I don't watch a lot of college basketball, but once March Madness begins I try to take in as many games as possible. While I watch, I also spend time reading, screening and kicking over rocks in the dark corners of the market in search of ideas. Besides my regular deep-value screens, I like to run different screens at different times to see if I've overlooked any opportunities.
One screen that I like looks for companies with solid earnings and revenue growth over the past five years and aren't on Wall Street's radar. These are companies where the stock price has languished in the single digits and institutions don't own the majority of the stock. When one of these low-profile gems catches the eye of analysts and institutions, the stock price can make sharp moves higher and become a new growth darling. I don't always buy the stocks on these screens, as I stick to my discipline of deep-value investing, but there are clues as to what Wall Street is missing. Other growth investors may find them of more immediate interest.
One stock that is going directly onto my watch list is in one of my favorite dirty industries. Hallador Energy (HNRG) is in the steam coal business and produces coal for electric utilities from its mine in Indiana. The Illinois basin coal that it burns has a higher heating content than Powder River basin coal, and a much lower cost structure than Appalachian coal. The coal produced out of this region has higher sulfur content and requires scrubbers. Most utilities that use coal to produce electricity have already installed or are planning to update their scrubbers due to new environmental regulations, so domestic demand could increase as Appalachian coal exports strengthen. Insiders own nearly 20% of the company and institutions own just 32%, so when coal comes back into favor you could see a surge of buying pressure lift the shares.
I mentioned the other day that it is probably best to hold off buying insurance stocks right now. When the group sells off or settles down, Universal Insurance Holdings (UVE) is going to be near the top of my buy list. The company is one of the three largest underwriters of homeowners insurance in Florida and recently gained licenses to do business in the Carolinas, Georgia and Hawaii. Universal also has a subsidiary that writes inland marine and homeowner's multiple-peril policies on Florida homes valued in excess of $1 million.
Over the past five years, sales growth has averaged 65% annually while earnings have grown an average of 36%. The company had a weak earnings report last quarter, but it was just granted a 14.9% rate increase in Florida and that should help boost the bottom line.
The stock currently trades at book value. When it trades at a discount again, I will be a buyer. As a bonus, the shares yield a very comfortable 5% at the current quote. Insiders own 34% of the company and, so far, institutions own just 16% of the outstanding shares.
Using a screener to kick over rocks in the corners of the market is just a starting point. Make sure you do your homework on these companies. Read the latest earnings releases, 10-Q and 10-K filings. In other words, do your homework. Fortunately, you can do the work this weekend and watch the basketball tournament at the same time.