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I'm excited to recommend and open a position in Imation (NYSE: IMN).

The business
Imation is a global developer and marketer of recordable optical media, magnetic tape media, flash products, and consumer electronics. It operates under the Memorex, Imation, TDK Life, and XtremeMac brands. At some point in your life, you've probably bought CD-R's, DVD-R's, or a flash drive of theirs. The company was spun off from 3M (NYSE: MMM) in 1996 and has been a standalone entity ever since.

Why I'm buying: It's cheap
As fellow Fool Andrew Bond recently pointed out, assuming full value of accounts receivable and inventory, Imation is trading below its net current asset value (NCAV). At a price of $9.46, the company trades around 88% of its NCAV of 10.76. That's absurdly cheap.

The company has no debt and loads of cash and other current assets. If you were to strip out the cash and other readily monetizable assets, the market is pricing the business at roughly negative $50 million.

Looking at the company through the lens of net income, you would get a sense that this might be the right valuation. Imation lost $14 million these past 12 months and $42 million the year before that. However, when you examine the company from a cash flow standpoint, another picture emerges.

The company generated nearly $130 million in cash these past 12 months and $55 million the year before that. I expect the company can continue to generate positive cash flow and, as its restructuring program continues, earnings to turn positive.

Management wants to unlock value
In Imation's most recent conference call, management promised to provide more details on its strategy for "return of cash to shareholders" going forward by the next conference call. This should be sometime in mid- to late January. The company had a history of paying a quarterly dividend before the credit crisis required the company to suspend its dividend. Reinstating the dividend would help others take notice of the business and bring its valuation up.

And no one cares
Only two analysts were on the most recent conference call, and only two analysts are listed as following the company on Yahoo! Finance. This is a company flying under the radar of Wall Street and most investors.

Risks
The company is facing headwinds, storage technology continues to become cheaper, and the company must continually innovate to stay competitive on price. While the company has suffered over the past two years, it has shown it can generate cash while effectively competing.

Imation's management has said acquisitions are in the realm of possibility. The company's last acquisition of Memorex didn't work out so well. This will hopefully be addressed in the next conference call.

Summary
I'm buying $1,000 worth of shares of Imation tomorrow. At this price, your downside is protected by the company's NCAV and its ability to generate cash. We will find out more about management's strategy in January -- until then, I have no problem sitting on an undervalued stock.

This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. See all of our Rising Star analysts (and their portfolios).

Dan Dzombak recommends that you read The Best Investment Advice You Will Ever Get. He owns no shares in any of the companies mentioned. Find him on Twitter at @DanDzombak to check out his musings and see what articles he finds interesting.

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