How to Use a Net-Net Screener to Find Undervalued Stocks
Net-net investing involves identifying stocks trading below their Net Current Asset Value (NCAV). This guide walks you through the process of using a screener and analyzing companies for your portfolio.
Accessing the Net-Net Screener
Start by accessing a reliable net-net screener like EveryNetNet. These screeners filter stocks based on their NCAV, providing you with a list of companies potentially trading below their liquidation value.
Familiarize yourself with the screener's layout and functionalities. Ensure it covers the markets you're interested in, including international stocks if applicable.
Narrowing Down Your Search
To refine your list, apply additional screening criteria based on your investment strategy and preferences.
Industry Filters
Focus on industries you understand to assess companies more effectively.
Country Filters
Include or exclude countries based on political stability and regulations.
Financial Criteria
Set market cap ranges, debt-to-equity ratios, and P/E ratios.
Qualitative Criteria
Consider management quality, brand reputation, and competitive advantages.
Reviewing the Screened List
Review the refined list to identify companies that align with your investment goals. Create a shortlist by selecting those within your circle of competence and ensuring they meet your criteria.
In-Depth Company Analysis
Conduct a thorough analysis of each company on your shortlist.
Investigating Current Assets
- Cash and equivalents indicate liquidity
- High inventory levels may pose risks
- Accounts receivable should be assessed for collectability
Tip: Cash-rich net-nets are generally safer, while inventory-heavy net-nets may offer higher returns but carry more risk.
Considering Geographic Factors
Geographic location can impact investment risk and return. Consider the following:
- Exclude countries with political instability or weak regulatory environments
- Understand currency risk and tax implications
- Focus on markets where you have better access and understanding
Diversification Strategy
Diversification helps mitigate risks associated with individual companies:
Monitoring Your Portfolio
Regularly monitor your investments to stay informed about company developments and market conditions. Establish clear exit strategies, such as selling when a stock reaches its intrinsic value or if there's a significant deterioration in fundamentals. Rebalance your portfolio as needed.
Conclusion
Using a net-net screener is an effective way to identify undervalued stocks. By applying a systematic approach—refining your search, conducting in-depth analyses, considering geographic factors, diversifying your portfolio, and monitoring your investments—you can uncover opportunities that others might overlook.
Start your net-net investing journey today with EveryNetNet's comprehensive screener and take advantage of the tools available to make informed decisions.