We’ve been having a little discussion over on this post about the original purchase, current state, and future prospects of American Eagle Outfitters. The stock is down roughly 50% from our original purchase which begs the true value investing question: Is it down…or is it cheap?
American Eagle Outfitters’ financials are getting hit on a number of fronts. The consumer has slowed down. Commodity prices are up, leading to higher inventory costs and lower profit margins. Transportation costs are up which is putting additional pressure on the business. Compared to the previous year’s Q1, net income is down 44%. The only real ray of hope in all of this is that AEO was able to get most of its $500 million in ARS securities liquid again.
Beware of Slim Margin/Poor Turnover Businesses
If you recall from Phil Fisher on Profit Margins, businesses with slim profit margins will generally fare worse than fat margin businesses during periods of business slowdowns:
If your company doesn’t have a “worthwhile” profit margin, it has a problem: When tough times surface (as they always do from time to time), weak margin companies will probably start burning cash rather than generating it.
And as Pakorn Wong pointed out, turnover is just as important as profit margins. An annual profit margin of 10% with 100% inventory turnover is the same as an annual profit margin of 2.5% with 400% inventory turnover.
In the first fiscal quarter of last year, AEO boasted a GAAP profit margin of 13%. This year, the profit margin slipped to 7%. So, slower sales and higher costs are hurting AEO’s margins.
Is There Anything Good About American Eagle?
I have to say that, in my opinion, management is handling this downturn well…if not brilliantly. During the first quarter this year, AEO had an inventory turnover of 143%, compared to 114% during the same period last year and an average of 135% during the first quarter of the previous two years.
What does that mean? It means that, while foot traffic in the stores is down, American Eagle Outfitters is selling stuff faster than it did at this time last year or in the two years prior.
Let’s look at the cash burn. Being a clothing retailer, American Eagle Outfitters generates the lion’s share of its revenues – and thus, excess cash – during the holiday seasons. In the first quarter of last year, AEO burned through $90 million of cash (excluding capital expenditures). This year, on lowered sales and higher costs, operations ate up just $65 million of cash in the first quarter. For all intents and purposes, AEO had a better quarter, in terms of its ability to generate cash, this past quarter than it did at the beginning of last fiscal year.
With 208.1 million shares outstanding, American Eagle Outfitters has 8% fewer shares outstanding than it did this time a year ago which means our stake in the company – our share of future cash flows – grew by 8% over this past year.
At the mercy of “The Consumer.” Is that bad?
Some people believe that the consumer is dead in the water. So overwhelmed with credit card debt, inflated mortgages, high food and fuel costs, and more, consumers have allegedly stopped spending money on everything discretionary.
Why, then, did McDonalds report increased sales in the three- and six-months leading up to June 30, 2008, when compared to the previous year? I’m not talking about international sales or currency adjustments: US-based revenues for McDonalds grew 2% this past quarter versus the same quarter last year when cash was allegedly falling from the skies.
If McDonalds isn’t the mother of all discretionary spending, I don’t know what is.
I’m not saying that the consumer isn’t strapped. What I am saying is that we, as Americans, have proven one thing over the past twenty or so years: No matter how bad things seem, we won’t take care of our finances and we’ll blow money on stupid stuff. We’ll buy second-rate cheeseburgers even though we can make them better at home. We’ll go to Starbucks, opting to spend $3.50 on coffee each morning instead of stopping in to Walmart to buy a $16.88 Mr. Coffee for the office.
I’m not criticizing. In fact, I’m just as guilty. This past weekend, I bought the entire bar a round of DiSaronno on the rocks because my friends and I were laughing about the commercial. A total waste of money, even if it got a few laughs.
My point is this: For as bad as the news and media make it sound, the consumer – feeling the effects of the credit crunch – is not clamping down to the bare essentials, clothing, coffee, and cheeseburgers be damned. Some people – moreso than in the past – are clamping down. Some had spent their stimulus check before it ever arrived.
Making a Decision on American Eagle
AEO is going through a rough patch right now, but it is not entirely consumer-driven. The company is facing higher costs as it works on launching its new baby stores. Higher transportation and commodities (thus inventory) costs are eating away at profit margins. But the company still reported a 5% increase in sales this past quarter over last year’s first quarter.
The business has taken a turn for the worse, but not because of mismanagement or a faltering brand. It is taking an economic beating internally – a beating that may continue for some time.
So, we institute Phil Fisher’s three year rule and wait it out. Because it is a cyclical business, we can’t possibly judge the value of American Eagle until we get through another full cycle this year. Remember: Regardless of what the stock price does, businesses generally don’t change all that fast.
When Uncertainty Turns to Panic
Do I think American Eagle is underpriced relative to its value? Yes. I’m just not sure how much of that pricing is because it is “down” and how much is because it is “cheap.” That is, I don’t know what my margin of safety is. At some point, a stock becomes cheap enough that your heart races and you can barely sleep because you can’t wait to place your order when the markets to open the next day.
American Eagle is not there (for me) at this point, but it is getting awfully close. At some price level, you can look at it and say, “Yep. There’s a fat guy.”
When will I start worrying that consumers – as a group – are going to clamp down to the bare necessities? They may bail on their mortgages. They may ignore calls from creditors. But until they “just say no” to iPhones, Happy Meals, or Coach purses, I’ll keep buying rounds of DiSaronno and looking for blood in the streets – even in the retailers.
Don’t be an optimist. Don’t be a pessimist. The best returns are made by realists.
Filed under: How to Think About Stock Prices
Related Stocks: AEO
Hi Joe,
If you bought AEO at twice the price it is now, assuming your usual due consideration for margin of safety, then at 50% of the price, it should have twice the margin of safety, and thus be that much more of an amazing bargain.
Aren’t we just in the typical bad economic situation that most companies have to deal with as Phil Fisher pointed out? Are you letting Mr. Market change your sense of the intrinsic value of the company?
Make me proud and double down!
Cheers,
Charlie
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I’m afraid I have to agree with Charlie on this one. If the price has been slashed in half since you first purchased your position, shouldn’t you be adding to your position?
Has the business deteriorated in a way you weren’t expecting, which has made you come up with a totally different valuation on it? Was your initial purchase a mistake? (Be honest with yourself)
If you don’t see a margin of safety, you might want to consider selling the stock.
I’m not going to tell you my opinion on the company because I’m positive you have more knowledge on the situation. I’m just suggesting your take a real hard look at the situation you are in and whether it warrants an investment or not.
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That is exactly why I’m not running for the hills. I believe in the business, but I’m not sure if it is the best value for additional money right now. The dilemma is that, while American Eagle is down, I don’t know how cheap it is. I’d rather invest additional money where I have a better grasp of the value.
When prices fall, but value holds steady or grows, adding to the investment makes a lot of sense. For example: When Adobe fell to $32 a few months back, it was because there was complete panic in the markets — Adobe’s business hadn’t changed a bit. When Apple hit $117 months ago, the value was still $160 – $180 for 2008, but Apple speculators, traders, and hype-riders freaked out as it pulled back from $200.
For American Eagle, the value is dropping because the expected cash flow has dropped. And that’s where the problem lies. Is this a $40 business? A $20 business? A $10 business? I can’t determine that with any degree of confidence or competence until this fiscal year progresses a bit more.
So, for new money that needs to get to work, I won’t add to American Eagle yet because its value is uncertain. Don’t double down simply because the price has dropped — double down because the spread between price and value has widened. (If your margin of safety grows from 50% to 80%, double down. If price and value both drop, and your margin of safety drops from 50% to 15%, should you really double down?)
I don’t believe that any purchase — when made based on solid reasoning and data — is ever a mistake. But, you can’t always expect price to rise to value. Sometimes, value deteriorates and you have to take a beating — either in the short-term or for the duration of your entire investment.
At the end of the day, business investing is about putting your cash where you have a high degree of confidence. Until I get more information from American Eagle’s business, I’m happy to put it on the Fisher Three-Year list. I feel like I can uncover better value — with greater confidence — in other opportunities as they present themselves.
Am I letting price drive my actions? Not at all. In fact, I’ll be the first to say that volatility is not risk. The real risk comes when you invest without having a good grasp on value and your margin of safety, and I don’t feel like taking that risk by putting additional capital towards AEO. It’s down. But putting the recent price drop aside, is it cheap?
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Ok..I am totally new to this and know nothing compared to Joe.. (big disclaimer there) ….but..from my readings of Buffett et al. it seems to me that AEO breaks a few rules for stock selection . Fickle consumer group…having to continuously innovate and stay on trends to make money..and probably a few more I am not aware of yet. Absolutely no moat that I can see….Strong brand name? Hmm..kids are turning to Hollister in big numbers now..latest hit (owned by Abercrombie…ANF) And AEO has huge competitive field to work within…..
even if everyone does shop for clothes, they have Buckle and the GAP and Old Navy that sells cheaper stuff…..
Anyways…I have no idea if AEO is going to survive for the next ten years. Seems to me these fashion busninesses tend to have short lives..compared to Coke or alcohol companies. Could be wrong there.
Funny that Joe mentioned buying a round. I am looking at DEO as a possible buy now. Owns 8 of the top 20 alcohol brands in the world..including Baileys, Guinness Johnie Walker….etc. (now those are brand names I can see being around in another twenty years!!..given their strong names and realtively strong moats)
I guess, for me, would I bet that Joe and his friends (and me for that matter) are more likely to stay loyal to a certain kind of booze….than a fifteen year old kid is goin to stay loyal to a certian kind of t-shirt.
But what do I know…..
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I would like to add to Darren’s post about AEO serving a “fickle consumer group.” I am 26 now and actually worked for AE for a few years during my undergraduate days, so I have the unique perspective of being a part of the target audience as well as being an outside observer.
There is no question the company is very well managed…just look at their balance sheet, and the fact that they are still selling at such a high rate in this type of environment is amazing. However, you can attribute a lot of that to slashing the cost of their product. AE has ALWAYS been cheaper than their competitors ANF and Buckle, and in line with Aeropostale. They ALWAYS have a large “sale” section that moves a lot of merchandise.
My biggest concern with investing in this company would be that there is nothing innovative happening with their clothing line. Kids today are looking to be more unique and “adult,” to stand out and basically create their own styles. AE pushes the same boring, recycled styles they have been putting out for years, and I firmly believe the cookie-cutter, torn clothes prep look is coming to an end…and that means trouble for AE and ANF. And since we as investors should focus on the FUTURE value of a business, this is cause for concern. So while the teen retailers may tread water for another couple years, I would not feel comfortable owning for the long term…because like teens’ tastes, it is going to change and change quickly leaving investors to wonder what they missed.
From a personal standpoint, where are all my AE and ANF clothes? They were dropped off at Goodwill years ago. Believe it or not, kids like hunting for bargains too. So why would they pay premium when they can get the same stuff at Goodwill (the styles haven’t changed), or Ross, or Target and look just as good…plus be “unique” in the process?
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Hey Joe,
I am big fan of your blog and your work but I sincerely think your judgement has been affected by this stocks volatility. I know it%u2019s hard, but try taking a step back…maybe in 2-3 weeks and come back and re-read your post and comments. I’m not trying to be negative with you or insult you in anyway; I’m just trying to make you realize something.
I’m not by any means saying that you should buy more or sell your stake in AEO either, I just think you have to requestion yourself on this company.
You mention in your last comments a few things which I would like to comment on as well:
Joe: “The real risk comes when you invest without having a good grasp on value and your margin of safety”
PhilR: Do you really have a good grasp of the value of this company and can you identify your margin of safety? It seems to me like you are uncertain of both. You even mention the following:
Joe: “It’s down. But putting the recent price drop aside, is it cheap?”
PhilR: You ask if it%u2019s cheap… I don’t personally know if it%u2019s cheap. If you have money at risk in this company shouldn’t you be 100% certain that it is in fact cheap? On what basis is it cheap? What is your fair value estimate (or range of fair value) of the business?
Joe: “(…) business investing is about putting your cash where you have a high degree of confidence”
PhilR: Do you really have a high degree of confidence in this your valuation and your margin of safety? By reading your post and your comments, it doesn’t appear that you do. Do you fully understand the business?
Joe: “Sometimes, value deteriorates and you have to take a beating — either in the short-term or for the duration of your entire investment.”
PhilR: Couldn’t agree with you more. Has value really deteriorated or is the company simply facing a recession like the many it will face in the next 50 years of its existence?
I will end by re-asking you the question that you ended your last comment with. If you can’t answer the question with a high degree of confidence then I personally think you might want to get rid of this investment.
Is it cheap ?
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All great points. And what great discussion we’re having!
Here are my additional thoughts: Without additional information about how this company will hold up through the recession — a condition that will only be cured through time and additional reporting — we can’t possibly assess the damage, if any, to the company’s intrinsic value.
The worst thing any investor can do is make a decision — any decision — without adequate information. When we purchased AEO, the decision was made based on, in my opinion, very rational data and reasoning. The business has since changed, but we don’t have enough data to formulate a good reason to buy or sell. So, we sit and wait to see how it unfolds.
If American Eagle was at serious threat of failing, I would have enough information to sell. If I had a better idea of how consumers will spend, and how much cash the business will generate, through the back-to-school and upcoming holiday seasons, I might have enough information to buy.
In his January 1962 Letter to Partners, Buffett wrote:
We do not go into these generals with the idea of getting the last nickel, but are usually quite content selling out at some intermediate level between our purchase price and what we regard as fair value to a private owner.
I believe that the fair value to a private owner is above the current price; and, I believe that it may still be above our purchase price. Following Buffett’s practices: If AEO is an $18 business, I shouldn’t sell at $13 because that is not “some intermediate level between our purchase price and what we regard as fair value to a private owner.” Instead, we should wait until it returns to a more efficient level and then make our decision based on information, not price movement.
Conversely, I won’t buy more unless I believe it is offering the best value for my money…not just value. Because I can’t calculate my margin of safety — if any — I can’t possibly know if and how much to invest.
Putting aside AEO for a second, let’s consider a generic example: XYZ Company. You buy 100 shares of XYZ at $10 because you think it is worth $20. Every day, I ask you: What’s XYZ worth and you tell me, “$20 a share.” Quarter after quarter passes, and you keep saying, “It’s worth $20 a share.” A year passes, and you revisit your valuation — XYZ is now worth $15. What does that mean?
Was XYZ worth $20 the day before you did your valuation, and then worth 25% less the day after you valued it? Or, is it fair to say that your $20 valuation was an estimate because the value changed slightly each quarter as data and the future prospects unfolded?
Now the question, as it applies to AEO.
XYZ is now worth $15 a share, and it is trading at $8.50 — 15% below where you bought it. You want a 50% MOS, but wait — it is still lower than your original purchase price. What do you do?
If you expect XYZ’s value to begin increasing again, and you see that $15 intrinsic value as a low point in the business, you stick to the plan: Wait for it to hit $7.50 and then load up. If you see the value continuing to head south to $5 a share, you bail at $8.50 — an intermediate price between where you bought and where you think the value is (or is going).
And if you’re not sure, you wait it out until you have enough information to make a smart business decision, regardless of the price. Let’s keep in mind that we are looking at the August 22, 2008 price and trying to make a decision. We may not have enough information to revalue American Eagle for another few months.
The sense of urgency in all of this is coming from the price. If American Eagle was trading at $22 right now, what would the conversation be like?
Ask yourselves this: If the stock market had shut down the day after we bought American Eagle, not to reopen again until 2012, how would you evaluate your business without any indication of price?
Annual reports? Quarterly reports? Data and information?
Exactly. That’s all we have to go by.
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Wow- great discussion! Excellent points on both sides but in the end Joe has convinced me. My naive rational being that our valuations try to predict future occurences, and the short term recession wasn’t predicted. The value and price have moved with the economy and now we have to re-evaluate. I think it is easy for new investors to hit the panic button and sell and it is hard to double down. Joe is showing great business acumen while facing the situation.
I have learned a lot from these comments and posts and thank all for their willing contributions. (Wish I had something positive to contribute)
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I guess I started this whole thing with my post over at the other thread. I was going to list all of AEOs competitors, mention their “fickle” target market, the fact that teenagers had a hard time getting jobs this summer, etc., but I see all this has been mentioned already. My comments on the other thread were about the decision to buy it in the first place, not about what to do now. Now, if I had bought it, I would hold for a while.
I would hold it for the reasons that Joe mentions, but I would also hold it on the basis on the macro scenario that is playing out. Back to school, falling oil prices, etc. I still think it’s a long term loser, but I feel pretty good about it’s prospects for a short term comeback. So I would let some time elapse and do (if I knew how) the evaluation that Joe is talking about, but I would also keep my eye out for an opportunity to sell at a minimal loss.
After all, if as Joe says, there are better plays out there and you can take a relatively small loss and move on to a better investment, what’s wrong with that?
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“how would you evaluate your business without any indication of price?”..
Philip Fisher would use “scuttlebutt” – asking questions, walking into the and watching the shops. Put charitably, in a lot of cases the upper management themselves do not know or are deluding themselves with a “rosy consensus” about the state of their operations.
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This is where management plays an important role.
The business generated a ton of cash, management’s ability and expertise in the field is what’s going to make or break the valuation but we must take into account that the future conditions of the economy will have significant impact on results(after the contraction).
They are releasing the 77kids stores by 2010-2011, and they will begin testing and fine tuning the products before opening doors by testing its sales on its website. Also, there are expecting 70-80 stores opening per year. Were they efficient opening stores in the past? Or did they go all out as with starbucks example? I have my ideas, and I’m hoping they proceed cautiously but position themselves for growth once consumer confidence improves after all this talk about recessions(TV, Media )
I got in at 14$ as a small part of my portfolio, I was willing to take the risk, but I’m willing to move on if things do not change for the better. In this case, the 3 year rule makes perfect sense.
Part of the game of investing, is taking the risk of being wrong! Which is the precise reason why there’s profits to be made. “Every adversity carries the seed of an equal or greater benefit”-Napoleon Hill
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In the above post I said I think AEO is a long term loser and it’s been bothering me for days. What I should have said is that I have no idea if it will be one of the long term winners or one of the losers in an industry that is in for tough times. As some of these companies fail, the remaining ones will be better off and some might become big winners. What I should have said is that this industry and particularly this segment of the industry is totally incomprehensible to me, so I steer clear of it and stick to things that are more in my area of competence.
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Hi Rene If your thoughts on AEO are based on thinking that it is in an industry that wont recover for sometime, then here is a recent quote from Buffett that might assist.
BUFFETT: I don’t look–I don’t try to pick turns in any kind of an industry in terms of buying stocks. I just like to buy them when I think they’re cheap relative to their long-term earning power and I don’t happen to have that conviction about home builders now, but it very well may be the case. It’s just I don’t have the conviction
I hope that helps.
cheers
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I figure AEO to be about 50% undervalued.
However, this estimate is based on 10 years of growth numbers that represent AEO successfully expanding their core AEO brand.
AEO is now spending fairly large amounts of retained earnings to fund risky startup ventures like Martin OSA. They may very well succeed, but it is by no means guaranteed.
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Miguel’s comment cracked me up. Mark, there are a lot of Buffett aphorisms that seem to contradict each other on the surface. Also, he seems to make exceptions to his rules from time to time. From some of his comments and actions, I’m pretty convinced that he does pay some attention to industry trends and overall macro developments.
I’ve mentioned before that I’m more Peter Lynch than Warren Buffett in orientation, which to me means that I apply Buffett principles to the best of my ability, but I also have to have a “story”. I guess what that means is that I focus on Growth/Value, which means growth stocks for cheap. Of course, I also like deep value, but it must also include a “story”.
For example, the dominant growth story for me right now is energy, so I look for value in oil and for growth in solar. Since I consider the solar panel companies speculative at this point, my top holding is AMAT in that area. I have no position in oil, but I’m watching PBR and a couple of others closely.
For years I couldn’t figure out where all the people were coming from to buy new houses in obscure places as well as the big thriving cities. I couldn’t figure out where all the money was coming from to drive home prices so high everywhere at once. So I just concluded that I knew nothing about real estate and stayed away from it. Now I know I was wrong in thinking I was wrong 
.
I agree completely with the approach preached here, but I just add the “story” to it, it just seems like common sense to me.
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All great comments, I will keep this one short.
Of all of Buffetts ideas, moat is the most important to me and I agree with Darren’s post, there is no moat here.
Making money by buying a discount to intrinsic value is great(Joe’s recent AAPL buys are a good example) but I’m just an old fashioned Buffett guy that tries to hold everything for 10 years or more. If a company doesn’t have a moat, cheap won’t help me in the long term(even though it would in the short term).
In fact I don’t see a moat in any retail which is why I refuse to invest in them period.
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BlahBlah’s comment got me to thinking about the idea of dealing with “no moat” companies. I recently read an article on Morningstar about that. Basically it said you can’t treat them with a Buffett-like “buy and hold” mentality. You need to keep an eye on them and dump them when appropriate.
That being said, I still have this uneasy feeling about the fickle customer and the clothing retail business as a whole. So, maybe this one is not for me.
I do hope it takes off and makes money for those holding it. All I would say is, “don’t treat it like a buy and hold stock” Make some money and get out…..
Taking my own advice….then..perhaps I should by some !!
Best of luck
Darren
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No moat, a deteriorating moat and a durable long-term moat are 3 different things. Obliviously, Buffett/Munger likes business with large long-term moats (in range of many decades) versus one with small or short-term moats. If you read Munger thoughts about how one would go about creating a 20 million dollar company to a 2 trillion dollar company (he uses Coke-Cola as the example) you will see the advantage and lollapolazza effects of a long-term moat.
With that said, even though right now it seems that AEO moat is eroding to competition and short-term economic effects, it doesn%u2019t mean it%u2019s not a good investment. If you believe AEO will be able to create positive future value (generate positive future owner earnings) in excess of what you pay now at a significance discount then I believe it%u2019s an investment opportunity. I agreed this becomes more of an Asset Play (one of Peter Lynch%u2019s categories) than a lollapolazza effect (one of Phil Fisher/Charlie Munger categories). I prefer the later investment type myself but I don%u2019t rule out the former either.
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Is anybody else loving this market like I am? I’ve been looking at GLW for months. At under $20 I thought it was a great company at a fair to better than fair price. At $16.75 today, I finally jumped in. It goes like that for quality name after quality name. I feel like a kid in a candy store.
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Hey Darren,
Corning used to be one of the darlings during the internet bubble. Like many companies that were involved in all that, even though not in the front lines as a dot com, they got somewhat carried away, bloated and careless. As I have mentioned before, I’m not nearly as competent with the quantitative analysis as most people here, but I loved that company the minute I saw their basic numbers and got a basic understanding of all the businesses they’re in.
They have almost no debt, good cash flow, very low P/E and PEG ratio even before the sell off of the last two days, very good earnings growth, great ROI and profit margins and the CEO seems to have a reputation for straight talk.
The second part is just as important to me and that’s the story. Their main source of income right now is glass for T.V.s and computers. Because of over supply and the general consumer malaise, they are going to have a couple or maybe more rough quarters, thus the sell off by this market that thinks that a six month range makes you an investor rather than a trader.
But Corning is more than just glass panels, they also do optical fiver and cable, ceramic products for emissions controls in cars and a bunch of other stuff that I believe has a great future. In addition, they own a 50% stake with DOW on a company named Hemlock Semiconductor, which is a direct play on solar.
I know this is more of a “pitch” than an analysis, but believe it or not, for better or for worse, this is how I invest after reading everything I can find on a company, from the pages of the Wall Street Journal to the most obscure blog. I write this “pitch”, not to get anyone to buy it, in fact, I hope no one does, as I’d like it to go down a little more so I can accumulate, but in the hopes that if you or any of the math wonks here take an interest in the stock they can wonk away at it and explain to me why I’m a total idiot or an accidental genius. Either way, I can never get enough input.
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Hmm…..the only thing that bothers me about it is the fact they they almost went bankrupt a few years back. On the old Graham and Buffett trading analysis, that’s a huge no-no.
They have turned things around..and they are positioned as you say to take advantage of the growth in those sectors you mentioned…..true enough. I just have a hard time, as a conservative investor, with that bankruptcy thing…. (almost bankrupt thing I guess)
Interesting though. You got me thinking. When i look back at past stock prices on GLW it doesn’t look promising for stock growth. That may not be an issue for you though. Here in canada, they tax us heavily on dividends, lighter on capital growth…so I am laways trying to find that elusive stock that I think has good potential for stock price growth as well as all the other attributes of the Graham/Buffett models. Tough to find.
Any thoughts out there on CEMEX?
Darren
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Darren,
My two favorite holdings are AMAT and now GLW and I’m expecting growth from them. I did forget to mention several other criteria that I use and one of them is a small to decent dividend that has the potential to grow over time. I can see where dividends would not be a good thing if you are Canadian.
CEMEX has been on my radar for about a year, but it doesn’t have a dividend if I remember correctly (not a problem for you) and if I recall, I didn’t like their debt level. I would take a serious look at it again if it fell a few bucks, but I have a few others higher on my list.
The most intriguing stock I’ve come across is ITI, blew my mind when it came up in a screening and surpassed every criteria by a mile, except dividends, which it doesn’t pay. I haven’t bought it though, I don’t really know what to make of it, I have no way to asses it’s growth potential, although I like the story. They help municipalities with traffic patterns and make traffic safety gadgets. It’s also a $2 stock, which I guess doesn’t mean anything, but it makes me a bit nervous.
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Yes, with their recent acquisition of a couple companies, they definitely do have some debt. It’s to be expected when you buy a $14 billion company. I feel the same, if they continue to drop a bit more, I think the long term prospects are there. they have to pay down their debt, but, if their judge,ent is correct, the expansion of the business should bring in greater cash flow in the future…..
We’ll see.
What else are you looking at,??..if you don’t mind me asking. I am interested in the banks, now that they have been beaten down. currently watching AIG and AIB, trying to determine a reasonable value given the turmoil in that area…right now at least.
Darren
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The banks all scare me. When BAC went down to around $18 I thought about it for about 2 minutes and passed. I realize that all that retail business they get from their gazillion branches can cover up a lot of bad bets, but I have very low confidence in the U.S. financial system right now. On top of that, I have no idea whatsoever how to value a bank. On the prejudice side, I don’t trust financial types with the notable exception of Buffett and of course Joe and even then, I “trust but verify”, lol.
I plan to add to AMAT and GLW. I covet GE, but not at this price, looking for under $25. I want some PFE, but not until it gets a haircut. I’m watching oil fall, looking to get some PBR at some point if oil keeps going down. Looking at Brazil, Chile, India and Mexico. Looking at Europe. In short, looking at anything that is getting beat up and is bound to bounce back. Like the dry shippers, the miners, infrastructure companies, tech, telecoms and of course alternative energy and oil.
Not even slightly interested in banks, home builders or retailers, authoritarian countries like China and Russia with little transparency or accountability to anyone or gold, whose allure I have never understood.
To be honest, I have a large chunk of my portfolio in a PIMCO bond fund and thanks to that I’m outperforming many famous names. I fully expect to wake up any day and find my whole stock portfolio to be down 20-30% and I’m actually looking forward to the buying opportunity. Hopefully, a world wide depression won’t follow right after I’m fully invested…
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Clarification:
Although I wrote PBR above, I doubt that’s the actual stock I’d invest in, due to political tendencies in Brazil which affect their oil industry. Since oil has not fallen enough for me to take a close look, I sort of use PBR as a stand-in for “Big oil company”, but I may invest in a deep water oil driller instead or who knows what. I do like what all that oil will do for the rest of the Brazilian economy though.
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My 1 cents and in continuation of the comments from the other post.
I think we are forgetting that we are talking about a completely different consumer. The target consumer for AEO is not you or me but the kids that want to look good and impress the girls or boys at school. These are the types of consumers that dont look at the news each night or listen to AM radio regarding the economy.
AEO is also a fashion company. I may be able to get along fine in my 3 season old shirt and jeans but teens want the latest, the trendiest style of clothing that will help them fit in or give them bragging rights over their latest wardrobe addition.
All I know is that I would like to see AEO at $11 again. $11 is dirt cheap compared to its value.
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