There are a few stages of capitulation -- the ultimate end to a position that is not working out, at least for this value investor -- that I've recently put to paper. I knew they existed in my own investing life, but never took the time to memorialize them until now:
- Stage One: The patience begins wearing a bit thin after a name that you took a position in continues to languish and all of your grand ideas about value and/or potential catalysts don't materialize.
- Stage Two: Denial, where you are in disbelief that you got the story so wrong or that other investors have not seen the promise in a particular name that you've seen.
- Stage Three: You continue to hold that name, but basically ignore it, forgetting about it, paying no attention unless there is some major movement either positive or negative. Deep down, however, you continue to hold out hope that the story will unfold as you expected
- Stage Four: You've reached your limit and had enough, and put in the sell order. This entire saga can last several years -- one reason that precludes many from being value investors in the first place.
I'd recently reached the third stage with TravelCenters of America (TA) , an asset-rich name that operates highway-based restaurants, convenience stores and fueling stops under the TA, Petro Shopping Centers and Minit Mart brand names, 200 full-service restaurants (Iron Skillet and Country Pride) and more than 400 quick-service restaurants. It also owns the Quaker Steak & Lube restaurant chain that it purchased out of bankruptcy in 2016.
TravelCenters has been all but a disaster the past couple years, missing nine consecutive consensus earnings estimates by my count. Trading well below tangible book value and owning a substantial amount of real estate made the name appealing, as did the intrigue of a $14-a-share bid by Golden Gate Capital in December 2015 that the company rejected.
But it has been mostly downhill ever since, with shares hitting $3.10 on Aug. 29. Frankly, I'd been in "ignore" mode for quite a while with this one, but a couple things have happened over the past month that have gotten my attention.
First, on Sept. 11, TravelCenters announced that it prevailed in litigation against Comdata Inc. in a dispute over fees charged for processing payments using Comdata fuel cards at TA locations. This announcement sent TravelCenters shares up 15% on the day it was announced.
Then, shares got an indirect boost, rising 40% last week, from an unlikely source -- The Oracle of Omaha, Warren Buffett, CEO of Berkshire Hathaway Inc. (BRK.B) . Berkshire Hathaway's decision to take a 38.6% stake in truck stop operator and TravelCenters competitor Pilot Flying J sent TravelCenters shares to levels not seen since May in a move that brought renewed interest to the sector.
Things could get interesting for TravelCenters from here as investors (me included) are now paying more attention to the name. However, the company must deliver. TravelCenters' third quarter is typically its most profitable, and its third-quarter earnings release scheduled for Nov. 6 will be watched closely. Consensus estimates are calling for revenue of $1.62 billion and earnings per share of 22 cents.
I am out of the capitulation stage with TA, at least for now.
