Introducing the 'Dirt Cheap' Value Portfolio

by: Mark Krieger

The Dirt Cheap Value Portfolio : the portfolio consists of ten very undervalued securities, which would make legendary value investors such as Peter Lynch, Benjamin Graham, Walter Schloss and Warren Buffett salivate. The criteria for inclusion is simple:

  1. Selling at no more than 1.5 times tangible book ( shareholder’s equity less goodwill).
  2. A multiple no greater than 10 times EBITDA, unless extraordinary circumstances exist.

The inaugural index value is $87.05 ( for tracking purposes) and 1/2 of the components pay a cash dividend.


  • Luby's (NYSE:LUB): shares are selling at about four times EBITDA and a 20% discount to book. The company has extensive insider ownership and vast real estate holdings.
  • JetBlue (NASDAQ:JBLU): Shares are near historical lows and sell at only twice EBITDA and a 25% discount to book. Once high oil prices falter, it could bounce back quickly.
  • Dean Foods (NYSE:DF): the stock is selling at a multiple of 2.2 EBITDA and a 10% premium to book.
  • Supervalu (NYSE:SVU): Trading at 1.1 times EBITDA and a 10% premium to book. Its 35 cent dividend produces a 5% yield.
  • Imperial Sugar (NASDAQ:IPSU): this one is hard to predict due to the volatility of sugar prices in the commodity markets, so an EBITDA multiple is not meaningful at this juncture. It is included in the index due to extraordinary circumstances-it is priced at a huge 60% discount to book, making it susceptible as a takeover target. The shares also offer a 1% dividend yield.
  • Winn-Dixie (NASDAQ:WINN): trading at 3.3 times EBITDA of $114 million, the shares sport a book value of $15.29 and pristine balance sheet.
  • Pep Boys (NYSE:PBY): trading at a multiple of 3 times its EBITA of $157 million and near book value, the stock offers a 1.40% dividend yield and some hidden value, yet to be locked in its real estate holdings. The company owns the land and structures on 232 of its locations.
  • Yahoo (NASDAQ:YHOO): trading at about 10 times EBITDA estimates and a 20% premium to book, its valuable Asian holdings make it a susceptible to a hostile buyout.
  • Safeway (NYSE:SWY): At 2.68 times EBITDA, a 34% premium to book and a 3.3% dividend, the stock easily garners value status. The company apparently deems its shares a bargain too, as they have a very aggressive $1 billion stock buyback in effect.
  • Steelcase (NYSE:SCS): the stock trades at 6 times EBITDA and a 40% premium to book. Its dividend yield is 3.30%.

Bottom line: since most of these companies sell near historical lows, their downside risk is minimal, while their upside reward potential is massive. This portfolio allows the investor to sleep well at night, while still offering a healthy return. The index should appreciate 20% by year’s end.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. This fund has evolved from the "Basic Food Fund"-a former tracking index utilized to evaluate my stock positions. I have positions in every stock listed in the "dirt Cheap" value Portfolio.