When the market falls out of bed, no stock is safe. Investors disregard any potential growth prospects and ignore all financial statements, indiscriminately dumping every kind of stock. This has surely been the case during the past two weeks, as a string of sharp losses for the major indexes has inflicted even greater pain for many individual stocks. Several hundred stocks have fallen 20% or more in November.

Of course, the selling may continue, so it pays to only snap up bargains that have tangible downside support. And going back to the days of value-investing titans such as Benjamin Graham and David Dodd, that support can always be found on the balance sheet.

I went in search of the cheapest stock I could find (with a market value of at least $200 million), and I think I’ve found it. It’s so cheap, it’s hard to see how it can fall any further. It’s also likely to have the same upside when investors start loading up on stocks again.

That stock: data-storage maker Imation (NYSE: IMN).

The former division of 3M (NYSE: MMM) (it was spun out in the mid-1990s) has peaked in terms of sales, so management is focusing on generating free cash flow. But ‘et’s start with a most basic reference point. Imation has a market value of roughly $210 million and generated $138 million in free cash flow in 2010. Few stocks trade for about 1.5 times trailing free cash flow as is the case with Imation. I’ll correct that… I’ve never seen such a low multiple before. In fact, the company has generated at least $50 million in free cash flow for each of the past seven years. (You’d have to go back to 2006 to find the last time the company generated a GAAP profit, but free cash flow is the real metric for which you need to measure this stock.)

What has that free cash flow done to the balance sheet? In the most recent quarter, Imation had $233 million in cash, $235 million in inventory and roughly $10 million in net receivables (accounts receivable minus accounts payable). And the company carries zero debt. Tangible book value stands at $394 million. As noted, this is a stock that is valued by the market by about half as much (the market cap is about $210 million). The price-to-sales ratio is just 0.16. Ignoring these numbers, investors pushed this stock down in the week of Nov. 21  to an all-time low.

Part of the sell-off is attributable to the company’s relative anonymity on Wall Street. Imation used to have roughly a dozen analysts following it, but now there is just one. The company’s balance sheet strength means it has generated little interest by way of the investment banking activity, so there’s little economic incentive for firms to provide research coverage.

Of course, this company isn’t the picture of health. Imation’s legacy storage products such as blank CDs and DVDs are seeing falling demand, while newer storage products such as data-protection devices that are attached to servers have yet to offset the declines. To turn around the flagging income statement, Imation has made a series of acquisitions to broaden its product line. (Cash stood at $300 million prior to these spending plans at the end of 2010.) Management believes those deals will help fuel organic growth and expects sales to start rising again in about a year from now. They backed up that sentiment through a modest amount of insider buying in June and again in September — at considerably higher prices. Just this week (Nov. 27), CEO Mark Lucas made the most significant insider purchase yet, acquiring 20,000 shares at an average cost of $5.50 a share.

Still, the most recent quarter shows the downside of investments in growth. To support the recent acquisitions, general overhead expenses rose about $3 million from a year ago to $52.7 million. Spending on research and development is also on the rise, now at a recent $5.3 million, the highest level in eight quarters. Cash is also being applied to a stock buyback — 400,000 shares were bought in the third quarter and another 1.2 million shares remain on the current buyback authorization.

Frankly, with this stock so far below tangible book value, Imation should be buying back stock much more aggressively. A $125 million cash cushion is all that is needed to support this business, so if Imation spent $100 million on a big buyback, then it could reduce the share count from a current 37.5 million to 21 million, assuming a $6 stock price.

So what is this stock likely worth? Well, tangible book value of $10.50 a share is one gauge you can use, which implies nearly 100% upside. Indeed, the stock traded in the $9-$12 range for much of the past two years, until this summer’s market rout led to a sharp drop.

Looked at another way, you can conservatively model about $50 million in free cash flow for the company (which would be below the recent four-year average of $65 million) in 2012 and beyond. (The company’s heavy investments in growth are dampening free cash flow in 2011.) Let’s assume the stock deserves to trade at a 12% free cash flow yield, which implies about a $400 million market value. This pegs the stock at $11. If the company were to aggressively buy back stock, as suggested earlier, then a similar free cash flow yield would peg a target price closer to $15 a share — about 160% higher than where the stock sits now.

Risks to Consider: Imation’s turnaround plan will take several more quarters to complete and, as long as the stock market stays in selloff mode, the stock may not garner much interest.

Action to Take–> The timing of a stock rebound is unclear, but powerful drivers are in place, most notably on the balance sheet. Meanwhile, shares have fallen so far below any kind of reasonable measure that further downside appears limited.