It has been just one month since inception, but my 2023 Double Net Value Portfolio is looking good coming out of the gates (up 10%) and is outpacing the Russell 2000 Index (up 7%) and Russell Microcap Index (up 8.7%).
Early in 2023, we've been seeing lower-quality stocks that foundered last year pick up steam. I'd call it a "low-quality" rally of sorts. Last year, markets threw the baby out with the bathwater in some respects, so it's not all that surprising that we are seeing a mini-rally. That certainly benefits Double-Net Value stocks, but it's early.
Screening criteria for inclusion included the following:
- Companies that trade at between 1 and 2 times net current asset value (NCAV)
- Minimum market cap $100 million
- No development stage medical/pharmaceutical/biotech companies
- Minimum share price $2.00
So far, 40 of the 45 names in the portfolio are in positive territory.
The best performer so far is TrueCar (TRUE) (up 36%), which fell 26% last year. Insteel Industries (IIIN) (up 27%), Olympic Steel (ZEUS) (up 27%), Dril-Quip (DRQ) (up 25%) and Turtle Beach Corp. (HEAR) (up 23%) round out the top five. All but ZEUS are up on no news; the metal products distributor is rallying after announcing that it plans to buy venting and filtration product company Metal-Fab for $131 million.
The portfolio's biggest name, Robinhood Market (HOOD) (up 11%), has started the year strong after a dismal 2022. Robinhood is not projected to be profitable until 2025 based on consensus estimates, but trades at 1.27x net current asset value.
I've recently taken a new position in Double Net name Crimson Wine Group (CWGL) , which I've owned previously. CWGL has been a disaster since it was spun off from Leucadia National (now Jeffries (JEF) ) back in 2013. However, it owns some interesting assets, namely 757 vineyard acres (or just over a square mile). This is not a buy-and-hold stock, but rather one to buy when it gets cheap enough, then jettison once it shows life. I could see Crimson Wine as an interesting acquisition candidate for a bigger fish, but would not hold my breath.
Crimson Wine currently trades at 1.84x NCAV and just 0.73x tangible book value. It ended its latest quarter with $29 million, or $1.31 a share, in net cash and short-term investments. Some would call this a value trap and it does have some of the associated attributes, but that said, Crimson Wine is still cheap in my humble, deep-value infused opinion.