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There is a smorgasbord of good stock plays at this juncture, but nothing takes the cake like Luby’s Cafeteria (NYSE:LUB). This regional restaurant chain has the financial muscle to weather the storm and come out smelling like a rose for those willing to start nibbling at this very oversold situation. Although the share price is closing fast on another test of its 52 week low, it could bounce back faster than Bluto yells, “food fight” at Faber College. The fact of the matter is, this stock is like a very tightly coiled spring and the remotest good news could launch it into the stratosphere.

Costs are falling: Despite almost a 3% drop in sales, the cafeteria operator was still able to reduce many of its cost centers. LUB’s food costs dropped 110 basis points from 27.4% to 26.7%, Its general & administrative outlay fell 150 basis points from 9.4% to 7.9% and its “other costs” category decreased 120 basis points to 20.2%. The only category to show an increase was payroll, up a mere 10 basis points from 33.7% to 33.8%.One clear advantage LUB has over its competitors, is the fact it owns the property and buildings on 89 of its 120 locations. This insulates the company from the effects of escalating rents as well as enables the company to have lower occupancy costs (they pay no rent on their stores). There have been many who have suggested the restaurant chain should monetize these holdings since their market value is much greater than are carried on their books, but so far, management has been reluctant to go down that path, but everyone has their price.

Getting lean and mean: the company is seeing its cost cutting efforts come to fruition. It has reduced its cap ex commitment 12% to $15 million and refinanced its untapped credit line to provide an interest rate and terms. It is focusing on the basics, such as treating the customer with good food at a fair price so they will come back. It just has to improve its top line, and is focusing on new dishes, promotional items, and the healthcare market to do so. The company also hired a new advertising firm to help shake things up.

Ownership increases: The Pappas brothers have steadily been accumulating shares and now own nearly 28%, while LUB’s second largest shareholder, Dimensional Fund Advisors, raised its stake 10% to the 7% mark. It is no wonder these guys have a voracious appetite for the shares, they trade at a mere .36 of sales and .60 of book value. Sooner rather than later the market will begin to notice this very undervalued equity and quickly propel its shares to the mid $6 level by the end of summer.

Disclosure: Long