I recently mentioned that I try to ignore most of the noise during earnings season, and only react when there’s an attractive dip in one of the stocks I have on my wish list. Which raised the question: What’s at the top of my list?
I keep a list on my desk of stocks that are trading just below tangible book value up to about 1.3 times book value. These stocks all pass my credit and fundamental criteria with flying colors, but are just a tad too expensive to buy right now. I am hoping they come in light on analyst expectations and short-sighted traders push them down to levels where I can initiate or add to long-term positions.
Dawson Geophysical (DWSN) is one such stock. Right now, the stock is trading at 1.14 times tangible book value, and I would love to own this stock again at a slightly better price. The company provides onshore seismic data acquisition and processing services in the United States and Canada, which are used by oil and gas production and exploration companies.
The company recently announced that it experienced a significant reduction in its data acquisition crew utilization rates during Q4, which ended Sept. 30. The stock has declined somewhat since that announcement, and I am hoping earnings come in well short of 15 cents when DWSN reports in early November. This a solid company with a strong future, so if the trading community can push this down to a substantial discount to tangible book value, I’ll be first in line to grab it.
John B. Sanfilippo & Son (JBSS) is a nutty company that I have a small position in, and I would love to own a lot more. The company distributes peanuts, almonds, walnuts, and pecans in various styles through both its own brands and private brands. It sells to grocery stores, wholesalers and distributors and has a solid business that has been around since 1959.
The company reports earnings on Oct. 28, and I’m hoping they are horrible, punishing the stock price so I can step in and buy shares at a discount. This is a boring, basic business but the amount of money I expect to make if I can buy the shares at a discount to book value is pretty exciting. At the current price, the shares fetch 1.1 times book value.
It has been a rough summer for West Marine (WMAR). Sales have been lower than hoped, insiders have sold some stock, and the company recently changed auditors. I am hoping it gets much, much worse and a still-weak economy causes earnings to fall far short of the 35 cents estimate on Oct. 21.
The stock is at about 90% of tangible book value right now, but I would love to buy this stock below 70% of tangible book again. There is enormous pent-up demand in boating and recreational products, and that will translate into strong growth for WMAR sometime in the next five years. If I am lucky, the short attention span of Wall Street will give me a chance to buy at a great price and see a profit of several times my purchase price in a few years.
Earnings season for me isn’t the intense time it is for traders, but I am hoping that we once again see some of the names on my wish list fall into long-term value levels.
As of this writing, Tim Melvin was long JBSS.