There are some investors who buy stocks when their share prices stand below the liquidation value because these stockholders believe that they can make huge gains out of their investments after the market has reappraised the share prices up to the true value or above in the short term. In theory, even if the business goes bankrupt, shareholders will still earn a profit from the liquidation.
The liquidation value of these so-called net-net working capital stocks is computed as "cash and short-term investments plus 75% of accounts receivable plus 50% of inventory, minus total liabilities."
Gulf Resources Inc
The first stock short term investors may want to consider is Gulf Resources Inc (GURE, Financial), a Chinese manufacturer and trader of bromine and crude salt, other specialty chemicals and natural gas in the People's Republic of China.
The stock was trading at $5.58 per share at close on Monday, which is 34.3% below the net-net working capital of $8.49.
GuruFocus assigned a score of 6 out of 10 to both the company's financial strength and profitability.
Following a 38.5% increase over the past year, the stock has a market capitalization of $53.11 million and a 52-week range of $2.25 to $6.42.
The company's top fund holder is Jim Simons with 3.81% of shares outstanding, followed by BRIDGEWAY CAPITAL MANAGEMENT INC with 1.96%.
Wall Street recommends a buy rating with a price target of approximately $7.21 per share.
China Recycling Energy Corp
The second stock to consider is China Recycling Energy Corp (CREG, Financial), a Chinese designer, sponsor, constructor, operator and seller of waste energy recycling projects to mid and large companies that are involved in the high energy-consuming businesses.
The stock was trading at $2.85 per share at close on Monday, standing nearly 85% below the net-net working capital of $18.57.
GuruFocus assigned a score of 3 out of 10 to the company's financial strength and a score of 4 out of 10 to its profitability.
Following a significant downturn of 10.4% which occurred over the past year, the stock has a market capitalization of $7.11 million and a 52-week range of $1.60 to $7.40.
The company's top fund holder is Virtu Financial LLC with 0.29% of shares outstanding.
One analyst has recommended an overweight rating for this stock with a price target of approximately $50.44 per share.
Richardson Electronics Ltd
The third stock to consider is Richardson Electronics Ltd (RELL, Financial), a La Fox, Illinois-based electronic components provider engaging in several tech businesses in the Americas and internationally, including power and microwave technologies and healthcare equipment.
The stock was trading at $4.26 per share at close on Monday, which is about 4% below the net-net working capital of $4.44.
The company holds a GuruFocus financial strength rating of 7 out of 10 and a profitability rating of 3 out of 10.
As a result of a 24.33% decline which affected the share price in the past year, the market capitalization is now $56.27 million and the 52-week range is $3.10 to $6.32.
As of August, one sell-side analyst has recommended a hold rating and a price target of $12.50 per share.
Chuck Royce leads the group of the company's top fund holders, owning 7.78% of shares outstanding.
Disclosure: I have no positions in any securities mentioned.
Read more here:
- This Trio of Stocks Is Trading at a Discount
- A Trio of Stocks with Low Shiller Price-Earnings Ratios
- 3 Cheap Stocks With a Consistent Sales and Earnings History
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