Near Term Volatility = Recent Buys & Watchlist Add

The recent volatility in the market as expected has provided some interesting opportunities to purchase attractive companies at a discount.

With the presidential elections around the corner and the Fed telegraphing a Dec rate hike, that means uncertainty. And uncertainty means fear. And fear means opportunity.

So recently I’ve made a few purchases, as follows:

Buffalo Wild Wings

On 10/27/16 I bought 21 shares of Buffalo Wild Wings Inc (BWLD) for $143.31/ share for a total price of $3,017.48.

You’re probably aware of what Buffalo Wild Wings is. They are a sports bar known for their chicken wings available in a variety of sauces and seasonings. They also operate R Taco and Pizza Rev restaurants, which has the potential to do for pizza what Chipotle did for Mexican in the fast casual segement.

Now it seems like a restaurant that is focused on chicken wings isn’t much to get excited about, but their current growth trajectory is great, and opportunity for price appreciation is high. They have 1200 restaurants in the US and could grow to 1700 very quickly, as well as having global growth opportunities. BWLD’s 3-year historical CAGR of 20.3% is 5 times higher than the median in the industry (4.2%) and their 3-year EBITDA growth stands at 21.3%, higher than the industry median of 6.3%.

Current restaurant industry headwinds have punished most players in this space, leading to a great long term entry prices. BWLD shares are down from around $171 in August of last year.

Based on a DCF analysis with a range of multiple scenarios, I think these shares have a fair value range of $152-$228, a 6.2% – 59% potential upside from today’s prices.

Finally, activist investor Marcato Capital has recently acquired a 5.1% stake in the company, and has been active in pushing management to addressing issues in capital allocation and the franchise model that could unlock value with shares potentially doubling or tripling under Marcato’s proposal. BWLD sees increasing investor payouts with a $300 million stock repurchase plan and a possible dividend initiation in the works.

Facebook

On 11/3/16 in after hours trading, I bought 20 more shares of Facebook (FB) for $119.96/ share for a total price of $2,407.15.

Facebook is currently one of my largest positions and my second best idea in the market today next to Google.

Facebook had been trading around $130ish, and then yesterday after announcing mind-blowing earnings of a 55.8% rise in quarterly revenue, and despite again blasting past all analysts expectations yet again, the stock sank by 6%. The reason for the decrease seems to be some comments made on the earnings call about their growth slowing due to the limits of “ad load,” or the amount of ads that they can show in the newsfeed without pissing off their audience too much. Yet, they also laid out their plans in the call for expansion of video, dominance of mobile, and virtual reality – initiatives that should continue to propel the stock higher in the medium term.

So I think shares were unfairly punished. Any other company would kill for these kinds of numbers, and be handsomely rewarded by the market for this kind of growth.

In short, Facebook is a well-run company with zero debt still in radical hyper-growth mode. It is in my view one of the most innovative and forward thinking companies in the world right now that will transform how we live and communicate with each other. In contrast to other flaky social media companies that have come and gone, this is a company that makes billions in revenue each quarter, and along with Google, accounts for all the growth in online advertising spend, while the rest of the digital ad industry begins to contract.

While trading at $119, based on a DCF model of likely scenarios, FB ha a fair value range of $107-$178/ share.

Teva Pharmaceuticals

I’ve added Israel generic pharmaceutical company TEVA to my watchlist after shares fell 9.5% to land at $39.20 after news of DOJ investigation of price collusion among generic manufacturers broke. While I honestly don’t know the implications of what this might mean for the company, it leaves them with very attractive metrics based on traditional measures, including a 3.47% yield. While I’m not in a rush to hop in before understanding what all this might mean, TEVA has been added to the watchlist.

Barrons: Nov 4, 2016 DoJ Investigation Wipes $8.5B Off Generic Drug Makers: Buy On Dip?

Bloomberg: “Teva is not aware of any facts that would give rise to an exposure to the company with respect to these subpoenas,” Teva spokeswoman Denise Bradley said

Vix = More Volatility to Come

Well that’s it. A surge in the VIX – the best gauge of fear in the market – has climbed over 40% in the last six days – which is a level we haven’t seen since Brexit. This indicates probably more volatility in the near future, and further declines, yielding more buying opportunities for the long term bullish investor.

Get your watchlist of favorites ready, it looks like – especially if we get the short term uncertainty of a Trump win, which might be seen as the US version of Brexit – that longs may be in for a bumpy ride.

 

6 Comments

  1. DivHut November 4, 2016
    • Greg Gee November 4, 2016
  2. JC @ Passive-Income-Pursuit November 4, 2016
    • Greg Gee November 4, 2016
  3. Mustard Seed Money November 4, 2016
    • Greg Gee November 5, 2016

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