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Exploiting The Sweet Spot, Luby's, Westport Fuel Systems And Coffee Holdings Inc.

Sep. 29, 2019 12:05 PM ETLuby's, Inc. (LUB)JVA, WPRT2 Comments
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Mark Krieger's Blog
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Long/Short Equity

Seeking Alpha Analyst Since 2008

I am a value/activist investor dedicated to the following ideals: (1) Focus on high relative strength, (2) Buy low, sell high aka "buy the dip, sell the rip" (3) Short high, cover low, (4) Go against the crowd, (5) It's all about the rules and discipline- hold them dear (6) Analyze the balance sheet-seek low debt,high cash and hidden value scenarios (7) Cut your losses short, let your gains run, (7) Don’t get emotional, (8) Follow the insiders- buy if they are buying, sell if they are selling (9) Be greedy when others are fearful and fearful when others are greedy.(10) Don't argue with the market unless you detect an inefficiency present-it is smarter than you are. In summary, some of these ideas might be construed as rather trite and overused, but consistent use of them pays off in the long run. Mr. Krieger specializes in the food sector and is the originator of the "Basic Food Fund" index and the "Dirt Cheap Value Portfolio".Why the food sector? "everybody has to eat'! He graduated from the University of Southern California with a BS in Business Administration with an emphasis in Corporate Finance. Mark resides in Cowan Heights, California with his wife, son and pug and is interested in mountain biking, gardening and reading.


  • Luby's (LUB) is seeking strategic alternatives to enhance shareholder value.
  • Westport Fuel Systems (WPRT) dark cloud clears.
  • Coffee Holdings (JVA) earns analyst upgrade.
  • WPRT will report third Quarter results on Nov. 7th and update Weichai launch.

I admit, I like to put too many eggs in one basket. I enamored by the adrenaline rush and the potential for a gigantic payoff. Of course this strategy is frowned on by just about every expert in the field, but I have the tendency and stubbornness to beat to a different drum. JVA, WPRT and LUB make up 75% of my portfolio, and I have had my money parked in all of them, for several years. I am looking for a grand slam, based on past deals that have come to fruition for me ( all buyouts at a significant premium), such as Del Monte, Safeway, SuperValu, Carl Karcher Enterprises, Chock full of Nuts, Chiquita,  Sara Lee, Pep Boys, Family Dollar, Imperial Sugar, Krispy Kreme, Winn Dixie, and Keurig/Green Mountain to name a few. One thing for sure, everything isn't peaches and cream.  I wasn't loaded up on many of those acquired companies as much as I should of been, while more than a few buyout targets file chapter 11 (losing my entire investment) such as  Great Atlantic & Pacific Tea Co, K-Mart, Circle K and Washington Mutual.

My largest holding: JVA earns the top spot. Stephen Anderson, of the Maxim Group recently ratcheted up his target price 13% from $8 to $9 based on a better than expected third quarter. Although sales fell slightly, the company was able to surpass earnings expectations by 6 cents, on higher gross profit margins.This beat in earnings is even more sweet than it appears, considering JVA is dealing with 15 year lows, in coffee prices.The company also  highlighted they are making substantial distribution inroads regarding its single serve Cafe Caribe line, picking up supermarket shelf space at  both the  ShopRite and H-E-B chains.

JVA is a tremendous bargain, with the following metrics to prove it: (1) price to sales  of .25 (2) price to book value measuring .87 (3) net debt is a mere $3.20 million (4) shares are selling at a bargain 10 times 2020 earnings estimates of 37 cents (5) management has its interests aligned with shareholders (they own a large stake, while receiving a modest salary).

Luby's Inc.: it is a beautiful thing that its share price has doubled in the past six weeks and could easily jump another 50% or so, when more clues of a potential buyout emerge.   Although the Board of Directors put out verbiage to the effect that they have  not made a decision to enter into any transaction at this time, and there are no assurances that the consideration of strategic alternatives will result in any transaction. I believe the writing is on the wall. After all, the statement "our objective is maximizing value for our shareholders" is a telltale sign that something is in the works (either the Pappas Restaurant Group or another restaurant operator will be the suitor). 

The company also made the following disclaimer: "Luby's does not intend to comment on or disclose developments regarding the process unless it deems further disclosure appropriate or required".  As far as I am concerned, if it looks like takeover, and quacks like a takeover-it is a takeover. Regrading a potential premium, to entice shareholder's to accept? anywhere from 50% to 85% should do it. Furthermore, Luby's vast real estate portfolio merits it and shareholder's equity currently sits at $3.68..Let's face it, there is a lot of hidden real estate value to unlock, and the best way to do so is sell the company. Patient, although suffering shareholder's should see good news soon. If it isn't news of a buyout, it should  be a positive fourth quarter earnings release, scheduled for Nov 11th. We shall see. Good news is way past due. One last point. Luby's store count has contracted to 78 Luby's Cafeterias, 42 Fuddruckers, 1 Cheeseburger in Paradise and 32 culinary contract locations. In addition, they oversee 103 franchise locations.

Westport Fuel Systems: This puppy has caught some major air under its wings lately. A combination of a strong second quarter along with news of a SEC settlement, have been the major catalysts behind the stock's strength. The stock matched its prior 52 week high of $3.20  just a few weeks ago and is ready to take its next leg up and obliterate that heavy resistance area (double top). Other accolades, include a upgrade from Lake Street Capital from a hold to a buy rating and a successful presentation at the Gateway Investment Conference. I have emailed the IR dept. the following questions:

 I see that your payments to settle the SEC lawsuit, calculate to $4,046,000. In addition, the company experienced significant legal expenses dealing with the issue, prior to a settlement being reached. What was the total costs of those legal expenses, and what dollar reimbursement, are you expecting to receive from your insurance carrier? What date do you anticipate those funds to be dispersed? Regarding the Weichai Launch. Your latest update on this matter, indicated you expected the HPDI 2.0 component launch to occur, starting July 1, 2019 ( second half of the calendar year). We are already in the fourth quarter. Have we begun shipping product yet? Best Mark Krieger

In addition to the company's launch of its HPDI 2.0  line with Volvo, WPRT has indicated they anticipate shipping components  to Weichai Power in July of 2019. Weichai has made a commitment to procure 18,000 units over the next 42 months. I have a call into WPRT's Investor Relations Dept to ascertain, if and when the Weichai shipping will commence, but only crickets have sounded off, so far.

Lack of short interest is prevalent. All three companies have less than 1% of their total outstanding shares sold short. What does that mean? it means the pro's are hesitant to short the shares because they deem they present too much risk exposure, especially since they are all value stocks with obvious M&A implications.

 BUY when there is blood in the Streets? Absolutely, unless that blood happens to be your own!

Analyst's Disclosure: I am/we are long JVA.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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