The Top 14 Bargain Stocks

From Tom Winnifrith of t1ps.com

Small cap valuations right now look very attractive. The economy is picking up and M&A activity is accelerating. I believe that now is the time for a selective purchaser to make a killing, so, with this in mind, I've had a look back over my files and come up with a list of the cheapest shares in London, ranging from a couple of mid caps down to a couple of microcaps. I published the full list on www.t1ps.com last night but here are a couple of snippets. Sign up to he site now to get the full list.

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So, here's the list of my Top 14 bargain stocks:

1. My latest tip, which came out on Sunday night. This is the cheapest stock on AIM and is tipped HERE

2. Film producer Intandem (IFM) - a stock we hold in the SF t1ps Smaller Companies Fund and also in the t1ps EIS Fund. At 2.625p the market cap is just £2.7 million. It has net cash. In the year to June 30th 2010 I guess it will be at roughly breakeven or better. This year will see a big ramp up. Fixed overheads are c£1 million. The pipeline looks great and so profits could be anywhere between £400,000 and £1 million. As the back catalogue builds up life gets ever easier and next year I am looking for £750,000- £1.5 million. Historic losses mean tax won't be an issue for many a year and the management own 30% of the shares and their interests are 100% aligned with ours. When Intandem books a profit after tax of £1 million the market cap will be at least £10 million. Call it 10p a share. Whether that is this year or next I care not (that is a lie, I would prefer this year) but it is only a matter of time. Within 3 years we expect Intandem to be trading at 20p and we will happily buy shares at up to 5p now.

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3. Sorry if this is rather boring as the market cap is now c £350 million but at 470p Avanti Communications (AVN) - a stock held in the SF t1ps Growth Fund - is really very cheap whichever way you look at it. It is now funded to launch 3 satellites into space ( and fully insured if the worst happens which will only delay the programme by 6 months anyway). You value Avanti by discounting back the net cashflows these satellites will generate. That depends on how much capacity is sold and at what price. Use a model based on very conservative assumptions and this stock is worth £13 ( the lowest valuation in the market). But that model uses assumptions about sales prices which are already being beaten by forward sales Avanti is booking today. Use those prices and you head up to the £22.50 value of house broker Cenkos. My own view is that Avanti will do better still and this stock could therefore be worth £25. Excitement will mount as the first satellite is launched later this year. Remember those valuations are the Net Present Value of future cashflows ( i.e. what they are worth today). If you can buy at under 600p ( as you can now) you should do so and sit back and wait. I suspect after HYLAS 1 is launched you will never again be able to buy at less than 600p.

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9. Another boring stock (only 100% upside on a 12 month view) from the Growth Fund - ILX (ILX). The market still seems to view this as a boring classroom training company. It has not noticed that it has largely become an provider of training software which is far more scaleable and higher margin than its old business. ILX continues to grow apace overseas which will more than compensate for its exposure to the UK public sector. The company is generating cash and will be debt free within 2 years despite paying a 1.5p dividend ( which we elect to take in scrip) leaving the stock - as 23.5p - on a cracking 6.4% yield. But what you need to look at is earnings which should be 4.5p in the year to March 2011 and ( I reckon) 6p next year. So we are now just 9 months away from this stock being on a PE of less than 4 and being within 12 months of being debt free. Is a PE of 8 demanding? That is enough of a re-rating for you to double your money in 9 months. Personally I'd expect it to be on a double digit PE during the next financial year. Hence if you can get in at under 30 you are on track to double your money.

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12. Vatukoula Gold Mines (VGM) - which we own in the gold fund - has just raised another £7.4 million at 1.85p in the sort of institutional placing who so pisses off you and me. I knew about this when we recorded the recent webcast with Dave Paxton here on t1ps and I expressed my disquiet at a process which, in the undertaking, had seen the shares slump from 2.2p to 1.7p. But we are where we are. And at 1.87p the shares are just very cheap. Paxton will take his mine to 100,000 oz production during 2011 and to 200,000 oz within 3 years. Cash costs will be down to $500 within 3 years so - at even $1000 gold - that is a mine chucking off $100 million per annum with a 40 year mine life. The market cap today is £68 million ( with the new shares). So this is a stock on a 2012/13 PE of 1.That is clearly far too low. Notwithstanding the pissing off you and me I would argue that as with Northern Petroleum this is one where you are duty bound to buy as much as you can at up to 2.25p. Within three years this stock should be trading at 8p or more.

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As you can see, I believe there is no shortage of bargain stocks around at the moment. The four I have outlined above are great examples of this, but to really make the most of the current situation, why not view the full list of 14 on t1ps.com?

Included on the site is my number 1 bargain stock and new hot tip published last night which really is the cheapest stock on AIM.

Join t1ps.com now to get this brand new tip, one of 20 I publish each year on the site. You'll also get frequent updates on all tipped stocks as well as the exclusive diaries of legendary bear raider Evil Knievil - three times a week.

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