The good news for many is that markets continue to run higher, and the bad news for some of us (value investors) is that there's just not a whole lot to be interested in these days. It seems that I've spent the past year taking positions in names whose "value" was merely due to rather swift market overreactions, such as the specialty retailers I've written about ad nauseam since last summer.
Don't get me wrong, those situations can and have been profitable, and are enjoyable when they work out. But that is not classic value investing but rather bottom fishing, or as I call it "dumpster diving". They are "rentals" and not "purchases" so to speak. The objective in those cases is to take advantage of a perceived market mispricing but not to hold for the long-term unlike classic value investing. The truth is, I don't want to hold such situations, brick and mortar retail in this case, for long. The internet retail juggernaut is real (Amazon (AMZN) ), and there are probably a bunch of current retailers that won't exist in 10 years.
But Amazon's success, I believe, was actually a catalyst for investment success in downtrodden retail stocks over the past year, and here's why. Expectations are that Amazon will one day completely rule the retail world. So anytime retailers stumble en masse, when the quarterly numbers don't look good, some or many names in the sector are punished as if the end is near and the sector is taking its last breath. That premature death assumption can push stocks much lower than they actually deserve. Then, when the numbers begin to improve and investors see how solid some of the affected company's balance sheets are, the stocks recover. These situations are, of course, fraught with risk. Buying something just because the current price is 50% less than it was yesterday is not a can't miss strategy. There's got to be more to the story than a sudden and substantial price drop.
The truth is, running my deep value screens these days is getting even more depressing than it was last month, six months, a year ago, or you name a timeframe. There is currently just one net/net (company trading below net current asset value or NCAV) with a market cap in excess of $100 million, VOXX International (VOXX) , which trades at .92 X NCAV .
The double-net (companies trading at between 1 and 2 times NCAV) cupboard is as bare as I've ever seen it since I came up with the concept several years ago. Normally you would find a good number of double-nets with market caps in excess of $500 million. Currently, there are just three: Universal Corp (UVV) , Benchmark Electronics (BHE) , and Tutor Perini (TPC) .
Doing nothing in this environment - not buying - is a legitimate strategy for some value investors. For me, I'll just be digging a bit harder, and if the situations present themselves, I may do some more "renting".