The Dirty Dozen Value Plays Of The Entire NYSE And Nasdaq

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Includes: ATW, CFFI, CYD, EIG, GFA, GLF, NICK, PT-OLD, RIG, TEU, TGA, XIN
by: Paul Boland

Summary

Here are the worst 52-week performers on the NYSE and NASDAQ that still have positive earnings, a low P/E, a low P/B, and offer high dividend yields.

It has been shown in research that high dividend yielding stocks that conformed with value based metrics offered a strong return to investors.

Using this approach, we compiled a list of the entire NYSE and NASDAQ stocks and narrowed it from over 7,000 stocks down to 137 that fit the narrow criteria of value investing.

Presented within this article are the worst 12 year-to-date performers that fit that criteria and a link to the other 137.

It has been shown that investing in high dividend yielding stocks is generally good as a portfolio approach with respect to asset appreciation over the long term. However, it has also been shown that the reason for this asset appreciation might be value-investor based metrics as opposed to simply the high dividend yield.

In research that was conducted by Gregg Fischer and took place from 1979 through 2012, the following three points were shown:

  • The high-dividend-yield portfolio's annualized return was 1.27 percent above that of the total market as represented by the Russell 3000 index (12.42 percent versus 11.15 percent). So the high-dividend strategy outperformed the market.
  • When the factors explaining the returns were decomposed, the dividend yield factor actually contributed negative 1.02 percent - the high-dividend factor actually detracted from performance.
  • The above-market return resulted from the high-dividend portfolio's exposure to value factors. Value, defined as the ratio of book value to price ratio, had a positive exposure of 0.5 and positive contribution of 0.4 percent, the third-highest contributor to the total returns. Earnings yield, defined as stock earnings per share divided by price per share, also had a positive exposure of 0.5 and is the highest contributor to total returns, adding 2.3 percent. This indicates that the portfolio of high-yield-dividend stocks also is tilted toward value and earnings yield, and that these factors (not the high-dividend yield) are contributing meaningfully to the portfolio's high returns.

In light of this research, we put together a list of stocks that were at 52-week lows for the NYSE and NASDAQ and that were based on value-based metrics as well as showed a dividend yield.

Methodology:

We took the entire list of stocks from the NYSE and the NASDAQ (over 7,000) and compiled a list of the stocks that had a combination of factors related to the standard value investors' criteria for evaluation of stocks. We managed to weed the list down to 137 stocks based on the following criteria:

1. P/E < 10 - This provides our metric for comparison of the stock price against the income statement. A P/E of 10 is generally considered rather low and is certainly less than the overall market.

2. P/B < 1.5 - This represents our price metric with respect to the balance sheet component of the company. It gives us a sense of what we are purchasing right now at this moment in time. A P/B of 1.5 is rather low in the context of the overall market, but possibly not quite as low as deep value investors prefer (preference is given to less then 1.00).

3. Positive Earnings - While there might be value in pursuing stocks that have had negative earnings for the last 12 months, it is much easier to construct a stock screener that only looks at positive earnings as the chances of finding a good company with positive earnings is better than finding a good company with negative earnings. Additionally, the P/E in our earlier criteria could not be run without positive earnings.

4. Dividend Yield - Due to the intuitively inverse relationship of price with respect to dividend yield, it is expected that a high dividend yield implies a low point for the stock. For companies with positive earnings that continue to pay a dividend, the dividend yield can help anchor the stock price. Having run a regression model on the list of 138 stocks from the NYSE and NASDAQ (a total of 7,081 stocks) that met the previous three criteria, it was found that the inverse relationship between dividend yield and YTD price difference was at an R^2 of 0.23 suggesting a level of inverse correlation of 23%.

5. Greatest 52-Week Decline - Of the group that met the previous criteria, we took the stocks that were not MLPs, or Trusts, with the greatest drop year over year to construct our list of dirty dozen stocks.

The intent here is to screen for possible deep value plays that are also at a point where initiation of a purchase might be smart as these stocks have suffered greatly over the last year.

Here is the chart:

You'll notice that a few other factors are listed as well - The Growth Rate over the last five years as well as the Beta of the stock. Please beware that the beta average here is 1.5 which is rather high. In full disclosure there are a few stocks here that I would not consider for potential investment purposes after looking into them more deeply (so please do your homework).

Some of the stocks that meet the criteria are within the offshore drilling industry which has been hit particularly hard recently. Examples of these companies are the S&P 500 member, Transocean (NYSE:RIG), and the not so famous GulfMark Offshore, Inc (NYSEMKT:GLF). Others such as TransGlobe Energy Corporation (NASDAQ:TGA) have been hit hard because of the decline in the oil spot price and the large exposure to Middle Eastern conflict (mostly operating in Egypt and Yemen).

No matter what the reason for the recent decline, these stocks have suffered greatly during the last year and, combined with their favorable attributes, might be at a time for a favorable acquisition point. In any event, they are at least worth taking a look at more closely. For those interested in the entire list of 137 stocks that met the criteria as outlined within this article - please click here.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has 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.