The liquidation of Technology Solutions (OTCPK:TSCC) was a strong reminder of the profit potential for stocks trading for less than net cash (cash – total liabilities). TSCC was relatively illiquid and trading between a low of $1 and a high of $1.11 this year. Some days no shares were traded. But in my article on 02/09/09 "Exploiting Market Anomalies with Neglected Illiquid Stocks" I did speak on the topic of illiquid value stocks and believe it should not deter value investors.
On Tuesday, February 10, TSCC announced they would liquidate. TSCC closed at $2.18 this past Friday (02/13/09), up from the liquidation announcement date on Tuesday 02/11/09 at $1.06 for a +105% gain. This event got me thinking I should carefully search for other net cash bargains. I screened on many quantitative and qualitative factors coupled with net cash greater than current share price. These ideas were the most appealing net cash bargains.
GSI Group Inc. (NASDAQ:GSIG) had the largest percentage net cash over market price premium at 259.05% ($2.72/$1.05), positive insider activity with purchases significantly higher than current price. Royce Associates owns 10.88% of the outstanding shares as of 09/30/08. GSIG had the lowest ratio of SGA/Revenue (.2014) over the past 12 months. This ratio (I call the management greed ratio) can be useful when comparing to others in the same industry.
Forward Industries (NASDAQ:FORD) had the only positive YOY quarterly revenue growth but margins have continued to decelerate. Operating margins were 23.79% (2005) and dropped to negative -8.34% (2008). The cash burn has been reasonable and their current liquidity is positive with a quick ratio of 10.08 and cash ratio of 8.29. Institutional investors Dan Zeff , Trinad Management and Barclays global investors have been reducing their positions. But in this market it could be the need to raise cash for redemptions.
Paragon Technologies Inc. (PTG) inside directors purchased 10,000 shares over the past 12 months at an average price of $5.20. Based on the reported holding as of 09/30/08, value institutions Microcapital owned 100,200 shares or 5.57%, Al Frank Asset Management 76,000 or 3.84%.
FortuNet (FNET) was the only company reporting positive operating income and cash flow from operations.
This table has additional decision making financial data along with some stocks that were selling below net cash, but didn't immediately deserve to be on my top 4 list.
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