With the market still in a downtrend, now is a good time to be looking for value-priced portfolio candidates. Today’s two recommendations are both available at a deep discount to their recent highs. The first, from Stephen Leeb’s The Complete Investor, is a turnaround play that has lost about 30% of its value from its peaks earlier this year:
“New pick The Timken Company (TKR) is a quintessential value stock, currently trading at only 1.6 times book value and at about 7 times next year’s expected earnings and yielding 2.4%. The company is a leading global manufacturer of highly engineered bearings, alloy steels and related components. Its technologies and products turn up in multiple markets, including aerospace, mining, energy, rail, construction, trucking, automotive and the aftermarket. It has operations in 30 countries, and its products are sold in virtually every country in the world. Total sales in 2012’s first half were $2.8 billion, up 7% from the year-earlier period.
“There are two reasons the company is undervalued. One is that it’s a turnaround story. Timken has been seeking to make itself into a more efficient entity by getting out of its underperforming businesses, such as light vehicles, and by closing some of its plants. The other is the worrisome economic environment. But we think the company’s collection of growth businesses in combination with its attractive valuation and strong cash flow make Timken a compelling investment at current levels. ... Probably the greatest transformation has been in Timken’s aerospace division, [where] analysts anticipate annual profit growth of around 13% a year for the next several years, which would make the shares true bargains at their current valuations.”—Stephen Leeb, PhD., The Complete Investor, November 2012
Today’s second portfolio candidate has had an even worse year; this stock is about 50% off its highs from earlier in 2012. It doesn’t have a turnaround story like Timken, but Rex Takasugi, who recommended the stock in Technical Disciplines, has an even simpler reason for liking it: no one else does. Here’s his advice:
“If you want to play a bounce in the stock market, or establish a long position to hedge a short position, this deep contrarian stock idea may interest you. Dell, Inc. (DELL) looks like the type of stock the value investors look for, as the financial ratios suggest that the stock is cheap. Although tablets and similar devices are certainly here to stay, I do not believe the PC is dead. I see tablets as complementing a PC, not as a total replacement for a PC. As a contrarian, I have to be interested in DELL, as virtually no one else is at this point.
“Technically, the CCI Trendline break looks quite good, better than usual, and I like the divergence. The stock price has dropped about 50% in the past nine months, which is a little extreme even for a tech stock. The Fibonacci Price Clusters show a very nice grouping in the $15 range, so that is my intermediate-term target. The Elliott Wave count is unclear, but obviously this is not a Type 2 Trade. Thus, the stock price could bounce around for a while as it creates a failed EW5, a double bottom or other similar chart patterns. Use appropriate money management stops to protect your trade.”—Rex S. Takasugi, Technical Disciplines, November 11, 2012
Of course, these two investments come with one caveat: neither chart has shown signs of a putting in a bottom yet, so their downturns may not be over. But both are certainly cheap, so if you’re patient you could buy a little here anyway. Less-patient investors may want to wait and see if the charts turn up before buying.
Wishing you success in your investing and beyond,
Chloe Lutts
Editor of Dick Davis Dividend Digest
