This Value Portfolio Is Producing Valuable Returns, Thank You

 | Nov 22, 2017 | 1:00 PM EST
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While value has rebounded nicely the past couple months, it still is getting trounced by growth. Just look at the discrepancy between the Russell 2000 Growth Index (up 20.2% year to date) and Russell 2000 Value Index (up 6.3%), which makes for a whopping 1,400-basis-point advantage to growth. That may not be surprising in this crazy market environment, with an economy that is heating up.

Perhaps surprisingly, however, my 2017 Double Net Value Portfolio continues to perform extremely well, up 30.5% since inception. That's much better than the Russell 2000 and Russell Microcap Indexes, which during the same period are up 12.9% and 11.6%, respectively. This rising market tide has lifted nearly all boats, with some notable exceptions such as apparel and retail, but it has been especially kind to double-nets.

By way of reminder, below are the criteria for inclusion in the portfolio:

  • Trades at between 1 and 2 times net current asset value (current assets less total liabilities)
  • Minimum market cap $150 million
  • No development stage pharmaceuticals/biotechs

A handful of companies have done much of the heavy lifting, but the biggest winner by far has been Electro Scientific Industries Inc. (ESIO) , which is up more than 300%. The market had all but written the company off, but it has delivered solid earnings beats the past several quarters, and fiscal second-quarter results, released on Nov. 1, really took the cake. The company beat consensus earnings estimates by 12 cents a share and also upped third-quarter guidance; the market rewarded the stock with a 29% bump on Nov. 2. Since then, the shares have added another 24%.

Also pulling their weight are AXT Inc. (AXTI) , which is up 101%, and Kulicke & Soffa Industries Inc. (KLIC) , which has been putting up solid results and is up 75%. (AXT is part of the Stocks Under $10 portfolio.) Former fad stock Crocs Inc. (CROX) is quietly up 60% after delivering its own positive earnings surprises.

Clarus Corp. (CLAR) (formerly Black Diamond) is up 44%, while West Marine Inc. banked 23% after being taken private, although the takeout price was disappointing to this investor.

Rounding out the winners are Hurco Cos. (HURC) (up 37.2%), AVX Corp. (AVX) (up 17.2%) and Movado Group Inc. (MOV) (up 12.2%).

Tesco Corp. (TESO) is the worst performer (down 53.3%), followed by Geospace Technologies Corp. (GEOS) (down 19.6%), Universal Corp. (UVV) (down 16.9%), Avnet Inc. (AVT) (down 15.8%), and Fitbit Inc. (FIT) (down 12.4%). FreightCar America Inc. (RAIL) , up 2.5%, has been a disappointment; it appeared as though operations were improving, but third-quarter results took the wind out of its sails. Although still cash-rich and trading at just 1.35 times net current asset value, the company suspended its nine-cent quarterly dividend.

Rounding out the portfolio:

  • Adams Resources & Energy Inc. (AE) (up 9.2%)
  • Gencor Industries Inc. (GENC) (up 10.9%)
  • Tech Data Corp. (TECD) (up 5.1%)
  • CSS Industries Inc. (CSS) (up 0.4%)
  • Benchmark Electronics Inc. (BHE) (up 0.8%) 

I can't wait to launch the 2018 version of this portfolio at the end of December. Actually, I can wait; pickings are likely to be rather slim.

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