Looking for Value Among Reader Requests

Question: Transocean (RIG - commentary - Cramer's Take) is trading below book -- is it undervalued? -- R.S.

Answer: There's always a reason when a company trades below book value. In the case of Transocean, an oil and gas driller, the fundamentals are terrible. The company sits on $7 billion of capital equipment, which rapidly declines in value, in order to generate $2.5 billion in sales. Pencil in a hypothetical 20% net margins on those sales, and that would be a return on assets of only 7.1%. Competitors such as Diamond Offshore (DO - commentary - Cramer's Take), Rowan (RDC - commentary - Cramer's Take) and Parker Drilling (PKD - commentary - Cramer's Take) are also suffering from extremely low returns on assets. This industry sorely needs a shakeout -- and soon. If and when that occurs, I'll be poking around in search of value, but not until then.

---

Question: Is Hawkins (HWKN - commentary - Cramer's Take) undervalued? -- F.H.

Answer: Hawkins is an interesting small-cap that warrants a closer look. The company deals in water treatment and other industrial chemicals. Hawkins has a 3.3% yield and an exceptional balance sheet, with $24 million in cash. Current assets, net of all liabilities, cover about one-third of the $110 million market cap. The company does not grant options and has been buying back stock. This is a very good stock idea. Thanks for the suggestion.

---

Question: Circuit City (CC - commentary - Cramer's Take) seems to have attracted a serious offer of $8 a share. The credit card portfolio may be worth between $2 and $4 a share, and there's cash on the balance sheet of $3 a share. What do you think the stores are worth? More than $3 a share? Is it really that much worse than Best Buy (BBY - commentary - Cramer's Take)? -- D.F.

Answer: I think the credit card business is worth $3 to $4 per share, with the company worth more than $15 per share. But the risk is high: It's a distant No. 2 to Best Buy on every sales metric. Circuit City does have a lot of earnings leverage. Just a small increase in sales will result in a sizable bump to the bottom line. With easy sales comparisons looming for the next several months, if you think the economy is set to improve, this is a stock to consider.

---

Arne Alsin is the founder and principal of Alsin Capital Management, an Oregon-based investment advisor and portfolio manager of The Turnaround Fund, a no-load mutual fund. At time of publication, neither Alsin nor ACM held a position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback and invites you to send it to [e-mail]. Click here to receive Arne's latest favorite stock picks from his newsletter, The Turnaround Report.