This morning before the market opened, Newcastle Investments (NCT), one of my 2011 stock picks (see Chasing Value: 2011 Picks Dust the S&P) reported earnings that stomped all over analysts estimates. The company reported that in the fourth quarter of 2010, income applicable to common stockholders ("GAAP income") was $197 million, or $3.18 per diluted share, compared to $17 million, or $0.31 per diluted share, in the fourth quarter of 2009.
For the full year 2010, GAAP income was $657 million, or $10.96 per diluted share, compared to a loss applicable to common stockholders ("GAAP loss") of $223 million, or $4.23 per diluted share, in 2009.
At yesterday's closing price of $8.44, the P/E ratio based on trailing earnings was 6.07. Now the P/E is 8.44 / 10.96 or a ridiculous 0.77. Can you say screaming buy -- I did -- and, I am!
For the last six months leading up to Newcastle's inclusion in this years picks, I have been drawing investor attention to a great turnaround story, most recently posting Chasing Value: Newcastle's Huge Gain Leaves Me at a Loss in November when NCT was $3.84. This is a 120% gain in 3.5 months, or 411% annualized.
You would think this would juice the stock, but it's down 30 cents in early morning trading after an initial rise. Clearly profit-taking is natural on the part of investors given the rapid run-up in the stock and the "to good to be true" scenario always on people's minds, including mine.
Insiders were buying stock last May and there has been no selling since. I will be interested to read the most current data when it is available.
Not only is the P/E below 1.0, but the price-to-book (P/B) and price-so-sales (P/S) are too. That price-to-book means Newcastle is still worth a look.
UPDATE: NCT closing price, $7.87, down 0.57 with the market, DJIA off $168.32.
Sheldon Liber is an architect and the CEO of Chasing Value™ Asset Management, Inc., a small private investment company. He writes the columns Chasing Value™ and Serious Money and is on twitter: @ChasingValue. Disclosure: Mr. Liber owns shares and/or options of NCT.