$1 of stock for 50
cents? As we observe in Practical
Speculation, few market myths are more pernicious and persistent than Ben
Graham's advice to buy stocks of companies selling for less than liquidating
value. Old Speculators' Association correspondent James Altucher brings his
rapier analysis to the matter.
On June 6, 2000, George Mannes over at
thestreet.com wrote an article on 13
stocks trading for less than cash. The stocks he recommended are:
fashionmall.com (FASH)
smarterkids.com (SKDS)
VarsityBooks.com (VSTY)
CareerBuilder.com (CBDR)
Talk City (TCTY)
Big Star Entertainment (BGST)
theglobe.com (TGLO)
Thestreet.com (TSCM) (coincidence?)
iTurf.com (TURF)
Salon.com (SALN)
24/7 (TFSM)
Jfax.com (JFAX)
and my favorite, MotherNature.com (MTHR)
Twelve of these are either down heavily or completely gone (I think 10 of them
might be completely gone or have fewer than two employees). If you throw more
criteria in there (no debt, cash - last year loss > market cap, decreasing
losses) I think its possible to perhaps delay the pain and even make money
in environments like the current one where high-beta stocks are doing well.
But probably any high-beta stocks work just as well right now.
One thing to be careful of is liquidation costs. In June 2001 I did
consulting for a company that had $120M in cash, no debt, and an $80M market
cap. Their query to me and my partners was: how can we get out of all these
business we are in and then take advantage of the tax-losses to initiate a
successful reverse merger. We worked out the plan and they followed it. It
cost them $40M on the dot to get out of their legacy businesses. Sometimes
the market anticipates.