3. A home-shopping turnaround: ValueVision Media
ShopNBC is the smallest of the three home shopping networks. But it wants to grow up like its bigger rivals, QVC Network and HSN. To get there, it plans to keep moving away from high-end jewelry to sell a broader array of stuff, with a goal of doubling revenue in five years.This feat could also double the stock of ShopNBC's parent company, ValueVision Media (VVTV, news, msgs), from recent levels of $4. Or ValueVision might get bought out by Comcast (CMCSA, news, msgs), bringing a similar payoff. The cable giant already holds a big stake.
True, ValueVision sales were down 68% to $119.4 million in the third quarter of 2009, which looks bad. But beneath the surface lie signs that ValueVision is working some magic that could pay off. The company increased its active customer base by a third, to 1 million, last year as it worked more beauty, home and fashion goods into the mix. The company has also reduced costs.
"The core metrics are very much improved," says CEO Keith Stewart, who is leading this turnaround. Stewart has a great track record in home shopping. Within six years of taking over a minuscule QVC division in Germany in 1998, he had grown sales $1 billion. Much of his team that made that happen now works with him at ValueVision.
"This is the A team, and the A team is incentivized. They own a lot of stock," says Routh, who covers ValueVision for Wedge Partners. Stewart holds 1.8 million shares outright in addition to options. Several other ValueVision insiders have purchased in the $3.70-to-$4.70 range since early December, according to Thomson Reuters.
ValueVision still has a lot more room for change, both because it sells far less per home than QVC and because it sells a lot more expensive stuff. ValueVision also has room to grow online and abroad, Routh says.
Buy below $4.50 a share.
4. A high-yield play: Chimera Investment
With interest rates so low, real-estate mortgages are one of the best places for investors to find decent yields, or payouts, according to Byron Wien of Blackstone Advisory Services. Repackaged residential mortgage-backed securities pay 5.5% to 6%, compared with 3.6% for 10-year U.S. government bonds.The average Joe can dabble in these complex investments with shares of Chimera Investment (CIM, news, msgs), a company that purchases repackaged home mortgages and passes most of the yield to investors because it is a real-estate investment trust.
First, you'll need to put away some common fears about mortgage-backed securities. True, vast numbers of home mortgage loan instruments blew up and caused the credit crunch. But many of those available now are reasonably safe. The trick is to avoid the ones based on mortgages issued under too lax lending standards, generally from roughly mid-2007 to fall 2008, says Cliff Remily, a portfolio co-manager of Thornburg Investment Income Builder (TIBAX).
"There is mortgage credit risk, but if it is priced right, you can get good risk-reward," says Jeremy Diamond, who is on Chimera's investment committee. "The market has offered some bonds at very good prices."
For investors, the risk-reward on Chimera stock just improved dramatically, since it recently fell to $3.60 from above $4 because of confusion in the market, Remily says.
Chimera's fourth-quarter earnings looked weak. But that's because Chimera recently split up some of its mortgage-backed securities and sold some of the pieces to raise capital. Under accounting rules, it can't recognize profits on the pieces that remain until the other parts that it sold mature.
"Earnings don't look as good as they truly are," says Remily, whose fund owns Chimera shares. "They are forgoing current earnings for future earnings." This explains why insiders with good records, including CEO Matthew Lambiase, four directors and two officers, bought a lot of stock in the pullback. Together they have purchased about $500,000 worth of stock in the $3.70 to $3.90 range since early January, according to Thomson Reuters.
JPMorgan Chase analyst Andrew Wessel thinks Chimera will pay out 12 cents a quarter per share, which implies a yield of 13.1%.
Buy below $3.75 a share.
5. Cashing in on confusion: Falconstor Software
Think of all the tech gadgets you own: smart phone, iPod, laptop, PC, GPS device. Now imagine you're a business and you have just as many different storage and backup systems, all made by different companies. That's a big headache if these systems work as poorly together as some gadgets.Falconstor Software (FALC, news, msgs) helps businesses by offering software that makes storage systems from different companies work together, lowering costs.
Nevertheless, Falconstor's stock fell sharply in mid-January, to as low as $3 from $4.50, after it pre-announced a weak fourth quarter. The chief problem was that revenue plummeted from partnerships with key players in the business, including EMC (EMC, news, msgs), IBM (IBM, news, msgs) and Sun Microsystems, now part of Oracle (ORCL, news, msgs).
While investors fled, insiders scooped up stock in the $3-to-$3.30 range, including one with a solid record for timing purchases in this stock, according to Thomson Reuters. There are good reasons to follow them.
First, Sun-related sales were off because Sun's proposed merger with Oracle was hung up in Europe. Now that it has been cleared, sales from this partnership should pick up again, Falconstor CEO ReiJane Huai told me last week.
Next, Falconstor wants to sell more software on its own. It recently brought in some industry muscle to help: several storage-sector experts who helped Huai develop a successful storage company in the 1990s called Cheyenne Software.
Morgan Keegan analyst Brian Freed thinks Falconstor stock could advance more than 60% to $5 to $6 a share, from recent levels of $3.50. Wall Street analysts have a consensus price target of $5.50, according to Thomson Reuters.
Buy below $3.50.
At the time of publication, Michael Brush owned shares of the following companies mentioned in this column: Genspera and ValueVision Media.
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