As usual, a few of the best value investing links from the past two weeks:

2011 Berkshire Meeting Notes

For those (like myself) who weren’t able to attend the annual Berkshire Hathaway shareholder meeting, this is the next best thing…

Check out these awesome notes for a full breakdown of more than 6 hours of Q&A with Buffett and Munger.

Dainichi Co. Ltd (TYO:5951)

I’ve been doing quite a bit of research on Japanese stocks over the past few weeks – the country has its share of problems, but also boasts some very strong net-net stocks…

This is a great example of thinking through an investment that appears very attractive from a balance sheet perspective. Dainichi has 65% of its market cap in cash, but a closer look at the cash flow statements shows a much different story.

Metalrax (MRX:LSE)

A tiny UK stock, Metalrax was recently added to Richard Beddard’s Thrifty 30, a nice list on one of the best UK value investing blogs.

While many of the best UK stocks are traded on the AIM exchange (similar to the OTCBB, and therefore off-limits through most U.S. discount brokers), there are certainly some gems.

Read the entire series on MRX for the details, but the company has been showing sales growth backed by significant insider purchases.

Yukon Gold Nevada Corporation (YNGFF.PK)

Yukon Gold is a stock that was featured on Weekend Values back in August 2010, after a well-researched write-up.

Recently, the stock has been hammered, down more than 50% so far this year on unusual pricing action. Due to severe weather causing delays, management is deciding to raise (possibly dilutive?) cash in order to fund additional investments in the mine.

Many investors still seem bullish on the stock’s prospects so it definitely remains on the watch list (although outside of my personal circle of competence).

Suggestions

If you have suggestions for detailed analysis examples from other value investors, please drop me a line using the Contact Form.

I’m always open to ideas from other investors, especially for a thoughtful and well-researched investment articles.

Disclosure

No positions.

It is taken for granted in today’s world, but back in the early to mid 1980’s, I’m sure the idea of wireless modems was truly revolutionary.

Tom Kirchner, the founder and still-CEO of Electronic Systems Technology (ELST.OB) saw the future of telephone modems and struck out on his own.

Kirchner set up shop with 2 colleagues (Kirchner was the only full-time employee at the start), and joined with a local manufacturer who offered the group free office space.

As with all start-ups, the new company eventually needed more capital to test their prototypes:

“So they had office space and a manufacturer, but they still lacked the capital they needed to test their prototypes as they went through development, which is not inexpensive, Kirchner said.

In addition, at the time Hanford was shuttering N-Reactor, people were being laid off and the outlook in the Tri-Cities was not rosy. That’s when Kelso Gillenwater, who was the Tri-City Herald publisher at the time, contacted the men. Kirchner said Gillenwater was looking for positive stories for the newspaper, and felt that three men striking out on their own fit the bill.

Kirchner said the stories the newspaper did on the trio helped the men attract the attention of a group that would ultimately help them raise the money to make a go of it. The people in charge of the Spokane Stock Exchange, which at the time focused mainly on mining stocks, were looking to diversify their offerings and felt the wireless modem was a good fit.

The two-year-old company went public and was able to raise nearly $1 million through their investors. That money was instantly put into buying test equipment and helped pay for the creation of the company’s prototypes, which took about a year.”

After four long years, in 1986 the company launched their first offering, a wireless modem that retailed for $1,100, a serious chunk of money back in the late 1980s.

Eventually, ELST found a niche market selling to certain large companies, municipalities, and government agencies who need to create their own wireless networks, and continues to offer the ESTeem wireless modem product lines direct from the Kennewick facility.

A great story – read the rest of the article.

Disclosure

Long ELST

As usual, a few of the best value investing links from the past two weeks:

Alpha Pro-Tech (APT)

Alpha Pro-Tech (APT) stock has been on a tough run over the past several weeks as reported earnings continue to be rough.

These results were somewhat expected, as the company benefited from a one-time spike in revenue in 2009 that was unlikely to be repeated – Mr. Market often overreacts in such situations.

APT’s sales mix has shifted towards the lower-margin Building Supply segment, but as Barel writes, sales in this division have quadrupled since 2007, and management seems bullish on new product lines and future growth.

Assign a 10x multiple to this segment alone (and add back the net cash balance), and the stock price appears to be throwing in the other two high-margin divisions for free!

USA Mobility (USMO)

USMO is a stock that seems to appear on many of quantitative value investing screens – and has for many months – as the stock appears to be cheap based on most valuation metrics.

USMO sells pagers and the market doesn’t seem very keen on the business’s future prospects (hard to blame the market – it’s amazing that a profitable business still exists in this market with all of the other technology available).

Yet this dynamic may provide an opportunity, as the company continues to throw off impressive amounts of cash despite the decline in sales.

However, the recently announced $160m acquisition of Amcon Software completely changes the game, as USMO will lose much of the downside protection built into a solid balance sheet.

Arden Group (ARDNA)

Arden operates a number of Gelson’s supermarkets, a high-end full-service grocery store chain, throughout Southern California.

The business has produced steady profits in the past seven years, and the business model produces extremely high profit margins (ARDNA’s net margins are around 5%, compared to a company like Whole Foods at only 2%).

On the negative side, management has no plans to expand the current store base – meaning the potential for growth is extremely limited – and eventually competition seems poised to put pressure on margins.

Read the comments for a further quality discussion.

CSS Industries (CSS)

An impressive value investing blog that I’ve been following for a few months, Tenoeight makes a case for CSS Industries, a small-cap manufacturer of gift wrap, cards, and other seasonal items.

The stock trades right around net asset value despite earning positive free cash flow in each of the past ten years. At current prices, the average free cash flow per share works out to a FCF yield of more than 20%.

Management seems to be making the right moves in closing down its U.S. manufacturing plants and sourcing many of their products overseas, but the industry is very competitive and two retailers account for 36% of sales.

However, the stock pays a nice dividend and management has shown that it’s willing to repurchase shares, making for an interesting play.

Suggestions

If you have suggestions for detailed analysis examples from other value investors, please drop me a line using the Contact Form.

I’m always open to ideas from other investors, especially for a thoughtful and well-researched investment articles.

Disclosure

No positions.