Monday, March 02, 2009

Fertile Environment For Net/Nets

As the market doldrums continue, hope springs eternal that we will hit a bottom. But, when? Investors continue to receive their daily doses of bad news, continue to see their portfolio balances diminish, and continue to lose hope; all of which is a self fulfilling prophecy of sorts, driving the markets even lower.

The new administration is not helping matters. The hope and optimism we were bombarded with during the campaign has given way to fear, uncertainty, dire predictions if certain legislation is not passed, and an almost complete lack of confidence among consumers and investors alike. There has been no bounce; the S&P 500 is down 30% since election day, and 12% since inauguration day. With all the big spending plans, Mr. Market is signaling fear that the new agenda will not have a positive outcome. Without confidence, without hope that the recession will end and that there are better days ahead, we'll continue to be whipsawed.

Meanwhile, the list of companies trading below their net current asset value continues to rise to levels we have not seen since the tech bubble burst. As of last count there were:
433 companies with market caps greater than $5 million trading below their NCAV, including:
58 above $100 million
24 above $200 million

The difference between what we are seeing now and post tech bubble, is that today's net/nets are of much higher quality then what we saw in the early 2000's. There are dozens of profitable companies, many are loaded with cash on a relative basis, and more than we've ever seen trading below 2/3 of NCAV. In the coming weeks, we'll reveal some of the more interesting names in various categories, starting with:

Top 5 Profitable Net/Nets by market Cap

Tech Data
Ticker: TECD
P/E: 7
Market Cap: $816
NCAV: $1.415 billion
Mkt Cap/NCAV: .58
Price: $16.29
Cash/Share: $7.7

Signet Jewelers
Ticker: SIG
P/E: 4
Market Cap: $641
NCAV: $977
Mkt Cap/NCAV: .66
Price: $7.51
Cash/Share: $.4

OM Group
Ticker: OM
P/E: 3
Market Cap: $450
NCAV: $492
Mkt Cap/NCAV: .91
Price: $14.78
Cash/Share: $8.11

K-Swiss Inc
Ticker: KSWS
P/E: 10
Market Cap: $335
NCAV: $353
Mkt Cap/NCAV: .93
Price: $9.57
Cash/Share: $8.4

Ticker: SKX
P/E: 5
Market Cap: $277
NCAV: $303
Mkt Cap/NCAV: .91
Price: $5.98
Cash/Share: $2.5

*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.

1 comment:

Mark Perkins said...

Don't Graham's findings on net-net show though that the unprofitable ones are just as much of a bargain as the profitable. I think the idea to get from the 30s is an index of them can outperform "as the market recovers" from buyouts and the rising tide. Didn't Graham sell net's as they approached 1 to 2 times NCAV? Are you doing that in your index.