The popular thing to do this time of the year seems to be generating lists of stocks that will do the best over the next year. I thought I'd get in the game with a twist, I won't claim any of these stocks will do well in the next year, but I think over the next three to five you'd be happy to own them. Most of the stocks are companies I have written up in the past, some aren't, but I own shares in all of them. I put my money where my mouth is, I have adding to, or been trying to add to some of these positions recently. All of the following stocks are just as attractive as when I wrote about them, or first purchased them.
I thought about naming this post "13 stocks to make you rich", or "The HOTTEST 13 stocks", but I don't have glossy ads I need to sell, so I'll leave those to the magazines. I would challenge any magazine to pit their stocks against mine over a five year period. I'd much rather own this motley group over any set of blue chips English majors from an Ivy picked.
The stocks are ordered alphabetically.
Argo (ARGO.UK) - I first wrote about Argo about a year and a half ago, and they're even more attractive now then they were then. The company is an emerging markets asset manager listed in London but based out of Cyprus. They are trading far below NCAV, and even below net cash. There are some value bloggers who've started to raise the undervaluation issue with management, and management has been very receptive. I plan on posting about them again soon.
Bank of the James (BOTJ) - I don't write about banks, but that doesn't mean I don't invest in them, I actually own quite a few community banks. Bank of the James is a classic community bank, they own a number of branches in Lynchburg Virginia, and are exposed to the local market. Losses are rolling off and branches that were opened in 2008 are becoming profitable. The bank could do more to improve their efficiency ratio, but I don't think cuts are in the future. A community bank trading far below book with a low earnings multiple, and recovering earnings, I'm a buyer.
Carlo Gavazzi (GAV.Swiss) - Carlo Gavazzi is a Swiss manufacturing company, but they're more than Swiss, they're global. The company manufacturers automation components, whole bus assemblies and sensors such as the ones that keep elevator doors open. The company is cheap on an EV/EBIT basis and earns an outsized return on invested capital. They're family owned and controlled through a dual share structure which is a turn off for a lot of investors. The family is conservative and eschews debt, they're focusing on growth outside of Europe.
Conduril (CDU.Portugal) - A Portuguese construction company that could be one of the cheaper equities on the continent. They have a P/E of 2x and are a net-net, they're also family owned and controlled. The family tried to take the company private a few years ago but the regulator wouldn't let them. The company is heavily exposed to African construction, the writeup on them is here.
Conrad Industries (CNRD) - A stock I researched then dilly-dalled on buying, much to my dismay. An American boat builder based in Louisiana. Another family controlled company with outsized metrics, high returns on equity, an extremely low P/E and some potential catalysts. The family has engaged a banker to examine strategic alternatives, they've also declared a $2/sh special dividend. In addition to all of this they're using their copious free cash flow to buy back shares.
FRMO (FRMO) - A strange unlisted public company that generated a lot of interest. This is Murray Stahl and Steven Bregman's personal investment vehicle. The company owns close to a 1% stake in Horizon Kinetics along with a slew of owner operated equities. It's like owning a fund managed by Stahl and Bregman without the expenses.
Goodheart-Willcox (GWOX) - An text book publisher that hit hard times over the past few years. The company's market appears to be bottoming with sales finally increasing over the last quarter. The company was a cash box but put most of the cash to use buying back shares. Because of the buyback earnings only need to recover to a mere shadow of what they once were before this is a P/E 4x stock.
Hanover (HNFSB) - This is a great story stock that's incredibly cheap, I wrote a two part series here, and here. Even though shares are up since my initial post the company has continued to grow and the valuation gap remains. If you can get past the self-interested CEO you'll find a food company growing at close to 8% a year selling for 30% of book value with a P/E of 5x.
Installux (STAL.France) - This is a classic French owner-operator company. The company manufacturers aluminum panels and decorative pieces for the sides of buildings. They're a cash box, and if you back out cash ROE is 14%. They earned €17.97 in 2011, €21.78 in 2010, and €15.57 for the first six months of 2011 (they trade at €140). Sales have increased year over year, and cash increased €5.1m this past quarter. Of course they're mostly exposed to domestic French policies, but that's also why they're so cheap.
Japanese net-nets (Japan) - Not a specific company per-se, but a general investing theme. I strongly believe an investor buying a number of Japanese net-nets at well below NCAV will be satisfied with their returns in three to five years. I embarked on the great Japanese investment project, and it's still in progress. Unfortunately Schwab is a bit more restrictive in what I can purchase, so I've pared back my expectations, but the process is still ongoing. I actually purchased two new Japanese net-nets tonight. I'll have a follow up on this in the next few weeks.
Nexeya (ALNEX.France) - A defense contractor in France that is a classic two pillar stock. The stock has run up quite a bit since I posted, but improved results have also come out and the stock is still cheap. Not much else to be said about them beyond what was already said in my initial post.
Precia (PREC.France) - A weighting (scale) manufacturer with global reach based in France. The company is expanding quickly overseas especially in India. Sales in the Eurozone are slow, but sales outside of Europe are growing fast. For the fast growth and high ROE the company is rewarded with a P/E of 9x and shares trade at book value. I liked the company when I first wrote them up, and I still like them increasing my position two weeks ago.
Solitron Devices (SODI) - I have written about Solitron a number of times on the blog. I was so frustrated by the undervaluation I went as far as writing the CEO a letter urging action and rallying support through the blog. Solitron responded to the shareholder outcry with a share buyback and the initiation of an annual meeting next summer. The shares are still extremely cheap.
Talk to Nate
Disclosure: Long all companies mentioned!
Hope you are right: long 4 of the above names :)ReplyDelete
nice list. France seems to be one of the most interesting markets in my opinion as well.
Thanks, France is interesting as well as Japan. France will probably recover quicker though.Delete
Great stuff Nate. Just recently invested in Conrad. I don't have a handle on their business yet, but the valuation seems cheap.ReplyDelete
The big thing for me is that management appears to take shareholder's interest to heart. Notably the communications in their reports are excellent (e.g., exec comp is clearly laid out) and the $2.00 dividend is indicative that now is a good time to transfer capital back to the s/h before taxes jump.
The special dividends really serve as a Bayesian test (read Nate Silver's book for some background on "Bayes Theorem") for a lot of these overcapitalized firms. Goodheart/SADL/HNFSA all come to mind as failing their shareholders by not returning some of their excess capital; and in my opinion it may be more than 5 years for a shareholders to see the Intrinsic Value of the companies to connect with their share price.
What broker are you using for your Jnet trades? Fidelity?ReplyDelete
very interesting list.
I have found yoru blog recently - great work -chapeau!
Great work in 2012. You should create a Oddballstock index as I would be curious the outperformance against the general markets. Look forward to following you in 2013.
I'm writing from France. Thanks for sharing your work. I agree most of you ideas. I don't think Precia is so underevaluated. And you have to know that since your post, most of underevaluated stocks have grown up. Not too late, but...
I think you can get more interesting opportunities on the french market than Installux, Precia or Nexeya. You maybe could have look at Plastivaloire, FFP or Vet'Affaires.
Thanks for your blog, one of my non-french favorites ;-).
More french stocks on my blog at valeurbourse.com
Hi Nate Great blog. I have two questions: 1) How do you find these unlisted stocks? (Walker's Manual? Stock Screener?) 2) How does one invest in the European stocks while living in the US? (Most brokers won't do it absent huge fees?)ReplyDelete
I have used Walkers Manual, my site: unlistedstocks.net and some other methods to find unlisted stocks.Delete
As for European stocks, most brokers allow it, Fidelity allows online trading for 17 or 18 markets. Interactive Brokers has a similar number, costs are very cheap now.