Yesterday was not your ordinary 0.7% drop in the S&P 500 and Nasdaq Composite. The damage was much greater in some of the nether regions of the market. While the Russell 2000 and Russell Microcap indices were down 1.1% and 1.2%, respectively, my screen showed even more red, and I'm not at all surprised. When the markets get spooked -- as they are given the uncertainties about the election -- lower-quality, deeper-value, or more speculative names suffer the consequences. That's why it's wise to keep some dry powder on hand
One of the few restaurant names on my radar that actually looks cheap -- Fogo De Chao (FOGO) -- took a near-5% haircut yesterday on below-average volume. In this environment, and with the restaurant sector coming under increasing pressure, it may get cheaper.
Vonage (VG) , which is not a deeper-value play, also fell about 5% on normal volume, giving back most of last week's gain that came as a result of a solid earnings report. This punishment does not make a great deal of sense to me, but that's par for the course, especially in this market.
Corrections Corporation of America (CXW) , soon to use its new name CoreCivic, lost about 3% heading into today's third-quarter earnings release. This one could have been much worse given the uncertain state of the company and private corrections in general. I'm hoping the company will address the dividend today; I expect a cut, and the market is certainly pricing one in given the current 15% indicated yield. Expect an even bumpier ride today and tomorrow with CXW.
FreightCar America (RAIL) fell 8% -- at one point yesterday it was down as much as 12% -- as the company reported lackluster third-quarter results. It has been evident that the company's business has been slowing considerably, but it missed badly on revenue ($113.46 million versus $129.35 million consensus). Excluding restructuring and impairment charges, the company met consensus earnings estimates of 12 cents a share, at least by my calculation. (The only report I saw had the company at breakeven for the quarter, but that included charges).
Cash and cash equivalents fell from $78.5 million, or $6.40 per share, to $45.8 million, or $3.74 per share, as inventories and accounts receivable increased, though management expects its cash stockpile to grow to a range of $85 million to $90 million by year-end as inventory is reduced. There is still an order backlog of 5,613 railcars, representing about $557 million in revenue, but that is down substantially from the last year (12,237).
Yesterday's drop in share price put RAIL ever so close to net/net status; it currently trades at 1.03x net current asset value. The company remains debt-free and now trades at just 0.63x tangible book value per share. This is the type of name that requires a great deal of patience and is a good example of where it makes sense to stagger into a position. I still believe this company might make an interesting acquisition target at some point, given its unencumbered balance sheet and rather small $100 million enterprise value.
And just what will today bring?
