Without a doubt, the recent market "recovery" off March lows has had a dramatic effect in the land of misfit companies; more specifically, the number of net/nets is falling. This is not at all surprising; we've seen it happen several times before when markets recover.
There are still 140 or so net/nets with market caps greater than $5 million, but those at the upper end of the market cap spectrum are few and far between. Case and point, on February 19th, there were more than 320 such net/nets; 38 of which had market caps above $100 million. Currently, there are just 10 above $100 million.
The top 5 Net/Nets by market cap:
Adaptec
Ticker:ADPT
Price:$2.91
Market Cap:$350
NCAV:375
Market Cap/NCAV:.93
Cash/Share:$3.14
Opnext Inc
Ticker:OPXT
Price:$2.20
Market Cap:$195
NCAV:$200
Market Cap/NCAV:.975
Cash/Share:$1.87
Volt Information Sciences Inc
Ticker:VOL
Price:$8.95
Market Cap:$186
NCAV:$200
Market Cap/NCAV:.93
Cash/Share: $6.99
Audiovoxx
Ticker:VOXX
Price:$7.30
Market Cap:$167
NCAV:$212
NCAV/Market Cap:.79
Cash/Share:$2.73
Note: Audiovoxx seems to be a perennial net/net. Has been on the list for several years.
Silicon Graphics
Ticker:SGI
Price:$5.39
Market Cap:$161
NCAV:$200
NCAV/Market Cap:.81
Cash/Share:$5.82
Stay tuned. There's never a dull moment in the wonderful world of net/nets....
*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.
Wednesday, 12 August 2009
Friday, 7 August 2009
Back in the Good Old USA; Catalyst Investment Research in the Wall Street Journal
Your Cheap Stocks editor recently returned from a 10 day mission trip to the Dominican Republic. It was truly an eye opening experience. Thirty Americans and several Dominicans worked to clear a small piece of land, so that a church can be built on the site in the town of Haina. We used axes, shovels, pick axes, and machetes- possibly the greatest tool ever, and a must have in every garden shed- to get the job done. I come back very appreciative of the small things that we take for granted: clean, cold water, ice, toilet paper, a toilet that flushes, you name it. What the Dominicans we worked with lacked in material possessions, and many of the things we don't think we can live without, they more than made up for in their joy. Amazing people. As a side note, machete's were so popular with our group, that 18 brand new ones ($8.00 each) came home with us, in our checked luggage.
Hedge Fund Solution's Catalyst Investment Research in the Wall Street Journal
While I was away, the latest from Catalyst Investment Research (The Hedge Fund Solutions product that I've teamed up with Damien Park on), a special report on recent Steel Partners activity, was featured in the Wall Street Journal print and on-line editions.
Finally,it's back to work, and more regular postings. Stay tuned.
Hedge Fund Solution's Catalyst Investment Research in the Wall Street Journal
While I was away, the latest from Catalyst Investment Research (The Hedge Fund Solutions product that I've teamed up with Damien Park on), a special report on recent Steel Partners activity, was featured in the Wall Street Journal print and on-line editions.
Finally,it's back to work, and more regular postings. Stay tuned.
Wednesday, 8 July 2009
The Return of Lazare Kaplan (LKI)
Long-time Cheap Stocks readers may recall our many postings on diamond company Lazare Kaplan throughout the years. A perennial net/net, its a company that we owned for a 2 year period until February 2008, when we sold out at around $10. Truth is, we made a little money (26%), but the story had gotten dull, and we were convinced that LKI was just one of those companies that would forever trade below net current asset value.
Interestingly enough, in October 2007, Lazare anounced a bizarre 1 for 101 reverse stock split, followed by the buy out of any shareholders owning less than 1 post-split share, and then by an immediate 101 for 1 forward split. This was intended to reduce shareholder roles to save an estimated $25,000 per year in costs. At the time, we thought that the company was aiming to go dark. That has not happened.
In the months following our sale of LKI, the economy all but imploded, and LKI fell to as low as $1.05 per share, about 10% of our exit price. While a diamond company is not a great place to be during a recession, we were compelled to take a position in March, when the stock was at $1.16. We did so at great peril to our capital, given the company's declining performance, and ample debt.
The latest quarter tells the tale quite well. Revenue fell 49% from the same quarter last year, and LKI lost $3.6 million, or $.43 per share, versus income of $3.3 million, or $.40 per share. Clearly, not many diamonds change hands during a deep recession, when discretionary spending falls dramatically, and retailers become reluctant to carry inventory, especially expensive inventory. The company also has a lot of debt for you average $20 million market cap company (less than $10 million when we took our position): $36 million in short-term, and another $40 million long-term which is due in May, 2010. Although the company ended the quarter with $13.2 million in cash, this is a potentially dangerous situation, and not one that we'd normally get involved with.
But Lazare also has something on the books we believe to be quite valuable: namely an inventory of $125.7 million of rough ($36.6 million) and polished ($89.1 million) diamonds. Furthermore these diamonds are carried at the lower of cost or market. While we typically don't care for net/nets whose current assets are concentrated in inventories (or receivables)for that matter, this is the kind of inventory where we are happy to make an exception.
Of course further success, and company solvency for that matter, is dependent on an economic recovery. While diamond prices are starting to show signs of a recovery, the consumer is not there yet, and Lazare has many challenges ahead.
One little known, but interesting fact about LKI is that Chairman of the Board Maurice Templesman is perhaps better know as Jaqueline Kennedy Onassis' long time companion and son Leon serves as President of the company.
Lazare Kaplan Intl
Ticker: LKI
Price: $2.46
Shares Out: 8.25
Market Cap: $20.3
NCAV: $56.3
NCAV/Mkt Cap: 2.77
Tangible Book Value/Share: $11.46
Average daily volume:15,700
*The author has a position in Lazare Kaplan. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Interestingly enough, in October 2007, Lazare anounced a bizarre 1 for 101 reverse stock split, followed by the buy out of any shareholders owning less than 1 post-split share, and then by an immediate 101 for 1 forward split. This was intended to reduce shareholder roles to save an estimated $25,000 per year in costs. At the time, we thought that the company was aiming to go dark. That has not happened.
In the months following our sale of LKI, the economy all but imploded, and LKI fell to as low as $1.05 per share, about 10% of our exit price. While a diamond company is not a great place to be during a recession, we were compelled to take a position in March, when the stock was at $1.16. We did so at great peril to our capital, given the company's declining performance, and ample debt.
The latest quarter tells the tale quite well. Revenue fell 49% from the same quarter last year, and LKI lost $3.6 million, or $.43 per share, versus income of $3.3 million, or $.40 per share. Clearly, not many diamonds change hands during a deep recession, when discretionary spending falls dramatically, and retailers become reluctant to carry inventory, especially expensive inventory. The company also has a lot of debt for you average $20 million market cap company (less than $10 million when we took our position): $36 million in short-term, and another $40 million long-term which is due in May, 2010. Although the company ended the quarter with $13.2 million in cash, this is a potentially dangerous situation, and not one that we'd normally get involved with.
But Lazare also has something on the books we believe to be quite valuable: namely an inventory of $125.7 million of rough ($36.6 million) and polished ($89.1 million) diamonds. Furthermore these diamonds are carried at the lower of cost or market. While we typically don't care for net/nets whose current assets are concentrated in inventories (or receivables)for that matter, this is the kind of inventory where we are happy to make an exception.
Of course further success, and company solvency for that matter, is dependent on an economic recovery. While diamond prices are starting to show signs of a recovery, the consumer is not there yet, and Lazare has many challenges ahead.
One little known, but interesting fact about LKI is that Chairman of the Board Maurice Templesman is perhaps better know as Jaqueline Kennedy Onassis' long time companion and son Leon serves as President of the company.
Lazare Kaplan Intl
Ticker: LKI
Price: $2.46
Shares Out: 8.25
Market Cap: $20.3
NCAV: $56.3
NCAV/Mkt Cap: 2.77
Tangible Book Value/Share: $11.46
Average daily volume:15,700
*The author has a position in Lazare Kaplan. 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, 3 July 2009
Catalyst Investment Research- Lion's Gate Entertainment(LGF)
Hedge Fund Solutions, LLC's unique investment research product highlights companies that could potentially generate outsized returns due to an activist investor's involvement.
Click here to download a complimentary copy of our latest report, an analysis on Lion's Gate Entertainmnent(LGF).
Annual Subscriptions (a minimum of 24 reports/year) are now available. Please message research@hedgerelations.com if you are interested in more information.
*The author does not have a position in LGF. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Click here to download a complimentary copy of our latest report, an analysis on Lion's Gate Entertainmnent(LGF).
Annual Subscriptions (a minimum of 24 reports/year) are now available. Please message research@hedgerelations.com if you are interested in more information.
*The author does not have a position in LGF. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Thursday, 18 June 2009
Anatomy of a New Net/Net Position: Chromcraft Revington
Buying net/nets is sometimes an ugly business. It's often hard to justify sinking capital into a business that appears to be headed for the scrap heap. But part of being a net/net investor is knowing the risks inherrent in buying companies that have probably already seen their best days, are thinly traded shadows of their former selves; reduced merely to assets that you believe may worth at least a few times the current price.
Chromcraft Revington is a great example. A member of the Cheap Stocks 21 Net Net Index, the Indiana based furniture maker and distributor has seen sales fall for the past 6 consecutive years, from $214 million in 2002 to just $ 99 million in 2008, a 54% decrease. The company lost $26.5 million last year, or $5.79 per share. In the first quarter of 2009, sales dropped 39% from the same period last year, and the company lost another $3.2 million. Clearly, a bad situation made even worse by the economic environment of the past 18 months.
Greenbackd features an excellent analysis on Chromcraft back in April, making the bearish case. At the time, the company was all but out of cash, and Greenbackd laid out their reasons for exiting their Chromcraft position at $.48. Now trading for $.83, one of the few brightspots in the most recent quarter was the fact that the company raised cash, and ended the quarter with $5.2 million, or $.85 per share, primarily through inventory and account receivable reductions.
While the quarter end cash balance is no reason to jump for joy, if you believe that an economic recovery is under way, Chromcraft may have bought itself some time. Just how long is difficult to say; it depends on the company's ability to cut costs, scale back operations, and is dependent on an uptick in the economy.
What's intriguing about Chromcraft beyond the fact that it has no debt on the books (there are some operating leases, however, a total of $4.4 million through 2012), are the company's other assets. Chromcraft owns a 519,000 square foot warehouse/distribution center in Delphi Indiana, and a 560,000 square foot manufacturing/distribution site in Senatobia Mississippi, for a total of nearly 1.08 million square feet of space. The Senatobia site sits on 100 acres. Granted, probably not the most valuable locations for warehouse space, and commercial real estate is currently suffering, but these assets have value, nonetheless, and are unencumbered by debt.
With current assets of $30.6 million, and total liabilities of $10.3 million, Chromcraft's net current asset value (NCAV) was $20.3 million as as of April 4th, 2009, nearly 4 times market cap. Currently trading at just .25 times NCAV, tangible book value per share is $4.94.
Beyond the risks laid out previously, CRC is a tiny company, with very low trading volume. While we recently took a position in CRC, we did so understanding the risks involved. Proceed with caution.
Chromcraft Revington
Ticker:CRC
Price:$.83
Avg volume: 7,000
Market Cap: $5 million
Book Value per share: $4.94
Shares Out: 6.1 million
NCAV:$20.27 million
Market Cap: $5.08 million
NCAV/Market Cap: 3.99
*The author has a position in Chromcraft Revington (CRC). 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.
Chromcraft Revington is a great example. A member of the Cheap Stocks 21 Net Net Index, the Indiana based furniture maker and distributor has seen sales fall for the past 6 consecutive years, from $214 million in 2002 to just $ 99 million in 2008, a 54% decrease. The company lost $26.5 million last year, or $5.79 per share. In the first quarter of 2009, sales dropped 39% from the same period last year, and the company lost another $3.2 million. Clearly, a bad situation made even worse by the economic environment of the past 18 months.
Greenbackd features an excellent analysis on Chromcraft back in April, making the bearish case. At the time, the company was all but out of cash, and Greenbackd laid out their reasons for exiting their Chromcraft position at $.48. Now trading for $.83, one of the few brightspots in the most recent quarter was the fact that the company raised cash, and ended the quarter with $5.2 million, or $.85 per share, primarily through inventory and account receivable reductions.
While the quarter end cash balance is no reason to jump for joy, if you believe that an economic recovery is under way, Chromcraft may have bought itself some time. Just how long is difficult to say; it depends on the company's ability to cut costs, scale back operations, and is dependent on an uptick in the economy.
What's intriguing about Chromcraft beyond the fact that it has no debt on the books (there are some operating leases, however, a total of $4.4 million through 2012), are the company's other assets. Chromcraft owns a 519,000 square foot warehouse/distribution center in Delphi Indiana, and a 560,000 square foot manufacturing/distribution site in Senatobia Mississippi, for a total of nearly 1.08 million square feet of space. The Senatobia site sits on 100 acres. Granted, probably not the most valuable locations for warehouse space, and commercial real estate is currently suffering, but these assets have value, nonetheless, and are unencumbered by debt.
With current assets of $30.6 million, and total liabilities of $10.3 million, Chromcraft's net current asset value (NCAV) was $20.3 million as as of April 4th, 2009, nearly 4 times market cap. Currently trading at just .25 times NCAV, tangible book value per share is $4.94.
Beyond the risks laid out previously, CRC is a tiny company, with very low trading volume. While we recently took a position in CRC, we did so understanding the risks involved. Proceed with caution.
Chromcraft Revington
Ticker:CRC
Price:$.83
Avg volume: 7,000
Market Cap: $5 million
Book Value per share: $4.94
Shares Out: 6.1 million
NCAV:$20.27 million
Market Cap: $5.08 million
NCAV/Market Cap: 3.99
*The author has a position in Chromcraft Revington (CRC). 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.
Saturday, 13 June 2009
Catalyst Investment Research- Enzon Pharmaceuticals
Hedge Fund Solutions, LLC's recently launched investment research product highlights companies that could potentially generate outsized returns due to an activist investor's involvement.
Click here to download a complimentary copy of our latest report, an analysis on Enzon Pharmaceuticals.
Annual Subscriptions (a minimum of 24 reports/year) are now available. Please message research@hedgerelations.com if you are interested in more information.
*The author does not have a position in ENZN. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Click here to download a complimentary copy of our latest report, an analysis on Enzon Pharmaceuticals.
Annual Subscriptions (a minimum of 24 reports/year) are now available. Please message research@hedgerelations.com if you are interested in more information.
*The author does not have a position in ENZN. 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, 2 June 2009
Catalyst Investment Research- Penwest Pharmaceuticals
Hedge Fund Solutions, LLC's recently launched investment research product highlights companies that could potentially generate outsized returns due to an activist investor's involvement.
Click here to download a complimentary copy of our latest report, an analysis on Penwest Pharmaceuticals.
Annual Subscriptions (a minimum of 24 reports/year) are now available. Please message research@hedgerelations.com if you are interested in more information.
*The author does not have a position in PPCO. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
Click here to download a complimentary copy of our latest report, an analysis on Penwest Pharmaceuticals.
Annual Subscriptions (a minimum of 24 reports/year) are now available. Please message research@hedgerelations.com if you are interested in more information.
*The author does not have a position in PPCO. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.
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