More New-Low Bargains

 | Jun 25, 2013 | 3:00 PM EDT  | Comments
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I have been a fan of the new-low list since early in my career. I have flirted with that whole concept of buying new highs and surfing momentum, but it has never worked for me. I don't know too many non-professionals who have been able to consistently make it work either. Momentum trading is a full-time job requiring constant attention to the screens. It simply doesn't fit my skill-set or personality.

Fortunately, early in my career I met Bob Rodriguez of FPA funds at an investment conference in Las Vegas and he was kind enough to share his wisdom with me. One of his suggestions was to eschew the list of stocks making highs and favor the list of stocks making new lows in search of bargain issues with rebound potential.

As I wrote in my previous column, the current new-low list does not show a wave in inventory creation outside of the metals and Latin America. Prices have fallen a bit from the highs and the stock market has become more volatile, but we have not created many new cheap stocks. But there are a few stocks making new lows that are worth mentioning as potential bargain opportunities.

I have talked about Brookfield Office Properties (BPO) in the past and I own the stock. Investors have focused on the large percentage of leases expiring in New York's World Financial center in late 2013 and have kept a lid on the stock price for fears occupancy rates would plunge. These are premier lower Manhattan properties and I really don't think filling the space is going to be a problem. Occupancy rates may dip a little bit, but it will not last very long. The space will be filled and the rents will reflect the high-end nature of the properties.

The real estate investment trust has interests in 111 commercial properties around the world and $17 billion of interests in projects under development. It recently joined with an institutional partner to buy four properties in Los Angeles, including Wells Fargo Tower. It owns key components of the skylines of New York, Toronto, Washington and Sydney, Australia. It has smaller property portfolios in Boston, Houston and Melbourne, Australia. It has 60 properties in the U.S., 28 in Canada, 19 in Australia and two in the U.K. It is a globally diversified portfolio of premier, high-end commercial real estate and office buildings.

Investors do not care about the properties, the majority ownership of Brookfield and the leasing issues at its Manhattan properties. The stock is just 5% off the lows for the year and trading at 70% of book value. To own such high-end properties at a discount to book value is a rare opportunity, and I will make a lot of money from my stake in the REIT over the next few years.

The new-low list also uncovered bargains outside the U.S. Shares of German-based Commerzbank (CRZBY) keep falling and are now trading at the 52-week lows. The bank is struggling due to a poorly timed acquisition of Dresdner Bank just as the financial crisis hit. The bank is laying off 12% of its global workforce to slash costs and improve financial conditions. The loan portfolio at the core banking operations is improving and management says it is on track to meet Basel III capital requirements. It is not a pretty picture as asset disposal and low global rates will likely keep pressure on earnings at least through the end of 2013. Restructuring costs will further dent the bottom line. The bank has enormous exposure to the European economy, which cannot be described as anything close to healthy.

Despite all the headwinds, the bank seems to be on the right track and the shares trade at my buy-in level for troubled large banks of 40% of tangible book value. I have done well buying other European banks at this level and given enough time, I will do very well with Commerzbank as well.

The market gyrations of recent weeks are not creating an enormous amount of safe and cheap inventory. In spite of the hype, it is just a minor pullback so far. The new-low list is not yet a spectacular shopping list for bargain stocks but has a few names that long-term asset-based investors might want to consider.

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