Third-quarter earnings season begins in earnest next week, so it's a good time to examine expectations for some Bottom of the Barrel stocks as we head down the homestretch of 2003.
The Barrel picks have enjoyed a good year, as the table below indicates. With a couple of notable exceptions, these small-caps have been hanging tough, performing well in a sometimes-volatile market and focusing on their core businesses.
Oats and Barley
The two top performers in the portfolio include the edible stocks:
Wild Oats Markets
( OATS) and
In February, I
highlighted Wild Oats, a natural-food niche retailer. Since then, its management team has made real progress in pushing a store modernization program and a plan to improve central-office efficiencies. The strategy has begun to work, and the company's numbers are improving. However, Wild Oats still has plenty of work left to do, and its stock isn't likely to rise at the same pace in the coming months. The company should post earnings of about 10 cents a share for the third quarter.
Keep an eye on takeover rumors whirling around Wild Oats. There's been chatter about a major supermarket chain buying the company to gain entry into a niche market. That still could happen, though the chatter has been recently muted.
Boston Beer, the maker of Sam Adams brands, also has performed well this year, largely thanks to support for its light-beer product. This stock still has some fizz, but the marketing costs associated with the introduction of the light product have been significant. Overall, beer sales were a bit sluggish this summer, likely a result of the economy. Yet Boston Beer looks relatively inexpensive for long-term investors. As with Wild Oats, though, it's difficult to imagine a similar rise in Boston Beer's stock price in the coming months. Consensus estimates call for Boston Beer to earn 26 cents in the third quarter, which seems about right, although the branding expenses and weak across-the-board beer sales could affect results.
Digging in the Energy Patch
Three energy stocks are also in this year's Barrel portfolio: one very volatile domestic energy-services company and two small-cap Canadian exploration-and-production names.
( MVK) have whipsawed this year as investors try to gauge the recovery in the oil and gas business. However, even with the rise and fall in Maverick's stock price, investors are still coming out ahead for the year. Patience is required for the natural gas market to perk up, but Maverick will benefit from increased drilling, especially in Canada this winter.
The company has said it will earn about 20 cents a share in the third quarter; I think that number could be bit high. Although Maverick's business is better than that of
Lone Star Technologies
( LSS), which recently warned it would miss third-quarter estimates, the tubular-products market has been surprisingly anemic. That should change as Canada enters a busy drilling season, though those results won't show up in Maverick's numbers until at least the fourth quarter.
The two Canadian names --
(CQL:Toronto) -- remain interesting plays on a pickup in Canadian drilling. However, I'd favor Cequel over Real at this point because of its drilling profile and less noise in its story.
If you believe the stock market is a leading economic indicator, then two of the portfolio's names offer reason for optimism. Both
(particularly its industrial products) and
( BEZ) are plays on a recovering economy.
The fact that both of these stocks have performed well in recent months suggests -- at least to me -- that the economy is bouncing along a firmer base. These stocks will continue to perform in line with the economy.
( TOPP) has been a pleasant surprise. The company announced a solid second quarter, which ended Aug. 30, and appears to be executing well. Product mix remains an issue, but management appears to have decent control of operating expenses. However, a rally like this one shouldn't be ignored: Taking profits in small-caps is never a bad thing.
continues to struggle. While the stock may look cheap on an asset basis, the company has to perform, and its product line is feeling intense competitive pressure. I don't think that will change anytime soon.
Overall, this isn't a bad group of small-caps this year. Coming next, I'll update the rest of the portfolio.
Christopher S. Edmonds is vice president and director of research at Pritchard Capital Partners, a New Orleans energy investment firm. He is based in Atlanta. At time of publication, neither Edmonds nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to