It’s often said that cash is king. This is especially true for companies because they can use cash to reinvest in their business operations, pursue new business opportunities such as acquisitions or return cash to share holders in the form of dividends and share buy backs.
Any of those uses for cash should increase share holder value. This indicates that cash, and the sound use of cash, are important to creating wealth for investors.
This week, we focused on the availability of cash when we searched for companies as potential investments.
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We started our screen by searching for firms with high proportions of cash to share price. These firms should be holding enough cash to meet their operating needs and have some remaining to take steps such as acquisitions or buy backs.
We also required positive earnings from continuing operations for the last 12 months to limit the screen to companies that are unlikely to be conserving cash because they are in bankruptcy proceedings.
As important as it is to look at cash, it is equally important to look at debt. A high level of cash per share could be quickly used to pay high levels of debt. Therefore, we required companies to have less debt than the average company in its industry.
Finally, we focused on price. One study looked at how low priced, or cheap, stocks performed relative to more expensive stocks. The study found that cheap stocks delivered more than six times the average return of the more expensive stocks in a typical quarter.
That’s why we limited our search for potential bargains by focusing on stocks priced at less than $10 per share. The reason we like cheap stocks is because these are the ones that have been proven to be most likely to deliver large gains.
Six Stocks Meet Our Strict Requirements
Remember, there is no guarantee any stock will increase in value. Also, it is important to remember when we search for stocks using quantitative measures, our goal is to identify stocks that meet those criteria. The screens we develop could be used as the cornerstone of long term investment strategies but any individual stock in the list could be a winner or loser.
EMCORE Corporation (Nasdaq: EMKR) provides advanced mixed-signal optics products in California.
It offers broadband products comprising cable television; laser, receiver, and photodetector component products; radio frequency over glass FTTP products; satellite/microwave communications products; and wireless communications products.
The stock has been in an extended downtrend but does show some signs of bottoming as momentum remains higher than it did at previous lows.
Willi-Food International Ltd. (Nasdaq: WILC) develops, imports, exports, markets, and distributes various food products worldwide. It offers canned vegetables and pickles, canned fruits, dairy and dairy substitutes and dried fruits, nuts, and beans. In addition, it offers instant noodle soups, freeze dried instant coffee, bagels, and various other products under the Willi-Food, Gold Frost, Ha-Bulgaria, SAY CHEESE, EMMA, Gold Food, Manchow, Gelato, Donna Rozza, and Tifeeret brands.
This stock has been in a persistent uptrend.
Despite recent strength, the stock trades at just 80% of its book value.
Century Casinos, Inc. (Nasdaq: CNTY) operates as a casino entertainment company worldwide.
The company develops and operates gaming establishments, as well as related lodging, restaurant, horse racing, and entertainment facilities. It owns and operates casinos in North America and Poland; a racetrack and entertainment center in Canada; and pari-mutuel off-track betting network in southern Alberta, Canada.
The company also manages cruise ship-based casinos; and provides gaming services in Argentina.
The stock price is oversold and is trading at about 11 times next year’s expected earnings.
NL Industries, Inc. (NYSE: NL) operates in the component products industry in the United States and internationally. The company manufactures and sells mechanical and electronic cabinet locks, and other locking mechanisms, including disc tumbler locks, pin tumbler locking mechanisms, and CompX eLock and Stealthlock electronic locks for use in various applications, such as ignition systems, mailboxes, file cabinets, desk drawers, tool storage cabinets, vending and gaming machines, high security medical cabinetry, electronic circuit panels, storage compartments, and gas station security.
It also offers original equipment and aftermarket stainless steel exhaust headers, exhaust pipes, mufflers, and other exhaust components; gauges, such as GPS speedometers and tachometers; mechanical and electronic controls and throttles; steering wheels and other billet aluminum accessories; and dash panels, LED lighting products, wire harnesses, and other accessories primarily for performance and ski/wakeboard boats.
In addition, it offers insurance brokerage and risk management services.
The array of businesses makes it difficult for analysts to analyze the stock. However, the price to earnings (P/E) ratio is less than 5 and the stock offers value no matter which industry it operates in.
Photronics, Inc. (Nasdaq: PLAB) manufactures and sells photomasks in Taiwan, Korea, the United States, Europe, and internationally. It sells its products to semiconductor or FPD designers, manufacturers, and foundries, as well as to other high performance electronics manufacturers through its sales personnel and customer service representatives.
This stock appears to be range bound and could be attractive to traders near a support level with a sell target near resistance.
BBX Capital Corporation (NYSE: BBX) is a private equity and venture capital firm specializing in investments and acquisitions of middle market companies. The firm also invests in mergers and acquisition, add-on acquisitions, divestiture, taking public companies private and private companies public, leveraged buyout, partnership, recapitalization, and restructuring.
The firm seeks to invest across a broad range of industries ranging from service to manufacturing businesses.
The firm prefers to acquire controlling interests in its portfolio companies and can also consider minority investments.
The stock has been trading for a short time, since last July. During that time, the trend has generally been up.
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