Wednesday was a day of waiting around Chez Melvin. Primarily, we were waiting for the heating and cooling company to come and replace the air conditioning that got pretty much blown up by a power surge on Sunday.
We are also hosting a player for the Winter Garden Squeeze of the Florida Summer College league for the summer and the young man was due to arrive sometime in the afternoon.
Nothing helps pass the time like running screens and crunching numbers, so I decided to follow up on my Value Line low-price, high-rank system. This time, I applied the criteria to the small-cap universe of stocks and got some interesting results.
In the smaller-cap space, I limited my search to just those stocks trading below $10 that had the highest possible timeliness ranking by the research service. The screen handily outperforms the broader stock market in both up and down markets but the month to month can be quite volatile at times.
When I eyeball the numbers, it looks as if there are around 40 qualifying stocks in normal and more than 70 in severe pullbacks. It is worth noting that today there are just 14 stocks that make the grade. Historically, that's one of the lowest numbers in my study, so I will let you draw your own conclusions as to what information, if any, that factoid contains.
There are some really interesting companies on this list of stocks. Chegg (CHGG) is probably not going into my portfolio anytime soon, but the kids could be owners of the education-oriented company before too long. Chegg rents and sells print textbooks and provides eTextbooks, supplemental materials, Chegg Study service, textbook buyback, courses, internships, and college admissions and scholarship services for students.
The company is growing at a pretty good clip and the shares carry Value Lines highest ranking and trade at $7.76 a share. Institutions only own about 60% of the stock, and if they can get their story of helping students save time, save money, and get smarter to the bigger funds, this stock could see some mo-mo glory in the month s and years ahead.
Milwaukee-based grocer Roundy (RNDY) has been a disappointment since its 2012 IPO and investors have not been rewarded for owning the stock. The stock hit a high of just shy of $11 in 2013. It has since traded down to a little over $3 as they have found it tough to compete in the crowded grocery industry.
Moody's, the rating service, recently noted that "Roundy's same store sales growth continues to trend negative and lags its peers primarily due to lower number of customer transactions as traffic in its stores continues to decline."
Value Line seems to disagree, as the stock has a 1 ranking. If the company can begin to perform up to expectations the stock could be a huge winner.
It brightened my day to see that three of the 14 stocks were small banks. It should come as no surprise to anyone that I am a huge fan of the small bank stocks and think the sector represents one of the most attractive opportunities in the financial markets today.
Heritage Commerce Bank (HTBK) has 11 full-service branch offices in the southern and eastern regions of the general San Francisco Bay area. Although it is a little rich on a price-to-book basis at 1.4x book, the shareholder list is a who's who of bank stock specialists and activists.
United Community Financial (UCFC) is based in Youngstown, Ohio and has 32 full-service branches and nine loan production offices located in Ohio and western Pennsylvania. The stock trades at about 1.1x book value and also has a shareholder list of smart successful bank stock specialists.
The same is true for Northeast Community Bancorp (NECB) an eight-branch bank based in White Plains. N.Y., that trades at just 80% of book value. The outperformance of community banks with an activist or bank specialist has been well documented. All three of these carry the highest ranking for timeliness from Value line and trade for less than $10 a share.
I have been using the cheap stock, high-ranking approach for years with strong results. It appears to work even better with the smaller-capitalization stocks and patient aggressive investors will find it a useful addition to their tool box.
If you have millennials at home, I would suggest teaching this approach to them would reap huge rewards in the years ahead.