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5 NCAV Companies For Value Investors – August 2015

 

NCAV CompaniesNCAV Companies For the Value Investor

One of Benjamin Graham’s most famous techniques is to invest in Net Current Asset Value (NCAV) companies.  Such companies tend to be severely beaten down by the market to a point where they may be of more value to the investor if they were completely liquidated; however there is often reason for the depressed pricing, and extreme caution is always necessary when investing in NCAV companies.  In Graham’s work, he found great success in investing in a large number of NCAV companies in order to spread the risk through diversification.  Many NCAV companies may end up bankrupt or out of business entirely, but those that survive will likely see a very high return.

In today’s market environment, there are not as many NCAV companies to be found as there were in Graham’s days, but there are some.  It is ModernGraham’s recommendation that all value investors engaging in NCAV investing do so with extreme caution and a speculative attitude.  It is highly unlikely any company suitable for the Defensive Investor will be an NCAV company, and it would be unusual to find a company suitable for the Enterprising Investor to be an NCAV company.

Defining An NCAV Company

An NCAV company is one that is currently trading below its net current asset value (NCAV).  NCAV is calculated by taking the current assets less the total liabilities, then divide by the number of outstanding shares.  The idea is to provide a figure that would represent the company’s value if all of the cash were used to pay off all of the company’s liabilities.  It is theoretically possible that investors could purchase all of the shares of an NCAV company, use the company’s cash to pay off the debts, and then have excess cash to return to the investors at a gain.

Where to Find NCAV Companies

There are not many resources available for finding NCAV companies, as none of the major financial websites (Google, MSN, Yahoo, etc.) tend to calculate the information for their readership; however, some sites that specialize in value investing do provide good data.  ModernGraham Premium Membership provides NCAV figures for every company covered including all of the S&P 500.  GuruFocus also provides a great screener for Net-Net Working Capital companies which also provides NCAV data.

What Are Some NCAV Companies In the Market Today?

Using both the data from ModernGraham Premium Membership and the GuruFocus screener, I’ve selected 5 NCAV Companies that may be worth further research.  Once again, please remember that NCAV investing should always be done with extreme caution and a speculative attitude as these companies can be very volatile and unpredictable.

Leapfrog Enterprises Inc. (LF)

Leapfrog Enterprises is not suitable for either the Defensive Investor or the Enterprising Investor.  The company does not currently pay a dividend and it has had unstable earnings over the last five years.  However, the company has no long-term debt and currently has a NCAV of $2.49, when it is trading at only $0.97.  As a result, the company would appear to be very intriguing for NCAV investors willing to do further research to determine whether the earnings situation can improve.

Delcath Systems Inc. (DCTH)

Delcath Systems is not suitable for either the Defensive Investor or the Enterprising Investor.  The company does not currently pay a dividend and it has posted negative earnings per share every year for the last fifteen years.  However, the company has no long-term debt and currently has a NCAV of $1.22, when it is trading at only $0.52.  As a result, the company would appear to be somewhat intriguing for NCAV investors willing to do further research, though it is rather concerning that the company has posted a loss for so long.

STR Holdings Inc. (STRI)

STR Holdings is not suitable for either the Defensive Investor or the Enterprising Investor.  The company does not currently pay a dividend and it has posted negative earnings per share every year for the last several years.  However, the company has no long-term debt and currently has a NCAV of $1.84, when it is trading at only $0.86.  As a result, the company would appear to be somewhat intriguing for NCAV investors willing to do further research, though it is rather concerning that the company has posted a loss for so long.

Aquinox Pharmaceuticals Inc. (AQXP)

Aquinox Pharmaceuticals is not suitable for either the Defensive Investor or the Enterprising Investor.  The company does not currently pay a dividend and it has posted negative earnings per share every year for the last several years.  However, the company has no long-term debt and currently has a NCAV of $2.80, when it is trading at only $1.72.  As a result, the company would appear to be somewhat intriguing for NCAV investors willing to do further research, though it is rather concerning that the company has posted a loss for so long.

Emerson Radio Corporation (MSN)

Emerson Radio is not suitable for either the Defensive Investor or the Enterprising Investor.  The company does not currently pay a dividend and while its earnings are in better shape than the other companies on this list, the earnings are decreasing at a rate that concerns the Enterprising Investor.  However, the company has no long-term debt and currently has a NCAV of $1.98, when it is trading at only $1.22.  As a result, the company would appear to be very intriguing for NCAV investors willing to do further research, and in fact would appear to be the best out of the five listed here.

What do you think?  Are these companies a good value for Defensive Investors and Enterprising Investors?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing those holdings within the next 72 hours.

2 thoughts on “5 NCAV Companies For Value Investors – August 2015

  1. Ben,

    I am a premium subscriber and I really like your website and the spreadsheets. I am new to all of this and I have a question, which may be obvious to some, but I don’t seem to grasp it completely yet, and that is: the spreadsheet has a column titled ‘NCAV’ and the listings are dollar amounts that are either negative (in red) or positive (in black). I understand what NCAV is, but are these dollar amounts positive for the dollar amount per share that the company is currently trading below its net current asset value (NCAV) and negative for those companies which have resources above their NCAV? Am I on the right track here?

    1. Tim,

      NCAV is the Net Current Asset Value, calculated as (Current Assets – Total Liabilities) / Outstanding Shares.

      As such, a negative NCAV indicates the company has total liabilities that exceed the company’s current assets. If the NCAV is positive, that indicates the company’s current assets are sufficient to pay off all of the company’s liabilities. The NCAV is how much would be left per share after paying off the liabilities.

      The interesting part is that if the NCAV is greater than the share price, then the company is very clearly undervalued since all liabilities could be paid off with the current assets, cash distributed to the shareholders in an amount greater than the share price, and then any assets could also be liquidated and the proceeds distributed.

      That said, it is very rare for a very healthy company to have an NCAV greater than the share price. These tend to be risky companies, but sometimes can be great opportunities.

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