2. Taste Is a Lousy Investment Thesis
By Scott Rothbort
1:27 p.m. EST
Never -- I repeat,
-- invest in or make a judgment call on a restaurant based upon how
think the food tastes. What is important is what the
is doing, how management performs and the financial condition of the company.
I've never had a sip of coffee in my life. That has allowed me to be far more objective with a company like
(SBUX - Get Report)
, making money on the long or short side.
Taste is subjective. Sales, margins, earnings and traffic are objective.
(WEN - Get Report)
margins are around 25%.
margins are around 30%.
(MCD - Get Report)
are just less than 40%. To Wendy's credit, the company has expanded its margins the past few quarters, but it may be leveling off. However, as management admitted in a recent Cowen consumer conference, lower commodity costs and price increases in 2008 accounted for the margin expansion. The company's strategy and plan for 2010 was rather generic; more like keeping up with the competition than surpassing them. How is Wendy's going to expand margins beyond these levels? It certainly won't do it by pulling out of Japan. How many Wendy's restaurants are located at rest stops and along major highways, especially compared to McDonald's and Burger King? Not many.
I would not eat a Big Mac, but I do own McDonald's stock.
Position: Long MCD
3. "Flip It" To Bankers
By Robert Marcin
11:18 a.m. EST
My pal Cody Willard has this idea called "flip it," where one turns conventional wisdom on it's head and recommends the exact opposite. Considering this, I say we flip it to the bankers!
Instead of "too big to fail" we start a policy of "too big to bail." That's right, after some obscene asset target, say $500 billion, we make a bank too big to bail out. Get too big, you're on your own, bank shareholder and manager. This would have huge consequences for how banks would run their businesses and how investors would fund them. It would require prudence. And I absolutely guarantee they would have not done [what they did] to get us into the leverage mess in the first place.
It's understandable that we should protect deposits, but questionable. That we should defend incompetent managers and risk-taking bondholders is criminal. Our banking policy has created a monstrous, over-levered mess, yet we just made the monster bigger this past year. And our plan is to make it even bigger in the future with more deals from the FDIC.
This is insane. Slay the monster. Too big to bail might do it.