“I don't look to jump over seven-foot bars: I look around for one-foot bars that I can step over.” -- Warren Buffett
If you’re in the market for those one-foot bars Buffett loves, here’s one of the best places to look: small-cap companies beaten to such a pulp that their market value represents scarcely more than the net amount of cash on hand. The idea here is that you're essentially being handed the actual business operations for free -- or at least close to it. Doesn't get much better than that, does it?
Using our Motley Fool CAPS screening tool, I searched for companies fitting these bargain-basement criteria. Specifically, I looked for:
- Market caps of less than $300 million -- if the company's big enough to attract large investors' attention and it's still this cheap, something's fishy.
- No long-term debt.
- Profitable over the past 12 months.
- An extremely high level of cash in relation to current share price.
Among others, I came across these four:
|
Company |
Market Cap |
Recent Price |
Total Cash |
Long-Term Debt |
Earnings (TTM) |
CAPS Rating (out of 5) |
|---|---|---|---|---|---|---|
|
Cogo Group |
$105 million |
$3.00 |
$3.30 |
0 |
$0.49 |
****
|
|
Harvest Natural Resources |
$178 million |
$5.40 |
$3.59 |
0 |
$1.65 |
**** |
|
Nam Tai Electronics |
$216 million |
$4.80 |
$6.07 |
0 |
$1.38 |
***** |
|
ChinaDigital TV |
$258 million |
$4.50 |
$3.83 |
0 |
$0.63 |
*** |
Data from Motley Fool CAPS as of Dec. 5. TTM= trailing 12 months.
None of these are formal buy recommendations -- just a good starting point for more research, and a strong indication that these companies might merit your attention.
Harvesting opportunity
Harvest Natural Resources has had a rough couple of years because of political squabbles in Venezuela, where the bulk of its operations reside. Those issues were hammered out in 2007, but now Harvest has a whole new headache to deal with: the never-ending plunge in the price of oil and gas.
Factor in the geopolitical risk inherent in Harvest's international assets and team it up with a spectacular commodity bust, and the market has decided this company is worth just a pittance more than its cash on hand -- pretty gloomy, eh? As CAPS member kkconway noted last week:
P/E is 3.27, down on Venezuelan asset losses, but WAY oversold, even if Venezuelan assets are lost. This is a steal at $5/share. Should be a three bagger if oil ever goes to $60/bbl again, and do you really doubt that it will get there again sooner than later?
It's a good point: Harvest was able to stick around Venezuela after Hugo Chavez gave companies like ConocoPhillips
Money for nothing and the company for free
Moving on to a company that actually trades for less than its net cash on hand, Global Gains recommendation Nam Tai Electronics has been absolutely slaughtered since its CEO resigned in early November ... never a very reassuring sign. Confidence or no confidence, it's hard to keep looking the other way at these prices. As skymutt2 recently pointed out:
Yeah, business is lousy, sales have plummeted, management is a big question mark. But guess what-- they still have a great balance sheet and will survive this storm, and will be poised to generate lots of cash in the next up cycle. You buy these kind of companies when things look the worst and you sell them when business is going great.
The kicker is that this company pay a regular dividend, and a big one at that. They could slash it in half and it would still be a huge dividend, and they have the cash to pay it either way.
Well put. Business is going to be a doozy for the electronics industry, but the indisputable strength of this balance sheet, paired with the complete capitulation of the company's stock price, provides a pretty darn nice margin of safety going forward.
Any of these ideas catch your attention? Consider checking out Motley Fool CAPS, our stock rating system where more than 120,000 investors share their thoughts and opinions. Click here to gives CAPS a whirl. It won't cost you a dime.
For related Foolishness:
