As the market plunged to new depths last November, it proved to be a great time to run screens to see which stocks were oversold in relation to their balance sheets and income statements. Many of the most deeply discounted names from that period had the most aggressive snapbacks when the market rallied into the new year. With the market in another tough phase in the first two months of 2009, it's time to revisit that approach.
One of the greatest tests of support for a stock is a company's tangible book value. For this screen, I went looking for stocks that now trade for no more than 1.2 times tangible book value. Can a stock fall below tangible book? Sure, but in time, they tend to rebound to at least the 1.0-1.2 times book value level.
Of course, book value will erode if a company is losing value, so I narrowed the list to only those companies that are expected to stay profitable in 2009. In theory, further profits should boost book value even higher. I also wanted to be sure that these stocks were liquid enough to garner strong institutional support when the market turns.Right now, many hedge funds are going out of business, and second-tier research departments are shrinking, and these two groups have often been the pillars of support for less liquid stocks. So this list includes only stocks that trade at least 1.5 million shares per day. As a final screening variable, I looked for companies with at least $150 million in net cash, so any upcoming debt payments can be handled without stress.
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