It's Safe to Say This Deep-Value Portfolio Isn't Off to a Flying Start

Only three of the 12 names in the 2020 Double Net Value Portfolio are in positive territory since inception, with several down by double-digit percentages.

Nearly two months since its inception, my 2020 Double Net Value Portfolio is sucking wind. That isn't surprising given the drubbing that value stocks have been taking. It also has not been uncommon for this portfolio to lag out of the gates in all the years I've been doing it. Down 8.5% since its mid-December inception, the portfolio is trailing the Russell 2000 Index (up 0.6%) and the Russell Microcap Index (down 0.5%), and more importantly is lagging the value components of each index, which are down 2.1% and 3.4%, respectively.

Just three of the 12 portfolio names are in positive territory so far. The best performer is Lakeland Industries Inc. (LAKE) (up 24%), which manufactures protective clothing. Shares have benefitted from coronavirus fears; late last month they briefly breached $16 and closed just above $13 last Friday. Lakeland currently trades at about 19x next year's consensus earnings estimates and 1.57x net current asset value (NCAV).

AXT Inc. (AXTI) (up 14%), and Aware Inc. (AWRE) (up 1%) are the only other names in positive territory. They are trading at 2.12x and 1.46x NCAV, respectively.

Value chain solution provider Tessco Technologies Inc. (TESS) (down 39%) is the biggest loser. The company on Jan 27 reported third-quarter earnings that were much worse than expected and its shares fell nearly 27% that day. Tessco also slashed its dividend 90% to two cents a share.

Flexsteel Industries Inc. (FLXS) (down 20%) is the next worst performer. Flexsteel reported a second-quarter loss of 68 cents a share on Jan. 27 after market close, which sent shares down 7% the following day. Flexsteel trades at 1.16s NCAV and ended the quarter with about $4.70 per share in cash and no debt. The company currently garners no analyst coverage.

Performance figures for the rest of the portfolio are below:

Amtech Systems Inc. (ASYS) (down 16%)

Now Inc. (DNOW) (down 11%)

FutureFuel Corp. (FF) (down 14%)

Gencor Industries Inc. (GENC) (down 3%)

Hurco Companies (HURC) (down 18%)

Netgear Inc. (NTGR) (down 5%)

Tutor Perini Corp. (TPC) (down 19%)

Universal Corp. (UVV) (down 6%)

Here are the initial selection criteria:

• Companies trade at between one and two times net current asset value (NCAV)
• Minimum market cap $75 million (down from $150 million last year)
• No development-stage pharmaceuticals/biotechs

It's been ugly so far, but stay tuned. Historically, this portfolio has brought a few surprises along the way.

At the time of publication, Heller was long TPC.