Investors suffered their third unpleasant quarter in a row in the quarter that just ended. After this pounding, quite a few stocks look attractive to me.
I’ve highlighted a few of them on my Casualty List. This list, which I compile each quarter, contains stocks that have been smacked down, and that I believe will rise again.
Tyson Foods
I’ve put five new stocks on the Casualty List. Let’s begin with Tyson Foods Inc. (TSN, Financial), the largest U.S. producer of chicken and beef, and also a major producer of pork. It dropped 23% in the latest quarter.
If we are in a recession – or if, as many pundits suggest, we will enter one in 2023 – Tyson should be fairly resilient. When times are tough, people may eat a little less meat, and switch to cheaper cuts. But they won’t change their diet entirely.
In the past decade, Tyson has usually sold for about 13 times earnings. Today that multiple is six.
Western Digital
Next, consider Western Digital Corp. (WDC, Financial), one of only two major manufacturers of hard disk drives. (The other is Seagate Technology Holdings PLC (STX, Financial)). Western Digital stock fell 27% in the third quarter. Worse, it is down 13% over the past decade.
The gradual replacement of hard disk drives by solid state drives is the main reason. Western Digital is dominant in the former, but just one of many players in the latter.
Still, the company is hanging in there. It earned $4.74 per share in the past four quarters, its best showing since 2015.
Stocks advance by exceeding expectations, and expectations for Western Digital are low. The stock, which topped $100 in parts of 2015 and 2018, now sits at about $33. That is only 7 times recent earnings and 0.55 times revenue.
Fulgent Genetics
A nearly debt-free choice is Fulgent Genetics Inc. (FLGT, Financial), based in Temple City, California. It was smacked for a 30% loss in the third quarter.
The company performs genetic tests for doctors and hospitals, and has had a lucrative sideline doing Covid-19 tests. It went public in October 2016 at $9 a share and now trades for about $38. Earlier this year, it briefly sold for more than $60.
Many traders don’t care for Fulgent, reasoning that its Covid testing revenue will fade as the pandemic does. Partly as a result, the stock trades for a miserly three times earnings.
Great Lakes
Down a whopping 42% in the third quarter was Great Lakes Dredge & Dock Corp. (GLDD, Financial). This is a small company based (despite its name) in Houston. It helps maintain the navigability of ports and waterways, and also does shoreline protection or restoration projects.
As a business, Great Lakes is no superstar. Neither growth nor profitability are outstanding. But the company has shown a profit in 13 of the past 15 years, and last year was the best of the 15.
What I like about the stock is how cheap it is relative to its own history. For example, the shares go for 11 times earnings, whereas the average multiple in the past decade has been more than 23.
Intel
I saved Intel Corp. (INTC, Financial) for last, simply because I’ve written about it a few times recently. I was optimistic and premature. The stock fell 30% in the third quarter.
Now this company, one of the largest semiconductor companies in the world by any measure, trades for less than 6 times earnings. That’s the lowest valuation in the past 10 years, during which time the average price-earnings multiple was about 13.
Past record
The Casualty List you are reading today is the 78th in a series that began in 2000.
One-year returns can be calculated for 74 lists, and the average return has been 16.1%. The compares very favorably with 10.8% for the Standard & Poor’s 500 Total Return Index over the same periods.
Forty-seven of the 74 lists have been profitable, and 38 have beaten the S&P 500.
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.
My Casualty List picks from a year ago did abominably. My worst pick was Land’s End Inc. (LE, Financial), which fell 67%. My other three picks, Paramount Global (PARA, Financial), Newmont Corp. (NEM, Financial) and Micron Technology Inc. (MU, Financial), also underperformed the index.
The one-year total return was a loss of 41.4%, versus a loss of 15.3% for the S&P 500.
John Dorfman is chairman of Dorfman Value Investments LLC in Boston, Massachusetts, and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached at [email protected].
