8 Small Cap Stocks Undervalued by the Balance Sheet

by on February 9, 2012

in Screens, Small Cap Value Stocks

Often small cap companies see their stock price languishing in the bargain bin. These stocks may be under followed, or perhaps investors have given up on the stock waiting for the market to realize their value. These can be great stocks for a patient investor to buy into at the right price and wait for the valuation to improve.

The following 8 small cap stocks are potentially undervalued based on their balance sheet strength. They have been picked for low Price/Book value, low levels of debt and a dividend. Some of these may be having temporary profitability issues, or there may be other reasons why the stock price may be distressed. It is always a good idea to dig deeper and review the business before deciding to commit any funds to the stock. Existence of a dividend does imply a certain confidence by the management of the future prospects of the company and its cash flow.

1. The Street, Inc (TST): The Street, Inc is a digital financial media company and owns sites such as thestreet.com, stockpickr, mainstreet and bankingmyway. The company monetizes its content through advertisements and subscription services. It also syndicates its content through other online news sources. The company has a market value of $59 million and a P/B ratio of 0.66. It has $62 million in cash and no debt. It pays a 5.40% dividend.

2. A. H. Belo (AHC): Newspaper publishers have not fared well with the advent of internet. AH Belo owns Dallas Morning News and other papers. But it also owns sites such as cars.com, apartments.com and homegain.com. Additionally, it owns real estate through its Belo Investments subsidiary. The company sports a market value of $123 million, and trades at 0.68 times book value. Zero debt, a 4.1% dividend yield and $46 million in cash on hand makes AHC a stock that you should look at.

3. Kansas City Life Insurance (KCLI): Kansas City Life Insurance company provides various life and healthy insurance products and annuities in 48 US states and District of Columbia. The stock yields 3.1% in dividends. It has a P/E ratio of 14.4 and a P/B ratio of 0.54 and is sitting on $47 million in cash, which is nice for a $390 million market cap company.

4. BNC Bancorp (BNCN): This $70 million market cap company operates Bank of North Carolina out of High Point, NC with banking centers in North and South Carolina. The stock appears cheap at 60% of the book value. It also offers a 2.7% dividend.

5. Gaiam Inc (GAIA): Gaiam is a lifestyle media company that offers personal development, ecological and wellness information and products through catalogs, internet, retain and direct response television. It also offers design, consultation and installation of solar energy systems. The company is valued at 0.55 times book value and has $24 million in cash (net of debt). Its market value is about $80 million.

6. Presidential Life Corporation (PLFE): President Life offers various life, accident and health insurance products and annuities. At 8.9 P/E and 0.43 P/B, the stock appears to be significantly undervalued. The stock has a $347 million market cap and kicks out a 2.1% dividend. The company also has $149 million in cash on the books. Definitely worth a look.

7. Kimball International (KBALB): The $243 million market cap company, Kimball operates in two unrelated segments. It manufactures and sells electronic assemblies (circuit boards, wire harnesses, etc) and Furniture. The stock has a 3.2% dividend yield and trades at 0.64 times the book value.

8. SeaBright Holdings (SBX): SeaBright Holdings provides workers compensation insurance to maritime, state act and construction industry employers. The stock can be bought at 50% of the book value and yields a 2.4% dividend.

Key data for these stock picks are summarized below. Please note that this is just a preliminary screen, and further due diligence on these companies is advised before making any transaction decisions.

# Symbol Company Name Industry Market Cap P/E (ttm earnings) P/B Debt/Capital Div. Yield
1 TST The Street Inc Internet Software and Services $59.9M 0.66 0.00% 5.35%
2 AHC A. H. Belo Newspapers – Publishing $125.4M 0.68 0% 4.12%
3 KCLI Kansas City Life Insurance Life Insurance $392M 14.4 0.54 0.00% 3.19%
4 BNCN BNC Bancorp Regional Banks $69.3M 17.1 0.6 0.00% 2.67%
5 GAIA Gaiam Inc Internet and Catalog Retail $79.4M 0.55 2.37% 4.29%
6 PLFE Presidential Life Life Insurance $346.9M 8.9 0.43 0.00% 2.13%
7 KBALB Kimball Printed Circuit Boards $240.3M 35.3 0.64 0.08% 3.12%
8 SBX SeaBright Property and Casualty Insurance $189.4M 0.54 3.31% 2.36%

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