Author: Sreeni Meka
Covestor model: Long-Term Value
Disclosures: Long CSTR
On July 8th, the BLS announced 9.2% unemployment or 14.1 million unemployed, which was essentially unchanged since last month. The unemployment rate appears to be higher in groups with lower educational levels.
Following the 1981 recession, it took almost three years for the unemployment rate to reach the pre-recession unemployment rate. Following the 1991 recession, this duration was 16 months, and following the 2001 recession it was close to a year. But the latest “Great Recession” was lot different from previous ones and may take little longer for unemployment numbers come down to historical average range. You can see more details in one of my past articles on Seeking Alpha.
On a positive note, orders for manufactured durable goods rose in the month of May; total retail sales for the March to May period were up substantially from the same period a year ago. Disposable personal incomes and personal consumption expenditures are increasing, and interest rates and cost of borrowing are at historically lower rates. While the housing sector taking a breath, other segments of the economy are slowly exhibiting strength.
In my portfolio, I sold the volatile China Information Technology (NASDAQ: CNIT), which was a recent victim of reverse merger scandal rumors. That was my first sale in the last four months; since I cannot hedge this stock in this portfolio, I had to make that hard decision to avoid the volatility.
At the end of May, I adjusted my portfolio with few changes. One of my recent inclusions was Coinstar, Inc. (NASDAQ: CSTR). Coinstar operates coin counting machines and a video rental business (Redbox) at various retailer locations. As brick and mortar video rental businesses such as Blockbuster went through great difficulties, new business models like online video streaming, mail order DVD rentals and kiosk-based video rentals have emerged and filled the video rental business vacuum.
Coinstar’s Redbox business has more than 30,000 video rental kiosks at more than 26,000 locations – primarily alongside grocery store chains, drug stores, and at restaurant chains. Redbox charges $1 per video rental and $2 for game rentals. The company’s growth has been phenomenal and profit margins are high. In the tough economic conditions, many consumers are cost conscious, not willing to sign up monthly contracts with online video rentals like Netflix, but can spare a dollar for full night of entertainment.
Coinstar’s Redbox vending machines are ubiquitous and customers have flexibility to rent at one place and return at any Redbox location in the US. I wrote a full length report at Seeking Alpha on Coinstar. I encourage you to read it to get a fuller picture on the company. I believe this is a great time to acquire Coinstar, as both micro and macroeconomic conditions are well aligned.
Sources:
“Employment Situation Summary” US Department of Labor. http://www.bls.gov/news.release/empsit.nr0.htm
“Paychex: A Growth Machine” Sreeni Meka, Seeking Alpha. https://seekingalpha.com/article/158151-paychex-a-growth-machine
“Start Collecting Coinstar” Sreeni Meka, Seeking alpha. https://seekingalpha.com/article/276066-start-collecting-coinstar
