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Bargain Hunting: 4 Reasons To Buy Libbey At $6 Per Share |

Bargain Hunting: 4 Reasons To Buy Libbey At $6 Per Share

Libbey, Inc. (LBY) is a leading maker of glassware and dinnerware. It manufactures and markets its products under the Libbey brand name as well as a few other globally recognized brands. It sells to consumers and also to restaurant and food service companies. With the stock currently trading in the $6 range, this appears to be offering investors a very strong buying opportunity. Let’s go through a little background history and the reasons to buy this stock while it still trades in the $6 per share range:

A Little Background:

Libbey shares were trading around $18 to $20 per share in early 2017, but went down to just about $6 per share in December. This company was impacted in the third quarter by a number of major natural disasters which included hurricanes in Texas, Florida and Puerto Rico. There was also an earthquake in Mexico and major fires in Northern and Southern California. These natural disasters occurred in economically important areas and these events were disruptive to business. In addition, the company took a non-cash impairment charge of $79.7 million for goodwill for the Latin America division in the third quarter.

Overall, it was a disappointing year for Libbey and all shareholders. This disappointment, (especially after Q3 results were announced), led to tax-loss selling which pushed the shares down to about $6. This appeared to be a bargain, in particular because the company has a history of posting profits and also because it offers a generous dividend. After bottoming out in December at about $6, the shares did surge to about $8 per share in January. However, the sudden market correction that took place in February has brought the shares back down to $6, which is giving us another buying opportunity. Now let’s look at the reasons to buy Libbey shares now:

Reason #1: A Bullish Double Bottom Is Forming In The Chart

Take a look at the chart below and it is clear that this stock bottomed out at around $6 per share in December. Based on this, it appears that this is a very strong support level for the stock. It is also worth noting that in the midst of a fierce correction which took the market down by more than 1,000 points on a single day, this stock still managed to find support at around the $6 level. With the stock finding support two times at this level, there appears to be a very bullish double bottom forming on the chart. This could mean potential downside risks are limited at this level and it also could mean the stock is now poised for another rebound.

Reason #2: The Dividend Is Generous And It Will Be Paid Soon

Libbey offers a dividend of 47 cents per share, which implies a yield of about 7.75%. On February 6, 2018, the Board of Directors declared another quarterly dividend of 11.75 cents per share. This quarterly dividend is payable on March 13, 2018 to shareholders of record at the close of business on February 28, 2018. Investors who buy this stock soon will collect the next dividend payment. I see this dividend announcement as major sign that the Board of Directors is confident in the financial strength of the company and business outlook for 2018.

Reason #3: Q4 Earnings Results Are Likely To Be Strong

The fourth quarter is typically very strong for Libbey as consumer demand for glassware and dinnerware increases during the holiday season, not only as gifts, but also because of holiday parties and family events. Because of all the natural disasters, the fourth quarter of 2017, could be even stronger due to the orders that were disrupted during Q3. Libbey could also see a surge in sales in Q4 and beyond as consumers and businesses receive insurance settlement check to replace items that were destroyed in the hurricanes and fires. Consensus analyst estimates for Q4 call for earnings of 29 cents per share and based on the factors I mention above, it seems that Libbey will be able to meet or beat the estimates.

Reason #4: This Stock Is At Bargain Levels

This stock looks like a bargain when considering a number of different metrics and factors. It was trading for about $20 per share in 2017, and it has traded for even more than $20, in the past. Therefore, Libbey shares are cheap based on historical levels. The consensus analyst price target is $12 per share, and analysts expect earnings of 70 cents per share in 2018. Based on analyst price targets of $12, this stock could just about double. This implies it is undervalued now. Furthermore, with estimates at 70 cents per share for 2018, this stock is trading for just around 9 times earnings. That also indicates this stock is undervalued, especially as the SP 500 Index (SPY) trades for almost twice that price to earnings ratio.

I believe potential downside risks are limited at this time. One reason for this is because the stock appears to have strong support at around the $6 level. Another reason is because this stock is already beaten down and it appears undervalued. A recession is a potential downside risk to consider, but the recent tax cuts are likely to boost economic growth and push out any recession. At this time, I think management execution (or lack thereof) could be the biggest potential risk for shareholders. Overall, I see a very favorable risk to reward ratio in this stock and that is why I see it as a strong buy right now.

If you want updates on these stocks in the future or other deep value and contrarian investing ideas, please consider following me. I have recently started posting updates on my Seeking Alpha Blog and by following me, you will have a chance to get these updates on stocks and investing strategies. For another undervalued stock idea, please read my recent article on a food stock that trades for just over $2 per share.

Data is sourced from Yahoo Finance. No guarantees or representations
are made. Hawkinvest is not a registered investment advisor and does
not provide specific investment advice. The information is for
informational purposes only. You should always consult a financial

Disclosure: I am/we are long LBY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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