There's been interest from readers in terms of a deeper preview of next years' Triple Net Active Versus Passive Portfolio, which will be unveiled in October once the current version is retired. The criteria will be the same as last year:
- Market capitalization in excess of $100 million
- No financials or development-stage companies
- Trading at between 2 and 3 times net current asset value or NCAV (NCAV is calculated by subtracting a company's total liabilities from current assets)
All companies that qualify will comprise the Passive Portfolio. I will select those that are most interesting (likely 8-10 names), which will comprise the Active Portfolio. We'll see once again, whether Active can outperform Passive, but also whether the value-oriented triple-net methodology itself can outperform the benchmarks (Russell 2000 and Russell Microcap Indexes).
There are currently 36 qualifying names, down from 40 just two days ago, and I'd expect that number to continue to gyrate. The average market cap is $432 million, squarely in microcap territory. Seventeen are dividend payers. The average price to book ratio is just 1.22, the average price to NCAV is 2.45. Twenty-two are profitable on a trailing 12-month basis. The average balance sheet is cash rich with $156 million in cash, which is skewed by a couple of names that currently have more than $1 billion on the books.
There are currently seven repeat offenders that are in the current passive portfolio: PC Connection (CNXN) , Hooker Furniture (HOOK) , National Presto Industries (NPK) (also in the current Active portfolio), Miller Industries (MLR) , Netgear (NTGR) , Park Aerospace (PKE) , and REX American Resources (REX) . I am inclined to include only new names in the Active portfolio, unless there's a very compelling reason.
The biggest qualifier at this point is semiconductor name Sanmina (SANM) , which trades at 2.63x NCAV, and 8.5x next year's consensus earnings estimate. SANM has nearly $1.15 billion, or $17.32 in cash and short-term investments on the books, but also just over $1 billion in debt.
Madison Square Garden Entertainment (MSGE) is another potentially interesting addition this year, and the second largest name with a market cap of $1.35 billion.
Other first-time qualifiers include leather goods name Culp Inc (CULP) , industrial machinery company Intervac (IVAC) , coated paper producer Verso Corp (VRS) , medical supply company IntriCon (IIN) , and coal company NACCO Industries (NC) , to name a handful.
Of course, a great deal can change over the course of a month, but the current qualifiers look somewhat intriguing.
