With just over two months under its belt, my 2018 Double Net Value Portfolio, has started to show some cracks, which is not all that surprising given all of the recent market volatility. The portfolio is down 3.6% since its 12/21/2017 inception, and it is now underperforming both the Russell 2000 (which is down 0.2%) and Russell Microcap Indexes (+1.3%). The value components of each index, which are the best way to benchmark the portfolio given its value leanings, are again underperforming the growth component, with the Russell 2000 Value Index down 2.9%, and the Russell Microcap Value Index flat.
It is always important see how such value screens perform in times of market stress, and I am certainly getting my wish.
By way of a reminder, the screening criteria for the portfolio are as follows.
- Companies trade at between 1 and 2 times net current asset value (NCAV)
- Minimum market cap $150 million
- No development stage pharmaceuticals/biotechs
In a big reversal from my last column on this portfolio, just six of the 20 names are in positive territory since inception. The big winner remains Fossil Group (FOSL) (+76%), which put up much better than expected fourth-quarter results on Feb. 13, and more than doubled between Feb. 12 and Feb. 14 to about $17 before pulling back to the $14 range. There's renewed interest in the name, and we'll see if there was any truth to recent takeover rumors.
Hibbett Sports (HIBB) (+19%) is down slightly since our last update, but is still the portfolio's second best performer. Preliminary fourth quarter results were better than expected, with same-store sales in positive territory (+1.6%), and earnings in the 47 to 51 cent range, but we'll know more when the company reports actual results next week. For now, the stock seems to be treading water in the $25 range, but that's after a run-up from a $9.40 intraday bottom on Aug. 18.
The biggest loser so far is Gulf Island Fabrication (GIFI) (-37.5%) which reported a very rough fourth quarter last week, and fell 32% on Wednesday. That price decline, based on summary balance sheet data, puts GIFI into net/net territory (trading below net current asset value); more on this once the 10K has been released.
CSS Industries (CSS) (-34.7%) has also struggled, despite putting up better-than-expected fourth-quarter earnings results on Feb. 7. The company reported earnings per share of $1.52, beating the "consensus" (just one analyst covers the name) by 20 cents. Revenue of $130.6 million, however, missed the mark by $3.9 million. CSS now trades at just 1.17x net current asset value, and yields 4.3%.
Rounding out performance:
- EMCOR (EMKR) (-19.5%)
- Big 5 Sporting Goods (BGFV) (-16.7%)
- Adams Resources & Energy (AE) (-16.1%)
- FreightCar America (RAIL) (-14.8%)
- Super Micro Computer (SMCI) (+14.3%)
- Essendant (ESND) (-13.8%)
- Universal Corp (UVV) (-8.1%)
- Dril-Quip (DRQ) (-7.6%)
- Hurco (HURC) (-2.8%)
- AVX Corp (AVX) (-2.7%)
- Gencor (GENC) (-1.8%)
- Benchmark Electronics (BHE) (-1.2%)
All in all, it's been an ugly month for this portfolio, and we'll see if there are better days ahead.