April 5 (Bloomberg) -- NutriSystem Inc. went on a starvation diet in the first quarter, losing 42 percent. I think it has an excellent chance of bulking back up in the next year.
Every quarter, I pick a few stocks that have been knocked down and that I think can not only recover, but go on to notch significant gains. I call these picks the Casualty List.
Such stocks appeal to me because a big part of what I try to do as a money manager is to buy good companies on bad news. Along with NutriSystem, on my list this quarter are Goodrich Petroleum Corp.,
Piper Jaffray Cos. and Coeur d’Alene Mines Corp.
These were lonely sufferers, because most stocks rose in the first three months of the year. Among the more than 2,000 U.S. equities with a market value of $500 million or more, 58 percent gained, 41 percent fell, and 1 percent were unchanged.
Only 7 percent of stocks fell more than 10 percent. It was among this group that I searched for bargains.
NutriSystem, a weight-loss company with headquarters in Horsham, Pennsylvania, plummeted 43 percent in the three months ended March 31 as the company reported mediocre earnings for the fourth quarter and made a tepid first quarter forecast.
In the fourth quarter, NutriSystem earned 9 cents a share, its worst showing since the same period in 2008. It is spending more heavily on advertising, with diminishing results.
I think these troubles will pass. A huge percentage of Americans want to lose weight, and NutriSystem is one of the few major programs for doing so in a systematic way. As the economy improves, I believe more people will be willing to pay for the company’s weight-control counseling and diet foods.
Rich and Thin
NutriSystem’s balance sheet is admirably svelte. It has $32 million in cash and cash equivalents, another $30 million in short-term investments, and a total of $170 million in assets. Total liabilities are only $42 million and the company has no borrowings, short-term or long-term.
Houston-based Goodrich Petroleum, which explores for and produces oil and gas, fell 36 percent in the first quarter. It announced a loss of $190 million in the fourth quarter of 2009, its third consecutive quarterly loss and by far the largest of the three.
The vast majority of the loss came from an impairment charge of $185 million. When you really dig into the nature of that charge, the news isn’t all bad.
The charge stems from shutting down certain wells as it changes from vertical to horizontal drilling and focuses its efforts increasingly on the Haynesville Shale formation. The area is a huge and promising natural-gas field in northwest Louisiana, extending into parts of east Texas and Arkansas.
In February, Walter Goodrich, the company’s chief executive officer, said that the Haynesville Shale had gone in a single year from being a negligible part of the company’s business to being 47 percent of its reserves and 42 percent of its fourth- quarter production.
Piper’s Fall
Piper Jaffray, based in Minneapolis, is an institutional broker and investment bank that conducts stock and bond offerings for medium-size companies. Its stock declined 20 percent in the first quarter.
Piper stock fell on 12 of the last 14 trading days in March. I am puzzled by the weakness. Piper reported a profit of $30 million for 2009, compared with a $183 million loss in the poisonous year of 2008.
My best guess is that Piper fell as shareholders locked in profits after the stock advanced 96 percent in the final nine months of 2009. The stock is selling for about $40, while book value (corporate net worth) is about $50.
Coeur d’Alene Mines, a silver and gold miner located in Coeur d’Alene, Idaho, tumbled 17 percent. Part of its decline stemmed from a mild drop in precious-metal prices since November.
A strengthening dollar generally hurts gold and silver prices (at least when measured in dollars). The U.S. currency was strong because of fears that Greece might default on its debt, which if true might adversely impact the entire European Union.
Non-Raging Bull
I am not a raging bull on precious metals, but I think gold is a decent bet for the next few years, as large U.S. deficits lead more investors to seek out hard assets. Silver might outperform gold, if for no reason other than that it has lagged behind gold for several years.
I don’t like Coeur d’Alene’s recent earnings pattern. It lost a penny a share in 2008 and lost 45 cents a share in 2009. What’s more, it had a checkered earnings history for years.
Yet there are several things that attract me to Coeur d’Alene. It has very little debt -- less than 17 percent of stockholders’ equity. And its stock is selling for only 64 percent of book value.
I can’t promise that all -- or any -- of these stocks will advance in the next three to 12 months. But I think they have been excessively punished for relatively minor sins. A bounce- back seems highly likely to me.
Disclosure note: I own Piper Jaffray shares personally and for my clients who have higher risk tolerance. I currently have no positions, long or short, in the other stocks discussed in this week’s column.
Click on “Send Comment” in the sidebar display to send a letter to the editor.
To contact the writer of this column: John Dorfman at jdorfman@thunderstormcapital.com.
To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net
No comments:
Post a Comment