The Best Of NCAV ALN, CRV, MSN, NTZ, PRLS, PTNT,
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The Best Of NCAV
ALN , CRV , MSN , NTZ , PRLS , PTNT , ZA
Benjamin Graham, the father of value investing, created a metric for investing known as the "Net Current Asset Value" or "NCAV". The calculation is simple: Current Assets minus Total Liabilities. The purpose of this metric is to identify securities which are hovering at or below liquidation value. If the NCAV is greater than the current market cap, the suggestion is that if the company decided to liquidate, it could use its most liquid assets to pay off all debt holders and actually have money left at the end for shareholders to net a gain. These situations are indeed rare, since logically it does not make much sense for ending operations to be a profitable outcome for shareholders. But most of the time, these companies are very small and not followed, which allows the irrational pricing to exist. The purpose of NCAV is to greatly minimize the downside of an investment, so that any positive news will send the stock back to a reasonable valuation. The sweet spot is when the NCAV is above the market cap and the company is profitable.
Stocks that meet the NCAV greater than market cap criterion often do have issues which give them reason to be valued so low, such as cash burn or high potential for fraud. I created a screen based on NCAV and mostly tried to stick with U.S. equities to limit the potential for fraud. Additionally, I made sure that the market cap was above $10 million to ensure enough liquidity to make an investment. I also used a high level view to filter out any very obvious red flags. In the table below you will see the results from the screen: