Sunday, January 08, 2006

Feeling Arizona

The alternate title, Arizona dreaming, didn't sound that enticing!

I have written before about my successful investments resulting from keeping my eyes open during road-trips. Check out Foothill Bank (Hit# 71) and Central Coast Bank (Hit #65). Having just returned from a week-long driving trip around Arizona, I am going to write about possible leads.

I watch out for 3 sectors when I am in new locations - banking, trucking/rail/logistics and retail. Among these, banking is a sector for which there is really no substitute to actually seeing them located in a community, and this is especially true about all the regional/community banks.

My lists follow:
  • Banking:

    • The Stockmen's Bank: This local bank has an extremely strong presence all over Arizona and as I found out later from their website, even some rural California locations. Unfortunately, they are not public. I will be there to buy the stock, when they do go public. Their story, here, is still worth reading.
    • Compass Bank (CBSS): Mostly a southeast bank, but has some prime locations in Arizona. Still trying to expand into New Mexico and Colorado. I have been watching Compass for a while - it is definitely a takeover target, but looks expensive given its exposure to some of the hottest real-estate markets. I will wait for a better price and yield.
    • National Bank of Arizona: Owned by Zions Bank (ZION). Zions has also been rumored to be a target for a while, but it is going on its own acquisition spree. I will wait for a better price.
    • Marshall & Ilsley (MI): This Wisconsin bank has a small presence in Arizona. MI looks attractive at its current price.
    • Canyon Community Bank: A bank with a small number of locations, but looks exposed to Arizona's real-estate bubble. Not public yet. At a good enough price, once it becomes public, this will be an attractive takeover target.
    • Bank of America, Chase and Citi have a much weaker presence than I expected. They will all have to buy to grow in Arizona.

  • Trucking/Rail: Arizona, along with the southern California deserts, is a great place to see the rail network in action. There aren't usually new companies in this sector that you get to see just because you are in a new location, but you do get to see the activity and an indication of market share of these service providers. My earlier posts on trucking/rail, here and here, have covered most of the companies of interest in this sector.

    • JB Hunt (JBHT): I did not realise the significance of the intermodal segment of the market, where JB Hunt has close ties with Burlignton Northern Santa Fe and has a sizeable share. The number of JB Hunt containers I saw on BNSF trains, easily ran into hundreds just in a few hours time. Will such a close co-operation ultimately lead to a deal via a merger ? I see a possibility of that. JB Hunt shares look attractive today, and I am adding it to my buy list.
    • Forward Air (FWRD): Another company that I had added to my watch list a while ago, after a feature in IBD. I failed to act earlier since I did not realise the true nature/potential of the business. The doubts are gone after seeing tens (hundreds!) of Forward Air trucks, but the shares are not cheap anymore. Forward has a niche market - forwarding freight from airports - mostly to itself.

  • Retail:

    • Dollar General, Dollar Tree, Family Dollar : Dollar stores seem to be everywhere. Larger retailers may have to buy one or more of these guys to enter some communities. Along the same lines, I was surprised by the absence of national majors like Walmart.
    • Starbucks, Peet's: It is hard to say this about California, but Arizona definitely has room for more cafes. While Peet's does not have a presence in Arizona, I think they will, with their earthy colors and interiors, do great in Arizona and New Mexico. I have mostly sold my Starbucks and Peet's shares, though I am willing to buy Peet's again if I see a clear expansion story.


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