Low Enterprise Value Stocks: Income and Growth Offer Solid Returns

by: Randy Durig

The second quarter of 2011 was a tough quarter, possibly as surprisingly poor as the first quarter was surprisingly rewarding for our income based selection criteria. The stock performance for the Investment with Income portfolio that was published on Seeking Alpha has been very good up to and until the second quarter. For the second quarter, the portfolio was down 11.74% from the first -- compared to the S&P 500, which was also down, only -1.79%.

Our Income and Investment Review portfolio is based on high dividend-paying, very low or negative enterprise values while still including our established criteria of strong increases in cash flow, earnings, and a select qualitative review ensuring they have a good business model.

The second quarter added to the first quarter and fourth quarter of 2010, based on simple math, is:

Time Investment with Income. S& P 500
Second Quarter 2011 - *11.74 -*1.079
First Quarter 2011

*7.40 %

*5.42 %

Fourth Quarter 2010

*22.65 %

*9.92 %

*18.31 %

*14.26 %

*Dividends not included in the above tables but currently average 4.93% annually based on the initial investment.

First Quarter 2011 performance on our Seeking Alpha listed stocks:


Second Quarter 2011

First Quarter 2011

Adams Resources (NYSEMKT:AE)

- *12.28 %

*18.50 %

Electro Rent (NASDAQ:ELRC)

-*1.49 %

*6.31 %

Nam Tai Electronics(NTE)


new last quarter


-*17.50 %

*- 6.47 %

Universal (NYSEMKT:UVE)

-*15.70 %

*11.29 %

*Dividends not included in the above tables but currently average 4.93% annually based on the initial investment.

Company Current annual dividend rate is based on review price
Adams Resources
3.20 %
Electro Rent
6.10 %
6.10 % based on three quarters of dividends
Nam Tai Electronics 2.88%
QBE (OTCPK:QBEIF) 7.20 % in Australian dollar
Income and Investment Average 4.93 %

Investors should keep in mind:

  1. The current average dividend of 4.93% is based on our recommended price.
  2. This is a very small sampling over a very short time.
  3. Over time, the performance is tracking very closely to the longer, larger and strong performance sampling of our High Cash Stock review with a similar criteria, excluding the dividend.

The very low or negative enterprise values in the reviews offer a buffer of protection against a broad market selloff. The positive earnings, improved cash flow, profit increase and possible stock price expansion often help to increase the very low valuations that were identified. So far, the Income and Investment portfolio has done exceedingly well two out of the last three quarters, especially when the dividend returns are included, and is still above our forecast in spite of the volatility and disappointment in this last quarter. One must realize that this is a short indicator of performance and there is no guarantee of future success.

Updated portfolio review: QBE Insurance was added during the quarter with our review here. With a strong value in cash and yielding about 7.2% percent in dividends, providing both strong current and projected growth, it fits the stringent criteria for the Income & Investment Portfolio. QBE is Australia-based, and we purchased it on the Australian exchange (QBE:AX). It is added as the first among a number of international companies which we expect to identify around the globe. No positions were sold during the quarter.

Disclosure: I am long AE, ELRC, NTE, TRST, UVE, OTCPK:QBEIF.