Relationships, Investing, and 1 "Real Value" Stock Pick

John B. Sanfilippo & Son, is not only a better value than Diamond Foods, it could be be the next Beam.

Mar 10, 2014 at 2:47PM

What do relationships and investing have in common? They both tend to go sour when you over-think them. 


Image courtesy of Dr. Phil

Don't worry, I'm not going to go "Dr. Phil" on you. But investing is really best when it's thought of as a relationship. When you "trade," based on the near-term predictions and technical indicators that financial gurus spout out, it's the financial equivalent of taking marriage advice from a reality TV star. Don't do it!

You're portfolio will be better off if you seek a long-term commitment, and invest in quality businesses. You just have to focus on a few simple concepts when you're seeking out an appropriate mate. Let's talk a bit today about value investing done well, and why I think John B. Sanfilippo & Son (NASDAQ:JBSS) may be a stable partner for you, it could be the next Beam (NYSE:BEAM)

John B. Sanfilippo & Son, a stable partner
This little known business is one that you should have on your watch-list. It's a simple, family run, nut manufacturer that seems boring on the surface. While Emerald nuts maker Diamond Foods (NASDAQ:DMND)may seem like the sexier pick, its track record of up and down performance and accounting scandals makes for a less certain investment.

With his deep family roots, I trust CEO Jeffrey Sanfilippo to not soil this business' ninety-two year run of success. Beyond stability, this is a business that is growing. In its most recent quarter, Sanfilippo saw an 11.1% increase in net income, a 4.4% rise in net sales, and it's coming off an all-time high in annual revenues.

The concept of Real Value
Warren Buffett, Peter Lynch, Joel Greenblatt, and countless other investing legends have co-mingled the concepts of value and growth investing. What frustrates me about some value investors is that they tend to jump into an investment first because it looks cheap, rather than assessing its growth potential.

Even Warren Buffett, who most value investors idolize, has said it's pointless to analyze a "rapidly declining business." After-all, what is more valuable than growth? The search for growth at a reasonable price, which I consider "real" value investing, is what makes John B. Sanfilippo look enticing, not simply its low P/E of 11. 

Here are a few intangible assets that add to this stock's real value; they're difficult to value by numbers and metrics alone. 

Brands and market-cap's
This business is the parent company of Fisher nuts. While it also recently acquired Orchard Valley Harvest, Fisher's brand habituation provides a moat that rivals Planter's; it offers, for instance, the only peanut sold at Wrigley Field, and "iron chef" Alex Guarnaschelli is an ambassador for the brand.

The truth is, that good brands are rare and valuable. Beam and Heinz recently showed us that boring, yet well known, brands are ideal buyouts. With its low market cap of about $250 million, John B. Sanfilippo could make an ideal buyout target; after-all, Beam's market cap (now at $13 billion) made it a constant acquisition possibility for larger competitors (Diageo, etc.). Eventually Suntory purchased Beam; without quality brand recognition, and a low(er) market cap, this wouldn't have happened.

Will this small nut manufacturer be taken private? Maybe, maybe not. I'm simply noting that a small market cap, and a renowned brand, make it very possible.

Still, even without an acquisitions, a small amount of outstanding shares and great brand give this stock room to run. 


Image courtesy of Fisher nuts

The most valuable thing this stock has going for it is the positive trends it has at its back. American's are eating healthier, and John B. Sanfilippo is well aware. It launched an ad blitz (with the FDA's blessing) in 2004 touting the health merits of nuts, and it hasn't relinquished. Literally, it's plastered all over their website showing their focus is exactly where it should be.

In recent years consumers have moved to nutrient rich "fats," like nuts and oils, that are more natural as their snack of choice. Going forward, I expect these treats to continue to supplant snacks like chips, cookies, and fried foods since the health benefits are tremendous! If you agree with me, then you should consider health trends as an "asset" in your valuation of the stock.

Foolish conclusion: I'm courting John B. Sanfilippo
With Fisher nuts and Orchard Valley, John B. Sanfilippo is solely focused on the nut business. I believe that gives it an edge over businesess like Diamond Foods, which manufactures chips and pop-corn.

We've talked about the added value of healthy trends, and "Beam-like" brand identity, but finally the stock is simply cheap. At 11 times earnings, and only 0.35 times sales, it's not unreasonable that this stock could double on valuation alone. A multiple of 22 would be warranted for a well run business.

This is a simple (if not boring) business, but don't over-think its value proposition! Great trends, growth, and value, should lead you to a fruitful long-term union with this stock.

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Adem Tahiri doesn't own any of  the stocks mentioned, but he owns put options on Diamond Foods.The Motley Fool recommends Beam. The Motley Fool owns shares of John B. Sanfilippo & Son. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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