NCAV Value stocks - Ben Graham

Rainman · 15 June 2015

systematic said:
... Based on general research, I'd suggest that an NCAV that is diluting its shareholder's stake is really worrisome; if the management had some belief in the future of the company, they ought to be buying stock...

Totally agree with that. You want to see a stable share count.

systematic · 7 July 2015

ORS Octagonal Resources, qualifies.

systematic · 19 August 2015

Couple of energy companies qualify...

OEL Otto Energy

NEN Neon Energy

db94 · 3 September 2015

was doing a bit of value searching today:

According to gurufocus:
CSR has a graham number of $3.67 whilst its currently @ $3.18 - note it also has a piotroski f score of 9
BEN has a graham number of $12.48 whilst its currently @ $10.52

gonna look further into them tomorrow

systematic · 20 September 2015

I get $3.56 for CSR and $14.58 for BEN, or thereabouts.

CSR f score = 7 in my book...but as good as a 9 (I don't like a couple of the piotroski definitions...e.g. it misses out on a "1" because it has zero, rather than reducing debt).

Anyway - my main reason for replying was just to alert anyone following along who is not quite familiar with this stuff...the "Graham number" is not the NCAV that is being discussd / posted on in this thread.
CSR and BEN would never qualify under NCAV.

Rainman · 20 September 2015

systematic said:
I get $3.56 for CSR and $14.58 for BEN, or thereabouts.

CSR f score = 7 in my book...but as good as a 9 (I don't like a couple of the piotroski definitions...e.g. it misses out on a "1" because it has zero, rather than reducing debt).

Anyway - my main reason for replying was just to alert anyone following along who is not quite familiar with this stuff...the "Graham number" is not the NCAV that is being discussd / posted on in this thread.
CSR and BEN would never qualify under NCAV.

Systematic, I take it that the performance of ONC has not escaped you. Since you first mentioned it on here back on 20 March 2015, ONC is up 150% - and this is in a market that is down almost -4.5% for the year.

ONC is a great case study of why the NCAV strategy is so surprisingly effective. If you have a portfolio of net-nets - say more than 10 but probably not more than 30 (a number that you'd be hard pressed to find across the world's exchanges anyway) - you only need a couple of stocks to perform like ONC to achieve superior returns.

wjl · 20 September 2015

How does STO stack up at the current time? Tried whizzing through the numbers but on a Sunday evening I'm the walking dead and no PC to access in front of me just this bloody iPhone. W

db94 · 20 September 2015

systematic said:
I get $3.56 for CSR and $14.58 for BEN, or thereabouts.

CSR f score = 7 in my book...but as good as a 9 (I don't like a couple of the piotroski definitions...e.g. it misses out on a "1" because it has zero, rather than reducing debt).

Anyway - my main reason for replying was just to alert anyone following along who is not quite familiar with this stuff...the "Graham number" is not the NCAV that is being discussd / posted on in this thread.
CSR and BEN would never qualify under NCAV.

My apologies!! Will keep looking at your thread and watch none the less

Rainman · 21 September 2015

wjl said:
How does STO stack up at the current time? Tried whizzing through the numbers but on a Sunday evening I'm the walking dead and no PC to access in front of me just this bloody iPhone. W

STO is not a net-net. MGX is a strong net-net because it is currently trading for below the amount of cash and long term deposits on its book.

MGX has cash/cash equivalents and term deposits of $334 million and total liabilities of $106 million.
MGX's current market cap is $191 million. That means theoretically that, if you liquidated MGX tomorrow and paid off all its liabilities, you would get the inventory, property, plant and equipment for free and still walk away with $37 million cash in your pocket.

But before considering MGX as a potential investment, you must first work out what its cash-burn rate is. This is especially important with a highly capital intensive industry like mining which is what MGX is in. I have not worked out MGX's cash-burn rate but looking at its most recent balance sheet, I can see that it is not negligible.

ThirtysixD · 30 October 2015

Once you buy a net net or ncav how long are you supposed to hold it for? I have not read grahams book for years!

I coded a couple of algorithms in Quantopian and noticed that the sample size is incredibly tiny; finding a portfolio of stocks less than 66% is practically impossible. I ended up loosening the criteria to rank stocks according to distance below ncav and then purchasing the top 20.

After my experiment I am starting to doubt the backtests that I have seen as I can't get close to replicating their results (most likely they have made a mistake like not dealing with delisted securities properly). There are periods of market beating returns but when applied to an indiscriminate group drawdowns are severe (more so than other common quantitative value strategy's).

Rainman · 30 October 2015

ThirtysixD said:
Once you buy a net net or ncav how long are you supposed to hold it for?

That's a tough question. Theoretically, it is until the market cap rises at least back up to NCAV. But of course if the company's NCAV deteriorates, it is probably as soon as possible.

ThirtysixD said:
I coded a couple of algorithms in Quantopian and noticed that the sample size is incredibly tiny; finding a portfolio of stocks less than 66% is practically impossible. I ended up loosening the criteria to rank stocks according to distance below ncav and then purchasing the top 20.

Are you searching only in Australia? There are hardly any worthy net-nets here. Try Japan or Hong Kong.

ThirtysixD said:
After my experiment I am starting to doubt the backtests that I have seen as I can't get close to replicating their results (most likely they have made a mistake like not dealing with delisted securities properly). There are periods of market beating returns but when applied to an indiscriminate group drawdowns are severe (more so than other common quantitative value strategy's).

The research on the outperformance of a net-net strategy has been tested and re-tested for 40 years or more. The results are clear: it is a market-beating strategy.

luutzu · 30 October 2015

ThirtysixD said:
Once you buy a net net or ncav how long are you supposed to hold it for? I have not read grahams book for years!

I coded a couple of algorithms in Quantopian and noticed that the sample size is incredibly tiny; finding a portfolio of stocks less than 66% is practically impossible. I ended up loosening the criteria to rank stocks according to distance below ncav and then purchasing the top 20.

After my experiment I am starting to doubt the backtests that I have seen as I can't get close to replicating their results (most likely they have made a mistake like not dealing with delisted securities properly). There are periods of market beating returns but when applied to an indiscriminate group drawdowns are severe (more so than other common quantitative value strategy's).

You guys don't also crack the annual reports open to see close up?

Rainman · 30 October 2015

luutzu said:
You guys don't also crack the annual reports open to see close up?

Always.

ThirtysixD · 30 October 2015

Rainman said:
That's a tough question. Theoretically, it is until the market cap rises at least back up to NCAV. But of course if the company's NCAV deteriorates, it is probably as soon as possible.

Are you searching only in Australia? There are hardly any worthy net-nets here. Try Japan or Hong Kong.

The research on the outperformance of a net-net strategy has been tested and re-tested for 40 years or more. The results are clear: it is a market-beating strategy.

Top 5000 US stocks according to market cap (2002 onwards).

I agree it is market beating.

However in my backtests drawdowns were around 85% in 08/09 erasing gains over a long period. Performance was also highly dependent on the start date chosen (compounding returns tend to run away if stocks went up early).

ThirtysixD · 30 October 2015

luutzu said:
You guys don't also crack the annual reports open to see close up?

Used to but not so much anymore!

Ended up choosing time over accuracy (but thats another discussion)

systematic · 5 November 2015

Just more resource companies...

CHZ Chesser Resources qualifies.

RMP Red Emperor Resources qualifies.

AGS Alliance Resources qualifies.

systematic · 19 January 2016

GRR Grange Resources (yes, just another mining company - that's pretty much all we get here) qualifies as it touches 8.6c.

Think it qualified extremely briefly as an NCAV a few months back (like for a day or two). Probably one of (if not the) biggest market cap / liquid Australian companies mentioned thus far on the thread. And although a miner, it's one of the few posted that have earnings, cash flow etc (has even paid dividends) and a few other "quality" metrics. Like all NCAV's though, it's a long-term play...the current momentum indicates a poor outlook in the near term.

As it's January, if I were an NCAV investor I might wait for annual reports to come out. Maybe. Possibly not though (surprises can be part and parcel of these strategies).

systematic · 10 April 2016

KAR Karoon Gas qualifies.

I've often not bothered posting another mining/energy/biotech company; but mention this one as it's by far the biggest NCAV company I've seen on the ASX.

Rainman · 11 April 2016

systematic said:
KAR Karoon Gas qualifies.

I've often not bothered posting another mining/energy/biotech company; but mention this one as it's by far the biggest NCAV company I've seen on the ASX.

With all net-net resource stocks, you are best to work out their cash-burn rates. If they are using up more cash than they are generating, they will need to borrow or to raise equity. Thereafter, in either case, they are unlikely to remain net-nets.

systematic · 11 April 2016

Thanks Rainman. Yeah, same goes for the cash intensive pharma's. I can't remember where I read it (or if I dreamed it)...that Graham wouldn't be looking for these stocks among these types of companies.

That's why there's not much to report lately. 99% of the time there are only resource/energy/health care companies that come up. Hardly ever a consumer stock etc.

Any further insights on whether you'd invest in these sectors or not?

As per previous thoughts - I think to invest in these I'd go global. More opportunities to build a portfolio. The side effect of going global would also mean you could be just a little more selective about stuff like which sectors etc.

NCAV Value stocks - Ben Graham

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