52-Week Low List Packed with Quality Names
I was looking at the front page of Value Investing News last night, and the New 52-Week Lows list jumped out at me. Take a look at these names:
- CITIGROUP INC (C)
- LEVEL 3 COMM INC (LVLT)
- HOME DEPOT INC (HD)
- RITE AID CP (RAD)
- STANDARD PACIFIC LP (SPF)
- TENET HLTHCRE CP (THC)
- FIFTH THIRD BNCP (FITB)
- LM ERICSSON ADR (ERIC)
- D R HORTON INC (DHI)
- NATL CITY CP (NCC)
- WALGREEN CO (WAG)
- SPANSION INC. (SPSN)
- N Y TIMES CL A (NYT)
- NORDSTROM INC (JWN)
- P M I GROUP INC (PMI)
- REGIONS FINANCIAL CP (RF)
- SPDR HOMEBUILDERS ET (XHB)
- KEYCORP (KEY)
- PENNEY J C CO HOLDIN (JCP)
- PROGRESSIVE CP (PGR)
This list is packed with top quality companies, many of which have sustainable competitive advantages. Home Depot (HD) caught my attention right away since we have recently been discussing its relative valuation to Lowe’s(LOW). I’ve also notice Fifth Third Bancorp (FITB) has been on this new lows list repeatedly over the past week or so. I am not very familiar with this company but I plan on learning more. The New York Times (NYT) is in a declining business, but at some point its stock could get cheap enough to be worth buying this world class brand. Finally, seeing Progressive (PGR) on this list makes me wonder if Buffett’s GEICO is out-competing its younger rival as a result of potentially more disciplined insurance pricing. I think I remember Buffett questioning the underwriting practices of GEICO’s rivals. Finally, I noticed both Walgreens (WAG) and Rite Aid (RAD). Could Wal-Mart’s (WMT) aggressive entry into the pharmacy sector with $4 prescriptions be the cause of these new lows for Walgreens and Rite Aid? Is the market overreacting?
Just a few thoughts on 5/3rd.
My brother-in-law used to work there, and I have a good friend from college who now works in their audit department. Both have stated things about their corporate culture which are disturbing to me as an investor.
5/3 is viewed as a training ground for most people in the Cincinnati area, meaning they’ll get a job for two or three year, and then get hired away by PNC, or National City bank. My friend said it’s very rare to find anyone with more than five years experience in the office.
I have also heard that their corporate culture is very inflexible. It does not value creativity or change. This could cause a disadvantage as competitive forces shift in the banking industry.
I used to have an account with 5/3 (still do, but it has less than $20 in it now). What always bothered me was the terrible customer service I received regardless of the branch, and the fees they would hit you with. I went in recently to close my account and they wouldn’t let me withdrawl at the counter without writing a check to myself. I don’t have any checks for the account anymore, so they were willing to charge me $2 for a desk check to withdrawl, according to the tellers this is standard practice.
I realize that looking at an income statement for them might leave a favorable impression, but please talk to some employees and give the place a test run before considering it for a long term investment.
The other side of all of this is that at some point 5/3rd’s stock will be so cheap that all of the negatives above don’t matter because it is such a great bargain.
Regions Financial is a bad bet right now. I was a trader there. Probably most financials still have a ways to fall. Probably get bought. But there is no guarantee of premium. When Regions acquired Union Planters they paid marker price. Later, Regions purchased AmSouth at a discount to market.
Thanks for the insight on Fifth Third Bancorp, Nate.
Turley: I haven’t looked at Regions Financial yet. From how you describe this bank, it doesn’t sound like I need to.
I’m still looking for a great margin of safety for most of these names; however, I do agree that this list is full of high quality companies. I hope they get hammered a bit more!
George: Have you taken a look at WAG?
It’s trading at historically low multiple. I haven’t examined it yet. I have had interest forever, but it always traded at a high multiple, but the StdDev has been real tight on revenue growth and margins for significant number of years. Until they missed earnings last qtr. Most likely WAG received such a high premium since it had been so darn predictable and consistent resulting in a low K(e) and high P/E. BUT, with this recent surprise, WAG loses its pay off for safety and predictability. I will take a look, I’m curious.
I agree with Nick too, they’re are some quality names on the list. What makes investing a challenge is that stocks hitting new lows, usually continue to further hit new lows. Trying to time a bottom is tough, thus sometimes I won’t wait such as in the case with retailers, since that’s a easy business to understand. Yet, I would shy away from financials since its very difficult to get a gauge on their situation in a climate that we are in now.
Walgreen has intrigued me as well – they have a good yield and consistently increase their dividend. The unknown is the competition from WMT.
TDG,
I read through their last CC, and they missed due lower reimbursements on generics and a LIFO index adj. I see where WMT is offering a huge discount on generics, In Memphis, where I live, WAG has premium corner locations. No WMT here, have to go outside the city to AR,MS, or far east. I think that is a general rule for most population centers. So, I looks like WMT is using this as a loss leader to generate foot traffic in hopes customers will also buy higher margin items. I don’t think in the near-term WMT will significantly impact WAG.
My question is will WMT open smaller stores that are more like a pharmacy? Such as WAG? If WMT starts encroaching on the cities with smaller city-adopted stores it could be game over. Nobody is letting Walmart in either.
Walgreen is number one when it comes to city strategy. I just had a conversation about it last week. There was large church on the corner of high traffic block which became a hassle for the congregation so WAG bought it from them and knocked it down putting up a new store, which is just a few blocks from another store. I can envision them closing the other store; its in a strip center which limits what can move in. Contrary to the church property where WMT or kroger/Abertson’s with a in-store pharmacy. WAG is planning on opening 550 stores & closing 75 in 2008. It’s very evident to me that WAG understands the importance of location and how ti get it and defend it.
I am really intrigued now. I will do some research.
I’m interested in what you find out in your research of Walgreen. I think it will come down to whether Walgreen has a sustainable enough competitive advantage to hold off Wal-Mart. CVS has always been the dominant pharmacy where I live, so I definitely need to learn more about Walgreen before I’m ready to make a decision.
On the valuation side of WAG, I’m not sure if it is cheap enough yet to provide a margin of safety.
I am quite new to investing. What I see however is that in Houston, TX, CVS built stores–seemingly overnight–on every corner–Wallgreen seems to be retreating..
Interesting discussion on Walgreen/CVS ; CVS after buying Caremark Rx, a pharmacy-benefits manager, has given Walgreen another headache in addition to Walmart’s generic competition.
Rad is a company that has great locations and just swallowed a large chain eckharts?
anyway as the dollar falls and inflation hits they will pay back the loans with cheap US dollars , if oil stays where it is people will go local plus medicare babyboomers are just going to go close . Long term it is here to stay and as we get old and sick its a good bet , we will still be a 3ed world place but RAD will be here regardless , and its new technoligy will help it order better and save money. I’d buy the leaps at $5 strike.
PS all that oil money goes to one bank – citi , and you can take that profit to the bank .
Citi is the CIA of banking and like it or not , just like ATT , our government would not allow them to get in to much trouble , I bought jan options 45 strike . hunch – but at .76 hard to not play that chance on a rate cut .
If WMT starts opening up small shops in urban areas, then the sensible thing to do is to short it. WMT’s strength and core competence is their efficiency in operating large stores. Small stores adds overheads per revenue basis. With razor thin margin that WMT typically operate, these smaller store will be loss centers (as opposite of profit centers).
Fifth Third and National City are both great regional banks located in the Midwest. They are babaies that have been thrown out with the bathwater and deserving of a close look as to their subprime exposure.
I took a deeper look into Walgreen (WAG) as promised, and wrote up a basic analysis which I posted on my blog. You can check it out here: http://financial-alchemist.blogspot.com/2007/10/walgreen-company-wag-reasonably-valued.html
Let me know your thoughts.
Thanks,
Turley
As I promised earlier, I conducted some research on Walgreen, and posted my preliminary findings on my site. My Thesis is that WAG is attractive valued at these levels but probably priced to deliver a normal return. For a decent margin of safety and potential for out-sized or alpha generating returns, I would be compelled to buy WAG only if it dropped to around $34/share. Please take a look at my analysis. I am highly interested to hear your thoughts and comments. I would like to continue to advance this dialog further, as I feel the major power behind Web 2.0 is the sharing and collaboration of ideas and opininion.
Thanks,
Turley Muller
Financial Alchemist
http://financial-alchemist.blogspot.com/