To my surprise there are still a handful of Graham net net stocks that haven’t risen above their liquidation value.
In my calculations, I haven’t included any restricted cash as it is usually designated for other purposes and can no longer be used for the business. This isn’t always the case and you will have to dig into the filings to determine whether it really is restricted or will be released.
You can also increase the number of companies that fit the criteria by adding back some long term assets such as PPE. Or rather than take 75% off receivables and 50% off inventory like I do, you could also simply calculate
current assets - total liabilities
10 Cheap Value Stocks Remaining as Net Nets
China 3C Group (CHCG, Financial)
NNWC:Â $0.81
Current Price:Â $0.57
Discount to liquidation Price:Â 30%
Endwave (ENWV)
NNWC:Â $7.32
Current Price:Â $2.96
Discount to liquidation Price:Â 60%
Forbes Medi-Tech (FMTI, Financial)
NNWC:Â $0.43
Current Price:Â $0.34
Discount to liquidation Price:Â 21%
Electronic Systems Technology (ELST)
NNWC:Â $0.49
Current Price:Â $0.33
Discount to liquidation Price:Â 33%
Qiao Xing Mobile Communications (QXM, Financial)
NNWC:Â $5.88
Current Price:Â $2.93
Discount to liquidation Price:Â 50%
RCM Technologies (RCMT)
NNWC:Â $2.31
Current Price:Â $2.21
Discount to liquidation Price:Â 4%
Taitron Components (TAIT)
NNWC:Â $1.23
Current Price:Â $1.20
Discount to liquidation Price:Â 3%
TSR Inc (TSRI, Financial)
NNWC:Â $2.57
Current Price:Â $2.05
Discount to liquidation Price:Â 20%
Peerless Systems Corp (PRLS)
NNWC:Â $2.89
Current Price:Â $2.41
Discount to liquidation Price:Â 17%
Endwave (ENWV) Commentary
I originally was drawn to ENWV due to the high cash position and current assets. It was also a business I know quite well but, upon reading the annual report there were some worrisome factors.
Majority of the cash came from a sale of discontinuing operations
Non pricing power. Have to lower prices to gain business.
Growth strategy by acquisitions
Proxy reveals that majority of shares held by CEO are actually options. Hardly any “real” shares.
Non shareholder friendly
Very volatile business and operations business
But I wanted a second opinion and turns out he had the same concerns. So it was a no go.
Qiao Xing Mobile Communications (QXM) Commentary
Quite a few value investors have pointed out QXM. It’s also a company that came up several times in the Magic Formula investing screen and one I’ve known about for a while.
By the numbers, QXM is very cheap however, the main reason why I am not interested in QXM is due to the lack of transparency. What do I mean by this? To be blunt, I don’t like Chinese stocks. After my intial foray with HRAY, that short experience was enough to turn me off.
For these type of cheap stocks, you need available information. If management is hard to reach or communicate with, it makes it difficult to realize the investment potential.
One aspect for why I believe IGOI reached close to its intrinsic value and was a success for my portfolio so quickly was because of the company’s marketing and press release. They communicated to investors and the market of what they were doing.
You’ll rarely get any communication or willingness to open up from Chinese companies.
TSR Inc (TSRI) Commentary
TSRI is another staffing company but mainly for the IT industry. Fundamentally the numbers look pretty good and one that I am interested in.
We’ve been analyzing TSRI in the forum section and Floris had the following to say about TSRI.
Cash flow positive, business has been deteriorating over the past 10 years. Probably why it is selling for such a low price. It also suspended dividends, another reason why it is selling at this price. It is also worth less than 10mil, might prevent some inst investors from buying the stock.
Massive cash position, and since this business is unlikely to burn through a lot of cash, this offers you a significant MoS.
If the firm returns to average past years earnings, you are only paying 6x average earnings.
High dividend yield, due to the industry. The company is basically a temp worker agency with a bit of specific industry knowledge. No real cap ex required.
Majority owner and there appear to be anti-takeover defenses in place. This reduces the chances of catalyst and increases the chances of this being a long run net-net.
While I dont think this firm will be a 5 of 10 bagger, the fair price of the firm is imho roughly $ 4 a share. If the earnings recover, the price should follow. MoS is high because of the high cash position. Liquidation would yield a 50% return. Continuing business operations recovering ~ 100%.
Thanks to Ahson for the list of stocks.
Jae Jun
http://www.oldschoolvalue.com/
In my calculations, I haven’t included any restricted cash as it is usually designated for other purposes and can no longer be used for the business. This isn’t always the case and you will have to dig into the filings to determine whether it really is restricted or will be released.
You can also increase the number of companies that fit the criteria by adding back some long term assets such as PPE. Or rather than take 75% off receivables and 50% off inventory like I do, you could also simply calculate
current assets - total liabilities
10 Cheap Value Stocks Remaining as Net Nets
China 3C Group (CHCG, Financial)
NNWC:Â $0.81
Current Price:Â $0.57
Discount to liquidation Price:Â 30%
Endwave (ENWV)
NNWC:Â $7.32
Current Price:Â $2.96
Discount to liquidation Price:Â 60%
Forbes Medi-Tech (FMTI, Financial)
NNWC:Â $0.43
Current Price:Â $0.34
Discount to liquidation Price:Â 21%
Electronic Systems Technology (ELST)
NNWC:Â $0.49
Current Price:Â $0.33
Discount to liquidation Price:Â 33%
Qiao Xing Mobile Communications (QXM, Financial)
NNWC:Â $5.88
Current Price:Â $2.93
Discount to liquidation Price:Â 50%
RCM Technologies (RCMT)
NNWC:Â $2.31
Current Price:Â $2.21
Discount to liquidation Price:Â 4%
Taitron Components (TAIT)
NNWC:Â $1.23
Current Price:Â $1.20
Discount to liquidation Price:Â 3%
TSR Inc (TSRI, Financial)
NNWC:Â $2.57
Current Price:Â $2.05
Discount to liquidation Price:Â 20%
Peerless Systems Corp (PRLS)
NNWC:Â $2.89
Current Price:Â $2.41
Discount to liquidation Price:Â 17%
Endwave (ENWV) Commentary
I originally was drawn to ENWV due to the high cash position and current assets. It was also a business I know quite well but, upon reading the annual report there were some worrisome factors.
Majority of the cash came from a sale of discontinuing operations
Non pricing power. Have to lower prices to gain business.
Growth strategy by acquisitions
Proxy reveals that majority of shares held by CEO are actually options. Hardly any “real” shares.
Non shareholder friendly
Very volatile business and operations business
But I wanted a second opinion and turns out he had the same concerns. So it was a no go.
Qiao Xing Mobile Communications (QXM) Commentary
Quite a few value investors have pointed out QXM. It’s also a company that came up several times in the Magic Formula investing screen and one I’ve known about for a while.
By the numbers, QXM is very cheap however, the main reason why I am not interested in QXM is due to the lack of transparency. What do I mean by this? To be blunt, I don’t like Chinese stocks. After my intial foray with HRAY, that short experience was enough to turn me off.
For these type of cheap stocks, you need available information. If management is hard to reach or communicate with, it makes it difficult to realize the investment potential.
One aspect for why I believe IGOI reached close to its intrinsic value and was a success for my portfolio so quickly was because of the company’s marketing and press release. They communicated to investors and the market of what they were doing.
You’ll rarely get any communication or willingness to open up from Chinese companies.
TSR Inc (TSRI) Commentary
TSRI is another staffing company but mainly for the IT industry. Fundamentally the numbers look pretty good and one that I am interested in.
We’ve been analyzing TSRI in the forum section and Floris had the following to say about TSRI.
Cash flow positive, business has been deteriorating over the past 10 years. Probably why it is selling for such a low price. It also suspended dividends, another reason why it is selling at this price. It is also worth less than 10mil, might prevent some inst investors from buying the stock.
Massive cash position, and since this business is unlikely to burn through a lot of cash, this offers you a significant MoS.
If the firm returns to average past years earnings, you are only paying 6x average earnings.
High dividend yield, due to the industry. The company is basically a temp worker agency with a bit of specific industry knowledge. No real cap ex required.
Majority owner and there appear to be anti-takeover defenses in place. This reduces the chances of catalyst and increases the chances of this being a long run net-net.
While I dont think this firm will be a 5 of 10 bagger, the fair price of the firm is imho roughly $ 4 a share. If the earnings recover, the price should follow. MoS is high because of the high cash position. Liquidation would yield a 50% return. Continuing business operations recovering ~ 100%.
Thanks to Ahson for the list of stocks.
Jae Jun
http://www.oldschoolvalue.com/
