Do the Tighten Up

 | Dec 12, 2011 | 12:36 PM EST
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It's sometimes interesting to really tighten up your criteria when you are on the hunt for value opportunities (especially in this type of environment), when they are somewhat difficult to find. The pickings are very slim at this point, as the rising broader markets have lifted many boats; certainly not all, but you can really narrow the field even further.

Some of my value searches are based on the premise that companies trading cheap relative to their assets can outperform over the long haul. While this rarely, if ever works in the short term, and is certainly not a trading strategy, it can pay benefits for the most patient investors.

To that end, I've adapted one of my deep value screens to identify companies with the following attributes:

  • Market caps greater than $100 million
  • U.S. companies only
  • No financials
  • Trading at less than 2x net current asset value (NCAV; defined as current assets minus total liabilities.)
  • Cash to market cap ratio of at least 33%
  • Companies must pay a dividend

This is an extremely stringent search, especially with the addition of the last two criteria, and just five names made the cut. Frankly, I'm a bit surprised any names did.

In terms of market cap, Comtech Telecommunications (CMTL) top of list. It is a member of the S&P 500 Small-Cap Index, and currently trades for just 1.79x NCAV. The company ended the most recent quarter with $473 million, or $20.39 per share in cash, which is roughly two-thirds of the company's current market cap. Comtech pays a $0.275 quarterly dividend and currently yields 3.5%. The current dividend was raised 10% over the summer, from the previous $0.25. I tend to shy away from companies that have either "tech" or "communications" in their name, but this one may be worth further scrutiny.

Superior Industries (SUP), which is one of the largest OEM suppliers of aluminum wheels, also made the cut. The company has been beaten up pretty badly this year, and tis shares are down about 37% since April. Last quarter was no picnic either, as earnings per share (EPS) of $0.16 came in well below the consensus estimate of $0.34. Currently, SUP trades for 1.73x NCAV, and has $147 million, or about $5.40 per share in cash, and no debt. The company pays a $0.16 quarterly dividend, which equates to healthy 3.8% yield.

Other names that met the criteria were Jakks Pacific (JAKK), which turned down a buyout offer from Oaktree Capital Management earlier this fall, Bel Fuse (BELFA) and Rimage (RIMG). Rimage, which is a recent discovery of fellow Real Money contributor Tim Melvin, currently trades below net current asset value, making it the only member on this list that is also a net/net. The company also recently hiked its quarterly dividend 70% to $0.17, putting the indicated dividend yield at 6.1%.

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we like this chart here, it appears ready to move higher. BOUGHT BZUN OCT 35 CALL AT 3.40
Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...



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