100 Companies That Can Take Themselves Private

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ContraHour
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In past years, I have successfully used a screen that identifies companies that can take themselves private by levering up their balance sheet and using their cash flow to pay the interest payments. The screen assumes companies could get financing at 9% and could cover the tax adjusted interest payments if they stopped expanding and just spent a minimum in capital expenditures to continue operating.

If you assume that we don't enter a depression and the companies could actually get financing right now, a stunning number of high quality companies - companies with high cash flow and relatively low debt - could take themselves private at today's prices. Obviously, the assumptions of the screen are unrealistic currently. If General Electric (GE) is paying Warren "Loan Shark" Buffett ten percent interest rates, then most other companies won't be able to find financing. But that's beside the point. At these prices, many quality companies are cheaper than they have been in history. Money is still available - it's just scared and sitting on the sidelines. If we see any return to stability in the financial system, many of the stocks on the list could see 25% - 50% upside just by a return to median multiple.

My original screen included over 200 companies that could take themselves private but I have filtered it to only include companies with relatively low debt to equity ratios. As a caveat, several of the companies on the list are coming off of cyclical peak earnings and won't be able to sustain the levels of cash flow they have generated in the past year.

However, many others are very steady cash generators with strong balance sheets. Some of the large cap stocks on the list, like Disney (DIS), Applied Materials (AMAT), and Exxon Mobile (XOM) are unbelievable bargains. Many of the mid cap stocks are solid companies that have almost become small caps such as Federated Investors (FII), MSC Industrial (MSM) and Manpower (MAN). And many of the small caps are now cheap, undiscovered gems such as Advanced Energy (AEIS), Darling International (DAR) and JDA Software (JDAS).

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ContraHour profile picture
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ContraHour is an anonymous blog written by a co-portfolio manager of a small cap and dividend-oriented, value portfolio. As he writes on his site, the name of his blog has the following origin: "If you're a fan of Todd Harrison's Minyanville, you'll recognize the title of my blog. ContraHour refers to the hour before the market closes (2 - 3 pm) when the market often does the opposite of what it will do going into the close." Working on the buy side, ContraHour considers himself a contrarian investor whose fortes include 1) buying broken growth stocks that have been beaten down but have already shown some aptitude in turning around; 2) buying growth stocks that have yet to be discovered or 3) buying deep value stocks that most investors have given up. Visit their site: contrahour.com (http://www.contrahour.com/)

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