Snap-On's Shares Should Snap Back to Life

The business value of this toolmaker significantly exceeds the value of its stock.
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There is no such thing as a perfectly valued stock. Given the fluidity and constant change in every business, it's an illusion to think any stock can be perfectly valued.

A divergence, sometimes small and sometimes large, always exists between the value of a business and its stock market value.

It's the value investor's job to seek stocks where the business value exceeds the stock value by a wide margin. In an effort to help identify undervalued businesses, I've highlighted 26 stocks in my columns since last December. On average, they're up 20%, well ahead of the

S&P 500's

19% decline for the year.

My 27th pick,

Snap-On

(SNA) - Get Report

, is a leading supplier of power tools and diagnostic equipment for the auto maintenance and repair business. My analysis of the company suggests the business value significantly exceeds the value of the stock.

I like to buy companies like Snap-On, where the business value has steadily increased over the years while the stock value has languished. Snap-On traded at its current level of about $27 per share more than eight years ago. Since then, revenue has more than doubled, and assets and cash flow are way up. Even the dividend is up 50% during that time period.

A Stagnating Snap-On
Despite higher revenue, assets and cash flow, the stock hasn't moved up in tandem

I'm expecting Snap-On stock to increase to the high $30s in the next year or so and to the high $40s in two or three years. Collect a fat 3.6% yield while you wait -- Snap-On has paid dividends for more than 60 consecutive years.

Top 10 Turnarounds for 2002

I had a terrific response to my

request for turnaround ideas for 2002, receiving about 550 suggestions. Some of the ideas most frequently mentioned were

Rite Aid

(RAD) - Get Report

,

Global Crossing

(GX)

,

WorldCom

(WCOM)

,

3Com

(COMS)

,

Enron

(ENE)

,

Providian

(PVN)

,

Conseco

(CNC) - Get Report

and

Scientific-Atlanta

(SFA)

.

I will have a column in a few days analyzing some of these companies and other turnaround candidates. The final list, the Top 10 Turnarounds for 2002, will be posted in mid-December right here on

RealMoney.com

.

Arne Alsin is the founder and principal of Alsin Capital Management, an Oregon-based investment advisor specializing in turnaround situations. At time of publication, Alsin and/or ACM was long Snap-On, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback and invites you to send it to

arne@alsincapital.com.