Dirt-Cheap Value Portfolio: Who's Next To Be Bought Out

by: Mark Krieger

The Dirt-Cheap Value Portfolio's (DCVP) make up is changing, and not by choice, but by necessity. The list is getting systematically picked off, one by one, by companies recognizing opportunity in their undervalued states. Winn-Dixie (NASDAQ:WINN) was the first casualty, and now Pep Boys (NYSE:PBY) has become the second, with news that the private equity firm Gores Group has offered a 25% premium to take the company private (no surprise here, as my last article predicted a buyout in the $14-15 range). The third company to be replaced should be Yahoo (YHOO), which could be accomplished by the end of March at a 25 to 30% premium, followed by both Luby's (NYSE:LUB) and Krispy Kreme Doughnuts (KKD) at 20% premiums.

The latest and the greatest:

Krispy Kreme: The donut maker is on a roll. It was upgraded by Stephens and given a $8.50 target price, while it single largest shareholder, Robert Stiller of Green Mountain Coffee Roasters (NASDAQ:GMCR) fame, added more shares to his position and now owns 11.83%. Could he be posturing to acquire the whole enchilada?

Safeway (NYSE:SWY): Jefferies Group recently upgraded its opinion on the supermarket operator, from a hold rating to a buy rating and a $25 price target. The shares are way oversold and due for a quick bounce back to $23 vicinity.

Pep Boys: The auto parts company has a 45 day "go-shop" period to determine if they can obtain a better price than the Gore offer, but this is more of a formality than anything else, and investors hoping for a higher bid to evolve should move on.

Yahoo: Now that co-founder Jerry Yang has resigned, could chairman Roy Bostock be next? It is just a matter of time before YHOO is acquired and shareholders are treated to a big, fat payday. It can't be soon enough, in my opinion.

Steelcase (NYSE:SCS): The office furniture manufacturer's stock price has been on an absolute tear lately, rallying over 25% in just the last two weeks. Unfortunately, it is getting way overbought at these hyped levels and needs to correct back down to the low $7s before potential investors dip their toes in the water.

SuperValu (NYSE:SVU): The shares have been a major disappointment, and probably need to test the $6.25 area before buyers will be willing to jump in again. The problem is, no potential buyers want to expose themselves to a possible 10% hit, such as the charts are suggesting.

Luby's: The restaurant chain just struck up a deal with MD Cress and Associates to help them expand its footprint in the culinary contract healthcare business. LUB now with 20 culinary locations, is hoping to expand to 25 by year's end.

Bridgford Foods (NASDAQ:BRID): The snack food company announced it fourth quarter and full year results on form 10K (the company does not issue press release for earnings reports, to save costs) and revealed it lost $450,000 on sales of $118 million due to higher commodity prices in fiscal year 2011. The good news is, it was still cash flow positive thanks to a $1.8 million entry for depreciation expense.

During the year, the company returned almost $2 million to its shareholders by purchasing back 57,000 shares in the open market and paying a 10 cent cash dividend. Management now owns approximately 80% of the company's 9.277 million shares outstanding.

Dean Foods (NYSE:DF): A report that the cost of butter fat has reached a 21 month low could bode well for the milk producer's fourth quarter earnings. Analysts expect it to earn 24 cents on sales of $3.33 billion when it reports in mid march - very conservative estimates, to say the least.

JetBlue Airways (NASDAQ:JBLU): the stock seems intent on maintaining its soar mode, as it has risen a staggering 75% in just the past two months alone. It is getting just too hot to handle, and is way past due for a breather. A recent downgrade by Dahlman Rose could be the catalyst for a heavy dose of profit taking.

Disclosure: I am long SVU, PBY, SCS, KKD, SWY, YHOO, BRID, LUB.