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  1. Home
  2. / Investing
  3. / Stocks

This Deep Value Portfolio Turns Positive Again but Still Isn't Stellar

Only four of the 13 stocks in the 2020 Double Net Value Portfolio are up since its inception last December.
By JONATHAN HELLER
Aug 05, 2020 | 10:30 AM EDT
Stocks quotes in this article: LAKE, AXTI, NTGR, FF, TESS, TPC, GENC, ASYS, DNOW, UVV, AWRE, FLXS, HURC

Closing in on eight months since inception, my 2020 Double Net Value Portfolio is finally back in positive territory as it is up just over 4% since its Dec. 19, 2019, inception. It also has had a nice mini-run since the last update in late June, rising 9%.

This deep value subset, which could only be conceived by the convoluted mind of a value investor (yours truly), is also maintaining a performance advantage over the Russell 2000 Index (down 7.7% since the portfolio's inception) and Russell Microcap Index (down 5.6%). Perhaps more importantly in light of the portfolio's value orientation, it is well ahead of the Russell 2000 Value Index (down 19.8%) and Russell Microcap Value Index (down 18.5%).

Still, just four of the 13 names are in positive territory, meaning the quartet is doing all the heavy lifting. I wish there were more winners, which might lend more credence to the methodology that I've espoused for several years, but this is double-net land and it is a strange place.

Protective clothing name Lakeland Industries (LAKE)  (up 136%) continues its solid run and is the best performer by far, and is up another 14% since the June update. LAKE now trades at 2.63x net current asset value (NCAV), but it will be interesting to see how long the company's pandemic-related rise will last.

AXT Inc. (AXTI) (up 40%) remains the second-best performer. Netgear (NTGR) (up 30%) had turned in flat performance as of June but has had a nice run recently, courtesy of second-quarter results reported July 22 that were much better than expected. Netgear crushed the 22-cent consensus earnings estimate by 34 cents. It now trades at 2.41x NCAV and ended the second quarter with $259 million, or $8.73 per share, in cash and short-term investments and no debt. Shares now change hands at 13.5x next year's consensus earnings estimates.

FutureFuel Corp. (FF) (up 22%) also has done well, although you would not know it by looking at the price chart. The company paid a $3 special dividend in April, which has bolstered the total return.

Tessco Technologies (TESS) (down 44%) remains the worst performer, although it is up 23% since the June update.

Tutor Perini (TPC) (down 4%) and Gencor Industries (GENC) (down 2%) remain fairly close to breakeven

Performance figures for the rest of the portfolio are below:

Amtech Systems Inc. (ASYS) (down 21%)

Now Inc. (DNOW) (down 26%)

Universal Corp. (UVV) (down 19%)

Aware Inc. (AWRE) (down 14%)

FlexSteel Industries (FLXS) (down 18%)

Hurco Companies (HURC) (down 25%)

As a reminder, below are the initial selection criteria:

  • Companies trade at between one and two times net current asset value (NCAV)
  • Minimum market cap of $75 million (down from $150 million last year)
  • No development stage pharmaceuticals/biotechs

While the results are OK at this point, the type of names that comprise this portfolio can turn on a dime and there is no resting on laurels here.

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At the time of publication, Heller had no positions in the stocks mentioned.

TAGS: Investing | Stocks | Value Investing | Construction & Engineering | Consumer | Renewable energy | Semiconductors & Semiconductor Equipment | Industrial Goods | Industrials | Manufacturing | Real Money | Consumer Discretionary

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