Friday, January 30, 2015

Net/Nets You Say?

The net/net cupboard has been bare the past couple of years; the worst we've ever seen in the umpteen years we've been researching and writing about our favorite cubbyhole of the deep value world. That's left us with little to write about.  While this site was originally devoted to net/nets, we've delved into other areas of deep value over the years (by our definition, anyway), including real estate. But value has itself has been difficult to find, there have not been many compelling ideas, and we've done what value investors do in those situations--go into hibernation.

In fact, we've rarely run our favorite stock screen the past several months- the one that identifies companies trading below net current asset value, aka the ever-elusive net/net.

We've been anxious to create our third experimental net/net index (the first two (Cheap Stocks 21   and Cheap Stocks 26) had interesting but inconclusive results; but we've been unable to identify enough candidates, and "Cheap Stocks 4" just won't do the trick..

So it was with a small amount of joy earlier this week  when we begrudginly ran our favorite screen, and found a whopping four net/nets with market caps in excess of $100 million. Granted, two of them are what we refer to as "perennial net/nets",  seemingly always showing up. These are Richardson Electronics (RELL) and Trans World Entertainment (TWMC). We also found an old friend, that has occasionally made the cut, LeapFrog (LF), which recently ran aground on some very bad guidance.  In facts, shares fell 34% last Friday, and are down 50% since December. We plan on digging in to see if there's any meat left on the bone. It gets ugly in net/net land.

Finally, there's a new kid on the block, that being retailer Sears Hometown Outlet Stores (SHOS), which is currently trading at .92 times NCAV. Retailers are often the ugliest of the net/nets, as their current assets are typically chock full of inventory. There have been some great retail net/net success stories over the years, including Finish Line (FINL), and Conns (CONN), but you have to be careful with these.

SHOS shares are down 44% in the past year, and while we are skeptical of retailers, we'll be digging into this one as well, looking for any redeeming qualities, other than the fact that it trades at .62 times book value, and is a net/net.

*The author has a position in Richardson Electronics (RELL). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.

Friday, January 23, 2015

Tootsie Roll's Mel Gordon Dies at 95: Don't Fall for the Acquisition Hype Just Yet

Tootsie Roll Industries (TR) has been my long-time nemesis. I held a position in the stock for several years, seeing what I believed to be the enormous value in the brand  combined with aging insider-owners Melvin and Ellen Gordon. It seemed ripe for a takeover; a perfect acquisition for Hershey (HSY), or some other larger name seeking to expand their brand portfolio. At least that's what I believed.

The problem, though was two-fold: On the fundamental front, revenues were flattening, once mid-teen net profit margins were falling, and what was a great brand seemed to be lost in the shuffle.  Secondly, the aging owners, the Gordons, were not going anywhere.

I finally realized the latter one day after receiving the 2007 annual report. Inside was a picture of Mel and Ellen Gordon, looking much younger than their years. The Gordon's essentially controlled the Class B voting shares, and called the shots. To me, their compensation seemed excessive, especially given the company's declining results, lack of growth and direction. But, they were not giving up this cash-cow. I, however, finally gave up.

Mel's passing is sad; and it's quite amazing that he stayed engaged as long as he did. The baton now passes to Ellen Gordon, formerly the company's chief operating officer, age 83, whose family acquired the company when it ran into trouble in 1935.

Shares were up 7% after the announcement of Mel's death amid new speculation that the company will be acquired.

Don't hold your breath though. Ellen Gordon is only 83.

We've been to this rodeo before.

*The author has no position in any stocks mentioned in this piece. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only

Wednesday, October 22, 2014

JG Boswell (BWEL) 2014 Fundamental Data

Thanks to the addition of the most recently available year-end data, we've now strung together twelve years worth of fundamentals for JG Boswell. Below are some of the highlight for 2014:

Current Data (2014 Annual, Year ended 6/30/2014)
Current Price: $910
EPS (Fully Diluted): $49.58
P/E: 18
Price/Sales: 1.57
Price/Book: 1.48
Revenue: $587.4 million 
Net Income: $50.2 million
Net Profit Margin: 8.55%
Indicated Dividend Yield:1.81%
Current Market Cap: $921.2 million
Current Enterprise Value: $1.077 billion
Cash: $2.75 million

10 Year Averages Based on Annual Data:
P/E: 26
Price/Sales: 1.67
Price/Book Value: 1.47
Net Profit Margin: 7.9%
Dividend Yield: 2.1%
Market Cap: $733 million
Enterprise Value: $876 million

*The author has a position in JG Boswell (BWEL). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.

Monday, August 25, 2014

A DIscussion on Net/Net Quality

I'd never seen this clip until today; from an interview done by my friends at Great Investors TV, which has done a phenomenal job of interviewing value investors.

(You can learn a lot watching a video of yourself; I learned that I am a serial head-tilter!)

Monday, July 28, 2014

A Value Investors New Take On Facebook

Following a 10-day mission trip to a small and very poor community in the Dominican Republic, I’ll never view Facebook (FB) through the same lens that I had previously. I’ve long had a love-hate relationship with the company; hating the stock, but sometimes loving the application. 

Now, while I’ve grown weary of the endless stream of “look how great little Bobby is”, “look at my awesome vacation photos”, "I just ate pancakes" or posts describing a 50-year old friends first colonoscopy, I do understand just how wide Facebook’s reach is.

Two years ago, we met 10 year-old Jhon at our construction site in the DR; when he learned that we had the same first name (more or less), he rarely left my side for the next ten days, and we bonded. Young Jhon cried on our last day, and presented me with a drinking glass from his home, which I still treasure.  Last year, when I could not make the trip I was saddened, because I missed the little guy. Jhon looked for me; when my daughter, who was able to go told him I would not be there, he cried again.

This year,  the now 12 year old Jhon greeted me on our first work day, and I saw him frequently as we worked. The day we left this year he did not cry; Jhon has grown up. But he did make a request; not just from me, but several from our team. He wanted our full Facebook names so that he could friend us. I could not understand what he was asking me at first; he spoke no English, and I no Spanish. But after he said “Faybuk” several times, I finally got it, and was somewhat astonished.

Here, in a very poor Dominican city, well known as one of the most polluted cities (due to a former battery factory) in the world, a twelve year-old, lacking most if not all of the conveniences we take for granted living in the United States, wanted to connect on Facebook. And young Jhon was not the only one; several other children made the same request of me and others.  If nothing else, I dramatically underestimated how wide reaching the Facebook phenomenon is.

Lest you think that this value investor, however, has completely lost his mind, my opinion of Facebook the stock is unchanged. I still believe it is vastly overpriced, and can’t fathom the $195 billion market cap that the market has blessed the company with. 

However, I am impressed with the companies reach and name recognition. That still does not make it a great stock, though.

But what do I know; I'm just a value investor.

Friday, July 18, 2014

Richardson Electronics: Back in Net/Net Land

It's the slimmest of pickings this day in the net/net land, a place that no publicly traded company would go by choice. With just three U.S. companies with market caps in excess of $100 million currently trading below net current asset value, Richardson (RELL) appears to be the best of the bunch. The others are Trans World Entertainmant (TWMC), and Imation (IMN).

Richardson currently trades at just .86 times NCAV, and the quality of the balance sheet is excellent, including $130.5 million, or $9.30 per share in cash and short-term investments.Considering the company's current $10.23 price, that's compelling. The company has no debt, and trades at .81 times tangible book value, and currently yields 2.4%

While still profitable, which can sometimes be uncommon for net/nets, revenues and profits have been sliding.

Richardson is scheduled to report fourth quarter and full year results on July 23rd.We'll be particularly interested in whether the company has maintained or grown its cash and short-term investment balances.

Richardson Electronics (RELL)
Price: $10.23
Market Cap: $143.5 million
NCAV: $166.3 million
Mkt Cap/NCAV: .86
Cash: $97.2 million
S/T Investments: $33.3 
Tangible Book Value/Share: $12.56P/TBV: .81
Trailing P/E: 85
Dvd Yield 2.4%

 *The author has a position in Richardson Electronics. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only

Wednesday, July 16, 2014

Value Investing Congress Discount for Cheap Stocks Subscribers- 9/8 &9/9 in NYC: It's not too late!

The Top Benefits of Attending the Value Investing Congress
The 10th Annual New York Value Investing Congress is just weeks away (Sept. 8-9), ​but there’s still time to ​get your seat and enjoy the many benefits of attending the Congress in-person:
·         Speaker ​Wisdom – Congress speakers explain their stock ideas with detailed, well-reasoned analysis.  But the presentations are not live-streamed or distributed afterwards, so only onsite attendees benefit from the ​brilliance of these ​successful money managers.

·         Audience Q&A – Congress attendees are savvy, professional investors and their insightful questions often clarify and expand on a speaker’s investment thesis.  As with speaker commentary, live Q&A is only available to onsite attendees.

·         Exclusive Information The Congress is closed to the media and live bloggers-- our attendees benefit first from actionable information.

·         Great Networking –  The VIC Cocktail Reception has become a favorite among attendees for sharing new ideas, creating new business opportunities and making friendships that ​can last a lifetime.
Register now and benefit from attending the Congress in-person.  But seats are strictly limited to 275, so we encourage Cheap Stocks readers to register now, before we sell out.
For a special Cheap Stocks Discount, register now with Offer Code: CHEAPSTOCKS  at
Confirmed Speakers include:
  • Leon Cooperman, Omega Advisors
  • Sahm Adrangi, Kerrisdale Capital Management
  • Carson Block, Muddy Waters Research
  • Andrew Left, Citron Research
  • Alexander Roepers, Atlantic Investment Management
  • Jeffrey Smith, Starboard Value
  • Amitabh SinghiSurefin Investments
  • Guy Spier, Aquamarine Fund
  • David Hurwitz, SC Fundamental
  • Michael Kao, Akanthos Capital
  • Guy Gottfried, Rational Capital Management
  • Adam Crocker, Metropolitan Capital Advisors
  • Whitney Tilson, Kase Capital
  • John Lewis, Osmium Partners
  • Tim Eriksen, Eriksen Capital Management
  • Cliff Remily, Northwest Priority Capital
  • With more to come!

Monday, June 16, 2014

Remembering Clyde: One of our All-time Favorite Posts

Today we are re-running one of our favorite all-time posts, which was originally published seven years ago today. It was dedicated to my grandfather Clyde in recognition of his 100th birthday.  Today would have marked 107.

Remembering Clyde 

June 16th marks the 100th birthday of one of this site’s namesakes, my grandfather, friend, mentor, buddy, and the list goes on. The man exerted a great deal of influence on my life, and our time together -including the day he passed away in my presence 13 years ago- is forever etched in my mind.

Today we jettison the typical Cheap Stocks investment related drivel, and instead pay tribute to a great man who left countless people better than he found them. If he were alive today, he’d be puzzled by his grandson’s website. “Value” to him had to do with doing an honest day’s work, keeping your word, and serving others. “Growth” was about the tomatoes and peas in his garden, and “investing” was related to the time you spent serving others needs. The only stock he ever owned was the 20 shares of Ringling Brothers stock one of his sons purchased for him in the 1960’s. The circus was everything to him— at an early age when the circus was in town he’d work all day helping them to set up just for a ticket to that evening’s show--and his canceled Ringling Brothers stock certificate (Ringling was acquired by Mattel in the early 70’s) is proudly displayed in my home in tribute.

He never made it much past the eighth grade. That’s what happens when you get kicked out of school for knocking your school’s principal on his rear-end. Oh, and by the way the principal happened to be his Uncle Ed. As the story goes, young Clyde was accused of something he did not do, and good old Uncle Ed took a switch to him in the school office. Clyde wasn’t standing for that, and you know the rest—down went Uncle Ed. The incident stood with my grandfather—I recall him telling me on one of our frequent weekend ventures to his old stomping ground in Easton, PA about the dream he’d had the night before; here he was in his late 70’s and he’d dreamt of urinating on Uncle Ed’s grave. The past died hard for him. Being kicked out of school in many ways shaped his future—fueling a success story not measured in dollars, because there weren’t many of those, but measured instead by service to others, hard work, pride in all that he did, and sons and grandchildren who revered him.

He was part of the greatest generation. During World War II the GM plant, where he served as Master Heat Treater, made the conversion from autos to airplanes, and his ingenuity-not learned in any classroom- earned him awards, and helped GM build Grumman Avengers more quickly and efficiently.

After moving to Ewing NJ in the late 1930’s, he and a few buddies realized that this growing area needed a rescue squad. They became educated about wound care and emergency medicine, bought a used Hearse to serve as an ambulance, and The Pennington Road Rescue Squad was born. Born out of guts, ingenuity, fortitude, and a desire to serve others. 

My grandmother preceeded him in death, and it was then that we found out what “investing” meant in my grandmother's eyes. It meant hiding cash from her husband. The several thousand dollars in cash we found, including bills from the 1930’s through the 1960’s, bore witness to this. Evidently, the combination of living through the Depression, and fear that my grandfather would give it all away to anyone in need prompted my grandmother to keep a secret stash.

You really couldn’t blame her. A great woman in her own right, she’d seen it all. She’d seen my grandfather stop to help a stranger who’d run out of gas during the war, syphon it out of his tank and into the stranger’s, then run out of gas himself a few minutes later. Anything to help someone in need.

My resume' may be a lot longer than his, not that he ever had one. I had the opportunity to graduate from college, grad school, earn other professional designations, etc. But My grandfather, Clyde, was way smarter, way more accomplished, more ingenious and a better "investor" than I will ever be.

Happy 100th birthday, Clyde. I miss you, think of you often, am grateful for the times we had together, and for the lessons you taught me.

Tuesday, June 03, 2014

Imation: Back to Net/Net Land

Imagine our surprise to finally identify another net/net with a market cap in excess of $100 million. Now as rare as a Phillies win over the Mets (much to my chagrin), this was a big find. Not really. We are just getting desperate for net/nets. Not really, either.

Imation IMN has been what we would term a perennial net/net. The company was a member of our Cheap Stocks 26 Net Net Index, and perhaps the epitome of the proverbial "cigar butt". Imation has not generated a positive bottom line on an annual basis since 2009, and the main attraction- a healthy amount of cash- has dwindled from $305 million at year end 2010, to $126 million as of the latest quarter. The level of cash has stabilized in the past six quarters, a good sign, but this company still has its work cut out for it.

With $3.09 per share in cash ($2.61 net of debt), Imation currently trades at .96 times net current asset value and .63 times tangible book value. While that may appear enticing, this is a company in transition; one that generates 65% of revenue from what management terms "declining businesses". They continue to try and cut costs, and divest lower margin businesses- they sold Memorex last year- in favor of those that management believes will provide higher margins.

For the current price of $3.32, investors theoretically receive $2.61 and net cash, the fixed assets (on the books at $50 million) and call option on the company's prospects for 72 cents. That assumes that the intangible assets and goodwill are worthless.

Of course, the above is meaningless if the company resumes burning through it's cash.

While Imation is back on our radar, we've seen this story often in net/net land; and are not yet convinced that it will have a happy ending.

Ticker: IMN
Price: $3.31
Market Cap: $139 million
NCAV: $144 Million
Price/NCAV: .96
TBV: $5.28
P/TBV: .63
Cash: $126.2 million
Cash/Share: $3.09
Debt: $19.8 million
Net Cash/Share: $2.61

*The author has no positions in companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only

Thursday, May 22, 2014

More Action in the Wine Business- Treasury Wine Estates (TSRYY) Acquisition Bid by KKR

We like the wine business, having been attracted primarily due to vineyard acreage ownership at cheap prices. We have done well with pink sheet name Scheid Vineyards (SVIN) over the past couple of years.Very recently, we took a position in Australian winemaker Treasury Wine Estate, which received a buyout offer earlier this week from KKR. See more below.

*The author has positions in Scheid Vineyards and Treasury Wine Estates. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only