Three More on the Longshot Radar

 | Oct 18, 2013 | 2:11 PM EDT  | Comments
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Before moving on from Value Line and the search for longshots with an above-average chance of success over the 3-to-5-year time frame that these investments usually need to work, I like to go to a more familiar section of the weekly edition.

Each week the venerable research service publishes a list of stock trading with the widest discounts from book value. While they use sated book and not my preferred tangible book value, I find that the list has been an excellent source of stock ideas with longshot potential for a return of several times the initial purchase amount over time. This week's list did not disappoint and there were several stocks worthy of further consideration.

FUJIFILM Holdings (FUGIY) has suffered over the past few years as the film and camera business became a buggy-whip business. No matter how good the products might be, the demand for regular photographic supplies is disappearing as photography moves into the digital world. The company has taken steps to diversify the business and now offers products for the medical imaging markets, optical devices and office equipment. It owns 75% of Fuji Xerox and has been developing export markets in other Asian nations for these products. It has restructured its basic photography-related businesses and is migrating more towards higher-end digital cameras in an effort to slow losses from that product line. It will take some time to get the ship fully righted, but there is more than enough potential upside in the stock to justify waiting. The shares trade at just 50% of book value and cold easily double or more over the next few years.

Atlantic Power (AT) is a stock that will either be a big hero or a large zero. The stock trades at about 25% of its 2011 value after a weak economy pressured the highly-leverage power generator and forced it to cut the dividend payout. Even after slashing the payout by 66%, the yield at the much-lower price is still fairly enticing as the stock yields 8%. It was able to turn a profit in the second quarter to the surprise of many analysts and the stock has moved op off the lows, but is still very cheap. Management is committed to paying down debt and reduced its debt load by $172 million in the second quarter. It is also looking to sell assets considered noncore operation and will use the cash from these efforts to further reduce the debt burden. If the restructuring and turnaround plans are successfulm this stock could easily double or more over the next few years.

Aircastle Limited (AYR) is in the aircraft leasing business and currently has a fleet of 158 aircraft. The fleet has a utilization rate of 98%, with a portfolio yield of more than 13%, so business is pretty good for the company right now. It has been disposing of older aircraft and upgrading the fleet in in 2013. It has sold 11 aircraft so far and spent more than $960 million on new planes. The company also recently sold a little more than 15% of itself to Marubeni, a Japanese trading company. Aircastle CEO Ron Wainshal said of the deal that "(w)e're extremely pleased to welcome Marubeni as an important new strategic shareholder. Marubeni brings a long-term, globally minded perspective to our business and we believe there are exciting business opportunities for us as we work together." The stock is cheap at just 81% of book value and the shares sport a yield of 3.7% at the current price. This was the 29th consecutive quarter of dividend payments by the firm. The company is also buying back stock and since 2011 has repurchased 11.7 million shares and still has $30 million to spend under the current buyback plan. Patient investors could collect a nice yield and see the stock double over the next five years.

Investors should spend more time looking for longshots and turnarounds that they do trying to trade the news or predict market direction. Both strike me a futile exercises and are a significant part of the reasons individuals tend to underperform the market. Patient aggressive investing in stocks with significant upside potential should prove to be a far more profitable exercise.

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