Rising Tide is Not Lifting All Boats; The case for a New Net/Net: AC Moore (ACMR)

While yesterday's 10% move in the Dow brought was sigh of relief to many investors, the flotsam and jetsam (aka deep value) is not yet participating. That means that there are a lot of bargains out there, but you still have to be very cautious, and very patient.

Let's face it, retailers are struggling to put it mildly, and this will likely continue at least until the panic menatlity subsides. But we are seeing some interesting situations in retail.

AC Moore
AC Moore (ACMR)is a Berlin, NJ arts and crafts superstore, with 136 locations on the east coast. Currently trading at $2.88, shares have been pounded this year, and are off 83% from the 52 week high. Sound familiar?

This company has also recently joined the ranks of the net/nets, the downtrodden companies we love so much here at Cheap Stocks. We are familiar with the store and concept having used their framing services in the past, (and Mrs. Cheap Stocks has been a frequent visitor to our local store).

While we are not wearing rose colored glasses believing that retail will recover quickly, we like the AC Moore story, because they appear to have the resources to weather this storm. With $45 million in cash and just $20 million in debt, ACMR has burned through $8 million in cash during the trailing 12 months. (A prolonged recession will likely increase the burn rate)

With a current enterprise value of juat $36 million, this company is priced for the scrap heap. Could it ultimately be headed there? Anything is possible. But the concept of these stores is fairly unique (call it a poor-man's Michael's), and it generates 25% of sales from art and scrapbooking (I don't get the whole scrapbooking craze, but that doesen't make it any less real).

I don't like the fact that all AC Moore stores are leased, and that the company does not own its real estate, but still find this a potentially interesting opportunity.

AC Moore
Ticker: ACMR
Price: $2.88
Market Cap: $59 million
Net Current Asset Value(NCAV): $92.5 million
Cash: $45.6 million
Cash/share: $2.25
Net Cash/share: $1.24
Price/Book: .3

*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.

Armageddon?
It certainly may feel that way in this panic driven market, and your portfolio may be reflecting doomsday, but we will recover. If you are a forced seller, however, the losses are very real.

Of course, the list of net/nets grows by the day, and some of the names have never graced our list. Here's a sample of some of the new net/nets:

Ingram Micro
Ticker: IM
Price: $12.72
Market Cap: $2.11 billion
NCAV: $2.36 billion
Cash: $807 million
P/E: 7

Benchmark Electronics
Ticker: BHE
Price: $9.28
Market Cap: $617 million
NCAV: $761.4 million
Cash: $288 million
P/E: 7.5

Tuesday Morning
Ticker: TUES
Price:$1.75
Market Cap: $73 million
NCAV: $152 million
Cash: $8.6 million
P/E: 5

As always, buyer beware, especially in this market. "Cheap" stocks are often that way for very good reasons, and if conditions persist in the current environment, the fine line between "cheap" and bankruptcy will reveal itself.

Cheap Stocks Premium Content
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Before taking the next steps, we'd like to gauge interest in a premium subscription service. Please email us @ cheapstocks@verizon.net if you'd be interested .

*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.

No Safe Havens, but Plenty of Bargains...if you have the Stomach for it....

How do you describe the markets the past two weeks? Did it feel like 1987 all over again? Not really, if only because in 87, as violent as it was, the crash was primarily over in one day. It was like ripping a band-aid off of a cut. Painful, but quick. This time around, it's been more like an endless root canal. Just when you think it may be over, the dentist is back for more.

CS21 Net Net Index Hit Hard
Our index of 21 companies trading below their net curent asset value has been hit extremely hard this past month. Since inception (2/12/08) through 9/16, the index was up 15%, 2000bps above the Russell Microcap Index. As of Friday, it was down 17.5% since inception. During the same period, the Russell Nicrocap Index is down about 30%, so our little index of misfits is still holding up well in that comparison. Quite a drubbing, though.

But the smallest of the small are being hit extremely hard in this market, and there may be bargains galore. The problem is, no one knows when the panic will subside, and panic knows nothing about assets, book values or cash. Panic only knows panic.

Still, we've seen tremedous pullbacks in some intersting names. Here are a handful that we still own, that look even more interesting at current levels. Please note, none of these are net/nets

PICO Holdings(PICO)
Price: $28.99
Off 52 week High: 40%

Cresud ADR(CRESY)
Price: 6.97
Off 52 week High: 73%

JG Boswell(BWEL)
Price: $550
Off 52 week High: 45%

Premier Exhibitions(PRXI)
Price: $1.26
Off 52 week High: 91.5%

I don't know if we've hit bottom yet, it "feels" like we are close, but again there are no rational bounds during a panic. There's plenty of cash on the sidelines, though. Ultimately, some of it will find it's way back into the market. In the meantime, be careful.

*The author has a positions in all 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.

Cheap Stocks Random Note: New Net/Net

Widely swinging markets typically reveal new net/nets, and a "bigger" player- (not saying much in net/net land)- among the biggest we've seen in the past decade, just hit the radar.

Tech Data
Ticker: TECD
Price: $28.8
NCAV: $1.639 billion
Market Cap: $1.45 billion
Cash $468 million
Total Debt: $422 million
P/E: 10.7

This Clearwater Florida based company distributes hardware, software and networking equipment, and provides services such as training and technical support.

As always, do your own homework before taking a position in any company.

*The author does not have a position in Tech Data. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.

CS21 Net/Net Index Update

In the face of all the turmoil in the markets the past few days, we wanted to give an update on the CS21 Net/Net Index; specifically around performance. The Index closed at 115.05 yesterday, up 15.05% since inception (2/12/2008), and is down 5.4% since Friday. No big surprise here. This index is very volatile, and will continue to be volatile. For its part, the Russel Microcap Index is down 1.7% since Friday, and 5.21% since CS21's inception.

Profitable Companies Trading Below Net Current Asset Value

As promised, here's the latest list of profitable net/nets. In order to qualify, market cap had to be greater than $20 million, with positive trailing 12 month net income, and the company had to have a "real" operating business. (Therefore, companies such as Zapata (ZAP) and Comdisco (CDCO) did not qualify.) Some of these names, such as Audiovoxx and Lazare Kaplan seem to be perennial net/nets; others are first timers.

Company: AudioVox
Ticker: VOXX
Price: $9.69
Market Cap: $221.46 (million)
NCAV: $242.99

Company: RCM Tech
Ticker: RCMT
Price: $2.71
Market Cap: $34.62
NCAV: $39.29

Company: Nu Horizons Elec
Ticker: NUHC
Price: $4.78
Market Cap: $88.27
NCAV: $131.17

Company: Lazare Kaplan
Ticker: LKI
Price: $7.85
Market Cap: $64.78
NCAV: $71.27

Company: GSI Group
Ticker: GSIG
Price: $4.88
Market Cap: $204.98
NCAV: $264.65

Company:Vicon Industries
Ticker: VII
Price: $5.65
Market Cap: $26.79
NCAV: $26.36*
*reflects increase in price today, company now trades just over NCAV

Company: Flexsteel Inds
Ticker: FLXS
Price: $11.18
Market Cap: $73.52
NCAV: $75.69

Company: Trident Microsystems
Ticker: TRID
Price: $3.05
Market Cap: $186.05
NCAV: $194

Company: Peerless Systems
Ticker: PRLS
Price: $1.87
Market Cap: $33.68
NCAV: $43.67

Company: Gencor Industries
Ticker: GENC
Price: $9.35
Market Cap: $89.88
NCAV: $90.37

Company: Silverleaf Resorts
Ticker: SVLF
Price: $1.87
Market Cap: $71.21
NCAV:$97.46

Company: Tegal Corp
Ticker: TGAL
Price: $3.76
Market Cap:$27.31
NCAV: $30.31

Company: Novacea
Ticker: NOVC
Price: $1.83
Market Cap: $47.33
NCAV: $91.53

There you have it. Once again, all these companies are deep into micro-cap land, so use caution, and do your own evaluation. As a postscript, there were some intriguing names with market caps below $20 million; but these were too small for print.

*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.

Volatile Markets Reveal Profitable Net/Nets

If you are a deep value investor, market volatility can be your friend; especially if you fish in the net/net pond. Large swings in the markets tend to punish these underfollowed, less liquid and smaller names.

And most investors have become painfully aware about the historically high levels of market volatility we've been experiencing--as measured by daily market movements greater than 1 percent--through endless financial media outlet barrages. In fact the S&P 500 Index has closed plus or minus 1% in 70 out the 170 trading days so far in 2008, or an amazing 41 percent of the time.

Smaller companies have been even more volatile. The Russell Microcap Index, for instance has finished 78 trading days plus or minus 1% so far in 2008; 35 of those days hace been plus or minus 2 percent. Our own Cheap Stocks 21 Net Net Index has finished more than half--86--of its 142 days since inception plus or minus 1 percent.(Yet CS21 Is up more than 25% since inception, but thats another story)

All of this volatility has revealed an increasing number of profitable net/nets; an area of the market that can be very lucrative for those with time, patience and an iron stomach. In fact, our recent search found more than a dozen profitable net/nets, the most we've seen in years. This initial list, however, needs further scrutiny. Once we've completed our research, and confirmed the data, we'll reveal this list in an upcoming post.

US Air Update

We put our neck out on the line on June 24th with our US Airlines: a Put on Oil? piece. Call it luck (I certainly do), but US Airways, which we referenced in that piece, is up 220 percent since then.

And it truly was all about oil. The inevitable oil pullback has brought many an airlines stock price back too life. Can the run continue? I for one still believe oil prices are headed lower, but the airline bet is now too risky for my blood. I will venture to say that's the last 2 bagger in 2 months time you'll ever read about here.

*The author does not have a position in US Airways. 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.

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.

Blogger Roundtable

Many thanks to Geoff Gannon of the excellent Gannon on Investing Site for including us in his recent roundtable, with the editors of three outstanding value oriented blogs. Its also great to see Geoff posting regularly again.