When we last left my 2019 Double Net Value Portfolio in late August the portfolio of misfits was sucking wind and performance had turned negative since the December 2018 inception. Since then, the rising tide of the markets, especially in small value, has lifted many boats, even those with a few holes. The portfolio is now up 16.4% versus 17.5% for the Russell 2000 Index and 11.1% for the Russell Microcap Index.
Value is closing the gap versus growth in small-caps. The difference between the Russell 2000 Growth Index (up 19.3%) and Russell 2000 Value Index (up 15.5%) has narrowed to less than 400 basis points; it was 1,010 basis points at the end of August. Within microcaps, the tide has turned for value, with the Russell Micro Growth (up 7.3%) now lagging the Russell Micro Value (up 13.5%) by 620 basis points.
Sixteen of the portfolio's 22 stocks are now in positive territory. Hibbett Sports Inc. (HIBB) (up 82%) is now the top performer after rising more than 50% since the last update. PC Connection Inc. (CNXN) (up 63%) has jumped into second place after benefitting from better-than-expected fourth-quarter earnings (90 cents a share versus a 57-cent consensus). Benchmark Electronics (BHE) (up 62%) also has jumped to the leaderboard and is trading at an all-time high
Construction name Tutor Perini Corp. (TPC) (down 6%), which was down more than 40% in late August and sitting near the bottom of the pack, has made a solid comeback by rising more than 60% since then. There has not been a great deal of news here other than the announcement of some new contracts. TPC now trades at 7x next year's consensus estimates.
Vera Bradley Inc. (VRA) (up 37%) has also been on the upswing, rising 23% since the last update. Vera Bradley's last big move was the acquisition of a majority interest in Pura Vida Bracelets last July, and investors wait to see what the impact will be. I still think Vera Bradley, which trades at about 11.5x next year's consensus earnings estimates, may make for an interesting acquisition candidate.
Zovio Inc. (ZVO) (down 76%), formerly Bridgepoint Education, continues to bring up the rear in performance terms, followed by AXT Inc. (AXTI) (down 26%), Adams Resources & Energy Inc. (AE) (down 19.5%) and Flexsteel Industries Inc. (FLXS) (down 17.5%). Here's how the rest of the portfolio has performed since its Dec. 18 inception.
Avnet Inc. (AVT) (+14%)
Hurco Cos. (HURC) (+1%)
Gencor Industries Inc. (GENC) (+11%)
Rocky Brands Inc. (RCKY) (+24%)
AVX Corp. (AVX) (+5%)
Universal Corp. (UVV) (flat)
Argan Inc. (AGX) (+6%)
Olympic Steel Inc. (ZEUS) (-5%)
Astec Industries Inc. (ASTE) (+23%)
Powell Industries Inc. (POWL) (+61%)
Dril-Quip Inc. (DRQ) (+45%)
Titan Machinery Inc. (TITN) (+26%)
Cato Corp. (CATO) (+33%)
As a reminder, company screening criteria for inclusion in this tracking portfolio are as follows:
- Companies trade at between 1 and 2 times net current asset value, or NCAV, which is computed by subtracting total liabilities from current assets
- Minimum market cap $150 million
- No development-stage pharmaceuticals/biotechs
The NCAV calculation disregards the potential value of a company's long-term assets, which may create a margin of safety, depending on the particular situation.
The current portfolio will be retired in December (after one year) and a new vintage will be released.
