When Price Is the Catalyst

Value investors are always looking for some sort of catalyst to propel an unappreciated stock from the basement to the penthouse. But sometimes a ridiculously low price can be its own catalyst.

That certainly appears to have been, in part, the case with Computer Network Technology(CMNT Quote). Last week, I explained that the company was one of the least expensive major tech companies on the Nasdaq, selling for less than book value despite seemingly decent prospects.

That prompted email from readers who accused me of not knowing what I was talking about. With the stock in the dumps, one correspondent captured the major market sentiment with this comment: "Yes, this stock looks cheap, but it is about to get cheaper." The reader pointed out a few negative data points with the company, then added that he would never invest a dime in the firm because "management ... has a proven track record of disappointing investors and employees."

Well, that's exactly how a stock ends up valued less than book. But very often, the point of maximum angst for even the most knowledgeable holders is the turning point. As the mood for storage-area networking stocks improved later in the week, shares of Computer Network jumped by more than 11%.

But that was only a prelude to Monday's action, when the company's shares were gunned another 17% in after-hours trading on the heels of a relatively weak earnings report that, after excluding a bunch of charges, wasn't quite as bad as many analysts and traders expected. This reaction was a good example of bad mood trumping the numbers for a period just long enough for value players to take advantage.

Another example is still playing out in the shares of Mas-Tec (MTZ Quote), which I previously cited as a value on Aug. 18, when shares went for $5.48, and June 3, when shares were $4.10. The company has still not released its financial reports for the past three quarters, but the price had gotten so unreasonably low that it has continued to levitate from the buying pressure of value hunters. Last week the stock peaked above $9.10 before slipping back in the past couple of days to around $8.00.