Bottom of the Barrel: Sorting Through the Pile of Picks
As earnings season winds down, many readers have asked for a review of the stocks in the Bottom of the Barrel portfolio. So let's take a quick look at each of the nearly 30 companies in there.
I've reorganized and simplified the portfolio into three clear categories:
Above-average performers: small-cap stocks expected to perform best in the coming months;
Average performers: stocks that deserve your attention but don't quite make the elite list;
|Dressing Up the Barrel
Category changes and realignment
|Current Rating||Company/Ticker||Date of Mention||May 13 Price||Mention Price*||% Change From Mention||First Call 2002 EPS Est.||Current P/E Ratio|
|Fidelity National (LION:Nasdaq)||May 8, 2002||$10.31||$10.58||-2.55%||$0.55||18.75|
|Endocare (ENDO:Nasdaq)||Jan. 23, 2002||19.35||18.21||6.26||0.34||56.91|
|SurModics (SRDX:Nasdaq)||Dec. 19, 2001||37.65||34.60||8.82||0.42||89.64|
|FPIC Insurance (FPIC:Nasdaq)||Nov. 14, 2001||14.37||12.83||12.00||1.25||11.50|
|Trico Marine (TMAR:Nasdaq)||May 1, 2002||$9.15||$8.25||10.91%||$(0.26)||NE|
|Arch Chemicals (ARJ:NYSE)||April 24, 2002||24.20||22.52||7.46||0.55||44.00|
|Hines Horticulture (HORT:Nasdaq)||April 17, 2002||4.64||4.75||-2.32||0.58||8.00|
|UCBH Holdings (UCBH:Nasdaq)||March 27, 2002||39.71||35.65||11.39||1.84||21.58|
|Cost Plus World Markets (CPWM:Nasdaq)||March 6, 2002||31.99||25.83||23.85||1.11||28.82|
|Rare Hospitality (RARE:Nasdaq)||Feb. 20, 2002||28.25||25.72||9.84||1.44||19.62|
|VitalWorks (VWKS:Nasdaq)||Nov. 21, 2001||7.60||4.30||76.74||0.33||23.03|
|NetBank (NTBK:Nasdaq)||Feb. 6, 2002||15.97||13.45||18.74||0.65||24.57|
|Coastal Bancorp (CBSA:Nasdaq)||Dec. 12, 2001||31.75||27.84||14.04||2.41||13.17|
|Coinstar (CSTR:Nasdaq)||Nov. 7, 2001||29.95||19.96||50.05||0.73||41.03|
|Witness Systems (WITS:Nasdaq)||Oct. 31, 2001||7.54||8.06||-6.45||0.16||47.13|
|Hibbett Sports (HIBB:Nasdaq)**||Oct. 24, 2001||27.10||20.04||35.23||1.37||19.78|
|Quixote (QUIX:Nasdaq)||Oct. 3, 2001||18.75||21.44||-12.55||0.72||26.04|
|Actrade (ACRT:Nasdaq)||Jan. 30, 2002||$17.50||$20.65||-15.25%||$3.05||5.74|
|Goody's Family Clothing (GDYS:Nasdaq)||Nov. 28, 2001||10.96||4.50||143.56||0.51||21.49|
|Bridgford Foods (BRID:Nasdaq)||Oct. 10, 2001||14.00||13.18||6.22||NA||NA|
|Quanta Systems (PWR:NYSE)||Jan. 9, 2002||13.60||16.05||-15.26||1.04||13.08|
|Bottom of the Barrel Income Portfolio|
|Capital Automotive REIT (CARS:Nasdaq)||April 3, 2002||$23.70||$22.95||3.27%||$2.03||11.67|
|Laclede Group (LG:NYSE)||March 20, 2002||23.29||23.64||-1.48||1.20||19.41|
|Alexandria Real Estate (ARE:NYSE)||Feb. 13, 2002||44.99||40.25||11.78||3.92||11.48|
|Empire District Electric (EDE:NYSE)||Jan. 16, 2002||21.30||21.23||0.33||1.26||16.90|
|Met-Pro (MPR:NYSE)||Oct. 17, 2001||15.41||11.16||38.08||NA||NA|
|Integra Bancorp (IBNK:Nasdaq)||Jan. 2, 2002||23.25||20.75||12.05||1.50||15.50|
|Bottom of the Barrel Special Situation Portfolio|
|Luby's (LUB:NYSE)||Feb. 27, 2002||$6.70||$6.22||7.72%||$(0.28)||NE|
|*Average price on date of mention.
**Prices adjusted for 3:2 split on Feb. 20, 2002.
NA=No First Call estimates available.
Source: Thomson Financial/First Call, TSC Research
At the Top of the BarrelFour stocks remain at the top of the list: Fidelity National (LION), an Atlanta-based community bank with lots of potential, was profiled last week. Although it looks expensive based on 2002 earnings, significant growth prospects in 2003 make this bank worth a look.
The Middle TierA lot of good companies are in the middle group of stocks. I recently profiled Trico Marine (TMAR), Arch Chemicals (ARJ) and Hines Horticulture (HORT). The stories on all three remain the same. Here's a quick look at the others. UCBH Holdings (UCBH) had a good first quarter, with net income up 29%. I still like its growth prospects among the ethnic population of Northern California and its new international finance business. I also continue to like the growth story at Cost Plus (CPWM), especially as it moves into markets outside California. The only reasons why it isn't on the elite list are its recent gains and valuation. Rare Hospitality (RARE), owner of LongHorn Steakhouse, is a solid economic recovery story. However, the company has been cautious on its first-half performance outlook, and I think the second half will play out better. VitalWorks (VWKS) is a health-care software play with solid growth prospects. However, its 76% gain since November should be noted. With its Resource Mortgage merger complete, NetBank (NTBK) should benefit from a recovering economy. I like its marketing agreement with Microsoft (MSFT) and think earnings estimates may be a bit low. Coastal Bancorp (CBSA) continued to restructure its portfolio and posted a disappointing quarter. Coastal will benefit from a better economy and marginally higher interest rates. Its current price provides good long-term value. Coinstar (CSTR) has jumped up 50% since profiled in November. It looks fully valued based on current estimates. Witness Systems (WITS) remains one of my favorite names in the portfolio, but has telegraphed a weak second quarter. Look for a solid second half, but short-term enthusiasm has diminished. Hibbett Sports (HIBB) has benefited from a strong retail group and consumer spending. It's now near fair value. Quixote (QUIX) has suffered as highway construction spending has slowed. It needs a better economy and improved states' financial health to show signs of growth.
The Real Bottom of the BarrelI continue to avoid four companies in the portfolio: When a stock trades at only five times estimated earnings, there must be a reason. For Actrade (ACRT), the reasons are uncertainty about the business plan, lack of confidence in estimates and a whole host of issues regarding the past pursuits of senior management. Well-reasoned or not, the stock can't get out of its rut, and it will likely take a few quarters for investors to regain their confidence. Trading at more than 21 times 2002 estimates, Goody's Family Clothing (GDYS) is fully valued. In the hot retail sector, this average regional soft-line retailer has been lifted by the rising tide. Bridgford Foods (BRID), which makes frozen bread, pepperoni and a lot of other culinary basics, is trading at the top of a very tight price range. Nothing is terribly wrong with this company, but better opportunities exist elsewhere. I've moved Quanta Systems (PWR) from the special situations portfolio to the below-average list and reduced its barrel rating from 3 to 1.5. With diminished hope that Aquila (ILA) will win its proxy battle for control and with weakness in Quanta's core power and telecom contracting businesses, it's hard to find a catalyst that will push this stock higher. It has become cheaper for good reason.
Looking for IncomeThe stocks in the income portfolio all sport nice, safe dividends. Gains in Alexandria Real Estate (ARE) and Met-Pro (MPR) have pushed yields lower, and taking profits is not unreasonable. The best total return prospects are Laclede Group (LG), which sports a 5.76% yield, and Empire District (EDE), which has a 6% yield. The 6.6% yield of Capital Automotive (CARS) is also attractive. Finally, the Pappas brothers' turnaround plans for Luby's (LUB) are on track. It's still a year away from earnings, but keep this stock on the screen.
I'll continue with weekly portfolio updates and will try to provide a whirlwind look at the entire portfolio each quarter. Next week, look for another addition to the portfolio. Keep your eye on the barrel. Do you have candidates for Bottom of the Barrel? If so, shoot me an email with the company's name, why you think it qualifies, and your full name and hometown. If I profile your suggestion, I'll send you a TSC gift to commemorate your pick.
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