Robert Olstein is the chairman and chief investment officer of the Olstein Financial Alert Fund. Olstein is an expert on financial disclosure and reporting. He picks stocks based on a review of the fundamentals and is notorious for not talking to management. Management is never going to tell him when things aren’t great so he doesn’t bother. Instead he focuses on assessing the company's financial strength and downside risk.
A "defense first" approach is at the heart of his philosophy –Â important metrics cash flow, strong balance sheet and all at low price ratios. On Fox Business, the value manager shared a few of his insights.
Olstein really doesn’t like Netflix
Olstein called Netflix (NFLX, Financial) unrealistic. It is in a competitive environment but spending billions to drive subscriber growth. Analysts and the public are mainly talking about new additions of shows and subscriber growth, but Olstein is worried about the spending.
The business model says Netflix has to buy more and more programming. Netflix has a lot of future liabilities, and Olstein doesn’t see enough cash flow coming in. Netflix trades at a P/E of 330x, EV/EBITDA of 108x and 18x P/B although it doesn’t have much in the way of net debt.
Olstein doesn’t like Amazon
The value manager is less bearish on Amazon (AMZN, Financial) but still doesn’t play it. Amazon adds back stock compensation, which he doesn’t like, and there is no free cash flow. He calls it a good business model and a great company. Bulls are saying Amazon will at some point push a button, and it will be profitable. If they are right, it will work. If not, it won’t.
Olstein buys all his goods on Amazon but thinks there is too much risk involved with the name. Amazon trades at a P/E of 500x, EV/EBITDA of 37x, but it does have strong balance sheet with all of the debt canceled out by cash.
Bed Bath and Beyond
A company Olstein really likes is the embattled Bed Bath and Beyond (BBBY, Financial). It is real and relevant. The margins are going to drop to 10%, but the stock is only at $48. Private equity can move into the stock. It is undervalued with its 10% free cash flow yield in a 2% treasury environment.
You have to watch out for value traps, situations where the problems are not temporary, but he doesn’t believe Bed Bath and Beyond is one of those. Bed Bath and Beyond’s fundamentals are very different from the two tech darlings trading at a P/E of 9.5x, at an EV/EBITDA of 5x; its balance sheet isn’t as pristine but still very solid with debt of $1.5 billion, which equals just one turn of EBITDA.
Watch the latest video at video.foxbusiness.com.
