• 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
    • TheStreet Smarts
  1. Home
  2. / Investing

Second 'Double Net' Stock Gets a Big Buyout

Two beaten-down stocks that have won big.
By JONATHAN HELLER
Mar 18, 2016 | 11:00 AM EDT
Stocks quotes in this article: RSTI, IM, COHR

A second "double net" stock that I've been following has agreed to a buyout. Rofin-Sinar Technologies (RSTI) plans to sell itself to Coherent Inc. (COHR) for $32.50 a share in cash ¿ a 41.8% premium over what RSTI had been trading for prior to the deal's announcement.

The $942 million acquisition represents just the latest takeover of what I call double-net stocks, or those that trade for just 1x to 2x net current asset value. My Double Net Dividend Portfolio (which I also call my "Buying Ugly Portfolio") consists of such stocks that have at least $250 million in market cap and have paid a dividend within the past year.

RSTI wasn't in the portfolio, but Ingram Micro (IM) was -- and agreed to a $6 billion buyout last month from China's Tianjin Tianhai Investment Co. Tianjin will pay $38.90 in cash per share for IM, or a 31.2% premium over the stock's price prior to the deal.

Rofin-Sinar had been the subject of demands from activist investor Silver Arrow Capital, but Wednesday's merger announcement might not completely satisfy some shareholders. That's because RSTI traded as high as $43 a share five years ago, although the stock stumbled thereafter and has been range-bound ever since.

But as I wrote recently, takeovers are always a possibility with these cheaply valued companies. Some attributes that Rofin-Sinar and Ingram share also explain their appeal to acquirers ¿ and could make other "Buying Ugly" components ripe for takeovers. For example, both IM and RSTI:

  • Were trading at relatively small multiples of their net current asset values (which is inherent to the portfolio).
  • Have fairly healthy amounts of cash on their books. Both firms ended their latest quarters with more than $6 in cash per share.
  • Traded at relatively low forward price-to-earnings ratios prior to the takeover announcements. IM was selling for about 9x next year's consensus earnings estimates, while RSTI was going for about a 13x forward P/E.

However, the two firms also have some notable differences. For instance:

  • Ingram has a fair amount of debt ($1.1 billion), while Rofin-Sinar has just $23 million of such obligations.
  • IM is a high-turnover/low-margin business and Rofin-Sinar isn't. Ingram earned $215 million last year on more than $43 billion in revenue, which gave the firm just a 0.5% net profit margin. By contrast, Rofin-Sinar bottom-lined $41 million on some $520 million of sales, garnering an 8% net profit margin.

Still, both stocks are fundamentally cheap names, making them attractive to acquirers in a period where there's not a very large universe of low-cost companies out there.

That said, the fact that suitors agreed to buy two double-net stocks in one month was probably just luck, and I don't expect that pace to continue. But in addition to providing updates on the portfolio, I'll use in future columns to highlight some other double-net stocks that aren't currently in the portfolio for one reason or another.

I see a couple dozen such names out there with market caps of $200 million or more, as well as 17 that have market caps between $100 and $200 million. And that excludes unprofitable biotech companies whose net current assets aren't meaningful given such firms' propensities to burn cash.

(Editor's note: An earlier version of this column incorrectly identified RSTI as part of the "Buying Ugly" portfolio.)

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 had no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity

More from Investing

I See a Way to Make Some Bread Off of Toast Inc.

Bret Jensen
May 28, 2023 7:00 AM EDT

Here's an options play on this software company for the restaurant industry.

Don't Just Sit There and 'Hope' for Your Stocks, Make a Decision

James "Rev Shark" DePorre
May 27, 2023 10:00 AM EDT

The biggest investing and trading mistake that people make is that they don't have a plan.

3 High-Yield International Oil & Gas Majors

Bob Ciura
May 27, 2023 7:15 AM EDT

The top global energy names are returning more cash to shareholders through dividends and share repurchases.

Nvidia Caught Traders Off Guard, Will Debt News Do the Same Soon?

James "Rev Shark" DePorre
May 26, 2023 4:57 PM EDT

We got a broad rally on Friday after a week of narrow action -- but once the debt ceiling news hits, the market will go on to the next stage of action.

Here's What Should Recharge Tesla's Rally

Bruce Kamich
May 26, 2023 3:45 PM EDT

I have a new price target for now.

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

  • 09:48 AM EDT CHRIS VERSACE

    Latest AAP Podcast With Portillo's CEO!

    Listen in as we talk with a rising star in the Chi...
  • 03:25 PM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Don't Just Sit There and 'Hope' for Your Stocks, M...
  • 07:32 AM EDT BOB LANG

    Webinar Thursday After the Close: Option Spread Trading

    Thursday, my good friend and colleague Sam DeMarco...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 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