By Brad Thomas, Editor, Intelligent Income Daily
I’ll come right out and admit it: I like name-dropping.
It’s fun to tell people I know Shark Tank’s Mr. Wonderful (aka Kevin O’Leary). Or that I sat down for a chat with real estate legend Sam Zell, the world’s 438th richest man.
But much better than those bragging rights is the information they can give me. Their insider perspectives can be invaluable.
At Intelligent Income Daily, I use my decades of experience and rolodex of contacts to bring you the best income-generating ideas that help consistently and reliably boost your bottom line… regardless of market conditions.
I’m sure you saw what happened to the markets on Tuesday. August’s inflation numbers came out worse than expected, sending investors into an abject panic. The Dow Jones Index ended down about 4%, the S&P 500 tanked 4.3%…
And the tech-heavy Nasdaq crashed a whopping 5.2%. All because the markets now expect the Federal Reserve to send us into an undebatable recession.
So right now, getting acquainted with the best businesses, smartest minds, and proven tactics to survive a bear market is more important than ever.
That’s why I’m so intentional about meeting with CEOs one-on-one – even when they’re not as well-known as the names I dropped above.
Take Brian Randall Kahn, for example. You’ve probably never heard of him, but I was excited to talk with him last week.
Brian heads up Franchise Group (FRG), a company that owns six brands – The Vitamin Shoppe, Pet Supplies Plus, Badcock, American Freight, Buddy’s, and Sylvan Learning. And he’s developed a proven model to run those brands and withstand whatever downturn the economy could likely take.
Talking to Brian, I learned exactly what it is that makes his approach successful. So today, I’ll share what he had to say, what it means for Franchise Group’s future, and how it could benefit your own portfolio.
What I Wanted to Hear
Let’s start with the company’s strengths. Each of the brands in Franchise Group’s portfolio boasts a:
Stable business model
Built-in value creation
They’re “cash cows” that require minimal capital expenditure (capex), enjoy wide moats, and generate healthy profits.
That kind of stability is precisely what my team and I look for here at Intelligent Income Daily.
And achieving that stability isn’t by chance. There were a lot of great takeaways from my interview with Brian. But this one about the company’s plan for combatting a recession or other market downturn stood out especially:
From a big picture perspective, I think we look at the businesses that we own, and we feel very good that if all we do is continue to operate the businesses that we own – most of which are extremely recession resistant – then we’ll be fine. The key for us is just not making a mistake.
That may sound obvious, but far too many people – both in the corporate world and investing – are so focused on making money they forget to protect it. That’s why it’s so good to see a business leader make moves that are “economically resistant to a recession.”
Brian added that Franchise Group tries “to solve for the economic variability over time” before buying a new brand “rather than just trying to figure it out afterwards.” As a result, two of its brands – Buddy’s and American Freight – actually grew during the Great Recession of 2007-2009.
That’s a big deal, especially when we’re very likely headed into another recession – if we’re not already there.
Other people can chase the heady profits of technology, sudden trends, and cryptocurrency. But I’ve built a portfolio, a business, and a future on consistent stocks.
It’s a strategy that hasn’t let me down yet. And like Brian implied – I’m not about to mess with a good thing.
Cheap but Bound to Grow
Here’s another thing I like about Franchise Group: Its stated goal is to “maximize free cash flow and pay a growing dependable dividend to shareholders.”
Right now, it’s offering $2.50 per share, which makes for a 7.6% yield at last check. Admittedly, that yield is a little inflated because its stock is down around 38% this year. But I’m still confident in Franchise Group’s prospects for a few reasons…
First, it announced a stock repurchase program a few months ago – and hasn’t amended it. Another sign is that Brian owns 1.8 million shares, or over 4.42% of the company. That’s a strong show of corporate insider confidence.
Then there’s the fact that Franchise Group raised its dividend 67% from last year’s $1.50. A company that was struggling in fundamentals would not be able to afford these things.
This shows me that Franchise Group isn’t touting a sucker yield (as we laid out yesterday). Rather, it presents a bargain opportunity, so investors can use it to better buffer downturns like this.
To quote Brian one more time, yes, inflation has “had a greater impact on some of our businesses than others. Product costs have increased. Freight costs have increased. Wages have increased.”
But Brian isn’t scared. He knows his businesses are resilient, so all he and FRG shareholders have to do is not mess with something that’s proven to work.
That’s the kind of statement I look for when I interview a company leader. I can and do pore over spreadsheets with the best of them.
But that kind of confidence is hard to capture in mere black and white – which is why I’m always willing to go the extra mile for an insider perspective.
That’s the perspective I have for you today: Holding names in your portfolio that have historically shown resilience in previous market downturns can easily carry you through any present or future volatility…
And bring you out intact on the other side.
Happy SWAN (sleep well at night) investing,
Editor, Intelligent Income Daily