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  • This Asset Manager Is Trading Below Book Value 0 comments
    Jan 21, 2014 8:35 AM | about stocks: MCGC

    As 2013 came to a close, investors had a lot to cheer for and certainly the expectations are high for 2014. However, I would be surprised if we did not see a pullback at some point. It is hard to speculate when that correction could take place, but investors need to be in a position to capture further gains and be cautious for a correction. How exactly can an investor do that? One potential scenario investors could use is to take excessive gains off the table and lock in big profits. If that is not an option that would work, have your cash ready to go once the pullback occurs and use dollar cost averaging to bring down the overall cost of your holdings or add number of shares. There are several other methods that could be used, the point is that investors need a plan of action so that they are not left vulnerable to major losses.

    Another important tool that investors should have ready in the event of a pullback is an updated wish list. A pullback could present an opportunity to add quality stocks to your portfolio, should this be something that would work into your investment goals. One such stock that could make its way on to your wish list is MCG Capital Corporation (NASDAQ: MCGC).

    MCG Capital is an asset manager that "does not prefer investments in highly cyclical and volatile industry sectors and businesses with significant volatility exposure. It seeks to invest in small to mid sized companies. The firm prefers to invest in acquisitions, growth financings, organic growth, recapitalization, working capital, and leveraged buyouts. It invests in companies based in the United States" (finviz).

    Turning to the fundamentals, MCG Capital has a market cap of $317.63 million and is currently rated a "hold" by analysts. Price to earnings is at 12.39 and forward price to earnings is at 9.14. Price earnings growth is at 1.24, price to sales is at 6.03, price to book is at .87, price to cash is 3.05, and price to free cash flow is at 7.49. Total debt to equity is at .49, and the firm has cash per share of $1.46. Meanwhile, the firm offers an annual dividend of 11.21 percent. Ultimately, these figures are quite overvalued with the exception of price to book. Earnings are expected to rise 105.7 percent this year, 10.91 percent next year, and 10 percent over the next five years.

    Ultimately, I like that the stock trades below book value and the earnings growth looks quite good, but I worry about the company's cash load and its potential inability to pay its huge dividend. This is especially a concern if the market corrects or heads into bear market territory. In the end, your money is better off invested elsewhere, as this stock is very sensitive to the market due to the fact it makes revenue off managing assets.

    Stocks: MCGC
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