item here last week quoted a California money manager who has a passion for down-and-out telecommunications stocks that, for one reason or another, have alienated the momentum crowd. Why him and why telecommunications stocks? Because he just happened to pick up his phone when I called, and I liked his story: stocks venture capitalists were buying.
But telecommunications stocks are hardly the only Wall Street outcasts that still have strong fundamentals
what has happened to their stocks. They're everywhere, but none is easier to understand than the down- and-out retailers. Some of the most popular, from earlier this year, have been whacked for either missing earnings, having flat comparable-store sales or not opening the expected number of stores.
Some are so low that New York money manager
has gone on a buying binge. What makes Lipton worth listening to is that he knows hype when he sees it. His claim to fame is being the first person ever publicly quoted as predicting doom for
, and he recently was the first to prick
balloon. (He also doesn't like
; the pony has become
So, what's he doing buying companies like
Ames Department Stores
General Nutrition Centers
? "It's a question of confidence in their growth rates, and I have confidence in their growth rates," he says.
Lipton's other favorites -- long positions established since the recent rubble -- include:
, which had been a favorite of short-sellers. "It was 35 a month and a half ago," he says. "It's 13 today. In the low
teens to midteens, it's a wonderful investment because the store-level economics are strong. Their staff is impeccably trained, and their average ticket is only $65 to $70. So, most of its products aren't unaffordable; it's a great place to buy gifts for people, even in a mild or serious recession."
What's more, same-store sales have been strong. "This is a
example," Lipton says.
So, why did the stock get clobbered? "They were a few days late in opening a few stores, and they have more inventory this year because they were underinventoried a year ago. The estimates have gone down from a penny of profits to break-even, so the momentum crowd sold the stock. Is that any way to manage money? This is not a broken concept." (Note to
dad: How about doing one of your lookers vs. buyers surveys there?)
, which sells casual apparel. Its stock is down to around 12 from the high 30s. "They've got a superlative record," Lipton says. "They're unleveraged, with no debt and a couple of bucks
per share in the bank. Nobody likes it because its comps are expected to go to single digits in the September quarter against 18% a year ago." Yet earnings estimates haven't changed, and it trades at 11 times this year's earnings; eight times next year's.
. "What an operating model," Lipton says. It has no debt and high returns on equity and assets. "Their problem is capacity limitations, so their margins stopped expanding after several years of sharp margin expansion," he says. "So, everybody loved the margin expansion, and the stock went to 65. Now that margins won't expand, the stock went from 65 to 25. This is a world-class company, and now it's trading at 10 times earnings."
Other faves for similar reasons include the
Papa John's Pizza
Lipton's mistake with these stocks so far: He bought them back in July and August, which was too early. "I thought they were cheap before they got cheaper," he says. "But they came back quickly. The only consolation was they came off their bottoms."
Forget anything you may have heard about a rebound in the Asian economy. Checked in with California fish broker
, whose business is a great leading indicator. He reports that even with the dollar/yen gains, demand remains weak. "Albacore is piled up on the coast here! Seven million pounds in hulls of the boats.
"Otherwise, everything is OK! I just bought a fish plant at pennies on the dollar, and sold 1.1 million pounds of canning grade mackerel into Taiwan. It's still OK over there, and China is not bad shape."
Har Har Hardee Har Har:
has seemed a half-baked idea. Check out CKE's stock, which has lost 41% of its value in the past two weeks. Much of the decline occurred late last week, when CKE disclosed that sales at Hardee's are expected to fall for the rest of the year. Several items here have raised questions about whether CKE bit off more than it could chew with the Hardee's purchase.
The decline has shaved around $8.5 million off the value of CKE's stock held by
, a mortgage title insurer that owns 853,000 CKE shares. It so happens that Fidelity National's chairman,
, also runs CKE. Fidelity National Chief Financial Officer
says the loss on the stock will have no impact on Fidelity National's profits; he says the company's cost basis on the stock is $4 per share. It closed Friday at 17 3/16.
Resource America update:
Last time we
left this company, it received a takeover bid from
Radcliffe, Mitchell and Weiss
, which turned out to be a one-man shop operating out of a house valued at $40,000 in Monroe, N.Y. Sounded fishy. On Friday, without explanation, Radcliffe, Mitchell withdrew its bid.
Herb Greenberg writes daily for TheStreet.com
. In keeping with the editorial policy of
, he does not own or short individual stocks. He also does not invest in hedge funds or any other private investment partnerships. He welcomes your feedback at email@example.com. Greenberg writes a monthly column for
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