Despite what has been a market of seemingly universal carnage, many stocks are actually up this year. With the across-the-board selling over the past six weeks or so, some of these stocks have been hammered yet remain up. I thought it might be useful to take a look at those stocks hit hard recently to see if their weakness is a function of a fundamental change or rather the result of indiscriminant selling perhaps.
Over 10% of the Russell 3000 is actually up this year. To be fair, most of those 300+ names come from the small-caps, yet still 5% of the top 1000 names in market cap are up as well. As this index is rebalanced in June, perhaps there is a bit of a "survivors" bias, but even the S&P 1500 has enjoyed 9% of its members posting positive returns.
I decided to take the R3000 winners and hone in on the ones that got hit lately. Using StockVal, I eliminated all of the names that are down less than 20% QTD, which left 42 names. To purge the list of some potential dogs, I included a minimum price of 5, a maximum price decline of 33% and a maximum earnings estimate decline for next year of 10% relative to the estimate 12 weeks ago. Here are the 16 that made the cut (click on chart to enlarge):
As you can see, the list is quite diverse, with two S&P 500 members [Ross Stores (ROST)and Public Storage (PSA)] and 5 of the 10 economic sectors represented. I am somewhat familiar with a few of these, but totally unfamiliar with several as well.
Hawaiian Airlines (HA) emerged from bankruptcy and won a large settlement from Mesa. It operates 11 planes that provide commercial service inter-island and 16 for transpacific (153 routes a day). I am willing to waive all fees for my time to any client that wants me to do an on-site visit!
I don't know Wabtec (WAB) that well either, but it has been a great stock now since the end of 2000. The company serves the railroad industry, and is known primarily for its air brakes.
It is somewhat surprising to see so many consumer discretionary names on the list, but most of these companies seem to be focused on the low-end. Finish Line (FINL) is up only because it was down so much in 2007, running into trouble with an acquistion that they terminated at signficant cost.
Fred's (FRED) has been in decline since 2003 as its margins have come down but has rebounded this year after bouncing off of book value. The company serves generally lower-income customers in smaller towns in the Southeast.
Hasbro (HAS), the toymaker, has been improving margins for several years now. The company has been increasing its dividend and repurchasing stock. Sales jumped up in 2007 but have moderated subsequently.
Helen of Troy (HELE) sure has a lot of familiar brands in its personal care and housewares divisions. The company recently started repurchasing shares.
Ross Stores (ROST) is one that I have owned in the past and followed at least peripherally for quite some time. They seem to have overcome some significant operational challenges from 4 years ago and have enjoyed limited margin expansion. This low-end clothing discounter seems well positioned for the times.
The four healthcare names lack any sort of theme. Conmed (CNMD) makes products used by surgeons for minimally invasive procedures. The company isn't particularly exciting, but it has had steady but slow growth in sales and earnings over the past several years.
Idenix (IDIX), a biotech focused on Hepatitis C and HIV, is bouncing back from a terrible 2007 in which it suspended its work on a Hepatitis C compound. This year, it has seen clinical success on its lead HIV candidate. This one is certainly not correlated with the economy in any manner.
Landauer (LDR) monitors and measures radiation. Talk about a niche! It seems like a good business for these times, as they enjoy recurring revenue for their monitoring services. This isn't a particularly high-growth business, but it seems awfully immune from any macroeconomic headwinds.
Since 2001, the stock has traded for the most part in a range of 16X to 24X forward PE (20X currently). I am not sure why it spiked in September to 28X, but I can guess that it probably had something to do with short-covering. The company is definitely a slow grower and thus looked extremely expensive by many metrics at that time. Even today, it seems expensive, but its slow growth that will almost certainly materialize in 2009 is likely to be a lot higher than that of the typical publicly-traded stock. While the dividend yield is high, note that the payout ratio is rather high as well. Just two analysts cover the name.
Vivus (VVUS) is another biotech company, and it has been on a tear for 3 years now as it pursues Qnexa for obesity and diabetes as well as a couple of sexual dysfunction drugs. The company is sitting on a wad of cash, having successfully sold $65mm of stock at 7.77 in August.
In the Financial sector, Crawford & Co. (CRDB) has blasted up in 2008 to a multi-year high after a tough 2007. This company sells claims management solutions to insurance companies, deriving over 1/2 its profits from international customers. There is only one analyst covering the company, and I am not sure what is driving the interest of late.
Public Storage (PSA) is the leading self-storage REIT. It uses extremely low leverage, eschewing debt generally for preferred stock. It is one of a handful of REITs that you can own and still sleep well at night! It has been cheaper, and it has been more expensive, but it is likely to hold its own at a minimum during these trying times.
Republic Bancorp Kentucky (RBCAA) surged to an all-time high in the summer. This bank isn't widely followed, with just one analyst covering the name. I am no expert in regional banks, but this one has experienced good deposit growth and has historically traded rather inexpensively.
Speaking of small regional banks, Suffolk Bancorp (SUBK) also spiked to multi-year highs recently. Interestingly, it traded sideways since 2002 prior to that big jump, though it is now back in the range. Not exciting, but not bad for a bank! This Long Island, NY, based bank has seen meteoric deposit growth this year (mostly of late). Perhaps these smaller banks are benefiting from the banking industry turmoil, as depositors seek out banks with seemingly less exposure to deleveraging. I know that to be the case with Cullen Frost (CFR), about which I wrote earlier this year and a member of my Conservative Growth/Balanced model portfolio.
The final company to make the list, Seachange Intl (SEAC), manufactures digitial video equipment used by the cable networks and major content providers. The stock has been dead money for quite some time but has enjoyed significant increases in its earnings estimates this year with some sales acceleration as well as big improvements in gross margin. The company enjoys a stellar balance sheet, which has enabled it to announce a share repurchase program earlier this year. Similar to several of these names, it appears that the spike in September was related to short-covering.
I don't own any of these stocks and don't even closely follow a single one. ROST seems to merit further investigation, while LDR could be just the ticket for those interested in growth in 2009 and willing to pay the price. As always, I welcome any perspectives that you readers care to share.
Disclosure: No position in any company mentioned