Congratulations to Virginia Commonwealth University's Rams! On Friday, the team locked horns with the Blue Devils in a grueling match that produced the NCAA Men's Basketball tourney's first upset. After seeing the match, I couldn't help considering VCU's hometown of Richmond, Va. Perhaps there's another upset to be found, but this time in the corporate office park rather than on the court.
Ladies and gents, I present to you the first installment of Upset City. Here's how it works: I look to our CAPS community to see which companies headquartered in the upset victor's home town are being given short shrift. Then I call an upset, which we'll define as beating the S&P over the next 12 months. Let's check out the flock.
First we have Circuit City
- Inventories are uncomfortably high.
- Major store closures are going to make for some ugly near-term results.
- The assistant coach, er, CFO of the company recently called it quits.
No, the time to call a Circuit City upset was back in 2003, when it was trading at 2/3 net current asset value. We'll leave this one on the bench.
Next up is title insurer LandAmerica Financial Group
This valuation shows that there's a fair amount of pessimism baked into the stock price, even after its early-season run to a fresh 52-week high. It might seem odd for me to say that the stock looks like a better buy at its high than Circuit City does at its low, but as we've said in the past, it's important not to get too caught up in 52-week nonsense. I'm also pleased to see that the firm has grown its dividend at a 32% clip over the past five years, thus giving something back to the fans. Overall, though, I don't think LandAmerica is going to be able to beat the broader market down the stretch in 2007 because of its ties to the deteriorating housing market.
Finally we have The Brink's Company
I would be more receptive to his strategy if the Brink's had limped along over the past, say, five years. To the contrary, the company shepherded earnings growth of 22.4% annually over that period. While free cash flow growth has been erratic, operating margin is at a 10-year high, and long-term debt stands at a 10-year low. The company also bought back 21% of outstanding shares last year, thus returning a big chunk of capital to shareholders.
I'm ready to call it right here. The Brink's Company, a lean veteran squad, is my upset for Richmond, Va. I'll be sure to place an outperform call on it in CAPS and get back to you in a year to discuss how it fared in the 2007 season.
Stay tuned for the next installment of Upset City!
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Fool contributor Toby Shute is ranked 1,832 out of 24,488 CAPS members. CAPS is free to join -- click here to get started. First American is an Inside Value recommendation. CEC is a Hidden Gems selection. Best Buy is a Stock Advisor pick. You won't be upset by the Fool's disclosure policy.