Tools for Value Investing

Written By Brian Hicks

Posted October 2, 2014

Sometimes a turnaround story can pay off in a big way.

On July 10th of this year, I recommended Cosi (NASDA: COSI), a company very similar to Panera Bread. Just nine weeks later, on September 16th, Cosi had more than doubled.

To be precise, it was up 107.9%.

How did I do it?

First, good old-fashioned shoe-leather, as I hit the road to visit six Cosi restaurants and check out the new CEO’s street cred.

Second, using the same strategy perfected by the largest individual donor in the history of Stanford University (the last check he cut was for a cool $150 million).

And based on research by some of the most prestigious universities in the world, I believe it’s possible to repeat this success time after time. 

Best Investment Strategy Ever

A Wharton finance professor confirmed that this strategy produces “abnormal profits,” and a joint Harvard/Yale study confirmed that these trades are “extremely profitable.” 

Without question, this strategy gives you the best of both worlds. It’s perhaps the most conservative approach available, but it also offers the highest probability for fat returns.

In short, what we’re talking about here is a way to buy stocks for significantly less than what they’re worth. I’m talking about getting them at a 25%… 52%… or even a 66% discount to the company’s real value.

The best way to show you how this works is to tell you a bit more about how I found Cosi while scouring the world for deep value.

While Panera has been a wonderful stock, delivering strong growth and income, competitor Cosi has been a huge disappointment despite having what is perhaps a better business model.

Cosi (NASDAQ: COSI) was founded in 1996, and there are currently over 122 locations in the continental United States. The original Cosi restaurant was based on a cafe in Paris, France.

Cosi’s flat bread is baked in an open-flame oven in full view of customers. It is known primarily for its sandwiches and salads and features an espresso bar, while some restaurants also serve alcohol. I have been in several Cosi restaurants, and the one right next to the White House is a very popular gathering place indeed.

But despite all these strengths, the company had been consistently losing money since its IPO in 2002.  So if Panera gets an “A” for effective management, Cosi gets an “F.”

Nevertheless, while scouring the world for deep value early this year, I noticed that Cosi’s stock was down 60% in the last 12 months.

This looked like a situation ripe for a turnaround, but first, I had to identify several powerful catalysts that would fuel the rebound and unlock the value.

There was strong insider buying, reports that Cosi was a takeover candidate were growing, and, most importantly, a new CEO, R.J. Dourney, was coming on board, moving Cosi’s headquarters to Boston.

Even more interesting was the fact that the new CEO was bringing on new experienced and independent board members (rather than the usual cronies), and since the new CEO was Cosi’s largest franchisee, with 13 restaurants in the Boston area, he really knew the business. 

Intrigued, I visited six Cosi restaurants in the Northeast during a summer visit to New England, asking employees how things were going and what they thought of the new CEO.

My last visit was to an incredibly beautiful Cosi right in the heart of Boston’s financial district. Everyone was upbeat, and I got the distinct impression that the CEO was very much a “hands on” manager with a clear plan to turn things around.

The formula is simple, timeless, and powerful: Find great value, and then identify several catalysts that will fuel a turnaround.

Until next time,

Carl Delfeld for Wealth Daily

P.S. Join Wealth Daily and a star-studded cast of financial experts at The World MoneyShow Toronto this October 16-18!

Get the latest stock picks, current market outlooks, most successful investing and trading strategies, and more when you attend the Show at the Metro Toronto Convention Centre.

Registration is FREE, so reserve your place today!

Angel Pub Investor Club Discord - Chat Now

Brian Hicks Premium

Introductory