The micro and small cap universe is where the biggest price inefficiencies exist and it is exactly the place to find hidden gems. The good news from the 2008-2009 crash was that mid or large caps fell to the point where it became become small cap stocks.
Net Nets are Cheap Stocks
Net Nets are penny stocks for a reason. Their operations have suffered dramatically or they are facing some serious short term issues that threaten to put them into bankruptcy.
Take GGP for example. Debt laden, unable to refinance and late on its payments has sent it scattering down 99%.Without getting into a debate over whether the equities have value in the face of bankruptcy, GGP could be a profitable net net.
We saw Pier 1 Imports (PIR) up 275% in a day. This is what could happen if you happen to choose correctly and the company takes corrective measures.
Net Net Working Capital Formula
For those new to net nets or need a refresher, I previously wrote about Ben Graham’s definition and calculation of Net Nets.
Net Net Working Capital = Cash and short-term investments + (0.75 * accounts receivable) + (0.5 * inventory) – total liabilities
Finding Cheap Stocks
You can find net nets by starting off with a P/B ratio less than 1 in any screener that I’ve mentioned previously as most net nets will be below book value.
A negative enterprise value screen also provides some interesting if not better results.
What to Look For
Now the real work involves weeding out the bad ones. It’s vital to look for a business that is stable so that operating losses don’t eat away the existing cash and other components of Net Net Working Capital.
If a net net has the following attributes it is definitely worth keeping an eye on.
- Activist investor or management creating a catalyst
- Company stock repurchases
- Insider buying
- A consumer brand name
- An easy to understand business
Free Graham Net Net Valuation Spreadsheet
To speed up the research process, I’ve created a spreadsheet that takes data from the last updated quarterly statements on ADVFN.com.
It takes 4 different tickers so you can compare side by side but it can support as many as you desire. Simply copy and paste.
Benjamin Graham Net Net Cheap Stock Valuation Spreadsheet
Four Net Nets to Ponder
Adams Golf (ADGF)
Adams Golf, Inc., incorporated in 1987, designs, assembles, markets and distributes golf clubs for all skill levels.
- NNWC Price: $3.64
- Current Price: $2.63
- Discount to NNWC Price: 27%
Trident Microsystems Inc (TRID)
Trident Microsystems, Inc. (Trident) designs, develops and markets integrated circuits (ICs) and associated software for digital media applications, such as digital television, liquid crystal display (LCD) television and digital set-top boxes (STB).
- NNWC Price: $2.51
- Current Price: $1.43
- Discount to NNWC Price: 41%
Digirad Corporation (DRAD)
Digirad Corporation is a provider of cardiovascular imaging services and solid-state nuclear medicine imaging products to physician offices, hospitals and other medical services.
- NNWC Price: $1.35
- Current Price: $1.00
- Discount to NNWC Price: 26%
Amtech Systems (ASYS)
Amtech Systems, Inc. (Amtech) is a supplier of horizontal diffusion furnace systems used for solar (photovoltaic) cell and semiconductor manufacturing. The Company operates in two business segments: solar and semiconductor equipment, and polishing supplies.
- NNWC Price: $3.97
- Current Price: $3.28
- Discount to NNWC Price: 17%
Since this stock valuation calculator is free, if you enjoy this spreadsheet, consider buying the best stock valuation spreadsheet available on the internet.
To date, I’ve been spending hours helping people with simple excel issues on a free product rather than anything spreadsheet related.
So for all excel and install problems, place all questions in the comment sections below. That way I won’t have to answer the same question again and again.
The download has now moved.
To download the spreadsheet, you must go to the main page of Old School Value and sign up with your email to receive a list of free spreadsheets.
The list includes nine free spreadsheets, the add-in required to download data from the internet as well as all the installation help material.
Feel free to check out the free version and then when ready, go to the stock valuation software page and review what you will get with the premium.
The premium version includes several valuation models as well as fundamental analysis data, historical data, charts and competitor comparison features. Just by entering one ticker, you can immediately get all that information on your favorite stock which will save you hours in your analysis.
DCF Excel Spreadsheet Screenshot
I own GGP at the time of writing