Topps Co.
Core Business:
Marketer of collectibles, confections
Headquarters:
New York
52-Week Range:
$7.63 to $11.97
Earnings Per Share:
$1.90
P/E Ratio:
5.12
When John Templeton, one of the legendary investors of the second half of the 20th century, was a young man, he pulled off a wild stunt.
Just after World War II, Templeton borrowed money and bought shares in every stock on the New York Stock Exchange or American Stock Exchange selling for $1 a share or less.
He invested about $10,000 and quadrupled his money.
Today, a fair number of investors still prefer low-priced stocks. Many of them believe (though academics scoff at the notion) that low-priced stocks have greater capital gains potential than stocks priced at $30 to $50 a share.
In any case, many investors like to buy round lots, 100 shares at a time. With a $10 stock, you can do that for only $1,000.
Here are half a dozen stocks that I like and are selling for $5 to $10 a share.
We’ll lead off with Topps Co., the trading card and bubble gum company based in New York. Topps trades at $9.94 a share, which is five times trailing earnings, and 15 times estimated earnings for the year in progress.
Most older investors associate Topps with baseball cards. That’s valid, but Topps also depends heavily on playing to kids’ other interests, such as Pokemon and Garbage Pail Kids.
The company has no debt, and earned a return of 54 percent on stockholders’ equity in the fiscal year ended March 3. Earnings for that fiscal year were $1.90 a share. However, analysts anticipate earnings of only 65 cents a share in the current fiscal year. Sales of Pokemon candy and trading cards have fallen about 80 percent from last year’s level.
I’m not claiming that Topps is the next Microsoft. Let’s face it it rises and falls with fads. But five times trailing earnings is my kind of multiple.
Record stores
Trans World Entertainment Corp. is the largest operator of music retail stores in the United States. It owns Camelot Music, Coconuts Music and Movies, Record Town, Strawberries Music, The Wall and some other chains. The stock peaked at more than $28 a share in 1998 and had fallen to $8.35 in trading last week.
The bear case against Trans World is that music is increasingly downloaded over the Internet, not purchased in stores. The company earned more than $1 a share in fiscal 1999, 2000 and 2001, but analysts peg earnings for the fiscal year in progress at only 68 cents a share.
I feel about Trans World the same way I feel about Blockbuster Inc.: They are fighting newer technologies, but I believe the old ones will be around for a good while.
Trans World is a holding at Dreman Value Management, where I am a managing director. It sells for 9 times earnings, 0.9 times book value (corporate net worth per share) and 0.3 times revenue.
USEC Inc., based in Bethesda, Md., enriches uranium so that it can be used as fuel in nuclear plants. I bought the stock for a few clients in late 1999. It fell 2.7 percent in 2000 but has taken off this year with a 95 percent gain. Yet earnings in the past four quarters have been below year-ago levels. Perverse are the ways of Wall Street.
Three things attract me to USEC, which was a government agency before it was privatized in 1992. First, I think that shortages of natural gas and high prices for oil will force the United States to take a more favorable view of nuclear power. Second, USEC’s valuations are quite cheap 10 times earnings, 0.7 times book value and 0.5 times revenue. Finally, the rich dividend yield of 6.4 percent will prove a boon if the market is flat to down.
Fresh Del Monte Produce Inc. markets fresh fruits and vegetables, mainly bananas and pineapples. It is a notoriously difficult business because weather can upset it and because inventories have a very short shelf life. But Del Monte is increasingly adding value by emphasizing pre-cut fruit selections. And I think the stock is attractive at a recent price of $8.79 a share.
Deals on wheels
Methode Electronics Inc. makes electronic connectors and controls. About 40 percent of its sales are to the auto industry, chiefly DaimlerChrysler and Ford.
After earning $1.06 per share in 1997, Methode has shown a gradual decline in earnings since, and analysts expect it to earn only 52 cents a share this fiscal year (ending April 2002). The company announced it fired 620 people, about 17 percent of its workforce, in February because of a decline in sales.
I like Methode, however, because it has successfully changed itself several times over since it was founded in 1947 to make radio tubes. It later moved into serving the television industry, the computer industry and now a wide variety of industries.
The company is debt free. The stock as of last week was languishing at $7.53 a share, which is less than 8 times the past four quarters’ earnings, 0.6 times book value and 0.6 times revenue.
Last, there is Huffy Inc. Huffy makes bicycles, basketball backboards and lawn and garden tools.
I bought Huffy for my more adventuresome clients last week, partly because the prestigious Center for Economic Cycle Research declared that we are probably in a recession now. In college economics courses, I learned that bicycles are an “inferior good,” whose consumption paradoxically rises during recessions.
Huffy stock is risky because of its limited market value ($101 million) and trading volume. But the company is debt free. And I like its valuation figures 9 times recent earnings, 1.4 times book value and 0.2 times revenue.
John Dorfman is a columnist for Bloomberg News.
