Just over seven months since inception, my 2019 Double Net Value Portfolio has bowed to the growing performance divergence between growth and value, and is up 8.6%. The S&P 500 (+15.5%), Russell 2000 Index (+14.6%) and Russell Microcap Index (+11.4%) are all well ahead at this point. The gap is narrower, however, with the value components of the Russell Indexes with R2000 Value up 10.4%, and RMicro Value up 9.6%. However, we are still in the early innings.
Growth is once again outperforming value; the performance difference between the R2000 Growth Index (+18.6%), and R2000 Value Index (+10.4%) is a whopping 820bps. It's a bit narrower in microcap land with the RMicro Growth Index (+13.4%) beating the RMicro Value Index (+9.6%) by 380bps.
Dril-Quip (DRQ) (+54%), which has risen 11% since the May update, including a 5% jump on Friday, has taken the lead from Powell Industries (POWL) (+51%) as the top performer. Cash rich DRQ ended its latest quarter with nearly $11.50/share in cash.
Vera Bradley (VRA) (+38%) gained 4% during the period, primarily due to the lukewarm, semi-excitement of the company's purchase of a majority stake (75% with an option to purchase the rest) in trendy bracelet name Pura Vida. Markets seem to be unsure at this point as to whether the deal, expected to be accretive to earnings this year, will help re-invigorate VRA.
Titan Machinery (TITN) (+43%) jumped nearly 30% after putting up better than expected first quarter results; this was partially offset by Argan's (AGX) (+5%), worse than expected first quarter results, which pushed shares 20% lower since the May update.
Hibbett Sports (HIBB) (+26%) had an interesting month+ as shares hit the $24 level in late May, before pulling back to $18. Hibbett shares were punished in mid-June after the company announced that it was delaying the filing of its latest 10Q due to the need for further review of its adoption of the new FASB standard regarding leases. This effectively compels companies to recognize operating leases on their balance sheets as both assets and liabilities.
As we enter the dog days of summer, with lower volume and perhaps more volatility, portfolio performance may get interesting.
Here's how the rest of the portfolio has performed thus far, since December 18th inception.
Avnet (AVT) (+23%)
AXT Inc (AXTI) (-5%)
PC Connection (CNXN) (+17%)
Benchmark Electronics (BHE) (+18%)
Hurco (HURC) (+0%)
Gencor Industries (GENC) (+15%)
Rocky Brands (RCKY) (+14%)
AVX Corp (AVX) (+8%)
Tutor Perini (TPC) (-18%)
CATO Corp (CATO) (-10%)
Universal Corp (UVV) (+7%)
Adams Resources & Energy (AE) (-11.5%)
Flexsteel Industries Inc (FLXS) (-21%)
Olympic Steel (ZEUS) (-18%)
Astec Industries (ASTE) (+5%)
As a reminder company screening criteria for inclusion in this tracking portfolio are as follows:
- Companies trade at between 1 and 2 times net current asset value (NCAV, computed by subtracting total liabilities from current assets)
- Minimum market cap $150 million
- No development stage pharmaceuticals/biotechs
The NCAV calculation disregards the potential value of a company's long-term assets, which may create a margin of safety, depending on the particular situation.