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3 Tiny Shares Which May Be Potentially Hot Bargains

When it comes to looking for bargains in the stock market, a good place to start would be shares which are selling at prices lower than their net-current asset values (total assets minus total liabilities).

Such shares, which are known as net-nets, can be seen to be great investing opportunities theoretically because they’re worth more dead than alive. Investors who buy into a net-net share are essentially getting a discount on its current assets (things like cash, inventory, and bills that have yet to be paid by customers) net of all liabilities. As icing on the cake, a net-net share’s fixed assets (properties, factories, and equipment) are also thrown in for free.

Investing in net-net shares was made popular by Benjamin Graham, the well-known mentor of billionaire investor Warren Buffett many decades ago.

But, investing in net-net shares is not always a sure-fire way to riches. In a chat that my colleague Stanley Lim and I had with noted investing guru Professor Bruce Greenwald from the Columbia University (the school where Graham first lectured about investing) last year, he revealed that his impression of net-net investing in Asia is that it hasn’t done so well.

Net-net shares are often businesses in dire trouble, hence the pessimism from the market that manifests itself in the extremely low valuation carried by the shares. A crumbling business is a source of risk as well for net-net investors, especially those who are not adequately diversified.

With all the above in mind, here are three tiny shares (they all have market capitalisations of less than S$150 million) which may be potential bargains: Lifestyle furnishing outfit Nobel Design Holdings Ltd (SGX: 547), steel products supplier Hupsteel Limited (SGX: H73), and luxury watch retailer Cortina Holdings Limited (SGX: C41). The trio are all net-net shares, as you can see below (click for larger image):

Nobel Design, Hupsteel, Cortina (net-net shares) (2)

Source: S&P Capital IQ

The three shares have also managed to generate positive operating cash flow and net income over the last 12 months, which suggest that their businesses may not be as troubled as some of their other brethren in the net-net pool. This characteristic may help to offset some of the risks that are typically involved with net-net shares.

A Fool’s take

But, investors should note that none of all the above is meant to be a call to act on the shares of Nobel Design, Hupsteel, and Cortina Holdings. Instead, it’s only meant to highlight that with the trio having very low valuations and some desirable financial traits, they may be good candidates for a deeper look for investors who are out looking for cheap bargains in the market.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.