The net/net cupboard has been bare the past couple of years; the worst we've ever seen in the umpteen years we've been researching and writing about our favorite cubbyhole of the deep value world. That's left us with little to write about. While this site was originally devoted to net/nets, we've delved into other areas of deep value over the years (by our definition, anyway), including real estate. But value has itself has been difficult to find, there have not been many compelling ideas, and we've done what value investors do in those situations--go into hibernation.
In fact, we've rarely run our favorite stock screen the past several months- the one that identifies companies trading below net current asset value, aka the ever-elusive net/net.
We've been anxious to create our third experimental net/net index (the first two (Cheap Stocks 21 and Cheap Stocks 26) had interesting but inconclusive results; but we've been unable to identify enough candidates, and "Cheap Stocks 4" just won't do the trick..
So it was with a small amount of joy earlier this week when we begrudginly ran our favorite screen, and found a whopping four net/nets with market caps in excess of $100 million. Granted, two of them are what we refer to as "perennial net/nets", seemingly always showing up. These are Richardson Electronics (RELL) and Trans World Entertainment (TWMC). We also found an old friend, that has occasionally made the cut, LeapFrog (LF), which recently ran aground on some very bad guidance. In facts, shares fell 34% last Friday, and are down 50% since December. We plan on digging in to see if there's any meat left on the bone. It gets ugly in net/net land.
Finally, there's a new kid on the block, that being retailer Sears Hometown Outlet Stores (SHOS), which is currently trading at .92 times NCAV. Retailers are often the ugliest of the net/nets, as their current assets are typically chock full of inventory. There have been some great retail net/net success stories over the years, including Finish Line (FINL), and Conns (CONN), but you have to be careful with these.
SHOS shares are down 44% in the past year, and while we are skeptical of retailers, we'll be digging into this one as well, looking for any redeeming qualities, other than the fact that it trades at .62 times book value, and is a net/net.
*The author has a position in Richardson Electronics (RELL). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.