The Dirt Cheap Value Portfolio: Buying The Dip Is Hard To Do

by: Mark Krieger


Pep Boys falls hard on low tire pricing.

JBLU's pilots vote to go union, grounds shares.

Ramius Capital previous proxy fight with Luby's could re-emerge with a new player.

The DCVP drops into free fall mode, despite a 2% DJIA rise.

The DCVP experienced another horrible selloff, thanks to two components that just happened to report results. Despite all of the components possessing clean balance sheets and dependable revenue streams, the DCVP fell another 7% from $46.03 to $42.85 despite a 2% gain in the DJIA. Pep Boys' dismal fourth earnings caused it to collapse 13% while JBLU's results also prompted a stampede of selling, as it pared 7% of its value. Will the relentless selling ever begin to wane? I am beginning to wonder, as my confidence has surely been shaken.

The lineup:

JetBlue Airways (NASDAQ:JBLU): The company experienced two double whammies: First, its pilots voted to go union, and secondly was its latest earnings report. The carrier's first quarter results revealed that 4100 flights had to be cancelled due to extreme winter conditions. Earnings fell well short of the mark, as a consequence. On a positive note: management is confident that its second half of 2014, will see expanded margins. Price target reduction from $11.50 to $9.

Fuel Systems Solutions (NASDAQ:FSYS): First quarter results are due out before the market open on Thursday May 8th, and you can be rest assured that FSYS will likely disappoint, based on its poor track record. The company is forecasted to report a loss of 5 cents on sales of $82 million (a 16% drop). The question is, will management be able to reiterate its previous guidance?

The company is also in the midst of renewing its credit facility, so it can go on the acquisition hunt. With nearly $100 million in cash on hand, and no debt, it is hard to understand why on earth they feel compelled to borrow money. Price target reduction from $14 to $12.

Pep Boys (NYSE:PBY-OLD): A horrendous earnings report was the catalyst for a wicked selloff in the stock. The auto service provider, stumbled terribly, by missing its fourth quarter earnings estimates by 5 cents, as well as sales targets by $35 million. Management blamed the shortfall on soft tire prices that will likely plaque its operations through the first half of the year. Price target reduction from $13 to $11.50.

Luby's (NYSE:LUB): The cheaper the shares get, the more vulnerable they become to a hostile takeover attempt or activist action. Nearly seven years ago, Hedge Fund Ramius Capital engaged Luby's in a proxy fight, urging shareholders to adopt their plan of featuring a strategy of monetizing the company's real estate interests in a series of sale leaseback transactions, or simply putting the entire company up for sale. Ramius estimated the real estate was worth $250 million and the proceeds could be used to buy back shares. Ramius also questioned the CEO's ability to run both his own private restaurant chain and Luby's at the same time.

Although Ramuis was ultimately unsuccessful in its efforts, a new activist could emerge with the same line of thinking, especially since the shares are much lower today, than they were when Ramius first introduced its intentions.

A very bullish Seeking Alpha article by Lenny Grover, surprisingly failed to add any wind to LUB's sales, as it now sits just a few pennies above its 52 week low. Price target reduction from $10 to $9.

Bridgford Foods (NASDAQ:BRID): There are no near-term catalysts to move the price, considering the stock's average daily volume is just 2000 shares, and its second quarter earnings are nearly two months away. It is safe to say, this one will continue to rival "watching paint dry." Price target: $10.50.

The bottom line: The stock market is nothing but a big merchandising game, in its purest sense. Buying wholesale and selling retail is the real objective. The problem is, buying stocks as they fall, is not easy to do - it seems akin to throwing good money after bad.

In terms of both FSYS and LUB, their market prices are not only below wholesale, they are even beneath cost. They are the two components of the DCVP offering the most bang for the buck. The chances that they go even lower are always there, but there is no doubt that their recent dips, make them obvious choices for future rips.

Disclosure: I am long FSYS, BRID, LUB, PBY, FSYS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.