We all know about a certain fruit-named electronic-equipment company that spent 10 years redefining modern coolness. But I rarely deal with huge, well-known companies — I do not believe in “hot stocks” outside of auto racing. This is an article where we’re going to talk about three less well-known companies and see if they might make better contrarian investments. So let’s pop in and see what they’re all about.
A pebble in the rough
Harbinger Group Inc (NYSE:HRG) has a significant number of successful holdings. I like that the company owns a major stake in Farberware, which produces household names like Black & Decker, George Foreman’s series of grills, Black Flag, Spectracide, and a host of pet products. Harbinger also owns Salus Capital Partners, which directly lends to middle-class customers, as well as Fidely & Guaranty Life and a reinsurer called FrontStreet. With so many ways to draw in revenue and $4.8 billion in trailing annual sales, there seems to be a solid moat in place.
However, Harbinger Group Inc (NYSE:HRG) does have its share of issues. For one, it’s a $1.2 billion company — not too big. The company has great diversification with several divisions, and maturity in its various marketplaces. So much of that money may be going toward financing less-profitable areas that are either kept for sentimental reasons or as long-term holdings. The largest example is Spectrum Brands Holdings, Inc. (NYSE:SPB), which has undoubtedly taken a hit from both the recession and from the fact that home improvement has fallen in popularity due to the housing market and slowly recovering job market. When people know it’ll be hard to sell their homes no matter how nice it is and they’re concerned about their employment prospects, adding a deck has to go on the back burner.
As well, its indirect ownership of the various brands lessens its control over them. Also, I’m not a major fan of an earnings multiple of 80 or a 1.6% profit margin. I would not recommend Harbinger Group Inc (NYSE:HRG) at this time because there are too many ways the company could be badly damaged.
Working outdated angles
Harman International Industries Inc./DE/ (NYSE:HAR) has a lot of niche possibilities. Operating in the recording studio and having contracts with General Motors Company (NYSE:GM), BMW and Mercedes-Benz among others, the contracts provide a secondary moat and access to a more mass market than the recording niche. It is also nice that a company with only a $3.6 billion market cap can pay a 1.1% dividend.
Unfortunately, there are problems for Harman International Industries Inc./DE/ (NYSE:HAR). Despite having some good industries under its banner and $4.2 billion in gross sales over the past year, the company is also targeting some less-successful areas, such as the waning CD and DVD formats.
Between the older technology’s lessening sales weighing down the operation plus the triple threat of satellite radio and digital audio as well as streaming video, Harman International Industries Inc./DE/ (NYSE:HAR) is only pulling 4.4% profit margins. Trading at double its book value and for around 20 times earnings, which is pricier than the S&P 500 as of this writing, Harman is too expensive as a contrarian play. Particularly considering that it’s trading for 90% of its sales, I recommend avoiding Harman for now.
Can a company be too conservative?
Sony Corporation (ADR) (NYSE:SNE) is a global Goliath, ranking 87th on Fortune’s Global 500 list. As one of the most comprehensive entertainment companies in the world, the rank of third-largest TV manufacturer and mentioned as one of the top 20 semiconductor-sales companies on earth, Sony has a tough moat to beat. It’s extremely well diversified, pays a 1.5% dividend and is only trading for 70% of its book value. That indicates a potential deal. As well, Sony is run conservatively, with almost $90 billion cash on hand reported in 2012.
However, the earnings picture is the weakest link. The Great Recession hit the company hard, and in response Sony Corporation (ADR) (NYSE:SNE) has had to let go of thousands of workers as it struggled with losses. As of this writing, the company is laboring under a razor-thin 0.6% profit margin. Because of this, Sony is trading at close to 40 times its earnings, which ain’t cheap.