• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing

Not All Net/Nets Are Buyable

When searching for stocks that trade below net current asset value, beware of value traps.
By JONATHAN HELLER
Feb 01, 2012 | 12:30 PM EST
Stocks quotes in this article: IM, BHE, SKX, TECD, MOV, FORM, IMN, WSTL, MAXY, NPTN, TUES, AVNW, KSWS, OPXT

On Monday, I wrote about some of the recent "graduates" from net/net land. Today I'll focus on some of the companies that are currently trading below their net current asset value (NCAV).

By way of a refresher, and for new readers, the calculation for identifying net/nets is fairly simple: Subtract total liabilities (including minority interests and preferred equity if applicable) from current assets, and then compare that with the company's current market cap. If the market cap is below the number you have calculated, you've found a net/net. Ben Graham, who developed the technique, took it a few steps further and was a bit more stringent about those he considered investable, but we'll save that discussion for another day.

Given the run-up we've seen in the markets lately, it's not surprising that the number of net/nets with market caps greater than $100 million is rather low at this point, at 10. Their average size is also rather small, at around $150 million. Over the past couple of years, we've seen some bigger names at times, such as Ingram Micro (IM), Benchmark Electronics (BHE), Skechers (SKX), Tech Data (TECD) and Movado (MOV), to name a handful, but that's not the market environment we are in at this point.

The biggest net/net I'm finding now, besides FormFactor (FORM), which was mentioned in Monday's column, is the data-storage company Imation (IMN). At first glance, on the basis of balance sheet alone, Imation looks interesting. But since it is currently trading at just 0.73x NCAV and just below net cash of $6.21 per share, Imation could be the epitome of the phrase "some stocks are cheap for good reasons." Imation has not had a profitable year since 2006, and the company has been burning cash. A return to profitability would make shares soar, but that remains to be seen. This is the classic case of a net/net whose best hope at this point is to be acquired. There may indeed be some value here, but I'm cautious, lest I fall into the much-dreaded value trap.

Westell Technologies (WSTL) is a fairly new addition to net/net land. Currently trading at 0.92 times NCAV, the company ended the year with $142 million (excluding restricted cash), or $2.14 per share in cash, which is very close to the current share price. The company is in transition, having recently sold its Conference Plus and Customer Networking Solutions businesses. This past year, Westell bought back 1.7 million shares of stock, a positive in my view. Expectations from the few analysts who cover this name are that the company will be marginally profitable in 2012 and 2013.

Other current net/nets include Maxygen (MAXY), NeoPhotonics (NPTN), seemingly perennial net/net retailer Tuesday Morning (TUES), Aviat Networks (AVNW), K-Swiss (KSWS) and Opnext (OPXT). Certainly not a very broad or compelling list of names at this point, but so it goes in net/net land. 

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Heller was long IM, SKX.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider MOV, WSTL, MAXY, NPTN, TUES, AVNW, KSWS and OPXT to be a small-cap stock.  You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

TAGS: Investing | U.S. Equity | Stocks

More from Investing

Fed Talk Prompts Some Buying

James "Rev Shark" DePorre
May 17, 2022 4:37 PM EDT

This is still just bear-market bounce, but that doesn't mean it can't run for a while.

What's Up? DOCS Might Be Soon

Bruce Kamich
May 17, 2022 2:45 PM EDT

Shares of medical network platform Doximity are positioned for a rally, according to the charts.

The Safe Bet for DraftKings? Checking the Charts, First

Bruce Kamich
May 17, 2022 2:00 PM EDT

Let's see if DKNG could rally from here.

J.B. Hunt's 18 Wheelers Are Ready to Roll Again

Bruce Kamich
May 17, 2022 1:15 PM EDT

Let's see what the charts and indicators look like.

You Don't Have to Takes Sides on Apple (If Your Timing Is Right)

Ed Ponsi
May 17, 2022 11:51 AM EDT

It appears that hedge fund owner Michael Burry is betting against AAPL and Warren Buffett is betting on the stock. But let's look at their strategies and why they might both turn out winners.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 03:07 PM EDT PAUL PRICE

    Why is Wal-Mart Down Big Today?

    Besides its poor earnings report Wal-Mart (WMT) wa...
  • 07:14 PM EDT PAUL PRICE

    A New, Very Scary Movie

  • 08:51 AM EDT PAUL PRICE

    Advice From the Future...

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login