Cheap Shares This Week: The Bulls Are Back

Welcome to another edition of Cheap Shares This Week - a summary of the week's events in the world of value investing and some other stuff.

After six weeks of gains, the ASX200 index hit a new 5 year high this week.  While that might make us all feel good as we watch our share portfolios swell with recent stock price gains, it makes it harder for the value investors lurking among us.  It is becoming harder and harder to find value in the stock market at the right now.  And with dividend season upon us, I have more and more cash looking for a home.

Well, enough bad news for now...

Reading For This Week

This week you need to read An Hour With Mr. Graham.

For those who don't know, Benjamin Graham is probably one of the greatest minds in investing.  In the wake of the great depression, he brought a level of rigor to investing which until that time had been missing.  He also taught and inspired a generation of some of the most successful value investors of the 20th century.

In this 1976 interview Hartman L. Butler quizzes Benjamin Graham on a number of topics, but the one I found most interesting was the idea of applying a "group approach" to buying undervalued shares.

Graham advocates keeping things simple when it comes to investments.

Interesting Investment Ideas

Each week I rummage through the basement of the ASX in the hope of finding some hidden treasure.  Mostly the shares to be found here have ended up in the basement for good reason and should be left undisturbed.  But occasionally there is treasure to be found among the trash.

Please don't take any of the stocks listed here as recommendations.  You should always do your own research and obtain independent advice.

Only one idea this week.  The lack of cheap shares on offer might have something to do with record stock market prices...

John Shearer Holdings (ASX:SHR) reached a multi-year low of $1.26 this week.  In fact it's the lowest price the company's shares have traded at in more than a decade.  And when you look at the earnings history, you can understand why. Net Profit After Tax (NPAT) averaged about $3m - $4m between 2004 and 2009. However, over the last 4 years things have taken a turn for the worse. In 2010, NPAT was $0.7m, 2011 was $0.4m, 2012 a $1.4m loss and 2013 a $1.5m loss.  Profits are heading in the wrong direction.

But what attracted me to John Shearer Holdings was a note in the financial statements this year.  While the "Steel Shelving and Storage Systems" division is losing money, the "Agricultural Machinery and Transport Equipment" division is making a profit.  What this means is that the company could sell off or shut down the unprofitable part of the business and return to profitability.

And just to add to comfort levels, John Shearer Holdings has net tangible assets of over $3.00 per share and cash of about 75 cents per share.  That gives the company some room to breath.

I should say at this point that selling the unprofitable division is purely speculation on my part.  I don't know whether it's practical or even possible.  More importantly, I don't know whether it is something directors would seriously consider.  It would make the company considerably smaller.

Definitely one for further research though.

Who Reads Cheap Shares?

I got a surprise this week when I checked what countries readers of Cheap Shares come from.  The following is a list of the top 10 countries in order of page views.

1. Australia
2. United States
3. China
4. South Korea
5. Serbia 
6. France
7. Russia
8. Taiwan
9. Germany
10. United Kingdom

Australia being number one is no surprise.  And I can even understand the US and UK being in the list.  It's the non-English speaking countries which surprised me.  I may have to consider publishing content which is more global in nature.

That's it for this week.  Happy investing!