It's time to say goodbye to my 2022 Double Net Value Portfolio, an annual experimental portfolio of seemingly cheap names relative to net current assets (current assets minus total liabilities). The criteria for inclusion included the following:
- Companies trade at between one and two times net current asset value (NCAV)
- Minimum market cap $75 million
- No development stage pharmaceuticals/biotechs
Results have been hit or miss over the years; 2020's group was lights out, up nearly 25%. The 2021 version missed the mark, and this year's results were disappointing on an absolute basis and mixed relative to the benchmarks. The portfolio ended down 17.5%, which was in line with the Russell 2000 Index (down 17.2%), ahead of the Russell Microcap Index (down 20 %), and behind Russell 2000 Value (down 11%) and Russell Microcap Value (down 14.5%) indexes.
Just eight of the 23 names in the portfolio finished in positive territory. Richardson Electronics RELL (up 113%) was the top performer. (RELL) may be the epitome of the small value story that takes years to play out, but it had a banner year in 2022. Others in the top five included Intevac Inc. (IVAC) (up 53%), NOW Inc. (DNOW) (up 49%), Immersion Corp. (IMMR) (up 34%) and Olympic Steel (ZEUS) (up 26%).
Shift Technologies (SFT) (down 92%) and Vroom Inc. (VRM) (down 91%) were the biggest losers, followed by Spruce Power (SPRU) (down 78%), Exagen Inc. (XGN) (down 78%) and Advanced Emissions Solutions (ADES) (down 65%). Losses of that magnitude from the bottom five were difficult to overcome.
The expectation with a portfolio of this nature is that there will be a small handful of big winners that will more than make up for the losers. That did not happen again in 2022. As I noted when rolling the portfolio out last December, this was not a high-conviction group of names. Indeed, the overall quality was quite low, and it showed in the results.
Here's how the remaining companies performed:
Avnet (AVT) : up 11%
Webco (WEBC) : up 11%
FutureFuel (FF) : up 11%
Gencor (GENC) : down 2%
Audiovoxx (VOXX) : down 14%
TrueCar (TRUE) : down 25%
Acacia Research (ACTG) : down 28%
ReneSola (SOL) : down 30%
Netgear (NTGR) : down 33%
Lakeland Industries (LAKE) : down 37%
Flexsteel (FLXS) : down 42%
American Outdoor Brands (AOUT) : down 45%
VirnetX (VHC) : down 59%
Over the years, "double-nets" have been a fertile hunting ground for acquisition targets, typically for companies with good balance sheets and relatively large amounts of cash and/or solid brand names.
Despite this year's disappointing performance, I do plan on unveiling a 2023 edition of the Double Net Value Portfolio next week.
