• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Financial Services

The Wolverines' Value 40 Stocks List Any Investor Should Look At

Unsurprisingly, 20% of the portfolio is in community banks.
By TIM MELVIN Apr 12, 2016 | 01:00 PM EDT
Stocks quotes in this article: RILY, ALSK, DAL, HA, JBLU

As we move into earnings season, it is probably going to be a good idea to keep the earnings torpedo list we talked about yesterday close at hand. According to FactSet, earnings are expected to decline by a little over 9% when all the first quarter reports are filed. According to chatter on the internet, this earnings decline is a good thing.

The common theme is that the decline is priced in and expectations are so low we will get lots of positive surprises. I fail to see how a market that has risen almost 6% in the past three months and is currently just 2% below the highs is pricing in bad news but that's the theory of the day. I think this may be a great time to be super cautious.

Lest you think that the University of Michigan Tozzi Financial Center is only churning out a collection of wild-eyed short sellers, there is another list the students produce each month that you might want to have close at hand as well. If we do see some earnings-related weakness this month, it may be a great time to accumulate some of the stocks on the Value 40 list produced by the Wolverines each month.

The list is produced using principles proven by academic research to produce excess returns, including things like Value, Momentum, Quality, and Predictability. It is pretty much the inverse of the torpedoes list; the Value 40 has done very well, outperforming the market in 10 of the last 13 years.

The April list is out and it reinforces one of my major investing theories: 20% of the portfolio is in community banks. I have a much greater percentage of my portfolio in these trade-of-the-decade stocks, but most people I talk with have something very close to zero exposure to small banks. Unless you are severely allergic to capital gains, this is a mistake.

Small banks face a "grow or sell" ultimatum right now, and either outcome will lead to positive results for shareholders. Best of all, the only path to growth in a weak economy is to buy other banks, so for every little bank that chooses to sell, there are several potential buyers right now. The average takeover premium is now close to 1.4x book, and there are hundreds of these little gems trading below book value.

B. Riley Financial (RILY) is also on the list. The California-based firm provides investment banking, corporate finance, research, wealth management, sales and trading services to institutions and wealthy individuals. It has a decided small-cap and value bent to its approach. It also has a division that does liquidation and auctions, helping businesses dispose of underperforming assets including things like inventory, machinery, property and intellectual properties.

Finally, it has a valuation and appraisal business that handles appraisals for financial institutions, private equity forms and other capital providers. It is a great collection of businesses, and the stock is cheap according to the metrics used by the students at the Tozzi Center.

Airline stocks are well represented on the current list. Five airlines, Alaska Air (ALSK), Delta (DAL), Hawaiian Holdings (HA) JetBlue (JBLU) and Southwest Airlines (LUV), make the AprilValue 40 list. Fuel prices are pretty low, and airlines are finding ways to squeeze every dime out of every passenger and have scheduled routes so that every flight is packed.

Even the legacy airlines are charging to select a seat that is not in the every back of the plane now, and I haven't been on a flight with an empty seat in the past year. In spite of increased profitability, the stocks are still cheap and the Michigan list says they are undervalued and could go higher this year.

I find the fact that the Tozzi Financial Center list outperforms on both the long and the short side of the market very impressive. They are using concepts proven by academic research and successfully applying them in the real world. Investors and traders alike should make it a habit to visit the school's website each month to view the updated lists. They have a long track record of providing solid long and short ideas, and could be a valuable addition to your research process.

There is a lot of solid financial research being done in universities all over the United States. We night find that surfing the Business School site of leading universities like the University of Michigan improves our long-term results far more than the just viewing the mainstream media finance sites, where much of the news is really just noise.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Tim Melvin had no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity | Financial Services

More from Financial Services

Rocket Cos Won't Be Blasting Off From Here

Bruce Kamich
Jul 6, 2022 12:00 PM EDT

Let's check out the charts and indicators.

Progressive's Commercials Are Well Known, But What About Its Charts?

Bruce Kamich
Jul 5, 2022 11:54 AM EDT

Traders could probe the long side of PGR.

The Best House in This Neighborhood Is on Sale

Brad Ginesin
Jun 24, 2022 12:15 PM EDT

The buying opportunity here below book value is compelling.

Affirm: Will Investors Buying Now, Pay for It Later?

Bruce Kamich
Jun 22, 2022 3:12 PM EDT

Let's see what the charts and indicators suggest.

American International Is Breaking a Longer-Term Uptrend Line

Bruce Kamich
Jun 13, 2022 1:51 PM EDT

Is there more risk than reward?

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 12:01 PM EDT PAUL PRICE

    A Recent Director Buy in Children's Place (PLCE)

    Four of the most recent insider trades in Children...
  • 07:34 AM EDT PAUL PRICE

    A $525,000 Vote of Confidence on Macerich (MAC)

  • 09:49 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Stop Wishing, Hoping, and Praying and Take Control...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login