PSB Portfolio Update January 2012

January 19, 2012

We’re off and running…

After a crazy 2011, penny stocks are starting off 2012 on the right foot.  In just the first two weeks of the year, the Russell 2000 has gained more than 3%.

The way I see it, there are three forces driving the market action.

Obviously, Europe’s sovereign debt problems are still front and center.  And unfortunately, they’re still a long way from being solved.  The EuroZone will likely be a headwind for the global economy throughout the year.

The good news is the US economy is doing much better…

In fact, things are improving so fast that US companies are hiring workers left and right. The unemployment rate is now at the lowest level since February 2009.  If the US continues to add jobs at this pace, we could see the economy really pick up steam.

And of course, there’s the wild card… China.

Remember, China’s insatiable demand for raw materials has been a major force in the stock market.  However, for the majority of 2011 China’s been battling high inflation at the expense of economic growth.

Now we’re beginning to see inflation ease and economic growth slow.  In fact, it’s slowed to the point where the Chinese government can move to a more pro-growth policy.  That’s great news…

When China’s economy starts accelerating, it could really light a fire under stocks in China and around the world.

However, the most bullish event of all has nothing to do with Europe, US, or China… Nope, the most exciting development is on a particular chart.

Take a look at this chart of the Russell 2000…

As you can see, the 200-day moving average (gray line) was a strong support zone from June 2009 through August of 2011.  For more than two years, the small cap index rode this support zone higher.

However, support was broken when the index plunged below the 200-day moving average in August. And small cap stocks have struggled to regain their momentum ever since.

In just the last week, the Russell 2000 has again broken through the 200-day moving average.  And this time it’s to the upside!  It’s a clear sign penny stocks are regaining their bullish momentum.

The bottom line is penny stocks are primed to run higher.

However, there’s sure to be a few bumps along the way.  So, be sure to use any pullback to your advantage by adding one or more of our buy recommendations to your portfolio.

Now on to the position updates…

Position Updates

Please Note:  We don’t necessarily update every open position each month.  We focus on the positions experiencing significant news, notable price movement, or a change in recommendation.  Please refer to the Performance page on our website for our current buy, sell, or hold recommendation for any positions not mentioned in the Update.

. . . . Hecla Mining (NYSE: HL), Artio Global Investors (NYSE: ART), Summer Infant (NASDAQ: SUMR), Telecommunication Systems (NASDAQ: TSYT) – Sell

We’ve seen enough of these four stocks.  For one reason or another, they’re not living up to our high expectations.  It’s time to cut them loose.

For instance, one of HL’s mines had a blowout and could be shut down for a year or longer.  That’s just one of the risks investors run when investing in junior mining stocks. The problem is there’s no telling how long this mine will be shut down.  Let’s sell HL now and look for better opportunities.

ART reported assets under management have fallen from $36.2 billion in October to $32.7 billion in November and are down again to $30.4 billion in December.  That’s a big problem for an asset management company.  Customers are clearly pulling their money out, and so are we… Sell ART now.

SUMR dropped a bombshell on investors last week.  They drastically cut their fourth quarter and full year 2011 revenue and earnings guidance.  Look, SUMR has a great product line but they’re not gaining market share like they promised.  The bottom line is management isn’t doing their job.  And we’re not going to stick around while they try figure it out.  Sell SUMR now.

And then there’s Telecommunication Systems… TSYS is a great company with top of the line technology.  But their biggest customer is the US military.  And now defense spending is on the chopping block as Congress tries to cut the deficit.  That’s bad news for companies like TSYS who rely on government contracts.  As a result, TSYS hit our stop loss.  Sell TSYS now to conserve capital.

. . . . Web.com (AMEX: WWWW) – Hold

On a more positive note, WWWW is surging higher once again.  The shares hit a new high of $12.25 a few weeks ago.  That’s good enough for a sweet gain of 51%.  Not too shabby…

Investors are bidding up the shares after WWWW completed the acquisition of Network Solutions.  The acquisition doubles their revenue and triples the size of the customer base.

What’s more, an analyst from JP Morgan recently jumped on the bandwagon with an outperform rating for WWWW.  That’s a big vote of confidence for this fast growing penny stock.  Continue holding WWWW for bigger gains.

. . . . Horsehead Holding (NASDAQ: ZINC) – Hold

ZINC is red hot.  The shares shot through our $9.50 buy up to price.  So, we’re moving ZINC to a hold.

The shares hit a high of $10.85 last week.  That gave us a solid gain of 25%.

Here’s the deal…

The price of special-high-grade zinc has nearly doubled since 2011.  And producers are pushing an additional 7.5 cent per pound premium onto buyers.

However, some buyers aren’t taking the price hikes laying down.  They’re opting to switch to lower grade prime-western zinc priced at premium of only 4 cents per pound.

That’s great news for Horsehead Holding.

They’re one of only two zinc producers in the US who are dedicated to prime-western zinc.  As more galvanizers make the switch to lower priced prime-western zinc, ZINC is sure to benefit from the increased demand.

Hang on to ZINC for greater gains.

. . . . Manitex (NASDAQ: MNTX) – Hold

MNTX recently shot up from around $4.00 to $5.50 almost overnight.  And we’re currently sitting on gains of more than 45%.

I’m expecting MNTX’s revenue and earnings to accelerate quickly as economic growth picks up steam.  And analysts are already increasing their earnings estimates for 2012.

In the last 60 days, full year earnings estimates increased from 47 cents to 49 cents per share.  And they increased again to 50 cents per share in the last week.  This is clearly a good sign for the heavy equipment manufacturer.

Continue holding MNTX for bigger gains ahead.

. . . . Hawaiian Holdings (NASDAQ: HA) – Buy up to $6.25

HA recently announced expansion plans.  They’re adding three new aircraft to the flight schedule.  They’re creating a second Hawaii hub in Kahului.  And they’re restarting direct flights between Maui and Los Angeles.

CEO Mark Dunkerley said, “[t]his investment in our core business here in Hawaii will increase service between Maui and other Neighbor Islands by 25%, and answer a need identified by our kamaaina travelers.”

The Honolulu-based airline is preparing for liftoff on their next phase of growth.  And the best part is we’ve got another opportunity to pick up shares of this growing airline.

The stock has pulled back a bit from the recent high.  It’s now below our $6.25 buy price. But I don’t expect it to stay here for very long.  In fact, the shares are already climbing again.  Grab your shares of HA before it reaches $6.25.

Action To Take

• Sell Hecla Mining (NYSE: HL)
• Sell Artio Global Investors (NYSE: ART)
• Sell Telecommunication Systems (NASDAQ: TSYS)
• Sell Summer Infant (NASDAQ: SUMR)
• Move Hawaiian Airlines (NASDAQ: HA) from Hold to Buy
• Move Horsehead Holding (NASDAQ: ZINC) from Buy to Hold

Category: PSB Portfolio Updates