7/11/2012

Quest for New Value Investing Knowledge (updated prior post)

Sorry for the lack of clarity in the prior post. The rationale for the post was to think about new ways to find short term opportunities with less than perfect stocks. I also wanted to think of ways to use bearish metrics such as a growing short position as a potential avenue for short term demand. Stocks that have far dramatically underperformed their industry without the fundamental justification as another potential source for short term ideas.

Part of the search was to review items such as Z score, F Score, capital structure, enterprise value to market capitalization, change in top line, recent insider activity, institutional ownership and other pieces of data to protect on the down side all weighed against the magnitude of the potential opportunity for short term mean reversion/ market's recalculation of company specific risk.  

June 2, 2012 I posted an article on gurufocus.com called "value investing heresy"

Those quickly selected 5 stocks in were OSTK, KRO,RSH,HTCH,NPK:


RSH; Radio Shack: A sound balance sheet with a -70% 52 week price drop pushing the unsustainable dividend yield to 12.60%. Value investors Joel Greenblatt and Donald Smith reported small purchases 1st quarter of 2012. Short interest is 39% of the float that could create strong demand with less the expected poor news.

KRO; Kronos Worldwide: Recent massive insider buying at much higher stock price. YOY quarterly revenue change of 33% and profitable improved results. Stock  hitting new 52 week low with 30% short interest. Worries about Europe were 50% of revenue had been derived is weighing on the stock coupled with less than perfect financial position and closely held . Down 54% over the prior 52 weeks.

OSTK: Overstock.com

NPK; National Presto Industries provides small appliances, defense products, and absorbent products primarily in North America.
NPK is a value stock that has accumulated a large short interest at 30% of float. The 52 week return = a loss of -32.80%

Strong balance sheet coupled with a strong recent insider buying, EV/EBITDA = 4.75, EV/Revenue = .92, YOY quarterly revenue change = -11%
Held by value institutions 11.86% by Royce, 1.16% Kennedy Capital

HTCH; Hutchinson Technology

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