The following stocks carry significant cash on their balance sheets and are also undervalued with other traditional valuation metrics. This Value Stock Guide valuation screen contains the following filters:
P/E below 10
P/B below 1
Cash/Price > 1
52 week price performance = bottom 20% of its industry
- ArcelorMittal’s Q2 2016 Earnings Preview: Cost Reduction Initiatives To Offset Impact Of Weak Steel Prices
- Shell’s 2Q’16 Earnings Expected To Suffer As Commodity Prices Remain Depressed
- UTC Q2 Earnings: Company Beats Earnings And Revenue Estimates; Reaffirms Guidance
- Freeport-McMoRan’s Q2 2016 Earnings Review: Weak Copper And Oil Prices Negatively Impact Results
- Akamai Falls On Missed Earnings & Bleak Future
- Volkswagen Earnings Preview: Amid Scandal Blues, Expect Margin To Be Hit By Added Expenses
All these stocks sport a negative enterprise value.
Some of these stocks are distressed for a reason but the company is very likely to navigate the circumstances and come out with a stronger business. Investors should pay attention to the reason for undervaluation and the potential that any value in these shares can be quickly realized. With further due diligence, you can determine if these stocks are worthy of taking a position in and appropriate allocation in your portfolio.
Key Valuation Indicators as of Oct 8, 2012
Parke Bancorp (PKBK): A holding company for Parke Bank that provides banking services to individuals and small businesses in parts of New Jersey and Philadelphia, PA. The company trades at a -$41.40 m enterprise value and below net cash. The company has grown its book value in the last 3.5 years and has been profitable. The stock also sports an attractive PEG ratio of 0.5, which may or may not be relevant depending on how much stock you put in future earnings estimates (I don’t put too much).
Universal Insurance (UVE): A Florida based Property and Casualty insurer, the company can be bought in the market today at $239m enterprise value. If profitable operations and continuous book value growth were not enough, the stock also pays a dividend that currently yields 8.2%. Is the dividend sustainable? I think it is. The company has substantially cash on the books. Even though the insurance operations in Florida has been week for the last few years, the company is taking steps to reduce its costs as well as expand to other states outside Florida.
Maxygen (MAXY): Maxygen is a bio-pharmaceutical company out of San Mateo California working to help alleviate the effects of chemotherapy and acute radiation syndrome. While a small bio-tech company can be risky, it is worth noting that the company has 2.5x its market value as cash on the books, and has no debt as of the last quarterly report. Since then, the company has paid $100 million to the shareholder as a special dividend. The stock continues to trade at a discount to the cash that remains and can be attractive if the rest of the assets are valuable.
Knight Capital (KCG): Most of us are probably aware of Knight Capital and its big High Frequency Trading boo-boo few months ago. Given that, it may be wise to take the ttm earnings with a pinch of salt and assume. Still, with the stock 80% down in the last 52 weeks, there is enough value for the investor looking for blood in the streets. The valuation goes like this: $7.5 B in cash, $5.2 B in debt and half a billion in market value. Enterprise value = $2.07B. Do you think the company will survive and be profitable again?
A high cash/low debt situation can yield excellent stock buying opportunities as the amount of cash on the books puts a floor on the stock price. Just make sure to offset the cash assets with any corresponding liabilities for the financial firms (such as deposits, or unearned premiums).