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Robert Tattersall, CFA, is co-founder of the Saxon family of mutual funds and the retired chief investment officer of Mackenzie Investments.

For quite a number of years, I wrote articles for Report on Business in early December that looked for bargains tossed out by discouraged tax-loss sellers. As a value investor, my preferred strategy to identify these bargains was the classic net-net working capital screen favoured by the original value investor, Benjamin Graham.

These are stocks that trade below the value of current assets minus all liabilities. No value is given to fixed assets or intangibles such as goodwill or patents. In theory, you could sell the current assets at face value, pay off all of the liabilities in full and still have more cash per share remaining in your pocket than the current stock price. And you haven’t even started to liquidate the fixed assets!

The list of candidates ebbs and flows depending on the overall market level and the industry sectors out of favour, but I finally stopped writing on the topic two years ago in December, 2016. The reason was simple: There was only one Canadian name on the list and it was a recurring value trap – wholesale lumber distributor Goodfellow Inc. (GDL-T). At the time, I suggested that the shrinking number of net-net stocks was simply nature’s way of telling us that the Canadian stock market was quite fully valued. In the intervening two years, the S&P/TSX Composite Index traded as much as 7 per cent higher, but it has not been a favourable environment for value investors and the market is now down about 2 per cent from December, 2016.

The recent market turmoil has prompted me to revisit the net-net screen in the hope that a fresh crop of bargains might have emerged. I asked David Sandel of Simcoe Capital in New York to run a screen of global equities that meet this rigorous criterion. As a practical matter, many of these low-priced stocks move in and out of contention on small price changes, so we accept stocks that trade at a premium of up to 20 per cent over net-net.

As of mid-November, the global list contains more than 2,000 names, up from 900 in late 2016. More than half of them are located in Asian markets such as Taiwan, Malaysia and Japan. It will be difficult for an individual investor to participate directly in these markets, but a country-specific ETF with a tilt toward small-cap names would likely capture the value element.

Turning to the Canadian market, there are now 12 candidates that trade within a 20-per-cent premium to net-net working capital – including the perennial Goodfellow. The other names, ranked by increasing valuation discount to net-net (that is, becoming cheaper or more troubled) are:

Hammond Power Solutions Inc. (HPS.A-T), Hardwoods Distribution Inc. (HDI-T), Corridor Resources Inc. (CDH-T), Cathedral Energy Services Ltd. (CET-T), Rocky Mountain Dealerships Inc. (RME-T), Medicure Inc. (MPH-TSXV), Reitmans Ltd. (RET.A-T), Redline Communications Group Inc. (RDL-T), Velan Inc. (VLN-T), Transat A.T. Inc. (TRZ-T), Sprott Resource Holdings Inc. (SRHI-T).

Needless to say, the output from this type of screen is very much a function of the quality of the database. These are often stale-dated – it is important to check the latest quarterly financials on the company website or SEDAR to be sure that you haven’t missed a stock split or corporate reorganization. The good news, though, is that Canadian value investors now have a dozen candidates to research in their quest for a diamond in the rough. The bad news is that all of them have a market capitalization less than $300-million so trading liquidity may be an issue, even for a small investor.

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