TPS Position Update – October 11, 2016

. . . . Ciber Inc. (CBR) – SELL       

We recommended the stock in May at $1.24. Today, it closed at $1.10.

It is time to cut losses and close out your position in Ciber Inc.

The recent runup in tech stocks has not been the proverbial rising tide to lift all boats.  What kept Ciber’s stock from benefitting from the price trend and gaining ground?

Ciber has not recovered from a stinging Q2 loss.  Double digit revenue erosion and wholesale operational changes have been unsettling.

We were clearly anticipating a different performance from the company.  Ciber is in the IT managed services business. It markets software, manages projects, and offers tech consulting.

The focus of the company is now aimed at cost reduction, which we consider prudent.  But in the technology business, where innovation is crucial, cost cutting can easily extinguish innovation.  There can easily be missed opportunities when essential Research and Development budgets dry up.

For Ciber, the ability to fund sales and marketing is equally important.  Budget pressures could impact the company’s ability to compete and secure quality contracts which provide the opportunity for healthy margins.

This worries us.  It is one of the reasons why we believe now is a good time to leave Ciber behind.

. . . . Valhi Inc. (VHI) – SELL 

We recommended the stock in April at $2.17. Today, it closed at $2.14.

What happened?  Why hasn’t Valhi done better?

The problem is with chemical prices in general, and prices for specific chemical in particular.

The chemical business has not turned around and is performing well below last year’s levels.  For the first two quarters, Valhi’s chemical segment’s operating income was $15.7 million, down from $26.1 million for the first two quarters in 2015.

The #1 reason why… sluggish global commodity prices for Titanium Oxide.

As revenue kept slipping, expenses kept piling up.  Valhi was forced to increase operating expenses.  To keep its production facilities safe and in regulatory compliance, it made significant investments in production facilities at a financially awkward time.

At least we pocketed a dividend.  The company paid a $0.02 per share September 22 to stockholders of record as of September 6.

Valhi’s core business is marketing Titanium Oxide products.  Its other divisions are in the component products, waste management and real estate management and development sectors.

Action To Take

• SELL Ciber Inc. (CBR)
• SELL Valhi Inc. (VHI)

Category: TPS Update