One of the perverse effects of being a value investor is having a portfolio full of "uglies"!
As the market price of a stock rises (and starts to look beautiful to the lay person), a value investor sells it. He then uses those proceeds to purchase another "ugly" name.
This means that at any given moment, a snapshot of a value oriented portfolio will have nothing but mostly ugly names. Hopefully, if the manager does their homework well, these uglies will have been purchased at lovely prices. That is, lovely to a value investor.
This brings me to a recent position that I have initiated in the portfolio. I came across iGO Inc. (NASDAQ:IGOI) from Saj's blog. iGO's stock price has been quite ugly over the last year-- it has lost ~77% of its value.
But let us look under the surface.
Starting from the balance sheet, I see the book value at 7.26/shr with no debt outstanding. Net current asset value (NCAV) is 6.69/shr. The liquidation value of the business is about 4.86/shr.
The price at the time of this writing is 2.28/shr, which is 53% discount to liquidation value or 66% discount to NCAV. This is a very large margin of safety being offered by Mr. Market.
Looking at the income statement it is quite obvious why this business must sell at a discount to book. They have negative net income and free cash flow over last couple years.
My investment thesis is that over the next year, this business will, at the very least, slow the cash burn rate. Even a rate reduction will be enough to make this stock sell close to the NCAV; which is a reasonable value for a chronic loss making business.
Full Disclosure: I am an owner of iGO at the time of this writing.
