Ryder Up

Ryder System (R) saw its stock fall significantly after lowering its 2012 earnings estimate from a mid-point of $4.07/share to a mid-point of 3.75/share. As a result, the stock now trades at a P/E less than 10, despite the fact that the company may have a durable competitive advantage.

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Buffett's Housing Effect

Warren Buffett has said on numerous occasions that what is preventing the US economy from recovering to its full potential is the housing overhang. Let's take a look at what he may mean. Consider this chart depicting US construction jobs as a percentage of total employment:

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'Sup Dude!

Superior Industries (SUP) designs and manufactures wheels for car, truck and SUV manufacturers in North America. But while auto sales have bounced back in a big way from the depths of the recession, shares of Superior are in the dumps, near a 52-week low. But this is a company trading for just $430 million despite net cash of $193 million and free cash flow of $50 million last year alone!

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The Numbers Don't Add Up

As if investors don't have enough to do with respect to interpreting financial statements, it would seem in some cases they have to verify them as well. Small-cap company GLG Corp (GLE) recently released results that don't add up...literally!

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Incestuous Companies

Previously, stocks have been discussed on this site where it appeared that the founder's descendant was destroying the value of the company's remarkable collection of assets. Unfortunately, this type of occurrence is all too common among firms where management succession is chosen based on blood rather than merit.

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The Winners Lose

As value investors, we believe the market does not correctly price many of its issues. But what are the causes of this inefficiency, and can we profit by knowing some of these causes?

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The Single Point Of Failure

As value investors, we define an investment's risk by its business risk, not its stock price volatility. As such, we have discussed a number of potential business risks on this site, from customer concentration, to liberal use of leverage, to reliance on a single product.

But an exhaustive list of the risks a business can face is not possible. Every business is unique, and so every business faces a unique set of risks that cannot necessarily be identified unless the business is well understood. For this reason, it may be helpful for investors to think of a business' risks not by going through exhaustive checklists, but instead by thinking about the business' single points of failure.

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Focus On Cash Flows

When companies make investment decisions with their capital, such decisions should be based on the cash flows the investment is expected to return. Because cash flows are volatile, earnings calculations are a useful way of measuring how successful such investments have been. Unfortunately, this creates a management incentive to invest in a manner that maximizes earnings rather than cash flow, which does a disservice to shareholders.

Consider Equitable Group (ETC), a mortgage lender to single families and commercial interests.

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IFON No Longer Cheaper Than An iPhone

Just over a year ago, InfoSonics was discussed on this site as a potential value investment. The stock promptly rose in the ensuing couple of months, but then got absolutely annihilated in the 3rd quarter of last year when double-dip and sovereign default fears reigned over the market. The stock has now bounced back, and while it may still be undervalued, value investors may want to take some off the table in order to pursue today's best opportunities.

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Amtech Trades Like It's Broke

You probably won't find a lot of value investors in the solar industry. As a relatively nascent industry, it hasn't yet proved its economic viability. Moreover, that viability is based on the prices of substitutes (e.g. natural gas, wind power etc.) and perhaps the support of the agents of taxpayers (i.e. politicians). Finally, there is a commodity-like element to this industry, as companies fight to provide relatively undifferentiated products to customers only interested in price.

This introduces a ton of risk into the equation for anyone trying to value a solar stock to any reasonable degree of certainty. But sometimes, could a balance sheet be so pristine that it trumps many of the downside risks, leaving only the upside potential of this volatile industry to the investor?

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Virco Manufacturing Gets Smoked

Virco Manufacturing's market cap has fallen from $50 million a few months ago to about $24 million today, giving it a P/B ratio of under 0.6. The company manufactures and distributes desks, tables, chairs and other furniture for the education sector. It is the largest such manufacturer for the preschool through grade 12 market in the US, and offers a range of services from installation to classroom design capabilities.

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Mirage Of Rimage's Cash

Last year at this time, Rimage looked like an attractive stock. It had both a ton of cash relative to its market cap, and a steady source of cash flow such that it could generate a great return for shareholders. But as discussed here, what it lacked was a corporate structure conducive to creating wealth for shareholders. As a result, today the stock sits some 20% lower, and the value of the company has probably fallen by more than that.

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Be A Smart Pro

SmartPros (SPRO) provides training solutions for various markets. As per Google Finance, "[i]ts customers include professional firms and companies of all sizes who purchase the courses for use by their employees, and individuals who purchase courses, programs or subscriptions on a retail basis." This is a small company that trades for just $10 million, but has $6 million of cash and no debt, and has generated $1-2 million of annual free cash over the last few years (excluding acquisitions).

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hhgregg: Back in Value Territory

Shares of hhgregg (HGG) fell off a cliff last week after the company reported preliminary numbers from its all-important holiday quarter that were below expectations. But is the company really only worth two thirds of what it was worth last month? It appears likely that hhgregg's price fluctuates to a far greater extent than its actual value, which could provide an opportunity for value investors.

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Bank Of...Internet?

I generally stay away from banks, but for value investors who do dabble in the highly-leveraged financial companies, Bank Of Internet (BOFI) may be worth keeping an eye on.

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What I'm Looking For

I'm often asked what I look for in a stock. The intention of this post is the answer that question.

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OfficeMax: When Debt Isn't Debt

On this site, countless examples have been discussed where company obligations that aren't on the balance sheet must be uncovered and included in order to achieve an accurate valuation. But on rare occasions, the exact opposite takes place: a balance sheet obligation should be removed from consideration in order to derive a more accurate valuation.

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Identifying Insider Buying

There is evidence to believe that insiders do beat the market. But how does one find out what insiders are up to? That's what this post is about.

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Whole Foods and SuperValu

Investor sentiment varies considerably between Whole Foods (WFM) and SuperValu (SVU), despite the fact that these two companies operate in the same (or similar) industry. This difference in sentiment is exemplified by the opinion of a one Jim Cramer, who notes that even though SuperValu has a substantially lower P/E, Whole Foods is actually the cheaper stock because of its lower PEG ratio. What's wrong with this surface analysis?

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Value or Not?

Analyst Barry Cooper believes Barrick Gold (ABX), a gold miner, is a value stock. He cites the stock's P/E ratio, which is under 10, and argues that "value investors will either step into the stock or there are no value investors left in the market". But intelligent investing is not just about isolating low multiples; for this reason, Cooper is wrong about his assertion on so many levels.

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