John Dorfman: Diamondback, Oshkosh make the Casualty List
Stocks that are wounded often make the best buys.
That’s why I compile a Casualty List each quarter of stocks that have landed in the market’s hospital — and that I think have outstanding potential to recover.
The list you are about to read is the 66th one I’ve done since this series started in 2000. Twelve-month results can be calculated for 62 of the previous lists, and the average gain has been 16.4%. That compares well with 9.9% for the Standard & Poor’s 500 Index over the same 62 periods.
Forty-one of the 62 Casualty Lists have been profitable, and 33 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.
The latest five lists have shown losses, which is in keeping with the kind of market we’ve been in. It’s been a “rich get richer” environment in which favored stocks continue to plow ahead and laggards languish.
My list from a year ago lost 8.3%, with big declines in U.S. Steel Corp. (X) and State Street Corp. (STT). Gains in Vipshop Holdings (VIPS) and Intel Corp. (INTC) weren’t enough to make up for the losers. Meanwhile, the S&P 500 gained 4.2%. All figures are total returns including dividends.
Here are some new banged-up stocks for you to look at.
A lot of energy stocks got whacked last quarter. One that I feel is in stronger shape than most is Diamondback Energy Inc. (FANG), which dropped more than 16% in the past three months.
Diamondback’s recent profits aren’t robust, but unlike many of its peers, it has profits. It earned $823 million on sales of just over $3 billion in the past four quarters.
Is the stock timely? That’s hard to say, since I don’t know when the energy patch will perk up. Is it cheap? You bet: Diamondback sells for 1.0 times book value, 14 times recent earnings, and nine times the earnings analysts predict for 2020.
A year ago, Diamondback shares went for $133. Today they’re at about $85. I think this is a reasonable time to buy.
Based in Oshkosh, Wis., Oshkosh Corp. (OSK) makes aerial lifts, fire engines and troop-carrier trucks, among other things. It has increased its book value (corporate net worth per share) at an 11% annual pace for the past ten years.
I’m partial to this stock because I owned it more than a decade ago and more than doubled my money. So I may have a lingering bias in its favor. Still, after an 11% decline in the September quarter, Oshkosh sells for only 9 times earnings and looks good to me.
In the past four quarters, Oshkosh earned 23% on stockholders’ equity, its most profitable stretch since 2010. It has made money in 14 of the past 15 fiscal years, the only exception being a disastrous fiscal 2009.
A small-cap stock I like is Astronics Corp. (ATRO). Based in East Aurora, N.Y., the company makes parts and test equipment for the aerospace and defense industry. Cockpit control panels, sensors and lighting systems are some of its products.
Astronics had a crumby quarter in June, and was slammed 26% in the third quarter. But it has been profitable nine years out of the past ten, and scored a 27% return on stockholders’ equity in the past four quarters. Expect ups and downs here, but I expect more ups than downs.
Only five Wall Street analysts cover the stock (four of whom rate it a “buy”), so there is room for it to be discovered by a wider audience.
Even smaller is Johnson Outdoors Inc. (JOUT) of Racine, Wis. It makes camping, fishing and diving equipment as well as boat motors. Johnson has a nine-year profit streak going, and has the rare distinction of being debt free.
Johnson’s revenue broke the half-billion-dollar barrier in 2018, and its operating profit margin, often skimpy in the past, has improved to about 11%. Only a couple of Wall Street analysts follow it, both of whom rate it a “buy.”
The stock fell 21% last quarter. It sells for about 14 times earnings, a zone in which I’m comfortable.
Disclosure: I own Intel Corp. personally and for most of my clients. I currently own none of the other stocks discussed in today’s column but am looking at some of them as buy candidates.
John Dorfman is chairman of Dorfman Value Investments LLC in Newton Upper Falls, Mass., and a syndicated columnist. His firm or clients may own or trade securities discussed in this column. He can be reached via email.