Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
This week is homecoming at my daughter's high school, and funny enough, my portfolio is having its own homecoming with a stock I've been watching for years.
[Quick side note: My original draft was 7 pages long. Huge shoutout to Claude.AI for helping me turn my novel into something people might actually read without needing a bathroom break!]
So, I heard this guy Stephen Farrington (calls himself the "Unemployed Small Cap Value Degen") on The Acquirers Podcast talking about how he finds mispriced small-cap stocks. I recommend listening to the full episode HERE.
He looks for company insiders buying - specifically the CFO (Chief Financial Officer) and General Counsel. These are the "pessimistic bean counters" who know where all the problems are hidden. When they're spending their own money on company stock, he pays attention.
Two stocks caught his eye: Portillo's (PTLO) and Crocs (CROX). Portillo's CEO, CFO, and General Counsel all bought in early August in the $7-$8 range.
InsideArbitrage.com
Portillo's is a Chicago institution - I've known it my whole life and even met the founder Dick Portillo once while working at his home.
Dick sold the company for $1 billion in 2014 when it had 40 locations. Today, it has about 94 restaurants and the market cap is $456 million. We can buy it for less than half the price with double the stores!
Stephen shared some wild numbers too: Most restaurants do $1-3 million per location annually. Chick-fil-A crushes it at $7.5 million. But Chicago-area Portillo's? They're doing $10 million per location - including $600K just from salads!
The market is scared because:
They're expanding outside Chicago (will it work?)
The private equity owners have been slowly selling shares (looks like dilution but isn't really)
Restaurant industry is tough right now
Something important to know: When Portillo's went public, the private equity firm kept 50% of their shares as LLC units that weren't counted in the public float. As they've been selling these (down to 2% left), Yahoo! Finance shows the share count going up, which looks like dilution to retail investors and algorithms.
SimplySafeDividends.com
But no new shares are being created! They're just converting private LLC units into public shares and selling them. It's like moving money from savings to checking - same total amount, different bucket. The notes in the annual report explain this, but most people just see "rising share count = bad" and sell. Classic small-cap mispricing in action!
Their first Dallas location almost "broke" from doing $17 million in revenue the first year, forcing them to open up 5 more Dallas area stores. Also, their new rewards program got 22,000 members per location (Chipotle only gets 5,000).
My wife and I bought 100 shares at $6.15 because we know the business, love eating there occasionally, and think the nationwide expansion could work. If Chicago's diverse population loves it, why not everywhere else?
Portillos Current Locations
Alphaspread.com thinks the worst-case scenario intrinsic value shows 44% upside potential. We might buy another 100 shares if it drops below our $6.15 cost basis for a very long term hold.
alphaspread.com
This feels like a very low risk, high reward, local investment that I couldn't pass up.
Would you consider buying Portillo's stock? Have you had their food, especially outside of the Chicago area? I'd love to hear about it by hitting reply!
Disclaimer: This is not investment advice, just one person's opinion that may be incorrect. Do your own research before making any investment decisions.
😁THANK YOU to all who responded to the last newsletter!!
This was one of the better interviews I've heard in a while and it was with Motley Fool co-founder David Gardner. He's making the podcast rounds on his NEW BOOK tour, and he pretty much invests the exact opposite of Warren Buffett... and with great success!
🎦If you missed it, my financial pain can be your gain! Sharing how a gain of $55 cost over $21,000.
Click the image above, sign up for a 7-day free trial, get $30 off an annual PREMIUM SeekingAlpha.com subscription + the next Alpha Pick FREE!
*This is an affiliate offer, and I will receive a small commission at no additional cost when you buy a premium annual subscription after clicking the image above.
Introductory offer for first-time subscribers only. $30 off Premium for the first year. At the end of the free trial (or immediately if you are no longer eligible for a free trial), $269 is charged automatically for the first year of your annual subscription. Auto-renews at the then-current annual list price (current list price is $299). You will receive the May 15th strong buy pick from Alpha Picks. The pick will be sent via email to your email address associated with your Seeking Alpha account.
Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
I did something this week I haven't done since June of 2020: I bought shares of McDonald's (MCD). My entire MCD purchase history I accumulated 10 shares in 2019-2020, with an average cost basis of $177. Then I just... stopped. Not because anything was wrong. I got stuck waiting for the "right price." Big mistake. I was sitting at a red light this week around 8 AM here in the Chicago suburbs staring at a corner McDonald's. I counted 5-6 cars parked in the lot and another 6-7 in the drive-thru....
🚨A quick word: I'll be a guest speaker at the Blossom Investor event in Chicago on Tuesday, October 7th. I have 5 FREE tickets if anyone wants to go! Reply to this ASAP and let me know.🚨 A random DM conversation about the VIX reminded me of something I wanted to share with you... Lots of people misunderstand what the VIX actually is and why it doesn't matter much to us as long-term investors. The VIX measures how volatile traders expect the S&P 500 to be over the next 30 days, based on...
🚨A quick word: I'll be a guest speaker at the Blossom Investor event in Chicago on Tuesday, October 7th. Grab a 15% discount with DAPPER15.🚨 I bought more Ares Capital (ARCC) stock while many are selling it. ➡️You can watch the VIDEO version of this too.⬅️ What's ARCC? It's basically a company that lends money to other businesses and pays us dividends from the profits they make. Think of it like being a bank, but for medium-sized companies. Investors are selling because the Fed is cutting...