Monday, June 16, 2014

Remembering Clyde: One of our All-time Favorite Posts

Today we are re-running one of our favorite all-time posts, which was originally published seven years ago today. It was dedicated to my grandfather Clyde in recognition of his 100th birthday.  Today would have marked 107.

Remembering Clyde 

June 16th marks the 100th birthday of one of this site’s namesakes, my grandfather, friend, mentor, buddy, and the list goes on. The man exerted a great deal of influence on my life, and our time together -including the day he passed away in my presence 13 years ago- is forever etched in my mind.

Today we jettison the typical Cheap Stocks investment related drivel, and instead pay tribute to a great man who left countless people better than he found them. If he were alive today, he’d be puzzled by his grandson’s website. “Value” to him had to do with doing an honest day’s work, keeping your word, and serving others. “Growth” was about the tomatoes and peas in his garden, and “investing” was related to the time you spent serving others needs. The only stock he ever owned was the 20 shares of Ringling Brothers stock one of his sons purchased for him in the 1960’s. The circus was everything to him— at an early age when the circus was in town he’d work all day helping them to set up just for a ticket to that evening’s show--and his canceled Ringling Brothers stock certificate (Ringling was acquired by Mattel in the early 70’s) is proudly displayed in my home in tribute.

He never made it much past the eighth grade. That’s what happens when you get kicked out of school for knocking your school’s principal on his rear-end. Oh, and by the way the principal happened to be his Uncle Ed. As the story goes, young Clyde was accused of something he did not do, and good old Uncle Ed took a switch to him in the school office. Clyde wasn’t standing for that, and you know the rest—down went Uncle Ed. The incident stood with my grandfather—I recall him telling me on one of our frequent weekend ventures to his old stomping ground in Easton, PA about the dream he’d had the night before; here he was in his late 70’s and he’d dreamt of urinating on Uncle Ed’s grave. The past died hard for him. Being kicked out of school in many ways shaped his future—fueling a success story not measured in dollars, because there weren’t many of those, but measured instead by service to others, hard work, pride in all that he did, and sons and grandchildren who revered him.

He was part of the greatest generation. During World War II the GM plant, where he served as Master Heat Treater, made the conversion from autos to airplanes, and his ingenuity-not learned in any classroom- earned him awards, and helped GM build Grumman Avengers more quickly and efficiently.

After moving to Ewing NJ in the late 1930’s, he and a few buddies realized that this growing area needed a rescue squad. They became educated about wound care and emergency medicine, bought a used Hearse to serve as an ambulance, and The Pennington Road Rescue Squad was born. Born out of guts, ingenuity, fortitude, and a desire to serve others. 

My grandmother preceeded him in death, and it was then that we found out what “investing” meant in my grandmother's eyes. It meant hiding cash from her husband. The several thousand dollars in cash we found, including bills from the 1930’s through the 1960’s, bore witness to this. Evidently, the combination of living through the Depression, and fear that my grandfather would give it all away to anyone in need prompted my grandmother to keep a secret stash.

You really couldn’t blame her. A great woman in her own right, she’d seen it all. She’d seen my grandfather stop to help a stranger who’d run out of gas during the war, syphon it out of his tank and into the stranger’s, then run out of gas himself a few minutes later. Anything to help someone in need.

My resume' may be a lot longer than his, not that he ever had one. I had the opportunity to graduate from college, grad school, earn other professional designations, etc. But My grandfather, Clyde, was way smarter, way more accomplished, more ingenious and a better "investor" than I will ever be.

Happy 100th birthday, Clyde. I miss you, think of you often, am grateful for the times we had together, and for the lessons you taught me.

Tuesday, June 03, 2014

Imation: Back to Net/Net Land

Imagine our surprise to finally identify another net/net with a market cap in excess of $100 million. Now as rare as a Phillies win over the Mets (much to my chagrin), this was a big find. Not really. We are just getting desperate for net/nets. Not really, either.

Imation IMN has been what we would term a perennial net/net. The company was a member of our Cheap Stocks 26 Net Net Index, and perhaps the epitome of the proverbial "cigar butt". Imation has not generated a positive bottom line on an annual basis since 2009, and the main attraction- a healthy amount of cash- has dwindled from $305 million at year end 2010, to $126 million as of the latest quarter. The level of cash has stabilized in the past six quarters, a good sign, but this company still has its work cut out for it.

With $3.09 per share in cash ($2.61 net of debt), Imation currently trades at .96 times net current asset value and .63 times tangible book value. While that may appear enticing, this is a company in transition; one that generates 65% of revenue from what management terms "declining businesses". They continue to try and cut costs, and divest lower margin businesses- they sold Memorex last year- in favor of those that management believes will provide higher margins.

For the current price of $3.32, investors theoretically receive $2.61 and net cash, the fixed assets (on the books at $50 million) and call option on the company's prospects for 72 cents. That assumes that the intangible assets and goodwill are worthless.

Of course, the above is meaningless if the company resumes burning through it's cash.

While Imation is back on our radar, we've seen this story often in net/net land; and are not yet convinced that it will have a happy ending.

Ticker: IMN
Price: $3.31
Market Cap: $139 million
NCAV: $144 Million
Price/NCAV: .96
TBV: $5.28
P/TBV: .63
Cash: $126.2 million
Cash/Share: $3.09
Debt: $19.8 million
Net Cash/Share: $2.61

*The author has no positions in 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