About a year and a half ago, I introduced Real Money readers to my JIMS CRAB FEST portfolio for cheapskates, a somewhat eclectic mix of names that had a few things in common. First, they were small companies with market caps ranging between $200 million and $3 billion. Second, they were all asset rich, trading at very low multiples of net current asset value (averaging 1.5) and price to book (1.1), with little debt and lots of cash. The objective was to build a list of small, cheap names and track it over several years to judge whether this approach had any merit.
Of course, there is seldom instant gratification when you buy names with the attributes listed above. But over time, value does pay off. Nearly 17 months into this experiment, the JIMS CRAB FEST portfolio is up just over 16%. While that's not exactly shooting the lights out, it is considerably better than the Russell 2000 Index's 6.8% gain, the Russell Microcap Index's gain of 5.6%, and S&P SmallCap's 11.9% advance in the same period. It's too early to declare victory, but I am somewhat pleased with the results so far.
I am not pleased, however, with the performance of several of the constituents, including Tuesday Morning (TUES,-24%), Imation (IMN,-42%) and Callaway Golf (ELY,-26%). Callaway is quickly becoming my nemesis, and I'll save a broader discussion on that name for another day. Imation, which still has loads of cash, is looking more like a value trap with each passing quarter. When I designed the portfolio, however, I decided to take a "set it and forget it approach," so names will not be replaced.
The big winner, and there usually is a name or two in a portfolio that is responsible for much of the performance, is Arctic Cat (ACAT), which has more than tripled. This one has been fun to watch, delivering better-than-expected performance quarter after quarter in an industry that you would not expect to thrive during tough economic times. Evidently, snowmobiles are hot.
Fine watchmaker Movado (MOV) has also performed well, up 86%. SYNNEX (SNX, +23%) and Tech Data (TECD, +27%) have also been positive contributors, while Ingram Micro (IM, +5%), Core-Mark (CORE, +6%), and Richardson Electronics (RELL, +10%) have at least been in positive territory. The same can't be said for Skechers (SKX, -16%) (although it has been in an uptrend lately and may be turning around), Electro Scientific Industries (ESIO,-10%), and Benchmark Electronics (BHE, -9%).
Anytime you have a group of names that are cheap and asset rich, you'd expect there to be some takeover activity. That was the case with Force Protection (formerly FRPT), which was acquired by General Dynamics (GD) for $5.52 per share in November. While that represented a 30% premium to the price at the time, this deal was a disappointment, and was just pennies above Force's price when JIMS CRAB FEST was rolled out. I have not replaced this name in the index.
It actually appeared that JAKKS Pacific (JAKK,-.5%) might be the first to go, after Oaktree Capital Management offered to take the toymaker private at $20 per share in September. The company rejected that offer, and seven months later is still wrangling with Oaktree. Last week, JAKKS announced a share buyback at $20, on the heels of a shareholders rights plan (aka poison pill) adopted last month. It appears as though Oaktree will have to sweeten the offer to get a deal done.
And so it goes with JIMS CRAB FEST in the land of value, where anything goes, but nothing happens quickly.
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