will appear as one of the five headlines displayed on various sites).

Read Traditions in Value Investing

Visit Deep Wealth

Read more
Geoff Gannon March 9, 2006

A Comment Worth Sharing

There was a comment made in response to my post “On Shareholder Wealth” that I wanted to make sure everyone had a chance to read. Since I just put up a very lengthy analysis of Pacific Sunwear (PSUN), this comment could have drifted off into oblivion. It has given me all sorts of ideas for a post, but I’m working on the next podcast at the moment, so that’ll have to wait a day or two. In the meantime, I’d like to give you the chance to read the comment and think about it. It’s a very important topic, and I’m glad Bill (of Absolutely No DooDahs) is there to make sure you get the whole story.

Bill and Geoff,

In the last 3-4 months, since I began investing, the information I have gather from your two websites has been perhaps the best information out there, professional or otherwise.

What makes your blogs unique is that both of you are unafraid to engage in a dialogue on a topic of discussion which you may disagree. In essence we as readers get two blogs for the price of one, so to speak.

I find myself often agreeing with both of you on most issues. Much like Fred Flinstone who had a devil and angel appear on his shoulders when he was torn between two choices, Geoff and Bill sit on my shouldes and shout “all value no TA” or “Value and TA can coexist without destroying the universe” as I ponder my investment choices (I make no assertion as too who is the devil or angel among the two).

I must say that I feel I fall somewhere in the middle of you two, but will admit that because of my lack of math skills, skills Bill has been blessed with, I lean more towards Geoff but embrace the TA analysis Bill provides.

With that said..this is what I have taken so far from the current discussion…as well ad both of your previous writings…

I am investing for a minimum of 24 years (thats when I can take disbursments from my various IRA’s) so I understand what Geoff says about buying the business. I own PETM, when I go shopping for the dogs, I get a kick out of knowing that my “shares” represent an owneership interest in PETM. Even thought my actual interest may only equate to one bag of dog food or 5 rawhide bones, I know I “own” it as well as portions of future earnings.

So over the next 24 years (if i ere to keep it that long), whther PETM tades at 10 a share or 300 a share, as long as the value of the business itself grows at a sufficent rate, than when I choose to sell the future share price will take care of itself.

But I also get what Bill is saying. Gains are only gains when you can feel them in your hand. buying BUBL at 50 …

Read more
Geoff Gannon March 8, 2006

Suggested Link: Cheap Stocks

This is not the blog that is already in the Value Investing Directory. That blog is at This is a new blog at While I’m not yet ready to add it to my Value Investing Directory, I do like to bring any blogs with company specific posts to your attention. So far, the blog has covered Walter Industries (WLT) and HCC Insurance Holdings (HCC). I’m sure the author would appreciate your comments and suggestions.

The posts have been submitted to Fat Pitch News. So, if you like the posts, please bid them up over at Fat Pitch News so others will get a chance to read them as well (if enough people vote for the link, it will appear as one of the five headlines displayed on various sites).

Also, let me know whether or not you think this is the kind of blog that should be included in the Value Investing Directory. If enough people are in favor of including it, I will be happy to add it during the next update.

Visit Cheap Stocks

Please provide comments regarding this site and its suitability for the Value Investing Directory by clicking on the comments link below.

Read more
Geoff Gannon March 8, 2006

Suggested Link: The Market Collapses – Does Anyone Lose Money?

Bill of Absolutely No DooDahs has written a very intelligent post about market prices and investor wealth. In it, he writes:

One popular misconception many people have is that “money is lost” or “evaporated” when the stock market collapses. This is patently and provably untrue.


I submitted this link to Fat Pitch News. So, if you like Bill’s post, please bid it up over at Fat Pitch News so others will get a chance to read it as well (if enough people vote for the link, it will appear as one of the five headlines displayed on various sites).

Read “The Market Collapses – Does Anyone Lose Money?”

Read more
Geoff Gannon March 8, 2006

On Pacific Sunwear

Pacific Sunwear (PSUN) operates two mall based retail chains: PacSun and PacSun is a nationwide surf and skate themed chain with about 900 locations comprising approximately 3.25 million square feet. d.e.m.o. is a hip hop themed chain with about 200 stores comprising approximately 500,000 square feet. Both chains target the “teen” market (specifically, guys and girls ages 12-24).

Note: When discussing Pacific Sunwear (PSUN), all uses of the term “Pacific Sunwear” will be references to the company; all uses of the term “PacSun” will be references to the skate and surf themed chain. This practice is intended to avoid confusion as to whether a particular statement applies to the PacSun chain alone or to the PacSun, d.e.m.o., (and soon) One Thousand Steps chains collectively.


PacSun has expanded from 11 stores in California at the end of fiscal 1986 to almost 900 stores spread across all 50 states and Puerto Rico.

For the most part, the stores are distributed among the states roughly in line with population. The largest exceptions are the usual suspects: Pennsylvannia, New Jersey, and Connecticut. However, the chain also operates more stores in Florida, Georgia, North Carolina, and Arizona than would be expected on the basis of population alone. Despite the company’s California roots, its presence in California is roughly proportional to California’s population, if PacSun Outlets are excluded.

Nationwide, PacSun operates approximately 800 PacSun stores and 100 PacSun Outlets. Unlike PacSun stores, which are very evenly distributed on the basis of population, PacSun Outlets are skewed towards highly populous states with large areas of extraordinarily high population density (“suburban sprawl”). The only exceptions are Virginia, North Carolina, and Louisiana. While the number of stores in any one state is small enough that the disproportionate concentration of PacSun Outlets in these states may be purely coincidental, I doubt it.

More likely, PacSun Outlets in these states are meant to benefit from the expected population growth in their surrounding communities, and were developed because of the danger of saturation in states such as New York, New Jersey, Maryland, Michigan, Illinois, and California. I have not heard management discuss this matter. So, it is pure conjecture on my part. It will be interesting to see where the new PacSun and PacSun Outlets are located.

For the most part, PacSun stores are not unusually concentrated in any state or region. In fact, they are eerily evenly distributed relative to state populations. It is likely management has intentionally acted to ensure an even distribution of PacSun stores across the U.S. As a result, regional economic and demographic trends will have no material effect on PacSun’s operations.

d.e.m.o. stores are not (yet) as evenly distributed. They are disproportionately located in Northeastern states, Southeastern states, and California. There are relatively few d.e.m.o. stores west of the Appalachians and east of the Sierra Nevadas. The number of stores in the d.e.m.o. chain is still growing at about 20-25% a year; so, a more even distribution may be achieved in …

Read more
Geoff Gannon March 7, 2006

Suggested Link: A Free Lunch With Mr. Thrifty

This is a long article written by a journalism student about a business class’ visit with Warren Buffett and a course devoted to teaching the investment strategies of Mr. Buffett. The article includes some nice comments from Buffett about Graham, and helps explain the Buffett-Graham relationship. “(Graham) wrote what we call the Bible, and Warren’s thinking updated it. Warren wrote the New Testament.”

There’s no new information in this article. I like it simply because it’s a neat story that’s well told. If you have the time, I encourage you to read it. I submitted the link to Fat Pitch News.

So, if you like the article, please bid it up over at Fat Pitch News so others will get a chance to read it as well (if enough people vote for the link, it will appear as one of the five headlines displayed on various sites).

Read “A Free Lunch With Mr. Thrifty”

Read more
Geoff Gannon March 7, 2006

On Shareholder Wealth

Bill of Absolutely No DooDahs, wrote this comment in response to my earlier post Google Price Target: $16,578.90:

Other than getting paid dividends, how does one extract wealth from a company one holds shares of?

Call me a cynic (I’ve been called worse), but with the exception of divs, what investors get from buying stocks is selling them at a higher price … meaning that we are not really extracting wealth from anyone except the buyer …

Here is my response:

I think the two of us may have encountered this difference of perspective before. So, you may disagree with some of what follows.

You do not extract cash from anyone but the buyer; however, the value of the security is derived from the value of the business you have an ownership interest in. A common stock represents an ownership interest, not merely a right to receive cash distributions. The fact that cash has not been distributed to the security holder does not mean that the holder’s wealth has not increased. Most public companies are primarily engaged in creating wealth through reinvestment in the business, not through distributing cash to shareholders. Some owners may do better than others in buying and selling their ownership interest; however, owners in the aggregate will only do as well as the underlying business.

I disagree with the idea that owners only extract wealth from the buyer. Although legally there is a separation between a corporation and its owners; economically, a corporation has no wealth that doesn’t belong to its owners. Owner’s earnings (whether distributed or retained) are wealth. Cash is extracted in the form of dividends. One form of wealth is converted into another (cash) at the time of the sale of the common stock. However, the owner’s wealth increases at the time the business earns the money (i.e., increases it net worth) not at the time of the sale. The stock sale does not create the wealth – it merely converts an undivided interest in the corporate assets into cash. Some of our laws (and accounting practices) may obscure this fact.

Although we (almost always) dispose of our ownership interests in corporations by selling them in the open market; they are more than mere pieces of paper that can be sold for ever higher amounts. Ultimately, shareholders have control over the assets of the business. They may choose to dispose of them (or encumber them) as they see fit. Distinct assets may be separated from the business as a going concern. Sale of the common stock is not the only way to transfer wealth into cash.

If your point is that to obtain cash a shareholder must either receive cash thrown off by the assets (i.e., dividends) or sell his interest in the assets, I agree. However, I think that’s true of the ownership of all assets.

If I want cash for any of my property, I must either sell the asset or collect a rent. In …

Read more