A new year means it's time for a new deep-value tracking portfolio. Indeed, over the next several weeks, I will be rolling out a handful of them.
Today we will focus on what I call "double-nets" -- stocks trading at 1x to 2x net current asset value. Last year's version featured double-nets that also paid dividends. Frankly, the first-year performance of that portfolio was disappointing -- it was up 13.2% versus 19.3 % for the Russell 2000 Index and 18.7% for the Russell Microcap Index. For 2017 I'll be dropping the dividend requirement.
Below are the criteria for inclusion:
- Trades at 1x to 2x net current asset value (current assets less total liabilities)
- Minimum market cap of $150 million
- No development stage pharmaceuticals/biotechs
Twenty names made the cut, with market caps ranging from $165 million to $6.1 billion. The average market cap is $1.05 billion, with seven names sporting market caps in excess of $1 billion. All but four are profitable on a trailing 12-month basis. The portfolio has a price to book value of 1.17 and currently trades at about 1.68x net current asset value. Many of the companies hold a decent level of cash, and the average cash to market cap ratio is about 0.22. Last year, double-nets made for fertile ground in terms of acquisitions.
There are some familiar names on the list, including a few I've written about and own. Among them are boating retailer West Marine (WMAR) , FreightCar America (RAIL) , a very beaten-up Fitbit (FIT) and Kulicke and Soffa (KLIC) .
The portfolio also includes the following names, in order of market cap.
- Avnet (AVT)
- Tech Data (TECD)
- AVX (AVX)
- Benchmark Electronics (BHE)
- Universal (UVV)
- Movado (MOV)
- Crocs (CROX)
- Tesco (TESO)
- Geospace Technologies (GEOS)
- CSS Industries (CSS)
- Gencor (GENC)
- Hurco (HURC)
- Electro Scientific Industries (ESIO)
- Adams Resources & Energy (AE)
- AXT (AXTI)
- Black Diamond (BDE)
Universal, Movado, CSS Industries, AVX and Tesco were all constituents of last year's double-net dividends portfolio.
Overall, this is yet another eclectic mix of names, many of which may be unfamiliar to investors. That's not necessarily a negative. Sometimes it pays to look for opportunities within the market's underbelly, areas that are likely not overfished, and where some digging -- along with a strong stomach -- can bear fruit.
I will provide periodic updates on this portfolio.
Here's to a healthy and prosperous 2017!