Three Good Companies for Next to Nothing

Finally, we have the athletic footwear supplier K-Swiss(KSWS Quote), currently trading at $12.60 a share, which has no debt and $8.50 per share in cash. Average free cash flow over the past four years has exceeded $65 million a year, or just under $2 a share on the basis of today's 35.5 million shares outstanding. Knock out the excess cash of $8.50 per share, and you are getting a free cash flow yield of over 40% a year.

Rest assured that when you have situations like this where the companies are not burning cash and pay little or no interest expenses, someone will take notice. These irrational equity prices are due to the current lack of liquidity in the marketplace, not because they are poor businesses.

Rest assured that when the mood improves, if investment funds don't jump on board, private equity will. In meantime, your risk of a permanent loss of capital -- which is completely different from a daily declining stock price -- is mitigated by the hefty cash levels.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider KHD, HNR and KSWS 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.

This was originally published on RealMoney on Oct. 24, 2008. For more information about subscribing to RealMoney, please click here.