I was going through the Manual of Ideas site and taking a look at the previews and samples. If you aren’t aware, Manual of Ideas is a service that focuses on deep value companies. They issue newsletters that contain a truckload of ideas on companies you’ve never heard of.
The headline “Portfolio Managers' Review Picks Top 5 Ben Graham-Style Deep Value Investments” caught my attention since this has been the focus on Old School Value of late. The sample they have up is an 8 page report but all the “top picks” have been hidden in black; what got me more interested was the list of 100 companies passing the deep value screen. (The 100 companies list starts from page 4.)
So how do you go through 100 deep value net net companies without spending hours looking up the information? Modify the existing net net investment spreadsheet so that it runs more than 4 companies simultaneously.
Let me put up the results first.
Results from 100 Companies Passing Deep Value Screen
From the initial filter, 19 companies surfaced but after checking the numbers of some companies, that number was reduced to 16. The companies in alphabetical order are as follows.
- Acorn International (ATV) - 11% discount to liquidation net net value.
- Actions Semiconductor (ACTS) - 40% discount
- Dot Hill Systems (HILL) - 31% discount
- Footstar (FTAR.OB) - company is liquidating and has already distributed $2. The calculated liquidation value is $3.47 which is in the ballpark of the $2.76-$3.44 declared liquidation. Judging by the current stock price, the company will be liquidated for around $3
- Gravity (GRVY) - 16% discount
- Heelys (HLYS) - 27% discount
- Hurray! Holding (HRAY) - 27% discount
- Hutchison Telecommunications International (HTX) - 24% discount
- Ikanos Communications (IKAN) - 34% discount
- iPass (IPAS) - No longer net net
- Linktone (LTON) - 27% discont
- Mattson Technology (MTSN) - 13% discount
- MEMSIC (MEMS) - 4% discount
- Noah Education (NED) - 13% discount
- Northstar Neuroscience (NSTR) - 19% discount. Liquidating at the $1.90 range
- Professional Detailing (PDII) - 24% discount
- QLT (QLTI) - No longer net net. Latest filing reveals a significant decline in cash and receivables
- Sierra Wireless (SWIR) - No longer net net. Company is made up of restricted cash which shouldn’t be included in liquidation
- Syneron Medical (ELOS) - Trading at liquidation value
From the list, there are quite a few Chinese companies and they all seem to have one thing in common: Holding large cash reserves. I’m not sure whether these companies are being conservative to survive the downturn or lack the commitment to return shareholder value.
Deep Value Stocks Trading at Deep Discounts to Cash
If you look at the embedded PDF below, the best net nets are the ones comprised mostly of cash compared to total liabilities. Unless it is a company whose business model lies in acquiring receivables like ASFI, I feel it is best to find a cash loaded company.
The ones that hold a large amount of cash compared to total liabilities are:
- ACTS - $265 mil in cash equivalents vs $17 mil in total liabilities
- HLYS - $69 mil in cash equivalents vs $10 mil in total liabilities
- HRAY - $60 mil in cash equivalents vs $7 mil in total liabilities
- IKAN - $63 mil in cash equivalents vs $18 mil in total liabilities
- LTON - $96 mil in cash equivalents vs $17 mil in total liabilities
- MEMS - $66 mil in cash equivalents vs $3 mil in total liabilities
- NED - $151 mil in cash equivalents vs $39 mil in total liabilities
- ELOS - $197 mil in cash equivalents vs $39 mil in total liabilities
(You may have to recheck these numbers, as I may not have checked with the SEC for all).
Comments on HRAY, LTON and PDII
I recently bought HRAY, LTON and PDII; HRAY and LTON are both Chinese companies and compete with each other directly.
I listened to the past 2 conference calls and a couple of filings for HRAY and LTON and one thing that does concern me with HRAY is management. HRAY received an offer for 51% of the company at $4 per share, but they did not respond for weeks, resulting in the withdrawal of the bid. The company isn’t covered by any analysts so the conference calls didn’t offer any real insight. I’ll have to start questioning them in the next conference call. LTON, on the other hand, seem to have responsive management.
The big issue with China is to determine how the strict government regulations affect businesses as well as the mindset and mentality of businessmen compared to the west. For this reason I have never invested in China, but I’ll learn something about Chinese companies with this investment.
PDII has an interesting business model - they are a contract sales team for pharmaceutical companies. However, with the consolidation of the pharma industry, it seems like business is slow and they will continue to lose money for the rest of 2009. However, the CEO seems to be aggressive and bullish in seeing change. If this does happen, I expect PDII to do very well over the long run when the economy returns.
Modified Net Net Deep Value Investment Spreadsheet
Now to what you are all interested in.
- Allows you to enter 20 tickers
- Deleted the restricted cash line from assets
- Fixed the conditional formatting to display a “red” or “green” properly
View instructions on how to install the spreadsheet
Net Net Deep Value Screen Results
Disclosure: I hold HRAY, LTON, PDII at the time of writing.