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.
Friday, January 30, 2015
Friday, January 23, 2015
Tootsie Roll's Mel Gordon Dies at 95: Don't Fall for the Acquisition Hype Just Yet
Tootsie Roll Industries (TR) has been my long-time nemesis. I held a position in the stock for several years, seeing what I believed to be the enormous value in the brand combined with aging insider-owners Melvin and Ellen Gordon. It seemed ripe for a takeover; a perfect acquisition for Hershey (HSY), or some other larger name seeking to expand their brand portfolio. At least that's what I believed.
The problem, though was two-fold: On the fundamental front, revenues were flattening, once mid-teen net profit margins were falling, and what was a great brand seemed to be lost in the shuffle. Secondly, the aging owners, the Gordons, were not going anywhere.
I finally realized the latter one day after receiving the 2007 annual report. Inside was a picture of Mel and Ellen Gordon, looking much younger than their years. The Gordon's essentially controlled the Class B voting shares, and called the shots. To me, their compensation seemed excessive, especially given the company's declining results, lack of growth and direction. But, they were not giving up this cash-cow. I, however, finally gave up.
Mel's passing is sad; and it's quite amazing that he stayed engaged as long as he did. The baton now passes to Ellen Gordon, formerly the company's chief operating officer, age 83, whose family acquired the company when it ran into trouble in 1935.
Shares were up 7% after the announcement of Mel's death amid new speculation that the company will be acquired.
Don't hold your breath though. Ellen Gordon is only 83.
We've been to this rodeo before.
*The author has no position in any stocks mentioned in this piece. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only
The problem, though was two-fold: On the fundamental front, revenues were flattening, once mid-teen net profit margins were falling, and what was a great brand seemed to be lost in the shuffle. Secondly, the aging owners, the Gordons, were not going anywhere.
I finally realized the latter one day after receiving the 2007 annual report. Inside was a picture of Mel and Ellen Gordon, looking much younger than their years. The Gordon's essentially controlled the Class B voting shares, and called the shots. To me, their compensation seemed excessive, especially given the company's declining results, lack of growth and direction. But, they were not giving up this cash-cow. I, however, finally gave up.
Mel's passing is sad; and it's quite amazing that he stayed engaged as long as he did. The baton now passes to Ellen Gordon, formerly the company's chief operating officer, age 83, whose family acquired the company when it ran into trouble in 1935.
Shares were up 7% after the announcement of Mel's death amid new speculation that the company will be acquired.
Don't hold your breath though. Ellen Gordon is only 83.
We've been to this rodeo before.
*The author has no position in any stocks mentioned in this piece. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only
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