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2021.01.10 Penn Wealth Report Vol 9 Issue 01

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22 penn wealth Report volume 9 issue 01 10 Jan 2021 Penn Wealth Report Copyright 2021. All Rights Reserved. investment intelligence weekly Business Report another great trading stock—dunkin'—gets goBBled up Back when I was in the broker-dealer world (as opposed to the RIA world with its accompanying fiduciary responsibility) I had a cli- ent who only traded two stocks in his portfolio: Walmart (WMT) and Krispy Kreme Doughnuts (KKD at the time). He had a trad- ing system based on the location of the US economy along the economic cycle. Sadly, Krispy Kreme was ultimately taken private by Luxembourg-based JAB Holdings, which also took the likes of Panera Bread (formerly PNRA) and Green Mountain Coffee (for- merly GMCR) private. We thought of that client after hearing that another great trading company, Dunkin' Brands (DNKN $106), was being taken out by private equity firm Inspire Brands in an $11.3 billion deal. In our humble opinion, the financial engineers at these firms typically have no interest in the heart and soul of classic American companies; no, it is all about turning a buck and then moving on. Often, that involves squeezing every dime they can out of an entity and then repackaging the rubble as an IPO to a bunch of sucker investors (one reason we strongly avoid warmed-over pub- licly-traded companies). Inspire is a master at taking out companies we used to like trading: they also own Arby's, Buffalo Wild Wings, and Sonic. ere is certainly no crime in a company selling itself to a private buyer, but that doesn't mean we need to like it. At least the members sitting on the acquired company's board will probably turn a nice personal profit in the deal. Back when I had my Walmart/Krispy Kreme client, I worked at a well-respected, century-old firm called A.G. Edwards (ticker was AGE). While it wasn't taken private, top executives at the St. Louis-based mid-cap brokerage decided to sell the firm to Wachovia (and get fat paychecks—we assume—in the process) about fifteen years ago. is occurred shortly after the company placed the first non-Edwards family member in the CEO role. We remember his name with disdain, but it's not worth mentioning. Great due dili- gence there: Wachovia went belly-up soon after the acquisition and its assets were purchased by Wells Fargo (WFC)—a company with a whole host of its own problems. So, we now say adios to ticker symbol DNKN. You will probably be repackaged and brought back to (public) life one of these days, but we won't be interested. Individual shareholders need to begin taking a more active role in monitoring executives' behavior at publicly-traded companies. e first step in that process is understanding the ties these individuals have to the company. If they have no experience in the industry and a history of moving from one firm to the next using M&A stepping stones, investors beware—or sell on the rumor (and probable spike in share price) of an acquisition. emh deBunked again with laughaBle spike in kodak shares Efficient market hypothesis (EMH): the theory that a stock is always fairly valued based on all the available information at the time, making it impossible to "beat the market" on a consistent basis since share prices only react to new information. What a load of bull. Shares of Eastman Kodak (KODK $13), the lovable yet archaic camera company which was founded in 1888, have fluctuated between $1.50 (23 Mar) and $60 (29 Jul) this year. On Monday, shares spiked 77% in one session, driving them all the way back up to $13.30. What led to this latest unreal jump? Exoneration from the SEC regarding accusations that the company leaked news about a potential $765 million loan by the government to help it— Kodak—begin making active pharmaceutical ingredients (APIs) for drugs—a job the US disgracefully outsourced to China years ago. So, leaked news of a $765 million loan turned a $96 mil- lion flounder into a $1.65 billion shark virtually overnight? Yep. Maybe it wasn't just the news that drove "investors" back into the shares; maybe it was the financials. Over the trailing twelve months (TTM), Kodak lost $623 million on $1.06 billion in sales. at seems almost difficult to accomplish. Yet another story reminiscent of the 1999/2000 time period: row good money into companies that will show losses as far as the eye can see. Some "investors" don't recall that period, but we do. ere is a true dichotomy in the markets right now. We see a lot of great investment opportunities and a bright horizon for the year ahead. We also see a lot of companies with insane valuations thanks to dumb money chasing quick returns. Even more so than in 1999, many of the people pumping money into these companies couldn't explain what these firms do if their lives depended on it. at is certainly true with respect to Kodak, the camera company turned drug ingredient supplier. two penn memBers merging: lockheed martin will Buy aeroJet rocketdyne for $4.4 Billion We purchased mid-cap rocket engine maker Aerojet Rocketdyne (AJRD $53) in the Penn New Frontier Fund as a pure play on the burgeoning private space movement. We own aerospace and defense giant Lockheed Martin (LMT $355) in the Penn Global Leaders Club due to its dominance in that industry—and our neg- ative opinion of Boeing's (BA $219) hapless management team. In a move that illustrates the savvy of Lockheed's own leadership, Weekly Business Report restaurants aerospace & defense e content of this report reflects the personal views, opinions, and research of Penn Wealth Publishing. While measures are taken to help assure the accuracy of data, no guarantees can be made and the firm is not liable for any losses incurred by subscribers. is is not a solicitation to buy. Always consult your investment professional before investing any money. Business & professional services

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