PSB Portfolio Update December 2011

Coming To A Close

2011 is winding down.  And with 2012 right around the corner, there’s still plenty of uncertainty in the market.

Historically, December’s a slow month for the markets.  There’s typically not a lot of big news coming out as traders and investors wind down for the holidays.

Not so this year…

Headlines, particularly out of Europe, are driving a hefty amount of market action.  We’re only halfway through the month and there have already been several noteworthy swings in stocks.

Unfortunately, the Eurozone news has been mostly disappointing.

Early in the month, it seemed European leaders were making progress towards resolving the region’s immediate debt concerns.  But true to form, no concrete plan could be agreed upon… and talks have mostly gone nowhere.

Moreover, concerns over Italy and Spain will continue to weigh on the markets until EU leaders can figure out a reasonable plan of attack.  Frankly, they need to come up with some kind of resolution quickly or their fragile financial system could be in deep trouble.

Don’t worry, there’s also some good news…

The US economy appears to be mending quicker than expected.  And much of the recent economic data has been encouraging.

Most importantly, the biggest gains are being made in the job market.

Over the last few weeks, initial jobless claims have fallen off considerably.  And the numbers are too large for it to be just a byproduct of seasonal noise.  There’s real, meaningful improvement going on.

And that’s a great sign for the US heading into the new year.  Now we just need Europe to get their act together.

One thing’s for sure… it’s going to be an interesting start to 2012.

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.

. . . . Hawaiian Holdings (NASDAQ: HA) – Hold

Despite the volatile market conditions, HA is thriving.  The shares recently reached a new high of $6.41, a solid 8% gain.  It’s a particularly impressive feat these days considering most airlines are getting clobbered.

So what’s going on?

Although air travel is down in general (due to the sluggish economy), HA actually saw an increase in passengers.  In fact, the number of passengers in November increased 4.5% year over year.

What’s more, the company is adding a third daily flight to Los Angeles and additional flights to Japan.

The airline industry may be struggling overall, but HA is clearly bucking the trend.

With the recent move higher, the shares have moved above our buy up to price.  As such, we’re moving HA to a hold.  Hang on for greater gains ahead.

. . . . Ambassadors Group (NASDAQ: EPAX) – Buy up to $5.00

EPAX shares haven’t performed as well as we expected, but it’s not yet time to give up hope.

As a matter of fact, the company recently issued a 6% dividend.

Remember, the reason we recommended EPAX was because we felt it was a solid defensive stock.  Management has a history of paying dividends and buying back shares.

So, while the stock hasn’t seen big gains, we’re still earning income from our position.  And that’s never a bad thing.

Moreover, EPAX is now yielding 5.6%… a significant premium over Treasuries and several corporate bonds.

With the pullback in price, we’re moving our buy up to price to $5.00.  Grab your EPAX shares while they’re trading at dirt cheap prices.

. . . . Krispy Kreme Doughnuts (NYSE: KKD) – Hold

KKD continues to be one of the strongest retail stocks on the market.

Retail spending may not have returned to pre-recession levels, but it hasn’t stopped Krispy Kreme from growing revenues and profits.

Take a look at this…

Third quarter revenues climbed to $98.7 million, a 9.4% year over year rise.  Increases in same store sales and international franchise revenues drove the gains.

Now here’s the really impressive part…

Net income increased by a whopping 97% to $4.7 million.  And EPS doubled from $0.03 to $0.06.

Clearly, consumers aren’t skimping on doughnuts!  And with the end of the year upon us, you can bet there will be plenty of people bringing Krispy Kreme home for the holidays.

Hang on to your shares for bigger profits.

Action To Take

• Move Hawaiian Holdings (NASDAQ: HA) from Buy to Hold
• Move Ambassadors Group (NASDAQ: EPAX) Buy up to price to $5.00