Is there a lesson there? I don't know. It does seem that even hated stocks can go down further than they should. Are there others? I suspect so. Do you have the courage to buy them? I know I am gun shy... though I did buy QXM. Many stocks are priced as if there is a fair chance they are going out of business. Wait. It is a beautiful evening here in Bermuda. Let me post a picture of the sunset off my patio where I am typing.
Not too bad. Now back to my thought. Many of these companies (QXM, KSW, CHCG, IAR, WNR, TRID & PRLS just to name a few) are being priced as if they are going out of business. Granted, IAR and WNR have heavy debt loads, so they are admittedly at risk, but my point is they are priced such that the rewards could be extremely high if they don't go out of business (disclosure- I own all these stocks).
QXM - they have made $78m in operating income the past 12 months. They have a market cap of $300m and a p/e ratio of under 4. They have $536m of current assets and just $180m of debt. That is a rock solid balance sheet. Why the low price? I just think the market went "nuts" because they made "only" $15m last quarter. Is there risk? I suppose the financial statements could be mis-stated. Otherwise, I'd say there is little risk and potential for a double.
KSW - okay, this is a small cap stock. Just $28m in market cap. Certainly not for the faint of heart. Then again, unlike many small cap stocks, they are not just reliant on one customer. They do HVAC contracting in NYC for many clients. They have a large back log of work. Backing up their $28m market cap, they have almost $18m in cash. They have implemented a 4.4% cash dividend to highlight their confidence in future cash flow. Oh, and did I mention they made $6m last year? For a $28m company with $18m in cash? Sheeesh. Is there risk? I guess, but I don't think they're going bankrupt and they don't have reliance on a single customer. If you had $10m, you could buy this company lock stock and barrel. Why wouldn't you?
CHCG - I know, I have gotten on my soap box several times about this Chinese retailer. They make money two ways, they run stores within stores and they also are involved in the distribution of electronics. I think the fact that companies such as Best Buy, Carrefour and Wal Mart are doing business with them tells us they must be reliable. Granted, the 1st quarter of 2008 was "disappointing" (they blamed the snow storm) and the stock dove from $2.20 to as low as $1.10. But they just pre-announced the current quarter with eps up 33 to 35% at about $7.3m. They have $106m market cap, trailing earnings of about $24m and they have tremendous growth potential (oh and no LT debt with over $23m in the bank). Hmm, the more I look at my stock holdings, the more I think I have potential to make up my losses.
IAR - is there a more hated stock? They have gone from $38.00 to $1.86 where they stand today. They have mountains of debt. They are in a dying industry (yellow pages, though they do also run Superpages.com, which I use as much as possible). They are on their third CEO in 2008. They ended their dividend. Sell, sell, sell... right? That seems to be the simple decision. And for risk-adverse people, probably the right decision as this company could go bankrupt. But let us take the emotions out of it. In the 1st quarter they had 347m of operating income. They had to pay their debtors 166m of that still leaving us owners with 171m. Does not quite seem as if the world has ended yet... they have said that this will not be a banner year, but if sales drop 10% (they have said single digits) that might take their operating income from $1.5b to $1.2b (assuming they don't cut expenses). Not a happy result, but still their debt cost is $670m per year, so they could still pay it (unless for some reason their debt costs go up). So the big question is whether the 10% decline in revenues reverses or is a longer term trend. I will say the mountain of debt is barely budging. It has gone from 9.055b to 8.989b in 5 quarters. Hmm, I am talking myself into not liking this stock.
WNR - I have written more than a few paragraphs about the refiners. WNR has gone from over $60 last summer to under $10 today. They bought GI, which apparantly was in worse shape than they realized and then have not done the integration that well. All that combined with a tough environment for refiners and a large amount of debt from the GI acquisition and WNR has struggled. Still, as I type, oil has dropped from $147 to $128 and I think it has further to fall. The margins for refiners in likely to expand. WNR says they have spent the money and now have the GI plants up to snuff. If they really do and the environment improves, WNR could easily double from here. I should say it is no longer an MFI stock as they have lost $ the past two quarters. Just looking at their quarterly operating income shows how feast or famine refining can be: 2007 q1: $89m, q2: 241m, q3: 67m, q4: -8m and 2008 q1: -40m.
TRID - they make chips for nice tvs. They are a bit out of favor as the higher-end TVs aren't selling as well is the lower-end TVs. Still, with HD becoming a reality, people are upgrading TVs. The nice thing about TRID is their cash. If WNR and IAR made you a little queasy with their debt, at least TRID doesn't have that problem. They have a 256m market cap and a whopping 236m of cash. They are making $, though q1 was a bit lean. But if they get through their "product replacement cycle" they could start to move off their $4.20 price back towards their 52 week high of 17. With all that cash, they really can't go much lower, unless their CFO runs off to Vegas.
PRLS - I am getting tired, so I'll keep this brief. They also have buckets of cash. More than they're worth. They have had recent turnover at the board level as I suspect there are a lot of arguments about what to do with the moolah. I suspect they'll start buying back shares, possibly start a dividend... and then hopefully find some ways to make money beyond some of the recent business they sold to Samsung. Stay tuned.
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