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Another Micro-Cap Magic Formula Newsletter Pick Is Being Bought Out at a Large Premium; October Issue Is Out

October 12, 2012 | About:
GuruFocus

GuruFocus

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Early last week, last December's Micro-Cap Magic Formula Newsletter pick, Versant (VSNT), reached an agreement to be acquired for $11.50 per share. The price represent an almost 20% premium to the price the newsletter paid for its shares last December, and there's reason to believe that could be raised even higher: Versant has another two weeks to shop itself without having to pay a breakup fee.

However, even if it doesn't receive another offer, the price represents a nice gain for Micro-Cap Magic Formula Newsletter followers. It's also a nice re-affirmation of the strategy.

Consider this: The newsletter has made 17 picks since its inception last May, with most of them only having been in the newsletter for a few months. Of the 17, 3 have been bought out at an average premium of almost 40% above the newsletter's purchase price. In addition, another of the newsletter's current holdings is "in play," having already received one buyout offer, and there are indications that several more might be forthcoming.

All in, the newsletter's portfolio is up more than 20% since it began, and there's potential for a whole lot more upside.

So why not give the newsletter a shot? We just released our October 2012 pick, and it's got all the makings of another home run: nice dividend, good growth, consistent earnings and (of course) dirt-cheap valuation!

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This month's pick also sports a mouthwatering ROIC of over 75%. Even better than its strong ROIC is its consistent ROIC, which has been above 30% for the last 10 years. It also hasn't produced an operating profit over that entire time frame. As an added bonus, the company sports a nice dividend yield of just under 4% and has shown a willingness to both raise the dividend and buy back shares.

Of course, none of this would matter if the shares weren't cheap. But, luckily, shares are very cheap. 80% of the company's current market cap is covered by its cash and investment portfolio, and the company trades for an EV/EBIT under 2x.

Our target share price for the company is almost 50% above today's price. And, in the event of a merger, buyers at today's levels would likely be looking at a double. In other words, the company looks cheap on almost every metric.

We will buy shares on Monday.

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Rating: 3.3/5 (11 votes)

Comments

jk815
Jk815 premium member - 1 year ago
i love these newsletter i bought peri and am up over 55%!!

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