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  1. Home
  2. / Investing

It's a Rocky Road to the Finish for My Tracking Portfolio

I build a Double Net Value portfolio every year that's comprised of companies that have three attributes.
By JONATHAN HELLER
Sep 01, 2021 | 10:30 AM EDT
Stocks quotes in this article: DRQ, FF, POWL, RCKY, CWGL, ASYS, ACTG, AVT, TPC, AWRE, LAKE, HURC, NTIP, GENC, KTCC, DNOW, AE

More than nine months since inception, my 2021 Double Net Value Portfolio has been fading, and is now up 15.3% since inception. It now trails the Russell 2000 Index (up 19.8%), Russell Microcap Index (up 30%), as well as the Russell 2000 Value Index (up 28.3%) and Russell Microcap Value Index (up 37.8%). Historically, since I've been running this annual deep value experiment, double nets have been fairly volatile. Last year's vintage easily beat the aforementioned Russell Indices, but it is typically a rocky road to the finish.

Double Net Value is a tracking portfolio I build every year that is comprised of companies that have the following attributes:

  • Companies trade at between 1 and 2 times net current asset value (NCAV)
  • Minimum market cap $75 million
  • No development stage pharmaceuticals/biotechs

Eleven of the 18 names are currently in positive territory. Dril-Quip (DRQ) (down 26%) is the worst performer. This was a $40 stock in June, which has become a $24 stock over the past 2 ½ months. Second quarter results, where the company missed consensus estimates by 44 cents, did not help.

From a chart perspective, FutureFuel (FF) appears to be the worst performer, but the company has paid out $2.62 in dividends since February, including a $2.50 special dividend in May, and is down about 12% overall.

Powell Industries (POWL) (down 8%) has flipped into negative territory, falling more than 25% since mid-June. Early last month, the company missed third quarter earnings estimates, reporting an 18-cent loss (versus +1 cent consensus). The company did beat revenue estimates ($115.8 million versus $11.6 million consensus).

The top performer remains footwear name Rocky Brands (RCKY) (up 71%). RCKY reported solid second quarter earnings last month, beating consensus estimates on both the top and bottom lines. However, it fell post earnings due to the fact that it will be increasing prices in light of rising freight and commodity costs. RCKY trades at just 7x next year's consensus earnings estimates.

Wine name Crimson Wine Group (CWGL) (up 71%) remains the second-best performer, and for the most part, has been hanging onto gains it experienced between December and June. Amtech Systems (ASYS) (up 65%), Acacia Research (ACTG) (up 61%), and Avnet (AVT) (up 18%) round out the top five.

If you take a gander at the chart of FutureFuel (up 2%), it appears to have tanked recently, however, part of that drop is due to the $2.50 special dividend the company paid in May.

Here are the remaining names, and performance to date:

Tutor Perini (TPC) : up 10%

Aware (AWRE) : up 14%

Lakeland Industries (LAKE) : up 7%

Hurco (HURC) : up 1%

Network 1 Technologies (NTIP) : down 4%

Gencor (GENC) : down 14%

Key Tronic (KTCC) : down 1%

Now Inc (DNOW) : up 22%

Adams Energy (AE) : up 7%

Looking for a strong finish here in the final three months. Time will tell.

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At the time of publication, Jonathan Heller was Long CWGL, TPC.

TAGS: Investing | Markets | Stocks | Technical Analysis | Trading

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