NEW YORK ( TheStreet) -- One of the potential benefits of value investing is that you can sometimes be ahead of the curve; discovering and identifying out-of-favor names before the markets discover that there's value there. That's the objective.
This often means buying companies that have a compelling array of assets, but that also may have a "flea" or two. The fleas are what keep other investors away, but sometimes these negatives are either fixable or cause severe overreactions, pushing stock prices below reasonable value.
In the past year, I've had a couple of names in my portfolio acquired. Force Protection (FRPT), a small manufacturer of military vehicles, was acquired last November by General Dynamics (GD). Force had a very clean, cash-rich balance sheet and, at times, traded very close to its net current asset value. General Dynamics got it on the cheap at $5.50 a share. Then in March, auto repair name Midas (MDS) was acquired by TBC. Midas was real estate rich, owning a number of its store location, but was not delivering great operating results. TBC, in my opinion, got a great deal at $11.50 a share.
It does not always work. I owned Callaway Golf (ELY), a former high flying name that fell on tough times, for a few years with the belief that it would make a nice brand acquisition for one of the bigger names. Unfortunately, the company's "recovery" continues to be pushed out farther into the future and, despite a decent balance sheet, there's been no interest (that I'm aware of, anyway). That's a name I finally gave up on.Fast food name Wendy's (WEN) was also a disappointment, unable to show much operating progress in the past couple of years. For a time, I thought that the company might be taken private, but other than rumors, nothing else materialized. I threw in the towel here, too. I still believe that Krispy Kreme (KKD) would make a nice target for a bigger fish trying to expand its portfolio of brands. This company has experienced a solid turnaround in recent years, yet the company's enterprise value is still around $500 million.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV