The Dirt Cheap Value Portfolio - From Bad To Worse

by: Mark Krieger

SuperValu approves reverse stock split.

Westport Fuel Systems dilutes shares with secondary offering.

Coffee Holdings Company Inc. hits a new 52 week low.

Luby's retraces 50% of its recent gains, despite massive insider buying.

The "DCVP" has laid an egg, and not a golden one. More like a sour, sulfur smelling creation. Dubiously, it has fallen another 14% from $28.36 to $24.28, while the overall markets, have made new highs since my last update in late May (the DJIA average has increased 2.7% from 21,000 to 21,580). The bottom line, is my confidence level has been decimated, along with my portfolio. In the past year, I have seen my investment account lose more than 70%. What do I do now? That is easy. Cry in my beer.

The esteemed list

SuperValu (NYSE:SVU): The company announced that they will be enacting a 1 for 7 reverse stock split on August 6th. Great news, as far as I am concerned, being an advocate of reverse splits, for obvious marketability reasons. The company also releases its first quarter results this Tuesday. Estimates are meager. Earnings are expected to fall 48% from 19 cents to 10 cents. Sales are anticipated to decrease 25% to $3.88 billion. The company should be able to surpass these dismal estimates easily. Its latest shellacking, from the news that AMZN was acquiring Whole Foods, was totally overblown. The market apparently failed to consider that most of SVU's sales are now originated from its distribution division, rather than its retail arm. Mr. Market is simply dazed and confused, and this market inefficiency should be exploited, while it still can.

Price target: $7

Bridgford Foods (NASDAQ:BRID): With an average trading volume of just 800 shares per day, there is nothing I can say about this one, other than it prepares one for a career in "watching paint dry".

Price target: $18

Luby's (NYSE:LUB): Earnings were rotten again, but at least they were not rotten to the core, as some light emerged at the end of the tunnel. They were able to chop their G&A costs by $2.5 million and add three new culinary service locations. In addition, they sold one of their company owned Fuddruckers, to a franchisee. This is in line with their plans to refranchise more units, in the future. The restaurant operator was also able to trim its cap ex by $1.2 million and generate $5.5 million versus $5.7 million, of positive cash flow.

On the troubling side, an increase in long term debt from $37 million to $40 million, and a 2.7% reduction in same store sales, added insult to injury. The stock saw a 40% gain (apparently spurred by heavy insider buying) the last week of May, but has since retraced 50% of those gains, evidently driven by its lackluster third quarter results. I still think this company is very close, to some type of M&A activity. I just wish it was sooner, rather than later.

Price target: $8.50

Westport Fuel Systems (NASDAQ:WPRT): The company enacted a secondary offering, selling 16.7 million shares at $1.50 per share. At first glance, I didn't like the idea of the dilution created, just to raise $25 million, but now I am thinking the transaction was merely done so insiders could buy more shares, at a lower price. Both the CFO and mega investor, Kevin Douglas bought large amounts of shares through the offering, and in the open market. This is definitely a confidence builder, as insiders have not touched the shares in over four years. As a consequence of the offering, WPRT was required to give some color and guidance. It expects to generate sales of $58 million in its second quarter and be EBITDA postive by early 2018.

Price target: $8

Coffee Holdings Inc. (NASDAQ:JVA): The shares made a new 52 week low on Friday, and I really have no explanation for this weakness. In fact, I am utterly perplexed, especially since coffee futures have experienced a nice rally (up 15%), in the past 45 days. Although JVA is not scheduled to report its third quarter results until mid September, I expect their sales to improve from $17.5 million to $18.5 million. This sales pick-up,should produce a 25% earnings gain, from 12 cents to 15 cents. This is based on fewer shares outstanding, and the addition of both Sonofresco and Harmony Foods (recent acquisitions).

Price target: $12

Disclosure: I am/we are long BRID,JVA,WPRT,LUB & SVU. 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 microcap stocks. Please be aware of the risks associated with these stocks.