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Why It Makes Sense To Buy HRZN And DLA Now

|Includes:DLA, Horizon Technology Finance (HRZN)

At any given time, markets offer securities at various price and value levels and investors have to choose from this wide and diverse range which can be confusing at times. Investors buy stocks for various reasons and at times, these factors can run contrary to conventional wisdom. Horizon Technology Finance Corp. (NASDAQ: HRZN) and Delta Apparel Inc. (NYSE: DLA) have some very strong arguments in their favor, although not all.

Dividend alone is a good enough factor sometimes to buy stocks and Horizon Technology Finance is a good buy on this basis. Stock of the company, a closed-end, non-diversified management investment company, offers annual dividend yield of nearly 10 percent. It was only in March that the stock fell below $12, touching a new 52-week low level after reporting fourth quarter results that left the market underwhelmed. However, it did not take smart money long to figure the dividend opportunity and the stock has recovered to $14 in a matter of just two months.

The company has a fundamentally solid business that is growing, even if slightly less than market expectations. For investors checking in for longer terms, the opportunity is even bigger as the stock of this emerging growth company is unlikely to remain at a forward price earnings ratio of just 10.1.

Last year was not good for retail players, particularly in apparel retail. While Delta Apparel is not exactly a retail player, it operates on the fringes and as such, it was also affected by what transpired for the sector last year. The stock of this casual and athletic products company has lost nearly 12 percent since the beginning of the year. For the six months ended March 29, 2014, the company's revenues dropped 5.5 percent to $214.5 million, but a sharp increase in interest outgo and other costs pushed the company into losses. However, there were some silver linings in the earnings report that the market seems to have discounted.

During the latest quarter, the company won additional decorated tee programs from customers who were previously purchasing undecorated tees. For the full year, the company expects sales in the range of $480 to $490 million, which will be equal or less than previous year. However, the company expects to recover losses and post full year earnings in the range of $0.80 to $0.90 per share. True, the company has a debt almost equal to equity on its books, the 14 percent discount to its book value is difficult to ignore. As such, the forward price earnings ratio of 7.2 looks attractive.

Stocks: HRZN, DLA