The big news around Chez Melvin today is that my wife headed out yesterday -- as she and the youngest go to visit her Dad in Rockport, Texas. While I love Rockport, it is virtually impossible for me to get anything done there, with all the nieces, nephews, cousins and other assorted folks hanging around and wanting to go here and there. This year the dog and I stayed home, and it is a great time to be long on takeout joints around my neighborhood. I plan to spend a lot of time watching baseball, reading and running screens and tests to my heart's content. It is going to be wild and crazy bachelor days around here for a week or so!
Today I want to follow up on another set of screens. The screens provided by the University of Michigan Tozzi Electronic Business and Financial Center have been a great source of ideas on both the long and short side of things for years. Even better, they have both performed very well: The shorts underperform the stock market and the longs have beaten it handily in 10 of the last 11 years. When we last visited the Value 40 Fund -- as they call the list of longs -- it was full of community banks and other financial stocks that have done very well over the past eight months. I sat down yesterday afternoon and went through the current list and there are some solid stock ideas on there.
There are still several small banks on the list, as the sector remains undervalued. CNB Financial (CCNE), LNCB (LNCB), Civista Bancshares (CIVB), Orrstown Financial (ORRF) and Washington Federal (WAFD) are community banks that the University's academic-research-based methodology identifies as solid opportunities for the year ahead. The year's Value 40 list also has some small insurance companies: United Fire (UFCS), Employers Holdings (EIG) and Kingstone Companies (KINS) are growing nicely but still cheap enough to consider for a long-term value portfolio. Larger reinsurance companies like Endurance Specialty (ENH), PartnerRe (PRE) and Everest Re Group (RE) also make the list of cheap financial stocks worth investigating.
Two for-profit educational companies make the list. This is a sector where the bad seeds -- running a financing scheme more than an actual school -- are starting to get shaken out. K12 (LRN) provides curriculum, software systems and educational services that allow school systems to offer virtual online learning programs for grades K-12. We have been investigating the virtual learning programs offered here in Florida, and K12 partners with the local school system. While there have been some complaints around the country about K12 programs, the parents I have talked to rave about the program. In fact, I have not talked to a single local parent with a significant complaint.
As the overall quality of the in-school experience continues to decline around the nation, I think virtual education at the K-12 level is going to grow significantly in the years ahead. Although we can expect some bumps as they work up the learning curve of this relatively new educational option, K12 appears to be well positioned to be a market leader in virtual schools.
National American University Holdings (NAUH) is a stock I am starting to see on just about every value screen I run these days. When I reviewed their latest presentations and studied graduation rates, placement rates and ongoing student renewal, it appears that this company is doing something pretty unusual for the online secondary education market: They are running an actual school, graduating students and helping them find jobs. In the last earnings release, CEO Ronald L. Shape said: "We have a strong balance sheet with no long-term debt and have the necessary financial and operational flexibility to carry out our goal of growing without taking unnecessary risk. We believe that this is a critical differentiator from our competitors, as we are continually working to perfect our academic programs and improve the quality of our educational offering to students. We believe that this will ultimately benefit NAU in both the short and long term." I think he is right, and the improved educational experience is going to lead to much-higher earnings and strong growth in the stock price in a few years. I am a big fan of this stock at this level.
It is worth taking the time to print out the Value 40 fund list and find those stocks that you want to add to your portfolio. Traders and investors, alike, should pay attention to both lists as they search for solid ideas with a decent probability of moving higher -- or lower in the case of the earnings torpedoes we talked about yesterday.
