HG put those comments in a column today. Excerpt below. I've got some of this in the 7 area, buying another load today.
What makes these bargains so compelling? According to Whitman, as public companies, they've never lost money and haven't yet forecast losing money ("yet" is the key word there). But just as important, they all have significant cash; the average has the equivalent of 60% of its market cap in cash. And they have no debt. What's more, their current stock prices are no more than a quarter of their recent 12-month highs. "And if you remove cash and interest income from the valuation, they sell on average this year and next year of under seven times earnings."
His favorites include:
•Security Dynamics (SDTI:Nasdaq), which has $6 per share in cash, earned 41 cents per share last year. It's expected to earn 70 cents next year. With the stock at 8, down from 42, the company is an active buyer of its own shares. "It's still the dominant force in the Internet security market," Whitman says.
•DSP Communications (DSP:NYSE), which makes chipsets used in cell phones. Earnings are growing sequentially, and with the stock one-third of where it was at the beginning of the year, the company is aggressively buying it back.
•Premisys Communications (PRMS:Nasdaq), which supplies products used by telephone companies to provide customers access to their networks. Earnings are rising sequentially, and the company has been buying back its stock, which has lost three-fourths of its value this year.
•Finally, Advanced Fibre (AFCI:Nasdaq), which supplies transmission products for telephone companies and carriers. At less than 5, the stock "is amazingly cheap."
In fact, they're all so cheap that Whitman thinks if they don't head north by sometime next year, "they could turn around and be acquired at substantially higher prices."
He adds that in the 15-plus years he has been in the securities business, "You've never been able to buy these level quality companies at valuations this low." (By way of disclosure: Last time I checked in with Whitman for some picks, about a year ago, he mentioned three lesser-quality companies. Since then, one's done very well; the others are in need of some Ken-L Ration.) |
