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Jae Jun
Jae Jun
Articles (5983)  | Author's Website |

3 Interesting Small Stocks To Watch

October 29, 2012 | About:

Since the second half of the year, I have held a lot of cash. It has been floating around 25-35% and I currently have an order to sell some companies that I feel are weak so if those orders get filled, I’ll likely end up with 40+% cash.

Rather than sit and wait for the big idea to come by, I’ve been looking through as many companies, both big and small, in search of investable ideas.

Here are some small interesting names that I came across. I don’t hold any of these companies but could be interesting at the right price.

Kimball International (KBALB)

Kimball operates in two unrelated segments. It manufactures and sells electronic assemblies (circuit boards, wire harnesses, etc) and Furniture.

The EMS segment produces electronic assemblies, circuit boards, and wiring harnesses for electronic organs and keyboards. Its engineering and manufacturing services include design support, new product launch, production and testing of printed circuit board assemblies, industrialization and automation of manufacturing processes, product and process validation and qualification, testing of products under a series of harsh conditions, assembly and packaging of electronic and other related products, and product life cycle management.

What I Like

Zero debt company that was priced at very cheap P/FCF multiples before it took off in 2012. PE and even cash adjusted PE is high at 42 and 35.5 respectively, but when you consider that the EV/EBITDA and EV/FCF is 7.7 and 10.4, it isn’t as overvalued as it first looks.

Decreasing inventory days outstanding and well managed with CROIC at 11% TTM and average of 12% for the past 3 years + TTM.

What I Dislike

Since the company has no debt, the ROE and ROA are very low. The question is whether the business has enough growth to be able to increase these returns to exceed its cost of capital.

Piotroski score is down to 4 in the TTM, compared to 6 at the end of its fiscal year 2012.

Key Metrics


Dycom Industries (NYSE:DY)

Provides engineering services including construction, maintenance and installation services to telecommunications providers, underground facility locating services to various utilities, including telecommunications providers, and other construction and maintenance services to electric and gas utilities and others.

What I Like

Low debt with strong balance sheet. Thin margins are common in industrial servicing companies but it is slowly increasing its margins since the recession.

Share count is reduced each year. This could also be a bad thing because buying back shares when the company is hitting peak stock prices is not a good indication of management effectiveness.

Using owner earnings to ignore the effects of working capital instead of regular FCF, CROIC is 11% with an EV/FCF multiple of 9.

What I Dislike

Very cyclical. Capex heavy and there has been a huge increase in working capital the past two years.

Piotroski score was 9 in fiscal 2012, but has fallen to 4.

The business has no moat. Easy for any competitor to come along and replicate its business.

Key Metrics


Forward Air Corp (NASDAQ:FWRD)

Provider of time-definite surface transportation and related logistics services to the North American deferred air freight market.

What I Like

FCF positive for more than 10 years. The FCF growth isn’t huge, but it is consistently able to generate excess returns with little to no debt.

Margins are improving towards its peak levels again. TTM, gross margins are 46% with peak margins of 46.7% back in 2006. Very low debt, but generating an ROE of 15% and CROIC of 17%.

Signs of very capable management.

What I Dislike

Main worry is that this is a cyclical company.

Other than that, without going deeper through the annual reports and proxy, there is not much to dislike from the numbers.

Certainly a company to watch if the price is right.

Key Metrics


Do you know any of these companies? If so, share your thoughts in the comments below.


About the author:

Jae Jun
Jae Jun is the author of Old School Value, a value investing blog dedicated to the Old School methodologies and teachings of the investment greats such as Graham, Buffett and Fisher. The blog deals with finding intrinsic value, fundamental stock analysis and special situations including spinoffs and merger arbitrage.

Visit Jae Jun's Website

Rating: 1.3/5 (6 votes)


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