Value Investor Daily #8

Dino Polska: Relentless Compounder, ConAgra Could Rebound in 2024, Why Buffett Loves Apple

In Today's Edition:

Dino Polska: Polish Grocer With Super Store Growth

Here’s a fascinating story about a foreign grocery store operator. Dino Polska, a Polish grocery chain, was founded in 1999 by Tomasz Biernacki, when he opened the first location. The company IPO’d in 2017, and he still serves as chairman and owns 51% of the shares.

The stock is up over 1,000% since IPO. It’s the type of founder-led, “formula” company you dream of finding early on as an investor.

The company has had substantial growth and operates a network of grocery stores in less urbanized areas of the country. The company has implemented a standardization and cost optimization strategy, resulting in strong financial performance.

Some quick facts about the company:

  • Store count has grown from 324 stores in 2013, to 2,406 stores today. That’s a 21% CAGR.

  • They opened 250 locations in 2023.

  • ROE has grown steadily from 16% in 2014 to 30% today.

  • ROIC has grown from 8% in 2014 to 21% today.

  • Competitors include Biedronka, with over 3300 stores, and convenience store, Zabka, with over 10,000.

  • Poland has over 45,000 grocery store locations, suggesting a continued opportunity for market share growth for Dino.

  • Revenue has grown at 35% CAGR over the last five years

  • It trades for 26x cash flow and has a PEG ratio (PE/Growth) of 1.06.

  • Inflation in Poland has played a big part in the recent revenue growth, but the country is starting to see disinflation, with inflation dropping from a peak in Feb 2023 of 18% down to 6% recently.

The company plans to continue its aggressive growth path over the next several years.

You can see a live walkthrough of a store here:

And check out the deep dive into the stock here:

What Happens After a Year of Solid Market Returns?

What comes after a good year in the stock market?

Bad years in the stock market are often followed by good years, but what happens after good years? What typically happens after a 20%+ year like we just had in 2023?

Ben Carslon did an analysis and found that since 1928:

  • When the market was up 10%+, 70% of the time, the next year was positive, with a median gain of 11.4%

  • When the market was up 15%+, 70% of the time, the next year was positive, with a median gain of 13%

  • When the market was up 20%+ (like in 2023), 65% of the time, the next year was positive, with a median gain of 11.4%

So there is, of course, a solid chance 2024 could be a down year, and it’s happened many times since 1928, but historically, good years tend to follow good years.

Either way, as value investors, we’ll always stay focused on the long term.

Here’s a simple mental trick to stay focused on the long view.

Given a typical career spans decades, it’s useful to look back at where stocks were 45 years ago. That is like working from age 20 to 65—not uncommon.

45 years ago, $100 put invested in stocks is worth over $16,000 today.

Brinks: Still Going After 165 Years

According to Zacks, Brink's (BCO) is worth a look here for value investors. The company has a Zacks Rank of #2 (Buy) and an "A" grade for Value.

Brink's has a low forward P/E ratio of 11.42, compared to the industry average of 21.53.

Additionally, its P/B ratio of 7.05x, is lower than the industry average of 13.56x.

The company also has a low P/S ratio of 0.82x, compared to the industry average of 1.23x.

Lastly, Brink's has a P/CF ratio of 10.20x, which is lower than the industry average of 15.67x.

Some fun facts about Brinks:

  • Brinks is 165 years old, founded in 1859, and IPO’d in 1937, so it’s likely not going anywhere.

  • Brinks is known for its famous trucks, providing cash security to banks and businesses, but they also transport and secure diamonds, jewelry, precious metals, pharmaceuticals, and more.

  • They have over 70,000 employees worldwide.

  • The stock could be held down by its debt. Current debt/equity is 631%.

  • Growth could be a headwind, too. The company has only grown revenues by 2.34% CAGR for the last ten years, although it’s accelerated to 8.49% YoY.

  • ROE is 42%

The Top 1% Live 10-15 Years Longer

An almost ominous chart posted by Nick Maggiulli shows a positive correlation between household income and life expectancy.

In the top 1% of income earners, men and women live 15 and 10 years longer, respectively, than in the bottom 1%.

Money can indirectly influence career opportunities, education, and purchasing power, which can contribute to a higher quality of life. And obviously, it can give you access to better healthcare, healthier food, etc.

It’s a strong visual reminder that financial choices profoundly impact our overall well-being.

Wharton's Siegel Predicts a Potential 15% Surge

According to Jeremy Siegel, a finance professor at the Wharton School of the University of Pennsylvania, value stocks could rise 15% this year.

Siegel says that historically, growth stocks have outperformed value stocks. However, he believes the current situation is unique, with growth stocks being more expensive than ever.

He said, “I was looking at the Russell 1,000, which divides into value and growth. The P/E ratio of the Russell 1,000 growth stocks is 31.3. The P/E ratio of the Russell 1,000 value stocks is 15.9. That's almost a 2 to 1 ratio. Now, that's not the record. The record was in 2000, but we know what happened after 2000.”

So far, he’s right about value’s outperformance. Russell 1000 Growth ETF has already underperformed the Russell 1000 Value ETF by 181 basis points.

ConAgra: Rebound Potential in 2024

ConAgra reports earnings today before the market opens. Shares are down just under 30% from their peak, last seen in January 2023.

ConAgra Brands, a major manufacturer of packaged and frozen foods, is still an attractive investment for value investors. The company recently reported its sixth consecutive earnings beat with its fiscal first-quarter 2024 results.

While ConAgra shares declined in 2023, there is potential for a rebound in consumer consumption as disposable income improves with expected interest rate cuts in 2024. The stock is currently trading at 10.7 times forward earnings and offers a 4.9% annual yield.

ConAgra has a portfolio of well-known brands, including Birds Eye, Slim Jim, Vlasic, Reddi-wip, and Orville Redenbacher. As inflation eases, the company could benefit from a rebound in consumer spending this year.

Despite a weak macroeconomic environment in 2023, ConAgra's financial results remained positive, with adjusted operating margins improving and full-year guidance reaffirmed for fiscal 2024.

Hillman Value Fund recently increased its stake by 30%. Former Hershey CEO and ConAgra board member Richard Lenny also purchased shares in October.

Is Apple a Growth Stock or a Value Stock?

Why does Buffett love Apple stock so much?

Apple’s manager, Tim Cook, has continued to invest in new products while returning value to shareholders. The company is truly a hybrid. Let’s take a deeper look to understand the market’s largest compounder.

Apple is a company that is often considered a growth stalwart, but it also exhibits some characteristics of a value stock.

Growth stocks are typified by companies that reinvest profits into growth and R&D projects, while value stocks are often seen as focused on returning excess capital to shareholders.

Apple invests a significant portion of its revenue into research and development, over $29 billion in the last 12 months, or 7.8% of revenues, fueling new product releases and growth. However, it also returns value to shareholders through share buybacks and dividends (a staggering $98 billion in the last 12 months), which is a characteristic of value stocks.

Apple's historical innovations, particularly with the continued success of the iPhone, have contributed to its status as a growth stock.

However, the company has also shown resilience during periods of economic downturn and has been able to adjust its product offerings to meet changing consumer preferences.

Apple has continued to grow dividends and share buyback programs significantly, indicating Tim Cook is a value-oriented, shareholder-friendly manager.

Apple is a unique blend of growth and value, showcasing characteristics of both types of stocks. No wonder it’s Buffett’s top holding.

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