When I was asked to write this column identifying my five favorite stocks for the rest of the year, I admit that I cringed. My favorites are often among other investors' least favorites and usually take a lot longer to play out than most can stomach, if they indeed play out favorably. This column easily could be titled the "best of the worst," and these ideas are not meant as core holdings but rather as satellite holdings for the bravest, or the most foolish, depending on your perspective. You may want to take some Pepto-Bismol before reading any further.
Fitbit Inc. (FIT) has been trounced, down nearly 60% over the past year and 87% from its all-time high. Briefly a cult stock as wearables became the next new thing, growth investors have fled as revenue and prospects have dimmed. As a value investor, I don't always step into such situations, but this one seemed interesting. While I don't expect this to be a $50 stock again, it is compelling at just over two times net current asset value, with $676 million, or nearly $3 a share -- roughly half its market cap -- in cash and no debt. Cash admittedly can be fleeting when you are in the red. While the company's market share has been falling, earnings recently have not been as bad as expected. Put that all together and you have a hot mess that most investors are shunning. It remains to be seen whether Fitbit's recently unveiled smartwatch will bear fruit.
FreightCar America Inc. (RAIL) , which is the only one of the five stocks in positive territory year to date (up 23%), remains cheap at just 1.36 times net current asset value. Earnings appear to be turning around with positive surprises the past two quarters, and it may return to profitability in 2018. Meanwhile, the balance sheet remains stellar, with $132 million, or $10.76 per share, in cash and short-term investments and no debt. This still looks like a potential acquisition target, and yields 2%.
Hibbett Sports Inc. (HIBB) is in an ugly business -- sporting goods retailing -- that has been beaten badly lately and likely will continue to struggle. The question is whether the punishment this stock has received (down 67% year to date) fits the crime. With Hibbett stock trading at just 1.2 times net current asset value and 0.77 times tangible book value per share, management has continued to buy back shares. Make no mistake, with same-store sales plunging the stock deserved a haircut, but I believe it went too far. We'll see. Hibbett may not be a long-term play for me as I am overall skeptical of retail. However, as ugly as Hibbett might be, I'll still buy a dollar bill for 50 cents as often as possible.
I am not a big fan of restaurant stocks for reasons I've laid out ad nauseam, but there are a couple names that are interesting, including Zoe's Kitchen Inc. (ZOES) . The stock, down 46% year to date, has tumbled off of its high horse as growth investors have grown impatient. After watching this stock since its 2014 initial public offering but being wary of the price, I recently took a position. I don't expect quick results here, and Zoe's likely will be hurt by Hurricane Harvey given its presence in Houston, but the rest of 2017 may provide a decent entry point for long-term investors.
Last but not least is the hugely disappointing Biglari Holdings Inc. (BH) , down 37% year to date. Among other interests, Biglari owns about 20% of Cracker Barrel Old Country Store Inc. (CBRL) and the Steak 'n Shake restaurant chain. I believe Biglari always has traded at a discount mainly due to the company's convoluted structure, distrust in management and limited float, but the current discount has gotten extreme. It would not surprise me if the company began buying back stock at these levels. In a 2015 tender offer, the company purchased more than 620,000 shares at $420, an offer I rejected as I thought it was a cheap offer. Shares now trade in the $300 range, a six-year low, making those who finally ditched the stock brilliant and the hangers-on, such as yours truly, idiotic. Wouldn't be the first time, and won't be the last.