PSB Portfolio Update February 2011

| February 15, 2011

February 15, 2011

So Far So Good

We’re off to a good start in 2011.  As we expected, the strengthening economy propelled stocks higher to start the year.  And overall, January was a very good month.

The iShares Russell 2000 Index ETF (IWM), a good indicator of small company performance, is already up over 5% this year.  It’s a great sign to see the index up so much in just six weeks.

This bodes well for the rest of the year.

According to the January Barometer, a strong January is great news for stock investors. Basically, history shows when stocks are up in January, they finish the year higher 86% of the time.  Now those are terrific odds in our favor!

So far so good…

But you know what makes it even better?

Small stocks managed these gains despite a fair amount of turmoil around the world.

We’ve seen the crisis in Egypt unfold on national TV.  And there have already been two regime changes in the Middle East.  Keep in mind, this kind of uncertainty normally roils the markets… but it’s barely made a dent.

What’s more, inflation concerns are starting to become widespread.  Food and energy prices are soaring.  And it’s got the public worried about rising prices in general.

But once again, the market is taking it in stride.

You see, right now stock prices are being driven by earnings.  And this quarter’s earnings reports have been mostly positive across the board.  Companies are doing well, so share prices are rising.

That’s great news for us.

Many of the companies in our portfolio are posting impressive earnings.  So, we’re in great shape to benefit from the earnings-driven rally.  I expect big things from our portfolio in the months ahead.

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.

. . . . Group (NASDAQ: WWWW) – Hold

WWWW is rocketing higher!  The shares jumped to a new high of $12.37.  That’s an astonishing 171% gain.

So what’s driving the impressive gains?

Fourth quarter revenues climbed to $37.6 million, a stellar 43% year over year increase.  Even better, non-GAAP net income jumped to $6.6 million, or $0.24 a share. That’s a robust 53% increase.  What’s more, it’s substantially higher than the company’s guidance of $0.16 a share.

Talk about beating expectations…

The gains are being driven by the company’s growing internet service business as well as synergies with the acquisition of

The good news keeps on coming for WWWW – and the shares keep climbing.  Let’s hang on to our shares for bigger gains.

. . . . Manitex (NASDAQ: MNTX) – Hold

MNTX continues to shine.  The share price shot up to a high of $6.50 before pulling back a bit.  That’s an excellent 69% gain in just six weeks.

And I think there is plenty of growth ahead.

As I’ve mentioned before, spending on heavy equipment is on the rise.  The improving global economy is driving this trend.

And that’s great news for us.

MNTX is well positioned overseas and domestically to take advantage of the surge in capital spending.  I expect MNTX’s shares to continue performing at a high level.

Let’s hold on to our shares for greater gains.

. . . . Magnetek (NYSE: MAG) – Hold

MAG is off to a great start.  The shares ran up as high as $2.60 around a week ago.  That gave us a stellar 46% gain right off the bat.

Shares have pulled back a bit from the high.  But it’s nothing to worry about.  Earnings were just released and it’s normal to see some profit taking on the news.

Here’s the key… the numbers look great.

Revenues climbed 36% year over year to over $26 million.  What’s more, earnings jumped to $0.04 per share from a loss of $0.04 a year ago.  Clearly, this company is heading in the right direction.

Even better, much of the company’s sales growth came in the renewable energy market, a trend we’re excited to see.  That’s exactly where the best opportunity for future growth lies.

MAG has excellent growth prospect ahead.  The company’s only just begun tapping into their tremendous potential.

With the shares now trading above our buy up to price, I’m moving MAG from Buy to Hold. Hang on to your shares for bigger profits ahead.

. . . . Commtouch Software (NASDAQ: CTCH) – Hold

CTCH capped off an excellent 2010 with a solid fourth quarter.

Revenues rose to $5.4 million, a solid 34% year over year increase.  What’s more, non-GAAP net income climbed 29% to $1.4 million.  More importantly, non-GAAP earnings per share jumped 50% to $0.06 a share.

CTCH’s acquisition of Command Antivirus helped drive the results.

And investors have taken notice.  The shares hit a high of $4.05… a nice 16% gain.  Not too shabby.

But here’s the best part…

Management expects more strong growth in 2011.  In fact, 2011 revenues are expected to climb by over $22 million.

CTCH is clearly positioned for another great year.

Hang on to your shares for bigger gains ahead.

. . . . MFA Financial (NYSE: MFA) – Hold

MFA remains a rock-solid contributor to our portfolio.

The company just released less than stellar earnings.  But there’s nothing to worry about.

Here’s why…

The slight drop in profits is due to lower interest earned on their MBS portfolio.  But this was done by design.  MFA needed to unwind some of their older positions in order to move in to better opportunities.

This was a good move in my opinion.

Now, management is forecasting a strong first quarter.

What’s more, this minor “setback” in earnings barely even budged the share price.  Keep in mind, many investors are holding MFA for their robust dividends.

As long as the dividends continue flowing, these shares are going to be worth hanging on to.  Let’s continue to do so ourselves.

. . . . Ultra Clean Holdings (NASDAQ: UCTT) – Hold

UCTT continues to impress.  The shares recently hit a high of $13.62.  That’s good for a 51% gain.  Just what we like to see.

As of this writing, we’re seeing a bit of a pullback in the share price.  Earnings were just released and they weren’t quite what investors were hoping for.

However, the news is mostly positive.  Revenue climbed an impressive 65% year over year to $120 million.  And management expects next quarter’s revenue to be as high as $124 million.

Here’s the minor issue…

Earnings took a $730,000 hit ($0.03 a share) due to an increase in California taxes.  Now, we all know California is doing what it can to raise enough money to avoid bankruptcy.  In other words, this is a one-time event brought on by external factors.

There’s nothing wrong with UCTT’s fundamentals or their outlook.  They are simply dealing with a short-term unforeseeable issue.  We still think this company has huge upside potential.  And, we see no reason to sell at these levels.

Let’s continue holding our shares of UCTT.

. . . . China Marine Food Group (AMEX: CMFO) – Hold

CMFO had a rough month.  However, it’s only a temporary setback.  I still like this company moving forward.

Here’s the deal…

As I’m sure you’ve seen by now, several smaller Chinese companies are becoming the targets of short attacks.  CMFO has been loosely mentioned in a few of these attacks. And as expected, it’s causing some fear-driven selling.

I don’t buy it.

Short sellers have found a devious way to make money on Chinese stocks with few outstanding shares.  So, they’re taking full advantage of it while it lasts.  But I see no reason why CMFO is in any real trouble.

In fact, it’s quite the opposite.

The company recently announced their revenues beat guidance.  Sales of the company’s “Hi-Power” beverage came in at $26 million for the year.  Previous guidance was $23 to $25 million.

It sounds to me like business is going strong…

Look, these unwarranted short attacks should eventually subside.  In the meantime, just realize this is a short-term occurrence.  Better days are ahead for CMFO.

For now, we’re going to keep CMFO at a hold.  Hang on to your shares.

Action To Take

  • Move Magnetek (NYSE: MAG) from Buy to Hold

Category: PSB Portfolio Updates

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