Book These Values

Investors this season have rooted for the underdog, pulling a great many badly battered stocks out of the basement and into the sunlight.

As noted in my Nov. 1 column, the urge among major fund managers to poke around the bargain bin of large-cap stocks can be simply irresistible when everyone is doing it.

The recent takeoff of Delta Air Lines (DAL) is a perfect example of this phenomenon. The airline's shares are up a stunning 100% in the past month and will probably go higher today on its deal with its pilots.

But the idea is not confined to large-caps. And a little homework can unearth a few ruined names so cheap that they may really be worth the risk.

Among the metrics that the equity rescue squad loves to focus on, the "price to book" multiple is at the top of the list.

The online financial dictionary Investopedia defines book value as the net asset value of a company, which is the total assets minus intangible assets (like patents and goodwill) and liabilities.

It is the value of a company's assets that shareholders would theoretically receive in a liquidation. When a company trades for less than its book value, it is considered to be a bargain, all other things being equal, which they seldom are.

On Thursday, the following eight stocks with market caps above $100 million, trading volume above 100,000 shares a day, and year-to-date price change less than -40% were trading for less than their book value:

Battered to Book This collection of low book value stocks offers opportunity
Company Name	Symbol	Mkt Cap	Price/Book	% Chg YTD	% Chg Mo.	11/11 Close
Winn-Dixie Stores	WIN	$554 M	0.72	-60.8	6.3	$3.90
Computer Network Tech	CMNT	$122 M	0.96	-54.3	7.4	$4.37
Hanger Orthopedic	HGR	$130 M	0.7	-61.1	10.4	$6.05
OCA	OCA	$236 M	0.55	-41.4	11.1	$4.72
LSI Logic	LSI	$1.8 B	0.9	-45.4	12.8	$4.84
Calpine	CPN	$1.5 B	0.33	-40.5	22.2	$2.86
Unifi	UFI	$176 M	0.46	-47.9	52.7	$3.36
Tower Automotive	TWR	$118 M	0.28	-70.1	70	$2.04

I've covered Winn-Dixie (WIN) in the past, most recently here, so today I'll take a quick look at Computer Network Technology (CMNT).

The Minnesota-based company provides large businesses with storage-area network solutions, with an emphasis on remote data replication, or real-time data backup. The company reported a very disappointing summer quarter, which investors greeted by dumping stock, driving shares down from the $5.50 level to around $2.65. The company responded quickly, though, realigning its products, cutting staff and slashing discretionary spending. Consensus estimates call for a loss of 33 cents in fiscal 2005, and a gain of 3 cents in 2006.

The news flow has slipped into a positive PR zone recently, with a new partnership with IBM (IBM) touted on Nov. 9 and a big contract at a financial institution announced just before that. Currently, the biggest owners are the savvy small-cap funds Heartland Value and Royce Low-Priced Stock.

The stock still trades at a substantial discount to competitors such as Brocade Communications (BRCD) and McData (MCDT). Brocade is about 10 times more expensive than Computer Network on a price/sales basis, and McData is six times pricier. Analysts have basically given up hope on the company, as none have upgraded it in about two years and the highest current opinion is "underweight." But Chief Executive Thomas Hudson gave his opinion when he bought 15,000 shares on Sept.24.

Traders have responded favorably to management's decisive action, and shares have recovered more than 65% from that summer low, closing at $4.37 Thursday on increasing volume. From a technical perspective, the stock appears to be tracing out a steady accumulation pattern, and optimism going into its Nov. 22 earnings report could push the stock into the $5.50 to $6.00 area. If that happens, Computer Network's valuation would move above book value -- and traders would probably be wise to book the profit.

P.S. Don't forget -- now is a great time to get in on bargain stocks before the prices go up. Get my picks with a free trial to TheStreet.com Value Investor.

---

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Computer Network Technology, Hanger Orthopedic, OCA, Tower Automotive and Unifi to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

>To order reprints of this article, click here: Reprints