The Latest Scoops on 3 Value Plays I Own

 | Feb 24, 2017 | 11:00 AM EST
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Stock quotes in this article:

cxw

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wmar

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fit

The past couple days turned out to be a fairly interesting in value land for three names.

First, new U.S. Attorney General Jeff Sessions issued a memo indicating support for the federal government's use of privately run prisons. This was a repudiation of the declaration issued last August by the Department of Justice under President Obama that appeared to signal the beginning of the end of federal use of private prisons. At the time, the fallout sent shares of private prison operators, such as CoreCIvic (CXW) , into the abyss. This turned out to be a great buying opportunity, with CXW shares up more than 150% since bottoming in October.

It appears as though the easy money -- if there is such a thing -- has been made in CXW, although yesterday's news, which came out after markets closed, gave CXW a post-market trading bump of 4%. From here, CXW needs to translate any positive news into growing its dividend, which recently was cut from 54 cents quarterly to 42 cents.

Elsewhere, boating retailer West Marine (WMAR) put up better-than-expected fourth-quarter numbers, as the loss for the quarter of 39 cents a share was six cents ahead of consensus estimates, while revenue of $129.5 million was $1.35 million ahead. (I had to laugh when I saw the headline "West Marine reports 4Q loss"; the company always reports a loss for Q4; it's a boating retailer for crying out loud, and this is low season!)

The balance sheet remains strong; the company ended the year with $76.1 million, or around $3 a share, in cash, up from cash of $48.2 million, or $1.95 a share, a year ago. There is no debt. Incorporating the new balance sheet data into the equation, WMAR currently trades at just 1.02x net current asset value, or slightly above net/net territory. It also trades at just 0.72x tangible book value per share. The company generated more than $27 million in free cash flow for the full year, putting the price to free cash flow ratio at just over 8.

While cheap on several measures, this company is dependent on an improving economy and might get a boost from tax reform. However, do not be shocked when you see earnings-related headlines for the first quarter; the company always loses money during that quarter, too.

Finally, struggling Fitbit (FIT) , which has found itself in value land -- or value-trap land depending on your perspective -- managed to put up even worse fourth-quarter numbers on Wednesday than it recently pre-announced. The company managed to miss earnings by six cents a share -- a 56-cent loss versus 50-cent consensus estimate -- while revenue of $574 million missed by $2 million. If there was any good news, it was that the company ended the year with cash and short-term investments of $706 million, or more than $3 per share, and no debt. The road ahead may be difficult, but that's a solid cash cushion.

FIT investors may have expected worse; the shares seem to have stabilized, at least for now. The problem with the Fitbits of the world, in terms of making the transition from "growth" to "distressed value," is in determining the bottom, if one can be defined. In order for any value to be realized, the company must right the ship and show that it can turn a profit. Now the long and potentially painful process of waiting begins.

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