Trying to Outsmart This Foolish Market

I would like to thank the market for being stupid again. 

Barely six months ago Mr. Market, you were telling me that agriculture stocks should be rising 2%-3% a day. Now, those stocks are down 60%-80% in half a year.

click to enlarge

And what about coal? On June 19, Patriot Coal (PCX) was $82. Today, PCX is $9.

 

Mr. Market, sometimes you are an idiot.  Perhaps you should trot on down to the pharmacist and pick up a prescription for lithium.

Now there are stocks selling below their net cash value. I have been buying a basket of these stocks as of late. These include:

Avanex (AVNX)

Share price – $1.61

2007 share price high – $35.70

Decline – 95%

Shares outstanding – 15.5 million

Market cap – $25 million

Cash and marketable securities – $45.8 million

Debt – $0

Net cash – $45.8 million

Cash / market cap – 182%

Issues – Lousy quarter.  Cash burn of $9 million last quarter.

O2Micro (OIIM)

Share price – $2.18

2007 share price high – $18.00

Decline – 88%

Shares outstanding – 37.5 million

Market cap – $83 million

Cash and marketable securities – $107.1 million

Debt – $0

Net cash – $107.1 million

Cash / market cap – 128%

Issues – Leveraged to consumer spending.  Based in Taiwan and everyone hates China right now.  (See opening comments.)

SiRF Technologies (SIRF)

Share price – $1.25

2007 share price high – $34.15

Decline – 96%

Shares outstanding – 62.5 million

Market cap – $76 million

Cash and marketable securities – $100 million

Debt – $2 million

Net cash – $98 million

Cash / market cap – 132%

Issues – In a legal battle with Broadcom over patents.  Exposed to the consumer and the automobile industry. 

Tundra Semiconductor (TRSCF.PK)

Share price – C$3.15

2006 share price high – C$18.80

Decline – 83%

Shares outstanding – 19.6 million

Market cap – C$62 million

Cash and marketable securities – C$58.5 million

Debt – C$0

Net cash – C$58.5 million

Cash / market cap – 94%

Issues – Based in Canada.  Is that an issue?

None of these companies are exciting companies and all have a few have serious issues. I would not be surprised if at least one was no longer in business when we come out of this cycle.

However, during the 2000-02 bear market, buying a basket of stocks trading at or below net cash proved to be enormously profitable. A few did not survive but those that did went up 5x-6x or more when the economy recovered.

Comments

[rdr4:]

Everyone does not hate China, and I would presume the rest of your article to be useless based on your glaring ignorance. (propaganda victim.)

In spite of the fact that the CIA pays the Dalai Lama $15,000.00 a month to be a China irritant (and has for more than 40 years), in spite of the fact that the US media failed to mention that the Dalai Lama was exiled from Tibet for passing espionage out of Russia for the CIA, in spite of the fact that the CIA funded Human Rights Watch and Reporters Without Borders (sans verite') to make up false stories before the elections, many people see through the propaganda.

If you speak with almost anyone who has been there, you would learn that it is quite different than the government and business controlled US media tells us.

Today the news tells us that bad air kills more people in LA than auto accidents. No mention of that before the Olympics, no mention that the Mexico City and LA Olympics had bad air quality, too. If the tables were turned, all the pictures in the world media would show the US as a burned out coal mine town in W VA.

In reality, most people hate us. We have interfered in the government and resources of dozens of countries, acted like a playground bully, produced limitless propaganda, sold weapons and drugs, and killed more innocents than Bin Laden, (if he even exists).

Countries are allowed to blow things and people up, countries can experiment with and use weapons of mass destruction. Terrorists appear to be individuals and groups behaving as countries. It is statistically more likely that you will be struck by lightning today than be harmed by terrorists. Yet, we have nearly bankrupted ourselves chasing ghosts in the mountains of Afganistan and the deserts of Iraq. Since we had the example of the former USSR going bankrupt after their time in Afganistan, doesn't that make us double stupid?

So here is my point,

wall street is fueled by bullshit
government by greed
you can rise above it
by buying what you need



So if you want to give advice, don't show me that you are confused on a global scale.

2008 Nov 13 09:23 AM

[bkinn:]

rdr4,

I think the article was about STOCK PERFORMANCE, and the market. You seem to have gone off on a paraniod tangent relating to secret wars being fought by the CIA.

The author of this article is posting a list of stocks and giving a summary statement regarding the market reasoning. He is NOT attacking China. Please come out of your paranoid dillusion long enough to take a look at reality before you post a flaming comment.

2008 Nov 13 10:20 AM

[rdr4:]

curious, seems like he said everybody hates China. If you re-read the article, it is there in English.
Paranoid? check your facts and wham bam, its not paranoia when the facts support the conclusions, do some research and enjoy the crow.


On Nov 13 10:20 AM bkinn wrote:

> rdr4,
>
> I think the article was about STOCK PERFORMANCE, and the market.
> You seem to have gone off on a paraniod tangent relating to secret
> wars being fought by the CIA.
>
> The author of this article is posting a list of stocks and giving
> a summary statement regarding the market reasoning. He is NOT attacking
> China. Please come out of your paranoid dillusion long enough to
> take a look at reality before you post a flaming comment.

2008 Nov 13 11:27 AM

[Paulo:]

Yes, the strategy you are advocating would have worked quite well in the dot.com crash if you applied that kind of reasoning and bought, say, 100 shares of 10 stocks for a few dollars each (and were prepared to walk away and not look back for several years). If you cannot resist trading or meddling, do not do it.

2008 Nov 13 02:08 PM

[300mph:]

Me thinks RDR4 is hitting the pipe a bit too much.

2008 Nov 13 02:10 PM

[Smarty_Pants:]

Interestingly no mention if any of these companies are generating profits. If so, then they may be opportune purchases. If not, then you are potentially playing with a lit stick of dynamite.

As for Mr. Market you were provided plenty of notice to:

1) exit MOS by 110
and
2) exit PCX by 50

and apparently you missed or ignored it.

As all the famously successful traders of old would tell you,

"You can't fight the tape."

In order for that to work though you first have to learn how to read and interpret the tape.

2008 Nov 13 09:11 PM

[Kunst:]

Catch the next upswing. Energy and food are now underpriced, as they were overpriced not long ago (and vice versa for the dollar).

Pendulum right, pendulum left, pendulum right again.

2008 Nov 14 12:12 AM

[relmor:]

All commoditiy stocks are undervalued right now. Picking which ones will go up more is the only thing to do. MOS, POT, FCX, AUY, AEM, ACI, AKS, etc.... will all outperform the market from here out, IMO.
I mean when your trading in the single digit P/E ratio, and your business model is valid for eternity, its not hard to figure out.

2008 Nov 16 12:27 PM

[relmor:]

One day, were not going to not need steel, food, gold, copper, and coal anymore. No matter how bad the economy gets, we still need, money, pipes, wiring, energy, and food. At least as far as I can see in the future.

2008 Nov 16 12:28 PM

[relmor:]

O, and I wouldnt be surprised if MON is trading over 300 by the end of 2010.

2008 Nov 16 12:28 PM