I’ll warn you up front: if you’ve been sailing the seas with us here on the good ship Gumshoe for more than a couple years, you’ve already seen this one. But Benjamin Shepherd at the Global Investment Strategist is now saying that it’s “The One Stock You Must Buy in 2014″ so I thought we should take a quick look.
And to Shepherd’s credit, this is a pick that Global Investment Strategist first teased almost four years ago now, though that was under a different editor and when the newsletter had a different name (it was Yiannis Mostrous, editing Silk Road Investor) … and, as they note in the teaser pitch, they have indeed been right about it so far, it’s up almost 200% since then.
So what’s the pick? Well, we’ll keep it quick since we already know the answer … but we do have to share just a wee bit of the tease with you. Here’s how they’re tickling our fancy in their ads:
“How to buy into the “next McDonald’s”!
“We just found a little company that could be Asia’s answer to McDonald’s. It already clobbers McDonald’s in this one Asian country with more than 50% of the fast-food market. Sales and revenue have exploded in the past 24 months. It’s even beating McDonald’s in Southern California! Here’s your opportunity to get in on a “new McDonald’s.”
“Savvy investors who bought just 100 shares of McDonald’s in 1955 are sitting on a cool $2.8 million retirement fortune. The time to buy your stake in this new stock is NOW!”
And then a few more details:
“I want to make sure you get in on this superstar-in-the-making before it really boils over….
“Let me give you a few details on this incredible growth rocket right now.
“First off, it couldn’t have picked a better home base. The Philippines—guided by investor-friendly government policies—will be at least the world’s 16th-largest economy by 2050, according to HSBC and Goldman Sachs.
“It’s one of the biggest copper and gold producers, which is helping more of its citizens vault into the middle class, where they’re working up an appetite for fast food.
“That’s translated into ballooning profits for my pick. Just take a look at these mouth-watering numbers:
- This giant slayer has humbled the Golden Arches in the Philippines, locking up 75% of the burger market. That’s more than half the fast food market as a whole and twice McDonald’s sales in the country.
- In 2012, my pick’s sales grew 13.6%, and its net income jumped 15.7%! International sales soared 23%!
- In 2013, its system-wide sales surged 13%!
- Where does that leave McDonald’s? Firmly in the dust: the fast food giant posted NEGATIVE same-store sales most months in 2013.”
So yes, without even spinning the Mighty, Mighty Thinkolator up this morning we can tell you that this is Jollibee (JFC on the Philippine Stock Exchange, JBFCY for the 1:4 ADR or JBFCF for the 1:1 pink sheets ticker).
Jollibee closed last night in the Philippines at 152 pesos, down about 5% on the day, which would be $3.36 at the current exchange rate (or $13.44 for the 1:4 ADR), so at current pink sheets quotes the US-traded shares are still trading at a premium but it’s not a huge one. It’s a decent-sized multi-billion-dollar company, and is arguably a “blue chip” on its home exchange, but trading in the US is very illiquid so watch the Philippines price and the currency conversion if you want to place orders (and don’t expect to trade in and out of these kinds of stocks easily — illiquid usually means you have to pay a premium to buy and accept a discount to sell, especially if you’re in a hurry, and the Philippines market is never open when US markets are so there’s always some price gap).
It was arguably a reasonably priced stock back in 2010, but was starting to look fairly expensive relative to earnings and growth by the time they re-recommended it in the Summer of 2011. It has still worked out well, the stock is up by well over 60% since that “re-tease”, but a lot of the return in those first couple years came from multiple expansion (investors were willing to pay more for each dollar of earnings, as opposed to the earnings themselves growing that rapidly). The stock has earned its premium valuation and continues to earn it, growing earnings by 25% over the last four quarters, so you can still justify buying it if you’re interested — they continue opening new stores pretty rapidly (including both Jollibee restaurants and their handful of other brands) in the Philippines and China and, to a lesser extent, in other areas with strong filipino communities (including a few locations in the US).
They now have a total of 2,671 stores around the world, a bit more than 2,100 of them in the Philippines — and the core Jollibee brand is their biggest, but there are fewer than 1,000 Jollibees worldwide and it is becoming less central to growth because of the mass expansion of their other brands like Chowking and Mang Inasal. It looks like they’re also now a big Burger King franchisee in the Philippines, but that’s only 29 locations so it’s not a substantial driver.
You can see those details and the rest of the basic info about their current performance in their latest quarterly release here, from September. The stock has pretty handily outpaced the S&P 500 over the last four years, and in a relatively steady fashion, but looking at that long term chart clouds the fact that, as with most emerging markets stocks, there have been some volatile periods that have been accentuated by currency fluctuations — even though, when it comes to emerging market currencies, the Philippine Peso has been far less violent in its movements than many others. The last few months have seen the shares give up a chunk of their gains, so the stock is back to where it was back in July and August, but that’s still a much more solid performance than the Philippine market overall (the iShares Philippine Index ETF, ticker EPHE, is down about 15% in the last six months while Jollibee is flat).
GDP growth is still looking good in the Philippines at 6.5%, which presumably provides a decent backdrop for continued growth in this consumer “emerging middle class” stock. Their biggest secondary exposure is to China, with several growing brands in that country, but the Philippines is still the most important market even if a lot of growth is coming from overseas … and core growth is solid, if you look at the company on a stable basis, ignoring the revenue increases from new restaurant openings, they had same store sales growth of 8.5% year over year as of the last quarter. That’s good, far better than most of the big global chains, but inflation in the Philippines is recently ticking over 4% so it’s not shockingly high (Chinese inflation has fallen quite a bit recently, FYI, and is down near 2% … officially).
Jollibee now has a market capitalization of about US$3.5 billion, with no debt to speak of, and they pay a dividend that has grown substantially but is still small on an annual yield basis (about 2% right now). In the Philippines a bit more than half of the stores are franchises and the rest are company owned, but most of the international stores are company owned — so if the economy stays strong in the Philippines you could see them possibly becoming more franchise focused and lifting their profit margins, which could provide some nice acceleration to earnings, but otherwise it will just be a matter of continuing to roll out new restaurants in all their chains and locations. For that they seem reasonably priced to me as a growth stock at about 35 times earnings given their earnings per share growth of 25%, though that’s still a bit on the expensive side if you’re not optimistic about Southeast Asia or the Philippines in general. If I were excited about this one I might hope for our current emerging market panic to turn into a bigger downturn to buy the shares at a cheaper price.
But that’s just me, and I didn’t buy it when it was cheaper, so what do you think? Interested in the “next McDonald’s” and the biggest restaurant operator in the Philippines? Let us know with a comment below.