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Any small cap Net Nets out there?


LowIQinvestor
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GEOS - $205mm in current assets, $40mm cash, $32mm in AR, $124mm in inventory, versus $17mm in Total liabilities.  They own their own real estate and a rental fleet of Seismic equipment.  Total book equity of $289mm versus market cap of $155mm.  Actually has a very good business. Owns large market share in the wireless seismic business.   

 

Burning cash right now.  Around $5-10mm a quarter.  Company is well run, they continue their R&D during downturns and come out and tend to do well. 

 

Houston Wire and Cable - Easy to understand distribution business.  $133mm in current assets versus $63mm in total liabilities.  1/3 of biz in oil and gas.  Versus $87mm in market cap.  Not a total net net.  But business should be cashflow breakeven. Distribution business, when times are bad, they draw down their inventory and generate a lot of cash.  Okay business in the long run.  Should be worth 2x its current price.   

 

Friedman Industries - $49mm current assets, $3.57mm in total liabilities.  Market Cap of $37mm.  Related to Oil and Gas.  Cashflow break even for now.  Distribution business.

 

I own a basket of these. Buy them and own them in 1-2% positions each and just ignore them for a while. 

 

 

 

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How about PCO, somewhat below net cash in the bank and cash flow positive.

 

I've looked at PCO and can't figure out what their plan is? The Cash and NOLs are attractive but put in the wrong hands they can quickly be destroyed. I guess they were looking to be a patent troll...but that hasn't worked out. What's plan B?

 

SXCL-Steel Excel looks like they had a plan to roll-up some oil and gas equipment cos but the timing was nothing short of horrendous. But at least there are some operating businesses to evaluate in addition to having lots of cash/marketable securities ( and NOLs).

 

Thanks for the responses...keep em coming.

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If you don't care about quality it seems like you can always find these.  I have stocks that I'm embarrassed to mention.  Jadason in singapore is one example.

 

I think that GEOS is actually one of the better companies out there.  It's just REALLY cyclical and levered to oil price.  It's the kind of stock that you buy when the sentiment is so poor that most people would feel embarrassed to own them in their portfolio.

 

The company has four segments.  They own the leading position in the land based seismic equipment and basically the entire market share of the permanent reservoir monitoring systems.  Their marine nodal system may generate revenue in this dire market.  Q1/Q2 maybe a catalyst as there's a $17mm non-binding contract that may start. 

 

 

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GEOS - $205mm in current assets, $40mm cash, $32mm in AR, $124mm in inventory, versus $17mm in Total liabilities.  They own their own real estate and a rental fleet of Seismic equipment.  Total book equity of $289mm versus market cap of $155mm.  Actually has a very good business. Owns large market share in the wireless seismic business.   

 

Burning cash right now.  Around $5-10mm a quarter.  Company is well run, they continue their R&D during downturns and come out and tend to do well. 

 

 

"Burning cash right now.  Around $5-10mm a quarter" ---That is giving me pause

 

I would encourage you to look into SXCL- http://steelexcel.com/

Safety due to the balance sheet

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I wouldn't expect too much from net-nets. Anything that is a net-net is by definition dysfunctional. In other words, I wouldn't expect positive cash flow, good plans, or even sound management.  I'd expect very little, it'd be 100% optional value, a sort of I might lose 20 cents and maybe make $5 in the aggregate owning a basket of them.

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NWLI is at around 60 of book.

 

Float is tiny (difficult to accumulate). Insider ownership large so no real catalysts but you are buying a conservatively run insurance company at 55-60c/$.

 

I own National Western , too. With the same logic you can maybe look at American NAtional Insurance ( conservative Insurance company company with the same owners "the Moodys" ). But National Western Life seems to build book value better.

 

National Western life is not a bad business niche (high networth people in countries with monetary unsecurity). The Moodys grew this business for a long time (i think book value is in an uptick for 50 years). What i don't like ist that they became a little bit slow to deffer their aquistion costs . But that could fasten with better interest rates.

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As a german i m interested in an company named Hornbach Holding. Hornbach is an Do-It-Yourself retail chain under family control. They are growing for years and own gread commercial real estate in bigger cities (mostly in Germany, but in Austria, Switzerland... as well). They are profitable and are valued below their book value (and this book value is undervalued a lot, because the company is in business for a long time and looks like an real estate company selling wood and tools).

 

For someone who is interested in good managed and growing european company with strong real estate assets.. look at Hornbach.

 

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NWLI is at around 60 of book.

 

Float is tiny (difficult to accumulate). Insider ownership large so no real catalysts but you are buying a conservatively run insurance company at 55-60c/$.

 

Why do you think a company with an RoE of ~6% should be valued at bookvalue? Can someone else earn more with the same assets or what should the catalyst be for higher earnings?

I would say Hornbach is in the same league, RoE of ~8% and p/b of 0.8 looks like fair value at the moment. At least as long as nobody is going to sell all the real estate assets, but the opportunity cost for holding until it happens can be huge.

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@frommi: i don t think "nwli" or "hornbach" will double in 2016 :)

 

I think these are good businesses under conservative family control with an track record (not warren buffett like, but who knows the next berkshire or m&t bank??? ).

 

But the businesses are trading at a fair price and business models i understand.

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Another business that is cheap by assets is Sega Sammy from japan (video games, gambling machines, golf courses, casinos etc.). But i think the business ist much more difficult to value. Of course it could be an big winner. The next sonic game could be a pokemon or Grand Theft Auto blockbuster. But too  hard to say for me.

 

I like understandable businesses (for me, i m not the smartest person around) with good asset base i can buy at an fair price. Over time it worked for me :) I found a few big winners in the past; but these findings are rare today.

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I like understandable businesses (for me, i m not the smartest person around) with good asset base i can buy at an fair price. Over time it worked for me :) I found a few big winners in the past; but these findings are rare today.

 

I understand that, but when i can get Berkshire with 10-15% forward returns, why invest in something that gives you lower returns with higher risks?

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I don t say that i would not buy Berkshire at these prices.

 

But for me there is a) i am German and so i like part of my assets in German companies (currency factors etc. ok over the long term that will not be the big factor).

 

On the other hand it may be that buffett and the leaders of the berkshire companies are all clever and noble business men. But i think that Hank Greenberg was also a clever business man (maybe a bit to much into making the numbers) and i m sure a lot of people thought of AIG as an very risk free compounder.

 

But in such an big conglomerate someone could do something stupid and maybe buffett is is ill or looses control an other way (ok , unlikely :) but possible).

 

I think big business can easily become an political target. Buffett is a star in the american media. But maybe the media backfires and shows buffett as greedy old man and politics think that it would be an good move to crush his business.

 

Maybe i think too German or European, but i know a lot of situations were business were crashed by political public stunts. For an example the german energy utilities. A lot of wealthy people had stock of energy companies here. Over night Angela Merkel thought that nuclear power became to unpopular and destroyed business models . I know that American is more business friendly, but i see that parts of the American politic elite wants to make the USA more France-like.

 

 

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Making money is much harder than losing money. I consider NOL's virtually worthless in most cases and if they begin to be valuable, they will be a minor part of the value in relation to the 'new' profits that created them. I also think of them differently between those NOLs where the people who lost the money are still in power vs those NOLs (like a new shell) where new management has come on board.

 

 

 

 

 

 

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Here are a few I own: QCCO, NCON, MSN, DSWL, TAIT, WEBC, RELL, UPGI, OIIM, WILC, SPRS, EXAC, VIDE, BSHI, ERMS, AEY

Glad to have you on board, Jonas. I love reading your blog. Merry Christmas

 

Thank you! I'm glad you like it! Merry Christmas! :)

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