Low Enterprise Value Stocks
The first quarter of 2011 has been very good considering the many global and domestic events. Utilizing our selection criteria, the simple math aggregate of the holdings in the High Cash Stock Review portfolio was up a strong 14.88 % compared to the S&P 500 5.42% gain since the new year.
In each of the last three quarters the High Cash stock review significantly surpassed the S&P 500 index. In the fourth quarter, the High Cash Stock review was up a strong 20.38% percent compared to the S&P 500’s gains of 9.92%. Please review our update.
Our third quarter 2010 performance delivered a rewarding 16.68% returns compared to the S&P 500’s 10.62% return.
Using distressed Enterprise Value in valuing the ongoing operation, combined with eliminating the cash and or debt from the companies market value, this seems to give a unique way to judge the lower valuation of the company. With that said, if we could buy an enterprise that has such a distressed valuation that the underling company has very little to even a negative value, buying the operating core of the company for so little over time has so far become very rewarding for our clients.
We try to profit from these unique and sometimes quite fearful situations, knowing the only real outcome might take time. This takes a very disciplined and well rounded review process, focusing on companies that provide high cash flows, superb business models and increased earnings forecasts, even with this very high level of criteria we still have of challenges. The select few that make the cut are included into our High Cash Stock Review. Below are the equity positions included in this portfolio that had these characteristics when they were published on Seeking Alpha and have been held for the entire period.
The First Quarter is added to the second half of 2010 based on simple math is:
|Time||High Cash Stock Review.||S& P 500|
|First Quarter 2011||14.88 %||5.42%|
|Fourth Quarter 2010||20.38%||9.92%|
First Quarter 2011 performance stocks:
|Company||2011 Year to Date||Fourth Quarter 2010|
|China Yuchai International Limited (CYD)||- 7.45 %||63.14 %|
|Homeowners Choice, Inc. (HCII)||1.24 %||* 29.69 %|
|KHD Humboldt Wedag International AG (KHDHF.PK)||12.22 %||22.76 %|
|LoJack (LOJN)||- 27.4 %||New to the portfolio|
|O2Micro International Ltd. (OIIM)||22.98 %||(- 1.44) %|
|Openwave (OPWV)||0.94 %||New to the portfolio|
|The Bancorp Inc. (TBBK)||-9.24 %||44.02 %|
|Tessera Technologies Inc. (TSRA)||-17.56 %||19.55 %|
|Silicon Graphics International Corp (SGI)||136.99 %||11.21 %|
|Sonus Networks, Inc. (SONS)||40.82 %||(-27.76) %|
|Terra Nova Royalty Corporation (TTT)||10.24 %||*14.61 %|
*Dividends not included
It appears again that the top performers one quarter are often the worst the next as Silicon Graphics was by far our worst performer last year. Since the new year, SGI has been just outstanding providing over a 135% return . With Sonus being the single worst stock in the fourth quarter of 2010, it again rebounded like many other laggers we own with over a 40 % increase in the first quarter of 2011. Even though it appears are selection process is working, it appears out timing could improve.
With that said, we are still holding both Duoyuan (DGW) our analysis will be available here and LoJack (LOJN) our review here we beleive our original investment thesis is correct in both selections, but only time will tell, we have seen news in both but neither has shown a fundamental change since we published. Knowing both SGI and Sonus are driving the portfolio returns this quarter we are very pleased we stayed to our disciplined approach when they both show similar stock signs in 2010 that DGW and LOJN is showing today..
We started the High Cash stock portfolio with the understanding that very low enterprise values may provide protection from a market sell off. Positive earning, cash flow providing profit increase, and possible stock price expansion are all examples that assist in raising these very low values, so far, the evidence and performance we have measured in a rough but upward trending market seems quite impressive.
Updated portfolio review:
Again we added Duoyuan Global Water Inc (DGW) to the portfolio in February with our review here. Even though we announced it in the last month since then it has taken a significant loss in stock value since our initial review, and like companies that have provided tremendous gains we have not included it in the performance metrics since it was not included in the portfolio at the start of the period.
We added TravelCenter of America (TA) to the portfolio in March with,our review available here, we were able to find it a 6 billion dollar sales company with under 100 million dollar enterprise value, while uncover possibly up to 40% of company value has often in-mentioned underlying ownership in real estate .
Both Durig Capital and its clients have positions in all the above positions. Performance is bases on written reports published as High Cash Stock Review.
These both are hypothetical portfolio illustration and no money was invested by clients or Durig Capital in this enclosed published manner. Hypothetical only takes into consideration all High Stock Reviews or Investment and Income stock position that were written and publicly published plus held for the entire quarter. Any new position or liquidate position that occurred in the published quarter were not included in the performance. This assumes all positions have an equal investment value at the beginning of each quarter. This is purely a hypothetical account and actual performances of individual active accounts have preformed both above and below the hypothetical returns in the past and most probably will in the future. Past returns are no way indicative of any guarantee of any possible future return. Individual suitability and advice should be sought about any particularly matter or circumstance.