More Cheap Graham Stock Ideas

April 13th, 2009 | Comments (15)

Here are some additional Graham style stocks that I consider cheap and potentially rewarding. As with all cheap Graham stocks, the businesses are usually broken and unprofitable which means mechanically investing in a handful may not yield the best results. What I look for are companies or business models that are not burning through cash and still have some revenues to support the business operations.

I am still trying to make positions of 5-10 cheap Graham stocks that I feel have been beaten down for temporary reasons. I only have two cheap stocks so far.

For new readers, consider the use of the free net net Graham spreadsheet that is available. It has seriously helped in speeding up the elimination and valuation process. I can go through 15-20 companies within minutes to decide which stocks are worth a second look.

Some Cheap Graham Stocks to Consider

Peerless Systems Corp (PRLS)
Licenses, develops and sells imaging and networking technologies and components to the digital document markets, which include manufacturers of color, monochrome printers and multifunction office products.

  • NNWC Price: $2.36
  • Current Price: $1.81
  • Discount to Current Price: 23%

Tegal Corp (TGAL)
Designs, manufactures, markets and services plasma etch and deposition systems that enable the production of integrated circuits (ICs), memory and related microelectronics devices used in portable computers, cellphones, personal digital assistant (PDA) and radio frequency identification devices (RFID).

  • NNWC Price: $2.25
  • Current Price: $1.15
  • Discount to Current Price: 49%

Soapstone Networks (SOAP)
Developer of resource and service control software. Previously, the Company was a provider of core router products and during the year ended December 31, 2008, transitioned to being a developer of emerging, software-based service and control solutions for service providers’ next generation networks.

  • NNWC Price: $5.78
  • Current Price: $3.37
  • Discount to Current Price: 42%

This is an interesting stock. Yes it is cheap but it also has no revenues and cash burn is close to neglible. It is basically an empty shell at the moment. The company and stock is made up of mostly cash and is seeking strategic alternatives. If I purchase SOAP, it is for a liquidation or buyout purpose only. Their business operations are dead.

Limco-Piedmont Inc (LIMC)
Provides maintenance, repair and overhaul (MRO) services and parts supply services to the aerospace industry. The Company’s provide aircraft component MRO services for airlines, air cargo carriers, maintenance service centers and the military.

  • NNWC Price: $3.18
  • Current Price: $2.35
  • Discount to Current Price: 26%

LIMC is an interesting situation. There is still a 35% upside to the estimated liquidation price but they are being completely bought out by T.A.T. Technologies (TATTF) who owns 65% of the company. The condition of the merger is that TATTF will give ½ of its stock for each stock of LIMC. This equals a $2.37 payout for LIMC shareholders. Seems like TATTF is getting a huge bargain on this one but there was an announcement on April 9 that a law firm was investigating the merger conditions citing the conditions are unfair to LIMC shareholders.

My feeling is that TATTF will increase the offered price.

View the embedded pdf below for detailed numbers of each business.

Ben Graham Cheap Stocks Below Asset Value 0413

Disclosure

No positions in any stocks mentioned

About Jae Jun


Jae Jun is the founder of Old School Value. He is on a mission to provide practical and actionable value investing tools, tutorials and educational material to help empower the individual investor. Keep in touch with Jae via any of the methods linked below.

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  • http://www.stockpursuit.com Mark

    HURC might be a good bet and HHGP

    Mark’s last blog post..Trading Ideas For Week

  • http://www.stockpursuit.com Mark

    if your really looking for one with good fundamentals EDUC is probably the best out there right now. They report earnings Tues

    Mark’s last blog post..Trading Ideas For Week

  • http://www.oldschoolvalue.com Jae Jun

    Ive taken a look at HHGP but it isn’t a net net according to my calculations. Neither is EDUC. For EDUC I take 50% of inventories and don’t consider their prepaid expenses and tax receivables. EDUC NCAV price comes out to $2.11.

  • Caleb

    Although not a net, net, nor a small cap, HTX sells below net assets and generates a large amount of cash. In 2007 and 2008 they returned around $5 per share to shareholders. They are in the process of spinning off a couple of divisions. Like I said not a net,net but could be an interesting opportunity. Currently selling at $4.75

  • http://www.oldschoolvalue.com Jae Jun

    Thanks for the idea. Will take a look and the spinoffs may be a good purchase as well.

  • Caleb

    What timing, later on in the day they announced they are distributing the Hong Kong business to the shareholders. Each ADS holder will receive 1 share of the new company. The new ADS’s of the Hong Kong Company will not be listed on any exchange, they will be traded on the OTC.The Hong Kong business is more mature and produces more cash. The company that is left after the spinoff is still breaking into Israel, Vietnam, Indonesia, Sri Lanka, and Thailand. They are focusing on building their business in emerging markets.

  • Caleb

    Gravity(GRVY.(ADR)) is a game developer in Asia. The stock is trading for less than its net current assets by my calculation(after you convert the Korean won into dollars). They have not filed consolidated reports for the year ending 2008 but they have filed a 6-k for year ending 2008 and 2007. Now, keep in mind, the auditors(Samil PricewaterhouseCoopers) are auditing the statements according to laws of Korea, but a balance sheet is a balance sheet, and in my opinion you can still put value on their assets and from what I read, their business as a going concern is not dead, just had a few hiccups along the way. Oh, and two activist hedge funds own positions in the company and have won concessions against the company in Korean courts.

  • http://www.oldschoolvalue.com Jae Jun

    @ Caleb
    Sorry for the late response but I’ll try to take a look at it. Just haven’t found much time… sleeping 4-5 hours these days lol

  • MKL

    Jae, are you still looking at AEHR? Did you dismiss it? I don’t remember seeing a valuation on it from you, but I didn’t know if you dismissed it before you got that far.

  • http://www.oldschoolvalue.com Jae Jun

    I didn’t take further action, it’s only been idling on my watchlist. After their earnings and seeing how much money they lost, I wasn’t sure whether it was going to lose more or at least break even with operations. Either way, I wasn’t quite sure of the fundamentals.

    I told a friend it’s cheap on paper and he made the decision to buy right after the drop to $0.85 which probably factored in most of the losses already.

    I’m just not as agile… lol

  • http://wirelessrouter.co.nz/ Michael Tiu

    I would like to bring back my Dlink-615 router to factory setting. The CD that came with the router launch with the Start Up Wizard. I would like to begin all over with making modification, user password and a new SSID. The failure messages describes that I need to reconfigure using the original password which has been replace so many times by resetting. Any suggestions would be greatly appreciated. Thank you.

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