Movado Group, Inc. (Movado Group) designs and market luxury watches.
Movado the company is more than just the Movado brand. The company owns two other brands in addition to the namesake Movado brand: Concord, and Ebel. The Movado brand is considered an “accessible luxury” brand, but Concord, and Ebel are genuine luxury watches. Concord watches usually sell for over
$10,000 a piece. Ebel sells for mostl $1,500 to $5,000. About 80% of Ebel sales are to women.
Additionally, Movado has been making licensed watches for about 15 years. In 1999, it introduced Coach-branded watches, which generated $16 million in sales that first year. Movado has since obtained the license for Tommy Hilfiger (2001), Hugo Boss (2005), Lacoste (2006), Juicy Couture (2006), and Ferrari (2012).
Movado went public in 1993 (as the North American Watch Company). It remains under the control of the founding Grinberg family through a Class A stock that delivers 67% voting control.
Movado is an unusually cheap stock, not just in comparison to other stocks today, and not just in comparison to its peers. It’s cheap relative to the price the average stock has traded for in the past. Movado is not a growth stock, but it is undervalued.
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Cullen/Frost Bankers, Inc. operates as the bank holding company for Frost Bank that offers commercial and consumer banking services in Texas.
The combination of good non-interest deposit growth per branch and a conservative lending culture, has made Frost a very safe bank since Texas emerged from its early 1990s oil bust recession. During the 2008 financial crisis – which was less severe in Texas than in other parts of the U.S. – Frost turned down TARP money. Frost had already exited all mortgage lending in 2000. Mortgage lending had become commoditized. Customers of Frost can get mortgages. But, they have to use a partner of Frost’s that simply offers loans to these customers to keep them from leaving Frost. Frost does not take any part in mortgage loans to Frost Bank customers. And it is clearly marked on Frost’s website – and elsewhere – that this mortgage lending is being done by a third party. Frost never owned securities that were subprime. Charge-offs were low throughout The Great Recession. In 2009, Frost charged off 0.58% of total loans. In 2010, it charged-off 0.52% of total loans. In 2011, it charged-off 0.54% of total loans. Losses at many U.S. banks were 5 times higher during the crisis.
Frost has created a lot of intrinsic value since the 2008 financial panic. The stock market has not realized this because Frost has made very little on its loans and securities due to the Fed Funds Rate being near zero. In 2008, Frost had $10.5 billion in deposits. Today, Frost has $24 billion in deposits. Frost’s value comes entirely from its non-interest and very low interest bearing deposits. So, the intrinsic value of Frost as a buy and hold forever stock more than doubled from 2008 to today. The stock did not double, because reported EPS barely budged due to the yield on loans and securities being the lowest in history.
A Fed Funds Rate near zero disguised this fact for about 7 years. Frost’s value was hidden for the last 7 years. But, Frost’s value will be obvious over the next 7 years. Frost is the clearest and best investment idea we have had since
starting Singular Diligence in 2013. That fact is not obvious as we write this in 2015 with a Fed Funds rate near zero. It will be obvious in hindsight (in say 2019) with a Fed Funds rate near 3%.
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Hunter Douglas N.V. (AMS:HDG)
This month's issue is about Hunter Douglas, the world leader in window coverings. HDG is based in the Netherlands. It generates the bulk of its revenue in the U.S. and Europe.
It divides its business into two segments:
1. Window Coverings, offering venetian and vertical blinds, roman, roller and woven wood shades, pleated shades, wood and alternative wood blinds, custom shutters, exterior venetian blinds, screen products, shutters and awnings;
2. Architectural Products, including sun control products, such as sun louvers, external louvered blinds, perforated screens, among others; commercial window coverings, such as roller shades, aluminum blinds, among others; ventilated facade systems; suspended ceilings systems; 3form translucent materials.
HDG operates under the brand names, such as: Hunter Douglas, Luxaflex, Duette, Silhouette, Vignette, Pirouette, Facette, Techstyle and 3form, among others. It has operating companies and offices worldwide in such countries as: Russia, Italy, Canada, the United States, Argentina, Mexico, Japan, Australia, among others.
Hunter Douglas is a good business at a great price. Its competitive position is very strong and the company is the clear market leader in blinds and shades in the U.S. and Europe. It is a hidden champion within its niche.