The Pappas brothers, which pretty much run Luby’s, are by far Luby’s largest stockholders, owning a bit above 30% of the company. Their interests are certainly aligned with the company long-term. However, it’s clear that management does not care about the share price. This may be due to a long-term view of the company, basically viewing the share price as something they do not need to be concerned about. Others are a bit more paranoid and think a lower price just gives them the opportunity to gobble up more of the company, perhaps even buy it out completely at a low valuation.

I do not doubt management’s desire to improve Luby’s for the long-term and commend the turn-around they have done so far. But it’s clear that shareholder interests are secondary. By shareholder interests, I simply mean the price of the stock currently…I am not going to pretend it means anything else.

I think a good example of management’s hostility to shareholders interests in this regards is when an individual investor called during the conference call and asked about the land value at current market prices…just the land, not the buildings as well. Management totally avoided the question and made it clear it would not entertain these sorts of inquiries. It’s like cmon guys, throw us a bone!

Last year, Ramius Capital, an activist hedge fund, pushed a sale-leaseback proposal for Luby’s to realize its land and real estate assets. Ramius’s  researchers projected Luby’s real estate (so I assume this is land plus buildings) was worth between $7.89-$10.14 a share. Even at the lower end, this is DOUBLE where the stock is trading at. Texas real estate prices have not halved over the course of 9 months, so it’s clear that Ramius’s idea would land shareholders big bucks currently.

I understand management’s hostility to the sale-leaseback proposal at the time. The sale-leaseback would hurt margins some, so long-term isn’t a great idea. But the stock was trading at $9-$10 a share then. It’s at around $4 now. So back then, it was sacrificing long-term profitability for perhaps a mild pop in share price. Now, that mild pop could double the company’s market cap.

Furthermore, the sale-leaseback will infuse Luby’s with so much cash they can continue any of the expansion/renovation opportunities when they see fit. It’s not exactly a bad idea to begin with.

Here’s my basic point. The sale-leaseback isn’t ideal for long-term growth. I understand this. It also is a terrible time to try to sell any sort of hard asset. But management needs to learn to make concessions to deal with shareholder interests. It can’t just be management’s view and Luby’s long-term 100% of the time. Management also should take into account that  shareholders are being needlessly murdered right now. Yes, my view may be short sighted, but I think the gain in shareholder value simply overwhelms any potential mitigation to the long-term Luby’s growth story.

If the Pappas want to run Luby’s like their own little fiefdom, then make shareholders an offer. Otherwise, independent shareholders still own the bulk of the company, so throw us some respect.

Disclaimer: LONG Luby’s (LUB)

With Obama, Reid, and Pelosi running the country, I couldn’t help but feel bearish too. However, I highly doubt this will happen. While most think this race will be a tossup, I think it will be a McCain blowout. As much as people may blame the economic slowdown on Bush, I just don’t think voters are going to vote for some wimpy-looking, inexperienced, snobbish guy named Barack Hussein Obama over a war hero and proven centrist.

McCain is already leading in the latest Gallup poll, and when you take into account the Bradley Effect, we may have another Bush-Dukakis type race on our hands. However, the market seems to still think that an Obama presidency is likely or at least this election is a coinflip.

I’ve been starting to look into how to make investments based on the election. In general, I’m very bullish based on my McCain prediction, so I’m staying long and am shorting some of those ultra-short index funds (like SDS- a double short of the S&P 500), which is just basically a way to leverage and gain more long exposure to the general market.

One problem for me, personally, is that I’m not very knowledgeable in some of the sectors that are typically loved by the Republicans. I don’t buy that McCain is particularly a war hawk, so while investing in defense stocks might seem like a sort of McCain bet, this isn’t a road I’m tempted to take. Moreover, it’s not clear which defense stocks to take, so while a defense-related ETF may be the way to go, someone with more knowledge in the defense department could probably make a killing in this department.

The health care sector is another one that loves a Republican administration, and this is a sector I’m going to look into. Since I’m betting we won’t have an Obama-style health care rehaul anytime soon, stocks that may have been badly beaten due to these fears may become good buys.

An area that I’m also going to look into are high-priced, high margin services, basically companies that cater to those evil people that make $250k+ a year that Obama wants to tax to death. One group of companies that comes to mind quickly are strip clubs. Hey, if a $300k a year executive just saw his pay cut by 10-20%, he’ll likely decrease his strip club visits substantially. One stock in this sector I’m looking into is Rick’s Cabaret, symbol RICK, though I haven’t checked out much about this company besides its ticker symbol. High-priced steakhouses is another group I’m looking into, such as Ruth’s Chris (RUTH), which is almost 70% off of its 52-week high.

Disclaimer: Author is short SDS

Why am I so enthralled with this perpetual laggard? For starters, I find the stock to be a compelling value right now. The stock is trading around its book value and I think its book value is grossly understated. The vast majority of Luby’s cafeterias are at least ten to fifteen years old, and Luby’s owns the land and buildings on 84 of its restaurants. Luby’s quotes its land values at the price it acquired it on its book, so unless you think Texas land prices are the same now as they were in 1985, that value is understated.

Luby’s has been consistently profitable, has a fair amount of cash on its balance sheet, and has almost no debt. So, in my view, the downside is minimal. Luby’s past few quarters have been fairly disappointing, owing largely to the sluggish economy and rise in commodity prices. But, I see light on the end of the horizon.

Luby’s has been building new-style cafeterias that have a much more modern feel to them and also serve some higher margin items, such as a coffee and ice cream bar. So far, the new style of restaurants have been a smashing success. They are showing to consistently perform better than the traditional, more depressing-style of Luby’s restaurants.

Luby’s is ran by the Pappas brothers, two of Texas’s most successful restauranters. The pair own about a third of the company and have bought up even more shares lately (in late June/early July) when the stock price took a dip in the $5.80-$6.50 range.

I view Luby’s as a long-term investment, and most of this article has so far been the case for a long-term holding. But I see a potential short-term spike. About 1.7 million of Luby’s shares are sold short right now, which is a little over 9% of the float. That certainly isn’t much by any stretch of the imagination. However, Luby’s daily volume is only around 100k shares a day, so its short interest ratio is a whopping 17. Good earnings from Luby’s next week (or perhaps the next quarter) could spark a short covering rally. The lone analyst covering Luby’s is throwing Luby’s a softball for the next two quarters, projecting just $.01 a share this quarter and $.02 a share next quarter.

I personally don’t plan on doing any buying or selling of Luby’s shares anytime soon. If the earnings are in fact good and the shorts get squeezed, I’ll be tempted to sell some shares to decrease the overall size of my holding.

Disclaimer: Author is long Luby’s (LUB)