A weekend search for net/nets (stocks trading below net current asset value) yielded the smallest and sorriest list of candidates that I've ever seen. There were just six names with market caps greater than $100 million, and 15 above $50 million. Of those 15, 10 were biotech companies, which technically qualify as net/nets from a formula perspective only (current assets less total liabilities; if this is below current market cap, it makes my list). However, I don't even look at these companies further, given the fact that they are typically development stage, losing money, and the major asset is cash, which they are likely burning through.
That leaves just five net/nets, the largest of which is Sears Hometown and Outlet Stores (SHOS) . I've had mixed success with retail net/nets over the years, and concluded that this one is even too ugly for me.
The remaining candidates include:
1. Trans World Entertainment (TWMC) : The entertainment retailer operates about 300 stores, and its primary brand is FYE (For Your Entertainment). Most of these are mall based stores -- not exactly a hot area these days. it currently trades at 0.86x net current asset value, has about $3 per share in cash, and is marginally profitable.
2. CDI Corp (CDI) : The engineering and staffing solutions company, which was hurt badly due to oil and gas industry staffing exposure, has bounced nicely since late January. It currently trades at 0.98x net current asset value but is not profitable.
3. Richardson Electronics (RELL) : RELL trades for just above net cash: It has nearly $5 a share in cash and short-term investments, currently yields 4.5%, and trades at 0.61x net current asset value. This one, which has been a disappointment since I've owned it, is not currently profitable. Given its startling level of liquidity, however, RELL might make a nice acquisition candidate.
4. ModusLink (MLNK) : This currently money-losing company, which was formerly internet incubator CMGI, trades at 0.93x net current asset value, and below net cash. MLNK ended its latest quarter with $166 million, or $3 a share, in cash and short term investments, and $81 million in long-term debt. Recent management shakeups have put Chairman of the Board and activist investor, Warren Lichtenstein, in as interim CEO. Last month, the company unveiled a plan to restore profitability. While I recently initiated a position, it seems that the markets remain skeptical.
There you have it: A rather thin list of choices in net/net land. It's not easy being a value investor, these days.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider MLNK and RELL 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.
At the time of publication, Heller was long RELL and MLNK, although positions may change at any time.
