Thursday, August 07, 2008

Cheap Stocks 21 Net/Net Index: 6 Months Later

Six months after launching the first index comprised of companies trading below their net current asset value, the results have been fairly compelling. However, six months is still far too short a timeframe to draw a meaningful conclusion. In any event, the CS21 Net/Net Index is up 20.62% since inception, while the Russell Microcap Index is down 2.21% during the same period.

When you dig into the underlying index constituents and return experience of each, the results are along the lines of what we expected: a handful of companies with very strong returns, with the majority in negative territory. So it goes with net/nets; some will go under, some will be acquired, some will tread water, while others will be rediscovered by the market, having been mis-priced.

So far, there has been one acquisition, Renovis Corp. Rather than replace this company in the index, we decided to keep the proceeds in cash.

Below are the results to date of the companies comprising the CS21 Net/Net Index:

Company, Ticker, Original Weight, Return

Adaptec, Inc(ADPT),18.7,42.86%

Audiovox Corporation(VOXX),12.22,-0.52%

Trans World Entertainment Corporation(TWMC),7.57,-32.27%

The Finish Line, Inc(FINL),6.26, 337%

Nu Horizons Electronics Corp(NUHC),5.81,-17.19%

Richardson Electronics, Ltd(RELL),5.15, 22.31%

Pomeroy IT Solutions, Inc(PMRY),4.62,-46.62%

Ditech Networks Inc(DITC),4.29,-38.33%

Parlux Fragrances, Inc(PARL),3.92, 65%

InFocus Corporation(INFS),3.84, -15.29%

Renovis, Inc. (acquired 5/5, proceeds held in cash)

Leadis Technology, Inc(LDIS),3.5,-53.64%

Replidyne, Inc(RDYN)3.3,-42.27%

Tandy Brands Accessories, Inc(TBAC),2.93,-32.99%

FSI International, Inc(FSII),2.87,-29.41%

Anadys Pharmaceuticals, Inc(ANDS),2.53, 73.75%

MediciNova, Inc(MNOV),2.31, 9.43%

Emerson Radio Corp(MSN),1.65,-10%

Handleman Company(HDLM),1.7,16%

Chromcraft Revington, Inc(CRC),1.63,-32.29%

Charles & Colvard, Ltd. CTHR,1.5,-46.67%

While we are pleased with the results of this experiment so far, we also realize the potential opportunities in constructing a portfolio of net/nets that is not naively constructed, as this one is.

*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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