Value Investing In Your Car Episode 6 – The Power Of Anchoring Bias

Value Investing In Your Car Episode 6 – The Power Of Anchoring Bias

In Episode 1 of Value Investing In Your Car, I answered the question Does Value Investing Work Anywhere In The World?

In Episode 2I answered the question When Does Value Investing Work Best?

In Episode 3, I told you about the best book I read in 2017, and recommended some other great books that I read in 2017.

And in Episode 4, I talked about how my family inspires me to become great and how having someone or something inspire you can change your entire life.

In Episode 5, I talked about how I may have found a new investment for the first time in almost 3 years.

And today in Episode 6, we’re talking about Anchoring Bias, its immense power, and how this relates to value investing.

So what is anchoring bias?

Anchoring Bias – A Major Cognitive Bias And Mental Model

Anchoring bias is an incredibly powerful cognitive bias.

Above is the generally known definition for anchoring bias… I would change one minor thing about the above – this change is in bold.

I would change it to this – “Anchoring or focalism is a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered or the piece of information that best fits what they want.  Even if it’s not reality.

Why?

In the 10 minute video below, I describe a real-world example about how I struggle with anchoring bias and gas. What I do about this bias, and how understanding the mental model of anchoring bias and what to do about it can help you become a better value investor.

I talk about a real – world example in the video above but a value investment example would be…

Let’s say you found a small cap investment that is undervalued and that it’s worth $25 per share, so you decide to buy its shares at $20 while you can.

Instead of going up though, the stock price drops to $10 a share – or a 50% drop – 6 months later based on some very short – term problems for the company.

After reanalyzing the company to see if you made a mistake, you find out that these problems haven’t changed the economics or profitability of the company at all. And have done nothing to harm the long – term health of the company’s operations or balance sheet.

Should you buy more, do nothing, or sell your stock?

If you let anchoring bias get in the way – and your emotions take over – you may make the decision to sell because of these short – term problems.

Even if you should hold on – or even maybe buy more shares – since the company is the same or better off now, than it was when you first bought.

Knowing what anchoring bias is and how to potentially deal with these emotions and cognitive biases are part of the battle when you come across this example yourself after you buy an investment.

Some of the other stuff talked about in this video…

  • Why understanding Anchoring Bias is so important for value investing
  • Why understanding other cognitive biases and mental models are important to become a great value investor as well
  • How I still struggle with anchoring bias every time I gas up my truck
  • What I do about this
  • How I fight against this and other biases
  • And more

I’d love to hear your thoughts on anchoring bias in the comments below.

Here’s another post on Medium about anchoring bias if you want to learn more.

P.S. If you’d like all future posts like this, make sure to sign up to our mailing list for FREE here. You’ll also gain access to free gifts that will help you become a better value investor as well just for signing up.

P.P.S. If you want to become a great value investor fast and at a fraction of the cost of a normal university check out our new Value Investing 6 Week Masterclass.

Throwback Thursday – Dole Investment Analysis Case Study Part 4 The Bad Side Of Dole

Throwback Thursday – Dole Investment Analysis Case Study Part 4 The Bad Side Of Dole

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This is the ninth post in our new Throwback Thursday’s Series, where we share with you posts from the past blogs to bring you as much value as possible.

Today, we’re continuing the case study on Dole from articles in 2012 and 2013.

In Part 1, I valued Dole and compared it to its competition.

In Part 2, I shared with you the results I had in only 104 days after my initial analysis of Dole led to great things.

In Part 3, you learned about some valuable hidden assets Dole owned including the value of its land and ships.

Today, we’re getting to the rough part of Dole.

Its Chairman and majority shareholder, David Murdock, offered to take Dole private at a ridiculously low ball price and screws shareholders.

We’re now to the far more important learning aspects of these articles.

I researched and wrote extensively about Dole when I began doing ‘real’ investment research in 2012.

I’m going to be reposting a series of my past research and investment articles on Dole beginning today.

They’re a great case study in doing deep work. Here are some of the things we’ll be looking at in this series…

  • HOW to find the value of potentially hundreds of millions or billions of dollars worth of hidden assets
  • The signs of a company potentially having hidden value
  • Doing deep work to find the value of these and other things people won’t look for
  • Valuations and how and why I’ve done these valuations
  • And more…

I hope you enjoy this series and know we can all learn a lot from doing this.

Oh and please excuse the poor writing style and huge paragraphs. I wrote this in 2012 before I learned how to write.

As always, nothing is changed below from the past article in 2012.

Jason

***

Excerpt From My Upcoming Book About The Proposed Going Private Transaction At Dole and Dole Shareholders Fighting Back.

I have finished up writing the main transcript of my book and have done one full revision and edit of the book. I have sent the book off to some family members and a couple recently published investing authors to get some feedback on things that I could be doing better.

After receiving some feedback from those sources, (Thank you all so much!) I am in the process of going back over the entire book to make improvements.

I wanted to release this portion of the book right now to you all because I have talked about Dole quite a bit on this blog and I wanted to share my full thoughts about the ridiculous situation going on at Dole right now.It appears that a lot of Dole’s current shareholders agree that the buyout offer at $12 is ridiculously low as its own shareholders have been suing the company to stop the low ball going private transaction offer.

Below are just two of the many articles about Dole getting sued for the proposed transaction.

Levi & Korsinsky Notifies Investors of Claims of Breaches of Fiduciary Duty in Connection With Going Private Proposal From Company’s CEO

More cases against Dole board say Murdock bid too low

Directly below are two pages from my upcoming book where I talk about the transaction. Please feel free to leave any comments or concerns you have about the actual excerpt from my book or the proposed Dole transaction as I would love to converse about either. Also, keep in mind that I still have a lot of editing and revising to do if you find any grammar or editing errors.

“As I have been writing, editing, and revising this book, Dole’s Chairman Mr. Murdock has put in an offer to take the company private once again like I thought that he may do so I wanted to write my thoughts on the ridiculous offer being given to Dole shareholders.  I did think that Mr. Murdock may have wanted to take the company private again but what I didn’t expect was the manipulation of the company’s stock price in my opinion before that happened. Shortly after Dole sold its worldwide operations to Itochu, Dole management began to do some very strange things. The value of its land holdings, that Dole management themselves estimated to be worth around $500 million when they were getting ready to sell their worldwide operations to Itochu, suddenly stated that they thought their land now was worth only around $250 million only a few months later.

This was shocking to me and led me sell the stock I owned in Dole in my personal portfolio and the portfolios that I manage because I figured that Dole was doing something untoward to try to get the value of its shares down so the company could be taken private again at a cheaper valuation. One of my followers on Seeking Alpha and I actually talked about this and both came to the same conclusion that something fishy was going on.

After selling my shares in Dole due to the above situation I stopped paying attention to the company altogether to concentrate on the research of other companies until it came out that Dole was planning to do a massive buyback of its shares. I thought this was a very good thing for them to do since I found the company to be very undervalued when writing my second article on them so I started to look into them a little bit again. Before I could do even minimal research into the new situation at Dole, though its management made another very strange decision.  A few days after Dole announced that it was going to buy back $200 million worth of its shares it changed its mind and all of the sudden decided to update its fleet of container ships instead and canceled the proposed share buyback program.

Of course, this sent the share price falling and again led me to believe that its management was trying to manipulate the share price lower so that it could be taken private at an unreasonably low valuation.

Unfortunately it turns out that I appear to have been right because a month or two after Dole decided to cancel its proposed share buyback program to instead buy new container ships, which of course sent the share price lower, Mr. Murdock announced that he was putting in an offer to take Dole private at $12 a share.

Mr. Murdock brought Dole public in 2009 at $12.50 a share so this in and of itself is ridiculous since the company is much more financially stable now than it was then due to getting rid of its giant debt load. In my opinion this entire situation from the changing of the estimated value of its land by 50% shortly after announcing that they thought it was worth $500 million, announcing the proposed $200 million share buyback and then a few days later canceling it, and then Mr. Murdock attempting to take the company private again at an incredibly low valuation should be investigated. If Dole is allowed to be taken private at $12 a share, which it probably will because Mr. Murdock at my last check still owned 40% of the company, then the company should be investigated for manipulating its stock price.  If the company is taken private for a paltry $12 per share than its remaining shareholders are getting screwed.

If a situation like this happens to a company you own, to be very careful, trust your research, trust your instincts, and get out of owning the company if you think you need to. There are a lot of other companies you can spend your time researching and owning rather than spending your precious time and capital having to worry about whether a company’s management is going to screw over shareholders. Dole’s current shareholders are fighting back by suing the company and I wish them good luck because the proposed buyout offer is ridiculously low.”

***

I ALWAYS love high insider / family ownership in a company. It means the insider loves the business and that their incentives are aligned to do what’s in the best interests of shareholders.

Well in most cases.

This is the negative side of high insider ownership by one person.

If one person or one group of people own a huge majority of a company’s shares situations like this can sometimes happen.

However, in this case, not everything turned out bad for Dole shareholders which we’ll see next week.

P.S. We just launched the new Value Investing Journey Masterclass. If you want to learn how to do the above things yourself check out the course at the link above.

P.P.S Make sure to check out the brand new Value Investing Journey Training Vault here to gain access to $10,000 training sessions for as little as $97 a month.

Throwback Thursday – Dole Investment Analysis Case Study Part 3

Throwback Thursday – Dole Investment Analysis Case Study Part 3

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This is the eighth post in our new Throwback Thursday’s Series, where we share with you posts from the past blogs to bring you as much value as possible.

Today, we’re continuing the case study on Dole from articles in 2012 and 2013.

In Part 1, I valued Dole and compared it to its competition.

In Part 2, I shared with you the results I had in only 104 days after my initial analysis of Dole led to great things.

Today, we get a new updated and in-depth valuation of Dole’s hidden assets and operations after it’s spin-off back then before getting to the negative aspects of the eventual going private transaction.

This includes a deep dive into how to finding the value of Dole’s land holdings and even the value of its ships.

We’re now to the far more important learning aspects of these articles.

I researched and wrote extensively about Dole when I began doing ‘real’ investment research in 2012.

I’m going to be reposting a series of my past research and investment articles on Dole beginning today.

They’re a great case study in doing deep work. Here are some of the things we’ll be looking at in this series…

  • HOW to find the value of potentially hundreds of millions or billions of dollars worth of hidden assets
  • The signs of a company potentially having hidden value
  • Doing deep work to find the value of these and other things people won’t look for
  • Valuations and how and why I’ve done these valuations
  • And more…

I hope you enjoy this series and know we can all learn a lot from doing this.

Oh and please excuse the poor writing style and huge paragraphs. I wrote this in 2012 before I learned how to write.

As always, nothing is changed below from the past article in 2012.

Jason

***

Dole Is Still Undervalued: Updated Valuation And Analysis Article After Sale To Itochu

Earlier this year I completely dedicated myself to learning the techniques, process, and proper mind set to become an excellent value investor. I wrote my first full article back in June about Dole Food Company (DOLE).

Here are my thoughts on Dole back in June, and my conclusion thoughts after comparing Dole to Chiquita (CQB) and Fresh Del Monte (FDP).

Due to its big change since that time I have been asked by a reader what are my thoughts about the new Dole, now that it has eliminated what was its biggest problem; its debt. Here is just one of the many articles outlining the sale to Itochu for $1.7 billion, that is expected to close by the end of the year.

The reader wants to know what I think about new prospects going forward, if I still think the company is undervalued, or if I would think about selling now if I find it to be overvalued.

The reader also asked me about the 2009 Dole Food Automatic Common Exchange Security Trust which I talk about here.

Since the transaction has not closed still, most of the information in the above articles remains intact as it pertains to margins and debt levels about Dole’s current state. I will first value the business as I see it after the sale of its worldwide operations and then comment on what I think about new Dole’s prospects after the transaction closes. When I refer to Dole as a whole I mean Dole before the sale of its worldwide operations. New Dole is in reference to my estimates of Dole’s operations after the sale of its worldwide operations. I have a call into Dole investor relations to get exact revenue and EBIT numbers for new Dole, but to this point I have not received a call back. I am estimating that new Dole will lose about 36% of its EBIT after the sale of its worldwide operations. I came to that estimate from looking at Dole’s sale to Itochu presentation from September which can be viewed here.

These valuations were done by me, using my estimates, and are not a recommendation to buy any stock in any of the companies mentioned. Do your own homework.

All numbers are in millions of U.S. dollars, except per share information, unless otherwise noted. Valuations were done using Dole’s 2011 10K, second quarter and third quarter 2012 quarterly reports and presentations, and Dole’s presentation of what it should look like after its asset sale.

The main thing I was worried about with any asset sale is that Dole would have to unload some of its very valuable land assets. Thankfully after the transaction is completed new Dole will still own 113,000 acres of land including some very valuable land in Hawaii. All assets below are being kept by new Dole.

Sum of the Parts Valuation

Land Holdings

Dole owns 25,000 acres of non-core land in Oahu valued by Dole at $500 million or $20,000 per acre. Dole also owns 22,100 acres in Costa Rica, 3,900 acres in Ecuador, and 25,500 acres in Honduras. Only part of each country’s acreage are being used for growing fruit: 8,200 in Honduras, 7,300 in Costa Rica, and 3,000 in Ecuador. Meaning the rest could presumably be sold without interfering with current operations; about 33,000 acres.

  • All Costa Rica land valued at $5,000 per acre equals $110.5 million
  • All Ecuador land valued at $3,500 per acre equals $13.65 million
  • All Honduras land valued at $3,500 per acre equals $89.25 million
  • Remaining 36,500 acres valued at $5,000 per acre equals $182.5 million

Adding total land value estimates up equals $895.9 million just in land value or $7,928.32 per acre, which comes out to $10.18 per share in total land value.

Estimated value of unused non-core land, 33,000 acres in the above three countries at $5,000 an acre for Costa Rica and $3,500 for Honduras and Ecuador, land is $75.7 million.

Total non-core land assets that could be sold valued at $575.7million total, or $9,925.86 per acre; $6.54 per share in land assets that could be sold.

Ship and Ship Related Equipment

Dole owns 13,300 refrigerated 40 ft containers at a very conservative $5,000 each, equal $66.5 million. This is a very conservative estimate as these containers can sell for as much as $50,000 a piece. I am using $5,000 per unit as my estimate because I want to be extra conservative and because I have not been able to find an exact break down on how many of the 13,300 container units are the 40 ft refrigerated units as Dole’s also has some 20 ft refrigerated, and completely unrefrigerated containers, so I wanted a very conservative estimate of price to be safe.

Dole also owns 11 ships which I am very conservatively valuing at $1 million each. I found a few container ships selling for under $1 million but most were well over that price, with some prices reaching over $100 million. I am again just being conservative here because I do not have vast knowledge on the prices of Dole’s ships.

Adding all of the land, ship, and container value up gets us to a total of:

  • All land, ship, and container value = $973.4 million, or $11.06 per share
  • Only non-core land that could be sold, ship and container value = $653.2 million, or $7.42 per share.

None of Dole’s operations, cash, debt, or any of its building or other equipment is counted in the above calculations. I will include Dole’s cash in the below valuation.

I did not include any of its buildings or other equipment in the above valuation because I could not find any concrete information, and again did not want to speculate on numbers.

Now I will value Dole’s operations.

EBIT and Net Cash Valuation

Cash and cash equivalents are 82 and it has 0 in short-term investments.

Dole as a whole has a trailing twelve month EBIT of 180.7 for its entire current operations. Per Dole’s sale to Itochu presentation I am estimating that it will lose approximately 36% of EBIT after the sale of its worldwide operations which leads to a trailing twelve month EBIT estimate of 115.65 for new Dole’s operations.

5X, 8X, 11X, and 14X EBIT + cash and cash equivalents + short-term investments:

  • 5 X 115.65 = 578.25 + 82 = 660.25 / 88 = $7.50 per share
  • 8 X 115.65 = 925.2 + 82 = 1007.2 / 88 = $11.45 per share
  • 11 X 115.65 = 1272.15 + 82 = 1354.15 / 88 = $15.39 per share
  • 14 X 115.65 = 1619.1 + 82 = 1701.1 / 88 = $19.33 per share

Combined Valuation Of New Dole

All values are per share values.

Total Land, Ship, and Container Value Only Non-Core Saleable Land, Ship, and Container Value
5X EBIT $18.56 $14.92
8X EBIT $22.51 $18.87
11X EBIT $26.45 $22.81
14X EBIT $30.39 $26.75

The only thing the above values are not containing is the debt. The reason I am not including the debt in any of the estimates of intrinsic value is because Dole, as a whole, now has total debt of $1.4 billion but will be able to pay off all of it if it chooses to after it receives the $1.7 billion from Itochu. Thus making the above very good estimates of what new Dole should be worth after selling its worldwide operations and ridding itself of the debt.

I had an additional two paragraphs written about Dole’s TEV / EBIT and ROIC margins but those had to be scrapped since I have still not heard back from Dole investor relations about new Dole’s exact numbers and I did not want to speculate.

New Dole is also forecasting that after the sale is finalized it will be able to save around $100 million in cap ex and corporate expenses by the end of fiscal 2013 which supposedly are going to be yearly savings going forward, and to be able to improve its overall business operations. Even leaving improvement in operations, possible future acquisitions, and money savings out of all my calculations, new Dole should be selling at a very conservative minimum of $14.92 per share, and I actually think quite a bit higher. Current share price for the whole of Dole is $10.70 per share, a 29% margin of safety.

Dole management has also stated that after the sale to Itochu is finalized that it may look to sell or spin off further assets, or make some acquisitions to bolster its operations within new Dole, any of which may help unlock further value in its shares. This is pure speculation, but I could see Mr. Murdock who owns around 40% of Dole, possibly looking to take the new Dole private again now that its major problem has been eliminated so he can control its operations again, which would also help unlock shareholder value.

Why after all of the above has Dole as a whole been dropping in price lately?  My guess is that people have been selling for a combination of the following reasons:

  • That Dole just released bad quarterly numbers that missed analyst estimates and which sent the herd running
  • Before that people were probably selling some personal shares that they owned to lock in profits since the stock has run up from around $8.50 a share to over $15 a share at one point
  • A lot of it may also be that people are still treating this as a highly indebted, risky, poorly operated, and marginally profitable company that it is without looking deeper at the assets that it will still hold after receiving the $1.7 billion from Itochu, and how new Dole will now be a much healthier and less risky company

However, even if you do not count any of its operations at all, Dole as a whole is selling now for less than JUST a conservative value of the land, ship, and containers that it owns. Meaning the downside is covered by hard saleable assets even if new Dole’s operations were to become massively unprofitable, which I think is very unlikely.

New Dole looks to be massively undervalued, will still hold very good high value assets, especially saleable land, has some future potential catalysts that could help unlock value, it should be able to compete better with Fresh Del Monte and Chiquita, and new Dole will now be freed up to make acquisitions and improvements to its business and operations after the transaction with Itochu closes as it will not be burdened by the massive amount of debt that it has carried for years.

I plan to buy shares for my personal account and add more shares back into the accounts I manage after selling some Dole shares up 70% in September.

Here is a last minute update as Dole has set the shareholder meeting for December 6th to approve this transaction.

***

From here, things take a bit of an unexpected turn for the worst when it comes to this companies management and going private transaction.

P.S. We just launched the new Value Investing Journey Masterclass. If you want to learn how to do the above things yourself check out the course at the link above.

P.P.S Make sure to check out the brand new Value Investing Journey Training Vault here to gain access to $10,000 training sessions for as little as $97 a month.

Throwback Thursday – Dole Investment Analysis Case Study Part 2

Throwback Thursday – Dole Investment Analysis Case Study Part 2

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This is the seventh post in our new Throwback Thursday’s Series, where we share with you posts from the past blogs to bring you as much value as possible.

Today, we’re continuing the case study on Dole from articles in 2012 and 2013.

In Part 1, I valued Dole and compared it to its competition.

Today, we’re going to see what my evaluation in Part 1 led to in only 104 days before we get to some of the more important case study aspects on Dole.

I researched and wrote extensively about Dole when I began doing ‘real’ investment research in 2012.

I’m going to be reposting a series of my past research and investment articles on Dole beginning today.

They’re a great case study in doing deep work. Here are some of the things we’ll be looking at in this series…

  • HOW to find the value of potentially hundreds of millions or billions of dollars worth of hidden assets
  • The signs of a company potentially having hidden value
  • Doing deep work to find the value of these and other things people won’t look for
  • Valuations and how and why I’ve done these valuations
  • And more…

I hope you enjoy this series and know we can all learn a lot from doing this.

Oh and please excuse the poor writing style and huge paragraphs. I wrote this in 2012 before I learned how to write.

As always, nothing is changed below from the past article in 2012.

Jason

***

Closed out partial position in Dole up almost 70% in Just 104 days

Dole spiked up more than $2 per share at one point and ended closing today up $1.21 per share or 9.42% on the following news, the quoted text is from The Wall Street Journal Online:

Dole Food Co. Inc. said Wednesday it is in advanced discussions with Japanese trading house Itochu Corp. for the possible sale of its packaged-foods and Asian fresh fruit and vegetable businesses.

The California-based company, said no definitive agreements have been reached, and it continues to be in discussions with several other parties regarding these and other assets.

Dole said it divulged the talks in response to market rumors. Japanese business news provider Nikkei reported that Itochu is poised to purchase the U.S. firm’s businesses for as much as $1.7 billion.

Dole launched a strategic review of its businesses in May after reporting a slump in profits. The company said in July that it was considering a full or partial separation of one or more of its business, including potential spin offs, joint ventures and sales transactions.

Dole’s second-quarter profit fell 21% as the company saw lower fresh-fruit revenue, though sales of fresh vegetables and packaged foods improved.

After the news came out, I sold just under half of the position I bought for a couple people’s money that I manage, cost basis around $8.50 per share sold around $14.50 per share, or up around 66% in just over 100 days since I bought it for them. Here is the link to my first article about Dole that got published on June 13th on Seeking Alpha.

Dole Is Undervalued, Could Be A Winner From Spin-Off Or Asset Sale

I sold about half of the position because most of the margin of safety is gone and I wanted to lock in some profits in case the deal ends up falling through with Itochu.

I kept just over half the position because I valued Dole at the very low end at $18.25 per share and as high as $48.93 per share in June. I also kept about half of the position because if any of the potential deals do go through then Dole will be able to pay off most, if not all of its massive debt which is Dole’s biggest problem at this time. Also, if it is able to pay off most or all of its debt, it could possibly start to grow its operations which could also help the share price.

Sometime in the near future I am going to start working on an updated Dole article and apply the knowledge and techniques I have learned from the original article.

***

From here, things take a bit of an unexpected turn for the worst when it comes to this companies management and going private transaction.

P.S. I put on a FREE webinar last month teaching The 3 Secrets That Have Helped Me Beat Buffett In The Stock Market, so you can possibly do the same. If you’d like to sign up for FREE to view the replay of the webinar, you can do so here.

P.P.S  Make sure to check out the brand new Value Investing Journey Training Vault here to gain access to $10,000 training sessions for as little as $97 a month.

Throwback Thursday – Dole Investment Analysis Case Study Part 1

Throwback Thursday – Dole Investment Analysis Case Study Part 1

***

This is the sixth post in our new Throwback Thursday’s Series, where we share with you posts from the past blogs to bring you as much value as possible.

Today, I’m beginning a series on Dole in these Throwback Thursday posts.

I researched and wrote extensively about Dole when I began doing ‘real’ investment research in 2012.

I’m going to be reposting a series of my past research and investment articles on Dole beginning today.

They’re a great case study in doing deep work.  Here are some of the things we’ll be looking at in this series…

  • HOW to find the value of potentially hundreds of millions or billions of dollars worth of hidden assets
  • The signs of a company potentially having hidden value
  • Doing deep work to find the value of these and other things people won’t look for
  • Valuations and how and why I’ve done these valuations
  • And more

I hope you enjoy this series and know we can all learn a lot from doing this.

Oh and please excuse the poor writing style and huge paragraphs. I wrote this in 2012 before I learned how to write.

As always, nothing is changed below from the past article in 2012.

Jason

***

This article is the fourth and final article in the series detailing the businesses of Dole (DOLE), Chiquita (CQB), and Fresh Del Monte (FDP). If you want to see the valuations and brief descriptions of these companies, please view these articles: DOLE, CQB, and FDP.

In this article, I will go over the margins of all the companies to determine if there are any sustainable competitive advantages. I will decide whether I would buy any of these companies as they currently stand, without the possibility of any kind of merger, spin off, or massive asset sales. I will also look into whether or not a merger between any of the companies would be a good thing.

Before I start with my analysis of the three, I need to go back and look into Dole’s total contractual obligations in comparison to Chiquita’s and Fresh Del Monte’s. At the time I’ve done Dole’s valuations, I wasn’t doing as thorough of research as I am doing now, and did not talk about their total obligations in the original article I wrote.

On page 40 of Dole’s 2011 10K, they list their total obligations and commitments as of December 31, 2011. The total obligations and commitments, including debt, is $4.68 billion, and over the next two years it comes out to $2.661 billion. Their current market cap is $765 million. Not a great ratio, but not terrible like Chiquita’s. The total obligations / market cap ratios for all of the companies are:

  • Dole: 4680/765=6.12
  • Chiquita: 3167/220=14.40
  • Fresh Del Monte: 1992/1310=1.52

Fresh Del Monte has by far the most sustainable ratio in my mind and should have no problems if another crisis hits them individually or the economy as a whole. Dole might be able to make it through another crisis, even if they don’t decide to do some kind of asset sale or spin off like they are looking into right now. Chiquita’s ratio is horrendous and I would be worried about them if I was a shareholder of theirs.

All of these companies have low amounts of cash and cash equivalents on hand, which is another thing to possibly worry about with Dole and Chiquita if something bad were to happen in the economy. In any kind of emergency, they would most likely either default on some of their obligations, have to draw down their credit facilities, or try to take on some more debt if they could, most likely on unfavorable terms.

Now, let us get to the margins of all three and try to determine if any of them have a competitive advantage.

Dole (DOLE) Chiquita (CQB) Fresh Del Monte (FDP)
Gross Margin (Current) 10.5 12.9 8.8
Gross Margin (5 years ago) 9 12.4 10.8
Gross Margin (10 years ago) 16 16.1 16.1
Op Margin (Current) 2.7 -0.3 3
Op Margin (5 years ago) 1.9 0.7 5.2
Op Margin (10 years ago) 6.5 2.2 10.3
Net Margin (Current) 0.75 0.69 2.84
Net Margin (5 years ago) -0.83 -1.05 5.34
Net Margin (10 years ago) 0.83 0.91 9.34
FCF/Sales (Current) -0.58 0.12 2.66
FCF/Sales (5 years ago) N/A -0.08 2.42
FCF/Sales (10 years ago) N/A 2.37 11.86
BV Per Share (Current) $9.30 $17.42 $30.41
BV Per Share (5 years ago) N/A $21.03 $23.65
BV Per Share (10 years ago) N/A $15.80 $13.51
ROIC (Current) 2.16 1.53 5.21
ROIC (5 years ago) -2.12 -2.72 11.66
ROIC (10 years ago) 1.98 1.63 22.56
Insider Ownership (Current) 59.06% 3.33% 35.72%

These companies, for the most part, all have operations in the same segments and the next table will be showing the margins of those comparable operations.

Dole Chiquita Fresh Del Monte
Total Fresh Fruit EBIT 172 N/A N/A
Total Fresh Fruit Revenues 5,024 N/A 2,721
Fresh Fruit EBIT Margin 3.42% N/A N/A
Total Vegetable EBIT 31 N/A N/A
Total Vegetable Revenues 1,002 N/A 523
Vegetable EBIT Margin 3.10% N/A N/A
Packaged Food EBIT 96.5 N/A N/A
Packaged Food Revenues 1,197 N/A 355
Packaged Food EBIT Margin 8.10% N/A N/A
Total Operations EBIT 300 33.7 116
Total Operations Revenues 7,224 3,139 3,590
Total EBIT Margin 4.15% 1.07% 3.23%

In a perfect world Chiquita and Fresh Del Monte would have broken their operations out further like Dole does. Instead they choose to combine their operations reporting data, especially the Operating Margin data, otherwise known as EBIT. So at this point, it is impossible for me to break out the data further than it is in the above table.

Taking the above information, combined with the information in the previous articles, I think that I have enough information to make some judgments on the companies.

As things currently stand, I would NOT buy Chiquita under any circumstance, not even with the possibility of a spin off or asset sale. Their low margins, combined with their huge amount of total obligations, and low cash on hand, scare me too much to invest in them. That is not even taking into account the fact that, in my valuations, I found them to be about fairly valued to slightly undervalued, not nearly enough of a margin of safety for me considering all the risks. I also do not see them being bought out by anyone due to their high amount of total obligations. The only thing going in their favor is that they are selling for less than book value by a good margin, which is currently $17.42 per share, but at this point it looks to be justified.

Fresh Del Monte is interesting. They are selling for less than book value by a good margin, which is currently at $30.41 per share, they generally have the best margins of the three companies, and they also have high insider ownership, which I always love. However, by my estimates they appear to be slightly overvalued at this point, and have low cash on hand. They are also the company out of the three in the best position to make some acquisitions: in my opinion, a merger between Dole and Fresh Del Monte could possibly be a good thing. They have already been buying back a lot of shares and are the only one out of the three to pay a dividend, which are more pluses. At this point, I am not going to buy Fresh Del Monte, but I will wait for an opportunity when they are undervalued and will reassess at that time whether or not I will be a buyer then.

Without the possibility of a spin off or asset sale that I outlined in my original article on Dole, I would not be a buyer into their company right now either.  Pretty much the same problems as Chiquita: high debt / total obligations, low cash, low overall margins. However, they do have high inside ownership, they are selling at a slight discount to book value, and by my valuations are extremely undervalued. I do stick to my original assessment about Dole though, that they are a great spin off opportunity if they decide to do a spin off or asset sale. If they do what I suggested in the original article I think they could unlock value, get rid of a lot of their debt, and become a much more focused and profitable company. Especially if they put a lot of their resources into the packaged fruit portion of the business, as it has the highest margins in Dole’s operating structure. Dole also has the 88,000 acres of land that they could sell some of to pay down debts as well.

I did buy half of a position in Dole based on the spin off thesis in my original article. I am waiting to see if they announce a spin off or asset sale to jump fully into Dole at this point. They are in the spin off portion of my portfolio which I plan to hold for 6 months to several years. I do not consider them a long term buy and hold for decades company.

It also appears to me that none of the companies have any kind of sustainable competitive advantage, with their wildly fluctuating margins over the past 10 years, and no one becoming dominant.

I hope everyone has enjoyed and learned something from the analysis and valuation series on Dole, Chiquita, and Fresh Del Monte, and I look forward to some feedback.

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