July 5, 2017
In my last newsletter, I wrote the following: “Remain focused on the long term with patience and discipline and not be influenced by a stock’s price (often has little to do with a company’s valuation). When clients have suggested that I buy or sell a stock based on its price, it’s often the opposite of what I would do.”
On June 21st, a client asked me if we should sell CBI (Chicago Bridge & Iron), as the stock price fell below $13/share. The client was obviously focused on the stock’s movement that day (and likely did not read the last newsletter or forgot its message!) Surprisingly, I was considering the same [emotional] option. (There are times when it’s difficult to heed one’s own counsel.) The pain of owning this stock was weighing heavily; however, I took a deep breath and asked myself whether I would I buy CBI today if I did not already own it. The answer was YES.
At the end of the quarter seven trading days later, CBI closed at $19.73 … up 55% from its low on the 21st. This had nothing to do with investing acumen or foresight, just simply positive news from the company and a bounce due to the stock being given up for dead. The investing lesson…. When the pain is almost too much to bear, it’s often the time to do the opposite of what your gut tells you. Please note: our investment in CBI is still under water and remains on a short-leash and our watchful eye list.
Now, a case for the patient, long-term investor. For the remainder of the newsletter I’d like to take an in-depth focus on one of our companies, one that we can sink our teeth into. Barfresh (BRFH) makes frozen drinks (smoothies, frappes, milkshakes) for mass served markets. The packets come pre-packaged with ice so that an ice machine is not required (very important for the fast-served markets). The product has all natural ingredients, no added sugars and is gluten free. It can be packaged with or without yogurt, berries, bananas, etc. The product can be custom made for any variety of small or large customer. On March 31st, Barfresh closed at .63c/share and closed this quarter at .79c. GCM’s average cost is .69c for our approximate 4% stake in the company.
Barfresh (BRFH) highlights since our last update:
- The company is moving into various venues via its partnership with Aramark, one of the nation’s largest foodservice management companies – recently in conjunction with Pepsi, a Barfresh branded kiosk in the Pepsi Center in Denver. The kiosk is owned by Pepsi, operated by Aramark, and offers five different smoothie flavors, with and without alcohol. FYI – there are approximately 200 events annually at the Pepsi Center in Denver, home to the Denver Nuggets NBA franchise and the Colorado Avalanche NHL franchise.
- Its Aramark relationship could result in exposure to over 2,000 locations in the U.S. and Canada including education, healthcare, sports, entertainment, business and government venues.
- Barfresh has arrived at the Statue of Liberty, announcing a multi-year contract with the exclusive foodservice provider in a venue that hosts some 4.5 million visitors annually.
- Barfresh announced a multi-year contract with the Aquarium of the Pacific in Long Beach, the fourth most attended aquarium in the country with 1.7 million visitors annually. The company expects to sell 200,000 servings per year in this venue.
- Bubba Gump is in the house. This Landry’s Inc. restaurant chain is now offering Barfresh smoothies at its U.S. locations. (FYI: Barfresh partner Pepsi brought this one to the table.)
- Barfresh now has the production capacity to manufacture more than 114 million units and if utilized, would result in over $100 million in annual revenues.
- Barfresh was named to Sysco’s Cutting Edge Solution platform for the second year in a row.
- Unibel (parent company of Fromageries Bel, known as Bel Group) invested $10 million into Barfresh and took a board seat. Headquartered in Paris, the Bel Group has operations in 33 countries, 30 production sites on four continents and nearly 12,000 employees.
- The company has realized successful placements in multiple foodservice channels including: Amusement, Recreation & National Parks, Casinos, Sports Venues & Events, Education and Business, driven in large part by its recently signed agreements with several national third party operators. This marks a pivotal change as the company transitions from signing agreements to adding actual customers and realizing revenues from those agreements.
- As an example of some of these new customer wins, Barfresh products were recently introduced at Elitch Gardens Theme Park in Denver and multiple zoos across the country. Regarding casinos, Barfresh recently started selling into MGM Circus Circus, the Silver Nugget and the Four Seasons in Michigan, which is in addition to previous placements at Las Vegas-based Caesars Entertainment properties and SLS Casino.
- BRFH has also begun selling its products into major attractions such as NASA in Houston, the Hoover Dam Visitor’s Center, prestigious race tracks in New York managed by third party operators, the New Orleans Arena and the College World Series of Baseball in Omaha, just to name a few.
- Within education and business, Barfresh products are now being sold in universities including Penn State University, Stanford, Colorado State, Florida State University and the University of Tennessee. Barfresh is also now selling product in many workplace and healthcare locations such as Houston’s Methodist Hospital and Parkland Hospital in Dallas, many of which are run by third party operators.
I firmly believe that large investors will follow us into BRFH once a large QSR (quick service restaurant) is announced. This could possibly be Sonic, Subway, and/or Dunkin Donuts. Barfresh smoothies are currently being tested in these and other QSR franchises.
Have a great summer,
Goldberg Capital Management is an investment adviser registered with the State of CT Department of Banking. This Newsletter and its contents are for informational and educational purposes only. You alone will need to evaluate the merits and risks associated with the use of the information provided herein. Although this Newsletter may provide information relating to approaches to investing or types of securities and other investments you might wish to buy or sell, no information provided in this Newsletter is intended or should be construed as an investment recommendation or endorsement from Goldberg Capital Management. Please remember that past performance is no guarantee of future results.