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The Dirt Cheap Value Portfolio; A Quick And Dirty Update

|Includes: BRID, JVA, KKD, Luby's, Inc. (LUB), SVU

since my last update on 3/7/16, the stock market has been on steroids, climbing 5.5% from 17067to 18004, thanks to rising oil prices and a very accommodating Fed. If you look at the "DCVP" performance, it makes the Dow's leap look plain feeble, as this esteemed portfolio, climbed at nearly three times that rate, tacking on a marvelous 14.7% to $44.07

The only loser of the group was SuperValu (NYSE:SVU) falling a mere 2.5%. The big winners were Coffee Holdings Co Inc (NASDAQ:JVA) putting up a 24% gain, Bridgford Foods (NASDAQ:BRID) with a 21% lift and Krispy Kreme (KKD) with a 13% markup. Luby's (NYSE:LUB) managed a 2% improvement

The list:

Bridgford Foods: this puppy made a new 52 week high when it touched $13.83. Since then it has been subject to some good old fashioned profit taking. The company's real estate is making a name for itself. In fact, skyrocketing prices around its Chicago plant ( near the Sear's Tower) has prompted the company to explore moving the plant, and building a 13 story, 322 unit residential complex in its place.

Luby's: they put up a decent second quarter report, with same store sales gains in two brands (its Fudd's SSS were flat due to inclement weather). EBITDA rise 50% on lower food costs and payroll. The company mentioned in its conference call that they are still in very late discussions with a large hospital operator to provide culinary service to many of its locations. I hope this new deal is worth waiting for, after all, the company has been in late discussions for half a year. I wonder when early discussion commenced?

The only analyst that follows Luby's is tbonemoe..he also owns a chain of his own restaurants, so he knows his stuff. TBONE explained he expects the stock to rise to $7, in the next seven months. I'll take that any day of the week.

here is his latest analysis:

tbonemoe
Comments (219) |+ Follow |Send Message

"I have dug pretty deep on this one and I want to throw out some thoughts on LUB the investment...
The Pappas saved the company from going under over a decade ago. They were bold and decisive. They slashed overhead and closed a large number of stores. They eventually eliminated the debt with the sale of closed locations and minimal capital spending. The share price went from around 3 dollars to over 10 dollars. It was great. Shareholders made big money if they sold. A blind squirrel finds a nut on occasion and I was lucky enough to sell at a good price. The company then entered a new phase that focused on growth instead of survival. It has been pretty much straight down hill from the start on growing the company. Ask the company how much money they spent on the rent each month for the 23 Cheeseburger In Paradise locations annually? The purchase price was a bonus for the seller as the seller just wanted out of the obligation to pay rent, taxes, maintenance and a 1% royalty forever to
Jimmy Buffet. I believe LUB paid between 6-8 million annually to various entities for the right to lease and operate the 23 CIP stores. The 10 million purchase price was a ripoff but it does not reveal the magnitude of the blunder made by LUB management and the board at LUB.
23 stores x 200,000 rent per location average = 4,600,000 annual rent expense. Property Tax on 23 stores = 460,000 annually Maintenance and Remodel and Conversion expenses are difficult to calculate as some stores received big dollars and others received very few dollars.
Estimated 23 stores x 200,000 spread over 3 years = 1,533,000 annual expense. Adding salt to the wound, LUB purchased the obligation to pay 1% of all future CIP sales to Jimmy Buffet. If the 23 CIP stores each averaged 2,000,000 in sales (that is lousy) then LUB had to pay 1% of 46,000,000 in CIP revenue to Cousin Jimmy or 460,000 annually. If, big if, the CIP conversions to Fuddrucker's are successful then this disastrous acquisition will no longer deliver big pain to shareholders. I am assuming the remaining 8 CIP locations are breaking even after paying rent,taxes,Jimmy,etc.... The company also made the odd decision to combine 2 poorly performing tired brands into 1 large, newly constructed restaurant building. This bizarre plan made a sale leaseback transaction prohibitive as no landlord will pay full price for a building that is specially designed for a specific tenant use and therefore very difficult to release if the tenant fails. The 5,000,000 Combo locations have not produced results that management is comfortable sharing with the owners of the company. I assume the secrecy is due to lackluster returns on the 30,000,000 invested in Combo units over the last 3 years. The acquisitions and Combo building spree were accompanied by a massive buildup in the head count at the corporate office. The 2-3 Vice Presidents became more than a dozen, salaries/bonuses doubled & tripled............ The sales increased, the debt exploded and EBITDA cratered. Ordinarily management would have been replaced but the CEO owns a third of the company stock and controls about half of the shares with his hand picked board and management. While the company refuses to acknowledge a word of anything written above......management has no land purchased for new Combo units and no Combo units under construction. I like the stock today because I believe Pappas has learned a lesson and is returning to a frugal focus on eliminating the debt and strengthening the balance sheet.
This company looks and smells completely different when debt free and holding real estate assets, royalty payment income stream and other assets. The next 2 quarters should deliver a total of 15,000,000 plus in EBITDA with a substantial pay down in the debt balance. That gets us to 7 dollars in 7 moths...... "

Coffee Holdings Co Inc. This one was the star of the group thanks to rising coffee prices, an aggressive stock buyback program and a new Wal-Mart contract. JVA is set to begin shipping its Café Caribe Brand to WMT's Northeast region, next month. The stock has risen north of its 200 day moving average line, before pulling back on a profit taking correction. It is time to buy the dip

KKD: these guys are hitting on all cylinders. the stock has blown right through its 200 day moving average line and is now sitting firmly above it, by more than 10%

SVU: nothing of any interest to report on this sucker.

Final thought: I have to say something about former member Fuel Systems Solutions (NASDAQ:FSYS), which I deleted way too soon. This coming week is the deadline for them to merge with Westport (NASDAQ:WPRT) will expire. The only way WPRT can get a deal, is to sweeten their offer closer to the $10 mark. After all, FSYS was buying back $30 million worth of their own shares last year in double digits. Why would they settle for 1/2 that amount now? They need $1o cash per share.

Disclosure: I am/we are long LUB.