It's official. Small-caps are in a bear market, with the Russell 2000 Index and the Russell Microcap Index both falling more than 20% for the year to date as of Monday (the former down 21.2% and the latter down 22.1%).
You might think there would be bargains galore available in Smallville, but I am still not seeing many, at least in the ponds where I typically fish.
For instance, I would expect there to be tons of net/nets (companies trading below net current asset value, or NCAV) available, but that isn't the case. I am seeing 11 with market caps in excess of $100 million, but that's with several retreads and some newer names that I have not dug into yet in order to verify their quality (or lack thereof).
I currently own two of them. Tutor Perini (TPC) is the largest on the list. Tutor Perini has a market cap of $485 million and trades at 0.63x NCAV. I also own Acacia Research (ACTG) , which trades at 0.58x NCAV and has a market cap of $213 million.
However, there was a surprise this morning when I ran my value screen based on Benjamin Graham's "Stocks for the Defensive Investor," which the father of value investing laid out in his 1949 masterpiece "The Intelligent Investor." My criteria for this screen are modified from Graham's, but the idea is the same.
The surprise was the name at the top of the list -- namely, Intel Corp. (INTC) .
Intel is by far the largest and most mainstream name I've seen in the umpteen years I've been running this screen. Intel is down 14.5% year to date and trades at 15x consensus earnings estimates for 2023 and just under 14x earnings estimates for 2024. Currently yielding 3.3%, Intel has increased the dividend at a 5.5% compound annual growth rate over the past 10 years. While that might not quite give the company "dividend champion" status, there is something else that Intel has been doing over the years in conjunction with increasing the dividend that I like to see.
Intel has been a serial stock repurchaser, and over the past seven years has reduced its shares outstanding by 663 million, or more than 14%. The combination of increasing dividends while buying back shares can be a powerful force. Critics of share buybacks cite their poor timing (companies paying too much for shares) or say they indicate there's little other opportunity to deploy the cash to grow the business, but I have a different take. When done right, it can be a sign of confident management.
I'll run down the other current Graham defensive names in a future column.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider ACTG to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)
