PSB Monthly Issue December 2012

| December 6, 2012

December 2012


I’ve been truly blessed to be afforded the experience of moving across country in my life.  When I say it was both exhilarating and boring at times, many of you that have been on 1,000 plus mile road trips can relate.

My first time across the US, I traversed quite a few highways, freeways, and connectors.  I saw landscapes that were rugged and exciting, and others that were rolling and peaceful.

I must say, there was plenty of corn and cattle along the way!

More than anything else I can remember that once I got out of big cities and towns, it was mostly huge stretches of highway filled with tractor trailers.

As a part of that experience, I remember quite distinctly finding myself refueling and taking breaks at truck stops.  Truck stops, it seems, are more common than regular gas station convenience stores once you’re out of the larger cities… especially right off the interstate highways.

As I traveled across the country, I quickly realized how important a clean, well-stocked truck stop can be on long hauls.  I also came to appreciate the truck stops with restaurants, lounges, ATMs, Wi-Fi, and other amenities- such as showering facilities.

My takeaway was this…

Truck stops are an integral part of the transportation ecosystem.  They provide a source of fuel, repairs, and useful services… all in one stop.  So as the economy strengthens or weakens, so will revenues at a truck stop.

Think about it…

If the US economy is expanding, more and more goods will need to move across the country.  As orders expand, sales pick up, and export demand increases… so too will the trucking industry.  With more and more truckers putting on added miles on the roadways, truck stops will undoubtedly see more business coming their way.

Now, with the prospects of a Fiscal Cliff resolution due within weeks, the US economy should kick into overdrive in the first and second quarters of next year.  And as a result, trucking activity should also pick up right along with it- ultimately truck stops will become even busier than ever.

To capitalize on this trend, we’ve found a truck stop company with a nation-wide presence set to profit as the economy improves…

Introducing TravelCenters of America (AMEX: TA).

Key Investment Data

Name:  TravelCenters of America
Ticker Symbol:  TA
Market Cap:  $125.6 million
Recent Price:  $4.27

PSB Rating System 4.8 Stars

Raging Revenue:  (4.6 stars) While total revenue ticked slightly higher in the first three quarters of 2012, non-fuel revenue grew more impressively by 9% during a weak economic recovery.

Beautiful Books:  (4.7 stars) With excellent cash levels on hand, TA is well positioned to manage its debt and expenses.  What’s more, the debt to equity ratio is just 0.27x- a fine place to be for a company this size.

Stellar Structure:  (4.7 stars) Institutional ownership is solid at around 30%.  Insiders also know they have something good as they hold 16.6% of the shares.

Valuation Verification:  (5.0 stars) The price to book ratio for TA is fractional at 0.35x.  What’s more, the P/E is absurdly low at 3.9x… making TA a virtual steal!

Meaningful Milestones:  (4.8 stars) TA is looking to the future of America’s energy independence.  As such, they’ve just agreed to a partnership with Shell Oil to build out a liquid natural gas network at 100 TA locations.  It’s this kind of forward thinking that will position TravelCenters well for years.


TA operates company and franchise travel centers throughout the US, mainly along interstate highways.  The company’s locations offer gasoline and diesel fuel, truck repair services and maintenance, full service and quick service restaurants, convenience stores, shower and lounge facilities, among other services.

Currently, TA has 192 company-operated locations across the US and Canada.  185 are owned by Hospitality Properties Trust(HPT), and operated by TA.  When you count the Petro Stopping Center brand and franchised locations… the total rises to 241 in all.

As I said earlier, I stopped in plenty of TA locations on my trip across the country. However, motorists like me are just a small portion of TravelCenters customer base.  The overwhelming majority, as you could guess, are long-haul truckers.

So how does TA make money?

The revenue breakdown at TA is fairly straightforward.  Of the $8 billion in annual sales, over 66% of total revenue comes from fuel.  The remaining revenue comes from non-fuel sales and services, with just 2% of the total coming from rent and royalty income.

Now that you know more about TA’s business, let’s take a look at the numbers…


For the nine months ending September 2012, revenue at TravelCenters grew slightly from the $5.9 billion in 2011, to just over $6 billion.  While this growth was pretty flat, it’s important to note that non-fuel revenue grew from $963 million to $1.02 billion in the same time period.

That represents nearly 9% growth during what’s been a relatively weak economic recovery

Looking at the bottom line, income during the first nine months of 2012 climbed to $34.6 million or $1.20 a share.  That’s a 33% jump in income over the first nine months of 2011, where the company made $26 million… or $1.15 a share.

When we dial down to a quarterly look at the numbers, recent data has not been as positive.  For example, compared to the third quarter of 2011, revenue fell to $2.03 billion from $2.08 billion… and income fell to $18.9 million from $20.7 million.

But don’t let the short-term pullback scare you…

It’s important to take a longer-term look at performance with a company like TA.  You see, quarterly economic conditions can change truck transport demands quite a bit. So fluctuations in fuel sales will heavily skew the company’s short-term results (two-thirds of TA’s revenue is from fuel).

Case in point, even though overall quarterly numbers were down in Q3… non-fuel sales grew to $363 million from $348 million for the same quarter in 2011.  That means management is executing on the items it can better control- such as marketing and sales of services.

Looking at TA’s books, total assets are $1.11 billion while total liabilities are just $774 million.  The good news is, only $373 million of that is current liabilities.  With a debt to equity ratio of just 0.27x, TravelCenters is doing a great job of managing debt.

What’s more, TA has over $101 million or $3.53 per share in cash.  With such a large cash position, it’s clear the company doesn’t need to worry about how they’ll take care of expenses.

When considering both the cash and debt positions, investors should keep in mind that TA has invested millions of dollars to build new sites, and already completed renovations on many of their existing locations.


As with any investment, TA does have a few risks.

As we noted above, changes in the US economy can affect the volume of trucking traffic the company will see.  A significant decline in economic activity, or worse- a recession, could reduce both revenues and profits.

Also, a significant spike in the cost of fuel or other retail goods can severely impact both revenue growth and profitability.

Finally, even as we’re expecting global growth to pick in 2013, the current Fiscal Cliff issues need to be resolved.  If not, the economic conditions in the US may weaken.


Here’s my favorite part about TA- the stock is seriously undervalued by the markets at these levels.

With a price to equity (P/E) ratio of just 3.9x, TA is trading on the cheap right now. Consider this… the industry average P/E currently sits at about 20.0x.  That means if shares of TA traded in-line with the industry average, we could see a gain of 410%!

But that’s not all…

With shares trading just north of $4.25, the price to cash ratio of this stock is an absurdly low 1.24x.  In essence, of the $4.25 you’re paying for the stock… $3.53 of the company’s value is in cash.

What’s more, the price to book ratio is incredibly attractive right now…

The book value tells you how much you’re paying for the underlying assets of the company- so if it were sold off in pieces… the book value is how much would it be worth.  And with a book value of more than $12, TA has a price to book of just 0.35x.

Between the low P/E ratio, the absurdly low price to cash ratio, and the very attractive price to book ratio, there’s no doubt this stock is a virtual steal!  What’s more, if the Fiscal Cliff is resolved as I believe it will be, the economy will simply take off in 2013.  That bodes very well for TA.

Based on our analysis, we see TA trading up over $22 a share.  Buy TA shares now for potential gains of 410% or more!


BUY TravelCenters of America (AMEX: TA) up to $4.70 per share.

Recent price is $4.27.

Use a stop-loss of $3.40 on this position.

Don’t forget your position sizing and stop-loss rules.



Not all your best investments will be made at a time when a company is doing great. In fact, some of the best returns you’ll ever see are when you can buy a company that’s been beaten down after a rough patch.

But you can’t just buy any old beaten up stock…

When you take the road less traveled and buy into a company that’s seen better days, you need to do your homework.

The questions you need answered are simple:

  • Why has the company missed the mark?
  • How can the company right the ship?
  • How long will it take to get back on track?
  • What’s the upside of investing now?

And that’s just the short list…

The point here is, if you’re going to buy value- make sure it’s a value.  Just think, the Oracle of Omaha, Warren Buffet, only buys values.  I remember when he boughtBank of America (BAC) shares.  Mr. Buffet basically saved the company with his stamp of approval.

Of course, Mr. Buffet had two things going for him you and I do not- he had the bank ready to make a deal and he got an amazing return for his investment… up front! When you have billions to invest, you can do that.

Now, I may not have the gravitas of Warren Buffet, but I still know a value when I see one.  And that’s exactly what I’ve found here… a steal on a major name brand electronics gadget maker.

You see, this company I’ve found was once a top name in electronic communication devices.  At one point, they were no doubt the biggest and best of the herd.
So… why has this company missed the mark?

Well, the short answer is that competition and innovation cut into their market share.

The good news is this company not only has reinvented itself, but it still remains the leader of a number of product categories in the electronics world.  Moreover, they’re now releasing a product line for 2013 that could put them back on top as “the” brand name.

The company in question is righting the ship as we speak, and they’re getting back on track.  At the moment, the stock has simply been responding poorly to weaker financial reports.  This is where the value lies as shares now trade near a 52-week low.

Looking at the macro picture, as the US economy continues to improve, our electronics designer and marketer should see sales increase as a result.  All we need is the Fiscal Cliff to be resolved and there will be little to prevent economic growth in the US.

So what is the name of the company that presents such a value?

None other than Cobra Electronics (NASDAQ: COBR)…

Key Investment Data

Name:  Cobra Electronics
Ticker Symbol:  COBR
Market Cap:  $23.27 million
Recent Price:  $3.52

PSB Rating System 4.7 Stars

Raging Revenue:  (4.5 stars) COBR posted a quarterly revenue decline. However, management did note that a number of limited-editions were sold in the third quarter of 2011, making comps tough.

Beautiful Books:  (4.6 stars) With a manageable debt to equity ratio and a current ratio of 1.8x, the books are not a concern at COBR.

Stellar Structure:  (4.6 stars) We’d like to see more insider ownership, with levels at just 1.4%.  What’s more, institutions could own more shares, as they currently hold 21.4%.  As revenue growth picks up, you can bet the big funds will be back in once again.

Valuation Verification:  (5.0 stars) Clearly COBR shares are well undervalued by the market.  Both the P/E and price to book ratios make a compelling value.

Meaningful Milestones:  (4.8 stars) COBR continues to win innovation awards for both 2011 and 2012. What’s more, their new product line for 2013 should provide a more upbeat consumer with a reason to upgrade or add to existing products.


Cobra is by far the leading designer and marketer of Citizens Band (CB) radios and GPS navigation systems for professional drivers.  They are also the market leader in two-way radios and radar detection.

For more than 40 years, Cobra has been at the forefront of technological innovation in these products.  Let’s take a closer look at each of their main product categories.

In radar detection, Cobra currently holds 63% of the market.  That’s more than double both Whistler and Bel/Escort brands which are the two next largest at 17% and 18% respectively.

In the CB radio segment, Cobra currently has a 66% market share… again more than six times their nearest competitor.  Midland, Radio Shack, and Uniden are the other name brands in this segment.  And Midland is the next largest with a 12% market share.

In two-way radios, the competition is a bit heavier.  For example, Cobra only has a 41% market share, compared to Motorola which holds a 32% share.  Again, Midland and Uniden are competitors here, but not quite to the level of Motorola.

As far as growth is concerned, Cobra has been aggressively pursuing expansion into the European market… and is now selling in more than 75 countries world-wide.  In total, the Cobra brand is carried in more than 55,000 retail outlets.

As I stated earlier, COBR is looking to become an even more dominant player with their latest technology innovations.  For example, some of their latest CB units are integrated with Bluetooth technology for hands free driving.  On some of their CBs, you can even get Dual Point Bluetooth for team drivers and software that converts text messages to voice and are played over the CB unit.

Talk about safety and innovation there…

What’s more, they continue to develop products for the non-professional driver.  One of their latest products is called JoyRide 2.1 – a car charger that doubles as an in-car safety and convenience device.  For example, you can set to have Joy Ride auto-respond to incoming text messages with “I’m currently driving”.  The device can launch voice commands, and even help you locate your car when you can’t find it.

So, with all the market share and new innovations coming out now, how do the numbers look?  Let’s find out…


In their most recent quarter, sales fell to $27.7 million from the $34.5 million in the same quarter of 2011.  Management advised that sales of CBs, Truck Navigation, 2-Way Radios and Radar Detection all fell in the US.  Thankfully, sales were up in Europe and helped offset the decline in domestic sales.  “A slowdown in store traffic” is what management blames for the decline in US sales.

Company leaders pointed to lower than expected travel as the culprit.  The good news is management fully expects sales moving into the fourth quarter of 2012 to improve, as it’s normally the best quarter of the year for the company.

As a point of reference, sales in the fourth quarter of 2011 were $37 million alone.  The first two quarters of 2012 were $26.4 million and $29.1 million respectively.  As with many retailers, COBR is affected by seasonality.

From a profitability standpoint, COBR’s profit declined to $564,000 in the third quarter. That’s a decline from the $1.4 million the company made in the same quarter of 2011.

But here’s the silver lining…

When we compare the first nine months of 2012 to the previous year, the company is reporting net profit growth.  Cobra generated net income of $1.8 million in this period, versus the $1.1 million in same period of 2011.  This translates into a $0.27 per share earning versus 2011’s $0.16 per share.

In addition, selling and administrative expenses fell to $7.5 million in the third quarter… compared to $8 million in the year prior.

Now, when we take a peek at Cobra’s books, we can see the company has $3.4 million in cash with total current assets of $63 million.  With $34.8 million in current liabilities, COBR has a manageable level of debt.  The good news is Cobra’s current ratio of 1.82x means they can easily manage their expenses and debt.

While things look good financially, Cobra has investment risks just like any other stock.


If consumers’ tastes change, Cobra may not have the correct product mix to meet consumer demand.  This will affect sales and profits.

If new competition enters the market place with a new innovation, COBR could lose market share, affecting profitability.

Finally, if the US economy slows down further, or potentially goes off the Fiscal Cliff, makers of consumer products could see a drop in business.  What’s more, traffic at storefronts could fall if an overall economic slowdown hits.


Shares of COBR are deeply mispriced by the market.  Currently, the company’s stock is trading at just $3.52.  As of the latest quarter, Cobra has a book value of $5.89 a share.

If COBR were sold off in pieces, shareholders could see a 67% profit over what they paid right now!  Talk about an instant value!

While book value of COBR tells us there’s an untapped value present, the Price to Equity ratio (P/E) is even more attractive.  Right now, the forward P/E ratio of COBR is 5.3x.  If shares of Cobra were to trade in line with the industry average P/E of 11.8x, we could see a gain of 122%.

Given the low price to book ratio and attractive P/E ratio, Cobra shares are a solid investment at these levels.

Now, the stock is trading just 7% off its 52-week low.  But it does appear to have found support levels and is consolidating.  That means a breakout could be eminent at any time now.

Based on our analysis, we could see shares trade near $8 once properly valued.  That would give us a gain of more than 127%.  Buy shares of COBR for gains of 127% or more!


BUY Cobra Electronics (NASDAQ: COBR) up to $3.52 per share.

Recent price is $3.52.

Use a stop-loss of $2.65 on this position.

Don’t forget your position sizing and stop-loss rules.


Portfolio Update

Boy, some of our positions are simply on fire!

CULP (CFI) recently reported income jumped by 32% and revenue rose13%, sending shares to new highs of $14.47.  The 12.6% jump in mattress cover sales seems to have done the trick, and our position reached a return of 63% in the process!

Carriage Services (CSV) just paid out a sweet little dividend and is holding onto a 110% gain at this very moment.

An even bigger surprise has been the spike in shares of Security National Financial(SNFCA).  After reporting a revenue jump of 54% and an earnings surge of 634% in the last quarter, there’s no question as to why this happened. Shares reached $8.98 this week, giving us a 65% gain on our investment.  Continue holding SNFCA.

Other stocks hitting new highs for us include Nautailus (NLS) at $3.88, and Aceto (ACET) at $10.07.  The run by NLS continues as new products keep hitting the floor into the Christmas season.  Let’s keep holding both NLS and ACET.

Now, it’s not all roses in our portfolio… so let’s get the dirty work over with.

Shares of Kopin (KOPN) are simply dead money right now.  It seems nothing can revive investor interest, so we’re selling this stock and putting the capital to better use elsewhere.  Sell KOPN.

On a brighter note, we are going to have to take a profit on shares of Sun Healthcare Group (SUNH).  For months now, I’ve been waiting for a counter offer to come in on the long-term care provider… but to no avail.  As a result, it looks as though we’re going to have to settle for the Genesis offer and walk away with a 24% gain.  It’s not a bad thing, but I felt we could get more from this stock.  Sell SUNH.

Category: PSB Monthly Issues

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