It has been quite an earnings season so far, with all kinds of interesting stock moves. The overall market is up more than 4% for the month of October, and that is hardly spooky for investors and traders.
As for the big-name betting-slip stocks, gamblers have piled in and pushed the shares to some rather large gains on the month. Chipotle Mexican Grill (CMG) is among the leaders in this class -- the stock is up 23% on a 15% earnings gain in the quarter. Google (GOOG) is up a nice 12% on the month as traders piled in after its earnings report, pushing the stock over the magical $1,000-a-share mark. It seem that everybody wanted to join the party, as stocks such as Southwest Airlines (LUV), McKesson (MCK) and Baker Hughes (BHI) were all up more than 15% after the companies reported earnings.
All of these are multi-billion dollar corporations, and if you believe that the value of the company changed by 15% on the basis of one quarter's results, I have some water-view Florida lots for you to consider. These companies sport some pretty impressive multiples as well: Baker Hughes and Chipotle both sport price-to-earnings ratios north of 50. This type of activity is just betting and is not businesslike intelligent investment, in my opinion. One quarter just does not mean that much, most of the time.
Fortunately for us, the same degenerate gamblers who push stock prices too high on the basis of short-term news also dump shares on short-term news, and this can create opportunities for long-term, patient value investors. Whether it's done on earnings or some other piece of disappointing news, indiscriminate selling that pushes stocks below a conservative estimate of value or asset values can create buying opportunities. That's what we're seeing this month. Some interesting names are on sale that may be worth investigating and buying.
Republic Bancorp (RBCAA) of Louisville, Ky., has seen its shares slide by more than 16% in the past month after the company canceled its deal to buy the banking operations of H&R Block (HRB). There has been no real discussion of why Republic backed out, and the uncertainty has spooked some investors, and I suspect that some risk arbs have dropped out of the stock as well. Republic has long been a leader in the tax refund loan industry, and many people thought the proposed deal was a good for the bank. The earnings report released in mid-month was not bad at all, and it does not justify the decrease in the stock price, in my view. At 88% of tangible book value, the stock is getting close to my buy threshold, and it is also worthwhile tracking the December and February $20 puts to see if an opportunity presents itself to back into the stock at less than 80% of tangible book value.
Multi-Fineline Electronix (MFLX) is another stock that has been hit hard as a result of news that the market does not like. As part of its deal to buy WBL Corp. earlier this year, Singapore-based United Engineers ended up with a 61% stake in the manufacturer of flexible printed circuit boards and related component assemblies for the electronics industry. The news of the impending stock sale did not sit well with traders, and the shares have dropped 15% this month. They currently trade at just 79% of tangible book value and look to be a bargain issue for patient investors. The company CEO told shareholders that he expects Multi-Fineline to be profitable again in the first quarter of 2014 and to turn a profit for the full year, so the outlook for this company is improving.
Longshot pick ACCO Brands (ACCO) has seen its stock price hit hard in the past few days after falling short of analyst estimates and lowering guidance below expectations. ACCO makes basic office products, including staplers, planners, laminating machines and more. It is a pretty basic business, and it will pick up when the economy does, and the stock could easily double at least over the next few years. I would not be shocked to see patient investors realize a four- or five-bagger out of this stock over the next five years or so.
The stock market is not a well-balanced marketplace, and opinions and emotions often drive prices to extreme and unreasonable levels. The key for us is to avoid the love affairs and buy the breakups. Wall Street will eventually return to the jilted stocks, and patient aggressive investors should see outstanding results.