• 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
  3. / Transportation

Deep-Value Pickings Are Slim, and Not All That Great

There are only a handful of names in my net/net cupboard, and one I wouldn't touch with a 10-foot pole.
By JONATHAN HELLER
Apr 21, 2017 | 11:00 AM EDT
Stocks quotes in this article: RAIL, SHOS, RELL, CVU

As the broad markets continue to plow forward, the deep-value net/net cupboards (companies trading below net current asset value) are becoming even more bare. I did not think that was possible; indeed, I've never seen an environment quite like this one for net/nets, and I feel a bit like a broken record for saying so again. What's more, it has not been a great environment for small value for the year to date, with the Russell 2000 Value and Russell 2000 Microcap indices down 0.5% and 1.6%, respectively. In such an environment, I'd expect to see more companies to be jettisoned to net/net land.

My latest perusal of current net/nets revealed just eight with market caps greater than $50 million. When you throw out the early-stage biotechnology companies that will burn through the cash on their books (which technically helps them qualify for net/net status), that leaves just four.

FreightCar America (RAIL) tops the list and is the only name with a market cap in excess of $100 million. The company has seen some tough times lately, as earnings have disappointed the past couple quarters and orders are not very strong. What is strong, however, is the balance sheet, and it should see the company through to better times.

RAIL ended the latest quarter with $92.8 million, or $7.50 per share, in cash and no debt. It currently trades for 0.99x net current asset value (current assets less all liabilities) and just 0.67x tangible book value per share. Consensus estimates call for losses this year and next, but the company appears to have the wherewithal to make it through to better times. Plus, with so much negativity, any positive news could bolster the shares. RAIL currently yields 2.8%.

The other three net/nets are Sears Hometown and Outlet Stores (SHOS) , Richardson Electronics (RELL) and CPI Aerostructures (CVU) . I would not touch SHOS with a 10-foot pole. Net/net retailers are challenging to begin with, and SHOS continues to struggle. The quality of current assets is not strong as the bulk of them are comprised of inventory (as is common with retailers), and it operates within an increasingly competitive environment. SHOS currently trades at 0.37x net current asset value and 0.29x tangible book value.

I continue to hold RELL, which has $4 a share in cash and no debt, but this one has been disappointing and it is looking more and more like the dreaded value trap. Currently trading at 0.74x net current asset value and 0.62x tangible book value per share, it appeared as though revenue was stabilizing, but the company continues to have difficulty in earning a profit. RELL currently yields 4.1%.

My most recent net/net addition is CPI Aerostructures, which currently trades at 0.93x net current asset value and 0.84x tangible book value. While CVU is not as cash-rich as RAIL and RELL, it is expected to be profitable in 2017 and 2018 and trades at 7.5x next year's "consensus" earnings estimates (note the quotation marks around consensus, as just three analysts cover the company).

Slim pickings, indeed.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider SHOS, RELL and CVU to be a small-cap stocks. 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.

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 RAIL, RELL and CVU.

TAGS: Investing | U.S. Equity | Transportation | Technology | Consumer Discretionary | Stocks

More from Transportation

Lost in Space: Virgin Galactic Continues to Come Down to Earth

Bruce Kamich
Aug 5, 2022 11:47 AM EDT

A trip to Necker Island may be a better investment here.

No, I'm Not Selling Exxon and Chevron Here

Jim Collins
Aug 4, 2022 2:15 PM EDT

Be careful about drawing a comparison with dry bulk shippers and hydrocarbon names. They're two completely different undertakings.

Uber Delivers a Different Kind of Gap

Bruce Kamich
Aug 2, 2022 12:24 PM EDT

Where UBER closes in the range Tuesday is important information.

Here's Why I'm Building a Position in Uber

James "Rev Shark" DePorre
Aug 2, 2022 11:20 AM EDT

I'm encouraged by better stock picking Tuesday.

Tesla Gains Traction as It Drives Out of Earnings Report

Bruce Kamich
Jul 21, 2022 12:16 PM EDT

Here's the next destination for investors, according to the charts.

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

  • 02:23 PM EDT STEPHEN GUILFOYLE

    We're Cleaning Out This Retailer From the Bullpen

    Check out the latest moves in TheStreet's Stocks U...
  • 10:24 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    To Improve Your Trading and Investing, Spend More ...
  • 08:44 AM EDT PETER TCHIR

    CPI Beats Expectations, But Maybe Not the 'Whisper'?

    Slightly better-than-expected inflation across the...
  • 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