How I long for the days when I could devote multiple columns to net/nets (companies trading below net current asset value, or NCAV), a deep value technique modeled off of one that Ben Graham developed many years ago. My criteria has always been less stringent than Graham's in the 20+ years I've been fascinated with the technique - his cut-off was less than two-thirds of NCAV - but even my watered down version has been fruitful at times.
Unfortunately, the net/net cupboards remain as bare as I've ever experienced. This is likely due to a combination of overall rising markets, and my belief that this somewhat lost technique gained a big enough following over the years (thanks to idiots like me writing about it, and having had websites devoted to it) that the opportunities dry up quickly.
At this writing there are just nine net/nets with market caps in excess of $50 million. At times over the years there have been hundreds. Leading the list in terms of market cap at $157 million is newcomer Acacia Research (ACTG) , which trades at .98x net current asset value. The company is not profitable, but ended its latest quarter with $166 million, or $3.33 per share in cash and no debt. It currently garners no analyst coverage.
Yesterday, my longest held net/net Richardson Electronics (RELL) , which can't seem to rise out of net/net land, released third quarter earnings. The company reported a loss of 8 cents per share, 10 cents below the "consensus" (just one analyst) that was calling for earnings of 2 cents. RELL had been showing signs of life, with four consecutive profitable quarters between 12/17 and 9/18, before dipping back into the red last quarter.
Ironically, RELL is currently trading at .67x net current asset value, right at the level that Ben Graham might have found appealing. The balance sheet remains fairly solid, with $49 million or $3.78 per share in cash and investments, and no debt. It currently yields 3.6%.
As frustrating as this name has been at times, there was one nugget in yesterday's earnings announcement that got my attention: the company recently reactivated its share buyback program (up to $9.4 million), although it did not repurchase any shares during the quarter. Of course, a buyback program is only meaningful if the company follows through, and it hasn't yet.
Rounding out the nine net/nets is a mishmosh of mostly down and out names and repeat offenders including VOXX International (VOXX) , CPI Aerostructures (CVU) , Big 5 Sporting Goods (BGFV) , Key Tronic (KTCC) , CSS Industries (CSS) , Friedman Industries (FRD) , and Sears Hometown and Outlet Stores (SHOS) . More on these in a future column.
