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RSP Annual Review Part II

Recs

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December 13, 2011 – Comments (0)

And here we go with review part deux. The next four companies on the scorecard:

Starbucks (Nasdaq: SBUX)

Hits

• The recent acquisition of Evolution Fresh is a great step forward in the company's "evolution" into new market opportunities.

• Restructuring into new geographic regions is important to the long-term vision of a global leader. We now have the China and Asia Pacific, Americas and EMEA regions.

• You cannot say enough about leadership in this case; ceo Howard Schultz may very well be the secret sauce. He’s passionate, he loves this business and he still owns 2.55% of the shares outstanding.

Miss

• The risk that comes with getting so big is that the experience loses all nuance, all personality. They must keep that feel of the little Italian cafe that inspired Schultz in the first place. Growth is good, but not if it causes you to stray from your original reasons for success and the brand may not translate as well globally as they hope; we'll have to see.


White Mountains Insurance (NYSE: WTM)

Hits

• Just keep on keeping on, tendered offers to buy back stock implying value and insiders still own more than 12% of the shares outstanding.

• Deals like Esurance are their specialty, they do it very well. Consider that they sold Esurance to Allstate for $1 billion and it increased the company’s book value by approximately $80 per share.

• The company’s investment portfolio is still geared more toward fixed income given the volatile markets and global uncertainty. This form of capital protection will serve the company well when things become a bit clearer.

Miss

• Exposure to global risk, European bonds/banks, natural disasters as reinsurers. There could be more exposure than meets the eye, similar to Berkshire Hathaway in this regard. However this is somewhat mitigated with wise and deliberate management, asset allocation.


Higher One (NYSE: ONE)

Hits

• Continue to grow signed students enrolled metric as they bring more schools on.

• New contracts will be with multiple banks enable them to spread risk a bit.

• Founders are very tied to the business and its success; message of spreading financial literacy is one that I really like.

Miss

• Legislation is always something that could come out of nowhere crimping profitability; I would like to see them diversify their revenue streams beyond banking and interchange fees at some point.


Heartland Express (Nasdaq: HTLD)

Hits

• Top notch owners tied to the business; insiders still own more than 35% of the shares outstanding.

• Love the market they cover in short-to mid range; that’s what they focus on and they leave the intermodal to others.

• According to FTR (Freight Transportation Research) trucking continues to outperform the general economic recovery and while it is slow, it’s tracking right along with the trucking recovery from 2001.

Miss

• High fuel prices can put a real crimp on profits. Further stagnant economy means less goods being shipped back and forth, so macroeconomic concerns aplenty with recession in Europe. Further the anticipated driver shortage due to regulation in 2012 will be a hurdle to clear in regard to pricing. Only the best will be able to pass those costs along.

Takeaways

I think it goes without saying but I'll say it anyway: I have zero interest in selling any of these. In fact I really want to add to SBUX, ONE and HTLD, so keep an eye out. HTLD is looking particularly interesting at this point given the trucking data I've read and its price today. I knew when I bought it that it wasn't cheap:

"Couple that with operating margins trending up over time and I can see shares being worth anywhere between $18-$20 today -- not much of a margin of safety, but the stock rarely looks cheap."

Given what the market's witnessed since that recommendation at the end of March (hint: it's down), I've got no worries here. It's a small cap that is tied to general economic conditions. That sucks maybe for now, but the business is still fundamentally sound. So I guess I've got some thinking to do.

Foolish best,

Jason

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