The Dirt Cheap Value Portfolio: 'Carnage Equals Opportunity'

by: Mark Krieger

I'm not going to lie, owning the "DCVP" (Dirt Cheap Value Portfolio) these past few months has not been a pleasurable experience, and during the last six trading sessions, things have gone from bad to worst, as the DCVP lost another 6% to $78.13, a heavy hit in comparison to the Dow's 1% loss in the same period.

Don't lose hope though. There is light at the end of the tunnel and like in any tunnel, you must go through some darkness before you hit the light. The darkness is the negative pull of the overall market which is obviously hampering the turnaround of the DCVP. As we all learned in physics, a negative trend in motion (the current stock market) tends to continue in motion until some external force causes it to change. Unfortunately, the way our economy has been tanking lately, an imminent positive change is wishful thinking. The tunnel may be longer than anticipated but with any tunnel, light is sure to come.

At the end of the day, investors still have to be able to sleep well at night, and worrying about losing money is not good for the psyche! The solution is: sit back and sell covered "out of the money" calls, collect the dividends, and have the patience for the potential takeover deals to come to fruition. Investors that don't mind an adrenaline rush from time to time, should consider buying more in an attempt to price average down and exploit the market's extreme fear levels. Remember, be greedy when others are fearful!

The ten "DCVP" components revisited:

Imperial Sugar (NASDAQ:IPSU): The sugar producer made a new 52 week low and now is in jeopardy of testing an all time low of $5.35, set in March of 2009. The stock is so oversold any type of positive news could unleash a spring that is coiled back to its maximum point. This presents the feasibility of doubling in price in a matter of days. In the meantime, I admit I have reached my "wits end" during this excruciating painful period, but am confident the shares are near a capitulation event. The sugar producer's market cap has gotten so low ($72 million), it is laugable when considering its Wholesome Sweetner's division ownership stake alone , is worth more than the $72 million.

Safeway (NYSE:SWY): A upgrade by Longbow Research from sell to neutral, was a step in the right direction, but its shares are still just a smidge from a new 52 week low. However, this one is a keeper due to its nearly single digit multiple and 4% dividend yield.

SuperValu (NYSE:SVU): Despite a Moody's report claiming supermarket operators will benefit by selling more profitable generic drugs as many drug patents expire, its shares still made a new all time low, creating a whopping 6% dividend yield!

Steelcase (NYSE:SCS): the office furniture manufacturer is 15% above its 52 week low of $5.40 and still substantially north of its all time low of $3.89. I'd be a definite buyer in the mid $4's! In the interim, the stock's generous dividend yield of 4% creates an incentive for shareholder's to keep their money parked.

Yahoo (NASDAQ:YHOO): News releases that the Alibaba Group might make a stab at Yahoo as well as an alliance with ABC News have rocketed its stock, and let's face it: buying a takeover candidate with little premium already reflected in its share price, is equivilant to a "no risk" play.

Dean Foods (NYSE:DF): The highly successful Homestead Small Company Stock fund has made a meaty allocation to consumer defensive stocks, including one of it favorites, Dean Foods. This, along with a 7% stake by the legendary value investor David Tappen, of Appoloosa Partners fame, should provide potential investors a sense of confidence.

Luby's (NYSE:LUB): this one too made a new 52 week low, but is just too cheap to pass up. Beating the CEO to the punch is advisable, as he usually makes two large purchases per year.

Winn-Dixie (NASDAQ:WINN): The stock made an all time low at $5.26- making it even more susceptible to a hostile takeover attempt. The fact that the company does not have a poison pill in effect to thwart such an attempt, is a plus to shareholders. Bargain hunters need not apply, trying to pick a bottom on this one, is akin to trying to play "pick up sticks" with you know what!

Jet Blue (NASDAQ:JBLU): The stock broke through major support in the low $4's and now is a mere 50 cent fall away from creating an all time low. Its weakness is perplexing considering the recent drop in jet fuel. Another positive for the carrier is the development of Lufthansa possibly selling its 19% ownership stake, because federal laws prohibit foreign companies from owning more than 25% of US airlines-a sale would certainly enhance takeover prospects.

Pep Boys (NYSE:PBY): The lousier the economy gets, the longer car owners will defer buying new cars, requiring them to spend more money on their exsisting vehicles benefiting auto part retialers like PBY. What makes PBY special compared to its competitors, is that it is the only player in the space, that provides both parts and service,pays a dividend and owns a good portion of its location's real estate.

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