Ben Graham, offshore and stocks

When Benjamin Graham looked for potential investments, the first thing he looked at was the book value of the company. Why? Because future cash flows are hard to determine with any certainty, the only thing you can be sure of is what the assets of a company is worth. After the rapid gain in stock markets the last year, a lot of companies has exceeded a price on equity of one; implying that they are going to make money for next years.

The question is why some companies don't reach these levels. And whether that is because they are going to lose a lot of money, or because the market has a mistaken view of the company. I've looked into some offshore supply providers, and the difference in the price of equity is huge. Some of the discounts and premiums can easily explained by newbuilding programs or huge amounts of debt. But I have found that in some cases the reasons for a price difference is not good enough to explain e.g. the 25% difference in price on equity between SIOFF and DESSC.

I have to admit that there is a reason why you should not invest in either of these companies: The current market. The only reason they are making money is because of (old) long term contracts; the current spot market for these kinds of services is at or below break even levels. So until Petrobras decides to charter AHTSs again, and rig activity increases around the world, it's going to be painful for the offshore supply companies. But maybe it's a great time to buy shares in great companies at a low price also?

I hope so, because I've already bought some SIOFF shares...