The Dirt-Cheap Value Portfolio: 'A Tortoise Verses The Hare Scenario'

by: Mark Krieger


The DCVP once again handily outperforms averages.

Luby's rallies despite being eliminated from the Russell 2000 index.

FSYS introduces new brake line that could add $10 million in revenues.

Slowly (at a tortoise's pace), but surely, the "DCVP" just keeps plugging along. In the last 30 days since my last update, it has risen another 2.3%, despite the DJIA being essentially unchanged. A rise from $45.19 to $46.22, might not sound like much, but is quite juicy if you look at it from a different perspective. On a annual basis that translates into a 27.6% return, and that's despite one of its members, taking a terrible beating [Bridgford Foods (NASDAQ:BRID) lost 9% in the same period]. The big winner was easily Fuel Systems Solutions (NASDAQ:FSYS), adding a firm 12.8%, to its latest stock quote.

In the end, this is a portfolio you can sleep well at night with because many of its components are already sitting near multi-year lows and trade below book value. As a result, their downside risk is quite minimal since the components possess so little distance to fall (they are already low). The "DCVP" might not be glamorous or exciting, but in the end, doesn't the tortoise always finish the race first?

The lineup:

Bridgford Foods: The stock apparently got pressured when it was dropped from the Russell 2000 index, as funds were forced to sell their positions. As a consequence of being so thinly traded (management owns nearly 81% of its shares) the stock is subject to extreme volatility as evidenced by a huge 26% swing last Thursday. Surprisingly, the shares opened the day at the $7.00 mark, only to trade 26% higher to the $9.50 threshold, moments later. After contacting management for possible explanation of the extreme volatility, I was told that a USA Today story describing the attributes of the snack food maker could have been a contributor to its wild ride.

Target price: Reduce from $10.50 to $9.75

Luby's Inc. (NYSE:LUB): this one was also dropped out of the Russell 2000 index, but its shares promptly rose 20% on the news. Why? The logic is, there was plenty of buying demand to absorb the shares and the uncertainty of the eventual elimination from the index, had finally been purged. In the meantime, its entire 20% rally has retraced, offering another decent buying opportunity. The big question is, who bought all those shares, on the day LUB experienced its largest volume ever, as a result of the Russell 2000 rebalance? If the buyer is ultimately recognized as "smart money", the market will be quick to reward.

The eatery added another dual concept in Rockwall, Texas and has another planned opening in Webster, Texas by the end of summer. The company is also focusing on revitalization of its Fuddruckers brand, by initiating fresh menu boards and an expansion of toppings.

In addition, the chain is introducing new speed of service initiatives such as enhanced kitchen display monitors and a enhanced point-of-sale system to increase customer traffic.

Target price: reduce from $8 to $7.50

Fuel Systems Solutions: Two news events were evidently well received by the market, as FSYS's shares skyrocketed almost 13%. First, the alternative fuel provider announced it is entering the brake pad business and expects the new enterprise to add up to $10 million to its top line. Secondly, Zack's upgraded its opinion from underperform to neutral.

Next month's low second quarter earnings expectations could provide an opening for further gains. The company is slated to see its earnings fall to .01, on a 20% slide in revenues. This dire prediction could turn out to be nothing, but a classic sandbagging tactic, that could be very easy to surpass. I realize that I sound like a broken record when it comes to this concept, but FSYS is way, way past due for a beat. We shall see.

Target price: increase from $11 to $13

The Pep Boys (NYSE:PBY): the fact that super investor Mario Gabelli continues to beef up his position, has shareholders in a confident mood. The Value guru recently increased his ownership position to 14.67% according to a recent 13D filing, and it is normally prudent to follow the "smart money". I would continue watching Gabelli on this one, and once he begins selling, I would too.

The fact that PBY has seen recent improvement in tire pricing bodes well for its second quarter results. The company's aggressive expansion endeavors in its tire service centers, along with improved pricing, should allow them to put up solid second quarter results, that exceed both on the bottom and top lines. Look for PBY to earn 19 cents, versus expectations of 17 cents. On the revenue side, the auto parts purveyor should report a top line of $534 million, versus expectations of $531 million.

Target price: increase from $11 to $12

Jet Blue Airways (NASDAQ:JBLU): its shares just continue to soar higher, and should be purchased on any pullback. More good news was released last week, when the carrier reported its preliminary traffic results for June which rose 4% from June 2013, on a capacity increase of 5.3%.

JetBlue's preliminary passenger revenue per available seat mile for the month of June increased 3% year-over-year. The trend is you friend on this one, and the shares are set to continue their momentum, to new 52 week highs.

To top it off, JBLU is still cheap on a stock price to sales comparison, at just .44 of sales. Compare that with American Airlines (NASDAQ:AAL) price to sales ratio of 1.01, and Southwest Airline's (NYSE:LUV) 1.06 ratio, and it is apparent JBLU shares could theoretically double, before reaching it competitor's metrics.

Target price: increase from $12 to $14

Disclosure: The author is long FSYS, LUB, JBLU, BRID, PBY. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.