Zacks Investment Ideas feature highlights: Haverty Furniture, Salem
Communications and Andersons
CHICAGO, Nov. 27, 2013
CHICAGO, Nov. 27, 2013 /PRNewswire/ -- Today, Zacks Investment Ideas feature
highlights Features: Haverty Furniture (NYSE:HVT-Free Report), Salem
Communications Corporation (Nasdaq:SALM-Free Report) and The Andersons
Invest Like a Young Buffett
Stock investors were not impressed when Warren Buffett's Berkshire Hathaway
recently announced it had taken a sizable position in energy giant ExxonMobil.
Many commentators shrugged and some even tweeted out things like "yawn" in
response to Berkshire adding the Dow component to its portfolio.
That's because it joins a bunch of other Dow Industrial companies already in
the Berkshire portfolio.
At the end of the third quarter, Berkshire had $104.9 billion invested in
equities. Its top 4 holdings reads like a who's who of the Dow Industrials:
American Express, Coca-Cola, IBM and Wells Fargo. Just those four positions,
alone, account for $58.4 billion of the portfolio.
Berkshire disclosed its Exxon position was 40 million shares for $3.4 billion.
It's another sizable large cap position.
Berkshire Is Too Big
Berkshire Hathaway has a market cap of $282 billion. It owns over 80 companies
and invests in dozens more. But when you have a portfolio that is over $100
billion, you can't just buy any small cap stock that stokes your fancy.
The larger you are, the more likely you are to invest in mid-to-large cap
companies. Investing in dozens of small cap companies with $500 million market
caps won't make a dent a portfolio that is worth $100 billion. For example,
even if that $500 million doubles in value and becomes a $1 billion company,
that's still just a drop in the bucket for a $100 billion portfolio.
That's why Berkshire is now saddled with numerous well known Dow component
companies and owns no shares in companies with market caps under $1 billion.
Small is King
If you want growth, you buy small cap companies. Those are companies whose
market cap is under $1.5 billion. Earlier in his career, before Berkshire grew
into a billion dollar behemoth, Buffett used to buy obscure small cap
companies and ride them higher to great returns.
If you really want to invest like Buffett, invest like the young Buffett.
Forget all of Berkshire's recent purchases. Look for small cap companies that
Buffett would have liked to own if he could he still buy small caps.
I did a screen for small cap stocks with Zacks Rank #1 (Strong Buy) and (Buy)
stocks that also were value stocks, either through P/E, P/B or P/S, or a
combination of those.
And then I asked: Would a young Buffett have bought this stock?
3 Stocks That a Young Buffett Would Have Loved
1. Haverty Furniture
2. Salem Communications
3. The Andersons
1. Haverty Furniture (NYSE:HVT-Free Report)
Buffett is a lover of furniture companies. Berkshire Hathaway owns several,
including Jordan's Furniture, a furniture retailer founded in 1918 in
Massachusetts. But one of his more famous investments was the 1983 purchase of
Nebraska Furniture Mart. Headquartered in Omaha, Nebraska, it was started in
1937 by Rose Blumkin who sold it to Buffett with a handshake deal.
It has three stores, including one in Omaha, one in Kansas City and one in Des
Moines, Iowa. Expansion into Northern Texas is expected in the next several
Haverty Furniture fits within Buffett's model. Founded in 1885, and public
since 1929, it is headquartered in Atlanta and still has Havertys working in
the management team. The company has now grown to over 119 stores in 16
On Oct 30, the company reported a record third quarter as it blew by the Zacks
Consensus Estimate by 24%. Earnings of $0.42 were up 180% compared to the year
ago quarter as the company cut expenses.
Sales rose 11.6% with same-store-sales jumping 11.8%. The average ticket
The company finished the third quarter with $79.1 million in cash and NO debt.
Valuations are still attractive even though the shares are at 2-year highs.
Havertys is benefiting from the housing market recovery. Earnings are expected
to rise 98% in 2013 and another 16% in 2014.
Forward P/E = 21.7
P/B = 2.3
P/S = 0.9
Zacks Rank #2 (Buy)
Market Cap: $650 million
2. Salem Communications Corporation (Nasdaq:SALM-Free Report)
Buffett has always had a thing for media companies, especially newspapers.
Berkshire Hathaway still owns the Buffalo News, which Buffett purchased in
But if Buffett were young today, he may be more interested in other media
platforms, including the Internet.
Salem Communications is the largest Christian and conservative radio
broadcaster in America. Founded in 1986, it operates 101 radio stations in 39
markets. It also operates an Internet and publishing divisions, including
Christianity.com, Jesus.org and Christian videos at GodTube.com. It's
publishing division includes FaithTalk Magazine and Preaching and Townhall
On Nov 5, it reported third quarter results which saw revenue rise 3.1% to
$58.5 million. Radio revenue increased just 0.3% but that was because the
heavy political ad buying of last year was absent. In it's fourth quarter
guidance, the company also cited the loss of political ads as a drag on
But Internet sales were the big driver for the quarter, rising 20.4% to $9.4
million from $7.8 million.
While the company is expected to lose $0.21 a share this year, earnings are
forecast to soar by 397% to $0.63 in 2014.
The company has no forward P/E due to the expected loss in 2013. But its other
valuation metrics are still attractive. Salem also pays a dividend, currently
yielding 2.5%, which is rare for a company of its size.
Forward P/E = N/A
P/B = 1.1
P/S = 0.9
Zacks Rank #2 (Buy)
Market Cap: $224 million
3. The Andersons (Nasdaq:ANDE-Free Report)
Buffett likes "old" industry companies like railroads and chemicals. These are
companies which are the building blocks of the economy.
It's surprising, then, to see that Berkshire Hathaway doesn't own any
The Andersons was founded in 1947 by Harold and Margaret Anderson as a single
grain terminal in Ohio with the purpose of helping farmers get their corn to
market. It has grown into a 6 division business with grain, plant nutrients,
railcar leasing and repair, industrial products formulation, turf products,
retail and ethanol operations.
On Nov 6, The Andersons posted a monster 50% beat as earnings were $0.91
compared to the Zacks Consensus Estimate of just $0.61. Ethanol and the Rail
Group led the quarter, with the Grain Group also solid.
The company had been cashing in on higher fertilizer prices the last few years
when that was hot but now it is Ethanol that has taken that position. However,
one thing to watch is that the EPA has issued a Proposed Regulation which will
change ethanol requirements in 2014.
Investors don't seem worried about the impact on The Andersons as shares have
barely budged from their 2 year high.
The Andersons is expected to grow earnings by 10% in 2013 and another 23% in
2014. Despite trading near its multi-year high, there's still value in these
Forward P/E = 18
P/B = 2.3
P/S = 0.3
Zacks Rank #1 (Strong Buy)
Market Cap: $1.5 billion
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