New Life in Net/Net Stocks
NEW YORK ( TheStreet) -- There's some new life in a small subset of the deep value investing world: stocks trading below their net current asset value. Such stocks are often referred to as "net/nets."
This is one of my favorite places to look for downtrodden companies, and one I write about when I find potential opportunities. Unfortunately, the cupboard has been quite bare in recent months, and new additions have been few and far between.
But with the recent postelection, pre-fiscal cliff volatility we've seen in the markets, the market tree has shaken out a couple of new or returning names.
Telecom networking products name Tellabs (TLAB) is now again a net/net, returning after a hiatus of a couple of years. It is trading at 0.96 of its net current asset value.
Companies often fall below their NCAV because their shares decline in price while the companies' balance sheets remain relatively unchanged.
In Tellabs' case, shares have fallen 28% in the past two months. Part of that decline is due to the company's third-quarter results released last month.
Tellabs missed the consensus estimate on revenue ($264.4 million vs. $276.5 million) but beat the EPS estimate (2 cents vs. 1 cent). In terms of balance sheet quality, Tellabs is loaded with cash and short-term investments to the tune of $1.14 billion, or $3.11 per share. If you back out debt of $201.6 billion, net cash and short-term investments per share are still $2.56. Tellabs closed at $2.72 yesterday.
Tellabs is also among the larger net/nets you are likely to see in terms of market cap, which hovering around $1 billion. Interestingly, Third Avenue Management , a deep value pioneer founded by legendary value investor Marty Whitman, has built a 9.6% stake in this company, according to recent 13F filings. That certainly has my attention.
Although the economy is still rather weak and the future is uncertain, Tellabs appears to have the dry powder -- cash and short-term investments -- to see it through.
Also returning to the place that no company would go by choice is Richardson Electronics (RELL) , which is currently trading at 0.95 of its NCAV. Shares have fallen about 12% the past two months. Richardson also has a strong balance sheet, ending the latest quarter with $140 million, or $8.92 per share, in cash and short-term investments.