MARKET COMMENT
How To Buy £1 Coins For 50p

By Maynard Paton (TMFMayn)
September 2, 2004

Everybody would love to buy £1 coins for 50p. Here's how to do the equivalent in the stock market -- investing in cheap, asset-rich shares:

Step 1: Filter for suitable candidates: Simply log on to your favourite share-screening website and filter for shares whose market capitalisations are well below their tangible book value. Read more on share filters.

Step 2: Then check the annual reports: A company's annual report will list the type of tangible assets held. The assets plays to concentrate on are those whose balance sheets are dominated by cash, property and liquid/quoted investments -- items that are readily re-usable, re-saleable and whose value can be estimated with some accuracy. Read more on annual reports.

And that's it.

Sound just a little too easy? It is.

Most £1 balance sheet coins that appear undervalued do so because something could go very wrong. For instance, the company may not be earning enough to pay off its debts, or there could be sizeable share dilution in the offing, or perhaps there's a chance the assets will suffer a big write-off.

So, alternatively...

Step 3: Subscribe to the Motley Fool's Value Investor newsletter: Let the Fool do the investigative work for you.

Value Investor readers will already be aware of the success of Yates. Tipped at 103p in May, shareholders received a cash bid worth 147p per share just two months later. The pub group's book comprised mainly of property and newsletter subscribers were effectively able to buy £1 of Yates assets for 60p. Read more on Yates.

More recent Value Investor asset-play tips include UK Coal (LSE: UKC) and New Media SPARK (LSE: NMS). The coal miner's balance sheet is dominated by property and could be purchased for 72p for every £1 at the time of selection. Some of the firm's colliery land is set to be developed and a full property re-valuation is due soon.

Meanwhile, SPARK was reviewed when every £1 of its balance sheet could be bought for 78p. Its assets consist solely of cash and various quoted and unquoted investments. A recent disposal suggests the holdings are somewhat understated in the accounts.

Though it's early days for these two shares, they should prove rewarding in time.

In addition, September's edition of the newsletter will (all being well) highlight a small-cap share flush with freehold property and cash -- yet every £1 of the firm's assets is currently on offer for 50p!

Maynard writes every month for the Motley Fool's Value Investor newsletter. To enjoy a FREE 30-day newsletter trial, click here.