Apple Inc. (NASDAQ:AAPL) And The Casualty List by John Dorfman, Dorfman Value Investments
Thank you, Brexit.
The decision of the United Kingdom to leave the European Union shook up stock markets worldwide, creating some bargains.
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Buying stocks that are smacked down is often a good strategy. It’s far from infallible, of course. Sometimes things look darkest just before they go completely black. But oftentimes, stricken stocks can climb back off the mat and recover.
That’s the theory behind my quarterly Casualty List. It contains stocks that have been wounded and that I think will recover.
Here are four beaten-up stocks I think are bargains now.
Down 12 percent in the second quarter, Apple Inc. (AAPL) now trades at about $96 a share, down from a peak of nearly $133 last July. Today’s price is less than 11 times earnings, which seems a modest multiple for the premier maker of smart phones and tablets.
I’ve owned Apple in the past and am seriously considering buying back in. Yes, the juggernaut of earnings growth at Apple has slowed down. But the company still earned 40 percent on stockholders’ equity in the past 12 months. That’s an extremely strong return, and better than the company did in seven of the past 10 years.
If you had Apple shares for the past decade, you would have achieved a 1,068 percent gain. I’d happily settle for one quarter of that over the next decade.
Sanfilippo & Son
John B. Sanfilippo & Son Inc. (JBSS) of Elgin, Ill., processes and sells a wide variety of nuts. Its brands include Fisher, Orchard Valley and Sunshine Country. It’s a relatively small company, and its stock is volatile. Therefore, few analysts bother to cover it.
Changing agricultural conditions will always make the price of Sanfilippo stock bounce around. It had a big gain in the first quarter and a 38 percent slide in the second. It now sells for 15 times earnings and 0.5 times revenue. At this price, I think it’s a good value.
The price of eggs has fallen sharply this year. Farmers get about 55 cents for a dozen eggs, compared to more than a dollar during most of 2013-2015. Flocks have been replenished more quickly than anticipated after a bout of avian flu, resulting in an egg glut.
That has hurt the stock of Cal-Maine Foods Inc. (CALM), the largest U.S. egg producer. Shares fell almost 15 percent in the second quarter and now trade at about $45, down from more than $63 in October. I think they will bounce back.
Cal-Maine is financially strong, with debt less than 3 percent of stockholders’ equity. It yields almost 4 percent in dividends, a helpful quality if the market suffers any more bouts of indigestion this year. The shares trade at only six times recent earnings.
Autohome Inc. (ATHM), based in Beijing, China, operates two websites on which Chinese consumers can learn about cars, read reviews of various models, get pricing information and see lists of available cars. Its stock is listed directly on the New York Stock Exchange.
The stock traded around $30 when it went public in 2013. It rose as high as $55 a couple of times in the next two years. Now it has fallen to about $21, after a 28 percent drop in the fourth quarter.
Yet the company’s operating results continue strong, and its balance sheet looks good with debt less than 5 percent of stockholders’ equity. I consider the stock speculative, mainly because I consider all Chinese stocks speculative.
The column you are reading is the 53rd in my Casualty List series, which began in 2000. The average 12-month return (for the 49 lists on which one-year results can be calculated) was 17.5 percent, well ahead of the 8.7 percent return on the S&P 500 for the same periods.
Twenty-seven of the 49 lists beat the index, and 34 were profitable.
The list from a year ago did terribly, however. It fell 24.7 percent while the S&P 500 returned almost 4 percent. Methode Electronics Inc. (MEI) did fine, but big losses in Dillard’s Inc. (DDS), Cloud Peak Energy Inc. (CLD) and Micron Technology Inc. (MU) doomed my performance.
Bear in mind that results for my column picks are theoretical and don’t reflect actual trades, trading costs or taxes. The record of my column selections shouldn’t be confused with the performance I achieve for clients. And past performance doesn’t guarantee future results.
Disclosure: I own Cal-Maine Foods personally and for almost all of my clients. Most of my clients owned Micron Technology during part of the past year, although none do now. One client owns Methode Electronics.