Quick Updates on Eight (Mostly) Small Cap Value Stocks

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Quick Updates on Eight Stocks I Hold

Ok I lied.

I don’t hold all 8 stocks anymore.

Just 5 of them.

These are the 8 that I’ve talked about on old school value and follow ups are always nice.

So let’s get into it in alphabetical order.

ADDvantage Technologies Group, Inc. (AEY)

Starting off on the wrong foot here, but ADDvantage Technologies Group, Inc. (NASDAQ:AEY) has been a big disappointment this year.

I say that because although it’s “only” down 10% for the year, it’s fallen about 30% from the top.

My main mistake here is the lack of time and attention I paid to my portfolio throughout the first two quarters of the year.

With trying to improve things at old school value, take care of customers and planning my exit of the corporate world, keeping track of my portfolio certainly wasn’t at the top of my list and the results showed with AEY.

In hindsight, this is easy to say, but looking at the quarterly balance sheet, there are red flags.

  • Cash has dropped
  • FCF is negative in the past 3 quarters
  • Making acquisitions for growth
  • Big increases in short term and long term debt as a percentage
  • No growth in shareholders equity
  • No longer a NCAV stock

And the last part is exclamation because the idea was that despite being in a tough industry where a ton of inventory was needed, AEY was priced below NCAV.

Now, because of the acquisition and the additional debt, NCAV has dropped to $2.11 per share.

To show you the difference, here’s the NCAV calculation from Q1 using the NetNet section of the OSV Analyzer.

Stocks Update
AEY 2014 Q1 NCAV

Here are the latest numbers.

Stocks Update
AEY 2014 Q3 NCAV

Large companies don’t usually change quarter over quarter, but for small caps, they certainly do.

So I’m again learning that being agile with small caps is important.

A positive light is that margins are slowly improving again. Actually, it’s only been one quarter of improvement so I’ll have to keep a close eye on whether to sell with a much smaller profit or to stick it out a little longer since the damage has already been done.

Even when I look at the intrinsic value, it’s ranges from $2 to $2.90 so the current price is in the middle somewhere.

Previous article on AEY: 3 Get to the Point Stock Analysis

Apple Inc. (NASDAQ:AAPL)

Wrote about it the other day.

Check it out.

Friedman Industries (NYSEMKT:FRD)

This is a pick that hasn’t worked out so far.

It’s down 23% so far but the way I reduced risk was to keep the positioning small.

But I’m still waiting on FRD because of the fundamental strength.

Here are the fundamental facts that I like and what allows me to wait.

  • Selling below tangible book value
  • Current ratio of 9.4 and quick ratio of 3.1
  • Hands out special dividends
  • No debt

When management says things like this, it gives me confidence to be able to stick with it another 2 years.

Notwithstanding the current market conditions, the Company believes its cash flows from operations and borrowing capability due to its strong balance sheet are adequate to fund its expected cash requirements for the next 24 months. – FY2015 Q1 10-Q

And here’s a chart that you should check out.

Stocks Update
No Rally for FRD This Year

Despite the short rally for steel companies, FRD was never invited to the party.

The current down cycle has really hurt the company and they are showing negative FCF for the first time in 3 years.

However, the last thing I want to do is value the company at depressed levels and assume it is the new number going forward.

For cyclical stocks, it’s best to take the average over multiple periods instead of assuming that the current numbers are the new norm.

With that, my intrinsic values have gone down from when I first wrote about them.

It’s around the $9-$11 range now.

Previous article on FRD: http://bit.ly/1GmSCUr

InfuSystem Holdings Inc (NYSEMKT:INFU)

Finally some good news to share.

InfuSystem will be announcing results next week so we can see the latest numbers there and see whether the operations of the business has improved.

This is a great business with high quality recurring revenues in the form of renting oncology pumps.

It’s just hidden under a layer of historically bad numbers which have been ironed out by kicking out old management.

Margins are very high and it’s a matter of seeing how the company pulls through and improves it business. All the drama of bad management is behind them, and they’ve been focusing on growth and strategy.

Let’s see how things go next week. The stock has appreciated 90% so far this year.

If signs of improvement continue, there is still more room to grow.

Otherwise, I wouldn’t be surprised to see a big drop if the company disappoints.

Further reading:

Peerless Systems Corp. (NASDAQ:PRLS)

There aren’t many good net nets out there, but that’s what Peerless Systems was for many years.

The difficult part was just waiting.

But this year, the company extracted value by purchasing 80% of Deer Valley Corporation which is a small manufactured home (mobile home) builder.

The full details will be in the next filing, but just going off rough numbers and looking up the balance sheet for Deer Valley Corp, here are my roughly adjusted numbers.

Since the deal was for 80% of the company, I’m just taking 80% of the Deer Valley numbers and adding it to the last PRLS balance sheet minus $3.6m in cash that was used to fund the purchase.

Stocks Update
Estimate Numbers for PRLS after the Merge

Although there are more assets, PRLS now has debt which brings the NCAV down to around $4.

Not a NCAV stock anymore.

Which means that I have to be confident with Deer Valley Corp. I’m not an expert with homes but based on the financials Deer Valley hasn’t been growing.

It’s a big improvement for PRLS over its state prior to the purchase, but I can’t tell how undervalued the purchase was and how attractive it will make PRLS going forward.

So it’s a wait and see until the official filing comes out.

Previous articles on PRLS:

  • Peerless Systems is a Rare Profitable Net Net and my Pick to Click
  • Sold PRLS. A Net Net that Worked Out in One Year.

Retail Holdings NV (OTCMKTS:RHDGF)

I no longer hold RHDGF.

It was quite a big investment when I had it, but I got impatient with it and slowly started selling out and ultimately transferred the money to another investment I had been waiting for.

Actually, OTC Adventures posted about RHDGF last week which sums up the current situation and reminded me to write this update.

With the stock being so illiquid, it will require patience to get back into it.

Whole Foods Market, Inc. (NASDAQ:WFM)

As you can see, I’m not the one for timing because I’m writing this a day before Whole Foods reports.

If you read this before Nov 5th, there’s some relevance. If not, the latest 8-K will be more accurate.

I’ll have to do a real update once the results are out to see how margins are impacted.

There are a lot of performance factors people are watching for.

  • Revenue growth
  • Comparable store sales
  • Margins
  • Store count growth

With so many copycats popping up, it will be interesting to see where WFM stands.

Previous articles on WFM:

  • Whole Foods Market is a BMW. Stop Comparing it to a Kia.
  • Why Whole Foods is Cheap. Take Advantage of Mr Market’s Panic.

Weight Watchers International, Inc. (NYSE:WTW)

I laid out my reason for selling out of WTW in the article Sell Weight Watchers Now. It’s a Value Trap.

My main reason was that I just don’t see how the group meetings will improve. It makes up a majority of business and continues to decline.

In fact, the online services segment is also struggling.

You can see that there’s a fundamental shift in health and weight management when you see every big or small company trying to get into the active wear / monitoring device / free app industry.

WTW is a stock I won’t be repurchasing anytime soon.


Long all stocks at the time of writing except RHDGF, PRLS and WTW

This post was first published at old school value.

You can read the original blog post here Quick Updates on 8 Stocks I Hold.


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