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Archive for September, 2009

ClusterStock has an article by John Carney, How Ignorant Are Shareholders?, in which he argues that the financial crisis has “dealt a serious blow” to the “idea that corporate governance reforms that empower shareholders to direct the activities of corporations would make companies more financially responsible.” We think John’s got it wrong, but before we begin our rant, let us just say that there is much to respect about John Carney. According to his bio, he’s got a law degree from the University of Pennsylvania, and he practiced corporate law at Skadden, Arps, Slate, Meagher & Flom and Latham & Watkins, both of which are preeminent firms. We also almost wholly agree with his positions on plenty of contentious issues, as summarized here in his bio:

He has argued that failed banks should not be bailed out, Lehman’s collapse was not a disaster, AIG should be declared bankrupt, that naked short selling is not a problem, that backdating isn’t so bad, insider trading should be legal, many corporate CEOs are underpaid, global solutions are worse than local solutions, Warren Buffett is overrated, Michael Milken is a great American, the collapse of the hedge fund was not a scandal, hedge funds are over-regulated, education is overrated by the educated, bonuses at successful Wall Street’s firms are deserved and possibly undersized, management buyouts are boons to the economy, Enron’s management was victimized by an over-zealous prosecution, Sarbanes-Oxley should be repealed, corporate compliance culture is a disaster, shareholder democracy is overrated, hostile takeovers ought to be revived, the market is permanently moving away from public ownership of equity in corporations, private partnerships are on the rise, public ignorance is encouraged and manipulated by governments and corporations, experts overrate expertise, regulatory agencies are controlled by the businesses they supposedly regulate and Wall Street is much more fun than people give it credit for.

He’s trained in the dark arts of the law and he’s practiced with the best. In other words, he should know better.

John’s premise is that financial companies that score highest on most measures of corporate governance performed poorly during the crisis. He argues that shareholders are ignorant, and giving them more say in the management of a company is like tossing the car keys to a blind man and jumping in the back seat:

In political science, the roles of irrationality and public ignorance are well understood. Studies going back decades prove that the public is not only ignorant, it is stubbornly ignorant. It remains ignorant even in the face of widely available and easily obtainable information. Voters are so ignorant that they cannot rationally choose between different programs offered by politicians. And the ignorance persists so that they cannot assign blame or credit to the parties responsible for the programs that are ignorantly selected.

If economists were to take this seriously and apply it to shareholder behavior, they might discover that the case for shareholder democracy is seriously undermined. Instead, many continue to doubt that shareholder ignorance is a serious problem. And those who acknowledge it could be a problem, often assume it can be overcome by providing shareholders with more information. This simply ignores what we’ve learned in political science about shareholder ignorance.

Now, we don’t disagree that many shareholders are ignorant. It’s well known that many don’t read disclosure documents, and many can’t read financial statements. We’ve also argued previously that even those who do read financial statements often ignore important parts of those financial statements, like the balance sheet. Our own About Greenbackd page argues that there are opportunities for investors focused on the balance sheet, because many investors are mesmerized by earnings and totally ignore assets. Where earnings understate the asset value, this creates an opportunity for investors like us. No, we don’t disagree that many shareholders are ignorant. In fact, we rely on that ignorance to make our living.

The point at which we diverge from John is his contention that this ignorance precludes a shareholder from voting. We don’t allow shareholders to vote because that is the best way to manage a company. Shareholders vote because it is their right to do so. A share is nothing more than a bundle of rights: A right to a dividend, a right to a share of the assets on a winding up, a right to a say in the affairs of the company on certain issues, a right to determine who directs the affairs of the company. They are property rights, and standing is accorded to the holder to enforce those rights.  The board, and, indirectly, the officers of the corporation, serve at the pleasure of the shareholders. Often a board will seek to prevent a shareholder attempting to demonstrate this last point, for example, by implementing poison pills and other shareholder unfriendly devices, but that is nothing more than an implicit recognition by the board that it is true. Voting, then, is simply a shareholder exercising one of their property rights. If you advance your money, we think you should get all of the attendant property rights, whether you’re ignorant or not. In this society, for good or ill, the owner of property is the person who controls its destiny. We’d argue that this is generally a good thing, and almost all progress the world over stems from this simple principle. Any attempt to sever the relationship between private property and ownership strikes right at the heart of capitalism.

So why the seeming relationship between “good corporation governance” and poor returns? Who knows, really? Statistics can be massaged to say anything. If we had to guess, without reading the paper, we’d guess that it’s a problem of definition. The phrase “good corporate governance” is at best meaningless, and at worst a smoke screen to obfuscate what it really is: an attempt by management to operate on behalf of “stakeholders” (read “parties other than shareholders”), to adhere to the “triple bottom line,” “The Equator Principles,” and other similar ideas irrelevant to shareholders. It’s no wonder that the corporation performs poorly. The board’s worried about everyone other than the owners. We’d argue that those are not proper considerations for the board. What sensible suggestions fall within the remit of “good corporate governance” are necessary only because shareholders don’t have sufficient voice in the operation of the company. They are simply unnecessary, additional regulation to paper over holes left because shareheolders are disenfranchised.

What’s the alternative? Plato’s Republic shoehorned into the corporations law? Philosopher-king CEOs? Frankly, the thought makes us gag. No, the real alternative is shareholder enfranchisement. Force the stewards of capital – the boards and officers – to recognize the rights of shareholders – the rightful owners of that capital. Ensure that shareholders are properly able to deal with their property as they see fit, and to express their desires for that property to the board without restriction. Carl Icahn has prepared a good starting point in a series of essays, Capitalism Should Return to Its Roots, We’re Not the Boss of A.I.G. and It’s Up to the Shareholders, Not the Government, to Demand Change at a Company.

John concludes by calling on economists to “survey shareholders and objectively document ignorance.” There’s no need. They can be as dumb as a box of hammers, but they should still be allowed to cast their vote. If that right is taken away the key foundation of capitalism is lost, and we’re pulling our money out of the market and putting it into shot-gun shells and tinned food.

End rant.

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A group of investors in VaxGen Inc (OTC:VXGN) have formed the “VaxGen Full Value Committee” to conduct a proxy contest to replace the current board of VXGN at the next annual shareholders meeting. The group, comprising BA Value Investors’ Steven N. Bronson and ROI Capital Management’s Mark T. Boyer and Mitchell J. Soboleski, intends to replace the current board with directors who will focus on the following objectives:

1. Returning capital to [VXGN]’s shareholders, including an immediate distribution of $10,000,000 in cash;

2. Terminating [VXGN]’s lease with its landlord, Oyster Point Tech Center, LLC, and settling with the landlord the obligations of [VXGN] on the remaining lease payments;

3. Exploring ways to monetize [VXGN] as a “public shell,” including the utilization of [VXGN]’s Substantial Net Operating Losses; and

4. Protecting for the benefit of shareholders royalty payments receivable from the sale of [VXGN]’s intellectual property.

We’ve been following VXGN (see our post archive here) because it is trading at a substantial discount to its net cash position, has ended its cash-burning product development activities and is “seeking to maximize the value of its remaining assets through a strategic transaction or series of strategic transactions.” Management has said that, if the company is unable to identify and complete an alternate strategic transaction, it proposes to liquidate. One concern of ours has been a lawsuit against VXGN by its landlords, in which they sought $22.4M. That lawsuit was dismissed in May, so the path for VXGN to liquidate has now hopefully cleared. The board has, however, been dragging its feet on the liquidation. Given their relatively high compensation and almost non-existent shareholding, it’s not hard to see why.

BA Value Investors had previously disclosed an activist holding and, in a June 12 letter to the board, called on VXGN to “act promptly to reduce the size of the board to three directors; reduce director compensation; change to a smaller audit firm; terminate the lease of its facilities; otherwise cut costs; make an immediate $10 million distribution to shareholders; make a subsequent distribution of substantially all the remaining cash after settling the lease termination; distribute any royalty income to shareholders; and explore ways to monetize the public company value of the Issuer and use of its net operating losses.”

Another group led by Spencer Capital and styling itself “Value Investors for Change” has also filed preliminary proxy documents to remove the board. In the proxy documents, Value Investors for Change call out VXGN’s board on its “track record of failure and exorbitant cash compensation”:

VaxGen does not have any operations, other than preparing public reports. The Company has three employees, including the part-time principal executive officer and director, and four non-employee directors. Since the Company’s failed merger with Raven Biotechnologies, Inc. in March 2008, the Board has publicly disclosed that it would either pursue a strategic transaction or a series of strategic transactions or dissolve the Company. The Company has done neither. In the meantime, members of the Board have treated themselves to exorbitant cash compensation. Until July 2009, two non-employee members of the Board were paid over $300,000 per year in compensation. The principal executive officer will likely receive over $400,000 in cash compensation this year.

VXGN is up 31.3% since we initiated the position. At its $0.63 close yesterday, it has a market capitalization of $20.9M. We last estimated the company’s liquidation value to be around $25.4M or $0.77 per share. VXGN has other potentially valuable assets, including a “state-of-the-art biopharmaceutical manufacturing facility with a 1,000-liter bioreactor that can be used to make cell culture or microbial biologic products” and rights to specified percentages of future net sales relating to its anthrax vaccine product candidate and related technology. The authors of a letter sent to the board on July 14 of this year adjudge VXGN’s liquidation value to be significantly higher at $2.12 per share:

Excluding the lease obligations, the net financial assets alone of $37.2 million equate to $1.12 per share. The EBS royalties (assuming a 6% royalty rate and a $500 million contract as contemplated by NIH/HHS and EBS) of $30 million and milestones of $6 million total $36 million of potential additional future value (based clearly on assumptions, none of which are assured), or $1.09 per share. Adding $1.12 and $1.09 equals $2.21 per share.

The entry of the VaxGen Full Value Committee into the proxy contest will certainly make the next meeting an interesting spectacle, and, with any luck, we will see a liquidation of VXGN soon, either at the hands of the present board, by Value Investors for Change or the VaxGen Full Value Committee.

The Purpose of Transaction portion of the amended 13D filing is set out below:

The Reporting Persons acquired the shares of Common Stock to which this statement relates for investment purposes.

On June 12, 2009, Mr. Bronson, on behalf of BA Value Investors, LLC, sent a letter to the Board of Directors of the Issuer. In the letter, Mr. Bronson stated that the Company must act promptly to reduce the size of the board to three directors; reduce director compensation; change to a smaller audit firm; terminate the lease of its facilities; otherwise cut costs; make an immediate $10 million distribution to shareholders; make a subsequent distribution of substantially all the remaining cash after settling the lease termination; distribute any royalty income to shareholders; and explore ways to monetize the public company value of the Issuer and use of its net operating losses. A copy of the letter to the Issuer has been filed as Exhibit 1 to the Statement.

On August 21, 2009, the Reporting Persons formed a committee called the “VaxGen Full Value Committee.” The VaxGen Full Value Committee intends to conduct a proxy contest to replace the current Board of Directors at the next annual shareholders meeting with directors who will focus on the following objectives:

1. Returning capital to the Issuer’s shareholders, including an immediate distribution of $10,000,000 in cash;

2. Terminating the Issuer’s lease with its landlord, Oyster Point Tech Center, LLC, and settling with the landlord the obligations of the Issuer on the remaining lease payments;

3. Exploring ways to monetize the Issuer as a “public shell,” including the utilization of the Issuer’s Substantial Net Operating Losses; and

4. Protecting for the benefit of shareholders royalty payments receivable from the sale of the Issuer’s intellectual property.

[Full Disclosure:  We have a holding in VXGN. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Greenbackd is a proud sponsor of the upcoming 5th Annual New York Value Investing Congress, October 19 & 20, 2009 in New York City, and we’ve been able to secure a special discount for you to attend.

Register by Tuesday, September 15, 2009 with discount code N09GB3 and you’ll save $100 off the already heavily discounted early bird rate – a total saving of $1,400.

Every year hundreds of people from around the world converge at this not-to-be-missed event to network with other savvy, sophisticated investors and learn from some of world’s most successful money managers. At the upcoming event, all-star investors will share their thoughts on today’s tumultuous markets and present their best, actionable investment ideas. Just one idea could earn you outstanding returns.

Confirmed speakers include:

  • Julian Robertson, Tiger Management
  • Bill Ackman, Pershing Square L.P.
  • David Einhorn, Greenlight Capital
  • Alexander Roepers, Atlantic Investment Management
  • Eric Sprott, Sprott Asset Management
  • Patrick Degorce, Theleme Partners
  • Sean Dobson, Amherst Securities
  • Lloyd Khaner, Khaner Capital
  • David Nierenberg, The D3 Family Funds
  • William C. Waller & Jason A. Stock, M3 Funds
  • Zeke Ashton, Centaur Capital Partners
  • Kian Ghazi, Hawkshaw Capital Management
  • Whitney Tilson & Glenn Tongue, T2 Partners

Don’t miss your opportunity to learn from these financial luminaries. The insights you gain could guide your investment decisions for years to come. Remember, you must register by September 15, 2009 with discount code N09GB3 to take advantage of this special offer and SAVE $1,400 off the regular price to attend. There are a limited number of seats remaining. Avoid disappointment – reserve your seat today.

Greenbackd is a proud sponsor of the upcoming 5th Annual New York Value Investing Congress, October 19 & 20, 2009 in New York City, and we’ve been able to secure a very special discount for YOU to attend!

Register by Tuesday, September 15, 2009 with discount code N09GB3 and you’ll save $100 off the already heavily discounted early bird rate – a total savings of $1,400!

Every year hundreds of people from around the world converge at this not-to-be-missed event to network with other savvy, sophisticated investors and learn from some of world’s most successful money managers. At the upcoming event, all-star investors will share their thoughts on today’s tumultuous markets and present their best, actionable investment ideas. Just one idea could earn you outstanding returns!

Confirmed speakers include:

* Julian Robertson, Tiger Management

* Bill Ackman, Pershing Square L.P.

* David Einhorn, Greenlight Capital

* Alexander Roepers, Atlantic Investment Management

* Eric Sprott, Sprott Asset Management

* Patrick Degorce, Theleme Partners

* Sean Dobson, Amherst Securities

* Lloyd Khaner, Khaner Capital

* David Nierenberg, The D3 Family Funds

* William C. Waller & Jason A. Stock, M3 Funds

* Zeke Ashton, Centaur Capital Partners

* Kian Ghazi, Hawkshaw Capital Management

* Whitney Tilson & Glenn Tongue, T2 Partners

Don’t miss your opportunity to learn from these financial luminaries. The insights you gain could guide your investment decisions for years to come. Remember, you must register by September 15, 2009 with discount code N09GB3 to take advantage of this special offer and SAVE $1,400 off the regular price to attend. There are a limited number of seats remaining. Avoid disappointment – reserve your seat today!

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We’ve been following Soapstone Networks Inc (SOAP.PK) since February 2nd this year (see our post archive here) because it was trading well below our estimate of its net cash value and an activist investor, Mithras Capital, had disclosed an 8.7% holding and called on the company to liquidate. After some urging, management acceded to the request and announced a liquidation. SOAP stockholders approved the liquidation of the company on July 28 and received a special dividend of $3.75 per share the next day. Based on our $2.50 purchase price, the $3.75 per share special dividend returned our initial capital plus 50%. At yesterday’s close, the $0.54 stub represents an additional 21% on our initial purchase price for a total return to date of 71%. Management estimates the final distribution will be between $0.25 and $0.75 per share, which means the stub is trading at a little over the $0.50 midpoint of the distribution range.

Since the payment of the $3.75 dividend, we’ve been grappling with the value of the stub. In an earlier post, Valuing the SOAP stub, we noted that two categories we’re key in estimating the final pay out figure because they accounted for the majority (80%) of the difference between the upper and lower estimates of the final distribution. Those two categories were:

  1. Real Estate and Equipment Lease termination costs: The lower bound of the range is -$5.4M and the upper bound is -$1.6M, which is a difference of around $3.8M or $0.25 per share.
  2. Proceeds from the sale of Assets: The lower bound of the range is $0.1M and the upper bound is $2.3M, which is a difference of around $2.2M or $0.14 per share.

SOAP has announced the sale of its software assets to Extreme Networks, Inc. (NASDAQ: EXTR). The sale price was not disclosed in the announcement, but was less than $5M. If the sale price is in fact closer to $5m, SOAP management seems to have significantly underestimated the range for Proceeds from the sale of Assets. At its close yesterday of $0.54, the SOAP stub might become an attractive investment opportunity if we can get some certainty around the actual figure for the proceeds from the sale of the software assets. Wes Gray and Andrew Kern, who provided the earlier post on CombiMatrix Corporation (NASDAQ:CBMX), have a view on the value of the SOAP stub:

Soapstone Networks (SYMBOL: SOAP.PK) is a liquidation play with a relatively short investment horizon and decent return. We believe the liquidation stub has solid downside protection and can likely return 50%+ by Q4 2010, with a potential to return over 100%.

Valuation

a. DEF 14A Management Liquidation Estimates

On July 2, 2009 management filed a DEF 14A. On page 30 there is a table outlining their liquidation estimates for the company. They estimate the range for the large initial distribution to be between .25 and .75. Below are management’s estimates:

SOAP Wes Post 1

b. Fast forward to September 1, 2009

The estimates of liquidation value in the DEF 14A may have been good at the time, but the situation has certainly changed for the better. I’ll go through each line that has major changes or updates. You can call the CFO to confirm this information at 978-715-2300 and ask for Bill Stuart.

1) Proceeds from sale of Assets

Soapstone has 3 categories of assets: (i) IP from PNC software, (ii) IP from their older projects, and (iii) the physical equipment and property located at One Federal Street, Billerica, MA 01821.

(i) On August 10, 2009 Soapstone announced they sold Soapstone’s core technology for an undisclosed amount “at less than $5mm” according to the EXTR CEO.

(ii) We have no real feel for how much SOAP’s portfolio of remaining IP is worth, but the CFO says it certainly isn’t worth $0.

(iii) No clue what the equipment/computers/servers/etc in the building are worth, but it is also probably worth more than zero, even in a fire-sale.

Conclusion: 100k certainly seems a bit too low to us, and $2.3mm may be a little on the high side. However, our research indicates that EXTR would have been extremely happy to purchase SOAP’s software for $3mm+.

Low estimate: EXTR gets steal of the century and purchases IP for 100k, (ii) and (iii) are worth 0.

Expectation: EXTR buys IP for 1.8mm, (ii) worth 100k, (iii) worth 100k, total is $2mm

High estimate: $2.3mm

2) Operating Expenses after June 30, 2009

The DEF 14 estimates for operating expenses are pegged at $2mm. This is ludicrous given what has happened since that estimate (at the time they were expecting to run a shop of 30+ employees for at least a year). As of August 31, the company has 6 remaining employees and according to the CFO they are “downsizing very fast and trying to wrap up operations by Q4 2009.”

Conclusion: The $2mm estimate is no longer applicable given the current situation at SOAP.

Low Estimate: The CFO goes nuts and burns money on the weekends: -$2mm

Expectation: By end of September SOAP is left with the accountant, a clerk, and the CFO, but company still burns money for fun. -$1mm

High Estimate: CFO runs a lean ship and things go ahead as scheduled: -$250k

3) Real Estate and Equipment Lease termination costs

The DEF 14 estimates these expenses to range from -$5.4mm to -$1.6mm. These figures include the actual lease obligations ($3.728mm as of June 30, 2009, page 20 on the 10Q) and operating expenses associated with the leases (taxes passed through by building owner and maintenance charges). The $5.4mm figure assumes they stay in the building until 2014 and eat 100% of the costs. This is NOT going to happen. The building is already aggressively being marketed and the CFO expects to get out of the actual lease at 50% fairly easily. While the commercial RE market in the area is very weak, a lease buyout at a large discount is very possible.

Conclusion: Lots to gain here…

Low Estimate: CFO sits in the building for 6 months and has the lease bought out at 25% (i.e. someone gets the deal of the century): -3.30mm

Expectation: SOAP eats 150k more in taxes/maintenance charges and gets out with a 50% buyout of lease in the next 3-6 months. -$2mm

High Estimate: SOAP gets out of lease with 60% buyout and eats 150k in taxes/maintenance charges in the next 3-6 months: -$1.6mm

4) Professional Fees

The DEF 14 estimates these expenses to range from -$2.7mm to -$2.2mm. As of August 31, 2009 the CFO says they have spent about $1mm and expect to spend about that much going forward (conservative estimate).

Conclusion: Potential to save a bit here.

Low Estimate: -$2.7mm

Expectation: -$2.2mm

High Estimate: -$2mm

c. How estimates look after accounting for what has happened since the original liquidation estimates

SOAP Wes Post 2

With a current stock price of .48 the low estimate of .39 translates into -18.1%, we expect .7, which is a 45.48%, and it is very possible we end up with .82 or a 71.86% return.

d. Second distribution

The CFO says that it is likely that they will have remaining IP and assets for sale after the initial distribution and the reserve for unanticipated claims and contingencies will be distributed Q4 2010.

Low Estimate: 0 from assets, $1mm from 1.8mm contingency => .06/s distro

Expectation: 0 from assets, $1mm from $1.8mm contingency => .06/s distro

High Estimate: $.5mm from assets, $1.8mm from $1.8mm contingency => .15/s distro

e. Total Return Possible

Low Estimate: .39 first distribution (Q2 2010), .06 second distribution (Q4 2010)

=>-4.57%

Expectation: .70 first distribution (Q1 2010), .06 second distribution (Q4 2010)

=>59.01%

High Estimate: .82 first distribution (Q4 2009), .15 second distribution (Q4 2010)

=>102.98%

Expected Return:

P(Low)=.25

P(Estimate)=.50

P(High)=.25

ð .25*-.0457+.50*.5901+.25*1.0298=54.11% expected return by Q4 2010.

Catalyst

1. Asset sale announcements

2. Lease buyout announcements

3. Liquidation payments

[Full Disclosure:  We have a holding in SOAP. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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We continue our guest posts today with Seahawk Drilling (NASDAQ: HAWK), an idea from Ben Bortner. HAWK’s not a typical Greenbackd stock, but it warrants consideration at a discount to Ben’s estimate of liquidation value. It’s a recent spin-off (here is HAWK’s information statement from the spin-off). Ben sent this through before HAWK’s 8.14% run on Friday to close at $25.78 (it was trading at $23.30 when he submitted the post), which gives it a market capitalization of $300M. Ben is an undergraduate student at Western Washington University majoring in finance and accounting. He has over four years of investment experience and currently manages a portfolio that invests primarily in micro/small capitalization equities using a deep value/Graham & Dodd approach. After graduation (March 2010), Ben would like to pursue a career as an investment analyst at a firm practicing Graham & Dodd’s value investing principles. Ben can be contacted at BenBortner [at] gmail [dot] com:

Summary:

Seahawk Drilling (NASDAQ: HAWK) is a compelling investment opportunity with very little risk of a permanent loss of capital. The company was recently spun-off from Pride International (NYSE: PDE) is a leading jack-up driller in the Gulf of Mexico (GOM). Seahawk is a cash generating machine with strong liquidity and no long-term debt. During 2009, the company will likely yield 13-19% of its market capitalization in cash flow and 6-11% in free cash flow (FCF). However, on a more normalized basis, Seahawk is likely to yield more than 65% of its current market capitalization in cash flow and 50% in FCF.

The company’s current market cap is approximately $270m ($23.3 x 11.6m shares outstanding). Based on first quarter results, and a schedule of current rig utilization and contracted dayrates provided by Investor Relations, we expect the company to earn $35-50m in cash from operations during 2009. However, based on results from the past three years, a return to more normalized natural gas prices could easily boost the company’s cash flow to more than $175m a year. A recovery in Seahawk’s cash flow would likely happen 1-2 years after a recovery in natural gas prices.

As a result of the spin-off, the share price of HAWK has experienced significant selling pressure from Pride shareholders who are not interested in Seahawk for whatever reason (difference in core business activities, cyclical recession within the industry, bylaws prohibiting ownership of small cap companies, index funds forced to sell non-index stocks, and etc.). The natural gas exploration and drilling industry is also suffering from a severe recession and has become extremely out-of-favor with investors. The combination of these factors has created a terrific opportunity for the value investor.

Business:

Seahawk provides contract drilling services to the oil and natural gas exploration and production industries. The company operates a fleet of mobile offshore drilling rigs, which consists of 20 mat-supported jack-up drilling rigs. The company’s fleet operates in water depths up to 300 feet and can drill up to 25,000 feet. Their fleet is the second largest fleet of jack-up rigs in the GOM. The company contracts with its customers on a dayrate basis to provide rigs, drilling crews, and to cover other maintenance and operating expenses. During 2008 the company benefited from high spot prices for oil and natural gas as well as a contraction in rig count within the GOM.

Seahawk’s rigs were built during the 1970s and 80s. However, the vast majority of these rigs have been upgraded within the past 10 years. Currently, as of 9/1/2009, only three of the company’s 20 rigs are under contract. The rest are either stacked or sitting idle. Since the company’s rigs are primarily used to drill for natural gas, the current depression-like prices for natural gas, swelling gas reserves, and weak economic environment have severely impacted the company’s operations.

The company previously operated as part of Pride’s GOM business but was spun off on August 24th. The vast majority of Pride’s GOM assets were spun off to the new company. It appears that the primary reason for the spin-off was that Pride wanted to exit the struggling shallow water drilling business in the GOM and increase its focus on the floating and deep water drilling segments where Pride “believes the best long-term growth prospects reside in the offshore industry.” The severe contraction in natural gas prices over the past year likely contributed to Pride’s desire to exit the industry as well.

The company’s focus on the GOM provides them with a competitive advantage. As a result of their localized focus, they have reduced mobilization costs and more flexible crew deployment than their competitors. Seahawk’s competitive advantage also derives from its specialized operational expertise regarding mat-supported jack-up rigs. As the low-cost service provider within the industry, Seahawk should benefit first from any recovery. According to Seahawk, the company is focusing its growth on available client opportunities in the GOM that will maintain or expand their market share, margin, and cash flow.

Industry:

Demand for Seahawk’s services derives from its customer’s expectations of future natural gas prices. Currently, as a result of the depressed prices for natural gas and the inability of exploration companies to obtain financing, the drilling industry is experiencing the sharpest downturn in over 20 years. According to the company, as of August fourth there were only 18 jack-up rigs under contract in the GOM out of the market supply of 41.

Over recent years, rigs within the GOM have consistently been moved to international markets. Seahawk believes this shift is partially a result of the inability for many owners, especially the smaller owners, to pay increased insurance premiums. In many cases, owners have been unable to obtain insurance for the entire replacement cost of their new rigs. As a result, many owners have moved their rigs out of the GOM. The company believes that the inability of owners to obtain full windstorm damage coverage may continue indefinitely. As a result, they believe their competitors will continue to market their rigs in international markets, and, thus, the rig supply within the GOM should continue to decline. We believe Seahawk’s growing market share as a result of this shift, low mobilization costs, and flexible deployment, should give the company increasing pricing power within the GOM over time.

In recent years, production in established fields has begun to decline and there has been an increasing focus towards newer fields that are further offshore. While the company expects there will continue to be opportunities for its ten rigs with depth ratings of 200 feet or less, they expect demand for its ten rigs with water depth ratings of 250 feet and greater to be the main source of growth going forward.

There are currently seven jack-up rigs under construction in GOM ports, all of which are of higher specification than Seahawk’s rigs. These rigs could threaten Seahawk’s ability to obtain contracts within the 250 feet and greater segment. However, most new jack-up rigs built in the GOM in recent years have been relocated internationally due to the inability to obtain full insurance coverage within the GOM. The company expects this trend may continue indefinitely and should mitigate the effects of any new rigs.

Management:

The entire management team was hand-picked last fall in anticipation of the spin-off. The management team at Seahawk is highly qualified and was chosen for their experience growing newly public offshore drilling companies. In our opinion, the board members’ diverse backgrounds in natural gas, drilling, and engineering should also prove extremely valuable to Seahawk. We are confident that this team will successfully lead Seahawk out of these difficult times.

* Stephen Snider, Chairman of the Board: Mr. Snider is the Chief Executive Officer of Exterran Holdings, a global natural gas compression services company with annual revenues in excess of $3b.

* Randall Stilley, President and Chief Executive Officer: Mr. Stilley has served as President and CEO of Seahawk since September 2008. Prior to joining the company, he served in the same role at Hercules Offshore from October 2004 until June 2008. Hercules Offshore is another leading shallow-water drilling services provider in the GOM. During his tenure he took the company public, grew revenues from $31m to over $1.1b, cash from operations from ($6.5m) to $270m, and book value from $71m to $907m.

* Steven Manz, SVP and Chief Financial Officer: Mr. Manz has served in his role since October 2008. From January 2005 until September 2007, Mr. Manz acted as CFO and SVP of Corporate Development and Planning at Hercules Offshore under Mr. Stilley.

* Alex Cestero, SVP, General Counsel, and Chief Compliance Officer: Mr. Cestero has served in his role since October 2008. Prior to Seahawk, he served as General Counsel and Senior Counsel of Pride.

* Oscar German, SVP of Human Resources: Mr. German has served in his role since November 2008. Prior to Seahawk, he served as International Human Resource Director, Western Hemisphere for Pride. He has also served in senior human resource positions at Coca Cola and BHP Billliton.

Financial Position:

Unfortunately, Pride did not historically break-out Seahawk’s operations from its GOM operations. Thus, we do not have any operating, balance sheet, or cash flow figures solely for Seahawk prior to 2008. In fact, we do not have any historical cash flow statements for Seahawk. Pride’s GOM business historically consisted of Seahawk’s 20 mat-supported jack-up rigs and five other types of rigs that were not spun off. As a result, Seahawk’s limited financial statements are presented on a pro forma basis. Thus, many of the numbers presented in the financial statements and in our analysis are estimates.

Seahawk’s latest financial statement is as of March 31, 2009. Per the master separation agreement, the company is targeting net working capital (NWC) of $85m upon separation. Of the $85m in NWC, the company expects to have $60-$70m in cash upon separation. The company will also have no long-term debt and an untapped $36m line of credit. The company currently has approximately $540m in plant, property, and equipment. However, they expect to record an impairment loss of $25-$45m as a result of the depressed market conditions. The company should have approximately $90m in long-term liabilities. Given this information, and assuming a $35m impairment to PP&E, Seahawk has a tangible book value of approximately $505m.

However, we believe the true book value of Seakhawk is understated. Of the company’s roughly $90m in long-term liabilities, $86.3m are deferred income taxes. The valuation of deferred income taxes is hotly debated among industry professionals. Deferred taxes are paid in the future but, under GAAP accounting, are not discounted. The present value of any deferred tax payments may be immaterial if they are not expected to be paid for years/decades, and, thus, are usually overvalued in our opinion. Also, for the net deferred taxes to be paid off, either (a) corporate capital expenditures must decline enough that the timing differences that created the account reverses and/or (b) the entity must remain profitable. In the case of Seahawk, no reversal in capital expenditures is evident. The timing gap has consistently expanded over recent years. Many argue (validly in our opinion), that it is unlikely a profitable entity would cease to reinvest capital for growth, and, thus, would likely never incur any deferred tax payments. If an entity ceased to reinvest capital, they are likely suffering losses, and, thus, not paying taxes anyway. Therefore, in our opinion, Seahawk’s deferred tax liability is certainly worth significantly less than the $86.3m carrying amount and may effectively be worth nothing. Based on this information, we believe that Seahawk’s book value is undervalued by roughly $40-$86.3m. We estimate that the company’s true book value as a going concern may be somewhere between $545-$591.3m. We believe including the entire deferred tax liability in the calculation of book value is only relevant if the company is not a going concern.

During 2008, Seahawk had revenue, EBITDA, and net income of $554m, $218m, and $103m, respectively. During the first quarter, the company had revenue, EBITDA, and net income of $90m, $18m, and $2.6m, respectively. During 2008 and Q1 2009 Seahawk had EBITDA margins of 39% and 20%, respectively. We expect the trend of declining margins to continue through the remainder of the year. Based on a schedule of rig activity and contract rates provided by the company, we expect the company to report Q2 revenue in the range of $42-45m (>50% decline sequentially). This, combined with declining margins and the expected impairment, charge should result in a significant net loss. However, the company should easily remain cash flow positive. In regards to the third quarter, based on the company’s current backlog, and assuming no new contracts within the quarter, the company could experience another 50% sequential decline in revenue to approximately $24m. Based on these revenue projections, we estimate that the company will be cash flow neutral during the third quarter, plus or minus $5m. We estimate that Seahawk will generate approximately $35-50m in cash from operations during 2009. The company’s ability to remain cash flow positive during such difficult periods is a testament to its strength and cash flow potential.

Estimating Seahawk’s historical cash flows is more difficult and requires quite a bit of imprecision. Pride’s GOM business generated cash flow of $240-$260 a year during 2006, 2007, and 2008. To estimate the cash from operations attributable to Seahawk during these years we used the following process (we realize that this process is not precise in anyway and will compensate with a large margin of safety in our purchase price). We calculated Seahawk’s NWC as a percentage of Pride’s GOM operation’s NWC at 3/31/09, which was 75%. We multiplied this percentage against the changes in Pride’s GOM operation’s NWC during each year to estimate Seahawk’s change in NWC. Next, we estimated Seahawk’s annual net income by multiplying the ratio of Seahawk’s 2008 net income to Pride’s GOM operation’s 2008 net income (67%) against the GOM operation’s net income during 2006 and 2007. Last, we estimated Seahawk’s annual depreciation by multiplying the ratio of Seahawk’s 2008 depreciation expense to Pride’s GOM operation’s 2008 depreciation expense (91%) against the GOM operation’s depreciation during 2006 and 2007. The estimation of Seahawk’s cash from operations is shown below.

HAWK 1

We are relatively confident in our estimate of Seahawk’s 2008 cash from operations as most of the numbers were provided by the company. Given our 2008 estimate, our 2007 and 2006 estimates do not appear to be unreasonable and, considering the GOM operations as a whole, may actually be understated. Based on our estimates, Seahawk has averaged cash from operations of $176m a year over the past three years. If the price of natural gas recovers to the average levels between 2005 and 2008 ($6-$8), and demand for Seahawk’s rigs improves correspondingly, we believe the company can easily generate cash flow in the range of $175m. Based on past cycles, we estimate that a recovery in cash flow will lag a recovery in natural gas by 1-2 years. We believe the levels of cash flow achieved in 2006-2008 represent more “normal like” conditions for Seahawk than current conditions.

Seahawk plans to spend approximately $20m on capital expenditures (CAPEX) during 2009. This amount is almost entirely maintenance CAPEX. Given this projected spending level, and utilization rates for the year, Seahawk’s maintenance CAPEX in more “normal” years may be in the $40-50m range. Therefore, we estimate that Seahawk should generate $15-30m in FCF during 2009 and $125-135m at less depressed natural gas prices.

Valuation:

While we do wish we had better historical information, the lack of perfect information creates opportunity as other investors willing to do less work are likely to shy away from the company. If we can purchase the company at extremely attractive valuations relative to conservative financial estimates, we will have a large margin of safety and can be confident in our investment.

If the company were to be liquidated today, we believe it could be liquidated for roughly $280-290m. This represents a collection of the entire cash balance (~$65m), 85% of accounts receivable and other current assets (~$94m), 60% of book value for PP&E, less 100% of the current liabilities (~$90m), $10m in liquidation expenses, unrecorded contractual obligations of $21.4m, 60% of the deferred tax liability (you would only pay tax on the difference you were actually able to realize, ~$52m), and $4 in other long-term liabilities. Given that the company is trading below what we believe to be a conservative estimate of liquidation value and not burning any cash, we believe there is very little risk of a permanent loss of capital at current prices.

With a market cap of $270m, Seahawk is trading at less than 0.5x our estimates of its true book value and 2.6x 2008 earnings. Seahawk’s enterprise value is only 1.2x our estimates of normalized cash flows and 4.1-5.8x our estimated 2009 cash flow. These ratios seem to indicate that Seahawk is trading based on depressed 2009 cash flow levels. We believe this is indicative of Wall Street’s short-sightedness. While we view it as highly unlikely that $35m-$50m in cash from operations is the new norm, current prices still represent a reasonable investment with a 13%-19% cash flow yield and a 6-11% FCF yield (not to mention half of BV). However, a return to our estimates of normal cash flows represents a roughly 65% annual cash flow yield and a 46-50% FCF yield.

Another possible scenario is that both 2009 and 2008 cash flow levels are two opposite extremes and that Seahawk’s cash flows may never recover to 2008 levels. In this scenario, a recovery to the midpoint would still represent hefty cash flow and FCF yields of 38-40% and 20-25%, respectively. With high cash flow yields and a strong balance sheet with $65m in net cash, Seahawk is extremely attractive on an absolute basis.

While no two companies are the same, it is often useful to compare a company’s valuation to that of its closest competitors. Since a number of the firms in the offshore jack-up market have a significant amount of debt, and Seahawk does not, we compared the companies on the basis of enterprise values. Hercules is Seahawk’s closest competitor, and, at first glance, the second most attractive investment on a relative basis. However, Hercules and Seahawk have extremely different capital structures. Hercules has a long-term debt to equity ratio of 1.0x while Seahawk has no long-term debt; this ratio would be the equivalent of $500-$550m in long-term debt for Seahawk. Even more concerning is the fact that 92% of Hercules long-term debt is due within less than four years (July 2013) and the company is currently burning a significant amount of cash. Also, using the same estimated recovery ratios, our estimate of Hercules’ liquidation value is less than half of its current market value. Given this analysis, Seahawk is by far the cheapest company in the industry with the largest margin of safety.

HAWK 2

* Estimates and adjustments taken from Thomson One Analytics

If the company were to simply trade at 1x our estimate of book value, that would represent upside potential of 100-120%. However, most of its peers trade at a premium to book value. We believe the company should trade at 5-7x our estimate of normalized cash flows and 1.5-2.0x book value, which would represent a price target of $75-$105 and upside potential of 225-350%. Given the current pessimism and difficulties surrounding the company, it may not reach these levels until 2011 or 2012. However, that would still represent an annualized return in excess of 50%. Potential returns such as these create a large margin of safety for the value investor. Our cash flow estimates could be as much as 100% too high and we could still realize a more than satisfactory return on our investment (20-30% annualized returns).

Risks:

– PEMEX, Mexico’s national oil company owned and operated by the Mexican government, is Seahawk’s largest customer. During 2008, PEMEX represented 58% of Seahawk’s revenue. PEMEX’s demand for Seahawk’s drilling services is subject government approval and intervention. The loss of PEMEX as a customer could have a material adverse affect on Seahawk’s operations.

– A number of Seahawk’s customers, including PEMEX, have indicated an increasing shift towards rigs with water depth capabilities of 250 feet or greater. As a result, the company’s ability to contract out its 10 rigs with depth capabilities of 200 feet or less may be severely limited. If the company is unable to contract these rigs out, the carrying value of these rigs on the balance sheet may be overstated, and, thus, our estimate of tangible book value and liquidation value may be overstated.

– Demand for the company’s services is dependent on natural gas prices. It is possible natural gas prices may never recover, and, thus, demand for Seahawk’s services may never recover to pre-2009 levels.

Catalysts:

– Currently, forced selling by investors, institutions, and index funds liquidating their newly acquired shares is exerting significant downward pressure on the stock. The dwindling downward volume indicates that this pressure is beginning to subside.

– Per discussions with Investor Relations, the company plans to release second quarter earnings on September 14th. The earnings release will be the first time management has held a conference call and released official results as a stand-alone entity. These factors should provide additional clarity and comfort to investors regarding the newly formed company.

– Upon completion of the spin-off, management was awarded over $7m in restricted stock and stock options. Mr. Stilley, CEO, was awarded $4.8m himself. Considering his annual salary is $625k, this award should provide a significant financial incentive for Mr. Stilley (and the rest of the management team) to drive increased shareholder value going forward. Mr. Stilley also has his reputation at stake. We suspect he would like to repeat his performance at Hercules.

– If natural gas prices were to rise from their depression-like lows, HAWK could experience a significant boost in demand for its services.

Disclosure:

The analyst has an ownership interest in Seahawk Drilling.

The contents of this report is based on information that is thought to be reliable but is not gaurenteed to be accurate or complete. The author is neither certified nor licensed to give investment advice or analyze securities, nor do they claim to be. This report has been developed and published solely for illustrative purposes and is not an offer to buy or sell any of the aforementioned securities. The author does not sell investment research and is not a registered broker/dealer; this report is provided as a courtesy and has been created for personal research purposes only. This report is the sole property of the author and may not be reproduced, distributed, reprinted, cited, or used in any way without prior written consent from the author.

[Full Disclosure: We do not have a holding in HAWK. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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We were going to stay away until after Labor Day, but this is too good to miss. From reader MCN1 on Aspen Exploration Corporation (OTC:ASPN):

Company Name: Aspen Exploration Corporation

Ticker: ASPN

Market Cap: $6.53M (as of 9/2/09)

Stock Price: $0.90 (as of 9/2/09)

Company Overview: Aspen Exploration Corporation is engaged in the exploration and development of oil and gas properties in California and Montana.

Situation:

Being a micro cap stock the management acknowledged in a press release in Sept 2008 that it would begin exploring strategic alternatives for Aspen “including the possibility of selling Aspen’s assets or considering another appropriate merger or acquisition transaction (from press release dated 9/4/08).” The motive behind pursing “strategic alternatives” was three fold: (1) the cost of being a public company for a company their size, (2) the belief the market price did not reflect the true value of ASPN’s assets, and (3) the president’s health issues (had a stroke in Jan 2008).

In Feb 2009, ASPN announced it had entered into an agreement with Venoco, Inc (VQ) to sell its California assets for approximately $8.425M (approximately because it was subject to adjustments). It was a good strategic fit for Venoco who has operations close to Aspen’s. On June 30, 2009 the transaction closed with Aspen receiving $7.6M (net of fees). Additionally, during this time period, Feb 09 – Jun 09, Aspen also sold its interests in Montana for $1.2M. Thus, the total sale proceeds to the company were $8.8M between the two transactions.

The company is trying to decide what to do with its liquid assets, either liquidated and payout to stockholders or pursue new business opportunities. Now management has stated it has reviewed some business opportunities, and thankfully, and has passed on those opportunities. Especially when you take into account that management is willing to look at opportunities outside of oil & gas – which was the company’s core business.

In either late October or November of this year, the company is going to “propose a resolution to consider the possibility of dissolution of Aspen to our stockholders at a meeting of stockholders….If Aspen were to dissolve, it would not enter into another business opportunity but would wind up its operations and distribute its remaining assets to stockholders (from 8-K filing dated 6/30/09).” This is what I and others are betting will happen.

Financials & Valuations:

Here is a look at the post transaction balance sheet (pro forma) as of 3/30/09. The numbers below are taken from a SEC 8-K filing dated 7/2/09.

ASPN SummaryComments on Valuation:

Cash – I margined it at 95% to account for ongoing overhead the company still has to pay.

Deposits – not sure what that figure represents, could be overstating liquidation value here. 50% is arbitrary though amount is insignificant to the whole deal.

Valuation – Estimated net liquidation value of $1.38/share, the majority of which, represents cash and marketable securities at $1.26 compared to market price of $0.90.

Other:

The company also has joint venture, which they entered into in January 2007, with a company called Hemis Corporation where Hemis is the operator and is permitted to explore for commercial amounts of gold. Because Hemis is the operator, Aspen is not obligated to pay for any of the exploration and production costs, instead, Aspen retained a 5% gross royalty on production. As part of the agreement, Hemis paid Aspen $50k in Jan 07, $50k in Aug 07, was obligated to pay another $50k in Sept 08 (which hasn’t been received), and $50k on each anniversary date until production begins. Since the Sept 08 has not been received (and no updates have been provided), the agreement could have been terminated as non-payments was grounds for termination. I have assigned no value to this joint venture.

The stock is thinly traded, usually a couple thousand shares trade everyday. Since my purchases in July 09, the stock has ranged from $0.87 – $0.97.

Catalyst:

Catalyst one – the stockholder meeting in late October or November with stockholders voting to dissolve the company and proceeds are paid out.

Catalyst two (which helps ensure catalyst one occurs) – during May 09 – June 09 an individual (I’ll spare the name, you can refer to the SEC 13D filing, just look it up under Aspen’s filings on the SEC website) acquired $422.7K of stock in the company for an approximate 5% stake. In the 13D filing the individual states his intent which is “As Aspen currently has no active business operations and a significant amount of liquid assets, (individual name) believes that there is broad shareholder support for the implementation of a plan of liquidation and distribution of substantially all the proceeds from the Sale and Aspen’s additional liquid assets to Aspen’s shareholders. (individual name) is considering several stockholder resolutions…for inclusion in Aspen’s proxy statement for its next meeting of stockholders”

Disclosure: I am long ASPN. The information presented is obtained from public filing, please perform your own due diligence as this is neither a recommendation to buy or sell.

[Full Disclosure: We do not have a holding in ASPN. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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August 31, 2009 marked the end of Greenbackd’s third quarter, and so it’s time again to report on the performance of the Greenbackd Portfolio and the positions in the portfolio, discuss the evolution of our valuation methodology and outline the future direction of Greenbackd.com.

Third quarter performance of the Greenbackd Portfolio

The third quarter was another satisfactory quarter for the Greenbackd Portfolio, up 23.5% on an absolute basis, which was 15.0% higher than the return on the S&P500 return over the same period. A large positive return for the period is great, but our celebration is tempered once again by the fact that the broader market also had a very good quarter, up 11.0%. Our total return since inception (assuming equal weighting in all quarters) is 107.2% against a return on the S&P500 of 13.9%, or an outperformance of 93.3% over the return in the S&P500.

It is still too early to determine how well Greenbackd’s strategy of investing in undervalued asset situations with a catalyst is performing, but we believe we are heading in the right direction. Set out below is a list of all the stocks in the Greenbackd Portfolio and the absolute and relative performance of each from the close of the last trading day of the first quarter, June 1, 2009, to the close on the last trading day in the second quarter, August 31, 2009:

Greenbackd Portfolio Performance 2009 Q3

You may have noticed something odd about our presentation of performance. The S&P500 index rose by 11.0% in our second quarter (from 919.14 to 1,020.62). Our +23.5% performance might suggest an outperformance over the S&P500 index of 12.5%, while we report outperformance of 15.0%. We calculate our performance on a slightly different basis, recording the level of the S&P500 Index on the day each stock is added to the portfolio and then comparing the performance of each stock against the index for the same holding period. The Total Relative performance, therefore, is the average performance of each stock against the performance of the S&P500 index for the same periods. As we discussed above, the holding period for Greenbackd’s positions has been too short to provide any meaningful information about the likely performance of the strategy over the long term (2 to 5 years), but we believe that the strategy should outperform the market by a small margin.

Update on the holdings in the Greenbackd Portfolio

There are currently nine stocks in the Greenbackd Portfolio:

  1. COSN (added August 6, 2009 @ $1.75)
  2. FORD (added July 20, 2009 @ $1.44)
  3. VXGN (added March 26, 2009 @ $0.48)
  4. DRAD (added March 9, 2009 @ $0.88)
  5. CAPS (added February 27, 2009 @ $0.60)
  6. DITC (added February 19, 2009 @ $0.89)
  7. SOAP (added February 2, 2009 @ $2.50)
  8. NSTR (added January 16, 2009 @ $1.91)
  9. ACLS (added January 8, 2009 @ $0.60)

Greenbackd’s valuation methodology

We started Greenbackd in an effort to extend our understanding of asset-based valuation described by Benjamin Graham in the 1934 Edition of Security Analysis. (You can see our summary of Graham’s approach here). Through some great discussion with our readers, many of whom work in the fund management industry as experienced analysts or even managing members of hedge funds, and by incorporating the observations of Marty Whitman (see Marty Whitman’s adjustments to Graham’s net net formula here) and Seth Klarman (our Seth Klarman series starts here), we have refined our process. We believe that our analyses are now robust and that has manifest itself in satisfactory performance.

Tweedy Browne provides compelling evidence for the asset-based valuation approach. We have now conducted our own study into the performance of sub-liquidation value stocks (You may recall that in July we called for assistance with a research project. Now you know what it was for.) We’ll shortly be circulating the draft paper for review, and then hope to publish the results in a practitioner journal. The study will also appear on Greenbackd.

The future of Greenbackd.com

Greenbackd is a labor of love. We try to create new content every weekday, and to get the stock analyses up just after midnight Eastern Standard Time, so that they’re available before the markets open the following day. Most of the stocks that are currently trading at a premium to the price at which we originally identified them traded for a period at a discount to the price at which we identified them. This means that there are plenty of opportunities to trade on our ideas (not that we suggest you do that without reading our disclosures and doing your own research). If you find the ideas here compelling and you get some value from them, you can support our efforts by making a donation via PayPal.

We are taking a brief vacation until after Labor Day. We’ll be back full-time on September 8th, always reserving the right to post interesting ideas in the interum and update our open positions. If you’re looking for net nets in the meantime, here are two good screens:

  1. GuruFocus has a Graham net net screen, with some great functionality ($249 per year)
  2. Graham Investor NCAV screen (Free)

We look forward to bringing you the best undervalued asset situations we can dig up in the next quarter.

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