• 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
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • 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. / Real Estate

Safe, Cheap and on Fire

These bargain-basement stocks have just begun to pop.
By TIM MELVIN Jun 10, 2014 | 03:00 PM EDT
Stocks quotes in this article: HTS, EARN, IVR, ARR, TWO, CYS, MITT, ARI, AP, TITN, AAWW, SFY

I lean toward being a pure value investor in the mode of Walter Schloss, and I expect that most of my stocks will go down before they reverse course. Still, a lot of evidence suggests that combining value with price momentum is an effective strategy.

Many studies have shown, in other words, that buying value stocks that have started to perk up is a solid approach to beating the market. In theory, when you combine these two approaches you get stocks that are still cheap but which have improved enough to attract the attention of the big money, and are in the first leg of a full recovery in value. I suspect I will always be a scale buyer of falling knives -- but, for those who want to smooth the volatility and still catch much of the value premium, consider using a momentum filter with safe and cheap stocks.

I sat down this morning and ran a screen of my own to determine which undervalued stocks have recently been on the move and which, therefore, may be ripe for further moves up towards fair value. In doing this, I filtered for stocks that were priced below book value and trading in the bottom half of their three-year range. I then sorted them by three-month price gains in order to see which undervalued companies had begun a march higher. The screen produced an interesting list: In addition to providing a few stock ideas, it has shed light on some market and sector trends.

Namely, in big-picture terms this list reveals that one formerly struggling sector is coming back in favor in a big way among investors. It may be aggressive yield-seeking, but mortgage real estate investment trusts (mREITs) have been on the climb in the last three months. Those with positive momentum include Hatteras Financial (HTS), Ellington Residential Mortgage (EARN), Invesco Capital Mortgage (IVR), Armour Residential (ARR) and Two Harbors (TWO), CYS investments (CYS) and AG Mortgage Investment Trust (MITT). On the commercial side of the real estate business, Apollo Commercial Real Estate Finance (ARI) shares have also been moving higher in the past three months.

The group has been cheap for a long time, but money now appears to be flowing back into these high-yielding securities.

Ampco-Pittsburgh (AP), meanwhile, is one example of a cheap, boring industrial stock that is finally attracting some investor interest. The stock had tracked sideways for a long time but, over the past three months, it has climbed by a little over 15%. The company makes hardened steel rolls that are used in cold rolling by producers of steel and aluminum. It also manufactures tube heat exchange coils and related heat-transfer products that are used in the power generation and HVAC industries. The stock is still trading just below book value, and its dividend yields at more than 3% right now.

Titan Machinery (TITN) is another old-economy stock that appear to be back in favor. The company sells new and used agricultural and construction equipment that's manufactured under the CNH family of brands, as well as equipment from other manufacturers. The shares have risen a little over 6% in the last quarter, and much of that move has come in just the last month. The stock is trading at just 86% of book value, so it is still at a bargain price, and it could continue to move higher.

Atlas Air Worldwide (AAWW) is another cheap stock that has been on the move lately. The company provides outsourced aircraft and aviation operating services, so its stock floundered when it became obvious that the slowdown in U.S. military movements would hit its bottom line this and last year. Shares have started to recover following last month's solid earnings report, which showed that efforts to diversify away from the military were working. The stock has climbed almost 20% in the last three months, and is still priced at just 78% of book value.

Swift Energy (SFY) may finally be on the upswing, as the company has seen its stock move up by more than 10% in the quarter. Swift is one of the cheapest stocks around, trading at just 50% of book value. The company announced recently that it had found a joint-venture partner to develop its Eagle Ford acreage, and talks also appear on track for selling its Louisiana assets. More than 40% of the Swift share float is sold short, so any good news about this ultra-cheap name could send the stock higher very quickly.

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, Melvin was long ARI, TWO, SFY, IVR and ARR.

TAGS: Investing | U.S. Equity | Real Estate

More from Real Estate

Jim Cramer: You Just Won Powerball, Now What?

Jim Cramer
Jan 21, 2021 2:24 PM EST

Remember, you only need to get rich once.

Here Are 2 Stocks Doing the Unexpected

Jonathan Heller
Jan 8, 2021 10:30 AM EST

Reading International has surprised while Crimson Wind Group has been a disappointment.

Chinese Government Stops U.S. Consulate Property Deal in Hong Kong

Alex Frew McMillan
Dec 30, 2020 7:00 AM EST

The U.S. consulate in Hong Kong was blocked from completing a September deal to sell its residential quarters to Hang Lung Properties.

Escape From New York? Rocket Companies Is Now Boarding

Timothy Collins
Dec 9, 2020 12:10 PM EST

Here's a trade in RKT, as real estate trends change amid the pandemic.

I'm Not Banking on Full Normalcy Returning in 2021

Bret Jensen
Nov 27, 2020 10:00 AM EST

The exodus out of large, high tax and high-density cities will continue in 2021 even if it might not be at quite the same pace.

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

  • 11:16 AM EST CHRIS VERSACE

    Worst Stocks to Buy for the Biden Presidency

    Biden's take on the minimum wage, likely moves on ...
  • 08:35 AM EST GARY BERMAN

    Thursday Morning Fibocall for 1/21/2021

    SPX (Long-Term View) The 1/20/21 NEW high @ 3859...
  • 11:38 AM EST CHRIS VERSACE

    Best Stocks to Buy for the Biden Presidency

    President-elect Biden's massive stimulus plan, int...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 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