Two months ago, I launched yet another value-based experiment with companies trading at relatively low multiples of net current assets. This time around, the search sought "triple-nets" (a homegrown metric/term), or companies trading at between 2x and 3x net current asset value. In addition, qualifiers had to have a market cap in excess of $100 million, and any development stage companies, or financials were excluded.
I've done a lot of "net" experimentation over the years with net/nets, "double-nets", and now "triple-nets, attempting to prove that buying companies at relatively low multiples of net current assets (current assets minus total liabilities), can outperform the market, but this time around there's a twist. I am monitoring both the full universe of triple nets (passive approach), but have also selected the eight that are most appealing to me (active approach). I want to see whether active management can beat passive management in a small, deep value setting.
So far, since October inception my active portfolio, comprised of Astec Industies (ASTE) (+29%), Crimson Wine Group (CWGL) (-4%), Dril-Quip (DRQ) (-10%), Fitbit (FIT) (+91%), Johnson Outdoors (JOUT) (+27%), LiveRamp Holdings (RAMP) (+21%), MarineMax (HZO) (+5%), and National Presto Industries (NPK) (+5%), up an average of 21% is beating the passive portfolio (+11.7%). During that same time frame, the Russell 2000 Value Index is up 4.4%, while the Russell Microcap Value Index is up about 5.5%. (The Russell 2000 Index, which includes both growth and value components is up about 6%, while the Russell Microcap Index is up 8%).
Perhaps not surprisingly, there is one name, Fitbit, that is driving the active portfolio's early performance. That's courtesy of Google's GOOGL $2.1 billion, $7.35 takeover bid for FIT, which was announced on November 1st. Absent FIT's 91% gain, the remaining seven names in the active portfolio are up an average of about 10%. Typically, in these cases, you'd expect one or two names to soar, a handful to perform with the market, and one or two to tank. The hope is that the returns of the winners far outstrip the performance of the losers.
The top performers in the "passive" portfolio, besides FIT, include TrueCar (TRUE) (+57%), ViewRay (VRAY) (+51%), and nLight (LASR) (+44%).
As for Fitbit, which is now trading at about 10% below Alphapbet's (GOOGL) $7.35 takeover price, the Department of Justice is reportedly reviewing the deal, which may partially account for the current discount. I'm happy to have closed my FIT position shortly after the deal was announced, especially given the DOJ scrutiny. You never know what the regulators will do in these cases, and I continue to marvel at the FTC's 1997 rejection of the Staples/Office Depot ODP deal.
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