• 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

More Productive Than Fed Watching

A screen for two different value metrics produced some good prospects.
By TIM MELVIN Jun 18, 2014 | 02:00 PM EDT
Stocks quotes in this article: TPCA, SKYW, REGI, TSN

All eyes will be on the Fed today and everyone will spend the next few days dissecting what Fed Chair Janet Yellen did and did not say at her press conference following the release. I cannot imagine a less productive use of time than Fed watching right now -- unless it is trying to pick which stocks will go higher because of World Cup.

The Fed announcement today is going to look a lot like the one last month, which is going to look a lot like the one next month. My time is better spent looking for cheap stocks instead of joining the great Yellen Watch.

One ongoing debate within the value crowd is which metric works best. Many favor book value and others that prefer Enterprise Value (EV) to earnings before interest, taxes, depreciation and amortization (EBITDA) as their chief measure. Although my preference for price-to-book value is well known, I am fond of EV/EBITDA as well. It is the measurement used by many of my friends in the private equity world when they search for undervalued companies to buy. I have used this metric to find some outstanding opportunities over the years and it is a valuable tool in my stock-picking kit. Academics and practitioners alike have demonstrated that both measures work very well as part of a long-term value approach to investing.

This morning, I looked for stocks that will make everybody happy. I ran a screen to search for stocks that trade below book value and have an EV/EBITDA ratio of less than 5. A short list of stocks are cheap on both measures, but there are some interesting names on the list.

Tropicana Entertainment (TPCA) has nine casinos that it operates in Indiana, Louisiana, Mississippi, Nevada, New Jersey, Aruba and Missouri. Carl Icahn has control of this company -- he owns about 70% of the shares. The only real question is: What does he intend to eventually do with it? I expect that at some point he will sell it at an attractive price. Those who also own shares at that time will see a decent increase over today's price. The stock currently trades at just 83% of book value and has an EV/EBITDA ratio of just 3.5, so it is a double bargain. This probably won't be a very exciting stock until Icahn decides to take some sort of action, but it should be a rewarding long-term holding.

SkyWest (SKYW) has problems with its United Express business that are going to be a drag on its earnings for some time to come. Getting out of the unprofitable relationship with United Continental is going to take a while, as the contract lasts until 2020. As the company slowly gets out of the smaller 50-seat aircraft and replaces them with the more profitable 76-seat planes, earnings should slowly rebound. In the meantime the stock is very cheap at its current price. The EV/EBITADA ratio is just 4.28, and the price-to-book value ratio is less than .50. As a long-term holding, this stock has the potential to double or more over the next few years.

Renewable Energy Group (REGI) was something of a hot stock in 2013 -- the shares almost tripled in value -- but they have cooled off quite a bit this year. The biofuels company disappointed Wall Street with its lower-than-expected profits and reduced guidance. The stock is down about 15% over the last year and 34% off its 52-week highs. The company is now trading at bargain levels, at just 90% of book value with an EV/EBITADA ratio of less than 3. Renewable Energy just completed a transaction with Tyson Foods (TSN) that will increase its biofuel capacity by about 30%. This could drive sales and profit growth going forward.

I have never found focusing on short-term events such as Fed news conferences or economic releases to be of much value. Looking for cheap stocks that can move higher by several multiples of my purchase price and ignoring the day-to-day stuff has always been a far more profitable use of my time. Combining price-to-book value with the EV/EBITADA ratio produces some stocks that are likely to do just that.

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 SKYW.

TAGS: Investing | U.S. Equity

More from Investing

Toymaker Mattel Needs Further Consolidation to Renew Strength

Bruce Kamich
Apr 14, 2021 9:20 AM EDT

MAT is losing trend strength and need some sideways action to renew the trend. Hold longs and keep your sell stop in place.

Is the Uptick in Inflation Just a Blip?

Bret Jensen
Apr 14, 2021 9:00 AM EDT

If investors start to factor in higher inflation, we could be looking at a big increase in volatility in the months ahead.

What's the Logical Approach on Logitech?

Bruce Kamich
Apr 14, 2021 8:42 AM EDT

Let's check out LOGI's charts and indicators and find out.

Has DraftKings Corrected Enough to Warrant Purchase?

Bruce Kamich
Apr 14, 2021 8:03 AM EDT

Let's wait and see if we get a test of the top end of the $53-$48 area.

Bank Earnings and Coinbase in the Spotlight as Traders Struggle

James "Rev Shark" DePorre
Apr 14, 2021 7:43 AM EDT

There has been a lack of energy in the market, but things did perk up late Tuesday.

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

  • 02:42 PM EDT PAUL PRICE

    Wednesday on Real Money Pro

    Make this stock a 'part' of your portfolio.
  • 04:44 PM EDT PAUL PRICE

    Pretty Incredible + Hard to Believe

  • 11:18 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    The 5 Pillars of Exceptional Trading
  • 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