“The Next McDonald’s … One Stock You Must Buy in 2014″

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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:

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“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.

And those of you who haven't retired yet, check this out as we get to the "planning and forecasting" part of the year...

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29 Responses to “The Next McDonald’s … One Stock You Must Buy in 2014″


    • I haven’t bought this stock, personally, but here’s my basic opinion on these kinds of stocks:

      I would be fine investing small amounts of long-term money in a company with volume this low, personally, but I couldn’t trade it. Investing means to me that I’m buying a piece of a firm, and expecting them to increase the value over time and make my piece of the firm more valuable by compounding earnings, and hopefully also spitting out cash dividends, so low volume makes it tough to get in and out but it doesn’t mean the company can’t be a good long term investment. Much like buying a non-controlling piece of a local restaurant might be a fine investment (OK, it almost certainly isn’t — but you get the idea), but it’s sure not something you can get in and out of easily.

      It’s a terrible kind of stock to try to scalp, say, a 20% return from in six weeks, though, because of that low volume, and it obviously wouldn’t work well for anyone trying to enter and exit with a large position or relying on tight stop losses to control risk.

      Volume traded of these shares in the Philippines is about 500,000 shares a day, which sounds low for our world of high-frequency trading but isn’t bad for the Philippines. Jollibee, for what it’s worth, is about 2.5% of the Philippines Index and is the 14th largest company in that index by market cap. And yes, if you have to sell in a hurry on the pink sheets you could easily come across a low volume day and find no buyers … or have to sell at 10% less than it closed at in the Philippines.

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        • Gumshoe has mentioned about the premium in his article. I presume that there is a premium of $50.00 per transaction. So if you invest a small amount, you have to deduct $100.00 in addition to the commission from your gross profit. Therefore, on a small investment you will be left with very little net profit.

          I have made some money in the past, but it’s not worth.

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  1. Some of the discount brokers are now set up for direct trading in foreign markets, which would be a more positive way to approach Jollibee than the pink sheets or ADRs. I do remember seeing the signs everywhere around Manila.

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  2. Interesting reactions, having read the promo earlier this morning. I remembered that Travis had written about this one before, but could not remember the name and was intending to trace it on the Gumshoe website. Got bogged down catching up on the weeks E-mails after finishing a new column yesterday, so this came as a welcome surprise. At least years 41% increase in stock price it is below my minimum target, however as somebody pointed out, it WOULD have been a good buy 4 years ago, and as Travis said; “a small amount of long-term money could be a good investment.” What was not mentioned is that they are scheduled to open stores in TORONTO (which has a large Philippino community) as well as Chicago and Houston in 2015. Given its track record, it seems like a pretty safe stock long term compared to the hundreds of losers in the same time frame.
    I am tempted to try a “stink bid” to see if I can pick up a few hundred shares at a good price as a long term speculation on price appreciation as they expand. I wonder how many people had the same type of negative reaction to McDonald’s in its early days? Nothing ventured nothing gained. Foresight and PATIENCE are an investor’s allies.

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  3. Jollibee has limited appeal in the US. It’s burgers need to win taste tests or have some other dramatic way to differentiate themselves. The outlet in San Francisco closed after a couple of years in a very crowded fast food market. Their sides are fairly exotic, so maybe they have a shot in areas where fast food outlets have less diverse menus.

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    • Wow, that was racist. No need for comments like that here on Gumshoe. Philippinos are wonderful people and they don’t eat dogs or cats. I’m married to one.

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      • Married to one? Dog or cat?
        I have known a number of Filipinos over the years, and they seem to vary in character and abilities. For example, I have known licensed Filipino Civil Engineers that are fine engineers. I have also known licensed Filipino Civil Engineers who couldn’t graduate a U.S. high school even allowing for the difference in language and customs.

        Back to subject… At their current size, I wouldn’t consider them until they demonstrate they can dominate a market outside the Philippines in a short period of time while avoiding debt.

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        • Isn’t this same among Americans also? So many are so smart and yet so many more are “whoa”, can’t even read or write correctly.

          Back to the subject…this is not for me.

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          • There are NO licensed Civil Enginers in the US who did not or could not graduate from high school, and that would include those Filipinos who have attained licensed status (i.e., PE) in the US. Not that this has anything to do with buying or not buying Jollybee shares.

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  4. I like it. I’m interested in long-term investing (I’m 38 so lots of years before I plan to touch my investments), so the illiquidity of these shares doesn’t bother me. Think of the population growth of Asia over the next 20 years. Also think of how McDonald’s is primarily American food. Interesting to find a McDonald’s like model that is Asian food based. Plus what seems to be smart management (no debt). Haven’t looked into the financials of this one but I could see enormous growth from this company for a lot of years. It’s on the watch list…

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  5. I have a small sentimental position in Jollibee as I was very impressed with how clean, friendly and busy these restaurants are when visiting my wife’s family in Cebu City. They also own several other franchises like Chow King and all were top notch in food quality, service and cleanliness. The stock has done quite well in recent years and the company continues to expand. I don’t think you will get rich with a buy and hold but you will likely outperform the SPY over a three year period.

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  6. The cost of buying on the pink sheet is costly and it only pays if you buy a significant number of shares.

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  7. Current relations with China will keep them out of that market for a while, politics is a big issue in Asia (I live here) and can not be discounted, for example if china lit a small anti philippines fire tomorrow all the outlets in China could be closed within weeks.
    Looks to me that their only solid base is the home country and despite the hype things are not exactly booming there, the problem of currency will always dominate and the illiquid nature of these stocks makes them a no no in my humble opinion.

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  8. I am in Australia and also invest in US and Asian stocks. You can do so through Boom Securities, of which I am a customer. $20$ brokerage. You do pay currency fees unless the currency is the same; eg my account is all in USD and soes not pay a currency charge if a US stock is bought, but would if an Indonesia, Chinese, Filipino etc stock were purchased.

    Phil

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  9. JBFCF & JBFCY are restricted stock – meaning they have not submitted/completed their paper work – so you cannot buy them in the US stock exchange.

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  10. There are a few Jollibee restaurants here in Dubai (usually joined to “Round Table Pizza” which is surprisingly good, very different to the norm). Might be worth buying some shares directly from the Philippine Exchange and sitting on it… Thanks for the write up for us newer guys Travis, there’s lots we’ve missed in the archives!

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  11. “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.”

    1. “guided by investor-friendly government policies”…clearly, the tout is thinking of another country
    2. “world’s 16th-largest economy by 2050″…dream on (unless their other pipe dream, deuterium or H3O happens)
    3. comments about Jollybee taste are right on: it sells in PI because pretty well all items are sweet and in HK because the very large Filipina/o contingent who support Jollybee there; in my opinion, there’s zero chance to replace MacDonald based on taste alone
    4. Low volumes (500,000) is a hallmark of the PI market; another is that it is not based on fundamentals

    The next MacDonald? Puleeze!

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  12. I think it wise to sample menu before investing in restaurant. So I apply 1st law of
    negativity : “I can’t therefor I won’t”. As aside most licensing boards require minimum
    education standards are met, not so much ability or mental acumen. National origin
    matters not.

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  13. I have owned shares for several years and had an 87% return on the earlier shares, though in the past few months down to only a 57% return, and am in the red on what I bought in past 6 months. I considered buying more today, but will see if the entire market tanks some more. I think it’s a GREAT investment for the long term! The $50 extra fee is no longer – they got registered last year, so I only pay my $7.95 trading fee. I do think it’s the McDonald’s of Asia. They are growing rapidly, have no debt, and own or have significant interest in several other popular chains. As to the comment of China possibly kicking them out, the owner is a Chinese-Filipino, so doubt that will happen. The food they serve doesn’t need to be liked by non-filipinos – there are enough filipinos working globally and others who like their food, to make it a success globally. Do your own research as to their past performance and you will want to own this stock for the long run. I think right now is a pretty good time to get in. They should have another earnnings report late this month, and the last one was really impressive with 15-22% growth. They also own or have large shares in a noodle chain, bakery, Burger King Filipines, pizza chain, etc. Already opened in Houston, are in 5 US states, and several asian and mid-east countries and growing. Buy price today was $3.45 a share, down 8% from yesterday. Who knows if the entire market has some more downside to it or not, but overtime, I think this is a great investment. How many other companies are growing that fast and with no debt? Ticker if JBFCF. Your international trading desk will tell you the bid ask price. 4-5% volatility day to day is normal. ask/bid is normally 20 cents difference, so not for trading, but a longer hold. Buy some, but wait till I buy some more tomorrow :) Congrats to Jon O’Malley on your long term outlook. McDonalds and Coca Cola had to start somewhere. It is considered a blue chip stock on the filipine stock exchange (google for occassional articles – JFC is their ticker to research) and also use “Google Finance” to find articles. It is 1 of 3 filipine stocks on the JP Morgan outperform list I read the other day. My husband is filipino – they LOVE their food, they love Jollibee, and filipinos are allover the world, so the company is opening in cities with a large grouping of filipinos, as well as opening a lot of new restaurants this year in the filipines. The other chains they have invested in are good chains also and cater to local tastes in whatever country they are in. They are opening 200 new stores this year,mostly in the filipines, so even if the market tanks further, I think it’s a good buy now for the long hold. I read that the PE is 42, so not cheap – still think it’s a good growth stock. And no, they don’t eat dogs anymore – it’s against the law now. Their movie stars all got pets and they got an SPCA movement, so it is not fashionable to eat dogs anymore, altho my husband jokes when we see a teeny dog that it’s merienda (snack food) – just kidding! Jon O’M – get some JBFCF stock. If the market tanks further to near 1700 and Jollibee goes down with it, then buy more. You will be rewarded.

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