Bottom of the Barrel: Best of Summer Awards

With summer coming to a ceremonious end on Labor Day, we'll take a break from the heat and hand out the first annual Best of Summer From the Barrel awards.

Without further ado, the envelope please.

The Tropical Treat Award

This recognizes the summer's best Bottom of the Barrel stock, and it was an easy choice: Hawaiian Electric ( HE). This integrated island electric utility had no exposure to the California or wholesale power markets, and it also owns American Savings Bank, which offers a nice growth story.

Not only has the stock gained more than 11% since we profiled it on July 31, but investors also locked in a 5.9% yield -- not a bad deal in today's market. The Aloha State utility has benefited from investors' interest in dividends and stable utilities. Hawaiian Electric has developed an interesting corporate strategy, marrying a stable cash stream -- the utility -- with growth potential from the bank.

The stock now trades at nearly 15 times 2002 earnings, the top end of its historic range. It remains an intriguing dividend play, but it feels a bit pricey. I'd revisit the stock at around $40, when the yield is closer to 6%.

The Superiority Award

This one goes to the summer's best (nonincome portfolio) Bottom of the Barrel stock: Superior Industries ( SUP). This original equipment automobile parts maker not only has a pristine balance sheet (no debt and plenty of cash) and a stellar management team but also produces superior products that continue to catch on with both domestic and foreign auto manufacturers.

It recently won a contract to make new wheels for the Dodge Dakota and Durango, indicating its competitiveness and efficient manufacturing. Although it trades at a premium to its peers, its solid balance sheet and management team justify the spread.

The Hit the Road Jack Award

The largest disappointment in the portfolio this summer is Roadway ( ROAD). This less-than-truckload national freight carrier has failed to gain any investor interest since we profiled it in mid-June. The company's fortunes are largely tied to an economic recovery.

I continue to like Roadway's management and its potential for meaningful earnings growth as the economy recovers, although the turnaround is taking longer than expected. In fact, July volumes appear to have moderated slightly instead of increasing as hoped. However, Roadway's fourth quarter is typically a good contributor to annual results, and Tuesday's durable goods number offers hope for a recovery. Once the economy shows signs of spunk, Roadway will speed up.

The Does Your Boat Still Float Award

At Trico Marine ( TMAR), the ship appears to be sinking. This purveyor of marine vessels for oil and gas producers posted a second-quarter loss of 21 cents a share, much worse than the expected 12 cents. Moreover, the near-term outlook isn't getting much better.

A lack of drilling activity in the Gulf of Mexico is pressuring both utilization and day rates for Trico's fleet. Plus, the outlook for utilization of the company's North Sea fleet also has deteriorated. Drilling may pick up in the fourth quarter, but rates for boat usage typically lag behind the recovery by several weeks. So while I like Trico's business as the drilling cycle turns, that could be another quarter away. Trico remains in the "average outlook" category, but only because I think the corporate boat has quit taking on water and isn't going to sink. It ranks as the worst constructive pick in the portfolio.

The Barricade Blowup Award

This dubious honor goes to Actrade Financial ( ACRT), a stock that has been halted since last week, when its founder and chairman, Amos Aharoni, resigned. The company said Aharoni has declined to cooperate with an internal investigation into the company's international operations. Actrade also said it would delay the filing of its 10-K until it completes its investigation, saying it couldn't provide further guidance on when the investigation might be completed or when the 10-K might be filed.

The company has been the subject of both Securities and Exchange Commission and Nasdaq inquiries in recent months, and investors have shunned this onetime darling of the electronic finance business. It isn't clear when -- or if -- Actrade will ever trade again. Actrade is the only stock in the portfolio that has received the barricade rating.

Random Awards

  • The Best Meat in the Portfolio Award goes to Rare Hospitality ( RARE), the owner of LongHorn Steakhouses. Chairman Philip Hickey and his team continue to build a solid, midprice family steakhouse chain with reasonable growth expectations. The stock has had nice gains since it was profiled in February, but it remains a core, small-cap restaurant choice.

  • The Ka-ching Award goes to Coinstar ( CSTR), which operates those little green change-eating machines you see in your local grocery store. Although the stock took a hit Tuesday after a research report pointed to slower growth and the stock's recent run, the company has provided Barrel-watchers with solid gains. I suggested taking profits when the stock was in the $30s and noted that a selloff back to the low-$20s would be an opportunity for those looking to possibly profit from counting pennies.

  • Finally, the Better Lucky Than Good Award goes to Key Production ( KP), a small-cap oil and gas exploration and production company highlighted on Aug. 7. Since then, the stock is up nearly 16%, a result of higher oil and gas prices and the recent rally in energy stocks. It remains an interesting play as it combines with the E&P division of Helmerich & Payne ( HP) to form Cimarex Energy. However, a big part of what I thought would be a liquidity-driven gain after the merger now appears to be in the stock price. Still, it's a nice small-cap E&P play, just not as undervalued and unknown as it was before we discussed the prospects earlier this month.

    There you have it, the first (annual, I hope) Best of Summer From the Barrel awards. Pack a picnic and enjoy the last weekend of summer. Next week, it's back to company profiles and more fun in the Barrel.

    Laboring Over the Barrel
    Looking for bargains as the market struggles to turn
    Current Rating Company/Ticker Date of Mention Current Price Mention Price* % Change From Mention % Change Last Week
    Above Average Outlook
    Superior (SUP:NYSE) July 10, 2002 49.87 $43.87 13.68% 3.85%
    Roadway (ROAD:Nasdaq) June 19, 2002 28.93 34.03 -14.99 1.19
    Fidelity National (LION:Nasdaq) May 8, 2002 10.1 10.58 -4.54 0.00
    UCBH Holdings (UCBH:Nasdaq) March 27,2002 38.61 35.65 8.30 -5.83
    Cost Plus World Markets (CPWM:Nasdaq) March 6, 2002 26.42 25.83 2.28 5.38
    Coastal Bancorp (CBSA:Nasdaq) Dec. 12, 2001 30.25 27.84 8.66 5.03
    Average Outlook
    Coachmen Industries (COA:NYSE) Aug. 21, 2002 16.12 $15.05 7.11% 4.68%
    Champps Entertainment (CMPP:Nasdaq) May 29, 2002 9.34 13.01 -28.21 0.43
    Trico Marine (TMAR:Nasdaq) May 1, 2002 4.15 8.25 -49.70 1.47
    Rare Hospitality (RARE:Nasdaq) Feb. 20, 2002 27.44 25.72 6.69 0.07
    NetBank (NTBK:Nasdaq) Feb. 6, 2002 10.66 13.45 -20.74 -0.65
    SurModics (SRDX:Nasdaq) Dec. 19, 2001 28.44 34.60 -17.80 -2.20
    VitalWorks (VWKS:Nasdaq) Nov. 21, 2001 8.07 4.30 87.67 3.46
    FPIC Insurance (FPIC:Nasdaq) Nov. 14, 2001 10.24 12.83 -20.19 -7.75
    Coinstar (CSTR:Nasdaq) Nov. 7, 2001 32.79 19.96 64.28 -0.94
    Witness Systems (WITS:Nasdaq) Oct. 31, 2001 6.05 8.06 -24.94 28.18
    Hibbett Sports (HIBB:Nasdaq)** Oct. 24, 2001 22.06 20.04 10.08 20.55
    Quixote (QUIX:Nasdaq) Oct. 3, 2001 16.6 21.44 -22.57 -1.60
    Below Average Outlook
    Innotrac (INOC:Nasdaq) June 12, 2002 2.35 $4.79 -50.94% 4.44%
    Wilsons Leather (WLSN:Nasdaq) May 22, 2002 9.35 14.96 -37.50 -1.58
    Arch Chemicals (ARJ:NYSE) April 24, 2002 21.45 22.52 -4.75 2.24
    Hines Horticulture (HORT:Nasdaq) April 17, 2001 3.1 4.75 -34.74 -4.62
    Actrade (ACRT:Nasdaq) Jan. 30, 2002 2.52 20.65 -87.80 18.87
    Endocare (ENDO:Nasdaq) Jan. 23, 2002 11.78 18.21 -35.31 -10.69
    Quanta Systems (PWR:NYSE) Jan. 9, 2002 2.86 16.05 -82.18 36.84
    Goody's Family Clothing (GDYS:Nasdaq) Nov. 28, 2001 6.09 4.50 35.33 23.53
    Bridgford Foods (BRID:Nasdaq) Oct. 10, 2001 12.35 13.18 -6.30 7.86
    Bottom of the Barrel Income Portfolio
    Hawaiian Electric (HE:NYSE) July 31, 2002 46.69 $41.86 11.54% 4.01%
    JDN Realty (JDN:NYSE) July 17, 2002 12.54 11.57 8.38 3.64
    UGI Corp (UGI:NYSE) June 26, 2002 35.96 31.30 14.89 3.19
    Acadia Realty (AKR:NYSE) June 5, 2002 7.85 7.03 11.66 0.90
    Capital Automotive REIT (CARS:Nasdaq) April 3, 2002 24.5 22.95 6.75 -1.21
    Laclede Group (LG:NYSE) March 20, 2002 24.75 23.64 4.70 -0.20
    Alexandria Real Estate (ARE:NYSE) Feb. 13, 2002 43 40.25 6.83 0.70
    Empire District Electric (EDE:NYSE) Jan. 16, 2002 19.15 21.23 -9.80 1.32
    Integra Bancorp (IBNK:Nasdaq) Jan. 2, 2002 21.2 20.75 2.17 0.38
    Met-Pro (MPR:NYSE) Oct. 17, 2001 13.09 11.16 17.29 -6.03
    Bottom of the Barrel Special Situation Portfolio
    Key Production (KP:NYSE) Aug. 7, 2002 $20.00 $17.30 15.61% 0.10%
    Luby's (LUB:NYSE) Feb. 27, 2002 5.17 6.22 -16.88 -5.66
    *Average price on date of mention.
    **Prices Adjusted for 3:2 split on Feb. 20, 2002
    Source: Thomson Financial/First Call, TSC Research

    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 Chris Edmonds.

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