Ducommun, Deckers Stocks Glitter Like Bargains On New Lows List
Posted: September 29, 2015
Stocks hitting new 52-week lows are obviously suffering from some kind of problem. But I’ve found the New Lows List a fruitful place to shop for bargains.
The key is to separate problems that are temporary from those that are permanent, and bruises that are getting better from wounds that are getting worse.
Right now, there are plenty of trampled stocks to choose from, because stocks have been suffering since May. This weekend’s Barron’s magazine listed 836 stocks at new lows, versus only 155 stocks hitting new highs.
Among the stocks that have hit new 52-week lows recently are several that I think have outstanding rebound potential: Ducommun Inc., Deckers Outdoor Corp., Carlyle Group LP and Bebe Stores Inc.
Ducommun
After hitting a 52-week high of $33.45 in April, Ducommun Inc. (DCO) has fallen to $19.68. I find it attractive at that price, which is only 0.3 times revenue and 0.9 times book value. Based in Carson, Calif., the company makes components for Boeing, Airbus, Lockheed Martin and others. Products include cockpit controls, fuselage panels, helicopter blades and many other parts.
A perennial criticism of Ducommun is that it is heavily dependent on Boeing. That remains true, but in my mind it’s just a characteristic, good at some times and bad at others. The geopolitical situation argues for increased military spending regardless of which party is in power in the U.S. If it’s the Republicans, arms spending will probably accelerate more quickly. And civilian aviation is doing fine.
Deckers Outdoor
I like Deckers Outdoor Corp. (DECK), the maker of UGG boots, at the recent price of about $58, down from a high near $99 last December. The current price is 13 times recent earnings and 1.1 times revenue, which I think are attractive multiples for a company that has grown sales and earnings strongly over the past decade.
Critics point out that five-year earnings growth is negative. I grant that point, but 10-year and one-year growth figures look good, Deckers brands are still popular, and most analysts foresee higher earnings.
Carlyle Group
Carlyle Group, an investment firm based in Washington, has been a force to be reckoned with for many years in leveraged buyouts, private equity, real estate and hedge funds. However, it has been publicly traded only since the spring of 2012. Recently its shares have fallen to about $18, which is below the initial offering price of $22 and well below the peak price of about $37 early last year.
I think part of the problem is that Carlyle is in a business where earnings are likely to be uneven from quarter to quarter and year to year. Smooth earnings are in vogue these days. In my view it is a well-run company, and the chance to pick up shares at the current valuation of 12 times earnings (and 7 times estimated 2016 earnings) is a buying opportunity.
Bebe Stores
As a high-risk speculation, I like Bebe Stores Inc. (BEBE), a young women’s clothing retailer based in Brisbane, Calif. Bebe is known for edgy, sexy clothes, but less racy than, say, Victoria’s Secret. The chain has definitely been struggling of late: It has posted losses three years running.
What I like about Bebe is that it is debt-free, losses have been narrowing, and the stock is extremely cheap. The shares, which sold for more than $28 in the summer of 2005, have ebbed to about 99 cents. That values the company at 0.2 times revenue and 0.5 times book value (corporate net worth per share).
Bottom Fishing
Beginning in 1998, I have written 22 columns recommending some stocks from the New Lows List. The one you are reading is the 23rd.
In the column a year ago I recommended four stocks that I figured would turn around.
Xueda Education Group (XUE), a Chinese exam preparation firm, did very well, up 87 percent. Beacon Roofing Supply Inc. (BECN) returned 34.1 percent. Speedway Motorsports Inc. (TRK) managed a 6.4 percent gain, and Oshkosh Corp. (OSK) lagged with a 16.9 percent loss.
Combined, my four picks returned 27.7 percent, while the Standard & Poor’s 500 Index was down 0.07 percent.
I’m happy about that, but my long-term performance in this series is midrange, struggling to overcome the effect of bad picks in 2012.
Three-year returns have averaged 16.5 percent, compared to 15.9 percent for the Standard & Poor’s 500 Index. One-year returns have averaged 9.0 percent, versus 9.7 percent for the index.
Bear in mind that results for my column recommendations are hypothetical and don’t reflect actual trades, trading costs or taxes. Past performance doesn’t predict future results. And the results of my column picks should not be confused with real-money returns achieved for clients.