James Roumell, the Bethesda money manager who has solidly whipped the benchmark S&P 500 for the past five years and was a multiple winner of the Wall Street Journal's stock-picking contest, tells clients in his Oct 27 newsletter about three compelling recent purchases. They're the kind of companies I like: boring but beautiful. First is the Dress Barn (DBRN), which last year bought back 8 million of its own shares. No wonder. The company "produces significant free cash flow - the amount of money left at the end of the day after subtracting out all capital expenditures required to operate the business." Second is the Buckle Inc. (BKE), another retailer, which, like Dress Barn, has loads of cash, strong profit margins and an attractive valuation (in this case, a P/E of 16 for a company whose earnings are expected by analysts to grow an average of 12 percent for the next five years). And finally, there's Newell Rubbermaid (NWL), maker of consumer products under such brand names as Rubbermaid (plastic containers), PaperMate (pens) and Calphalon (cookware). It pays a dividend of 3.8 percent. The top managers of these companies own substantial chunks of the stock. "They have skin in the game," writes Roumell, which means that their interests are directly aligned with those of smaller shareholders.
Reprinted with permission of James K. Glassman.