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As an example, consider Gencor (GENC), a manufacturer of heavy-duty equipment for the highway construction industry. As one might expect, Gencor's revenue has taken a hit, and the fixed-cost nature of its business has resulted in several consecutive quarterly losses. But while the company has lost under $3 million in the last five quarters combined, it holds cash of $65 million against no debt, and it trades for just $68 million.
In addition, the company has another $32 million in inventory and accounts receivable against total liabilities of just $10 million. Inventory on the balance sheet is understated due to the fact that the company uses LIFO as its inventory method. (For further discussion of this issue, see the post on L.S. Starrett.)
This situation is eerily similar to that of Hardinge a few short months ago. One major difference, however, is that the catalyst that ended up bringing up Hardinge's price is not possible here. Management controls the company without actually owning a majority of the company's shares, due to a dual-class share structure. This is not an ideal situation for shareholders, and one of the problems with this is that it effectively prevents any hostile takeover attempts. As such, it is entirely possible that the price of the stock won't move up until the economy picks up steam, which could be a while. But for value investors who simply focus on purchasing businesses at discounts to their intrinsic values, Gencor appears to be an attractive candidate.
Disclosure: Author has a long position in shares of Gencor
Saj Karsan
[www.barelkarsan.com]
Disclosure: Author has a long position in shares of Gencor
Saj Karsan
[www.barelkarsan.com]
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What Worked in the Stock Market for Long-Term Investors?
Extensive research has found that the companies with predictable revenues and earnings outperform the market average; they also suffer lower probability of loss. As a matter of fact, this kind of companies are exactly what Warren Buffett wants to buy and hold forever. Please read the research about what worked in the stock market:
Part I: What worked in the market from 1998-2008? Part I: Predictability Rank
Part II: Role of Valuations
Part III: Intrinsic Value, Discounted Cash Flow and Margin of Safety
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Bearuo - Mar 03, 2010 at 10:28 AM
