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Dorfman: Fossil, Pilgrims Pride, Micron latest picks for Casualty List

I like stocks that have been smacked down and seem to have great rebound potential.

That's why I compile my Casualty List. It is a roster of wounded stocks that I believe have an excellent chance to recover and thrive. The one you are about to read is the 48th in the series, which began in June 2000.

One-year returns can be calculated for 44 of the Casualty Lists. On average, my picks have returned 21.9 percent in the year after publication. The Standard & Poor's 500 Index, in contrast, has returned 9.4 percent on average for those 44 periods.

Of the 44 lists, 34 have been profitable, and 27 have beaten the S&P 500.

Bear in mind that past performance doesn't guarantee future results. Results for my column selections are theoretical and don't reflect trading costs or taxes. And these results shouldn't be confused with the performance of portfolios I run for clients.

2014 results

My list from a year ago failed to beat the S&P 500. In fact, it was down 7.6 percent while the index was up 11.5 percent.

All four of my April 1, 2014, recommendations had extreme returns, some for better, others for worse. On the good side, Best Buy Co. (BBY) was up 51 percent, and Staples Inc. (SPLS) returned 46 percent. These are total returns, including reinvested dividends.

On the bad side, Geospace Technologies Corp. — which I own for one client — was caught in the great energy downturn and fell 74 percent. CTC Media Inc., a Russian television broadcaster, dropped 54 percent, disproving my suggestion that it was a “decent speculation.”

Maybe that'll teach me not to publish recommendations on April Fool's Day.

Fossil Group

I'll begin my load of new picks with Fossil Group Inc. (FOSL), a maker of men's and women's accessories based in Richardson, Texas. Fossil makes watches, wallets, purses, belts and jewelry, which it sells under its brand names and a private label.

Competition from the Apple watch is a major reason Fossil shares have fallen 26 percent this quarter through Friday. No one relishes competing with Apple, but I think investors are panicking excessively.

In the past five years, Fossil has more than doubled its sales to about $3.5 billion and almost tripled its earnings to $377 million.

It has always struck me as a well-run company.

Pilgrims Pride

Pilgrim's Pride Corp. (PPC) of Greeley, Colo., is the largest chicken producer in the United States. Its price has fallen 14 percent this year through Friday.

Outbreaks of bird flu were a major cause of the weakness, which affected poultry stocks across the board. Another problem: Poultry production is running high, driving down the price.

Avian flu will happen from time to time. But I think Pilgrims Pride is a solid company. Last year, it earned a sterling return — 38 percent — on stockholders' equity. And its balance sheet is built to handle adversity, with very little debt on the books.

Micron Technology

I own Micron Technology Inc. (MU) personally and for almost all my clients. This semiconductor producer has done badly this year, sliding 24 percent. The company predicted a disappointing February quarter, but I do not believe that this is likely to lead to a string of shortfalls.

Perhaps part of the trouble was that Micron was over-owned. According to the publication Insider Monkey, it was the most popular semiconductor stock among hedge funds when the year began, with 113 hedge funds owning more than $8 billion worth of its stock.

I think businesses will be investing more heavily in computers in the next two years. Labor costs are starting to rise, which gives employers an incentive to substitute technology for labor.

The stock sells for only nine times earnings, even though the company's revenue has grown at almost a 20 percent annual clip the past five years.

The Andersons

A little known stock, which I own, is The Andersons Inc. (ANDE), a small agricultural conglomerate. It trades grain, stores grain, leases railcars and repairs locomotives.

The Andersons has been whacked for a 25 percent loss this year, suffering from weak earnings and a loss in the value of its ethanol inventories. As ethanol substitutes for oil, the big drop in oil prices has hurt the value of ethanol as well.

I think that blow has largely been absorbed. The Andersons has shown a profit for at least 10 years in a row, and analysts expect this year and next to be solidly profitable, though not to set records. At 10 times earnings and 0.3 times sales, it looks like a value to me.

John Dorfman is chairman of Dorfman Value Investments LLC in Boston and a syndicated columnist. He can be reached at jdorfman@dorfmanvalue.com.