Monday, December 04, 2017

Good Day For DIN and Value

Good Day For DIN And Value

I mentioned last week that a rotation seemed to be happening.  Today, it gained momentum as the Nasdaq was down 1.15%, but the Russell Value Index was up 45 basis points.

Turns out that companies that actually make money have value.  And when taxes drop, they are worth more.

Nowhere in my portfolio was this more evident than with DIN.  This is of course Dine Equity, the company in charge of IHOP and Applebees.  Sure, they are struggling as the USA looks for more farm to table than whatever Applebees is.  But still, making $4 and change. And even better, the $98m they made in 2016 would be more like $118m at a lower tax rate.  That is a 20% increase in after tax income.  Not chopped corn beef hash my friend.

So that may explain (in part) why they popped over 10% today. 

And it wasn't just DIN.  My MFI Formula portfolio was up 94 basis points today and MFI Select was up 60 basis points.  Even more telling was the losers in the two portfolios. ICHR was the biggest loser, down almost 11% (it is one volatile stock).  KLAC, GILD and HPQ were my other major losers, all down about 2%.  Of course all 4 of those companies get less benefit from the tax reform than US centric companies like MSGN and DIN.

Small Banks

Sadly, I sold my BAC warrants a bit over $14 (it was still a huge gain for me) as I was worried that tax reform would flop.  They are now north of $17.  But thankfully, I do have a bunch of small banks and they generally did well today.

ISBC:  +0.77%
FUNC:  -0.85%  (makes 0 sense for them to be down)
OFED:   +0.10%  (mm, I thought they did better)
BYBK:   +2.92%  (the big winner)

These banks all are impacted very favorably by tax reform as they are 100% US centric.  And it seems likely that post tax reform and with more bank-friendly regulators, we could see a wave of M&A activity in this space.

Stay tuned.

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