Things are heating up in triple-net land, as my annual Triple Net Active Versus Passive Portfolio is rounding third, and headed for home.
Since the last update in early June, the Russell 2000 Index has had a nice run (up 4.7%), while the Russell Microcap Index (up 1.2%) has been more sedate. During that same timeframe, both the Active (up 6.2%) and Passive (up 4.5%) portfolios have gained some ground. Since inception, Passive (up 16.1%) is ahead of Active (up 15.2%), although Active is gaining ground.
The theory is that companies trading at relatively low levels (between 2x and 3x) of net current asset value (NCAV) can outperform the benchmarks, and that furthermore, a hand-selected group (the Active Portfolio) can outperform the entire universe of triple nets (the Passive Portfolio).
Selection criteria include the following:
- Market capitalization in excess of $100 million
- No financials or development-stage companies
- Trading at between 2 and 3 times NCAV (NCAV is calculated by subtracting a company's total liabilities from current assets)
That produced a list of more than 70 qualifiers (The Passive Portfolio). From that list I selected eight that were most compelling, took positions in each, and released them in two tranches, on 10/21 and 10/24.
Active Portfolio
Tranche 1
Tranche 1 is up 17.4% since inception, versus +16.7% for the Russell 2000, and +8.6% for the Russell Microcap Index.
Boise Cascade (BCC) (up 71%) the top overall performer, padded its lead as the stock broke the $100 barrier last week, an all-time high.
Smith & Wesson (SWBI) (up 28%) increased the dividend by 20% in June, and now yields 3.7%. Fourth-quarter earnings were also better than expected on both the top ($144.8 million versus $138.4 million) and bottom line (32 cents versus 29 cents).
Movado (MOV) (down 4%) has treaded water since the last update.
Fossil (FOSL) (down 26%) has gained a bit of ground, but remains the worst performer in this tranche.
Tranche 2
Tranche 2 is up 13% since inception versus +14.2% for the Russell 2000, and +6.3% for the Russell Microcap Index.
Park Aerospace (PKE) (up 46%) gained 7% since the last update. The company reported first-quarter earnings of 12 cents/share, but with no analysts covering the name, there are no estimates as a basis of comparison. The company ended the quarter with $4/share in net cash and marketable securities.
IPG Photonics (IPGP) (up 50%) jumped into first place in this tranche, and second overall in the Active portfolio. The stock hit a 52-week high earlier this month, but has since given back some ground.
Benchmark Electronics (BHE) (down 5%) is continuing to fight its way back to even, and picked up about 7% since the last update.
Seneca Foods (SENEA) (down 39%) has dropped into last place overall, falling 27% over the past six weeks. On June 28, it was announced that the company is being dropped from the S&P 600, to be replaced by Fortrea Holdings (FTRE) .
Passive Portfolio
In the Passive Portfolio, Super Micro Computer (AMCI) (up 473%) has continued its meteoric rise.
Navitas Semiconductor (NVTS) (up 141%), IonQ Inc. (IONQ) (up 107%) Daktronics (DAKT) (up 138%), and Joby Aviation (JOBY) (up 85%) round out the top 5.
Time will tell if the Active Portfolio can continue to close the gap.
