More Stocks for a Scary Market

 | Aug 01, 2013 | 2:00 PM EDT
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Today I want to finish up my review of stocks I consider cheap enough to own, regardless of your view of market conditions. As I said earlier this week, I find the current market and economic conditions more than a little scary, and I am as cautious as I have ever been. However, I follow a discipline of buying stocks at the "too cheap not to own" level, regardless of market conditions and opinions.

Given the run in the market the last few years, there are not a lot of these stocks to choose from, and I am keeping positions sizes fairly small so there is plenty of room to buy on a scale if needed. Again, these are stocks that I would be buying right now and not those that I may have purchased over the past few years and still hold.

Pericom Semiconductor (PSEM) makes integrated circuits and frequency control products used to transfer route and time signals between computers, networks and telecom systems. Its products are used in laptops, notebooks, smartphones and a wide range of other electronic devices.

Pericom's revenue and earnings were basically flat in the second quarter, and I expect that the results will be pretty much the same when the company reports again. Computer sales are still weak, and Pericom is in the early stages of expanding into higher growth markets such as networking and crowd computing. The stock is cheap at a little under 90% of tangible book value, and the company had more than 70% of the stock price in cash and securities at the end of the first quarter.

Cowen Group's (COWN) stock price has moved up a bit, but the stock is still cheap enough to buy at just 80% of tangible book value. The brokerage has a strong asset-management and alternative-investment arm, and the investment bank is well represented in key industries. Cowen has invested its capital well and since 1999 has earned more than 16% annually on its proprietary investment accounts. If the markets do collapse, I would be a big buyer of this stock, as Cowen would likely make a fortune in the aftermath from activist investment strategies and merger activity.

I also like Calamos (CLMS) in the asset-management space. It sells at just over book value and at less than 3x free cash flow. Calamos has a strong presence in its markets and is a leader in convertible bond funds. The stock pays a decent yield of more than 4%, so you get paid pretty well while you own the stock

There are still some energy names that I think investors can buy at current levels. WPX Energy (WPX), after missing the always highly accurate analyst estimates, is off slightly today. The stock trades at just 70% of tangible book value, and even after adjusting for the loss of value in its Argentinian holders, the actual asset value of the company is probably higher than book at this point.

Swift Energy (SFY) is still transitioning from a conventional shallow water oil and gas company to an unconventional production company. The product mix has not shifted away from gas to oil and liquids as fast as Wall Street would like, but it is making progress. In the meantime, you can buy the stock at just 50% of tangible book value.

Tellabs (TLAB) is still seeing weakness in its business lines as telecom spending remains very weak right now. The company is taking steps to refocus its business, and I like the fact that Third Avenue was able to put a representative in the board last year. The stock trades at $2.28, and Tellabs had $2.18 a share in cash as of the end of the first quarter. The company will report earnings later today, so it will be interesting to see how the cash balances held up in the quarter. In the meantime, the stock is just too cheap not to own.

These are the stocks that have enough liquidity to mention here on Real Money. About a dozen other non-bank stocks qualify, but they are tiny, with market caps between $25 and $50 million, and trade pretty much by appointment. Given my concerns about the world and the markets, I am focusing only on those names that I consider safe and cheap enough to own through a period of high volatility. I am willing to add to all of them at lower prices if necessary.

Should the economy surprise me and catch fire, I believe they would explode higher and more than offset my cautious positioning.

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we will add this here to cheaply protect our downside a bit BOUGHT SPY SEP 244 PUT AT 2.70 ...



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