(This article appeared first on The Stock Market Blueprint Blog.)
In this edition of Watchlist Wednesday, we highlight five stocks trading below their net current asset values (NCAV).
Investment managers and financial media pundits often say Benjamin Graham’s famous Net Current Asset Stocks no longer exist. They claim the strategy can’t be implemented anymore because the stocks are too hard to find.
The Stock Market Blueprint’s NCAV stock screen currently shows a dozen U.S. listed stocks selling below their NCAV. Several more are trading just slightly above this metric.
Considering that Graham suggested investing in baskets of 10 to 30 NCAV stocks, there appear to be more than enough opportunities for individual investors.
NCAV description
NCAV is a stock-selection strategy developed and implemented by Graham as discussed in "Security Analysis" and "The Intelligent Investor."
Warren Buffett (Trades, Portfolio) nicknamed it the “cigar-butt approach” because “a cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the ‘bargain purchase’ will make that puff all profit.”
The screen finds stocks trading for less than the difference between current assets minus total liabilities. There is no regard given to the company’s long-term assets or future profits.
Here is a breakdown of the five stocks with the lowest price to NCAV as found on The Stock Market Blueprint’s NCAV stock screen.
Top picks
China Green Agriculture Inc. (CGA, Financial) through its subsidiaries engages in the research, development, production, distribution and sale of various types of fertilizers and agricultural products.
- Current assets: $336 million.
- Total liabilities: $48 million.
- Total shares: 37 million.
- Net current asset value: $7.83.
- Current price: $1.31 (closing price on Nov. 1).
- Price/NCAV: 17%.
American Lorain Corp. (ALN, Financial) through its subsidiaries develops, manufactures and sells various food products in the People’s Republic of China.
- Current assets: $175 million.
- Total liabilities: $84 million.
- Total shares: 38 million.
- Net current asset value: $2.39.
- Current price:Â 68 cents (closing price on Nov. 1).
- Price/NCAV: 28%.
Sears Hometown & Outlet Stores Inc. (SHOS, Financial) engages in the retail sale of home appliances, lawn and garden equipment, tools and hardware in the U.S.
- Current assets: $482 million.
- Total liabilities: $213 million.
- Total shares: 23 million.
- Net current asset value: $11.82.
- Current price: $4.90 (closing price on Nov. 1).
- Price/NCAV: 41%.
Emerson Radio Corp. (MSN, Financial) designs, sources, imports, markets and sells various houseware and consumer electronic products around the world.
- Current assets: $60 million.
- Total liabilities: $4 million.
- Total shares: 27 million.
- Net current asset value: $2.05.
- Current price: 97 cents (closing price on Nov. 1).
- Price/NCAV: 47%.
Richardson Electronics Ltd. (RELL, Financial) engages in microwave technologies, display and health care equipment businesses.
- Current assets: $132 million.
- Total liabilities: $22 million.
- Total shares: 11 million.
- Net current asset value: $10.31.
- Current price: $6.29 (closing price on Nov. 1).
- Price/NCAV: 61%.
Implementation
Late in his life, Graham estimated that the Net Current Asset Value strategy earned him an average of 20% per year over 30 years.
Due to the nature of deep value strategies such as the Net Current Asset Value, average investors will find numerous reasons not to buy the above stock.
Disciplined investors, on the other hand, will find success following such a simple investment strategy.
Disclosure: I/we have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.
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