Some Stocks that Are Buys

I wrote my first non-cannabis stock article here on March 5th about some AI chip stocks, warning investors in them to get out now. I am still short both, but one, Super Micro (SMCI) has plunged. I bought some back. I am still quite short Nvidia (NVDA), and it is up a bit from where it was that morning.

Today, I want to share some stocks that I am long. I am very bearish on stocks in general, but I have a theme: Investors hate some stocks so much that they have gotten very cheap. The four stocks that I think are cheap enough for a bear like me to own are Big 5 Sporting Goods (BGFV), Conn's (CONN), Foot Locker (FL) and Genesco (GCO). As you can see above, they are all down sharply in 2024 despite the S&P 500 being up about 8%.

Over the past year, the S&P 500 has rallied about 31%, and all of these stocks are down more than 31%:

Professionally, I follow cannabis stocks only. I used to be a portfolio manager for an investment management firm that owned for its clients regular companies, but I never was the primary analyst for consumer discretionary stocks like all four of these. There are many sectors for the stocks, and ETFs trade for them. The Consumer Discretionary Select Sector SPDR Fund (XLY) is up less than the S&P 500 so far this year at 0.1%, but the large-cap consumer discretionary stocks are doing a lot better than the small ones that I own!

I am not Peter Lynch. I don't have anything against his philosophy of "buying what you know," but this is not how I pick stocks. I am more of a numbers guy, but I realize that sometimes just the numbers don't do the trick. I realize that all four of these companies aren't doing real well right now.

So, my big idea on these four stocks is that they all trade for less than tangible book value but aren't drowning in debt. Most everyone is familiar with book value, but tangible book value isn't as well known. TBV is book value less intangibles and goodwill. These are assets unlike cash, real estate or other hard assets that can't be easily turned to cash.

I am familiar with all of these companies, as I include their stocks on my watch list. I have never been to a Big Five store. I may have been to Conn's, but I am not recalling it. It's been a long time for me, but I have been to a Foot Locker. I love Johnston & Murphy, which Genesco owns, but I have never been to their other two divisional stores.

BGFV closed last night at $3.60. The company cut its dividend recently. It trades at just 34% of its tangible book value as of Q4. Looking at the enterprise value, which includes its small amount of net debt, it trades at just 6.1X the 2024 analyst projection of EBITDA.

CONN closed last night at $3.03. The company just merged with another one, and its Q3 financials for FY24 (ending 10/31) didn't include that stock-based merger of Badcock (funny name!). There is a pro forma Q3 balance sheet, and the tangible book value of the company would have been $591 million. That works out to $12.16 per share. The net debt on this one is not as low as for the others. Analysts project much higher revenue in FY25.

FL closed last night at $22.92. The company has already reported its FY24, which ended 1/31. It trades currently at about 1.06X tangible book value. The company ended FY24 with net debt of $150 million. The enterprise value to projected adjusted EBITDA for FY25 is just 5.1X.

GCO is the best company among these 5. It closed last night at $24.53. Like FL, it has reported its FY24 ending 1/31, and the company has a small amount of debt that is equal to its cash. The stock trades at about 0.5X its TBV. While I don't seek out companies that hire female or minority CEOs, I do appreciate it. GCO has a female CEO, Mimi Vaughn, who took on that role in 2020. She joined the company in 2003.

So, these are my ideas for investment right now. I am very short in my trading account, but I do own BGFV there. In my IRAs, I am effectively short through a leveraged ETF on QQQ as well as being long NVDS, which is short NVDA. As I said, though, I own all four of these stocks currently in my IRA. I also own 2 other stocks. I encourage readers to give some thought to the big idea that I have discussed.