Interesting Stock question

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jerome99
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Interesting Stock question

Post by jerome99 » Wed Mar 12, 2014 7:48 am

I understand and actively manage my assets in the Boglehead philosophy of either no individual stocks or a very small amount of AA in Individual stocks.

I do have a question regarding the stock of a company I am very familiar with as they are a customer of mine and I thought of something interesting this morning concerning them.

Although their market cap is relatively low at $1.1B, they have a very interesting thing going on. They are the only publicly traded company in their specific industry. Now that may not have anything to do with its return, I did find it very interesting as I havent been able to think of any other industry where this is the case.

Stock ticker is RUSHA.

Thoughts from the board?

larryswedroe
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Re: Interesting Stock question

Post by larryswedroe » Wed Mar 12, 2014 8:04 am

Simple rhetorical question
What do you know about the company that the big institutional investors who do 90% or so of the daily trading don't? If the answer is nothing, and it almost always is (unless it's inside information and thus illegal to trade on) the information is already embedded in the price and thus has no value at all

Larry

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cheese_breath
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Re: Interesting Stock question

Post by cheese_breath » Wed Mar 12, 2014 8:06 am

You say they’re the only publicly traded company in their industry. Are their many private companies in the industry? How many? How big? They may have more competitors than you think.

Conversely if there aren’t any large competitors, why not? Is the industry new, and they’re getting in on the ground floor? Or is there little demand for their product? What is the potential growth of the industry?

How do you evaluate the management? Are they creative and innovative? Are they fiscally responsible?

How do you evaluate the sales team? Are they honest and aggressive?

Just some things to think about. First now doesn't necessarily mean they will always be. History is full of businesses who once were first in their field and were swept away when larger and/or more innovative companies entered.

Even though you think you are familiar with the company there might be others who are more familiar and have already acted on their evaluations.

Given all that, if you think they're worth investing in keep it to no more than 5% of your portfolio.
The surest way to know the future is when it becomes the past.

jerome99
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Re: Interesting Stock question

Post by jerome99 » Wed Mar 12, 2014 8:18 am

Larry,

I do not plan on purchasing the stock- I feel like I know nothing more than the professionals who do it everyday.

I started this thread more to begin a discussion on the fact that their industry is so large and they are the only publicly held company in it.

They have many competitors held privately. However the second largest company to them in their industry is less than 1/4th in revenue and then it drops off dramatically.

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abuss368
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Re: Interesting Stock question

Post by abuss368 » Wed Mar 12, 2014 8:39 am

After being burned so many times years ago during our evil stock picking days, I have no desire to hold any individual stocks or to feel like I am smarter than the rest or have some advantage.

I honestly believe all information is priced into a security.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Taylor Larimore
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Stick with easy to understand and worry-less index funds.

Post by Taylor Larimore » Wed Mar 12, 2014 8:53 am

They are the only publicly traded company in their specific industry. Now that may not have anything to do with its return, I did find it very interesting as I havent been able to think of any other industry where this is the case.
Jerome:

When I put "commercial truck dealerships" in Google it came up with over 18,000,000 replies. This is a very competitive business including every major truck manufacturer.

Stick with mutual funds (preferably low-cost, tax-efficient index funds).

Your's is a good post bringing out the danger of investing in individual stocks.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

Jack FFR1846
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Re: Interesting Stock question

Post by Jack FFR1846 » Wed Mar 12, 2014 8:54 am

Stock prices reflect the company. So if the company has a stock "value" of $10 and is selling at $10, and is the only and best and uncompeted company, it's still selling at par. Worst case.....Google decides to get into the same business. Now there's competition and the "value" of this company stock goes to $1.

You have to know everything knowable in the market with respect to everything that could possibly affect the stock price. And nobody can know that.

I would say to put your money down on red and let them take a spin as it's just the same kind of gamble as thinking you know something about a stock's future value.
Bogle: Smart Beta is stupid

jerome99
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Re: Interesting Stock question

Post by jerome99 » Wed Mar 12, 2014 10:05 am

I think I did a poor job of communicating my initial post.

I was more looking to begin a discussion regarding an industry, which Taylor agreed is very large, however only has one publicly traded entity.

I have no plans or interest in buying the stock, however I was trying to start a conversation about if there are any other industries in which this is the case?

MP173
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Re: Interesting Stock question

Post by MP173 » Wed Mar 12, 2014 11:10 am

I am familiar with the trucking industry as I sell to them. I am also familiar with the RUSHA's industry as I have a number of contacts. In fact, they just purchased the CIT group in Chicago (the Navistar dealer network of the Chicago area) and have done business with them.

A few points:
1. I have purchased individual stocks over the years and have done quite well. So, I am swimming against the current on this website and that is ok.
2. RUSHA is in a very very cyclical industry. New truck purchases follow the economic cycle. In fact, they typically are ahead of the cycle. Therefore, one must be very careful about timing on the purchase of this type of company. If the company is well capitalized and can handle the downturns, then when the stock is depressed, it can be very lucrative. I have done this twice with WNC in the past (a trailer manufacturer) but one must have an indication of where the industry is at all times.
3. Navistar has had problems.
4. Why did RUSHA purchase the Chicago group? I would be very interested to know that. Typically many of these private truck dealers are buried by their floor plan and other large fixed charges.
5. I have not taken a deep look at RUSHA's FCF, ROE, Growth, margins etc but will later.
6. I have always thought, as a salesman, it was a good idea to buy stock in my customers. Without going into detail, it offers advantages on the selling side and also some legal "inside information." You do not have to purchase much stock, but it often carries weight with the company.
7. Most (in fact nearly all) truck dealers are independently owned and are privately held. Thus, it will be difficult to do comparisons within the industry. Probably the closest comp would be with someone like CarMax, but that really isn't a good comp. Transportation equipment companies traded usually are the manufacturers and will be truck manufacturers, railcar mfg, parts and components companies, etc. What portion of their business is new equipment and what portion is repairs? Do the financials break down the margins, etc on those segments? What do their competitors say about them (if you are in the industry, that should come up in a casual business conversation.
8. Remember point number 2 above...
9. Remember point number 8 above...

Ed

MP173
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Re: Interesting Stock question

Post by MP173 » Wed Mar 12, 2014 11:12 am

Jerome:

BTW...what do you sell?

Ed

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Re: Interesting Stock question

Post by MP173 » Wed Mar 12, 2014 2:18 pm

I did the 5 minute test on this stock:

1. Free cash flow as a percentage of revenue has varied from 8% to -8% over the past 5 years. Not very stable.
2. Return on equity has ranged from 11% to 1.5% over the 5 year period. Not very encouraging.
3. Sales have exploded from $1.2B in 2009 to $3.4B in 2013, while EPS have jumped from $.16 to $1.57 in 2012 but fell to $1.22 in 2013. In 2007 the EPS was $1.33 per share. Earning are all over the place.
4. No real economic moat as there are thousands of places to either purchase a truck or have it repaired.

This might be a well run company, but it is a company in which I would not invest. There are too many factors that are out of their control.

Ed

inbox788
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Re: Interesting Stock question

Post by inbox788 » Wed Mar 12, 2014 2:28 pm

jerome99 wrote:I think I did a poor job of communicating my initial post.

I was more looking to begin a discussion regarding an industry, which Taylor agreed is very large, however only has one publicly traded entity.

I have no plans or interest in buying the stock, however I was trying to start a conversation about if there are any other industries in which this is the case?
They are the only publicly traded company in their specific industry.
Define "industry". You can define them narrowly or widely. Put enough constraints and many companies become unique.
Founded in 1965, Rush Enterprises, Inc. owns and operates the largest network of commercial vehicle dealerships in the United States, representing truck and bus manufacturers including Peterbilt, International, Hino, Isuzu, Kalmar, Ford, Mitsubishi Fuso, Blue Bird, Elkhart, Collins and IC Bus. The company's dealerships are strategically located in high traffic areas on or near major highways in 20 states throughout the United States. These one-stop centers offer an integrated approach to meeting customer needs - from sales of new and used vehicles and equipment to aftermarket parts, service and body shop operations plus a wide array of financial services, including financing, insurance, leasing and rental. Rush Enterprises' operations also provide vehicle up-fitting, custom modifications, chrome accessories and tires.
Widen the competition to "transportation" and you see tons of competition. Narrow it down to "new commercial truck sales", "used commercial truck sales", "commercial truck maintenance and repair", "commercial truck insurance", "commercial truck financing", or "commercial truck rental" and I see different types of competition in each sub-industry. I imagine insurance companies and banks are in the business involving commercial trucks.

I can think of several examples of "only publicly traded company in their specific industry", here's a couple.

Sirius is the only satellite radio broadcaster. There are other satellite companies, and other radio (internet, terrestrial, etc.) broadcasters, and many other communication companies.

Tesla is the only long range electric vehicle/power network. The cars compete with every other auto manufacturer, and the supercharger network competes with gas stations, but no one else has a complete system allowing long distance travel.

http://www.teslamotors.com/supercharger

A company goes public because it needs capital, and heavy capitalized companies with debt reminds me of the past airline industry (which may be changing today with less competition).

Also, a company that is a major participant in an industry will usually suffer along when the industry has a downturn, but there's failure, and stronger companies survive, and sometimes come out stronger. When it's down to one player in the industry, and the industry has a downturn, the whole industry may need to be redefined (only egg in the basket). Think AIG, FNMA, FDMC, etc.

Some parts of an integrated business may have synergies, but other times, there are weak parts of a business that can be eliminated for greater efficiency.

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DonCamillo
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Re: Interesting Stock question

Post by DonCamillo » Wed Mar 12, 2014 2:46 pm

I am assuming that it is one of the 3642 stocks in the Vanguard Total Stock Market Index Fund, so I am happy to invest from a few cents to a few dollars in RUSHA by buying VTSAX.
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MP173
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Re: Interesting Stock question

Post by MP173 » Wed Mar 12, 2014 3:06 pm

Tesla and Sirius are not competitors to Rush.

Next time you are on the highway and a large tractor trailer unit passes you, the power unit is what Rush primarily sells, services, and repairs. Or based on their line, they also sell school buses.

Rush is the equivalent to a local car dealer, only they sell the $100,000 power units.

Buy a company like this during the next economic downturn and then sell it when the economy improves...but be careful.

Ed

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nisiprius
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Re: Interesting Stock question

Post by nisiprius » Thu Mar 13, 2014 7:02 am

jerome99 wrote:I think I did a poor job of communicating my initial post.

I was more looking to begin a discussion regarding an industry, which Taylor agreed is very large, however only has one publicly traded entity.

I have no plans or interest in buying the stock, however I was trying to start a conversation about if there are any other industries in which this is the case?
I think there are a lot of industries that are that way. For example, I think (not sure) that Lithia Motors of Medford, Oregon, LAD, may be the only publicly traded car dealership.

You have to ask why a company wants to go public in the first place. Lots of small to medium-sized companies do a fairly solid business for decades, supporting employees and owners, without any great need to expand exponentially and conquer the world. Going public means suddenly a company has a whole new set of people they need to keep happy, whose interests are different from those of employees, owners, and customers. The obvious reasons for going public would be a) that they really do think they can expand and want to expand, and are willing to have shareholders riding their back in order to get fresh capital; or, b) the company owners have vast amounts of theoretical paper value, but they want to get out, perhaps retire, and convert their property into dollars; and they think they can do it more easily by selling their company to lots of small stockholders than all in one piece.

I agree with you that it would be interesting to have a better understanding of the role which stocks play on the business side, and the actual detailed reasons why particular companies chose to issue stock in the first place.
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Re: Interesting Stock question

Post by inbox788 » Thu Mar 13, 2014 10:52 am

MP173 wrote:Tesla and Sirius are not competitors to Rush.
Not sure how you got that idea. No such comparison was made. They're all unique companies with different business models than their competitors. You could even say the same thing for Coke and Pepsi, who are often though of as competitors, yet they're quite different under the hood. So while they do compete on certain soft drink products, one is a beverage company, while the other is an integrated snack company (with a large beverage division), like Mondelez (Kraft/Nabisco).

The comparison I'm making here is that Rush is integrated like Pepsi is integrated. Not that they compete with each other.

http://www.reuters.com/article/2014/02/ ... B720140220
nisiprius wrote:Going public means suddenly a company has a whole new set of people they need to keep happy, whose interests are different from those of employees, owners, and customers. ...
I agree with you that it would be interesting to have a better understanding of the role which stocks play on the business side, and the actual detailed reasons why particular companies chose to issue stock in the first place.
There are many reasons and benefits for a company that goes public, but there are cost as well. Someone is giving up ownership, and cashing out at a price, so giving up opportunity. There's a lot of regulation of public companies, and quarterly reports, so these requirements affect the business side. Also, you have vocal stockholders (which can happen is small partnerships as well) like Carl Icahn to deal with.

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