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Contrarian Value Favorites
11/17/2014 10:00 am EST
Benj Gallander, editor of the newsletter, Contra the Heard, focuses on out-of-favor stocks with long-term turnaround potential. Here, he discusses his strategy and highlights several favorite ideas among US and Canadian firms.
Steven Halpern: Our guest today is Benj Gallander, a specialist in contrarian investing and editor of the newsletter, Contra the Heard, which focuses on both US and Canadian firms. How are you doing today, Benj?
Benj Gallander: I’m doing very well, sir.
Steven Halpern: First, can you tell us a little about your overall investing strategy and how you manage to combine both value investing with the contrarian approach.
Benj Gallander: Yeah. What we do is we invest in companies that are out of favor, so we are looking at turnarounds. Companies that are badly beaten up are, essentially, our forte.
Then, what we do, of course, is we look at the financials and we look for companies often that have limited, or no debt at all, or companies also that have good book value.
We look at the management for the companies. We go over the financial ratios. Once we discover a company, I don’t invest for at least six months; often it takes years. It is a combination indeed.
We’re very, very value oriented, deep-value people and, also, looking to invest in companies that are unloved but, at one point, used to be loved.
The other factor here on each of the companies that I buy, I’m looking for a minimum of 100% gain, often 200%, 300%, or 400%. It’s not pie-in-the-sky at all, though. It’s where the companies have always traded.
Steven Halpern: You're not looking for quick trades. With upside targets like that, you’re looking at long-term turnarounds. Correct?
Benj Gallander: That’s right. Our average hold time is about three and a half years. We have held some stocks, such as Service Corporation and Stewart Enterprises, for longer than ten years. However, when the returns are so big and dividends are often thrown in, it certainly does work out for us.
Steven Halpern: Now, one company that stands out as a contrarian idea is Blackberry (BBRY), which is the troubled Canadian smartphone maker. What’s the attraction there?
Benj Gallander: Well, this is kind of our modus operandi. It’s a company that’s had tremendous success in the past and, of course, then got into a lot of difficulties.
In this case, a key component of us owning it is—we’re effectively looking at the jockey—John Chen, the CEO. He’s got a good track record and that certainly is important to us.
Plus, they still have a lot of leading technology and we all know there’s been major turnarounds in other tech companies like Apple and Yahoo. Our guess is that, at some point in the future, it will be Blackberry’s turn.
Steven Halpern: Now, one of your long-term strategies has been to accumulate American bank stocks and one of those is Fidelity Southern Bank (LION). What’s the story there?
Benj Gallander: Well, that’s been a lovely holding for us. After the 2008 recession, we bought into a number of American banks. Fidelity Southern is one that we picked up at $3.32 with a sale target of $18.74. They continue to pay a dividend, albeit a stock dividend, during the recession.
Now they pay 0.08 cents a quarter. They had good financial ratios, good banking ratios; so it was definitely a smaller play for us in terms of the size of the bank that we felt had a lot of potential.
Steven Halpern: Now, at the other extreme, you’re also a fan of Bank of America (BAC), a very large outfit in the US banking sector. Could you share your thoughts on that?
Benj Gallander: Well again, you’re absolutely right. This is the other extreme. This is one of the biggest banks in the world and one of the biggest, of course, in the States. We paid $6.76 in 2011. We like the CEO here, Brian Moynihan. They have cut the dividend down to a penny a quarter.
Part of our thinking was, at some point, as the bank turned around, if it indeed did, the dividend would increase; that usually boosts the stock price. Now it’s up to a nickel a quarter.
A key thing here is, of course, they had so many legal problems that they had to deal with. At this point, it looks like a lot of them are done; so I can see the company doubling from here.
Steven Halpern: Now finally, in the very speculative category, you follow a Canadian stock called Alpha Pro Tech (APT). What’s behind all the volatility and is this a company that a speculator should consider?
Benj Gallander: Well, it’s been a great place for us. It is a Canadian company, but they do most of their business in the States, and they are listed in the United States. Every three to four years, when there’s a scare, such as H1N1, Sars, or, in this case, Ebola, the stock price jumps like crazy.
We paid $1.17. It went briefly over $10.00. It’s since come back to $3 and change. I perceive now there could be more upside. Their financials are good. At next quarter, I think we’ll see the benefits, so to speak, of what’s happened with Ebola, although, of course, I hope that nobody does die from it.
Steven Halpern: Now, for those listeners who aren’t familiar with the company, what do they do that makes this attractive for those who are speculating on the Ebola market?
Benj Gallander: Well, they are actually in two fields. One of the fields is in protective gear, like in hospitals—gloves, shoes, gowns—so that’s absolutely critical.
The other field they’re in is in terms of building and roofing, which has been doing very, very well for them. It’s a combination to get the play on the US housing recovery, plus they do tend to spike when there’s a possibility of a pandemic.
Steven Halpern: Well, thank you so much for taking the time to join us today.
Benj Gallander: It’s been a pleasure, Steve, and I look forward to the next time.
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