Following the worst start of a year for the stock market in 52 years, the ranks of my Casualty List are swelling.
The Casualty List contains stocks that have been banged up in the latest quarter, and that I think can recover and thrive.
This year’s market catastrophe makes me feel bad. But it also has placed on the bargain counter a number of stocks that I think highly of. Here are five of them.
Intel
The biggest U.S. semiconductor maker by sales, Intel Corp. (INTC, Financial) was smacked for a 24% loss in the second quarter. I think it is now a steal, selling for a little over six times earnings.
Over the past five years, Intel has increased its revenue at better than a 10% annual clip and earnings at a 22% pace.
While many chip companies farm out their manufacturing to Asia (and especially to Taiwan Semiconductor (TSM, Financial)), Intel does much of its manufacturing in the U.S. That may have been a disadvantage in the past, but in the current climate, I think it is an advantage.
The semiconductor giant faces stiff competition from Advanced Micro Devices Inc. (AMD, Financial) and Nvidia Corp. (NVDA, Financial), but Intel is much cheaper – six times earnings, versus 40 for Nvidia and 30 for AMD.
Paramount Global
Whacked for a 34% loss in the quarter, Paramount Global (PARA, Financial) now sells for only four times earnings.
Warren Buffett (Trades, Portfolio), widely considered the greatest living investor, bought shares earlier this year. His company, Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial), owns about 10% of Paramount.
What attracts me here is the company’s trove of 3,600 movies and 140,000 TV episodes. I think these may lend it some appeal as a takeover candidate.
Paramount owns the movie studio Paramount Pictures, the CBS television network, Showtime, Nickelodeon, MTV, Comedy Central and 28 local TV stations, among other assets.
Embecta
Spun off from Becton Dickinson (BDX, Financial) in April, Embecta Corp. (EMBC, Financial) was born into a bear market. Based in Franklin Lakes, New Jersey, it contains the diabetes care business formerly run by Becton Dickinson.
I regard diabetes care as a good business. The incidence of obesity is rising in the U.S., Europe and Japan, and with it, the incidence of diabetes.
Spinoffs often get saddled with heavy debt. But Embecta is just the opposite: It is debt free.
After dropping 24% in the second quarter, Embecta shares trade for less than four times earnings.
Atlas Air
Down more than 28% in the quarter just mercifully ended, Atlas Air Worldwide Holdings Inc. (AAWW, Financial) sells for only four times earnings.
If the Federal Reserve causes a recession by raising interest rates, Atlas (a leading cargo carrier) will suffer. But it will not necessarily go into the red. The company has had only one loss year in the past 15.
The tendency for shoppers to buy more goods online should mean more shipping, which is good for Atlas. The stock sells for less than book value (corporate net worth per share).
Overstock.com
After rising above $100 a share during parts of 2020 and 2021, Overstock.com Inc. (OSTK, Financial) has dropped to about $25. It was down 43% in the second quarter.
The company was one of the first retailers to accept bitcoin for payments in 2014. It has been a major holder of bitcoin, so the crash in cryptocurrencies has played a big part in this stock’s decline.
What I like about the company is that much of its merchandise consists of closeouts from other companies. Thus it attracts budget-conscious shoppers, and since an economic slowdown appears likely, that could be a tailwind here.
The record
This is the 77th Casualty List column I’ve written. One-year returns can be calculated for the first 73 columns. The average one-year return has been 16.9%, which compares well with 11.2% for the Standard & Poor’s 500 Total Return Index.
Of the 73 sets of recommendations, 47 have been profitable and 38 have beaten the S&P 500.
My picks from a year ago fizzled. They were down 24% while the S&P 500 was down less than 12%. Poor showings by Thor Industries Inc. (THO, Financial), hurt by rising gas prices, and KB Home (KBH, Financial), hurt by rising interest rates, did me in.
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.
All performance figures cited in this column are total returns including dividends.
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 protected].
