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Rupert Hargreaves
Rupert Hargreaves
Articles (1261)  | Author's Website |

5 Deep-Value Stocks for 2020

A look at some stocks Benjamin Graham might have liked

Benjamin Graham liked to buy what he called net-nets stocks, stocks trading at or below their current net asset value.

This approach generated tremendous results for Graham and his students (including Warren Buffett (Trades, Portfolio)).

With this being the case, here are five stocks that currently fit the net-nets model that might be interesting investments in the current environment.

As a word of warning, I have not conducted any particularly detailed analysis on any of these companies other than selecting them based purely on financial metrics. This is only designed to be a starting point for further research, rather than a recommendation to buy these deep-value stocks.

Holding company

The first company on my list is GigaMedia Ltd. (NASDAQ:GIGM). This $26 million market capitalization company reported cash and cash equivalents of $57.6 million in its last financial statement.

With net receivables of around $1 million and total liabilities of $44 million, the company has net working capital of $54 million, giving a market capitalization to net working capital ratio of 0.5.

GigaMedia calls itself a holding company with a portfolio of businesses providing online games and cloud computing services across Asia. The company is not profitable and reported sales of just under $7 million on a trailing 12-month basis.

Investment management

Next up is Manning & Napier Inc. (NYSE:MN). This independent investment management company provides a range of investment solutions through separately managed accounts, mutual funds and collective investment trust funds. For its last financial year, the company reported a net profit from operations of $3.2 million.

Manning's last set of financial statements also revealed the company had cash and cash equivalents of $88 million on the balance sheet as well as short-term investments of $55 million.

Net receivables of $11 million and total liabilities of $70 million give a net-net working capital balance of $80.7 million, and a market capitalization to working capital ratio of 0.3.

Bromine and crude salt

With a $23 million market cap, Gulf Resources Inc. (NASDAQ:GURE) offers a similar level of value according to its net working capital ratio. The company manufactures and trades bromine and crude salt as well as other products used in the oil and gas industry.

According to its latest set of financial statements, the company has $105 million of cash and cash equivalents on the balance sheet as well as $97 million of net receivables and just under $1 million in inventory.

Deducting total liabilities of $22 million gives a net-net working capital figure of just under $91 million. On this basis, the stock is trading at a market capitalization to net-net working capital ratio of 0.26.

Asset management

Altisource Asset Management Corp. (AAMC) is the fourth value company I'm going to profile. The group provides asset management and corporate governance services to institutional investors. Its primary client is Front Yard Residential Corp. (NYSE:RESI), a public real estate investment trust.

According to its latest set of financial statements, the company has short-term investments and cash of around $42 million. Net receivables of $42 million and total liabilities of $10.5 million give a net-net working capital value of $34 million -- compared to the company's market capitalization of $22 million. These figures give a market cap to net working capital ratio 0.7.

Clinical-stage biotech

Finally, Zafgen Inc. (NASDAQ:ZFGN). A clinical-stage biopharmaceutical company, Zafgen has $43 million cash on its balance sheet as well as $39 million of short-term investments.

After deducting liabilities, the pharmaceutical company has net-net working capital of $49 million. A market capitalization of of $22 million implies that the stock is trading at a market capitalization to net working capital ratio of 0.4.

However, considering the nature of the pharmaceutical business, and the fact that this is a clinical-stage pharmaceutical company, there's a good chance Zafgen could burn through all of this cash before it has any meaningful income.

Disclosure: The author owns no stocks mentioned.

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

Visit Rupert Hargreaves's Website


Rating: 5.0/5 (1 vote)

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Comments

RoFi
RoFi premium member - 7 months ago

MN last quarterly report stated that they we're loosing 1B in AUM which contributed +$3MM of revenue. The funds would leave their management within Q4, I expect to see it appear in the December AUM report coming out early next week.

ChrisMGMT
ChrisMGMT - 6 months ago    Report SPAM

OTCPK:NVTRQ (USA) Nuvectra Corp. It is a cigarette butt. I have not analyzed it much but the company quotes well below its liquidation value, the company has a large amount of cash superior to long-term debts, I think it would fit very well in your list.

Greetings, this is my first comment.

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