At the behest of Tom, I’m going to try to describe to you an investing system that has virtually nothing to do with VectorVest…OK, here we go..
Back in early 2002 I was watching a local semiconductor company stock and saw that the stock was actually trading at less than it’s’ CASH in the bank and it had no debt (cash was around $1.40/share and stock was trading for about a buck)! This was a solid $150M/yr company and its PE was in the red so no-one wanted to own the stock. Interestingly, I knew the companies CEO from back in my youth so I called him about the situation. When I asked why he didn’t cut expenses so his PE would be positive he made a couple of interesting statements, he said something like:
1. what’s the point of having a lot of cash if you can’t use it to gain market share when times are tough?
2. he could easily change the situation but the entire market was in the tank so even a positive PE wouldn’t be rewarded.
3. Also pointed out to me that even though his PE was bad he wasn’t actually using that much cash, most of the losses were coming from equipment depreciation etc, etc.
4. Almost all the semiconductor companies were in the tank at that time
As I thought about it, the situation was such that if you had the money and you could buy all the shares of the company and if you chose to actually shut the company down and make a lot of money! Assuming the entire semiconductor business wasn’t going to go the way of the hulla hoop, it was just a matter of time before the market returned to its love of tech. So I began buying the stock. I didn’t worry about stop losses because if it went down I just bought more (as long as it was trading at less than its CASH in the bank)! By 2005 the stock was up to $10/share (actually I think I sold it on the way up for about $4.00 but roughly 4x what I paid for it).
What’s the lesson here, it’s not always just about PE! This stock would have been bright red on the WIT spreadsheet in early 2002 but it was clearly a good opportunity.
So how do you find these kinds of companies? In the spring of this year I was looking for a search engine that surface these kinds of companies again. The only engine I found that could do it is ‘Stock Investor Pro’ on AAII. http://www.aaii.com/stockscreens/
I ran a search in April of this year and created a CASH rich company portfolio in AAII. Below is a printout of the companies I found in April the cost per share at that time and today’s price. As you can see the total portfolio is up 149%. Actually it’s better than that; SIRF (one of the companies I actually bought) was acquired by a UK company CSR for about $2.20/share (it shows as 0 value on this spreadsheet)
| Symbol (name) | Quantity | Cost/Share | Fee | Last | Change | % Change | Total Cost | Market Value | $ Gain/Loss | % Gain/Loss | Detail |
| 3,846 | 1.30 | 0.00 | 9.266 | +0.136 | +1.49% | 4999.80 | 35637.04 | +30637.23 | +612.77 |
| |
| 2,632 | 1.90 | 0.00 | 11.54 | -0.17 | -1.45% | 5000.80 | 30373.28 | +25372.48 | +507.37 |
| |
| 10,000 | 0.50 | 0.00 | 2.94 | -0.01 | -0.34% | 5000.00 | 29400.00 | +24400.00 | +488.00 |
| |
| 5,208 | 0.96 | 0.00 | 5.28 | +0.04 | +0.76% | 4999.68 | 27498.24 | +22498.56 | +450.00 |
| |
| 5,102 | 0.98 | 0.00 | 3.67 | -0.08 | -2.13% | 4999.96 | 18724.34 | +13724.38 | +274.49 |
| |
| 2,463 | 2.03 | 0.00 | 6.76 | -0.08 | -1.17% | 4999.89 | 16649.88 | +11649.99 | +233.00 |
| |
| 8,197 | 0.61 | 0.00 | 1.8948 | +0.0548 | +2.98% | 5000.17 | 15531.68 | +10531.51 | +210.62 |
| |
| 3,356 | 1.49 | 0.00 | 3.52 | +0.01 | +0.28% | 5000.44 | 11813.12 | +6812.68 | +136.24 |
| |
| 1,366 | 3.66 | 0.00 | 7.35 | +0.26 | +3.67% | 4999.56 | 10040.10 | +5040.54 | +100.82 |
| |
| 2,488 | 2.01 | 0.00 | 3.20 | +0.07 | +2.24% | 5000.88 | 7961.60 | +2960.72 | +59.20 |
| |
| 7,463 | 0.67 | 0.00 | 0.94 | -0.008 | -0.84% | 5000.21 | 7015.22 | +2015.01 | +40.30 |
| |
| 2,370 | 2.11 | 0.00 | 2.8001 | +0.0101 | +0.36% | 5000.70 | 6636.24 | +1635.54 | +32.71 |
| |
| 2,475 | 2.02 | 0.00 | 2.55 | -0.09 | -3.41% | 4999.50 | 6311.25 | +1311.75 | +26.24 |
| |
| 1,786 | 2.80 | 0.00 | 3.25 | +0.02 | +0.62% | 5000.80 | 5804.50 | +803.70 | +16.07 |
| |
| 1,742 | 2.87 | 0.00 | 3.23 | +0.05 | +1.57% | 4999.54 | 5626.66 | +627.12 | +12.54 |
| |
| 4,808 | 1.04 | 0.00 | 1.158 | -0.022 | -1.86% | 5000.32 | 5567.66 | +567.34 | +11.35 |
| |
| 2,632 | 1.90 | 0.00 | 1.681 | -0.069 | -3.94% | 5000.80 | 4424.39 | -576.41 | -11.53 |
| |
| 2,500 | 2.00 | 0.00 | 1.36 | -0.07 | -4.90% | 5000.00 | 3400.00 | -1600.00 | -32.00 |
| |
| 1,232 | 4.06 | 0.00 | N/A | N/A | N/A | 5001.92 | 0.00 | -5001.92 | -100.00 |
| |
| 5,308 | 0.96 | 0.00 | N/A | N/A | N/A | 5095.68 | 0.00 | -5095.68 | -100.00 |
| |
| | 100100.66 | 248415.16 |
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My AAII search criteria are as follows: http://www.aaii.com
· Market cap >30M
· Avg Volume >25k
· Cash-liabilities/stock price >1
· Long term debt<= 0
Today’s AAII search for CASH rich companies using the same criteria yields only about 9 companies (many in China where I don’t invest). Out of the current 9 I like DITC, GRVY and LEDR. I think these companies might be ripe to be acquired by other companies who need cash. If you can get enough of these to spread the risk it seems to me like an interesting way to buy the dogs without a lot of downside risk. …..GB
You do not have to pay the $200 subscription for this service. With a AAII membership ($30 from my memory), you can get the stocks from a standard cash rich companies screen every month.
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