Seeking Alpha
, PDL Capital (107 clicks)
Value, special situations, long-term horizon, small-cap
Profile| Send Message|
( followers)  

There's a company resting in the portfolios of many people right now that just doesn't belong there. In fact, it belongs in the trash bin. Why are you holding AT&T (NYSE:T)? What does the company do that makes it stand head and shoulders above its competitors? What proprietary technology does it have? What makes AT&T a "must-have"? I cannot think of any good answers to these three important questions. Revenue is forecasted to grow at barely 1% this year and next. Earnings are pegged to increase a measly 3% this year, 7% next year, and 3.8% annually over the next five years. And yet the company trades at a P/E of 13. There are barely any insider holdings anymore (0.03%) and the company is so moribund that it pays out much of its free cash flow as dividends. It's not a growth or value story.

Meanwhile, the salad days for eBay Inc. (NASDAQ:EBAY) are over and done with. The original concept was fantastic. There was a time when you could sell your old stereo system and get a premium price for it from some sucker. But a strange thing happened over time -- eBay became so large that everyone came on board as a seller. No matter what you might want to sell, someone else would be selling it, too. Many items became commodities, driving overall prices down, along with eBay's fees. The economy also hurt eBay, much to my own surprise. People didn't just stop buying from stores, they stopped buying, period. This once fast-growing company is now expected to only grow 10% annually over the next five years, yet trades at a P/E of 16. Don't bother.

On the other hand, if there's one airline whose stock you must own, it's Southwest Airlines (NYSE:LUV). Here you have the most profitable airline in history. It is, by far, the most well-managed airline. But most importantly, it redefined the airline industry. Other airlines are about "travel". Southwest is about "freedom" -- freedom to move about the country, to get a fare refunded, for employees to do their best, for employees to make decisions, and freedom from labor actions. Despite being 80% unionized, Southwest has never had a strike. That's because the corporate culture is all about making employees feel like they are both valued, and partners. It survived the 9/11 attacks in far better shape than all of its competitors combined. Why bother with all the troubles we've seen over the years from AMR Corp. (AMR), United Continental Holdings (NYSE:UAL), or Delta Air Lines (NYSE:DAL)? Southwest will be around for decades. It deserves a place in a long-term portfolio.

Source: 2 Widely Held Losers to Cut Loose and 1 to Buy Now