Scanning the Bargain Bin

 | Dec 06, 2013 | 3:00 PM EST
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Amid all the noise surrounding Friday morning's jobs number, I ran screens to see what is still safe and cheap enough to buy. The stock market has had a very strong year, which has thinned the inventory of asset-based bargains. While inventory may have shrunk, a few stocks still fit the bill and are worth owning no matter what the market has done or may do. Of course, my list of tiny community banks is still very much in play, but most are too small and illiquid to mention here. I'll just say that investors willing to do the homework on nano-cap banks will find it's time well spent.

To find names outside the Trade of the Decade, I ran my basic deep-value screen based on the style of legendary deep-value investor Walter Schloss. The screen looks for bargain issues that trade below book value, have strong balance sheets with low levels of debt and a high current ratio. As a final measure, it looks for companies where insiders own a significant amount of stock and are sitting on the same side of the table as outside investors.

One of my favorite stocks is still on the list. I have mentioned Resolute Forest Products (RFP) a few times before, but it is worth recapping. The company rose from the ashes of the AbitibiBowater bankruptcy. It's in the pulp, paper and wood products business. It also has a green-energy business with hydro and cogeneration plants in other operations. Newsprint is a big part of the business and, while it may not be as robust as it once was, calling it a dying business is incorrect. Millions of people around the world still read newspapers and demand will be there for decades to come. Resolute is the largest producer of newsprint in the world and it will generate cash flow from this business for a long time. The pulp and wood products business will pick with the economy over the next couple of years, and the stock should do very well.

Shares are cheap, trading at just 60% of book value. There's debt of $604 million, but RFP also has about $271 million and generates plenty of cash flow annually. Total debt is just 1.3x EBITDA, according to a recent management presentation. The current ratio is a solid 2.9 and insiders own about 13% of the company. The stock is safe and cheap, and it's poised to be a huge long-term winner.

Formerly Research In Motion, BlackBerry (BBRY) is a stock I keep sniffing around, walking away from and circling back to. It's trading at about 60% of tangible book value, and even after floating the billion-dollar convertible offering to Prem Watsa and other investors, the company is in decent financial shape with more than $2 billion in cash and short-term securities. If management can shrink the company and focus on the corporate and government markets who favor the product for security business, this could be a real business with big upside in the stock price. Same awfully smart money went into that deal, including Watsa's Fairfax Financial (FRFHF), Brookfield Asset Management (BAM) and insurance company Markel (MKL). I suspect they are more interested in the $10-per-share conversion price than clipping the coupons on the issue. I haven't pulled the trigger yet, but this stock is tempting at this price.

Lakes Entertainment (LACO) is another stock that's cheap enough to catch my eye, but I haven't bought it yet. The casino company lost a management contract with the Shingle Springs Tribe for the Red Hawk Casino and took cash payment of $57.1 million for the termination, making it a very cash- and investment-rich company. Its Rocky Gap Casino just opened in Maryland and it's off to a solid start. It also has a minority interest in another casino operation and a Jai Alai fronton in Florida. The company currently trades at 80% of book value and just 1.3x net current assets because of the cash infusion. It also has $57 million worth of tax carry-forwards to offset future income. The real question is whether Lake Entertainment looks for a new business to buy or uses its cash for a buyback or dividend.

Cheap stocks are getting harder to find but are still worth searching for and purchasing, even with the market at elevated levels.

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