"I don't look to jump over 7-foot bars. I look around for 1-foot bars I can step over." -- Warren Buffett
If you're in the market for those 1-foot bars Buffett loves, here's one of the best places to look: companies beaten to such a pulp that their cash on hand represents a significant portion of their share price.
That means new investors in these companies are being handed the actual business operations for free, or close to it. It doesn't get much better than that, does it?
Using the stock-screening tool developed for our MSN CAPS community, I searched for companies fitting these bargain-basement criteria. Specifically, I screened for companies that are:
- Expected to be profitable in 2009.
- Unburdened by long-term debt.
- Sitting on a significant amount of cash relative to their share price.
Among others, I came across these five stocks:
| Company | Sector | Feb. 5 close | Cash per share | Fiscal 2009 earnings-per-share estimate | CAPS rating |
|---|---|---|---|---|---|
Video games | $9.73 | $2.21 | $0.37 | ***** | |
Apparel stores | $8.73 | $1.86 | $0.99 | **** | |
Technical software | $17.81 | $4.12 | $1.21 | **** | |
Online marketplace | $13.21 | $2.62 | $1.14 | *** | |
Commercial property listings | $6.76 | $2.12 | $0.49 | **** |
None of the names represents a formal "buy" recommendation -– they're offered as a starting point for more research.
At home, broke and bored
I'm looking for silver linings in this brutal economy. I'm looking hard, but they're few and far between. Thankfully, one popped up in The Wall Street Journal this week that might help a company like video game publisher Activision Blizzard (ATVI, news, msgs)."Internet games, gambling and other forms of online entertainment have seen significant surges in use in the several months since the economic downturn deepened," The Journal reported. "The trend echoes the escape mechanisms that people turned to during the Great Depression in the 1930s."
Sad as it is, our living rooms are filling up with idle bodies during the workweek. Need a mental break from the economic anguish? How about a game of “World of Warcraft”? You get the idea.
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"The gaming industry has proven to be recession-proof. As more and more people are cutting back on spending money, gaming is becoming more and more popular," she wrote. "As people are going out less and spending a lot more time at home, and saving money AND having a great time while doing so. I like Activision and believe it to be a good buy."
CAPS member "decrooj" pointed in the same direction and gave color to the synergies of last year's big video-gaming merger of Activision and Blizzard.
"(The) merger with Blizzard is huge," decrooj recently wrote. "t will do the exact opposite of (the merger of XM and Sirius Satellite Radio). With Blizzard, they gained the (revenues) brought in by online subscriptions. Online gaming is not a fad. . . . With all of the new titles coming out this year, I only see big dollar signs for the company. They have a contract with Marvel Entertainment (MVL, news, msgs) which could also lead to more money in the future. Big Franchise Games. All of this money will lead to (Activision Blizzard) buying out more companies and eventually becoming a near monopoly."
Company making the right moves
Of course, the main worry about Activision's future is fear of falling into one-hit-wonder status if games such as its tremendously popular "Guitar Hero" start to fizzle. It's a legitimate concern. Does anyone still play "Sonic the Hedgehog"? Didn't think so.Still, Activision Blizzard can fall back on its key strengths. The Santa Monica, Calif., company is:
- Incredibly well-capitalized, with no debt, providing durability in this economy.
- A market-leading brand name that will attract the industry's most creative gaming talent for years.
- Led by insightful management that realizes how destructive being a one-hit wonder can be, and took steps in 2007 to acquire Blizzard Entertainment via a merger with rival games developer Vivendi Games of France.
At $9.73 a share -- more than $2 of it in cash -- Activision Blizzard looks like a best-of-breed company trading at a compelling value. That's why more than 97% of those members in our CAPS community rating this stock feel confident enough to tag it as an outperform, as well as give it five-star status.
Disagree? See it another way? Just want to see what the rest of the pack is saying? More than 125,000 investors use CAPS to share ideas and swap opinions. Click here to check it out. It's 100% free to join.
This article was reported and written by Morgan Housel for The Motley Fool. At the time of publication, Housel owned none of the shares mentioned.
