A Major, Secular Bottom ...
... in Baseball and Football Cards!
A Bull Market Stock to Buy Now
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OK, OK, I have to be honest with you--right now I’m en route to Michigan for a little R&R; to be frank, I feel a little worn out. Not that the past couple of weeks have been super busy; the market has quieted down as the last weeks of summer pass by. But between moving in to a new house at the end of June (and all the work that goes into that) and trying to get a hold on this market, I’m mentally ... tired.
More importantly, my guess is that you’re less interested in hearing about the inner workings of the stock market right now than deciding exactly how you’re going to marinate your steak tips for this weekends’ BBQ.
Thus, I’m going to keep my Cabot Wealth Advisory today light and brief. It involves a contrary opinion take on an investment, and if you have younger children, you might even be able to share this investment with them ... or they might share with you.
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I’m talking about sports cards, especially baseball and football cards. When I was a kid, my friends and I collected tons of playing cards. But it wasn’t just for fun--i.e., collecting cards of your favorite players. No! It was more about making money, or, at least, being right.
We used to talk about who had what cards, how much they were selling for at card shops and events, and, of course, what Beckett’s publication (the arbiter of card prices) was saying. Looking back, it was my first exposure to a marketplace of sorts, kind of a gateway for my involvement in stocks.
Anyway, one thing that always stuck in my memory were those Beckett monthly publications. I vividly remember how Beckett would have prices for cards going back into the 1960s. Back in the 1960s, there was only one set of cards (usually made by Topps) for each year. I believe there were years when no cards were made, or at least none noteworthy enough to be followed by Beckett.
However, as I flipped through the decades, through the 1970s, the 1980s and into the 1990s, the scene changed--there appeared many different producers of cards; the Topps monopoly was long gone. At the time, I thought it was great; after all, some great cards were made by Fleer, and many of them were valued higher than fuddy duddy Topps. Details aside, let’s just say that my friends and I made a little money and were very intrigued by the cards for a few years.
What I didn’t realize at the time was that, just as I was getting interested in cards in the late 1980s and early 1990s, the industry was actually in a bubble. Prices and turnover were skyrocketing, and the general popularity of cards was as high as it had ever been. Indeed, the reason so many firms besides Topps began making cards was because it was so profitable! Local sporting goods stores also sold baseball and football cards, and card shows weren’t hard to find.
Predictably, the whole thing collapsed in the early 1990s. The reason was simple--too much supply, not enough demand. In fact, the supply of cards was so great that prices for even relatively rare cards went down ... and stayed down. I myself kept a bunch of older cards of top-notch players (including two Joe Montana rookie cards), and still have them safely in a box in a spare room.
(FYI, I also saw a recent headline that said Major League Baseball has now licensed Topps to become the exclusive supplier of baseball cards ... but I’m not sure if that will revive interest.)
So why am I writing about this? Because, the other day, I received my Sports Illustrated and in it was an excellent article titled “The Last Iconic Baseball Card,” by Luke Winn. It was about a card that I and many others own--the Ken Griffey Jr. Upper Deck rookie card of 1989. The subtitle of the article: “Twenty years ago one teenager made a bet on the stardom of another teen, whose rookie card would become one of a kind. It would also signal the beginning of the end of a once-thriving industry.” I get goose bumps just thinking about it.
Here are some facts from the excellent article (which was in the August 24 issue):
Card sales peaked at $1.2 billion in 1991, fell to $400 million by the turn of the century and have slid to $200 million now--an 83% haircut over 18 years.
The Ken Griffey Jr. rookie card was the only one of its kind. When Derek Jeter came on the scene, he had eight different rookie cards (because of all the competition). When Albert Pujols arrived in 2001, he had 43!!!
As for the Griffey Jr. card, it was worth as much as $150 in 2000, but has since declined to about $40.
The number of card shops in the U.S. has fallen by 90%, from about 5,000 to 500.
Most amazingly, at an old card shop, the owner says that “if [a customer] spends $50, I give them a dollar pack of ’91 Stadium Club or ’91 Upper Deck. A lot of people say, ‘I don’t want them’ ... a lot of times it’s just ‘No thanks, I’ve got a ton sitting at home and nothing to do with them.’” In other words, people are rejecting even free baseball cards!
Besides being a great trip down memory lane, I believe this Sports Illustrated article could be the beginning of the end ... of the decline of card prices! No, I’m not basing that on any market research, but just a general sense of the long-term pattern of markets.
Usually, markets see 15 to 20 year advances and declines; you see it in the stock market, in commodities, even in some real estate (though that’s a less liquid market and a home is actually used for something, so it’s a bit different). And generally, during bear phases, the real value will fall something like 70% to 90%, after inflation. Again, these are ballpark figures (no pun intended).
Now, after 18 years of declining values, and with many cards basically worthless to the point that people won’t even take them for free (!!), my guess is that this article is probably--in a perfectly contrary nature--calling a low for the card industry (and card prices) in the years ahead. I’m not saying the industry can’t contract for another couple of years, but my bet is that 10 years from now, prices will be higher, especially for high-quality, older cards of top players.
So if you’re looking to both make a little money and hang out with your kid a bit, look for some good baseball and football card investments. I think it will be worth it!
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While I’m tempted to recommend the Joe Montana rookie card as my investment idea (seriously ... I saw a few on eBay), I’ll get back to the stock market. My idea this time is a stock that showed up in Cabot Top Ten Report a few weeks ago ... and has since traded extremely tightly.
It’s a big, “bull market” stock--Franklin Resources (BEN), the huge asset manager that operates Franklin Templeton Investments with more than $400 billion of assets under management. At the end of June, 46% of assets were equity, fixed-income 33%, and so-called hybrid assets accounting for the rest.
The reason I like the company is simple: Franklin Resources takes a small cut each month or quarter of all the assets it has under management. Thus, when the market is heading down, not only do asset values shrink, investors usually yank out some of their funds. It’s a double whammy, and that’s why BEN’s earnings have fallen 27%, 75%, 69% and 25% the past four quarters.
However, when the market is in a bull phase, the opposite happens--asset values rise and investors put more money into the company’s funds. The result is rapidly rising assets under management ... and earnings! That trend has already begun. Assets under management hit a low of $377.6 billion at the end of February but have risen every month since then, reaching $482.4 billion at the end of July ... up 27.7% in five months! (Augusts’ levels should be released around the middle of next week.)
That momentum helped the company crush earnings estimates for the second quarter--the $1.29 per share it reported was down 25% from a year ago but was a huge 42 cents ahead of expectations. And that meant analysts scurried to hike their future estimates--both 2009 and 2010 estimates rose by 20%. All told, BEN could easily earn $5 per share next year if the market remains relatively healthy.
Thus, the fundamentals are at the company’s back, and so is the chart. During a four-week span starting in early July, BEN spiked on big volume from 65 to 95. Now it’s gone very tight--it’s leveled out between 90 and 95 during the past few weeks, a sign of accumulation. BEN is still extended above its 50-day line (down around 83), but I think the stock is buyable around here, or on a breakout above 96.
Just be aware that, should the market enter a multi-week correction, BEN will likely slide. (As a Bull Market stock, its fortunes are tied to the market.) But with my market timing indicators bullish, and the stock’s tight set-up, it seems like a good bet around here.
All the best,
Mike Cintolo
For Cabot Wealth Advisory
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