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Bottom Fishing For Value
The crisis in the Middle East has led to quick pullback in stocks although value is still hard to come by these days. One of my favorite exercises during times like these is to go through my Value Line manuals and explore their list of bargain stocks. I then filter the list to names with quality balance, low valuation multiples and future growth potential.
IN PICTURES: 9 Simple Investing Ratios You Need To Know
Don't Expect Perfect Diamonds
When looking at such names, many that make the list are names not many investors want to look at. Most of the time, the consensus reasoning is sound. Stocks that look cheap from a balance sheet perspective may offer no prospect of future profit growth. Conversely, companies showing profits may have a poor balance sheet. What is certain is that when bottom fishing for stocks, you are rarely going to find a prize. Instead it's likely to be a company facing some sort of issue that you hope is temporary in nature. (For more, see Bottom Fishing For Potential Value.)
Blyth (NYSE:BTH) is seller of home fragrances, candles, gourmet foods, and other home accessories. The company sports a market cap of $275 million, no net debt, and trades for less than eight times earnings. Sales and profit growth has stalled in this current macro environment. But in the long run, things could get better as the economy improves. In the meantime, shares are not expensive and the company has been giving back to shareholders via special dividends. (For related reading, see Fast Growing Value Pick.)
Investing Alone
When you bottom fish for stocks, also expect to invest alone. You are likely going to be lonely when you invest in things like Eagle Bulk Shipping (Nasdaq:EGLE). Dry bulk shipping stocks have not been rescued by the market rally. Ship supply remains a significant concern. Even rising commodity prices has failed to lift shipping rates. Eagle has a more versatile and newer fleet than its competitors. The company is generating good profits but the balance sheet is loaded with debt. Shares for less than 10 times earnings and shares trade at 40% of book value. (For more, see Has Drybulk Reached Low Tide?)
Footwear and apparel company Skechers (NYSE:SKX) trades at seven times earnings and has over $150 million in net cash on the balance sheet. The company is currently trading at 3.6 times EV/EBITDA. Skechers is the company behind the popular "Shape-Ups" shoe and was recently advertised during the Super Bowl.
Ameron International (NYSE:AMN) offers materials for industrial and infrastructure related work. The company sports a market cap of $634 million and has over $200 million in net cash on the balance. With a $68 share price, net cash per share is about $22. Shares trade for 14 times earnings, but that P/E drops into the single digits when you strip out the cash.
These are just a few names of the many that could offer some worthwhile potential. That's not a given of course, and investors will want to look closer at each. (For more, see The Value Investor's Handbook.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 9 Simple Investing Ratios You Need To Know
Don't Expect Perfect Diamonds
When looking at such names, many that make the list are names not many investors want to look at. Most of the time, the consensus reasoning is sound. Stocks that look cheap from a balance sheet perspective may offer no prospect of future profit growth. Conversely, companies showing profits may have a poor balance sheet. What is certain is that when bottom fishing for stocks, you are rarely going to find a prize. Instead it's likely to be a company facing some sort of issue that you hope is temporary in nature. (For more, see Bottom Fishing For Potential Value.)
Blyth (NYSE:BTH) is seller of home fragrances, candles, gourmet foods, and other home accessories. The company sports a market cap of $275 million, no net debt, and trades for less than eight times earnings. Sales and profit growth has stalled in this current macro environment. But in the long run, things could get better as the economy improves. In the meantime, shares are not expensive and the company has been giving back to shareholders via special dividends. (For related reading, see Fast Growing Value Pick.)
Investing Alone
When you bottom fish for stocks, also expect to invest alone. You are likely going to be lonely when you invest in things like Eagle Bulk Shipping (Nasdaq:EGLE). Dry bulk shipping stocks have not been rescued by the market rally. Ship supply remains a significant concern. Even rising commodity prices has failed to lift shipping rates. Eagle has a more versatile and newer fleet than its competitors. The company is generating good profits but the balance sheet is loaded with debt. Shares for less than 10 times earnings and shares trade at 40% of book value. (For more, see Has Drybulk Reached Low Tide?)
Ameron International (NYSE:AMN) offers materials for industrial and infrastructure related work. The company sports a market cap of $634 million and has over $200 million in net cash on the balance. With a $68 share price, net cash per share is about $22. Shares trade for 14 times earnings, but that P/E drops into the single digits when you strip out the cash.
These are just a few names of the many that could offer some worthwhile potential. That's not a given of course, and investors will want to look closer at each. (For more, see The Value Investor's Handbook.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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