PSB Portfolio Update January 2009
January 15, 2009
Not the January Effect everyone was looking for in last month’s update
After briefly topping 500 to start the year, the Russell 2000 has been moving steadily lower. Year to date, this index of 2,000 small companies is down 9.3%. Large company stocks aren’t holding up much better. The Dow Jones Industrials and the S&P 500 are both down about 6.5%.
Everyone’s worried the recession will last longer than expected.
Consumer spending’s still falling and falling fast. December retail sales plunged by 2.7%… more than double Wall Street estimates. An economic recovery is off the table until consumers start spending more on products and services (so get out there and start buying things!)
An upturn in consumer spending is not likely to happen anytime soon with unemployment levels rising.
Over 500,000 workers lost their jobs in December. The national unemployment rate jumped to 7.2% (up from 4.6% in 2007). For the year, the economy lost 2.6 million jobs – the most since 1945.
Falling energy prices is further evidence the economy is still weakening.
After hitting a high of $50 last week, the price of oil has dropped 27% this week to below $35 a barrel. Rising U.S. oil inventories show the recession has slashed demand for energy. Demand for crude has now dropped to its lowest level in five years.
On a positive note, the Philadelphia Fed President said he expects the economy to slowly begin recovering in the second half of 2009. Let’s hope he’s right.
Also weighing on the market is corporate profits… or lack of profits.
Earnings season kicked off this week with Alcoa (AA) posting a loss that was three times larger than expected. This is a bad sign since Alcoa’s earnings reports are often seen as setting the tone for the reports that follow.
The good news for us is many of our penny stocks are showing solid gains. Our strategy of finding high quality microcaps that are misvalued by the market is working quite well right now.
Position Updates
. . . GigaMedia (GIGM) – Buy up to $7.50
Our call on GIGM was spot on. The stock recently made a new high at $7.15 for apeak gain of 27% in just seven trading days! Contributing to the move was GIGM’s recent launching of Everest Bets, its new online sports betting product. The cross marketing opportunity is huge because a big chunk of Everest Poker and Everest Casino players also do sports betting.
. . . American Software (AMSWA) – Buy up to $5.88
AMSWA shares have been drifting lower. The shares appear to be reacting to the bleak outlook for consumer spending. Remember, a primary market for the company’s supply chain management software is the retail industry. Look for the shares to move higher when consumer spending levels begin to stabilize.
. . . SunOpta (STKL) – Hold
STKL has been on a tear so far in 2009. The shares reached a new high of $3.88earlier this week for a peak gain of 105%.
. . . eResearch Technology (ERES) – Buy up to $7.00
ERES reached a high of $7.23 last week for a peak gain of 28%. Auriga USA initiated coverage on ERES in December with a Buy rating.
. . . VAALCO Energy (EGY) – Hold
EGY’s recent exploratory activities have expanded the Ebouri field’s productive acreage and recoverable reserves. Management says it still expects production from the Etame block to increase from 20,000 to 25,000 barrels per day by the end of January. The shares reached a new high last week of $8.47 for a peak gain of 96%.
. . . Primedia (PRM) – Hold
PRM reached a new high of $2.50 last week for a peak gain of 242%. Insider buying jumped as corporate executives bought over 100,000 shares in the open market last month.
. . . Questcor (QCOR) – Hold
QCOR’s Acthar® Gel saw a greater than 50% increase in prescriptions for Multiple Sclerosis patients last quarter. The company’s strategy of marketing to MS patients who don’t respond to other forms of treatment is a huge success. The company is expanding their sales force from 15 to 30 representatives as a result. In December, Oppenheimer initiated coverage on QCOR with an Outperform rating. Great news for our shares.
Action To Take
• No changes right now. We’ll keep you updated…
Category: PSB Portfolio Updates
