January 27, 2024 (Maple Hill Syndicate) For years, my mentor, David Dreman (Trades, Portfolio), invested in Westinghouse Electric Co.
The stock was cheap, often selling for about nine times the company's per-share earnings. The stock price marched up nicely, yet the stock stayed cheap, because earnings were rising as fast as the stock price. That's a value investor's dream.
Today, Westinghouse is in the dust bin of history, and Dreman is mostly retired. But I long to find today's version of what I call the Westinghouse Effect.
Here are a few possible candidates. These six stocks are relatively cheap, and have achieved total returns of more than 500% over the five years through January 23.
Core Natural
Core Natural Resources Inc. (NYSE:CNR), a coal company of all things, has returned 951% over the past five years.
Core was formed January 15 of this year by the merger of Consol Energy (NYSE:CNX) Inc. and Arch Resources Inc. The 951% figure cited above is for shareholders who originally held Consol. Arch shareholders didn't do badly either: They got between a double and a triple.
The great investor Charlie Munger once said that value investors run the risk of holding a melting ice cube. You can make an argument that coal companies are just that.
My view is different. Although coal is a highly polluting fuel, it is an important one, and probably for the next decade a necessary one.
I like Core's balance sheet. It has more than two dollars in cash for every dollar of debt. Debt is only 13% of the company's net worth. The stock sells for seven times earnings.
Build-a-Bear
Maybe your young kids had a birthday party sometimes at Build-a-Bear, a store where they can choose a stuffed animal, fill it at a stuffing machine, and buy clothes for it too.
Five years ago, Build-a-Bear was in tough shape, and bankruptcy rumors flew. The pandemic had hit the company hard. People stopped going to malls, and all 400 of its stores were closed for a while.
Yet, Build-a-Bear Workshop Inc. (NYSE:BBW) has achieved a five-year return of 817%. It's an example of the wisdom in mutual-fund legend John Templeton's admonition to buy at the point of maximum pain.
Dillard's
Who says department stores are dinosaurs? You can't prove it by Dillard's Inc. (NYSE:DDS). Its shares have provided a 752% return in the past five years, when most department-store stocks have been flat to down.
About a month ago, Fortune magazine ran a feature on the company by Phil Wahba, which pointed out that Dillard's stock has beaten Tesla (NASDAQ:TSLA), Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) over the past four years. He called the chain old fashioned, but noted that service is good and the stores intelligently located.
The company's service territory is the South and Southwest, the faster-growing part of the U.S. I've recommended the stock several times in this column over the years.
Cooper Group
Mr. Cooper Group Inc. (NASDAQ:COOP) is a mortgage lender and mortgage servicer based in Coppell, Texas. Its five year return: 684%. It's the largest mortgage servicer in the U.S., and that's significant because income from servicing is steadier than that from mortgage origination.
The company had a major breach in 2023. Hackers stole personal information on some 15 million customers, including Social Security numbers and bank account numbers. Litigation stemming from the breach is still in progress. Nonetheless, six of the eight analysts who follow the stock recommend it.
Abercrombie & Fitch
Up 632% in the past five years is Abercrombie & Fitch Co. (NYSE:ANF), which sells clothing to teens and young adults. It's shown a profit in 14 of the past 15 years (the exception being pandemic-scarred fiscal 2021). Revenue and earnings growth has accelerated lately.
Profit margins have usually been slender (as is typical of clothing retailers) but have improved lately. I like the stock, and have recommended it in this column several times.
Riley Exploration
The smallest stock I'll discuss today is Riley Exploration Permian Inc. (REPX). As its name suggests, it produces oil and gas in west Texas and eastern New Mexico, home of the Permian Basin. It has very little revenue until 2021, but now is up to $407 million revenue in the past four quarters.
The stock chart shows a jagged pattern, with a five-year return of 512%. I'd consider the stock speculative. But I like the valuation, which is six times recent earnings and less than five times estimated earnings for 2025.
Disclosure: I currently have no positions in the stocks discussed today, personally or for clients.
John Dorfman is chairman of Dorfman Value Investments in Boston, Massachusetts. His firm or clients may own or trade the stocks discussed here. He can be reached at jdorfman@dorfmanvalue.com.