Net-Nets & Nevada, Inc.

[motown]

Geoff Gannon may be on this site, but I read on his blog that, "surprisingly", a lot of deep value stocks (i.e., net-nets) that show in up domestic screens are incorporated in Nevada.

 

You are going to see a surprising amount of U.S. listed net-nets that are really companies controlled by Chinese citizens doing business in China. Don’t touch those. You’re also going to see a surprising number of companies incorporated in Nevada. I’m not saying those are frauds. But, I am saying that if you pay close attention to the stocks already in your portfolio – those will tend to be incorporated either in Delaware or in the state the company has long been doing business (where it was founded). If you compare your current portfolio to a blind net-net screen, I think you’ll find the results of that screen will have a greater percentage of companies incorporated in Nevada than your portfolio does.

 

For example, I did a quick search for stocks trading below NCAV with positive earnings that weren't obvious reverse-merger stocks. (The list is not long nowadays.) Nova Lifestyle (NVFY) was one stock that came up.  Their 10-K reveals: incorporated in Nevada.  A little digging inside: a Chinese reverse merger.

 

Is this no coincidence?  Does Nevada law have lax standards that make it easier for potential fraudulent reporting?

 

I wonder if I should just eliminate Nevada stocks from my screens.  Do fellow value investors out there do the same?

 

Any and all insights would be most helpful!

 

 

 

[rb]

Nevada has secrecy laws and lax reporting requirements. If you were running a fraud you would find those appealing.

 

What screener are you using that gives you the option to filter out based state of incorporation?

[motown]

Hey rb,

 

Thanks for the response! I'm not too familiar with this.  I'll have to do some digging.  Do you have some examples of how that helps for fraudulent reporting?

 

I use screener.co

 

 

[rukawa]

Following is list of net-nets incorporated in NV:

Initio, Inc.

eRoomSystem Technologies, Inc.

American International Industries, Inc.

RBC Life Sciences Inc.

SIPP International Industries, Inc.

Totally Green Inc

Giant Motorsports, Inc

Dynacq Healthcare Inc

Cancer Treatment Holdings

Davi Luxury Brand Group Inc

Nitches Inc

 

Incidentally SIPP International has a hilarious website which includes gems such as this:

It has taken a great deal of time to get to where the company is today.  The company has experienced 'the wait and see'  attitude of many sophisticated investors.  They shied away from the company in THE BEGINNING. They were skeptical of a NEW JOURNEY with China Telecommers.  And, now...???  The company has just developed a new, miracle, life-saving product and will do whatever it takes to win this one for their shareholders.  This is one game that will not be called on account of darkness.This is LIFE AS WE KNOW IT.

 

Incidentally I haven't invested in any of these. I tend to invest when I feel the business is "real". Somehow with most American net-nets I mostly never had this feeling. Also every single one of the companies (exception eRoomSystem Tech) in the list above is dark...they are no longer filing. I almost never invest in dark net-nets.

[Cardboard]

If you guys are looking for net-nets, in Canada we have Bri-Chem (BRY): a real business, growing and profitable. Trades at 80% of net-net, P/E of 6, price to book of 0.44 time, market cap of $13 million.

 

Cardboard