Dirt Cheap Value Portfolio: 5 Members Subject To Extreme Volatility

by: Mark Krieger

Luby's (NYSE:LUB): Second quarter results are due out Wednesday 3/21 after the market close. Capstone Securities has forecasted the eatery to report a 2 cent loss on a sales of $78 million. That compares with breakeven earnings on sales of $76.50 million in last year's corresponding period. Look for the Fuddruckers parent to beat the mark by a long shot - hitting 3 cents in earnings on sales of $80 million.

The beat will be attributable to lower interest expenses (it will decrease over 50%), and an increase in same store sales of 1% due to the rapidly improving economy. The solid report should be enough to propel the shares 10-20% higher in a single trading session as there is plenty of upside opportunity to tap into since the shares have already fallen 25% from their 52 week high of $6.25

Safeway (NYSE:SWY): The supermarket chain saw its share price crater even though it exceeded Street estimates by a penny on its bottom line, and revenues by $140 million on its top line when it reported its fourth quarter results. A very fickle Wall Street seemed to be disappointed its gross profit margin shrank from 28.08% to 26.71%, its same store sales rose just 1.5%, and its bottom line was helped by a 150 basis point drop in its income tax rate.

The gross profit margin loss is not as bad as it appears when considering that the bulk of its decrease was due to higher fuel sales and a change of reporting in its gift card commissions, with the balance attributable to a higher LIFO expense. On the plus side, the supermarket operator was successful in its efforts to get leaner and meaner by notching out an almost a 100 basis point plunge in its Operating and Administrative cost category (from 24.82% to 23.84%).

The company's recent voracious appetite for its own shares is obvious; in less than 12 months, it has purchased back 21% of its outstanding shares from 370 million shares to 292 million shares (in the first six weeks of its first quarter alone, 28.7 million shares were purchased. The grocery operator now has about $500 million remaining on its current buyback authorization so expect its Board to approve another $1 billion commitment shortly.

On March 6th, the company is expected to give its 2012 guidance via its annual investor conference. Analysts are expecting it to earn $1.85 in 2012, but expect management to sandbag on its estimates and offer tepid guidance (a range of $1.70 to $1.80 seems more realistic). This will serve the company well, as this strategy of under promising makes it easy to over deliver and ultimately pleasing a notorious "gullible" Wall Street. Secondly, the initial shock of lower guidance generally creates a lower share price, giving them the ability to get way more "bang for their buck" in the share buyback process.

JetBlue Airways (NASDAQ:JBLU): This stock had gone meteoric, rising almost 80% in less than three months only to implode 25% in the last few weeks. The good news is it has retraced about 1/3 of its recent gains taking it from a very overbought condition to a very oversold situation, and has already sprung back about 10% from last week's lows of about $4.80. This one is back on its way to the $6 vicinity, which nimble traders should be able to profit from.

Imperial Sugar (NASDAQ:IPSU): The sugar processor has stated it is in the "late stages" of exploring the possibilities of monetizing its Wholesome Sweetener Holdings. What will be the ultimate decision? (1) Will they buy the remaining 50% from Edward Billington and Son Ltd.? (2) Sell their position to a third party? (3) Decide to maintain its ownership position as it stands? I guess investors will have to endure more tortuous waiting before this uncertainly finally abates. The positive spin is since Wall Street absolutely loathes uncertainty, the shares are being set up for a nice rally once a decision is finally made, one way or another.

SuperValu (NYSE:SVU): The shares are making a fast dive to a new all time low. What will stop the carnage? At this point, I don't know anything that will, short of a miracle. The company has been a huge disappointment and created a substantial drain to my brokerage account. It appears that the bears are in full control of this stock and that if longs are still maintaining that "every dog has its day" mentality, they might want to reassess their stubbornness and contemplate cutting their losses. This one is on the verge of getting purged out of the "DCVP" and being replaced by Diamond Foods (NASDAQ:DMND) which has been unfairly punished. To add insult to injury, supermarket industry guru David Livingston had an especially bearish take when asked to comment on its prospects, "SuperValu runs sterile, plain vanilla grocery stores, that simply won't fly in 2012".

Bridgford Foods (NASDAQ:BRID): The snack producer just issued its first quarter earnings via a 10Q filing and results were mixed. On the positive side, sales rose 3% from $28.8 million to $29.7 million. Selling, General and Administrative charges dipped 160 basis points from 31.30% to 29.7% (a bit coincidental that their sales and SG&A rate actually match). Cash rose to $9.3 million while its shares outstanding fell another 1.1% from 9.3 million to 9.2 million shares. The bad news is that its gross profit margin or "holy grail" to most enterprises got crushed 520 basis points from 34% to 28.8% from stubbornly high commodity prices. The company lost 3 cents a share, but was still cash flow positive. It is well positioned to see its earnings grow substantially once commodity pressures abate.

Disclosure: I am long BRID, LUB, SVU, SWY, JBLU, DMND, IPSU.