Most of you have probably heard of Tecumseh Products. There's a good chance your father's lawn mower or snow blower ran on a Tecumseh engine.

Tecumseh Products Co. (TECU-A) however began a precipitous, almost straight line earnings decline, from peak per share earnings of $6.56 in 1999, to a large loss of over $5 per share in 2006. Operating losses of less severity have occurred into 2009.

TECU-A underwent a large restructuring in 2007, selling what became a money losing small engine business, while retaining its core compressor business, which is a world wide leader in its markets. TECU-A's compressors are used in residential and commercial refrigeration equipment, dehumidifiers, window and central air conditioning units, and heat pumps. After the restructuring, which included shuttering a Brazilian manufacturing operation, Tecumseh was able to pay off all its long-term debt.

The difficult pill to swallow with this company is just as Tecumseh was returning to profitability in 2008, the recession came along and whammied its end markets. The end result being TECU-A will probably lose something like $3.70 per share (Value Line estimate) in 2009. In fact today, 11/04/09, Tecumseh reported a net loss of $.87 per share for the third quarter of 2009.

So what do Charles Brandes, as well as Frankin Templeton which owns 7% of the company, see in this apparent dog? It is a prime example of a Benjamin Graham asset play. Tecumseh's book value per share is $25. At a closing price of $10 TECU-A is trading at a 60% discount to book value. Tecumseh also has $85 million in cash on hand which is roughly $4.50 per share on 19.7 million fully diluted shares. Not bad for a $10 stock with no long-term debt.

Again, margin of safely comes to mind. With almost half TP's market capitalization in cash, and at 40% of book value this stock has considerable upside, With world wide economies beginning to improve TP could be profitable in 2010 and solidly profitable in 2011 and thereafter. TP traded as high as $37 as recently as mid 2008 but need only trade up to book value to provide a 150% return from today's close.

Disclaimer: The author has a position in TECU-A

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From 1923 to 1957 Warren Buffett’s mentor, Ben Graham, followed a strategy of investing in net-nets. He said: “It always seemed, and still seems ridiculously simple to say that if one can acquire a diversified group of common stocks at a price less than the...net current assets alone…the results should be quite satisfactory. They were so in our experience, for more than 30 years.”
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