When the economy goes downhill, consumers spend less, postponing discretionary purchases and buying cheaper off-brand products when they do shop. With the market plunging, I suspect many investors are feeling the same urge. So if you’re doing any buying at all, today’s Investment of the Week has two bargain basement ideas for you. One is a turnaround play, the other is a small cap, but both are priced to move at under $5.
The first recommendation comes from Cindy Bowser, editor of small-cap focused The Bowser Report:
“Majesco Entertainment Co. (COOL) has hit the casual game market with its Zumba Fitness game, named the number-one fitness title for 2011. ... Majesco released Zumba Fitness in November 2010, Zumba Fitness 2 in November 2011 and Zumba Fitness Rush in February 2012. The Zumba franchise has sold over six million units worldwide and accounted for 77% of the company’s total revenues for the most recent quarter ended January 31. [In addition,] the company continues to release the Cooking Mama games, which was its number-one franchise prior to Zumba. ...
“Majesco has exhibited continual growth over the past year. Revenues for the year ended October 31, 2011 were $125,291,000, a 66% increase over the revenues for the prior year. Net income rose from a loss of $972 thousand to a gain of $6.832 million. The company’s growth continued in its most recent quarter ended January 31. Revenues were up 37% to $66.18 million, and the net income was up 14% to $7.726 million. These results relied heavily on Zumba sales. The results also reflected an increase in international sales, which accounted for $16.7 million, 25% of the company’s total revenues for the quarter."—Cindy Bowser, The Bowser Report, April 2012
Our second stock on sale comes from George Putnam’s The Turnaround Letter. Here’s part of his latest buy recommendation:
“Builders FirstSource, Inc. (BLDR) is a leading supplier and manufacturer of building products for residential construction. ... Builders FirstSource strikes us as a superior (albeit moderately risky) way to play the likely rebound in residential construction. Rather than betting on a single home builder, Builders FirstSource supplies many of the largest homebuilders in some of the fastest-growing parts of the U.S. Although the company was hurt by the industry downturn, it has the potential to rebound strongly for a couple of different reasons.
“First, it has become much more efficient, cutting out more than $140 million of operating expenses since 2007. Perhaps even more importantly, many former competitors have been forced out of business during the downturn. As a result, Builders FirstSource’s market share has grown steadily in recent years.
“The management team is very experienced. Both the CEO and the Senior VP of Operations have more than 40 years of experience in the industry, and many other key executives have more than 20 years in the business. The balance sheet remains quite leveraged, which is the biggest risk to the stock. However, the company appears to have enough liquidity to get by even if housing starts don’t turn up significantly for another 18-24 months. In addition, major stockholders include some very deep- pocketed private equity firms such as JLL and Warburg Pincus. They have a strong incentive to not only keep the company alive, but eventually to see its stock appreciate significantly.
”... The housing industry is still down more than 70% from its peak, and even a modest rebound would bode very well for the company. We recommend buying Builders FirstSource up to 7."—George Putnam, III, The Turnaround Letter, May 2012
Wishing you success in your investing and beyond,
Chloe Lutts
Editor of Investment of the Week
