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Don't Give Up
We have been pretty negative on the market for over 2 months. While we aren’t yet bullish, there are reasons why you better get ready to step into new positions because we are getting close to a return to a bullish stance, again. The triggers for us are sentiment and valuation.
The Reverse is True
The Investor’s Intelligence Bull/Bear Ratio, which surveys Investment Professionals, is considered the standard-bearer of sentiment surveys, with nearly 50 years of history. The idea here is that after buying stocks people are bullish, and after selling, they are bearish. A ratio of around 2.0 is considered extremely bullish (therefore you should read it as bearish) and a ratio of around .6 is considered bearish (which should be viewed as bullish.)
Select Research: Hungry? This Stock Will Curb Your Summer Hunger
In recent months, we mentioned that the casual dining space could heat up. It has. We have a stock idea that dovetails nicely with Americans’ summer travel habits this year.
With the price of gas at low relative levels, U.S. vacationers are happy to pack up the van and car and drive to...wherever. In the past 2 years, the road trips were generally regional in nature. It is no secret that if you are on the road for an extended period of time in this country, there are certain restaurant chains you see along the various highways, begging you to come inside and eat. They include Cracker Barrel (NASDAQ—CBRL) and Bob Evans (NASDAQ—BOBE), which in our view, are great investments, despite their high stock prices.
However, there is one chain that from both the valuation and stock price perspective is cheap. I confess I really do not like it but a ton of people do.
Ladies and gentlemen, welcome to Denny’s (NASDAQ—DENN—$4.16), may I take your order. Denny’s has about 1500 franchised and 200 company-owned restaurants. Many of you know the story so I won’t go into detail. Here is what you don’t know.
Denny’s will generate about $500M in revenue this year and earn $0.29. The Company just 10 days ago announced a 6M share buyback which will reduce the shares outstanding by 6%. Chart looks great, and even at $5 the stock would only trade 17x CY12E EPS.
Many of you are likely familiar with the scandals in past years regarding racially insensitive incidents, which may have hurt the stock to a degree, but at current levels, it is trading at favorable multiple compared with its peers. The current 14x multiple is in the middle of the 13-16x range of the peer group.
Until next week…
Analyst: Robert Goldman
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