I’d never have bought bulbs in the Tulipmania of the 17th century. And I’ll never by Bitcoin today.
Neither ‘asset’ has an intrinsic worth that can be measured much above a token value. Buying crypto-currencies, like buying tulip bulbs 400 years ago, is based merely on the hope of later being able to sell at a higher price to a greater fool.
I’d much rather aim to get rich by investing in simple-to-understand businesses, with demonstrably valuable assets and cash flows. With this in mind, two stocks I’d happily buy today are pub groups J D Wetherspoon (LSE: JDW), which issued a trading update this morning, and Fuller, Smith & Turner (LSE: FSTA).
On the ground
Last week, it happened I needed to stay overnight in the small market town of Bridport in West Dorset. The principal hotels were The Greyhound (owned by Wetherspoons) and The Bull (owned by Fullers). I opted for the former, while the TV production team I was working with stayed in the latter.
I’ll come back to this topic at the end of the article, but first let’s look at the two chains, and their current valuations.
Wetherspoons has an estate of 876 pubs and 58 hotels. It’s noted for converting attractive existing buildings – many of them listed – including banks, churches, and theatres. And for providing customers with good-quality food, drink, and accommodation at reasonable prices.
Founder and chairman Tim Martin opened his first pub in 1979, and is keenly aware of the benefits of long-term investment in, and management of, the company’s assets. I think this makes the business attractive for investors following a buy-and-hold strategy.
Today’s Q1 trading update was brief on numbers. Principally, the company said like-for-like sales increased by 5.3% and total sales by 5.6%. It added there’s been no change to management’s full-year expectations. At a share price of 1,550p, buyers are paying 20 times earnings. I reckon this represents decent value for investors with a long-term view.
As an aside, Martin included in today’s statement a scathing critique of the current corporate governance system – well worth a read – and argued non-compliance has benefited Wetherspoons and others, including Fullers.
Founded in 1845, and still controlled by descendents of the founding families, Fullers operates in the premium segment of the market. Its estate consists of 179 tenanted pubs and 206 managed pubs and boutique hotels.
At a share price of 1,060p, it trades on a similar earnings multiple to Wetherspoons. It’s an equally attractive investment proposition, in my opinion, for many of the same reasons, including a well-invested estate and management’s long-term perspective on running the business.
The company’s been expanding beyond its traditional London heartland, particularly into the south and west of England. A few years ago it bought nascent craft cider and pizza restaurant chain The Stable, which began life in the back yard of The Bull in Bridport. And just last month it acquired Cotswold Inns & Hotels. I like the strategy of measured expansion.
£50 for investing
Returning to my stay in Bridport, I came away with a good impression of the Fullers and Wetherspoons establishments (aside from the latter’s poor Wi-Fi, which locals tell me is a perennial issue). However, I did save myself 50 quid by opting for The Greyhound over The Bull – and that could multiply nicely over time if sensibly invested!
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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Fuller Smith & Turner. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.