Valuing Micro-Cap Stocks

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Valuing Micro-Cap Stocks

I have often owned companies with little to no sell-side analyst coverage.  Ask yourself this, how many companies trading on US exchanges are there:

Partners Group provides capital for Taxfix, Litera

Market CapitalizationsPartners Group Private Equity gained in May. The net asset value for Class I rose 3.5%, while the net asset value for Class A grew 3.4%. The total fund size increased to $5.6 billion. For the first five months of the year, Class A is down 4.4%, while Class I is down 4.2%. Q1 2020 Read More


  • That have no analyst coverage
  • That are US-based
  • That have a Market Cap over $250 million
  • That aren’t passthrough vehicles
  • And have pitiful liquidity at least

I made the following list by using a Media General database, and cross-checking it with Yahoo Finance.  Yeah, I live on the cheap.  Here we go:

Company Industry Ticker Market Cap $M
Terra Nitrogen Company, L.P. 0103 – Chemical Manufacturing TNH             4,235
Icahn Enterprises, L.P. 0963 – Retail (Specialty Non-Apparel) IEP             4,065
Valhi, Inc. 0103 – Chemical Manufacturing VHI             3,856
Seaboard Corporation 0515 – Food Processing SEB             2,619
EQT Midstream Partners LP 1206 – Natural Gas Utilities EQM                 908
Contango Oil & Gas Company 0609 – Oil & Gas Operations MCF                 901
Nortek Inc 0406 – Appliances & Tools NTK                 797
Sabine Royalty Trust 0609 – Oil & Gas Operations SBR                 781
Dorchester Minerals LP 0609 – Oil & Gas Operations DMLP                 695
Rouse Properties Inc 0933 – Real Estate Operations RSE                 681
Star Scientific, Inc. 0524 – Tobacco CIGX                 590
NL Industries, Inc. 0103 – Chemical Manufacturing NL                 578
1st Source Corporation 0727 – Regional Banks SRCE                 547
Apco Oil & Gas International I 0609 – Oil & Gas Operations APAGF                 546
CorVel Corporation 0806 – Healthcare Facilities CRVL                 518
National Western Life Insuranc 0709 – Insurance (Life) NWLI                 513
Village Super Market, Inc. 0957 – Retail (Grocery) VLGEA                 468
Atrion Corporation 0812 – Medical Equipment & Supplies ATRI                 416
Presidential Life Corp 0709 – Insurance (Life) PLFE                 411
PHI Inc. 0612 – Oil Well Services & Equipment PHII                 409
Seneca Foods Corp 0515 – Food Processing SENEA                 324
Lifevantage Corporation 0809 – Major Drugs LFVN                 306
Preformed Line Products Compan 0127 – Misc. Fabricated Products PLPC                 300
Westwood Holdings Group, Inc. 0718 – Investment Services WHG                 294
Ladenburg Thalmann Financial S 0718 – Investment Services LTS                 287
Camden National Corporation 0727 – Regional Banks CAC                 281
Federal National Mortgage Asso 0703 – Consumer Financial Services FNMA                 278
Fisher Communications, Inc. 0906 – Broadcasting & Cable TV FSCI                 278
Pendrell Corp 0718 – Investment Services PCO                 277
U.S. Lime & Minerals Inc. 0212 – Construction – Raw Materials USLM                 271
Winmark Corporation 0963 – Retail (Specialty Non-Apparel) WINA                 264
Arden Group, Inc. 0957 – Retail (Grocery) ARDNA                 263
Clifton Savings Bancorp, Inc. 0727 – Regional Banks CSBK                 262

Not so surprising, there are:

  • A lot of limited partnerships and royalty trusts.
  • Many financial firms.
  • Many companies where there is a controlling shareholder, and liquidity is scarce relative to size.

All that said, this is an area of the market where few tread, and there may be some values to be had.

Now, there were some companies that were far less liquid, and with less disclosure,  that fit the above criteria, and I list them here.

Extremely Limited Liquidity

Company Industry Ticker Market Cap $M
Belk Inc 0951 – Retail (Department & Discount) BLKIA             1,839
SunGame Corporation 1036 – Software & Programming SGMZ                 746
First National Bank Alaska 0727 – Regional Banks FBAK                 555
Computer Services, Inc. 1036 – Software & Programming CSVI                 463
First Citizens Bancorporation, 0727 – Regional Banks FCBN                 410
TherapeuticsMD Inc 0921 – Motion Pictures TXMD                 311
Hills Bancorporation 0727 – Regional Banks HBIA                 304
Farmers & Merchants Bancorp 0727 – Regional Banks FMCB                 284

Some of these look promising as longs, if you can get shares. Others look promising as shorts, if you can get a borrow.  Remember that the illiquid end of the market is the place where promoters play, creating their own internal version of the “bucket shop,” getting people to buy in at higher valuations, while they sell out for a profit.

These are companies where personal research can pay off, because few others are analyzing them.  I own one of them, and it is:

Full Disclosure: long NWLI

By David Merkel, CFA of Aleph Blog

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.