Saturday, March 11, 2006

Back Where it All Started

This past week, your Cheap Stocks editor spent some time reminiscing about articles gone by, thinking about the good old days, so to speak. In that process, I came across one of the articles, certainly not the first, that was at the forefront of my interest in companies trading below net current asset value. The magazine in which it was published, Bloomberg Personal Finance Magazine, one of the best on the market at the time, unfortunately bit the dust in early 2003. Hats off to any mainstream publication (this one had circulation of 400,000) willing to induldge a writer by printing a story on this strategy.

This particular article, published in May, 2002, was entitled “Raking Up Live Prospects: A 70-year-old strategy for choosing stocks is green again” and discussed a stock screen utilized to identify NCAV companies. The story ultimately featured seven promising examples of NCAV companies, each of which was either profitable on a trailing 12 month basis, had at least one profitable quarter in the previous year, or was sitting on a relatively significant amount of cash and marketable securities.

The selected NCAV companies from that article are printed below. We thought it would be interesting, nearly four years later, to see how these companies subsequently fared.
The Results
Audiovoxx(VOXX)- Up 81 percent
Blair(BL)- Up 140 percent
National Presto Industries(NPK)- Up 78 percent
Netro (now SR Telecom)- Down 71 percent
Tellium- (Acquired at $3.00/share in September 2003)- Flat
Titanium Metals(TIE)- Up 2130 percent
Valueclick(VCLK)- Up 522 percent

The average cumulative return was +411 percent. Obviously, Titanium Metals 2130 percent rise had a great deal to do with that. But otherwise, outside of Netro’s poor performance, the results were compelling.

What was very pleasing at the time of this articles publication, was to see this piece referenced in a Washington Post article by Jim Glassman (Yes, Dow 36000 Jim Glassman). That piece is still available on line, in the National Review archives: Hook, Line & Winner

The point of this post is to illustrate the fact that the NCAV strategy does have merit. It requires a great deal of patience, and has a high degree of risk, but the rewards can be outstanding: not just in dollar terms, but also in the thrill of successfully identifying an undervalued security that few investors know of, or care about. This is also a great example of an area of the market were small investors can succeed, and the institutions can’t.

If you’d like a PDF of the original Bloomberg Personal article, please e-mail your request to

*The author does not have a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.

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