Seeking Alpha

The Dirt Cheap Value Portfolio - A Whole New Look

Includes: BRID, F, GE, JVA, LUB, WPRT
by: Mark Krieger

SuperValu eliminated, while Ford and General Electric are added.

A Luby's proxy fight emerges.

Coffee Holdings Co. is one hot cup of coffee, but fails to get any love.

It has been nearly one year since I last submitted an article on the "DCVP" and since that time, the DJIA has climbed a mere 1% from 25,286 to 25,538.

The "DCVP" in massive contrast rose 7.6% from $27.89 to $30.00 based on the winning effort of Bridgford Foods (NASDAQ:BRID) (racing 42% higher) and United Natural Foods (NYSE:UNFI) purchase of SuperValu (NYSE:SVU) (tallying a 70% premium). Offsetting those large gains were dismal performances in both Westport Fuel Systems (NASDAQ:WPRT) and Luby's (NYSE:LUB), falling 47% and 43% respectively.

Coffee Holding (NASDAQ:JVA), despite a 50% two-day rally in June, ended up completely flat. The new pricing of the "DCVP" for measurement purposes begins at $41.69. Going forward, I expect this defensive portfolio to rise 25% during the next 12 months, regardless of the direction of the overall market. This forecast is predicated on the fact that five of the six components are extremely oversold, therefore, vulnerable to M&A activity. In addition, limited downside is present, as most of the ticker symbols, all trade near five-year lows.

The revised lineup:

Bridgford Foods: This little company keeps humming along, just fine. Its new beef jerky plant could be finished within the next year. This verity would allow its current jerky production capacity to triple and monetize its existing beef jerky plant's real estate. That property, although only about 5 acres, could bring a substantial windfall to shareholders.

Luby's Inc.: Bandera Partners, Luby's largest outside shareholder, with an 8.9% ownership position, apparently has had enough with Luby's current direction. They delivered a scathing letter to the organization revealing their intention to place five of their own nominees for election to the Board of Directors. Translation? A proxy fight is on our hands. One analyst theorizes that if Bandera is successful, the company could be liquidated at $3. If so, Bandera could really make out, as they bought an additional 530,874 shares (from $1.18 to $1.39) during November. It looks like Luby's management wants none of it, as they hired a specialized law firm to fight the siege. Bandera has already received support from Hodges Capital (Luby's second-largest outside shareholder). Who else will jump on the Bandera train?

"We need fresh eyes to see if there are opportunities, and if shareholders have a better alternative than a dying cafeteria business," said Craig Hodges, co-founder of Hodges Capital. "Any action to reverse Luby's fortune or get some value out of the company is a very long overdue, necessary step."

The eatery is set to release its first quarter results at the end of January. The first quarter includes an additional 4 weeks to its reporting period. Last year's first quarter produced sales of $114 million and a loss of -$0.17. This year's first quarter will be even worse, with a 20% drop in sales to $91 million, generating a net loss of 50 cents. It won't be all bad though, as another poor quarter could put pressure on the Board to be more receptive to Bandera's plight.

Coffee Holding Company Inc.: A drop in coffee commodity prices apparently has scared some investors off, as its shares are now within 30 cents of 52-week lows. The company's fourth quarter results are scheduled by the end of January. JVA's lone analyst expects earnings of 1 cent vs. 1 cent, despite a 19% sales gain to $25.81 million. I find this earnings prediction too low and the sales forecast too high. My take? The coffee purveyor should at least drop 5 cents to the bottom line, with a $24.8 million sales effort. One added thought - CBD coffee-infused drinks seem to be the rage of millennials these days, I wonder if JVA's senior management team would consider this market. It certainly can't hurt to at least analyze. Although the Maxim Group recently trimmed their target price to $8, today's oversold share price supports appreciation potential exceeding a double. That represents some serious coin for those willing to venture into the water at this juncture.

I am so bullish on the name, I'm putting my money where my mouth is and swinging for the fences. In fact, 40% of my entire portfolio is committed to JVA. This may sound like some shameless pandering, but the metrics are solid: (1) shares trading at .33 of sales (2) 13 quarters of consecutive revenue gains (3) tangible book value of $4.05 per share (4) management is aligned with shareholders' interests (they take low salaries and possess ample skin in the game) (5) the company is in the thick of a $2 million stock buyback plan.

Westport Fuel Systems: To say its stock is in real funk is a major understatement. Its shares are now a few pennies away from making a new 52-week low, and there seems very little on the horizon that could disrupt this trajectory. The reality is, management is quite stingy with press releases and fourth quarter earnings will not be issued until the end of March (analysts anticipate a 3% revenue drop to $62 million and earnings of -$0.04 vs -$0.14).

Add in the reality that the company refuses to present at investment conferences, coupled with its very marginal analyst coverage and you have the recipe for a very dull dish. The bottom line is, management is doing a poor job at telling its story to Wall Street. Its guidance scenario falls strictly on revenues, and we all recognize profits are much more paramount than sales. At the very least, the boys (and girls) at corporate should at least provide EBITDA guidance.

It is difficult to understand why the shares are in such doldrums when bearing in mind the company upped its 2018 revenue guidance $15 million to $275 million for calendar year 2018. In addition, they announced a contract with Weichai Power (OTCPK:WEICY) of China to supply a minimum of 18,000 HPDI 2.0 units for the next four years.

Third quarter results also revealed a beefier contribution from its Cumming's Westport Joint Venture. Earnings related to Westport Fuel Systems portion increased 33% from $5.8 million to $7.7 million. Cash holdings improved from $51 million to $54 million, while debt was slashed $7 million to $47 million.

The big boys are betting bigger too. During the third quarter, institutions and hedge funds increased their holding by 25%. Pembroke Capital Management LLC purchased 1.50 million shares, Hood River Management LLC acquired 1.27 million shares, and Royce & Associates LP pushed their ownership stake to 5.02%, with their 305,000 share addition. My takeaway? Always follow the smart money.

Ford (F): How can you not love a stock that generates a 6.5% dividend yield, has an earnings multiple of 10, and earnings coverage twice its dividend? You don't. You buy the heck out of it. Ford is simply too cheap.

General Electric (GE): I'll admit, nothing looks good about this company at the present juncture. The good news is: the sentiment is so bearish that it presents a classic contrarian play. When everybody loathes a stock, that is the time I am intrigued. Expectations get so beat down into the dirt that exceeding them becomes so much easier. Hate selling becomes the norm and logic, the exception. There is no doubt GE carries significant risk, but its reward potential is exponentially higher.

Bottom line: Let's face it. Buying distressed, boring companies is not very glamorous. The buyer needs to have patience, discipline, and the ability to go against the herd-attributes that are not so common these days. The reality is, how else are you supposed to buy low if you are not seeking unpopular stocks? The game falls down to simple merchandising - buying low and selling high. The "DCVP" provides ample opportunity to accomplish this.

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

Additional disclosure: this is a re submission, as requested by Mike Taylor