Today, the fun begins.
Last Friday, I unveiled the new vintage of my Triple-Net Passive Portfolio, a ragtag group of 27 names that have two things in common: They trade at between two and three times net current asset value (NCAV) and they have market caps in excess of $100 million. I now will reveal the first four of eight names out of that group that I've selected for the Active portfolio. Over the next year, I will track results of Active versus Passive portfolio and will monitor both relative to benchmarks that include the Russell 2000 Index, Russell Microcap Index and the value indices for both.
Madison Square Garden Entertainment (MSGE) , which was spun off from the Madison Square Garden Company last April, owns the Madison Square Garden Complex in New York City and Chicago Theatre and leases Radio City Music Hall and the Beacon Theatre. Its shares are down 33% since this spinoff began trading on April 9; the pandemic has not been kind to the company. MSGE shares trade at 2.77x NCAV and the company ended its latest quarter with $1.24 billion, or more than $52 per share, in cash and just $34 million in debt. The enterprise value (EV) is just over $400 million by my calculation (I still don't include operating leases). The problem for an entertainment company in the midst of a pandemic is profitability; MSGE is not expected to be profitable until 2022 or 2023. Just two analysts cover the name.
Sanmina Corp. (SANM) is currently the largest triple-net, with a market cap of 1.84 billion. The semiconductor company trades at 2.72x NCAV, and 1.11x tangible book value. Sanmina ended its latest quarter with $1.15 billion, or about $16.80 per share, in cash but also just over $1 billion in debt. The company has remained profitable through the pandemic and trades at 9x next year's consensus estimates, with coverage by four analysts.
Engineering and construction company Argan Inc. (AGX) trades at 2.5x NCAV and just under 11x next year's "consensus," which is comprised of just two analysts. This cash-rich name ended its latest quarter with $408 million, or $26 per share, in cash and short-term investments and no debt. Argan yields 2.4%.
Last but not least for the first group of Active names is a company I've flirted with for years but never owned until now. It is holding company Rex American Resources (REX) , which owns interests in several ethanol plants and also has some refined coal interests. Ethanol generates nearly all of company revenue. (Yes, this is not my usual cup of tea, for sure.) REX trades at 2.82x NCAV and ended its latest quarter with nearly $30 per share in cash and short-term investments and no debt. The one analyst covering the company expects it to earn $6.76 a share next year and $10.53 the following, putting the one- and two-year forward price-to-earnings (P/E) ratios at about 11 and 7, respectively.
Four down, four more to go on Friday. I am under no illusion that this year's crop of Active names can do better than last year's, but who knows?
