I've been fairly bearish on the U.S. economy, but you wouldn't expect anything less from someone whose degree in economics is from one of the few schools left that espouses tenets of the Austrian school of economics.
Even I would admit that there have been some small signs of improvement in the economy over the past year, but Friday's jobs numbers were terrible and are yet another indicator that the recovery, however tepid, may be in jeopardy. Europe continues to unravel before our eyes, but I'm not sure a whole lot has actually changed there since this time last year. But the combination has wreaked some havoc on our markets lately and that may be creating some opportunity. The garbage is always thrown out first during the pullbacks, so it may be time to do some garbage picking.
Three months ago, I wrote a somewhat skeptical piece on Radio Shack (RSH). At the time, the company was already trading below tangible book value, at just 1.76x net current asset value (NCAV) with a fat, albeit potentially deceiving, 7.2% yield. Shares were trading in the $7 range and it had been a long way down for this name, which was trading in the low teens as recently as last fall. Since March, shares have fallen another 33%.
Radio Shack may be a dinosaur at this point and shares may be a falling knife, but at this rate, it won't be long before it's a net/net. Shares currently trade at 1.18x net current asset value. The balance sheet has not changed all that much since year end. At Q1, the company had $566 million in cash and $675 million in long-term debt. The debt is split between convertible notes maturing next year and unsecured notes due in 2019. The dividend yield is even fatter now, at 10.9%, although I would not put much faith that it will continue at this level. Given the level of the yield the market is no doubt expecting a cut. But management was steadfast during the Q1 conference call that there are no plans to discontinue the dividend (that rhetoric may certainly change as maturity of the 2013 notes approaches).
It is highly doubtful that Radio Shack will ever again be the $70+ stock that it was in the late 1990s or even the $23 stock it was in 2010. The question is whether there's any life left here at all, any remaining puffs from the cigar butt.
I've seen this movie before with broken retailers. Before Circuit City ultimately imploded the company spent some time in net/net land back in 2003 and had a dramatic run-up in the ensuing years. Garbage picking is not always about buying names that will thrive forever. Sometimes it's about buying assets that are cheap and then exiting when they aren't.