Newly Expanded Value Investing Resources

Posted September 30th, 2010. Filed under Investing Links

I spent time this week updating and filling out the Resources page with helpful links from a value investing standpoint.

These are the items I use on an everyday basis to screen for undervalued stocks, analyze financial statements, determine appropriate valuations, and find new opportunities.

The links can be loosely broken out into several categories:

Stock Screeners

Graham Net / Net Screener has the widest collection of securities trading at a discount to their net asset value.

For more complicated screens, provides the ability to create custom screening criteria, a major advantage over the other screeners which limit the investor to pre-set criteria.

The tool can handle extremely complicated scenarios for almost any line of a company’s financial statements, and is the best resource for identifying potential investments using new and original ideas.


The SMF Add-In is a free function in Excel that allows limitless information to be pulled into a spreadsheet automatically from a single ticker symbol. By itself, the add-in is incredibly powerful, but Jae Jun and his OSV Valuation Spreadsheets are the best stock valuation tool on the web.

The spreadsheet crunches numbers for several different valuation methods automatically including DCF, EPV, NCAV/NNWC, Piotorski score, and Z-score, along with giving historical financial statements.

They are constantly being improved, and Jae even gives away several outstanding free spreadsheets on the website as well. A must have for any investor, even a recreational one.

However, even with the best number crunching in the world, nothing beats reading through a company’s annual reports at the SEC EDGAR Database.

Special Situations

Special situations investments, or workouts, encompass a broad range of alternative investments including going private transactions, merger arbitrage, tender offers, distressed securities and spinoffs.

Each of these areas has been proven to beat the market over the long run, and make a great supplement to a traditional value investing portfolio.

SINLetter Merger Mondays (merger arbitrage), Fat Pitch Financials Contributor Corner (going private transactions), Bankrupt and Distressed (BAD) Research & Due Diligence (distressed securities) are great resources for learning about new opportunities.

The contributors at each site share a great deal of helpful info and sample analysis for those new to special situations.

Suggestions & Recommendations

What other resources do you frequently use for finding new investing opportunities?

Please reach me on twitter with suggestions for other valuable links or sites. If I find them helpful, I’ll make sure to add them to the Resources page as well.

Weekend Values – September 26, 2010

Posted September 26th, 2010. Filed under Investing Links

A collection of value investing ideas, stocks, and analysis from the past two weeks:

Hawaiian Airlines (NYSE:HA)

Valuehuntr has put together a great presentation recommending to buy Hawaiian Airlines (HA) while shorting American Airlines (AMR).  The presentation makes a very convincing case that HA is one of the best run carriers in the world, while AMR is struggling with a legacy fleet and underfunded pension obligations.

I’m really impressed with how the information is presented in a very professional, organized, and logical manner.

The airline business is notoriously difficult (even Warren Buffett had a well publicized mistake with US Airways), but Valuehuntr certainly makes an impressive argument for HA.

Investment Analysis: The Visteon Corporation (VSTNQ)

Another great summary from Above Average Odds Investing on the post-bankruptcy valuation of Visteon Corporation.  VSTNQ was a high-profile parts company spun-off from Ford, which is close to emerging from Chapter 11 bankruptcy.

The stock is currently trading on a ‘when-issued’ basis and should see a large price boost once it resumes trading.  It also appears undervalued using very conservative multiples, along with a ‘sum of parts’ breakdown as well.

Bankruptcy investing is an area that I’ve started to explore, as it offers mispriced and ignored securities that are often event-driven as opposed to market-driven opportunities – the logic lines up very well for a value investor looking to profit from special situations.

Buyout Targets

Greenbackd featured a post (originally on from Mark Travis, CEO of Intrepid Capital Funds. The post features three undervalued stocks, including Tekelec (TKLC), Aaron’s (AAN), and Tidewater (TDW).

Travis argues that these stocks are potential buyout targets, and appear undervalued based on the price an acquirer would pay in cash to buy the company outright.

As a value investor, acquisitions can provide tremendous gains, acting as the catalyst that finally drives the stock’s price to reach its intrinsic value ( check out the recent acquisition news with NUHC, a prototypical undervalued stock).

Mid-Continental Tab Card Co.

This is an older post from almost two years ago, but I just came across it and thought it would be worth sharing.  It describes the logic behind Buffett’s investment in Mid-Continent Tab Card Company back in 1959.

“When presented to Buffett in 1959, the company had $1 million in sales, was growing at 70%+ per year and earning 36% profit margins.”

It is a great real-world example of Buffett’s thinking about investments in the early days.

A Thousand-bagger – McDonald’s in the Sixties

A fascinating research report from an analyst in the 1960s covering McDonalds (MCD).  Originally posted at Bigger Capital, it is an amazing look back at one of the most successful companies of all time.

The analyst managed to pick up shares of MCD at only $0.06 and still holds most of the original stake, an investment that has returned over 1000 times!

It is not often that an investor comes across such an incredible homerun and definitely says something for holding a concentrated portfolio full of only your best ideas.


No positions

Jewett-Cameron Trading Company Ltd. (JCTCF) is another micro-cap industrial stock that has flown under most investors’ radars. The holding company can be broken out into 4 different segments:

  • Greenwood Products: Industrial wood products, major product category is selling treated plywood to boat manufacturers.
  • Jewett-Cameron Lumber Corporation (JCLC): Lawn, garden, pet and other, Sold primarily to home centers and other retailers.
  • Jewett-Cameron Seed Company (JCSC): Seed processing and sales
  • MSI-PRO: Industrial tools and clamps, sells pneumonic air tools, industrial clamps, and saw blades.

Business Segments

JCTCF - Operating Segment Revenue Breakdown

2009 was an extremely difficult year for JCTCF, as sales dropped 35% to $42.1M. This reduction in revenue led to a sharp decrease in net income – $0.66/shr compared to $1.09/shr in 2008.

Although sales were down basically across the board, the largest drops occurred in the wood products (-59%), and seed processing segments (-41%).

The wood products business has struggled mightily since 2005, falling almost 80% from peak sales of $55.38M. Boat manufacturers have been hit really hard by the recession, as dealers work through inventory backlog and consumers delay purchases.

Management does not believe that the boat manufacturing business will return in the near future:

“We continue to develop a readiness to participate when the market rebounds. In the meantime, we have been searching for alternative uses for our industrial wood products and developing new customer relationship”

Looking at the operating segments, JCTCF operates in a tough business environment with low single digit margins in 3 out of 4 business segments (similar to a current holding, APNC.OB, with its insurance marketing division).

The product mix has shifted towards the higher margin JCLC business, which now makes up almost 60% of sales. The company is transforming (maybe involuntarily?) into a business that relies on the lawn, garden & pet segment to drive profits.

Despite the revenue declines, the overall business remained solidly profitable in all four quarters in 2009, a trend that has continued into the first three quarters of 2010.

Company Financials

JCTCF has aggressively paid down debt, reducing its debt to equity ratio from 137.2% in 2003 to 9.6% last year – the company has no long-term debt outstanding, but has an unused $5M credit line available.

Overall, gross margins have improved as the company makes the transition into the higher margin lawn & garden business – TTM gross margin of 22.3% is the highest on record.

The balance sheet is extremely strong with a current ratio and quick ratio of 4.9 and 3.2 respectively. The company is sitting on a huge cash pile ($8.4M) or $2.71 per share in net cash after subtracting out liabilities.

CROIC & ROE have plateaued in the past five years at 10.3% and 15.3% respectively.


Management Team

The company’s CEO, Donald Boone, and Corporate Secretary, Michael Nasser, collectively control over 35% of outstanding shares.

Both executives have been with the company since 1987 and have seemed content to sit back and watch the cash position grow without any urgent concern for minority shareholders (although a recent stock buyback could be a step in the right direction).

Decline in Revenues

Sales have declined every year since 2006, and are currently almost half of the high water mark. The company’s language in the quarterly report continues to have a negative outlook on the boating sector, which used to be the major source of revenue.

If management cannot effectively guide the company into growing business segments, JCTCF’s long-term prospects could be suspect.


Share Repurchase Program

After announcing in July 2009 that the company began exploring options to increase shareholder value, management finally announced a stock repurchase program in May of this year for up to 425,000 shares, or 17.8% of the total shares outstanding.

Unusually, the company designated specified in the press release that it would only buy shares for up to a maximum of $7.00.

As of July 6, 2010, the company had purchased almost 80k shares with a month left to go in the original program. Assuming the company maintains this pace, the company would retire approx 7% of shares, making the company appear even cheaper.

Hidden Undervalued Assets

Property, plant and equipment is currently being carried at approx $1.9M, net of depreciation. However, the company owns several pieces of extremely valuable property:

“The Company’s executive offices are located at 32775 NW Hillcrest Street, North Plains, OR 97133. The 5.6 acre facility, which is owned, consists of 40,000 square feet of covered space (6,000 office, 10,000 manufacturing, and 24,000 warehouse), a little over three acres of paved yard space, and was completed in October 1995”

The property associated with JCSC, which is owned, consists of a little over 13 acres of land, 105,000 square feet of buildings, rolling stock, and equipment. It is currently used for seed processing and storage. It is located at 31345 NW Beach Road, Hillsboro, OR 97124, which is adjacent to North Plains, OR”

In all, the company owns almost 150,000 square feet of building space and almost 19 acres of in a prime location in Oregon right near a small airport and a major highway.

A quick search in Loopnet shows comparable buildings selling for approx. $17-$20/sq. ft. Undeveloped land is going for approx. $200k-$300k per acre.

At those prices, the land alone is worth over $3m and yet is sitting on the balance sheet at $635k.

Rebound in Boat Manufacturing

Although the company’s reports have been very negative on the status of boating manufacturers, other industry statistics show a glimmer of hope on the horizon.

As of July 2010, boat sales remain down 15% YoY but have been rising steadily since April 09.

As sales rebound, dealers will continue to work through their inventory backlog – an increase in manufacturing will follow, leading to increased sales for JCTCF.

While the Greenwood Products division will probably not see 2005 levels for quite some time, a resumption in sales growth and return to profitability in this segment will certainly help the stock.


JCTCF - Stock Valuation Analysis

Using an estimated 2010 EPS of $0.80, JCTCF’s P/E ratio is 8.75, slightly below its long-term average.

After adjusting the P/E ratio to include the net cash balance ($2.71/shr), the modified P/E ratio is only 5.3.

JTCF is also selling at discount to book value as well as NCAV.


Over the past few years, the JCTCF managed to stay profitable, on both an earnings and cash flow basis, during an extremely difficult period and despite revenues cratering in the main business segment.

The stock is trading at a discount to its intrinsic value, and management now has the responsibility of guiding the business back to growth.

Although the share buyback is a nice gesture, management could do more – a special dividend or possible sale of one of the underperforming business segments would be a nice catalyst for future price appreciation.


No positions in my personal portfolio at the time of this writing.