This is the Value Investor podcast with Tracy Rinek, all things value all the time. Welcome back value investors. So who wants a high ranked stock that's also under $20? I do, that's what I'm on right now.
While there are plenty of value stocks trading above $100 or $200 a share, just look at some of the energy stocks or fertilizers, there is something satisfying about buying a stock under $20. Also satisfying to buy a stock under $10, but I decided to look under $20 because it gives us a little bit more room there and we're probably going to find a little bit better quality if it's just under $20 instead of under $10. Now remember, just because a stock is under $20 doesn't necessarily mean it's actually cheap or a value. Valuation is determined not by the price of the stock, but by what you are paying for the earnings or the sales or a combination of both.
A PE under $15 is cheap. A price to sales ratio under $1 is cheap. We want to buy the earnings or the sales at a discount. That's the whole point of it being on sale.
So just because the stock has fallen from $30 to $17 doesn't necessarily mean again that it is actually cheap on a valuation basis. It just means the stock has declined, but it doesn't mean I'm actually getting a deal on the earnings or the sales. Remember you're buying the company, you are buying those earnings or those sales. So you want to get them as cheap as possible with other good strong fundamentals like the Zacks rank, the high-sacks rank number one is the strong buys or the number two is the buys hopefully means that the analysts are raising their earnings estimates.
And so if those earnings are going up in the positive direction, then hopefully something good is happening at the company, especially in this environment here in 2022 where it looks likely that some of those earnings estimates are probably going to be cut because of inflationary pressures and companies putting through price increases, but they can't keep up with inflation, other costs rising on labor and things that are going to hit margins. But we'll see this earnings season what happens with a lot of the earnings outlooks for companies but hopefully these in this screen that I'm going to run something good is going there because it's got the ranks of ones or twos already right now here in April of 2022. So for this screen, I used a price to sales ratio under one and remember that means I'm getting the sales at a discount. So if the price to sales ratio is .7, that means I'm paying $0.70 for every dollar of the sales.
That's what I want to do. I want to get it on sale like that. And I use the rank of number ones or number twos. So hopefully we're seeing some positive earnings estimate revisions and that's rising and obviously had to be under $20.
So this is narrowing it down and then it did have to have positive earnings. You could get a company that has a price to sales ratio under one, but it has negative earnings and is not an earnings positive company yet. So I don't want that. I want companies in this kind of environment with inflation and the bad raising rates that actually is producing earnings.
So when I ran the screen, it gave me 31 companies. That's pretty good. So hopefully with the rank, we're going to get higher quality companies in this 31 list because that's really what we want to be looking at, especially if we're trying to find stocks under $20 or stocks under $10. We don't want some just cheaper kind of discounted stock where the fundamentals are not strong.
So what was in this list? There was some interesting names. I have to admit this time and a couple things that I had to look up because I didn't know who or what they were. So let's dive right in and see what's happening with the cheap stocks under $20.
Okay, so the first one out the gate is barbecue holdings or BBQ holdings ticker BBQ. And I thought, wow, this is an interesting ticker. Why haven't I heard of this one before? And that's because I think they just changed their name to this name.
So this is really famous Dave's of America, the restaurant chain. They also sell the barbecue sauce. They also own several other chains. So they did announce recently that they just bought the Barrio queen restaurant chain.
It's in Phoenix that has seven restaurants. They paid $28 million for that. That's a Mexican restaurant chain. So it's a little bit different than some of their other chains, but they also own one of my personal favorites, Baker Square.
A lot of people in the Midwest know Baker Square. I kind of surprised to see it only has 18 locations now, but there are still some in the Chicago land area, Baker Square. They make a lot of pies and many people order their pies for delivery, especially around the holiday period or Thanksgiving, Christmas and New Year's around there, the order of their Baker Square pies. This company has 316 total location among several restaurant brands in addition to famous Dave's, but that's their largest.
And they own 23 ghost kitchens now. So that's pretty impressive as well. So they're still seeing a rebound off of the pandemic and things are still good for the restaurants. So in their last earnings report, they did get hit by the on the crown slowdown in January and February.
They did see a decline in foot traffic in the restaurants, but it came roaring back as soon as on the crown was over and they saw a swift rebound in late February into March. So this company is looking good as far as the consumer is good. So keep that in mind that this is a consumer focused chain and the company. So when inflation is biting or if the economy were to slow or the job market, take a turn in some way that the restaurant chains usually struggle a lot during those periods.
So these shares are down 3.9% year to date. So they haven't had a super huge sell off over the last year. However, they're up 10.5%. But they've kind of been treading water over the last year.
There's real no big catalyst to push these shares up, just continued worries about inflation and rising costs and all that because over the last two years, they shares up 624% because they were beaten down when the pandemic started had the huge recovery, but now are just basically still treading water price to sales is just 0.76 earnings expected to be up 66% in 2022. But we only have one analyst on the stock, but that's pretty impressive given the rebound that's already happened. PE is actually still low, even though we didn't screen for it at 12.7 and has a peg ratio of 0.9. That's also means it has value and growth, it's trading around $15.
So obviously under $20. And so this is a restaurant choice if you're looking in that category right now, but they seem to be on the growth trajectory here with the buying of some new chains. And so this is one you might want to keep on your list. That's barbecue holdings, BBQ.
Then let's switch over to energy, but this is one I've not talked about before, energy transfer ticker ET and this is one of the master limited partnerships. So that means there's tax ramifications. So talk with your tax advisor. Like a REIT in that you own a unit in the partnership and they pay out a big dividends.
So what does energy transfer do? They are a natural gas midstream, interest state and interstate transportation and storage assets, crude natural gas liquids and refined product transportation and terminally terminal lane assets and natural gas liquids, fractionation. Probably said that wrong. They also own 28.5 million shares of Sanoco.
SUN is a ticker there and is general partner and owns 46.1 million common units of USA compression partners, USA C is the ticker there. Year to date, the shares are up 38.5% because everybody's piled into energy right now, right? So it's already had a big run, but it's trading just at $11.45. PE is 11.2 price to sales is 0.5.
This is a $35 billion market cap company. It is not small, but it is designed to generate income. So a lot of retirees and people looking for income like the master limited partnerships on the energy side and that includes energy transfer. So they did raise their dividends in January.
They raise it by 15% and it's now paying $0.70 for the year. That's a yield of 6.2%. They do have a goal to return to their former dividend, which was $1.22 annually, but they're not really saying when they're going to be able to get to that goal, but they do foresee further dividend increases in order to get there. So that would be pretty considerable increase if they go from $0.70 to $1.22 and they're already yielding 6.2%.
Earnings are expected to decline 46% this year to $1.02 from $1.89 last year. We do have six estimates for the year and three are higher in the last 60 days. And this is X number one strong buy here. So I'm not sure why the earnings are expected to decline so drastically because I'm not that familiar with the MLPs on the energy side.
So you got to do your homework and figure out why it's declining from last year, but you are still getting that 70 cent dividend. And that's mostly why you're owning these kinds of stocks for that dividend and any kind of gain. This one up here for the day 38% is just gravy. So keep that in mind if you're looking at some of these MLPs on the energy side.
So that's energy transfer ticker ET. Then we're actually going to switch over to technology. This is rare, right? So some of these techniques starting to look a little interesting on the value sides.
And this one is Hewlett Packard Enterprises. It's HPE is the ticker. And they are the cloud side of the former HP business. So cloud services compute high performance computing and AI.
And they have that intelligent edge business, software and storage. So they reported in March their first quarter of fiscal 2022 and they continue to see strong customer demand. And it drove order growth up 20% year over year. Gross margins also improved, they said, despite supply chain constraints.
So up 20 basis points year over year on gross margins. That's impressive. They're doing share repurchases and dividends because they have huge free cash flow. Their cash flow guidance for the year is in the range of $1.8 to $2 billion.
That's not too shabby. I'll take that. They reiterate their full year outlook in March when they reported, but they did raise their earnings guidance that they gave previously. So revenue outlook was confirmed, but raised slightly their earnings guidance because of that margin improvement.
So I'm liking everything in the story. And then I get to the value part of it. And they have a price to sales ratio of .7. So this is a tech company with a .7 price to sales ratio.
When a lot of them are at 10 or 20. So .7. So I'm getting the sales cheaper here with Hewlett Packard Enterprises. He is just 7.3.
So that's a dirt cheap too. And they do pay a dividend, as I said, they're doing share repurchases and dividends with that free cash flow. And it's yielding 3.1%. So it's yielding almost basically what a bank is going to yield right now.
So year to date these shares are down, but only down 2.3%. So I'm getting them on sale on an evaluation basis. I wish they would, you know, fall further and I can get them even cheaper here. You're not getting huge amounts of growth with this one, which is why it's kind of being ignored by the streets.
So revenue growth expected to be just 3% this year. And earnings growth of 7%. But you are getting them cheap. That's the whole point for us being value investors.
We're okay with lower growth if we're getting it on sale, if we're going to get it cheap enough and that's the key is getting it cheap enough. So this is X number two by eight estimates are higher in the last 60 days since that March earnings report. And so that's why it's still hanging on to that number two rank. And so this is an interesting play.
If you are looking for a cheap tech stock. So you might want to keep Hewlett Packard Enterprises HPE on your list. I do always get confused with the other HP as they were split off years ago. And the other one is just HP ink and that tickers HPQ.
And so then I was like, which one did Berkshire Hathaway just buy because it's been in the news because Buffett did buy a 11% state, but he bought it in HPQ. So we spent $4 billion to buy a stake in HPQ. And that one is the actual hardware side. So the printers, the computers, so if you buy an HP computer, that's where you're buying it from HP, not the enterprises.
So enterprises usually with that word usually indicates that's like a corporate side and the cloud side and all that. But they bought into HP ink and your debate, those shares are up 0.7%. So kind of just hanging around. But they did get a 15% boost when it was revealed that Berkshire had bought this big position.
So they were down a lot more earlier in the year, but kind of just flat up 0.7. They're trading at $37. And 91 cents thereabouts close to $40. They do pay dividend as well, yielding 2.6%.
As I was looking at Hewlett-Packard enterprises, I was like, oh, is this the one that Buffett had bought because he loves those free cash flows. And this one has a really nice free cash flow. And doing the share by the X and the dividends with that 3.1% dividend yield on HPE. But it turns out he bought the other one.
But now they can maybe should have bought HPE instead. I don't know because I'm like in the HPE. But either one is fairly interesting here. And if he liked HPQ, it's got to be because there's some cheapness there.
And so both are cheap. But if you want more of the pure, the cloud side and people tend to like that area of the business much more than the hardware, then HPE is the one for you. And then I wanted to just finish up. This is kind of our fifth, even though I'm including HPQ.
It's kind of a fourth. It wasn't on the screen, but I mentioned it. So I'm only going to do one more stock today. And it is Basset Furniture.
BSET. BSET is a ticker there. And I like the furniture retailers. This was the only one that showed up on the screen.
And they have 96 stores and they sell a lot in wholesale. So it's kind of upscale furniture, if you're familiar. And furniture's been super hot during the pandemic, but everybody thinks that it's over now. And they thought it's been over for several months now, but the companies keep saying no, we're still doing well and demand is still strong.
So in their first quarter of 2022 results, revenue was still up 16% on top of last year's really strong results. So and they said wholesale orders are still relatively strong. That's the term they use, but they're focusing on reducing their backlog, which is just enormous. Now they also sold their great business to JP Hunt in the last quarter.
So it's called Zenith Freight Lines. This is the one that delivers all the furniture. They have 96 stores, so they have some kind of transportation and they do the wholesale, so they have to move things from their factory. And so but they decided to sell it to JP Hunt.
And so now they're in the partnership with JP Hunt. So they're still getting their transportation, but now from JP Hunt. And they said that the partnership and the transition is going smoothly. Now also in the quarter, they saw strong results in outdoor and domestic upholstery.
But as you might suspect, they said every raw material involved in the production of their furniture basically across the board in the production continued to escalate. They implemented their sixth wholesale price increase in the last 15 months. But at some point, how high can they go before they meet demand destruction? We don't know yet, but these furniture retailers continue to push it through.
We did hear from our age earlier in the year that they are seeing us low down now, even though they too have been pushing through price increases with all of this inflationary pressures. So how much longer can that go on? I don't know, but the street is basically saying it doesn't believe it can for much longer. So year to date, these shares are far up, but they're up 4.1%.
But over the last year, they're down almost 34%. And they kind of just been again, treading water here for most of this year. They're up right now. They've been down previously.
They're just kind of hanging out there down around 35%. So over the last year, how cheap are they? Price to sales of 0.3. That's pretty cheap.
I'm only paying 30 cents for every sale. PE is 8.9. Also really cheap. Now they have a market cap of $165 million.
So this is a small cap company, very small, trading at $17.46. So under $20, as we know, but they pay a dividend because they got a lot of free cash flow too and it's yielding 3.3%. So you're getting nice dividend and the stock is cheap. Now I've been on the sidelines and most of these furniture retailers myself, even though I've been watching them for numerous months because I still do like this area and the stocks are legitimately cheap.
Even if earnings were to come down a bit, they're still cheap. I don't consider them to be a value trap here, but they haven't broken down completely. I've been kind of waiting for the complete breakdown, like the throwing in of the gauntlet. The towel is being thrown down and the shareholders who've been in it for the last two years have given up and moving off to the sidelines.
We haven't had the give up yet in any of the furniture and that includes RH even though it's down 50% from its highs and I own our RH and my own personal portfolio as many of you know who follow me on Twitter. But similarly, Havert, which I've mentioned on this podcast before, HBT, that's down big over the last year as well but hasn't completely broken down. Ethan Allen, same thing, no complete breakdown there. They're also paying nice dividends.
Havert, he pays a nice dividend. Williamson Sonoma is down off its highs but not really a complete breakdown there either. That has the low PE and they pay a dividend. So all these companies in the furniture area, including her millers designed within reach and hey, their residential furniture, all of them are cheap and all of them are still reporting the strong demand.
They're not really seeing even with inflationary pressures, RH is one of the few that is seeing more of a slowdown perhaps than some of the others but the housing market still remains strong. People who buy a new house want to buy new furniture and we are still cocooning at home. So we still are buying the outdoor furniture and still buying new couches believe it or not. So I do like the furniture retailers but I'm waiting to see if we can get a final breakdown like a total throwing in the towel as I mentioned.
So that's Bassett furniture. It is cheap right now but I feel like I could get it cheaper so I'm still waiting. That's ticker BSET. Maybe we won't ever get it.
Maybe this is the cheapest it's going to go but I feel like on a big market sell off the final capitulation of this market we will get these furniture retailers much cheaper. But that's Bassett furniture again BSET. So there's some interesting names on this don't you think? I thought so and for being under $20 and in some of the kind of hot areas like energy but also several that are facing inflationary pressures well I guess they all are or supply chain issues and so that's also something to keep in mind and to keep a high on your watch list as you're listening to conference calls with these companies and what is happening with margins and what is going to happen with earnings.
Now they still do have the pricing power as Bassett has so far to push through six price increases that's incredible but again at some point that they may not be able to do that. So keep that in mind when you're looking at evaluations with a lot of these companies. So let me recap the tickers we talked about. There was barbecue holdings that's what I'm calling it but it's BBQ holdings but it is a barbecue right?
BBQ is the ticker that's famous Dave's and the restaurant chains. Then we had energy transfer this is the master limited partnership with the 6% dividend ticker ET then we had Hewlett Packard enterprises this is the cloud side and that's HPE then I talked about Hewlett Packard just HPE Inc which is HPQ that's the one Warren Buffett is just recently bought in Berkshire Hathaway he now has an 11% stake but I was wondering why he didn't buy HPE instead we'll have to find out at the annual meeting right that's coming up in May for Berkshire Hathaway and then we talked about Bassett furniture ticker BSET on the retail side there were a few other retailers not furniture but a few other retailers on the list a little scared of some of the retailers here for the reasons I mentioned for Bassett but we'll see how the consumer holds up same on the restaurants I'm a little concerned about what may happen if the consumer just decides they have to pull back and they're going to eat at home. We know from the supermarket chains that a lot of them are still seeing really strong sales and really strong comparables year over year people are still staying at home and cooking at home especially as those prices rise at restaurants and eating out so these are all the factors we all have to juggle this year with this strong inflation we haven't had to do this in a long time so it's going to be a first for many of us and it's going to take some you know finingling and figuring out to see what's actually going to happen with these companies that's why it's more important than ever listen to those conference calls find out what they're seeing on the ground if you would have listened to the RH conference call you would have heard quite a bit about what was happening so tune in tune in the next time these companies report if you've got them on your wish list or your watch list either one and be sure to tune in for all the companies that you own because this year is going to be different than what we've seen over the last several years for sure so as always be sure to subscribe to get us somewhere you can get us on Apple podcast you can get us on Spotify and anywhere else that you can get podcasts we are everywhere so be sure to do it because I'll be back next week with some more value stocks. This material is being provided for informational purposes only and nothing herein constitutes investment legal accounting or tax advice or recommendation to buy sell or hold a security do not act or rely upon the information advice given this podcast without seeking the services of competent professional legal tax or accounting counsel publication and distribution of this podcast is not intended to create any information contained herein does not constitute an attorney client relationship no recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor it should not be assumed that any investment securities companies sectors are market-identified described were or will be profitable all information is current as of the date herein and the subject has changed without notice any views or opinions expressed may not reflect those of his acts and doesn't research as a whole.