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VF Corp (VFC), Berkshire Hathaway Inc.(BRK.A) – Hiding in Plain Sight: Investing in Your Favorite Brands

VF Corp (NYSE:VFC)Many popular consumer brands are owned by a parent company that you’ve never heard of. And for investors, sometimes it’s worth doing a little digging to see if there’s anything worth investing in. Are these companies practicing in diversification, or diworsification? Let’s take a look.

What do bikes, baby seats, and ready-to-assemble furniture have in common?

Dorel Industries Inc (USA) (NASDAQOTH:DIIBF), in this case. Featuring such names as Cosco in juvenile products like car seats, strollers, and high-chairs, bicycle brands like Schwinn and Cannondale, and more than a half-dozen brands of home furnishings, the company is an interesting mix.

A look at the company’s most recently reported results in Q1 2013 does shows us why shares have fallen more than 20% since. The primary concern is simple: Revenue and income both declined in the first quarter. Two other concerns investors should have: Level of acquisitive activity, and international expansion.

My take is that the company is using acquisitions in a reasonable manner, as the more recent acquisitions are international distribution channels for its products, and not new product categories. This should make for faster, more profitable international expansion, but I would pay close attention if management decided to add another product category to the mix; buying growth at any cost. However, with four of the current executives, including the CEO, being founders, I don’t see this as a significant risk.

As to revenues going backwards, It’s reasonable to accept management’s claims of a delayed spring affecting the bicycle season are true, and hurt both revenue and EPS. However, even with Q1’s results being poor, the payout ratio of .32 limits the risk of the dividend being cut. To the contrary, it’s been raised several times since being rolled out in 2007. However, I’d suggest waiting until Q2 earnings are announced in the next couple of weeks before making any move. If growth is still stalled, I’d look elsewhere.

What do hipsters, cowboys, and surfers have in common?

VF Corp (NYSE:VFC) dresses them all, with popular brands like Wrangler, Reef, and 7 For All Mankind under the VF Corp (NYSE:VFC) umbrella. Frankly, there’s a lot to like about this acquisitive clothier. Case in point: There was recent interest in acquiring popular surfwear maker Billabong, but VF Corp (NYSE:VFC) walked away before overpaying. That’s a positive sign for investors who’ve been burned by “growth at any cost” management before.

Earnings announced on July 19 were stellar, with the company beating on both revenue and earnings, and raising guidance for the remainder of the year. The market does have high expectations, as shares are already up over 30% YTD.

However, EPS, now over $10, continues to climb as the company leverages its scale across all its brands, and the dividend (only yielding 1.7% due to the recent run-up) has been increased every year since introduction. With a forward PE of 18 being on the higher side, I’d recommend not going “whole hog” just yet. Consider starting a small position, and if you’re lucky the market will pull back and let you add shares at a lower price. However, as the economy continues to steadily improve, there’s no knowing when a pullback could happen.

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