3 Value Names Chalk Up Post-Earnings Wins

 | Aug 04, 2017 | 11:00 AM EDT
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rail

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vg

Yesterday was a fairly mundane day for the broad markets, but there was plenty of excitement in the underbelly of value, all of which was driven by earnings releases.

First, down-and-out former growth daring Fitbit Inc. (FIT) put up better-than-expected second -quarter results, exceeding the consensus on both earnings (flat vs. an expected loss of 15 cents a share) and revenue ($353 million vs. the $341.5 million consensus). While this was not a great quarter in general terms, it was met with some excitement, and FIT was up 15% for the day. 

While Fitbit still has a lot of work to do, these results showed that at least for now the company will live to fight another day, and that the stock potentially has been over-punished. While cash and short-term investments fell by $31 million, Fitbit still is dripping with liquidity to the tune of $676 million, or $2.89 per share. Make no mistake, FIT remains a reclamation project; sometimes these work, and sometimes they don't.

FreightCar America Inc.'s (RAIL) story was even better, at least from my vantage point. The company reported after Wednesday's market close bottom-line results in line with expectations (a loss of four cents a share), but beat revenue estimates ($118.8 million vs. a $107 million consensus). That may not seem stellar as the company still lost money. However, a cursory dive into the financials revealed that cash (excluding restricted cash) and short-term marketable securities rose from $109 million last quarter to $132 million, or nearly $10 a share. Part of that increase was due to an $11.9 million tax refund, but cash is cash.

While this should have excited the market, the stock opened down as much as 10% in early trading yesterday. I viewed this decline as an opportunity caused by a misinterpretation of its results, a lack of reviewing the balance sheet and an overall lack of interest in the name. Market inefficiencies still exist, especially in smaller names, and this provided a great opportunity, which I acted on. The window did not last long, and by day's end RAIL closed up 5% -- a 15% swing from low to close.

FreightCar America's business isn't great but it is improving, and I'd love to see the company buy back some shares with all that cash in order to display a little confidence. It now has more than 63% of its market cap in cash, trades at just 1.29 times net current asset value and 0.89 times tangible book value per share. Current enterprise value (market cap less cash plus debt) is just $76 million. This would make an interesting acquisition for someone.

Finally, Vonage Holdings Corp. (VG) , though not a value name in the classic context, had a solid day (up 12.5%) after beating consensus estimates on both earnings (seven cents a share vs. six cents) and revenue ($251.8 million vs. $242 million). Fellow value investors may cringe at this one and wonder why I own it. As I adopted the product for my business and said goodbye to Verizon Communications Inc. VZ more than three years ago, the stock appeared cheap and I took a position in the $3.75 range. It since has delivered a great deal of value to my portfolio, and to my business, drastically cutting costs and providing more services.

Please don't kick me out of the value club.

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