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  1. Home
  2. / Investing
  3. / Stocks

The Value Portfolio Holds Its Own, but Takes a Breather

These 22 stocks in the aggregate are still outpacing the Russell 2000 and Russell Microcap indices, but by a narrower margin than before.
By JONATHAN HELLER
Apr 15, 2019 | 01:00 PM EDT
Stocks quotes in this article: HIBB, BPT, DRQ, VRA, TITN, AGX, AVT, AVX, FLXS, GENC, HURC, POWL, RCKY, ASTE, UVV, TPC, AXTI, CNX, ZEUS, CATO, AE

My 2019 Double Net Value Portfolio has flattened since last month but still is holding its own as it's up 16.7% four months since inception and continues to outpace the Russell 2000 Index (up 15.6%) and Russell Microcap Index (up 13.7%). The gap has narrowed, however.

Just four of the 22 names in the portfolio are in negative territory, and three of the four show single-digit percentage losses. Zovio (BPT) (down 15%), which changed its name from Bridgepoint Education earlier this month, remains the biggest loser; nonetheless, it has rallied about 7% since the April 2 name change announcement. BPT currently trades for 1.92x net current asset value (NCAV).

Hibbett Sports Inc. (HIBB) (up 53%) takes the lead as the best performer, courtesy of a run of more than 20% since the last update on a fourth-quarter earnings report that was much better than expected. HIBB beat the consensus earnings estimate of 39 cents a share by 18 cents, proving once again that there are a few puffs left in the cigar butt that is retail. HIBB currently trades for 1.82x NCAV.

Dril-Quip Inc. (DRQ) (up 45%), the second-best performer, added 4% over the past month. Benchmark Electronics Inc. BHE (up 36%) had a great month (up 12%) on no news. That's par for the course in double net land, where companies generally garner little analyst coverage and price swings can be fairly wide. DRQ currently trades for 2.22x NCAV.

Vera Bradley Inc. (VRA) (up 38%), last month's leader that was up a blistering 60% since inception, has given back 20% over the past month, the bulk of its gain since its fourth-quarter earnings release. This slide has occurred on no news. VRA currently trades at 2.19x NCAV.

Titan Machinery Inc. (TITN) (up 17%) had the biggest negative change since last month, falling 17%. Most of the damage occurred on March 27 when the company reported a fourth-quarter earnings miss (a loss of four cents a share versus an expected one-cent profit). TITN currently trades for 2.03x NCAV.

One thing we still have not seen so far in 2019 is a double net being acquired. This area of the market has been fertile acquisition ground over the past several years, especially among companies with clean balance sheets and large amounts of cash. I will spend a column on this in the near future. The 2019 Double Net Value Portfolio is static; I don't add qualifying companies, nor do I remove them if they fall out of the original selection criteria, so there may be some new and potentially interesting candidates.

Here's how the rest of the portfolio has performed since the portfolio's Dec .18 inception.

Argan Inc. (AGX) (up 28%)

Avnet Inc. (AVT) (up 27%)

AVX Corp. (AVX) (up 18%)

Flexsteel Industries Inc. (FLXS) (up 10%)

Gencor Industries Inc. (GENC) (up 10%)

Hurco Cos. (HURC) (up 10%)

Powell Industries Inc. (POWL) (up 18%)

Rocky Brands Inc. (RCKY) (up 5%)

Astec Industries Inc. (ASTE) (up 32%)

Universal Corp. (UVV) (down 1%)

Tutor Perini Corp. (TPC) (up 12%)

AXT Inc. (AXTI) (up 14%)

PC Connection Inc. (CNX) (up 22%)

Olympic Steel Inc. (ZEUS) (up 2%)

CATO Corp. (CATO) (down 2%)

Adams Resources & Energy Inc. (AE) (down 5%) 

As a reminder, company screening criteria for inclusion in this tracking portfolio are as follows:

  • Companies trade at between 1x and 2x net current asset value (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.

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At the time of publication, Heller was long VRA.

TAGS: Investing | Stocks | Value Investing | Apparel | Automobile Components | Consumer | Defense | Energy | Industrials | Real Money | U.S. Equity

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