The Ten Most Promising Net Cash Stocks

It wasn't uncommon for Ben Graham, the creator of value investing, to invest in stocks in which the liquid assets on the balance sheet (net of all debt) were worth more than the total market capitalization of the company (also known as "net nets" to Graham followers). This means that Graham was effectively buying businesses for nothing, and in some cases, for less than what the businesses would sell at auction.

For this article, we focus on what Ben Graham called “secondary stocks”. We define a secondary stock as one having no claim to fame, prominence, or general popularity. Hence, it is likely to be ignored by the stock market generally and left for dead when the disparity between price and intrinsic value may in fact be the greatest. There is no guarantee or law of market action by which the price can be counted upon to adjust itself eventually to its intrinsic value. Therefore, our focus is on companies with a catalyst in place. These are our picks:

10. GSI Group (GSIG)

GSI Group Inc. supplies precision motion component products, lasers, and laser-based manufacturing systems to the electronics, semiconductor, medical, aerospace, and industrial markets worldwide. Its Precision Technology segment offers lasers that are used for welding, cutting, drilling, surface marking, and engraving of metal and plastic parts.

As of Tuesday’s close, GSIG had a market cap of roughly $33M, with a reported $183M in cash. However, the Company announced on December 4, 2008, that it had identified errors in the recognition of revenue from sales to a customer in the first and second fiscal quarters of 2008 in the Company's Semiconductor Systems Segment. Therefore, Form 10-Q for the periods ended March 28, 2008 and June 27, 2008 should no longer be relied upon. Though the company seems cheap in the books, investors should be aware that these numbers are simply not reliable at the present time.

But the catalyst we have identified gives us a bit more confidence that the company is indeed cheap, despite its accounting troubles. Stephen W. Bershad, the CEO of Axsys Technologies (AXYS), recently filed a 13D, an activist filing, after buying 3.3 million shares of GSIG in the open market. Because Bershad’s position as a CEO of a major defense contractor, and an industry insider with extensive knowledge in the defense industry, makes it likely that GSIG is at least undervalued.

9. Ocean Power Technologies (OPTT)

Ocean Power Technologies, Inc. engages in the development and commercialization of proprietary systems that generate electricity by harnessing the renewable energy of ocean waves. The company’s product portfolio includes utility PowerBuoy system, which is designed to supply electricity to a local or regional electric power grid; and autonomous PowerBuoy system that is designed to generate power for use independent of the power grid in remote locations. Its customers include public utilities, independent power producers, and other governmental entities and agencies.

The company has a market value of $54.6M (5.35/share) with $55.4M in current assets, of which nearly 53.4M is in the form of cash or cash equivalents. Total equity is roughly $87M, of which $32M is in the form of long-term investments.

The catalyst is that according to Reuters, the Federal Energy Regulatory Commission has issued some 170 preliminary permits for 10,000 megawatts of potential power generation from offshore projects. One of those is an OPTT project off the Oregon coast, which will create a 1.5 megawatt power station to supply electricity to about 2,500 homes. The project would have 10 buoys with pistons in a cylinder to slide up and down as the buoys move over waves in the water, generating electricity in the process. An underwater cable would then transmit the power.

The negative is that after visiting OPTT headquarters in Pennington, NJ a few months ago, I was unimpressed with the quality of the buoys. Corrosion is a big issue still unsolved, and maintenance costs associated with placing and retrieving floating buoys in the open sea is extremely high. Therefore, operating expenses are a threat to the little cash the company has on its balance sheet.

8. Soundbite Communications (SDBT)

SoundBite Communications, Inc., an automated voice messaging services provider, engages in the provision of on-demand, integrated multi channel communications solutions in the United States. It offers integrated voice, text, and e-mail messaging solutions that enable clients in delivering the message to the customer. The company offers its services to various organizations in industries, such as collections, financial services, retail, telecom and media, and utilities to send messages annually for collections, customer care, and sales and marketing applications.

The company has a market value of $25.4M (1.64/share) with $45.3M in current assets, of which nearly $37.4M is in the form of cash or cash equivalents. Total equity is roughly $47.5M. As of Tuesday’s close, the company is trading at a 55% discount to its cash holdings with no outstanding debt.

Though there is no active catalyst for SDBT, venture capital firms NBVM GP LLC, Mosaic Venture Partners LP, and Commonwealth Capital Ventures LLP own more than 50% of the company’s shares. In my view, these venture firms will not hesitate to liquidate the company if it runs into trouble in the future, since shareholders will at least be getting the cash it has on its balance sheet.

7. Inhibitex, Inc. (INHX)

Inhibitex, Inc., a biopharmaceutical company, engages in the development of differentiated anti-infective products to prevent and treat serious infections. Its products include FV-100, a nucleoside analogue prodrug that is in Phase I clinical trial for the treatment of varicella zoster virus, the causative agent for herpes zoster, or shingles, and chicken pox; HIV Integrase Inhibitors class of anti-retroviral agents, which are in preclinical stage for the treatment of HIV.

The company has a market value of $9M (0.23/share) with $33.9M in current assets, of which nearly $33.1M is in the form of cash or cash equivalents. Total equity is roughly $30.4M. As of Tuesday’s close, the company is trading at a 72% discount to its cash holdings (0.76/share) with only 5.8M in total liabilities.

Though there is no active catalyst for INHX, the Biotech Value Fund owns nearly 13% of the company’s shares. The fund is particularly known for its current activist dispute with Avigen, Inc, where the fund is trying to replace the entire board of directors to improve shareholder value.

6. Xtent, Inc. (XTNT)

XTENT, Inc. is a medical device company focused on developing and commercializing innovative customizable drug eluting stent (DES) systems for the treatment of coronary artery disease (CAD). CAD is the most common form of cardiovascular disease and the number one cause of death in the United States and Europe.

According to the company’s latest 8-K, XTNT had cash, cash equivalents and short-term investments of $19.1 million as of December 31, 2008. with almost no debt. After certain adjustments to its balance sheet, we believe the company could be worth at least $15M in either liquidation or a merger. This represents a nearly 37% discount to the company’s current market value of $10M.

The catalyst is that on January 23, 2009, XTNT announced it plans to engage Piper Jaffray & Co. to help the company pursue strategic alternatives which may include the sale of some or all of the company’s assets or other types of merger or acquisition transactions intended to maximize shareholder value. the company notified 115 employees out of its total employment base of 121 employees that their positions would be eliminated effective March 23, 2009. This represents a 94% reduction in labor expenses, which will allow the company to slow the rapid cash burn of approximately $5M per quarter, and help preserve cash while it pursues strategic alternatives.

5. Technology Solutions Company (TSCC)

Technology Solutions Company provides business solutions for healthcare, manufacturing, and financial services industries in the United States. It offers business solutions primarily to the key processes and operations at the organizations.

On February 10, 2009, TSCC announced that its Board of Directors decided to liquidate the company's assets and to dissolve the company, after extensive and careful consideration of the company’s strategic alternatives and analysis of the prevailing economic and industry conditions. The Board estimated an initial cash payout of nearly $2.00 per share. However, my estimates show that nearly an additional $0.55/share will be paid out after liabilities and liquidation costs are accounted for.

Cash: 3.11 (100% at liquidation)

Receivables: 0.45 (50% at liquidation)

Other assets: 0.45 (20% at liquidation)

Less Liabilities of 0.49

Less Liquidation costs of 0.38

-------------------------------------------------

= $2.55/share

Less initial $2.00/share payout

-------------------------------------------------

= $0.55/share payout remaining

At a current market value of $2.25/share, the company is trading at nearly 15% discount to its liquidating value.

4. Trident Microsystems (TRID)

Trident Microsystems, Inc. designs, develops, and markets integrated circuits (ICs) and associated software for digital media applications, such as digital television (digital TV), liquid crystal display television (LCD TV), and digital set-top boxes (STB).

The company has a market value of $91.2M ($1.45/share) with nearly $212M in the form of cash or cash equivalents. Total liabilities are $17.8M, so the company is currently trading at a 53% discount to its net cash value.

The catalyst is that New York investment partnership Spencer Capital Management LLC has indicated that it intends to nominate an alternate slate of candidates for TRID’s board. Spencer said its founder, Kenneth Shubin Stein, is leading the effort to restructure Trident's board with the goal of improving corporate governance and repositioning the company.

3. Athersys, Inc. (ATHX)

Athersys, Inc., a biopharmaceutical company, engages in the discovery and development of therapeutic product candidates in multiple disease areas in the United States. Its product pipeline includes ATHX-105, a Phase I clinical trial product for the treatment of obesity.

The company has a market value of $16.7M ($0.88/share) with nearly $31.6M in the form of cash or cash equivalents. With total liabilities are $2.3M, the company is currently trading at a roughly 50% discount to its net cash value.

The catalyst is that Ormibed Advisors, the world’s largest healthcare activist investment firm, is ATHX’s largest shareholder with a 20% ownership of the company’s shares.

2. Vanda Pharmaceuticals (VNDA)

VNDA is a biopharmaceutical company focused on the development and commercialization of clinical-stage drug candidates for central nervous system disorders, with exclusive worldwide commercial rights to three product candidates in clinical development. The Company’s product portfolio includes Fiapta (iloperidone), a compound for the treatment of schizophrenia and bipolar disorder; VEC-162, a compound for the treatment of sleep and mood disorders, and VSF-173, a compound for the treatment of excessive sleepiness.

According to the latest SEC disclosure, the company had $47.7M in current assets and total liabilities of $3.9M as of December 31, 2008. This means that with a net asset value of $43.8M ($1.64/share) and a market capitalization of $21.4M ($0.80/share) the company is currently trading at a 50% discount to its net asset value. VNDA has cash and cash equivalents of roughly $39M, for a net cash value of $35M (1.31/share).

The catalyst is that On February 13, 2009, shareholder Kevin Tang, Managing Director of Tang Capital Partners LP, filed an amended proxy material urging VNDA’s board to immediately cease operations. Mr. Tang has said he plans to nominate two members to the company’s board. The 13D notice discloses in the Election of Directors Proposal that Kevin Tang himself will be one of the board nominees, along with Andrew D. Levin, a principal at Tang Capital Management, LLC.

And our top pick is ... (drumrolls) …

1. Soapstone Networks (SOAP)

Soapstone Networks is at the forefront of the movement to Carrier Ethernet by developing resource and service control systems that realize NGN software-provisioned services in the new Carrier Ethernet transport network. Soapstone’s common control framework decouples services from underlying network technologies. The Soapstone solution is designed to dynamically provision precise, SLA-quality services, continuously optimizing utilization of network resources to bring orderly, predictable business-driven behavior to service provider networks.

According to its December 31, 2008 SEC disclosure, the company has $90.4M in current assets and total liabilities of $3.1M. This means that with a net asset value of $87.0M ($5.88/share) and a market capitalization of $44.3 ($2.98/share) the company is currently trading at a nearly 50% discount to its net cash value.

On February 19, 2009, the company announced that is has engaged Morgan Stanley as its advisor to assist the company in exploring strategic alternatives available for enhancing shareholder value, including but not limited to, continued execution of the company’s business plan, the payment of a cash dividend to the company’s shareholders, a repurchase by the company of shares of its capital stock, the sale or spin off of Company assets, partnering or other collaboration agreements, a merger, sale or liquidation of the company. In either of those cases, SOAP is a winner.

Disclosure: We do not have a holding in any of the companies mentioned in this article.

Comments

[FSquare:]

Why dont you have a holding in any of these if they are such great values? Care to explain?

Mar 19 08:35 AM

[ValueHuntr:]

Great question FSquare, and I certainly understand where you are coming from. It is plain and simple: tuition costs are high these days and I simply do not have enough resources for both my tuition and to take advantage of these great opportunities. Though these are great net cash opportunities, I found there was more value in GE at $7/share, as I disclosed in my previous article.

For more see valuehuntr.com

Mar 19 08:51 AM

[ValueHuntr:]

Fsquare, so my only holding is GE at the moment.

Mar 19 08:53 AM

[notsosmart:]

i bought more GE @ 7.67.so far so good.

Mar 19 12:58 PM

[ValueHuntr:]

notsosmart,

In that case I disagree with your username. Maybe change to yessosmart?


On Mar 19 12:58 PM notsosmart wrote:

> i bought more GE @ 7.67.so far so good.

Mar 19 01:07 PM

[Elliot Eise...:]

It appears as if you don't know what you are talking about. Literally. GSI has spent the cash, borrowed money, made an acquisition and is trying to work its way out of a liquidity crunch.

Pls see below

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




FORM 8-K




CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):

March 5, 2009




GSI GROUP INC.

(Exact name of registrant as specified in its charter)







New Brunswick, Canada 000-25705 98-0110412
(State or other jurisdiction

of incorporation)
(Commission File Number) (IRS Employer

Identification No.)


125 Middlesex Turnpike,

Bedford, Massachusetts 01730

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: [phone]



(Former name or former address, if changed since last report)




Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):



¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)



¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)



¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))



¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))









----------------------...
Item 1.01 Entry into a Material Definitive Agreement.

GSI Group Inc. (the “Company”) announced today that it has engaged financial advisors and entered into a supplemental indenture (the “Second Supplemental Indenture”) in accordance with the forbearance agreements previously announced on February 6, 2009 (the “Forbearance Agreements”).

The Company entered into the Forbearance Agreements with certain beneficial owners (the “Investors”) holding greater than 75% of the outstanding aggregate principal amount of its 11% Senior Notes due 2013 (the “Notes”). The effectiveness of the Forbearance Agreements was conditioned upon, among other factors: (i) engagement of a financial advisor to assist the Investors, (ii) engagement of a financial advisor to assist the Company’s management and Board of Directors, and (iii) entering into an amendment to the Indenture (as amended or supplemented from time to time, the “Indenture”), dated as of August 20, 2008, by and among GSI Group Corporation (the “Issuer”), the Company, Eagle Acquisition Corporation and The Bank of New York Mellon Trust Company, N.A. (the “Trustee”) to amend certain notice provisions.

The Company announced today that in accordance with the Forbearance Agreements, both sets of financial advisors have been engaged and continue to work cooperatively with the Company.

Additionally, on March 5, 2009, the Company entered into a supplemental indenture (the “Second Supplemental Indenture”), by and among the Company, the Issuer, Excel Technology, Inc. and the Trustee. The Second Supplemental Indenture amends Section 6.01(4) of the Indenture to allow beneficial owners (in addition to the Trustee or certain Holders (as such term is defined in the Indenture) of the Notes) representing at least 25% of the aggregate principal amount of the Notes then outstanding to provide, after the date of the Second Supplemental Indenture, the notice of failure referenced in Section 6.01(4) of the Indenture; provided, however, that any such notice from a beneficial owner of the Notes pursuant to Section 6.01(4) will be deemed to be proper notice under the Indenture only if, and as of the date, the Issuer has received such information and certifications (including from the Holders of the Notes or any Agent Member (as such term is defined in the Indenture)) reasonably necessary to determine that the persons providing such notice are beneficial owners of the Notes.

Mar 19 03:35 PM

[ValueHuntr:]

Elliot,

As I mentioned above, though the company seems cheap on the books, we are not interested in ANY of the financial statements reported by the company because it has often found itself in accounting irregularities, and we just cannot tell truth from lie. However, Stephen W. Bershad, the CEO of Axsys Technologies, has been in the business for decades and has met with GSIG CEO multiple times. After meeting with GSIG CEO several times and having inside access to the company's books he then decided to purchase 3 million shares with his own money. If you think you have better information than Stephen W. Bershad please let us know and we will make the corection, but I highly doubt you do.

Mar 19 08:10 PM

[zhybrids:]

ATHX / NEW SEC FILINGS / INSIDERS ARE BUYING NOW March 2009.
Just Announced .
finance.yahoo.com/q/it...


INSIDER TRANSACTIONS REPORTED - LAST TWO YEARS
Date Insider Shares Type Transaction Value*
17-Mar-09 SHEFFERY MICHAEL BDirector 110,000 Indirect Purchase at $0.84 per share. $92,400
17-Mar-09 ORBIMED ADVISORS LLCDirector 110,000 Indirect Purchase at $0.84 per share. $92,400
16-Mar-09 SHEFFERY MICHAEL BDirector 52,200 Indirect Purchase at $0.65 per share. $33,930
16-Mar-09 ORBIMED ADVISORS LLCDirector 52,200 Indirect Purchase at $0.65 per share. $33,930
16-Mar-09 VAN BOKKELEN GILOfficer 10,000 Direct Purchase at $0.67 per share. $6,700

Mar 19 08:59 PM

[zhybrids:]

ATHX Trades at like 50 Cents on the $1.00 Just on Cash Alone. ZERO DEBT / Book Value About $1.70

ATHX .. $1.50 in Cash per share and trading at .75 Cents. Zero Long term Debt and a huge Stem cell Pipeline.....

How can a stock with a pipeline and $1.50 in cash per every share outstanding and ZERO - 0 Long term Debt, trade at less than their cash.

Trading at .75 Cents. Does this make any sense..

Can some of you , who understand financials .. Explain this to me....

I have a Masters in Finance, and I still dont get it....

Its like buying a $1.00 Bill for .50 Cents , as this is approximately 50% of their cash value.........


Anyone else have a stock trading at 50% Below Cash and 0 Debt...

Cause, I dont see too many of these come around. Especially in the biotech / stem cell sector.....

Comments welcomed.

Balance Sheet
Total Cash (mrq): 28.01M
Total Cash Per Share (mrq): 1.48
Total Debt (mrq): 0
Total Debt/Equity (mrq): N/A
Current Ratio (mrq): 12.577
Book Value Per Share (mrq): 1.668



Share Statistics
Average Volume (3 month)3: 157,118
Average Volume (10 day)3: 87,912.5
Shares Outstanding5: 18.93M
Float: 12.71M
% Held by Insiders1: 23.09%
% Held by Institutions1: 29.10%

Mar 19 09:07 PM

[ValueHuntr:]

zhybrids,

Some say the market is efficient. But if it is, then you wouldn't be asking your question. I'm not sure I know the answer, but I bet it has to do with market fears and an over-reliance on future earnings. Most of these companies have poor earnings expectations, but they are trading as if the balance sheet does not exist.

Regarding other opportunities to purchase a dollar for fifty cents see our #1 pick.

For more info see valuehuntr.com

Mar 19 10:13 PM

[longtermstocks:]

optt has a great product!!!

Mar 20 01:25 AM

[ValueHuntr:]

longtermstocks,

optt might have a great idea, but the product is far from efficient. If the company can come up with ways to generate more energy from lighter buoys resistant to corrosion then we would be glad to take another look at it.

Mar 20 11:30 AM

[Research123:]

ATHX has almost no revenue and lost more than $4M per quarter during 2008. Unless magic happens pretty quickly, the chances seem pretty good that they will R&D themselves into C11, in which case equity will be zero..

Mar 21 02:44 AM

[ValueHuntr:]

Research123,

You are right, without a catalyst, ATHX is toast, but we think Ormibed Advisors is precisely that catalyst. ATHX has no long-term liabilities, and has a tremendous cash excess, so it is very unlikely that the company will go into C11. C11 is meant for companies to restructure in a way they can meet their long-term commitments, but notice ATHX has 0 liabilities. Chances are that because the value of the company's cash is greater than its market cap, ATHX will end up in liquidation/dissolution before going into C11, in which case liquidating value is NOT zero. Its value will be at least the the cash available minus any long term liabilities (zero). In the case of ATHX, this value is nearly 100% higher than the company's market cap at the moment.

For more see valuehuntr.com

On Mar 21 02:44 AM Research123 wrote:

> ATHX has almost no revenue and lost more than $4M per quarter during
> 2008. Unless magic happens pretty quickly, the chances seem pretty
> good that they will R&D themselves into C11, in which case equity
> will be zero..

Mar 21 05:19 PM

[zhybrids:]

ATHX / NEW SEC FILINGS / INSIDERS ARE BUYING NOW March 2009.
Just Announced .
finance.yahoo.com/q/it...


INSIDER TRANSACTIONS REPORTED - LAST TWO YEARS
Date Insider Shares Type Transaction Value*
17-Mar-09 SHEFFERY MICHAEL BDirector 110,000 Indirect Purchase at $0.84 per share. $92,400
17-Mar-09 ORBIMED ADVISORS LLCDirector 110,000 Indirect Purchase at $0.84 per share. $92,400
16-Mar-09 SHEFFERY MICHAEL BDirector 52,200 Indirect Purchase at $0.65 per share. $33,930
16-Mar-09 ORBIMED ADVISORS LLCDirector 52,200 Indirect Purchase at $0.65 per share. $33,930
16-Mar-09 VAN BOKKELEN GILOfficer 10,000 Direct Purchase at $0.67 per share. $6,700

Mar 23 07:41 AM

[Davis Q:]

Research123 is on the right track. ATHX is a pharma company in Phase I trials, meaning that it has to not only finish this round of trials but make it through two more before it can start generating revenue. This process could take years, which at an operating cash burn of $15mm a year and $28mm of cash equivalents (2008 10K) it doesn't have. The stock trades at such a discount because of the risk that the company will run out of money before the drug gets to market, the drug fails trials, and/or additional capital raising is not successful.

From an investment standpoint, I'd want the company to either liquidate and distribute the cash or get to market quickly/license the drug. For my taste, the probability of either happening is just too low. If they get into trouble, instead of liquidating, they might just offer more stock, debt, or attract private investors. These possibilities would effectively if not actually wipe out common.

Mar 25 02:52 PM

[trackxyj:]

You didn't get Elliot's point. You did the analysis based on 12/31/08 financial statement at the best, while GSI spent all their cash on 2/6/09 and even incurred a debt.

GSIG may still be a great stock, but it was no longer a net-casher. Many net-cashers, excluding biotech ones, usually have a major ongoing litigation. My bet is on HLYS.

Mar 25 04:02 PM

[ValueHuntr:]

ok, thanks Davis, I see your point.


On Mar 25 02:52 PM Davis Q wrote:

> Research123 is on the right track. ATHX is a pharma company in Phase
> I trials, meaning that it has to not only finish this round of trials
> but make it through two more before it can start generating revenue.
> This process could take years, which at an operating cash burn of
> $15mm a year and $28mm of cash equivalents (2008 10K) it doesn't
> have. The stock trades at such a discount because of the risk that
> the company will run out of money before the drug gets to market,
> the drug fails trials, and/or additional capital raising is not successful.
>
>
> From an investment standpoint, I'd want the company to either liquidate
> and distribute the cash or get to market quickly/license the drug.
> For my taste, the probability of either happening is just too low.
> If they get into trouble, instead of liquidating, they might just
> offer more stock, debt, or attract private investors. These possibilities
> would effectively if not actually wipe out common.

Mar 25 07:01 PM

[ValueHuntr:]

trackxyj,

I see your point. Where can I find the latest info?


On Mar 25 04:02 PM trackxyj wrote:

> You didn't get Elliot's point. You did the analysis based on 12/31/08
> financial statement at the best, while GSI spent all their cash on
> 2/6/09 and even incurred a debt.
>
> GSIG may still be a great stock, but it was no longer a net-casher.
> Many net-cashers, excluding biotech ones, usually have a major ongoing
> litigation. My bet is on HLYS.

Mar 25 07:02 PM

[trackxyj:]

surprisingly to me as well, there is no clearly articulated source on that acquisition. You can find the original transaction record here:

biz.yahoo.com/e/080821...

There is a thread on yahoo board discussing how GSIG grossly overpaid Excel, which even looks suspicious.

messages.finance.yahoo...

Mar 25 11:09 PM

[ValueHuntr:]

k, thanks trackxyj

Mar 26 09:13 AM

[wallstreetguru:]

Tons of “scuttlebutt” on SOAP, looks like they are seeking to acquire another PNC player. This will devastate the stock price. It appears management is more concerned about their job security than returning value to shareholders.

May 20 12:13 AM