The Dirt Cheap Value Portfolio: Safe In A Declining Market

|
Includes: BRID, JVA, KKD, LUB, SVU
by: Mark Krieger

Summary

Value stocks are already low, so their downside risk is limited.

Four components are set to release earnings this month.

Shows superior relative strength to the overall market falling 3.6% versus 5.4%.

Luby's and Coffee Holdings are susceptible to M&A activity.

It has been about a month since the last time I updated the "DCVP". Since then, the Dow has fallen 5.4% from 17,265 to 16,346 while the DCVP fared better, slumping 3.6% from $38.80 to $37.41. Only one component actually rose (Bridgford Foods (NASDAQ:BRID)), while three had the dubious distinction of securing new 52-week lows. The biggest stinker of the group was Coffee Holding (NASDAQ:JVA), skidding a horrifying 17% on zero news.

The esteemed lineup:

Bridgford Foods: The snack food provider is slated to release its fourth-quarter report by Jan. 15, and prospects are good, thanks to a tumble in commodity and gasoline prices. The shares are extremely thinly traded, so any trace of positive news could send the shares up 20% at the drop of a hat.

Price target: $12

Luby's (NYSE:LUB): The eatery has announced it will release earnings (first quarter) on Thursday, Jan. 21, after the market close. It also revealed in the same press release that it gained four culinary contract service locations, bringing the total from 23 to 27 sites.

There are no analyst expectations, but I expect an improvement on the bottom line, despite a slight loss in same-store sales. The shares hit a new 52-week low last week when they briefly touched $4, but were able to bounce back more than 3% on probable short covering and bargain hunting tactics. I was very surprised by the level of "hate selling" the stock experienced, especially considering tax-loss selling is over. Next month, the company will be hosting its annual shareholders' meeting, so it is conceivable some activist fireworks could pop up (I still expect the CEO to attempt to take the company private).

Price target: $9

SuperValu (NYSE:SVU): This one also hit a new 52-week low despite plans to spin off its Save-A-Lot division. The company also announced it will release its third-quarter report this Wednesday, before the market open. Look for the grocer to slightly beat expectations by ringing up $4.18 billion in sales, with $48 million falling to the bottom line.

Price target: $10

Krispy Kreme Doughnuts (KKD): The company is getting serious about enhancing and growing its coffee sales. In fact, it plans on doubling those sales by replicating some of Starbucks' (NASDAQ:SBUX) winning ways. There is no doubt the stock is a bargain, considering it has net cash of $25 million on the books, sells at a multiple of just 15 times next year's estimated earnings, and has an aggressive stock buyback program in effect.

Price target: $21

Coffee Holding Co. Inc.: The shares hit a new 52-week low of $3.32 last week, before a slight uptick to $3.44 to close the week. I am totally perplexed why Mr. Market has so much disdain for this name. After all, it has an impressive balance sheet, along with a vast customer network in place. I am actually puzzled that Farmer Brothers or Joh. A. Benckiser hasn't made a move for the company yet.

Its fourth-quarter earnings are due to be out about Jan. 24th, but there are no street estimates available. I spoke to CEO Andy Gordon about the company's $3 million stock buyback plan, and he indicated since the company is in a quiet period, it has been unable to buy shares in the open market. He stated that he intends to resume purchasing as soon as the quiet period is lifted (three days after earnings are reported). I expect this scenario will definitely provide a badly needed floor for the share price, as this additional demand should work wonders.

Price target: $7

Disclosure: I am/we are long BRID,LUB,SVU,KKD AND JVA.

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.