With "The Evil Dead" the leading film at the box office last week, I went looking for some Evil Dead stocks.
These are stocks that were down in 2012 and have declined further this year. Adding insult to injury, they have an average analyst recommendation of "neutral" or worse. No, I wasn't hunting for short candidates. Obstinate contrarian that I am, I was looking for buys. I believe I have found three.
Schnitzer Steel, (SCHN) based in Portland, Oregon, fell 27% last year and is down another 14% this year. Out of 11 analysts who cover it, only one rates it a buy. The company is struggling these days, but I think it's sound fundamentally. It has a three-part business: dealing in scrap metals, forging recycled steel, and operating high-tech auto junkyards that also serve as a source of steel. I've always liked this three-part structure, which I see as mutually reinforcing.
Schnitzer's earnings have dropped violently, due largely to reduced scrap prices on exports to Asia. The company gets about half its revenue from Asia, and is widely viewed as a China play. Yet the company has shown a profit in 14 of the past 15 fiscal years, and the stock is cheap at 0.2 x sales and less than 0.7 x book value.
Mercury General, (MCY) of Los Angeles is an auto insurer that mainly serves California. Its stock has fallen in five of the past seven years, including an 8% decline last year. So far this year it has eased another 4%. Analysts give it a cold shoulder, with two neutral ratings and two sell ratings - not a single buy.
California is a tough market for car insurers, with earthquake risk, high-density traffic, and relatively tough regulation. Nonetheless, Mercury General has notched a profit in nine of the past 10 years. At 1.2 x tangible book value, the stock is cheap enough to make a rebound likely in my view.
The third one is GrafTech International (GTI) which has its headquarters in Parma, Ohio. The company makes graphite electrodes, used in electric arc furnaces, primarily used in steel mills. It is obviously a cyclical industry, and GrafTech is therefore cyclical. It posted losses in 2002, 2003 and 2005. But it has been profitable every year since, even (barely) during the recession year of 2009.
The stock fell 31% last year and is down another 25% this year. It is nearly friendless among analysts, with a single buy rating among the eight Wall Street types who cover it. (That buy rating is from Sidoti & Co., an outfit I respect.) At 0.7 x book and 9 x earnings, I think GrafTech is a good speculation.