12/10/09 Midday Report: Take our cheap shit, please

The market is off to the races again as a rise in US exports turned on the cold water and created some shrinkage to the US trade deficit.  The trade deficit dropped by 7% which was better than expectations of a rising deficit (and I know, it is hard to believe expectations were wrong much like it is hard to believe printing money will lead to inflation, but let's all just take deep breaths and try to move on from this).

So basically, with a weakened dollar, the US is becoming China without the lead paint and bad drivers (As an aside, the Chinese are forecast to buy more cars in 2010 than Americans, so now would be a good time to buy that auto body shop in Shanghai) as we can make much cheaper crap that other countries want to purchase.  This isn't a bad thing as any sales are better than no sales, and if it can create demand and jobs then we'll have some people no longer sucking on the teet of good ole Uncle Sam (and hopefully earning enough money to suck on the teet of good ole Aunt Sam).  So as long as people don't want to travel out of the country since the dollar can now only buy about fifteen minutes in an Amsterdam motel room and a half a croissant, this is decent news.

As far as jobs, the average number of Americans filing first-time jobless claims over the past four weeks fell to a one-year low and the number of newly laid-off workers seeking jobless benefits rose more than expected last week and were higher than expectations.  So it fell to a one-year low and it rose in the same week.  That's a neat fucking trick.  Next up, jobless claims will prove that 2+2 does not always equal 4 (in honor of the Underground Man), will walk and chew gum at the same time, and will create a building to scale based on MC Escher's blueprints.  The point is,  depending on which news source you read (one is using an average 4 week number, and I assume one just using last week's number), we're either still fucked or a bit less fucked, yet definitely totally confused.

In the market, C thinks they are going to raise $15B-$20B to pay back their TARP funds (and honestly, I would rather burn money and dip my balls in the searing hot ashes than buy any securities offering from C, so good luck with that) and RIMM is creating jobs by launching in China which has the stock moving up.

There's still a bunch of noise as the economy tries to figure out just how stimulated it is (it has had its GDP tickled and been shown pictures of some hot growing economies, but it may also need an insertion in it's back door lending policies), so be careful out there.

Long Idea: G. Willi Foods (Ticker WILC), It Ain't Just Kishka

What they do: G. Willi develops and distributes kosher food, mostly in Israel but is starting to grow in the United States. They also own 51% of Shamir Salads which makes hummus and is the #3 market share humus maker in Israel.

Look, before we go on I know you're all thinking "What a stupid name for a fucking company" but need I remind you of Yahoo! and Dick's? Sure G. Willi sounds like something a 12 year old says when he gets boner for no reason (and yes I am starting off this analysis with a joke about adolescent penis, so it may be too high brow for most of you, but stick with me), but it comes from the founder/CEO's name which is Williger. Just be lucky his last name wasn't Whizzberg or Fuckfacestein.

As an aside, Money McBags is going to be making many Jewish jokes in the proceeding paragraphs but he is Jewish so it is allowed (His great great grandparents changed their name from McBagberg simply to McBags when they reached Ellis Island), just like Chris Rock is allowed to make african-american jokes and Robin Williams is allowed to make gay jokes. You can make fun of your own kind, so please keep that in mind.

Why Money McBags likes them:

1. Oy vey are they are cheap, we're talking wholesale prices: Honestly, this stock is cheaper than an AIDS ridden whore in a bangkok brothel (and Money McBags loves any destination that is also a command). WILC has an equity market value of $59MM (Money McBags will be using $US figures), $29.5MM in cash and equivalents, and no debt. So an enterprise value of $30MM.

In the first six months of this year they earned $.27 per share. This past quarter, they earned ~$.33 per share (using $1/3.785 New Israel Shekels to translate). However, that $.33 is a bit misleading. Included in their income statement was a one-time capital gain of ~$1.38MM. If you take that one time gain out, their EPS was really closer to $.17. Still, it means they have earned $.44 in 9 months.

If you take the current run rate of $.17 and say there is no seasonality (the company says there isn't), and assume the company is in steady state (which it isn't, more on that later (huhuhuh, I said moron)), that is an annual run rate of $.68. The stock is at $6 including the 50% cash. So it's trading at ~8.5x earnings or ~4.5x earnings not including the cash. Honestly, that is so cheap it's like buy one get one free and you know how us yids like things wholesale. Most packaged goods companies trade at ~14x-15x eps so this is a huge discount (and as you'll see later, there probably should be a discount, but not to these levels).

But let's not just look at EPS, let's look at EBITDA which is a better measure of the company's operating cash flow without having to worry about financing decisions. In the first 9 months of the year, the company has earned ~$5.7MM in operating income. Adding back depreciation of ~$300k per Q, you get EBITDA of ~$6.6MM in the first 9 months. Assuming that is a base case run rate, that is ~$8.8MM annual EBITDA and remember the enterprise value is ~$30MM. I am no maffmatecian (though I will flaunt my Finance MBA when the negotiations for "happy endings" come up), but that is about 3.5x EV/EBITDA. You know what else sells at 3.5x EV/EBITDA? Dirt.

2. It's not just kosher food, it's for fat people, and there are alot of fat fucking people: First of all, I know what you're all thinking, the kosher food market has to be smaller than Lindsay Lohan's panty drawer because Jews make up less than 1% of the world's population. While the Jews are a very small population, they are not the only ones who eat kosher food.