I liked this post over at gurufocus quite a bit. It had a nice mention of my blog in it, so I thought I’d come out of my blogging hibernation with a post talking about my four favorite net nets in my portfolio. Together, these stocks make up a very, very significant percentage of my portfolio- combined, they make up around 55% of my portfolio.
Disclosure- I am long all five of these stocks, but I could add or sell them at any time.
1- GTSI- Their recent acquisition was (in my opinion) extremely questionable, and their underlying business is terrible. So why do I like them so much??? The company has $5.83 in cash per share (versus no true debt) and has net current assets of $7.79 per share. Both versus a current stock price of ~$4.30. It’s really tough to see how an investment in this company results in any permanent loss of capital unless management literally withdraws cash from the bank and starts lighting it on fire. On their last conference call, investors repeatedly asked about the company doing a big tender offer for shares, a large special dividend, or just liquidating the company.
2- UUU- Basically, this is a company in a pure commodity business priced like it’s going to die tomorrow. If you include a look through to their Hong-Kong JV, the company has net current assets per share of ~$7 versus their current stock price of $5, and management has shown a willingness to repurchase large amounts of shares. With a strong balance sheet and recent authorization to buy back ~4% of shares, don’t be surprised to see a lot of share repurchases in the near future.
3- AEY- I’ve never seen a net-net stock take as much heat as AEY has taken in my correspondence with other investors. People are worried about declining sales trends and encroaching competition… isn’t that kind of par for the course with net-net stocks??? To me, it boils down to this- AEY has a history of fantastic returns on capital, huge insider ownership, is still profitable, and is selling at a discount to net assets. I feel like investors are more than being compensated to take the risks mentioned before at these prices. It’s a heads I win, tails I don’t lose situation- if the business does recover, you’ll likely make a multiple of your money. If it doesn’t, the inventory is not very prone to obsolescence, and it’ll likely be liquidated for more than today’s price.
4- ASFI- I’ve written about the case for Asta pretty extensively, but it basically boils down to this- the company has a bunch of non-recourse debt that masks just how strong their balance sheet is. Once you exclude the non-recourse debt, you’ll see they’re trading significantly below liquidation value and around net cash value. There was a very nice write up of the company on valueinvestorsclub recently, though I thought the valuation was slightly aggressive.
5- GKK- I haven’t written the company up yet, but it’s been very ably written up over at variantperceptions. Basically, the thought process is similar to ASFI- a bunch of non-recourse liabilities mask an incredibly strong core balance sheet. Please note that while I do hold a decent bit of the common, most of my exposure is through the preferred stock. I’ll discuss why in my pending write up, but basically I feel the common offers plenty of upside, but the preferreds just offer a more enticing risk/reward w/ hard catalyst situation.
Again, disclosure- I am long all of these stocks.
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