Many stocks have been beaten down to very low prices due to tax selling, creating bargain basement opportunities, suggests Fred Fuld, editor of stockerblog.
In fact, looking at stocks that are selling below cash is one the way to go to make profits. Here is what it means when a stock sells below cash per share.
First, assuming the company has no debt, you take the amount of cash that the company has in the bank and divide it by the outstanding number of shares. That represents the cash per share.
If a stock is trading for less than that amount, it is a bargain, because if the company went out of business immediately, everything would be liquidated and disbursed on a per share basis.
Even if all the company’s inventory, equipment, and real estate were worth nothing, all that cash would provide the investor with a profit.
Once a stock sells for below cash per share, it starts to attract the attention of hedge funds, analysts, and companies looking for a takeover candidate, all of which can drive the price of a stock up.
You may be wondering, do such stocks really currently exist? The answer is ‘Yes’ and here are a few of them.
Emerson Radio (MSN) is a marketer of consumer electronic products and various housewares.
The company has about $1.91 in cash per share, yet sells for less than half that amount. The stock trades at 7.5 times forward earnings. The company is debt free.
NeuroMetrix (NURO) makes and markets wearable neuro-stimulation therapeutic devices. Cash per share is $1.37, with the stock selling more than 20% below that.
This debt free company has been generating negative earnings, but the stock has a favorable price to sales ratio of 0.70.
OncoGenex Pharmaceuticals (OGXI) develops products that are designed to block the production of specific proteins that promote treatment resistance in cancer.
The stock is selling for less than half the amount of cash per share of about $1.09. The company has a small amount of debt.
Remember to do your research before investing, since these stocks have very low market caps and limited trading which reduces liquidity.