This is the Value Investor podcast with Tracy Rinek, all things value all the time. Welcome back value investors. So I have a big announcement, if you're not paying attention Berkshire Hathaway is reporting its earnings and having its annual shareholders meeting this weekend, the first weekend of May here in 2023, they always do it at this time and they are showing it live this year on CNBC. Last year and I think the year before that it was on Yahoo Finance, but they ditched that this time and they're going back to CNBC, but they've always had Becky Quik kind of leading the question and answer and all that stuff.
And I'm assuming she's going to be there again this year. So tune in, you want to tune in. I'm going to try to tweet out as much from it as I can because it is a little different to watch the main question and answer session live than to see just kind of excerpts from it later because some things you or I might find interesting others don't. And so it doesn't really show up later.
And I've never seen an opportunity to like rewatch the entire thing later. So I'm going to be watching it and tweeting out. So if you can't watch it, you can tune into my tweets. It's just at Tracy Reinek, just my name and you can see what I'm deeming to be interesting from the annual meeting.
This is, you know, these are precious. Let's just say, given the age of Warren Buffett and Charlie Munger, who is again going to be there in person apparently. So we might not have that many more of these. We'll see.
So just a little bit of a bookkeeping there. And so be sure to tune in because this is a big weekend for us value investors. Now on with today's podcast with these volatile economic conditions with the bank lending now tightening due to the banking crisis or whatever's happening on the banking side, the economy is slowing. We all have seen it and we're starting to feel it now, but the Fed is still raising rates.
And so what's a stock investor to do? It's time to look for some quality, right? We want to get the best companies that are navigating these types of conditions. And how do we find those?
Well, we do find them with the Zacks rank. So I did a screen with the Zacks number one ranked stocks. Now remember, those are the strong buys. There's 234 of them at the time I recorded this podcast.
There's usually anywhere between 210 and 240. So there's not that many of them with the number one rank. We are still in earnings season. So this list is going to change pretty dramatically while earnings season is going on.
And why does that happen? Because the Zacks rank is based on earnings estimates and the revisions to those estimates. So it's not done by us here at Zacks. Those revisions are done by the actual analysts, the ones that hover the companies.
We collect the data, we collect their earnings estimates, and then we put it into a consensus. We do run it through our computer algorithm for the rank, which includes the magnitude of the change to the earnings estimate, how many of the analysts are in agreement on the earnings estimate, and the dramatic or non-dramatic upside to the earnings estimate. All of these things play into what happens with the rank and getting that number one rank. But in for the basic definition of the number one rank, it always or almost always usually means that someone has raised their estimate.
Maybe several analysts have done it. Those earnings estimates are on the rise for the full year. I also decided to add in the Zacks style score for value on the screen. Instead of just searching for PE and all that, the value score does grab a whole bunch of the different value fundamentals and it's wrapped into that value score.
The highest value score is an A, so it's kind of like your school grades. There's ABC, you know, you want the A always, of course. So I'm combining the number one ranks with the style score of A and the four value, the style score of A, there are 933 stocks right now that have that for value. So combined, we're looking at 234 with the number one rank and then 933 have the A for value.
And when I ran the screen, I got 48 stocks, which is those two indicators. It's a little bit high, not terrible. It's not 100 stocks. So I decided just to go with it because I did want to see the variety that was showing up there that are cheap but have the number one rank.
And it did give me quite a good list. Now I'm only going to give you three different stocks today because there are, you know, groupings that showed up. So there were several in energy, for instance, and there's a couple of home builders, which I'm going to mention just briefly at the end. So what else is in here?
Let's dive into what these three stocks are because I did pick them in various industries and the ones I thought were kind of interesting here in 2023. So the first one is the stock we haven't discussed on the value investor podcast, I don't believe ever. But so that's good, right? I like to have new stacks.
It's called Braemar Hotels and Resorts. So not surprisingly, I picked a hotel REIT, remember that is a company that actually owns the physical hotels. And in this case, they own the luxury hotels and resorts, which I like that category here because the rich people, yes, are still spending. And so some of those names are ones you would recognize like Ritz Carlton's, Four Seasons, but you know, they get the licensing, but they own the physical resort.
And these are across the United States. Tigger is B-H-R on Braemar, B-H-R. Now, the good thing about REITs is they do pay dividends and this one is pretty juicy at 5.3%. It's a small cap REIT, which is 330 million market cap.
And I was kind of surprised because I assumed, oh, it's one of the hotel REITs, the stock is probably doing pretty good because hospitality is rebounded. But it's not the actual hotel chains. So it's a little bit different, you know, business model, basically. And a lot of the hotel owners have a lot of debt and they have to refinance that, the rates have gone up.
That's going to impact earnings, things like that get in the way. The fun times of having sold out hotels. But I took a look at the earnings. There was an increase in the estimates, but it was 60 days ago.
So I'm kind of surprised it still does have the number one rank, but it does. Earnings expected to be 96 cents this year, but that's down from $1.23 last year, down 22%. It is really cheap on a PE basis with a PE of 3.9. They are, in addition to the dividend, doing stock repurchase and they have a $25 million program that was authorized in December of 2022.
So it's fairly new. They are seeing growth in their urban hotels finally. So they're kind of resort type of hotels have been doing well on the rebound, right? That's where we all escaped.
We didn't want to go to downtown New York and hang out on vacation. No, we were trying to flee out of there. We wanted to go to the resort in the desert or the one that's on the coast of California, those kinds of resorts. But that is a hard compound for these kind of hotel chains because it has been doing so well.
And now the traveler is returning more to the urban hotels and taking those urban type of vacations. And so that is a good growth for the rest of the year. What are these shares doing though? So over the last year, the shares are actually down 35% over the last year.
Year to date, they're still also down down 3.4%, but they've had rallied up through February and then they came down off those highs. So weakness has appeared in there as people are getting a little bit nervous now about the consumer. Will they continue to travel as much as they're doing right now? Some people are thinking no and taking any gains and getting out.
Over the last five years, this has been a pretty bad investment. The shares are down 61% during that time. The S&P 500 is actually up 54.7%. So the dividend doesn't tell you the whole story.
And I'm sure it was probably frozen during the pandemic and then obviously has restarted again. But reads are difficult even on the hotel side and you really have to do your homework to find out what is happening in that business model. So that is brain air hotels and resorts, ticker BHR. And then the second company is in kind of the energy industry, but it is on the services side and it's US, silica holdings.
ticker S, L as in Larry, C, A, S as in Sam, L as in Larry, C, A. And they reported first quarter already. Revenue up 7% sequentially due to strong customer demands. And so they're still seeing the growth quarter over quarter.
But that revenue was up 45% compared to a year ago as the oil and gas industry is really ramping up now. After Ukraine war started and energy prices soared, the energy companies have been drilling again. So they make products that help the drillers. They also have a side industry on last mile logistics to the oil and gas industry.
And they also have some other industrial metals. But just so you know, out of their first quarter revenue of $442.2 million, $300 million was in the oil and gas industry segments for the business. So that's really what's driving it. They call their last mile logistics the sandbox.
That's that division. And they also saw strong demand and their poised for another record, a year of record profitability. So I'm liking all of that. And then there was a comment that they made in their press release that kind of made the rounds as well.
I even saw it when I was on vacation because you don't really hear a company talk about something like this in like May or April of the year. But they did say, quote, we expect to remain effectively sold out for sand propane, I can't say that word, propane in 2023 supported by robust contracted commitments at 84% of production capacity, unquote. So they're able to sell that sand propane. Let's see it pretty vigorously, as you can see.
So I'm liking that, like anything where somebody says we're sold out for the heater, that's a good place to be at the stock is cheap with the P of 6.3. Market cap is just 926 million. What's happening with us? It's lightly covered this company because it is a small cap kind of service side company.
One estimate is higher though after the earnings. It's now looking for $1.90 versus $1.72 before the earnings. And that's up 61% from $1.18 last year. But the shares interestingly have kind of slacked here, maybe because they trade along with the energy group, which has really pulled back here in 2023.
So year to date, they're down but just 2.7%. But one year, they're down 33%. And then five years down 53.5%. So that's kind of similar to the hotel read over the five year period.
So these are areas so far industries that have really been out of favor on the stock market, as you can see over the longer time period. But that's US Silicon Holdings ticker SLCA. And then my third stock is a tried and true. And I kind of hesitated in picking it because I'm like, what's going on with them?
But why not? I'm going to talk about it. It's Xerox ticker XRX. It was a member of the Nifty 50 back in the 1960s and early 1970s, putting edge company because of its printing machines.
Like that was a new technology. Nobody, everybody wanted one. You couldn't get enough of them. They were in like schools, hospitals, like basically every place of this had a Xerox machine.
We even just called it the Xerox machine, even though other companies made those printing machines, but they were just like, oh, go Xerox this. It became like Kleenex, became like a verb. But the stock and the company has suffered a bit as technology has changed. So I was surprised to see it make the list, but they did say reporting first quarter revenue up 2.8% year over year.
They repaid 450 million in debt in the quarter and they said demand for our services and equipment remains resilient. That's where they use resilient. They do do scanning now. They have scanning printers and software.
They kind of expect full year revenue, however, to be flat to down single digits. So we'll see because they're being a little cautious here, maybe expecting a little more slowing in the second half of the year as the economy continues to slow. But they do have a good free cash flow and they expect to return at least 50% of the free cash flow to shareholders. So that means share buybacks and a dividend and that dividend is yielding 6.4%.
So Xerox has kind of become a slow growth dividend paying type of company, apparently. And it's pretty cheap, P of 10.7. I'd like to get a little cheaper and then I'd really be interested because then I even have a bigger dividend yield and then maybe you're just buying it for the dividend and that's it. That would be for income investors, right?
People who just want that for the dividend. So this year is doing year to date up 1.6%. So not too much year to date, but one year they're down 15 and then five years they're down 50%. So even though you're getting that dividend, spend pretty rough over the last five years versus again the S&P 500 virtually the opposite up 54%.
So that's always something to keep in mind if you are aiming for that dividend is that there's no guarantee and what the stock itself is actually going to be doing even though you're getting that income. So that's Xerox ticker XRX. It may seem like some of these are lackluster, like I said, but it is showing that some of these that have dragged over the last several years are the areas where the value is being found at the cheapness plus now the ZACX rank. Let me see what's actually happening with the Xerox earnings estimates.
I get it at that number one rank. Okay, so one estimate has been raised since this earnings report, but they're actually expected to grow earnings this year by 26, almost 27%. So that's pretty impressive. So I'm liking that.
This is not a value trap here. They're expecting to make $1.42 versus $1.12 last year. That's pretty nice there. And this is a type of company, been around a long time, kind of like IBM where the management is just kind of managing that slow growth trajectory these days, but you got to get it cheap if you're going to get almost no growth or very slow single digits type of growth.
So apparently we that's on the revenue side, by the way, but apparently we are seeing some good earnings growth and that is going to translate into that dividend and the share buyback and that kind of situation. So again, that's Xerox XRX. But yeah, like some of these, you're just kind of like, man, I'm not that into those Tracy. You got to give me something better.
But remember, I said there were some home builders on here. So the home builders have returned. They're back from the dead because things aren't going to be as bad as everybody thought this year. Earnings are down on all the home builders off of record 2022 because they're just going to be delivering fewer homes going forward.
The sales have started following mid last year. So that's going to translate into deliveries for this year. And it has rebounded a bit off of those lows, but still below the record levels. But the shares were so cheap on all these home builders because everybody was expecting doom that even with the big rally that they're doing, they are still cheap on a PE basis, which is why they're showing up on my screen and they have the number one because the analysts were just too pessimistic.
They got it just way too weak and they're all raising to reflect that after the company's report earnings. So the ones that made this list are these are homes. The ZH is the ticker. MI homes.
And as a Mary, I is in island is an island. My homes, which is MHO that one has the number one rank and the GPE and then try point homes was the third one. TPH is the ticker there. None of these have dividend.
I don't believe some are doing share buybacks though. They all basically said the same kind of thing. They're still saying strong demand. And the buyers are still coming in.
They've adjusted to the higher mortgage rates. I don't know if you've ever gone on a home builder website kind of seen what's going on. I'm not sure what the products look like. What's in on the finishes and the floor plans and things because I'm geeky like that.
But if you go on, you will see even in the same community. So you can look at say Austin and you find a community like there. A lot of times there's various price points within that community. So I kind of like to see what are they starting them at.
Is it like 275 for like a thousand square foot little house or is it 550 for the bigger three bedroom house with the 2,200 square feet? Like what are the price points? It varies by builder. Obviously some are averaging 700,000 others are averaging 500,000 and then it varies by community.
But within those communities, there are these smaller homes and the builders are adjusting. They're adjusting pricing and they're adjusting their product. And when they say they're adjusting their product, that means that they're shrinking the home to make it more affordable with these higher mortgage rates. They're also offering the share of buy downs.
So you know that or the mortgage rate by downs. So that is helping get in buyers as well. So not quite as much of a shock. But the buyers are adjusting.
They do mostly have jobs now still. And that is what drives those home builders. So home builder stocks appearing on here. And I expect more of them to appear as they continue to report.
They are 52 week highs. That's common in the kind of the home cycle. But shares are still cheap on a lot of those home builders. So I'm going to have to do the whole show once we get more of these home builders reporting on what's happening with each of them and you know, which ones I like and that kind of thing.
So stay tuned for that. Otherwise, it was an interesting list. But you know, tech and that kind of growthy names not really appearing on the list. There were a lot of steel companies of four or five of those.
So you can kind of see where the earnings estimates are being raised right now. But we're still in the middle of earnings season. So that list will change as we move forward. But let me repeat the stocks we talked about.
So there was Breremer, hotels and resorts, BHR. That's the REIT. Strangely a lot of all of these notes. USL could have not paid the dividend.
But two of them paid the big dividend. Breremer was 5.3% yield. And then Xerox XRX is the 6.4% yield. And then we had US Silicon Holdings SLCA.
And that pays no attention. The home builders we had BZH, MI Homes, M-H-O and tri-point T-P-H. And as always, you want to be sure to subscribe because next week I'm going to cover what's happening at Berkshire Hathaway and what Warren Buffett said. He's going to give us some of his wisdom.
I'm sure he talked with Becky quick for three hours just recently. We got some wisdom there. But him and Charlie, when they're together, you never know what's going to happen. So I'm going to do a whole episode on it.
Be sure to tune in. And so there's many ways to find out the Berkshire Hathaway annual meeting, my Twitter feed, various newspaper articles. There'll be plenty written about it. You can watch it live on CNBC and you can listen to this podcast in coming weeks with even more details.
So be sure to get us on Apple Podcast or on Spotify. And I'll see you next week with some more value stacks. This material is being provided for informational purposes only. And nothing herein constitutes investment, legal accounting or tax advice or a recommendation to buy, sell or hold a security.
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