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The Motley Portfolio's 3 New Best Buys Now



October 04, 2012 – Comments (5) | RELATED TICKERS: JOY , TPR , CMG

It’s been a couple of weeks since the last installment. A lot can change in two weeks; as such, I give you my three best buys today along with a watch-lister you’ll need to keep on your radar.

Joy Global (NYSE: JOY)

Joy Global makes mining equipment. With $5 billion in TTM revenue and two-thirds of that coming primarily from coal, the sputtering global economy has put these guys on sale in my opinion. Natural gas garners most of the press, but coal is still very much a reality, particularly overseas in developing economies where the company makes almost half its hay. While the International Energy Outlook sees coal consumption remaining relatively flat for OECD countries over the next two decades, non-OECD countries will benefit greatly from their coal resources and Joy Global will help them do this. The stock trades today at just 8 times earnings and on a forward basis it looks even cheaper. Joy has a $25 billion installed base of equipment and generates a lot of maintenance revenue on that base. When orders pick back up again we’ll see the book-to-bill ratio back over one, but by that time the market will have already caught on. Buy a few shares today and keep your eyes on this one; here’s my initial write-up from last year:  

Coach (NYSE: COH)

I feel compelled to offer up a consumer facing name here partly because I am leaning so far toward energy right now in my mind that I need some balance. But make no mistake I am not picking Coach here just to check a box. This is a phenomenal company here thanks in great part to CEO Lew Frankfort’s tireless efforts to know his customers and what they want. The new Legacy line for men and women should score big this holiday season and while management referred to 2013 recently as an “investment year,” investors should see the long-term positive implications of this strategy. Continued vertical integration as the company buys up key suppliers in Asia will give the company more control over its production line and inventory which could have a very positive effect on the bottom line. The market didn’t like the short-term implications of this strategy though and sold off the stock after earnings last quarter opening a window for opportunistic investors (like me for example) to jump in. It trades at 16 times earnings today and just 14 times forward earnings which is low for a quality company that historically demands a higher multiple. Buyers today will not regret it. Dare I say, it’s in the bag? Here’s my write up for more:

White Mountains Insurance (NYSE: WTM)

A bit of a Berkshire Hathaway-ish way to play, I still like an investment in White Mountains today for investors looking to offer stable growth to their portfolio. Insurance has been notably weak over the past five years, however White Mountains is more than just an insurance company. I am 100% on board with the company’s operating principles: Underwriting comes first; maintain a disciplined balance sheet; invest for total return; and think like owners. What’s more I believe these operating principles are what have led White Mountains to its success today. A great example can be seen in the recent deal to sell Esurance to Allstate. It offered a tremendous boost to book value (the common metric on which insurance-related stocks are valued) and I believe it will guide the company to more success in the future. The stock trades today actually at a discount to its stated book value offering investors a great opportunity to buy stock in a business that they can look forward to holding for many, many years to come. Check out what I had to say about the company when I added it to the portfolio back in February 2011:

Bonus Watch List Stock

Chipotle Mexican Grill (NYSE: CMG)

I promise I’m not doing this to thumb my nose at David Einhorn’s recent short call on Chipotle. Far from it, I understand his short thesis is based primarily on valuation and I do get that; Chipotle is not a “cheap” stock. It is however a lot cheaper than the $425 share price it was fetching a few months back, and for good reason. Concerns of slowing sales and headwinds in the form of food cost inflation are realities that the company will have to deal with for sure. I will say however that he lost me with the competitive threat of Taco Bell. While I’m sure the new Taco Bell menu will offer current Taco Bell patrons a nice option to “trade up” I am highly skeptical that it will take consumers away from Chipotle. The two are simply apples and oranges and while I am aware that he conducted surveys, I place about as much faith in those as any others, which is not much. Time will tell where that is concerned, but the fact of the matter is that from today Chipotle can still easily double its store count (which they own outright by the way) and this doesn’t even begin to account for any potential market opportunity with the new Asian concept which is moving forward thanks to excellent performance with the one test store. Remember Chipotle started out as just one store too, and look at where it is today. In my mind investors should be thanking Einhorn and all of the lemmings that follow him blindly as it has offered up a stock price that is beginning to look a lot more attractive for long-term oriented investors.

Foolish best,


5 Comments – Post Your Own

#1) On October 04, 2012 at 12:13 PM, constructive (99.97) wrote:

100% of WTM's historical outperformance occurred between 2000-2004. If you take out those 5 years, they've underperformed the market since 1986.

It's no coincidence, that's when esurance was growing the fastest. Without esurance they are nothing special.

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#2) On October 04, 2012 at 12:27 PM, constructive (99.97) wrote:

Just my opinion, there are better, cheaper insurers out there. Berkshire Hathaway, Fairfax, RGA, GLRE, VR, AGO, MET, PRU, SYA, PL, etc.

I may be biased against White Mountains for killing off Erin Esurance, I kind of liked her.

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#3) On October 04, 2012 at 1:22 PM, TMFJMo (< 20) wrote:


These are picks only from the 23 companies in my Real Money portfolio here. No doubt you've mentioned some great names, but I don't have any of them in my portfolio save one: 

You'll notice BRK is also in there. For WTM the Esurance deal to me is representative of what managment is capable of. Forgive me, but your "if" statement is just that; an "if" statement. I appreciate what you're saying, but it did happen and very well may happen again.

Bottom line is this: I added WTM to my Real Money Portfolio in February 2011 and to date it's spanking the market by more than 30%. I like the company's chances going forward; they continue to buy back shares opportunistically and create more value. Does it outperform from today? Maybe. Maybe not. But so far it's been a great performer, so I'm going to give it a tip of the cap for what I think the future holds. Of course I may be wrong :)



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#4) On October 04, 2012 at 1:53 PM, constructive (99.97) wrote:

Fair enough. We know White Mountains can hit a home run, I just doubt they will hit enough doubles and singles to lead the league in runs.

JOY is an interesting pick, looks pretty cheap.

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#5) On October 04, 2012 at 2:37 PM, TMFJMo (< 20) wrote:

I hear ya'; definitely a reasonable concern.

Joy is an interesting one for sure. It can move and I do think it's a good deal today. Price represents a lot of pessimism already. 

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