2 Prudent Speculator Small-Mid Cap Bargains – Acuity & Hasbro

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Professor Eugene F. Fama and Kenneth R. According to French data, market history dating back to 1927 shows that small-company stocks have enjoyed impressive long-term returns of 11.8% per year. Even better, the professor points out that the lower priced stocks (ie the value) have enjoyed a 13.1% annualized return over the same time period. And, the numbers show that dividend-paying stocks have outperformed non-dividend payers by 1.7% per year.

For managed account clients, I run a short- to mid-dividend pricing strategy that uses a similar philosophy of buying and patiently holding stocks that I believe are undervalued for their long-term appreciation potential. Not surprisingly, given the slowdown in equity markets in 2022, I think this is a good time to consider stocks like the two battered names I presented this week.

way light

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acuity brand

Doing
(AYI) is a leading lighting manufacturer that designs, produces and distributes a complete range of indoor and outdoor lighting and control systems for commercial, industrial, infrastructure and residential applications.

The firm’s backlog, especially for operators of commercial, education and industrial facilities, has grown in recent quarters in view of supply-related challenges. AQT has also launched its “Product Vitality” program, which aims to add new products and improve existing ones through investments, while increasing prices amid rising liquid costs over the past year. Gross margin is protected.

Management has also been busy repurchasing shares over the years, so the dividend is very modest. The effort has reduced share count by about 20% since May 2020, although this momentum will hold back business investment in the new fiscal year.

AQITs have generated double-digit returns on equity every year since 2005, despite having very little debt. Shares trading for between $13.00 and $14.00 of earnings per share next year are lower than CFO Karen Holcomb expected, even though higher inventory costs in the first half of the year are expected to weigh on margins.

no more toys

The past year has been a whirlwind for the toy maker and entertainment concern Hasbro

Is
(Is). The death of former CEO Brian Goldner put pressure on active investors to reshuffle the business, resulting in the retirement of two board members. Part of the activists’ agenda, management has recently considered selling or restructuring its entertainment business eOne, which it bought just before the pandemic, with the company already selling eOne’s music business.

Such moves are in a different direction from Hasbro’s previous strategy of using an entertainment platform to promote its toy licenses, but could potentially unlock shareholder value and offer a fresh start. , allowing it to focus its strengths in toy making and gaming.

In addition, current CEO Christian Cox laid out new priorities for the firm – leaning into its largest gaming brands to generate additional revenue, investing in building a brand insights platform for data-based decision-making, and developing its direct-to-market solutions. Efforts to rejuvenate the consumer and digital- to meet a list of financial objectives by 2027.

A cost saving program is called Blueprint 2.0 It is also designed to include newfound rigor in approving item development to weed out inefficient products that do not meet a certain ROI constraint. The plan targets mid-single-digit compound annual revenue growth through 2027, operating profit growth of 50% over the next three years (with a 20% margin by 2027), and cash flow of more than $1 billion annually. operates. Duration.

As the saying goes, the proof will be in the pudding, but shares look cheap, having fallen by more than a third this year, trading at less than 14 times NTM EPS estimates and sporting a strong dividend yield of 4.1%. .

Credit: www.forbes.com /

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