Last year was a good one for stocks and, by association, for the Bottom of the Barrel portfolio. The Barrel is an eclectic selection of small-cap stocks that are undercovered by traditional analysts and, in many cases, underowned by institutional investors.

As we begin 2004, I've eliminated a number of stocks from the portfolio. Although some of the decisions were difficult, it was time to make room for some new names. I based the decisions partly on performance but also on relevance, taking into account the number of reader responses I received on a particular stock, the industry it's in and its potential to be interesting in the year ahead. Here's the short list:


A New Year in the Barrel
Cleaning out the Barrel for 2004
Barrels Company/Ticker Date of Mention Recent Price Mention Price Change Dividend Yield
Moog (MOGa:NYSE) 11/7/2003 $54.16 $43.12 25.6%
Boston Beer (SAM:NYSE) 3/5/2003 18.61 12.55 48.3
Wild Oats (OATS:Nasdaq) 2/20/2003 13.20 7.25 82.1
Maverick Tube (MVK:NYSE) 1/23/2003 18.36 14.08 30.4
Energy Partners (EPL:NYSE) 12/5/2002 14.29 9.40 52.0
Men's Wearhouse (MW:NYSE) 11/20/2002 23.44 16.22 44.5
Coachmen (COA:NYSE) 8/21/2002 18.71 15.05 24.3
Superior Industries (SUP:NYSE) 7/10/2002 43.00 43.87 -2.0
Fidelity National (LION:Nasdaq) 5/8/2002 13.20 10.58 24.8
Cost Plus (CPWM:Nasdaq) 3/6/2002 43.15 25.83 67.1
Rare Hospitality (RARE:Nasdaq)* 2/20/2002 25.88 17.15 50.9
Hibbett Sports (HIBB:Nasdaq)* 10/24/2001 32.95 13.36 146.6
Bottom of the Barrel Income Portfolio
Barrels Company/Ticker Date of Mention Recent Price Mention Price Change Dividend Yield
South Jersey Industries (SJI:NYSE) 6/25/2003 $41.40 $36.90 12.2% 3.91%
Ameron (AMN:NYSE)* 11/6/2002 37.84 25.30 49.6 2.11
Hawaiian Electric (HE:NYSE) 7/31/2002 49.39 41.86 18.0 5.02
UGI Corp (UGI:NYSE)* 6/26/2002 33.74 19.24 75.4 3.38
Acadia Realty (AKR:NYSE) 6/5/2002 12.41 7.03 76.5 5.16
Capital Automotive (CARS:Nasdaq) 4/3/2002 33.91 22.95 47.8 4.91
Alexandria Real Estate (ARE:NYSE) 2/13/2002 58.33 40.25 44.9 3.98
Integra Bancorp (IBNK:Nasdaq) 1/2/2002 23.00 20.75 10.8 4.09
* Adjusted for Stock Split. Source: Bloomberg, Company Reports, TSC Research

The names being removed from the portfolio -- in no particular order -- are:

  • Cequel Energy (CQL:Toronto)
  • Topps ( TOPP)
  • Real Resources (RER:Toronto)
  • NetBank ( NTBK)
  • Huffy ( HUF)
  • Playtex ( PYX)
  • Trico Marine ( TMAR)
  • Baldor Electric ( BEZ)
  • California Water ( CWT)
  • WD-40 ( WDFC)
  • Empire District Electric ( EDE)
  • WebMD ( HLTH)
  • Coastal Bancorp ( CBSA) (which is being acquired).


That leaves us with 20 good small-cap names as the foundation of the 2004 Barrel portfolio. Remember, this is a group of small-cap, largely underfollowed stocks. As such, they are more volatile, and they have a higher level of risk and speculation. Be sure that you thoroughly understand the risks of small-caps -- a lack of liquidity, a lower level (and sometimes quality) of information flow and potentially choppy action in price movement -- before you invest.

With that in mind, here's a quick look at some of the remaining Barrel stocks.

Remaining Energized

If you read my columns regularly, you won't be surprised to see a host of energy names staying in the portfolio. Maverick Tube ( MVK) has been a solid performer over the past year, as drilling activity has seen a slow and steady pickup. Maverick benefits from increased drilling because it translates into more demand for tubular goods -- drill pipe and the like -- that are used in oil and natural gas wells. However, steel costs are likely to put pressure on Maverick's margins this year. The easy money has probably been made with this stock at around $20, but the exploration cycle should still give Maverick some strength.

The easy money has also been made in Energy Partners ( EPL), an exploration-and-production company with a focus in the Gulf of Mexico. The company continues to increase oil and natural gas production and is coming off a very successful 2003 exploration campaign, where it hit more than 80% of its exploratory wells. That success has pushed the stock closer to fair value; it will need a repeat of 2003 to ascend further.

Fully valued Hawaiian Electric ( HE) reported a solid fourth quarter, although it was aided by proceeds from legal settlements and opportunistic sales of securities at its American Savings Bank subsidiary. While the company appears to have resolved most of its pension-shortfall issues and continues to post good operating results, it's hard to get excited about an electric utility that will grow at 2% to 4% a year when it trades at more than 15 times estimated 2004 earnings. The dividend is alluring at 5%, but I wouldn't look for the stock to trade much above its current levels.

The Real Stuff

A handful of real estate investment trusts remain in the income portion of the portfolio, all posting very nice returns since selected. Acadia Realty ( AKR) is a strip-center REIT primarily focused on locations in the Northeast. This solid company has had a nice run. The dividend is still attractive and will likely grow, but the appreciation potential appears limited.

Alexandria Real Estate ( ARE) is an office REIT that concentrates largely on medical and scientific offices. It has largely avoided the downturn in office occupancy and rents, although it's somewhat exposed to an economic pickup. With Alexandria, the key will be to listen to company discussions on space redevelopment.

Capital Automotive ( CARS) remains an interesting play on the roll-up in auto dealerships. In simple terms, the company buys automotive dealerships (the real estate) and leases it back to operators. Plenty of transactions are left in that business, with the only constraint being access to capital. The company has a good management team and a decent dividend.

Hungry for More

Also in the portfolio is a group of food-related stocks. Rare Hospitality ( RARE) is the Atlanta-based owner of the Longhorn Steakhouse and upscale Capital Grille chains. The mad cow threat gave investors a brief pause, but this company has executed its growth strategy quite well in the past year. With an economic uptick, additional growth is possible.

Wild Oats ( OATS) had done well since featured early last year as an undervalued turnaround. However, the question now is whether it can execute on a number of fronts: remerchandising and expansion, among them.

Boston Beer ( SAM) also performed well after being profiled as an undervalued name. Now, it faces continued competition as well as the positive impacts of an improving economy.

We'll keep an eye on all of the Barrel stocks in the coming months. Plus, next week, I'll introduce the first 2004 entry into the Bottom of the Barrel 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 cedmonds@realmoney.com.