Lots of different things can become of net current asset value stocks. These are the truly deep value stocks that only a true value investor can love. Why? Because they aren't glamorous. They usually are not as sexy as say an Apple (AAPL) or GoPro (GPRO). Net Net's often don't even turn any profit. They are sometimes entering their journey into stock market obscurity.
However, sometimes they can be tremendous opportunities. Once in awhile a net net will be a former profitable growing company that just hit a rough patch. I find that many times these will have a "brand moat" like a major retailer. This can help the turnaround. Sometimes these good or great companies that turnaround and come out of net net territory can be big gainers and even multi-baggers. Yes, multi-baggers. Sometimes we value investors look for companies we that we know probably will never be good again. Companies that are just so cheap like trading below net cash that there might be a catalyst to bring out the value of the assets. Special situations and going private transactions can unlock that deep value. Or the company just recovers into profitability. One such company we will look at today that could possibly do so.
Delcath Systems (DCTH)
This troubled stock DCTH is seeing its stock price hammered lately. This is a struggling company. The reason I am interested in this one is the cash on the balance sheet. The cash has been stable. Let us crunch some numbers on this one. There is 25.1 million in net tangible assets or 2.64 per share, 22.7 million in net current asset value or 2.40 a share and 21 million in net cash which is 2.22 per share. The stock last traded at 1.77 a share. This is 20% below net cash. Technically this stock is taking out all kinds of support and I see it continuing to decline for awhile. Maybe we can see it around 40% below cash. That looks pretty good as cash stays stable.
SORL Auto Parts (SORL)
This is one of those that almost doesn't make any sense. This company has had sales and earnings growth and yet has been a net current asset stock. The last time I posted on SORL on the blog was last year. The stock ran up a lot and has started coming down again. Other than that not much has changed with this company. I can only guess the low price pegged on it is because it is a Chinese company. It's a small company too which is fine with me. The price to earnings growth rate (PEG) is nice here again at around 1.00. Last quarters earnings got shaved a little from forecasts. There is 129 million in net current asset value or 6.65 a share. The stock last traded at 3.48 per share or about half of its net current asset value. I think once SORL is below 3.00 a share it is in the buy zone. If you've read the blog over the past couple months or so you probably pinned me as just a technical analysis chart guy. Nope. I was a value investor before I learned how to read a chart. Why do I use both approaches? Simple. I like every edge I can get. I like to buy stocks that go up and short stocks that go down.
Incase you don't know famous bond guru Bill Gross quit his position at PIMCO a major investment firm. This is the news story on his move. He left for Janus. As this news story was being digested lots of PIMCO funds began crashing as people sold. This really hit the closed-end funds the hardest. I was looking through the daily largest percentage losers on the NYSE. I found atleast 3 down almost double digits. Out of the ones I researched a couple stood out.
The first one is the PIMCO Corporate Income and Opportunity (PTY). It traded down 6% Friday to 17.18. It isn't below net asset value (NAV) yet but still has a 7% yield now.
The second one is the PIMCO Income Strategy Fund (PFN). It lost 4% and is now at 10.31 which is a 5% discount to its NAV. It's sporting an 8% yield.
The other funds I looked at were heavy into mortgage related securities so I took a pass on those. I read that a lot of the PIMCO funds have traded at steep premiums to net asset value over the years so seeing some of these fall below NAV is a good opportunity.
Greetings from Bull Market USA. The bull market capital of the world. Where low interest rates reign forever! Wheeee! In all seriousness however, I don't think Japan's lost decade has much on our QE. We've done better in my opinion. A few years ago everyone was predicting something along the lines of a Japan post asset bubble collapse stagnation. That is what they had in the 90s. Our true collapse was really in the wake of the tech bubble bursting in the year 2000. Atleast when it comes to the economy and equites. Yes, that was the secular stock market bubble that had been going since the early 80s. So I don't think comparing Japan and the USA was really apples to apples anyway. The other expectation Austrian economists had was serious inflation following QE. There was definitely some inflation as evident commodity prices but the dollar inflation seems gone now. Just look at the gold price. Gold and the dollar are always completely inverse. Gold is still crashing. I'm not sure what is going to happen from here.
History would say that if rates stay low for a long period of time there will be significant inflation ala the 70s inflation. Only Paul Volcker could stop it when he effectively let the market set rates at 20%. Could you imagine that today? So far things are going pretty well with the macro here. Doesn't hurt to be hedged though.
To me a good hedge on low rates is to be long precious metals. I actually bought some more silver bullion recently around $21 an ounce. I got some Engelhard Silver Rounds on Apmex.com. I've always been pleased with my orders with them and I recommend them. They are one of the top 2 respected online metals dealers. So far I have Silver Eagles and the Engelhards. I'd like to get some gold Krugerrands soon and some Palladium.
I longed some emerging Asian stocks via the Fidelity Emerging Asia (FSEAX) mutual fund in my Roth IRA. I like the Goldman Sachs Emerging Debt Fund (GSDAX) also and have it on my watchlist along with the I-Shares International Real Estate Fund (IFGL). All of these funds have low expense ratios and similar or better performance vs their benchmark index.
High Yield Stocks
I also have some high yield equites on my watchlist. Whether stuff keeps falling or not these look good to me too. The first is my favorite REIT. It's not one of those sketchy adjustable rate mortgage REIT's or anything like that. Those mortgage REITs are going to blow up when rates go up. There's probably a reason they are all yielding 9 to 11%. I like these simple ones.
One like Sun Communities (SUI) which is just mobile homes and RV's that have great cash flow. Sun has increased the dividend consistently and currently is yielding around 5%. Shareholder equity has been growing the past couple years along with revenue and earnings. The chart is a breakout too.
UMH Properties (UMH) is the second REIT. UMH is yielding 7% and has a consistently rising dividend history along with revenue and earnings. This one has a smaller market cap at just $215 million.
Another high yield stock I like is Energy Transfer Partners (ETP). This is a diversified natural gas pipeline company that also sells gasoline and runs retail convenience stores. ETP's current dividend yield is 6%. The PEG ratio (price to earnings growth) is a very nice .69.
With ebola in the news there has been considerable buzz about what is going on with the drug that the two Americans were given. Apparently there is more than one company that is working on a vaccine. The company that has gotten the most publicity the past couple days is Tekmira Pharmaceuticals (TKMR). TMKR's stock was up 45% today. Another company I found that is working on a vaccine is Newlink Genetics (NLNK) . The news headline is the company "secures a Letter Contract From the Defense Threat Reduction Agency for Testing and Evaluation of Ebola Virus Vaccine". Its stock was up 6% today. I found an interesting link in the comments on ZeroHedge.com from 2013. The military was supporting working on a vaccine back then. It proved effective on primates. Here is a summary from the military.
Even as IPOs are soaring and low interest rates are pledged to infinity the major indices are at a major test here. These highs are following the trend breakdown we had back in the spring. That pull-back was pretty significant. Before that the market was in a tight uptrend. Whether the correction in the spring was just a pull-back or the start of a major top will be decided over the next couple weeks. If there's going to be a double top it is going to start very soon. The Nasdaq has printed two days back to back above the upper bollinger band. This is bearish. A shooting star candle above the upper bollie is very often the "kiss of death" in technical analysis with stocks. A crashing stock price often follows.
The Russell 2000 index is at resistance and could be topping out. I remember the 2007 Chinese stock market crash began with a double top. I don't think anything here is starting to "crash" as I'm pretty bullish long-term on equites but some major consolidation could be in store. As much as I'd love to see us finally clearly break out of the trading range we have been stuck in since the 2000 Tech bubble crash and 2008 banking panic a runaway market has to consolidate. If this raging bull market is going to stop it is going to begin here. However, if we keep heading higher there is no resistance in sight. So, maybe it's prudent to get some protection on the short-side for a bit. Buy some puts, sell some futures or something and get a little short.