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Limited Downside, Undervalued Stocks For A Stagnant Market

|Includes: Delta Apparel, Inc (DLA), FFNW

Stock markets were seen retreating last week in yet another indication of having reached an intermediate high and being ripe for a technical correction. It could turn out to be more than just a technical correction as the markets are at their highest levels. At this point in time, it makes sense to buy stocks such as Delta Apparel, Inc. (NYSEMKT: DLA) and First Financial Northwest Inc. (NASDAQ: FFNW) which are still undervalued and thus, have limited downside from current levels. Here is a closer look at these stocks.

South Carolina based Delta Apparel, Inc. offers a broad portfolio of lifestyle branded activewear and headwear, in addition to private label apparels through a variety of distribution channels. The stock has corrected nearly 15 percent over the last month after posting disappointing third quarter results which saw profits plummeting to just $0.6 million from a $3.6 million in last year's corresponding period. Although the company was negatively affected by the softness in retail apparel sales, also impacting profitability were onetime expenses associated with closing of a printing facility, acquisition of Salt Life brand, and higher than normal bad debt expense. These are unusual items and are not expected to affect future earnings. On the positive side, the company has an active share repurchase program in place where in the management can buy shares worth $30 million in open market transactions. During the latest quarter it used $2.1 million of this war chest, but there is nearly $28 million still left. Meanwhile, an 11 percent discount to book value and a forward price earnings ratio of 6.3 mean there is limited downside in this stock.

First Financial Northwest Inc., a holding company for First Savings Bank Northwest, is a low beta stock that has remained range bound for at least three months despite vastly improved financial figures. For the three months ended September 30, 2013, the company reported a profit of $2.6 million compared to a loss of $0.8 million in the prior year period. This is actually a continuation of similar performance in earlier quarters which boosted nine month profits to $20.5 million, up from $1.2 million in the first nine months of 2012. Since it is a low beta stock, it has not seen wild price movements in the past and is not expected to witness such in future. A 9 percent discount to the book value is an added bonus, while a price earnings ratio of 8 for this dividend paying stock is simply on the lower side.