One of the things I like to do when markets have gotten hit the way they have recently is to take a look at stocks from differing viewpoints and see if any potential bargain situations have been created. Although deeply wed to my deep value approach, I am well aware that it is not the only approach that works. Earlier this week, I took a look at some growth stocks to see if there were any that offered extraordinary long-term potential and were cheap enough to justify a long-term investment. I still usually hold to tangible book value as "the end all and be all" of investing, but looking at stocks from differing viewpoints can uncover ideas I overlooked. From there I build a wish list of stocks to buy in a deep market decline. Other investors, including my 23-year-old son, may be willing to buy different stocks that I do.
One of my favorite screens of all time is, in fact, not a strict value screen. The list of stocks priced below $10 and ranked No. 1 and No. 2 by the Value Line Research service ranking system often includes some gems. This screen looks for stocks that have both price and fundamental momentum as defined by the Value Line system and are low in price with no additional criteria. Often this screen helps spot small-company turnarounds before the rest of the market catches onto them. The price is still low but the ranking system is indicating that the fundamentals are improving quicker than the rest of the market.
One of the first stocks on the list is very familiar. I have owned BGC Partners (BGCP) since late last year. The stock has not done much so far and I am down on my shares at this point in time. However, this electronic brokerage firm should benefit from continued trading volumes in U.S. fixed income securities and foreign interest rate derivatives. The company is growing and recently increased its headcount by more than 10% in a time when many brokerages are letting traders go. It also recently raised its dividend by 17% and the shares now yield more than 10%. In an interesting move, the company just bought a commercial real estate brokerage firm when they bought Newmark's U.S. commercial real estate operations. Although seemingly unrelated, the two firms have a long relationship and this may actually end up being a great combination. In my mind, this stock is a buy for both growth and income investors at the current price.
American Axle (AXL) is another company that would be overlooked by traditional value measures but may be worth considering for long-term investors. The company's restructuring efforts appear to be paying off and margins are the highest in corporate history this year. The company is also diversifying away from General Motors (GM) and increasing its exposure to faster growing emerging markets. Although sales of drive trains to GM account for than 75% of current revenues, the new business backlog is only 60% GM, as management moves to diversify revenues. The stock has been weak recently and it may get weaker, as concerns about high fuel prices and a lackluster global economy keep investors from embracing auto-related equities. Unless the world really is ending, at some point, the auto business will experience a strong global rebound. This stock could soar when that happens. Insiders seem to think so because some officers and directors have been buying stock in recent weeks.
The list of Value Line No. 1- and No. 2-ranked stocks priced under $10 has soared to more than 50 names as the market has declined. Some very intriguing long-term candidates have turned up, so I will spend more time researching these names.