Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
capture this growth.
The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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| A.T.
Cross (ATX) -- An Interesting Turnaround Opportunity |
Published: July 8, 2005
In my weekly premium
newsletter -- Undiscovered
Micro-Cap Gems -- my goal is to introduce readers to a variety of
promising micro-cap investing ideas that they may wish to consider for
their portfolios. In doing so, I generally look for small, neglected
companies that have been overlooked by conventional Wall Street sources.
I also look for undervalued firms that are trading at a steep discount
to their intrinsic value. Many of these individual investment ideas have
the potential to deliver triple-digit percentage gains in the years
ahead.
Below you'll find an
in-depth look at one such investing idea that I introduced my readers to
in a recent issue. To gain access to
dozens of similar investing ideas each and every week, you'll need to
subscribe to my Undiscovered
Micro-Cap Gems service. In the meantime, I sincerely hope you enjoy
today's sneak peak at one of my most recent micro-cap investing ideas...
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A.T. Cross (ATX, $4.66)
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A.T.
Cross (ATX)
Sector = Consumer Goods
Industry = Office Supplies
Market Capitalization = $69.7 million
Enterprise Value = $63.8 million
2004 Revenues = $129.5 million
2004 Gross Profit = $63.4 million
2004 Revenue Growth = +3.4%
Insider Ownership = 54.2%
Institutional Ownership = 38.1%
Insider Activity (ttm) = Positive
Enterprise Value/EBITDA = 8 |
Editor's Note: John DiStanislao first
introduced ATX to his paid Undiscovered
Micro-Cap Gems subscribers on June 27th at a price of
$4.12 per share. Since that time the stock has increased +13.1%.
A.T. Cross has been in business
since 1846, and over the years this company's high quality writing
instruments have built valuable name-brand recognition in the minds of
consumers. In addition to ball-point pens and mechanical pencils, the
company has branched out into product lines ranging from fashionable
letter openers and money clips to polarized sunglasses sold under the Costa
Del Mar name. A.T. Cross' products are available at jewelry stores,
department stores, gift stores, office supply stores, sporting goods
stores, and other retail outlets.
My initial attraction to A.T. Cross was based on the firm's valuable
brand name, its high-quality products, and its dismal stock performance
in recent years. The shares have gone nowhere over the last five years
and are still trading well below levels that were reached two decades
ago. Given the potential for a turnaround opportunity in this highly
oversold stock, I became intrigued and decided to take a closer look.
Cross is a closely held firm, as insiders own the majority of the
shares. Director Galal Doss alone owns roughly two-thirds of the
company. Value-oriented institutional players hold most of the remaining
shares. As a result, the float is a relatively small 6.7 million shares.
The true attraction to this stock does not lie so much in the company's
financial statements. Instead, the value is buried in the intangibles:
brand names, market share, a loyal customer base, supply chain power,
and other competitive advantages.
The general public has heard of the Cross name because of the company's
long history of designing and marketing pens and accessories. The firm
has also made acquisitions to expand into optical wear and watches. Its
reputation on Wall Street, however, is not quite as popular. In a
high-tech world, it seems many investors want nothing to do with this
boring stock. I see the situation from a different viewpoint.
The firm has a market cap of around $70 million, which is supported by
$57 million in net tangible assets and a wealth of valuable intangibles.
As such, I believe the stock is trading well below its intrinsic value.
Furthermore, the company is held primarily by the Boss family, and I
firmly believe they will prevent the company from being destroyed. If
the situation deteriorates further, then there is a possibility the
company could be placed for sale.
Last quarter, Cross reported a slight increase in revenues, which edged
up +1% to $29.6 million. However, rising costs associated with the
firm's transition to offshore manufacturing trimmed 120 basis points off
gross margins, which helped lead to a net loss for the quarter of
-$500,000, or -$0.03 per share. However, the bottom-line results did
show modest improvement from the -$700,000 loss posted a year ago.
Furthermore, the company clamped down on SG&A expenses, which
narrowed substantially.
On the sales front, Cross is seeing mixed results. International
operations, which generate about half of the firm's overall revenues,
continue to perform well. However, that growth was offset by weak
domestic sales of writing instruments and corporate gifts. Over the last
few weeks, the company has announced plans to launch several new
products, including reading glasses and a complete line of fine leather
goods.
Though ongoing restructuring charges are having a negative impact on
current results, the changes should pay off going forward. Furthermore,
the firm's balance sheet remains healthy. Cross also owns a valuable
hidden asset -- 269,000 square feet of manufacturing, warehouse, and
office space located in Lincoln, Rhode Island. The production capacity
of this facility is sufficient to meet the company's needs for the
foreseeable future. Considering this, as well as the often overlooked
attributes such as public image, solid management, and other previously
mentioned intangibles, I believe this firm is trading at a discount to
its intrinsic value.
It should also be noted that the firm's outstanding share count
continues to shrink thanks to aggressive share buybacks. The company has
shown an ability to generate profits in the past, and I believe it will
return to net profitability in the near future. It is just below the
breakeven point now, and a recent decision to move manufacturing to
China should help reduce future expenses.
Given the closely held nature of this company, the poor performance of
its stock, and the ongoing expenses of remaining a publicly traded
entity, there is also a chance that the company may be taken private for
a nice premium.
In conclusion, once A.T. Cross' restructuring actions begin to take
hold, margins should expand and the company should return to
profitability. Until then, given the relatively clean balance sheet,
continued share repurchases, new product lines and valuable intangibles,
the firm still has much to offer. A small purchase of this beaten-up
stock may be warranted for patient long-term investors.
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Important Note: The above article
was merely a small excerpt from a recent issue we sent to subscribers of
our premium value investing service -- Margin-of-Safety
Investing. In each issue of that newsletter, editors Nathan
Slaughter and Paul Tracy deliver an in-depth look at a variety of other deeply discounted
stocks that should provide investors with a solid margin of safety at
current prices. To receive your copy of our most recent issue of Margin-of-Safety
Investing, as well as other guidance similar to this twice per
month, you'll need to subscribe to this publication. To learn more,
please visit:
https://www.streetauthority.com/subscribe-msi.asp
Thanks for reading!
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Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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in-depth guidance on today's leading value opportunities, plus educational guidance, please subscribe to
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