Weekend Values – September 12, 2010

Posted September 12th, 2010. Filed under Investing Links

A collection of value investing ideas from the previous two weeks:

Contraction Expansion

Barel Karsan lays out the risk/reward for SIFCO Industries (SIF), a stock recently featured here at Value Uncovered (See: SIFCO: A Contrarian Investment). The stock appears to be very cheap, but management is rolling out an expansion strategy during a cyclical downperiod for the company.

The question remains whether the business is back on the upswing (and management is correctly anticipating) or whether the company will experience another down year or two (and potentially struggle by not conserving  cash).

Risk Arbitrage: The Battle for 3PAR

Hunter over at Merger Arbitrage Investing has a nice writeup on the bidding war between Dell Inc (DELL) and Hewlett-Packard Co (HPQ) for 3PAR Inc (PAR), the global provider of utility storage systems.

In a little over a month’s time, the bidding war increased the purchase price for 3PAR from $1.15B to $2.35B, as the mega-tech giants battled over control of the company.

While many special situations investments try to capture a thin, ‘risk-free’ spread, a good portion of long-term value arises from bidding wars between potential acquirers.

InfoSpace Inc.: Cash + Cash Flow + Big NOL = Cheapness & Change Agent

Featured at GuruFocus, Infospace (INSP) is a meta search engine that has suffered greatly since the dot-com bubble (the stock hit a split-adjusted price of $1,190/shr in March 2000 compared to a current price of $7.19/shr!)

From an value perspective, the company has $6.25/shr in net cash on its balance sheet, generates solid FCF, and has a huge ($815m) pile of Net Operating Loss (NOL) tax carryforwards that could potentially be valuable to a strategic acquirer.

Acquirer Buys Cash at a Discount

Barel Karsan has another great post on Qiao Xing Mobile (QXM), a mobile handset manufacturer in China. QXM has appeared on every Graham, NCAV, or NNWC screen over the past several months, as the company is sitting on over $265m of net cash.

A recent buyout offer from majority shareholders (usually a great situation that unlocks potential for value investors) values the company at only $206m, well under the net cash balance.

The situation shows how difficult it can be to unlock value for minority shareholders, even in a buyout/liquidation situations.

Class #1 – Introduction to Value Investing

While I usually feature specific stock recommendations on Weekend Values, I came across this series of class notes that was interesting enough to pass along.  The notes were typed up by an anonymous student at a graduate business school during various lectures from 2002-2007.

Browse through the related Scribd documents for even more insights.


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