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It's been sour so far, but the future looks yummy...a follow-up on Dole Foods (DOLE)



January 27, 2013 – Comments (1) | RELATED TICKERS: DOLE.DL

As I mentioned a couple of posts ago, as someone who writes about stock ideas here in my blog, I feel an obligation to post updates on how they've done...good and bad.  This is particularly true for higher conviction picks that I have bought with real money.   

Thus far, my investment in Dole Foods (DOLE) both here in CAPS and a small real-life position, has not done great.  Back in November I went long the stock saying the following:

"There was just a great write-up on DOLE in Sum Zero's weekly dispatch by Joe Mareci of Boyar Intrinsic Value. He outlines a number of interesting reasons why the company represents an intriguing buy right now, including selling caused by the company' chairman being paid off on a $300 million loan in Dole stock, successful recent asset sales that will be used to pay down debt, hidden assets in land that is undervalued on the company's books and the potential retirement on the company's 80 year-old CEO leading to a potential sale of the company."

Since then, the stock has returned -6% versus a 7.2% gain for the S&P 500.  All of this underperformance occured on one day a couple of weeks ago when DOLE's stock dropped by as much as 17% intraday when it warned that its net income for 2013 would likely come in below expectations, attributable in large part to weak banana pricing.  HA, investing is a funny business...who would have thought that low prices for bananas would impact me financially?  At least I can buy cheap bananas for my family ;). 

The good news is that a few months is nothing in the world of real investing.  I suppose that if you can't handle a stock that you've invested in dropping by 10% or 20% then you probably shouldn't be investing in individual companies.  As long as the thesis for the company that you have invested in remains the same, a drop represents a buying opportunity or at least a hold.

So, what's the deal with DOLE?  Are the reasons that I initially purchased for still valid?  Well, for some good comfirmation bias ;), I present to you an article from this week's Barron's:

A Sweet Opportunity

In September, Dole (ticker: DOLE) struck a transformational deal with Itochu (8001.Japan), a Japanese conglomerate, agreeing to sell its packaged foods and Asian fruit operations, while retaining its European and American fresh-fruit unit and global vegetables business.  

The cash will be used to pay down substantially all of the company's debt and free up plenty of capital that could be returned to shareholders. But investors seem unimpressed. Dole's stock has fallen 26% since the deal was announced. The shares closed on Friday at $10.15.  

We think that's an opportunity. Dole trades at a deal-adjusted enterprise value of 6.7 times 2013 estimated earnings before interest, taxes, depreciation, and amortization—in line with historical multiples for fruit companies. But after you factor in the company's 113,000 acres of farmland, including 25,000 acres on Oahu—of which 16,500 are listed for sale, the valuation falls to just four times Ebitda. The company values the land at $500 million.  

Dole's shares could be worth more than double their current price, and while shareholders aren't likely to see that value realized in a hurry, the divestiture is a step in the right direction. Over the next year, the stock could rally 25% or more.

One obvious question after reading this article is, what is Barron's track record like in picking small to mid-cap stocks?  At least according to its own tracking, pretty good:

Update to Stock Alert Picks

So that's my quick update on DOLE.  Anyone who is not a believer in the stocy any longer should use Monday's likely Barron's pop to get out, but I plan on holding onto my shares.

Thanks for reading everyone.  Have a great day!


1 Comments – Post Your Own

#1) On January 27, 2013 at 2:59 PM, awallejr (61.45) wrote:

Well Friday night is the time I use to check on my real life portfolio and read the weekly Value Line report.  I noticed Dole and I liked what I was reading.  But since I prefer buying stocks at a discount I entered sell to open puts for Dole.  Afterwards I heard about Barron's call so now I doubt I will get my price ;/

I think you do need to stay patient this year but freeing up their finances will prove to be a big help.  

I should cancel my Cap pick mainly because I will probably get it at the high point monday morning.

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