Getting Cheaper All the Time

 | Oct 18, 2012 | 12:30 PM EDT
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Believe it or not, even in this rising market, there are still attractive opportunities that have gotten even more attractive. It seems our old friend Mr. Market has no patience for stocks that don't join the party. So, he indiscriminately abandons them, which raises the hopes of value-seeking investors.

Value Line (VALU), publisher of its tried-and-true Value Line Investment Survey, is one such candidate left out in the cold by Mr. Market. Trading near a 52-week low at about $9.50 a share today, it's a sign of today's quantitative-easing-induced euphoria that investors are selling shares, thereby disregarding a yield of 6.5%. Valued at just under $100 million, this microcap also comes with a pristine balance sheet containing zero debt and nearly $10 million in cash. In September, VALU reported quarterly net income of $1.8 million vs. $2.1 million over the same period a year ago. Mr. Market wasn't impressed, and the result is a valuation that looks very attractive and safe today. Value Line has and remains a trusted source of investment data and the company is expanding its offerings to cater to today's hedge funds and other institutional clients. Management appears convinced that shares represent a good value: Five days after the earnings release and subsequent share price drop, the company announced a $3 million share buyback. At the current valuation, the buyback is equal to nearly 4% of the outstanding shares. 

PetMed Express (PETS) is one of the few dotcoms to continue after the dotcom bust. It is the leading provider of online pet medications and other supplies. It trades at $10.60, which ignores that the company is debt free, holds $3.45 a share in cash and pays out $0.60 per share in annual dividends -- that equates to a nearly 6% yield. Next week, PetMed reports results, and if Mr. Market is not satisfied, these shares will be much more attractive. Perhaps consumers prefer shopping for Fido in person, but pet spending in this country is healthy and viable, and consumers are shifting more of their purchasing dollars online -- two factors that certainly do not hurt the future of PetMed.

Shifting to mega-cap stocks, Intel's (INTC) recent earnings report sent shares lower by 5%, leaving the shares trading at $21.60 with a 4% yield. Intel's role in computing -- but more importantly, the future of computing -- remains strong. Intel has a long history of successful innovation; it also has a long history of rewarding investors when shares are bought during dips. With more investors rushing to buy high-quality dividend-yielding stocks, Intel's 4% yield is low-hanging fruit. Later this week, Microsoft (MSFT) and Google (GOOG) will report results, which will likely have an effect on the volatility of other tech bellwether companies.

Investors have fared very well when purchasing oversold stocks with quality fundamentals, especially in rising markets. At some point, the market stops rising and corrects. Buying oversold, neglected names usually offers quality downside protection when markets are on the way down. It's even better protection when you can capture bond-like yields while you wait.



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