The Dirt Cheap Value Portfolio: Keeping Up With The Joneses

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Includes: BRID, JVA, LUB, SVU, WPRT
by: Mark Krieger

Summary

SUPERVALU is the big star, tacking on 33% of goodness.

The DCVP appreciates 10% - a 9% greater clip than the DJIA.

The new corporate tax rate will add 14% more income to the bottom line - a definite catalyst of the stock market's recent tear, and more to come.

BRID, LUB, JVA and SVU are all on deck for earnings releases this month.

It has been an interesting three months for the "DCVP." It rallied 10% from $25.36 to $27.89 (pre-split SVU) edging out the DJIA's 9.2% advance, from 23,163 to 25,296. The all-out star of the gang was SUPERVALU (SVU) - tacking on a very impressive 33% markup, followed by Luby's with a pristine 11.3% boost. The remaining three components were annoyingly flat.

Anytime the DCVP can keep up with the Dow "Jones" Industrial Average is a feather in its cap. Exceeding it is "icing on the cake." All I can say is, "more cake" please.

Wall Street seems to love President Trump: The passage of the Tax Reform Act will be a boon to corporate America's bottom line. In fact, each $100 million of taxable income will now see another $14 million fall directly to the bottom line - the primary driver of why Wall Street felt compelled to add another 9.2% of markup, from my last update.

Since the tax savings should boost earnings by roughly 14%, it looks like we still have another 500 basis points of tax savings appreciation available, so a rally to 26,560 seems more than reasonable. Add on the benefits of less regulations and the opening of more oil drilling opportunities, and you have the recipe for a 30,000 Dow by year's end.

The esteemed list:

Westport Fuel Systems (NASDAQ:WPRT): Talk about volatility - this one takes the cake. It retraced over 50% of its prior one-year gains during the period, only to rally 60% to a new 52-week high (from $2.50 to $4.10). There is no doubt that good news out of corporate had a lot to do with that strength, such as a supply agreement with Tata Motors (NYSE:TTM) and US EPA and Air Resources Board of California certifications on its ISX12N natural gas engine.

This stock could easily rally to $5 in the next month and $10 by the end of the year, but is way overbought and needs a 10% orderly correction to absorb its excesses. In the meantime, it is displaying some perfect technical behavior, by showing contracting volume on down days and expanding volume on up days (a sure sign of accumulation). In addition, it has been steady in its effort of making "higher highs" and "higher lows" along its path towards greatness.

SUPERVALU: The shares no doubt had a tremendous rebound, thanks to an activist letter by Blackwells Capital and an insightful SA article by Michael Boyd, coupled with a broad sector recovery within the grocery retailers. More fireworks are ahead - the grocer will be releasing its third-quarter results Jan. 10th before the market open.

Bridgford Foods (BRID): Look for 4th quarter earnings to be released by 1/12, and along with that, possible details on its Chicago downtown development plans. There is talk its 5-acre parcel could sell for as much as $60 million, paving the way for a special $6.00 cash dividend.

Coffee Holding Company, Inc. (JVA): The Maxim Group re-established research coverage on JVA, with a Buy rating and a $7 target price, after a two-year hiatus. The firm also projected the coffee company will report a 14% increase in revenues to $19.7 million and earnings of 2 cents when it reports its fourth-quarter results at the end of the month. Those expectations might be too high. I prefer a more conservative approach such as an underpromise, overdeliver mentality. Don't you?

In the meantime, the shares have apparently found some traces of their former mojo - challenging their 200-day Moving Average of $4.45 three times in the past month. A blast north of that figure on elevated volume would be the ultimate buy signal. I can hardly wait for that fateful day.

Luby's, Inc. (LUB): The Bandera Group (5.1% owner) has indicated it anticipates transitioning from a passive ownership role to an activist role, according to its November 17th 13D filing. This could spur senior management and the Board to consider more radical change, sooner rather than later. Luby's is set to host its Annual Meeting of Shareholders on February 9th - perhaps Bandera will present its plan then. My hope is it can persuade the Board to market the company for sale. I firmly believe its real estate portfolio could help garner a sale price of $5.50 per share, resulting in a 100% premium.

The company will be reporting its first-quarter results on Jan 26th. Look for the eatery to show a 10% erosion of sales to $103 million, but a significant improvement in earnings from a 19 cent loss to a 3 cent loss, based on positive cost-cutting efforts. In other developments, both COO Peter Tropoli and CFO Scott Gray saw a windfall of stock options and share grants fall on their laps. Hopefully, their aggregate award of nearly 300,000 shares will motivate them to care more about the stock price, thereby aligning their interests more closely to outside shareholders.

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

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.