I must admit I typically cringe when I get the editors' request to write a "favorite stock" piece for the coming year. It is difficult to pick one name that will soar in the year ahead, especially within the deeper value pools that I typically fish. I will be delivering that column again in the waning days of 2021 and hope I can do it justice.
In the meantime, I'll take a look back at last year's pick, one that actually worked out OK. That was fashion retailer Cato Corp. (CATO) , a somewhat surprising winner that has doubled since that column ran. This was a case of a smaller name in a compromised industry, but one with solid fundamentals that were all but ignored until the earnings started to ramp up.
At this time last year, while trading in the $8 range, CATO had $151 million, or $6.68 per share, in net cash on the books and was trading at about 0.73x tangible book value per share. However, the former dividend payer had halted its massive 33-cent quarterly payout in early 2020 at the onset of the pandemic.
The stock started to take off as 2021 began and continued to rise as Cato put up solid first-quarter results in May, earning 92 cents a share. In addition, Cato confirmed a level of confidence by reinstating the quarterly dividend, albeit at the lower rate of 11 cents a share. It also continued to buy back shares. In August, the company raised the dividend to 17 cents, which currently equates to a 4.2% yield.
Cato shares topped out at about $20 early last month, but have pulled back to close Tuesday at $16.32. Today's Cato has an even better balance sheet than last year's; the company ended its latest quarter with $200 million, or $9.51 per share, in cash, and that's a net number as the company has no debt. The recent pullback is likely a combination of recent pressure on small and microcap stocks as well as Cato CEO's caution about the fourth quarter.
I now am trying to come up with next year's Cato for my coming "pick of the year" column. That will be a tall order.