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  1. Home
  2. / Investing
  3. / Stocks

Rising Small-Cap Tide Helps Lift This Value Portfolio

The 2021 Double Net Value Portfolio has had a great first two months as small-cap stocks in general have been hot.
By JONATHAN HELLER
Feb 08, 2021 | 11:00 AM EST
Stocks quotes in this article: ACTG, VHC, AAPL, ASYS, AWRE, CWGL, DNOW, KTCC, LAKE, RCKY, HURC, AE, DRQ, GENC, POWL, AVT, FF, NTIP, TPC

Less than two months since inception, my 2021 Double Net Value Portfolio has enjoyed a nice run since the January update, rising 12.5%. Microcaps as measured by the Russell Microcap Index are up even more during that stretch (up 14.6%).

Since inception, the portfolio is now up 22.9%, better than the Russell 2000 (up 16.7%), but underperforming the Russell Microcap (up 25.6%). Perhaps more importantly, given the portfolio's value orientation, it is currently beating both the Russell 2000 Value Index (up 13.6%) and Russell Microcap Value Index (up 19.7%), although this is still the very early innings and anything can happen over the rest of this year.

Double Net Value is a tracking portfolio I build every year that is comprised of companies that have the following attributes:

  • Trade at between 1 and 2 times net current asset value (NCAV)
  • Minimum market cap $75 million
  • No development-stage pharmaceuticals/biotechs

So far, all but four names are in positive territory. The top performer is now Acacia Research (ACTG) (up 89%), which has risen more than 63% since the January update on no news. ACTG now trades at 2.39x NCAV. VirnetX Holding Corp. (VHC) (up 35%) moved into positive territory on the back of a 38% gain over the past month. In mid-January, VirnetX was awarded $502.8 million in a final judgment of a longstanding lawsuit with Apple (AAPL) . The jury's decision had been announced in November, but with VHC now actually billing AAPL $75 million for costs and pre-judgement interest it became more real.

Several other names had decent moves in the 16%-19% range since the January update, including Amtech Systems (ASYS) (up 26% since inception), Aware Inc. (AWRE) (up 22%), Crimson Wine Group (CWGL) (up 18%), NOW Inc. (DNOW) (up 54%), Key Tronic (KTCC) (up 15%), Lakeland Industries (LAKE) (up 64%) and Rocky Brands (RCKY) (up 26%)

Hurco Cos. (HURC) (down 9%), Adams Resources & Energy (AE) (down 7%), Dril-Quip (DRQ) (down 3%) and Gencor Industries (GENC) (down 2%) are the worst performers so far. The worst performer since the January update was Powell Industries (POWL) , which gave back 11% and is now up just 2% since inception.

Here are the remaining names, and performance to date:

Avnet Inc. (AVT) : up 19%

FutureFuel (FF) : up 21%

Network-1 Technologies (NTIP) : up 6%

Tutor Perini (TPC) : up 29%

The rising tide of smaller names has been a boost to this portfolio. However, I am more interested to see how this methodology performs when the rising tide is not lifting all boats.

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At the time of publication, Heller was long CWGL and TPC.

TAGS: Investing | Small Cap | Stocks | Value Investing | Energy | Technology | Technology Hardware & Equipment | Industrial Goods | Industrials | Manufacturing | Real Money |

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