Dorfman: Sanderson, Inner Workings among bargains on Nasdaq
No one ever bought a chicken stock because it was glamorous. That's one reason I like Sanderson Farms Inc. (SAFM).
Sanderson is one of the top half-dozen American chicken producers. I owned its shares personally and for clients a few years ago and have gone back for second helpings.
The profitability of chicken producers depends in large part on the price of corn. Chickens eat a lot of it.
Corn is to chicken farming as jet fuel is to airlines — a major cost.
The price of corn is moderate, about $3.60 per bushel. And the forecasts I've seen call for fairly stable corn prices during the next year or so. As such, I think Sanderson is timely. And it's cheap, selling for less than seven times earnings and about 0.6 times revenue.
Sanderson Farms is one of five stocks on the Nasdaq that I am recommending this week. The Nasdaq Composite has been in the news lately as it flirts with the high of 5,048.62 it hit on March 10, 2000.
I've been fortunate enough to have a couple of good calls on the Nasdaq. In June 2000, when the Nasdaq Composite had just posted its best week in history, I suggested it was “a sucker rally, rather than the resumption of the Nasdaq's powerful march of the past five years.”
That proved to be true: The index lost about three-quarters of its value from its March 2000 peak to its October 2002 trough.
In June 2002, I said that “Nasdaq's days as a whipping boy will end soon.” From then through last week, the Nasdaq Composite has advanced 238 percent.
At 24 times earnings, the index is pretty fully priced. But Nasdaq is a diverse market, and I think it contains some bargains.
One small company that looks interesting is Inner Workings Inc. (INWK), a marketing consultant from Chicago. Among its clients are FedEx, Pizza Hut and Unilever.
In 2007, before the financial crisis hit in earnest, Inner Workings shares briefly fetched more than $18. As of Friday, they went for $6.67. That is only 8 times recent earnings and 0.4 times revenue, attractive multiples.
Attractively cheap at 11 times earnings is Sanmina Corp. (SNMA) of San Jose, Calif. The company is a contract manufacturer of circuit boards and other electronics.
“Cutthroat” is a word often applied to the contract electronics manufacturing business. Profit margins are low, but at 3.2 percent, Sanmina's is one of the better ones. The company has reported a profit for five consecutive years.
Strattec Security Corp. (STRT) sounds like it should be involved in military affairs or preventing computer hacks. What it does is make car locks, mechanical and electronic.
Because car sales have been improving, especially in the United States, Strattec has been growing nicely in recent years. Sales rose last year about 17 percent to $348 million, while earnings jumped 75 percent to $16.4 million. Yet the stock sells for just 11 times earnings and 0.6 times revenue.
Chemtura Corp. (CHMT), based in Philadelphia, makes industrial lubricants, catalysts, flame retardants and other chemicals. Like other chemical companies, it should be helped by a rising economy and the recent drop in oil prices. (Oil is a raw material for many chemicals.)
Earnings are volatile at Chemtura, so the price/earnings ratio might not be a great guide. But the price/revenue ratio of 0.8 is pleasantly modest.
This is the ninth column in which I have recommended several stocks from the Nasdaq. For the first eight (published from 2001 to 2006 and 2013-14), my recommendations have risen 19.9 percent in a year, on average.
By comparison, the one-year returns for the Standard & Poor's 500 Index, and the Nasdaq Composite averaged 11 percent and 14.2 percent respectively.
My success in this series stemmed mainly from recommendations made in 2003, 2006 and 2013. In eight tries, I have beaten the S&P 500 five times and the Nasdaq Composite five times.
Last year was a bad one. From March 18, 2014, through March 13, my Nasdaq picks returned only 4.2 percent, compared with 11.9 percent for the S&P and 13.8 percent for the Nasdaq Composite.
I had a 32.3 percent gain in Nasdaq OMX Group Inc. (NDAQ), but losses in FlexSteel Industries Inc. (FLXS), Greenlight Capital Re Ltd. (GLRE) and Columbus McKinnon corp. (CMCQ) spoiled the soup.
Bear in mind that past performance doesn't predict future results, and that my column results are theoretical, making no allowance for trading costs or taxes. My column performance shouldn't be confused with results I obtain for clients.