The 'Dirt Cheap Value Portfolio': 10 Stocks Revisited

by: Mark Krieger

The Dirt Cheap Value Portfolio just got cheaper, way cheaper! You know what the pros say: “Don’t try and catch a falling knife”. Yet out of another part of their mouth they say, “be greedy when other others fearful”, basically be a contrarian and go against the crowd.

The problem is, how is anyone going to be fearful unless their shares are in a down trend? And if this is the case, aren't you in essence trying to catch a falling knife if you are a buyer? Wall Street is full of contradictions making it hard to sort through all the noise. Should I buy or should I sell? The age old question never leaves the spotlight!

Since the Dirt Cheap Value Portfolio was established it has already fallen 9% from $87.05 to $79.42, despite the DJIA dropping only 4%. What’s wrong with this picture? Why was the “DCVP” so weak relative (almost falling 2.5 times greater than the Dow) to the overall market? Especially with an average 1.06 beta.

My only guess is that these low priced stocks draw a lot of interest from small retail investors, who don’t have the staying power in turbulent times. It seems logical to average cost down, but many might argue doing so construing the act as “throwing good money after bad”.

The Components Revisited:

Dean Foods Company (NYSE:DF): The milk producer saw its shares continue to sour despite reaching an agreement to sell its Waukesha dairy processing plant to private equity firm, Open Gate Capital. Apparently, Fidelity Magellan must like what it sees, as it increased its holdings 23% from 16.3 million shares to 23.2 million shares. Will the nation's largest dairy purveyor ever bounce back? It will, as long as people continue to drink milk.

Imperial Sugar Company (NASDAQ:IPSU): This one has been on a death spiral, and as a result has reached the dubious distinction of being within shouting distance from an all time low. I really can’t believe it has fallen as far as it has, and wonder if it will ever recover. This one is ripe for a “Gekko” moment to monetize those assets.

Supervalu Inc. (NYSE:SVU): The Motley Fool’s Jim Royal gave SVU a regal review, calling it “the cheapest and best stock I see”, but Mr. Market continues to show his disdain, giving it a quote within 20 cents of a 25 year low.

Safeway Inc. (NYSE:SWY): This one does not feel so safe anymore, trading below its March 2009 low of $17.53. The good news is, its low stock price (I know I am stretching) will enable its aggressive stock buyback program to retire a lot more shares than anticipated.

Winn-Dixie Stores, Inc. (NASDAQ:WINN): The supermarket operator announced it is converting its six unit, SaveRite banner to the Winn-Dixie format which should aid in streamlining operations. In addition, a week from Monday, the supermarket operator is set to offer its fiscal 2012 guidance which could provide a watershed moment.

The stock is within a nickel or two of achieving a new all time low, so hopes for a decent forecast appear remote at best. Interesting enough, management has spent more on remodels the past five years, than the company’s current market cap. So to say shareholders are becoming impatient, desperate and frustrated is more than obvious. A logical solution to this problem is to instill confidence to the market by initiating a share repurchase plan.

Yahoo! Inc. (NASDAQ:YHOO): Takeover rumors are keeping this one from falling into the abyss, but sooner than later shareholders need those rumors to turn to fact, and for a real rescue to materialize.

Steelcase Inc. (NYSE:SCS): The office furniture manufacturer is set to release its second quarter earnings next month and looks to improve sales by 15% to $687 million, while more than doubling its earnings to 17 cents. The fact that SCS operations are improving materially, yet its share price is deteriorating rapidly, is indeed perplexing.

JetBlue Airways Corporation (NASDAQ:JBLU): The rapid drop in jet fuel should benefit JBLU, but Wall Street’s extreme loath for the airline industry will impede the stock’s rebound. A recent analyst upgrade by Dahlman Rose provides a bright spot.

Pep Boys Manny Moe & Jack (NYSE:PBY): The shares are comfortably ahead of its March 2009 lows and a recent 1 million share purchase by Fidelity Magellan shows that Wall Street still has confidence in the auto parts purveyor. It does not take a “rocket scientist” to realize that the weaker the economy gets, the more demand for car repair evolves.

Luby's, Inc. (NYSE:LUB): The restaurant operator was able to extend its maturity date on its loan facility by three years and since its acquisition of Fuddruckers, it has been able to pay its bank debt down 40%, from $50 million to $29 million, so at least its Bankers are impressed.

Bottom Line:

I am at a low point in confidence and seem to be firmly in the “hoping and praying” mode when it comes to the stock market. The good news is, that when I am this pessimistic we are usually very close to a market turning point. So hang in there, as the suffering will ultimately turn into celebration when this vicious cycle finally abates.

Disclosure: I am long DF, IPSU, LUB, SVU, SWY, WINN, YHOO, SCS, JBLU, PBY.