Forward Industries Inc (FORD) has fired its investment bank and engaged another. It looks like FORD is intent on spending the cash on its balance sheet, which is a shame. Rather than make an acquisition, they should focus on the work on their desk and pay a big dividend.

There’s a half chance that the bank could suggest a sale of the company, but that seems unlikely. I can’t believe there are no activists out there willing to take on this company. It’s 40% off its 52-week high. It’s net cash. There are no big holders. Management’s not doing a bad job, but an acquisition is a ridiculous idea. This is an instance of a management trying to plow a dollar back into the business and turn it into fifty cents. I could use that dollar more profitably. Then again, I’d probably just spend it on pennywhistles and moonpies.

We’ve recently been using the GuruFocus Benjamin Graham Net Current Asset Value Screener (subscription required) to generate regular watchlists of net net stocks. The GuruFocus NCAV screen has some superb functionality that makes it possible to create the watchlist from the screen and then track the performance of those stocks. We created our first watchlist on July 7 of this year using the July 6 closing prices. The performance of the stocks in that first watchlist over the last quarter has been nothing short of spectacular. Here is a screen grab (with some columns removed to fit the space below):

With the recession biting, you have probably read about the sales of cell phones and consumer electronics slowing:

About FORD

FORD designs, markets, and distributes “custom-designed, soft-sided carrying cases and other carry solutions products made from leather, nylon, vinyl, and other synthetic fabrics.” The cases and other products protect “portable electronic devices such as medical devices and cellular phones.” It sells directly to original-equipment-manufacturers in Europe, the “APAC Region,” and the Americas and to retailers and distributors in the United States, Canada, and Europe. It has been in operation since 1961.

The liquidation of Technology Solutions (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.

Call us strange, but we believe that a little market volatility can be a good thing. It helps wipe away market excesses, such as those that were the end result of credit that was too easy for too long, and poorly designed and misunderstood securities which have bankrupted many. (Notice, we did not use the “S” word)

We’ve whined for months about the lack of interesting companies—those worth further research—trading below their net current asset value, but recently, the situation has been looking up (or down depending on your reference point). We are beginning to see more profitable net/nets. Most are deep into the microcap space, but beggars can’t be choosers.

A few weeks ago a lawsuit against the company was dismissed; it roughly saves the company $200k a quarter. This won't have a significant effect on Q3 earnings, but it's roughly $0.10 per diluted share a year afterwards.

Not too big, but when the stock is trading for only $3.20, that is significant. There has not been much significant news besides that, except that price has been slowly rising and there has been a significant pickup in volume since the lawsuit was dropped.

Forward Industries (FORD) - Forward Industries designs, markets and distributes carrying cases for portable electronics such as cell phones, cameras and other consumer electronic products. The majority of their business is cell phone cases/accessories and cases/accessories for diabetics. They have had a recent drop off in sales due to the change of strategy at Nokia (NOK) and Motorola (MOT) to not package cell phone accessories with their cell phones. They have $2.67 of cash per share, they are currently trading at $2.80. Insiders own 10% of the company. There has been recent insider buying.

FORD 1-yr chart

This is kind of like finding a business with excess cash. While it's true that a business can have too much cash from an efficiency point of view, finding more cash on the balance sheet than you expected is always a good thing, right? The point in each case is that the headline numbers (EPS, P/E, etc.) sometimes lie - and an inordinate number of bargains are found where such "lies" exist – simply, because others aren’t looking there (it’s a less conspicuous bargain).

The Microcap Speculator submits: This week's Spot Report from Knobias highlights cell phone accessory maker Wireless Xcessories Group (ticker: XWG). The stock was a high flyer earlier this year, following on the coattails of competitor Forward Industries (ticker: FORD). XWG is now almost 50% off its highs and just reported record earnings. Time to pounce? Read my take after the Knobias excerpt.

Accessory to the Crime, XWG
Prepares Its Next Heist

Forward Industries designs and sells cases, bags, clips, hand straps, faceplates and other accessories for consumer electronics and medical equipment.

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