Value Investing Congress West: May 6 & 7
Last May, we attended our first Value Investing Congress in Hollywoowd, and were extremely impressed by this conference; from the quality of speakers, conviction of ideas presented, to the venue. We are heading back again for this year's edition, in Pasadena.
The folks at The Value Investing Congress have been kind enough to extend a $500 discount to Cheap Stocks readers. If you are intested in attending, please click here and use discount code P8JHBL1, which will be good until April 20th.
Hope to see you in Pasadena!
Sunday, March 30, 2008
Saturday, March 29, 2008
Premier Exhibitions (PRXI): Value not Without Controversy
Of all the presentations we saw at last year's Value Investing Congress in Hollywood, one of the most interesting featured Premier Exhibitions, the Atlanta based company that develops and promotes touring exhibitions around the world. Not just any touring exhibition, mind you, and that's where controversy enters the picture.
Premier happens to operate the highly successful Bodies: The Exhibition, which features whole and partially dissected human bodies, preserved through a technique called "polymer preservation". Certainly not my cup of tea, although the exhibit apparently does an excellent job of displaying the complexity of the human body, as well as detrimental effects of some of the things we know we shouldn't do, such as smoking and overeating.
In order to have a body exhibit, you need human bodies, and questions as to the sources of those bodies were raised on a 2/15 episode of ABC's 20/20. While Premier claims to lease the bodies(all said to have died of natural causes)from a Chinese university, 20/20 suggested among other things that some may have been prisoners, and not all died of natural causes. Of course, if true, the human rights violations are obvious. In reaction, politicos around the country moved quickly to stop the exhibits. The company responded with a press release vehemently denying the claims, and it is worth reading.
Obviously, the stock was punished, falling about 25% in the days following the 20/20 broadcast, to the $4.5 level (its also down significantly from year ago levels of $11.50). The controversy seems to have slowed regarding "Bodies", but there's a more compelling reason to take a look at this company; the primary one that led us to take a position last month.
Premier also happens to operate the traveling Titanic exhibits. But its also the salvor in possession of the Titanic, with exclusive rights to recover artifacts
from the wreck site. The company already holds an impressive array of Titanic artifacts, potentially valued into the hundreds of millions.
Not without its own controversy, the Titanic ownership issue is still in the courts. Earlier this week, the company received a favorable ruling from the government, which has essentially given thumbs up to company ownership of the 3500 artifacts it has already recovered (worth an estimated $100 million or higher). Now its back to the courts, who'd asked the government for guidance on the issue.
This may also be a step closer to Premier being allowed to resume excavation of the Titanic site in order to recover more artifacts. Some have suggested this may all be worth up to $3 billion, a figure we view with some skepticism.
There are apparently stipulations on the collection, one of which is that if Premier ever wants to sell, the company must sell the entire collection at once. This somewhat limits Premier, and perhaps lessens the value of the artifacts, but we still believe this company offers compelling value.
Premier's current market cap is less than $200 million, the company is profitable, and has no debt. Prospective investors must recognize the controversy, volatile nature of the stock and understand that Premier's future is dependent on the courts, and settlement of some rather controversial issues.
Premier Exhibitions: (PRXI)
Price: $6.37
Market Cap: $192 million
P/E: 14.6
Cash: $29 million
Enterprise Value: $167 million
Profit Margin : 24.7% (2007)
27.2% (9 months ended 11/30/07)
*The author has a position in Premier Exhibitions (PRXI). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.
Of all the presentations we saw at last year's Value Investing Congress in Hollywood, one of the most interesting featured Premier Exhibitions, the Atlanta based company that develops and promotes touring exhibitions around the world. Not just any touring exhibition, mind you, and that's where controversy enters the picture.
Premier happens to operate the highly successful Bodies: The Exhibition, which features whole and partially dissected human bodies, preserved through a technique called "polymer preservation". Certainly not my cup of tea, although the exhibit apparently does an excellent job of displaying the complexity of the human body, as well as detrimental effects of some of the things we know we shouldn't do, such as smoking and overeating.
In order to have a body exhibit, you need human bodies, and questions as to the sources of those bodies were raised on a 2/15 episode of ABC's 20/20. While Premier claims to lease the bodies(all said to have died of natural causes)from a Chinese university, 20/20 suggested among other things that some may have been prisoners, and not all died of natural causes. Of course, if true, the human rights violations are obvious. In reaction, politicos around the country moved quickly to stop the exhibits. The company responded with a press release vehemently denying the claims, and it is worth reading.
Obviously, the stock was punished, falling about 25% in the days following the 20/20 broadcast, to the $4.5 level (its also down significantly from year ago levels of $11.50). The controversy seems to have slowed regarding "Bodies", but there's a more compelling reason to take a look at this company; the primary one that led us to take a position last month.
Premier also happens to operate the traveling Titanic exhibits. But its also the salvor in possession of the Titanic, with exclusive rights to recover artifacts
from the wreck site. The company already holds an impressive array of Titanic artifacts, potentially valued into the hundreds of millions.
Not without its own controversy, the Titanic ownership issue is still in the courts. Earlier this week, the company received a favorable ruling from the government, which has essentially given thumbs up to company ownership of the 3500 artifacts it has already recovered (worth an estimated $100 million or higher). Now its back to the courts, who'd asked the government for guidance on the issue.
This may also be a step closer to Premier being allowed to resume excavation of the Titanic site in order to recover more artifacts. Some have suggested this may all be worth up to $3 billion, a figure we view with some skepticism.
There are apparently stipulations on the collection, one of which is that if Premier ever wants to sell, the company must sell the entire collection at once. This somewhat limits Premier, and perhaps lessens the value of the artifacts, but we still believe this company offers compelling value.
Premier's current market cap is less than $200 million, the company is profitable, and has no debt. Prospective investors must recognize the controversy, volatile nature of the stock and understand that Premier's future is dependent on the courts, and settlement of some rather controversial issues.
Premier Exhibitions: (PRXI)
Price: $6.37
Market Cap: $192 million
P/E: 14.6
Cash: $29 million
Enterprise Value: $167 million
Profit Margin : 24.7% (2007)
27.2% (9 months ended 11/30/07)
*The author has a position in Premier Exhibitions (PRXI). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.
Friday, March 28, 2008
CS21 Net/Net Index Week in Review: Into Positive Territory
The CS21 Net/Net Index closed it's strongest week yet, up 6.28% to 100.19. Since inception, the index is up .19%.
Our results since introducing this index bear out the incredible volatility experienced by net/nets. This week was the most extreme, with 20% of index members up at least 12%.
This Week's Winners:
Trans World Entertainment (TWMC): +17.95%
The Finish Line (FINL): +15.2%
Adaptec (ADPT): +14.1%
Tandy Brands (TBAC): +13%
Nu Horizon Electronics (NUHC) +12.6%
Losers:
FSI Intl (FSII): -17.4%
Audiovoxx (VOXX): -22.6%
Performance: Cheap Stocks 21 Net/Net Index vs Russell Microcap Index
Since inception (2/12/08):
CS21Net/Net: +.19%
Russell Micro: -4.42%
*The author does not have positions in any of the companies that comprise The Cheap Stocks 21 Net/Net Index. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.
The CS21 Net/Net Index closed it's strongest week yet, up 6.28% to 100.19. Since inception, the index is up .19%.
Our results since introducing this index bear out the incredible volatility experienced by net/nets. This week was the most extreme, with 20% of index members up at least 12%.
This Week's Winners:
Trans World Entertainment (TWMC): +17.95%
The Finish Line (FINL): +15.2%
Adaptec (ADPT): +14.1%
Tandy Brands (TBAC): +13%
Nu Horizon Electronics (NUHC) +12.6%
Losers:
FSI Intl (FSII): -17.4%
Audiovoxx (VOXX): -22.6%
Performance: Cheap Stocks 21 Net/Net Index vs Russell Microcap Index
Since inception (2/12/08):
CS21Net/Net: +.19%
Russell Micro: -4.42%
*The author does not have positions in any of the companies that comprise The Cheap Stocks 21 Net/Net Index. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.
Saturday, March 22, 2008
Cheap Stocks Random Notes: Unprecedented Market Volatility
Cheap Stocks 21 Net/Net Index Positive for Week Ended 3/22/08,
We don't tend to comment on the broad markets, but some research we conducted recently is worthy of repeating. In terms of market volatility, the pundits often refer to the VIX Index, a measure of expected volatility. Unfortunately, this does not resonate well with many individual investors. But the following points might:
*So far in 2008, the S&P 500 has finished 28 days- more than half of it's 55 trading-days up or down 1%.
*For historical perspective, we checked data for 1929. 1930, 1987, 1999, 2001, and 2007, and none of those seemingly volatile environments could measure up.
*The S&P has also finished 11 days, or 20% of trading days up or down 2%.
While we are not adept at broad market predictions (or any predictions), given the constant flow of bad news/good news, we expect this trend to continue. Buckle Up!
CS21 Net/Net Index
The CS21 Net/Net Index closed a very volatile week up .52% at 94.27. Since inception, the index is down 5.73%.
Music distributor Handleman(HDL), was down sharply again this past week, 31%, as the company was delisted by the NYSE, and will now trade on the Pink Sheets. We'll continue to keep HDL in the CS21 Net/Net Index. This situation reflects one of the realities of net/net investing.
Other Losers:
Tandy Brands (TBAC): -16.1%
Renovis (RVIS): -14.7%
Nu Horizons Electronics(NUHC): -6.7%
Winners:
Ditech (DITC): +16.3%
Audiovoxx (VOXX): +7.7%
Replidyne (RDYN): +7%
Performance: Cheap Stocks 21 Net/Net Index vs Russell Microcap Index
Since inception (2/12/08):
CS21Net/Net: -5.73%
Russell Micro: -5.37%
*The author does not have positions in any of the companies that comprise The Cheap Stocks 21 Net/Net Index. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.
Cheap Stocks 21 Net/Net Index Positive for Week Ended 3/22/08,
We don't tend to comment on the broad markets, but some research we conducted recently is worthy of repeating. In terms of market volatility, the pundits often refer to the VIX Index, a measure of expected volatility. Unfortunately, this does not resonate well with many individual investors. But the following points might:
*So far in 2008, the S&P 500 has finished 28 days- more than half of it's 55 trading-days up or down 1%.
*For historical perspective, we checked data for 1929. 1930, 1987, 1999, 2001, and 2007, and none of those seemingly volatile environments could measure up.
*The S&P has also finished 11 days, or 20% of trading days up or down 2%.
While we are not adept at broad market predictions (or any predictions), given the constant flow of bad news/good news, we expect this trend to continue. Buckle Up!
CS21 Net/Net Index
The CS21 Net/Net Index closed a very volatile week up .52% at 94.27. Since inception, the index is down 5.73%.
Music distributor Handleman(HDL), was down sharply again this past week, 31%, as the company was delisted by the NYSE, and will now trade on the Pink Sheets. We'll continue to keep HDL in the CS21 Net/Net Index. This situation reflects one of the realities of net/net investing.
Other Losers:
Tandy Brands (TBAC): -16.1%
Renovis (RVIS): -14.7%
Nu Horizons Electronics(NUHC): -6.7%
Winners:
Ditech (DITC): +16.3%
Audiovoxx (VOXX): +7.7%
Replidyne (RDYN): +7%
Performance: Cheap Stocks 21 Net/Net Index vs Russell Microcap Index
Since inception (2/12/08):
CS21Net/Net: -5.73%
Russell Micro: -5.37%
*The author does not have positions in any of the companies that comprise The Cheap Stocks 21 Net/Net Index. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.
Sunday, March 16, 2008
Being a Net/Net is Nothing to be Proud of...
Companies don’t typically become net/nets mysteriously. They aren’t designed that way, and it’s no badge of honor to trade at such a shockingly low valuation, (assuming your assets are real, that is) below the value of the difference between current assets and all liabilities. You get there for reasons that typically are not positive. No CFO worth his salt would be proud that his company found itself on any of our net/net lists, or as a constituent of the recently launched Cheap Stocks 21 Net/Net Index.
To become a net/net, typically much has gone wrong. Perhaps it’s been one bad quarter after another, you are sinking in debt, your products are becoming obsolete, and the market has given up on you. Perhaps its all of those reasons and more. But once you get there, there are few typical paths: Your situation improves, you become profitable again, and the market wakes up and pulls you out of the doldrums, or an acquirer sees some real value at a distressed price, and takes you out of the game. Another path may be a slow road that ultimately leads to bankruptcy. Still others remain net/nets for years, and Mr. Market, in his ultimate wisdom, has determined that your true value is already being reflected. We’ve seen companies such as Audiovoxx and Zapata perennially on the list. Interestingly, Ben Graham referred to National Presto Corp, which met his definition of a net/net, in one of his great masterpieces. National Presto was still a net/net many years later, one which we wrote about 25 years after Graham’s death!
Net/Nets are referred to as “cigar butts” for good reason. Sometimes they recover, and sometimes they don’t. Handleman (HDL), a member of the Cheap Stocks 21 Net/Net Index may just be the latest example of a net/net that does not recover. The company has fallen to $.35, a sure sign that the market believes that bankruptcy is in the future. At that level, and with deteriorating fundamentals and business conditions, the fact that such a company trades below its NCAV is of little comfort or relevance. Net/Net status is only relevant if the company is viable, or the assets are worth more than all claims (including equity) in fire sale type conditions. Stay tuned in the Handleman situation.
On another note, as markets decline, we continue to see new and potentially interesting names appear among the roles of the downtrodden net/nets. These include novelty sneaker maker Heely’s (HLYS), and small retailer and former net/net Duckwall Alco (DUCK)(search our archives for DUCK research).
As market volatility continues, we expect to see more interesting opportunities in the land of the forgotten.
*The author does not have positions in any of the 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. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.
Companies don’t typically become net/nets mysteriously. They aren’t designed that way, and it’s no badge of honor to trade at such a shockingly low valuation, (assuming your assets are real, that is) below the value of the difference between current assets and all liabilities. You get there for reasons that typically are not positive. No CFO worth his salt would be proud that his company found itself on any of our net/net lists, or as a constituent of the recently launched Cheap Stocks 21 Net/Net Index.
To become a net/net, typically much has gone wrong. Perhaps it’s been one bad quarter after another, you are sinking in debt, your products are becoming obsolete, and the market has given up on you. Perhaps its all of those reasons and more. But once you get there, there are few typical paths: Your situation improves, you become profitable again, and the market wakes up and pulls you out of the doldrums, or an acquirer sees some real value at a distressed price, and takes you out of the game. Another path may be a slow road that ultimately leads to bankruptcy. Still others remain net/nets for years, and Mr. Market, in his ultimate wisdom, has determined that your true value is already being reflected. We’ve seen companies such as Audiovoxx and Zapata perennially on the list. Interestingly, Ben Graham referred to National Presto Corp, which met his definition of a net/net, in one of his great masterpieces. National Presto was still a net/net many years later, one which we wrote about 25 years after Graham’s death!
Net/Nets are referred to as “cigar butts” for good reason. Sometimes they recover, and sometimes they don’t. Handleman (HDL), a member of the Cheap Stocks 21 Net/Net Index may just be the latest example of a net/net that does not recover. The company has fallen to $.35, a sure sign that the market believes that bankruptcy is in the future. At that level, and with deteriorating fundamentals and business conditions, the fact that such a company trades below its NCAV is of little comfort or relevance. Net/Net status is only relevant if the company is viable, or the assets are worth more than all claims (including equity) in fire sale type conditions. Stay tuned in the Handleman situation.
On another note, as markets decline, we continue to see new and potentially interesting names appear among the roles of the downtrodden net/nets. These include novelty sneaker maker Heely’s (HLYS), and small retailer and former net/net Duckwall Alco (DUCK)(search our archives for DUCK research).
As market volatility continues, we expect to see more interesting opportunities in the land of the forgotten.
*The author does not have positions in any of the 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. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.
Friday, March 14, 2008
Cheap Stocks 21 Net/Net Index Down Week Ended 3/14/08
The CS21 Net/Net Index closed a very volatile week down 2.67% at 93.78. Since inception, the index is down 6.22%.
The big loser for the week, and perhaps first candidate in the index that may not survive, was music distributor Handleman(HDL), down 73% on poor earnings an extremely negative outlook, and liquidity issues. The company ended the quarter with $32 million in cash, but $90 million in short term debt, and is working with creditors to amend credit agreements. Not atypical in net/net land.
Other Losers:
Tandy Brands (TBAC): -27.7%
Trans World Entertainmet(TWMC): -19.5%
Winners Were Few and Far Between
Audiovoxx (VOXX): +9.6%
Parlux(PARL): +4%
Performance: Cheap Stocks 21 Net/Net Index vs Russell Microcap Index
Since inception (2/12/08):
CS21Net/Net: -6.22%
Russell Micro: -7.37%
*The author does not have positions in any of the companies that comprise The Cheap Stocks 21 Net/Net Index. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.
The CS21 Net/Net Index closed a very volatile week down 2.67% at 93.78. Since inception, the index is down 6.22%.
The big loser for the week, and perhaps first candidate in the index that may not survive, was music distributor Handleman(HDL), down 73% on poor earnings an extremely negative outlook, and liquidity issues. The company ended the quarter with $32 million in cash, but $90 million in short term debt, and is working with creditors to amend credit agreements. Not atypical in net/net land.
Other Losers:
Tandy Brands (TBAC): -27.7%
Trans World Entertainmet(TWMC): -19.5%
Winners Were Few and Far Between
Audiovoxx (VOXX): +9.6%
Parlux(PARL): +4%
Performance: Cheap Stocks 21 Net/Net Index vs Russell Microcap Index
Since inception (2/12/08):
CS21Net/Net: -6.22%
Russell Micro: -7.37%
*The author does not have positions in any of the companies that comprise The Cheap Stocks 21 Net/Net Index. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.
Friday, March 07, 2008
Cheap Stocks 21 Net/Net Index Up Week Ended 3/7/08
The CS21 Net Net Index closed a rather volatile week up .87% at 96.36. Since inception, the index is down 3.64%.
The big winner for the week was retailer The Finish Line (FINL), up 58% on the heals of a settlement in the company's failed acquisition bid for Genesco. The stock popped despite announcing that q4 same store sales were down 6%.
Other Winners:
Tandy Brsnds (TBAC): +15.1%
Emerson Radio (MSN): +7.4%
Losers
Parlux Fragtances (PARL): -15.1%
FSI International (FSII): -11%
Richardson Electronics (RELL): -8.6%
Benchmarking The Index
The best way to measure The Cheap Stocks 21 Net/Net Index in terms of relative performance is via the Russell Microcap Index. Comparisons against the S&P 500, or any of the other commonly used benchmarks are simply not relevant.
The Russell Microcap Index
By Definition:*
Portfolio Characteristics
Average Market Cap($-WTD)$402 million
Median Market Cap: $193 million
Largest Company by Market Cap: $1.683 billion Smallest Company by Market Cap: $13 million
Source: Russell
Performance vs Cheap Stocks 21 Net/Net Index
Since inception (2/12/08):
CS21Net/Net: -3.64%
Russell Micro: -7%
Week Ended 3/7/08:
CS21Net/Net: +.87%
Russell Micro: -4.5%
*The author does not have positions in any of the companies that comprise The Cheap Stocks 21 Net/Net Index. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.
The CS21 Net Net Index closed a rather volatile week up .87% at 96.36. Since inception, the index is down 3.64%.
The big winner for the week was retailer The Finish Line (FINL), up 58% on the heals of a settlement in the company's failed acquisition bid for Genesco. The stock popped despite announcing that q4 same store sales were down 6%.
Other Winners:
Tandy Brsnds (TBAC): +15.1%
Emerson Radio (MSN): +7.4%
Losers
Parlux Fragtances (PARL): -15.1%
FSI International (FSII): -11%
Richardson Electronics (RELL): -8.6%
Benchmarking The Index
The best way to measure The Cheap Stocks 21 Net/Net Index in terms of relative performance is via the Russell Microcap Index. Comparisons against the S&P 500, or any of the other commonly used benchmarks are simply not relevant.
The Russell Microcap Index
By Definition:*
The Russell Microcap Index measures the performance of the microcap segment of the U.S. equity market. It makes up less than 3% of the U.S. equity market. It includes 1000 of the smallest securities in the small-cap Russell 2000® Index based on a combination of their market cap and current index membership and it includes the next 1,000 securities.
Russell Microcap Index is constructed to provide a comprehensive and unbiased barometer for the microcap segment trading on national exchanges, while excluding lesser-regulated OTC bulletin board securities and pink-sheet stocks due to their failure to meet national exchange listing requirements. The Russell Microcap Index is completely reconstituted annually to ensure larger stocks do not distort performance and characteristics of the true microcap opportunity set.
Portfolio Characteristics
Average Market Cap($-WTD)$402 million
Median Market Cap: $193 million
Largest Company by Market Cap: $1.683 billion Smallest Company by Market Cap: $13 million
Source: Russell
Performance vs Cheap Stocks 21 Net/Net Index
Since inception (2/12/08):
CS21Net/Net: -3.64%
Russell Micro: -7%
Week Ended 3/7/08:
CS21Net/Net: +.87%
Russell Micro: -4.5%
*The author does not have positions in any of the companies that comprise The Cheap Stocks 21 Net/Net Index. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.
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