The market gives, and the market takes away. Within value, it has been doing the latter to a great extent the past few months. Look no further than my 2018 Double Net Value Portfolio, an odd group of deeper-value names.
Just three months ago, the portfolio was on fire, up nearly 19% since inception last Dec. 21; it was well ahead of the Russell 2000 and Russell Microcap indices. However, as of Thursday, the portfolio was up just 3.2%, and now is trailing the Russell 2000 (up 8%) and Russell Microcap (up 8.2%) by a wide margin.
I never get too excited when performance is better than I'd expected (as was the case in June) or when it is much worse than expected, as it is currently. Still, the portfolio has taken quite a drubbing, and just eight of the 20 names are currently in positive territory.
On Thursday, portfolio member Super Micro Computer Inc. (SMCI) was down 41% based on a report that the company sold products to U.S. customers, including Apple Inc. AAPL, that contained malicious chips; this was the China supply chain attack story that was headline news. Super Micro Computer attempted to refute the claims in a press release, but this may be a difficult development from which to recover. That move cost the portfolio 2% on Thursday alone.
Fossil Group Inc. (FOSL) , up 170%, is still the best performer and has been carrying the load, but itself has slipped about $10 a share since June. The only other names in positive territory at this point are Universal Corp. (UVV) (up 25%), which raised its dividend in July 36% to 75 cents and yields 4.6%, Essendant Inc. (ESND) (up 41%), Digi International Inc. (DGII) (up 32%), Avnet Inc. (AVT) (up 10%), Northwest Pipe Co. (NWPX) (up 10%), Hurco Cos. (HURC) (up 10%), and Dril-Quip Inc. (DRQ) (up 8%).
The biggest losers so far include CSS Industries Inc. (CSS) (down 50%), the aforementioned SMCI (down 40%), Gencor Industries Inc. (GENC) (down 30%), Emcore Corp. (EMKR) (down 29%), Big 5 Sporting Goods Corp. (BGFV) (down 28%), Gulf Island Fabrication Inc. (GIFI) (down 25%) and Benchmark Electronics Inc. (BHE) (down 20%).
FreightCar America Inc. (RAIL) , which has been a favorite of mine, is disappointingly flat. RAIL currently trades at 1.88x net current asset value (NCAV) and ended last quarter with $82 million, or about $6.60 per share, in cash and no debt. While that level of cash represented a sharp decline from the first quarter ($118 million, or $9.55 a share), it was reportedly due to some opportunistic transactions that will restore cash balances back to higher levels upon completion. The company is expected to return to profitability in 2019.
Rounding out the portfolio:
Hibbett Sports Inc. (HIBB) (down 11%)
AVX Corp. (AVX) (down 4%)
Adams Resources & Energy Inc. (AE) (down 8%)
The next three months should prove interesting with this value tracking portfolio; I don't expect it to end its first year up as much as it was in June relative to the benchmarks, or down as much as it is at this writing.