You read up on how investors like Graham and Buffett succeeded by buying cheap stocks. Then you find a company whose stock trades at a mere fraction of its book value. And then you see the company continue to erode away into nothingness, until you reach one of three unsatisfying destinations: bankruptcy, a lowball takeover, or a decision to simply sell the stock out of frustration.
That's the value trap in a nutshell. Sometimes the stocks of viable (albeit troubled) companies get pushed too low. I'm thinking here of examples like Wheeling-Pittsburgh
A long-term chart reveals that CNH hasn't been an especially good stock to own for the long haul. It doesn't help that the company is mostly owned by Fiat, a carmaker whose stock has also hit a few potholes over the last 15 years.
Fourth-quarter results for CNH weren't good, but there was no real expectation that they would be. Drought in Brazil has hurt the farm-equipment market in Latin America, and the markets in the U.S. and Europe aren't exactly robust, either. That situation neutralizes a lot of the growth in the construction business. As a result, CNH saw equipment sales fall a bit in the quarter, and total sales rose only 1%.
The company did sound a more optimistic about 2006; it seems to expect low single-digit growth. What's more, the company managed to improve margins in the fourth quarter. I believe that's noteworthy, given the sales performance and the impact of materials and energy costs.
So here's where CNH sits: The company trades for about half of book value. Peers and rivals like AGCO
For further constructive Foolishness:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).