The Hunt For Double-Nets

NEW YORK (TheStreet) -- The search for deep value is never-ending: even in the current environment where it is getting difficult to find many companies that are indeed cheap. That means that you have to turn over even more rocks in order to find something of interest.

As I reported last week, my favorite deep value technique, companies trading Bottom Feeding for Deep Value Success Is Rare but Possible, is not revealing a great deal of opportunity these days. The overall rising tide of the markets has lifted most boats higher, and as a result, the net/net cupboard is nearly empty at this point.

That has certainly happened before, perhaps not to the current extent, but when it does, I often relax my search criteria a bit in order to identify the next best thing. That involves the identification of what I call "double nets," or companies trading at between one and two times net current asset value. Often, these companies become net/nets during market corrections, so it is good to know what names are on the precipice of falling below net current asset value.

When identifying double nets, I utilize the following criteria:
  • Market cap is greater than $250 million
  • Companies are U.S. based and trade on a major exchange
  • Trades at between one and two times net current asset value (NCAV; defined as current assets minus total liabilities from the most recent quarter)
  • Financial companies are excluded.

At this writing, there are 30 names that make the cut; the fewest I seen in the several years that I've been studying double nets. As is typical, the list is very heavy on semiconductor and other technology related companies.

At the top of the list in terms of market cap at $3.4 billion, is a very familiar name, Ingram Micro ( IM) which seemingly always trades at a relatively low multiple to net current asset value. Ingram has had a good year, up 31%. Ingram trades at 1.41 times net current asset value, and 9 times 2014 consensus earnings estimates. Yesterday shares fell 4%, and it is not uncommon to see double nets hit harder than the broader markets during market declines. IM Chart IM data by YCharts

Electronic components name AVX ( AVX) is the second largest double net with a market cap of $2.16 billion. Currently trading at 1.64 times net current asset value, AVX has a solid balance sheet, ending the latest quarter with $1.04 billion, or $6.18 per share in cash and short-term investments. Shares trade just under 16 times 2014 consensus earnings estimates, and yield 2.7%. AVX Chart AVX data by YCharts

Other technology related names companies that made the cut include Synnex ( SNX), Tech Data ( TECD), Benchmark Electronics ( BHE) and Electro Scientific Industries ( ESIO); which along with Ingram Micro, are the components of my Small Technology BITES Portfolio Update.

Non technology qualifiers include tobacco name Universal Corp ( UVV), retailers RadioShack ( RSH), West Marine ( WMAR), PC Connection ( PCCC) and Systemax ( SYX), business services name CDI ( CDI) and auto parts manufacturer Superior Industries ( SUP).

At the time of publication the author is long IM, ESIO, 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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