As the search for investments continues, here’s a few companies that were on my radar this week:
Quick synopsis first, with links to the articles and more details below:
- Synchrony Financial (Ticker: SYF) – The stock was down 10%+ on news that Walmart’s credit card would soon go through Capital One instead of Synchrony. What does this mean for the company, and is there value in the company’s portfolio besides Walmart?
- Yelp (Ticker: Yelp) – My wife is an avid Yelp user. In an attempt to channel my inner Peter Lynch, I wanted to take a look at the company that helps us choose where to eat each and every week. I started to look into Yelp’s numbers and something jumped out. Despite being much younger than Facebook, Twitter, and the other social media sites, Yelp has done a great job monetizing its user base. Can it continue and what is Yelp worth?
- Strattec (Ticker: STRT) – Shares of this $100 million company has done nothing but fall for three years, but the company’s balance sheet may be showing signs of life. (This was also nominated for Editors Choice for the day!)
Synchrony Financial (SYF)
Just to get the bias out of the way, this company is also a holding of Berkshire Hathaway. The company was spun off from General Electric (GE) in 2015, and has put up pretty good operating results so far.
But news last week of Synchrony losing Walmart’s credit card, one of its largest customers, sent the stock down significantly last week. Today, the stock is 25% off of its highs, despite a huge dividend raise and assurance from management that the company will make up for the loss of Walmart, investors were not impressed.
I wanted to look at a worse case scenario to see if investors were overreacting, or if there was a reason to be concerned.
In the end, I came to the conclusion:
Wall Street is always quick to rush to judgment on events like this. But the 10% sell off on the news was too much. Under realistic estimations of Synchrony’s options, the company is now very attractively priced.
On top of that, the company has recently announced a whopping 40% raise in their dividend! The shares now yield 2.8%, higher than Capital One and Discover.
An optimistic management says that the company’s options will be both accretive to the company’s bottom line. If that is the case, then investors have nothing to worry about.
Realistically, Synchrony may see a couple hundred million less in net income this year – Hardly a disaster.
I get hesitant getting excited about tech stocks at this period in the cycle, but also recognize that it would be a mistake to completely turn an eye to the sector. Yelp caught my attention initially when I realized how small it was – just a $3 billion market cap!
For comparison, Facebook is worth $513 billion, even after its latest rout, Twitter is $23 billion, Snapchat is $16 billion, and TripAdvisor is $7.3 billion.
And when I started to look into the numbers, I saw something interesting. Yelp is much younger and smaller than any of its competitors – But Yelp seems to have learned from their mistakes. Yelp is currently monetizing its users much more efficiently than any of those companies were when they were Yelp’s size:
You can read the entire article on Yelp here.
For the value investors out there – this one is for you.
Strattec has shown up on our Ben Graham Value Screens for a while now. In fact, it is just one of only a handful of companies that appear to pass Graham’s screen today.
But the company has been a value trap for years, and its stock price is down 70% since its highs in 2014. Ouch!
The company is small – about $130 million in market cap. But their products are in a lot of different cars:
So I have been eying Strattec for a long time now. And something in their latest 10-Q piqued my interest a little more, enough to think that maybe the company is beginning to turn around.
Using a strategy that we talked on this blog about in a post here: How to Analyze a Company By Its Inventory, I noticed that Strattec’s inventory is exhibiting exactly what we talked about in the second part of that article. The components of Strattec’s inventory that is classified as raw materials is rising significantly, while inventory that is classified as finished product is declining:
So is Strattec ready to turn the corner? You can read the entire article here.
That’s all for this week. I am really enjoying getting back into writing about specific companies, so look for more articles next week!