Welcome to Episode #90 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service , shares some of her top value investing tips and stock picks.
Recently, Tracey covered Weight Watchers International (WTW) for a Zacks Top Stock Pick of the Week and looking at the chart, she was reminded how risky it was for Oprah Winfrey to buy a large stake in the company.
On Oct 19, 2015, Oprah Winfrey released a statement saying she had bought 10%, or about 6.4 million shares, of Weight Watchers and was joining the board. She had the option of buying another 5% and would also become the company's spokesman.
Up until the announcement, the shares had fallen 73% year-to-date. She bought at the average price of $6.79.
The company was struggling with subscriber growth and had a lot of debt.
While shares spiked on news of the big stock buy, it wasn't all rainbows and roses. Most people forget that by the end of December 2016, 14 months after she bought in, shares had fallen 27.3%.
3 Lessons from Oprah's Weight Watchers Investment
- Buy What You Know. In October 2015, Oprah said in a statement that "I believe in the program so much I decided to invest in the company and partner in its evolution." Do you know what your businesses do? Do you believe in and use the products?
- Buy value. Oprah bought Weight Watchers when Wall Street had all but given up on the company but she saw the possibilities of a turnaround.
- Watch what the insiders do. Oprah became the ultimate insider when she bought her 10% share. But even after her share purchase, other insiders also bought on the open market including a board member in early 2017 after the shares were hitting new 52-week highs. What did she know in early 2017 about where the company was headed?
Applying the Oprah Lessons to Value Stocks Today
Tracey took a look at three well-known beaten down stocks to see if the lessons from Weight Watchers could apply to them.
- General Electric GE already reported earnings and the stock is off the lows. It has a forward P/E of 15 so it's a value. In January 2018 a Senior VP bought about 2600 shares around $16. There haven't been any new insider buys since the earnings report though. Do you use GE products? Do you believe in them? Do you understand the business?
- Pier 1 Imports PIR had a rough earnings report which again disappointed. Shares are down 46% year-to-date and full year estimates are being cut. This is brand that many people know. You may even shop here. But have the insiders been buying as the shares have sold off?
- Bed, Bath & Beyond BBBY is dirt cheap, with a forward P/E of 7.4. Shares are down 75% over the last 5 years and are new multi-year lows. This is a retailer we all know. Many of us have likely shopped here or at one of its brands including Cost Plus World Market. With shares this cheap, are the insiders buying in?
Oprah took a risk with Weight Watchers and it paid off. While it now looks like a no-brainer, there was no guarantee. Weight Watchers didn't turn around overnight.
What else should investors know about investing in hidden gems?
Find out on this week's podcast.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report