I occasionally will look back at columns I've written just to see what I was thinking at the time and how situations have played out. As an investor, you can learn a lot by reviewing past mistakes and triumphs.
Just over a year ago I wrote a column lamenting the sorry state of net/nets -- stocks trading below net current asset value. That group has been a favorite hunting ground of mine over the years, but its ranks have been decimated by rising markets and perhaps more investor awareness of the concept. Last year there were just five net/nets with market caps greater than $50 million. (I thought that was bad at the time, but now there are just four -- to be revealed in my next column).
One thing you learn about net/nets is that they are not all worthy of investment, and that they may be cheap -- or appear to be cheap -- for good reasons; the past year's performance of those names in my column stand testament to that notion. Here are the five:
- Richardson Electronics Ltd. (RELL) , down 6%: Currently trading at just 0.71 times net current asset value, this one has been a disappointment, perceived more and more like a value trap. Cash-rich, with $4.80 per share in cash and short-term investments, the stock closed yesterday at $5.70. Richardson Electronics has not turned a quarterly profit for quite some time, but last quarter was close to break even and was cash-flow positive. RELL should consider buying back stock; it pays a dividend and yields 4.2%. I continue hanging on and reinvesting dividends, waiting for a profitable quarter, or for the company to be sold. That decision, however, is in the hands of CEO Ed Richardson, who controls nearly two-thirds of the voting rights.
- ModusLink Global Solutions Inc. (MLNK) , up 23%: No longer a net/net, ModusLink currently trades at 1.97 times net current asset value, putting it at the upper end of double-net land. The supply chain company has been in expense-cutting mode and has shown some success here. As of last quarter it had $123 million, or $2.23 per share in cash and investments, and $59 million in debt. It's still not profitable, however, and cash has been declining. I bailed last November after the company announced plans for a reverse stock split, which later was approved by shareholders but has yet to occur.
- Sears Hometown and Outlet Stores Inc. (SHOS) , down 70%: I stayed away from this one, putting it in the "too ugly even for me" category. Sears Hometown trades at just 0.24 times net current asset value, but the majority of net current assets is inventory -- not uncharacteristic for a retailer, but not optimal for a net/net. While the company still does about $2 billion in annual sales, it is losing money hand over fist in an increasingly competitive home appliance environment. I don't know how it stops the bleeding here.
- CDI Corp. (CDI) , up 45%: A former net/net that became a "double-net" as its share price rose, CDI last month agreed to be acquired by AE Industrial Partners for $8.25 a share. Business has been rough, and the staffing company to the oil and gas industry has not had a profitable year since 2014, but one way to pull your stock price out of the cellar is to be acquired. This is just the latest "double-net" acquisition.
- Trans World Entertainment Corp. (TWMC) , down 54%: This perennial net/net, another that I have avoided over the years, used much of its cash last year to acquire digital marketplace retailer etailz Inc. and remodel its retail stores. Cash fell from $79 million last year to $14 million at the end of the latest quarter. While revenue was up 59% due to etailz, the company lost 15 cents a share last quarter. TWMC's mall-based fye stores continue to lose money, while etailz boasted a very small profit from operations. I am curious to see how the company will fare with its new e-commerce business and whether it can compensate for the heavy anchor of mall-based, brick-and-mortar stores.