Low Enterprise Value Stocks: Rewarding Income Investors With Growth

Includes: AE, ELRC, TRST, UVE
by: Randy Durig

The fourth quarter of 2010 was surprisingly rewarding for our selection criteria. The stock performance for the Income and Investment portfolio that was published on Seeking Alpha was outstanding. For the fourth quarter, the portfolio was up over 22% percent compared to the S&P 500, which was up a very respectable 9.92%.

Our Income and Investment Review portfolio is based on high dividend-paying, very low or negative enterprise values while still including our established criteria of strong increases in cash flow, earnings, and a selective qualitative review ensuring they have a good business model. The goals are to select, purchase, monitor, and sell companies in an effort to obtain outstanding performing investments while minimizing risk by finding low values for our clients, doing all on a very low-cost basis.

Time Income and Investment. S& P 500
Fourth Quarter 2010 22.65 % 9.92 %

Fourth Quarter 2010 performance on our Seeking Alpha listed stocks:

Company Fourth Quarter 2010
Adams Resources (NYSEMKT:AE) *28.73 %
TrustCo (NASDAQ:TRST) *16.64 %

*Dividends not included but currently average 4.65% annually.

A few things investors should keep in mind:

1. The average dividend based on our recommended price currently is:

Company Current dividend rate is based on review price
AE 3.20 %
TRST 6.10 %
Income and Investment Average 4.65 %

2. This is a very small sampling over a very short time.
3. The performance is tracking very close to the longer, larger and strong performing sampling of High Cash Stock review with similar criteria excluding the dividend.
4. Adams Resources raised its dividend payout rate 8% in the fourth quarter.

The very low or negative enterprise values in the reviews are designed to provide protection from a market sell off. The positive earnings, improved cash flow, profit increase and possible stock price expansion helped to increase the often very low values that were identified. So far, the Income and Investment portfolio has done exceedingly well, beyond our forecast by such a wide margin that we are very excited to help others. One must realize that this is a short indicator of performance, and there is no guarantee of future success.

Updated portfolio review:

Electro Rent (NASDAQ:ELRC) was added to our clients' portfolios along with this published review during the fourth quarter. Even though Electro Rent has provided a strong stock performance since our article, it was not included in our performance numbers since it wasn’t in for the entire quarter.

Universal Insurance (NYSEMKT:UVE) was also added to the portfolio with this published review in the fourth quarter and Universal also did not qualify due to the same reasons as Electro Rent.

No positions were sold during the quarter.

Disclosure: I am long AE, TRST, ELRC, UVE.

Additional disclosure: Both Durig Capital and its clients have positions in all the above positions. The returns were based on equally weighted Investment and Income Reviews recommendations that we published, invested into our clients' portfolios and were held for the entire time period.

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