Inefficiency, Dry Powder and Deep Value
Last night's cancellation of the House vote on Speaker Boehner's "Plan B" is wreaking havoc on futures markets as I write this. This is just another example of market inefficiency; "Plan B" had no chance of passing the Senate, so the fact that it did not even come up for a vote in the House should mean very little.
But the markets are getting spooked, and when that happens, nervous investors sometimes make some interesting decisions. Sometimes this turns into panic. I'm not suggesting we are on that path, but there may be some opportunities to scoop up some cheap shares if the panic mode sets in. I still expect that a deal will get done, perhaps by year-end, although the odds there are getting long.
This could be a good time to have some dry powder, though. If there is a sell-off, it will likely impact the smaller, more challenged names that I typically follow more than the higher quality names. That's par for the course in deep-value land.
I'm always on the look-out for the next potential net/nets (companies trading below net current asset value), and when markets are facing selling pressures, more of these are typically revealed.
That being said, I've screened for companies trading at between 1 and 2 times net current asset value, with market caps greater than $200 million, but this time with an added twist. They must also be trading below tangible book value in order to qualify. That's a very stringent screen, which not surprisingly reveals just 10 names.
Some have been net/nets before. The largest is Tech Data (TECD) , a $1.75 billion market cap name which currently trades for 1.04 times net current asset value and 0.95 times tangible book value. Shares are down 6.5% year to date, and flat for the past two years, so it may be that this name will always trade a low multiple of net current assets and tangible book value. During the great market pullback in 2008 and 2009, however, shares which now trade in the $46 range, flirted with $15. Tech Data currently trades for 10 times trailing earnings, and eight times 2014 consensus estimates; certainly not expensive.
TECD data by YCharts
Not surprisingly, there are a proportionately large number of other computer/semiconductor/ technology related companies that made the cut as well. These include Benchmark Electronics (BHE) -- which is frequently on several value-related screens, Alpha and Omega Semiconductor (AOSL) , STEC (STEC) , Steel Excel (SXCL) , and Tellabs (TLAB) .