Net Net Investing Spreadsheet for 20 NCAV Stocks

May 10, 2009 | Comments (13)

Net Net Investing Spreadsheet

Net Net Investing Spreadsheet

They Call it a Net Net Investing Spreadsheet | Flickr: DBduo

How to Use Net Net Investing Spreadsheet

I was going through the Manual of Ideas site and taking a look at the previews and samples. If you aren’t aware, Manual of Ideas is a service that focuses on deep value companies. They issue newsletters that contain a truckload of ideas on companies you’ve never heard of.

The headline “Portfolio Manager’s Review Picks Top 5 Ben Graham-Style Deep Value Investments” caught my attention since this has been the focus on Old School Value of late. The sample they have up is an 8 page report but all the “top picks” have been hidden in black but what got me more interested was the list of 100 companies passing the deep value screen. (The 100 companies list starts from page 4)

So how do you go through 100 deep value net net companies without spending hours looking up the information? Modify the existing net net investment spreadsheet so that it runs more than 4 companies simultaneously.

Let me put up the results first.

Results from 100 Companies Passing Deep Value Screen

From the initial filter, 19 companies surfaced but after checking the numbers of some companies, that number was reduced to 16. The companies in alphabetical order are as follows.

  • ATV - 11% discount to liquidation net net value.
  • ACTS - 40% discount
  • HILL - 31% discount
  • FTAR - company is liquidating and has already distributed $2. The calculated liquidation value is $3.47 which is in the ballpark of the $2.76-$3.44 declared liquidation. Judging by the current stock price, the company will be liquidated for around $3.
  • GRVY - 16% discount
  • HLYS - 27% discount
  • HRAY - 27% discount
  • HTX – 24% discount
  • IKAN - 34% discount
  • IPAS - No longer net net
  • LTON - 27% discont
  • MTSN - 13% discount
  • MEMS - 4% discount
  • NED - 13% discount
  • NSTR - 19% discount. Liquidating at the $1.90 range.
  • PDII - 24% discount
  • QLTI - No longer net net. Latest filing reveals a significant decline in cash and receiables.
  • SWIR - No longer net net. Company is made up of restricted cash which shouldn’t be included in liquidation.
  • ELOS - Trading at liquidation value

From the list, there are quite a few Chinese companies and they all seem to have one thing in common. Holding large cash reserves. I’m not sure whether these companies are being conservative to survive the downturn or lack the commitment to return shareholder value.

Deep Value Stocks Trading at Deep Discounts to Cash

If you look at the embedded PDF below, the best net nets are the ones comprised mostly of cash compared to its total liabilities. Unless it is a company whose business model lies in acquiring receivables like ASFI, I feel it is best to find a cash loaded company.

The ones that hold a large amount cash compared to total liabilities are

  • ACTS - $265 mil in cash equivalents vs $17 mil in total liabilities
  • HLYS - $69 mil in cash equivalents vs $10  mil in total liabilities
  • HRAY - $60 mil in cash equivalents vs $7  mil in total liabilities
  • IKAN - $63 mil in cash equivalents vs $18  mil in total liabilities
  • LTON - $96 mil in cash equivalents vs $17  mil in total liabilities
  • MEMS - $66 mil in cash equivalents vs $3  mil in total liabilities
  • NED - $151 mil in cash equivalents vs $39  mil in total liabilities
  • ELOS - $197 mil in cash equivalents vs $39  mil in total liabilities

(You may have to recheck these numbers, as I may not have checked with the SEC for all).

Comments on HRAY, LTON and PDII

I recently bought HRAY, LTON and PDII where HRAY and LTON are both Chinese companies and compete with each other directly.

I listened to the past 2 conference calls and a couple of filings for HRAY and LTON and one thing that does concern me with HRAY is the management. HRAY received an offer for 51% of the company at $4 per share, but they did not respond for weeks resulting in the withdrawal of the bid. The company isn’t covered by any analysts so the conference calls didn’t offer any real insight. I’ll have to start questioning them in the next conference call. LTON on the other hand seem to have responsive management.

The big issue with China is to determine how the strict governemt regulations affect businesses as well as the mindset and mentality of businessmen compared to the west. For this reason I have never invested in China, but I’ll learn something about Chinese companies with this investment.

PDII has an interesting business model – they are a contract sales team for pharmaceutical companies. However, with the consolidation of the pharma industry, it seems like business is slow and they will continue to lose money for the rest of 2009. However, the CEO seems to be agressive and bullish in seeing change. If this does happen, I expect PDII to do very well over the long run when the economy returns.

Modified Net Net Deep Value Investment Spreadsheet

Now to what you are all interested in.

Changes include:

  • Allows you to enter 20 tickers
  • Deleted the restricted cash line from assets
  • Fixed the conditional formatting to display a “red” or “green” properly

Download the Free Net Net Cheap Stock Spreadsheet

View instructions on how to install the spreadsheet

Net Net Deep Value Screen Results

Disclosure

I hold HRAY, LTON, PDII at the time of writing.


  • PlanMaestro

    Jae, thanks again for sharing your work with the rest of us.

    Have you thought of looking for not necessarily net-cash, but companies with significant cash, cash flow positive, and growth potential (i.e. Sierra Wireless)? I understand the downside protection, but would not it be possible that we are discounting the upside too much?

  • http://www.oldschoolvalue.com Jae Jun

    That’s what I would like to find also but it’s very close to impossible with the stuff that I’m looking at. A net net with cash, FCF positive and growth… that would be the fattest pitch ever.

    From my work experience, I’ve used SWIR modems and other products but never found them to have a big advantage over a competitor and I’ve known about SWIR for a long time but never liked the business so I guess I am being biased on this one.

    Since SWIR should be based more on a going concern, it does seem like SWIR is trading at a big margin of safety (currently around 58%) and it is FCF positive as you say. My guess is that SWIR is worth $13 as a going concern but that is a raw guess.

    I wonder how SWIR will be affected if there really is a downturn in the telecom industry. Its major customers are the big carriers in the US, Australia and other countries.

    If you feel strongly about SWIR or something else, let me know your rationale as I am interested to hear and consider any potential homeruns.

  • http://valueinvestortoday.com Jim

    “That’s what I would like to find also but it’s very close to impossible with the stuff that I’m looking at. A net net with cash, FCF positive and growth… that would be the fattest pitch ever.”

    About a 1 1/2 months too late to meet all those criteria for HURC but I still believe its an exceptional company. I’ve been following HURC for over a year and took a pass on it 3 times. Each time I would have made money but hesitated. I’m Looking at it a 4th time now and still have not made a decision but as far as FCF, CROIC, ROE; it has it all.

  • http://www.northforkinvestors.com North Fork Investors

    Thanks for the info! A number of these will undoubtedly look like no-brainers in years to come. Now if only there was some way to screen for hidden liabilities – litigation, labor costs, etc.

    North Fork Investors’s last blog post..Greenlight Capital Q1 2009 Update

  • http://valueinvestortoday.com Jim

    Nice net net list, unfortunately I wasn’t able to find one that peaked my interest. Net-net’s are definitely drying up and quality net-net’s are almost non-existent. As Graham noted, not every net-net warrants an investment. I haven’t found many lately.

  • http://www.oldschoolvalue.com Jae Jun

    Yeah. The 3 I mentioned may be the last ones for me as well. I’ll have to move back to getting high quality companies at good prices rather than the distressed companies at dirt cheap prices.

  • http://www.oldschoolvalue.com Jae Jun

    Note on HRAY. The other company that HRAY may have been referring to that was interested in buying them out turns out to be Shanda. Will have to see whether an offer is made. This is probably why they didn’t both to respond to Best Prospects.

    If Shanda makes a bid, this is all good but if it doesn’t go through, management and the board must seriously answer to the shareholders.

    http://tinyurl.com/qqd4cv

  • http://www.oldschoolvalue.com Jae Jun

    Shadow stock wrote up some very brief numbers on PDII.

    http://shadowstock.blogspot.com/2009/05/insider-micro-cap-value-buying-on.html

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