It has been good to recently identify some new double-nets (companies trading at between one and two times net current asset value, or NCAV) as the ranks that comprise one of my favorite small-value hunting grounds have been quite small in recent years. In the past few weeks new candidates have included Renewable Energy Group (REGI) , Super Micro Computer (SMCI) and Stratasys (SSYS) .
None of the above made it into my 2020 Double Net Value Portfolio simply because they did not meet the qualifications in December, when I unveiled the portfolio. In addition, my annual double net portfolio is of the "set it and forget it" variety; I don't add new qualifying names during the year, nor do I remove names that no longer meet the criteria. Today, I will unveil two more double-nets, both of which are new to me.
Graham Corp. (GHM) , which makes vacuum and heat transfer equipment, currently trades at 1.64x NCAV. Shares have been hammered year to date (down 45%) due to the economic slowdown, but the company put up better-than-expected fourth-quarter numbers in June; it reported earnings per share of six cents, well ahead of the consensus expectation of a loss of 17 cents. Graham is expected to report first-quarter results this Friday, with the "consensus" (just two analysts) calling for a loss of 12 cents a share on revenue of $14.2 million, which would be down significantly from last year's $20.6 million.
The balance sheet looks good at this point; Graham ended the latest quarter with $73 million, or $7.39 per share, in cash and short-term investments and no debt. That's a relatively considerable amount of liquidity considering shares closed at $12.08 on Tuesday, and it should provide a good runway through tough times. Graham trades at 35x next year's consensus estimates, but the spread between the high (54 cents) and low (14 cents) estimates is wide enough to drive a truck through. GHM currently yields 3.6%.
The other new kid on the block is mattress and upholstery fabric maker Culp Inc. (CULP) , which currently trades at 1.87x NCAV. This name, which traded in the high $30s just a few years ago, has been sliding ever since and closed Tuesday just above $10. Fourth-quarter earnings were rough; revenue fell 55% and the company lost $1.56 per share, well below the 35-cent loss consensus. However, the company was cash-flow positive for the quarter.
Culp's balance sheet is decent at this point and should be able to withstand more pandemic-related slowdowns. The company ended its latest quarter with $75 million, or just over $6 per share, in cash and short-term investments and $30 million in debt. It also lists an additional $10 million in long-term investments on the books and owns three of its manufacturing/distribution centers, which encompass more than 750,000 square feet. Just two analysts account for the consensus estimate, which is calling for earnings per share of 52 cents next year, putting the forward price-to-earnings ratio at 19. CULP currently yields 4.2%.