Remember CMGI? Its Remnants Might Rate a Buy

Now known as ModusLink, the struggling firm has some positives.

ModusLink Global Solutions (MLNK) probably isn't a company that you recognize, but you might recall the firm by its former name: CMGI. That was one of the dot-com boom's high-flying Internet incubators -- but if you remember the stock at all, it's probably been ages since you actually looked at it.

ModusLink is now a supply-chain-management company that's been struggling for several years, and I probably wouldn't have given it a second thought had it not popped up recently on some of my value screens.

After all, the company has some characteristics that no firm would want. For openers, it's a "net/net" stock, meaning that MLNK trades below the company's current net asset value. ModusLink also has a negative enterprise value, which translates into a stock that sells for less than the firm's net cash.

MLNK ended its latest quarter with $169.4 million in cash and $80.3 million in debt, which leaves $89.1 million (or $1.69 per share) in net cash and short-term investments. Given that ModusLink currently trades for about $1.43, that means its shares are selling for about a 15% discount to net cash. In other words, the market will theoretically pay you to buy the stock.

Of course, you have to keep in mind that MLNK's revenues have been declining, and that the firm has managed just one profitable quarter in the past eight. Basically, ModusLink isn't in the greatest of businesses, so markets are pricing the stock accordingly.

That said, MLNK could become an interesting play if it shows any signs of life and manages to maintain or grow its cash levels. But I often use the phrase "not for the faint of heart" to describe stocks that I uncover, and ModusLink is certainly no exception.

On the plus side, debt isn't much of a concern at this point. Most of ModusLink's obligations are convertible notes that don't mature until 2019 (and that are convertible at $6.01 per share).

And one "asset" that ModusLink has on its books might come in handy some day: $2 billion in net-operating-loss carryforwards that expire between 2021 and 2033. That could make the company attractive to a potential buyer.

At the time of publication, Heller had no positions in the stocks mentioned. Please note that due to factors including low market capitalization and/or insufficient public float, we consider MLNK to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.