Tuesday, February 17

Four Net Cash Bargains

This is just a follow up on the previous posting. I selected only 4 ideas and posted on SeekingAlpha.

Four Net Cash Bargains

The liquidation of Technology Solutions (TSCC) was a strong reminder of the profit potential for stocks trading for less than net cash (cash – total liabilities). TSCC was relatively illiquid and trading between a low of $1 and a high of $1.11 this year. Some days no shares were traded. But in my article on 02/09/09 "Exploiting Market Anomalies with Neglected Illiquid Stocks" I did speak on the topic of illiquid value stocks and believe it should not deter value investors.

On Tuesday, February 10, TSCC announced they would liquidate. TSCC closed at $2.18 this past Friday (02/13/09), up from the liquidation announcement date on Tuesday 02/11/09 at $1.06 for a +105% gain. This event got me thinking I should carefully search for other net cash bargains. I screened on many quantitative and qualitative factors coupled with net cash greater than current share price. These ideas were the most appealing net cash bargains

GSI Group Inc. (GSIG) had the largest percentage net cash over market price premium at 259.05% ($2.72/$1.05), positive insider activity with purchases significantly higher than current price. Royce Associates owns 10.88% of the outstanding shares as of 09/30/08. GSIG had the lowest ratio of SGA/Revenue (.2014) over the past 12 months. This ratio (I call the management greed ratio) can be useful when comparing to others in the same industry.

Forward Industries (FORD) had the only positive YOY quarterly revenue growth but margins have continued to decelerate. Operating margins were 23.79% (2005) and dropped to negative -8.34% (2008). The cash burn has been reasonable and their current liquidity is positive with a quick ratio of 10.08 and cash ratio of 8.29. Institutional investors Dan Zeff , Trinad Management and Barclays global investors have been reducing their positions. But in this market it could be the need to raise cash for redemptions.

Paragon Technologies Inc. (PTG) inside directors purchased 10,000 shares over the past 12 months at an average price of $5.20. Based on the reported holding as of 09/30/08, value institutions Microcapital owned 100,200 shares or 5.57%, Al Frank Asset Management 76,000 or 3.84%.

FortuNet (FNET) was the only company reporting positive operating income and cash flow from operations.


Additional decision making financial data

Disclosure: I don't have a position in any of the stocks mentioned. But I will consider purchases as part of a small basket of net cash bargains

13 comments:

Anonymous said...

Actually, take a closer look at FortuNet. It has an even higher cash balance then reported here. They had some auction rate securities that are not listed as cash equivalents at this point and instead long term assets. The auction rate securities are as good as cash now and that brings the cash total to about $32 million dollars or almost $3 per share. And this is a profitable company trading at just $1.50 per share!!! Won't stay this way for long once people figure this out. Stock is worth at least $5/share.

Anonymous said...

any idea who/what happened on 12/30/08? looks like a HUGE block of shares traded. i can't tell anymore than that with the resources i have either.

Anonymous said...

where are you seeing that about the auction rate securities with FNET?? i'm not finding it...

Anonymous said...

nevermind, i see it now on page 7 and 8 of FNET 10q, however the numbers still don't see to match up quite exactly, not sure where the small differences are being accounted for. they do indeed though have 12.9M$ in auction rate securities on their books at the moment. you can see short term investments turn to long term investments in the balance sheet and that is where the ARS lost liquidity and then you can see the cash balance increase as they have liquidated them. dumb ass CFO put so much of their cash in ARS. no wonder he left the firm in january...

Anonymous said...

nevermind, i see it now on page 7 and 8 of FNET 10q, however the numbers still don't see to match up quite exactly, not sure where the small differences are being accounted for. they do indeed though have 12.9M$ in auction rate securities on their books at the moment. you can see short term investments turn to long term investments in the balance sheet and that is where the ARS lost liquidity and then you can see the cash balance increase as they have liquidated them. dumb ass CFO put so much of their cash in ARS. no wonder he left the firm in january...

Anonymous said...

nevermind, i see it now on page 7 and 8 of FNET 10q, however the numbers still don't see to match up quite exactly, not sure where the small differences are being accounted for. they do indeed though have 12.9M$ in auction rate securities on their books at the moment. you can see short term investments turn to long term investments in the balance sheet and that is where the ARS lost liquidity and then you can see the cash balance increase as they have liquidated them. dumb ass CFO put so much of their cash in ARS. no wonder he left the firm in january...

Dividend Growth Investor said...

That is one hell of a good article. I always enjoy learning about value investing strategies.

One question - where do you screen for net cash stocks? Yahoo Finance?

ShadowStock said...

Thanks for the comment.

I create my own programs to use edgar filings.

Sorry, but Yahoo ketstat section does give you the cash per share.

John

Anonymous said...

nice call on FNET man, check them out.

ShadowStock said...

Thanks, its tough as it seems the rules have changed.

I'm just trying to pass along unique off beat ideas coupled with research.

John

Anonymous said...

thanks man! your site is fun and always thought provoking! look forward to more of your work! these micro caps with zero debt and big cash flow are super interesting.

cheers man!

ShadowStock said...

Great,thanks for taking the time to respond.

with a full time job +, it can be rough putting together something useful.

John

Carrigaline said...

I've been looking at a company called Ambase - ABCP. Other than the rent on a building they own and the interest earned on cash, they don't run any other businesses. They have cash and real estate that's 4 times the stock market value. Management seem to be crooked, paying themselves nice salaries when the company really needs to be liquidated.

Management only own a few percent of the company, so there's no reason why shareholders can't vote them out and liquidate! If you could round up 200 people and have them invest $10,000 each, you could take control of the company and double or triple your money.

If I could find 199 other like-minded people, I would chip in :)