Stocks on the 'Cheap and Growing' List

 | Feb 13, 2013 | 1:30 PM EST  | Comments
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Stock quotes in this article:

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ora

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brt

To say that this has been a busy week here at Chez Melvin is something of a gross understatement. In addition to running screens, reading reports and trying to stay on top of spring training news, I have been helping deal with arrangements for Mom's surgery and aftercare by long distance.

In the midst of all the turmoil and activity, as I was trying to catch a few moments of relaxation, my inbox alarm sounded rather ominously. It seems that my good friend the VooDoo Professor returned from his annual Mardi Gras expedition with a driving need to do stock research and share his findings. He passed along a few spreadsheets of data that are worth additional research, so there will be no rest for the weary.

The first data set he sent was a list of stocks that have decent revenue growth and are reasonably cheap on the basis of book value. His weightings and database are just different enough from my own that the list produced some names that I had overlooked, as well as a few candidates that I have been tracking for some time.

One general observation is that almost all of my regional and community banks are on the list, as they are showing decent revenue growth as credit issues fade and real estate improves, but these stocks are still very cheap. The Trade of the Decade shows up in almost every deep-value screen I see these days, and if you do not own these stocks, you need to add them to your arsenal soon.

One of the stocks on the list is attracting a lot of attention this morning. Cliffs Natural Resources (CLF) is a stock I have tracked for some time, and I have a small position. In spite of difficult conditions in the industry, Cliffs has actually grown revenue over the past five years at a pretty good clip. The company took some huge write-downs related to acquisition activity and slashed the dividend by more than 75%. Lower iron ore prices have killed margins for the company, and Cliffs will probably struggle until steel demand, especially from China, increases. The stock is at 86% of tangible book value this morning and nearing new lows, and I am going to add a little bit to my position. This is the ultimate "stay small and move slow" stock, so I am not going all-in at this price.

One of the really intriguing companies on the list is Ormat Technologies (ORA). This company bills itself as a global leader in geothermal and recovered energy projects. It provides and sells electricity from its plants and also sells equipment for recovered-energy and geothermal plants to other generation companies. In addition, it has solar projects under way in the U.S. and Israel. There are a few moving parts here, as Ormat has several partnerships and joint venture with JPMorgan (JPM), but at first glance, this looks like a company that could be a huge beneficiary of the green energy movement. The stock trades at 1.1x tangible book value and could be an interesting portfolio addition when the market eventually pulls back.

BRT Realty Trust (BRT) is a small REIT that makes the list and looks to be worth buying right here. The company engages in financing of multifamily and commercial real estate properties. In 2012, the company began complement its lending activities by providing equity capital to joint ventures owning multifamily properties. It also owns some commercial and mixed-use properties in New Jersey. BRT Realty's hybrid nature and small capitalization have kept it off the Street's radar screen, but this stock looks cheap to me at less than 70% of book value. Apparently I am not the only one who thinks so: Royce Funds and Michael Price both own the stock in their value-oriented funds.

As if he knew I might actually take a break or a nap this week, the Professor was kind enough to send lists of Asian and Canadian companies that also fit the basic criteria of cheap and growing, so I will be spending my free time digging through those this afternoon. Tomorrow, the 13HF filing parade enters the high-speed phase, and I will report back with any interesting findings.

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