If the Number of Net/Nets is a Contrary Indicator, the Market is in Trouble

by: Jon Heller, CFA

We don't like to sensationalize things, so take this week's title with a grain of salt. Unfortunately, we find the value arena is not offering many choices these days. We feel a little like our friends at Tweedy Browne, who have expressed the same sentiments the past couple of years.

Top Ten Net/Nets by Market Cap
It's slim pickings among the ranks, and we have not seen it this "bad" since our research began in this area several years ago. Case and point, the average market cap of the current top ten is just $55 million! Furthermore, we are not exactly enamored with any of these companies...at this point, anyway.

Trans World Entertainment (NASDAQ:TWMC)
Escala Group (ESCL)
Selectica (SLTC)
Inhibitex (NASDAQ:INHX)
Kaiser Group Holdings (OTCPK:KGHI)
Peak Intl (PEAK)
Bexil (BXL)
Strategic Distribution (STRD)
Pharmos Corp (OTCPK:PARS)
Concord Camera (LENS-OLD)

Why so Few?
The main reason is that the markets have been very strong, and as we've said before, a rising tide lifts all boats. But there may be another reason, and this one is completely related to company financial data.

Companies issue financials four times a year, and typically, the smaller the company, the later the filing. So newer data--in this case, all of which comes from the balance sheet--may not yet be available. (Companies whose balance sheets have improved (remember, the NCAV formula: Current Assets - Current Liabilities-Other Long Term Obligations) relative to their market caps may make the list, but we first need the data to make that determination.) This situation can be more extreme at year-end, as companies typically take longer to produce their 10Ks, than 10Qs. We'll see how this plays out over the next several weeks.

Meanwhile, there are other ways to find value.

Disclosure: The author does not have a position in any of the stocks mentioned this report.