Thursday, September 27, 2012

Decision to Sell Staples

I put a limit order in today for my entire SPLS position.  If it triggers, I exit the position with a loss of just under 4%.  While this is painful, I think the story of the company is just too uncertain to hang on.

Here are my thoughts:

  • My original decision was based on significant undervaluation and nice dividend yield, which the company has been consistently increasing.
  • Shortly after I started the position, they had a disappointing earnings announcement, and lowered guidance for the full year.
  • Tuesday, they announced they would be reducing brick and mortar square footage in the USA by 15%.  They have a small international presence in Europe and Australia, and both regions are unprofitable.
  • Charges for the restructing over the next several years are expected to to exceed $150 million this year, and are not defined in future years.  I assume restructuring charges will continue until they hit their goal of 15% reduction in 2015.
  • Earnings will be negatively impacted this year, 2013, and 2014.  Plus, the U.S. economy is struggling this year, so I expect earnings to be adjusted downwards significantly.

  • The Fast Graph above shows the original premise - analysts projecting growth in eps of at least 6.8%.  Do you believe they will achieve earnings growth in 2012 and 2013?  I don't, so I expect the price and fair value to converge (lower price, lower expectations).  

  • May be making a mistake here, but I'd like to have more cash in the portfolio to deploy on existing stocks at good valuations, or on new positions.


  1. It is never easy to buy a company at such a discount without facing some kind of challenge. Is the challenge too high for the survival of the company? I personally don't think so, but I could be wrong. You don't get to buy good opportunity at good price for free, that is the risk I take. I still believe there could be a buyout offer late this year, that would be icing on the cake and I am not betting on that to make my money. I will be watching earnings and dividend.

    At what price did you put your limit oder? Maybe you could consider a stop loss? What do you have in mind for your next purchase?

  2. Hey Grox, yes it was a tough decision. I prefer to hold, but I felt there were just too many headwinds building to hang onto the position. I put a limit order in just above the ask at that time, I think around 11.80 or 11.85 - the shares were gone by day's end.

    Moving forward, I'll be adding to few of the positions I have already on dips in the coming weeks; TEVA and MSFT need some more shares. I'll also start screening stocks with FAST Graph.

    Any suggestions for a NEW holding??

  3. Hi Chump,

    I bought some NSC and added too on MSFT and TEVA.

    I started to look for potential growth stocks, the article from Chuck made me think about it. Although this is meant to be a small portion of my portfolio, I am studying QCOR and GMCR.

    There is also a great canadian company (it trades in the US too), it's called Orbite symbol ORT on the TSX. I am long the stock. They are basically a tech company in the mining sector and they are about to start making money... big money. The story is too long to tell here, if you care to have a look and have some questions then I'll do my best to answer them.

    I am all ears for your thoughts.

  4. Thanks for the tips, I'll look into them. I too like NSC after you mentioned it before. It also most identical to CSX in every metric, but EPS and profitability look better for NSC. Analysts rate CSX "bullish" and give it an 8/10, while they rate NSC a 5/10 neutral.

    Any thoughts on why NSC would be rated lower than CSX? CNI looks best of bread to me, but is overpriced at present.


    1. Which analysts?

      If you get what I mean... I don't trust analysts. I believe in earning.

  5. chump,

    how about putting some OHI on your shopping list? It's come down a bit and has a 7.4% yield right now. i'm thinking of putting in a limit order that will get filled by the ex-div date at the end of the month. i'm also contemplating CAT if it comes down to 80-82, as well as HAS and GD if they come down a touch. also, earnings will be coming out in the next few weeks, so I'm trying to be patient.

  6. Hi Kolpin, I like OHI. I was recently reading about the healthcare REITs, and I like the their story quite a bit. Long leases, a recession proof business, very expensive for medical folks to move. OHI seems to be one of the best, and looks to be at fair value right now. In addition to my fund here, I manage my father's retirement IRA, and added OHI for the nice income it provides, and considering his low risk tolerance.

    For the Chump portfolio, I think I'll hold off on OHI. I love the yield, but the price is fair, not great, and their growth prospects (6%) are a bit low for accumulation. I'm looking for more growth than that at present.

    I like CAT also, but already own CMI, so there is a pretty strong overlap with their businesses, and my EMR and ETN holding are also cyclical industrials, so I have stay clear of that one as well.

    I'll get back to you on HAS and GD