Weyco Group's Low Is Your Gain

Today's research recommendation is Weyco Group (WEYS) because the stock price fell within 10% of the 52 week low during intraday trading. According to Standard and Poor's, Weyco Group,

...distributes, wholesale & retail, men's branded footwear in the U.S., Canada, Europe; offers casual footwear, dress shoes and accessories under Florsheim, other brands.

WEYS has increased its dividend for 28 years in a row which gives us ample information about the quality of the company's management. Essentially, WEYS has survived 4 recessions of varying degrees since 1980 (current recession excluded.) As recently as May 28, 2009, WEYS has increased the dividend by a little over 7% from $0.14 per quarter to $0.15. This indicates that management believes that although the current recession could get worse the company will survive.

On the balance sheet we find that WEYS has little or no long-term debt, return on assets were 8.9% in 2008 which seems to be fitting since we've been in a recession since December 2007. Normal return on assets seem to be around 11% on the low end. Return on equity for 2008 was at 10.7%. Prior to 2008, return on equity was around 13% on the low end. A major concern regarding this company is the fact that it has such low trading volume. If there were to be a mass exodus then getting out at a reasonable price would not be possible.

From a technical standpoint, I like to look at WEYS from a worst case scenario perspective. In this regard there is no better vantage point than the decline from the top in 1972 to the bottom in 1974. This is a period when the stock went from a high of $0.75 to a low of $0.20, a decline of 73%. If such a price decline were to take place from the most recent high of $41.99 then the assumed bottom would be at $11.34.

Applying Dow Theory to WEYS gives us the following upside and downside targets:

• Upside

  • $23.95 (fair value)

  • $29.95

  • $41.99

• Downside (focus on the downside risk)

  • $17.93

  • $11.34

  • $5.91

If we were to invest in stocks the way that Charles H. Dow would, then we would buy half of the intended amount now and purchase the second half if the price declines.

For example, let's say that you wanted to invest $4452 in this company. What you would do is buy $2226 worth of stock now (approximately 100 shares) and hold the stock if the price goes up. If the stock goes down then you would invest the remaining $2226 at the next level that you felt was ideal.

This approach works well regardless of the market that you're in as long as you set aside the amount that you intend to invest before making the first purchase. Also, after making the first investment never invest the second half somewhere else.

The purpose of my research recommendations is to point out quality Dividend Achievers that are near a new 52-week low. From this point begins the research to verify the quality of the stock for both short and long-term investing. It is hoped that the stock price declines further so that the valuation metrics are in favor of the buyer.

These recommendations are within the context of the second year of an 18-year bear market. A bear market that I expect to trade in a range between 16,000 and 5,000.

Disclosure: No Positions