Below Wall Street’s Radar

I don’t think many investors realize how dramatically Wall Street’s research has been pared back over the past few years. This could be one of the biggest changes for professional investors.
It seems like a different world but it wasn’t that long ago that star analysts held sway over entire sectors of the market. An upgrade could make instant fortunes. Then came the crash, Eliot Sptizer and the global research settlement. After that, the budgets for research department were slashed. Several major houses laid off analysts. Both Citicorp and Prudential ditched their entire technical analysis departments.
Bear that in mind as now I want you to consider the case of Arden Group (ARDNA). To say that the stock keeps a low profile is an understatement. This company might as well be invisible. Arden is based in Compton, CA which isn’t exactly well-known for its corporate HQs. Arden is the parent company of Gelson’s Markets which “operates 18 full-service supermarkets in Southern California carrying both perishable and grocery products.”
I’ll be honest with you. I don’t know much at all about Arden Group or Gelson’s. But here are some basics. It’s a very small company. The market cap is about $280 million—a mere spec to Wall Street. The CEO is Bernard Briskin and he owns a huge amount of shares. Outside of its quarterly reports, the company releases almost no information. This is about as boring as you can get.
Now let’s look at the earnings:
1996 $0.89
1997 $2.11
1998 $2.81
1999 $3.27
2000 $3.52
2001 $3.92
2002 $4.26
2003 $4.90
2004 $6.70
Now do I have your attention? That’s exactly what you want to see from a company, consistently rising earnings. I haven’t dissected the numbers so there could be more to it, but on the surface, Arden looks to be very profitable. The company is having an off-year this year. Sales and earnings are lower, but they’re still making money.
Thirty years ago, you could have bought one share of Arden for 56.25 cents ($2.25 after a 4-for-1 split). You would have made close to 15,000% on your money. The S&P 500 is up about 1,250% over the same time. So I think we can say that Arden is a profitable company that has served its shareholders very well over a long time.
Now here’s the payoff. Arden Group isn’t followed by a single analyst. There are no earnings estimates. There’s no guidance. No upgrades. No downgrades. No buys. No holds. No sells. Nothing. Think about that. A huge market winner for three decades and no one can be bothered to follow. Not even a hold!
By contrast, there’s this one company that’s an internet “search engine.” You may have heard of it. It’s followed by 30 analysts (the company’s market value just passed Cisco, a company that used to be the most valuable company in history of the world). On all of Wall Street, there isn’t one analyst who thought: “Hey, let me check this one supermarket out.”
I can’t imagine Arden bringing anyone a lot of investing banking business. Ignoring Arden is simply not serving the interests of investors. I’m not recommending Arden, but I want to show you that there are gobs and gobs of great companies out there that no one knows about. There are masses of people looking for “the next Apple,” but what’s wrong with the current Arden?
I’ll give you a few examples. One of the secrets of investing is that there are hundreds of tiny banks on the exchanges. Many are very well run and almost completely ignored. Some have been around for decades.
Here’s Northern Empire Bancshares (NREB), a small bank in California. Just 127 employees. Here are the earnings:
1996 $0.26
1997 $0.36
1998 $0.49
1999 $0.55
2000 $0.69
2001 $0.77
2002 $0.85
2003 $1.02
2004 $1.24
Higher earnings like clockwork. For the first three quarters of this year, NREB has already made $1.17 a share.
If you’re willing to do a little homework, you can become the leading expert on a stock. You already know my Buy List, but here are two stocks for you to explore, both S&Ls: Coastal Financial (CFCP) and NewMil Bancorp (NMIL). Read the 10-Q reports. You learned the math in third grade. Call the company. Most people never even think of doing that. It’s your money. Ask to speak to the CEO. They’ll probably be flattered.
This is a new world for investors. The institutions have been dethroned. If individual investors are willing to do a little homework, there are other 15,000% winner out there that no one is looking at.

Posted by on November 17th, 2005 at 3:00 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.