2 Small-Cap Value Stocks That Managed to Shine on a Dreary Day

 | Sep 06, 2017 | 11:00 AM EDT
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Stock quotes in this article:

cvu

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msn

Even continued tensions with North Korea, ongoing fallout from a natural disaster of epic proportions in Texas and the makings of a monster storm that looks poised to deal a severe blow to Florida could not coerce the broad markets to respond in dramatic fashion in yesterday's trading. The S&P 500 was down 0.75%, and could not manage to add just its seventh "volatile" day of 2017 -- volatile naively defined as a gain or loss of at least 1%. That's remarkable, to say the least.

As expected, things were not so rosy in value land -- a continuing theme in 2017 -- as the Russell 2000 and Russell Microcap indices were down 1.3 % and 1%, respectively, and are in negative territory year to date (off 2% and 1%, respectively).

There were small pockets of optimism in the small deep-value underbelly. Double-net defense play CPI Aerostructures Inc. (CVU) advanced about 3.5% on the day on no news, but likely due to its association with the defense industry. It has been a bumpy year for CPI Aerostructures, which is flat year to date but presented dumpster divers such as yours truly a nice opportunity in the spring when it dipped below $6 and traded below net current asset value (NCAV). CVU currently trades at 1.19 times NCAV and 11 times 2018 consensus estimates, though it is a rather small consensus with just three analysts covering the name.)

Even further down the scale, net/net Emerson Radio Corp. (MSN) enjoyed an 8% pop on a day that the consumer products company announced it was expanding its stock buyback program by another $5 million to a total of $10 million. With $1.83 per share in net cash while trading in the $1.20 range, Emerson Radio can afford to repurchase a boatload of shares, and since last December has bought back nearly 2.4 million shares at an average price of $1.46 a share.

Trading at just 0.54 times net current asset value, Emerson Radio's operating business has seen better days and has come under some activist investor pressure to increase share repurchases, pay a one-time dividend and explore a sale or liquidation. At this point, buybacks have won out, but at some point a bigger move is both warranted and necessary.

Meanwhile, precious metals continue to recover, with gold up more than 10% since July and silver up 16% during the same time frame as investors react to the ongoing situation in Korea. Yet the broad markets all but ignore a plethora of concerns, instead focusing, perhaps, on sentiment of an improving U.S. economy and thoughts that tax reform might get done despite congressional paralysis

While market dynamics never get boring, keeping some dry powder on hand in this environment is a must.

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