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Badly run companies with upside potential


LongHaul
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Which companies are badly run where management has low margins?

Often times these have long run potential.

 

The one that comes to mind is Tootsie Roll.  Really old, overpaid management where the business probably should be doing far higher margins.

 

All responses appreciated.

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Hi Longhaul,

 

I think that looking at what you mention is pretty much where some activist investors take aim at.  Two examples that come to mind are Darden Group DRI (which Starboard holds a large stake in) and Hertz HTZ (which Carl Icahn recently took a large stake in).  Other than those two guys I think Dan Loeb at Third Point and Bill Ackman are known to try to turn companies around. 

 

David

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All the food companies using Monsanto products in their supply chain. Is this part of the reason for the poor results with Coke and McDonalds? It can't be a good business model to include neurotoxins in your products. (See the citations in this paper The Lancet Neurology, Volume 13, Issue 3, Pages 330 - 338, March 2014).Wrigley's for instance is likely to report poor results. Poor management can damage strong brands, but like new Coke, it is a slow and painful slow bleed process for shareholders which can be reversed by better management, but if left unfixed can get suddenly worse as awareness moves up the S curve.

 

Check out Whole Foods product classification system. This is an example of better management. Consumers are increasingly aware and management responded sensibly.

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  • 2 months later...

Hi Longhaul,

 

I think that looking at what you mention is pretty much where some activist investors take aim at.  Two examples that come to mind are Darden Group DRI (which Starboard holds a large stake in) and Hertz HTZ (which Carl Icahn recently took a large stake in).  Other than those two guys I think Dan Loeb at Third Point and Bill Ackman are known to try to turn companies around. 

 

David

 

Speaking of activist funds like Starboard - does anyone have access to their track record?

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Oh my...so many choices!

 

I would suggest a great way to look/screen for these companies is to look for companies with very low P/S ratios.  You've got to have sales in order to increase margins and get net earnings...

 

Another area that has potential is the restaurant industry.  Another sector is casino/gaming.  I would suggest that "Full House Resorts" (FLL) is a candidate.  The "slow witted" CEO was recently forced out and new management brought in.  There is TREMENDOUS operating leverage here.  If some of it can be converted to net earnings, this stock could go many fold.

 

Another candidate in the sector is "Dover Downs" (DDE).  Lots of operating leverage.  They have been making some progress.  Probably a better bet than FLL.

 

I am sure that there are many others.

 

Interested to hear other's candidates!

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I stumbled across this little gem, Chanticleer Holdings (HOTR).  They own and operate Hooters restaurant franchises and some other small chain restaurants.  They've never been profitable, but it looks like if management can get their act together then they could be worth much than $12.5 million. 

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I stumbled across this little gem, Chanticleer Holdings (HOTR).  They own and operate Hooters restaurant franchises and some other small chain restaurants.  They've never been profitable, but it looks like if management can get their act together then they could be worth much than $12.5 million. 

 

I've owned a small HOTR position for a long time. I'm still waiting for them to get their act together, but all they do is further dilute the stock again and again.  I've seen no attempt to get costs under control or to grow organically.  I've been holding and waiting, but I'm not sure if I will participate in the up-coming rights offering.

 

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Speaking of activist funds like Starboard - does anyone have access to their track record?

 

Their value fund did 12% from March 2004 until Aug 2013 according to an article I read a while back. I can't remember where I read it though.

 

But their wheelhouse seems to be semi-conductors according to Barron's.

 

Key Numbers:

8: the number of previous 13D filings Starboard has made on semiconductor companies

64.72%: Starboard's average return on those eight filings (versus an average of 24.23% for the S&P 500 over the same time spans)

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I stumbled across this little gem, Chanticleer Holdings (HOTR).  They own and operate Hooters restaurant franchises and some other small chain restaurants.  They've never been profitable, but it looks like if management can get their act together then they could be worth much than $12.5 million. 

 

I've owned a small HOTR position for a long time. I'm still waiting for them to get their act together, but all they do is further dilute the stock again and again.  I've seen no attempt to get costs under control or to grow organically.  I've been holding and waiting, but I'm not sure if I will participate in the up-coming rights offering.

 

I'm thinking about starting a position.  It's trading slightly below book value.  They are finally growing the top line and they finally inked out positive EBITDA at their restaurants.  But who knows. 

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Tootsie is a good one.  Don't they have impregnable dual classes of voting shares, so it can't be cleaned up? 

 

I would say EBAY.  That is going to be rectified though.  I'm looking to get in that one here pretty soon.

 

Also re: COH....good call AND they're buying other businesses before they straighten out the one they are running.  Freaking amazing.  Rumors of good numbers next week sent stock up pretty strongly today though. 

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I stumbled across this little gem, Chanticleer Holdings (HOTR).  They own and operate Hooters restaurant franchises and some other small chain restaurants.  They've never been profitable, but it looks like if management can get their act together then they could be worth much than $12.5 million. 

 

I've owned a small HOTR position for a long time. I'm still waiting for them to get their act together, but all they do is further dilute the stock again and again.  I've seen no attempt to get costs under control or to grow organically.  I've been holding and waiting, but I'm not sure if I will participate in the up-coming rights offering.

 

I'm thinking about starting a position.  It's trading slightly below book value.  They are finally growing the top line and they finally inked out positive EBITDA at their restaurants.  But who knows. 

 

This year is going to be a critical year for them.  If they can get profitable by 2016, I think good things could happen.  I'm just worried about managements' growth-at-any-cost tendencies.  I've been patient so far, I'm going to hold for a few more years and see what happens.  This could be a good entry point right now if things work out well.  My cost basis is around $3.

 

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I stumbled across this little gem, Chanticleer Holdings (HOTR).  They own and operate Hooters restaurant franchises and some other small chain restaurants.  They've never been profitable, but it looks like if management can get their act together then they could be worth much than $12.5 million.

 

Look at how much they spend on "investor relations".  e.g.

 

During the three and nine months ended September 30, 2014 the Company issued 11,500 and 110,264 shares valued at $23,860 and $354,617, respectively, for investor relations services. The shares were valued based on the Company’s closing stock market price on the dates of issuance.

 

If somebody accepts shares for "investor relations" purposes... it'd kinda obvious (to me) what game they're playing.

 

 

*I'm shorting COH via puts, no position in HOTR.  13m mkt cap too low to short.

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Speaking of activist funds like Starboard - does anyone have access to their track record?

 

Their value fund did 12% from March 2004 until Aug 2013 according to an article I read a while back. I can't remember where I read it though.

 

But their wheelhouse seems to be semi-conductors according to Barron's.

 

Key Numbers:

8: the number of previous 13D filings Starboard has made on semiconductor companies

64.72%: Starboard's average return on those eight filings (versus an average of 24.23% for the S&P 500 over the same time spans)

 

thanks Augustabound!

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I stumbled across this little gem, Chanticleer Holdings (HOTR).  They own and operate Hooters restaurant franchises and some other small chain restaurants.  They've never been profitable, but it looks like if management can get their act together then they could be worth much than $12.5 million.

 

Look at how much they spend on "investor relations".  e.g.

 

During the three and nine months ended September 30, 2014 the Company issued 11,500 and 110,264 shares valued at $23,860 and $354,617, respectively, for investor relations services. The shares were valued based on the Company’s closing stock market price on the dates of issuance.

 

If somebody accepts shares for "investor relations" purposes... it'd kinda obvious (to me) what game they're playing.

 

 

*I'm shorting COH via puts, no position in HOTR.  13m mkt cap too low to short.

 

 

This is really common with small caps who have stable operations as much as it is for scams or pumps. I understand your skepticism, but a lot of well run companies with management who are fairly paid go this route as it gives them another avenue to raise capital, make acquisitions, it also protects them from activists or being bought out.

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