Wednesday, August 14, 2013

Nortech Systems' Properties And Profits Offered For Free

Nortech Systems (NSYS) is a contract manufacturer of electronic products such as circuit boards and medical devices. The company's customers are original equipment manufacturers (OEMs) in industrial, medical and aerospace/defense markets, in order of importance. The company serves its customers through its facilities in both the US and Mexico.

This is not a glamour industry in any way. The key success factors for electronic manufacturing services (EMS) are efficiency and low cost. But it is often in the boring and mundane industries that the deepest value can be found, particularly when it comes to small caps. Read more...


Anonymous said...

If you're going to talk about "throwing in profits for free," you are well advised to discuss the qualitative merits of this business in the context of its industry. As far as the qualitative fundamentals are concerned, your analysis is relatively bankrupt.

And if you're going to talk about "throwing in property for free," sure. But this is hardly the best bargain out there if you're going to look at non-current assets. Just run a price-to-book screen on Google Finance of 0.66 and you'll find a ton of stocks. No need to "make up" a margin of safety by looking at illiquid assets.

I give this one a C+.

Anonymous said...

You get the business for free and perhaps the properties. Not the "profits." "Profits" are something you have no legal entitlement to as a holder of common stock. You have a residual claim to them. But that's it. If it were otherwise, you'd have some legal entitlement to a dividend. You don't.

Cheri said...

This is fantastic!

Anonymous said...

Thoughts on this now with the chairman passing away?

Saj Karsan said...

Hi Anon3,

I really don't know; I suppose it would depend on the intentions of those who inherit the shares.

Edward J. Roche said...

I have a small position here. I added a bit more following the passing of Mr. Kunin. I systematically track situations of this type where a founder/owner/investor owns more than about 30% of the float. Often stocks of such companies will trade at a discount. When the owner retires or passes, the company is often sold at a significant premium to the market price. Since many of these companies are thinly traded, selling the whole company is often the only way to capture the full value. I term this the Venerable Owner Strategy. NSYS is not a great business, but it appears somewhat undervalued and the estate may move to sell.

Edward J. Roche
President Freedom Mountain Investments

Edward J. Roche said...

Some very strange trading in this stock.

On Nov 18 2.2 million shares traded for Nortech Systems (NSYS). This is for a stock that typically trades less than 10,000 shares a day and often less than 1000. On the prior two days there were also supernormal volumes of roughly 150,000 and 170,000 shares. Of course this all follows the death of Myron Kunin (owner of 1.4 MM shares, 51% of the float) on 10/30 and an earnings report on 11/13 (positive but not earth shaking).

Since the estate of Mr Kunin now controls 1.4 MM shares there are only roughly 1.3 MM shares available to trade on a daily basis. I do not see any way that the estate shares could have been involved in the trading on 11/18. It is too soon for the estate to have made any decision on what they will do with the stake. There are also legal limits on how fast an estate can act to liquidate assets. So it would appear there must have been buying and reselling of large blocks presumably by more than one party not related to the estate.

I have often seen these thinly traded issues spike abnormally when a large buyer comes into the market to accumulate. But this appears to be more complex. Perhaps some computer programs picked up on the large spike in price and share volume and came in. Volume has remained abnormally high since but nothing like 2 MM shares, and is declining now.