Stock of the Week Under $10: Heritage Global (HGBL)

If one stock under $10 most epitomizes the Wall Street axiom, “Bad news is good news”, it would be hard to argue that Heritage Global (HGBL) is not that stock. 

Heritage Global is in the business of making money when things are not going well for industrial businesses, or financial assets. If you’ve been reading about the coming commercial real estate bust, which you’ve had to because it’s constantly in the news, then you’ve identified an area where Heritage Global will be a winner. 

HGBL auctions off the assets from industrial businesses when the factory doors shut (including whole factories), sells the furniture and fixtures when a commercial business downsizes, goes under, or just rebrands (yes, they actually sold the neon blue bird signs when Twitter became X), and they find buyers for financial assets (rising mortgage rates causing debt defaults, that’s their bag as well).

While the current POWR Ratings put the overall rating for Heritage Global at a C, some of the metrics which turn first, Sentiment and Momentum, are trending higher and currently stand at B’s in both categories. Sentiment is actually HGBL’s strongest attribute right now, as it ranks above 98% of all U.S. stocks.

Turning to the numbers, HGBL has a PE of only 6.9x and trades at a very acceptable 10.3x projected earnings. The company has gross margins of 54.29%, and operating margins run at 8.83%. Sales grew 82% on an annual basis in 2022. 

In their 2Q earnings release in early August, HGBL CEO Ross Dove clearly stated how he sees the current economic environment. “Both of our operating divisions are seeing tremendous opportunities in the marketplace, as the challenging economy is creating heightened volume in the financial and industrial assets coming to market.” If the U.S. consumer becomes tapped out, a notion that is seemingly growing by the day, the “bad news” will give a further boost to HGBL.

The stock has run from just over $1 in the middle of 2022, to just over $4 in July of this year, and has recently pulled back to just over $3. And if rising rates continue to pressure businesses and the consumer, this could be an opportune pull back in HGBL shares. 

I think this stock is not only under $10, but under the radar for a lot of investors. It makes a great offset to what is a challenging rising rate environment for many businesses.

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HGBL shares were unchanged in after-hours trading Monday. Year-to-date, HGBL has gained 31.91%, versus a 18.15% rise in the benchmark S&P 500 index during the same period.

Jay is the lead Options Portfolio Manager at Investors Alley. He is the editor of Options Floor Trader PRO, an investment advisory bringing you professional options trading strategies. Jay was formerly a professional options market maker on the floor of the CBOE and has been trading options for over two decades.

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