Low Enterprise Value Stocks Reward Prudent Investors

Includes: GEC, LOJN
by: Randy Durig

The second half of 2010, surprisingly, was quite rewarding. Utilizing our selection criteria, our average stock performance for the High Cash Stock Review, published on Seeking Alpha, was up over 37% percent compared to the S & P 500’s very respectable 20.82%.

In the fourth quarter, the High Cash Stock review was up a strong 20.38% percent compared to the S&P 500’s gains of 9.92%.

Our third quarter 2010 performance was rewarding, with a 16.68% gain compared to the S & P 500’s 10.62%. Please review our update.

The High Cash Stock Review portfolio is based on very low or negative enterprise values while still including our established criteria of strong increases in cash flow, earnings, and a qualitative review to ensure it is a good business model. The goals are to select, purchase, monitor, and sell companies in an effort to obtain outstanding performing investments while minimizing risk by finding low values for our clients.

The second half of 2010 based on simple math is:

Time High Cash Stock Review. S& P 500
Fourth Quarter 2010 20.38 % 9.92 %
Third Quarter 16.68 % 10.90%
Total 37.06 % 20.82 %

Fourth Quarter 2010 performance on our Seeking Alpha listed stocks:

Company Fourth Quarter 2010
China Yuchai International Limited (NYSE:CYD) 63.14 %
Homeowners Choice, Inc. (HCII) * 29.69 %
KHD Humbolt Wedag International AG (OTCPK:KHDHF) 22.76 %
O2Micro International Ltd. (NASDAQ:OIIM) (- 1.44) %
The Bancorp Inc. (NASDAQ:TBBK) 44.02 %
Tollgrade Communications Inc. (NASDAQ:TLGD) 28.10 %
Tessera Technologies Inc. (TSRA) 19.55 %
Silicon Graphics International Corp (NASDAQ:SGI) 11.21 %
Sonus Networks, Inc. (SONS) (-27.76) %
Terra Nova Royalty Corporation (NYSEARCA:TTT) *14.61 %

*Dividends not included

Since we understood that the very low values may provide protection from a market sell-off, positive earnings and cash flow provide profit increase,and possible stock price expansion helps to increase the often very low values, and above all an exit strategy, we believed this approach is unique. So far, it has done exceedingly well and beyond our in-house forecast by such a wide margin, that we are very excited to help others, but one must realize that this is a short indicator of performance and there is no guarantee of future success.

The High Cash Stock review appears to mirror the performance of the Income and Investment review (which has the same investment criteria while requiring a dividend payment.) This portfolio returned a whopping 28% in the fourth quarter, and this is not including the 4% annualized dividend yield.

Updated portfolio review:

Lojack (NASDAQ:LOJN) was added to our clients portfolio along with this published review during the fourth quarter. Even though LoJack provided about a 40% whopping gain in stock value since our article, yet we have not included it in the overall performance since it was not included in the portfolio for the entire time period of the quarter.

Openwave (OPWV) was also added to the portfolio with this published review in the fourth quarter. Openwave also provided a nice improvement for our clients but was not included in our performance numbers since it too was not in for the entire quarter.

No positions were sold during the quarter.


Additional disclosure: Both Durig Capital and its clients have positions in all the above positions. The returns were based on equally weighted High Cash Stock Reviews recommendations, that we published, invested into our client’s portfolios, and were held for the entire time period.