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John Dorfman
John Dorfman
Articles (121)  | Author's Website |

Allstate and Fiat Chrysler Moving Up and Still Cheap

Twice a year I write about stocks that I believe have both value and momentum

Do you want a stock that is cheap but moving up? A lot of people do, which is why twice a year I write about stocks that I believe have both value and momentum.

This series of columns has been running (not always on the same exact schedule) for 17 years. Twelve-month results can be calculated for 29 columns, and the results have been good. The average 12-month return on my recommendations is 15.2%, versus 8.5% for the Standard & Poor’s 500 Index for the same periods.

Of the 29 columns written through August 2016, 21 have been profitable, and 17 have beaten the S&P 500.

Bear in mind that my column recommendations are theoretical and don’t reflect actual trades, trading costs or taxes. Their results shouldn’t be confused with the performance of portfolios I manage for clients. And past performance doesn’t predict future results.

Last Year

My picks from a year ago rose 14.4% but still trailed the S&P 500, which returned 15.7%.

Both Baxter International Inc. (NYSE:BAX) and Sanmina Corp. (NASDAQ:SANM) achieved returns of more than 30%. But Formula Systems Ltd. (NASDAQ:FORTY) declined 6%, while Amerisafe Inc. (NASDAQ:AMSF) and Cisco Systems Inc. (NASDAQ:CSCO) had only single-digit gains.

And now for some new picks that I believe combine value and momentum.

Fiat Chrysler

Auto sales in the U.S. have fallen in five of the past seven months, after hitting a peak annualized rate of about 18 million vehicles in December 2016. Lately they are running at about a 16.7 million pace.

Yet Fiat Chrysler Automobiles NV (NYSE:FCAU), which is based in London, is holding up well. Analysts expect it to show a rise in revenue and earnings both this year and next year, as it did in each of the three previous years.

Fiat stock sells for only five times earnings, and is up 15% in the 100 days through August 18. Its best-selling models are the Ram pickup truck and the Jeep Grand Cherokee.

Allstate

Allstate Corp. (NYSE:ALL), based in Northbrook, Illinois, is one of the largest U.S. auto and home insurers. It has increased its premium revenue six years in a row.

Insurers typically invest their “float” – the money from customers’ premiums that doesn’t immediately need to be paid out in claims – in bonds. If interest rates rise in the next 3-5 years, as I think they will, the profit on the float will increase.

At 14 times earnings (in a stock market where the average is about 21), I think Allstate has value. The stock is up 14% in the past 100 days.

Ternium

Europe was in a recession from the first quarter of 2011 through first quarter of 2013. Now it’s in a vigorous recovery that I think it likely to last.

One company that should benefit is Ternium SA (NYSE:TX), a steel company based in Luxembourg. Its revenue and earnings both are on the upswing this year. The stock languishes at less than seven times earnings.

One thing that worries me is that most analysts like the stock (12 “buy” ratings out of 16 opinions). But what the heck, once in a while the majority can be right.

Sanderson Farms

Mississippi-based chicken raiser Sanderson Farms Inc. (NASDAQ:SAFM) has been a frequent holding of mine over the years. Most of my clients own it, and I have been taking some profits in it (trimming it from a 5% holding to 4%) for some clients recently.

Even though I’ve taken some profits, I continue to hold the stock. I like Sanderson’s debt-free status, I like the hefty jump in sales and earnings this year, and I like it that the company is in an unglamorous industry.

Sanderson shares go for 14 times earnings, and are up 35% in the past 100 days.

YY

If the name YY Inc. (NASDAQ:YY) sounds a little playful, that’s okay. It’s a Chinese video streaming company that lets groups of people interact for chat, dating, sports viewing, games and other activities. The stock, which fetches 15 times earnings, is up almost 60% in the past 100 days.

That may seem unsustainable, and probably it is. But I’d be very happy with a third to a quarter of that gain for the next 12 months.

YY’s revenues grew at a 63% clip during the past five years. It has slowed lately, but to a still-hot pace of 26%.

Disclosure: I own Sanderson Farms personally and for most clients. I own Formula Systems for a few clients, and Baxter International and YY each for one client.

John Dorfman is chairman of Dorfman Value Investments LLC in Newton Upper Falls, 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].

About the author:

John Dorfman
John Dorfman founded Dorfman Value Investments in 1999. Previously he was a Senior Special Writer for The Wall Street Journal, executive editor of Consumer Reports, and a managing director at Dreman Value Management. His syndicated column appears on Tuesdays on this website and also in the Pittsburgh Tribune Review, Ohio.com, Virginian Pilot and Omaha World Herald.

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