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Three Stocks That Will Ride the Rate Cut Wave
By Michael Brush
Exclusively for InvestorIdeas.com
September 20, 2007
Though the market has already rallied sharply since the Fed cut rates, it’s still not too late to join the party. History shows that markets can maintain a positive bias for a long time after the initial rate cuts – and in this case there may be more rate cuts to come.
I’m not saying the market will go straight up. Try to time your buying on the weaker days.
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As usual, when the economy is about to get a boost from rate cuts the best place to be is in “cyclical” or economically sensitive names like retail or tech. Financials tend to perform well, too. That’s because the cost of money is lower, and a revved up economy can increase demand for debt.
In the small-cap arena, which we focus on here at Insiders Corner, there’s no shortage of names in these economically sensitive areas. I’ve packed several of them into this column in the past few weeks – and many of them were up nicely this week when the Fed trimmed rates.
But here are three more that popped up on my screens recently, or that saw a fresh round of buying in the past few days.
Bakers Footwear Group (BKRS)
In retailing, Bakers Footwear Group (BKRS) saw additional insider buying on Sept. 17 when Marxe W. Austin & Greenhouse, a special situations fund, purchased another $112,000 at $3.71. That brings Greenhouse buying up to $609,000 worth in the past month. The firm now owns over 16% of Bakers Footwear.
Strictly speaking, Marxe W. Austin & Greenhouse is not a traditional insider in the “chief executive” sense. But as a “special situations” investor with a 16% stake, it’s likely that Austin Marxe and David Greenhouse have not only examined the company and management strategy closely, they probably have influence over them as well. So they are like insiders. The shop has a long record of hitting solid doubles and triples in “special situation” investment plays.
Bakers Footwear has 257 stores in shopping malls, where it sells footwear to young women. Sales slipped 18% in the second quarter, when the company lost $1.35 a share compared to losses of 16 cents a share in the same quarter a year before. Austin & Greenhouse have their work cut out for them.
But the company says operations will cover cash needs for another 12 months. And the stock has gotten so beaten up it trades for just .1 times trailing
sales, which is darn cheap. This is one reason the company commands the interest of other value investors – including John Buckingham who manages the Al Frank Fund (VALUX) and edits a top-ranked investing newsletter called the Prudent Speculator.
Bakers Footwear shot up on Wednesday, so try to buy it in pullbacks. Buckingham is telling subscribers to buy it below $3.50, so that’s probably a sensible buy target price. He’s looking for a double in the medium term.
Trio-Tech International (TRT)
In micro-cap tech, insiders have been picking up shares of the semiconductor testing and services company Trio-Tech International. The stock is down sharply on declining earnings and sales. It has fallen to $10 from nearly $25 in July as mo-mo players head for the exits.
Down here it trades for around .4 times sales when you take out around $11 million or $3.40 per share in cash.
Trio-Tech International provides semiconductor testing and burn-in services primarily through its laboratories in Southeast Asia.
This is another one Buckingham’s shop likes. He suggests buying it up to $10.50 a share. Again, he’s looking for this stock to double, in the medium term.
MVC Capital (MVC)
In finance I still like MVC Capital (MVC), and insiders do, too. They’ve purchased $1.4 million worth of stock in the past month, according to InsiderScore.com.
MVC Capital provides financing to small, usually private companies in a variety of sectors. It used to try to hold investments until a “liquidity event” such as a sale, or a merger brought pay day.
It’s now shifted to making investments that pay off through capital appreciation and income – presumably because available liquidity for buyouts has shrunk. Insiders have made a big bet on the new strategy with their recent purchases, so I’d bet that it pays off, too.
The bottom line : Stocks won’t head straight up now that the Fed has cut rates, but most of the market is probably now back in an uptrend, barring some disaster no one can predict right now. Insiders are saying these three stocks will play a role in that trend.
Disclaimer
At the time of publication, Michael Brush owned shares of The Al Frank Fund. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
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