Danier Leather

Well, I've been poring over The Intelligent Investor the last couple of weeks, while trying to build a model for ranking stocks based on Graham's principles.

But while perusing stocks I came across what is quite a rarity these days, a common stock selling for "less than the company's net working capital alone, after deducting all prior obligations." (Intelligent Investor, 4th Revised edition, p 85 - note this ISN'T the version with the Jason Zweig commentary). Graham says his experience with this kind of investment selection - on a diversified basis - was uniformly good.

The stock is, of course, Danier Leather (TSX:DL), the Canadian leather retailer . Here are the latest financials. The current assets are $47.7million, the total liabilities only $14.0million. With 6.4 million shares outstanding, that leaves a "net net" working capital of $5.22 per share against a stock price of $3.60. (That $5.22 excludes all fixed assets, primarily leasehold improvements, which would not be so valuable in a liquidiation, but also some land, buildings and furniture, which would have some value). So this is definitely a cheap stock. The caveat is that Danier has been struggling for years to make money. They were profitable last year only because of a $20million lawsuit reversal. Still, for their first few years as a publicly traded company they performed quite well, and according to their annual report they have been around since 1972. So presumably they were profitable for a while. Perhaps the lawsuit, which dragged on back and forth for years, was a distraction, and now, with it finally over, management will get back to business and start turning a profit? Only time will tell.

Remember though, this is just one stock. Graham was quite adamant that following this sort of approach required diversification to ensure some level of safety. Unfortunately, there aren't a whole lot of these types of bargains available. Jonathan Heller at http://stocksbelowncav.blogspot.com/ tracks these types of bargains in the U.S., so if you have some U.S. dollars to invest, or don't mind paying up right now for the greenback, you could diversify that way.

Of course, it is important you do your own research and/or consult a professional before buying any stocks or making any investments. I do not presently own any Danier Leather myself, but might consider making purchases in the near future.