The U.S. equity market is at an all-time high, yet this week's stock market decline coupled with the geopolitical headlines is more than enough to make many investors skittish. With virtually every investor over the past several years sitting on some of sort of stock market gain, few want to see those gains evaporate. Selling begets more selling.
At times like this I like to look closer at stocks that are holding their own, specifically, stocks that are being sold off as the market sells off. I tend to find the beaten down value stocks can hold their own.
Consider J.C. Penney (JCP), a once-iconic retailer that has been beaten down. Over the past 52 weeks, shares have more than doubled, and year to date they are up 15%, almost twice the S&P 500's performance.
After falling to as low as $19 earlier this year, Weight Watchers (WTW) is up by more than 50%. This not the case with all "value" ideas, but if you buy good businesses when they are dirt cheap and remain patient, your batting average is likely going to be above average.
A perennial name that seems to come up is Sears Holding (SHLD), the beaten down retailer controlled by investor Eddie Lampert. Sears has again fallen to a new low of $27. Casual observers may not realize that over the past couple of years, Sears has spun off many businesses into public entities. Some have been complete failures, like Orchard Supply, while others, like Sears Hometown and Outlet Stores (SHOS), have monetized assets for investors. Next year, Sears is expected to spin off its automotive business. At the current price, investors have another chance to take a bite of a misunderstood conglomerate run by a brilliant investor who has skin in the game.
SeaChange International (SEAC) is a media and technology company that is trading for $7 per share, has no debt and more than $3 per share in net cash. It's a big holding for value investor Jim Roumell of Roumell Asset Management. Earlier this year, the company was trading for more than $15.
Orchids Paper Products (TIS) is a provider of tissue paper and related products. I guess in this high-flying, Alibaba (BABA) fueled market, investors have lost interest in the business. Shares have slowly sold off down to $25 and now yield 5.6%, trading at 16x earnings. The balance sheet is strong with minimal leverage. The annual dividend expense of $10 million is easily covered by cash flow from operations. This becomes a very interesting business if shares fall another 15% or more.
When the market ultimately decides to take a breather -- and that will happen at some point -- many of the neglected businesses today may find themselves in the spotlight again.