I will continue from where I finished in the first part.
End of March 2017 I analyzed net-net stocks from Hong Kong. Eastern markets have been good bargain hunting area in recent years.
I picked up the following companies in my basket:
Recommodations given 3/24/17 7/2/18 Annual return
Tai Cheung Holdings HK$7.32 HK$8.92 17% + dividend yield 4%
Sing Tao News Corp HK$1.00 HK$0.97 -2% + dividend yield 6%
G-Resources Group HK$0.14 HK$0.09 -30%
Fujikon Industrial Holdings HK$1.08 HK$1.19 8% + dividend yield 6%
Final results -7% + 4%
Once again, it’s too early to gives a final judgment, but in this case it looks like one “bad apple” (G-Resources Group) spoils otherwise quite a satisfactory result. Let’s wait a year or two and we will be wiser.
Next net-net recommendation was Merchant House International (ASX:MHI) 13th April 2017. After my writing (price was AUD 0.19), the share has not moved much. The highest share price has been AUD 0.20 and now the share price is AUD 0.17. This means about 8% decline. As I said at the end of my writing the biggest risk is that nothing will happen in the near future and the stock will trade about the same low level for longer time – and investors need patience. It would always be much more comfortable if the investment started to rise immediately, but it is not realistic. I have not yet lost faith in my recommendation, without forgetting the risks (the biggest risk is that the company will be perennial net-net).
In the beginning of May, I still found three more net-nets from soaring US markets. These companies were:
Recommodations given 5/5/17 7/3/18 Annual return
FreightCar America $13.09 $16.85 24% + dividend yield 2%
Manning & Napier $5.55 $3.05 -40% + dividend yield 9%
STR Holdings $0.21 $0.25 16%
Final results 0% + 11%
And how again, one loser spoils otherwise good results. If we can learn something about this, it’s importance of diversification. Problem “kid” Manning & Napier has very complicated capital structure. Traditional net-net stock screener can lead to misrepresentations in this case. I admit myself to be guilty of this. Who said, ‘stay in your circle of competence!’
Almost exactly a year ago I analyzed world’s largest travel luggage company Samsonite. Stock price was 14th July 2017 $21.32. I wrote that the company was not the cheapest one (P/E was 23). On the other hand, good quality companies can rarely be bought cheaply. My recommendation was: put it on your watch list. Now the price of Samsonite is $17.60 and P/E is 15. Fundamentals have not changed so much. Maybe now it’s right time to buy? I would, at least, consider.
In the end of September 2017, I wrote about investing in spinoffs and I took two examples from Sweden. SCA/Essity and Bergman & Beving/Momentum Group were interesting and recommended spinoffs.
Recommodations given 9/26/17 7/4/18 Annual return
SCA B Kr68.20 Kr97.56 61% + dividend yield 1%
Essity B Kr220.40 Kr222.60 1.3% + dividend yield 2%
Bergman & Beving B Kr105.50 Kr93.40 -15% + dividend yield 5%
Momentum Group B Kr85.00 Kr112.80 46%
Final results 23% + 2%
Often spinoffs work pretty fast. In SCA ans Essity case I suppose Essity to be more interesting company, but like in many other spinoffs “ugly duck” SCA has given a better return. Also in Bergman & Beving/Momentum Group the right company choice has been of great importance. As a conclusion we can say that spinoffs are good hunting gound to find market beating investments.
Next, I warned of net-nets with controlling owners and directors. As an example, I used Argo Group. When I wrote my article Argo Group was traiding at £0.17 and now the very illiquid stock is traiding at £0.18. Not much has happened. I still have a same opinion, that there’s no catalyst as long as controlling owners are not ready to consider any change. We will see what happen, but the waiting time may be long.
I wrote about GigaMedia on 24th October 2017. Although you can argue that its business is low-quality, the company is cash rich and very cheap offering a strong upside potential. At the time of my analysis stock was traiding at $3.34 and now the market price is $3.00, but in January 2018 it was sold for more than four dollars. If you did not sell the stock already in January, so I would urge you to wait patiently.
In the beginning of last November, I warned investing in biotechnology and pharmaceutical net-nets. My example was Acrux Ltd from Austrlia. The market price of the stock was then AU$ 0.17 and now it is AU$ 0.15. There’s a big risk of perennial net-net – if you want to sleep well keep your hands off.
On 20 November 2017 I recommended to consider Cardinal Health as a bargain. Stock was traiding at $57.51. At the end of January, the price was at its highest about $75, but after that it has fallen to $50. There are no dramatic changes in the company’s fundamentals and now it’s good time to average down. Growing dividend and ever-shrinking share count should continue and help investors waiting turnaround.
Last year’s last stock to consider was net-net Amira Nature Foods. So far, owning this stock has been almost just a pain. The company’s price has fallen from $4.29 to $2.26. I admit that the company is difficult to evaluate (the company management gives very little information) and I have probably missed something essential.
Finally, it’s too short time period to evaluate this year’s recommendations and analyzes – let’s get back to them later.