Times Were Different
Keep in mind, we’d just come off of a market meltdown, which is the major reason there were so many net/nets in 2003. Many were “busted” technology companies reeling from the NASDAQ collapse. Just as a rising tide lifts all boats—which is why there are so few net/nets these days-when the tide recedes, the boats will follow, and often the smaller and weaker ones are most affected.
The average annual return of each of the ten stocks over the period (2/7/03 through 12/29/06) was 33.5 percent. For perspective, the S&P 500 was up an average of 16.9%, the Russell 2000 23.9%, and the NASDAQ Composite 18.4% during the same period. Keep in mind, those comparisons are apples to oranges, as the average market cap of the companies on this list was about $250 million, squarely in microcap land.
The Companies (returns are cumulative, from 2/7/03-12/29/06)
Circuit City (CC) up 299%
Corvis (formerly CORV, now Broadwing(BWNG)) up 116.94%
Enterasys (formerly ETS, acquired 3/2/06) up 1.16%
Silicon Storage (SSTI) up 66.42%
Infocus (INFS) down 56.59%
New Focus (NUFO-acquired 3/8/04) up 56.21% at acquisition
Valueclick (VCLK) up 750%
Audiovoxx (VOXX) up 52.32%
Netratings (NTRT) up 191.35%
National Presto (NPK) up 149.35%
In typical fashion, there was one huge winner, Valueclick, which was extremely beneficial to the average return. Only one of the companies, Infocus, was in negative territory.
What's the lesson here?
If the net/net strategy is to be successful, it needs to be done through the construction of a net/net portfolio, spreading the risk among several names. Seemingly easier said than done these days, with slim pickings among net/nets. Or is it? Stay tuned.
Disclosure: author does not have a position in any of the stocks mentioned in this report.