Premier Exhibitions (PRXI) Battle: Mark Sellers Takes the Fight to Shareholders

Mark Sellers, Managing Member of Sellers Capital, LLC, which owns 16.3% of Premier Exhibitions, recently sent a letter to current shareholders, seeking support for a slate of four independent directors to fill vacancies on Premier's board.

Sellers, who currently serves on the board, believes that the company is not maximizing shareholder value, and squandering both capital and opportunity. Many shareholders, including yours truly, don't disagree.

You may recall Premier from previous posts. The company is probably most best known as the operator of the successful Bodies: The Exhibition, which features whole and partially dissected human bodies, preserved through a technique called "polymer preservation".

Premier is not without its share of controversy, as demonstrated last February on an episode of 20/20, in which the show questioned the source of the bodies used in the exhibitions. While Premier claims to lease the bodies(all said to have died of natural causes)from a Chinese university, 20/20 suggested among other things that some may have been prisoners, and not all died of natural causes. This caused a firestorm of sorts, and sent shares plunging. The company denied these claims, but there was political fallout.

Perhaps more interesting, is Premier's operation of the traveling Titanic exhibits, and more specifically ownership of 3500 Titanic artifacts. The company is also the salvor in posession of the Titanic, with exclusive rights to recover artifacts from thw wreck site. While the Titanic ownership issue is still in the courts, the most recent rulings have been favorable to Premier.

It's no wonder that Sellers is pushing this fight, as Premier shares are down 86% year to date, and currently trade at $1.50. Currently profitable on a trailing 12 month basis, Premier trades at 11 times earnings, and has $9 million in cash and no debt.

For more on Sellers claims, read the Consent Solicitation Agreement dated 12/18/2008. It's an entertaining read, perhapas not so much if you've been a shareholder during this company's descent.

*The author has a position in Premier Exhibitions (PRXI). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Cheap Stocks Featured on Capital Spectator Inaugural Podcast

Jim Picerno, editor of The Capital Spectator, perhaps the best site out there primarily devoted to money, economics and oil, interviewed your Cheap Stocks editor for the first edition of his new podcasting series.

If you've got 18 minutes to spare, feel free to give it a listen.

Cheap Stocks Land Review 2008: Part II

We continue with Part II of of our 2008 Land Review. These are the same companies we featured in last year's column, and not surprisingly, most are down significantly.

(Market Cap and EV are in $ millions)
Scheid Vineyards
Ticker: SVIN
2007 Price: $35.55
2008 Price: $24.05
Change: -32%
52 High/Low: $37/$21.6
Avg Volume: 900
Mkt Cap: 24
Ent Value: 58 (estimated)
Acres Owned: 1800
2007 EV/Acre: $38,889
2008 EV/Acre: $32,222
Location: California
Primary Use: Vineyards
P/E: NM

Tejon Ranch
Ticker: TRC
2007 Price: $41.43
2008 Price: $26.82
Change: -35%
52 High/Low: $44.5/$20.4
Avg Volume: 81000
Mkt Cap: 456
Ent Value: 402
Acres Owned: 270000
2007 EV/Acre: $2296
2007 EV/Acre: $1491
Location: California
Primary Use: Development/Ag
P/E: 92

St Joes
Ticker: JOE
2007 Price: $31.01
2008 Price: $27.21
Change: -12%
52 High/Low: $46.82/$18.8
Avg Volume: 1660000
Mkt Cap: 2510
Ent Value: 2450
Acres Owned: 610,000 (est)
2007 EV/Acre: $3956
2008 EV/Acre: $4016
Location: Florida
Primary Use: Development/timber
P/E: NM

Texas Pacific Land
Ticker: TPL
2007 Price: $43.45
2008 Price: $23.75
Change: -45%
52 High/Low: $55.15/$16.1
Avg Volume: 26900
Mkt Cap: 245
Ent Value: 234
Acres Owned: 963248
2007 EV/Acre: $464
2008 EV/Acre: $243
Location: Texas
Primary Use: Leased for grazing/oil
P/E: 21
Dividend Yield: .8%

Cadiz
Ticker: CDZI
2007 Price: $19.13
2008 Price: $10.94
Change: -48%
52 High/Low: $21.4/$8.02
Avg Volume: 38500
Mkt Cap: 131
Ent Value: 161
Acres Owned: 45000
2007 EV/Acre: $5444
2008 EV/Acre: $3577
Location: California
Primary Use: Water/ag
P/E: NM

Avatar Holdings
Ticker: AVTR
2007 Price: $38.06
2008 Price: $23.39
Change: -39%
52 High/Low: $58.36/$22.24
Avg Volume: 56400
Mkt Cap: 200
Ent Value: 158
Acres Owned: 32000
2007 EV/Acre: $8094
2008 EV/Acre: $4937
Location: Florida, Arizona
Primary Use: Development
P/E: NM

Pope Resources
Ticker: POPE
2007 Price: $41.78
2008 Price: $17.1
Change: -59%
52 High/Low: $44.5/$15
Avg Volume: 12300
Mkt Cap: 79
Ent Value: 86
Acres Owned: 116068
2007 EV/Acre: $2051
2008 EV/Acre: $ 518
Location: Washington
Primary Use: Timber/Development
P/E: 9
Dividend Yield: 5.8% (company just reduced dividend to $.25/qtr, from $.40/qtr)

Potlach Corp
Ticker: PCH
2007 Price: $45.76
2008 Price: $26.19
Change: -43%
52 High/Low: $44.79/$20.29
Avg Volume: 1014000
Mkt Cap: 1040
Ent Value: 1460
Acres Owned: 1700000
2007 EV/Acre: $1461
2008 EV/Acre: $858
Location: Arizona, Idaho, Minnesota
Primary Use: Timber
P/E: 15
Dividend Yield: 8.4%


Mauna Loa
Ticker: NNUT
2007 Price: $3.55
2008 Price: $1.95
Change: -45%
52 High/Low: $4.37/$1.55
Avg Volume: 20500
Mkt Cap: 15
Ent Value: 18
Acres Owned: 2242
2007 EV/Acre: $13381
2008 EV/Acre: $ 8029
Location: Hawaii
Primary Use: Agriculture
P/E: NM

Keenawaw Land
Ticker: KEWL
2007 Price: $217
2008 Price: $205
Change: -5.6%
52 High/Low: $295.1/$200
Avg Volume: 250
Mkt Cap: 132
Ent Value: 132 (est)
Acres Owned: 151805 (est)
2007 EV/Acre: $927 (est)
2008 EV/Acre: $869
Location: Michigan
Primary Use: Timber



This is not intended to be an exhaustive list of all companies that hold substantial amounts of land. There are others, and perhaps we'll profile some of these in future postings.



*The author holds a position in TRC. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.

Cheap Stocks Land Review 2008: Part I

Last year at this time, we ended 2007 with a review of some of the companies holding one of our favorite assets, land. I thought last year was difficult, but it pales in comparison with the drubbing that these companies suffered during 2008. Some are down more than 70%, and ultimately, this could be an interesting turn-around story.

One data calculation we use is worthy of explanation:

EV/Acres: Enterprise Value of the company/Total owned acres
Enterprise value is the market value of the firm plus debt, minus cash, and is an approximation of all claims that equity and debt holders have on a firm. We believe EV is a better estimate of true current market value, because it represents all claims investors hold in the capital structure, not just equity.

We use this calculation not to attempt to value the land on a per acre basis, but rather for perspective. The results of this calculation will be all over the board depending on the amount of land a company holds, how prominent it is in a company’s operations, as well as the land’s quality. (Obviously, timber land and marsh land is less valuable than vacation property)

Wherever possible, we obtained the latest acreage figures for each company. The "Change" figure beneath 2007 and 2008 price do not reflect dividends, where applicable. We'll run Part II within the next week.

Below is Part I, the first ten companies.

(Market Cap and EV are in $ millions)
Alexander and Baldwin
Ticker: ALEX
2007 Price: $52.95
2008 Price: $26.30
Change: -50.3%
52 High/Low: 44.52/20.64
Avg Volume: 202000
Mkt Cap: 1090(million)
Ent Value: 1580(million)
Acres Owned: 89440
EV/Acre 2007: $29,897
EV/Acre 2008: $17,665
Location: Hawaii
Primary Use: Agriculture/development
P/E: 7.6
Dividend Yield: 4.9%

Alico
Ticker: ALCO
2007 Price: $35.87
2008 Price: $35.23
Change: -1.7%
52 High/Low: 50.32/22.34
Avg Volume: 18800
Mkt Cap: 260
Ent Value: 287
Acres Owned: 136605
EV/Acre 2007: $2414
EV/Acre 2008: $2101
Location: Florida
Primary Use: Agriculture/Cattle
P/E:

Biloxi Marsh Lands
Ticker: BLMC
2007 Price: $31.00
2008 Price: $8.45
Change: -72.7%
52 High/Low: 36.25/8.45
Avg Volume: 1300
Mkt Cap: 23
Ent Value: 15.65
Acres Owned: 90000
EV/Acre 2007: $778
EV/Acre 2008: $174
Location: Louisiana
Primary Use: Oil and Gas
P/E: 9.7
Dividend Yield: 11.8%

Blue Ridge Real Estate
Ticker: BLRGZ
2007 Price: $31
2008 Price: $8.50
Change: -73%
52 High/Low: 34/8.5
Avg Volume: 45
Mkt Cap: 21
Ent Value: 51
Acres Owned: 16980
EV/Acre 2007: $5468
EV/Acre 2008: $3003
Location: Pennsylvania
Primary Use: Ski resorts, commercial, development
P/E: NM

Consolidated Tomoka Land
Ticker: CTO
2007 Price: $62.74
2008 Price: $37.7
Change: -40%
52 High/Low: 67.13/24
Avg Volume: 24300
Mkt Cap: 216
Ent Value: 237
Acres Owned: 11270
EV/Acre 2007: $31,565
EV/Acre 2008: $21,071
Location: Florida
Primary Use: Commercial, golf, development
P/E: 16.2
Dividend Yield: 1.1%


JG Boswell
Ticker: BWEL
2007 Price: $1025
2008 Price: $450
52 High/Low: 450/1000
Avg Volume: NM
Mkt Cap: 438
Ent Value: 527
Acres Owned: 172000
EV/Acre 2007: $5,988
EV/Acre 2008: $3,064
Location: California
Primary Use: Agriculture/development
Dividend Yield: 3.1%

Maui Land and Pineapple
Ticker: MLP
2007 Price: $26.62
2008 Price: $8.28
Change: -69%
52 High/Low: 8.28/34.25
Avg Volume: 25000
Mkt Cap: 66
Ent Value: 174
Acres Owned: 25400
2007 EV/Acre: $9,764
2008 EV/Acre: $6,850
Location: Hawaii
Primary Use: Development/Agriculture
P/E: NM

PICO Holdings
Ticker: PICO
2007 Price: $34.16
2008 Price: $23.76
Change: 30%
52 High/Low: 48.24/16.06
Avg Volume: 149000
Mkt Cap: 448
Ent Value: 336
Acres Owned: 460000
EV/Acre 2007: $1054
EV/Acre 2008: $730
Location: Nevada
Primary Use: Water/development
P/E: 15.7

Plum Creek Timber
Ticker: PCL
2007 Price: $45.16
2008 Price: $34.99
Change: -22.5%
52 High/Low: 56/27.33
Avg Volume: 4120000
Mkt Cap: 6000
Ent Value: 8430
Acres Owned: 8000000
2007 EV/Acre: $1231
2008 EV/Acre: $750
Location: 18 states
Primary Use: Timber, some development
P/E: 23.5
Dividend Yield: 4.8%

Rayonier
Ticker: RYN
2007 Price: $45.59
2008 Price: $29.58
Change: -35%
52 High/Low: 26.58/49.54
Avg Volume: 1505000
Mkt Cap: 2330
Ent Value: 3070
Acres Owned: 1916272
2007 EV/Acre: $2,115
2008 EV/Acre: $1,602
Location: several states
Primary Use: Timber, some development
P/E: 16.5
Dividend Yield: 6.5%

During the year, we closed our positions in PCL and MLP.



*The author holds positions in BLMC, BWEL, PICO. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Moore (AC) For Less

Its hard to believe that less than 3 weeks after our post on specialty craft retailer AC Moore, shares of this net/net are down another 73%. A share can now be had for the change in your pocket. Mr. Market, in his not so subtle way, is telling us that he does not think AC Moore will survive. And its not just AC Moore, by the way, there are a multitude of other companies also being given the scrap heap treatment.

The company recently reported a $7.5 milliom third quarter loss--that's what the headlines say--but this included a deferred tax valuation charge of $4.7 million. That being said, the top line was not pretty, and further evidence of the recession we find ourselves mired in. Sales fell 4.9%, while same store sales fell 9.4% versus the same period last year. This is one of the most challenging environments for retailers in the past 30 years, and will likely to continue to be so until some consumer confidence is restored.

But the market is currently valuing AC Moore at a negative enterprise value (-$1.4 million), theoretically hating the stock to the point that you are being paid to take shares. Now, it's never that simple, but with cash on the books at $46.8 million ($2.30 per share), total debt of $21.6 million, and net cash of $17 million, or $.84 per share, this company's impending demise may be greatly exaggerated.

With a current book value of $9.17, AC Moore trades at just .08 times book. That may not being meaningful given the current environment. But the bigger questions are whether AC Moore has the ability to ride out this storm, and are shares currently worth more than $.77? I voted in the affirmative yesterday, and initiated a small position.

AC Moore
Ticker: ACMR
Price: $.77
Market Cap: $15.6 million
Net Current Asset Value: $85 million
Cash: $46.8 million
Cash/share: $2.3
Total Debt: $29.7 million
Book Value/Share: $9.17

The risks here are indeed great, this stock is liable to be incredibly volatile, and there's always the risk that it could fall to zero. Panic driven markets have driven the price down more than 70% in the past few weeks alone. Stay Tuned.

*The author has a position in AC Moore. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.

PICO Holdings Update

PICO reported Q3 revenue of $9.1 million, nearly double same quarter last year, and net income of $533K, up 12%. The bulk of Q3 revenue was from a gain on the sale the company's remaining interest in 30,000 acre feet of water storage capacity, which it sold for $11.7 million.

The company completed the Fish Springs Ranch pipeline project in July, and now has 8000 acre feet of water for sale. PICO also sold it's first acre foot (one water credit) of Fish Springs water for $45,750. Although this project offers the only new source of water available to developers in the Reno area, the struggling Nevada real estate market has slowed PICO's progress.

Still, PICO remains well capitalized, and has ample liquidity ($140 million in cash, or nearly $7.50 per share)to weather this storm. Debt also remains low at $28.2 million, and the company is currently trading at just .82 times book value, and 14 times trailing earnings.

PICO shares are now down 35% year to date and 55% from the 52 week high ($48.24) hit in early September. The drop is primarily related to the major asset repricing we've been experiencing in the markets--that's a nice way of referring to the great "panic" of 2008.

We've seen many companies punished beyond belief by the forced selling we are still experiencing, and believe that this will ultimately provide some of the greatest opportunities of this generation. That's if you have the stomach for it. Stay tuned.

*The author has a position in PICO Holdings. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.

Net/Net Indexing: CS21 Net/Net Update; and the Launch of a New Net/Net Index

When we conceived of and constructed the first index of companies trading below net current asset value (NCAV), we did so knowing that the choices at the time were very limited. The quality of companies that met the criteria were not that strong overall. Few of the names were profitable, and the quality of the typical balance sheet was a far cry from what we are seeing in today's terribly negative landscape.

Still, the index has performed relatively well. As of yesterday, the CS21 Index was down 20% since inception 2/12/08, while the Russell Microcap Index, the closest proxy for our little index of misfits, is down about 32% during the same period.

The whole purpose of indexing net/nets is to spread the risk. Many net/nets are at risk of bankruptcy- that's why they appear to be so cheap- but it is often difficult to accurately assess the posibility of success or failure in the individual names. The winners typically win big, which helps to offset those that ride into the sunset.

In this case, there are just four companies that are in positive territory since index launch. The big winner is The Finish Line Inc (FINL,+190%), which is no longer a net/net (that's what you hope for as an investor), followed by Anadys Pharmaceuticals (ANDS, +42.5%), Parlux Fragrances (PARL, +28.06%), and Adaptec (ADPT, +8.93%). All other members of the index are in negative territory, some very deeply. However, the positive performers helped buoy the index as a whole. Still no bankruptcies, though.

The Next Generation
We are currently designing a second net/net index. This one will focus on profitable names, and should be rolled out in the coming months. Stay tuned.

For a list of all CS21 Net/Net Constituents, please search our site.

*The author does not have positions in any of the companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.

Biggest Net/Nets In Years

The markets continue to get crushed, and as the dust settles each day, we've seen a broader array of net/nets. We are used to seeing microcaps here almost exclusively, but these markets are revealing some bigger names, many of which are profitable. Can't remember the last time I saw a net/net in excess of $1 billion in market cap. These are extraordinary times.

Ingram Micro
Ticker: IM
Price: $13.58
Market Cap: $2.3 billion
NCAV: $2.36 billion
Cash:$807 million
P/E: 8.3

Tech Data
Ticker: TECD
Price: 21.47
Market Cap: $1.1 billion
NCAV: $1.64 billion
Cash: $468 million
P/E: 8.5

Benchmark Electonics
Ticker: BHE
Price: $11.77
Market Cap: $788 million
NCAV: $822 million
Cash: $341 million
P/E: 9.1

USEC
Ticker: USU
Price: $3.90
Market Cap: $438 milliom
NCAV: $726.7 million
Cash: $358.6 million
P/E: 6

Furniture Brands Intl
Ticker: FBN
Price: $4.61
Market Cap: $228 million
NCAV: $270.3 milliom
Cash: $109.6 million
P/E: N/A

As always, do your own research before proceeding. Companies are often "cheap" for good reasons, or don't turn out to be cheap afterall.

*The author does not have positions in any of the companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.

Rising Tide is Not Lifting All Boats; The case for a New Net/Net: AC Moore (ACMR)

While yesterday's 10% move in the Dow brought was sigh of relief to many investors, the flotsam and jetsam (aka deep value) is not yet participating. That means that there are a lot of bargains out there, but you still have to be very cautious, and very patient.

Let's face it, retailers are struggling to put it mildly, and this will likely continue at least until the panic menatlity subsides. But we are seeing some interesting situations in retail.

AC Moore
AC Moore (ACMR)is a Berlin, NJ arts and crafts superstore, with 136 locations on the east coast. Currently trading at $2.88, shares have been pounded this year, and are off 83% from the 52 week high. Sound familiar?

This company has also recently joined the ranks of the net/nets, the downtrodden companies we love so much here at Cheap Stocks. We are familiar with the store and concept having used their framing services in the past, (and Mrs. Cheap Stocks has been a frequent visitor to our local store).

While we are not wearing rose colored glasses believing that retail will recover quickly, we like the AC Moore story, because they appear to have the resources to weather this storm. With $45 million in cash and just $20 million in debt, ACMR has burned through $8 million in cash during the trailing 12 months. (A prolonged recession will likely increase the burn rate)

With a current enterprise value of juat $36 million, this company is priced for the scrap heap. Could it ultimately be headed there? Anything is possible. But the concept of these stores is fairly unique (call it a poor-man's Michael's), and it generates 25% of sales from art and scrapbooking (I don't get the whole scrapbooking craze, but that doesen't make it any less real).

I don't like the fact that all AC Moore stores are leased, and that the company does not own its real estate, but still find this a potentially interesting opportunity.

AC Moore
Ticker: ACMR
Price: $2.88
Market Cap: $59 million
Net Current Asset Value(NCAV): $92.5 million
Cash: $45.6 million
Cash/share: $2.25
Net Cash/share: $1.24
Price/Book: .3

*The author does not have positions in any of the companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.

Armageddon?
It certainly may feel that way in this panic driven market, and your portfolio may be reflecting doomsday, but we will recover. If you are a forced seller, however, the losses are very real.

Of course, the list of net/nets grows by the day, and some of the names have never graced our list. Here's a sample of some of the new net/nets:

Ingram Micro
Ticker: IM
Price: $12.72
Market Cap: $2.11 billion
NCAV: $2.36 billion
Cash: $807 million
P/E: 7

Benchmark Electronics
Ticker: BHE
Price: $9.28
Market Cap: $617 million
NCAV: $761.4 million
Cash: $288 million
P/E: 7.5

Tuesday Morning
Ticker: TUES
Price:$1.75
Market Cap: $73 million
NCAV: $152 million
Cash: $8.6 million
P/E: 5

As always, buyer beware, especially in this market. "Cheap" stocks are often that way for very good reasons, and if conditions persist in the current environment, the fine line between "cheap" and bankruptcy will reveal itself.

Cheap Stocks Premium Content
Our subscriber list now tops 600, and while we will continue to provide some free content, we are considering offering a premium subscription service. This would entail a deeper, more detailed dive into the research topics we currently provide, and would be offered to a limited number of subscribers.

Before taking the next steps, we'd like to gauge interest in a premium subscription service. Please email us @ cheapstocks@verizon.net if you'd be interested .

*The author does not have positions in any of the companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.

No Safe Havens, but Plenty of Bargains...if you have the Stomach for it....

How do you describe the markets the past two weeks? Did it feel like 1987 all over again? Not really, if only because in 87, as violent as it was, the crash was primarily over in one day. It was like ripping a band-aid off of a cut. Painful, but quick. This time around, it's been more like an endless root canal. Just when you think it may be over, the dentist is back for more.

CS21 Net Net Index Hit Hard
Our index of 21 companies trading below their net curent asset value has been hit extremely hard this past month. Since inception (2/12/08) through 9/16, the index was up 15%, 2000bps above the Russell Microcap Index. As of Friday, it was down 17.5% since inception. During the same period, the Russell Nicrocap Index is down about 30%, so our little index of misfits is still holding up well in that comparison. Quite a drubbing, though.

But the smallest of the small are being hit extremely hard in this market, and there may be bargains galore. The problem is, no one knows when the panic will subside, and panic knows nothing about assets, book values or cash. Panic only knows panic.

Still, we've seen tremedous pullbacks in some intersting names. Here are a handful that we still own, that look even more interesting at current levels. Please note, none of these are net/nets

PICO Holdings(PICO)
Price: $28.99
Off 52 week High: 40%

Cresud ADR(CRESY)
Price: 6.97
Off 52 week High: 73%

JG Boswell(BWEL)
Price: $550
Off 52 week High: 45%

Premier Exhibitions(PRXI)
Price: $1.26
Off 52 week High: 91.5%

I don't know if we've hit bottom yet, it "feels" like we are close, but again there are no rational bounds during a panic. There's plenty of cash on the sidelines, though. Ultimately, some of it will find it's way back into the market. In the meantime, be careful.

*The author has a positions in all companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.

Cheap Stocks Random Note: New Net/Net

Widely swinging markets typically reveal new net/nets, and a "bigger" player- (not saying much in net/net land)- among the biggest we've seen in the past decade, just hit the radar.

Tech Data
Ticker: TECD
Price: $28.8
NCAV: $1.639 billion
Market Cap: $1.45 billion
Cash $468 million
Total Debt: $422 million
P/E: 10.7

This Clearwater Florida based company distributes hardware, software and networking equipment, and provides services such as training and technical support.

As always, do your own homework before taking a position in any company.

*The author does not have a position in Tech Data. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.

CS21 Net/Net Index Update

In the face of all the turmoil in the markets the past few days, we wanted to give an update on the CS21 Net/Net Index; specifically around performance. The Index closed at 115.05 yesterday, up 15.05% since inception (2/12/2008), and is down 5.4% since Friday. No big surprise here. This index is very volatile, and will continue to be volatile. For its part, the Russel Microcap Index is down 1.7% since Friday, and 5.21% since CS21's inception.

Profitable Companies Trading Below Net Current Asset Value

As promised, here's the latest list of profitable net/nets. In order to qualify, market cap had to be greater than $20 million, with positive trailing 12 month net income, and the company had to have a "real" operating business. (Therefore, companies such as Zapata (ZAP) and Comdisco (CDCO) did not qualify.) Some of these names, such as Audiovoxx and Lazare Kaplan seem to be perennial net/nets; others are first timers.

Company: AudioVox
Ticker: VOXX
Price: $9.69
Market Cap: $221.46 (million)
NCAV: $242.99

Company: RCM Tech
Ticker: RCMT
Price: $2.71
Market Cap: $34.62
NCAV: $39.29

Company: Nu Horizons Elec
Ticker: NUHC
Price: $4.78
Market Cap: $88.27
NCAV: $131.17

Company: Lazare Kaplan
Ticker: LKI
Price: $7.85
Market Cap: $64.78
NCAV: $71.27

Company: GSI Group
Ticker: GSIG
Price: $4.88
Market Cap: $204.98
NCAV: $264.65

Company:Vicon Industries
Ticker: VII
Price: $5.65
Market Cap: $26.79
NCAV: $26.36*
*reflects increase in price today, company now trades just over NCAV

Company: Flexsteel Inds
Ticker: FLXS
Price: $11.18
Market Cap: $73.52
NCAV: $75.69

Company: Trident Microsystems
Ticker: TRID
Price: $3.05
Market Cap: $186.05
NCAV: $194

Company: Peerless Systems
Ticker: PRLS
Price: $1.87
Market Cap: $33.68
NCAV: $43.67

Company: Gencor Industries
Ticker: GENC
Price: $9.35
Market Cap: $89.88
NCAV: $90.37

Company: Silverleaf Resorts
Ticker: SVLF
Price: $1.87
Market Cap: $71.21
NCAV:$97.46

Company: Tegal Corp
Ticker: TGAL
Price: $3.76
Market Cap:$27.31
NCAV: $30.31

Company: Novacea
Ticker: NOVC
Price: $1.83
Market Cap: $47.33
NCAV: $91.53

There you have it. Once again, all these companies are deep into micro-cap land, so use caution, and do your own evaluation. As a postscript, there were some intriguing names with market caps below $20 million; but these were too small for print.

*The author does not have positions in any of the companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Volatile Markets Reveal Profitable Net/Nets

If you are a deep value investor, market volatility can be your friend; especially if you fish in the net/net pond. Large swings in the markets tend to punish these underfollowed, less liquid and smaller names.

And most investors have become painfully aware about the historically high levels of market volatility we've been experiencing--as measured by daily market movements greater than 1 percent--through endless financial media outlet barrages. In fact the S&P 500 Index has closed plus or minus 1% in 70 out the 170 trading days so far in 2008, or an amazing 41 percent of the time.

Smaller companies have been even more volatile. The Russell Microcap Index, for instance has finished 78 trading days plus or minus 1% so far in 2008; 35 of those days hace been plus or minus 2 percent. Our own Cheap Stocks 21 Net Net Index has finished more than half--86--of its 142 days since inception plus or minus 1 percent.(Yet CS21 Is up more than 25% since inception, but thats another story)

All of this volatility has revealed an increasing number of profitable net/nets; an area of the market that can be very lucrative for those with time, patience and an iron stomach. In fact, our recent search found more than a dozen profitable net/nets, the most we've seen in years. This initial list, however, needs further scrutiny. Once we've completed our research, and confirmed the data, we'll reveal this list in an upcoming post.

US Air Update

We put our neck out on the line on June 24th with our US Airlines: a Put on Oil? piece. Call it luck (I certainly do), but US Airways, which we referenced in that piece, is up 220 percent since then.

And it truly was all about oil. The inevitable oil pullback has brought many an airlines stock price back too life. Can the run continue? I for one still believe oil prices are headed lower, but the airline bet is now too risky for my blood. I will venture to say that's the last 2 bagger in 2 months time you'll ever read about here.

*The author does not have a position in US Airways. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Cheap Stocks 21 Net/Net Index: 6 Months Later

Six months after launching the first index comprised of companies trading below their net current asset value, the results have been fairly compelling. However, six months is still far too short a timeframe to draw a meaningful conclusion. In any event, the CS21 Net/Net Index is up 20.62% since inception, while the Russell Microcap Index is down 2.21% during the same period.

When you dig into the underlying index constituents and return experience of each, the results are along the lines of what we expected: a handful of companies with very strong returns, with the majority in negative territory. So it goes with net/nets; some will go under, some will be acquired, some will tread water, while others will be rediscovered by the market, having been mis-priced.

So far, there has been one acquisition, Renovis Corp. Rather than replace this company in the index, we decided to keep the proceeds in cash.

Below are the results to date of the companies comprising the CS21 Net/Net Index:

Company, Ticker, Original Weight, Return

Adaptec, Inc(ADPT),18.7,42.86%

Audiovox Corporation(VOXX),12.22,-0.52%

Trans World Entertainment Corporation(TWMC),7.57,-32.27%

The Finish Line, Inc(FINL),6.26, 337%

Nu Horizons Electronics Corp(NUHC),5.81,-17.19%

Richardson Electronics, Ltd(RELL),5.15, 22.31%

Pomeroy IT Solutions, Inc(PMRY),4.62,-46.62%

Ditech Networks Inc(DITC),4.29,-38.33%

Parlux Fragrances, Inc(PARL),3.92, 65%

InFocus Corporation(INFS),3.84, -15.29%

Renovis, Inc. (acquired 5/5, proceeds held in cash)

Leadis Technology, Inc(LDIS),3.5,-53.64%

Replidyne, Inc(RDYN)3.3,-42.27%

Tandy Brands Accessories, Inc(TBAC),2.93,-32.99%

FSI International, Inc(FSII),2.87,-29.41%

Anadys Pharmaceuticals, Inc(ANDS),2.53, 73.75%

MediciNova, Inc(MNOV),2.31, 9.43%

Emerson Radio Corp(MSN),1.65,-10%

Handleman Company(HDLM),1.7,16%

Chromcraft Revington, Inc(CRC),1.63,-32.29%

Charles & Colvard, Ltd. CTHR,1.5,-46.67%

While we are pleased with the results of this experiment so far, we also realize the potential opportunities in constructing a portfolio of net/nets that is not naively constructed, as this one is.

*The author does not have positions in any of the companies that comprise The Cheap Stocks 21 Net/Net Index. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Blogger Roundtable

Many thanks to Geoff Gannon of the excellent Gannon on Investing Site for including us in his recent roundtable, with the editors of three outstanding value oriented blogs. Its also great to see Geoff posting regularly again.

“Dear Bill….”: A Letter to Bill Miller, Manager, Legg Mason Value Trust

Dear Bill,
I hope you are well these days, I understand it’s been a difficult time for you lately, and I’d imagine you’ve had many sleepless nights. I trust that there are better days ahead for you. I hope for your sake, as well as for others who have trusted you with their money, that this is indeed the case.

When I hired you several years ago to manage a nice chunk of my retirement portfolio’s large cap allocation, I did so knowing that our investment philosophies are quite different. We view “value” in very different terms, but that was ok. I understood the differences, and I took the risk. I was actually quite pleased that my company’s 401K plan brought you aboard.

We had a great run, Bill. In fact, your streak began years before I hired you, and I certainly did not expect it to continue forever. After all, how many managers beat the S&P 500 Index 15 consecutive years? You did, Bill. But just like all streaks, yours came to an end. Unfortunately a very abrupt and painful end; more painful than either of us could have ever imagined.

When I hired you, I never dreamed I’d be writing you this letter. But after a great deal of thought, it pains me that I am hereby replacing you as my primary large cap manager. I can no longer take the risk that your investment process is indeed broken, or is no longer effective.

I know, Bill, every active manager hits bumps in the road, and the market environment has been extremely difficult. But your underperformance the past two years has gone way beyond normal market gyrations.

How is it possible that you are down 32% year to date, or 39% over the past year? Looking back, do you think that your positions were too concentrated in financials? Yes, Bill, I know hindsight is 20/20, and I sound a bit like Captain Obvious here, but Bear Stearns, Washington Mutual, Citigroup, Merrill Lynch, Freddie Mac, AIG, Countrywide? Where was your risk control? Was it deep conviction or wishful thinking on your part that financials would turn around? I know that what has transpired over the past couple of years in financials was essentially the perfect storm, but I hired you because I trusted that you’d be able to navigate even the worst market events. I certainly never expected things to turn out like this.

Unfortunately, your recent performance has been so devastating that it essentially renders your 15 year streak irrelevant. Over the past five years, you’ve underperformed the S&P 500 by more than 800 basis points…per year. Over the past ten years, you are under 90 bps per year. You have to go back to 1996 in order to find a multi-year period (through now) that you’ve outperformed. Guess I should have indexed large cap all along. My bad.

Unfortunately Bill, what many investors fail to understand is that average returns are meaningless. What truly matters is the time path of returns, i.e., the order in which returns occur. Your huge losses the past couple years all but wipe out the previous gains your shareholders enjoyed.

Finally, Bill, just a word of advice about where you are spending your time these days. I know you want the Yahoo situation to work out to the advantage of your shareholders, and you do hold a fairly large position in the company (4% of your portfolio). But are you devoting too much time and energy to this?

In closing, I can’t place all of the blame on you. I should have pulled the trigger several % ago. I admit I got too caught up in “Bill Miller: The Legend”.

Bill, best wishes for the future.

Regards,

Jon

Premier Exhibitions (PRXI) Update

In our last post regarding Premier Exhibitions, we reported that Sellers Capital had recently increased their stake to 10.84%. On 7/10, the day prior to the release of this piece, Sellers Capital filed a new 13D/A, reporting a 15% stake in Premier.

Premier Exhibitions Update: The Controversy Continues (PRXI)

Premier Exhibtitions can't seem to steer clear of contoversy these days. A few months back, the issue was the source for bodies used within the company's "Bodies...The Exhibition" show (see our March 29th post). Now it's a generally disappointing quarter, and a shareholder calling for action.

Premier Shares fell 17% on Wednesday following a less than stellar earnings release. For the quarter, Premier lost 912K, vs net income of $3.26 million for the same period last year. Revenue increased 34% to $15.2 million, but this was well below estimates, and not nearly sufficient to offset increased expenses.

Costs of goods sold rose dramatically, namely exhibition costs, which more than doubled from $3.06 million to $6.36 million. SG&A more than tripled from $2.54 million to $8.02 million. On the revenue side, management blamed the shortfall on the fact that 13 of the company's 22 exhibits moved during the quarter, which resulted in the loss of 330 "revenue-producing days". Be that as it may, this has led one shareholder to call for change.

Bill Vlahos of Odyssey Value Advisors LLC, fired off a letter to the board calling for the sale of the company, or at least the sale of the Titanic assets Premier owns. Vlahos complained of bloated management compensation, and a strategy that is fraught with too much risk. While we can't determine Odyssey's current stake in Premier, reaction to Vlahos' letter sent shares up 12% yesterday, to $3.8.

While we are also extremely disappointed with Premier's performance both operationally, and from an investment perspective (shares are down 33% since May, and 78% since this time last year), we don't think that now is the time for the sale of the company. While the Titanic assets alone may be worth several times current market cap, a sale at this point would be a sale into weakness. We don't believe that these assets would fetch anywhere near their true value (if they could indeed be sold) given the state of the economy.

We've noted that Seller's Capital continues to gobble up Premier shares, having purchased another 1.19 million recently, and now owns 10.84% of the company. We'll continue to add to our position as well as opportunities present themselves.

*The author has a position in Premier Exhibitions (PRXI). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.

Blyth: Punished Value Stock or a Trap?

Home goods company Blyth has fallen on hard times recently, and is down more than 50%in the past year. In fact, the Greenwich Connecticut based company has not traded at its current level since 1995. Unfortunately, in an economic environment where inflation is rearing its ugly head, housing has been in the toilet in many areas of the country, and consumers are feeling squeezed, some businesses will suffer the consequences, as Blyth has.

There’s just not a whole lot of interest these days in a company that operates in the “home expressions” business, which is a fancy way of referring to candles, home fragrances, and decorative accessories. Not exactly a recession proof business. Those are the kind of products consumers will shun long before giving up steak or ice cream.

As recently as May 29th, this was a $20 stock, with a decent 2.7% dividend yield. In fact, this company has been an exceptional dividend grower over the years, with a five year compound annual dividend growth rate of nearly 18%. That’s the kind of company I like, putting their money where their mouth is, taking the ultimate risk of raising the dividend too high, and having to make the unkindest of cuts. I also like these situations because dividends don’t lie (except, perhaps in the case of Allied Capital, where Greenlight’s Capital’s David Einhorn has made a pretty strong case to the contrary), while earnings aren’t exactly always honest.

Blyth’s recent 38% slide since the end of May was partially the result of a poor earnings release, partially due to rough market activity. Sales for Q1 fell 8% to $249.8 million from the same quarter last year, while earnings (excluding onetime charges) fell 52% to $6.5 million. Ex charges of $5.2 million to write off its investment in RedEnvelope, a publicly traded specialty retailer in which Blyth owned a 14% stake, the company earned $1.16 million.

Still, all the bad news aside, of which there is plenty, this may be the case of a company that Wall Street punished a bit too quickly and severely. Despite its near term issues, Blyth still has a very solid balance sheet with $147.5 million in cash and $15 million in short-term investments, or nearly $4.50 per share. Blyth also carries another $21.6 million in long-term investments, but since this includes auction rate securities, we’ll assume, for arguments sake, they have no value. (Blyth does carry long term debt of $155.2 million.)

Currently trading at just .43 times trailing 12 month sales, the market has all but written this company off in the near-term. Recent company guidance suggests full year 2009 earnings in the $1.26-$1.31 range, and cash flow of $90 million. While you should always view such forecasts with skepticism, even a haircut to these numbers should still allow Blyth plenty of room to keep from cutting the dividend.

Of course, the real catalyst here, besides the realization that the punishment has not quite fit the crime, is a pickup in economic activity. No guarantees there.

Finally, I like the fact that Blyth continues to buy back stock, and has reduce shares outstanding 3 million shares in the past year. Only time will tell if Blyth represents true value at these levels, or is just another trap.

*The author has a position in Blyth. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

US Airlines: A Put on Oil?

Having grown up around aviation, (with a father who was an air traffic controller and private pilot) it's always been a fascination. As an investor however, I've typically stayed away from airlines: its just a fundamentally difficult business, to put it mildly. Heavy capital requirements, and typically strangling levels of debt don't mesh well with fuel costs rising at alarming rates. While some, such as Southwest, have a great track record, and seem to really know how to profitably run an airline, that's the exception and not the rule.

When the industry took it on the chin after oil breached $135, and panicky operators announced they'll now charge for baggage, we began to view the industry a little bit differently. While the risks of banktruptcy for some of the players seem to grow with each passing day, perhaps there may be some opportunity, however skewed the risk/reward profile may appear.

We now view the airlines as a way to play the oil bubble. First, this assumes there actually is an oil bubble, as we do. Second, it assumes that you can identify an airline that, save the oil issue, has the chance to survive.

That being said, we've recently initiated a small position in US Airways. With $2.07 billion in cash at the end of Q1 (how much they have burned since is a concern), this company may be able to withstand the pressure from oil for awhile. The company does have $3.1 billion in long-term debt, but the next major maturity is $249 million, in 2013.

Don't get me wrong, this is not based on the notion that oil prices will begin to fall in the next couple of years, because by then, it will be too late. Think of this as a put option on oil, with an embedded expiration; that being US Air's bankruptcy if oil continues it's march skyward.

Don't enter into this one lightly. The risks are incredibly high, and based almost solely on the notion that:
1. oil prices will pull back, and
2. airline stocks will react positively.

*The author has a position in US Airways. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Getting Caught in the Trap Part II: Silverleaf Resorts

In part one of our piece on Silverleaf Resorts (SVLF), we discussed some of the risks associated with this tiny timeshare company. These risks centered on the high interest rate loans the company makes to its customers, some of which have less than stellar credit, as well as the method by which Silverleaf finances these loans, primarily through receivables based revolvers. The company captures the spread between the loans it makes to timeshare buyers, and it’s borrowings from creditors. Typically this spread is very wide; at year end, 2007, the company’s portfolio of customer notes receivable had an average yield of 16.3%, and company borrowings had a weighted average cost of 7.6%. While this leaves room for some defaults, given the difficulty some consumers may be having these days, that’s a slippery slope. If defaults rose precipitously, this could lead to insolvency. We are not suggesting that’s where SVLF is heading, just laying out the potential risks.

If customers default on loans, the company will take back the timeshare, the prospect of which involves a foreclosure process of sorts, re-advertising and then finding another buyer: not the preferred method of business for the company, and not as lucrative as the normal course of business.

That being said, Silverleaf does have an interesting array of assets, including the following: (From 2007 10K)

Pinnacle Lodge. In 2006, we purchased Pinnacle Lodge, a 64-room hotel property located near the Winter Park recreational area in Colorado which provides our owners with another destination vacation alternative and gives Silverleaf an entry point into this increasingly popular destination area. We generated $1.1 million and $522,000 of revenues at the Pinnacle Lodge during the years 2007 and 2006, respectively.

Other Properties. We own a 500-acre tract of land in the Berkshire Mountains of Western Massachusetts that we are in the initial stages of developing. During September 2007, we purchased an additional 394.3 acre tract which adjoins the 500 acres. We have not yet finalized our future development plans for this site.

In November 2007, we purchased 15.3 acres of undeveloped land in Grand County, Colorado with plans to develop up to 136 Vacation Interval units on the property. The acquired land is located only two miles from the Pinnacle Lodge hotel.

At December 31, 2007, we owned a total of 13 timeshare resorts. Each of these resorts was encumbered by various liens and security agreements at December 31, 2007 due to inventory from each resort being pledged as collateral under our inventory credit facilities with our senior lenders. See “Note 8 – Debt” in the Notes to our Consolidated Financial Statements for a further description of these credit facilities. Principal developmental activity which occurred at our Existing Resorts during 2007 and future plans are summarized below.

Continued Development of The Villages Resort. The Villages Resort, located approximately 100 miles east of Dallas, Texas, has 362 existing units. We intend to develop approximately 236 additional units (12,272 Vacation Intervals) at this resort in the future. During 2007, we added 16 new units and a $10 million indoor water park at this resort.

Continued Development of Piney Shores Resort. Piney Shores Resort, located near Conroe, Texas, north of Houston, has 202 existing units. We intend to develop approximately 168 additional units (8,736 Vacation Intervals) at this resort. During 2007, we added 12 new units at this resort.

Continued Development of Timber Creek Resort. Timber Creek Resort, located in Desoto, Missouri, has 72 existing units. We intend to develop approximately 24 additional units (1,248 Vacation Intervals) at this resort. During 2007, we did not add any new units at this resort.

Continued Development of Fox River Resort. Fox River Resort, located 70 miles southwest of Chicago, in Sheridan, Illinois, has 240 existing units. We intend to develop approximately 276 additional units (14,352 Vacation Intervals) at this resort. During 2007, we added 12 new units at this resort.

Continued Development of Apple Mountain Resort. Apple Mountain Resort, located approximately 125 miles north of Atlanta, Georgia, has 84 existing units. We intend to develop approximately 180 additional units (9,360 Vacation Intervals) at this resort. During 2007, we added 12 new units at this resort.

Continued Development of Ozark Mountain Resort. Ozark Mountain Resort, located approximately 15 miles from Branson, Missouri, has 148 existing units. We intend to develop approximately 12 additional units (624 Vacation Intervals) at this resort. During 2007, we did not add any new units at this resort.

Continued Development of Holiday Hills Resort. Holiday Hills Resort, located two miles east of Branson, Missouri, in Taney County, has 458 existing units. We intend to develop approximately 444 additional units (23,088 Vacation Intervals) at this resort. During 2007, we added 12 new units at this resort. During 2005, we purchased approximately 81 acres, and in 2007, we purchased approximately 37 additional acres of land, both adjacent to the existing resort.

Continued Development of Hill Country Resort. Hill Country Resort, located near Canyon Lake in the hill country of central Texas between Austin and San Antonio, has 342 existing units. We intend to develop approximately 156 additional units (8,112 Vacation Intervals) at this resort. During 2007, we added 40 new units at this resort.


________________________________________


Continued Development of Oak N' Spruce Resort. Oak N’ Spruce Resort, located 134 miles west of Boston, Massachusetts, has 320 existing units. We intend to develop approximately 30 additional units (1,560 Vacation Intervals) at this resort. During 2007, we added 12 new units at this resort.

Continued Development of Silverleaf’s Seaside Resort. Silverleaf’s Seaside Resort, located in Galveston, Texas, has 132 existing units. We intend to develop approximately 276 additional units (14,352 Vacation Intervals) at this resort. During 2007, we added 12 new units at this resort.

Continued Development of Orlando Breeze Resort. Orlando Breeze Resort, located in Davenport, Florida, just outside Orlando, Florida, has 48 existing units. We intend to develop approximately 24 additional units (1,248 Vacation Intervals) at this resort. During 2007, we did not add any new units at this resort. On January 4, 2006, we purchased an additional 31 acres contiguous to the Orlando Breeze Resort. We have not yet finalized plans for development of this property.

Of course, the entire business is dependent on attracting customers and selling timeshare intervals, and marketing costs are huge; 50.9% of vacation interval sales in 2007.

So far, the company has appeared to weather the recent real estate storm fairly well. There’s a huge dependence on attracting customers, collecting from those customers, and having adequate liquidity to keep the whole process from falling apart. Given the state of our economy, and perception that consumers are in trouble, its pretty clear why this stock has come under pressure, and trades at 3 times trailing 12 month earnings. The risks here for Silverleaf are twofold: The prospect of current customers defaulting on their loans, and the difficulty finding new timeshare buyers if consumers cut their discretionary spending.

Value trap or screaming buy? Perhaps too early too tell.

*The author does not have a position in Silverleaf Resorts (SVLF). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Getting Caught in the Trap? Part I
Evaluating Silverleaf Resorts (SVLF)


As value investors, many of us know what it’s like to be caught in the veritable “value trap”, when a name looks cheap and enticing, but there’s more under the hood then we bargained for. Most of us have been caught here a time or two (being generous in my case), and hopefully experience brings with it the benefit of knowledge. Perhaps we can avoid making the same mistake thrice.

As deep-value microcap investors, we probably see an even proportionately larger share of traps. They are especially prevalent in the land of net/nets (companies trading below net current asset value) where we expend a great deal of research effort.

Recently we stumbled on an excellent example of a potential value trap. While we are not making a judgement on this company at this point, we thought it was an excellent example of when to dig deeper.

Silverleaf Resorts(SVLF)
Dallas based Silverleaf is a small timeshare company with a market cap just shy of $83 million. Trading at just 3 times earnings, the company currently trades below its net current asset value. At first glance, it appears too good to pass up. It may ultimately be a steal at $2. Or, it might be a trap.

We covered this company a few years back (search the archives), and at the time it was also trading below its NCAV. Silverleaf subsequently ran to $7 (a five bagger), and has since given back a lot of that ground.

In evaluating a company such as Silverleaf, we first look at the company’s enterprise value. Equity market cap is a poor indicator of the value the markets are placing on a company, because it does not reflect the entire capital structure. We find that Silverleaf’s enterprise value is $425 million—a far cry from its $83 million market cap. As it turns out, Silverleaf is highly leveraged, to the tune of $352 million in short and long-term debt. Couple this with the fact that it’s in the timeshare industry, not a great place to be given the housing bust and current state of the economy, and you can start to see the uncertainty surrounding this company, as well as reasons it trades so “cheap”.

Next we examine the balance sheet. Here we find that current assets ($546 million) are comprised primarily of inventories ($183 million) and receivables ($304 million). The receivables are potentially more troublesome. Referring to the notes, we find that the receivables are used to finance the purchase of timeshares by consumers.

From the 3/31/08 10Q:

Note 4 – Notes Receivable

We provide financing to the purchasers of Vacation Intervals in the form of notes receivable, which are collateralized by their interest in such Vacation Intervals. Such notes receivable generally have initial terms of seven to ten years. The average yield on outstanding notes receivable at March 31, 2008 and 2007 was 16.4% and 15.9%, respectively, with individual rates ranging from 0% to 17.9%. Notes receivable with an interest rate of 0%, originated primarily between 1997 and 2003, have an outstanding balance at March 31, 2008 of $89,000. In connection with the sampler program, we routinely enter into notes receivable with terms of 10 months. Notes receivable from sampler sales were $3.4 million and $2.9 million at March 31, 2008 and 2007, respectively, and are non-interest bearing.

We consider accounts over 60 days past due to be delinquent. As of March 31, 2008, $4.2 million of notes receivable, net of accounts charged off, were considered delinquent. An additional $26.0 million of notes receivable, of which $22.9 million is pledged to senior lenders, would have been considered to be delinquent had we not granted payment concessions to the customers, which brings a delinquent note current and extends the maturity date if two consecutive payments are made.

Furthermore, we find that the company’s debt load is financing the receivables. Silverleaf makes money on the spread between the interest charged on customer timeshare loans, and the interest the company pays its lenders. This amounted to more than $14.5 million in the first quarter, nearly double net income. Clearly the net interest margin is wide. But what happens if Silverleaf’s customers can’t pay? For more on that, we turn to the 2007 10K and find this note:

We may be vulnerable to the change in the credit markets which could adversely impact our results of operations, liquidity, and financial position.

Because we use various mass marketing techniques, a certain percentage of our sales are to customers who may be considered to have marginal credit quality. During 2007 and 2006, approximately 21.6% and 19.6%, respectively, of our sales were made to customers with FICO® scores below 600. In addition, we have experienced an increase in defaults in our loan portfolio as compared to historical rates. Due to deteriorating conditions in the sub-prime mortgage industry there can be no assurance that defaults have stabilized or that they will not worsen. These and other recent adverse changes in the credit markets and related uncertain economic conditions may eliminate or reduce the availability or increase the cost of significant sources of funding for us in the future. Specifically, if default rates for our borrowers were to rise, it may require an increase in our estimated uncollectible revenue.

This tells us that a relatively large amount of the customer base may be at risk of default. Given the current credit and housing market conditions, this is another risk factor for the company, and further explanation of the “depressed stock price”.

Finally, the Q1 income statement gives us more evidence: Of $65 million in sales for the quarter, $14.3 million was deemed uncollectible. This was up sharply from the same quarter last year ($8.5 million on sales of $53.4 million). Clearly, conditions are deteriorating. All of this adds up to uncertainty at best. But if you look at the bottom line alone (earnings of $.19 per share, net profit margin of 11.4%),SVLF looks like a steal. It's rarely ever that easy.

In Part II of this piece, we’ll explore the company’s assets.

*The author does not have a position in Silverleaf Resorts (SVLF). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Clyde Milton Revealed

One of the most frequent questions we receive at Cheap Stocks is the identity of the site's phantom editor/writer/founder Clyde Milton. We've made no secret that the site has been written under a pseudonym since it was launched in 2003, in fact we've also revealed the meaning behind the name.

My name is Jonathan Heller, CFA, aka Clyde Milton. I started this site as an outlet; a way to keep my writing and research skills sharp, following the closing of the finance magazine (Bloomberg Personal Finance) I'd been writing for. Initially, this site was not intended for anyone other than me, but interestingly enough, it has developed a following over the years.

Here's my background: I spent 17 years at Bloomberg, ran the Equity Fundamental Research Product for several years, than the Equity Data Research Department for several more. Somewhere along the way, rather "late" in life (age 30) I discovered that I loved to write. This meshed well with my passion for investing and fundamental analysis, and after several years, I gave up the management track for a dream job: to write/edit for a major finance magazine. (Unfortunately, Bloomberg Personal Finance was closed shortly after Mike Bloomberg became Mayor of New York City.)

After leaving Bloomberg, I served as Director of Investment Communications for SEI (SEIC). I am currently President of KEJ Financial Advisors, a start-up fee only financial planning firm.

I have an MBA from Rider University, where I have also been an adjunct faculty member, and a BA in Financial Planning/Economics from Grove City College.

Finally, thanks to Clyde and Milton, my grandfathers. This site was and is dedicated to their memory.

PICO Rising

Since hitting a 3 year low in the sub $29.00 range back in March, shares of PICO Holdings(PICO), which we've called the "Poor Man's Berskshire Hathaway", are up 45% on normal volume with little news.

The company held a call with investors on May 19th-a first for PICO- and perhaps this is another step to take this previously under-followed company mainstream. Certainly, there's more analyst coverage than ever before, and Fidelity taking a stake a couple years back also may have advanced the ball in this regard.

Here are some of the first quarter highlights:
*The Fish Springs Ranch pipleline project is nearing completion. While bad weather delayed completion of the surge tank, the 28.6 mile pipeline passed pressure tests. All other testing should be completed in June. This pipeline will deliver 8000 acre feet of water annually to the northern valleys of Reno, Nevada.

*Company is building water right holdings in western Nevada (Carson City/Lyon County), and have acquired/have option to acquire 4366 acre feet.

*Launched new business in the real estate segment, Union Community Partners, LLC which will acquire building lots in California, where long-term prospects are favorable. Company acquired 40 finished lots, 73 partially entitled lots, and unentitled land (possibly 960 lots), in and near Fresno, CA.

*Sold long-term holding Jungfraubahn Holding AG (Swiss publicly traded company) for $75.3 million, pre-tax gain of $46.1 million (will be booked q2). Estimate compound annual return of 20% during 12 year holding period

*Still owns 456,000 acres of Nevada land (712.5 square miles)

*$85 million in cash, $29 million debt as of 3/31/08

*Company reported net loss of $1.6 million for the quarter.

We continue to hold PICO shares, and believe this is still an excellent water play, with a variety of additional assets thrown in at a discount, and perhaps for free.

The company has vastly improved its website, and quality of information provided, including presentations and the recorded shareholder call. Its well worth a look if you want to learn more about this seemingly confusing array of assets.

*The author has a position in PICO Holdings. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Who Ate All the Ice Cream?: The Hidden Inflation Factor

Like many Americans, our household enjoys a dish of ice cream now and again, but rising milk fat prices, and the commodity run-up in general has pushed carton prices skyward. We continue to buy the frozen treat, but have adopted the "only on sale" rule.

So, last week, when your Cheap Stocks editor was accused of single handedly devouring an entire container of Edy's, I had to remind my accuser of the following: What used to be the standard half gallon container was downsized a few years ago to 1.75 quarts. Hardly noticeable. But now, it seems as though the standard has shrunken even further, to 1.5 quarts. This, is noticable, at least it is to me. My accuser quickly apologized.

This is perhaps the worst kind of inflation: Inflation by "Deflation". The price stays the same, but the package gets smaller. Have not seen it this bad since the early 1970's.

Ice cream is certainly not the only product undergoing "package resizing". Many economists deny that inflation is back, but in this case, the consumer is the expert.

JG Boswell Update (BWEL)

Shares of cotton and farming giant JG Boswell, owner of an estimated 142,000 California acres, and another 30,000 in Australia, have bounced around quite a bit this past year, from $760 in June to $1175 in November, closing last week at $980. The stock still trades "by appointment", so if you don't like illiquidity, this company is not for you.

The appeal of Boswell (BWEL) is not in its farming operations, which although impressive in their own right, merely represent the current use of assets which might ultimately be much more valuable used for other purposes.

The company continues to develop its Yokohl Ranch project, a master planned community of 35,000 acres in Tulare County California which may have a 10 year life. The Eastlake project, a master planned community in Chula Vista, California is near completion.

But, as we've stated several times before, the real gem may lie beneath some of Boswell's land: massive amounts of water that may be worth several billions. ("May" being the operative word. Ultimately, in order for value to be realized, assets must be converted, or have a good probability of being converted into cash. Water is a touchy and political subject, especially in California)

We recently obtained a copy of the company’s 2007 annual report, and here are the highlights for the year ended June 2007:

Current Price: $980
Current Dvd Yield: 1.43%
Quarterly Dvd: $3.50/shr
Revenue: $338.958 million
Net Income: $13.96 million
Diluted EPS/shr: $14.20
Current Assets: $203.038 million
Cash: $3.891 million
Total Assets: $645.909 million
Current Liab: $150.506 million
Short Term Debt: $88.272 million
Long Term Debt: $0
Stockholders Equity: $450.221 million
Shares Out: 974,105
Book Value Per share: $441.65
Market Cap: $954.6 million
Enterprise Value: $1038.98 million
Enterprise Value/California Acre: $7317 (estimated)

Based on just the California land, we estimate Enterprise Value/Acre to be about $7300, and that ignores any value in the Australian land. We continue to be intrigued by the Boswell story. Buyer beware, though: Shares are difficult to obtain, information is scarce, and there is little liquidity.

*The author has a position in JG Boswell. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

A Brief Review of David Einhorn's book: "Fooling Some of the People All of the Time"

One of the tangible things (and there were also a multitude of valuable intangibles) we walked away with from the Value Investing Congress West was a copy of David Einhorn's new book "Fooling Some of the People All of the Time". A long wait at LAX before a Wednesday night redeye back to Philly left plenty of time to crack open Einhorn's 379 page work. Unfortunately, once I started reading, I could not put it down.

Einhorn presents a very detailed account of financial shenanagins happening within Allied Capital, a midcap darling of the high yielding, rising dividend "subculture". Seems that, among other transgressions, the investment company was very reluctant to mark down securities (primarily debt)on its balance sheet that were impaired. Instead of being marked to market, these were "marked to fantasy".

What you will find within the pages of this book will blow you away. This is a tale of deceit, fraud, misrepresentation, cloak and dagger antics, millions and millions of wasted taxpayer dollars, and an unbelivable amount of effort expended by Einhorn and others to bring it all to light. Unfortunately a mounting pile of evidence still falls on deaf ears--far longer than you'd imagine in the post-Enron, Sarbanes Oxley world of today.

Einhorn often takes his lumps in the press for being a hedge fund manager and short seller, (which comes with the territory), and he's been short Allied for years. But don't let that cloud your judgement as to his motives for writing this book: all profits from it's sale, as well as any from his Allied short positon are going to charity.

Einhorn's attention to detail is one of the great attributes of this book, plus he's got a great "voice". This book may go down as one of the classic financial forensics books of our time. CFA wannabe's would do themselves a great service by giving it a read--its a great testament to the propensity of many a modern day analyst to stop well short of the in-depth analysis many aspire to provide.

The Allied Capital story is not over yet, but thanks to David Einhorn for having the guts to bring us in on what's transpired to date. Of course Allied Capital will tell you a much different story--I'm waiting for their book.

I've never met David Einhorn, have never spoken with him, just traded a few emails. (we tangled over a piece we published on St. Joe's back in August. Einhorn believed his analysis had been misquoted, and we subsequently published his response). But I could not walk away from this book without believing that Einhorn has a great deal of character. The fact that he's a hedge fund manager, or profits from short sales does not diminish that character.

*The author does not have a position in Allied Capital, long or short. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Value Investing Congress West: 2008

We're just back from another excellent Value Investing Congress in Pasadena. A lot of great speakers and great ideas; some a bit contoversial. Rather than go into detail, there's a summary of the events on the Value Investing Congress blog.

Tootsie Roll "Pops"; but Don't Get too Excited

Shares of Tootsie Roll Industries surged 6.4% today, due primarily to news that candy giant Mars will acquire gum giant Wrigley. In typical Wall Street fashion, the assumption is that Tootsie Roll won't be far behind. Don't get excited though, we've been down this road before, and still Tootsie Roll shares languish near 10-year lows.

The problem for Tootsie Roll is control; namely that Melvyn and Ellen Gordon control 80% of the company's B shares (with superior voting rights) and 40% of the common shares. Despite their advanced ages, the Gordon's don't seem to be in a hurry to exit stage left. Meanwhile, historically healthy margins continue to slip, a superior brand name languishes leaving a great deal of potential on the table, and opportunities are wasted.

Still, we hang onto our Tootsie Roll shares. Why? Good Question.


*The author has positions in Tootsie Roll (TR) and Wrigley (WWY). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Top Ten Net/Nets

The combination of volatile markets and economic uncertainty typically provides fertile ground for Net/Nets. Companies already in questionable shape can be beaten into submission, ultimately finding their way onto one of our lists of companies trading below net current asset value.

Sometimes this provides opportunity; sometimes it's the manifestation of Mr. Markets' survival of the fittest. In any event, we are starting to see some new names on the list. More interestingly, some are profitable on a trailing 12 month basis.

Top Ten Net/Nets By Market Cap

Usec(USU)
Price: $5.03
NCAV: $652.3
Mkt Cap: $556
P/E: 5

Adaptec(ADPT)*
Price: $2.95
NCAV: $394.7
Mkt Cap: $357
P/E: NA

Audiovoxx(VOXX)*
Price: $10.95
NCAV: $272.2
Mkt Cap: $250
P/E: 25

Force Prtoection(FRPT)
Price: $2.97
NCAV: $194.7
Mkt Cap: $202.7
P/E: 4
Note: Company currently has a delinquent 10K filing; balance sheet data is as of 9/30/07

Heely's(HLYS)
Price: $4.31
NCAV: $116
Mkt Cap: $116
P/E: 4.5

West Marine(WMAR)
Price: $5.48
NCAV: $146.8
Mkt Cap: $120
P/E: NA

Trans World Entertainment(TWMC)*
Price: $3.5
NCAV: $205
Mkt Cap: $109.2
P/E: NA

Activeidentity(ACTI)
Price: $2.18
NCAV: $108.9
Mkt Cap: $99.8
P/E: NA

Hampshire Group(HAMP)
Price: $9.5
NCAV: $88.7
Mkt Cap: $74.7
P/E: 25.3

Flexsteel Industries(FLXS)
Price: $11.47
NCAV: $75.7
Mkt Cap: $75.4
P/E: 7.8

Ditech Networks(DITC)*
Price: $2.92
NCAV: $86.1
Mkt Cap: $76.1
P/E: NA

*Companies denoted are members of the proprietary Cheap Stocks 21 Net/Net Index

As always, data for net/nets is a moving target, and it is possible that some of the names on this list will no longer qualify once the next quarterly earnings and financial statements are released.

*The author does not have positions in any of the companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

St. Joes (JOE) Update

Since hitting the $27 mark in November, St. Joes, Florida's largest landowner has been on fire, hitting $47 in March before pulling back to $40 more recently. You may recall our August 7th post which questioned hedge fund manager David Einhorn's (Greenlight Capital) assessment of St. Joes and Einhorn's response, which we published word for word a few days later. While JOE is certainly well off it's bottom, and there have been some positive developments as of late, we don't see the stock breaching the $80+ level it hit back in 2005 anytime soon. While we still believe the company offers value, it may have gotten ahead of itself in the short-term.

St Joes is a bit leaner than it has been in the past, having shed its home building business, 780 employees, and it's dividend, to go along with some significant management changes. The company is now focused solely on land --not that it's a great time to be in that business, especially in Florida.

Still, JOE does own an impressive portfolio of 700,000 acres (that's more than 1000 square miles) as of February 2008, 310,000 of which are within 10 miles of the Gulf Coast. Now, as David Einhorn previously argued, not all of this is prime, quality land. In fact, during 2007, the company sold 105,963 acres of rural land for $161.3 million, an average of $1500 an acre.

Still, on an Enterprise Value to Acre basis (which puts no value on any assets other than land, and does include LT debt) that's $5100 per acre. If we assume, as in we did in our August 7th post that half of St. Joes land is worthless (which we don't believe to be the case) that puts EV/acres at $10,200. Certainly not as compelling in the midst of a difficult real estate environment, but it is if you believe there are better times ahead for Florida real estate.

In order for JOE shareholders to realize value, the company must ultimately convert its land into cash. The land -even the most rural- does have value, but ultimately, this land must be transacted. Recently, JOE has resorted to interesting (for lack of a better word) methods of doing so, offering 3000 acres in an online auction. Up for bid is land in three St. Joe properties-3,000 acres of recreational property in Gadsden County near Tallahassee, 56 acres in Port St. Joe, and 29.5 acres in Bay County near Panama City. We're not sure whether this represents desperation, or whether JOE is dipping it's toe in the water of a new potential distribution channel.

If there's been any good news lately for JOE, its been the Panama City Airport project--which is underway, and expected to open in 2010. Whether or not the airport will open the floodgates of tourists and homeowners to northwest Florida remains to be seen. But it does potentially strenghten the company's position.

Finally, St. Joes recently sold 17 million shares at $35. Secondary offerings are rarely if ever positive for existing shareholders and dilutive to earnings, but the proceeds should all but cover the company's $500+ million in debt.

We don't currently hold a position in St. Joes (our shares were called in March when the stock blew past our covered write). We still like the company though, and will be looking for a re-entry point, hopefully somewhere below the current price.

As for David Einhorn, we're not sure whether or not he is still short St. Joe's, but would again be willing to print a response from him.

*The author does not have a position in St. Joes. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

CS21 Net/Net Index Week in Review & Individual Member Performance

The CS21 Net/Net Index closed the week down 1% to 104.36 Since inception, the index is up 4.36%.

This week, we take a look at index constituent's performance since index inception. The returns are diverse, and lend credence to the notion that if you are interested in owning net/nets, one of the best ways to do so is through a portfolio approach, unless you have a very strong stomach for risk:

CS21 Net/Net Index Members
Prices as of 4/11/08, Returns Since Index Inception(2/12/08), Best to Worst

The Finish Line, Inc.(FINL)
Price: $6.19
Return: 157.92%

Nu Horizons Electronics(NUHC)
Price: $6.59
Return: 15.61%

InFocus Corporation(INFS)
Price: $1.83
Return: 7.65%

MediciNova, Inc(MNOV)
Price: $3.75
Return 7.14%

Emerson Radio Corp(MSN)
Price: $1.17
Return: 6.36%

Audiovox Corporation(VOXX)
Price: $10.25
Return: 5.67%

FSI International, Inc(FSII)
Price: $1.76
Return: 3.53%

Adaptec, Inc(ADPT)
Price: $2.77
Return: -1.07%

Anadys Pharmaceuticals Inc(ANDS)
Price: $1.58
Return: -1.25%

Renovis, Inc(RNVS)
Price: $2.2
Return: -4.35%

Ditech Networks Inc(DITC)
Price: $2.83
Return: -5.67%

Pomeroy IT Solutions, Inc(PMRY)
Price: $6.37
Return: -6.32%

Richardson Electronics, Ltd(RELL)
Price: $4.67
Return: -10.19%

Parlux Fragrances, Inc(PARL)
Price: $3.21
Return: -10.83%

Leadis Technology, Inc(LDIS)
Price: $1.93
Return: -12.27%

Charles & Colvard, Ltd(CTHR)
Price: $1.31
Return: -12.67%

Chromcraft Revington, Inc(CRC)
Price: $4.06
Return: -15.42%

Trans World Entertainment Corporation(TWMC)
Price:$3.34
Return: -24.09%

Replidyne, Inc(RDYN)
Price: $1.55
Return: -29.55%

Tandy Brands Accessories, Inc(TBAC)
Price:$4.73
Return: -38.57%

Handleman Company(HDLM)
Price: $0.42
Return: -72%



*The author does not have positions in any of the companies that comprise The Cheap Stocks 21 Net/Net Index. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Exxon Mobil: The Root of all Evil

Since the gas lines of the '70s, Democrats and Republicans have talked about energy independence, but nothing's changed — except now Exxon's making $40 billion a year, and we're paying $3.50 for gas. I'm (candidate's name). I don't take money from oil companies or Washington lobbyists, and I won't let them block change anymore. They'll pay a penalty on windfall profits. We'll invest in alternative energy, create jobs and free ourselves from foreign oil.

-Presidential Contender (who shall remain nameless)

In the very emotional debate over oil, our title suggests what at least a couple (we won’t name names) of the current Presidential candidates believe. One recently suggested that Exxon’s $40 billion 2007 profit should be subject to a windfall profit tax. Great idea!

Lets punish big oil, they are gauging us at $3.50/gallon. If we garnish their profits, surely we’d all be better off, and the price of gas will fall. We should also force them to contribute to renewable energy solutions, viable or not.

Its not sufficient enough that the evil Exxon empire paid $29.864 billion in taxes last year to Uncle Sam. Nor, that the government picked up another $1 billion in taxes paid on $7 billion in dividends Exxon paid shareholders last year. Nor that there's a $.184 per gallon federal tax on gasoline; not to mention the billions states receive through gasoline taxes.

Exxon's 11.32 percent net profit margin is obscene. Lets tax them to the point that it is no longer worth being in the oil business, no longer worth developing technology to find oil in very difficult to reach places. That will make us all very happy. We can all grow our own corn. Make our own ethanol, and we’ll never be beholden to big oil again.

*The author does not have a position in Exxon-Mobil, but does have a position in Vanguard's Energy Fund. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

CS21 Net/Net Index Week in Review: Another Strong Week
The CS21 Net/Net Index closed the week up 5.2% to 105.4. Since inception, the index is up 5.4%.

For the past two weeks, the index is up more than 11%.

This Week's Winners:
Handelman(HDLM): +104.2%
Replidyne (RDYN): +33.1%
FSI Intl (FSII): +25%
Finish Line (FINL): +20%

Losers:
Tandy Brands (TBAC): -17.4%
Chromcraft Revington (CRC): -11.4%
Trans World Entertainmebt (TWMC): -9.5%

Performance: Cheap Stocks 21 Net/Net Index vs Russell Microcap Index
Since inception (2/12/08):
CS21Net/Net: +5.4%
Russell Micro: -1.42%

We've stated often that net/nets are cheap for a reason, and they don't typically make the list because of positive company performance. They are often beaten down beyond belief, and the 1 year performance of the current members of the CS21 net/net index certainly proves this: On average, the 21 companies in the index are down an average of 53.33% since last year! Talk about bottom fishing! Could the CS21 Net/Net Index be the poor man's "Dogs of The Dow"?


*The author does not have positions in any of the companies that comprise The Cheap Stocks 21 Net/Net Index. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Value Investing Congress West: May 6 & 7
Last May, we attended our first Value Investing Congress in Hollywoowd, and were extremely impressed by this conference; from the quality of speakers, conviction of ideas presented, to the venue. We are heading back again for this year's edition, in Pasadena.

The folks at The Value Investing Congress have been kind enough to extend a $500 discount to Cheap Stocks readers. If you are intested in attending, please click here and use discount code P8JHBL1, which will be good until April 20th.

Hope to see you in Pasadena!

Premier Exhibitions (PRXI): Value not Without Controversy

Of all the presentations we saw at last year's Value Investing Congress in Hollywood, one of the most interesting featured Premier Exhibitions, the Atlanta based company that develops and promotes touring exhibitions around the world. Not just any touring exhibition, mind you, and that's where controversy enters the picture.

Premier happens to operate the highly successful Bodies: The Exhibition, which features whole and partially dissected human bodies, preserved through a technique called "polymer preservation". Certainly not my cup of tea, although the exhibit apparently does an excellent job of displaying the complexity of the human body, as well as detrimental effects of some of the things we know we shouldn't do, such as smoking and overeating.

In order to have a body exhibit, you need human bodies, and questions as to the sources of those bodies were raised on a 2/15 episode of ABC's 20/20. While Premier claims to lease the bodies(all said to have died of natural causes)from a Chinese university, 20/20 suggested among other things that some may have been prisoners, and not all died of natural causes. Of course, if true, the human rights violations are obvious. In reaction, politicos around the country moved quickly to stop the exhibits. The company responded with a press release vehemently denying the claims, and it is worth reading.

Obviously, the stock was punished, falling about 25% in the days following the 20/20 broadcast, to the $4.5 level (its also down significantly from year ago levels of $11.50). The controversy seems to have slowed regarding "Bodies", but there's a more compelling reason to take a look at this company; the primary one that led us to take a position last month.

Premier also happens to operate the traveling Titanic exhibits. But its also the salvor in possession of the Titanic, with exclusive rights to recover artifacts
from the wreck site. The company already holds an impressive array of Titanic artifacts, potentially valued into the hundreds of millions.

Not without its own controversy, the Titanic ownership issue is still in the courts. Earlier this week, the company received a favorable ruling from the government, which has essentially given thumbs up to company ownership of the 3500 artifacts it has already recovered (worth an estimated $100 million or higher). Now its back to the courts, who'd asked the government for guidance on the issue.

This may also be a step closer to Premier being allowed to resume excavation of the Titanic site in order to recover more artifacts. Some have suggested this may all be worth up to $3 billion, a figure we view with some skepticism.

There are apparently stipulations on the collection, one of which is that if Premier ever wants to sell, the company must sell the entire collection at once. This somewhat limits Premier, and perhaps lessens the value of the artifacts, but we still believe this company offers compelling value.

Premier's current market cap is less than $200 million, the company is profitable, and has no debt. Prospective investors must recognize the controversy, volatile nature of the stock and understand that Premier's future is dependent on the courts, and settlement of some rather controversial issues.

Premier Exhibitions: (PRXI)
Price: $6.37
Market Cap: $192 million
P/E: 14.6
Cash: $29 million
Enterprise Value: $167 million
Profit Margin : 24.7% (2007)
27.2% (9 months ended 11/30/07)

*The author has a position in Premier Exhibitions (PRXI). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

CS21 Net/Net Index Week in Review: Into Positive Territory
The CS21 Net/Net Index closed it's strongest week yet, up 6.28% to 100.19. Since inception, the index is up .19%.

Our results since introducing this index bear out the incredible volatility experienced by net/nets. This week was the most extreme, with 20% of index members up at least 12%.

This Week's Winners:
Trans World Entertainment (TWMC): +17.95%
The Finish Line (FINL): +15.2%
Adaptec (ADPT): +14.1%
Tandy Brands (TBAC): +13%
Nu Horizon Electronics (NUHC) +12.6%


Losers:
FSI Intl (FSII): -17.4%
Audiovoxx (VOXX): -22.6%


Performance: Cheap Stocks 21 Net/Net Index vs Russell Microcap Index
Since inception (2/12/08):
CS21Net/Net: +.19%
Russell Micro: -4.42%

*The author does not have positions in any of the companies that comprise The Cheap Stocks 21 Net/Net Index. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Cheap Stocks Random Notes: Unprecedented Market Volatility
Cheap Stocks 21 Net/Net Index Positive for Week Ended 3/22/08,

We don't tend to comment on the broad markets, but some research we conducted recently is worthy of repeating. In terms of market volatility, the pundits often refer to the VIX Index, a measure of expected volatility. Unfortunately, this does not resonate well with many individual investors. But the following points might:

*So far in 2008, the S&P 500 has finished 28 days- more than half of it's 55 trading-days up or down 1%.
*For historical perspective, we checked data for 1929. 1930, 1987, 1999, 2001, and 2007, and none of those seemingly volatile environments could measure up.
*The S&P has also finished 11 days, or 20% of trading days up or down 2%.

While we are not adept at broad market predictions (or any predictions), given the constant flow of bad news/good news, we expect this trend to continue. Buckle Up!

CS21 Net/Net Index
The CS21 Net/Net Index closed a very volatile week up .52% at 94.27. Since inception, the index is down 5.73%.

Music distributor Handleman(HDL), was down sharply again this past week, 31%, as the company was delisted by the NYSE, and will now trade on the Pink Sheets. We'll continue to keep HDL in the CS21 Net/Net Index. This situation reflects one of the realities of net/net investing.

Other Losers:
Tandy Brands (TBAC): -16.1%
Renovis (RVIS): -14.7%
Nu Horizons Electronics(NUHC): -6.7%


Winners:
Ditech (DITC): +16.3%
Audiovoxx (VOXX): +7.7%
Replidyne (RDYN): +7%


Performance: Cheap Stocks 21 Net/Net Index vs Russell Microcap Index
Since inception (2/12/08):
CS21Net/Net: -5.73%
Russell Micro: -5.37%

*The author does not have positions in any of the companies that comprise The Cheap Stocks 21 Net/Net Index. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.