(Image: Zen Buddha Silence, by Marilyn Barbone)
October 25, 2020
We continue with examples of Boole’s quantitative investment process in action.
Recently, we looked at the following companies:
G-III Apparel Group, Ltd. (GIII): http://boolefund.com/g-iii-apparel-group-ltd-giii/
Hummingbird Resources Plc. (HUMRF): http://boolefund.com/hummingbird-resources-plc-humrf/
Micropac Industries, Inc. (MPAD): http://boolefund.com/micropac-industries-inc-mpad/
Barrett Business Services, Inc. (BBSI): http://boolefund.com/barrett-business-services-inc-bbsi/
Delta Apparel, Inc. (DLA): http://boolefund.com/delta-apparel-inc-dla/
AdvanSix, Inc. (ASIX): http://boolefund.com/advansix-inc-asix/
Universal Technical Institute (UTI): http://boolefund.com/universal-technical-institute-uti/
Burnham Holdings Inc (BURCA): http://boolefund.com/burnham-holdings-inc-burca/
Select Interior Concepts (SIC): http://boolefund.com/select-interior-concepts-sic/
Manitowoc (MTW): http://boolefund.com/manitowoc-mtw/
Ciner Resources LP (CINR): http://boolefund.com/ciner-resources-lp-cinr/
Global Ship Lease (GSL): http://boolefund.com/global-ship-lease-gsl/
Alico, Inc. (ALCO): http://boolefund.com/alico-inc-alco/
Genco Shipping (GNK): http://boolefund.com/genco-shipping-gnk/
SEACOR Marine (SMHI): http://boolefund.com/seacor-marine-smhi/
Tidewater (TDW): http://boolefund.com/tidewater-tdw/
TravelCenters of America (TA): http://boolefund.com/travelcenters-america-ta/
Teekay Tankers (TNK): http://boolefund.com/teekay-tankers-tnk/
Ranger Energy Services (RNGR): http://boolefund.com/ranger-energy-services-rngr/
Macro Enterprises (Canada: MCR.V): http://boolefund.com/macro-enterprises-mcr-v/
This week, we are going to look at LGL Group, Inc. (LGL). The company designs and manufactures customized electronic components used mainly to control the frequency or timing of electronic signals in communications systems.
LGL has a market cap of $47.7 million, with $22.2 million in cash and no debt as of June 30, 2020. The stock price is $9.15.
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First we screen for cheapness based on five metrics. Here are the numbers for LGL Group:
- EV/EBITDA = 7.30
- P/E = 7.89
- P/B = 1.23
- P/CF = 12.55
- P/S = 1.44
Next we calculate the Piotroski F-Score, which is a measure of the fundamental strength of the company. For more on the Piostroski F-Score, see my blog post here: http://boolefund.com/piotroski-f-score/
LGL Group has a Piotroski F-Score of 6. (The best score possible is 9, while the worst score is 0.) This is OK.
Then we rank the company based on low debt, high insider ownership, and shareholder yield.
We measure debt levels by looking at total liabilities (TL) to total assets (TA). LGL has TL/TA of 9.4%, which is excellent.
Insider ownership is important because that means that the people running the company have interests that are aligned with the interests of other shareholders. At LGL Group, insider ownership is approximately 3.5%. This is OK.
Shareholder yield is the dividend yield plus the buyback yield. At LGL, dividend yield is zero. The buyback yield is zero. Thus, shareholder yield is zero.
Each component of the ranking has a different weight. The overall combined ranking of LGL places it in the top 50 stocks on our screen, or the top 2% of the more than two thousand companies we ranked.
The final step is to study the company’s financial statements, presentations, and quarterly conference calls to (i) check for non-recurring items, hidden liabilities, and bad accounting; (ii) estimate intrinsic value—how much the business is worth—using scenarios for low, mid, and high cases.
See LGL Group’s most recent quarterly report (filed August 2020): http://filings.irdirect.net/data/61004/000156459020039680/lgl-10q_20200630.pdf
Also, check out the following write-up: https://valueinvestorsclub.com/idea/LGL_GROUP_INC/9363632622#description
(To access the link to valueinvestorsclub.com, you may have to create a guest membership, which is free.)
Important Note: The highly successful value investors Mario Gabelli and Marc Gabelli are significant shareholders of LGL. Marc Gabelli is on the board of directors of LGL. The current CEO of LGL, Ivan Arteaga, is also a very successful value investor who previously worked for GAMCO Investors, Inc., which is Mario Gabelli’s investment management firm.
Intrinsic value scenarios:
- Low case: The company may be worth book value, which is $7.42 per share. That’s 19% lower than today’s stock price of $9.15 a share.
- Mid case: EPS (earnings per share) is likely to reach at least $1.50 once the global economy returns to normal (which is likely to happen within the next year or less). With a P/E of 14, LGL would be worth $21 a share, which is about 130% higher than today’s $9.15.
- High case: EPS (earnings per share) may reach at least $2.00 once the global economy returns to normal. With a P/E of 16, LGL would be worth $32 a share, which is about 250% higher than today’s $9.15.
BOOLE MICROCAP FUND
An equal weighted group of micro caps generally far outperforms an equal weighted (or cap-weighted) group of larger stocks over time. See the historical chart here: http://boolefund.com/best-performers-microcap-stocks/
This outperformance increases significantly by focusing on cheap micro caps. Performance can be further boosted by isolating cheap microcap companies that show improving fundamentals. We rank microcap stocks based on these and similar criteria.
There are roughly 10-20 positions in the portfolio. The size of each position is determined by its rank. Typically the largest position is 15-20% (at cost), while the average position is 8-10% (at cost). Positions are held for 3 to 5 years unless a stock approaches intrinsic value sooner or an error has been discovered.
The mission of the Boole Fund is to outperform the S&P 500 Index by at least 5% per year (net of fees) over 5-year periods. We also aim to outpace the Russell Microcap Index by at least 2% per year (net). The Boole Fund has low fees.
If you are interested in finding out more, please e-mail me or leave a comment.
My e-mail: firstname.lastname@example.org
Disclosures: Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Boole Capital, LLC.