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Related to Bargain Net-Current Asset Stocks, "It always seemed, and still seems, ridiculously simple to say that if one can acquire a diversified group of common stocks at a price less than the applicable net current assets alone - the results should be quite satisfactory.

But can one really make money in them without taking a serious risk? Yes, if you can find enough of them to make a diversified group, and if you don't lose patience if they fail to advance soon after you buy them. Sometimes the patience needed may appear quite considerable."

Finally got around to reading Ch. 15, and I'd be interested in discussing two things: (1) stocks selling below NAV, and (2) special situations. Regarding the first item, I've developed a screen on the marketguide site to find stocks selling below their NAV. Here it is:

(1) market cap < (current assets - current liabilities)

(2) eps ttm > 0

Some 917 companies met the first criteria, and 199 were left after the second. I decided to look at companies with a market cap of $50 million or more. This was an arbitrary cut off based on the simple fact that I own two companies valued at $50 million. This left 47 companies. The top ten in terms market cap are:

British Energy
Sequoia Corp
Pioneer-Standard Electron

Sears and Dillards are well know department stores. British Energy and USEC are energy companies. Terex and Sequoa are industrial companies, while Pioneer-Standard is an electronics company. Makita makes mighty fine power tools, Kellwood is a clothing manufacturer, and Spiegel is the catalogue retailer.

Some well known smaller names on this list of 47 companies include: The Bombay Company, Books-A-Million, Buliva, Huffy (of the bicycle fame), Johnson Outdoors (check out the home page--you'll be surprised by their brand names), National Presto (you have something of theirs in your kitchen), Perry Ellis, Recoton (they make Jensen, Audio Research and Advent speakers to name a few products), Salton (that damned ubiquitous George Foreman grill), The Sports Authority, and Steinway (pianos).

Based on this brief exercise it would seem that Graham was right when he said that "companies, whose brands are household names all over the country, could be valued at such low figures".

This is only a start. If anyone is willing I'd like to pick from this list of companies selling below their working capital and see if any pass the muster. I'll start with Johnson Outdoors since I like camping.

Finally, I'd like to discuss "special situations". Buffett talks alot about "workouts" in his partnership letters. What are "workouts"? How does one go about finding them, and what criteria are used to determine which ones are likely to succeed?

My next post will be a valuation of Johnson Outdoors.


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