Today it's time to close the books on my 2018 Double-Net Value Portfolio, which means that I'll also be rolling out the 2019 vintage very soon. After a great start, it ended up being a very disappointing year for double-nets overall, following last year's solid outperformance.
As always in the several years that I've put this deep-value-tracking portfolio together, qualifiers had to meet some fairly stringent criteria (below), which kept the list to just 20.
- Trades at between 1x and 2x net current asset value (current assets less total liabilities)
- Minimum market cap $150 million
- No development stage pharmaceuticals/biotechs
Since the December 22, 2017 inception, the portfolio is down about 11%, versus -7.2% for the Russell 2000 Index, and -8.7%% for the Russell Micro-cap Index. Long ago, I deemed those indexes as the most appropriate benchmarks for this portfolio, given the sizes of the typical names.
All but five names in the portfolio are in negative territory year to date. Fossil Group (FOSL) is by far the best performer, up about 105%. FOSL, however, has given back much of the gains it had achieved earlier in the year. At one point, it was up 300%, and topped out at $31 in June, before falling to below $16 last Friday.
Essendant (ESND) is up about 40%, the beneficiary of Staples' acquisition of the company for $12.80 a share. Double nets have been fairly fertile ground for takeovers in the past several years, but ESND was the only name in the index acquired this year
The other positives were Northwest Pipe (NWPX) (+25%), Digi International (DGII) (+14%), and Universal Corp (UVV) (+20%). It was all downhill from there.
CSS Industries (CSS) (-60%) was the biggest loser, but retailer Big 5 Sporting Goods (BGFV) (-56%) and FreightCar America (RAIL) (-56%) were not far behind. RAIL has been a major disappointment, and is now a net/net (trading below its net current asset value), with nearly $5 per share in net cash. Markets have all but given up on the name, as revenue continues to slide.
Here's how the balance of the portfolio fared:
--Avnet (AVT) (-1%)
--AVX Corp (AVX) (-10%)
--Adams Resources & Energy (AE) (-10%)
--Hurco (HURC) (-9%)
--Super Micro Computer (SMCI) (-22%)
--Benchmark Electronics (BHE) (-27%)
--EMCOR (EMKR) (-32%)
--Gencor (GENC) (-32%)
--Hibbett Sports (HIBB) (-33%)
--Dril-Quip (DRQ) (-34%)
--Gulf Island Fabrication (GIFI) (-41%)
The early read on the 2019 Double-Net Value Portfolio is that it will include some holdovers from last year, and may have a few more names. Stay tuned.
