PSB Portfolio Update August 2011

| August 16, 2011

August 16, 2011

Now What?

It seems like we’ve had more than our fair share of crisis-level selling incidents these past few years.  Whatever happened to the days of sustained bull markets?

Don’t worry – I’m sure we’ll see those days again soon.  In the meantime, how do we deal with the current round of market volatility?

I’ll get back to that in a minute.  First, let’s take a closer look at what’s causing the market’s wild swings…

Most of the time, heavy, fear-based stock selling and extreme volatility is caused by major macroeconomic and political events.

And this recent bout is no different.

We’re seeing a very serious debt crisis in Europe.  Then there’s the whole S&P downgrade fiasco.  And perhaps most importantly, much of the economic data coming out points to a double-dip recession.

All in all, investors felt it was time to exit stocks and head for the relative safety of gold and Treasury bonds.  While most stocks sold off to some extent, small caps and penny stocks got hit the hardest since they’re considered riskier investments.

And even though there’s been a fair amount of buyers returning to the market, penny stocks are still stinging from the selloff.

So what now?

Fortunately, there’s light at the end of the tunnel.

I mentioned earlier that the economic data was mostly bad… but the key word there ismostly.  Some good news has also surfaced in recent weeks.

As a matter of fact, the jobs picture is actually looking a little less gloomy for the first time in months.  Jobless claims are clearly trending in the right direction.  And unemployment is dropping, albeit at a slow rate.

What’s more, many companies are still exceeding revenue and earnings expectations.  For the second quarter, 68% of companies beat revenue expectations and 60% beat earnings expectations.  That hardly seems like a catastrophe to me.

Look, our portfolio has definitely taken one on the chin these past few weeks.  But most of our positions are holding relatively firm.  And we certainly expect momentum to shift back in our favor soon.

Don’t stress… just stick to the plan.  We have good quality penny stocks in our portfolio. And it won’t be long before they’re trending higher again.

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.

. . . . Manitex (NASDAQ: MNTX) – Hold

The overall economy may be slowing down, but MNTX isn’t.  In fact, the company’s on fire!

Check this out…

The company pulled in $37.1 million in revenues in the second quarter.  That’s a massive 90% year over year increase.  The gains were driven by strong demand in the US and internationally.

What’s more, EPS jumped from $0.02 to $0.09 over the same period.  That’s quite the boost to the bottom line.

Here’s the best part…

The company’s backlog of orders grew 27% to $51 million.  With that many orders lined up, MNTX could meet or exceed their guidance despite the slowing economy.

And in an environment when many companies are lowering guidance, it would be a big deal for MNTX to meet their revenue target.

There’s still a lot of upside left in our MNTX position.  Hang on to your shares for bigger profits ahead.

. . . . Summer Infant (NASDAQ: SUMR) – Hold

The poor economic outlook isn’t keeping SUMR down.  In fact, the company actuallyraised guidance last week… right in the face of the market downturn.

Here’s the deal…

Second quarter revenues climbed to $61 million… a solid 23% gain.  The growth was driven by expanded product offerings and penetration into new markets.

Product diversity and expansion into new markets is usually a good thing.  And it’s particularly useful to be diversified in a tough economy.

But the really good news was SUMR’s upward guidance revision.

2011 revenues are projected to fall between $240-$245 million, up from $235 million.  It may not seem like much… but in this challenging economy, it’s a huge deal to raise guidance.

We continue to expect good things from SUMR.  Hold on to your shares for significant upside potential.

. . . . The Hackett Group (NASDAQ: HCKT) – Hold

It was another solid quarter for HCKT as they continue to outperform the vast majority of the consulting industry.

In this type of economy, consulting companies usually struggle to find business… but not HCKT.  As a matter of fact, they’re thriving.

Second quarter revenues reached $58.8 million, a gain of 10% from the same period a year ago.  Plus, the company’s EPS climbed to $0.09, up from $0.08 in 2010.

Neither may seem like a big climb, but it’s very good to see for two reasons.  First, both revenue and earnings were at the high end of guidance.  Second, as I mentioned earlier, it’s a traditionally tough market for consulting… but HCKT seems to be bucking the trend.

What’s more, the company’s actively repurchasing shares.  They bought back $3.6 million worth of shares last quarter.  And management is authorized to buy $3.5 million more.

Keep in mind, stock repurchases are very positive for investors.  And with $19.5 million in cash and no debt, management could decide to buy back even more shares.

Continue holding HCKT.  We think this company has a bright future ahead.

. . . . NetSol Technologies (NASDAQ: NTWK) – Hold

NTWK hit a rough patch after lowering guidance, but there’s good news on the horizon.

The company recently signed a $4 million agreement to implement their software at a China-based customer.  A deal like this is a good way to make investors forget about the lowered guidance.

Moreover, the CEO and president each bought 100,000 shares of the company’s stock on the open market.  Do you think NTWK’s top executives would be investing so much in their company if they weren’t optimistic about the future?

Management is taking the appropriate steps to get the company back on track.  Hang on to your NTWK shares.

. . . . Carriage Services (NYSE: CSV) – Hold

CSV shares haven’t done much lately, but the company did just issue another dividend.

At a roughly 2% yield, the dividend isn’t life-changing, but it’s a positive development for a couple reasons.

First, if the company can issue a dividend, they clearly aren’t hurting for cash.  Second, any additional income we receive in this kind of economy is a good thing.

Continue holding your CSV stock.  The shares have decent upside potential… and they’ll pay a dividend every quarter.

Action To Take

  • None at this time.

Category: PSB Portfolio Updates

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