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Strategies & Market Trends : Value Investing
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From: James Clarke12/12/2007 9:49:50 PM
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I remember when we used to do favorite names this time of year. This year has been brutal for me and a lot of other value investors. If you dodged the bullet this year congratulations. It got me right in the gut. It wasn't the financials which got me. It was consumer stocks and small cap in general. But after a nasty second half of 2007 I think I'm looking at the cheapest set of stocks I've owned since the end of 2002. So as bad as this year was - this is likely to be my first year losing money since 1999 - what I own just looks springloaded for future profits. There are a lot of really cheap stocks out there after this carnage and fear, and I am humble enough to know there are probably even better ones out there than some of what I own. So may I ask you to name your best idea and write a paragraph or two.

Mine is KONA. Small restaurant company I've owned for going on two years now. First year was great for the stock if you bought it where I did, the next year was not, though I believe the stock's performance in the last year says a lot more about the stock than the business. The business is doing just fine.

KONA does not look cheap at all at first glance, but it is kind of a case study in how to value growth. It is in a sector where nobody wants it because the sky is falling. The drumbeat on consumer recession is getting tiresome whether it is true or not. But this company will just keep putting up new units at a high return on capital for a long long time. Just a classic Peter Lynch growth stock with a long long runway in front of it. They just did a presentation today that is worth a listen on their website.

KONA has just been a lousy stock for the last year, but at some point this is going to catch fire. I value it at 25-35, trades around 15.

I look forward to hearing others' ideas.
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