In this article, I consider another stock from the sub-$5 world: Wendy's(WEN_). I am long WEN and consider it a sensible speculative play for the aggressive section of long-term investors' portfolios.
Wendy's actually pays a small dividend ($0.08 per share for a yield of
about 1.7%). That helps ease the pain of the stock's pullback to below
$5 and the boredom often associated with scaling into a relatively
stagnant position. I would not be surprised to see WEN trade range-bound
for some time.
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Investors love turnarounds. They just do not like sitting around
waiting for them to happen. As such, I could see WEN spiking on strong
sales or further stumbles by rival (and now No. 3) Burger King. Until
the company shows that it's multi-year turnaround plan is starting to
show material results, I do not expect the stock to be able to sustain
upside.
In some ways, Wendy's is attempting to do what Domino's(DPZ_)
has done. Over the course of the last few years, Domino's pulled off a
turnaround of epic proportions. The company essentially trashed itself
publicly, ridiculing itself for cardboard-like crust and sauce that
tastes like it came out of a can. Domino's laid out and executed a plan
to improve the taste and quality of its food. It made an aggressive push
to make online ordering more interactive and "social." Both moves have
paid off big time. Over the past two years, the stock is up about 133%.
While Wendy's has not been as self-deprecating as Domino's, it
has, for all intents and purposes, admitted errors in its ways. Its menu
has undergone wholesale changes, its burgers are no longer square and,
slowly but surely, the company is remodeling its stores. A makeover
process of that scale takes time, whereas Domino's did not have to worry
about overhauling brick-and-mortar stores.
In 2011, Wendy's remodeled 10 stores under its "Image Activation"
program. It expects to overhaul about 50 more in 2012, which will lead
to higher capital expenditures that CEO Emil Brolick expects to level off over time:
In 2013 and beyond, we expect to generate further economies of
scale and reduce unit investment, with the goal of more rapidly
reimaging a significant portion of the Wendy's system. All our customers
deserve the kind of Wendy's experience that has been created in our new
Image Activation restaurants. It's a relatively slow process, but
likely a worthwhile one.
When you compare shares of DPZ and WEN, you see similarities.
Both companies fell on hard times and their respective stocks stagnated.
Domino's successfully turned the corner and the stock followed. Wendy's
has yet to fully enter that crucial pivot point, but it could be headed
that way.
As a long-term investor, there's really nothing better than
accumulating a stock like WEN (or DPZ about two to three years ago)
during this period of stagnation. While there's considerable risk
associated with the play, the dividend
decreases your exposure slightly. Plus, if you're scaling in somewhat
conservatively over time, you're not hampering your personal cash flow.
Accumulating over a period of years can lead to a formidable position,
but it's not nearly the same as going all-in the day before earnings.
This article is from TheStreet.com. Let's hope Wendys gets out of their funk soon. Tony
New Jersey Online Poker
7 years ago