Eat Here and Smile

Too many investors use strong markets as an assessment of their skills. It really should be the opposite. As in golf, it is how good your bad shots are that makes the difference.

In a bull market, everyone is a genius. In general, people are hesitant to admit mistakes, but a realistic evaluation of your actions over good and bad times can save you a good deal of money. In this column, I'll examine some mistakes I made during the recent carnage and some good things that, while they don't have me jumping up and down, have left me in a position to outperform over the medium to longer term.

Let's start off on a positive note with two restaurant stocks I recently bought that are cheap and generally unloved: P.F. Chang's (PFCB - commentary - Cramer's Take) and CheeseCake Factory (CAKE - commentary - Cramer's Take).

As David Lee Roth said, eat 'em and smile. I think the opportunities and merits are remarkably similar for these two companies: They are both tremendous brands that offer good products and experiences for customers.

For me, these also fall into the old buy-what-you-know angle. I like to eat, and judging from my last trip to Vegas, so do the majority of Americans. Both of these companies are still relatively small, with strong growth prospects. I know we could sure use one of each up here in Toronto.

Both stocks are roughly 50% off their highs of the last 52 weeks. There are some headwinds for these companies, such as high gas prices and a stretched consumer, but I believe that at these prices you have a very low-risk entry into two strong long-term growth stories. That is something you normally have to pay up for.

S&P expects both companies to maintain at least high double-digit growth rates over the next several years. At those growth rates, earnings and revenue should double over the next 36 to 48 months, as should the stocks. From these depressed levels, an unexpected fall in the price of oil or improvement in consumer prospects would add extra juice to these positions.

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At the time of publication, Bulwa was long P.F. Chang's, CheeseCake Factory, O2 Micro, WorldSpace and Packeteer, although holdings can change at any time.

Steven Bulwa is an independent portfolio manager based in Toronto. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Bulwa appreciates your feedback; click here to send him an email.