Today, I will begin to roll out my 2020 Triple-Net Active Versus Passive Portfolios, with the set of companies that will comprise the 2020 Passive portfolio. On Monday, I will review the final results of last year's portfolios, and on Wednesday and Friday, reveal the subset of names that will comprise the 2020 Active Portfolio. This year, I will take a position in each of the Active names, as I did in this year's Tax Loss Selling Recovery Portfolio.
The criteria are 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 NCAV (NCAV is calculated by subtracting a company's total liabilities from current assets)
Just 27 names make the cut; that's down from 48 last year, and 36 from my late September preview. No sector really dominates this year, but interestingly there's no representation from retail or restaurants. There are three aerospace and defense names AAR Corp (AIR) , Park Aerospace (PKE) , and National Presto (NPK) . Both PARK and NPK are repeat offender from last year. NPK was also the active portfolio (+8%). I always think of NPK as a small appliance maker, but the company actually derives about 70% of revenue from defense. NPK, by default is not eligible for the active portfolio this year since it was in the mix last year. Repeat offenders are prohibited in the active portfolio only.
There are several other names that were also in last year's Passive Portfolio including CompX International (CIX) , PC Connection (CNXN) , Encore Wire (WIRE) , ScanSource (SCSC) , REX American Resources (REX) , PC Tel (PCTI) , and Axcelis Technologies (ACLS) , Argan (AGX) , GSI Technology (GSIT) , Miller Industries (MLR) , and Netgear (NTGR) . That is a bit concerning; some names for one reason or another just happen to perennially trade at relatively low multiples of NCAV by nature which may imply that they are not actually undervalued. This will make selection for the Active portfolio a bit more challenging.
Rounding out the 2020 Active Triple Net Portfolio:
AAR Corp AIR
American Public Education (APEI)
Culp Inc (CULP)
Haynes International (HAYN)
Lakeland Industries (LAKE)
Madison Square Garden Entertainment (MSGE)
NAACO Industries (NC)
RPC Inc (RES)
Weyco Group (WEYS)
Portfolio Statistics for the Passive Portfolio:
Average Market Cap: $485 million
Average Price/NCAV Ratio: 2.42
Average Price/Book Ratio: 1.19
Profitable Names TTM basis: 18
Average Dividend Yield: 1.79%
I am once again looking forward to again kicking the tires on the concept that triple nets can outperform the benchmarks (in this case, I will continue to utilize the Russell 2000 Index, Russell Microcap Index, and the Value components of both as benchmarks), and that an Active approach can outperform Passive. This year, I will have skin in the game.
Have a great weekend!