Alan Brochstein

15 Deep Value Plays

I own SCVL and have written positively about it on Seeking Alpha in the past. It, along with many other retailers, has gotten cheaper. I went back and reviewed some historical data for retailers and found that they tend to bottom at 0.5X tangible book value. Interestingly, often the entire balance sheet equity value of the firms tends to be in inventory. I would gather that as the small retailers are able to convert some of the inventory to cash in coming quarters, investors will pay more for the stocks. The issue to watch out for is losses or write-downs. In the case of SCVL, I am hopeful that they can preserve book value.

I have followed TECD and IM for many years, though not so closely recently. Investors must understand that they are banks to their clients. It will be very important to monitor AR. Also, they do take inventory price risk as well. In the case of TECD, the AR in the most recent quarter was 150% of equity and the Inventory was 120% of equity, so be careful. In the case of IM, the metrics are better, but they have a lot of intangibles. As a ratio to tangible equity, AR as of 9/30 was 120% roughly, and the ratio of Inventory was about 90%. IM appears to be doing a better job than TECD of getting these items down relative to sales recently. Clearly the market has priced in something, though, as both of these stocks are, as you point out, cheap to net working capital and they are also quite cheap to book value.