Four Value Picks for 2013

 | Dec 26, 2012 | 2:00 PM EST
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The mad clutter of Christmas is now beyond us here at Chez Melvin, and we are drifting toward a measure of normality. It is time to get back to the "what's going to happen in 2013" game we all like to play at the end of the year.

I do not predict markets, as I believe that's a fool's errand. This may be truer than ever, with all the economic, geopolitical risks on one side and the aggressive zero-interest-rate policy on the other. I have no idea which way the stock market will move, and I suspect that commenters who have high-conviction opinions on next year's market direction should be avoided.

I do have some ideas about what stocks are cheap and appear to have all the bad news baked into their current stock prices. Rather than predict what various politicians, warlords and dictators will do and how the market will react, I will try to focus on buying cheap stocks that have an adequate margin of safety.

None of these names are going to be new ones. I have written about these picks at various points in 2012 and probably will talk about them again a few times next year. My first pick was given to me by John Rudolf of Glacier Peak Capital, and I wrote about it earlier this month.

Volt Information Sciences (VISI) still has not presented us with a full set of audited financials, but PNC has granted it an extension for its asset-securitization financing program, and that gives me some confidence. It is unlikely that PNC would have granted an extension had the numbers been in doubt. The staffing company's shares have continued to pull back and are now in the "too cheap not to own" category. I am pretty sure the tangible book value here is over $13 a share, and business has been stable if not spectacular.

Trading at just 30% of tangible book value, Tecumseh Products (TECUA) remains one of the cheapest stocks around. The company makes compressors for refrigerators, freezers and air conditioners, and the company's business conditions will be slow to improve. The residential and commercial construction business is showing signs of life but is still sluggish. The company has exposure to emerging markets such as Brazil and India and eventually should once again use black ink to compute its bottom line. When the company and global economy get back on track, patient value investors could a huge return on their shares.

Hardinge (HDNG) is another company that is not particularly sexy, but the stock is cheap enough to gain my interest. The company makes machine tools and has a strong presence around the globe. It also has a strong aftermarket parts and supply business that helps to smooth out the cyclical nature of the business. Hardinge's products are used in a wide range of industries, and its customer list is a who's who of global corporations. The company has restructured its operations, and when the economic recovery strengthens, the company should see strong gains in sales and profitability. Trading at just 80% of book value, the stock remains cheap enough to buy here.

I am sticking with Bank of Ireland (IRE) again this year. I have a pretty solid gain in the stock but the shares still trade at just 40% of tangible book value. The bank has restructured in the wake of the financial crisis and taken the steps to survive the political confusion in Europe. Prem Watsa and Wilbur Ross both own significant blocks of stock and are on the board of the bank. I expect these shares to be very volatile but extraordinarily profitable for patient investors.

Keep in mind that I do not buy up markets, and December has been a strong month for the stock market here in the U.S. Make Mr. Market work for you and buy on down days, scaling into my positions in these cheap stocks. The way to profits in 2013 will once again be to buy cheap, stay small and move slow.

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we like this chart here, it appears ready to move higher. BOUGHT BZUN OCT 35 CALL AT 3.40
Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...



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