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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: jeffbas who wrote (8424)	9/29/1999 12:46:00 AM
From: James Clarke	Read Replies (1) \| Respond to of 78973

questions on EBSC - you're going to be disappointed. This is a liquid stock (i.e. institutions can buy it...they have already proven they can sell it) trading below its net working capital. And it is profitable. I believe there are about five companies on the entire U.S. stock market that fit that description. I own two of them. And it has a couple catalysts. <<The following chart shows that they have the worst performance of their peers. Do you know why?>> I am not surprised the stock has underperformed its peers. Last I checked, Walmart was not a net-net. EBSC came public in 1997 out of bankruptcy with a bit of hype. Nobody who bought the shares in the offering, or in the secondary made a dime. There are a lot of disgruntled shareholders out there who have dumped the stock. Hopefully they're done. A couple institutions have stepped up to buy whatever is dumped, even if it means they own 10 or 20% of the company - that's what makes a bottom. <<Why mightn't this be a situation that stays cheap (for a long time) until they have bought back so much stock that a potential acquirer finds the cost he has to pay reduced to where it is irresistible?>> I think I'm looking at a 6-12 month story here. You could ask this about any of the net-nets that have gone up in the past. <<How badly will Internet shopping hurt them fundamentally in the longer term (or their valuation - this ain't no Amazon)?>> You've got a quibble there with the entire retail sector. I'm not even going to start on that. <<We don't know whether the shoe store chain will be sold at a loss or not, do we?>> No we don't. But EBSC has book value of about $15 a share and trades at 6 1/2. And a loss on a sale may actually solidify the net-net valuation if they sold it for cash (something like what MAXS just did). My point here is not to dodge your questions, but only to point out that the margin of safety may be so big here that you could be 100% right and I still make 50% in six months. Those are the kinds of questions I ask when a company trades at two times book value. For a net-net, all I am asking is 1) is the company in a death spiral? 2) are the assets real? 3) is there a catalyst to realize the value in a reasonable time frame? 4) is the business something I kind of understand? Very few net-nets pass this basic test. And the ones that do are generally big winners in a short time. We were talking about catalysts the other day and I mentioned a couple on EBSC (two large shareholders pushing for change, share repurchase) but I forgot the most obvious one. The company gets taken over. I think thats my exit. JJC