Sunday, November 2, 2014

Adding Iconix Brand Group (ICON) to Portfolio

I am adding Iconix Brand Group (ICON) to my Beating Buffet Portfolio. These are stocks that I will hold for the long term. The companies in the portfolio are in industries where I think the wind is behind my back i.e. energy or where the company has prospects for consistent growth over the long term. Another factor being the company must have a business that would make it difficult or expensive to effectively compete with them. I also like to see the generation of excessive cashflows and managements that return that cashflow to shareholders.

Iconix's business is quite simple. They own some of the most recognizable brands in the world and they license them. You can go to Iconix's website and see the brands they own;  Starter, Candies, London Fog, Umbro, Cannon, Joe Boxer and many others. One of the licenses that is particularly interesting is the Peanuts characters. This is especially intriguing as a brand new Peanuts movie is scheduled to be released this time next year which should lead to many licensing deals and tie ins to the movie (180 deals already signed).

What I really like about this business is that it is high margin because Iconix does no manufacturing or retailing. They just license the brands to others that take all of that risk. The company has been making a big effort to internationalize the business and this has been leading to the recent growth the company has been enjoying (international accounts for 40% of sales and is growing at double digits).

The company produces loads of excess cash that it has been using to buy back shares. The company has been consistently buying back its stock and purchased 700,000 in the third quarter and a total of 4.4 million shares this year. Since October of 2011, Iconix has retired 28.5 million shares, or 39% of shares outstanding. Increased earnings and cashflow along with constant buybacks and a big catalyst coming with the release of the new Peanuts movie next year makes this a great long term buy.

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