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This weekend we did a screen to find U.S. traded companies that had a negative firm value. That is, companies where the net cash (cash + short term investments less total debt) was greater than the fully diluted market capitalization of the company. We removed companies that did not appear to have a real business, or were trading at high multiples of revenue, and those companies that appeared to have accounting issues. We also only screened companies north of $50MM in market capitalization.

The screen produced 19 companies that are currently trading at less than the net cash on their balance sheet. In most instances, we excluded long term investments. The assumption would be that many of the companies are either not profitable or have a very high burn rate of cash, so the implied future cash balance is a much lower number. While in some cases this is true, in many of the cases these companies are both profitable and not burning cash based on recent results.

We’ve outlined the list below and wanted to caveat that we do not cover these companies and are obviously not recommending the purchase of these stocks without further due diligence. Also, obviously, many of these companies have small market capitalizations ($50 - $200MM), so they may not be practical for large portfolios. In addition, we did not fully investigate off balance sheet obligations such as pensions, leases, and the like. Caveats aside, when a company is trading at a discount to the cash on its balance sheet, it should pique the interest of any value investor worth his salt.

The companies that we have highlighted in green appear the most promising based on this screen. They are trading at a discount to net cash, generated positive EBITDA in the last twelve months, and generated cash (so net cash increased) sequentially in the last two quarters. Interestingly, theStreet.com is on this list, despite positive EBITDA in the last twelve months. From a purely academic perspective, the implication may be that Jim Cramer has a negative net present value to his company. Booyah anyone?

If any of the companies below pique your interest, let us know and we’d be happy to work with you on a deep dive of the company.

Daryl G. Jones
Managing Director