While the mood of investors is turning a bit sour and there is a lot of focus these days on how futures are performing in the hope that this day will be the day that turns things around, I am continuing to look for potential bargains. The difference is that unless a stock is priced at ridiculously low, capitulation-like levels, I am simply building a potential wish list and not buying. In this environment, if you pounce on what appears to be an undervalued name you just might find it cheaper down the road.
While I believe we are far from a "throw the baby out with the bathwater" environment, where smaller, lower-quality names are pounded beyond what they deserve, I think I may be seeing the beginnings of some interesting situations.
Small appliance company Hamilton Beach Brands (HBB) is trading at just 2.79x net current asset value (or NCAV, which is calculated by subtracting total liabilities from current assets),and just over 5x 2023 consensus earnings estimates. However, the "consensus" in this case is just one analyst, which is not uncommon for small stocks. Indeed, many receive no coverage.
Hamilton Beach currently yields 4%, although the balance sheet is not great. The company is light on cash ($1 million as of the latest quarter end) and carries $119 million in debt. Hamilton Beach shares are down 31% year to date and 56% over the past year. This is the first appearance HBB has made on my "triple-net" screen (stocks trading a between 2 and 3 times NCAV) and it's nice to have some new possibilities. Last week, Hamilton Beach reported first-quarter earnings per share of 51 cents, well above the 15-cent estimate.
Also still gracing the ranks of triple-nets is Johnson Outdoors (JOUT) , which has given back another 5% since I wrote about it in March. Down 20% year to date and 47% over the past year, JOUT now trades at just under 9x 2023 consensus estimates (also with just one analyst covering the company). However, here on Monday, JOUT reported second-quarter earnings of 97 cents a share, which was well below the $1.85 consensus. Revenue of $189.6 million also missed by $12.7 million. Johnson Outdoors ended the quarter with cash at $113.2 million, or just over $11 a share, down from $167.5 million, or $16.59 a share, at the end of the last quarter. It could be an interesting day for this maker of outdoor recreation products, and probably not in a good way.