The following 3 stocks are part of the VSG Watch list as potentially undervalued and worthy of investment consideration. Sometimes these stocks are cheap for a reason, such as impending legal claims or temporary industry slowdowns or other company specific issues, and once these issues are resolved it can serve as a catalyst for the stock price to appreciate to more reasonable levels.
- HWG (Hallwood Group): Textiles were a horrible business in 60s (anyone remember a company called Berkshire Hathaway!) and they are a horrible business now. However, Hallwood group is profitable and severely undervalued. This company trades at a P/E ratio less than 8 and at less than half of its tangible book value and is a net-net stock in the very sense of the word. In fact, cash and cash equivalents comprise half of HWG’s market capitalization and with no long term debt, it makes sense to take a look at this stock despite the industry it is in.
- XRTX (Xyratex): No debt, a P/E ratio below 3, 80% Price/Book and sitting on a good chunk of cash– this is Xyratex, a data storage company out of UK. The company reported quarterly earnings today ($0.15 per share loss) and shares are a bit volatile. The stock has lost almost half its value in the last 6 months and is quite heavily shorted. I believe that the pessimism is over done and the stock currently sits at a very nice valuation. The revenue declines are temporary and the stock should perform well as the demand picks up.
- SKX (Skechers): The maker of sports and casual footwear continues to find its stock in the bargain bin. Inventories and receivables have continued to rise as the company tries to recover from its failed Shape-Up concept rollout. Still, the company has about $200 million in cash and with the market value at around $700 million, the company has the wherewithal to work out the inventory issues and bounce back. At P/E below 8 and 0.75 Price/Book, the stock looks cheap. The upcoming back to school season will be crucial in fixing the inventory build up so it will be worth keeping an eye on the balance sheet
Article Continues After the Advertisement
As is often the case, these stocks are undervalued because of some issues that when resolved should serve as catalysts to move the stock up to a more reasonable valuation.
(Disclaimer: Author owns a position in XRTX. Author does not own a position in HWG or SKX and has no plans of initiating a position in these stocks in the next 72 hours)