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Two Names Worth a Nibble

The shares certainly qualify as cheap enough, as they are trading at 0.85% of book value and 10x earnings. Debt is 545 of capital and the interest coverage is a very comfortable 3.7x. The current ratio is over 2, although much of that is inventory. Even during the recent economic nastiness, the company has been consistently profitable and has paid dividends for 364 consecutive quarters.

Weiss Markets (WMK) is our other grocery related company. The company owns 163 grocery stores, which are primarily located in the mid-Atlantic region of the U.S. The company has also been consistently profitable for over a decade and has paid a divided. The company owns about half its locations and also has a real estate operation that leases unused or excess location to other retailers. The company also has a current ratio above 2 and has no long-term debt on its books. At the current price, the stock trades at 12x earnings and about 12x earnings. So the shares are on the high side of the cheap equation, but WMK still qualifies as a defensive stock.

Both companies are coming off slow years and weak fourth quarters, as the retail grocery business continues to be difficult and highly competitive. Hurricane Sandy probably gave a little boost to sales at Weiss but it hurt military operations for Nash Finch because many ports were closed for several days. However, both stocks are cheap. And even though the business is cutthroat -- largely in part due to Wal-Mart's (WMT) presence in the industry -- people still have to eat. Both companies should be able to grow earnings at reasonable rates and maintain dividends for the foreseeable future.

At the time of publication, Melvin had no positions in the stocks mentioned.

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