Two Small Rays of Light

 | Sep 02, 2011 | 12:30 PM EDT
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Yesterday was just another ordinary day in the markets -- the markets of late, that is -- as the S&P 500 gave up 1.2%. That's the 15th time since Aug. 2 that the index has risen or fallen 1% or more in a single day.

I am fixated on that statistic, because it tells us we're in an environment where small value companies can get crushed beyond what they deserve. For months, bargains have been few and far between, but if this volatility continues, there should be a nice inventory of bargains to choose from. But we are not there yet.

On what was primarily a down day for most of the names in the portfolio, there were a couple of interesting developments for two companies that ended the day in positive territory.

First, fine watch maker and distributor Movado (MOV), a member of my JIMS CRAB FEST portfolio for cheapskates, very quietly put up another good quarter. Second-quarter revenue jumped nearly 33% to $113.2 million, well ahead of the $96.6 million consensus estimate, and the company bottom-lined $4.4 million, or $0.18 per share, vs. a loss of $20.9 million (a loss of $3.2 million or $0.13 a share from continuing operations) for the same period last year. Consensus estimates were calling for EPS of $0.06 for the quarter, so this was a blowout quarter.

The balance sheet has continued to improve, and Movado ended the quarter with $128.8 million in cash, or $5.18 per share in cash, up from the first quarter's $109.3 million ($4.40 per share), and no debt. Shares currently trade at 0.94x tangible book value and just 1.13x net current asset value (NCAV), and that's after yesterday's 10.5% gain. In an environment where higher-end merchandise should be having difficulty, Movado has given us a small ray of light -- emphasis on "small." Company guidance for 2012 still suggests earnings in a range of $0.60 to $0.65 a share, and earnings before interest, taxes, depreciation and amortization (EBITDA) between $31.5 million and $33.5 million.

Meanwhile, Wendy's (WEN) was up 2% yesterday on twice the average volume on news that CEO Roland Smith is stepping down. According to The Wall Street Journal, Smith is resigning because he does not want to move from Atlanta, where Arby's is headquartered, to Ohio, home of Wendy's. Granted, with the company's recent sale of Arby's, it simply does not make sense to have the company CEO remain in Atlanta. But it is time for some new blood to take the helm of Wendy's.

I've been disappointed as a shareholder, and although I am positive territory in the name, I do believe there is still untapped potential and opportunity for the company. Smith will be replaced by Yum! Brands (YUM) chief operating officer Emil Brolick on Sept. 12.

In the past several months, Wendy's has all but shed its underperforming Arby's business (the company is hanging on to a small piece) and replaced the CEO. As a shareholder, I'm hoping that this will signal a new direction for the company. I've been patient; perhaps too patient.

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