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In this edition of Watchlist Wednesday, we highlight five of the top stocks qualifying for the Net-Net Working Capital (NNWC) screen.
NNWC is similar to the NCAV screen except it is more stringent. Graham knew that companies undergoing liquidation would not necessarily sell all current assets at book value.
In order to add a level of safety, he felt it beneficial to discount the accounts receivables and inventories when calculating current assets.
NNWC Description
Like NCAV, NNWC finds stocks trading for less than the difference between current assets minus total liabilities, and no regard is given to the company’s long-term assets or future profits.
But where NCAV accounts for 100% of a company’s current assets, NNWC builds a larger margin of safety by discounting both receivables and inventory.
Liquidation Value
To calculate the liquidation value of a stock using NNWC, the stock screen values a firm’s current assets at the following levels:
- Cash & Cash Equivalents: 100%
- Accounts Receivables: 75%
- Inventories: 50%
- Long-Term Assets: 0%
Top Ranked NNWC Stocks
Here is a breakdown of five stocks with the lowest price to NNWC according to TheStockMarketBlueprint.com.
China Green Agriculture, Inc. (CGA): Engages in the research, development, production, distribution, and sale of various types of fertilizers and agricultural products.
- Cash & Cash Equivalents (100%): $103 Million
- Accounts Receivables (75%): $108 Million
- Inventories (50%): $43.5 Million
- Total Liabilities: $48 Million
- Total Shares: 37 Million
- NNWC: $5.62
- Current Price: $1.28 (closing price on 11/8/16)
- Price/NNWC: 23%
Emerson Radio Corp. (MSN): Designs, sources, imports, markets, and sells various houseware and consumer electronic products in the United States and internationally.
- Cash & Cash Equivalents (100%): $53 Million
- Accounts Receivables (75%): $1 Million
- Inventories (50%): $2 Million
- Total Liabilities: $4 Million
- Total Shares: 27 Million
- NNWC: $1.91
- Current Price: $0.96 (closing price on 11/8/16)
- Price/NNWC: 50%
Richardson Electronics, Ltd. (RELL): Provider of electron devices, customized display solutions, and healthcare equipment businesses in North America, the Asia Pacific, Europe, and Latin America.
- Cash & Cash Equivalents (100%): $64 Million
- Accounts Receivables (75%): $16.5 Million
- Inventories (50%): $22.5 Million
- Total Liabilities: $22 Million
- Total Shares: 11 Million
- NNWC: $7.53
- Current Price: $6.04 (closing price on 11/8/16)
- Price/NNWC: 80%
Support.com, Inc. (SPRT): Provides cloud-based software and services primarily in North America.
- Cash & Cash Equivalents (100%): $54 Million
- Accounts Receivables (75%): $7.5 Million
- Inventories (50%): $0 Million
- Total Liabilities: $11 Million
- Total Shares: 55 Million
- NNWC: $0.96
- Current Price: $0.78 (closing price on 11/8/16)
- Price/NNWC: 81%
Nuvectra Corp. (NVTR): A medical device company which develops and commercializes its neurostimulation technology for the treatment of various disorders in neuroscience and clinical markets in Europe.
- Cash & Cash Equivalents (100%): $84 Million
- Accounts Receivables (75%): $1.5 Million
- Inventories (50%): $0 Million
- Total Liabilities: $23 Million
- Total Shares: 10 Million
- NNWC: $6.01
- Current Price: $4.98 (closing price on 11/8/16)
- Price/NNWC: 83%
Implementation
As with the NCAV strategy, the NNWC approach requires a diverse group of stocks bought at steep margins of safety. This can be put into practice by regularly investing equal amounts in the qualifying stocks with the lowest prices in relation to net-net working capital.
Due to the nature of deep value strategies such as the NNWC, average investors will find numerous reasons not to buy the above stocks. Disciplined investors, on the other hand, will find success following such a simple investment strategy.
You can build your own portfolio using the stock screens on TheStockMarketBlueprint.com.
Check out our Shadow Stock Portfolios to see real-world examples on how to implement systematic investment strategies.
Mitchell Mauer is the Founder of TheStockMarketBlueprint.com. The Stock Market Blueprint is a site that finds value stocks for investors building long-term wealth. The site’s investment philosophy is anchored in principles established by Benjamin Graham and his most reputable followers over the last 100 years.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
