Any deep value investor who labors late into the night in search of really cheap stocks has heard of Handleman Co. (NYSE: HDL), a distributor of CDs, DVDs and video games for companies including Wal-Mart Corp. (NYSE: WMT). Its anemic price to book ratio of 0.43 lands it near the top of any screen for net-current asset value plays, but there's just one problem: Handleman has been showing up on those screens for more than a year. I first started looking at it when it was trading around $12 per share; it hit a new low today of $4.96.
But now there's a reason to look anew at Handleman, and it's another name every deep value investor has heard of: Marty Whitman (author of one of my favorite books, The Aggressive Conservative Investor) and his firm Third Avenue management recently reported a 17.2% stake in the company, up from the 15.6% it first reported in April.
A recent piece in The Detroit Free Press titled "Michigan Firms Ripe to be Taken Over" stated: "John Bendall, chairman of Hermitage Capital Corp., a New York investment firm that bets on potential takeover targets and is a Handleman shareholder, said he knows of a buyout firm looking at the company but wouldn't reveal its identity."
But as bullish as Whitman's buying may be and as optimistic as the CEO sounds, the insider trading casts doubt on the company's future: Strome has been a seller of late. Anytime a CEO is dumping as shares reach new lows, you have to wonder.
Handleman is about as contrarian as it gets here but you have to wonder: how much lower can it go before someone swoops in and buys the company? Whitman appears to be betting that the bottom is near, and he's been right a lot of times on the way to building one of the best reputations in value investing.
At the time of publication, Zac Bissonnette has no financial interest in HDL.
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Reader Comments (Page 1 of 1)
7-27-2007 @ 7:54AM
dfcrowell said...
This really surprises me. I've been looking at HDL on and off for about 2 years and all I saw was a value trap, a mismanaged one at that. Marty Whitman is always preaching "safe and cheap". I see the cheap but I don't see the safe. If he was buying senior debt that would be more in character. I wonder what I am missing, because I am more sure that MW is right and I am wrong. Geoff Gannon, are you out there? What are your thoughts? I always value your analysis