I have always liked stocks that have been beaten.
The market has punished them for their sins, but sometimes the market goes overboard. That is why every quarter I compile my list of accidents, which consists of shares that have been beaten during the last quarter and which I believe have great comeback potential.
For this, my 75th accident list, I take the road with eBay Inc. (EBAY), the online marketplace. When I buy a share, I want it to double in five years. EBay has been doing this for the past five years, but it has dropped from about $ 80 to about $ 63 since October.
EBay’s revenue over the past year was more than $ 17 billion, up from about $ 8 billion five years ago. Sure, the pandemic helped eBay by chasing people out of brick stores. That tailwind will disappear one day. But eBay has been consistently profitable, with only one loss year in the last 15.
Analysts estimate that eBay will earn a little more than $ 5 per share in 2022. The stock will receive less than 13 times that figure, making it a value in my opinion.
While it’s not easy to compete with Amazon.com Inc. and Chewy Inc., PetMed Express Inc. (PETS) hangs there. The company, based in Delray Beach, Florida, is an online pharmacy for dogs, cats and other pets.
The stock has fallen 11% over the past three months and 21% over the past year, but the company has some good points. It is debt free and has given a return on equity of 15% or better over each of the last 15 years.
Down 14% in the last three months is A-Mark Precious Metals Inc. (AMRK), a company in El Segundo, California, which trades in gold, silver, platinum and palladium. People often become interested in precious metals when (a) inflation increases, (b) governments print lots of paper money or (c) international tensions are high.
I think the first two conditions are present, and the third would not surprise me. So I think the coming year will see a lot of action in precious metals, which can both be good for A-Mark. The company has been profitable for nine of the last 10 years and the share is sold for 10 times the estimated profit.
At approximately $ 49 per share, Overstock.com Inc. (OSTK) sells for less than half the price ($ 108) it ordered just two months ago.
In an earlier image, 2018-19, Overstock.com fell from about $ 79 to under $ 7, only to recover to $ 118 in August 2020. To quote from an old Wall Street joke, this is not a eating sardines, it is a trade in sardines.
Today, the online retailer trades for only 6 times the latest revenue, compared to a 10-year average multiple of 35. I think it is a good buy at this level.
Although it sells a wide range of goods, some of its specialties are home and garden products, jewelry, furniture and home furnishings. I do not know how long we will be stuck in the pandemic, but while we are, it seems like good niches.
I’ve recommended America’s Car-Mart (CRMT) before, so I’ll be brief here. The company, based in Rogers, Ark., Sells used cars, mostly on credit, mostly in the south, and mostly to people with bad credit.
Because Car-Mart knows that the default for such loans will be above average, Car-Mart prices its cars and loans accordingly. It has posted a profit 19 years in a row, including the infamous year 2008.
Revenue growth has averaged 13% per year over the past decade, but the stock is being sold for a modest six times the latest gain, and the stock has fallen 12% over the past three months.
18% on average
The four stocks I recommended a year ago – three house builders and one auto parts stock – all beat the Standard & Poor’s 500 Total Return Index.
The index noted an increase of 25.5%. The three house builders – DR Horton Inc. (DHI), LGI Homes Inc. (LGIH) and Meritage Homes Corp. (MTH) – all increased by 37% to 43%. Standard Motor Products gave a return of approximately 27%. Overall, I got a return of 37% my year ago.
One-year returns can be calculated for 71 of the 75 columns I have written. The average return in one year has been 18.3%, compared to 11.5% for the S&P 500.
Forty-seven of the last 75 columns have been profitable and 38 have hit bogey.
Keep in mind that my column results are hypothetical and should not be confused with results I get for clients. Past performance does not predict the future either.
Disclosure: I own America’s Car-Mart and DR Horton personally and for most of my customers.
John Dorfman is the chairman of Dorfman Value Investments LLC in Newton Upper Falls, Massachusetts, and a syndicated columnist. His company or clients may own or trade securities discussed in this column. He can be reached via email.#accident #Dorfman #eBay #John #List #Overstockcom