6 Stocks Ripe for Some Bottom-Fishing

Eastman Kodak (EK) turned up recently on a bargain hunt among stocks hitting fresh 52-week lows. It might as well have been a screen for decade lows, or two-decade lows, or four-decade ones. In the past decade alone, Kodak stockholders have watched their principal shrink by 89% and their dividends collapse from $1.76 a share to 50 cents.

Let's not continue to blame Kodak's demise on the shift from print photography to digital. IBM (IBM) has managed to multiply more than 15 times in value since the early 1960s, even though I haven't used a typewriter in two decades. Nor should we continue to assume that Kodak's shift to digital photography products will eventually revive its stock. True, Kodak's third-quarter profit, reported Oct. 30, more than doubled and its digital business produced decent sales. But overall sales slipped 5%. The profit jump was owed mostly to a comparison against year-ago profits that were clipped by big restructuring charges.

Consider this hopeful headline: "Kodak Net Soars as Its Focus Shifts to Digital Lines." That's from The Wall Street Journal in April 2004 (the month Kodak was dropped from the Dow Jones Industrial Average after 74 years). The stock has lost two-thirds of its value since then. Kodak's digital reorganization is, in fact, in its fifth weary year.

During that time the company has halved its workforce, sold a health imaging unit and spent more than $3 billion to make the shift. Digital goods and services now make up more than two-thirds of total sales. That alone is no assurance that stock returns will improve. Ask Canon (CAJ). Any camera nerd will tell you that it's a perennial winner in quality rankings for things like $250 point-and-shoot cameras and $800 not-quite-professional camcorders. Over the past year, though, its stock has fallen more or less in concert with the broad Japanese and American stock markets. Profits have shrunk on general consumer crankiness and price wars in the digital camera business.

This should go without saying, but Kodak is worth something. That is, if I offered you the company for $1,000 -- the land, buildings, machines, patents and so on -- you'd take it. You'd pay $10,000 or $10 million, too. The sales outlook for Kodak might be dismal -- Wall Street expects declines of 4% this year and 6.5% next year -- but this is, after all, a company that will produce more than $9 billion in sales next year. Its net worth, or assets less liabilities, is listed at more than $4 billion.

I wouldn't call Kodak the picture of financial strength; its corporate debt is rated below investment grade and Standard & Poor's has the company on its watch list for a possible downgrade. But the company holds $1.8 billion in cash and equivalents, an amount equal to four-fifths of its stock market value and which exceeds its long-term debt by a half-billion dollars. So the dividend seems safe for now. Also, Kodak has reduced its debt by $294 million this year and last quarter spent $219 million on its own stock. (I'm not sure if the latter qualifies as management confidence or a lack of appreciation for the stock's history, but I'll bet stockholders would have preferred a one-time dividend.)

All told, a suitably ugly price for Kodak seems to be something like 25 cents on the dollar for the stuff it owns free and clear, plus about 10 years' worth of dividends upfront. Such a price would value, say, General Electric (GE), another long-term disappointment whose shares I recently snubbed at $19, at about $15 a share. For Kodak my ugly price works out to about $9. Shares fell well below that Thursday. A confident endorsement this isn't. But today's price for Kodak just might be awful enough to work out well.

Have a look if you like at all six companies that turned up recently on my bottom-fishing screen. Run the search anytime you like using SmartMoney's stock screener and the full list of criteria.

• Share price within 5% of 52-week low
• Trailing 12-month sales greater than $300 million
• Price/sales ratio below industry median
• Price/book value ratio below industry median