Issue 2

Issue 2 had some interesting industries and I particularly like reading about restaurants, railroads, and maritime shipping.  As should be expected, all the airlines are terrible and the waste management companies are not particularly profitable.  I cannot point at any particularly distressed industries, other than perhaps maritime shipping, but their pricing power is so erratic that they are oftentimes more difficult to value than just about any other companies.

Great Businesses in this Issue:

  • Canadian National Railway
  • Darden Restaurants (Red Lobster, Olive Garden)
  • Dun & Bradstreet
  • Equifax Inc
  • Factsheet Research Systems
  • McDonald’s
  • Moody’s Corp- it WAS great, future is unclear
  • P. F. Chang’s
  • Panera Bread Co
  • Papa John’s
  • Rollins Inc (Orkin Exterminating)
  • Starbucks
  • Tim Hortons
  • Yum! Brands (Taco Bell, KFC, Pizza Hut, A&W)

Again, unfortunately, none of these companies are at prices I would be willing to do more research on.  Mr. Market is just too optimistic these days… However, there are two mediocre companies at interesting prices.  I am not sure exactly about the quality of the two, however I will start research on both now.

Interesting Situations:

  • Genco Shipping
  • Jack in the Box

I studied the dry bulk shipping industry in-depth this summer, and from knowing the pricing power on these shippers, it is very difficult to get excited.  The industry is characterized by constant uncertainty, high debt loads, and dilution of stock.  Genco seems to not be diluting their stock other than by management compensation and their debt is at relatively manageable levels.  Jack in the Box owns Qdoba and has been hurt the last 2 years by the recession.  The stock has been punished and I am curious at today’s prices.  That would be 2 out of 137 companies.  I had 0 interesting situations last issue.  I would take that to mean that the overall stock market is overpriced on average.


About Andrew Schneck

I am a value investor focused on misunderstood securities and industries, with an eye for long-term stock ownership.
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4 Responses to Issue 2

  1. Eric C. says:

    I love your blog. great work. I admire all the effort and work you put into this. Good job, I have been in agreement with a lot of your analysis.

  2. schn1eck7 says:

    Thanks Eric- I appreciate the nice comments. If you have any new ideas, I’d like to hear about them. If you are looking for some new ideas, check out my “interesting situations” page. I haven’t gone through every company on there yet.

  3. eclecticvalue says:

    Hey Alex, I was wondering if you researched paragon shipping (prgn) and what are you thoughts about that company?

    • schn1eck7 says:

      It’s Andrew, not Alex haha.

      I did an extensive look at the shipping industry this summer and Paragon was one of the companies I took a look at. The problem with these companies is how the industry operates. It is commonplace for the companies to dilute stock, issue more debt, and destroy shareholder returns just to keep the companies afloat. It reminds me of the airline industry. The competitive dynamics are so tough that it is impossible for any of them to make sustainable amounts of money. The pricing power is very erratic and depends on the supply of ships in the world. To get an idea of the future number of ships coming to market in the next two years, take a look at this research:

      It’s on page 65. The industry had a huge increase in pricing power 2 years ago and everyone immediately ordered more ships. The ships take a few years to come to market, so we’ll see them start showing up soon. The pricing power for these companies will die and I see the industry being a terrible place for any investor, regardless of which company you buy. Paragon itself looks decent, but fluctuates wildly in their earnings. I wouldn’t touch any of the dry bulk shipping companies.

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