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Imperial Sugar finally released its 10-K today. I have spent the last 4 hours looking over it and running the valuation numbers from the balance sheet. Using a model developed by Ben Graham to determine the liquidation value of a company based on its balance sheet, I've determined that IPSU is currently trading at a >50% discount to even a very pessimistic total liquidation value of the company. I believe at the very least this makes the company attractive as a takeover target. Can anyone give me a compelling reason why this is not an incredible investing opportunity?
Can you help answer these questions from other members on NexusFi?
IMHO we live in an age of Big Trading Houses. An age of fear and greed to lose and make a buck. Graham no longer matters in an absolute investing decision. Sure find a company with great value and then read a chart for a final decision to buy, sell or stand aside.
This is a one year chart comparing this stock to the S&P 500 and the Dow Jones US Food Products Index. The large drop in August is due to the release of the Q3 results, where the company reported $-1.35/share vs estimates of $0.33-0.71/share in earnings. They (IPSU) are now defendants in multiple class-action lawsuits related to this, primarily because the stock crashed and investors believed management had misled them about the health of the business.
If I'm understanding your post correctly Tiberius, I believe you're saying that value investing is no longer possible and that chart trading is now the only way to make any money in the market. I find it very difficult to accept that view. The assets of a company do not depend on how much the stock is worth. Even if the company went bankrupt, the assets would still be worth something. This can be approximated to establish a value for the company. Again, the reason I am focusing on this company is that I believe if someone bought up all the shares at the current price and then sold off all the assets, they would essentially double their money before any expenses related to the sale were taken into account. Is there any way to parlay this view into a market strategy?
I'm not familiar with IPSU, so I can't really comment on this specific case. But it would be ludicrous to assume chart trading is the only way to go. If one can find value where the chart looks terrible, one has a golden opportunity to get in early. I made a lot of money in a company facing bankruptcy nearly 10 years ago. It went all the way down to one cent, only to be bought for 25c/share a few weeks later.
That being said, the markets (thus also shares) are very fear driven now, and there is not a lot value to be found. In most cases, I would claim, it is a futile exercise. But, in these volatile days, there are bound to be cases of overvalued risk. It's easy to get one's ass handed to oneself, though...
The investment backdrop of the world is that the world's monetary system is hanging by a thread. All stocks tend to swing in a wide range up and down together. I have no idea what will happen in any time frame in the future. Value investing is great for a guy like Buffet who buys the whole company and milks the cash flow. I believe value investing is no longer possible for the retail investor. Money flows from sector to sector to asset class to asset class.
IMHO only buy a stock with relative strength. Only buy a stock as an investment after viewing a weekly chart in an up trend (HH & HL). Watch the daily chart for trend (HH & HL). At best, swing trade the daily chart in the defined trend of the weekly chart. Consider volume as momentum or not (need increasing volume). A simple Stochastics is helpful.
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At the end of the day, anything we invest in is an assumption of risk:reward. One of the biggest things Benjamin Graham emphasized in an investment such as this is "What is your margin of safety?" By looking at the companies balance sheet, income statement and cash flow, I know of a million other ways to make money by investing in something a bit more reasonable.
Sure, it's exciting to think this could be a potential acquisition target but you really don't know what the end result will be on something like this. If you're betting on a liquidation, who's to say all the assets will be sold and how long will the process take? Additionally, what are the potential legal risks? Can assets be taken away from them by creditors? As for the company having a good earnings potential down the road, it doesn't look pretty and they're bleeding cash with a liquidity issue to boot. Some of their largest assets are in receivables and inventory which are usually very vague and based on a lot of variables.
The stock is only $3 and change however so, you can either go to Vegas or do something like this. But I wouldn't consider this company to fit within Benjamin Graham's criteria of a good value investment.
If you do decide to buy, I would break it up over several weeks or even months buying a small % of your total share allotment each time, depending on how long you intend to hold this. That also means you would need to have a fairly wide stop, but I assume that is not a problem given you want a huge target.
In general, going long a stock that is moving steadily down in a bull market while SP500 is moving higher or sideways is not a good strategy.
