Time passes quickly; it has been 18 months since I unveiled my Profitable Small Caps with Cash portfolio. Like most of the homegrown screens I utilize, it takes time to judge whether a particular screen is successful and worthy of using in the future. Early success or failure may just be noise; I want to see how a screen performs over at least a couple years. This particular screen was an attempt to find the best of all worlds within small-caps -- liquidity, profitability and value all rolled into one.
By way of reminder, here are the specific screening criteria utilized for the portfolio:
- Market capitalization between $100 million and $3 billion;
- Price-to-earnings ratio of less than 15;
- Long-term debt-to-equity ratio of less than 50%;
- Profitable during the trailing 12 months and in the latest fiscal year;
- Cash in excess of 20% of market cap;
- Price-to-book ratio of less than 1;
- Quick ratio greater than 1;
- Any sector except for the financial space.
Eighteen months in, the portfolio has done well, up 57% versus 35% for the Russell 2000 Index and 34% for the Russell Microcap Index. Nine of the 10 names in the portfolio are in positive territory, with the only loser, TravelCenters of America LLC (TA) , getting trounced, down 42%. TA has been a huge disappointment. Now trading in the $4 range, the company rejected a bid of $14 a share by Golden Gate Capital in December 2015 and it seemingly has been downhill ever since.
The big winner has been Tropicana Entertainment Inc. (TPCA) , which is very quietly up 171%. There isn't a lot of news here (not uncommon for these type of names), but the company recently acquired the Chelsea Hotel in Atlantic City, directly across from its Tropicana Atlantic City property. With all of the bad news from that city, it looks like someone is still making money.
The third-best performer has been Sanmina Corp, (SANM) , which is up more than 134% and has beaten earnings estimates in three of the past five quarters. Despite the run-up, Sanmina trades for about 12 times next year's consensus estimates.
Multi-Fineline Electronix Inc. (MFLX) , was acquired last July by Suzhou Dongshan Precision Manufacturing for $23.95 per share in cash, for a 63% return. For tracking purposes, the proceeds have remained in cash ever since.
Here's how the rest of the portfolio has fared:
