Cheap Stocks 26 Net/Net Index Update and Crates

There's been one change in the Cheap Stocks 26 Net/Net Index since we rolled it out on September 13th.  Adaptec has undergone a 1 for 10 reverse split, and changed it's name to Steel Excel Inc (ADPTD).  There will no doubt be more changes on the way; at least that was our experience with the CS21 Net/Net Index.

Four weeks in, CS26 is down 2.59%, while the Russell Microcap Index, the benchmark we are using, is up 1.89%.  The biggest gainer so far is Trimeris (TRMS), which is up 41%, while the biggest loser, Opnext (OPXT) is down 23.4%.  Stay tuned.

Crates??

You may have noticed the reference to "Crates" in today's title, as well as the ad for Overhead Crates that was added to the site this morning.  This is a complete departure for us, but we wanted to recognize this amazingly simple innovation.  This is an unpaid, unsolicted ad, and we have no financial ties to the company that has created this product.  Nonetheless, we felt compelled to bring the company, and it's product to our subscribers attention.

Overhead Crates has designed a simple product that takes advantage of space available in many basements, that most people don't realize could be utilized as storage space.  We've installed the product ourselves, and found it to be brilliant!  A very simple installation!  Check out the site for yourself.

*The author has no position in 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.

Interview on Moneyshow.com

Kate Stalter of Moneyshow.com recently interviewed me for a piece that was released today regarding net/nets.

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

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)

ADPT Corp (ADPT)

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)

GTSI Corp. (GTSI)

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.

Confirming JG Boswell's Dividend

In the years that we've held shares in Bosewll, the dividends have risen from $2.75 per quarter in 2003, to $3.50/qtr beginning in 2005/2006. For the past five years, the dividend had not changed. However, we can now confirm that the latest dividend, which was paid on 6/10, was $4.00 per share.

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

JG Boswell Revisited: Beware of the Message Boards

I've owned and covered mysterious under-the-radar cotton farming giant JG Boswell for several years now. Time was that no one knew about, or discussed this highly illiquid pink sheet company. There was good reason for that, too. Although publicly traded, Boswell behaves more like a private company, and keeps information close to the vest. You'll never see an earnings release, company guidance or any other communications associated with many public companies. The fact is that Boswell is not required to file with the SEC because it has fewer than 300 registered shareholders. Even annual financial data is somewhat difficult to find.

Owning such companies is risky. This is a risk that I'm willing to take, because I believe that the company is worth significantly more than it's current $780 million market cap. But I am taking a lot on faith; not the least of which is the belief that the company will ultimately convert valuable assets, such as water rights, into cash. But there are no guarantees this will happen.

Lately, the message boards have been hopping with activity related to BWEL. For years, there was nothing. Now, there are some fairly wild claims being made about the company and it's ultimate value; claims about the value of the land, the water rights, and other assets that I'm not certain the company even posesses.

Don't get me wrong, I am long this company and believe there is value there. But the true value of the land, and even the size and scope of the water rights is unknown. I've seen claims of $100 earnings this year due to higher cotton prices (BWEL earned $31 per share last year), that the dividend will be raised, that a special dividend will be paid, that shares are worth $10,000 or more. Don't get me wrong, there are few that would be happier if BWEL was truly worth $10,000 per share, but I'm certain that much of this is being perpetuated by one or more individuals, and I'm not sure where they are getting their "facts".

The bottom line is to be careful what you read, and what you believe.

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

Net/Nets Becoming Rarer than a Blue Moon

Just when you think that the ranks of net/nets can't get any smaller, they do just that. This site was originally dedicated to the identification and research of companies trading below net current asset value, and at the time of launch in 2003, was the only site, at least that we were aware of, that covered net/nets.

Since then, interest has grown, and there are several websites that now cover net/nets. All of this coverage has brought the concept more into the mainstream. Ten years ago, net/net was a foreign term, even to some value investors. That's not so much the case any longer.

We believe that all of the additional coverage along with rising markets, have acted in tandem to reduce the universe of net/nets.

At ths writing, we can only identify 2 net/nets with market caps above $100 million, ADPT Corp (ADPT) and perennial net/net Audiovoxx (VOXX).

It's not much better between $50 million and $100 million. There, we find Myrexis (MYRX), Gencor Industries (GENC), Parlux Fragrances (PARL), Heely's (HLYS), Integrated Electrical Services (IESC), Trans World Entertainment (TWMC), and Planar Systems (PLNR).

We are starting to sound like a broken record, but that's the fewest number of net/nets we ever seen above $50 million in market cap. This will change. When? We don't know.

*The author has no position in 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.