Trading below Cash Screen
This screen is loosely based on the "Cash Index" approach outlined by James Altucher in his book, "Trade Like Warren Buffett". He suggests a multi-pronged approach to analysing potential bargain/arbitrage stocks in times of market distress (post 2001 bubble / Iraq War).
First of all, he suggests that it's important to recognise that these stocks are likely to be trading for less than cash for a reason, namely the market thinks they will eventually declare bankruptcy. Some of the possible risks include: i) Inaccurate reflection of "cash on hand" in their books (leases, severance packages, etc), ii) Business model destined to fail, iii) Management with no incentive to return value to shareholders.
To minimise risk of buying a turkey, Altucher looks for eight factors: i) Market cap below cash, ii) Very low leverage, iii) Enough cash headroom to cover the current annual burn-rate, and iv) some stability in revenues and earnings.
In addition to these easily-screenable criteria, he suggested looking out for more qualitative factors: v) A reasonable belief that the sell-off in the stock was partly irrational, vi) Favorable arbitrage analysis - , i) Insider buying and viii) Institutional ownership. more »