Wednesday, July 29, 2009

Volatility Offering Opportunity

In March of 2009, panic in the market led to an enormous number of value opportunities. Believers in market efficiency would be hard-pressed to justify some of the depressed valuations prevalent in the market at that time. Some companies have already posted tremendous gains in the four months that have passed. One such example is Spartan Motors (SPAR), designer and manufacturer of heavy-duty vehicle chassis.

The auto industry is clearly going through a tremendous slump, but investors went overboard in punishing the valuations of many of these stocks. Since hitting its low in March, the stock has already quadrupled. But how was an investor to know that SPAR was undervalued?

The company traded for just $75 million in March, but had cash of $14 million, receivables of $76 million, and inventory of $87 million, for a total of $177 million. Meanwhile, the company had total liabilites of just $90 million, for a difference of $87 million. In other words, the company could be purchased for its inventory, with its fixed assets, R&D, and customer relationships thrown in for free. For a company that has remained profitable throughout this downturn (including 2008 operating income of $69 million), this represented a tremendous bargain.

While most companies have recovered from their lows in March, many have not. Fifty-two week low lists continue to show investors which stocks are out of favour. Of course, not all out-of-favour stocks offer value, but the current environment still offers plenty of upside to those willing to make the effort to uncover the diamonds in the rough.

Disclosure: None

4 comments:

sandy said...

could u plz suggest some resources for finding such value stocks? i dont find the usual stock screener to be that useful...

Saj Karsan said...

Hi Sandy,

This may be a good place to start:

http://www.barelkarsan.com/2009/06/screening-for-value.html

Anonymous said...

god, i just check this thing out and man oh man did SPAR have an EPIC!!! run up!! damnit. i just came back to check out your site and am constantly reminded of 1. how AWESOME this site is both for your content and for the readers. and 2. how you consistently put out useful information and rarely link to other articles so your content is Original

thanks for your work!

Saj Karsan said...

Thanks, Anon. I appreciate it!

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