Often stocks fall to prices so low it becomes a compelling value based on assets or book value even when the operations and profitability are a mess. Understanding this, it can be very profitable to find the worst stocks in any time period – perhaps stocks hitting 52 week lows, and then looking to see if there is enough value in them to justify a purchase.
In this screen, I list 11 stocks for 2011 that have destroyed most value for its shareholders this year. The stock price declines are justifiable to a large degree, but one also needs to consider the tangible value in the business to determine if the declines are over done.
There is also an Excel data sheet attached to this list with additional valuation columns that will help you filter for your own valuation criteria. Please note that I have not included stocks that are trading on the pink sheets and have only included companies with market capitalization greater than $30 million.
|Symbol||Company Name||Market Capitalization||Price Performance (This Yr)|
|AMR *||AMR CORP.||$182.4M||-93.02%|
|SMSI||SMITH MICRO SOFTWARE INC||$39.3M||-93.01%|
|TRID||TRIDENT MICROSYSTEMS INC||$38.4M||-88.20%|
|ALIM||ALIMERA SCIENCES INC||$39.3M||-87.96%|
|EK||EASTMAN KODAK CO||$176.9M||-87.77%|
|SATC||SATCON TECHNOLOGY CORP||$69.5M||-87.11%|
|AMSC||AMERICAN SUPERCONDUCTOR CORP||$191.3M||-86.99%|
|DHT||DHT HOLDINGS INC||$44.7M||-85.08%|
*American Airlines (AMR) has received notice that it is being delisted from NYSE.
How to Analyze These Stocks?
Traditional profitability and earnings metrics are generally not very useful to analyze these stocks, except in situations where the business is profitable and the market has been totally irrational. Such situations might exist but are generally very rare. More likely you will find that the sales/profits have declined significantly and the market is assuming the worst. In situations like this, investors are in a hurry to sell their positions and the price declines may be over done.
It is important to focus on the following 3 things:
- Whether the book value, tangible book value and liquidation values all exceed the current market valuation?
- Is the company likely to destroy more value in the future eroding some of the value in its assets?
- Is there a possible catalyst – a turnaround plan, a potential suitor, a very valuable asset that can be sold, etc to unlock some value in the future
The ideal answers to this question should be yes, no and yes. As can be expected, this analysis goes deeper than a normal stock valuation but the rewards can be astounding so it is worth while to do. In the attached Excel data sheet, I have included the Price/Book, Cash/Price and Debt/Asset values for these companies to quickly get you started on which stocks you may want to analyze further and determine if some of these are real value stock picks meriting a purchase.
Download: Excel List
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