Occasionally, I like to sit down and scan the market to see if there are any traditional Benjamin Graham net-net style value stocks out there. In recent years, the number of stocks qualifying as deep value has dwindled as the bull market has pushed ever higher.
However, I have found five particularly exciting companies towards the bottom of the market. I should point out that I will give an introduction to these companies as well as a brief overview of valuation. It is just a starting point for further research if you find the opportunities interesting.
Most of the companies that currently qualify as deep value are based in China or are biotech companies, which I'm excluding from my screen. I think it is challenging to evaluate biotech companies based on their pipeline potential unless you have experience in the industry, and Chinese companies are notoriously difficult to value unless you have access to an unprecedented amount of fundamental data.
Five deep value plays
VOXX International (VOXX, Financial) is one of the largest companies that currently shows up on my deep value screen. This company is a manufacturer and distributor of products for the automotive and audio industries. It produces rear-seat entertainment devices and other digital entertainment products. The company has struggled to generate a profit for much of the past five years, but following a significant business disposal in fiscal 2018, it is now debt-free, and Wall Street is predicting a comeback.
According to the last set of financials, the group has a net cash balance of just under $35 million and is expected to earn 26 cents per share for fiscal 2019 -- the first positive earnings per-share figures since 2013. The stock currently trades at a price to tangible book value of 0.5.
The next company that shows up on my list has a less attractive financial structure, although it is trading at 0.44% of tangible book value. This company is the Sears Hometown And Outlet Store (SHOS, Financial), which has been heavily loss-making since 2005. Over the same period, net debt has ballooned from $2.2 million to $127 million, and working capital makes up almost all of its asset base: The quick ratio is only 0.2. So, even though this stock is cheap, it looks as if it could work out to be a value trap.
The next stop is Israeli tech company TAT Technologies (TATT, Financial), which works with the military aerospace and ground defense sectors. What's to like about this company? Well, over the past five years it has grown revenue at a compound annual rate of 6.5%, and it has reported a positive net profit every year over the same period. What's more, this company has a cash-rich, debt-free balance sheet. At the end of its 2017 financial year, Tatt reported $18 million of net cash and a book value of $10 per share, compared to its current price of $6.55. The price to tangible book value here is 0.7.
Up next is Support.com (SPRT, Financial). Possibly one of the only tech companies operating out of San Francisco that qualifies as a deep-value investment, Support.com is undoubtedly worth a closer look. The company is not profitable, but it does have $49 million of cash on the balance sheet, compared to a market capitalization of $52 million. The price to tangible book ratio is 0.9, which isn't that cheap but with a price to sales ratio of 0.8 the company is one of the cheapest in the entire U.S. tech sector.
Finally, I want to highlight Five Star Senior Living Inc. (FVE, Financial). Like most of the companies outlined here, this business is not profitable, but it is cheap on an asset basis. The stock is trading at a price to book value of 0.4 and last year, the company moved from a net-debt position to a net-cash position by selling off assets. At the current market value of $46 million, net cash makes up around 90% of the market price.
Disclosure: The author owns no share mentioned.
