as part of our
We continue to favor small cap stocks with low to zero debt on
the books. The following stocks also pay dividends and are priced
at less than 90% of the book value. As it turns out, 3 of the
following 5 are financial companies, insurance and regional banks,
and while majority of these stocks have had great runs in the past
year, the valuations are still attractive. Here are the parameters
for this stock screen.
- Market capitalization between $30 m and $900 m
- Dividend yield > 1%
- P/B ratio < 0.9
- Debt/Equity < 10%
The screen yielded 22 stocks and after preliminary filters we
are left with 10. In this post I outline the first 5 stocks and
will post the remaining 5 in a follow up post tomorrow. If you
would like to invest in any of these stocks, please do further due
diligence before you decide. As is the case with most small cap
stocks with low to none institutional coverage, the liquidity in
the shares can be very limited so patience is required.
1. TAT Technologies Ltd. (
Tat Technologies Ltd is 53.8% owned by Fimi Opportinity Funds
which appears to be on the lookout for meaningful stakes in Israeli
industrial companies. Tat makes heat transfer equipment for defense
and electronic systems and its customers include Lockheed Martin
(F16 emergency power unit and other components). With this Fimi
acquisition (note that the shares still trade on Nasdaq) the
company postponed its annual meeting and has not paid a dividend
this year however it does have a history of paying irregular
dividends. The shares are up 61% in the last year, but still trade
at 0.73 times book value. Of the $60 million in market
capitalization, about $30 million is pure cash on the books. Total
debt is under $5 million. The company has been posting small losses
over the last 3 years.
The value in the stock is in the strong balance sheet and the
fact that it is being gradually acquired.
2. Kansas City Life Insurance Company (
The stock showed up in one of my screens in Feb 2012. Over the
last 1 year, the stock is up about 20%, and pays about 2.4%
dividend. It is attractively priced at 0.66 times book value and
carries no debt. 70% of the stock is owned by insiders so while the
management confidence can be viewed as high, the float is
relatively small. At $487 million in market cap the company is
reasonably large and has been in the business since 1895. If you
appreciate an old line stable business with significant family
ownership that can still be bought for cheap and pays a healthy
dividend, this might be your stock.
3. Peoples Financial Corporation (
Peoples Financial Corporation is a Biloxi, MS based bank holding
company and provides banking, financial and trust services to the
government entities, individuals and small businesses. The $59.3 m
market cap company has $334.66 million in short term cash and
trades at 0.57 times the book value. The company has no debt (debt
here means borrowings - customer deposits are considered
liabilities that are backed up by assets such as cash, investments
and loans out. There are Federal Fund repo agreements which can be
termed as debt so be careful looking at the collateral on the asset
side of the equation). Please note that normal financial data
provided on sites like Yahoo Finance is misleading and you are
advised to look at their quarterly and annual reports for the real
picture (valid for all banks and financial institutions). The
company also pays a 1.70% dividend on its stock.
4. Makinac Financial Corporation (
Makinac Financial is a regional retail bank in the Upper
Peninsula of Michigan. The holding company operates mBank that
provides mortgage and commercial loans in addition to the retail
banking products. The stock sells for 84% of the book value and
yields 1.70%. The company has $26.2 million in cash and about $36
million of debt. The market cap is $52.4 million. It may be useful
to look at its loan portfolio to get a good estimate of potential
losses, however at the first glance the balance sheet looks strong.
The stock is also up 38% in the last one year but the value still
remains. The ttm P/E ratio is 13.68. In the past year the bank has
seen its credit quality and Tier 1 capitalization ratios improve
significantly and is considered "well capitalized".
5. Bel Fuse Inc (
The company designs, manufactures, and sells products used in
the networking, telecommunication, high-speed data transmission,
commercial aerospace, military, broadcasting, transportation,
automotive, medical, and consumer electronic industries worldwide
and did $286.6 million in sales in 2012 and is profitable. The
stock can be purchased at 0.89 times the book value, pays a 1.7%
dividend and is about 77% owned by insiders and institutions. The
company has $38.6 million in cash and close to zero debt. These
shares are B-Class shares.
In the past I have stayed away from banks where I suspect assets
might be toxic or the balance sheet might be hiding unknown
liabilities. Most of the regional banks should be unsullied though.
For most insurance companies I have no such concerns. Still a
thorough review of the balance sheet and financial statements going
back a few years is always a good idea. You need to consider the
mortgage exposure and the balance sheet strength. Low debt levels
should mitigate most of the concerns.
Note: A few of these stocks may be added to the Premium watch
list and may eventually end up as a member recommendation.
Watch this space for the next set of 5 more small cap stocks
fitting this criteria
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Shailesh Kumar appeared first on