Seeking Alpha
Profile| Send Message| ()  

Owning stocks does not have to be complicated. Most investors prefer to leave specific buy/sell decisions and the timing of trades to professionals. Money management firm Calamos Asset Management (CLMS) has been making money for clients and shareholders by doing performing exactly that service.

The average stock buyer is not even aware that CLMS trades publicly. Fully 95% of their shares are held by insiders and mutual funds. That's too bad for individual investors as the stock represents solid value. Their low profile could contribute to substantial upside as any increase in public demand can push these high-volatility (Beta = 1.80) shares quickly higher.

(click to enlarge)

Price action dating back to 2009 bears this out. Over the past three and a half years there have been four rallies to peaks of $14.10 - $17.40. Each move occurred over relatively short periods, typically during bull runs in the overall market.

Friday's closing quote of $9.50 is near multi-year nadirs. That is despite expectations for a positive year-over-year earnings comparison. A mid-year 2012 dividend increase to 11-cents quarterly provides a well-covered and very attractive 4.63% current yield.

(click to enlarge)

Today's valuation looks very much as it did at the previous two 'best buying opportunities' since 2009. CLMS more than doubled in less than eight months from 2010's low to their early 2011 high point. The subsequent sell-off provided a chance at a 50% move in just five months.

The present P/E is just 10.9x the 2012 consensus estimate. All four of the recent tops came with CLMS at higher than 15x that year's EPS. The stock is extremely undervalued on a price / book value basis as well. It's now at a slight discount to BV. Pre-2008 it often touched 300% - 400% of BV. It traded for 1.89x its net asset value as recently as February 2011.

Most companies see heavy net insider selling over time due to distribution to company executives via employee stock options. The chart below shows that Calamos officers have exhibited exactly the opposite pattern. There have been multiple insider purchases, at higher than the present quote, with not one insider sale reported.

(click to enlarge)

Prior to 2008's financial panic these were high-flying shares. CLMS hit prices of $28 and higher during each of the five years from 2004 through 2008. Average multiples back then were above 20x. I don't expect to see those valuations again anytime soon. I do project a regression to a more normal 15 P/E sometime over the next 12-months.

That very achievable, and predictable, valuation would support a greater than $13 target price. Is that realistic? My goal is below the actual highs achieved during each of the past nine years including 2012. Perhaps that's why insiders have continued buying.

$13 is 36.8% above Friday's last trading price. If it takes a full year to get there you'd see 41.4% in total return. Nobody can guarantee downside protection. I can tell you that the 2011 exact low was $9.40 and the 2012 YTD bottom, set just days ago, was $9.24. Risk appears minimal.

The combination of solid balance sheet, well-defined upside, a better-than-CD-rate yield and insider endorsement led me to increase my Calamos position during the past week. A harder decision will be whether to take profits at the first rally above $13 or to wait for a more fully-priced move to $15 - $18.

Watch this space here on Seeking Alpha for future updates as time goes by.

Source: Yield To The Obvious - Calamos Asset Management