NCAV Companies For the Value Investor

One of Benjamin Graham’s most famous techniques is to invest in Net Current Asset Value (NCAV) companies. Such companies tend to be severely beaten down by the market to a point where they may be of more value to the investor if they were completely liquidated; however there is often reason for the depressed pricing, and extreme caution is always necessary when investing in NCAV companies. In Graham’s work, he found great success in investing in a large number of NCAV companies in order to spread the risk through diversification. Many NCAV companies may end up bankrupt or out of business entirely, but those that survive will likely see a very high return.

In today’s market environment, there are not as many NCAV companies to be found as there were in Graham’s days, but there are some.  It is ModernGraham’s recommendation that all value investors engaging in NCAV investing do so with extreme caution and a speculative attitude.  It is highly unlikely any company suitable for the Defensive Investor will be an NCAV company, and it would be unusual to find a company suitable for the Enterprising Investor to be an NCAV company.

Defining An NCAV Company

An NCAV company is one that is currently trading below its net current asset value (NCAV). NCAV is calculated by taking the current assets less the total liabilities, then divide by the number of outstanding shares. The idea is to provide a figure that would represent the company’s value if all of the cash were used to pay off all of the company’s liabilities. It is theoretically possible that investors could purchase all of the shares of an NCAV company, use the company’s cash to pay off the debts, and then have excess cash to return to the investors at a gain.

Leapfrog Enterprises Inc. (LF)

Leapfrog Enterprises is not suitable for either the Defensive Investor or the Enterprising Investor. The company does not currently pay a dividend and it has had unstable earnings over the last five years. However, the company has no long-term debt and currently has a NCAV of $2.49, when it is trading at only $0.97. As a result, the company would appear to be very intriguing for NCAV investors willing to do further research to determine whether the earnings situation can improve.

Delcath Systems Inc. (DCTH)

Delcath Systems is not suitable for either the Defensive Investor or the Enterprising Investor. The company does not currently pay a dividend and it has posted negative earnings per share every year for the last fifteen years. However, the company has no long-term debt and currently has a NCAV of $1.22, when it is trading at only $0.52.  As a result, the company would appear to be somewhat intriguing for NCAV investors willing to do further research, though it is rather concerning that the company has posted a loss for so long.

STR Holdings Inc. (STRI)

STR Holdings is not suitable for either the Defensive Investor or the Enterprising Investor. The company does not currently pay a dividend and it has posted negative earnings per share every year for the last several years. However, the company has no long-term debt and currently has a NCAV of $1.84, when it is trading at only $0.86.  As a result, the company would appear to be somewhat intriguing for NCAV investors willing to do further research, though it is rather concerning that the company has posted a loss for so long.

Aquinox Pharmaceuticals Inc. (AQXP)

Aquinox Pharmaceuticals is not suitable for either the Defensive Investor or the Enterprising Investor. The company does not currently pay a dividend and it has posted negative earnings per share every year for the last several years. However, the company has no long-term debt and currently has a NCAV of $2.80, when it is trading at only $1.72. As a result, the company would appear to be somewhat intriguing for NCAV investors willing to do further research, though it is rather concerning that the company has posted a loss for so long.

Emerson Radio Corporation (MSN)

Emerson Radio is not suitable for either the Defensive Investor or the Enterprising Investor. The company does not currently pay a dividend and while its earnings are in better shape than the other companies on this list, the earnings are decreasing at a rate that concerns the Enterprising Investor. However, the company has no long-term debt and currently has a NCAV of $1.98, when it is trading at only $1.22. As a result, the company would appear to be very intriguing for NCAV investors willing to do further research, and in fact would appear to be the best out of the five listed here.