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Photograph Curtis Lantinga; Digital imaging Mark Tyler

Curtis Lantinga/Mark Tyler/Curtis Lantinga/Mark Tyler

It's called "taking a flier," meaning rolling the dice on an investment that could produce a big win or a complete loss, often on a company that's making big headlines. It's almost like a lottery ticket.

Not all fliers, however, are dependent on dumb luck. You can improve your odds by analyzing some hard numbers, particularly a company's assets.

Take Yellow Media, the troubled publisher of the Yellow Pages. Its share price has shrivelled to about 40 cents from $14 five years ago. And yes, the company took a writedown of $2.8 billion in the third quarter. Still, it had an operating profit of more than $500 million over the first nine months. That sounds enticing, doesn't it?

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Not so fast. First, revenues from phone books are withering. What about Yellow Media's efforts to diversify into new media? They've been disastrous so far. The company bought the Trader group of publications, then sold it a few years later for hundreds of millions less. Its online properties don't add up to much, either.

Yellow Media's board and management also waited far too long to cut its hefty dividend, and now the company's lenders are effectively in charge. Shrinking profits are eaten up by debt repayment.

True, Yellow Media had $9 billion in total assets at the end of the second quarter. But by the end of the third quarter, with the sale of Trader and the big writedown, assets had declined to about $5.1 billion. And most of that total is goodwill and other intangible assets, such as customer relationships.

Are those relationships worth all that money? Probably not. Customers can advertise for far less on the Internet than they can in the Yellow Pages. Current management isn't a valuable asset, either. They're richly paid, but have delivered very little.

I don't think Yellow Media passes the asset test. Even if it claws its way out of this mess, does it have lottery-ticket upside? No, but it certainly has the downside possibility of a total loss.

Research In Motion (RIM) might be a much better flier, although not necessarily at current prices. The company has lost its dominance in smartphones to Apple and Android. Yes, RIM is still profitable, but its revenues and market share have started to decline. Worse, the BlackBerry isn't cool any more.

But RIM has $14 billion (U.S.) in assets. Only about $3 billion are goodwill and other intangibles, and that number might understate the value of soft assets, such as RIM's 65 million users, great brand name (even Barack Obama uses a BlackBerry) and patents.

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Sure, many of RIM's customers are shifting to Android or iPhone, but its next generation of devices may win them back, and cement its strength in emerging-market countries. Plus, with a bit of a turnaround, RIM becomes a very attractive takeover target.

The difference between RIM and Yellow Media goes beyond the fact that RIM is in a growing industry. RIM's advantage is that it has solid assets that are undervalued on its balance sheet. Once its share price bottoms, it could offer plenty of upside, compensating investors for the risk of it going to zero.

Of course, you run the risk of crashing if you take a flier. But with a little work, you can improve your odds of soaring to cruising altitude.


VALUE Temple REIT Increase in operating income, Q2 2011 vs. Q2 2010: 37% They're not all four-star. Some of 'em ain't even three-star. But Temple REIT's hotels, most of them in Fort McMurray, are all-stars when it comes to profiting from the construction boom in the oil sands. Temple has about 40% of the market, its vacancy rate is going down and its average room rates are going up. So are dividends: The yield is 10%. CEO Arni Thorsteinson sees 2012 shaping up like 2007. He must believe it too, because he bought a bunch of stock this year. It's not too late to check in.

GROWTH Bauer Performance Sports Ltd. Price/cash flow ratio: 1.3 Calling all hockey dads: As you know all too well, it costs thousands of dollars to suit up your kid over the span of his recreational playing career. Why not hedge that cost with an investment in Bauer Performance Sports? The stock started trading at $8 this spring and promptly tripped over the blue line. But at seven times forward earnings, and given the strong statistical likelihood that you'll be spending a lot on the dominant manufacturer's gear, it looks like a smart little subsidy.

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