PSB Portfolio Update June 2011

June 21, 2011

Is A Summer Turnaround On The Way?

Today’s officially the first day of summer.  And while the temperature is rapidly rising, you can’t say the same for the stock market.

But it doesn’t mean you should ignore stocks this summer.

As a matter of fact, prolonged periods of selling usually create excellent buying opportunities.  And we’ve seen more than our fair share of down days in the market over the past few weeks… especially in small caps stocks.

So is now the time to buy?

I’ll get back to that in minute.  First, here’s the deal with small caps…

Back when the market was in raging bull mode, small caps were the stocks leading the rally.  So, it makes perfect sense they’re the ones taking the most punishment right now.

In addition, small caps are usually more volatile than large caps.  So, it’s no surprise investors are taking profits as macro conditions appear to be breaking down.

In a nutshell, investors have less appetite for risk these days.  Concerns over a potential economic slowdown and the debt crisis in Europe are prompting investors to play it safe.

That means the money is flowing into bonds, blue chip stocks, and otherwise “safe” investments.  In other words, the risk-off trade is causing money to flow out of small caps.

But don’t worry… this is nothing more than a short-term pullback.

Economists believe the second half of 2011 is going to be much better than the first half.  Growth is expected to accelerate… and corporate profits should rise.  That’s usually a recipe for a bullish stock market.

And when investors flock back into stocks, small caps are going to thrive.

Small company stocks may be taking the brunt of the selloff… but that just makes them more attractive to bargain hunting investors.

Stay tuned.  We 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.

. . . . NetSol Technologies (NASDQ: NTWK) – Buy up to $1.74

Great news for one of the newest additions to our portfolio.

NTWK just announced they’ve been selected to join the Russell Microcap Index.  Talk about getting put on the map!

This means the company will gain instant visibility with money managers and institutional investors on Wall Street.  And funds who track the microcap index will be required to add NTWK to their portfolios.

There’s a good chance these shares will climb higher when the fund buying starts.

And don’t forget, NTWK has been able to post strong earnings despite challenging economic conditions.

Remember, last quarter’s revenue grew by a remarkable 21% year over year.  What’s more, earnings per share screamed higher by 50% over the same period.

We think NTWK shares will rip higher when the market rallies.  If you haven’t done so, grab your shares while they’re still dirt cheap.

. . . . LTX Credence Corp (NASDAQ: LTXC) – Buy up to $9.50

LTXC’s management team is doing a great job this year… exceeding almost all company targets.

Remember, when this trade was first rolled out, we explained demand for their products and expertise is growing rapidly.  And if analyst estimates are on target, we should see some incredible gains in the share price soon.

Now check this out…

LTXC has just increased next quarter’s projected earnings from $0.25 to $0.29 per share.  This pushes projected 2011 earnings growth to over 235%.  Now that’s something to get excited about.

Make no mistake, LTXC has growing momentum… and we see great gains on the horizon.

We’re firmly behind this trade, urging you to strike while the iron is hot!  Pick up shares while they’re still in our buying range.

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

It’s been a tough market, but HCKT keeps setting new highs.  Just what we like to see.

And it’s a great sign for the company going forward.

Relative strength is one of the best indicators of a stock’s ability to move higher.  And HCKT is clearly outperforming the small cap indices of late.

As a matter of fact, HCKT shares recently hit a high of $5.21.  That’s a solid 20% gain during a period of broad market weakness.  The company is continuing to thrive off their most recent earnings report.

And that’s not all…

We feel this is just the start of a great run for HCKT.

You see, if the stock can perform this well in a weak market… wait until the money starts pouring back into small caps.  Investors are sure to buy stocks like HCKT that have performed well during the correction.

Hang on to your HCKT shares for bigger profits ahead.

. . . . FSI International (NASDAQ: FSII) – Hold

FSII hit a bit of rough patch recently.  But don’t worry, we still believe this stock has a bright future.

The company recently preannounced third quarter earnings will come in below expectations.

The problem… they’re seeing lower demand for their products.  And they expect a $3 million hit to revenues… roughly 10% of their forecasted number.  While it’s not a terrible loss, investors hate downside surprises.

Here’s the thing…

This temporary setback is not the company’s fault.  Actually, it’s just a symptom of the earthquake and subsequent nuclear crisis in Japan.

What’s more, the crisis is clearly a non-recurring event.  Once Japan gets back on track, FSII’s product demand should pick up.

Keep in mind, before the Japanese crisis, FSII shares were on a tear.  This is a case of a good company dealing with a bad situation.  Soon enough, the bad situation will pass… and the good company will still be there.

Continue holding your shares of FSII for big upside potential.

Action To Take

• None at this time.

Category: PSB Portfolio Updates