Saturday, May 17, 2014

Cheap Shares - 3 Companies Worthy Of Further Research

I am drawn to cheap shares as a result of my having both feet planted firmly in the value investing camp. Of course cheap can be a somewhat subjective term with different meanings for different investors.  However, a good starting place for me is normally to begin with stocks trading at or close to their lowest price over the past 12 months.

Here is a list if 3 companies whose shares are trading close to their lowest price over the past year and in which I intend to conduct further research.

ASX Code Company Name Current Price 12 Month Low
NOD Nomad Building Solutions Ltd 0.047 0.04
KSC K&S Corporation Ltd 1.31  1.28
WEB Webjet Ltd 2.33  2.30

Nomad Building Solutions Limitd (ASX:NOD)

According to it's website, NOD is a business "specialising in remote and regional development, construction and project management across Australia".

NOD is currently trading at a market capitalization of around $13m. While NOD is currently losing money, the most recent report to the ASX said they had $8.3m in cash. The company also has tax losses of $27m and $17m in franking credits on it's books. If the company can return to profitability, these tax losses and franking credits will add significant value.

I haven't quite my head around this one yet, but it looks like it's worth some further iinvestigation.

K&S Corporation Limited (ASX:KSC)

K&S Corporation operates a transport and logistics business.

What initially caught my attention with KSC is that it's trading at a discount to its $1.87 of net tangilbe assets per share. Historically it's had strong free cash flow and consistently paid out fully franked dividends.

The reason the share price has fallen is a drop in profitabilty in the most recent half year. I need to find out more about the reason for the fall in profits.

Webjet Limited (ASX:WEB)

Online travel agent Webjet is currently trading just a few cents above its yearly low share price. This is despite the company confirming it's still on track to deliver EBITDA of $21.5m this financial year.  As far as I can work out, this would put the company on a price earnings ratio of about 13.  This seems low for a company with a good track record of growing profits. Another one for the to do list.

More Homework

While each of the companies listed above has made it onto my short list, there is still much more work to do. It's always worth remembering that like all investments, cheap shares are often cheap for a reason.