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Old School Value Stock Portfolio Performance
Time sure does fly. August ends with the Old School Value portfolio down -0.56% and down -14% for the year. The large cash position of 30% cushioned the fall in August while the S&P dropped -4.5%. When including cash, the equivalent performance for the S&P500 is -3.12% at the end of August 31, 2010.
The only transaction during August was the successful tender offer for FIS.
I originally bought 99 shares of FIS @ $27.94 which was successfully tendered at $29. The price of $29 was the low end of the possible scenarios but it still netted a gain of $101 or 3.67% over a 3 week period. Not bad for about 30 minutes of work.
No other transactions took place in August.
Gravity Co (GRVY)
The 2nd quarter results announced by GRVY on Aug 19 was nothing to get excited about. There was only a slight increase in royalties and licensing compared to the 1st quarter. Compared to the previous year, the royalties as well as subscription revenue is down with the trend looking to continue as gamers decay out of the Ragnarok cycle.
The balance statement still remains strong with plenty of cash. Although the top line shows declines in business, cash is being managed well. You tend to see lots of cash burn in micro cap companies with slowing businesses but GRVY looks to be in good hands.
Also, in case you missed the news, GRVY has just started its closed beta testing on August 31 for RO2: Legend of the Second (RO2:LotS). Remember this is where the original RO2 failed due to the horrible gameplay and server issues.
It has taken over 3 years for the company to completely redesign the game and to get back to where it is.
From this point, the closed beta tests will determine the outcome of RO2 and my decision to keep GRVY as an investment.
Here is a good interview with the CTO of Gravity on RO2:LotS and this link is of a Ragnarok blog posting feedback, gameplay and general discussions of the game itself.
Looking at valuation, GRVY is currently valued for no growth with a bleak outcome. With over 3 years of delays, I don’t blame the market for being pessimistic. However, based upon different outcomes of RO2, these are my valuations.
- Game failure: $1.20 (market wont care that GRVY NCAV is closer to $2)
- Mild success: $3-4
- Above average success: $4-5
- Huge success: $7-10
The valuation range is quite large but keep in mind that this is just a quick estimate. I’m not going to try and predict cents here. What I do know is that if GRVY even surprises by a little bit, expect liftoff.
INSM sure likes to take its time with taking the company forward. $125m in cash with the market cap at $93m, no debt, no operations. Still no word on the outcome for a strategic review. Makes you wonder whether there ever will be. With all the cash on hand, NNWC is $0.94. From the current price of $0.71, there is a 24% upside to reach liquidation value.
Mastech Holdings (MHH)
Worst performer YTD. Down -32.98% this year. Although the stock price has been dropping, there is still nothing that adversely changes the thesis of the investment. I still see a well managed company worth at least $6 based on 0% growth, 15% discount rate and low ball FCF figures.
What is interesting is that MHH tends to stay still while the rest of the staffing industry rise dramatically on good economic news. TBI and VOLT may be worth another look to play the employment sector.
Long GRVY, INSM, MHH
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