Consider a stock such as Limco-Piedmont (LIMC), a maintenance, repair and parts and services supplier to the aviation industry. Limco trades for $30 million in the market, but consider the following balance sheet items:
Cash + Securities: $33 million
Accounts Receivable: $12 million
Inventory: $19 million
Total Liabilities: $10 million
With those balance sheet numbers, you would expect that the company is losing money hand over fist to have a market cap of just $30 million. But this is not the case. The company has contracts in place with several customers, including Fokker, KLM, Lufthansa, Boeing and Bombardier, resulting in a 4th quarter profit along with net income for 2008 of $2.7 million.
As an added incentive for investors, Limco is also the subject of a takeover offer which is 20% higher than its current price. A group of Limco's investors are pushing for a higher takeover price, but even if the deal falls through, buyers at this price appear to be purchasing at a discount based on Limco's cash position.
Rest assured, you will not find such a situation among well-followed large-cap stocks. It is near impossible to find a large company trading at a discount to its cash on hand, and if one can be found in such a state, you can rest assured it is because its debt load and negative earnings have the company in dire straights with doubts as to its future. Limco's debt level: $0.