Investors often look for stocks that are "selling below
." That's a fancy way of saying that the company's stock
is even lower than the assets (minus debts) it has sitting on its
. I've found three stocks that look good by an even stricter
measure. These companies are worth less on the stock market than
and inventory sitting on their balance sheet. These items are also
. Add in their other assets, and these stocks are super cheap.
Before we take a closer look, you should know that these companies
aren't so undervalued simply because investors are unaware of them.
Instead, investors simply find them to be unappealing based on
tepid operating trends. These business will need to improve to see
shares move sharply or management will need to figure out ways to
unleash those current assets to boost shares, perhaps in the form
of a big buyback. The real charm of these stocks is that they are
unlikely to get any cheaper, even if the broader market tanks.
Audiovoxx (Nasdaq: VOXX)
This micro-cap (worth just $155 million) still meets my threshold
of talking about companies worth at least $200 million, because its
current assets are worth well more. Roughly speaking, this maker of
consumer electronics has $100 million in cash, in inventory and in
accounts receivable. That adds up to $300 million, or twice its
Many of Audiovoxx's product lines are "me-too" products that are
often a cheaper version of more popular items such as stereos,
speakers, etc. That's not an especially appealing business, but
Audiovoxx has some real sizzle cooking: the company has signed up a
host of new customers for its in-car entertainment systems.
, GM, BMW and Chrysler have started installing the company's
rear-seat entertainment systems (at dealerships), known as FLO TV.
Roughly 5,000 dealers have been signed up to install the systems.
But don't look for a buyback with all that cash. Management vows to
keep acquiring smaller industry players to broaden its product
lines. All it takes to get this stock moving is some nice uptake on
that in-car TV system, or some growth-inducing acquisitions. Even
without those catalysts, Audiovoxx is profitable and should
continue to bolster that impressive set of current assets.
At the moment, this company is nothing but a balance sheet. It
recently sold off several operating divisions, leaving it with an
while the company looks for ways to spend its money. And it has
plenty of that. After the recent asset sales, the company has more
than $3 a share in cash. Thanks to a history of operating losses,
the company has accumulated more than $160 million ($1.30 a share)
in Net Operating Loss Carryforwards (NOLs), which effectively
shield future income streams from taxes. That could prove to be
attractive to anyone looking to buy out the company. Add the NOLs
together, and you're looking at around $4.50 a share in value --
more than +50% above the current stock price.
This asset play has caught the eyes of investment firm Steel
Partners, which has steadily been buying shares on the open market
and now owns more than a quarter of the company. Steel would like
to find companies for ADPT to acquire. ADPT's response? "We remain
committed to providing value to all of our stockholders and will
aggressively pursue opportunities to deploy the cash and
assets on hand to create value for our stockholders, including
exploring acquisitions of businesses, engaging in stock buybacks,
paying cash dividends, or any combination thereof," noted the
company in its last
In the absence of any concrete plans, investors should give ADPT
credit for all that cash and at least half of its NOLs, pegging the
company's value at around $3.75 a share. That's nearly +30% above
Investors should know that while the company is not in operating
mode, its shares have been relegated to the
. That means you should call your broker and specify prices in
which you are willing to buy the stock. For example, shares
currently trade for about $2.93, and you can specify that you will
not pay more than $3 for any shares.
This company, which was spun off from
in the mid-1990s, sells a range of data storage and consumer
electronic products, from magnetic tape devices to Blu-ray DVDs.
The company's best days are behind it, as annual sales likely
peaked at $2 billion in 2008 and now hover closer to $1.4 billion.
But even as that level, this is a cash cow. Imation routinely
throws off more than $50 million in annual
free cash flow
, which makes the balance sheet stronger by the quarter.
In the most recent quarter, Imation had $250 million in cash, $240
million in accounts receivable, and $220 million in inventory. The
company's $869 million in total current assets dwarf the stock's
market value of $370 million.
On the most recent conference call, management hinted that a large
stock buyback or a
reinstatement may be in the offing. The company used to pay out
$0.50 to $0.60 a share in dividends before suspending it during the
financial crisis of 2008. A fresh $0.50 dividend today translates
into a 5.6%
. By my math, the company could pay out a $1 annual dividend, but
instead will likely opt to split the difference between buybacks
and dividend payments.
Action to Take -->
These are truly "special situations" that activist
funds like to pounce on, usually to unlock shareholder value. Just
as Steel partners is loading up on ADPT, Legendary value investor
Seth Klarman has been loading up on Audiovoxx. Follow their lead,
and you may see some tidy gains in these stocks. And they're so
cheap that you're unlikely to get burned.
-- David Sterman
David Sterman started his career in equity research at Smith
Barney, culminating in a position as Senior Analyst covering
European banks. David has also served as Director of Research at
Individual Investor and a Managing Editor at TheStreet.com. Read
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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