Geoff Gannon September 17, 2017

Are You Buying Anything Now?

A blog reader emailed me this question:

“Are you buying anything now?”

No. I still haven’t bought a stock this year.

I like Cheesecake Factory (CAKE) a lot. There’s a write-up in the Focused Compounding member idea exchange about it. If I was to buy something right now, it would probably be CAKE. It’s a good business facing a temporary problem. Over the last two years, “food away from home” (at restaurants) is up 5% in price while “food at home” (supermarkets) is down 1.6% in price. So, the relative cost of eating out versus eating in has changed 6.6% in the last 2 years in the U.S. As economic theory would say has to happen, value seeking households have done some substituting from eating out to eating in. This has caused a decline in same store sales. The Cheesecake Factory’s same store sales are down 1% this year. The stock is down 32%. I had researched the business previously. CAKE shares were probably about fairly valued at the start of this year ($60 then vs. $40 today).

I would consider buying Omnicom (OMC) at about $65 a share. It’s at $73 a share now.

And you know I like Howden Joinery and continue to follow that stock as a possible purchase as well.

Not that long ago, I dropped everything and looked intensely at AutoZone (AZO) when it plunged just under $500. It’s at $570 now. I liked what I saw. At $500 a share, I think AutoZone would make sense as a “value” stock (really more of a cannibal that grows EPS through buybacks). But – for me at least – it’s the kind of stock you’d want to buy now and sell in 3 years or whenever its multiple expands again instead of holding forever.

I’ve looked at other companies recently, but have not bought any.

I looked at Howard Hughes (HHC) this past week. The company still owns a lot of valuable land in high-end master planned communities like Summerlin, Nevada (about 10 miles from the Vegas Strip) and is developing commercial real estate at the South Street Seaport in Manhattan and Ward Village (about 3 miles from Waikiki Beach in Honolulu). It has nice assets. It doesn’t seem obviously overpriced (before I looked, I expected it would be). But, I can’t prove it’s cheap. I’m only able to come up with estimates for some of HHC’s assets. Not all. I can’t imagine ever being able to come up with a solid appraisal value for the whole company.

I plan to look at Green Brick Partners (GRBK) and LGI Homes (LGIH) this week. They build homes here in Texas and elsewhere.

The only U.S. stocks that show up on Ben Graham type screens right now are a lot of retailers and some homebuilders. There’s literally nothing else here in the U.S. that’s quantitatively cheap anymore.