Does Williams Cos. Deserve to Sell at Such a Discount to Williams Communications?

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Go figure:

When

Williams Cos.

(WMB) - Get Report

did a spinoff of its

Williams Communications

(WCG) - Get Report

unit two weeks ago, it kept 86% for itself and thought that by doing so, its stock would rise and fall in proportion with its stake in Williams Communications. Williams Cos. is in the oil and gas biz, while Williams Communications operates a telecommunications fiber network -- a telecommunications fiber network that has been the target of takeover rumors in an industry that is rapidly consolidating. "They did the offering for the very purpose of showing the value that they thought would be reflected in the communications group," says

Goldman Sachs

analyst David Fleischer.

Instead, since the split, the opposite has happened: While Williams Communications has gone up by 7 (or 30%), Williams Cos. has gone down by almost 4 points (or 9%) -- the amount analysts thought it should've risen. The slide in Williams Cos., in part, reflects concerns about near-term earnings of its existing biz. Still, Fleischer and other analysts are dumbfounded by the slide in Williams Cos. for a simple reason: Based on its close Friday of 34 7/16, when using an arbitrage calculation, Wall Street is valuing the non-Williams Communications part of Williams Cos. -- the oil and gas biz -- at $7. Seven bucks for a biz that Fleischer values at $22 per share.

The spread is so wide, in fact, that analysts are chatting up Williams Cos. as a cheap way to gain entry into Williams Communications. They're betting that if Wall Street doesn't recognize the true value of Williams Cos., CEO Keith Bailey will spin off all or part of Williams Communications the way he sold off part of

WilTel

four years ago. That would leave Williams Cos. with plenty of cash and a host of valuable energy assets.

A Williams Cos. spokeswoman declined comment. (Haven't heard one yet discuss what they

might

do, but it's our job to ask!)

Credit where credit's due:

Reader Dave Forker reminds me of an item

here a year ago last Friday, headlined "Searching for Bargains Amid the Stock Market Rubble." It quoted money manager Doug Whitman of

Whitman Capital

, who noted four undervalued stocks that had good fundamentals but were overlooked by Wall Street and were attracting private money from venture capitalists hunting in the junkyard for "real" companies in which to invest. From then until last Friday, here's how they fared:

Advanced Fibre Communications

(AFCI)

, up 440%;

DSP Communications

(DSP)

, which agreed last week to be bought by

Intel

(INTC) - Get Report

, up 580%;

Premisys Communications

(PRMS)

, up 25%; and

Security Dynamics

(now

RSA Security

(RSAS)

), up 375%.

Dave asks whether Doug has a similar list today. Not really. "There are some things out there," he says, "but none like that." Why? "The market has identified the technology trends more clearly and people are looking at more opportunities than they were a year or two ago. The technologies are still there, but the super values ... have been taken away from the market."

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.