Benjamin Graham liked to buy what he called net-nets stocks, stocks trading at or below their current net asset value.
This approach generated tremendous results for Graham and his students (including Warren Buffett (Trades, Portfolio)).
With this being the case, here are five stocks that currently fit the net-nets model that might be interesting investments in the current environment.
As a word of warning, I have not conducted any particularly detailed analysis on any of these companies other than selecting them based purely on financial metrics. This is only designed to be a starting point for further research, rather than a recommendation to buy these deep-value stocks.
Holding company
The first company on my list is GigaMedia Ltd. (GIGM, Financial). This $26 million market capitalization company reported cash and cash equivalents of $57.6 million in its last financial statement.
With net receivables of around $1 million and total liabilities of $44 million, the company has net working capital of $54 million, giving a market capitalization to net working capital ratio of 0.5.
GigaMedia calls itself a holding company with a portfolio of businesses providing online games and cloud computing services across Asia. The company is not profitable and reported sales of just under $7 million on a trailing 12-month basis.
Investment management
Next up is Manning & Napier Inc. (MN, Financial). This independent investment management company provides a range of investment solutions through separately managed accounts, mutual funds and collective investment trust funds. For its last financial year, the company reported a net profit from operations of $3.2 million.
Manning's last set of financial statements also revealed the company had cash and cash equivalents of $88 million on the balance sheet as well as short-term investments of $55 million.
Net receivables of $11 million and total liabilities of $70 million give a net-net working capital balance of $80.7 million, and a market capitalization to working capital ratio of 0.3.
Bromine and crude salt
With a $23 million market cap, Gulf Resources Inc. (GURE, Financial) offers a similar level of value according to its net working capital ratio. The company manufactures and trades bromine and crude salt as well as other products used in the oil and gas industry.
According to its latest set of financial statements, the company has $105 million of cash and cash equivalents on the balance sheet as well as $97 million of net receivables and just under $1 million in inventory.
Deducting total liabilities of $22 million gives a net-net working capital figure of just under $91 million. On this basis, the stock is trading at a market capitalization to net-net working capital ratio of 0.26.
Asset management
Altisource Asset Management Corp. (AAMC, Financial) is the fourth value company I'm going to profile. The group provides asset management and corporate governance services to institutional investors. Its primary client is Front Yard Residential Corp. (RESI, Financial), a public real estate investment trust.
According to its latest set of financial statements, the company has short-term investments and cash of around $42 million. Net receivables of $42 million and total liabilities of $10.5 million give a net-net working capital value of $34 million -- compared to the company's market capitalization of $22 million. These figures give a market cap to net working capital ratio 0.7.
Clinical-stage biotech
Finally, Zafgen Inc. (ZFGN, Financial). A clinical-stage biopharmaceutical company, Zafgen has $43 million cash on its balance sheet as well as $39 million of short-term investments.
After deducting liabilities, the pharmaceutical company has net-net working capital of $49 million. A market capitalization of of $22 million implies that the stock is trading at a market capitalization to net working capital ratio of 0.4.
However, considering the nature of the pharmaceutical business, and the fact that this is a clinical-stage pharmaceutical company, there's a good chance Zafgen could burn through all of this cash before it has any meaningful income.
Disclosure: The author owns no stocks mentioned.
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