Yesterday's dismal market performance marks the 23rd time since Aug. 1 that the S&P 500 rose or fell at least 1%. The market has closed plus or minus at least 2% 15 times and it has closed plus or minus at least 4% 6 times in that time frame. The S&P has been down about 13% during this period. As ugly as this market is, it's still not as volatile as was the fourth quarter of 2008. Not even close. I don't believe we'll relive that period, however, I don't expect smooth sailing, either.
The action of the past few days was typical in that it punished the smallest of the small more severely. I'm always on the hunt for net/nets, or companies trading below net current asset value (NCAV), and this market is revealing more possibilities. For the past couple of years, the ranks of net/nets have been very thin overall, and the opportunities fleeting.
Ingram Micro (IM) has been on and off the list recently as markets have faltered, regained ground and faltered again. But this remains the largest, most mainstream net/net you are likely to see. After yesterday's action, the company is trading at just 0.88x NCAV, it is profitable and it has more than $8.50 per share in cash on the books. In terms of quality, this is about as good as it gets in net/net land. Generally, net/nets are unprofitable companies with multiple challenges and they are priced accordingly. Ingram is an exception to the rule, and an indication of the sour view the market has for technology companies these days.
Other net/nets include a couple small retailers, including the closeout retailer Tuesday Morning (TUES), which trades at 0.81x NCAV, and has been in and out of net/net land before. Also back is the specialty boating retailer West Marine (WMAR), which trades at 0.98x NCAV; both names are currently profitable. It is not uncommon to see an even greater number of retailers meeting the net/net criteria, but they are typically of lower quality due to the fact that the composition of their current assets is heavily weighted toward inventory. Still, money can be made when the economy is coming out of a recession.
Other net/nets include the legendary, but troubled, athletic footwear maker K-Swiss (KSWS), which trades for 0.97x NCAV. K-Swiss's difficulties predate the last recession, and its revenues have been declining for several years. While the balance sheet looks decent with $63 million, or $1.77 in cash, and less than $12 million in debt, the industry is extremely competitive, and one has to wonder whether the best way to generate any value for shareholders at this point is to sell the company, if there are any takers, that is. K-Swiss is a great example of the double whammy that can happen to a company when markets are clobbered in a short time, during which the company reports some bad results. K-Swiss share are down 57% since August 3.
I'll cover more net/nets in future columns, and, given the market environment, probably more will come about.