Benjamin Graham found great value in stocks with share prices trading at two-thirds net current asset value per share (NCAVPS). He would then sell once the share price hit its NCAVPS. It was hard back in the 1950s to find any companies that traded so cheaply, and today it's darn near impossible. However, that doesn't mean that the NCAV is useless to investors. On the contrary, it, like many other financial numbers, can be used to compare a group of companies in a given industry. To illustrate this point, I'll examine the top five (by market cap) publicly-traded meat product stocks in America. There's a lot you can uncover from NCAV despite the fact most times it's negative.

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Top 5 Meat Product Companies

Company Market Cap Net Current Asset Value Cash & Marketable Securities YTD Stock Return
BRF-Brasil Foods S.A. (NYSE:PDA) $9.3B ($626.3M) $1.1B 96.93%
Hormel Foods (NYSE:HRL) $5.0B ($42.0M) $312.3M 20.50%
Tyson Foods (NYSE:TSN) $4.8B ($1.76B) $845.0M 46.80%
Smithfield Foods (NYSE:SFD) $2.0B ($1.86B) $119.0M (2.70%)
Seaboard Corp. (NYSE:SEB $1.5B $570.7M $445.1M 1.42%

Only One in the Black
Seaboard Corporation, a Kansas City conglomerate, counts among its many subsidiaries a pork producer that generated 31% or $270.2 million in revenue in the second quarter, out of SEB's total of $869.8 million. Seaboard's biggest subsidiary is its commodity trading and milling division, which did $360.1 million in revenue in Q2, primarily in Africa> and South America. It's certainly a global business, but how does it compare to the big boys? Hormel delivered $847.6 million in revenue from its refrigerated products division (pork and beef) in Q2, almost as much as Seaboard's entire revenues in the quarter. Add in Hormel's other four segments and its quarterly revenue was almost double. There's no comparison. In terms of profits, it's the same story. Hormel's operating margin is 7.5% compared to 0.31% for Seaboard. Don't close the book just yet.

What Does This Tell Us?
My first thought is that Hormel is obviously a much better operated company; the margins don't lie. But that's exactly why NCAV is so helpful. It gives those interested in pure value the opportunity to dig below the surface for underappreciated assets. Investors like Warren Buffett knew this, calling it the "cigar butt" investment theory. If you buy a terrible company's stock low enough, once in awhile you'll get lucky. That's likely the case with Seaboard. It's currently trading at $1,220, 2.6 NCAV per share. Hormel and the others all have negative values and aren't applicable. Ben Graham would have paid no more than $304.49 for Seaboard stock. Further analysis is necessary to determine whether today's investment environment has changed enough to warrant a $900 difference. We shall see. (Learn the technique that Buffett, Lynch and other pros used to make their fortunes, check out The Value Investor's Handbook.)

A Rising Tide
Despite Seaboard's operating income declining for three straight years (a fourth is likely) from $320 million in 2005 to $122 million in 2008, its book value increased 49% from $978 million in 2005 to $1.5 billion three years later. During this time, its stock hit an all-time high of $2,675 in April 2007. That was truly overvalued. Today, its current price-to-book ratio (P/B) is as low as it's been since 2003 and much less than the average of its four competitors, which is 1.6 times book value. If you give Seaboard a P/B in between the average of its competitors and its own, you get 1.3, which puts a fair value of $1,564 on its stock, 30% lower than where it's currently trading.

Bottom Line
Seaboard depends heavily on commodity prices, probably more so than its competitors do. While Seaboard's positive NCAV is proof it won't be going out of business anytime soon, I have to wonder what it will do to turn the ship in the right direction. If greater profits don't come soon, this is dead money for some time. I'd look elsewhere for a value play. (In theory, a low P/B ratio means you have a cushion against poor performance. In practice, it is much less certain, read Book Value: Theory Vs. Reality.)

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