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As Year Ends, Net/Net Stock Plays Are Scarce

NEW YORK (TheStreet) -- What a year it has been -- and we still have one half of a trading day left! In most years, the last trading session would be a real snoozer, with light volume, but that may not be the case today, as the geniuses in Washington are working "overtime" to come to some kind of agreement on the fiscal cliff issues. Well, at least some of the issues, anyway. They may devise another Band-Aid perhaps, but nothing substantive.

I'm a bit frustrated that they didn't heed my advice and just go home, but then it might have looked like they weren't doing their jobs, which would also have deprived us of some more much-needed drama.

But despite all of the controversy, 2012 will end up being a very decent year in the markets, barring any wild swings today.

As of this writing, the S&P 500 is up about 11.5% year to date, while the Russell 3000 has gained about 14.5%.

But the smallest of the small, the micro-caps, had an even better year. The Russell Microcap Index is up 17.2% year to date. The Russell Microcap Value Index did even better and is up 20.2% year to date. This index is comprised of companies with a weighted average market cap of just over $300 million, an average price to book ratio of 1.1, and dividend yield of 2%. It's the type of pond where I love to fish. Although the risks are great, so too can be the rewards. It just takes a bit more homework, because many of these companies just don't get much press or analyst attention.

Heading into 2013, I am taking one last look at one of my favorite deep value screening techniques: companies trading for less than their net current asset value. We end 2012 with just seven net/nets that have market caps in excess of $100 million. The cupboard is pretty bare in net/net land.

FormFactor (FORM) ends the year at the top of the list in terms of market cap ($242 million). The semiconductor name currently trades at 0.87 times net current asset value, 0.71 times price to book, and has $276 million, or $5.50 per share, in cash. FormFactor has not turned a profit on an annual basis since 2007, which is one reason that it trades so cheaply relative to net current assets.

FORM ChartFORM data by YCharts

RadioShack (RSH) ends 2012 as the second biggest net/net. The company had a terrible year, and is viewed by many as a dinosaur on the way to extinction. I've not yet given up on the notion that the company's assets are worth more than the current stock price, but I may be among the few who still hold that view. Oh, I'm not crazy; I believe the company's best days are behind it for sure. I just think there may be some value to extract.

RSH Cash and ST Investments ChartRSH Cash and ST Investments data by YCharts

Richardson Electronics (RELL), Trans World Entertainment (TWMC) and Westell Technologies (WSTL) are the only names on the list that are profitable in the trailing 12 months. The others -- Imation (IMN) and Axcelis Technologies (ACLS) -- can't make that claim.

The year ends with very slim pickings in net/net land.

Here's to a healthy and prosperous 2013!

At the time of publication, Heller was long RSH.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.

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