Money management firm Calamos Asset Management (CLMS) has been making money for clients and shareholders by buying and selling stocks. Describing itself a little fancier, its website says: “Calamos Investments® is a global investment firm committed to excellence in investment management and client service. The firm has served the needs of institutional and individual investors for over 30 years by offering a range of global investment solutions to work within a client’s asset allocation framework. Calamos has been chosen by a diverse global base of clients to provide investment expertise across asset classes.”
CLMS trades publicly. Insiders and institutional owners hold about 95% of its shares, with insiders and 5% owners holding 9%, and institutions and mutual funds owning 86%. Dr. Paul Price believes the stock represents solid value, and he had included it in Paul’s Virtual Value Portfolio (screenshot below), created on 10/28/12. CLMS was trading at $10.87. Now it’s trading at $9.51. Paul’s buying more and increasing the Market Shadows Virtual Portfolio position to 5%. (Originally, virtual portfolio position allocations were approximately 3%. We put 70% of our virtual cash into 23 stocks on 10/28, 3% each. Paul plans to increase CLMS to 5% on Monday.)
Paul believes the company’s low profile could quickly translate into rally potential because public awareness of the company right now is low, while its beta (volatility) is high (1.80). Paul notes,
Price action dating back to 2009 bears this out. Over the past 44 months, there have been four rallies to peaks of $14.10 – $17.40. Each move occurred over relatively short periods, typically during bull runs in the overall market.
Friday’s closing quote of $9.51 is near multi-year nadirs. That is despite expectations for a positive year-over-year earnings comparison. A mid-year 2012 dividend increase to 11-cents quarterly provides a well-covered and very attractive 4.63% current yield. Today’s valuation looks very much as it did at the previous two ‘best buying opportunities’ since 2009.” (Yield To The Obvious – Calamos Asset Management)
CLMS more than doubled from its 2010’s low to its high point in early 2011. The subsequent selloff provided a 50% move in five months.
(Chart note: the figures in the boxes represent the price, P/E, and dividend yield at the point that the stars are indicating.)
CLMS’s forward P/E is 11.5. The recent tops came with CLMS at higher than 15x that year’s EPS. The stock is undervalued on a P/E basis and on a price/book basis–it’s trading at a slight discount to book value. Prior to 2008’s market meltdown, CMLS shares were high-fliers. Average P/Es were above 20x. Regression to the mean would move the stock to trade at a P/E of ~ 15 over the course of the next year. That would move the shares into the $13 area, about 35% higher. Paul believes the shares are currently trading at a low-risk valuation, with a substantial upside.
Paul also noted that the company’s insiders have been buying the stock, at higher prices. He wrote,
Most companies see heavy net insider selling over time due to distribution to company executives via employee stock options. The chart below shows that Calamos officers have exhibited exactly the opposite pattern. There have been multiple insider purchases, at higher than the present quote, with not one insider sale reported.
“CLMS’s solid balance sheet, well-defined upside, better-than-CD-rate yield and insider endorsement led me to increase my position during the past week. A harder decision will be whether to take profits at the first rally above $13 or to wait for a more fully-priced move to $15 – $18.
Here is a screenshot of the most recent update of Paul’s Virtual Value Portfolio.
Paul began this virtual portfolio on 10/28, buying approximately $3,000 of the stocks listed in the left-hand column. The prices are the closing prices the Friday before the newsletter, 10/26/12.
Paul added to ESRX on 11/7, taking this position to 5%. Paul plans to increase the allocation of CLMS to 5% on Monday, 11/26.
*Originally, Paul’s virtual portfolio position allocations were approximately 3%. We put 70% of our virtual cash into 23 stocks on 10/28, 3% each. Paul raised ESRX’s allocation to 5% on Nov. 7. We are similarly raising CLMS’s allocation to 5% on 11/26. (Rule: positions should not exceed 5% of a portfolio.)
Virtual profits taken on the ANF position on 11/15 at $41.80.
TAP added on 11/19 at $40.15.
Read the full newsletter: Market Shadows (11/25): From Fed, With Love.
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