I am exactly the opposite right now. Outside of my community bank stock portfolio my biggest holding is cash. I have not been able to find enough deep value situations that have a margin of safety to get anywhere close to fully invested.
Higher prices at the end of the day just add to my frustration. I am one of the few people on the planet who is openly cheering for much lower stock prices right now.
There are some great companies that are tantalizingly close to being safe and cheap. These are solid companies that I think would be fantastic longterm value stocks and I would love to own them at the right price. I would love to see the markets fall and drag these companies down into my buy range.
Here are two value stocks to buy:
Value Stocks: LeapFrog Enterprises, Inc. (LF) LeapFrog Enterprises, Inc. (LF) is a value stock to buy. I am a huge fan of the company’s toys and electronic products for kids.
My own are a little old for them now but the parents I talk with are big fans of LeapFrog’s educational offerings. They are on many of the best toys list this year and they should have a pretty good holiday selling season.
Insiders have been buying shares of the company recently and several have exercised their stock options and kept the shares, one assumes, because of their confidence in the future of the company. LeapFrog has no debt and a current ratio of 3.7 so the balance sheet is strong right now.
The Altman Z-score is 3.3 so LF is financially strong and an adequate margin of safety exists in the balance sheet.
LF stock trades right at tangible book value right now and I need about a 50 cents additional price decline for this stock to make my buy list.
Value Stocks: Kimball International Inc (KBAL) Kimball International (KBAL) is another value stock I would love to buy on a big selloff in the market. The company spunoff its contract electronics business in October and is now focused entirely on the furniture business.
KBAL has three lines of furniture covering office, schools, dining and hospitality needs. The hospitality division is very well-positioned right now as the hotel industry is improving rapidly and there is some pent-up demand for replacement furniture across the industry.
The headwinds for commercial furniture are fading in the U.S. and Kimball should reap the rewards of increased spending over the next few year.
Post-spinoff, the stock trades at about 1.2 times book value so I need another $2 or so decline in the stock price so I can add it to my portfolio. Kimball has no long-term debt and an Altman Z-score of 4.2, so the stock is safe. All I need now is cheap.
Bottom Line I know it feels good to see stock prices higher at the end of the day, but if you are looking at investments for five years of longer and you have some cash on hand, you should really be cheering for lower prices — not higher — right now and invest in some value stocks.