Polycom (PLCM) has been beaten so badly, you would need dental records to identify its bloodied body. Sitting near $22 and change, down from a high of $36.25 just about a year ago, the stock has gone on a straight line down.

The company recently beat revenue estimates with 16% year-over-year growth to $271.6 million on the quarter. Income grew 17% to $17.8 million, up from $10.1 million last year. EPS went from 11 cents in the second quarter of 2007 to 20 cents in the second quarter of 2008. Non-GAAP net income was 35 cents. But, alas, Wall Street, in its fickle way, expected 36 cents. Meanwhile, the company is a believer in its own shares and thinks they are cheap, so they purchased $80 million worth of stock.

Here’s the thing. People don’t like to travel anymore for meetings. Polycom is in the “telepresence” field – that is, you “tele” into a meeting, and it seems like you are present, through video-conferencing. Travel costs have been going up with the price of oil, airlines have been going bankrupt and cutting routes, and in an economic slowdown, there’s less reason to justify traveling cross-country for a meeting that’s probably not going to work out anyway. So teleconference there.

The company has $300 million in cash in the bank, no debt and a forward P/E of 12. It's not going to get worse for Polycom -- only better.

Sears Holdings' (SHLD) Chairman Eddie Lampert has taken a lot of grief lately for his investment in Sears. At first he was considered a superstar for taking the beleaguered and bankrupt K-Mart, monetizing its real estate and merging operations with the almost-equally-beleaguered Sears. He was a genius at finding undervalued assets, but his reputation as a retailer is in question.

He had a horrible miss last quarter, coming in with an EPS of -53 cents when analysts were expecting 14 cents. The quarter before, he came in at $3.04 EPS with analysts expecting $3.10, and the quarter before that he came in at 1 cent with analysts expecting 50 cents. But Lampert has never catered to the analysts. Rather, this is still a story of assets that are not being added into book value, providing a huge margin of safety at these levels.

First off, let's look at the basic multiple on EBITDA. Part of the problem is that investors are not trusting Lampert on his future EBITDA potential, but the company still has $50 billion in revenues and is still generating positive margins overall. With EBITDA at $2.2 billion and that number likely to grow for 2009, the company currently trades at about 6 times EBITDA, vs. 8 times for competitor Target (TGT) and 7 times for a competitor such as Kohl's (KSS). If Lampert can improve margins from 4% or more of an industry standard like 6% to 8%, then there’s an even greater margin of safety -- but that’s a big if.

According to hedge fund manager Bill Ackman (and I read this in the blog CircleofCompetence.com), Sears has $250 million in real estate square footage that the market is valuing at about $50 per square foot (I’m obtaining that by dividing the enterprise value of $12 billion by the number of square feet). Compare this with JC Penney (JCP) ($144 per square foot) and Kohls ($319 per square foot) and Target ($341 per square foot), and we find also significant margin of safety.

Sometimes when everyone is selling the former darlings, it feels fashionable to also be among the sellers. But sometimes the kid who hung out by himself on the playground reading a book while the rest of the kids were playing is the one who ends up making the most money.

Published July 24, 2008