Activist hedge fund Bandera Partners filed a 13D regarding Luby’s, Inc. (NYSE:LUB). Other hedge funds are reducing their bets on the stock. The number of long hedge fund positions retreated by 1 during the third quarter. Does it make sense to follow Bandera Partners into LUB?
According to most investors, hedge funds are seen as unimportant, outdated investment vehicles of the past. While there are more than 8000 funds with their doors open at the moment, We choose to focus on the aristocrats of this group, about 700 funds. Most estimates calculate that this group of people handle most of the hedge fund industry’s total asset base, and by observing their top stock picks, Insider Monkey has determined various investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship hedge fund strategy outrun the S&P 500 index by 6 percentage points per annum since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 26.1% since February 2017 even though the market was up nearly 19% during the same period. We just shared a list of 11 short targets in our latest quarterly update.
Let’s view the latest hedge fund action encompassing Luby’s, Inc. (NYSE:LUB).
What have hedge funds been doing with Luby’s, Inc. (NYSE:LUB)?
At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards LUB over the last 13 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Luby’s, Inc. (NYSE:LUB) was held by Bandera Partners, which reported holding $2.6 million worth of stock at the end of September. It was followed by Harvest Capital Strategies with a $0.6 million position. Other investors bullish on the company included Renaissance Technologies and Millennium Management.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Ancora Advisors. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 700+ hedge funds tracked by Insider Monkey identified LUB as a viable investment and initiated a position in the stock.
Luby’s, Inc. (LUB) has been a true value destroying investment for the last 5 years as the stock lost nearly 80% of its value. Bandera’s Jeff Gramm’s letter to the company’s board explains what’s going on:
“Bandera Partners owns 2,619,721 shares of Luby’s, Inc. (“Luby’s” or the “Company”) common stock (“Common Stock”) or approximately 8.9% of the Company’s outstanding shares. We have owned Common Stock continuously for more than a decade, and have supported management and the Board of Directors for that entire time. Bandera is precisely the type of long-term shareholder that a well-managed company should want to have. I also have personal and business relationships with members of the Pappas family that run deep, and I view Christopher and Harris Pappas as pillars of their community and honest businesspeople.
At the same time, I have a fiduciary responsibility to the investors in my fund, and I’m writing today to tell you that what’s happening at Luby’s is simply not working. The Fuddruckers and Luby’s restaurant concepts do not generate a sufficient return on capital to justify the investments management is making, under your direction and supervision, into the business. The strategy of plowing cash flows back into restaurants works with good concepts like Pappadeaux and Pappasito’s, but it has been a failure at Luby’s. Capital expenditures since fiscal 2008 have totaled $235 million dollars, about six times the company’s current market capitalization. The return on this investment has been dismal, and to pay down the debt you have accumulated in the process, Luby’s is liquidating the most valuable asset shareholders own, the company’s real estate.
Luby’s owned real estate portfolio is tremendously valuable. Its appraised value (net of debt) is over $4.00 per share of Common Stock, as compared to its current stock price around $1.40.1 It is brutally painful to watch the Company chisel away at its real estate portfolio to fund low-return investments into the business. Since fiscal 2008, Luby’s has sold $88 million of assets. This capital, more than double the current market capitalization, is gone and forever lost to shareholders. Given the futility of recent investments into Luby’s and Fuddruckers, has the Board considered a capital allocation strategy that preserves the real estate value and returns capital to the owners of the company, the shareholders?
I appreciate that CEO Christopher Pappas reduced his salary to $1, but I also believe the decision to replace the Chief Operating Officer, yet maintain him in a lesser role for $350,000 per year, shocked shareholders and could have contributed to the large sell-off of the Common Stock in late October. Shareholders already value Luby’s at a huge discount to its liquidation value, probably because they expect the company’s book value will continue to deteriorate. Recent events confirm the fears of many shareholders that Luby’s is not serious about addressing its bloated corporate expenses. Does the Board have a detailed plan to align Luby’s overhead costs with the reality of running a $40 million dollar company?
I have tried to reach a mutually agreeable settlement with the company that would give Bandera sufficient seats on the company’s Board to help foster positive change. Luby’s has hired a very sophisticated and expensive corporate defense lawyer instead of engaging in substantive negotiations to improve the Board with fresh, independent faces. To date, almost four weeks after I responsibly engaged with the company, Luby’s has evaded substantive discussion. CEO Christopher Pappas has not responded to any of my requests to speak, and only one of the Board members I have reached out to has replied. Instead of agreeing to talk with a supportive but frustrated shareholder, the director wrote, “I have forwarded your request to corporate.” In my opinion, these are not the actions of a Board of Directors concerned with the interests of the shareholders it is supposed to represent.
I tried to settle this matter amicably, and for the good of all shareholders, but you left me no choice but to nominate a slate of highly qualified directors with deep experience in finance, real estate and restaurant operations. You could have embraced them and offered to add at least some of them to the Board, instead of snubbing us, rejecting serious discussion, and forcing us to bring real choice directly to the shareholders [emphasis added]. Besides myself, our slate includes:
Senator Phil Gramm
Sen. Gramm was an economics professor at Texas A&M before serving 24 years in the United States Congress. His legislative record includes several famous initiatives to reduce Federal spending including the Gramm-Latta Budget and the Gramm-Rudman Act. Since leaving public service, Sen. Gramm was Vice Chairman of UBS Investment Bank before becoming Vice Chairman of Lone Star Global Acquisitions, a real-estate oriented private equity firm.
Stacy Hock
Ms. Hock is a highly-accomplished philanthropist, public policy activist, and business owner. She is a Texas gubernatorial appointee as Vice Chair of the Texas Commission on Next Generation Assessment and Accountability. She serves on Lt. Governor Patrick’s Education Advisory Council, and is Chairman of the Board of Texans for Education Opportunity. Ms. Hock serves on various other public policy, museum and business boards, and previously held management positions in the software industry, including at IBM. She has a degree in Computer Science and Electrical Engineering from MIT, and an MBA from the University of Texas.
Savneet Singh
Mr. Singh is a very well-respected entrepreneur who has launched various finance, software and real estate businesses. He is a Partner at Coventure, an asset manager with funds in lending, venture capital and real estate. Mr. Singh was named to the prestigious Forbes 30 under 30 list, Crains 40 under 40, and the Empact 100 list of top 100 entrepreneurs under 30. Among his directorships, he serves on the board of Par Technology, a $250 million public company that sells POS systems to restaurants and retailers.
Brian Wright
Mr. Wright was introduced to me by a private equity investor who called him, “The best multi-unit operator I’ve ever worked with.” He is currently CEO of Bertucci’s Restaurants, where he has grown EBITDA and turned same-store sales positive. Mr. Wright led a massive restructuring at Bertucci’s, closing multiple unprofitable locations, shedding bad leases through a beneficial pre-packaged bankruptcy, and facilitating a sale to new owners. He was previously COO of Au Bon Pain, President of Chevy’s, COO of Phoenix Children’s Academy, and SVP of Operations at Einstein Noah’s Restaurant Group.
I understand that Luby’s directors control approximately 38% of the outstanding shares of Common Stock. But I believe this is the outside shareholders’ last chance to salvage their investment in the company, and I feel a responsibility to take on this difficult battle on their behalf, rather than subject myself and other Luby’s shareholders to another year of value destruction. If any of you would like to speak with me about Bandera’s slate of Board nominees or any other matters, you can reach me at 212-232-4583.”
By the way, Senator Phill Gramm is Jeff Gramm’s father.
Anyway, we believe there is a decent chance that Bandera could be successful in its attempt to taking the control of the company. That’s what the market thinks as the stock appreciated 20% just this week. This isn’t a very liquid stock, so we won’t make any recommendations to our premium members regarding this stock. However, here is how I see it:
Bandera has about $2.5 million in this stock. Proxy fights are very costly (usually it costs at least $1 million). Assuming that Bandera prevails, the stock could climb to $3-$4. So, Bandera Partners will make at most $4 million in stock gains. Jeff Gramm and his partner will keep 20% of this as performance fees. Considering that Jeff Gramm can receive at most $800K by spending at least $1 million, it doesn’t make sense for him to pursue a time consuming campaign unless he is really really pissed at Christopher Pappas. By buying LUB today you are betting on a positive outcome. If that happens, the company will probably be liquidated and you will receive about $3 per share. If the outcome was negative, the stock can easily go below, $1.
Disclosure: None. This article was originally published at Insider Monkey.
Artificial intelligence is the greatest investment opportunity of our lifetime. The time to invest in groundbreaking AI is now, and this stock is a steal!
It’s the revolution reshaping every industry on the planet.
From driverless cars to medical breakthroughs, AI is on the cusp of a global explosion, and savvy investors stand to reap the rewards.
Here’s why this is the prime moment to jump on the AI bandwagon:
Exponential Growth on the Horizon: Forget linear growth – AI is poised for a hockey stick trajectory.
Imagine every sector, from healthcare to finance, infused with superhuman intelligence.
We’re talking disease prediction, hyper-personalized marketing, and automated logistics that streamline everything.
This isn’t a maybe – it’s an inevitability.
Early investors will be the ones positioned to ride the wave of this technological tsunami.
Ground Floor Opportunity: Remember the early days of the internet?
Those who saw the potential of tech giants back then are sitting pretty today.
AI is at a similar inflection point.
We’re not talking about established players – we’re talking about nimble startups with groundbreaking ideas and the potential to become the next Google or Amazon.
This is your chance to get in before the rockets take off!
Disruption is the New Name of the Game: Let’s face it, complacency breeds stagnation.
AI is the ultimate disruptor, and it’s shaking the foundations of traditional industries.
The companies that embrace AI will thrive, while the dinosaurs clinging to outdated methods will be left in the dust.
As an investor, you want to be on the side of the winners, and AI is the winning ticket.
The Talent Pool is Overflowing: The world’s brightest minds are flocking to AI.
From computer scientists to mathematicians, the next generation of innovators is pouring its energy into this field.
This influx of talent guarantees a constant stream of groundbreaking ideas and rapid advancements.
By investing in AI, you’re essentially backing the future.
The future is powered by artificial intelligence, and the time to invest is NOW.
Don’t be a spectator in this technological revolution.
Dive into the AI gold rush and watch your portfolio soar alongside the brightest minds of our generation.
This isn’t just about making money – it’s about being part of the future.
So, buckle up and get ready for the ride of your investment life!
Act Now and Unlock a Potential 10,000% Return: This AI Stock is a Diamond in the Rough (But Our Help is Key!)
The AI revolution is upon us, and savvy investors stand to make a fortune.
But with so many choices, how do you find the hidden gem – the company poised for explosive growth?
That’s where our expertise comes in.
We’ve got the answer, but there’s a twist…
Imagine an AI company so groundbreaking, so far ahead of the curve, that even if its stock price quadrupled today, it would still be considered ridiculously cheap.
That’s the potential you’re looking at. This isn’t just about a decent return – we’re talking about a 10,000% gain over the next decade!
Our research team has identified a hidden gem – an AI company with cutting-edge technology, massive potential, and a current stock price that screams opportunity.
This company boasts the most advanced technology in the AI sector, putting them leagues ahead of competitors.
It’s like having a race car on a go-kart track.
They have a strong possibility of cornering entire markets, becoming the undisputed leader in their field.
Here’s the catch (it’s a good one): To uncover this sleeping giant, you’ll need our exclusive intel.
We want to make sure none of our valued readers miss out on this groundbreaking opportunity!
That’s why we’re slashing the price of our Premium Readership Newsletter by a whopping 75%.
For a ridiculously low price of just $24, you can unlock a year’s worth of in-depth investment research and exclusive insights – that’s less than a single restaurant meal!
Here’s why this is a deal you can’t afford to pass up:
The Name of the Game-Changing AI Stock: Our in-depth report dives deep into our #1 AI stock’s groundbreaking technology and massive growth potential.
Ad-Free Browsing: Enjoy a year of investment research free from distracting banner and pop-up ads, allowing you to focus on uncovering the next big opportunity.
Lifetime Money-Back Guarantee: If you’re not absolutely satisfied with our service, we’ll provide a full refund ANYTIME, no questions asked.
Space is Limited! Only 1000 spots are available for this exclusive offer. Don’t let this chance slip away – subscribe to our Premium Readership Newsletter today and unlock the potential for a life-changing investment.
Here’s what to do next:
Head over to our website and subscribe to our Premium Readership Newsletter for just $24.
Enjoy a year of ad-free browsing, exclusive access to our in-depth report on the revolutionary AI company, and the upcoming issues of our Premium Readership Newsletter over the next 12 months.
Sit back, relax, and know that you’re backed by our ironclad lifetime money-back guarantee.
Don’t miss out on this incredible opportunity! Subscribe now and take control of your AI investment future!
Here to answer that for us… and give away his No. 1 free AI recommendation… is 50-year Wall Street titan, Marc Chaikin.
Marc’s been a trader, stockbroker, and analyst. He was the head of the options department at a major brokerage firm and is a sought-after expert for CNBC, Fox Business, Barron’s, and Yahoo! Finance…
But what Marc’s most known for is his award-winning stock-rating system. Which determines whether a stock could shoot sky-high in the next three to six months… or come crashing down.
That’s why Marc’s work appears in every Bloomberg and Reuters terminal on the planet…
And is still used by hundreds of banks, hedge funds, and brokerages to track the billions of dollars flowing in and out of stocks each day.
He’s used this system to survive nine bear markets… create three new indices for the Nasdaq… and even predict the brutal bear market of 2022, 90 days in advance.
So you can see why CNBC’s Jim Cramer has said he’s learned to never bet against Marc.
