Hidden Value Plays: Palisades' New Found Stake

When a company's assets are worth more than its stock price

Back in 1932, as the Great Depression was crushing the American economy, a financial analyst named Benjamin Graham wondered if any US public companies were trading for less than the cash on their balance sheets. The intuitive answer would, of course, be no, since if you can buy a company for just its cash you get the rest of it for free, and how is that logical?

Logical or not, Graham found that of 600 companies on NYSE, a third sold for less than their asset value, and 50 sold below their cash equivalents. He instructed his broker to buy shares of that 50, and — even in the depths of the Depression — made a lot of money. As he wrote at the time:

The spectacle of a large and old established company selling in the market for such a small fraction of its quick assets is undoubtedly a startling one. But the picture becomes more impressive when we observe that there are literally dozens of other companies which also have quoted value less than their cash in bank – leaving out their plant and other fixed assets entirely.

This means that a great number of American businesses are quoted in liquidating value; that in the best recent judgement of Wall Street, these businesses are worth more dead than alive.

Not just cash

Obviously, a company selling for less than its cash balance is interesting. But there are lots of other variations on this theme. A company might have real estate that’s worth more than the factories or stores sitting on it. Or it might have stakes in other companies that add up to more than its market cap.