Recognizing Value Situations - Smoke and Mirrors
Some apparent asset plays can be a mirage. Find a company selling at a low price to book (P/B), look at assets, and notice that per-share assets are higher than the share price. Is it a good buy?
Depends on the quality and liquidity of the assets on the books.
Large manufacturers and other capital-intensive companies often have overvalued assets on the books. If the assets are largely based on buildings, equipment, and intangibles, watch out; but if they are cash, securities, marketable natural resourcees, land, and the like, there may be an asset-play opportunity.
If there is a large cash hoard exceeding debt, make sure the company is cash flow positive or nearly so. You don't want this cash to disappear as "cash burn."
Also read:
Recognizing Value Situations
Recognizing Value Situations - Growth at a Reasonable Price
Recognizing Value Situations - The Fire Sale
Recognizing Value Situations - The Asset Play
Recognizing Value Situations - Growth Kickers
Recognizing Value Situations - Turning the Ship Around
Recognizing Value Situations - Cyclical Plays
Recognizing Value Situations - Smoke and Mirrors
Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
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