Thursday, September 22, 2011

Portfolio Metrics for The Cheap Stocks 26 Net/Net Index

Thanks for all of the e-mails that we've received regarding the new index. Some have questioned the inclusion of certain companies in the Index, based on one issue or another. The truth is, net/nets often have fleas. Perhaps there are corporate governance issues, the operating business is broken, or there is simply great skepticism as to whether a company is a going concern. Sometimes the companies are simply too small to generate any interest, and a decent name may have fallen through the cracks. Make no mistake, we fully expect that there will be bankruptcies by the time the our two year time frame has passed. There will probably be companies that will be acquired; and a few whose stock price will skyrocket relative to their current price. We experienced all of the above with the CS 21 Net/Net Index; this is simply another experiment in Net/Net Indexing.
Cheap Stocks 26 Net/Net Index Portfolio Metrics at inception (9/13/2011)
Total Market Cap:$6.297 billion
Average Market Cap:$242 million
Total Cash and ST Investments:$3.944 billion
Price to Book Ratio:.63
Price to Net Current Assets Value (NCAV):.84
*The author has a position in Ingram Micro(IM). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only

Tuesday, September 13, 2011

Introducing The New Cheap Stocks 26 Net/Net Index

Back in February of 2008, we launched the Cheap Stocks 21 Net/Net Index, an experiment in net/net indexing. This was not a particularly good time for net/nets; the quality of those available was quite low. What better time, we thought, to truly stress test the concept. The results after two years, while not as compelling as we'd hoped, were still quite good. The CS 21 Net/Net Index, a rag-tag bunch of troubled companies outperformed the S&P 500 by 2537 basis points, and the more appropriate benchmark The Russell Microcap Index by 1537 basis points, returning 5.1% during the two year period.

In the past year or so, the ranks of net/nets have been extremely thin. Our readers have wondered where we've been, with so few postings in recent months, but the truth is, there simply has not been much to write about in net/net land. The recent market pullback, however, has helped to push a few more companies below net current asset value. While the number of net/nets is still a bit thin, we've decided to introduce a new net/net index.

Unlike our previous CS 21 Net/Net Index which was cap weighted, the New Cheap Stocks 26 Net/Net Index will be equal weighted. It is comprised of 26 companies with market caps in excess of $40 million that were trading below their net current asset value as of today's market close. There will be no rebalancing, no companies will be added or deleted, and we'll track the results over the next two years. We are keeping this very simple.

Here are the constituents of the CS 26 Net/Net Index:

Ingram Micro (IM)
Benchmark Electronics(BHE)
Imation Corp.(IMN)
RealNetworks, Inc.(RNWKD)
ModusLink Global Solutions(MLNK)
Tuesday Morning Corporation (TUES)
Maxygen, Inc.(MAXY)
Volt Information Sciences, Inc (VISI)
Axcelis Technologies, Inc. (ACLS)
Kimball International (KBALB)
Opnext, Inc. (OPXT)
Advanced Battery Technologies,(ABAT)
BigBand Networks, Inc. (BBND)
Myrexis, Inc.(MYRX)
Gencor Industries, Inc. (GENC)
Parlux Fragrances, Inc. (PARL)
Trans World Entertainment Corp (TWMC)
Heelys, Inc. (HLYS)
RCM Technologies, Inc. (RCMT)
Trimeris, Inc. (TRMS)
Emerson Radio Corp (MSN)
Adams Golf, Inc. (ADGF)
Planar Systems, Inc. (PLNR)
Books-A-Million, Inc.(BAMM)

In true net/net fashion this is not a well diversified group of companies, and is very heavy on technology.

The beginning value for the Index will be 260.00, and we'll update the progress weekly.

Stay tuned for more on the index members, portfolio fundamental data, and more.

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