In my weekly premium newsletter -- Undiscovered Micro-Cap Gems -- my goal is to introduce readers to a variety of promising micro-cap investing ideas that they may wish to consider for their portfolios. In doing so, I generally look for small, neglected companies that have been overlooked by conventional Wall Street sources. I also look for undervalued firms that are trading at a steep discount to their intrinsic value. Many of these individual investment ideas have the potential to deliver triple-digit percentage gains in the years ahead.

Below you'll find an in-depth look at one such investing idea that I introduced my readers to in a recent issue. To gain access to dozens of similar investing ideas each and every week, you'll need to subscribe to my Undiscovered Micro-Cap Gems service. In the meantime, I sincerely hope you enjoy today's sneak peak at one of my most recent micro-cap investing ideas...

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A.T. Cross (ATX, $4.66)
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Editor's Note: John DiStanislao first introduced ATX to his paid Undiscovered Micro-Cap Gems subscribers on June 27th at a price of $4.12 per share. Since that time the stock has increased +13.1%.

A.T. Cross has been in business since 1846, and over the years this company's high quality writing instruments have built valuable name-brand recognition in the minds of consumers. In addition to ball-point pens and mechanical pencils, the company has branched out into product lines ranging from fashionable letter openers and money clips to polarized sunglasses sold under the Costa Del Mar name. A.T. Cross' products are available at jewelry stores, department stores, gift stores, office supply stores, sporting goods stores, and other retail outlets.

My initial attraction to A.T. Cross was based on the firm's valuable brand name, its high-quality products, and its dismal stock performance in recent years. The shares have gone nowhere over the last five years and are still trading well below levels that were reached two decades ago. Given the potential for a turnaround opportunity in this highly oversold stock, I became intrigued and decided to take a closer look.

Cross is a closely held firm, as insiders own the majority of the shares. Director Galal Doss alone owns roughly two-thirds of the company. Value-oriented institutional players hold most of the remaining shares. As a result, the float is a relatively small 6.7 million shares. The true attraction to this stock does not lie so much in the company's financial statements. Instead, the value is buried in the intangibles: brand names, market share, a loyal customer base, supply chain power, and other competitive advantages.

The general public has heard of the Cross name because of the company's long history of designing and marketing pens and accessories. The firm has also made acquisitions to expand into optical wear and watches. Its reputation on Wall Street, however, is not quite as popular. In a high-tech world, it seems many investors want nothing to do with this boring stock. I see the situation from a different viewpoint.

The firm has a market cap of around $70 million, which is supported by $57 million in net tangible assets and a wealth of valuable intangibles. As such, I believe the stock is trading well below its intrinsic value. Furthermore, the company is held primarily by the Boss family, and I firmly believe they will prevent the company from being destroyed. If the situation deteriorates further, then there is a possibility the company could be placed for sale.

Last quarter, Cross reported a slight increase in revenues, which edged up +1% to $29.6 million. However, rising costs associated with the firm's transition to offshore manufacturing trimmed 120 basis points off gross margins, which helped lead to a net loss for the quarter of -$500,000, or -$0.03 per share. However, the bottom-line results did show modest improvement from the -$700,000 loss posted a year ago. Furthermore, the company clamped down on SG&A expenses, which narrowed substantially.

On the sales front, Cross is seeing mixed results. International operations, which generate about half of the firm's overall revenues, continue to perform well. However, that growth was offset by weak domestic sales of writing instruments and corporate gifts. Over the last few weeks, the company has announced plans to launch several new products, including reading glasses and a complete line of fine leather goods.

Though ongoing restructuring charges are having a negative impact on current results, the changes should pay off going forward. Furthermore, the firm's balance sheet remains healthy. Cross also owns a valuable hidden asset -- 269,000 square feet of manufacturing, warehouse, and office space located in Lincoln, Rhode Island. The production capacity of this facility is sufficient to meet the company's needs for the foreseeable future. Considering this, as well as the often overlooked attributes such as public image, solid management, and other previously mentioned intangibles, I believe this firm is trading at a discount to its intrinsic value.

It should also be noted that the firm's outstanding share count continues to shrink thanks to aggressive share buybacks. The company has shown an ability to generate profits in the past, and I believe it will return to net profitability in the near future. It is just below the breakeven point now, and a recent decision to move manufacturing to China should help reduce future expenses.

Given the closely held nature of this company, the poor performance of its stock, and the ongoing expenses of remaining a publicly traded entity, there is also a chance that the company may be taken private for a nice premium.

In conclusion, once A.T. Cross' restructuring actions begin to take hold, margins should expand and the company should return to profitability. Until then, given the relatively clean balance sheet, continued share repurchases, new product lines and valuable intangibles, the firm still has much to offer. A small purchase of this beaten-up stock may be warranted for patient long-term investors.

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Important Note: The above article was merely a small excerpt from a recent issue we sent to subscribers of our premium value investing service -- Margin-of-Safety Investing. In each issue of that newsletter, editors Nathan Slaughter and Paul Tracy deliver an in-depth look at a variety of other deeply discounted stocks that should provide investors with a solid margin of safety at current prices. To receive your copy of our most recent issue of Margin-of-Safety Investing, as well as other guidance similar to this twice per month, you'll need to subscribe to this publication. To learn more, please visit:
https://www.streetauthority.com/subscribe-msi.asp

Thanks for reading!

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