Insights and Thoughts from Dorfman Value Investments
John Dorfman writes a syndicated column that appears weekly in Forbes.com, GuruFocus.com, Ohio.com, the Omaha World Herald, the Pittsburgh Tribune Review and the Virginian Pilot. In it, he tries to provide original, profitable stock ideas for readers. In contrast to almost all other investment columnists, he systematically reports on past results, both good and bad.
Recent columns are archived here.
EBay and Overstock.com are on the Casualty List
Posted: January 18, 2022
January 17, 2022 — (Maple Hill Syndicate) – I’ve always liked stocks that have taken a beating.
The market has punished them for their sins, but sometimes the market goes overboard. That’s why each quarter I compile my Casualty List, comprising stocks that have been pummeled in the latest quarter, and that I think have major comeback potential.
For this, my 75th Casualty List, I’ll lead off with eBay Inc. (EBAY), the online marketplace. When I buy a stock, I want it to double in five years. EBay has done that in the past five years, but it’s fallen from about $80 to about $63 since October.
EBay’s revenue in the past year was more than $17 billion, up from about $8 billion five years ago. Sure, the pandemic helped eBay, by chasing people out of brick-and-mortar stores. That tailwind will vanish someday. But eBay has been consistently profitable, with only one loss year in the past 15.
Analysts reckon that eBay will earn a bit more than $5 a share in 2022. The stock fetches less than 13 times that figure, making it a value in my opinion.
Although it isn’t easy competing against Amazon.com Inc. and Chewy Inc., PetMed Express Inc. (PETS) is hanging in there. The company, based in Delray Beach, Florida, is an online pharmacy for dogs, cats and other pets.
The stock is down 11% in the past three months, and 21% in the past year, but the company has some good points. It is debt free and has produced a return on stockholders’ equity of 15% or better in each of the past 15 years.
Down 14% in the past three months is A-Mark Precious Metals Inc. (AMRK), an El Segundo, California company that trades gold, silver, platinum and palladium. People often get interested in precious metals when (a) inflation ramps up, (b) governments are printing lots of paper money, or (c) international tension runs high.
I think the first two conditions are present, and the third one wouldn’t surprise me. So, I think the coming year will see lots of action in precious metals, which might bode well for A-Mark. The company has been profitable in nine of the past ten years and the stock sells for 10 times estimated earnings.
At about $49 a share, Overstock.com Inc. (OSTK) now sells for less than half of the price ($108) it commanded only two months ago.
In a previous slide, in 2018-2019, Overstock.com fell from about $79 to below $7, only to rebound to $118 in August 2020. To quote from an old Wall Street joke, this one isn’t an eating sardine, it’s a trading sardine.
Today, the online retailer trades for only 6 times recent earnings, compared to a ten-year average multiple of 35. I think it’s a good buy at this level.
While it retails a wide variety of goods, some of its specialties are home and garden products, jewelry, furniture and home décor. I don’t know how long we’ll be stuck in the pandemic, but while we are, those seem like good niches.
I’ve recommended America’s Car-Mart (CRMT) before, so I’ll be brief here. The company, based in Rogers, Arkansas, sells used cars, mainly on credit, mostly in the South, and mostly to people with poor credit.
Knowing that default rates on such loans will be above average, Car-Mart prices its cars, and loans, accordingly. It has booked a profit 19 years in a row, even including the notorious year 2008.
Revenue growth has averaged 13% a year for the past decade, yet the stock sells for a modest six times recent earnings, and the stock is down 12% in the past three months.
The four stocks I recommended a year ago – three homebuilders and an auto parts stock – all beat the Standard & Poor’s 500 Total Return Index.
The index logged a 25.5% gain. The three homebuilders – D.R. Horton Inc. (DHI), LGI Homes Inc. (LGIH) and Meritage Homes Corp. (MTH) were all up 37% to 43%. Standard Motor Products returned about 27%. Collectively, my year-ago picked racked up a 37% return.
One-year returns can be calculated for 71 of the 75 Casualty List columns I’ve written. The average one-year return has been 18.3%, versus 11.5% for the S&P 500.
Forty-seven of the 71 past 75 columns have been profitable and 38 have beaten the bogey.
Bear in mind that my column results are hypothetical and shouldn’t be confused with results I obtain for clients. Also, past performance doesn’t predict the future.
Disclosure: I own America’s Car-Mart and D.R. Horton personally and for most of my clients.
John Dorfman is chairman of Dorfman Value Investments LLC in Boston, and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at email@example.com.