Apollo Investment Corp. (AINV)

AINV is on sale, and is a buy.

AINV's business is to invest funds in other companies -- and its balance sheet is full of these investments, which it may "flip" if it wants but which it is also perfectly able to sit back and allow to mature. A graph on the company web site seems to indicate that its investment holdings are largely debt instruments -- a result one would expect from a company focused on "mezzanine and senior secured loans".

But an interesting thing has happened to this double-digit-dividend champion. AINV's premium to net asset value has vanished, and it trades at a DISCOUNT to NAV. Shares is just issued near $20 to roll into deals are now for sale for about $16. How can that be?

In addition to the NAV premium evaporating as folks bail on good companies (the evidence for it at the moment is good, and I'll point to GS, MA, GOOG, AAPL, and ACAS as some off-the-cuff examples of selling without any apparent support in the form of changed corporate fundamentals), NAV has been hammered by peculiarity of accounting standards.

With the market for credit instruments of even big, highly-rated firms being hammered (and the meaning of their ratings being doubted), the market for little companies' debt instruments isn't exactly thriving. AINV isn't able to give a value on its balance sheet based on the present value of expected future returns (the measure by which an investment's worthiness is evaluated) assuming AINV holds it until it does what AINV expects, but instead must list the value AINV could get if it were forced at gunpoint to dump it in the present markets. Consequently, NAV is hammered in AINV even as the price premium plummets into a discount.

So AINV presently offers a double sale on investments: a valuation discount due to the credit/debt markets' recent dislocations, and a NAV discount. AINV isn't being singled out for NAV discount, either: folks running for the hills with their money have left a lowball price on the table for us.

Like the rule commands, buy when others are fearful. AINV is such a play.

For more like this, ACAS is also a suddenly-discounted company with a strong history of effective management.