PSB Portfolio Update April 2014

April 17, 2014

The Nasdaq Selloff and Other Market Action

It’s been a fairly volatile few weeks compared to what we’re used to around here.  The overall result has been mostly sideways market action – but individually, several equities and industries have gotten crushed.

Basically, the Nasdaq has taken the most damage, and is down about 4.5% since this time last month.  In comparison, the S&P 500 is down only 0.5% over the same span.

Investors are rotating out of Internet and biotech stocks in particular, which are heavily represented on the Nasdaq exchange.  It appears that last year’s momentum stocks (i.e. the big winners) are being sold off, while weaker sectors and assets from a year ago have become the buying targets.

There are not a whole lot of definitive reasons behind this rotation outside of standard asset allocation theory.  Well, there’s certainly a heightened level of geopolitical risk out there.  However, the domestic economy is looking as strong as ever.

For the most part, our portfolio has held up quite well despite the volatility in small cap names.  That brings me to a point I’d like to make.

I’ve been getting some questions about why we don’t add more stocks trading around $1.  For one, those cheaper stocks tend to be riskier.  You see, if a stock remains below $1 for an extended period, the exchange will force it to de-list or perform a reverse stock split. Reverse stock splits (or delisting) often drive investors from the stock.

Moreover, there have been plenty of excellent opportunities with stocks between $2 and $10 (the range I usually target is $3 to $7, though it varies).  There are simply way more options with stocks above $1.

If you look at our portfolio and our performance history, you can see how much success we’ve had over the last couple years.  While the current strategy is working, I see no reason to change.

That doesn’t mean I won’t pick stocks closer to a $1 at times.  They just aren’t my first choice.

Now, let’s take a closer look at some of our positions.

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.

. . . . Boyd Gaming (NYSE: BYD) – Sell

We’ve had BYD in our portfolio for over a year now and it’s been an excellent choice.  It’s been a winner for us for almost the entire period we’ve held it.  At times, the share price has flirted with $15… we bought the stock at $7.

At current prices, we’re looking at roughly 67% gains.

Here’s the thing…

There’s been a fair amount of volatility in small cap names.  And, we believe it’s time to start taking some profits off the table.  A gaming stock like BYD could become quite volatile in a risk-off environment.

As such, let’s sell out our shares and BYD and collect our solid gains.

. . . . Vonage (NYSE: VG) – Buy up to $4.50

VG has pulled back with the overall selloff of small cap stocks.  Although, the stock is up over 4% on the day as of this writing.

Despite the recent decline, there’s still a lot to like about this company.  For instance, Vonage just launched consumer VoIP services in Brazil.

Brazil is a huge, rapidly growing market.  And, VG is offering an affordable, straightforward solution for calling plans in the country.  This new service could provide a major boost to revenues.

As such – and with the recent drop – we’re lowering our buy up to price to $4.50.  Buy shares of VG up to $4.50 if you haven’t yet done so.

. . . . RadioShack (NYSE: RSH) – Hold

RSH’s plan for a comeback hit a snag this week as lenders are delaying the company’s planned store closing.  The company had planned to close 1,100 stores across the US, but some lenders want more closures, and others apparently want to keep some locations open at a lower rent.

Basically, RSH has to iron out these potential store closings with its lenders.  Ultimately, closing the worst performing stores will be a good thing for RadioShack in the long-run.

In the meantime, there’s going to be some volatility with the shares.  As such, we’re moving RSH from Buy to Hold.  It’s too early to give up on this company, but I don’t want to buy at these levels either.

Let’s hold RSH for now while we wait for management to sort out its comeback plans.

Action To Take

• Sell Boyd Gaming (NYSE: BYD)
• Move RadioShack (NYSE: RSH) from Buy to Hold
• Move Vonage (NYSE: VG) buy up to price to $4.50

 

Category: PSB Portfolio Updates