I'm a newly-christened contributor to gurufocus.com, a site dedicated to delving into professional money managers' every real-time portfolio move. I know that my 13-F posts are among the most popular for my blog so readers may find the services at gurufocus.com useful as well. I took the opportunity to run one of their premium screens, the Benjamin Graham Net Current Asset Value Screener.
This screen mimics Graham's famous "net-net" bargains. According to gurufocus.com:
Ben Graham loved these types of situations, defining the net-net value as:
Cash and short-term investments + (0.75 * accounts receivable) + (0.5 * inventory) - total liabilities
The specific criteria used were as follows:
The stock prices are less than the net current asset value of the companies.
During the past 12 months, the companies generated postive operating cashflow.
The company has no meaningful debt compared to its cash position.
The screen turned up 39 candidates but for brevity's sake, I used a $100M minimum market capitalization to narrow the list to 9 stocks, presented below in spreadsheet format with basic company information, debt/EBITDA and free cash flow metrics.
The first thing to note is that Graham recommended holding a large, diversified set of these bargains since many of them risk going out of business. A quick look at the spreadsheet reveals the wisdom behind his thinking. Only 2 of the 9 stocks, Adaptec (ADPT) and Nam Tai Electronics (NTE - discussed extensively on the blog) had positive, albeit unattractive PEG ratios (4.1 and 6.8, respectively). Over half the companies generated negative to marginal EBITDA in the last year. The only two companies to pay dividends were Nam Tai and K-Swiss (KSWS); NTE's dividend is currently suspended.
If one was inclined to go against the master's advice and try to pick winners, focusing on positive free cash flow over the last twelve months and good operating results over the past 5-6 years may be a place to start. On this basis, KSWS and Syneron Medical (ELOS) stand out. But both of these companies lag their industry on returns on investment and equity (ROI/ROE). From that standpoint, NTE and Actions Semiconductor (ACTS) were the only two companies that outperformed their industries.
Companies selling for under net-net value have obviously lost the confidence the market for various reasons and may contain considerable risk. Readers inclined to pursue a net-net bargain strategy may want to consider obtaining the whole 39 stock list for diversification's sake. Gurufocus.com offers a free 7-day trial so it's risk-free.
Full disclosure: I am a contributor to gurufocus.com but receive no monetary contribution for mentioning or directing readers their site. I find their site and services quite useful and if nothing else, appreciate the benefit of using a pre-defined screen for this week as opposed to dreaming up a new screen. As always, YMMV.