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Just a quick update…
On July 17, 2009, I ran a Yahoo Finance stock screen for stocks trading at a low P/B and relatively high cash per share. I then looked at the individual balance sheet of every stock and compiled the list below of all stocks from the screen that were trading at less than 1.1 times their net-net working capital.
I have been following their performance and below is an update (original post here):
If you haven’t read part 1 of my analysis, I strongly recommend reading that one first here.
Asta Funding reported FY 2009 and Q4 earnings after the market closed yesterday and held its quarterly conference call this morning. I participated in the call – although during the Q&A I was cut short due to technical difficulties. Fortunately I was able to speak to the CFO Bob Michel on the phone for 10 minutes later in the day – I was impressed management is so accessible!
For full disclosure, I do NOT have a position in the stock, but I am watching it closely and think it warrants further research.
After much thinking, here are my take-aways from today:
This will be the first of several posts on Asta Funding, Inc.
Asta Funding, Inc is in the business of acquiring, managing, servicing, and recovering portfolios of consumer receivables, including credit card, auto deficiency, and telecom receivables. The company purchases receivables at steep discounts from the face values of the underlying claims (3.4-4.0% of face value over 2004-2008). Typically the receivables have been previously written off by the originator and collections have previously been attempted by one or more parties.
A few months back I posted a list of stocks that were trading below their NNWC value per share (as of 7/17/09). Let’s take a quick look to see how those stocks have performed over the last several months.
Here is a list of just a few of my favorite books:
Valuation: Measuring and Managing the Value of Companies Koller, Goedhart, and Wessels
Security Analysis Graham & Dodd
Margin of Safety Klarman. (Out of print. I found a copy in the Boston Public Library financial branch – you aren’t allowed to take it out and you have to leave your driver’s license at the front desk to read it!)
Investment Valuation Damodaran
Hedge Hunters Burton
Fooled by Randomness Taleb
The Black Swan Taleb
In part 1, I made my case that the price of a stock related to value should be heavily factored into any discussion of risk in holding stocks. In this part, I am going to present a simple model for thinking about risk which expands on a more traditional view to include price.
**Disclaimer – this is meant to be an article about a conceptual treatment of risk. Don’t be fooled by the graphs, there is nothing precise in my discussion.
Many fundamental analysts estimate value by projecting cash flows and then discounting at a rate determined by measuring the beta of the stock. The CAPM and many analysts who use betas to discount cash flows are assuming that risk can be summarized by one number, and that that one number can be determined by observing how the stock price historically correlated with the returns of other stocks.
But let’s do a quick thought experiment to see how ridiculous this is….
Benjamin Graham famously recommended looking at stocks that trade below their net-net working capital (NNWC) value per share (current assets – all liabilities). A lot of modern value investors have talked about this metric as a classic example of buying stocks with a large margin of safety, but also as a dated technique for the simple reason that few securities in recent history have met this criteria.
However, with the precipitous decline of stock markets at the end of 2008 many of these opportunities have reemerged, and it is worth taking a look at this strategy.