One Outrageously Cheap Stock

You know that political bumper sticker that goes, "If you're not outraged, you're not paying attention"? It might as well have applied to the market last year and at the start of this one. Until the recent rally, 2008-09 was a terrible, awful, and downright painful time to be an investor.

But notice how that last sentence started "until the recent rally"? Yes, stocks have rallied hard these past few weeks, proving yet again that market downturns aren't something to panic about, but are rather something to be profited from.

See, during the downturn, good -- even great -- companies were sold down to levels far below their true worth. Had you bought some of those names – Harley-Davidson (NYSE: HOG  ) , Walgreen (NYSE: WAG  ) , and IBM (NYSE: IBM  ) among them -- you could be sitting on 50% or more profits year to date.

The good news is: You haven't missed every opportunity. Even after the recent run-up, some outrageous bargains remain.

A shocking and somewhat interesting statistic
But before we get to today's bargain, it's worth taking stock of where we stand. A whopping 88% of all stocks traded on the major U.S. exchanges were down in 2008. This year, 76% of all stocks are in the green. And just as quality names such as Costco (Nasdaq: COST  ) had a tough 2008, more speculative names such as Sirius XM (Nasdaq: SIRI  ) have had incredible runs in 2009.

You, however, should feel free to ignore the noise. If you lost money last year, don't feel bad. There was no hiding from this downturn. And if you're staying out of the market today because of the money you lost last year, do reconsider. While all stocks will be volatile, it's worth your while to stay invested.

But what should you buy today after stocks have risen so far?

One consideration
Take a look at Barrett Business Services. This tiny West Coast professional-employer organization and staffing company has a strong balance sheet, has repurchased shares, and is paying shareholders a nice 3% dividend. Further, while Barrett has stayed depressed because of the jobless nature of the recent recovery, it's positioned to rise rapidly as soon as hiring improves. Finally, after backing out its $47 million in net cash, the stock is trading for just 0.3 times sales. As soon as profits return to the industry, this stock should rebound fast.

Could the stock drop further from here? Of course. But regardless of whether the market is rising or falling, it's always a good time to buy excellent companies like Barrett on the cheap. That's what we're all about at Motley Fool Hidden Gems, and even though it's gotten harder to find cheap stocks, we're still building our portfolio of small-cap bargains.

To read about the stocks we're buying today, click here.

Already subscribed to Hidden Gems? Log in at the top of this page.

This article was first published Jan. 10, 2008. It has been updated.

Tim Hanson owns shares of Barrett Business Services. Costco is a Motley Fool Stock Advisor recommendation. The Motley Fool owns shares of Costco. The Fool's disclosure policy is awesome.


Read/Post Comments (30) | Recommend This Article (30)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 24, 2009, at 8:34 AM, swordfishh wrote:

    Have to snicker at the HOG thought...they'll be looking at a production dropoff of possibly 100,000 bikes from the peak of 345,000, to maybe 250,000 this year. At the same time, FOOL voters have been dissing Ford since March. Do FOOL voters expect motorcycle sales to increase, while auto sales drop?

    H-m-m-m?

  • Report this Comment On November 24, 2009, at 8:40 AM, swordfishh wrote:

    Have to snicker at this one. HOG sales have gone from a peak of 345,000 units to maybe 250,000 this year, while their mfg. facilities have expanded. Meanwhile, FOOL readers have dissed FORD since March, and continue to do so. Should we expect motorcycle sales to INCREASE faster than autos????

  • Report this Comment On November 24, 2009, at 11:08 AM, Turfscape wrote:

    Actually, HOG announced that production would be more in the range of 225,000 to 235,000 vehicles. But, they've also signaled decreased cost structures, decreasing inventories, a return to increasing production numbers (per analyst report from Baird compiled from recent investor meetings with H-D management).

    The new management has been aggressively attacking the company's cost structure, particularly in its York manufacturing facility. The dealer network has signaled strong support for the new motorcycles being delivered as well as the decision to eliminate Buell and divest MV Agusta.

    Not sure why you think manufacturing facilities have expanded, though. They've shuttered one Milwaukee facility, stopped all Buell production, closed a satellite Financial Services facility in Illinois, and are reorganizing York to be a more efficient operation. Where was the expansion?

    Snicker at HOG as much as you like...the numbers are speaking for themselves.

  • Report this Comment On November 24, 2009, at 12:11 PM, dedmunds wrote:

    SIRI CEO MEL SAID!!!

    NO REVERSE SPLIT!!!

    BUY BUY BUY!!!

  • Report this Comment On November 24, 2009, at 12:29 PM, swordfishh wrote:

    Winthin the past 5 years, the addition of the Kansas facility and expansion of the York facility increased HOG capacity by 50%. Over the past ten years, HOG has demanded it's dealers increase their plants and capacity by more like 100%. To me, it seems reasonable little of this was done with cash. And today, looking at a 30-45% reduction in sales, the CURRENT downsizing in York and elsewhere will not be close to enough to supplant missing sales. We are talking RECREATIONAL vehicles here, NOT transportation. I am a 30 year rider, nuthin' but HD, but it is what it is. At $28.00, give me FORD!

  • Report this Comment On November 24, 2009, at 12:40 PM, ItAintCool wrote:

    We need to start a betting pool for each time an MF or TS mentions SIRI to the time SIRIDouche posts one his doom and gloom rants. The man is more incessant than a spam-bot.

    Any takers?

    I wonder if Jim Cramer has taken notice of SD's SIRI love letters, to possibly hire him as a TS columnist. After all he writes as slanderously and inaccurately as most TS columnists do.

  • Report this Comment On November 24, 2009, at 12:45 PM, swordfishh wrote:

    Also, in the last 20 months, the HOG finance arm got beaten up badly with delinquency, which is the major reason they withdrew from this arena. I suspect financing new sales will be much more difficult than in the past. Again, I don't think, with a physical plant capacity of close to 400,000 bikes per year, they can pare overhead quick enougth to offset lost sales. I agree they HAVE responded to conditions, but that's kind of like saying there was agreement passengers should leave the Titanic. Their expansion was formulated in a market where customers often waited 5-8 months to get delivery on a new bike, and dealers were upcharging as much as $3-4,000 over list price. We won't be seeing that again any time soon, if ever. And of course, the financials on HOG have been streakie for decades.

    A lot more questions here than answers.

  • Report this Comment On November 24, 2009, at 12:49 PM, dedmunds wrote:

    i say 5 minutes

  • Report this Comment On November 24, 2009, at 12:58 PM, SIRIDoom wrote:

    SIRI, watch it sink with your money.

    Only a nut case would sleep on a sinking ship.

    SIRI Rev-split very soon.

    Billions of goodwill write-down? Quick and dirty financing? Lean shares issued to Goldman Sachs used to barrow short shares for free? Sell shares with plan to rev-split to pay debt?

    All these things show SIRI history under Mel is all about a crook running the stock into the ground.

    Dump this crap stock. Make Mel Carmacrook and Goldman Sachs eat $10 billion debt.

    SIRi Worshipers eat the truth or eat more future loses.

  • Report this Comment On November 24, 2009, at 1:00 PM, SIRIDoom wrote:

    SIRI book value 6 cents... Junk...

  • Report this Comment On November 24, 2009, at 1:04 PM, SIRIDoom wrote:

    MEL LIED

    HE HAS NO CONTROL OVER REV-SPLIT.

    IF SIRI IS UNDER 1$ IN MARCH IT WILL SPLIT 25 OR MORE FOR ONE NEW SHARE!!!!

  • Report this Comment On November 24, 2009, at 1:42 PM, Turfscape wrote:

    swordfishh wrote:

    "Winthin the past 5 years, the addition of the Kansas facility and expansion of the York facility increased HOG capacity by 50%. Over the past ten years, HOG has demanded it's dealers increase their plants and capacity by more like 100%. To me, it seems reasonable little of this was done with cash."

    Not sure where you pull your information from, but the KC facility was built in 1998 and the York upgrade was from 2001.

    Not sure what you mean by demanding that dealers increase plants and capacity...do you mean expand their showroom floors? If so, I don't think you'll find any dealers in the U.S. saying that H-D is delivering too many bikes to them to sell...some question the mix of product, wanting more top-of-the-line and less Sportster.

    Also, during these expansions, Harley had very high levels of Free Cash Flow, so they weren't over-leveraged in those expenses...they were perfectly in line with the run-up in demand at the time (consider that from the mid-nineties until 2007 production increased to 300,000 vehicles from 150,000).

    swordfishh wrote:

    "Also, in the last 20 months, the HOG finance arm got beaten up badly with delinquency, which is the major reason they withdrew from this arena. I suspect financing new sales will be much more difficult than in the past."

    Uh, they're still in the financing arena and increasing credit to both dealers and customers. Again, not sure where you're pulling your info from.

    swordfishh wrote:

    "Their expansion was formulated in a market where customers often waited 5-8 months to get delivery on a new bike, and dealers were upcharging as much as $3-4,000 over list price. We won't be seeing that again any time soon, if ever."

    Their business model was predicated on scarcity and residual values. And it still is. Go to your dealer and ask how much for a 2010 Ultra Limited (FLHTK)...MSRP is $24,699. I can guarantee you won't get one for that price. You'll be paying over MSRP. How do I know? I go to dealers on a regular basis to see how business is (and to ocassionally pick up a new helmet, gloves, boots or whatever). Again, according to the analyst report from Baird, in a survey of U.S. dealers, they felt inventory levels were about right for now. Even with the soft economy and drop in sales over the past year, 42% of dealers were still charging at or above MSRP.

    Baird expects the cut back in production to drive residual values up in 2010, with an increase in production levels and per-share earnings by 2011. Based on my own findings in a small sampling of dealerships between Indiana and Idaho, I'm slightly more bullish.

    It may be a recreational vehicle...but a large majority of HOG customers will tell you, it's not a discretionary purchase. THAT is the Harley-Davidson moat.

  • Report this Comment On November 24, 2009, at 2:00 PM, SIRIRICH wrote:

    SIRI will make you RICH!!!

  • Report this Comment On November 24, 2009, at 4:22 PM, dedmunds wrote:

    HA HA HA SIRIDoom going into a drunken stup just like last time. Panic sicken over how much SIRI has taken off. What an idiot!!!

  • Report this Comment On November 24, 2009, at 4:25 PM, dedmunds wrote:

    SIRI CEO MEL SAID!!!

    NO REVERSE SPLIT!!!

    BUY BUY BUY!!!

  • Report this Comment On November 24, 2009, at 4:32 PM, dedmunds wrote:

    SIRI CEO MEL SAID

    NO REVERSE SPLIT!!!

    BUY BUY BUY !!!!

  • Report this Comment On November 24, 2009, at 4:47 PM, swordfishh wrote:

    Don't know about your information....as I said, the Kansas plant started contributing about 5 years ago, when sales started ramping up. On the financing, they are naturally NOT using their own cash to finance bike sales, and lenders TO HOG have pulled back due to high delinquency by their customers. On the sales end, you must remember...HD sold 35,000 bikes in 1986. Many were discounted. The runup to 340,000 was a very unique period in their history that will not be repeated. Speaking of the northeast, there's not a single dealer that won't negotiate the selling price on all but a handful of "low production" models. It's foolish to think sales can drop 45%, yet prices remain fixed. Dealerships were "made" to invest tens of thousands in new plants, just as the factory did, and now....the sales aren't there. Doesn't seem like a complicated equation. And by the way, the last time I heard the "It's a Harley" argument, the stock was $55.00. 10.2% unemployment makes "buyers" into "thinkers." Sorry.....they'll do OK if they KEEP cutting, but I'll take FORD.

  • Report this Comment On November 24, 2009, at 4:50 PM, topsecret09 wrote:

    Are you Sirius ? Thumbs down ! Hog... down,down ,down. (BBSI) Is fully valued at this price.

  • Report this Comment On November 24, 2009, at 5:03 PM, Turfscape wrote:

    swordfishh wrote:

    "Kansas plant started contributing about 5 years ago"

    Incorrect. Plain and simple. Production started in KC in 1998. They became the single site of production (powertrains and assembly) for VRSC models when that line launched. Your information is 100% wrong.

    swordfishh wrote:

    "Dealerships were "made" to invest tens of thousands in new plants, just as the factory did, and now....the sales aren't there."

    Again, what do you mean? A "Plant" is a manufacturing facility! Dealers don't manufacture bikes, they buy inventory and sell to consumers...and, obviously the sales of 350,000 bikes that was originally predicted for 2008 model year aren't there. Guess what, the sky is blue, too! But the sales for the revised 225,000 bikes for 2010 model year are there from all anecdotal evidence. H-D dealers still hold very high (higher than average retail) revenue per square foot of space...don't really hear any dealers saying, "gee I wish my dealership was smaller".

    You pepper your argument with outright falsehoods and confusing meanderings. Take Ford all you want, it doesn't change the profitability of HOG (oh, yeah...HOG has still been pulling profits through all of this...how's Ford in that category over the past 5 years?)

  • Report this Comment On November 24, 2009, at 5:16 PM, swordfishh wrote:

    Rethinking the "they'll do OK" comment, that is possibly optimistic. The sale of Augusta, (recently acquired) and the discontinuation of the Buell line are seen as effective cost-cutting, but some are calling it "draconian." I doubt there are any execs left from the group that bought the company in 1981 and brought it back to life after the AMF debacle. Mostly, top management there has been privvy to a marketing phenomenom. I don't know that there's anybody there able to deal with this type of sales collapse effectively. Certainly the dealers, working from garages in the 80's and early 90's, who were required to build 25,000 sq. ft. (and bigger) facilities, are being squeezed. The only plus for HOG out of this....is that many of the very small U.S. makers of big bikes are closing.

  • Report this Comment On November 24, 2009, at 5:27 PM, swordfishh wrote:

    Sorry pal....the VRSC models have been a flop, and the Kansas plant did nothing for it's first 3 years of operation. As I said (twice), they started meaningful production within the past 5 years. And ....pardon my language use....but how about you ask one of the owners of those oversized FACILITIES how happy they are with their mortgage payments now that bikes aren't selling? Don't be a dummy....the bloom has been off the rose since 2007. But buy some more T-shirts and window stickers, while keeping your fingers crossed.

  • Report this Comment On November 24, 2009, at 5:38 PM, swordfishh wrote:

    Wait a month, and ask your local dealers how they like HEATING their new showrooms, where they aren't selling bikes! Sorry if you don't like my choice of the word "plant"...making mortagage payments on those showrooms will break some dealers....you can bet on it. I am familiar with one of the larger showrooms in the country...HD had to step in 6 years ago with money and management to keep it alive. Don't bother kidding yourself....motorcycles were a niche business for decades....and they will be again. Try googling "saturated market."

  • Report this Comment On November 24, 2009, at 5:58 PM, swordfishh wrote:

    By the way, all I can tell you about FORD is that my holdings are up 350.81% from my purchase in January, NOT including today's gain!

  • Report this Comment On November 24, 2009, at 6:38 PM, Turfscape wrote:

    swordfishh wrote:

    "Sorry pal....the VRSC models have been a flop, and the Kansas plant did nothing for it's first 3 years of operation. As I said (twice), they started meaningful production within the past 5 years. And ....pardon my language use....but how about you ask one of the owners of those oversized FACILITIES how happy they are with their mortgage payments now that bikes aren't selling? "

    Ahh...clarity. You don't like the facts so you'll trot out your own. Fair enough.

    Pardon me while I sit back and watch HOG continue its profitability and growth.

  • Report this Comment On November 24, 2009, at 8:36 PM, dedmunds wrote:

    SIRI,

    The bottom line:

    Cash flow is up enormously, The company recently projected cash flow (adjusted for unusual charges) of more than $400 million this year, compared with a loss of $136 million in 2008.

  • Report this Comment On November 25, 2009, at 8:45 AM, swordfishh wrote:

    Turfscape.....with earnings in the last reporting quarter down 84%, at least you won't have to spend much time computing profitability!

  • Report this Comment On November 25, 2009, at 11:01 AM, Turfscape wrote:

    swordfishh wrote:

    "Turfscape.....with earnings in the last reporting quarter down 84%, at least you won't have to spend much time computing profitability!"

    $430 million on sales of $1.1 bilion...nope, didn't take too long at all. Gross profit margin of 39%, net margin of 5% (remind what Ford's numbers are again? 22% gross and -3.6% net?)

    Like I said, HOG has remained profitable despite the downturn. Ford spent 5 years without a profit. Funny how haters just can't get past the drumbeat of "aging riders" and "too expensive" and "discretionary purchase".

    HOG's numbers are not dismal. Dealer confidence is up on the year. The cutbacks made this year appear to be aligned correctly to market conditions. This is a company that will be returning to peak form in a short period, two to three years, with room to grow from there.

  • Report this Comment On November 25, 2009, at 12:55 PM, swordfishh wrote:

    H-m-m-m....let's see....sales down 45%...earnings down 84%....but NOT dismal you proclaim? You are a broker's dream!!! I can't comment on Ford's earnings over the past five years....I've only owned it since January, when it cost a buck and a half per share. This ain't no hater here pal....I've been an HD rider for 30 years....but if it has webbed feet and quacks......

  • Report this Comment On November 26, 2009, at 9:42 AM, pnut134 wrote:

    The only thing I know about HOG sales is what I see. I live along the Blue Ridge Parkway in SW VA. Until last year, every spring and summer there would be motorcycle ralleys. Bikes in huge caravans going up and down the Parkway. No more!!!

    The VAST majority of the riders were on new bikes and were of retirement age. I wonder where these folks fit in now with buying such expensive toys.

  • Report this Comment On November 29, 2009, at 12:42 PM, VegasMartin wrote:

    SIRI is an anomaly. Everyone thought they were going to declare bankruptcy, which pushed the stock down to 9 cents. Once that panic was over, it was natural for that stock to sky rocket. It would be a terrible investment to make right now considering that the company places its debt burden squarely on the backs of its shareholders.

    http://www.ShootTheBears.com

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1051082, ~/Articles/ArticleHandler.aspx, 11/26/2014 4:24:38 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement