Go!
In ordinary market conditions, it's nearly impossible to find attractive companies whose net cash exceeds market cap. That money would act as a floor, and the negative enterprise value could entice arbitrageurs to step in and collect a quick profit. But in this market, the usual rules don't apply. Leveraged buyouts and other mergers and acquisition activity has dried up because of the lack of financing -- leaving deals for the rest of us that would usually be off the table by now. For instance, which of these firms has 45 million outstanding shares worth a total of $135 million even though the firm has accumulated a cash stockpile (net of a trivial amount of debt) in excess of $230 million?

A.)  Genentech (DNA)
B.)  Palm (PALM)
C.)  General Motors (GM)
D.)  MGM Mirage (MGM)
E.)  Nam Tai Electronics (NTE)

Published: March 25, 2009

The correct answer is      (E.)  Nam Tai Electronics (NTE)

Founded in 1975, Nam Tai is a leading supplier of outsourced electrical components. Consumer electronics makers like Sharp rely on the company for image sensor modules and other parts in flat-panel televisions, laptops, digital cameras, video games, and mobile phones. After tumbling from $13 to $3, Nam Tai is a textbook example of a company that has been beaten up and left for dead because sales and profits have fallen during the recession.

At $2.83 per share, the firm's 45 million outstanding shares are worth a total of $135 million. But meanwhile, the firm has accumulated a cash stockpile (net of a trivial amount of debt) in excess of $230 million. On top of that, Nam Tai's balance sheet contains $105 million worth of accounts receivable and $27 million in inventory -- not to mention $108 million worth of property and equipment. All told, if you add up the firm's assets and subtract what it owes creditors, you are left with a book value of $322 million, or about $7.15 per share. Remember, Wall Street has put a price tag of just less than $3 on the stock.

It's not often that a company trades at about $3 per share but has more than $5 per share in cash. It's like buying an old copy of Treasure Island for $3 at a used book sale, only to get home and find five $1 bills tucked neatly in between two of the pages. The surprise find would offset the purchase price -- essentially giving you the book for free. But instead of a dusty book, you might get an electronics manufacturing facility or valuable online real estate. This is about as close as the market gets to a sure thing.

Deep cash reservoirs also make Nam Tai one of those cash-rich companies that are more likely to stay afloat during tough times -- there's nothing more buoyant than cash. But cash-rich companies can also print huge gains for shareholders when the market recovers because they can use their "financial firepower" to acquire weaker competitors and become even stronger.

That's why StreetAuthority editor Nathan Slaughter is monitoring NTE and a handful of other choice finds as part of the "Deep Discount" Portfolio he presents in his Half-Priced Stocks newsletter. Each month, Nathan offers in-depth analyses of companies and sectors offering stocks with +25%, +50%, and even +100% price-appreciation potential. In the latest issue, Nathan highlights Nam Tai and five other stocks whose cash reserves exceed their market caps by at least 87% and by as much as 206%--stocks who are so undervalued that they're poised to deliver outsized gains once the market comes to its senses. To learn the names of these stocks, and to learn more about Half-Priced Stocks, please visit this link.

Want to answer more trivia questions? Visit our archives here!


 

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