I confess that I am a pretty old-fashioned guy. I still tuck my shirts in to my wife's dismay and carry a zippo lighter. Although I enjoy the benefits of technology, a lot of it still baffles me.
Watching me use spreadsheets or try to create a power point presentation has provided years of amusement for friends and co-workers. I am a pencil-and-paper- back-of-the-envelope-notes-scattered-all-over-the-desk-top kind of guy at heart.
That's not to say I want to replace my stock screeners with the old yellow highlight market and weekly S&P stock guide, but I do still prefer to read newspapers I can hold and spill coffee on instead of the online versions. With that in mind, although I rigorously screen for stocks every day, I also still subscribe to a monthly statistical service that arrives by snail mail and can be reviewed at my leisure.
I have subscribed to the service off and on for well over a decade. Every time I cancel it I find myself missing having the issues scattered all over the place and reading it on the patio with coffee and a smoke in the morning. It has three classifications of securities that are cheap on a statistical basis. I often find an idea or two that the screens overlooked, and it also serves as math and analytical check for me.
The first section is called Book 16s and this list of stock has made me some pretty good money over the years. These are simply stocks trading below book value that have an earnings yield of 16% or more. That translates to a price-to-earnings-ratio of under 7, so these are super cheap, but profitable companies. The last time I made reference to the Book 16 stocks was in July of last year. The two stocks I uncovered, Kelly Services (KELYA) and Patterson-UTI Energy (PTEN) are both up more than 50% since.
The list is pretty short right now after the markets have climbed the wall of worry like Sir Edmund Hillary on steroids the past couple of years. Mortgage REITs are showing up in size on the list just as they are on so many other screens. My problem here is that the book values have become moving targets and the threat of rising rates could hurt these values further. I own some of the names on the list in income accounts like Ellington Financial (EFC) and Annaly Capital (NLY) but I am not ready to add to these just yet. It is worth noting that analysts at Credit Suisse take a different view and are positive on the sector according to an article in Barron's last week.
The second section of the report is devoted to companies whose shares trade at least 30% below the value of net current assets. I am a huge fan on these net-net stocks but there is not much on the list right now worth considering. Most of the list is biotech stocks and these are usually burning cash received from a stock offering or research partnership. They are too risky unless you have specialized knowledge. The bulk of the list is Chinese companies, whose real value I doubt more than I do the Jacksonville Jaguars chances of winning the Super Bowl.
The final section is the one that has probably made me the most money over the years. It is a list of companies that are profitable and trade below net current asset value. These are generally "just buy em" too-cheap-not-to-own stocks. I am pleased to see some old friends on the list that are cheap enough to buy, no matter what silliness and noise are pushing the stock market around right now.
Transworld Entertainment (TWMC) has moved a little higher this year but the stock still trades below the $4.88 a share net current asset value. I am not a huge fan of the retail music and video business but the company is expanding its offering and is cheap and profitable.
I have owned Gencor (GENC) for so long I would probably go into withdrawal if it was not on my position list one morning. The stock is bel0w net current asset value and is profitable so it is a buy right now. They need to see a strong uptick in highway spending to soar again but it's a decent business at a very cheap price.
Richardson Electronics (RELL) posted a very "blah" earnings report this week but the stock still trades below current asset value. They pay a 2% dividend and management has been buying back a little stock with the excess cash so they are trying to support a higher shareholder value. The stock is just too cheap not to own at this level.
I like the reality check of the snail mail service and find it is a nice companion to the online world. Besides, it's much easier to lug out to the patio than my computer.
At the time of publication, Melvin was long RELL, TWMC, GENC, KELYA, NLY and EFC.