Road Trip—Part Three

Road Trip — Part Three
Art
Dunkin’ Brands (DNKN)

Today brings the third installment about my recent 17-day 4,218-mile road trip to and through the American Midwest and back—which I’m presenting not chronologically but thematically.

Today’s theme is art, not least because my wife is an artist, and the one concrete reason for this trip was an opening reception at the “Minnesota Center for Book Arts” in which she had work.

But before I get to that, I want to share a few thoughts about art in general.

Some people, like my wife, spend a lot of time thinking about art.

Other people spend almost no time thinking about it. Their minds are busy enough with the hundred and one things that make up “regular” life, including work, family, food, shelter and health care.

Nevertheless, when confronted with art, everyone knows what they like and what they don’t like.

And that’s the beauty of art, which the dictionary defines as “the class of objects subject to aesthetic criteria.” When you’re the viewer and you use your own criteria, any reaction you have is valid.

At least that’s the way I see it.

On this trip, our first museum was the Detroit Institute of Arts, the sixth-largest museum in the U.S., which had been in the news in recent years because the museum belonged to the city, and its collections, recently valued as high as $8 billion, were at risk of being sold to bail Detroit out of bankruptcy. Fortunately, the museum was able to raise $800 million from foundations and individual donors and thus, in what is being called a “Grand Bargain,” ransom the museum from the city and establish a new trust that will own the museum.

And why was Detroit bankrupt? (Sorry, I can’t avoid this little diversion.)

The biggest reason is that tax revenues fell as people left the city (the population peaked way back in 1950, when the average income in Detroit was the highest in the country), and cash flow eventually went negative. Yes, secondary problems included bad city management, too many government workers and high pension liabilities, but the real problem was revenue. And the main reason that revenues fell was that the city’s revenue base was too concentrated in the automobile industry. Detroit had failed to diversify!

And as any successful investor can tell you, diversification is critical.

The main goal of our visit was to view the show “Diego Rivera and Frida Kahlo in Detroit,” which was very good, but I especially liked the murals (frescoes) that Rivera had painted in 1932-1933, not least because they’re part of a great economic story.

Rivera’s murals depicted the industries of Detroit—dominated by auto manufacturing but including medicine and science—as inseparable from the men who worked in them.

But in fact, the jobs have gone elsewhere, to workers in non-union states in the South, to Canada, and to Japan, Korea and China.

My car, the Tesla Model S, was built in California, in large part by robots!

And Detroit, as we all know, has become a hollow shell of its former self.

But today, with real estate values low, young, entrepreneurial, creative types (even gardeners) are moving into Detroit, and building the foundation for its reincarnation, which—most certainly—will not be centered on automobiles.

Our next museum was the Art Institute of Chicago, which we’d been to several times previously. It’s big, well funded, and has something for everyone, from the ancient worlds to the contemporary. One unique collection is the Thorne Miniature Rooms (68 museum-quality dollhouse-size rooms) built by and for Narcissa Niblack Thorne, who married an heir to the Montgomery Ward department store fortune.

Next came the Chazen Museum of Art at the University of Wisconsin—Madison, which was very impressive, and where we got a private showing of their artists’ books collection in the Kohler Library

And that was followed by the Walker Art Center in Minneapolis. The art (contemporary) was decent, but the building, which has a glossy white skin that has aged badly, was difficult to navigate. What we enjoyed most was the art in the sculpture garden outdoors, particularly Claes Oldenburg’s “Spoonbridge and Cherry,” a 7,000-pound structure fabricated by two shipyards in New England.

We also visited the Minneapolis Institute of Arts, a delightful repository of more traditional art that’s currently celebrating its 100th birthday. Very enjoyable.

And that was followed by the main goal of the trip, the opening at the Minnesota Center for Book Arts, where we met the leaders of the local book arts community (it’s a national hot-spot) and viewed the show, “The Contained Narrative: Defining the Contemporary Artist’s Book.” (If you’re curious about what artist’s books are, just Google the term and view the images.)

Turning south, we visited the Des Moines Art Center, which boasts buildings designed by Eliel Saarinen, I. M. Pei and Richard Meier, but disappointed us with its art. (Perhaps our problem was the substantial space devoted to an exhibition of “fiber art,” a medium that underwhelms us.)

What we did enjoy in Des Moines was the John and Mary Papajohn Sculpture Park, which occupies a prime spot downtown, and provides the general public an opportunity to enjoy a variety of contemporary art, like this figure by Jaume Plensa.

Then came Kansas City where we visited the Nelson-Atkins Museum (on Mother’s Day) and enjoyed a great array of Renaissance art, including “Adoration of the Magi” by Gherardo di Jacopo Starna, which includes this detail. I like the cow.

And if you’re looking for more contemporary work, the Nelson-Atkins Museum also has this slightly creepy but very realistic museum guard created in 1975 by Duane Hanson.

After that came one of the major destinations of our trip, as well as the southwesterly turning point, the Crystal Bridges Museum of American Art in Bentonville, Arkansas, better known as the home of Walmart.

Funded by Alice Walton (the daughter of Walmart founder Sam Walton) and designed by Moshe Safdie, the museum is absolutely beautiful, nestled in a ravine and sitting over two creek-fed ponds. And it holds an exquisite collection of American art from the beginning of our nation to the present. I liked this Jackson Pollock, which was part of a special exhibit.

Bentonville also has the fantastic 21C Hotel Museum, where you can sleep, eat, drink and enjoy contemporary art—all under one roof. We also enjoyed the 21C Hotel Museums in Louisville, Kentucky (where we were lucky to meet founder Steve Wilson) and Cincinnati, Ohio.

Then it was on to Memphis, where we stumbled onto the Belz Museum of Asiatic and Judaic Art, which contains the collections of Mr. Jack Belz, a local real estate developer whose company owns the famous Peabody Hotel was well as other hotels, shopping malls and commercial space. Belz and his wife began buying Asian art in 1968—buying what they liked—and the museum presents a wide array of beautiful pieces, with particular emphasis on carvings of jade and ivory.

Memphis also has the charming Memphis Brooks Museum of Art, which is well worth a visit.

And that was all the museums on our trip!

It was fabulous. And also quite restorative.

So what kind of stock recommendation goes with art?

Since most art organizations are non-profit, there aren’t many to choose from. In fact, the only one I can think of is Sotheby’s (BID). But Sotheby’s isn’t particularly attractive; it grew revenues just 10% last year and the chart is doing no better than the market.

So, looking for ideas, I turned my mind to some of the major corporate brands we saw on our road trip, including McDonalds (MCD), Target (TGT) (headquartered in Minneapolis), FedEx (FDX) (headquartered in Memphis) and Wal-Mart (WMT) (Bentonville, Arkansas).

But those are all big, slow-growing companies. In fact, the fastest-growing of the four is FedEx, which saw revenues grow 3% last year. That’s not very attractive. (Also, a quick look at Cabot Benjamin Graham Value Investor tells me none of them are attractive from a value perspective, either.)

But I did find a mass-market roadside brand worth recommending, and I found it in last week’s Cabot Top Ten Trader. It’s Dunkin’ Brands, headquartered in the Boston suburb of Canton.

Here’s what Cabot Top Ten Trader said.

Dunkin’ Brands (DNKN)
(popularly known as Dunkin’ Donuts)

“The Millennial mass exodus from traditional fast food is well documented. All across America, the rising generation has switched from McNuggets and Taco Bell to “Fast Casual” fare like Chipotle, Shake Shack and Five Guys, with one notable exception—the breakfast sandwich. Despite the general decline in fast food consumption, breakfast sandwiches remain popular, buoying sales for struggling companies and bolstering sales of the thriving ones. It should come as no surprise, then, that Dunkin’ Brands, a leader in fast food breakfast sandwich sales, posted excellent earnings last month. Earnings beat estimates by $0.05, rising 21% to $0.40 per share, and revenue grew to $185.9 million, $5.1 million above the $180.8 million consensus forecast. Increased capital did not come at the cost of expansion, either; in February, Dunkin’ Brands’ K-Cup packs became available at retail outlets nationwide as the result of a new, stronger deal with J.M. Smucker and Keurig. Any company with steady growth, a good pop on earnings, and solid plans for the future deserves some attention, but it’s Dunkin’ Brands’ resilience in the face of industry weakness that keeps us interested.”

 

“From December 2013 until May 2015, DNKN kept to a 40 to 50 range, with lots of ups and downs. But the earnings gap set a new high, and the stock has held its gains and built a small, tight base over the last few weeks. “

That was followed by specific advice on exactly where to buy DNKN, as well as advice on where to bail out if the trade doesn’t work. If you’d like to know those exact numbers, click here.

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Chief Analyst, Cabot Stock of the Month
Publisher, Cabot Wealth Advisory

Comments