Retailers are not typically my cup of tea but American Eagle Outfitters (AEO) is another potential candidate. Shares are down 28% year to date. That may get worse before the year is over. The balance sheet is in good shape, with about $357 million in cash and no debt, and the stock currently yields 3.1%. It would be nice to see this one fall further before year-end, to see investors pile out in droves to create a real bargain basement price. The stock's profits are tied to fashion and the whims of 15- to 25-year-old consumers. That demands a big margin of safety.
Second, I look for ugly, down and out situations in which companies have made major missteps or have hit the ropes. This is much more speculative in nature. Premier Exhibitions (PRXI) runs touring exhibitions but, more important, owns more than 5,500 artifacts that it salvaged from the Titanic wreck site.
Shares are down 55% year to date. The company has been unable to follow through on the sale of the artifacts, which were appraised at $189 million several years back. Premier must sell the artifacts as a single collection due to a court decision that awarded title to them. The company tried to auction off the collection in 2012, with the winning bidder to be announced on the 100th anniversary of the Titanic sinking. The auction failed. As the company has continued attempts to find a home for the collection, the stock has sunk further.
There is a huge disconnect between the company's current market cap and the assumed value of the Titanic collection. This is the epitome of the value investor's dilemma: extremely valuable assets that must be sold for that value to be realized.