Top Four Net/Net Plays

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As pessimism continues to dominate equity market activity, the "low tide" environment continues to banish more companies to the land of the net/nets. At last glance, I counted 367 companies trading below their net current asset values -- that is, in the simplest terms, current assets minus total liabilities, preferred equity and minority interests, if applicable.

In all fairness, the data from this stock screen has not been scrubbed and is inclusive of all companies with market caps above $5 million. However, the top of the list still includes some fairly large companies, at least as far as net/nets go.

What's more, several of these names are currently profitable. Some have relatively large amounts of cash and/or marketable securities on the books as well. Perhaps not surprisingly, those at the top of the list in terms of size (as measured by market cap) are all technology-related companies.

The last time we saw this many net/nets was in the aftermath of the tech bubble. Tech companies dominated then too, but the primary difference was that they were typically not profitable and did not have the liquidity and strong balance sheets we are seeing today.

The downside to this story is just how pessimistic investors have become. I'm a firm believer that the negativity constantly bombarding consumers and investors has forced many to the sidelines. We are in a "negative news cycle" for lack of a better term, and I continue to see the talking heads that reach most Americans dole out their daily doses of negativity, but often using apples to oranges comparisons to demonstrate just how bad things are.

I don't believe it's done maliciously; perhaps it's due to either a lack of proper research, the acceptance that all news these days must be bad by nature, or that it grabs ratings. While I'm not arguing that all is right with the world, I do believe that the lack of hope -- which is interestingly enough being perpetuated by the Obama administration -- helps to feed this recession.

Nonetheless, the environment is an interesting one if you believe that there are better days ahead, especially for companies that have the resources to weather several bad quarters.

Three Techs and a Jeweler
Top Four Net/Nets by Market Cap
Company
Ticker
Market Cap
NCAV
Mkt Cap/NCAV
Price
Price/Book
Cash & ST Inv
PE
Ingram Micro
IM
2040
2364.5
0.86
12.37
0.6
807
8.1
Tech Data
TECD
956
1415.2
0.68
19.15
0.57
385
9.1
Sycamore Networks
SCMR
710
823
0.86
2.51
0.73
823
NA
Signet Jewelers
SIG
647
977.3
0.66
7.6
0.31
36
3.5
SOURCE: Company Reports

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  • Ingram Micro ( IM): Currently trading at 7 times trailing 12-month earnings, full-year and fourth-quarter numbers have not yet been released, so that seemingly low valuation will likely change with the release. Still, with full-year 2009 consensus estimates at $1.32, the stock trades at just 10 times forward earnings.

    Furthermore, Ingram has more than $800 million in cash, nearly $5 per share, and $457 million in debt. The company currently trades at 0.64 times book value and shares are down about 9% since my November piece on the company.

    Tech Data ( TECD): Another tech company trading in a single digits in terms of P/E (just below 9), Tech Data is expected to earn $2.09 per share for fiscal 2010 (January), so it currently trades just above 9 times forward earnings. With net current assets of $1.41 billion, the company trades at two-thirds of its net current asset value, a number that might get Ben Graham to take a look.

    As of Oct. 31, the company had $385 million in cash, or $7.67 per share, and $430 million in total debt. Tech Data is currently trading at just 0.57 times book value and 8.5 times free cash flow. Shares are down 34% since I first profiled this company in September.

    Please note that due to factors including low market capitalization and/or insufficient public float, we consider Signet Jewelers to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.


    Know What You Own: Other computer wholesale companies include ScanSource (SCSC), GTSI (GTSI) and INX (INXI).For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.

    This was originally published on RealMoney on Feb. 18, 2009. For more information about subscribing to RealMoney, please click here.

    Learn More About Investing With the Finance Professor on TheStreet.com

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  • At the time of publication, Heller had no positions in the stocks mentioned.

    Jonathan Heller, CFA, is president of KEJ Financial Advisors, a fee-only financial planning he recently launched. 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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