Many investors, ourselves included, have a stock or two in their portfolio they will never part with. For some, it's the performance, and for others, it's a stock that offers a long, stable history -- or both. We asked a few of our investors for one stock they refuse to sell. It was a fairly easy question to answer even though the answers vary greatly.
The three chosen companies include the happiest place on earth, Disney (NYSE: DIS), alternative energy manufacturer TPI Composites (NASDAQ: TPIC), and gaming restaurant king Dave & Busters (NASDAQ: PLAY).
Image source: Getty Images.
Been there, done that
Tim Brugger (Disney): Much of the press following Disney's recently announced fiscal 2017 fourth quarter and year had to do with concerns about its ESPN property dragging down its cable networks revenue. The rumor mill has also been in full swing involving talks about Disney acquiring the majority of Rupert Murdoch's Twenty-First Century Fox for an undisclosed sum.
As a longtime shareholder, Disney's so-so stock performance of late is of little concern to me. The reason I've shrugged off its meager performance is that Disney has been down this road before, and it always lands on its feet. Listed on the New York Stock Exchange (NYSE) since 1957, Disney first issued convertible preferred notes to the public as far back as 1940.
Yes, Disney's total revenue declined 3% to $12.8 billion, but there were also some positives. Despite ESPN's negative impact on Disney's cable unit, its $3.95 billion in revenue was flat compared to a year ago. Also, the $23.5 billion in total revenue for fiscal 2017 was less than a 1% easing compared to last year. And with a full-year of Shanghai Disney under its belt and a boom from the 25th anniversary of Disney Paris, parks and resorts sales jumped 6% to $4.67 billion.
Beyond the rumored deal for the majority of 20th Century Fox, Disney confirmed it will unveil a new streaming service that's less expensive than Netflix, as well as develop a host of new programming. I'll ride this latest wave just as I've been doing for two decades now. After all, Disney has seen this topsy-turvy movie many times before.
Hurricane-force selling won't scare me away
Rich Smith (TPI Composites): Last week was a weird one for me, with several companies in my portfolio reporting great, estimate-thrashing earnings reports -- only to get sold off hard by Mr. Market.
TPI Composites was one of these. America's biggest maker of "blades" for wind-power turbines reported profits of $0.58 per share -- more than twice analyst estimates -- despite revenue growing slower than anticipated. Now, to me, more profit per revenue dollar sounds like a good thing, but Mr. Market begged to differ. Apparently worried that revenue growth of "only" 22% year over year meant business was slowing down, and worried, too, about a movement in Congress to cut price supports for wind energy as part of President Trump's tax reform plan, investors sold off TPI stock to the tune of 18% over the two days following earnings.
But I refuse to sell.
Why? For one thing, profits: I see the quality of earnings improving at TPI Composites, with free cash flow now covering 96% of the company's $35.5 million in reported earnings. For another, growth: Over the past couple years, TPI's earnings are up 360%, while its free cash flow has exploded 520% higher. And as far as the threat out of Washington, D.C., goes, I guess I have less faith in (or fear of) Congress's ability to pass tax reform than others do.
In any case, everyone else may be selling TPI, but I am not.
It's not all fun and games
Jeremy Bowman (Dave & Buster's): Tough times have fallen on the restaurant industry with negative comparable sales nearly every month for the past year-and-a-half as over-saturation weighs on casual-dining and fast-casual chains.
Dave & Buster's hasn't escaped the malaise as shares have fallen by a third since they reached an all-time high this June. The stock first slipped alongside other casual-dining stocks and plunged after comparable sales slowed to just 1.1% in its September earnings report and comparable food sales fell.
Despite the weakness, Dave & Buster's is one stock I plan to hold on to. The company's unique model, which offers games in addition to food and beverage, gives it a draw that other restaurant chains don't have. Dave & Buster's also draws the majority of its revenue from amusements and that percentage is growing. Additionally, amusements are a significantly higher-margin business than food and beverage with a cost of 11.1% in the most recent quarter, compared to 25.7% for the restaurant segment.
Dave & Buster's has also outperformed the casual dining benchmark in comparable sales for the last 21 quarters, evidence of the company's competitive advantages, and the company plans to more than double its store count from 100 today to at least 200 over the next several years.
While the headwinds in the restaurant industry could present near-term challenges, other chains are slowing growth or shutting stores which could present an opportunity for Dave & Buster's. Retail closures should present attractive real estate opportunities for the company as it has a proven ability to draw traffic, and profits should steadily grow as it expands. With its modest valuation, the stock should eventually get back to its outperforming ways.
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Jeremy Bowman owns shares of Dave & Buster's Entertainment and Netflix. Rich Smith owns shares of TPI Composites, Inc. Common Stock. Tim Brugger owns shares of Walt Disney. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool recommends Dave & Buster's Entertainment. The Motley Fool has a disclosure policy.